10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
    
    
to
    
    
    
    
Commission file number:
001-37539
 
 
Global Blood Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
27-4825712
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
181 Oyster Point Boulevard
South San Francisco, CA 94080
(Address of principal executive offices)
(650)
741-7700
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value $0.001 per share
 
GBT
 
The NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes  ☐    No  
As of July 30, 2021, there were 62,412,062 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.
 
 
 

Table of Contents
TABLE OF CONTENTS
 
 
 
 
  
Page
 
  
 
3
 
Item 1.
 
  
 
3
 
 
  
 
3
 
 
  
 
4
 
 
  
 
5
 
 
  
 
7
 
 
  
 
9
 
Item 2.
 
  
 
19
 
Item 3.
 
  
 
28
 
Item 4.
 
  
 
28
 
  
 
28
 
Item 1.
 
  
 
28
 
Item 1A.
 
  
 
28
 
Item 2.
 
  
 
69
 
Item 3.
 
  
 
69
 
Item 4.
 
  
 
69
 
Item 5.
 
  
 
69
 
Item 6.
 
  
 
69
 
  
 
71
 
 
2

Table of Contents
PART I. – FINANCIAL INFORMATION
 
Item 1.
Financial Statements
GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
 
 
  
June 30, 2021
 
 
December 31, 2020
 
 
  
(Unaudited)
 
 
 
 
Assets
  
 
Current assets:
                
Cash and cash equivalents
   $ 419,311     $ 494,766  
Short-term marketable securities
     18,085       66,126  
Accounts receivable, net
     19,544       17,500  
Inventories
     47,991       40,223  
Prepaid expenses and other current assets
     19,928       13,548  
    
 
 
   
 
 
 
Total current assets
     524,859       632,163  
Property and equipment, net
     36,775       37,882  
Operating lease
right-of-use
assets
     49,421       50,722  
Restricted cash
     2,395       2,436  
Other assets, noncurrent
     1,522       799  
    
 
 
   
 
 
 
Total assets
   $ 614,972     $ 724,002  
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
            
Current liabilities:
                
Accounts payable
   $ 9,198     $ 19,078  
Accrued liabilities
     38,904       31,133  
Accrued compensation
     19,330       23,985  
Operating lease liabilities, current
     5,243       4,836  
    
 
 
   
 
 
 
Total current liabilities
     72,675       79,032  
Long-term debt
     149,268       148,815  
Operating lease liabilities, noncurrent
     76,441       79,176  
Other liabilities, noncurrent
     822       822  
    
 
 
   
 
 
 
Total liabilities
     299,206       307,845  
    
 
 
   
 
 
 
Commitments and contingencies
                
Stockholders’ equity:
                
Preferred stock, $0.001 par value, 5,000,000 shares authorized as of June 30, 2021 (unaudited) and December 31, 2020; no shares issued and outstanding
     —         —    
    
 
 
   
 
 
 
Common stock, $0.001 par value, 150,000,000 shares authorized as of June 30, 2021 (unaudited) and December 31, 2020, respectively; 62,379,118 and 61,898,090 shares issued and outstanding as of June 30, 2021 (unaudited) and December 31, 2020, respectively
     62       62  
Additional
paid-in
capital
     1,446,393       1,402,262  
Accumulated other comprehensive loss
     302       302  
Accumulated deficit
     (1,130,991     (986,469
    
 
 
   
 
 
 
Total stockholders’ equity
     315,766       416,157  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 614,972     $ 724,002  
    
 
 
   
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
3

GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share amounts)
 
 
  
Three Months Ended

June 30,
 
 
Six Months Ended

June 30,
 
 
  
2021
 
 
2020
 
 
2021
 
 
2020
 
Product sales, net
   $ 47,555     $ 31,501     $ 86,598     $ 45,619  
Costs and operating expenses:
                                
Cost of sales
     748       377       1,332       512  
Research and development
     51,784       34,085       102,641       73,858  
Selling, general and administrative
     61,093       49,075       120,059       96,736  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total costs and operating expenses
     113,625       83,537       224,032       171,106  
    
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (66,070     (52,036     (137,434     (125,487
Other income (expense):
                                
Interest income
     164       1,514       493       4,370  
Interest expense
     (3,677     (2,282     (7,366     (4,596
Other expenses, net
     (9     (36     (215     (153
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other income, net
     (3,522     (804     (7,088     (379
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
     (69,592     (52,840     (144,522     (125,866
Other comprehensive loss:
                                
Net unrealized gain
(loss)
on marketable securities, net of tax
     (78     12       (259     472  
Cumulative translation adjustment
     259                259           
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive loss
  
$
(69,411  
$
(52,828  
$
(144,522  
$
(125,394
    
 
 
   
 
 
   
 
 
   
 
 
 
Basic and diluted net loss per common share
  
$
(1.12
 
$
(0.86
 
$
(2.32
 
$
(2.06
Weighted-average number of shares used in computing basic and diluted net
loss per common share
    
62,312,418
     
61,116,707
 
   
62,207,328
     
60,952,269
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
4
GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)
 
 
  
Common Stock
 
  
Additional
Paid-

In Capital
 
 
Accumulated
Other
Comprehensive

Income
 
 
Accumulated

Deficit
 
 
Total
Stockholders’

Equity
 
 
  
Shares
 
  
Amount
 
Balance at December 31, 2020
     61,898,090      $ 62      $ 1,402,262     $ 302     $ (986,469   $ 416,157  
Issuance of common stock upon exercise of stock options
     47,763        —          1,110       —         —         1,110  
Issuance of common stock upon vesting of restricted share units, net of shares withheld for employee taxes
     229,087        —          (1,897     —         —         (1,897
Issuance of common stock pursuant to ESPP purchases
     65,110        —          2,558       —         —         2,558  
Stock-based compensation
     —          —          20,378       —         —         20,378  
Net unrealized
loss
on marketable securities
     —          —          —         (181     —         (181
Net loss
     —          —          —         —         (74,930     (74,930
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2021
     62,240,050      $ 62      $ 1,424,411     $ 121     $ (1,061,399   $ 363,195  
Issuance of common stock upon exercise of stock options
     28,575        —          403       —         —         403  
Issuance of common stock upon vesting of restricted share units, net of shares withheld for employee taxes
     110,493        —          (65     —         —         (65
Stock-based compensation
     —          —          21,644       —         —         21,644  
Net unrealized loss on marketable securities
     —          —          —         (78 )     —         (78 )
Cumulative translation adjustment
  
 
—  
 
  
 
—  
 
  
 
—  
 
 
 
259
 
 
 
—  
 
 
 
259
 
Net loss
     —          —          —         —         (69,592     (69,592
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
     62,379,118      $ 62      $ 1,446,393     $ 302     $ (1,130,991   $ 315,766  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
 
5
 
  
 
 
  
 
 
  
 
 
 
Accumulated
 
  
 
 
 
 
 
 
  
 
 
  
 
 
  
Additional
 
 
Other
 
  
 
 
 
Total
 
 
  
Common Stock
 
  
Paid-

In Capital
 
 
Comprehensive

Income
 
  
Accumulated

Deficit
 
 
Stockholders’

Equity
 
 
  
Shares
 
  
Amount
 
Balance at December 31, 2019
     60,644,380      $ 61      $ 1,316,795     $ 754     $ (738,916   $ 578,694  
Issuance of common stock upon exercise of stock options
     33,937        —          967       —         —         967  
Issuance of common stock upon vesting of restricted share units, net of shares withheld for employee taxes
     160,594        —          (2,099     —         —         (2,099
Issuance of common stock pursuant to ESPP purchases
     47,460        —          1,870       —         —         1,870  
Stock-based compensation
     —          —          16,705       —         —         16,705  
Net unrealized gain on marketable securities
     —          —          —         461       —         461  
Net loss
     —          —          —         —         (73,026     (73,026
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2020
     60,886,371      $ 61      $ 1,334,238     $ 1,215     $ (811,942   $ 523,572  
Issuance of common stock upon exercise of stock options
     334,454        —          8,018       —         —         8,018  
Issuance of common stock upon vesting of restricted share units, net of shares withheld for employee taxes
     110,162        —          (74     —         —         (74
Stock-based compensation
     —          —          17,128       —         —         17,128  
Net unrealized gain on marketable securities
     —          —          —         12       —         12  
Net loss
     —          —          —         —         (52,840     (52,840
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
     61,330,987      $ 61      $ 1,359,310     $ 1,227     $ (864,782   $ 495,816  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
6
GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
 
  
Six Months Ended
June 30,
 
 
  
2021
 
 
2020
 
CASH FLOWS FROM OPERATING ACTIVITIES:
  
 
Net loss
   $ (144,522   $ (125,866
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
     2,908       5,577  
Amortization (accretion) of premium (discount) on marketable securities
     112       (61
Non-cash
interest expense
     476       824  
Amortization of operating lease
right-of-use
assets
     1,301       580  
Stock-based compensation
     41,184       32,938  
Changes in operating assets and liabilities:
                
Accounts receivable
     (2,044     (9,834
Inventories
     (6,841     (24,926
Prepaid expenses and other assets
     (7,121     181  
Accounts payable
     (9,730     (4,918
Accrued liabilities
     7,683       (1,326
Accrued compensation
     (4,655     (1,114
Other liabilities
     —         156  
Operating lease liabilities
     (2,328     1,686  
    
 
 
   
 
 
 
Net cash used in operating activities
     (123,577     (126,103
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Purchase of property and equipment
     (1,920     (3,918
Purchase of marketable securities
     —         (57,936
Maturities of marketable securities
     47,670       261,738  
    
 
 
   
 
 
 
Net cash provided by investing activities
     45,750       199,884  
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Proceeds from issuance of common stock in settlement of employee stock purchase plan and exercise of stock options
     4,083       11,000  
Payments of debt issuance costs
     (49     (130
Tax paid related to net share settlement of equity awards
     (1,962     (2,172
    
 
 
   
 
 
 
Net cash provided by financing activities
     2,072       8,698  
    
 
 
   
 
 
 
Effect of exchange rate changes on cash and cash equivalents
     259       —    
Net (decrease)
inc
rease
in cash, cash equivalents and restricted cash
     (75,496     82,479  
Cash, cash equivalents and restricted cash at beginning of period
     497,202       304,632  
    
 
 
   
 
 
 
Cash, cash equivalents and restricted cash at end of period
   $ 421,706     $ 387,111  
    
 
 
   
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
                
Cash paid for interest
   $ 6,788     $ 3,419  
 
7

SUPPLEMENTAL DISCLOSURES OF
NON-CASH
INVESTING AND FINANCING INFORMATION:
  
 
Leasehold improvements paid for by landlord
   $     $ 10,709  
    
 
 
   
 
 
 
Accrued purchase of property and equipment
   $ (36   $ 3,773  
    
 
 
   
 
 
 
Accrued issuance costs
   $ (26   $ (85
    
 
 
   
 
 
 
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH TO THE CONDENSED CONSOLIDATED
BALANCE SHEETS:
  
June 30, 2021
 
 
June 30, 2020
 
Cash
 and
 cash equivalents
   $ 419,311     $ 384,716  
Restricted cash
   $ 2,395     $ 2,395  
    
 
 
   
 
 
 
Total cash and cash equivalents and restricted cash
   $ 421,706     $ 387,111  
    
 
 
   
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
8
GLOBAL BLOOD THERAPEUTICS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization
Global Blood Therapeutics, Inc., or the Company, we, us, or our, was incorporated in Delaware in February 2011 and commenced operations in May 2012. We are a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments that provide hope to underserved patient communities. In late November 2019, we received U.S. Food and Drug Administration, or FDA, accelerated approval for our first medicine, Oxbryta
®
(voxelotor) tablets for the treatment of sickle cell disease, or SCD, in adults and children 12 years of age and older. In early December 2019, we began to make Oxbryta available to patients through our specialty pharmacy partner network. Our principal operations are based in South San Francisco, California, and we operate in one segment.
Need for Additional Capital
In the course of our development activities, we have sustained operating losses and we expect such losses to continue over the next several years. Our ultimate success depends on the outcome of our commercialization of Oxbryta and research and development activities. Since inception through June 30, 2021, we have incurred cumulative net losses of $1.13 billion. We expect to incur additional losses for the foreseeable future to commercialize Oxbryta and conduct product research and development, and expect to potentially raise additional capital to fully implement our business plan. If needed, we intend to raise such capital through borrowings, the issuance of additional equity, and potentially through strategic alliances with partner companies or other transactions. However, if such financing is not available at adequate levels, we will need to
re-evaluate
our operating plans. We believe that our existing cash and cash equivalents and marketable securities will be sufficient to fund our cash requirements for at least 12 months subsequent to the issuance of these financial statements.
2. Summary of Significant Accounting Policies
Basis of Preparation and Presentation of Financial Information
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and, accordingly, the balance sheet as of December 31, 2020, has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of our financial information. The results of operations for the six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the year ending December 31, 2021, or for any other interim period or for any other future year.
The accompanying unaudited interim condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2020, included in our Annual Report on Form
10-K,
filed with the SEC on February 24, 2021.
Use of Estimates
The preparation of the accompanying unaudited interim condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of variable consideration and costs and expenses during the reporting period. We base our estimates and assumptions on historical experience when available and on various factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results could differ from these estimates under different assumptions or conditions.
 
9

Table of Contents
Concentration of Risk
Credit Risk
We invest in a variety of financial instruments and, by our Board approved investment policy, limit the amount of credit exposure with any one issuer, industry or geographic area for investments other than instruments backed by the U.S. federal government.
Major Customers
We have entered into distribution agreements with certain limited specialty pharmacies and specialty distributors. For the six months ended June 30, 2021, our two largest customers represented approximately 85% of our product revenue and approximately 81% of our accounts receivable balance at June 30, 2021.
Major Suppliers
We do not currently have any of our own manufacturing facilities, and, therefore, depend on an outsourced manufacturing strategy for the production of Oxbryta for commercial use and for the production of our product candidates for clinical trials. We have contracts in place with one third-party manufacturer that is approved for the commercial production of Oxbryta and two third-party suppliers that are approved for Oxbryta’s active pharmaceutical ingredient. Although there are potential sources of supply other than our existing manufacturers and suppliers, any new supplier would be required to qualify under applicable regulatory requirements.
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
Significant Accounting Policies
Except as noted below, there have been no material revisions in our significant accounting policies described in Note 2 to the consolidated financial statements included in our Annual Report on Form
10-K
for the year ended December 31, 2020.
Accounting Pronouncements Adopted
In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,
No. 2019-12,
Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes
. The new guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU
2019-12
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and the applicable amendments will be applied on a prospective basis. We adopted ASU
No. 2019-12
in the first quarter of 2021 and applied the guidance prospectively. The only aspect of ASU
2019-12
that is currently applicable to us is the removal of the exception related to intraperiod tax allocation. We began applying the general methodology regarding the intraperiod allocation of tax expense in 2021. After the adoption of ASU
2019-12,
in periods where we have a loss from continuing operations, the amount of taxes attributable to continuing operations will be determined without regard to the tax effect of other items, including changes in unrealized gains related to marketable securities. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
In August 2020, FASB issued ASU
No. 2020-08,
Codification Improvement to Subtopic
310-20,
Receivables – Nonrefundable Fees and Other Costs
. The new guidance states that an entity should reevaluate whether a callable debt security is within scope of Topic
310-20.
ASU
2020-08
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We adopted ASU
No. 2020-08
in the first quarter of 2021 and applied the guidance prospectively. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
Accounting Pronouncement Issued But Not Yet Adopted
In March 2020, FASB issued ASU
No. 2020-04,
Reference Rate Reform (Topic 848)
. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU
2020-04
is optional and may be elected over time as reference rate reform activities occur. We continue to evaluate the impact of the guidance and may apply the elections as applicable as changes occur.
 
10

Table of Contents
3. Fair Value Measurements
Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at f
a
ir value in the consolidated financial statements on a recurring basis (at least annually). Our financial instruments consist of cash and cash equivalents, marketable securities, accounts receivables, accounts payable, accrued liabilities and long-term debt. Long-term debt is reported at amortized cost on our condensed consolidated balance sheets. Cash and cash equivalents, marketable securities and restricted cash are reported at their respective fair values on our condensed consolidated balance sheets. The remaining financial instruments are reported on our condensed consolidated balance sheets at cost that approximate current fair values due to their relatively short maturities.
Assets and liabilities recorded at fair value on a recurring basis in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level
 1
– Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level
 2
– Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level
 3
– Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.
The following table summarizes our financial assets measured at fair value on a recurring basis (in thousands):
 
 
  
June 30, 2021
 
 
  
Total
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
Financial Assets:
                                   
Money market funds
   $ 358,206      $ 358,206      $ —        $ —    
Corporate debt securities
     11,272        —          11,272        —    
U.S. government agency securities
     1,800        —          1,800        —    
U.S. government securities
     5,013        —          5,013        —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Total financial assets
   $ 376,291      $ 358,206      $ 18,085      $ —    
    
 
 
    
 
 
    
 
 
    
 
 
 
   
 
  
December 31, 2020
 
 
  
Total
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
Financial Assets:
  
     
  
     
  
     
  
     
Money market funds
   $ 486,174      $ 486,174      $ —        $ —    
Corporate debt securities
     29,804        —          29,804        —    
U.S. government agency securities
     15,943        —          15,943        —    
Certificates of deposits
     243        —          243        —    
U.S. government securities
     20,136        —          20,136        —    
    
 
 
    
 
 
    
 
 
    
 
 
 
Total financial assets
   $ 552,300      $ 486,174      $ 66,126      $ —    
    
 
 
    
 
 
    
 
 
    
 
 
 
We estimate the fair values of our investments in corporate debt securities, government and government related securities and certificates of deposits by taking into consideration valuations obtained from third-party pricing services. The fair value of our marketable securities classified within Level 2 is based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads,
two-sided
markets, benchmark securities, bids, offers and reference data including market research publications. At June 30, 2021, and December 31, 2020, the weighted average remaining contractual maturities of our Level 2 investments was less than one year and all of these investments are rated
A-1/P-1
or A/A2, or higher, by Moody’s and Standard & Poor’s.
 
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Table of Contents
4.
Available-for-Sale
Securities
Estimated fair values of
available-for-sale
securities are generally based on prices obtained from commercial pricing services. The following table is a summary of
available-for-sale
securities recorded in cash and cash equivalents, restricted cash, or marketable securities in our condensed consolidated balance sheets (in thousands):
 
    
June 30,2021
    
December 31, 2020
 
    
Amortized
    
Unrealized
    
Unrealized
    
Estimated
Fair
    
Amortized
    
Unrealized
    
Unrealized
    
Estimated
Fair
 
    
Cost
    
Gains
    
(Losses)
    
Value
    
Cost
    
Gains
    
(Losses)
    
Value
 
Financial Assets:
                                                                       
Money market funds
   $ 358,206      $ —        $ —        $ 358,206      $ 486,174      $      $ —        $ 486,174  
Corporate debt securities
     11,239        33        —          11,272        29,641        163        —          29,804  
U.S. government agency securities
     1,800        —          —          1,800        15,906        37        —          15,943  
Certificates of deposits
     —          —          —          —          241        2        —          243  
U.S. government securities
     5,003        10        —          5,013        20,036        100        —          20,136  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 376,248      $ 43      $ —        $ 376,291      $ 551,998      $ 302      $ —        $ 552,300  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
The following table summarizes the classification of the
available-for-sale
securities on our condensed consolidated balance sheets (in thousands):
 
    
June 30, 2021
    
December 31, 2020
 
Cash and cash equivalents
   $ 358,206      $ 486,174  
Short-term marketable securities
     18,085        66,126  
    
 
 
    
 
 
 
Total
   $ 376,291      $ 552,300  
    
 
 
    
 
 
 
We do not intend to sell the investments that are in an unrealized loss position, and it is unlikely that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
5. Balance Sheet Components
Inventories
Inventories consist of the following (in thousands):
 
    
June 30, 2021
    
December 31, 2020
 
Raw materials
   $ 9,013      $ 11,273  
Work-in-process
     36,389        26,994  
Finished goods
     2,589        1,956  
    
 
 
    
 
 
 
Total inventories
   $ 47,991      $ 40,223  
    
 
 
    
 
 
 
We have capitalized $408,000 and $557,000 of share-based compensation expense to our inventories for the three months ended June 30, 2021 and 2020, respectively; and $838,000 and $894,000 for the six months ended June 30, 2021 and 2020, respectively. We also have capitalized $45,000 and $141,000 of depreciation expense to our inventories for the three months ended June 30, 2021 and 2020, respectively; and $89,000 and $237,000 for the six months ended June 30, 2021 and 2020, respectively. See Note 8—Share-based Compensation for details on share-based compensation expenses recognized during the three- and
six-months
ended June 30, 2021.
 
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Table of Contents
Property and Equipment
Property and equipment consists of the following (in thousands):
 
    
June 30, 2021
    
December 31, 2020
 
Laboratory equipment
   $ 13,649      $ 11,922  
Computer equipment
     3,241        3,023  
Leasehold improvements
     32,281        32,281  
Construction-in-progress
     456        517  
    
 
 
    
 
 
 
Total property and equipment
     49,627        47,743  
Less: accumulated depreciation and amortization
     (12,852      (9,861
    
 
 
    
 
 
 
Property and equipment, net
   $ 36,775      $ 37,882  
    
 
 
    
 
 
 
Accrued liabilities
Accrued liabilities consist of the following (in thousands):
 
    
June 30, 2021
    
December 31, 2020
 
Accrued research and development costs
   $ 11,976      $ 10,677  
Accrued manufacturing costs
     13,633        9,125  
Accrued professional and consulting services
     4,771        4,107  
Accrued sales deductions
     7,635        6,405  
Other
     889        819  
    
 
 
    
 
 
 
Total accrued liabilities
   $ 38,904      $ 31,133  
    
 
 
    
 
 
 
6. Long-term Debt
Term Loan
On December 17, 2019, we entered into the Loan Agreement, or Term Loan, with funds managed by Pharmakon Advisors LP, which are BioPharma Credit PLC, as collateral agent, Biopharma Credit Investments V (Master) LP, as a lender, and BPCR Limited Partnership, as a lender, and collectively, the Lenders, for a senior secured credit facility consisting of an initial tranche of $75.0 million and the option to draw an additional $75.0 million until December 31, 2020. The first tranche, in the amount of $75.0 million, was funded in connection with the closing date of the Term Loan in December 2019, and the second tranche in the amount of $75.0 million was funded in November 2020.
The Term Loan carries a
72-month
term. The Term Loan bears interest at a floating per annum interest rate equal to 7.00% plus the greater of (a) the
3-month
LIBOR rate and (b) 2%. In the event we default, the interest rate would be 3% above the rate that is otherwise applicable thereto. Interest on amounts outstanding are payable quarterly in arrears. The Term Loan repayment schedule provides for interest only payments for the first 39 months, followed by consecutive equal quarterly payments of principal and interest commencing in March 2023 and continuing through the maturity in December 2025.
We have the option to prepay all or a portion of the borrowed amounts under the Term Loan. If we exercise this option, we must pay a prepayment fee between 1% and 3% of the principal amount being prepaid depending on the timing of the prepayment, or Prepayment Fee. If the prepayment occurs before December 2022, we must also pay an amount equal to the sum of all interest that would have accrued and been payable from date of prepayment through December 2022, or Make Whole Amount. We are obligated to pay an additional fee to the Lenders determined by multiplying the principal amount being paid or prepaid multiplied by 2%, or Paydown Fee, when such payments are made.
In the event of default or change in control, all unpaid principal and all accrued and unpaid interest amounts (if any) become immediately due and payable, at which point, we will be subject to the Prepayment Fee, the Make Whole Amount (if any) and the Paydown Fee. Events of default include, but are not limited to, a payment default, a material adverse change, and insolvency. The obligations under the Term Loan are secured by a first priority security interest in and a lien on substantially all of our assets, subject to certain exceptions.
 
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Table of Contents
Debt issuance costs paid directly to the Lenders of $1.1 million and the other debt issuance costs of $0.5 million were treated as discounts on the Term Loan. These debt discounts along with the Paydown Fee are being amortized or accreted to interest expenses throughout the life of the Term Loan using the effective interest rate method. In addition, we paid the Lenders $1.1 million for the option to draw the additional $75.0 million, which was capitalized as a deferred asset and amortized on a straight-line basis through December 31, 2020. Any remaining unamortized amount was reclassed to debt discount at the time of closing of the second tranche of the Term Loan. We closed the second tranche of the Term Loan in November 2020, and $0.2 million of the unamortized deferred asset related to the option to draw the second tranche was reclassed as the discount on the notes payable. As of June 30, 2021, there were unamortized issuance costs and debt discounts of $1.5 million, which were recorded as a direct deduction from the Term Loan on the condensed consolidated balance sheet.
Future payments of principal and interest on the Term Loan as of June 30, 2021 (in thousands):
 
2021 (six months)
   $ 6,750  
2022
     13,500  
2023
     62,813  
2024
     58,313  
2025
     53,813  
Total minimum payments
     195,189  
    
 
 
 
Less amount representing interest
     (42,189
Less amount representing Paydown Fee
     (3,000
    
 
 
 
Long-term debt, gross
     150,000  
Discount on notes payable
     (1,501
Accretion of Paydown Fee
     769  
    
 
 
 
Long-term debt
   $ 149,268  
    
 
 
 
7. Commitments and Contingencies
Leases
We have operating leases for our headquarters in South San Francisco, where we have office and research and development laboratory facilities, and equipment. Our leases have remaining lease terms of 1 to 10 years. Most of these leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases include renewal options at our election, with renewal terms that can extend the lease term from 1 to 10 years. These optional periods have not been considered in the determination of the
right-of-use
assets, or ROU assets, or lease liabilities associated with these leases as we did not consider it reasonably certain that we would exercise the options.
Lease costs included in operating expense in the condensed consolidated statement of operations and comprehensive loss in relation to these operating leases were $2.4 million and $3.1 million for the three months ended June 30, 2021, and 2020, respectively
;
and $5.6 million and $6.2 million for the six months ended June 30, 2021 and 2020, respectively. Included in these lease costs were variable lease costs, which were not included within the measurement of our operating ROU assets and operating lease liabilities in the amount of $1.2 million and $0.6 million for the three months ended June 30, 2021 and 2020, respectively; and $2.0 million and $1.3 million for the six months ended June 30, 2021 and 2020, respectively. The variable lease cost is comprised primarily of our cost in certain research and development arrangements that contain embedded equipment, and our proportionate share of operating expenses, property taxes, and insurance in relation with our facility lease. These costs are classified as operating lease expense due to our election to not separate lease and
non-lease
components.
 
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Supplemental information related to leases for the period reported is as follows (in thousands, except weighted-average remaining lease term and weighted-average discount rate):
 
    
Six Months Ended
June 30,
 
    
2021
   
2020
 
ROU assets obtained in exchange for new operating lease
   $ —       $ 205  
Cash paid for amounts included in the measurement of lease liabilities
     5,883       2,590  
Weighted-average remaining lease term of operating leases (in years)
     8.7       9.7  
Weighted-average discount rate of operating leases
     8.7     8.7
The majority of our lease costs are driven by our operating lease for our headquarters, where we have office and research and development laboratory facilities.
In March 2017, we entered into a noncancelable operating lease, or Original Lease, for approximately 67,185 square feet of space in South San Francisco, California, or Prior Premises. The Original Lease term commenced in November 2017 as we gained control over physical access to the Prior Premises for a
10-year
period.
In August 2018, we entered into an amendment to the Original Lease, or Lease Amendment, to relocate the leased premises from the Prior Premises to a
to-be-constructed
building consisting of approximately 164,150 rentable square feet of space, or Substitute Premises, when the Substitute Premises were ready for occupancy, or Substitute Premises Payment Commencement Date. The Lease Amendment has a contractual term, or Substitute Premises Term, of 10 years from the Substitute Premises Payment Commencement Date. The Lease Amendment grants us an option to extend the Lease Amendment for an additional
10-year
period. Future minimum rental payments under the Lease Amendment during the
10-year
term are $121.5 million in the aggregate. Under the Lease Amendment, we are obligated to pay to the landlord certain costs, including taxes and operating expenses. The Lease Amendment also provides a tenant inducement allowance of up to $27.9 million, of which $4.1 million, if utilized, would be repaid to the landlord in the form of additional monthly rent with interest applied. As of June 30, 2021, we have capitalized $32.3 million of costs within property and equipment, net for construction of leasehold improvements at the Substitute Premises, which were mostly acquired with the tenant inducement provided under the Lease Amendment.
After relocating to the Substitute Premises, we surrendered and delivered the Prior Premises to the landlord in May 2020, upon which time we had no further obligations with respect to the Prior Premises other than with respect to the Initial Allowance, which we will repay to the landlord in the form of additional monthly rent with interest applied over the term of the Original Lease through November 2027. Upon signing of the Lease Amendment, we
re-evaluated
the remaining useful life of the leasehold improvements at the Prior Premises and started to amortize the leasehold improvements over the remaining period of expected use, resulting in an acceleration of depreciation expenses for approximately $1.9 million and $3.8 million for the three months and six months ended June 30, 2020, respectively. No acceleration of depreciation expense was recorded for the three months and six months ended June 30, 2021.
As of June 30, 2021, the maturities of our operating lease liabilities were as follows (in thousands):
 
Year ending December 31,
  
Amount
 
2021 (six months)
   $ 5,958  
2022
     12,222  
2023
     12,584  
2024
     12,948  
2025
     13,368  
Thereafter
     60,507  
    
 
 
 
Total lease payments
     117,587  
Less: Imputed interest
     (35,903
    
 
 
 
Present value of operating lease liabilities
   $ 81,684  
    
 
 
 
The operating leases require us to share in prorated operating expenses and property taxes based upon actual amounts incurred; those amounts are not fixed for future periods and, therefore, are not included in the future commitments listed above.
 
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Contingencies
In the ordinary course of business, we may be subject to legal claims and regulatory actions that could have a material adverse effect on our business or financial position. We assess our potential liability in such situations by analyzing potential outcomes, assuming various litigation, regulatory and settlement strategies. If we determine a loss is probable and its amount can be reasonably estimated, we accrue an amount equal to the estimated loss.
No losses and no provision for a loss contingency have been recorded to date.
8. Stock-Based Compensation
We have three stock-based compensation plans – the Amended and Restated 2017 Inducement Equity Plan, or 2017 Inducement Plan, the Amended and Restated 2015 Stock Option and Incentive Plan, or 2015 Plan, and the 2012 Stock Option and Grant Plan, or 2012 Plan. As of June 30, 2021, there were 2,006,772 shares reserved under the 2017 Inducement Plan and 4,964,617 shares reserved under the 2015 Plan for the future issuance of equity awards. Upon adoption of the 2015 Plan in July 2015, no new awards or grants are permitted under the 2012 Plan. See Note 10 to the Consolidated Financial Statements included in our Annual Report on Form
10-K
for the year ended December 31, 2020, for additional information related to these stock-based compensation plans.
Stock Options
The following summarizes option activity under the 2017 Inducement Plan, 2015 Plan and 2012 Plan:
 
 
  
Number of
Options
 
  
Weighted-
Average
Exercise Price
 
Outstanding — December 31, 2020
     3,327,330      $ 42.07  
Options granted
     658,480        43.57  
Options exercised
     (76,338      19.82  
Options canceled
     (170,068      52.52  
    
 
 
    
 
 
 
Outstanding — June 30, 2021
     3,739,404      $ 42.32  
    
 
 
    
 
 
 

 
The fair values of stock options granted to employees were calculated using the following assumptions:
 
 
  
Three Months Ended

June 30,
  
Six Months Ended

June 30,
 
  
2021
  
2020
  
2021
  
2020
Expected term (in years)
  
5.3-6.1
  
5.1-6.1
  
5.3-6.1
  
5.1-6.1
Volatility
  
68.1%-72.2%
  
71.0%-71.8%
  
68.1%-72.7%
  
69.6%-71.8%
Risk-free interest rate
  
1.0%-1.1%
   0.4%   
0.9%-1.1%
  
0.4%-1.8%
Dividend yield
                       
 
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Restricted Stock Units
The following table summarizes activity of restricted stock units, or RSUs, granted to employees with service-based vesting under the 2017 Inducement Plan and 2015 Plan and related information:
 
 
  
Number
of RSUs
 
  
Weighted-
Average
Grant Date

Fair Value
 
Non-vested
units — December 31, 2020
     2,210,356      $ 57.80  
RSUs granted
     1,409,417        44.28  
RSUs vested
     (379,635      55.06  
RSUs forfeited
     (302,565      53.34  
    
 
 
          
Non-vested
units — June 30, 2021
     2,937,573      $ 52.13  
    
 
 
          
Market-Condition Awards Granted to Employees
Market-Condition RSU Awards
Beginning in June 2020, the Compensation Committee of our Board of Directors has granted awards of RSUs to certain of our senior management, including our executive officers, under the 2015 Plan, the vesting of which is contingent upon the achievement of three escalating stock price targets, which we refer to as the Market-Condition RSU Awards. Since June 1, 2020, certain awards have been forfeited in connection with employee terminations and new awards have been granted in connection with new appointments, respectively, with awards for up to an aggregate of 
414,700
RSUs outstanding as of June 30, 2021. Upon the achievement of the respective stock price targets, 50% of the RSUs allotted to that tranche will vest, while the remaining 50% will vest on the first anniversary of the date the stock price target was achieved, subject to the employee’s continued employment or other service relationship with us through such vesting date. Under the terms of the awards, if the stock price targets are not achieved for all or some of the tranches on or before June 30, 2024, the unvested awards will be automatically terminated and forfeited. The compensation cost for the RSUs with a market condition is not reversed when the market condition is not satisfied.
The target prices and vesting tranches are set forth in the table below:
 
Stock Price Targets
 
  
Number of Units Allowed
 
  $ 109.20        82,940  
  $ 145.60        145,145  
  $ 182.00        186,615  
The grant date fair value of the Market-Condition RSU Awards was estimated using a Monte Carlo simulation model, which includes variables such as the expected volatility of the Company’s share price and interest rates to generate potential future outcomes. We recognize the related compensation expense on a straight-line basis over the applicable derived service periods, which are the estimated periods of time that would be required to satisfy the market conditions.
The following table summarizes the Market-Condition RSU Awards granted and forfeited during the six months ended June 30, 2021:
 
    
Number
of RSUs
    
Weighted-
Average
Grant Date
Fair Value
    
Weighted-
Average
Remaining
Vesting
Period
(years)
    
Aggregate
Intrinsic
Value
 
Non-vested
market-condition awards — December 31, 2020
     414,700      $ 49.95        1.21           
Granted
     42,400        13.80        2.23           
Forfeited
     (42,400      49.95        0.71           
    
 
 
                            
Non-vested
market-condition awards — June 30, 2021
     414,700      $ 46.26        0.76      $ 14,523  
    
 
 
                      
 
 
 

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The following table summarizes the assumptions used to estimate the fair value of the Market-Condition RSU Awards as of the grant date:
 
Valuation date stock price
   $ 37.20  
Expected term
     3.1 years  
Volatility
     66.6
Risk-free interest rate
     0.3
Dividend yield
         
At June 30, 2021, total unrecognized compensation expense related to
non-vested
Market-Condition RSU Awards was $7.1 million, which is expected to be recognized over their respective remaining derived service periods.
The weighted average remaining derived service period is 
0.76 years. For the three months and six months ended June 30, 2021, we recognized $1.5 million and $4.6
 million, respectively, in stock-based compensation expense related to the Market-Condition RSU Awards. 
Stock-Based Compensation Expense
Total stock-based compensation recognized by function included in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):
 
 
  
Three Months Ended
June 30,
 
  
Six Months Ended
June 30,
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
Research and development
   $ 4,906      $ 3,430      $ 10,216      $ 8,780  
Selling, general and administrative
     15,064        13,141        30,134        24,158  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense
   $ 19,970      $ 16,571      $ 40,350      $ 32,938  
    
 
 
    
 
 
    
 
 
    
 
 
 
9. Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Since we were in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.
The following securities were not included in the diluted net loss per share calculations because their effect was anti-dilutive:
 
 
  
Three Months Ended
June 30,
 
  
Six Months Ended

June 30,
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
Options to purchase common stock
     3,739,404        3,574,452        3,739,404        3,574,452  
Restricted stock units
     3,352,273        2,866,882        3,352,273        2,866,882  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     7,091,677        6,441,334        7,091,677        6,441,334  
    
 
 
    
 
 
    
 
 
    
 
 
 

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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form
10-Q
and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2020, included in our Annual Report on Form
10-K
filed with the Securities and Exchange Commission on February 24, 2021, or our Annual Report.
This discussion and other parts of this Quarterly Report on Form
10-Q
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. In some cases you can identify forward-looking statements by terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this Quarterly Report on Form
10-Q
titled “Risk Factors.” We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements.
Overview
We are a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments that provide hope to underserved patient communities. Founded in 2011, our goal is to transform the treatment and care of sickle cell disease, or SCD, a lifelong, devastating inherited blood disorder that is marked by red blood cell, or RBC, destruction and occluded blood flow and hypoxia, which leads to anemia, stroke, multi-organ failure, severe pain crises, and shortened patient life span. Our mission is driven by the historical lack of understanding, investment and attention given to SCD. Although the fundamental cause of SCD has been understood for decades, therapeutic innovation and access to care has significantly lagged compared to many other rare diseases. For example, there are approximately three times more individuals in the U.S. living with SCD than cystic fibrosis, or CF. However, since the enactment of the Orphan Drug Act passed in 1983, only four drugs have been approved for SCD compared to at least 15 drugs approved for CF. As a result of the lack of treatment options, patients with SCD suffer serious morbidity and premature mortality.
In November 2019, the U.S. Food and Drug Administration, or FDA, granted accelerated approval for our first medicine, Oxbryta
®
(voxelotor) tablets for the treatment of SCD in adults and children 12 years of age and older. Oxbryta, an oral therapy taken once daily, is the first
FDA-approved
treatment that directly inhibits sickle hemoglobin, or HbS, polymerization, the root cause of SCD.
By early December 2019, we began to make Oxbryta available to patients through our specialty pharmacy partner network. In addition, we established GBT Source Solutions
®
, a comprehensive program for patients who are prescribed Oxbryta that provides a wide range of practical, educational and financial support customized to each patient’s needs. In addition, we have focused on securing reimbursement and expanding patient access. By the end of September 2020, one quarter ahead of our goal, we secured broad Oxbryta reimbursement coverage for 90% of lives covered by payers either through published policies or verified patient adjudication. We have now secured
fee-for-service
Medicaid coverage in nearly all 50 states and in the District of Columbia. This includes the top 17 states where over 85% of SCD patients reside.
We have a number of ongoing clinical trials of Oxbryta. The Phase 2a HOPE-KIDS 1 Study, an open-label, single- and multiple-dose trial, is evaluating the safety, tolerability, pharmacokinetics and exploratory treatment effect of Oxbryta in pediatric patients aged 4 to 17 years with SCD. The Phase 3 HOPE-KIDS 2 Study, a post-approval confirmatory study we initiated in December 2019 as a condition of the accelerated approval of Oxbryta in the United States, uses transcranial Doppler, or TCD, flow velocity to seek to demonstrate a decrease in stroke risk in children 2 to 15 years of age. The ActIVe Phase 4 study, a pilot, open-label,
single-arm
study, aims to evaluate the effect of Oxbryta on exercise capacity, as measured by cardiopulmonary exercise testing (CPET) in patients 12 years of age and older with SCD. We are also conducting and expect to conduct additional clinical studies of Oxbryta, including to seek to expand the potential approved product label into younger pediatric populations as well as to study further the efficacy and safety profile of Oxbryta for SCD patients.
 
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In January 2021, the European Medicines Agency, or EMA, accepted for review our Marketing Authorization Application, or MAA, seeking full marketing authorization of Oxbryta to treat hemolytic anemia (which is low hemoglobin due to red blood cell destruction) in SCD patients ages 12 years and older, and the MAA is undergoing standard review by the EMA. In addition, we recently submitted a supplemental New Drug Application, or sNDA, to the FDA seeking accelerated approval to expand the current Oxbryta label to include treatment of SCD in children ages 4 to 11 years, together with a related separate New Drug Application, or NDA, required to seek approval for a pediatric weight-based formulation of Oxbryta. The FDA has a
60-day
filing review period to determine whether the sNDA and the NDA are complete and acceptable for filing and review.
To provide early access prior to potentially receiving additional marketing approval, we have established an expanded access protocol for eligible SCD patients in the United States and an early access program for eligible SCD patients for outside the United States. In addition, we have entered into an exclusive agreement with Biopharma-Middle East and Africa, or
Biopharma-MEA,
to distribute Oxbryta in the six countries that make up the Gulf Cooperation Council, or GCC region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates), where the U.S. approval of Oxbryta can be referenced to allow for access to the medicine while health authorities conduct their reviews.
Beyond Oxbryta, we are engaged in other research and development activities, including clinical programs to potentially develop next-generation treatments for SCD. These programs include inclacumab, a
P-selectin
inhibitor, which is a clinically validated target in SCD, known to reduce the incidence of vaso-occlusive crises, or VOCs, which is in Phase 3 clinical development, and our next-generation hemoglobin polymerization inhibitor, GBT021601, or GBT601, which is in Phase 1 clinical development. We are also engaged in additional preclinical research activities working on new targets.
As part of our efforts to build our pipeline, we regularly evaluate opportunities to
in-license,
acquire or invest in new business, technology or assets or engage in related discussions with other business entities.
We licensed inclacumab from F.
Hoffmann-La
Roche Ltd. and
Hoffmann-La
Roche Inc. (together, “Roche”) under the License Agreement we entered into in August 2018, or Roche Agreement. Prior to licensing inclacumab to us, Roche conducted clinical studies that enrolled more than 700
non-SCD
patients and demonstrated an encouraging pharmacokinetic, safety, and tolerability profile for inclacumab. We expect to be able to leverage the safety data from Roche’s prior clinical studies, as we proceed with our development of inclacumab as a potential treatment to reduce the frequency of VOCs in patients with SCD and to reduce the hospital VOC readmission rate for patients that require inpatient treatment for an initial VOC episode. In July 2021, we announced the initiation of two pivotal Phase 3 clinical trials of inclacumab. One study is a chronic prevention study with the primary endpoint of the rate of VOCs over a
48-week
treatment period, and the other study is focusing on hospital readmissions with the primary endpoint of the rate of readmission to hospitals for VOC within 90 days following an initial hospitalization for a VOC.
We also have an ongoing early-stage collaboration with Syros Pharmaceuticals, Inc., or Syros, under a License and Collaboration Agreement, or Syros Agreement, entered into in December 2019, to discover, develop and commercialize novel therapies for SCD and beta thalassemia. We are currently exploring orally available, small molecule drugs designed to upregulate fetal hemoglobin. Under the Syros Agreement, we have an option to obtain an exclusive worldwide license to develop, manufacture and commercialize any compounds or products resulting from the collaboration, subject to Syros’ option to
co-promote
the first product in the United States.
In addition, we entered into a License Agreement with Sanofi in March 2021, under which we received an exclusive license under certain intellectual property controlled by Sanofi to use, develop, manufacture, commercialize and otherwise exploit certain compounds, including compounds directed against or that modulate one of two specified targets, or Licensed Compounds, for the treatment of human diseases worldwide. We currently intend to explore the Licensed Compounds for the potential treatment of SCD, and we believe the mechanisms are distinct and potentially complementary to that of Oxbryta. In March 2020, the Centers for Disease Control and Prevention, or CDC, declared a global pandemic related to
SARS-CoV-2,
the virus that causes coronavirus disease 2019, or
COVID-19,
and the pandemic has impacted our business, including our commercialization of Oxbryta and our research and development activities. For example, we implemented a temporary work from home policy; temporarily suspended our field team from most
in-person
interactions, including visits to physician offices, clinics and hospitals as well as
in-person
meetings with payors; and temporarily delayed or paused certain research and development activities, including screening and enrollment in all clinical studies sponsored by us. Activities on our clinical trials have since resumed, with measures in place that we believe are appropriate. Notably, the
COVID-19
pandemic has not significantly impacted our supply of Oxbryta. We continue to believe we have an adequate supply of Oxbryta to sustain estimated patient need through 2021, and we are continuing to produce Oxbryta tablets.
We have seen a significant decrease in weekly new patient prescriptions for Oxbryta from a peak in early March 2020, and we expect the rate of new patient prescriptions may remain lower depending on the course of the pandemic. While we intend to resume normal operations as soon as practicable, we do not know for certain the extent or duration of these and other disruptions or the long-term impact on our business. Since
mid-March
2020, when we made the decision to temporarily suspend
in-person
visits to healthcare
 
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professionals, or HCPs, by our field teams, we have been engaging with HCPs and payors through increased use of digital and internet-based education and outreach, and we have more recently increased our
face-to-face
engagements in some settings following appropriate
COVID-19
protocols.
We are not profitable and have incurred losses and negative cash flows from operations each year since our inception. Our net losses were $144.5 million and $125.9 million for the six months ended June 30, 2021, and 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $1.13 billion. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. We had $419.3 million in cash and cash equivalents and $18.1 million in marketable securities as of June 30, 2021.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report.
Results of Operations
Comparison of the Three Months Ended June 30, 2021 and 2020
 
    
Three Months Ended
June 30,
             
    
2021
   
2020
   
$ Change
   
% Change
 
     (in thousands, except percentages)  
Product sales, net
   $ 47,555     $ 31,501     $ 16,054       51
Costs and operating expenses:
        
Cost of sales
     748       377       371       98
Research and development
     51,784       34,085       17,699       52
Selling, general and administrative
     61,093       49,075       12,018       24
  
 
 
   
 
 
   
 
 
   
Total costs and operating expenses
     113,625       83,537       30,088       36
  
 
 
   
 
 
   
 
 
   
Loss from operations
     (66,070     (52,036     (14,034     27
Interest income
     164       1,514       (1,350     (89 %) 
Interest expense
     (3,677     (2,282     (1,395     61
Other expenses, net
     (9     (36     27       (75 %) 
  
 
 
   
 
 
   
 
 
   
Total other income, net
     (3,522     (804     (2,718     338
  
 
 
   
 
 
   
 
 
   
Net loss
   $ (69,592   $ (52,840   $ (16,752     32
  
 
 
   
 
 
   
 
 
   
Product sales, net
Product sales, net was $47.6 million and $31.5 million for the three months ended June 30, 2021 and 2020, respectively. Product sales consist of sales of our only product, Oxbryta, which has been approved by the FDA. The only performance obligation included in our contracts is the delivery of Oxbryta to our customers, which are a limited number of specialty pharmacies and a specialty distributor, or collectively, Customers. Therefore, no allocation of transaction price among performance obligations is necessary. Consequently, the transaction price determined after considering the impacts of variable consideration is recognized at the time control is transferred to our Customers, which is upon delivery of Oxbryta to our Customers.
 
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Because the majority of our sales of Oxbryta have been in the United States and because our Customers have similar variable consideration impacts, we provide revenue numbers on a total basis without further disaggregation. Additionally, we do not have any contract assets or liabilities, other than accounts receivable, related to our sales of Oxbryta. We expect our product revenue to increase year over year as we potentially increase the number of patients on Oxbryta.
The following table summarizes activity with respect to our sales allowances and accruals for the period ended June 30, 2021 (in thousands):
 
    
Rebates, co-payment

assistance, Medicare
Part D coverage gap,
product returns and
distributor fees
    
Prompt payment
discounts and
chargebacks
    
Total
 
Balances at March 31, 2021
   $ 7,010      $ 741      $ 7,751  
Provision related to current period sales
     5,692        2,332        8,024  
Credit or payments made during the period
     (5,067      (2,327      (7,394
  
 
 
    
 
 
    
 
 
 
Balance at June 30, 2021
  
$
7,635
 
  
$
746
 
  
$
8,381
 
  
 
 
    
 
 
    
 
 
 
Cost of sales
Cost of sales of $0.7 million and $0.4 million for the three months ended June 30, 2021, and 2020, respectively, is related to manufacturing costs incurred after FDA approval for the cost of Oxbryta sold. Prior to receiving FDA approval for Oxbryta in November 2019, we recorded all costs incurred in the manufacture of Oxbryta as research and development expense. We expect to sell inventory previously expensed to research and development over approximately the current year, and, accordingly, we expect our costs of product sales of Oxbryta to increase as a percentage of net sales in future periods as we produce and sell inventory that reflects the full cost of manufacturing the product.
Research and development
Research and development expenses consist primarily of costs incurred for the development of Oxbryta and our product candidates, which include:
 
   
employee-related expenses, which include salaries, benefits and stock-based compensation;
 
   
expenses incurred under agreements with consultants, third-party research and manufacturing organizations, and investigative clinical trial sites that conduct research and development activities on our behalf;
 
   
the costs related to production of clinical supplies, including fees paid to contract manufacturers;
 
   
laboratory and vendor expenses related to the execution of nonclinical studies and clinical trials;
 
   
payments upon achievement of certain clinical development and regulatory milestones pursuant to license agreements; and
 
   
facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are performed.
The largest component of our total operating expenses is our investment in research and development activities, including the clinical development of Oxbryta. We allocate research and development salaries, benefits, stock-based compensation and indirect costs to Oxbryta, inclacumab and other product candidates that we may pursue on a program-specific basis.
 
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We expect our research and development expenses will increase in future periods as we continue to invest in research and development activities related to developing Oxbryta and product candidates, and as programs advance into later stages of development and we begin to conduct additional or larger clinical trials. The process of conducting the necessary clinical research to obtain, expand the scope of, and maintain regulatory approval is costly and time-consuming, and research and development is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
The following table summarizes our research and development expenses incurred during the respective periods (in thousands, except percentages):
 
    
Three Months Ended
June 30,
               
    
2021
    
2020
    
$ Change
    
% Change
 
Costs incurred by development program:
           
Oxbryta for the treatment of SCD
   $ 23,623      $ 17,602      $ 6,021        34
Other preclinical programs
     16,714        10,055        6,659        66
Inclacumab for the treatment of SCD
     11,447        6,428        5,019        78
  
 
 
    
 
 
    
 
 
    
Total research and development expenses
   $ 51,784      $ 34,085        17,699        52
  
 
 
    
 
 
    
 
 
    
Research and development, or R&D, expenses increased by $17.7 million, or 52%, to $51.8 million for the three months ended June 30, 2021 from $34.1 million for the three months ended June 30, 2020. The increase was primarily due to an increase of $6.7 million in external costs related to our preclinical research and development programs driven by development activities of preclinical candidates. In addition, there was an increase of $6.0 million in external costs related to our Oxbryta program and an increase of $5.0 million in external costs related to our inclacumab program due to ongoing clinical trial activities. R&D related stock-based compensation expense was $4.9 million for the three months ended June 30, 2021 and $3.4 million for the three months ended June 30, 2020.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of costs incurred in our executive, commercial, finance, corporate development, human resource, information technology, legal, compliance and other general and administrative functions, which include:
 
   
employee-related expenses, which include salaries, benefits and stock-based compensation;
 
   
fees to third-party vendors providing customer support services;
 
   
expenses incurred under agreements with consultants; and
 
   
facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies.
We expense all selling, general and administrative costs in the periods in which they are incurred. We expect our general and administrative expenses to continue to grow as we progress through this early stage of the commercialization of Oxbryta.
Selling, general and administrative, or SG&A, expenses increased by $12.0 million, or 24%, to $61.1 million for the three months ended June 30, 2021 from $49.1 million for the three months ended June 30, 2020. The increase was primarily due to an increase of $9.3 million in professional and consulting services due to increases in medical affairs related activities and marketing expense related to Oxbryta, an increase of $3.9 million in personnel costs due to higher headcount, and an increase of $1.1 million in other general and administrative expenses due to the growth of our operations. The increase was offset by a decrease of $2.3 million in accelerated depreciation expense related to our old South San Francisco headquarters, the Prior Premises. SG&A related stock-based compensation expense was $15.1 million for the three months ended June 30, 2021 and $13.1 million for the three months ended June 30, 2020.
 
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Comparison of the Six Months Ended June 30, 2021 and 2020
 
    
Six Months Ended

June 30,
               
    
2021
    
2020
    
$ Change
    
% Change
 
     (in thousands, except percentages)  
Product sales, net
   $ 86,598      $ 45,619      $ 40,979        90
Costs and operating expenses:
                                   
Cost of sales
     1,332        512        820        160
Research and development
     102,641        73,858        28,783        39
Selling, general and administrative
     120,059        96,736        23,323        24
    
 
 
    
 
 
    
 
 
          
Total costs and operating expenses
     224,032        171,106        52,926        31
    
 
 
    
 
 
    
 
 
          
Loss from operations
     (137,434      (125,487      (11,947      10
Interest income
     493        4,370        (3,877      (89 %) 
Interest expense
     (7,366      (4,596      (2,770      60
Other expenses, net
     (215      (153      (62      41
    
 
 
    
 
 
    
 
 
          
Total other income, net
     (7,088      (379      (6,709      1770
    
 
 
    
 
 
    
 
 
          
Net loss
   $ (144,522    $ (125,866    $ (18,656      15
    
 
 
    
 
 
    
 
 
          
Product sales, net
Product sales, net was $86.6 million and $45.6 million for the six months ended June 30, 2021, and 2020, respectively.
The following table summarizes activity with respect to our sales allowances and accruals for the six months ended June 30, 2021 (in thousands):