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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_____________________________

FORM 10-Q

_____________________________

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-37359

_____________________________

BLUEPRINT MEDICINES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

_____________________________

Delaware

 

26-3632015

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

 

45 Sidney Street

Cambridge, Massachusetts

 

02139

(Address of Principal Executive Offices)

 

(Zip Code)

(617374-7580

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer  

Accelerated filer

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

BPMC

Nasdaq Global Select Market

Number of shares of the registrant’s common stock, $0.001 par value, outstanding on October 28, 2022: 59,830,611

TABLE OF CONTENTS

Page

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021

6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021

7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

8

Notes to Condensed Consolidated Financial Statements

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3. Quantitative and Qualitative Disclosures About Market Risk

59

Item 4. Controls and Procedures

59

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

60

Item 1A. Risk Factors

60

Item 6. Exhibits

111

Signatures

112

1

Unless otherwise stated, all references to “us,” “our,” “Blueprint,” “Blueprint Medicines,” “we,” the “Company” and similar designations in this Quarterly Report on Form 10-Q refer to Blueprint Medicines Corporation and its consolidated subsidiaries. Blueprint Medicines, AYVAKIT®, AYVAKYT®, GAVRETO® and associated logos are trademarks of Blueprint Medicines Corporation. Other brands, names and trademarks contained in this Quarterly Report on Form 10-Q are the property of their respective owners.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” or the negative of these words or other comparable terminology, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the timing or likelihood of regulatory actions, filings and approvals for our current and future drug candidates, including our ability to obtain marketing approval for avapritinib and pralsetinib for additional indications or in additional geographies;
our ability and plans in continuing to expand out our commercial infrastructure and successfully launching, marketing and selling AYVAKIT® (avapritinib) (marketed in Europe under the brand name AYVAKYT®), GAVRETO® (pralsetinib) and any current and future drug candidates for which we receive marketing approval;
our plans, timelines and expectations for interactions with the U.S. Food and Drug Administration (FDA) and other regulatory authorities;
our expectations regarding the potential benefits of AYVAKIT in treating patients with non-advanced SM and advanced SM;
the rate and degree of market acceptance of AYVAKIT/AYVAKYT, GAVRETO and any current and future drug candidates for which we receive marketing approval;
the pricing and reimbursement of AYVAKIT/AYVAKYT and any current and future drug candidates for which we receive marketing approval;
the initiation, timing, progress and results of our preclinical studies and clinical trials, including our ongoing clinical trials and any planned clinical trials for our current and future drug candidates as monotherapies or in combination with other agents and research and development programs;
our ability to advance drug candidates into, and successfully complete, clinical trials;
our ability to successfully develop manufacturing processes for any of our current and future drugs or drug candidates and to secure manufacturing, packaging and labeling arrangements for development activities and commercial production;
the implementation of our business model and strategic plans for our business, drugs, drug candidates, platform and technology;
the scope and length of protection we are able to establish and maintain for intellectual property rights covering our current and future drugs, drug candidates and technology;
the potential benefits of our collaboration with F. Hoffmann-La Roche Ltd and Genentech, Inc. to develop and commercialize pralsetinib globally (excluding Greater China), our cancer immunotherapy collaboration with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., our collaboration with CStone Pharmaceuticals to develop and commercialize avapritinib, pralsetinib and fisogatinib in

2

Greater China, our collaboration with Zai Lab to develop and commercialize BLU-945, BLU-701, including their respective back-up forms and certain other forms thereof, as inhibitors of epidermal growth factor receptor (EGFR), and our collaboration with Proteovant Therapeutics to discover and advance novel targeted protein degrader therapies, as well as our ability to maintain these collaborations and establish additional strategic collaborations;
the potential benefits of our exclusive license agreement with Clementia Pharmaceuticals, Inc. to develop and commercialize BLU-782 for fibrodysplasia ossificans progressiva;
the potential benefits of our strategic financing transactions with Garnich Adjacent Investments S.a.r.l. (Sixth Street Partners) and Royalty Pharma Investments 2019 ICAV (Royalty Pharma) and the potential acceleration of our commercial products and pipeline resulting from the non-dilutive growth capital;
the potential benefits of our license agreement with IDRx, Inc. (IDRx) to develop our development candidate-stage KIT exon 13 inhibitor, IDRX-73 (formerly known as BLU-654), for the treatment of drug-resistant mutations of non-PDGFR-driven gastrointestinal stromal tumor (GIST);
the development of companion diagnostic tests for our current or future drugs or drug candidates;
our financial performance, estimates of our revenues, expenses and capital requirements and our needs for future financing, including our ability to achieve a self-sustainable financial profile;
our expectation regarding our corporate collaborations, and potential future licensing fees, milestones and royalty payments under existing or future agreements;
developments relating to our competitors and our industry;
the actual or potential benefits of designations granted by the FDA, such as orphan drug, fast track and breakthrough therapy designation or priority review; and
the impact and scope of the ongoing COVID-19 pandemic on our business, operations, strategy, goals and anticipated milestones, including our ongoing and planned research and discovery activities, ability to conduct ongoing and planned clinical trials, clinical supply of our current or future drug candidates or third party products intended for use as combination therapies or as comparator agents, and the launch, marketing, sale and commercial supply of AYVAKIT/AYVAKYT, GAVRETO and any current or future drug candidates for which we receive marketing approval.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section in Part II, Item 1A, that could cause actual results or events to differ materially from the forward-looking statements that we make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results, performance or achievements may be materially different from what we expect. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise

3

expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

For purposes of this Quarterly Report on Form 10-Q, including the footnotes to our condensed consolidated financial statements, (i) with respect to our collaboration for pralsetinib, Roche means F. Hoffmann-La Roche Ltd and Genentech, Inc., and (ii) with respect to our cancer immunotherapy collaboration, Roche means F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc.

4

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Blueprint Medicines Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

September 30, 

December 31, 

    

2022

    

2021

Assets

Current assets:

Cash and cash equivalents

$

291,430

$

209,948

Marketable securities

845,535

267,166

Accounts receivable

19,320

25,155

Unbilled accounts receivable

2,595

11,875

Inventory

35,253

21,817

Prepaid expenses and other current assets

 

33,532

 

18,064

Total current assets

 

1,227,665

 

554,025

Marketable securities

 

55,675

557,529

Property and equipment, net

33,454

 

30,700

Operating lease right-of-use assets, net

83,917

90,162

Restricted cash

 

5,193

 

5,171

Equity investment

27,789

Other assets

 

24,699

 

14,638

Total assets

$

1,458,392

$

1,252,225

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

4,233

8,333

Accrued expenses

 

120,763

 

121,829

Current portion of operating lease liabilities

10,116

8,093

Current portion of deferred revenue

4,629

11,510

Current portion of liabilities related to the sale of future royalties and revenues

20,479

Current portion of term loan

15,290

Total current liabilities

 

175,510

 

149,765

Operating lease liabilities, net of current portion

95,495

103,315

Deferred revenue, net of current portion

11,995

25,066

Liabilities related to the sale of future royalties and revenues, net of current portion

403,174

Term loan, net of current portion

123,060

Other long-term liabilities

8,851

3,344

Total liabilities

818,085

281,490

Commitments and Contingencies (Note 15)

Stockholders’ equity:

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding

Common stock, $0.001 par value; 120,000,000 shares authorized; 59,808,492 and 59,141,086 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

60

 

59

Additional paid-in capital

 

2,329,385

 

2,250,250

Accumulated other comprehensive loss

(14,826)

(4,133)

Accumulated deficit

 

(1,674,312)

 

(1,275,441)

Total stockholders’ equity

 

640,307

 

970,735

Total liabilities and stockholders’ equity

$

1,458,392

$

1,252,225

5

Blueprint Medicines Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2022

    

2021

    

2022

    

2021

Revenues:

Product revenue, net

$

28,634

$

17,270

$

80,929

$

37,658

Collaboration and license revenue

9,843

6,918

56,826

35,401

License revenue - related party

27,500

27,500

Total revenues

65,977

24,188

165,255

73,059

Cost and operating expenses:

Cost of sales

3,000

3,790

12,965

10,385

Collaboration loss sharing

1,665

3,269

7,076

3,269

Research and development

127,981

84,419

359,579

244,157

Selling, general and administrative

 

57,608

 

49,806

 

173,354

141,093

Total cost and operating expenses

 

190,254

 

141,284

 

552,974

 

398,904

Other income (expense):

Interest income (expense), net

 

(8,396)

 

552

 

(7,527)

1,923

Other income (expense), net

 

396

 

(522)

 

575

(1,109)

Total other income (expense), net

 

(8,000)

 

30

 

(6,952)

 

814

Loss before income taxes

(132,277)

(117,066)

(394,671)

(325,031)

Income tax expense

(886)

(175)

(4,200)

(368)

Net loss

$

(133,163)

$

(117,241)

$

(398,871)

$

(325,399)

Other comprehensive loss:

Unrealized losses on available-for-sale investments

(843)

(12)

(11,171)

(1,035)

Currency translation adjustments

265

174

478

577

Comprehensive loss

$

(133,741)

$

(117,079)

$

(409,564)

$

(325,857)

Net loss per share - basic and diluted

$

(2.23)

$

(2.00)

$

(6.70)

$

(5.58)

Weighted-average number of common shares used in net loss per share - basic and diluted

59,758

58,647

59,564

58,361

6

Blueprint Medicines Corporation

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(Unaudited)

Accumulated

 

Additional

Other

 

Common Stock

Paid-in

Comprehensive

Accumulated

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Loss

Deficit

Equity

 

Balance at December 31, 2021

59,141,086

$

59

$

2,250,250

$

(4,133)

$

(1,275,441)

$

970,735

Issuance of common stock under stock plan

414,888

1

1,297

 

1,298

Stock-based compensation expense

23,609

 

23,609

Other comprehensive loss

(7,977)

(7,977)

Net loss

(105,999)

 

(105,999)

Balance at March 31, 2022

59,555,974

$

60

$

2,275,156

$

(12,110)

$

(1,381,440)

$

881,666

Issuance of common stock under stock plan

92,274

$

$

535

$

$

$

535

Purchase of common stock under ESPP

40,047

1,872

1,872

Stock-based compensation expense

25,524

25,524

Other comprehensive loss

(2,138)

(2,138)

Net loss

(159,709)

(159,709)

Balance at June 30, 2022

59,688,295

$

60

$

2,303,087

$

(14,248)

$

(1,541,149)

$

747,750

Issuance of common stock under stock plan

120,197

$

$

2,030

$

$

$

2,030

Stock-based compensation expense

24,268

24,268

Other comprehensive loss

(578)

(578)

Net loss

(133,163)

(133,163)

Balance at September 30, 2022

59,808,492

$

60

$

2,329,385

$

(14,826)

$

(1,674,312)

$

640,307

Balance at December 31, 2020

 

57,793,533

$

58

$

2,106,600

$

(5,214)

$

(631,356)

$

1,470,088

Issuance of common stock under stock plan

483,879

8,318

 

8,318

Stock-based compensation expense

21,212

 

21,212

Other comprehensive income

117

117

Net loss

(99,714)

 

(99,714)

Balance at March 31, 2021

58,277,412

$

58

$

2,136,130

$

(5,097)

$

(731,070)

$

1,400,021

Issuance of common stock under stock plan

254,823

$

1

$

11,709

$

$

11,710

Purchase of common stock under ESPP

22,324

1,733

1,733

Stock-based compensation expense

24,522

24,522

Other comprehensive loss

(738)

(738)

Net loss

(108,444)

(108,444)

Balance at June 30, 2021

58,554,559

$

59

$

2,174,094

$

(5,835)

$

(839,514)

$

1,328,804

Issuance of common stock under stock plan

260,107

11,038

11,038

Stock-based compensation expense

24,324

24,324

Other comprehensive income

162

162

Net loss

(117,241)

(117,241)

Balance at September 30, 2021

58,814,666

$

59

$

2,209,456

$

(5,673)

$

(956,755)

$

1,247,087

7

Blueprint Medicines Corporation

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Nine Months Ended

September 30, 

    

2022

    

2021

Cash flows from operating activities

Net loss

$

(398,871)

$

(325,399)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

 

4,719

4,816

Non-cash lease expense

 

6,212

4,668

Stock-based compensation

72,855

68,949

Non-cash interest expense

8,389

Non-cash customer consideration

(27,500)

Other

787

2,677

Changes in assets and liabilities:

 

Accounts receivable

5,553

(11,375)

Unbilled accounts receivable

9,282

6,891

Inventory

(20,653)

(11,812)

Prepaid expenses and other current assets

(15,575)

(1,795)

Other assets

 

(11,886)

(2,842)

Accounts payable

 

(2,031)

5,144

Accrued expenses

7,833

(12,844)

Other long-term liabilities

5,730

Deferred revenue

 

(19,952)

(5,761)

Operating lease liabilities

(5,764)

(5,856)

Net cash used in operating activities

 

(380,872)

(284,539)

Cash flows from investing activities

 

Purchases of property and equipment

(7,438)

(1,831)

Purchases of investments

(258,654)

(514,906)

Maturities of investments

170,123

637,831

Other

(289)

Net cash provided by (used in) investing activities

 

(96,258)

121,094

Cash flows from financing activities

 

Net proceeds from the sale of future royalties and revenues

415,836

Net proceeds from term loan facility

137,797

Net proceeds from stock option exercises and employee stock purchase plan

 

5,686

32,787

Net cash provided by financing activities

 

559,319

32,787

Net increase (decrease) in cash, cash equivalents, and restricted cash

82,189

(130,658)

Cash, cash equivalents and restricted cash at beginning of period

215,119

689,804

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(685)

(382)

Cash, cash equivalents and restricted cash at end of period

$

296,623

$

558,764

Supplemental cash flow information

Cash paid for interest

$

2,956

$

Property and equipment purchases unpaid at period end

$

195

$

206

Cash paid for taxes, net

$

4,018

$

674

8

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands).

September 30, 

September 30, 

2022

2021

Cash and cash equivalents

$

291,430

$

553,593

Restricted cash

5,193

5,171

Total cash, cash equivalents, and restricted cash shown in condensed consolidated statements of cash flows

$

296,623

$

558,764

9

Blueprint Medicines Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of Business

Blueprint Medicines Corporation (the Company), a Delaware corporation incorporated on October 14, 2008, is a precision therapy company focused on genomically defined cancers and blood disorders. The Company’s approach is to leverage its novel research engine to systematically and reproducibly identify drivers of diseases in genomically defined patient populations, and to craft highly selective and potent drug candidates that are intended to provide significant and durable clinical responses to patients.

The Company has two approved precision therapies and is globally advancing multiple programs for systemic mastocytosis (SM), lung cancer and other genomically defined cancers, and cancer immunotherapy. The Company is devoting substantially all of its efforts to research and development for current and future drug candidates and commercialization of AYVAKIT/AYVAKYT, GAVRETO and any current or future drug candidates that obtain marketing approval.

As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of $1,192.6 million. Based on the Company’s current operating plans, the Company anticipates that its existing cash, cash equivalents and marketable securities will be sufficient to enable it to fund its current operations for at least the next twelve months from the issuance of the financial statements.

2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) as found in the Accounting Standards Codification (ASC), Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB) and the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these financial statements should be read in conjunction with the financial statements as of and for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022 (2021 Annual Report on Form 10-K).

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements, and updated, as necessary, in this report. In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary to present fairly the Company’s financial position as of September 30, 2022, the results of its operations for the three and nine months ended September 30, 2022 and 2021, stockholder’s equity for the three and nine months ended September 30, 2022 and 2021 and cash flows for nine months ended September 30, 2022 and 2021. Such adjustments are of a normal and recurring nature. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or for any future period.

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Blueprint Medicines Security Corporation, which is a Massachusetts subsidiary created to buy, sell and hold securities, Blueprint Medicines (Switzerland) GmbH, Blueprint Medicines (Netherlands) B.V., Blueprint Medicines (UK) Ltd, Blueprint Medicines (Germany) GmbH, Blueprint Medicines (Spain) S.L., Blueprint Medicines (France) SAS, and Blueprint Medicines (Italy) S.r.L. Lengo Therapeutics, Inc. (Lengo), which was acquired on December 30, 2021, was dissolved in June 2022. All intercompany transactions and balances have been eliminated.

10

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and in developing the estimates and assumptions that are used in the preparation of the financial statements. Management must apply significant judgment in this process. Management’s estimation process often may yield a range of potentially reasonable estimates and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: revenue recognition, inventory, operating lease right-of-use assets, operating lease liabilities, stock-based compensation expense, accrued expenses, liabilities related to the sale of future royalties and future revenues, equity investment, and income taxes. The length of time and full extent to which the ongoing COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including revenues, expenses, reserves and allowances, manufacturing and supply, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, subject to change and difficult to predict, including as a result of new information that may emerge concerning COVID-19, including the identification and spread of new variants, and the actions taken to contain or treat COVID-19, as well as the economic impact thereof on local, regional, national and international customers and markets. The Company considers the impact of COVID-19 while making the estimates within its consolidated financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates. The Russian invasion of Ukraine has not had a material impact on the Company’s business, results of operations and financial condition.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2022 are consistent with those discussed in Note 2 to the consolidated financial statements in the 2021 Annual Report on Form 10-K, with the exception of the below new policies.

Equity Investment

Investments in non-marketable equity securities of privately-held companies that do not have readily determinable fair values are carried at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Each period the Company assesses relevant transactions to identify observable price changes, and the Company regularly monitors these investments to evaluate whether there is an indication of impairment. The Company evaluates whether an investment’s fair value is less than its carrying value using an estimate of fair value, if such an estimate is available. For periods in which there is no estimate of fair value, the Company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the value of the investment.

Liabilities related to the sale of future royalties and revenues

The Company accounts for net proceeds from sales of the Company’s rights to receive future royalty payments and from sales of future revenues as liabilities if the Company has significant continuing involvement in the generation of the related future cash flows. Interest on the liabilities related to the sale of future royalties and revenues will be recognized using the effective interest rate method over the life of the related royalty or revenue stream. The liabilities related to the sale of future royalties and revenues and the related interest expenses are based on the Company’s current estimates of future royalties or revenues as well as commercial milestones expected to be achieved and received over the life of the arrangement, which the Company determines by using forecasts of the underlying drug products of the underlying regions. The Company will periodically assess the expected payments and to the extent the amount or timing of the future estimated payments is materially different than previous estimates, the Company will account for any such change by adjusting the carrying value of the liabilities related to the sale of future royalties and revenues, and prospectively recognizing the related interest expenses.

11

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company does not believe that the adoption of recently issued standards have or may have a material impact on its condensed consolidated financial statements and disclosures.

Fair value measurements

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This standard clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This standard will be effective for the Company on January 1, 2024, and is not expected to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

3. Financing Arrangements

Royalty Pharma Purchase and Sale Agreement

On June 30, 2022, the Company entered into a purchase and sale agreement (Royalty Purchase Agreement) with Royalty Pharma. Pursuant to the Royalty Purchase Agreement, the Company received an upfront payment of $175.0 million in consideration for the Company’s rights to receive royalty payments on the net sales of GAVRETO worldwide excluding the CStone territory and U.S. territory under the terms of the Roche pralsetinib collaboration agreement.

Although the Company sold all of the rights to receive royalties on the net sales of GAVRETO worldwide excluding the CStone territory and U.S. territory to Royalty Pharma, the Company continues to co-develop pralsetinib with Roche globally and is therefore involved in the generation of these future royalties. Due to the Company’s significant continuing involvement, the Company continues to account for any royalties and development and commercialization milestones earned related to the underlying territory under the Roche pralsetinib collaboration agreement as collaboration revenue on its consolidated statements of operations and comprehensive loss. Net proceeds from the transaction were recorded as a liability related to sale of future royalties and revenues on the consolidated balance sheet. The Company will accrete the $175.0 million, net of transaction costs of $3.8 million, to the total of these royalties as interest expense using the effective interest method over the estimated life of the arrangement. As of September 30, 2022, the Company’s estimate of this total interest expense resulted in an effective annual interest rate of 6.3%. These estimates contain assumptions that impact the amount recorded and the interest expense that will be recognized in future periods.

As payments are made to Royalty Pharma, the balance of the liability will be effectively repaid over the life of the Royalty Purchase Agreement. In order to determine the amortization of the liability, the Company estimates the total amount of future royalty payments to be paid to Royalty Pharma over the life of the arrangement. The exact amount of repayment is likely to change each reporting period. A significant increase or decrease in GAVRETO’s net revenue of the underlying territory will materially impact the liability related to this arrangement, interest expense and the time period for repayment. The Company will periodically assess the expected payments to Royalty Pharma and will prospectively adjust the amortization of the liability related to this arrangement for material changes in such payments.

12

As of September 30, 2022, the carrying value of the liability related to this arrangement was $173.6 million. The following table shows the activity within the liability account (in thousands):

Carrying value as of January 1, 2022

$

Sale of future royalties

175,000

Interest expense recognized

2,709

Capitalized closing costs

(3,777)

Interest payments

(330)

Carrying value as of September 30, 2022

$

173,602

Pursuant to the Royalty Purchase Agreement, the Company is eligible to receive certain milestone payments totaling up to $165.0 million, subject to the achievement of specified net sales milestones by Roche. The potential milestone payments will be added to the carrying value of the liability related to this arrangement when the milestones are achieved and received.

Financing Arrangements with Sixth Street Partners

In July 2022, the Company closed two transactions pursuant to a purchase and sale agreement (Future Revenue Purchase Agreement) and a financing transaction for up to $660.0 million (Financing Agreement) with Sixth Street Partners (Sixth Street). Because two transactions were entered into with the same parties and in contemplation of one another, the Company recorded these transactions based on the relative fair values of each freestanding financial instrument and allocated the proceeds in proportion to those fair value amounts.

Sixth Street Partners Purchase and Sale Agreement

Pursuant to the Future Revenue Purchase Agreement, the Company received gross proceeds of $250.0 million in exchange for future royalty payments at a rate of 9.75% on up to $900 million each year of (i) aggregate worldwide annual net product sales of AYVAKIT/ AYVAKYT (avapritinib) and (ii), if it is approved, aggregate worldwide annual net product sales of BLU-263, but excluding sales in Greater China, subject to a cumulative cap of 1.45 times the upfront invested capital or a total of $362.5 million. In the event that certain revenue targets are not achieved by specified dates, the royalty rate and cumulative cap shall be increased to 15% and 1.85 times the invested capital (or $462.5 million), respectively.

The Company continues to own the research, development, manufacturing and commercialization of AYVAKIT/ AYVAKYT and if it is approved, BLU-263, and has significant continuing involvement in the generation of the cash flows under the Future Revenue Purchase Agreement. Therefore, the Company continues to account for any revenue earned from worldwide product sales of AYVAKIT/ AYVAKYT and, if it is approved, BLU-263, on its consolidated statements of operations and comprehensive loss. Net proceeds from the transaction were recorded as a liability related to sale of future liabilities and revenues on the consolidated balance sheet. The Company will accrete the $250.0 million, net of transaction costs of $5.4 million, to the total of these future payments as interest expense using the effective interest method over the estimated life of the arrangement.

As payments are made to Sixth Street, the balance of the liability will be effectively repaid over the life of the Future Revenue Purchase Agreement. In order to determine the amortization of the liability, the Company estimates the total amount of future revenue payments to be paid to Sixth Street over the life of the arrangement. The exact amount of repayment is likely to change each reporting period. A significant increase or decrease in worldwide product sales of AYVAKIT/ AYVAKYT and, if it is approved, BLU-263, will materially impact the liability related to this arrangement, interest expense and the time period for repayment. The Company will periodically assess the expected payments to Sixth Street and will prospectively adjust the amortization of the liability related to this arrangement for material changes in such payments. As of September 30, 2022, the Company’s estimate of this total interest expense resulted in an effective annual interest rate of 11.5%. These estimates contain assumptions that impact the amount recorded and the interest expense that will be recognized in future periods.

13

As of September 30, 2022, the carrying value of the liability related to this arrangement was $250.1 million. The following table shows the activity within the liability account (in thousands):

Carrying value as of January 1, 2022

$

Sale of future revenue

250,000

Interest expense recognized

5,446

Capitalized closing costs

(5,395)

Interest payments

Carrying value as of September 30, 2022

$

250,051

Sixth Street Partners Term Loan

The Financing Agreement entered into by the parties in connection with the transaction provides for (i) a senior secured term loan facility of up to $150.0 million and (ii) a senior secured delayed draw term loan facility of up to $250.0 million to be funded in two tranches at the Company’s choice. The term loans will mature on June 30, 2028 and bear interest at a variable rate equal to either the Secured Overnight Financing Rate (SOFR) plus six and one half percent (6.50%) or the base rate plus five and one half percent (5.50%), subject to a floor of one percent (1%) and two percent (2%) with respect to the SOFR and base rate, respectively.

As part of the Financing Agreement with Sixth Street Partners, the Company received gross proceeds of $150.0 million as a term loan in July 2022 and incurred an aggregate of $12.2 million of debt discounts and transaction costs, which have been recorded as a reduction to the carrying amount of the debt on the Company’s consolidated balance sheet and will be amortized as additional interest expenses using the effective interest rate method over the period from issuance through maturity. As of September 30, 2022, the Company’s estimate of the total interest expense resulted in an effective annual interest rate of 12.0%. The carrying amount of the debt as of September 30, 2022 is subject to variable interest rates, which are based on current market rates, and as such, approximates fair value.

The following table shows the activity within the liability account (in thousands):

Carrying value as of January 1, 2022

$

Term Loan

150,000

Interest expense recognized

3,190

Debt discounts and capitalized closing costs

(12,214)

Interest payments

(2,626)

Carrying value as of September 30, 2022

$

138,350

The Company’s obligations under the Financing Agreement will be secured, subject to certain exceptions, by security interests in the substantially all of the Company’s assets and the Company’s certain subsidiaries. The Financing Agreement contains customary negative covenants that, among other things and subject to certain exceptions, could restrict the Company’s ability to incur additional liens, incur additional indebtedness, make investments, including acquisitions, engage in fundamental changes, sell or dispose of assets that constitute collateral, including certain intellectual property, pay dividends or make any distribution or payment on or redeem, retire or purchase any equity interests, amend, modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness. The Financing Agreement also requires the Company to maintain a consolidated liquidity of at least (i) $50.0 million during the period commencing from the date on which the term loans are funded to the date which is the day before the next term loans are funded and (ii) $80.0 million for each day thereafter.

14

4. Marketable Securities

Marketable securities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

Amortized

Unrealized

Unrealized

Fair

September 30, 2022

Cost

 

Gain

Losses

Value

Marketable securities, available-for-sale:

U.S. government agency securities 

$

429,423

$

(7,007)

$

422,416

U.S. treasury obligations

485,647

(6,853)

478,794

Total

$

915,070

$

$

(13,860)

$

901,210

Amortized

Unrealized

Unrealized

Fair

December 31, 2021

Cost

 

Gain

Losses

Value

Marketable securities, available-for-sale:

U.S. government agency securities

$

498,582

$

21

$

(1,460)

$

497,143

U.S. treasury obligations

328,801

(1,249)

327,552

Total

$

827,383

$

21

$

(2,709)

$

824,695

As of September 30, 2022, the Company held 103 debt securities that were in an unrealized loss position with an aggregate fair value of $901.2 million. Of the 103 debt securities, 33 were in an unrealized loss position for more than twelve months with an aggregate fair value of $346.4 million. As of December 31, 2021, the Company held 74 debt securities that were in an unrealized loss position with an aggregate fair value of $750.5 million. As of December 31, 2021, there were no securities held by the Company in an unrealized loss position for more than twelve months. The Company has the intent and ability to hold such securities until recovery. As a result, the Company did not record any charges for credit-related impairments for its marketable debt securities for the three and nine months ended September 30, 2022 and 2021.

As of September 30, 2022, 10 securities with an aggregate fair value of $55.7 million had remaining maturities between one year and five years. As of December 31, 2021,