Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a biotechnology company dedicated to discovering, developing and providing novel small molecule drugs that significantly improve the lives of patients with hematologic disorders, cancer and rare immune diseases. Our pioneering research focuses on signaling pathways that are critical to disease mechanisms. Our first United States Food and Drug Administration (FDA) approved product is TAVALISSE® (fostamatinib disodium hexahydrate) tablets, the only oral spleen tyrosine kinase (SYK) inhibitor, for the treatment of adult patients with chronic immune thrombocytopenia who have had an insufficient response to a previous treatment. The product is also commercially available in Europe (TAVLESSE) and Canada (TAVALISSE) for the treatment of chronic immune thrombocytopenia in adult patients.

Fostamatinib is currently being studied in a Phase 3 trial for the treatment of warm autoimmune hemolytic anemia (wAIHA); a National Institutes of Health (NIH)/National Heart, Lung, and Blood Institute (NHLBI)-sponsored Phase 2 trial for the treatment of hospitalized COVID-19 patients, in collaboration with Inova Health System; and a Phase 2 trial for the treatment of COVID-19 being conducted by Imperial College London. Additionally, we have launched a Phase 3 clinical trial of fostamatinib for the treatment of hospitalized COVID-19 patients.

Our other clinical programs include our interleukin receptor-associated kinase (IRAK) inhibitor program and a receptor-interacting serine/threonine-protein kinase (RIP1) inhibitor program in clinical development with partner Eli Lilly and Company (Lilly). In addition, we have product candidates in clinical development with partners AstraZeneca AB (AZ), BerGenBio ASA (BerGenBio) and Daiichi Sankyo (Daiichi).

Business Update

TAVALISSE in ITP

During the year ended December 31, 2020, net product sales of TAVALISSE was $61.7 million which represented a year over year increase of 41%. This was primarily due to improved persistency of therapy among patients on TAVALISSE, the continued uptake and use of the product in steroid refractory patients, and to a lesser extent, annual price increase of our drug.

Due to the evolving effects of the COVID-19 pandemic, resources have been deployed to enable our field-based employees to continue to engage virtually with health care providers. These virtual engagements have enabled our field team to support existing prescribers, as well as develop new prescribers to identify appropriate patients for TAVALISSE. We also conducted market research with cITP prescribers in 2020 to understand the impact of COVID on cITP management. More than half of respondents reported that COVID had an impact on their management of cITP, and about a third of respondents anticipate a surge of patients post-COVID. This is because clinicians have found it challenging to both start a therapy, and switch to new therapies.

A post-hoc analysis from our Phase 3 clinical program in adult patients with chronic ITP, highlighting the potential benefit of using TAVALISSE in earlier lines of therapy, was published in the British Journal of Haematology in July 2020. Inclusion in one of the leading peer-reviewed journals in the field of hematology underscores the significance of the 78% (25/32) response rate defined as at least one platelet count of at least 50,000/μL when TAVALISSE was used as a second-line therapy in our Phase 3 clinical program. Adverse events were manageable and consistent with those previously reported with fostamatinib. Our sales force is now sharing this data with physicians.

Fostamatinib in Global Markets

In February 2020, we received a $20.0 million payment from Grifols. The payment was received upon the EC approval of the MAA for fostamatinib for the treatment of chronic ITP in adult patients who are refractory to other treatments. In addition, as a result of the EC approval, $25.0 million of the $30.0 million upfront fee that we previously received from Grifols is no longer repayable by us to Grifols. Fostamatinib is marketed in Europe under the brand name

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TAVLESSE (fostamatinib). Grifols launched TAVLESSE in the UK and Germany in July 2020, and thereafter, expects a phased roll-out over the next 18 months across Europe. In December 2020, the Scottish Medicines Consortium accepted TAVLESSE for use in NHS in Scotland.

In October 2019, we entered into exclusive commercialization license agreements with Medison to commercialize fostamatinib in all potential indications in Canada and Israel. In November 2020, Health Canada approved the new drug submission for TAVALISSE for the treatment of thrombocytopenia in adult patients with chronic ITP who have had an insufficient response to other treatments. In Israel, a decision on the new drug application is anticipated during the second quarter of 2021.

We currently anticipate no significant disruption related to the COVID-19 pandemic in the supply of TAVALISSE tablets and drug substance to meet the needs for our U.S. ITP sales, as well as for our collaborative partners and clinical trials worldwide.

Fostamatinib in AIHA

Our FORWARD study, a pivotal Phase 3 clinical trial in warm AIHA has enrolled 66 of the 90 patients targeted for enrollment. Currently, the FORWARD study has over 90 clinical trial sites established across 22 countries and a limited number of clinical trial sites have resumed screening patients after a temporary pause due to the ongoing COVID-19 pandemic. In December 2020, the FDA has granted Fast Track designation to TAVALISSE for the treatment of warm AIHA based on the significant medical need that exists and the product's potential in the treatment of these patients. Fast Track designation is designed to enable an expedited review process for any potential regulatory filings. We continue to experience slower than expected enrollment in light of COVID-19 impacts, and at this time, we are unable to provide an update on anticipated enrollment completion.

Fostamatinib in Hospitalized COVID-19 patients

In November 2020, we launched a Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients without respiratory failure that have certain high-risk prognostic factors. This multi-center, double-blind, placebo-controlled, adaptive design study will randomly assign either fostamatinib plus SOC or matched placebo plus SOC (1:1) to approximately 308 evaluable patients. Treatment will be administered orally twice daily for 14 days with follow up to day 60. The primary endpoint of this study is the proportion of subjects who progress to severe/critical disease within 29 days. In January 2021, we were awarded $16.5 million by the DOD Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense to support this Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients.

In September 2020, we announced a Phase 2 clinical trial to be sponsored by the NIH/NHLBI in order to evaluate the safety of fostamatinib for the treatment of hospitalized COVID-19 patients. This multi-center, double-blind, placebo-controlled study will randomly assign fostamatinib or matched placebo (1:1) to approximately 60 evaluable patients. Treatment will be administered orally twice daily for 14 days. There will be a follow-up period to day 60. The primary endpoint of this study is cumulative incidence of serious adverse events (SAE) through day 29. The trial also includes multiple secondary endpoints designed to assess the early efficacy and clinically relevant endpoints of disease course. The study is projected to complete the enrollment of the 60 evaluable patients in the first quarter of 2021 and we expect to report topline data in April 2021.

In July 2020, we announced a Phase 2 clinical trial sponsored by Imperial College London in order to evaluate the efficacy of fostamatinib for the treatment of COVID-19 pneumonia. This is a two-stage, open label, controlled clinical trial with patients randomized (1:1:1) to fostamatinib plus SOC, ruxolitinib plus SOC, or standard of care alone. Treatment will be administered twice daily for 14 days and patients will receive a follow-up assessment at day 7, day 14 and day 28 after the first dose. The primary endpoint of this study is progression from mild to severe COVID-19 pneumonia within 14 days in hospitalized patients. Initially, n=171 (57 per arm) patients will be recruited in Stage 1. Following interim analysis to assess the efficacy and safety of the treatments, approximately n=285 (95 per arm) will be

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recruited during Stage 2. In November 2020, we announced that the Imperial College London-sponsored clinical trial began enrolling patients, and as of the date hereof, there are 106 patients enrolled under this study.

The Broad Institute of the MIT and Harvard led a recent screen to identify FDA-approved compounds that reduce MUC1 protein abundance. MUC1 is a biomarker used to predict the development of ALI and ARDS and correlates with poor clinical outcomes. In June 2020, the results were presented. Of the 3,713 compounds that were screened, fostamatinib was the only compound identified which both decreased expression of MUC1 and is FDA approved, and so allows for rapid repurposing for patients with COVID-19 lung injury. Fostamatinib demonstrated preferential depletion of MUC1 from epithelial cells without affecting cell viability. The research was focused on drug repurposing for the much lower risk of toxicity and the ability of FDA-approved treatments to be delivered on a shortened timescale, which is critical for patients afflicted with lung disease resulting from COVID-19.

In vitro studies led by the Amsterdam University Medical Center at the University of Amsterdam, showed that R406, the active metabolite of fostamatinib, blocked macrophage hyper-inflammatory responses to a combination of immune complexes formed by anti-Spike IgG in serum from severe COVID-19 patients. Anti-Spike IgG levels are known to correlate with the severity of COVID-19. These results, presented in July 2020, suggest that by inhibiting anti-Spike IgG-mediated hyperinflammation, R406 could potentially play a role in the prevention of cytokine storms as well as pulmonary edema and thrombosis associated with severe COVID-19.

In December 2020, the Journal of Infectious Diseases published research from NIH which demonstrated that R406, the active metabolite of fostamatinib, was able to inhibit NETosis ex vivo in donor plasma from patients with COVID-19. NETosis is a unique type of cell death resulting in the release of NETs. NETs contribute to thromboinflammation and have been associated with mortality in COVID-19. These data provide insights for how fostamatinib may mitigate neutrophil-associated mechanisms contributing to COVID-19 immunopathogenesis.

Global Strategic Partnership with Lilly

In February 2021, we entered into a global exclusive license agreement and strategic collaboration with Lilly to co-develop and commercialize R552, a receptor-interacting serine/threonine-protein kinase 1 (RIP1) inhibitor, for the treatment of non-central nervous system (non-CNS) diseases. In addition, the collaboration is aimed at developing additional RIP1 inhibitors for the treatment of CNS diseases. Pursuant to the terms of the license agreement, we granted to Lilly exclusive rights to develop and commercialize R552 and related RIP1 inhibitors in all indications worldwide. The parties’ collaboration is governed through a joint governance committee and appropriate subcommittees.

The parties are jointly responsible for performing development activities for R552 and other non-CNS disease development candidates. We are responsible for 20% of development costs for R552 in the U.S., Europe, and Japan, up to a specified cap. Lilly is responsible for funding the remainder of all development activities for R552 and other non-CNS disease development candidates. We have the right to opt-out of co-funding the R552 development activities in the U.S., Europe and Japan at two different specified times. If we exercise our first opt-out right, we will continue to fund our share of the R552 development activities in the U.S., Europe, and Japan up to a maximum funding commitment of $65.0 million. If we do not exercise either of the opt-out rights, we will receive royalty payments on net sales of non-CNS disease products at higher percentage rates and have the right to co-commercialize R552 in the U.S., with Lilly, on terms to be agreed by the parties.

We are responsible for performing and funding initial discovery and identification of CNS disease development candidates, which is nearly completed, and future funding is expected to be minimal. Following candidate selection, Lilly will be responsible for performing and funding all future development and commercialization of the CNS disease development candidates.

Under the terms of the license agreement, we will receive an upfront cash payment of $125.0 million, with the potential for an additional $330.0 million in milestone payments upon the achievement of specified development and regulatory milestones by non-CNS disease products and $255.0 million in milestone payments upon the achievement of specified development and regulatory milestones by CNS disease products. We are also eligible to receive up to $100.0

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million in sales milestone payments on a product-by-product basis for non-CNS disease products and up to $150.0 million in sales milestone payments on a product-by-product basis for CNS disease products. In addition, depending on the extent of our co-funding of R552 development activities, we would be entitled to receive tiered royalty payments on net sales of non-CNS disease products at percentages ranging from the mid-single digits to high-teens, subject to certain standard reductions and offsets. We would be entitled to receive tiered royalty payments on net sales of CNS disease products up to low-double digits, subject to certain standard reductions and offsets.

This transaction is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976.

Other Updates

In June 2020, at the European League Against Rheumatism 2020 E-Congress, we presented two oral and two poster presentations highlighting our investigational compound R835, a potent and selective inhibitor of both IRAK1 and IRAK4. In multiple pre-clinical rodent models of acute and chronic inflammation, R835 administration resulted in reduced inflammation, and in Phase 1 trials, it showed encouraging pharmacokinetic (PK) properties.

In May 2020, we accessed the second $10.0 million tranche from our $60.0 million credit facility with MidCap. The facility provides us with access to an additional $40.0 million which is subject to the achievement of certain conditions. Additionally, on August 4, 2020, we entered into a Sales Agreement with Jefferies, as our sole sales agent, pursuant to which we may sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $65.0 million. As of December 31, 2020, we have not yet sold any shares under the Sales Agreement.

Update on Current and Potential Future Impact of COVID-19 on our Business

The global COVID-19 pandemic has resulted, and is expected to continue to result, in significant economic disruption, and has adversely affected and will likely continue to adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the duration and severity of the COVID-19 pandemic. We are continuing to monitor the impact of the evolving effects of the COVID-19 pandemic and have undertaken, and plan to continue to undertake, safety measures to keep our staff, patients, investigators and stockholders safe and to help the communities where we live and work reduce the number of people exposed to the virus. We have previously implemented work-from-home policies for certain employees and restricted on-site staff at our office in South San Francisco to only those personnel performing essential activities. In March 2020, through our existing Crisis Management Team (CMT), we also activated our business continuity plans to prevent or minimize business disruption and ensure the safety and well-being of our personnel. Our CMT meets regularly to assess the effectiveness of our business continuity plans and make adjustments accordingly as COVID-19 continues to evolve. The ultimate impact of the COVID-19 pandemic on our business and financial condition is highly uncertain and subject to change, and as such, we cannot ascertain the full extent of the impacts on our sales of our product, our ability to continue to secure new collaborations and support existing collaboration efforts with our partners and our clinical and regulatory activities.

Since the COVID-19 pandemic was declared, we have observed reduced patient-doctor interactions and our representatives are having fewer visits with health care providers, which negatively affected our ability to grow our product sales and may continue to negatively affect our product sales in the future. Resources have been deployed to enable our field team to have virtual engagements to support existing prescribers as well as partner with new prescribers to identify appropriate patients for TAVALISSE. As such, our field-based employees primarily engage virtual with health care providers. Other commercial related activities, such as our marketing programs, speaker bureaus, and market access initiatives that were in live forums have been conducted virtually, delayed or cancelled as a result of the COVID-19 pandemic.

With respect to our supply chain, we currently do not anticipate significant disruption in the supply chain for our commercial product, TAVALISSE. However, we do not know the full extent of the impact on our supply chain if the COVID-19 pandemic continues and persists for an extended period of time. We currently rely on third parties to, among other things, manufacture and ship our commercial product, raw materials and product supply for our clinical trials,

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perform quality testing and supply other goods and services to help manage our commercial activities, our clinical trials and our operations in the ordinary course of business. We have engaged actively with various elements of our supply chain and distribution channel, including our customers, contract manufacturers, and logistics and transportation provider, to meet demand for TAVALISSE and to remain informed of any challenges within our supply chain. We continue to monitor demand, and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the evolving COVID-19 pandemic.

With respect to clinical development, we have taken, and continue to take, measures to implement remote and virtual approaches, including remote patient monitoring where possible per recent FDA guidance and working with our investigators for appropriate care of these patients in a safe manner consistent with agency guidelines. We have a number of ongoing clinical trials, one of which is a global Phase 3 clinical study in warm AIHA. A number of our clinical trial investigators had paused, postponed or delayed new patient enrollment and restricted site visits of existing patients enrolled. Although some trial sites have resumed screening and enrolling patients, progress is slow and we continue to experience delays in new patient enrollment. We are making decisions country-by-country to minimize risk to the patients and clinical trial sites. We also rely heavily on our clinical trial investigators to inform us of the best course of action with respect to resuming of enrollment/screening considering the ability of sites to ensure patient safety or data integrity. Patients already enrolled in our studies continue to receive study drug, and we remain focused on supporting our sites, in providing care for these patients and providing continued investigational drug supply. At this time, however, we cannot currently fully forecast the scope of the impacts 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 study protocol and the overall impact on clinical study results including the timing thereof. In addition, our partner, Kissei, is currently conducting a Phase 3 clinical trial for of fostamatinib in for the treatment of ITP in Japan, the timing and completion of which could be delayed due to the COVID-19 pandemic. The delays may potentially delay future royalties on sales, as well as receipt of future potential milestones. At this time, however, we cannot fully forecast the scope of the impacts that the COVID-19 pandemic may have under on our partnership with Kissei.

The COVID-19 pandemic has similarly affected our collaboration and licensing partners for the commercialization of fostamatinib globally, as well as in advancing our various clinical stage programs. We do not yet know the full impact of such disruptions in our partners’ ability to advance commercialization of fostamatinib in the market and the timing of enrollment and completion of various clinical trials being conducted by our collaborative ion partners.

See also the section titled “Risk Factors” in Item 1A of Part II of this Annual Report on Form 10-K for additional information on risks and uncertainties related to the ongoing COVID-19 pandemic.

Liquidity and Capital Resources

From inception, we have financed our operations primarily through sales of equity securities, contract payments under our collaboration agreements and from sales of TAVALISSE beginning in May 2018. Our commercial launch, research and development activities, including preclinical studies and clinical trials, consume substantial amounts of capital. As of December 31, 2020, we had approximately $57.3 million in cash, cash equivalents and short-term investments. In September 2019, we entered into a $60.0 million term loan credit facility with MidCap. At closing, $10.0 million was funded to us in an initial tranche. In May 2020, we accessed the second $10.0 million tranche from our $60.0 million credit facility with MidCap. The facility provides us with access to an additional $40.0 million which is subject to the achievement of certain conditions. Additionally, on August 4, 2020, we entered into an Open Market Sale AgreementSM (Sales Agreement) with Jefferies LLC (Jefferies), as our sole sales agent, pursuant to which we may sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $65.0 million. As of December 31, 2020, we have not yet sold any shares under the Sales Agreement. In January 2021, we were awarded $16.5 million by the DOD Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense to support our ongoing Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients.

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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 commercial launch of TAVALISSE in the U.S., through at least the next 12 months from the Form 10-K filing date. However, our operations will require significant additional funding for the foreseeable future. Unless and until we are able to generate a sufficient amount of product, royalty or milestone revenue, we expect to opportunistically finance future cash needs through public and/or private offerings of equity securities, debt financings and/or collaboration and licensing arrangements, and to a much lesser extent through the proceeds from exercise of stock options and interest income earned on the investment of our excess cash balances and short-term investments. However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. Our ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the pandemic. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make important, opportunistic investments. In addition, any additional capital we raise by issuing equity securities, our stockholders could at that time experience substantial dilution. Our current credit facility with MidCap and any debt financing that we are able to obtain in the future may involve operating covenants that may restrict our business. To the extent that we 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.

Product Development Programs

Our product portfolio features multiple novel, targeted drug candidates in the therapeutic areas of immunology, hematology, cancer and rare diseases. Please refer to “Part I. Item 1. Business—Product Portfolio” herein for a detailed discussion of our multiple product candidates in development.

Corporate Collaborations

We conduct research and development programs independently and in connection with our corporate collaborators. Please refer to “Part I. Item 1. Business—Sponsored Research and License Agreements” herein for a detailed discussion of our corporate collaborations.

Critical Accounting Policies and the Use of Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). 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 evaluate our estimates, including those related to revenue recognition on product sales and collaboration agreements, recoverability of our assets, including accounts receivables and inventories, stock-based compensation and the probability of achievement of corporate performance-based milestone for our performance-based stock option awards, impairment issues, the estimated useful life of assets, and estimated accruals, particularly research and development accruals, on an ongoing basis. 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. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Revenue Recognition

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine whether arrangements are within the scope of this new guidance, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation. We apply the five-step model to contracts when it is probable that we will

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collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of this new guidance, we assess the goods or services promised within each contract and identify, as a performance obligation, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.

Product Sales

Our revenues from product sales are recognized at net sales price when our customers, the specialty distributors (SDs), obtain control of our product, which occurs at a point in time, upon delivery to such SDs. 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 are recorded net of certain variable considerations which includes estimated government-mandated rebates and chargebacks, distribution fees, estimated product returns and other deductions.

Provisions for estimated returns and other adjustments 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.

Contract Revenues from Collaborations

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.

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 recorded as part of contract revenues from collaborations during the period of adjustment.

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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).

Inventories

We value our inventories at the lower of cost or estimated net realizable value. We determine the cost of inventories using the standard cost method, which approximates actual cost based on a first-in, first-out (FIFO) basis. Prior to the regulatory approval of our product candidates, we incur expenses for the manufacture of drug product that could potentially be available to support the commercial launch of our products. Until the first reporting period when regulatory approval has been received or is otherwise considered probable, we record all such costs as research and development expense. We perform an assessment of the recoverability of capitalized inventories during each reporting period and write down any excess and obsolete inventories to its net realizable value in the period in which the impairment is first identified. As of December 31, 2020, no material write-downs in excess and obsolete inventory have occurred. See Note 4 under “Part II, Item 8, Financial Statements and Supplementary Data” for additional information.

Stock-Based Compensation

We have two stock option plans that provide for granting to our officers, directors and all other employees and consultants options to purchase shares of our common stock. We also have our Employee Stock Purchase Plan (Purchase Plan), wherein eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. The fair value of each 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 U.S. 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.

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.

Research and Development Accruals

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

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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.

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.

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements, see Note 1, “Summary of Significant Accounting Policies”, in the Notes to Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data”.

Results of Operations

Years Ended December 31, 2020, 2019 and 2018

Revenues

Aggregate Aggregate

Year Ended December 31, Change Change

(in thousands)

The following table summarizes revenues from each of our customers who individually accounted for 10% or more (wherein * denotes less than 10%) of our gross revenues (as a percentage of gross revenues):

Year Ended December 31,

Grifols 41% * —

ASD Healthcare and Oncology Supply 30% 37% 17%

McKesson Specialty Care Distribution Corporation 23% 30% 11%

Kissei — * 69%

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Revenues by collaborative partners were:

Aggregate Aggregate

Year Ended December 31, Change Change

(in thousands)

Daiichi Sankyo 2,100 — — 2,100 —

Product sales for the year ended December 31, 2020, 2019 and 2018 relate to sales of TAVALISSE in the U.S. For the year ended December 31, 2020 compared with 2019, the increase in product sales was primarily due to sales volume, and to the lesser extent, annual increase in the price of our drug. For the year ended December 31, 2019 compared with 2018, the increase in product sales primarily relate to higher sales volume. The increase in sales volume was due continued uptake and use of the product as an early treatment option in steroid refractory patients, as well as strong continuation of therapy among patients. TAVALISSE has been prescribed across all lines of therapy in steroid refractory patients in ITP. It has been utilized by an increasing broad base of prescribers and community physicians, with growing early line use and continued strong refill rates. We recognize product sales net of discounts and allowances that are described in Note 1—Summary of Significant Accounting Policies of “Part II, Item 8, Financial Statements and Supplementary Data” herein.

Contract revenues from collaborations of $46.9 million during the year ended December 31, 2020 primarily relate to revenue from the upfront fee previously received from Grifols in the first quarter of 2019, as well as the milestone payment received from Grifols in the first quarter of 2020 upon EC approval of the MAA for fostamatinib in Europe, as well as the milestone payment under our collaboration agreement with Daiichi. Contract revenues from collaborations of $15.5 million during the year ended December 31, 2019 is comprised of a $4.0 million development milestone fee and $1.5 million fee pursuant to an amendment of our agreement with Aclaris, $3.7 million development milestone payment from Celgene, as well as $4.7 million and $1.6 million revenue from our performance of certain research and development services and supply of fostamatinib with Grifols and Kissei, respectively. Contract revenues from collaborations of $30.6 million during the year ended December 31, 2018 relate to the portion of the $33.0 million upfront fee recognized as revenue upon delivery of license rights to Kissei for the development and commercialization of fostamatinib in all current and potential indications in Japan, China, Taiwan and the Republic of Korea.

Our potential future revenues may include product sales from TAVALISSE, payments from our current partners and from new partners with whom we enter into agreements in the future, if any, the timing and amount of which is unknown at this time, except as described under Note 15—Subsequent Event of “Part II, Item 8, Financial Statements and Supplementary Data” herein. As of December 31, 2020, we had deferred revenues of $3.0 million which will be recognized as revenue upon occurrence of satisfaction of our remaining performance obligations under our collaboration agreements with Grifols and Kissei.

Cost of Product Sales

Year Ended Aggregate Aggregate

December 31, Change Change

(in thousands)

We recognized $895,000, $906,000 and $287,000 in cost of product sales during the years ended December 31, 2020, 2019 and 2018, respectively, related to our product, TAVALISSE, which was approved by the FDA in April 2018. Prior to the FDA approval, manufacturing and related costs were charged to research and development expense.

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Therefore, these costs were not capitalized and as a result, are not fully reflected in the costs of sales during the current period. We will continue to have a lower cost of product sales that excludes the cost of the active pharmaceutical product that was produced prior to FDA approval until we sell TAVALISSE that includes newly manufactured API. We expect that this will be the case for the near-term and as a result, our cost of product sales will be less than what we anticipate it will be in future periods. As we produce TAVALISSE in the future, our inventory cost in the Balance Sheet and Cost of Product Sales will increase reflecting the full cost of manufacturing.

Research and Development Expenses

Aggregate Aggregate

Year Ended December 31, Change Change

(in thousands)

The increase in research and development expense for the year ended December 31, 2020, compared to the same period in 2019, was primarily due to the increases of $8.1 million in research and development cost for our Phase 1 trial in our RIP 1 inhibitor program, Phase 3 trial for COVID-19 patients, Phase 1 trial in our IRAK 1/4 inhibitor program and our on-going Phase 3 trial in warm AIHA, $320,000 in software license and $213,000 in consultants and outside services, partially offset by the decreases in personnel-related costs including stock-based compensation of $725,000, research supplies of $609,000 and various other costs of $121,000.

The increase in research and development expense for the year ended December 31, 2019, compared to the same period in 2018, was primarily due to increases in research and development costs for our Phase 3 clinical trials in AIHA of $6.6 million, our Phase 1 clinical trial for our RIP1 inhibitor program of $1.9 million, consultants and outside services of $1.6 million and stock-based compensation expense of $1.5 million, partially offset by decreases in research and development costs due the reduction in activities in our Phase 3 open label extension trial in ITP of $2.1 million, completion of our Phase 2 trial in IgAN of $1.6 million and on-going Phase 1 study in our IRAK 1/4 inhibitor program of $830,000 and decrease of approximately $1.0 million in various other costs.

We expect our research and development expense in 2021 to increase as we continue with our Phase 3 warm AIHA and COVID-19 studies. We have resumed new patient enrollment in certain clinical trial sites for our FORWARD study for warm AIHA and we expect to continue to incur expenses in managing the study and expenses related to measures to implement remote and virtual approaches, including delays in new patient enrollment, remote patient monitoring and other alternative course of actions to maintain our study in warm AIHA. We have also recently initiated our Phase 3 clinical trial in hospitalized COVID-19 patients and expect to continue to enroll patients in 2021. The $16.5 million grant awarded by the Department of Defense in January 2021 will partially fund our Phase 3 clinical trial for hospitalized COVID-19 patients. We cannot currently fully forecast the scope the evolving effects of 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 study results.

Our research and development expenditures include costs related to preclinical and clinical trials, scientific personnel, supplies, equipment, consultants, sponsored research, stock-based compensation, and allocated facility costs.

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 creating a portfolio of product candidates that can be developed into small molecule therapeutics in our own proprietary programs or with potential collaborative partners and utilizes our robust discovery engine to rapidly discover and validate new product candidates in our focused range of therapeutic indications. “Research” expenses relate primarily to personnel expenses, lab supplies, fees to third party research consultants and

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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.

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.

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.

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

Year Ended December 31,

From January 1, 2007*

(in thousands)

Categories:

“Other” expenses mainly represent allocated facilities costs of approximately $6.0 million, $6.0 million and $5.6 million for the years ended December 31, 2020, 2019 and 2018, respectively, and allocated stock-based compensation expenses of approximately $2.1 million, $2.6 million and $2.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

For the years ended December 31, 2020, 2019 and 2018, a major portion of our total research and development expense was associated with salaries of our research and development personnel, costs associated with our clinical trial programs, and allocated facilities costs. For the year ended December 31, 2020 compared to the year ended December

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31, 2019, the increase in Development costs is primarily due to the expansion of our clinical trials to include studies related to COVID-19 patients.

Selling, General and Administrative Expense

Aggregate Aggregate

Year Ended December 31, Change Change

(in thousands)

The increase in selling, general and administrative expense for the year ended December 31, 2020 compared to the same period in 2019 was primarily due to the increases of $2.1 million in personnel costs, including stock-based compensation expense, $1.6 million in legal costs, $658,000 in advertising expense, $515,000 in business insurance and $477,000 in allocated facility costs, partially offset by decreases of $3.3 million in travel-related expenses and $95,000 in various third-party vendor and consultant costs.

The increase in selling, general and administrative expenses for the year ended December 31, 2019, compared to the same period in 2018, was primarily due to increases in personnel-related costs for our customer-facing and medical affairs team of $3.5 million, commercial launch related costs with third parties of $2.3 million, stock-based compensation expense of $1.1 million and $500,000 in various other costs, partially offset by decrease in legal costs of $2.8 million.

We expect our selling, general and administrative expense in 2021 to increase as we continue to expand our commercial activities for TAVALISSE, and assuming we will be able to resume in-person office visits and live engagements with healthcare providers. In response to the limitations on in-person office visits during the ongoing COVID-19 pandemic, resources have been deployed to enable our field-based employees to continue to engage virtually with healthcare providers. These virtual engagements have enabled our field team to support existing prescribers as well as partner with new prescribers to identify appropriate patients for TAVALISSE. 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 TAVALISSE.

Interest Income

Year Ended Aggregate Aggregate

December 31, Change Change

(in thousands)

Interest income results from our interest-bearing cash and investment balances. The decrease in interest income for the year ended December 31, 2020, as compared to the same period in 2019, was primarily due to decrease in yield on our investments. The increase in interest income for the year ended December 31, 2019, as compared to the same period in 2018, was primarily due to the higher yield on our investments.

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Interest Expense

Year Ended Aggregate Aggregate

December 31, Change Change

(in thousands)

Interest expense for the years ended December 31, 2020 and 2019 was related to the outstanding balance on our term loan from Midcap. There was no interest expense for the year ended December 31, 2018. The increase in interest expense during the year ended December 31, 2020 compared with the same period in 2019 was due to the increase in the outstanding term loan credit balance. In 2019, the initial $10.0 million tranche was outstanding for a partial year, compared to a full year in 2020, along with the second $10.0 million tranche we accessed in May 2020.

Liquidity and Capital Resources

Cash Requirements

From inception, we have financed our operations primarily through sales of equity securities, contract payments under our collaboration agreements and from sales of Tavalisse beginning in May 2018. We have consumed substantial amounts of capital to date as we continue our research and development activities, including preclinical studies and clinical trials and our ongoing commercial launch of TAVALISSE.

As of December 31, 2020, we had approximately $57.3 million in cash, cash equivalents and short-term investments, as compared to approximately $98.1 million as of December 31, 2019, a decrease of approximately $40.8 million. The decrease was primarily attributable payments associated with funding our operating expenses during the year ended December 31, 2020.

In January 2021, we were awarded $16.5 million by the U.S. Department of Defense’s Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense to support our ongoing Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients. In February 2021, we entered into a global exclusive license agreement with Lilly to co-develop and commercialize R552, wherein we are entitled to receive a non-refundable and non-creditable upfront cash payment of $125 million and may also be eligible for potential development, regulatory, and commercial milestone payments totaling up to an additional $835 million, as well as tiered royalties on net sales of non-CNS and CNS disease products up to low-double digits that will vary depending upon our clinical development investment .

In October 2020, we received $2.1 million representing payment for a milestone under our collaboration agreement with Daiichi.

In September 2019, we entered into a $60.0 million term loan credit facility with MidCap. At closing, $10.0million was funded to us in an initial tranche. We accessed the second $10.0 million tranche from our term loan credit facility with MidCap which we received in May 2020. The facility provides the Company with access to an additional $40.0 million which is subject to the achievement of certain customary conditions. In August 2020, we entered into a Sales Agreement with Jefferies, pursuant to which we may sell, through Jefferies, up to an aggregate of $65.0 million in shares of our common stock.

In October 2018, we entered into an exclusive license and supply agreement with Kissei to develop and commercialize fostamatinib in all current and potential indications in Japan, China, Taiwan and the Republic of Korea, in which we received an upfront payment of $33.0 million. In January 2019, we entered into an exclusive commercialization license agreement with Grifols to commercialize fostamatinib for the treatment, palliation, or prevention of human diseases, including chronic or persistent ITP, AIHA, and IgAN in Europe and Turkey, in which we received an upfront payment of $30.0 million, with the potential for $297.5 million in payments related to regulatory and

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commercial milestones, which includes a $20.0 million payment received in February 2020, comprised of a $17.5 million payment for EMA approval of fostamatinib for the first indication and a $2.5 million creditable advance royalty payment due upon EMA approval of fostamatinib in the first indication in chronic ITP. We will also receive stepped double-digit royalty payments based on tiered net sales which may reach 30% of net sales of fostamatinib. In return, Grifols receives exclusive rights to fostamatinib in human diseases, including chronic ITP, AIHA, and IgAN, in Europe and Turkey. We retain the global rights to fostamatinib outside the Kissei, Grifols and Medison territories.

In December 2014, we entered into a sublease agreement with an unrelated third party to occupy a portion of our research and office space. This sublease agreement was amended in February 2017 to sublease additional research and office space. Effective July 2017, the sublease agreement was amended primarily to extend the term of the sublease through January 2023. During the year ended December 31, 2020, we received approximately $5.4 million of sublease income and reimbursements. We expect to receive approximately $9.6 million in future sublease income (excluding our subtenant’s share of facility’s operating expenses) through January 2023.

We believe that our existing capital resources, along with the expected proceeds from the funding awarded by the U.S. Department of Defense as well as the upfront fee from Lilly, will be sufficient to support our current and projected funding requirements, including the continued commercial launch of TAVALISSE in the U.S., through at least the next 12 months from the Form 10-K filing date. 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 commercial launch, 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.

Our operations will require significant additional funding for the foreseeable future. Unless and until we are able to generate a sufficient amount of product, royalty or milestone revenue, we expect to opportunistically finance future cash needs through public and/or private offerings of equity securities, debt financings and/or collaboration and licensing arrangements, and to a much lesser extent through the proceeds from exercise of stock options and interest income earned on the investment of our excess cash balances and short-term investments. However, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. Our ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide resulting from the pandemic. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make important, opportunistic investments. In addition, any additional capital we raise by issuing equity securities, our stockholders could at that time experience substantial dilution. Our current credit facility with MidCap and any debt financing that we are able to obtain in the future may involve operating covenants that may restrict our business. To the extent that we 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:

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● any changes in the breadth of our research and development programs;

● our ability to manage our growth;

● competing technological and market developments;

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.

For the years ended December 31, 2020 and 2019, we maintained an investment portfolio primarily in money market funds, U.S. 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. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We will 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.

Cash Flows from Operating, Investing and Financing Activities

Year Ended December 31,

(in thousands)

Net cash provided by (used in):

Net cash used in operating activities was approximately $52.2 million in 2020 compared to approximately $41.5 million and $58.8 million in 2019 and 2018, respectively.

Net cash used in operating activities for the year ended December 31, 2020 was related to our research and development programs and our continued commercialization of TAVALISSE, partially offset by the $20.0 million payment received from Grifols, $2.1 million milestone payment from Daiichi and proceeds from sale of TAVALISSE. Net cash used in operating activities in 2019 was primarily due cash payments to support our ongoing efforts to commercialize TAVALISSE and the cost of our research and development programs, partially offset by the $39.0 million payments we received from our collaborative partners. Net cash used in operating activities in 2018 was primarily due to the cash payments to support our ongoing efforts to commercialize TAVALISSE and the cost of our research and development programs, partially offset by the $33.0 million payment we received from Kissei. The timing of cash requirements may vary from period to period depending on our ongoing commercial activities related to

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TAVALISSE, our research and development activities, including our planned preclinical and clinical trials, and future requirements to establish commercial capabilities for any products that we may develop.

Net cash provided by investing activities was approximately $47.5 million in 2020 compared to net cash used in investing activities of approximately $23.7 million in 2019 and net cash provided by investing activities of approximately $25.0 million in 2018. Net cash provided by investing activities during the year ended December 31, 2020 related to net maturities of short-term investments, partially offset by capital expenditures. Net cash used in investing activities in 2019 related to net purchases of short-term investments and capital expenditures. Net cash provided by investing activities in 2018 related to net maturities of short-term investments, partially offset by capital expenditures. Capital expenditures were approximately $1.3 million, $1.5 million and $1.1 million in 2020, 2019 and 2018, respectively.

Net cash provided by financing activities was approximately $12.6 million in 2020 compared to approximately $11.4 million and $71.9 million in 2019 and 2018, respectively. Net cash provided by financing activities for the year ended December 31, 2020 related to the proceeds from funding of the second $10.0 million tranche from our term loan credit facility with MidCap and $2.6 million from the exercise of stock options and participation in the Purchase Plan. Net cash provided by financing activities in 2019 consisted of net proceeds of $9.8 million from the first tranche of a term loan with Midcap and $1.6 million from exercise of stock options and participation in the Purchase Plan. Net cash provided by financing activities in 2018 consisted of net proceeds of $67.2 million from issuance of common stock pursuant to the underwritten public offering and $4.7 million proceeds from exercise of stock options and participation in the Purchase Plan.

Off-Balance Sheet Arrangements

As of December 31, 2020 and 2019, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Exchange Act).

Contractual Obligations

We conduct our commercial activities and research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, contract research organizations (CRO) 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.

We have agreements with certain clinical research organizations to conduct our clinical trials and with third parties relative to our commercialization of TAVALISSE. 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 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 commercial launch of TAVALISSE. 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. As of December 31, 2020, we do not have material contractual commitments with respect to the arrangements discussed above, but we had the following contractual commitments related to our facilities lease and credit facility:

Less than Payment Due By Period More than

Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years

(in thousands)

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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.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Rigel Pharmaceuticals, Inc.

Page

Report of Independent Registered Public Accounting Firm 94

Balance Sheets 96

Statements of Operations 97

Statements of Comprehensive Loss 98

Statements of Stockholders’ Equity 99

Statements of Cash Flows 100

Notes to Financial Statements 101

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Rigel Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Rigel Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 2, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Product Sales Allowances and Discounts

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/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1998.

Redwood City, California

March 2, 2021

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RIGEL PHARMACEUTICALS, INC.

BALANCE SHEETS

(In thousands, except share and per share amounts)

December 31,

Assets

Current assets:

Prepaid and other current assets 14,045 9,462

Property and equipment, net 2,676 2,159

Operating lease right-of-use asset 17,895 25,709

Liabilities and stockholders’ equity

Current liabilities:

Accrued research and development 4,889 5,960

Lease liabilities, current portion 8,621 7,272

Deferred revenue, current portion 3,018 25,288

Long-term portion of deferred revenue — 1,404

Long-term portion of lease liabilities 10,651 19,230

Loans payable, net of discount 19,815 9,810

Other long-term liabilities 5,045 5,098

Commitments

Stockholders’ equity:

Accumulated other comprehensive (loss) income (4) 23

See accompanying notes.

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RIGEL PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Year Ended December 31,

Revenues:

Costs and expenses:

Cost of product sales 895 906 287

Interest expense (1,353) (335) —

Net loss per share, basic and diluted $ (0.18) $ (0.40) $ (0.44)

See accompanying notes.

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RIGEL PHARMACEUTICALS, INC.

STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Year Ended December 31,

Other comprehensive income (loss):

Net unrealized gain (loss) on short-term investments (27) 47 58

See accompanying notes.

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RIGEL PHARMACEUTICALS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

Accumulated

Additional Other Total

Common Stock Paid-in Comprehensive Accumulated Stockholders’

Shares Amount Capital Income (Loss) Deficit Equity

Net loss — — — — (70,480) (70,480)

Stock compensation expense — — 7,759 — — 7,759

Net loss — — — — (66,894) (66,894)

Stock compensation expense — — 9,209 — — 9,209

Net loss — — — — (29,744) (29,744)

Stock compensation expense — — 7,386 — — 7,386

See accompanying notes.

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RIGEL PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Operating activities

Depreciation and amortization 706 683 594

Changes in assets and liabilities:

Prepaid and other current assets (4,583) (5,673) (1,797)

Right-of-use assets 7,814 7,118 —

Accrued research and development (1,071) (803) 1,735

Lease liability (7,230) (6,725) —

Deferred rent and other long-term liabilities — 5,098 (322)

Investing activities

Financing activities

Net proceeds from term loan financing 9,975 9,789 —

Cash and cash equivalents at beginning of period 22,521 76,322 38,290

Cash and cash equivalents at end of period $ 30,373 $ 22,521 $ 76,322

Supplemental disclosure of cash flow information

Interest paid $ 1,180 $ 137 $ —

See accompanying notes.

100

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In this Annual Report on Form 10-K, “Rigel,” “we,” “us” and “our” refer to Rigel Pharmaceuticals, Inc. and “common stock” refers to Rigel’s common stock, par value $0.001 per share.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations and basis of presentation

We are a biotechnology company dedicated to discovering, developing and providing novel small molecule drugs that significantly improve the lives of patients with hematologic disorders, cancer and rare immune diseases. Our pioneering research focuses on signaling pathways that are critical to disease mechanisms. Our first product approved by the United States Food and Drug Administration (FDA) is TAVALISSE® (fostamatinib disodium hexahydrate) tablets, the only oral spleen tyrosine kinase (SYK) inhibitor, for the treatment of adult patients with chronic immune thrombocytopenia (ITP) who have had an insufficient response to a previous treatment. The product is also commercially available in Europe (TAVLESSE) and Canada (TAVALISSE) for the treatment of chronic immune thrombocytopenia in adult patients.

Fostamatinib is currently being studied in a Phase 3 trial for the treatment of warm autoimmune hemolytic anemia (AIHA); an NIH/NHLBI-Sponsored Phase 2 trial for the treatment of hospitalized COVID-19 patients, in collaboration with Inova Health System; and a Phase 2 trial for the treatment of COVID-19 being conducted by Imperial College London. Additionally, we launched a Phase 3 clinical trial of fostamatinib for the treatment of hospitalized COVID-19 patients.

Other clinical trials include an ongoing Phase 1 study of R835, a proprietary molecule from our interleukin receptor associated kinase (IRAK) inhibitor program; and a recently completed Phase 1 study of R552, a proprietary molecule from its receptor-interacting protein kinase (RIP1) inhibitor program. In addition, we have product candidates in clinical development with partners AstraZeneca AB (AZ), BerGenBio ASA (BerGenBio), Daiichi Sankyo (Daiichi), and Eli Lilly and Company (Lilly).

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates and assumptions made by management include those relating to revenue recognition on product sales and collaboration agreements, recoverability of our assets, including accounts receivables and inventories, stock-based compensation and the probability of achievement of corporate performance-based milestones for our performance-based stock option awards, impairment issues, the weighted average incremental borrowing rate for our lease, estimated interest rate for our financing liability, the estimated useful life of assets, and estimated accruals, particularly research and development accruals, on an ongoing basis. 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. To the extent there are material differences between these estimates and actual results, our financial statements will be affected.

Inventories

Inventories are stated at the lower of cost or estimated net realizable value. We determine the cost of inventories using the standard cost method, which approximates actual cost based on a FIFO basis. Inventories consist primarily of third-party manufacturing costs and allocated internal overhead costs. We began capitalizing inventory costs associated with our product upon regulatory approval when, based on management’s judgment, future commercialization was considered probable and the future economic benefit was expected to be realized.

Prior to FDA approval of TAVALISSE, all manufacturing costs were charged to research and development expense in the period incurred. At December 31, 2020 and 2019, our physical inventory included active pharmaceutical product of which costs have been previously charged to research and development expense. However, manufacturing of

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drug product, finished bottling and other labeling activities that occurred post FDA approval are included in the inventory value at December 31, 2020 and 2019.

We provide reserves for potential excess, dated or obsolete inventories based on an analysis of forecasted demand compared to quantities on hand and any firm purchase orders, as well as product shelf life.

Cost of Product Sales

Cost of product sales consists of third-party manufacturing costs, transportation and freight, and indirect overhead costs associated with the manufacture and distribution of TAVALISSE. A portion of the cost of producing the product sold to date was expensed as research and development prior to the NDA approval for TAVALISSE and therefore is not included in the cost of product sales during this period.

Accounts Receivable

Accounts receivable are recorded net of customer allowances for prompt payment discounts and any allowance for doubtful accounts. As of December 31, 2020 and 2019, customer allowance for prompt payment discounts were $171,000 and $109,000, respectively. We estimate the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of customers and individual customer circumstances. As of December 31, 2020 and 2019, we have determined that an allowance for doubtful accounts is not required.

The following table summarizes the activity of our customer allowances for prompt payment discounts for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Balance at January 1, 2018 $ —

Provision for prompt payment discount during the year 189

Reduction in prompt payment discount during the year (139)

Provision for prompt payment discount during the year 540

Reduction in prompt payment discount during the year (481)

Provision for prompt payment discount during the year 807

Reduction in prompt payment discount during the year (745)

Revenue Recognition

We recognize revenue in accordance with ASC Topic 606, Revenue From Contracts with Customers (ASC 606), when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine whether arrangements are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation. We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of this new guidance, we assess the goods or services promised within each contract and identify, as a performance obligation, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Product Sales

Revenues from product sales are recognized when the Specialty Distributors (SDs), who are our customers, obtain control of our product, which occurs at a point in time, upon delivery to such SDs. These SDs subsequently resell

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our products to specialty pharmacy providers, health care providers, hospitals and clinics. In addition to distribution agreements with these SDs, we also enter into arrangements with specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of our products.

Under ASC 606, 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 are recorded net of certain variable considerations which includes estimated government-mandated rebates and chargebacks, distribution fees, estimated product returns and other deductions.

Provisions for returns and other adjustments are provided for in the period the related revenue is recorded. 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.

The following are our significant categories of sales discounts and allowances:

Sales Discounts. We provide our customers prompt payment discounts that are explicitly stated in our contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized.

Product Returns. We offer our customers a right to return product purchased directly from us, which is principally based upon the product’s expiration date. Product return allowances are estimated and recorded at the time of sale.

Government Rebates: We are subject to discount obligations under the state Medicaid programs, Tricare program and Medicare prescription drug coverage gap program. We estimate our Medicaid and Medicare prescription drug coverage gap rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is included as part of Other Accrued Liabilities account in the Balance Sheet. Our liability for these rebates consists primarily of estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

Chargebacks and Discounts: Chargebacks for fees and discounts represent the estimated obligations resulting from contractual commitments to sell products to certain specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities at prices lower than the list prices charged to our SDs who directly purchase the product from us. These SDs charge us for the difference between what they pay for the product and our contracted selling price to these specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue. Actual chargeback amounts are generally determined at the time of resale to the specialty pharmacy providers, in-office dispensing providers, group purchasing organizations, and government entities by our SDs. The estimated obligations arising from these chargebacks and discounts are included as part of Other Accrued Liabilities in the balance sheet.

Co-Payment Assistance: We offer co-payment assistance to commercially insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue.

Contract Revenues from Collaborations

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following: upfront license fees; development, regulatory and commercial milestone payments; product supply services; and royalties on net sales of licensed products.

Development, Regulatory or Commercial Milestone Payments: At the inception of each arrangement that includes payments based on 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 recorded as part of contract revenues from collaborations during the period of adjustment.

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.

Stock award plans

On May 16, 2018, our stockholders approved the adoption of the Company’s 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan is the successor plan to the 2011 Equity Incentive Plan, the 2000 Equity Incentive Plan, and the 2000 Non-Employee Directors' Stock Option Plan.

As of December 31, 2020, we have two stock option plans, our 2018 Plan and the Inducement Plan (collectively, the Equity Incentive Plans), that provide for granting to our officers, directors and all other employees and consultants options to purchase shares of our common stock. We also have our Employee Stock Purchase Plan (Purchase Plan), wherein eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. The fair value of each 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 U.S. Treasury constant maturity rate. We have not paid and do not expect to pay dividends in the foreseeable future. We use

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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.

Cash, cash equivalents and short-term investments

We consider all highly liquid investments in debt securities with maturity from the date of purchase of 90 days or less to be cash equivalents. Cash equivalents consist of money market funds, U.S. treasury bills, corporate bonds and commercial paper and investments in government-sponsored enterprises. Our short-term investments include U.S. treasury bills, obligations of government- sponsored enterprises and corporate bonds and commercial paper. By policy, we limit the concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers. We view our short-term investments portfolio as available for use in current operations. Accordingly, we have classified certain securities as short-term investments on our balance sheet even though the stated maturity date of these securities may be more than one year from the current balance sheet date.

All cash equivalents and short-term investments are classified as available-for-sale securities. Available-for-sale securities are carried at fair value at December 31, 2020 and 2019. Unrealized gains (losses) are reported in the statements of stockholders’ equity and comprehensive loss. Fair value is estimated based on available market information or valuation methodologies. The cost of securities sold is based on the specific identification method. See Note 7 for a summary of available-for-sale securities at December 31, 2020 and 2019.

Fair value of financial instruments

The carrying values of cash, accounts receivable, prepaid and other current assets, accounts payable and accrued liabilities approximate fair value due to the short-term maturity of those instruments. Cash equivalents and short-term investments are carried at fair value at December 31, 2020 and 2019.

Concentration of credit risk

Financial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents, short-term investments and accounts receivable. Cash equivalents and short-term investments primarily consist of money market funds, U.S. treasury bills, government-sponsored enterprise securities, and corporate bonds and commercial paper. Due to the short-term nature of these investments, we believe we do not have a material exposure to credit risk arising from our investments. All cash and cash equivalents and short-term investments are maintained with financial institutions that management believes are creditworthy.

Concentrations of credit risk with respect to accounts receivable are limited due to our limited number of customers.

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Property and equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years.

Research and development expenses

Research and development expenses include costs for scientific personnel, supplies, equipment, consultants, research sponsored by us, allocated facility costs, costs related to pre-clinical and clinical trials, including raw materials, and stock-based compensation expense. All such costs are charged to research and development expense as incurred and at the time raw materials are purchased.

RIGL US Equity

RIGL · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

RIGL US Equity☆

RIGL · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

RIGL US Equity