10-Q 1 arna-20210930.htm 10-Q arna-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM 10-Q
_____________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to
Commission File Number: 000-31161
_____________________________
ARENA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
_____________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
23-2908305
(I.R.S. Employer
Identification No.)
136 Heber Avenue, Suite 204, Park City, UT
(Address of principal executive offices)
84060
(Zip Code)
858.453-7200
(Registrant’s telephone number, including area code)
_____________________________
Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareARNAThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer¨
Non-accelerated filer¨Small reporting company
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes    x  No
The number of shares of common stock outstanding as of the close of business on October 28, 2021:
ClassNumber of Shares Outstanding
Common Stock, $0.0001 par value61,328,323


ARENA PHARMACEUTICALS, INC.
INDEX
TRADEMARKS AND CERTAIN TERMS
In this Quarterly Report on Form 10-Q, “Arena Pharmaceuticals,” “Arena,” “Company,” “we,” “us” and “our” refer to Arena Pharmaceuticals, Inc., and our wholly owned subsidiaries on a consolidated basis, unless the context otherwise provides. “APD” is an abbreviation for Arena Pharmaceuticals Development, GmbH.
Arena Pharmaceuticals ® and Arena ® are registered service marks of Arena. Any other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.
i

PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements.
ARENA PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
September 30,
2021
December 31,
2020
Assets
Current assets:
Cash and cash equivalents$386,653 $219,544 
Short-term investments, available-for-sale385,014 884,497 
Prepaid expenses and other current assets19,253 35,266 
Total current assets790,920 1,139,307 
Investments, available-for-sale52,953  
Land, property and equipment, net19,558 22,090 
Other non-current assets37,596 29,323 
Total assets$901,027 $1,190,720 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities$30,037 $35,351 
Accrued clinical and preclinical study fees18,434 18,325 
Current portion of lease financing obligations4,884 4,401 
Total current liabilities53,355 58,077 
Other long-term liabilities9,466 10,963 
Lease financing obligations, less current portion37,485 41,211 
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value, 7,500,000 shares authorized, no shares issued and outstanding at September 30, 2021 and December 31, 2020
  
Common stock, $0.0001 par value, 147,000,000 shares authorized at September 30, 2021 and December 31, 2020; 61,280,176 and 58,611,210 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
6 6 
Additional paid-in capital2,769,148 2,587,494 
Accumulated other comprehensive income122 700 
Accumulated deficit(1,968,555)(1,507,731)
Total stockholders' equity800,721 1,080,469 
Total liabilities and stockholders' equity$901,027 $1,190,720 
See accompanying notes to unaudited condensed consolidated financial statements.
1

ARENA PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenues:
Collaboration and other revenue$ $20 $ $20 
Royalty revenue   262 
Total revenues 20  282 
Operating Costs and Expenses:
Research and development94,180 79,820 309,168 223,299 
Acquired in-process research and development70,000  70,000  
Selling, general and administrative30,305 19,002 91,701 68,321 
Total operating costs and expenses194,485 98,822 470,869 291,620 
Loss from operations(194,485)(98,802)(470,869)(291,338)
Interest and Other Income (Expense):
Interest income205 1,825 1,223 9,836 
Interest expense(1,031)(1,120)(3,155)(3,427)
Other (expense) income, net(1,001)659 (1,892)2,356 
Gain from Longboard equity method investment   13,869  
Total interest and other income (expense), net(1,827)1,364 10,045 8,765 
Net loss$(196,312)$(97,438)$(460,824)$(282,573)
Net loss per share, basic and diluted:$(3.21)$(1.69)$(7.61)$(5.27)
Shares used in calculating net loss per share, basic and diluted:61,140 57,779 60,574 53,608 
Comprehensive Loss:
Net loss$(196,312)$(97,438)$(460,824)$(282,573)
Foreign currency translation gain (loss)74 52 (41)69 
Unrealized (loss) gain on available-for-sale investments(44)(1,151)(537)180 
Comprehensive loss$(196,282)$(98,537)$(461,402)$(282,324)
See accompanying notes to unaudited condensed consolidated financial statements.
2

ARENA PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
(Unaudited)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
SharesAmount
Balance at December 31, 202058,611,210 $6 $2,587,494 $700 $(1,507,731)$1,080,469 
Shares issued from stock plans, net of payroll taxes paid766,792 — 8,982 — — 8,982 
Share-based compensation expense— — 17,016 — — 17,016 
Issuance of common stock under the ATM facility, net1,241,142 — 98,438 — — 98,438 
Unrealized loss on available-for-sale investments— — — (331)— (331)
Translation loss— — — (165)— (165)
Net loss— — — — (118,417)(118,417)
Balance at March 31, 202160,619,144 $6 $2,711,930 $204 $(1,626,148)$1,085,992 
Shares issued from stock plans, net of payroll taxes paid425,852 — 13,510 — — 13,510 
Share-based compensation expense— — 17,785 — — 17,785 
Unrealized loss on available-for-sale investments— — — (162)— (162)
Translation gain— — — 50 — 50 
Net loss— — — — (146,095)(146,095)
Balance at June 30, 202161,044,996 $6 $2,743,225 $92 $(1,772,243)$971,080 
Shares issued from stock plans, net of payroll taxes paid235,180 — 8,594 — — 8,594 
Share-based compensation expense— — 17,329 — — 17,329 
Unrealized loss on available-for-sale investments— — — (44)— (44)
Translation gain— — — 74 — 74 
Net loss— — — — (196,312)(196,312)
Balance at September 30, 202161,280,176 $6 $2,769,148 $122 $(1,968,555)$800,721 

3

Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
SharesAmount
Balance at December 31, 201950,170,953 $5 $2,173,154 $1,303 $(1,102,997)$1,071,465 
Shares issued from stock plans, net of payroll taxes paid125,761 — 3,191 — — 3,191 
Share-based compensation expense— — 15,214 — — 15,214 
Unrealized loss on available-for-sale investments— — — (1,164)— (1,164)
Translation loss— — — (14)— (14)
Net loss— — — — (100,207)(100,207)
Balance at March 31, 202050,296,714 $5 $2,191,559 $125 $(1,203,204)$988,485 
Issuance of common stock to underwriters, net6,325,000 1 301,753 — — 301,754 
Shares issued from stock plans, net of payroll taxes paid953,164 — 22,564 — — 22,564 
Share-based compensation expense— — 12,236 — — 12,236 
Unrealized gain on available-for-sale investments— — — 2,495 — 2,495 
Translation gain— — — 31 — 31 
Net loss— — — — (84,928)(84,928)
Balance at June 30, 202057,574,878 $6 $2,528,112 $2,651 $(1,288,132)$1,242,637 
Shares issued from stock plans, net of payroll taxes paid468,909 — 13,510 — — 13,510 
Share-based compensation expense— — 12,317 — — 12,317 
Unrealized gain on available-for-sale investments— — — (1,151)— (1,151)
Translation gain— — — 52 — 52 
Net loss— — — — (97,438)(97,438)
Balance at September 30, 202058,043,787 $6 $2,553,939 $1,552 $(1,385,570)$1,169,927 
See accompanying notes to unaudited condensed consolidated financial statements.
4

ARENA PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
20212020
Operating Activities:
Net loss$(460,824)$(282,573)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in-process research and development$70,000  
Depreciation and amortization2,918 2,899 
Share-based compensation52,107 39,767 
Amortization of net premiums (discounts) on available-for-sale investments3,220 416 
Gain from Longboard equity method investment(13,869) 
Other operating activities, net4,773 (800)
Changes in operating assets and liabilities:
Accounts receivable1,014 1,766 
Prepaid expenses and other assets15,820 (13,440)
Accounts payable, accrued liabilities and other current liabilities(6,679)5,254 
Net cash used in operating activities(331,520)(246,711)
Investing Activities:
Cash paid for acquired in-process research and development(70,000) 
Purchases of available-for-sale investments(410,316)(641,445)
Proceeds from sale and maturity of available-for-sale investments853,089 767,434 
Purchases of property and equipment(455)(684)
Net cash provided by investing activities372,318 125,305 
Financing Activities:
Principal payments on lease financing obligations(3,243)(2,810)
Proceeds from issuance of common stock under ATM facility, net98,438  
Proceeds from issuance of common stock in public offering, net 301,749 
Proceeds from issuance of common stock from stock plans, net31,086 39,270 
Net cash provided by financing activities126,281 338,209 
Effect of exchange rate changes on cash30 68 
Net change in cash, cash equivalents and restricted cash167,109 216,871 
Cash, cash equivalents and restricted cash at beginning of period219,770 243,500 
Cash, cash equivalents and restricted cash at end of period$386,879 $460,371 
Supplemental Disclosure:
Cash paid for interest$3,096 $3,377 
See accompanying notes to unaudited condensed consolidated financial statements.
5

ARENA PHARMACEUTICALS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Arena Pharmaceuticals, Inc. should be read in conjunction with the audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission, or SEC, from which the Company derived its condensed consolidated balance sheet as of December 31, 2020. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company’s management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year, particularly in light of the pandemic of coronavirus disease 2019, or COVID-19, and its impact on domestic and global economies.
Liquidity.
As of September 30, 2021, the Company had cash, cash equivalents and available-for-sale investments of approximately $0.8 billion. The Company believes its cash, cash equivalents and available-for-sale investments will be sufficient to fund its operations for at least the next 12 months.
The Company will require substantial cash to achieve its objectives of discovering, developing and commercializing drugs, as this process typically takes many years and potentially hundreds of millions of dollars for an individual drug. The Company may not have adequate available cash, or assets that could be readily turned into cash, to meet these objectives in the long term. The Company will need to obtain significant funds under its existing collaborations, under new collaborations, licensing or other commercial agreements for one or more of its drug candidates, programs or patent portfolios, or from other potential sources of liquidity, which may include the sale of equity, issuance of debt or other transactions. The Company's ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and potential disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If the Company is not able to secure adequate additional funding, it may be forced to make reductions in spending, extend payment terms with its clinical research organizations and suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm the Company's business, results of operations and future prospects. To the extent the Company obtains additional funding through product collaborations, these arrangements would generally require it to relinquish rights to some of its product candidates or products, and the Company may not be able to enter into such agreements on acceptable terms, if at all.
Use of Estimates.
The preparation of financial statements in accordance with GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. The amounts reported could differ under different estimates and assumptions.
Reclassifications.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Contingencies.
The Company discloses information regarding each material claim where the likelihood of a loss contingency is probable or reasonably possible. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. 

6

Acquired In-Process Research and Development (“IPR&D”).
The initial costs of rights to IPR&D projects acquired in an asset acquisition are expensed as IPR&D unless the project has an alternative future use. The fair value of IPR&D projects acquired in a business combination is capitalized and accounted for as an indefinite-lived intangible asset until the underlying project receives regulatory approval, at which point the intangible asset will be accounted for as a finite-lived intangible asset, or is discontinued, at which point the intangible asset will be written off. Research and development costs incurred after an acquisition are expensed as incurred.
Recent Accounting Pronouncements.
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed below, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial statements upon adoption.
The following table provides a brief description of recently issued or adopted accounting standards:
StandardDescriptionEffective DateEffect on the Financial
Statements or Other Significant Matters
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
ASU 2019-12 modifies ASC 740, Income Taxes to simplify the accounting for income taxes in various areas.
January 1, 2021
The Company adopted ASU 2019-12 on January 1, 2021 which did not have a material impact on its consolidated financial statements.
ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)
ASU 2020-01 clarifies the interactions between Topic 321 (equity securities), Topic 323 (equity method and joint ventures) and Topic 815 (derivatives and hedge accounting). The ASU addresses the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments.
January 1, 2021
The Company adopted ASU 2020-01 on January 1, 2021 which did not have a material impact on its consolidated financial statements.
ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Cost
ASU 2020-08 clarifies an entity should, for each reporting period, reevaluate the amortization period for a premium paid on an individual callable debt security that has multiple call dates.
January 1, 2021
The Company adopted ASU 2020-08 on January 1, 2021 which did not have a material impact on its consolidated financial statements.
Concentrations of Credit Risk.
The Company's financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and available-for-sale investments. The Company limits its exposure to credit loss by holding cash primarily in US dollars or placing its cash and investments in US government, agency or government-sponsored enterprise obligations and in corporate debt instruments that are rated investment grade, in accordance with an investment policy approved by its Board of Directors.
2. Cash, cash equivalents and restricted cash
The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the accompanying condensed consolidated balance sheets to the total of the amount presented in the condensed consolidated statements of cash flows, in thousands: 
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September 30,
2021
December 31,
2020
Cash and cash equivalents$386,653 $219,544 
Restricted cash included in other non-current assets226 226 
Total cash, cash equivalents and restricted cash presented in the condensed
 consolidated statements of cash flows
$386,879 $219,770 
Restricted cash relates to the Company’s property leases. The restriction will lapse when the related leases expire.
3. Fair Value Disclosures
The Company’s investments include cash equivalents and available-for-sale investment securities consisting of money market funds, U.S. treasury notes, and high quality, marketable debt instruments of corporations and government sponsored enterprises in accordance with the Company’s investment policy. The Company’s investment policy defines allowable investment securities and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity.
The Company measures its financial assets and liabilities at fair value, which is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company uses the following three-level valuation hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial assets and liabilities:
Level 1-Observable inputs such as unadjusted quoted prices in active markets for identical instruments.
Level 2-Quoted prices for similar instruments in active markets or inputs that are observable for the asset or liability, either directly or indirectly.
Level 3-Significant unobservable inputs based on our assumptions.
The following tables present the Company's valuation hierarchy for its financial assets that are measured at fair value on a recurring basis, in thousands:
Fair Value Measurements as of
September 30, 2021
Level 1Level 2Level 3Total
Money market funds(1)
$314,345 $ $ $314,345 
US government and government agency notes(2)
166,214   166,214 
Corporate debt securities(2)
 136,052  136,052 
Commercial paper(2)
 135,701  135,701 
$480,559 $271,753 $ $752,312 
Fair Value Measurements as of
December 31, 2020
Level 1Level 2Level 3Total
Money market funds(1)
$64,361 $ $ $64,361 
US government and government agency notes(2)
621,400   621,400 
Corporate debt securities(3)
 162,906  162,906 
Commercial paper(3)
 131,525  131,525 
$685,761 $294,431 $ $980,192 
______________________
(1)Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.
(2)Included in available-for-sale investments in the accompanying condensed consolidated balance sheets.
(3)Included in either cash and cash equivalents or available-for-sale investments in the accompanying condensed consolidated balance sheets.
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The Company obtains the fair value of its Level 2 financial instruments from third-party pricing services. The pricing services utilize industry standard valuation models whereby all significant inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, or other market-related data, are observable. The Company validates the prices provided by the third-party pricing services by reviewing their pricing methods and matrices and obtaining market values from other pricing sources. The Company did not adjust or override any fair value measurements provided by these pricing services as of September 30, 2021 and December 31, 2020, respectively. The Company has not transferred any investment securities between the classification levels.
4. Investments, Available-for-Sale
Investments, available-for-sale, consisted of the following, in thousands:
September 30, 2021Maturity
 in years
Amortized
Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
Estimated
Fair Value
US government and government agency notesLess than 1$125,582 $1 $(5)$125,578 
Corporate debt securitiesLess than 1123,777 12 (54)123,735 
Commercial paperLess than 1135,705 5 (9)135,701 
Short-term investments, available-for-sale$385,064 $18 $(68)$385,014 
US government and government agency notes1-540,652  (16)40,636 
Corporate debt securities1-512,332  (15)12,317 
Investments, available-for-sale$52,984 $ $(31)$52,953 
December 31, 2020Maturity
 in years
Amortized
Cost
Gross
Unrealized Gains
Gross
Unrealized Losses
Estimated
Fair Value
US government and government agency notesLess than 1$621,281 $178 $(59)$621,400 
Corporate debt securitiesLess than 1160,244 362 (38)160,568 
Commercial paperLess than 1102,513 22 (6)102,529 
Short-term investments, available-for-sale$884,038 $562 $(103)$884,497 
5. Land, Property and Equipment, net
Land, property and equipment, net consisted of the following, in thousands:
September 30,
2021
December 31,
2020
Cost$75,073 $74,753 
Less accumulated depreciation and amortization(55,515)(52,663)
Land, property and equipment, net$19,558 $22,090 
6. Equity Method Investment
In October 2020, the Company announced the launch and $56.0 million Series A financing of Longboard Pharmaceuticals, Inc., or Longboard (formerly known as Arena Neuroscience, Inc.), which was expected to focus on developing novel central nervous system, or CNS, targeted assets discovered by the Company’s G-protein-coupled receptor, or GPCR, research engine. Longboard was previously a wholly owned subsidiary of Arena. As of the completion of Longboard’s Series A financing in October 2020, the Company’s ownership in Longboard comprised approximately 33.4% of the outstanding shares of capital stock of Longboard. The Company has licensed certain development and worldwide commercialization rights to Longboard and is entitled to receive royalties on potential sales of LP352, LP143 and LP659, in the future. In October 2020, the Company also entered into a separate services agreement with Longboard, pursuant to which it agreed to perform certain research and development services, general and administrative services, management services and
9

other mutually agreed services for Longboard and receive service fees. The Company’s investment is accounted for as an equity method investment, and the investee, Longboard, is considered a related party.
In March 2021, Longboard completed an initial public offering (“IPO”) and the Company’s ownership was diluted to 23.5%. The Company recorded a gain of approximately $13.9 million during the three months ended March 31, 2021 as a result of the offering to account for the related ownership dilution of its equity method investment. The gain was determined based upon the Company’s proportionate share of the increase in the net assets of Longboard from the offering.
The carrying value and ownership percentage of the Company’s equity method investment is as follows, in thousands, except ownership percentages:
September 30, 2021December 31, 2020
Balance Sheet LocationCarrying ValueOwnership %Carrying ValueOwnership %
LongboardOther non-current assets$21,427 23.1 %$12,331 33.4 %
Equity method investment activity included in the Company’s condensed consolidated statements of operations is as follows, in thousands:
Income Statement LocationThree Months Ended
September 30, 2021
Nine Months Ended
September 30, 2021
Equity in losses from LongboardOther (expense) income, net$(1,496)$(4,773)
Gain from Longboard IPOGain from Longboard equity method investment$ $13,869 
Accounts receivable due from Longboard related to the service agreement was approximately $0.3 million as of September 30, 2021 and is classified in “Prepaid expenses and other current assets” in the condensed consolidated balance sheets.
7. Accounts Payable and Other Accrued Liabilities
Accounts payable and other accrued liabilities consisted of the following, in thousands:
September 30,
2021
December 31,
2020
Accounts payable$6,937 $12,004 
Accrued compensation15,878 18,846 
Other accrued liabilities7,222 4,501 
Total accounts payable and other accrued liabilities$30,037 $35,351 
8. Collaborations and License Agreements
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for more information on its significant collaboration and license agreements.
Beacon Discovery Agreements
In 2016, the Company entered into a license and collaboration agreement (“2016 License and Collaboration Agreement”) with Beacon Discovery, Inc. (“Beacon”), pursuant to which the Company granted Beacon a non-exclusive, non-assignable and non-sublicensable license to certain database information relating to compounds, receptors and pharmacology, and transferred certain equipment to Beacon.
In 2020, the Company entered into a multi-year strategic collaboration and license agreement (“2020 Collaboration and License Agreement”) with Beacon, aimed at building novel medicines across a range of GPCR targets believed to play a role in immune and inflammatory diseases. Under the terms of this agreement, Beacon is responsible for early drug discovery activities and the Company is responsible for any potential future development and, ultimately, commercialization activities. The Company is required to pay Beacon research initiation fees, make quarterly research funding payments for the duration of Beacon’s research activities as well as research, development and regulatory milestone payments. We are also obligated to pay Beacon tiered royalties on net sales of low single digits levels.
In the first quarter of 2021, the Company received a $1.1 million payment as a result of the merger (“Merger”) between Eurofins Beacon Discovery Holdings, Inc. (“Eurofins”) and Beacon. This payment satisfied Beacon’s obligation to pay
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the Company a percentage of the consideration for such sale transaction in the event that Beacon was sold as outlined in the 2016 License and Collaboration Agreement. The Company is eligible to receive future contingent consideration payments based on certain performance metrics achieved by Beacon over a four-year performance period through the first quarter of 2025 up to an aggregate of $2.0 million.
Following the Merger, the Company entered into a Consent and Release Agreement that terminated the Company’s rights of negotiation and rights of first refusal to potentially obtain licenses to certain compounds discovered and developed by Beacon. In addition, the Consent and Release Agreement terminated the Company’s right, under the 2016 License and Collaboration Agreement, to receive any revenue received by Beacon including upfront payments, milestone payments and royalties. The 2020 Collaboration and License Agreement with Beacon remains in effect and was not impacted by the Merger.
Aristea Collaboration and Option Agreement
In July 2021, the Company entered into a strategic collaboration and option agreement to advance the clinical development of RIST4721, an oral CXCR2 antagonist being developed by Aristea Therapeutics, Inc. (“Aristea”) for the treatment of palmoplantar pustulosis (“PPP”) and other neutrophil-mediated diseases.
Under the terms of the agreement, the Company paid $60.0 million upfront to Aristea and invested $10.0 million in Aristea’s Series B preferred stock, representing approximately 6% of the outstanding shares of capital stock of Aristea, both of which were paid in July 2021. In return, Aristea granted the Company an exclusive option to acquire Aristea, including rights to all CXCR2 programs, upon completion of the Phase 2b study of RIST4721 in PPP. The agreement also provided a framework during the option period for the companies to jointly explore the development of additional neutrophil-mediated diseases, including hidradenitis suppurativa and inflammatory bowel disease. The Company accounted for the transaction as an asset acquisition and expensed the total $70.0 million payment to Aristea as acquired in-process research and development in the condensed consolidated statement of operations during the three and nine months ended September 30, 2021, because: i) the Company is not the primary beneficiary and does not have a controlling financial interest in Aristea, ii) Aristea does not meet the definition of a business from an accounting perspective, and iii) the asset has no alternative future use.
9. Stockholders’ Equity
In February 2020, the Company entered into a sales agreement with Credit Suisse Securities (USA) LLC, SVB Leerink LLC and Cantor Fitzgerald & Co., pursuant to which it may sell and issue shares of its common stock having an aggregate offering price of up to $250.0 million from time to time in transactions that are deemed to be “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, or Securities Act.
During the first quarter of 2021, the Company sold 1.2 million shares of common stock under the sales agreement at a weighted average price of $81.06 per share and realized gross proceeds of $100.6 million. As of October 28, 2021, the Company may sell and issue approximately $149.4 million in additional shares under the sales agreement.
The Company recognized share-based compensation expense by function as follows, in thousands:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Selling, general and administrative$9,166 $5,767 $27,059 $20,364 
Research and development8,140 6,550 25,048 19,403 
Total share-based compensation expense$17,306 $12,317 $52,107 $39,767 

The Company recognized share-based compensation expense by grant type as follows, in thousands:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Stock options$10,819 $11,314 $36,021 $35,718 
Performance-based restricted stock units3,628 75 9,108 1,730 
Restricted stock units2,591 752 6,212 1,845 
Employee stock purchase plan268 176 766 474 
Total share-based compensation expense$17,306 $12,317 $52,107 $39,767 
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Stock Options
In March 2021, 1,062,226 stock options were granted to employees in a company-wide grant. The stock options vest over four years from the grant date. The grant-date fair value of $36.5 million is recognized as compensation expense over the vesting period.
The fair value of each option issued to employees was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Expected volatility53 %55 %54 %58 %
Expected term (in years)4.264.514.274.51
Risk-free interest rate0.62 %0.28 %0.52 %0.71 %
Expected dividend yield0.0 %0.0 %0.0 %0.0 %
The following table summarizes the stock option activity under the Company’s stock option plans during the nine months ended September 30, 2021 (in thousands, except per share amounts and years):
OptionsWeighted-
Average
Exercise Price
Weighted-
Average
Contractual Life (in years)
Intrinsic Value(1)
Outstanding at January 1, 20218,699 $40.33 
Granted1,659 74.31 
Exercised(1,151)31.33 
Forfeited/cancelled/expired(1,017)53.36 
Outstanding at September 30, 20218,190 $46.87 4.42$131,145 
Exercisable at September 30, 20214,413 $37.09 3.41$99,815 
______________________
(1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the common stock for the options that were in the money at September 30, 2021.
The aggregate intrinsic value of options exercised during the three and nine months ended September 30, 2021 was $4.1 million and $44.2 million, respectively.
As of September 30, 2021, there was approximately $120.1 million of unrecognized compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of 2.6 years.
Restricted Stock Units
In March 2021, a total of 349,645 Restricted Stock Units, or RSUs, were granted to employees in a company-wide grant. The RSUs vest over four years from the grant date. The grant-date fair value of $28.0 million is recognized as compensation expense over the vesting period
Restricted stock unit awards are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. The following table summarizes the Company’s RSU activity during the nine months ended September 30, 2021, in thousands (except grant date fair value data):
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Number of SharesWeighted-
Average
Grant Date Fair Value
Non-vested at January 1, 2021243 $54.00 
Granted592 73.07 
Released(62)51.66 
Forfeited/cancelled(123)68.26 
Non-vested at September 30, 2021650 $68.88 
As of September 30, 2021, there was approximately $46.6 million of unrecognized compensation expense related to unvested RSUs that is expected to be recognized over a remaining weighted-average period of 3.2 years.
Performance-Based Restricted Stock Units
In March 2021, a total of 205,072 target Performance-Based Restricted Stock Units, or PRSUs, were granted to employees in a company-wide grant. The PRSUs vest upon the closing price of the Company’s common stock, or the Closing Price, reaching certain price thresholds during the three-year performance period beginning March 2021 and ending February 2024, or the Performance Period, and the participant’s subsequent satisfaction of a continuing service requirement of generally 90 calendar days. If, on five consecutive trading days or ten non-consecutive trading days during the Performance Period, the Closing Price equals or exceeds $120.00, $130.00 or $145.00, and the participant thereafter satisfies the continuing service requirement, then the PRSUs are deemed vested at 50%, 100% or 200%, respectively, of the participant’s respective target PRSU amount. The shares may be issued following achievement of each price threshold, and the maximum number of common shares that may be issued pursuant to each PRSU grant equals 200% of the target number of PRSUs granted. As these awards contain a market condition, the Company used a Monte Carlo simulation model to estimate the grant-date fair value, which totaled $21.6 million. The grant-date fair value is recognized as compensation expense over the requisite service period of approximately 1.2 years which was derived from the Monte Carlo simulation; no compensation expense is recognized for service not provided upon separation from the Company. There is no adjustment of compensation expense recognized for service performed regardless of the number of PRSUs, if any, that ultimately vest.
Performance awards are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. The following table summarizes the Company’s PRSU activity during the nine months ended September 30, 2021, in thousands (except grant date fair value data):
Number of SharesWeighted-
Average
Grant Date Fair Value
Non-vested at January 1, 2021273 $27.97 
Granted(1)
434 50.42 
Released(273)27.97 
Forfeited/cancelled(58)52.77 
Non-vested at September 30, 2021376 $50.05 
______________________
(1)Pursuant to the terms of the awards granted, the actual number of awards earned could range between 0% and 200% of the above number of awards granted. The amount disclosed represents PRSU grants at maximum payout.
As of September 30, 2021, there was approximately $11.5 million of unrecognized compensation expense related to unvested PRSUs.
10. Loss Per Share
The Company calculates basic and diluted loss per share using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, employee stock purchase plan rights, restricted stock units, and
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performance-based restricted stock units are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for periods of losses as their effect would be anti-dilutive.
Since the Company reported a loss for the three and nine months ended September 30, 2021, and 2020, in addition to excluding potentially dilutive out-of-the money options, the Company excluded from its calculation of loss per share all potentially dilutive (i) in-the-money stock options, (ii) RSUs, and (iii) PRSUs, and its diluted net loss per share is the same as its basic net loss per share for those periods.
The table below presents the weighted-average number of potentially dilutive securities that were excluded from the Company’s calculation of diluted loss per share for the periods presented, in thousands.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Outstanding stock options4,754 3,575 4,021 4,797 
Non-vested RSUs33 266 78 242 
Total4,787 3,841 4,099 5,039 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
This discussion and analysis should be read in conjunction with our financial statements and notes thereto included in this quarterly report on Form 10-Q, or Quarterly Report, and the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2020, or 2020 Annual Report, as filed with the Securities and Exchange Commission, or SEC. Operating results are not necessarily indicative of results that may occur in future periods.
This Quarterly Report includes forward-looking statements that involve a number of risks, uncertainties and assumptions. These forward-looking statements can generally be identified as such because the context of the statement will include words such as “may,” “will,” “intend,” “plan,” “believe,” “anticipate,” “expect,” “estimate,” “predict,” “potential,” “continue,” “likely,” or “opportunity,” the negative of these words or other similar words. Similarly, statements that describe our plans, strategies, intentions, expectations, objectives, goals or prospects and other statements that are not historical facts are also forward-looking statements. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Readers of this Quarterly Report are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the time this Quarterly Report was filed with the SEC. These forward-looking statements are based largely on our expectations and projections about future events and future trends affecting our business, and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. These risks and uncertainties include, without limitation, the risk factors identified in our SEC reports, including this Quarterly Report. In addition, past financial or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Except as required by law, we undertake no obligation to update publicly or revise our forward-looking statements.
OVERVIEW AND RECENT DEVELOPMENTS
We are a biopharmaceutical company focused on delivering novel, transformational medicines with optimized pharmacology and pharmacokinetics to patients globally. Our internally developed pipeline includes multiple potentially first- or best-in-class assets with broad clinical utility.
Our most advanced investigational clinical programs include:
Etrasimod, which we are evaluating in a Phase 3 program for ulcerative colitis, or UC, a Phase 2b/3 program for Crohn’s disease, or CD, a Phase 2 program in alopecia areata, or AA, and a Phase 2b program for eosinophilic esophagitis, or EoE. We also plan to evaluate etrasimod in a Phase 3 program in atopic dermatitis, or AD.
APD418, which we are evaluating in a Phase 2 trial for acute heart failure, or AHF.
Temanogrel, a second compound in our cardiovascular therapeutic area, which we have advanced into a Phase 2 proof of mechanism study in coronary microvascular obstruction, or cMVO and initiated a Phase 2 trial in Raynaud’s phenomenon secondary to systemic sclerosis.
Olorinab, which we were evaluating for a broad range of visceral pain conditions associated with gastrointestinal diseases. Topline results from the Phase 2b CAPTIVATE trial for treatment of abdominal pain associated with irritable bowel syndrome, or IBS, were released in March 2021 and showed that although olorinab was well tolerated it did not meet the primary efficacy endpoint of the trial. We are evaluating possible strategic options for olorinab.
We continue to leverage our two decades of world-class GPCR target discovery research to develop breakthrough drugs and ultimately deliver these to patients with large unmet needs. Our long-term pipeline prospects include an enhanced collaboration with Beacon Discovery across a broad range of immune-mediated inflammatory targets and compounds.
We have license agreements or collaborations with various companies, including:
United Therapeutics (ralinepag in a Phase 3 program for pulmonary arterial hypertension),
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Everest Medicines Limited (etrasimod in a Phase 3 program for UC in Greater China and select countries in Asia),
Beacon Discovery (early research platform for GPCR targets), and
Boehringer Ingelheim International GmbH (undisclosed orphan GPCR program for central nervous system – preclinical).
Aristea Therapeutics (RIST4721 in a Phase 2 program for the treatment of palmoplantar pustulosis and other neutrophil-mediated diseases.)
In response to the COVID-19 pandemic, substantially all of our workforce began working from home in March 2020, either all or substantially all of the time, and continues to do so as of the date of this filing. While many jurisdictions have lifted COVID-19-related restrictions, the continued spread of the coronavirus and its variants continues to cause a risk of potential delays in site initiation and participant enrollment and screening rates in certain of our clinical development programs. The potential impact, if any, that these site-level delays could have on our development program timelines remains uncertain, depending on a variety of factors including vaccination rates, which vary greatly from region to region, and the emergence and spread of new variants of the coronavirus. Our future research and development expenses and selling, general and administrative expenses may vary significantly if we experience an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities. For further information, refer to “Part II - Item 1A - Risk Factors” of this 10-Q.
Program development update.
Gastroenterology
In August 2021, ELEVATE UC 12 reached full enrollment for the pivotal trial of 12 weeks. ELEVATE UC constitutes our Phase 3 global registrational program to assess the safety and efficacy of once-daily etrasimod 2 mg in participants with moderately to severely active UC. We expect topline data from both ELEVATE UC 12 and ELEVATE UC 52 in the first quarter of 2022.
In August 2021, we increased the target enrollment for our Phase 2/3 CULTIVATE Study A for etrasimod in Crohn’s disease from 50 to 70 participants. We expect dose-ranging data to read out in the second quarter of 2022.
Dermatology
In July 2021, we evaluated an updated open-label extension (“OLE”) data set from the Phase 2 ADVISE trial for 2 mg etrasimod in atopic dermatitis which demonstrated meaningful effects at week 16 of the OLE period on validated Investigator Global Assessment (“vIGA”) at 47%, Eczema Area and Severity Index (“EASI-75”) at 72%, and Peak Pruritis Numeric Rating Scale (“PP-NRS”) at 61% with consistent safety profile out to one year.
In July 2021, the Phase 2 trial evaluating etrasimod for the potential treatment of AA was amended to add a 3 mg cohort and expand patient population subtypes. We expect to announce topline data for this trial in the second half of 2022.
Cardiovascular
In November 2021, the first participant was randomized in the Phase 2 trial for temanogrel in Raynaud’s phenomenon secondary to systemic sclerosis.
In July 2021, a Phase 2 trial for APD418 in acute heart failure was initiated. The FDA granted us Fast Track designation for development of APD418 in AHF.
Other corporate events.
In July 2021, we entered into a strategic collaboration and option agreement with Aristea Therapeutics for the development of RIST4721, an oral CXCR2 antagonist being developed for the treatment of palmoplantar pustulosis (“PPP”) and other neutrophil-mediated diseases. Refer to Note 8 Collaborations and License Agreements of the condensed consolidated financial statements for further detail.
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In July 2021, we announced the appointment of Douglas J. Manion, M.D., F.R.C.P. (C), as Executive Vice President of Research & Development.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2021, and 2020
Revenues. We did not recognize revenues for the three months ended September 30, 2021 or the three months ended September 30, 2020.
Absent any new collaborations, we do not expect to receive any milestone payments in 2021.
Revenues from milestones and royalties are difficult to predict, and our overall revenues will likely continue to vary from quarter to quarter and year to year. In the short term, we expect the amount of revenue we earn to fluctuate.
Research and development expenses.
Research and development expenses, which account for the majority of our expenses, consist primarily of salaries and other personnel costs, clinical trial costs (including payments to contract research organizations, or CROs), preclinical study fees and facility costs. We expense research and development costs as they are incurred when these expenditures have no alternative future use. We generally do not track our earlier-stage, internal research and development expenses by project; rather, we track such expenses by the type of cost incurred.
The following table summarizes research and development expenses for the periods presented (in millions, except percentages):
Three Months Ended September 30,
20212020$ Change% Change
External clinical and preclinical study fees $65.1 $54.4 $10.7 19.7 %
Salary and other personnel costs (excluding non-cash share-based compensation)17.7 16.5 1.2 7.3 %
Non-cash share-based compensation8.1 6.6 1.5 22.7 %
Facility and other costs3.3 2.3 1.0 43.5 %
Total research and development expenses$94.2 $79.8 $14.4 18.0 %
The increase in external clinical and preclinical study fees was primarily due to increased expenses for the etrasimod UC and CD programs, partially offset by a decrease in olorinab program expenses. The increase in salary and other personnel costs and non-cash share-based compensation was primarily due to an increase in the number of research and development employees and compensation expense related to PRSUs.
We expect to incur substantial research and development expenses in 2021 and for the aggregate amount in 2021 to be greater than the amount incurred in 2020. We expect our research and development costs to be higher primarily due to a higher number of clinical studies and associated external clinical trial costs and increasing headcount in connection with advancing our pipeline. Our actual expenses may be higher or lower than anticipated due to various factors, including our progress and results. For example, patient enrollment in our Phase 3 clinical programs for etrasimod is expected to be competitive and challenging, and could take longer than originally projected, which may result in our related external expenses being lower in 2021 than anticipated (but which might increase the overall costs for completing this multi-year program).
Of the $65.1 million of total external clinical and preclinical study fees noted in the table above for the three months ended September 30, 2021, $56.4 million was related to etrasimod. Of the $54.4 million of total external clinical and preclinical study fees noted in the table above for the three months ended September 30, 2020, $40.3 million was related to etrasimod.
Acquired in-process research and development.
In July 2021, we entered into a strategic collaboration and option agreement with Aristea to advance the clinical development of RIST4721, an oral CXCR2 antagonist. We made a $60.0 million upfront payment and $10 million investment
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in Aristea’s preferred stock, both of which were expensed as acquired in-process research and development expenses in the condensed consolidated statement of operations during the three months ended September 30, 2021.
Selling, general and administrative expenses.
Three Months Ended September 30,
20212020$ Change% Change
Salary and other personnel costs (excluding non-cash
 share-based compensation)
10.3 7.1 3.2 45.1 %
Non-cash share-based compensation9.2 5.8 3.4 58.6 %
Legal, accounting and other professional fees$7.8 $3.5 $4.3 122.9 %
Facility and other costs3.0 2.6