RIGEL PHARMACEUTICALS INC (RIGL) FY 2022 MD&A

Overview

We are a biotechnology company dedicated to discovering, developing and providing novel therapies that significantly improve the lives of patients with hematologic disorders and cancer. Our pioneering research focuses on signaling pathways that are critical to disease mechanisms.

Our first product approved by the FDA is TAVALISSE (fostamatinib disodium hexahydrate) tablets, the only approved oral SYK inhibitor, for the treatment of adult patients with chronic ITP who have had an insufficient response to a previous treatment. The product is also commercially available in Europe and UK (as TAVLESSE), and in Canada and Israel (as TAVALISSE) for the treatment of chronic ITP in adult patients.

Our second FDA approved product is REZLIDHIA (olutasidenib) capsules for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation as detected by an FDA-approved test. We began our commercialization of REZLIDHIA (olutasidenib) in December 2022. We in-licensed olutasidenib from Forma with exclusive, worldwide rights for its development, manufacturing and commercialization.

We conducted a Phase 3 clinical trial evaluating fostamatinib for the treatment of wAIHA and announced that we did not file an sNDA for this indication considering the top-line data results and guidance received from the FDA. We announced the completion of the FOCUS Phase 3 clinical trial of fostamatinib for the treatment of hospitalized high-risk patients with COVID-19. Fostamatinib is currently being studied in an NIH/NHLBI sponsored Phase 2/3 trial (ACTIV-4 Host Tissue Trial) for the treatment of COVID-19 in hospitalized patients.

For discussions of recent business updates, please refer to “Part I, Item 1, Business – Business Updates” of this Annual Report on Form 10-K.

Critical Accounting Estimates

The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully described in “Note 1- Description of Business and Summary of Significant Accounting Policies”, in the “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. We believe our critical accounting estimates which require subjective and complex judgments include estimates around our product sales allowances and discounts; estimates around accounting for collaboration arrangements; estimates around the fair value of our stock option awards and the probability of achievement of corporate performance-based milestones for our performance-based stock option awards; and estimates around research and development accruals.

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Product Sales Allowances and Discounts

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Our revenues from product sales are recognized at net sales price when our customers, the specialty distributors, obtain control of our product, which occurs at a point in time, upon delivery to such specialty distributors. Under the revenue recognition guidance, we are required to estimate the transaction price, including variable consideration that is subject to a constraint, in our contracts with our customers. Variable considerations are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Revenue from product sales is recorded net of certain variable considerations which includes estimated government-mandated rebates and chargebacks, PBM rebates, distribution fees, estimated product returns and other deductions.

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Provisions for sales discounts, returns and allowances are provided for in the period the related revenue is recorded. Our estimates are based on available customer and payer data received from the specialty pharmacies and distributors, as well as third-party market research data. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

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Contract Revenues from Collaborations

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In the normal course of business, we conduct research and development programs independently and in connection with our corporate collaborators, pursuant to which we license certain rights to our intellectual property to third parties. The terms of these arrangements typically include payment to us for a combination of one or more of the following: upfront license fees; development, regulatory and commercial milestone payments; product supply services; and royalties on net sales of licensed products.

Upfront License Fees: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from upfront license fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we use judgment in determining the appropriate method of measuring progress for purposes of recognizing revenue from the up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

For arrangements that require us to share in the development costs but to which we do not participate in the co-development work, the portion of the upfront fee attributed to our share in the future development costs is excluded from the transaction price. If such share in the development costs is payable beyond 12 months from the delivery of the corresponding license, a significant financing component is deemed to exist. If a significant financing component is identified, we adjust the transaction price by reducing the upfront fee by the net present value of our share in future development costs over the expected commitment period. Such discounted amount will be reported as a liability in the balance sheet, with a corresponding interest expense being accreted based on a discount rate applied over the expected commitment period.

Development, Regulatory or Commercial Milestone Payments: At the inception of each arrangement that includes payments based the achievement of certain development, regulatory and commercial or launch events, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until uncertainty associated with the approvals has been resolved. The transaction price is then allocated to each performance obligation, on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achieving such development and regulatory milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, and are recorded as part of contract revenues from collaborations during the period of adjustment.

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Product Supply Services: Arrangements that include a promise for future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations.

Sales-based Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate to and if such is the case, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Stock-Based Compensation

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The fair value of our stock option award is estimated on the date of grant using the Black-Scholes option pricing model which considered our stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, volatility, expected term, risk-free interest rate and dividends. We estimate volatility over the expected term of the option using historical share price performance. For expected term, we take into consideration our historical data of options exercised, cancelled and expired. The risk-free rate is based on the US Treasury constant maturity rate. We have not paid and do not expect to pay dividends in the foreseeable future. We use the straight-line attribution method over the requisite employee service period for the entire award in recognizing stock-based compensation expense. We account for forfeitures as they occur.

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We granted performance-based stock options to purchase shares of our common stock which will vest upon the achievement of certain corporate performance-based milestones. We determined the fair values of these performance-based stock options using the Black-Scholes option pricing model at the date of grant. For the portion of the performance-based stock options of which the performance condition is considered probable of achievement, we recognize stock-based compensation expense on the related estimated grant date fair values of such options on a straight-line basis from the date of grant up to the date when we expect the performance condition will be achieved. For the performance conditions that are not considered probable of achievement at the grant date or upon quarterly re-evaluation, prior to the event actually occurring, we recognize the related stock-based compensation expense when the event occurs or when we can determine that the performance condition is probable of achievement. In those cases, we recognize the change in estimate at the time we determine the condition is probable of achievement (by recognizing stock-based compensation expense as cumulative catch-up adjustment as if we had estimated at the grant date that the performance condition would have been achieved) and recognize the remaining compensation cost up to the date when we expect the performance condition will be achieved, if any.

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Research and Development Accruals

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We have various contracts with third parties related to our research and development activities. Costs that are incurred but not billed to us as of the end of the period are accrued. We make estimates of the amounts incurred in each period based on the information available to us and our knowledge of the nature of the contractual activities generating such costs. Clinical trial contract expenses are accrued based on units of activity. Expenses related to other research and development contracts, such as research contracts, toxicology study contracts and manufacturing contracts are estimated to be incurred generally on a straight-line basis over the duration of the contracts. Raw materials and study materials not related to our approved drug, purchased for us by third parties are expensed at the time of purchase.

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We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, such estimates for the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Variations in assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed may result in adjustments in research and development accruals in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our financial condition and results of operations.

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Recent Accounting Pronouncements

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

Results of Operations

Revenues

The following table summarizes revenues from each of our customers who individually accounted for 10% or more (wherein * denotes less than 10%) of the total net product sales and revenues from collaborations:

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Net product sales pertained to sales of our products in the US, net of chargebacks, discounts and fees, government and other rebates and returns. The increase in our net product sales in 2022 compared to 2021 was primarily driven by the increase in quantities sold of TAVALISSE mainly due to the recent sales force expansion and increased in-person engagements, as well as the increase in price per bottle. These increases were partially offset by the increase in revenue reserves mainly due to higher rebates on contracts we entered with certain PBMs, and higher government program rebates. Following the approval by the FDA in December 2022, we commenced the commercialization of REZLIDHIA in the US and recorded net product sales of $0.9 million in 2022.

Following table summarizes our revenues by collaborative partners for the periods presented:

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In 2022, contract revenues from collaborations consisted of $27.6 million in revenue from Kissei primarily related to the $25.0 million regulatory milestones associated with the NDA application and approval of fostamatinib for the treatment of patients with chronic ITP in Japan, and delivery of fostamatinib supplies, $5.7 million in revenue from Medison related to the release of outstanding financing liability associated with the buy-back option, $3.0 million in revenue from Grifols related to the delivery of fostamatinib supplies, royalty revenue and research and development services, $2.0 million in revenue related to our license agreement with Knight, and $0.7 million in revenue related to our license agreement with Lilly. In 2021, contract revenues from collaborations consisted of $66.6 million revenue related to our license agreement with Lilly, $4.0 million revenue related to grant of non-exclusive license of a certain patent to an unrelated third-party company, $1.8 million in revenue related to the achievement of milestone under our collaboration agreement with Daiichi, $3.0 million related to our performance of research and development services and delivery of drug supply under our collaboration agreement with Grifols, $0.3 million related delivery of drug supply to Kissei, and $0.1 million milestone payment under our commercial and license agreement with Medison.

Government contract revenue was related to the income we recognized from the $16.5 million government award granted to us, pursuant to the agreement we entered in January 2021 with the US Department of Defense to support our ongoing Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients. Through December 31, 2022, we recognized $15.0 million of revenue from this award, and we expect to receive the remaining award of $1.5 million, subject to us meeting certain clinical trial events or milestones and approval by the US Department of Defense as specified in the agreement.

Our potential future revenues may include product sales, payments from our collaboration partners and from new collaboration partners with whom we enter into agreements in the future, if any, and from existing government grants and any future grants we may be entitled to, if any, the timing and amount of which is unknown at this time. We cannot currently fully forecast the extent of the impacts that the COVID-19 pandemic may have on our revenues. Our net product sales may be impacted by changes to the government program rebates and new private payer rebate contracts we entered or may enter in the future. As of December 31, 2022, we had deferred revenues of $1.4 million, which we will recognize as revenue upon satisfaction of our remaining performance obligations under our respective collaboration agreements.

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Cost of Product Sales

The cost of product sales includes the cost of inventories sold to specialty distributors and to our collaborative partners. Inventories sold for the periods presented include inventory quantities acquired or produced prior to the FDA approval of the product, and do not reflect the full cost of the inventories sold, since such costs incurred prior to FDA approval were previously expensed and charged to research and development expense. We expect to continue to have a lower cost of product sales as we sell inventory quantities that were acquired or produced prior to the FDA approval of the product, until we sell inventory quantities reflecting the full cost. We expect that this will be the case in the near term, and as a result, our cost of product sales will be less than we anticipate it will be in future periods. As we acquire or produce more FDA approved inventory quantities in the future, our inventory cost in the balance sheet and cost of product sales will increase, reflecting the full cost of acquiring or producing such products. Further, following the approval of REZLIDHIA, we recognize the amortization expense of capitalized intangible asset and royalty on REZLIDHIA sales, within cost of sales.

The increase in cost of product sales in 2022 compared to 2021 was primarily due to increased inventory quantities sold to our specialty distributors and delivery of drug supply pursuant to our supply agreements with our collaborative partners, Grifols and Kissei. In addition, cost of product sales in 2022 increased due to the amortization of capitalized intangible asset and royalty expense associated with REZLIDHIA amounting to $0.2 million.

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Research and Development Expenses

The decrease in research and development expense in 2022 compared to 2021 was mainly due to the decrease in personnel-related costs of $3.5 million and decrease in various research and development expenses including allocated facilities and laboratory costs of $3.9 million, primarily as a result of the restructuring of our early-stage research department in November 2021 and certain development personnel in October 2022. Further, research and development costs decreased by $4.3 million on our COVID-19 study, and $3.5 million on our AIHA study, primarily due to timing of activities related to such studies. These decreases were partially offset by the increase of research and development of $5.8 million in our IRAK 1/4 inhibitor program, and the $4.5 million upfront and pre-regulatory approval milestone payments to Forma recorded as research and development expense in 2022.

Our research and development expenditures include costs related to preclinical and clinical trials, scientific personnel, supplies, equipment, consultants, sponsored research, stock-based compensation, allocated facility costs, and upfront payment related to our in-licensed agreement with Forma. We expect to continue to incur significant research and development expense as we continue our activities in our clinical studies including our IRAK 1/4 inhibitor program. In July 2022, we completed the enrollment of the FOCUS Phase 3 clinical trial of fostamatinib for the treatment of hospitalized high-risk patients with COVID-19 and on November 1, 2022, we announced the top-line results did not meet statistical significance in the primary efficacy endpoint. We are evaluating the opportunity and discussing next steps with the FDA and in collaboration with our partner, the US Department of Defense. Our Phase 3 clinical trial for hospitalized COVID-19 patients is partially funded by the award granted to us by the US Department of Defense as discussed above. Our Phase 3 wAIHA study completed enrollment in November 2021 and in June 2022, we announced that the top-line results did not demonstrate statistical significance in the primary efficacy endpoint. In October 2022, we announced that we received guidance from the FDA’s further review of these findings. Based on the result of the trial and the guidance from FDA, we did not file an sNDA for this indication.

Following our agreement with Forma to acquire exclusive license to develop, manufacture and commercialize olutasidenib, we recorded the upfront payment of $2.0 million as in-process research and development (IPR&D), and included such amount within research and development expense in 2022. As specified in the agreement, Forma is entitled to receive future potential development and regulatory milestones. Milestone payment obligations incurred at development stage or prior to a regulatory approval are recorded as research and development expenses. In 2022, we also recorded $2.5 million development milestone incurred prior to regulatory approval of the product as research and development expense. For further discussions, see “Note 4 - Sponsored Research and License Agreements and Government Contract” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Further, we may incur research and development costs as we continue to pursue strategic actions to further develop olutasidenib for the treatment of other malignancies.

In November 2021, we exited our early-stage research to focus our resources on our mid to late-stage development programs and our commercialization efforts. In October 2022, we announced further reduction in our workforce resulting to elimination of certain positions primarily in development as well as administration group. We continue to expect cost savings on our research and development costs because of this reduction in workforce. We believe that this strategy strengthens our ability to execute on near-term value drivers, such as growing ITP sales, expanding the addressable market for fostamatinib and olutasidenib, and advancing our other clinical trials.

Currently, we cannot fully forecast the scope of the evolving effects that the COVID-19 pandemic may have on our ability to continue to treat patients enrolled in our trials, enroll and assess new patients, supply study drug, obtain complete data points in accordance with the study protocol, and overall impact on, and timing of, clinical trial results.

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We do not track fully burdened research and development costs separately for each of our drug candidates. We review our research and development expenses by focusing on three categories: research, development, and other. Our research team is focused on identifying and evaluating product candidates in our focused range of therapeutic indications that can be developed into small molecule therapeutics in our own proprietary programs or with potential collaborative partners. “Research” expenses relate primarily to personnel expenses, lab supplies, fees to third party research consultants and compounds. Our development group leads the implementation of our clinical and regulatory strategies and prioritizes disease indications in which our compounds may be studied in clinical trials. “Development” expenses relate primarily to clinical trials, personnel expenses, costs related to our regulatory filings, lab supplies and fees to third party research consultants. “Other” expenses primarily consist of allocated facilities costs and allocated stock-based compensation expense relating to personnel in research and development groups. “Other” expenses also include the upfront payment to Forma and pre-regulatory approval milestone recorded as research and development expense in 2022.

In addition to reviewing the three categories of research and development expenses described in the preceding paragraph, we principally consider qualitative factors in making decisions regarding our research and development programs, which include enrollment in clinical trials and the results thereof, the clinical and commercial potential for our drug candidates and competitive dynamics. We also make our research and development decisions in the context of our overall business strategy, which includes the evaluation of potential collaborations for the development of our drug candidates.

We do not have reliable estimates regarding the timing of our clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes. In general, biopharmaceutical development involves a series of steps, beginning with identification of a potential target and including, among others, proof of concept in animals and Phase 1, 2 and 3 clinical trials in humans. Significant delays in clinical testing could materially impact our product development costs and timing of completion of the clinical trials. We do not know whether planned clinical trials will begin on time, will need to be halted or revamped or will be completed on schedule, or at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, delays from scale up, delays in reaching agreement on acceptable clinical trial agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a clinical trial at a prospective clinical site or delays in recruiting subjects to participate in a clinical trial.

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We currently do not have reliable estimates of total costs for a particular drug candidate to reach the market. Our potential products are subject to a lengthy and uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval.

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The following table presents our total research and development expenses by category:

“Other” expenses in 2022, 2021 and 2020 consisted of allocated facilities costs of $5.0 million, $5.8 million and $6.0 million, respectively, and allocated stock-based compensation expense of $2.2 million, $1.7 million and $2.1 million, respectively. “Other” expenses in 2022 also included upfront payment and pre-regulatory approval milestone amounting to $4.5 million related to our in-license agreement with Forma. In 2022 and 2021, a major portion of our total research and development expense was associated with our COVID-19, AIHA and IRAK programs,

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personnel-related costs of our research and development personnel and allocated facilities costs.

Selling, General and Administrative Expense

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Stock-based compensation expense recorded within selling, general and administrative expense in 2022 include incremental charges of approximately $1.4 million due to stock option modifications related to the extension of exercise period of the of the outstanding vested stock options of two former members of our Board of Directors whose terms expired in May 2022, and acceleration of vesting and extension of exercise period of outstanding vested stock options of a former officer whose employment ended in October 2022.

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The increase in selling, general and administrative expense in 2022 compared to 2021 was mainly due to the increase in personnel-related costs of $8.0 million, increase in costs of commercial activities of $5.7 million, increase in trainings, conferences and travel related costs of $3.4 million, and increase in other various sales, general and administrative costs of $0.6 million, primarily as a result of our commercial expansion. In addition, stock-based compensation expense increased by $2.9 million primarily due to incremental charges from stock option modifications as discussed above, and higher stock-based compensation expense due to timing of achievement of our performance-based stock option awards.

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We expect our selling, general and administrative expenses to increase as we continue to expand our commercial activities on TAVALISSE, as well as commercialization of REZLIDHIA. As discussed above, in October 2022, we announced a reduction in our workforce resulting to elimination of certain positions in our administrative group. We expect some cost savings on our general and administrative costs in the future because of such reduction in workforce. In response to the limitations on in-person office visits due to evolving effects of COVID-19 pandemic, we may continue to deploy resources to enable our field-based employees to continue to engage virtually with healthcare providers as needed. The virtual engagements have enabled our field team to support existing prescribers as well as partner with new prescribers to identify appropriate patients for our product. However, we are not currently able to fully forecast the scope of impacts that the COVID-19 pandemic may have on our commercial activities and sales of our product.

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Restructuring charges

In October 2022, we announced a reduction in our workforce primarily in our development and administration groups. We recorded restructuring charges of $1.3 million in the statements of operations for the year ended December 31, 2022, comprised cash severance, bonus and related employee benefits and taxes of affected employees.

In November 2021, we announced a reduction in our workforce resulting in the elimination of positions primarily in the research organization. We recorded restructuring charges of $3.5 million in the statements of operations in 2021, comprised $2.9 million cash severance, bonus and related taxes of affected employees, $0.4 million of stock-based compensation expense related to modification of stock options and $0.1 million impairment of certain property and equipment which was recorded within depreciation expense14.

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Interest Income and Expense

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Interest income consists primarily of interest earned from our interest-bearing cash equivalents and short-term investments. The increase in interest income in 2022 compared to 2021 was primarily due to increased interest rates on our investments.

Interest expense in 2022 and 2021 were consisted of interest on outstanding balance on our term loan from Midcap and interest on the financing liability from our collaboration agreements. The decrease in interest expense in 2022 compared to 2021 was mainly due to higher interest expense associated with the financing liability from our collaboration partners of $2.5 million in 2021, partially offset by the increase in interest expense in 2022 on our term loan with MidCap of $1.3 million primarily due to the increase in the outstanding term loan balance, as well as higher interest rate. In February 2022, we accessed additional $10.0 million term loan (Tranche 3), and in July 2022, we accessed additional $10.0 million term loan (Tranche 4) from our credit facility with MidCap.

Provision for Income Taxes

The provision for income taxes in 2021 was related to the state tax liability primarily due to revenue recognized for the Lilly agreement. We do not expect to owe federal income taxes due to the sufficient NOL carryforwards that were generated prior to the enactment of the Tax Act, as well as significant research and development credit carryforwards. We continue to record a full valuation allowance on our deferred tax assets considering our cumulative losses in prior years and forecasted losses in the future.

Liquidity and Capital Resources

Liquidity

As of December 31, 2022, we had $58.2 million in cash, cash equivalents and short-term investments, as compared to $125.0 million as of December 31, 2021. We continue to maintain investment portfolios primarily in money market funds, US treasury bills, government-sponsored enterprise securities, and corporate bonds and commercial paper. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. We view our investments portfolio as available-for-sale and are available for use in current operations. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary.

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Following summarizes our cash flow activity for the periods presented:

Net cash used in operating activities in 2022 was primarily related to payments for our research and development programs and other operating expenses, partially offset by the proceeds from sales of our products, and the timing of cash receipt from our collaboration partners and cash grant from the US Department of Defense. Net cash provided by operating activities in 2021 was primarily due to the cash received from Lilly for the portion allocated as net transaction price of $67.1 million, proceeds from sales of our product, and timing of cash receipt from our collaboration partners and cash grant from the US Department of Defense. These increases were partially offset by payments of our research and development programs and other operating expenses.

Net cash provided by investing activities in 2022 comprises net maturities of short-term investments of $72.3 million and proceeds from disposal of assets of $0.9 million, partially offset by capital expenditures of $0.5 million. Net cash used in investing activities in 2021 comprises net purchases of short-term investments of $79.4 million and capital expenditures of $0.6 million.

Net cash provided by financing activities in 2022 was primarily due to the net cash proceeds from term loan financing (Tranche 3 and 4) of $19.5 million and proceeds from exercises of stock options and participation in the Purchase Plan of $2.1 million, partially offset by our cost share payments to Lilly of $15.1 million. Net cash provided by financing activities in 2021 was primarily due to the cash received from Lilly for the portion allocated as financing component amounting to $57.9 million and proceeds from exercise of stock options and participation in the Purchase Plan of $4.8 million.

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We believe that our existing capital resources will be sufficient to support our current and projected funding requirements, including the continued commercialization of our products, through at least the next 12 months from the date of issuance of this Annual Report on Form 10-K. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with commercializing a product, the development of our product candidates and other research and development activities, we are unable to estimate with certainty our future product revenues, our revenues from our current and future collaborative partners, the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials and other research and development activities.

Capital Resources

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

Under our existing collaboration agreements that we entered in the ordinary course of business, we received or may be entitled to receive upfront cash payments, payments contingent upon specified events achieved by such partners and royalties on any net sales of products sold by such partners under the agreements. As of December 31, 2022, total future contingent payments to us under our existing agreements, excluding terminated agreements, could exceed $1.3 billion if all potential product candidates achieved all of the payment triggering events under all of our current agreements. This estimated future contingent amount does not include any estimated royalties that could be due to us if the partners successfully commercialize any of the licensed products. Future events that may trigger payments to us under the agreements are based solely on our partners’ future efforts and achievements of specified development, regulatory and/or commercial events. In December 2022, a regulatory milestone with Kissei was met which entitled us to receive a $20.0 million milestone payment, and such amount was received in January 2023. See further discussion in

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“Note 4 - Sponsored Research and License Agreements and Government Contract” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

In January 2021, we were awarded $16.5 million by the US Department of Defense to support our ongoing Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients. Under the agreement with the US Department of Defense, we are entitled to receive such award based on the agreed-upon payment schedule, subject to submission of proper documentation as evidence of completion of certain clinical trial events or milestones as specified in the agreement, and approval by the US Department of Defense that such events or milestones have been met. Through December 31, 2022, we recognized $15.0 million in revenue from this award and expect to receive the remaining awards of $1.5 million, subject to us meeting certain clinical trial events or milestones and approval by the US Department of Defense as specified in the agreement.

In August 2020, we entered into an Open Market Sale Agreement with Jefferies, as a sole agent, pursuant to which we may sell from time to time, through Jefferies, shares of our common stock in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act, subject to conditions specified in the Open Market Sale Agreement, including maintaining an effective registration statement covering the sale of shares under the Open Market Sale Agreement. In April 2021, the registration statement registering the sale of shares under the Open Market Sale Agreement expired. From the time of implementation of the Open Market Sale Agreement through expiration of the registration statement, no sales of shares occurred. On August 3, 2021, we filed a new automatic shelf registration statement as a qualified WKSI, such term as defined in Rule 405 of the Securities Act. The automatic shelf registration statement was filed to register, among other securities, the sale of up to a maximum aggregate offering price of $100.0 million of shares of our common stock that may be issued and sold from time to time under the Open Market Sale Agreement; and a base prospectus which covers the offering, issuance, and sale by us of the securities identified from time to time in one or more offerings. On March 1, 2022, we filed a post-effective amendment to the automatic shelf registration statement immediately after filing our Annual Report on Form 10-K for the year ended December 31, 2021, because we no longer qualified as a WKSI upon filing of such Annual Report. The post-effective amendment was declared effective on May 3, 2022. The post-effective amendment registers, among other securities, a base prospectus which covers the offering, issuance, and sale by us of up to $250.0 million in the aggregate of the securities identified from time to time in one or more offerings, which include the $100.0 million of shares of our common stock that may be offered, issued and sold under the Open Market Sale Agreement.

We have a Credit Agreement with MidCap entered in September 2019, and subsequently amended in March 2021, February 2022 and July 27, 2022. The Credit Agreement provides for $60.0 million term loan credit facility. As of December 31, 2022, the outstanding principal balance of the loan was $40.0 million, and the facility gives us the ability to access an additional $20.0 million aggregate principal amount of term loan at our option through March 31, 2023, subject to the achievement of certain customary conditions.

We had a sublease agreement originally entered in December 2014, and subsequently amended in February 2017 and July 2017, with an unrelated third party to occupy a portion of our research and office space which expired in January 2023. As of December 31, 2022, the remaining future sublease income (excluding our subtenant’s share of facility’s operating expenses) amounted to $0.4 million.

Our operations will require significant additional funding in the foreseeable future. Unless and until we can generate sufficient cash from our operating activities, we may choose to raise additional funds through public and/or private offerings of equity securities, debt financings, or from other sources. However, certain external factors such as COVID-19, conflicts in Russia and Ukraine, political and economic legislations, and other factors may continue to rapidly evolve which could significantly disrupt the global financial markets. Our ability to raise additional funds may be adversely impacted by potential worsening of global economic conditions and volatility in the credit and financial markets in the US and worldwide. We could experience an inability to access additional funds, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make important, opportunistic investments. To the extent that we raise additional funds through the sale of equity, our shareholders’ ownership interest may experience substantial dilution. Our current credit facility with MidCap and any debt financing that we can obtain in the future may involve operating covenants that may restrict our business. To the extent that we

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raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some of our rights to our technologies or product candidates or grant licenses on terms that are not favorable to us.

Our future funding requirements will depend upon many factors, including, but not limited to:

Insufficient funds may require us to delay, scale back or eliminate some or all of our commercial efforts and/or research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern.

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Material Cash Requirements

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We conduct our commercial activities and research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, CROs and universities. We have contractual arrangements with these parties, however our contracts with them are cancelable generally on reasonable notice within one year and our obligations under these contracts are primarily based on services performed. We do not have any purchase commitments under any collaboration arrangements.

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We have agreements with certain clinical research organizations to conduct our clinical trials and with third parties relative to our commercialization of our products. The timing of payments for any amounts owed under the respective agreements will depend on various factors including, but not limited to, patient enrollment and other progress of the clinical trial and various activities related to commercial launch. We expect we will continue to enter into contracts in the normal course of business with various third parties who support our clinical trials, support our preclinical research studies, and provide other services related to our operating purposes as well as our commercialization of our products. We can terminate these agreements at any time, and if terminated, we would not be liable for the full amount of the respective agreements. Instead, we will be liable for services provided through the termination date plus certain cancellation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties.

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As discussed in detail in “Note 4 – Sponsored Research and License Agreements and Government Contract” of our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, pursuant to our global exclusive license agreement and strategic collaboration agreement with Lilly, we are responsible for funding the development costs for R552 in the US, Europe, and Japan, up to $65.0 million through April 1, 2024. Through December 31, 2022, Lilly billed us $15.1 million of the funding development costs and the amounts were fully paid as of December 31, 2022. We have the right to opt-out of co-funding of development costs at two different specified times. If we decide not to exercise our opt-out rights, we will be required to share in global development costs up to certain amounts at a specified cap, as set forth in the agreement.

Additionally, as discussed in detail in “Note 4 - Sponsored Research and License Agreements and Government Contract” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, in July 2022, we entered into a license and transition services agreement with Forma. Pursuant to such agreement, we paid Forma an upfront fee of $2.0 million, with potential for an additional development and regulatory milestone payments of up to $67.5 million, commercial milestone payments of up to $165.5 million, and tiered royalty payments. As of December 31, 2022, certain milestones were met which entitled Forma to receive a $17.5 million milestone payment, of which, $15.0 million was outstanding and included within accounts payable in our balance sheet.

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As of December 31, 2022, we have a contractual commitment related to our facilities leased facilities of $2.6 million, with approximately $1.5 million is payable within 12 months. See “Note 11 – Leases” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further discussions of our leases.

As discussed above, we have a contractual commitment with respect to our credit facility with MidCap. Under the amended Credit Agreement, the term loans mature on September 1, 2026, and the interest-only period is through October 1, 2024. The interest rate applicable to the term loans under the amended Credit Agreement is the sum of one-month SOFR, plus an adjustment of 0.11448%, subject to 1.50% applicable floor, plus applicable margin of 5.65%. A final payment fee of 2.5% of principal is due at maturity date of the term loans. As of December 31, 2022, the outstanding principal amount of the loan was $40.0 million, and no principal payments are due within 12 months. We are also obligated to pay annual administrative fees. As of December 31, 2022, future interest calculated using the base interest rate as per the Credit Agreement, and the final fee payments associated with the credit facility amounted to $8.9 million, with approximately $3.0 million payable within 12 months.

We are also subject to claims related to the patent protection of certain of our technologies, as well as purported securities class action lawsuit, other litigations, and other contractual agreements. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter. We do not have other material contractual commitments with respect to matters discussed above.

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