The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and the audited consolidated financial statements and
related notes thereto and management's discussion and analysis of financial
condition and results of operations included in our Annual Report on Form 10-K
for the year ended December 31, 2019, filed with the Securities and Exchange
Commission, or the SEC, on February 13, 2020. Some of the information contained
in this discussion and analysis or set forth elsewhere in this Quarterly Report
on Form 10-Q, including information with respect to our plans and strategy for
our business, includes forward-looking statements that involve risks and
uncertainties. As a result of many factors, including those factors set forth in
the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual
results or timing of certain events could differ materially from the results or
timing described in, or implied by, these forward-looking statements.

Overview


We are a precision therapy company focused on genomically defined cancers, rare
diseases and cancer immunotherapy. Our approach is to leverage our novel target
discovery engine to systematically and reproducibly identify kinases that are
drivers of diseases and to craft highly selective and potent therapies that may
provide significant and durable clinical responses for patients without adequate
treatment options. This integrated biology and chemistry approach enables us to
identify, characterize and design drug candidates to inhibit novel kinase
targets that have been difficult to selectively inhibit. We believe that our
uniquely targeted, scalable approach empowers the rapid design and development
of new treatments and increases the likelihood of success. We have one precision
therapy approved by the U.S. Food and Drug Administration, or FDA, and are
currently advancing multiple investigational medicines in clinical development,
along with multiple research programs.

Avapritinib and BLU-263 - Systemic Mastocytosis and other Mast Cell Disorders

Avapritinib



We are developing avapritinib for the treatment of systemic mastocytosis, or SM,
a rare disorder that causes an overproduction of mast cells and the accumulation
of mast cells in the bone marrow and other organs, which can lead to a wide
range of debilitating symptoms and organ dysfunction and failure. Nearly all
cases of SM are driven by the KIT D816V mutation, which aberrantly activates
mast cells.

We are currently evaluating avapritinib in an ongoing registration-enabling
Phase 1 clinical trial in advanced SM, which we refer to as our EXPLORER trial,
and an ongoing registration-enabling Phase 2 clinical trial in advanced SM,
which we refer to as our PATHFINDER trial. We plan to present updated data from
the EXPLORER trial in June 2020 at the European Hematology Association 25th
Annual Congress. In addition, we plan to report top-line data from the EXPLORER
trial and the PATHFINDER trial in the third quarter of 2020. We are also
evaluating avapritinib in an ongoing registration-enabling Phase 2 clinical
trial in indolent SM, which we refer to as our PIONEER trial. In March 2020, we
reported updated data from the dose-finding portion (Part 1) of the PIONEER
trial at an investor conference call and on a virtual forum established by the
American Academy of Allergy, Asthma & Immunology. We also plan to present
additional data from the Part 1 of PIONEER trial at the European Academy of
Allergy and Clinical Immunology 2020 Congress. We plan to initiate patient
screening for the registration-enabling Part 2 of the PIONEER trial in June
2020, and our goal is to complete enrollment in Part 2 of the PIONEER trial as
early as the end of 2020. However, this timing could be impacted depending on
the duration, scope and severity of the COVID-19 pandemic.

We plan to submit a supplemental new drug application, or NDA, to the FDA for
avapritinib for the treatment of advanced SM in the second half of 2020, which
we anticipate will be focused on data from patients in the EXPLORER and
PATHFINDER trials who were treated with avapritinib at a starting dose of 200 mg
once daily, or QD, supported by pooled data from all doses.

The FDA has granted orphan drug designation to avapritinib for the treatment of
mastocytosis, and the European Commission has granted orphan medicinal product
designation to avapritinib for the treatment of mastocytosis. In addition, the
FDA has granted breakthrough therapy designation to avapritinib for the
treatment of

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advanced SM, including the subtypes of aggressive SM, SM with an associated hematologic neoplasm and mast cell leukemia.

BLU-263



We are developing BLU-263 for the treatment of indolent SM and other mast cell
disorders. BLU-263 is an investigational, orally available, potent and highly
selective KIT inhibitor. BLU-263 is designed to have equivalent potency as
avapritinib, improved selectivity for KIT, with low off-target activity, and
lower penetration of the central nervous system relative to avapritinib based on
preclinical data, which we believe will enable development of BLU-263 in a broad
population of patients with indolent SM, including patients with lower disease
burden requiring potentially life-long chronic therapy, as well as patients with
other KIT-driven mast cell disorders. The FDA accepted our investigational new
drug, or IND, application for BLU-263 for indolent SM and recently notified us
that we are permitted to proceed with clinical development under the IND. We
currently plan to initiate a Phase 1 trial in healthy volunteers in June 2020.
However, this timing could be impacted depending on the duration, scope and
severity of the COVID-19 pandemic.

Pralsetinib - RET-altered Cancers



We are developing pralsetinib for the treatment of RET-altered non-small cell
lung cancer, or NSCLC, thyroid carcinoma, including medullary thyroid carcinoma,
or MTC, and other solid tumors. Pralsetinib is an investigational, orally
available, potent and highly selective inhibitor that targets RET, a receptor
tyrosine kinase. Pralsetinib is designed to inhibit the activating RET fusions
and mutations that drive cancer growth and remain active in the presence of
resistance mutations that we predict will arise from treatment with first
generation therapies. RET activating fusions and mutations drive disease in
subsets of patients with NSCLC, and cancers of the thyroid, including MTC and
papillary thyroid cancer, or PTC, and our research suggests that RET may drive
disease in subsets of patients with colon cancer, breast cancer, pancreatic
cancer and other cancers.

We are currently evaluating pralsetinib in an ongoing registration-enabling
Phase 1/2 clinical trial in patients with RET-altered NSCLC, MTC and other
advanced solid tumors, which we refer to as our ARROW trial. In January 2020, we
reported top-line data from the ARROW trial in RET fusion-positive NSCLC
patients treated with pralsetinib at 400 mg QD, and in April 2020, we reported
top-line data from the ARROW trial in RET-mutant MTC patients treated with
pralsetinib at 400 mg QD. We also plan to present updated data from the ARROW
trial of pralsetinib in RET fusion-positive NSCLC and other RET-altered solid
tumors at the American Society of Clinical Oncology Annual Meeting in June 2020.
We plan to present updated data from the ARROW trial of pralsetinib in
RET-mutant MTC in the second half of 2020. In the first quarter of 2020, we
activated the first trial site for our Phase 3 clinical trial evaluating
pralsetinib in patients with first-line RET fusion-positive NSCLC, which we
refer to as our AcceleRET Lung trial. In addition, we plan to initiate a Phase 3
clinical trial of pralsetinib in first-line RET-mutant MTC in the second half of
2020.

In the first quarter of 2020, we completed the submission of a rolling NDA to
the FDA for the treatment of patients with RET fusion-positive NSCLC. In
addition, we recently submitted a marketing authorization application, or MAA,
to the European Medicines Agency, or EMA, for pralsetinib for RET
fusion-positive NSCLC. We plan to submit additional marketing applications for
pralsetinib for RET fusion-positive NSCLC through the FDA's Project Orbis
initiative, which provides a framework for concurrent submission and review of
marketing applications for oncology products among international health
authorities. In addition, we plan to submit an NDA to the FDA for pralsetinib
for the treatment of patients with MTC previously treated with an approved
multi-kinase inhibitor in the second quarter of 2020 under the FDA's Oncology
Center of Excellence Real-Time Oncology Review pilot program, or RTOR program.
The FDA's RTOR program aims to explore a more efficient review process to ensure
that safe and effective treatments are available to patients as early as
possible, while maintaining and improving review quality by the FDA.

The FDA has granted orphan drug designation to pralsetinib for the treatment of
RET-rearranged NSCLC, JAK1/2-positive NSCLC or TRKC-positive NSCLC, and the FDA
has granted breakthrough therapy designation to pralsetinib for the treatment of
patients with RET fusion-positive NSCLC that has progressed following
platinum-based chemotherapy and to pralsetinib for the treatment of patients
with RET mutation-positive MTC that requires systemic treatment and for which
there are no acceptable alternative treatments.

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Avapritinib - Gastrointestinal Stromal Tumors

We are also developing and, in the U.S., commercializing avapritinib for the treatment of patients with PDGFRA exon 18 mutant gastrointestinal stromal tumors, or GIST, a rare disease that is a sarcoma, or tumor of bone or connective tissue, of the gastrointestinal tract.



In January 2020, the FDA granted approval of avapritinib under the brand name
AYVAKIT for the treatment of adults with unresectable or metastatic GIST
harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations. The EMA
is currently reviewing our MAA for avapritinib for the treatment of adult
patients with PDGFRA D842V mutant GIST, regardless of prior therapy, and we
anticipate a decision from the European Commission in the third quarter of 2020.
In addition, the China National Medical Products Administration recently
accepted an NDA submitted by CStone Pharmaceuticals, or CStone, for avapritinib
for the treatment of adults with unresectable or metastatic PDGFRA exon 18
mutant GIST and fourth-line GIST. CStone also submitted an NDA to the Taiwan
Food and Drug Administration, or the TFDA, for avapritinib for the indication of
adult patients with unresectable or metastatic GIST harboring a PDGFRA exon 18
mutation, including PDGFRA D842V mutations, and received priority review
designation from the TFDA.

We recently announced top-line data from our Phase 3 clinical trial comparing
avapritinib to regorafenib in third-line GIST, which we refer to as our VOYAGER
trial. As previously reported, the VOYAGER trial did not meet the primary
endpoint of an improvement in progression-free survival for avapritinib versus
regorafenib. Based on the results of the VOYAGER trial, we plan to discontinue
further development of avapritinib for all GIST indications beyond PDGFRA exon
18 mutant GIST. We plan to continue to commercialize AYVAKIT in the U.S. for the
treatment of adults with unresectable or metastatic GIST harboring a PDGFRA exon
18 mutation, including PDGFRA D842V mutations, and seek marketing approval for
avapritinib for the treatment of this patient population in additional
geographies, including the European Union.

As previously reported, the FDA requested the top-line data from our VOYAGER
trial as part of its review of our NDA for avapritinib for the treatment of
fourth-line GIST. We recently submitted the top-line data to the FDA and
anticipate a decision from the FDA by May 14, 2020, which is the Prescription
Drug User Fee Act action date.

The FDA has granted breakthrough therapy designation to avapritinib for the
treatment of patients with unresectable or metastatic GIST harboring the PDGFRA
D842V mutation. The FDA has also granted orphan drug designation to avapritinib
for the treatment of GIST and fast track designation to avapritinib for (i) the
treatment of patients with unresectable or metastatic GIST that progressed
following treatment with imatinib and a second tyrosine kinase inhibitor and
(ii) the treatment of patients with unresectable or metastatic GIST with the
PDGFRA D842V mutation regardless of prior therapy. In addition, the European
Commission has granted orphan medicinal product designation to avapritinib for
the treatment of GIST.

Fisogatinib - Hepatocellular Carcinoma


We are developing fisogatinib for the treatment of advanced hepatocellular
carcinoma, or HCC. Fisogatinib is an investigational, orally available, potent
and highly selective inhibitor that targets FGFR4, a kinase that is aberrantly
activated in a defined subset of patients with HCC, the most common type of
liver cancer. We are currently evaluating fisogatinib in an ongoing Phase 1
clinical trial in patients with advanced HCC. As part of our collaboration with
CStone, we are also evaluating fisogatinib in combination with CS1001, a
clinical-stage anti-PDL1 immunotherapy being developed by CStone, for the
treatment of locally advanced or metastatic HCC in an ongoing Phase 1b/2 trial
conducted in multiple clinical sites in China. The FDA has granted orphan drug
designation to fisogatinib for the treatment of HCC.

Discovery Platform



We plan to continue to leverage our discovery platform to systematically and
reproducibly identify kinases that are drivers of diseases in genomically
defined patient populations and craft drug candidates that potently and
selectively target these kinases. In the first quarter of 2020, we announced the
nomination of BLU-945, our development candidate for the treatment of EGFR Exon
19/L858R+T790M+C797S, which we refer to as resistant EGFR-positive triple mutant
NSCLC. We currently have five wholly-owned discovery programs (including two
programs with development

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candidates), consisting of the following: BLU-263; BLU-945; a pre-development
candidate program targeting EGFR Exon 19/L858R+C797S, which we refer to as
resistant EGFR-positive double mutant NSCLC; and two pre-development candidate
programs for undisclosed kinase targets. BLU-945 and EGFR Exon 19/L858R+C797S
are acquired resistance mutations in NSCLC patients following treatment with
osimertinib. In addition to BLU-945, we plan to nominate up to two additional
development candidates by the end of 2020.

Development and Commercialization Rights



We currently have worldwide development and commercialization rights to
avapritinib, pralsetinib and fisogatinib, other than the rights licensed to
CStone for these drug candidates in Mainland China, Hong Kong, Macau and Taiwan,
or the CStone territory. We currently have worldwide development and
commercialization rights to all of our discovery programs, other than the
discovery-stage cancer immunotherapy programs under collaboration with F.
Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., which we collectively refer to
as Roche, and BLU-782, which is licensed to Clementia Pharmaceuticals, Inc., or
Clementia, a wholly-owned subsidiary of Ipsen S.A .

Collaborations and Licenses



Roche. In March 2016, we entered into a collaboration with Roche to discover,
develop and commercialize up to four small molecule therapeutics targeting
kinases believed to be important in cancer immunotherapy (including the kinase
target MAP4K1, which is believed to play a role in T cell regulation), as single
products or possibly in combination with other therapeutics.

CStone. In June 2018, we entered into a collaboration with CStone to develop and
commercialize avapritinib, pralsetinib and fisogatinib, including back-up forms
and certain other forms, in the CStone territory either as a monotherapy or as
part of a combination therapy.

Clementia. In October 2019, we entered into a license agreement with Clementia,
a wholly-owned subsidiary of Ipsen S.A., and granted an exclusive, worldwide,
royalty-bearing license to Clementia to develop and commercialize BLU-782, as
well as specified other compounds related to the BLU-782 program. BLU-782 is an
investigational, orally available, potent and highly selective inhibitor that
targets mutant activin-like kinase 2, or ALK2, in development for the treatment
of fibrodysplasia ossificans progressiva, or FOP. The FDA has granted a rare
pediatric disease designation, orphan drug designation and fast track
designation to BLU-782, each for the treatment of FOP.

We will continue to evaluate additional collaborations, partnerships and
licenses that could maximize the value for our programs and allow us to leverage
the expertise of strategic collaborators, partners and licensors, including in
additional geographies where we may not have current operations or expertise. We
are also focused on engaging in collaborations, partnerships and license
agreements to capitalize on our discovery platform outside of our primary
strategic focus area of cancer and rare diseases.

Note on the COVID-19 Pandemic


Due to the evolving and uncertain global impacts of the COVID-19 pandemic, we
cannot precisely determine or quantify the impact this pandemic will have on our
business, operations and financial performance for the remainder of our fiscal
year ending December 31, 2020 and beyond. We have established a work-from-home
policy for all employees, other than those performing or supporting
business-critical activities, such as certain members of our laboratory and
facilities staff, and we will continue to evaluate this policy for each of our
locations based on guidance from federal, state and local government
authorities. For our ongoing and planned clinical trials, while we anticipate
and have experienced some temporary delays or disruptions due to the COVID-19
pandemic, we are working with any impacted clinical trial sites to ensure study
continuity, enable medical monitoring, facilitate study procedures and maintain
clinical data and records, including the use of local laboratories for testing
and tumor imaging, home delivery of study drug and remote data and records
monitoring. In addition, we currently have sufficient supply to meet our
anticipated global commercial and clinical development needs for avapritinib,
pralsetinib, fisogatinib and BLU-263 through 2021. However, the COVID-19
pandemic could adversely impact our suppliers and result in delays or
disruptions in our current or future supply chain. For our commercial activities
for AYVAKIT and planned commercial activities for pralsetinib, we have shifted
commercial and medical affairs field activities across our portfolio toward

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virtual formats where possible in order to allow us to continue to serve the
needs of healthcare providers, patients and other stakeholders during this
critical time. We will continue to assess the duration, scope and severity of
the COVID-19 pandemic and its potential impacts on our business, operations and
financial performance, and we will continue to work closely with our third-party
vendors, collaborators and other parties in order to seek to advance our
pipeline of targeted therapies as quickly as possible, while making the health
and safety of our employees and their families, healthcare providers, patients
and communities a top priority. Please refer to our Risk Factors in Part II,
Item IA of this Quarterly Report on Form 10-Q for further discussion of risks
related to the COVID-19 pandemic.

Financial Operations Overview


To date, we have financed our operations primarily through public offerings of
our common stock, private placements of our convertible preferred stock,
collaborations, a debt financing and limited product revenue. Through
March 31, 2020, we have received an aggregate of $1.8 billion from such
transactions, including $1.5 billion in aggregate gross proceeds from the sale
of common stock in our May 2015 initial public offering, or IPO, and follow-on
public offerings, $115.1 million in gross proceeds from the issuance of
convertible preferred stock, $18.8 million in upfront and milestone payments
under our former collaboration with Alexion Pharma Holding, or Alexion, $63.0
million in upfront and milestone payments under our collaboration with Roche,
$52.0 million upfront and milestone payments under our collaboration with
CStone, a $25.0 million upfront payment under our license agreement with
Clementia and $10.0 million in gross proceeds from a debt financing.

Since inception, we have incurred significant operating losses. Our net losses
were $111.0 million for the three-month ended March 31, 2020 and $347.7 million,
$236.6 million and $148.1 million for the years ended December 31, 2019, 2018
and 2017, respectively. As of March 31, 2020, we had an accumulated deficit of
$1,056.2 million. We expect to continue to incur significant expenses and
operating losses over the next several years. We anticipate that our expenses
will increase significantly in connection with our ongoing activities,
particularly as we:

? continue to advance and initiate clinical development activities for

avapritinib, pralsetinib, fisogatinib and BLU-263;

? seek marketing approval for avapritinib for additional indications and in

additional geographies and marketing approvals for other drug candidates;

maintain and expand our sales, marketing and distribution infrastructure to

? continue to commercialize AYVAKIT and commercialize any current or future drug

candidates for which we may obtain marketing approval;

continue to manufacture increasing quantities of drug substance and drug

? product material for use in pre-clinical studies, clinical trials and

commercialization;

? continue to discover, validate and develop additional drug candidates or

development candidates, including BLU-945;

? conduct research and development activities under our collaborations with Roche

and CStone;

? conduct development and commercialization activities for companion diagnostic

tests for AYVAKIT and any current or future drug candidates;

? maintain, expand and protect our intellectual property portfolio;

? acquire or in-license other approved drugs, drug candidates or technologies;

? hire additional research, clinical, quality, manufacturing, regulatory,

commercial and general and administrative personnel; and

? incur additional costs associated with operating as a public company.




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Revenue

Through December 31, 2019, our revenue consisted of collaboration revenue under
our collaborations with Roche and CStone, including amounts that were recognized
related to upfront payments, milestone payments and amounts due to us for
research and development services, and license revenue under our license
agreement with Clementia.

In January 2020, the FDA granted approval of avapritinib under the brand name
AYVAKIT for the treatment of adults with unresectable or metastatic GIST
harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations, and we
have commenced the sale of AYVAKIT in the U.S. As a result, we started
generating revenue from sales of AYVAKIT in the first quarter of 2020.

In the future, we expect to generate revenue from a combination of sales of
AYVAKIT and any current or future drug candidates for which we receive marketing
approval, royalties on drug sales and cost reimbursements, as well as upfront,
milestone, royalty and other payments, if any, under any current or future
collaborations and licenses, including revenues related to the supply of our
drug candidates or approved drugs to CStone for development and
commercialization activities in the CStone territory. We expect that any revenue
we generate will fluctuate from quarter to quarter as a result of the timing and
amount of product sales, license fees, research and development services and
related reimbursements, payments for manufacturing services, and option fees,
milestone payments or other payments under our collaboration or license
agreements, if any.

Cost of Sales



Our cost of sales includes the cost of producing and distributing inventories
that are related to product revenue during the respective period, including
salary related and stock-based compensation expense for employees involved with
production and distribution, freight, and indirect overhead costs. In addition,
shipping and handling costs for product shipments are recorded in cost of sales
as incurred. Cost of sales for newly launched products will not be significant
until the initial pre-launch inventory is depleted, and additional inventory is
manufactured. As a result, the gross margin of AYVAKIT sales for the three
months ended March 31, 2020 was enhanced by the use of active pharmaceutical
ingredients and components that were previously expensed as research and
development expense in prior years.

Expenses

Research and Development Expenses



Research and development expenses consist primarily of costs incurred for our
research and development activities, including our drug discovery efforts, and
the development of our drug candidates, which include:

? employee-related expenses including salaries, benefits, and stock-based

compensation expense;

expenses incurred under agreements with third parties that conduct research and

? development, pre-clinical activities, clinical activities and manufacturing on

our behalf;

? expenses incurred under agreements with third parties for the development and

commercialization of companion diagnostic tests;

? the cost of consultants;

? the cost associated with regulatory quality assurance and quality control

operations;

the cost of lab supplies and acquiring, developing and manufacturing


 ? pre-clinical study materials, clinical trial materials and commercial supply
   materials; and


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facilities, depreciation, and other expenses, which include direct and

? allocated expenses for rent and maintenance of facilities, insurance, and other

operating costs in support of research and development activities.


Research and development costs are expensed as incurred. Costs for certain
activities are recognized based on an evaluation of the progress to completion
of specific tasks. Nonrefundable advance payments for goods or services to be
received in the future for use in research and development activities are
capitalized. The capitalized amounts are expensed as the related goods are
delivered or the services are performed.

The successful development of our drug candidates is highly uncertain. As such,
at this time, we cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts that will be necessary to complete the remainder
of the development of these drug candidates. We are also unable to predict when,
if ever, material net cash inflows will commence from our drug candidates. This
is due to the numerous risks and uncertainties associated with developing drugs,
including the uncertainty of:

? establishing an appropriate safety profile with IND-enabling toxicology

studies;

? successful initiation, enrollment in, and completion of clinical trials;

? receipt of marketing approvals from applicable regulatory authorities;

? establishing commercial manufacturing capabilities or making arrangements with

third-party manufacturers;

? obtaining and maintaining patent and trade secret protection and regulatory

exclusivity for AYVAKIT and our drug candidates;

? commercializing AYVAKIT and our drug candidates, if and when approved, whether

alone or in collaboration with others;

? market acceptance of AYVAKIT and any future drug we may commercialize; and

? continued acceptable safety profile of the drugs following approval.

A change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs and timing associated with the development of that drug candidate.


Research and development activities are central to our business model. Drug
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
We expect research and development costs to increase significantly for the
foreseeable future as our drug candidate development programs progress. However,
we do not believe that it is possible at this time to accurately project total
program-specific expenses through commercialization. There are numerous factors
associated with the successful commercialization of any of our drug candidates,
including future trial design and various regulatory requirements, many of which
cannot be determined with accuracy at this time based on our stage of
development. In addition, future commercial and regulatory factors beyond our
control will impact our clinical development programs and plans.

A significant portion of our research and development expenses have been
external expenses, which we track on a program-by-program basis following
nomination as a development candidate. Our internal research and development
expenses are primarily personnel-related expenses, including stock-based
compensation expense. Except for internal research and development expenses
related to collaboration agreements, we do not track our internal research and
development expenses on a program-by-program basis as they are deployed across
multiple projects under development.

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The following table summarizes our external research and development expenses by
program for the three months ended March 31, 2020 and 2019. Other development
and pre-development candidate expenses, unallocated expenses and internal
research and development expenses have been classified separately.


                                                    Three Months Ended March 31,
                                                       2020                2019
                                                            (in thousands)
Avapritinib external expenses                     $       21,053      $       24,677
Pralsetinib external expenses                             22,698              16,059
Fisogatinib external expenses                              2,156               1,262
BLU-263 external expenses                                  2,565                   -
Other development and pre-development
candidate expenses and unallocated expenses*              12,948

16,194


Internal research and development expenses                22,726

16,058


Total research and development expenses           $       84,146      $    

  74,250

* Other development and pre-development candidate expenses also includes

reimbursable expenses under our collaboration agreements.




We expect that our research and development expenses will increase in future
periods as we expand our operations and incur additional costs in connection
with our clinical trials and preparing regulatory filings. These increases will
likely include the costs related to the implementation and expansion of clinical
trial sites and related patient enrollment, monitoring, program management and
manufacturing expenses for active pharmaceutical ingredient, or API, drug
product and drug substance for current and future clinical trials and commercial
inventory. In addition, we expect that our research and development expenses
will increase in future periods as we incur additional costs in connection with
research and development activities under our collaboration with Roche,
development activities under our collaboration with CStone and development
activities for companion diagnostic tests for AYVAKIT and any current and future
drug candidates.

Selling, General and Administrative Expenses


Selling, general and administrative expenses consist primarily of salaries and
other related costs, including stock-based compensation, for pre-launch and
post-launch commercial operations for personnel in executive, finance,
accounting, commercial, business development, information technology, legal and
human resources functions. Other significant costs include facility costs not
otherwise included in research and development expenses, commercial development
activities, legal fees related to intellectual property and corporate matters
and fees for accounting and consulting services.

We expect that our selling, general and administrative expenses will continue to
increase in the future to support additional research and development activities
and commercialization activities, including expanding our sales, marketing and
distribution infrastructure to commercialize any drugs for which we may obtain
marketing approval for additional indications or in additional geographies and
expanding our operations in the U.S. and outside the U.S. These increases will
likely include increased costs related to the hiring of additional personnel,
legal, auditing and filing fees and general compliance and consulting expenses,
among other expenses. We have incurred and will continue to incur additional
costs associated with operating as a public company and expanding the scope of
our operations.

Interest Income (Expense), net


Interest income (expense), net consists primarily of income earned on cash
equivalents and investments. The increase was primarily related to higher
average investment balances partially offset by a lower rate of return on
investments. Due to the COVID-19 pandemic, in March 2020, there was a severe
liquidity crisis in the capital markets, particularly with respect to securities
with maturities of less than one year. This issue impacted pricing of certain
securities in our investment portfolio, and we expect our interest income
(expense), net will decrease in future periods.

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Other Income (Expense), net

Other income (expense), net consists primarily of foreign currency transaction gains or losses.

Critical Accounting Policies and Estimates

Our critical accounting policies are those policies that require the most significant judgments and estimates in the preparation of our financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, accrued research and development expenses, available-for-sale investments, stock-based compensation and leases.



For a description of our critical accounting policies, please see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Financial Operations Overview-Critical Accounting Policies and
Estimates" in our Annual Report on Form 10-K for the year ended December 31,
2019. Other than as described below, there have been no significant changes to
our critical accounting policies since December 31, 2019.

Product Revenue



We generate product revenue from sales of AYVAKIT to specialty pharmacy
providers in the U.S. These customers subsequently dispense the product directly
to patients. In addition, we entered into arrangements with payors that provide
for government mandated rebates and discounts and allowances with respect to the
utilization of AYVAKIT.

Product revenue is recognized when the customer takes control of the product,
typically upon delivery to the customer. Product revenue is recorded at the net
sales price, or transaction price, which includes estimated reserves for
variable consideration resulting from chargebacks, government rebates, trade
discounts and allowances, product returns and other incentives that are offered
within the contract with customers, healthcare providers, payors and other
indirect customers relating to the sales of our product. Reserves are
established based on the amounts earned or to be claimed on the related sales.
Where appropriate, we utilize the expected value method to determine the
appropriate amount for estimates of variable consideration based on factors such
as our current contractual and statutory requirements, specific known market
events and trends, industry data and forecasted customer buying and payment
patterns. The amount of variable consideration that is included in the
transaction price may be constrained and is included in net product revenues
only to the extent that it is probable that a significant reversal in the amount
of the cumulative revenue recognized will not occur in a future period. Actual
amounts of consideration ultimately received may differ from our estimates. If
actual results vary from our estimates, we adjust these estimates, which would
affect net product revenue and earnings in the period such variances become
known.



Chargebacks: Chargebacks for fees and discounts represent the estimated
obligations resulting from contractual commitments to sell product to qualified
healthcare providers and government agencies at prices lower than the list
prices charged to the customers who directly purchase the product from us. The
customers charge us for the difference between what they pay for the product and
the ultimate contractually committed or government required lower selling price
to the qualified healthcare providers. These reserves are estimated using the
expected value method based upon a range of possible outcomes and are
established in the same period that the related revenue is recognized, resulting
in a reduction of product revenue.

Government rebates: Government rebates consist of Medicare, Tricare and Medicaid
rebates, which were estimated using the expected value method, based upon a
range of possible outcomes for the estimated payor mix. These reserves are
recorded in the same period the related revenue is recognized, resulting in a
reduction of product revenue. For Medicare, we also estimate the number of
patients in the prescription drug coverage gap for whom we will owe a rebate
under the Medicare Part D program.



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Trade discounts and allowances: We provide the customers with discounts that are
explicitly stated in the contracts and recorded as a reduction of revenue in the
period the related product revenue is recognized. In addition, the Company also
receives sales order management, inventory management and data services from the
customers.

Product returns: We estimate the amount of product sales that may be returned by
our customers and records this estimate as a reduction of revenue in the period
the related product revenue is recognized. We currently estimate product return
liabilities using expected value method based on available industry data and our
visibility into the inventory remaining in the distribution channel.



Other deductions: Co-pay assistance relates to financial assistance provided to
qualified patients, whereby we may assist them with prescription drug
co-payments required by the patient's insurance provider. Reserves for co-pay
assistance are recorded in the same period the related revenue is recognized,
resulting in a reduction of product revenue.

Accounts Receivable



Accounts receivables arise from product sales and amounts due from our
collaboration partners. The amount from product sales represents amounts due
from specialty pharmacy providers in the U.S. We monitor economic conditions to
identify facts or circumstances that may indicate that our receivables are at
risk of collection. We provide reserves against accounts receivable for
estimated losses that may result from a customer's inability to pay based on the
composition of our accounts receivable, current economic conditions and
historical credit loss activity. Amounts determined to be uncollectible are
charged or written-off against the reserve.

Inventory



Inventories are stated at the lower of cost or estimated net realizable value
with cost based on the first-in first-out method. Inventory that can be used in
either the production of clinical or commercial products is expensed as research
and development costs when identified for use in clinical trials.

Prior to the regulatory approval of our drug candidates, we incur expenses for
the manufacture of drug product supplies to support clinical development that
could potentially be available to support the commercial launch of those drugs.
Until the date at which regulatory approval has been received or is otherwise
considered probable, we record all such costs as research and development
expenses.

We perform an assessment of the recoverability of capitalized inventories during
each reporting period and write down any excess and obsolete inventory to its
net realizable value in the period in which the impairment is first
identified. Such impairment charges, should they occur, are recorded as a
component of cost of product sales in the condensed consolidated statements of
operations and comprehensive loss. The determination of whether inventory costs
will be realizable requires the use of estimates by management. If actual market
conditions are less favorable than projected by management, additional
write-downs of inventory may be required.



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                             Results of Operations

Comparison of Three Months Ended March 31, 2020 and 2019

The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019, together with the changes in those items in dollars and as a percentage:




                                                 Three Months Ended
                                                     March 31,
                                                 2020           2019

Dollar Change % Change


                                                             (in thousands)
Revenues:
Product revenue, net                          $     3,458    $        -    $         3,458         100 %
Collaboration revenue                               2,709           730              1,979         271
Total revenues                                      6,167           730              5,437         745
Cost and operating expenses:
Cost of sales                                          24             -                 24         100
Research and development                           84,146        74,250              9,896          13
Selling, general and administrative                35,655        16,553             19,102         115
Total cost and operating expenses                 119,825        90,803             29,022          32
Other income (expense):
Interest income (expense), net                      2,904         2,710                194           7
Other income (expense), net                         (201)          (44)    

         (157)       (357)
Total other income                                  2,703         2,666                 37           1
Net loss                                      $ (110,955)    $ (87,407)    $        23,548          27 %




Product Revenue, Net

We started generating revenue from sales of AYVAKIT in the first quarter of 2020
following FDA approval of AYVAKIT for the treatment of adults with unresectable
or metastatic GIST harboring a PDGFRA exon 18 mutation, including PDGFRA D842V
mutations. For the three months ended March 31, 2020, we recorded net product
revenue of $3.5 million.

Collaboration Revenue

Collaboration revenue increased by $2.0 million from $0.7 million for the three
months ended March 31, 2019 to $2.7 million for the three months ended March 31,
2020. Collaboration revenue for the three months ended March 31, 2020 and 2019
was related to CStone and Roche agreements. We recorded collaboration revenue of
$2.1 million under the CStone agreement that was primarily related to the
milestone achieved for the three months ended March 31, 2020. We recorded
collaboration revenue of $0.6 million and $0.7 million under the Roche agreement
for the three months ended March 31, 2020 and 2019, respectively, related to
amortization of the total $63.0 million of upfront and milestone payments
received as of such periods.

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Cost of Product Sales


Cost of product sales was less than $0.1 million for the three months ended
March 31, 2020 and was related to manufacturing costs associated with AYVAKIT
sales. Costs associated with the manufacture of AYVAKIT prior to FDA approval
were expensed and, therefore, are not included in cost of sales during the
current period.

Research and Development Expense



Research and development expense increased by $9.9 million from $74.3 million
for the three months ended March 31, 2019 to $84.1 million for the three months
ended March 31, 2020. The increase in research and development expense was
primarily related to the following:

approximately $6.9 million in increased personnel expense, primarily due to an

? increase in headcount, which was driven by growth in the clinical and

manufacturing organizations, and an increase of $2.0 million in stock-based

compensation expense;

? approximately $3.7 million in increased expenses for external clinical

activities primarily related to pralsetinib clinical trials; and

? approximately $0.7 million in increased expenses associated with clinical

manufacturing activities.




These increased expenses were partially offset by approximately $1.4 million in
decreased expenses associated with our early research programs, primarily driven
by the BLU-782 program, which we exclusively licensed to Clementia during the
fourth quarter of 2019.

Selling, General and Administrative Expense


Selling, general and administrative expense increased by $19.1 million from
$16.6 million for the three months ended March 31, 2019 to $35.7 million for the
three months ended March 31, 2020. The increase in general and administrative
expense was primarily related to increased costs and personnel expenses,
including an increase of $4.6 million in stock-based compensation expense,
associated with building our commercial infrastructure for commercialization of
AYVAKIT and to support the overall growth of our business.

Interest Income (Expense), Net


Interest income (expense), net, increased by $0.2 million from $2.7 million for
the three months ended March 31, 2019 to $2.9 million for the three months ended
March 31, 2020. The increase was primarily related to higher average investment
balances partially offset by a lower rate of return on investments.

Other Income (Expense), Net

Other income (expense), net, decreased by $0.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The decrease was primarily related to changes in foreign currency exchange rates.



                        Liquidity and Capital Resources

Sources of Liquidity

To date, we have financed our operations primarily through public offerings of our common stock, private placements of our convertible preferred stock, collaborations, a license agreement, a debt financing and limited product revenue.


Through March 31, 2020, we have received an aggregate of $1.8 billion from such
transactions, including $1.5 billion in aggregate gross proceeds from the sale
of common stock in our May 2015 IPO and follow-on public offerings,
$115.1 million in gross proceeds from the issuance of convertible preferred
stock, $18.8 million in upfront and milestone

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payments from Alexion, $63.0 million in upfront and milestone payments from Roche, $52.0 million in upfront and milestone payments from CStone, a $25.0 million in upfront payment from Clementia and $10.0 million in gross proceeds from a debt financing.

As of March 31, 2020, we had cash, cash equivalents and investments of $750.4 million.



Cash Flows

The following table provides information regarding our cash flows for the three months ended March 31, 2020 and 2019:




                                                 Three Months Ended
                                                     March 31,
(in thousands)                                  2020           2019

Net cash used in operating activities $ (109,328) $ (80,188) Net cash provided by investing activities 59,860 89,314 Net cash provided by financing activities 310,150 2,011 Net increase in cash and cash equivalents $ 260,682 $ 11,137

Net Cash Used in Operating Activities. For the three months ended
March 31, 2020, compared to the same period in 2019, the $29.1 million increase
in net cash used in operating was primarily due to the decreased net loss during
this period of $23.5 million, which was driven by increased headcount and
headcount-related expenses and spending on pre-clinical, clinical, manufacturing
and commercial activities.

Net Cash Provided by Investing Activities. For the three months ended
March 31, 2020, compared to the same period in 2019, the $29.5 million decrease
in net cash provided by investing activities was primarily due to a decrease in
net purchases of available-for-sale investments.

Net Cash Provided by Financing Activities. For the three months ended
March 31, 2020, compared to the same period in 2019, the $308.1 million increase
in net cash provided by financing activities was primarily due to $308.4 million
estimated net proceeds received from our January 2020 follow-on public offering,
net of underwriting discounts and commissions and offering expenses payable

by
us.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue the research and development of, initiate or
continue clinical trials of, and seek marketing approval for our drug
candidates, including marketing approval for AYVAKIT for additional indications
or in additional geographies. In addition, we expect to incur additional
significant commercialization expenses for AYVAKIT and other drug candidates, if
approved, related to drug sales, marketing, manufacturing and distribution to
the extent that such sales, marketing, manufacturing and distribution are not
the responsibility of potential collaborators or licensors. We may also need to
raise additional funds if we choose to pursue additional indications or
geographies for any of our approved drugs or drug candidates or otherwise expand
more rapidly than we presently anticipate. Accordingly, we will need to obtain
substantial additional funding in connection with our continuing operations. If
we are unable to raise capital when needed or on attractive terms, we would be
forced to delay, reduce or eliminate certain of our research and development
programs or future commercialization efforts.

As of March 31, 2020, we had cash, cash equivalents and investments of $750.4
million. Based on our current plans, we believe that our existing cash, cash
equivalents and investments, together with anticipated product revenues but
excluding any potential option fees, milestone payments or other payments under
our collaboration or license agreements, will be sufficient to enable us to fund
our operating expenses and capital expenditure requirements into the second half
of 2022. Our future capital requirements will depend on many factors, including:

the scope, progress, results and costs of drug discovery, pre-clinical


 ? development, laboratory testing and clinical trials for our approved drugs and
   drug candidates;


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the costs of securing manufacturing, packaging and labeling arrangements for

? development activities and commercial production, including API, drug substance

and drug product material for use in pre-clinical studies, clinical trials, our

compassionate use program and for use as commercial supply, as applicable;

the costs, timing and outcome of regulatory review of marketing applications

? for our drug candidates, including avapritinib for additional indications or in

additional geographies;

the costs of maintaining, expanding or contracting for sales, marketing and

? distribution capabilities in connection with commercialization of AYVAKIT and

any of our current or future drug candidates for which we receive marketing

approval;

the success of our collaborations with Roche and CStone and our license

? agreement with Clementia, as well as our ability to establish and maintain

additional collaborations, partnerships or licenses on favorable terms, if at

all;

the achievement of milestones or occurrence of other developments that trigger

? payments under our collaboration agreements with Roche and CStone or license


   agreement with Clementia, or any collaboration, partnership or license
   agreements that we may enter into in the future;

the extent to which we are obligated to reimburse, or entitled to reimbursement

? of, research and development, clinical or other costs under future

collaboration agreements, if any;

? the extent to which we acquire or in-license other approved drugs, drug

candidates or technologies and the terms of any such arrangements;

? the success of our current or future collaborations for the development and

commercialization of companion diagnostic tests;

the success of our commercialization efforts and market acceptance for AYVAKIT

? or any of our current or future drug candidates for which we receive marketing

approval;

the costs of preparing, filing and prosecuting patent applications, maintaining

? and enforcing our intellectual property rights and defending intellectual

property-related claims; and

? the costs of continuing to expand our operations outside the U.S.


Identifying potential drug candidates, conducting pre-clinical development and
testing and clinical trials and, for any drug candidates that receive marketing
approval, establishing and maintaining commercial infrastructure is a
time-consuming, expensive and uncertain process that takes years to complete,
and we may never generate the necessary data or results required to obtain
additional marketing approvals, including for avapritinib for additional
indications or in additional geographies, and achieve substantial revenues for
any of our drugs that receive marketing approval, including for AYVAKIT in the
U.S. In addition, AYVAKIT and any current or future drug candidates that receive
marketing approvals, including AYVAKIT for additional indications or in
additional geographies, may not achieve commercial success. Accordingly, we will
need to continue to rely on additional financing to achieve our business
objectives. Adequate additional financing may not be available to us on
acceptable terms, or at all.

Until such time, if ever, as we can generate substantial drug revenues, we
expect to finance our cash needs primarily through a combination of public and
private equity offerings, debt financings, collaborations, strategic alliances
and licensing arrangements. We do not have any committed external source of
funds, other than our collaborations with Roche and CStone and the license
agreement with Clementia, which are limited in scope and duration and subject to
the achievement of milestones or royalties on sales of licensed products, if
any. To the extent that we raise additional capital through the sale of common
stock or securities convertible or exchangeable into common stock, the ownership
interest of our stockholders will be diluted, and the terms of these securities
may include liquidation or other preferences that materially adversely affect
the rights of our common stockholders. Debt financing, if available,

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would increase our fixed payment obligations and may involve agreements that
include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making capital expenditures or declaring
dividends.

If we raise funds through additional collaborations, strategic alliances or
licensing arrangements with third parties, we may have to relinquish valuable
rights to our intellectual property, future revenue streams, research programs,
drugs or drug candidates or to grant licenses on terms that may not be favorable
to us. If we are unable to raise additional funds through equity or debt
financings when needed, we may be required to delay, limit, reduce or terminate
our drug development or future commercialization efforts or grant rights to
develop and market drug and drug candidates that we would otherwise prefer to
develop and market ourselves.

                            Contractual Obligations

Our contractual obligations primarily consist of our obligations under non-cancellable operating leases and unconditional purchase obligations.



As of March 31, 2020, except for minimum purchase obligations associated with
certain commercial manufacturing agreements of approximately $16.2 million,
there have been no other material changes to our contractual obligations and
commitments from those described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the Annual Report on
Form 10-K for the year ended December 31, 2019.

                         Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

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