You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year endedDecember 31, 2019 , included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission onFebruary 26, 2020 , or our Annual Report. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. In some cases you can identify forward-looking statements by terms such as "may," "will," "expect," "anticipate," "estimate," "intend," "plan," "predict," "potential," "believe," "should" and similar expressions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this Quarterly Report on Form 10-Q titled "Risk Factors." We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. Overview We are a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments that provide hope to underserved patient communities. Founded in 2011, GBT is delivering on its goal to transform the treatment and care of sickle cell disease, or SCD, a lifelong, devastating inherited blood disorder that is marked by red blood cell, or RBC, destruction and occluded blood flow and hypoxia, leading to anemia, stroke, multi-organ failure, severe pain crises, and shortened patient life span. As a result of the historic lack of treatment options, patients with SCD suffer serious morbidity and premature mortality. It is estimated the prevalence of SCD is approximately 100,000 individuals inthe United States , where newborn screening is mandatory, and approximately 60,000 individuals inEurope . The global incidence of SCD is estimated to be 250,000 to 300,000 births annually, and SCD is concentrated in populations of African, Middle Eastern and South Asian descent. In lateNovember 2019 , we receivedU.S. Food and Drug Administration , or FDA, accelerated approval for our first medicine, Oxbryta (voxelotor) tablets for the treatment of SCD in adults and children 12 years of age and older. Oxbryta, an oral therapy taken once daily, is the first FDA-approved treatment that directly inhibits sickle hemoglobin polymerization, an underlying cause of SCD. The accelerated approval of Oxbryta is based on clinically meaningful and statistically significant improvements in hemoglobin levels, accompanied by reductions in RBC destruction (hemolysis). Data from the Phase 3 HOPE (Hemoglobin Oxygen Affinity Modulation to Inhibit HbS PolymErization) Study of 274 patients 12 years of age and older with SCD showed that, after 24 weeks of treatment, 51.1% of patients receiving Oxbryta achieved a greater than 1 g/dL increase in hemoglobin compared with 6.5% receiving placebo (p<0.001). The HOPE data also demonstrated corresponding improvements in other markers of hemolysis as well as a favorable safety and tolerability profile for Oxbryta. In earlyDecember 2019 , we began to make Oxbryta available to patients through our specialty pharmacy partner network. As part of the product launch, we are focused on securing reimbursement and expanding patient access, and we have established GBT Source Solutions TM , a comprehensive program for patients who are prescribed Oxbryta that provides a wide range of practical, educational and financial support customized to each patient's needs. We are conducting and plan to conduct additional studies of Oxbryta, including our Phase 2a HOPE-KIDS 1 Study (an open-label, single- and multiple-dose Phase 2a study that is evaluating the safety, tolerability, pharmacokinetics and exploratory treatment effect of Oxbryta in pediatric patients aged 4 to 17 years with SCD) and, as a condition of accelerated approval, our Phase 3 HOPE-KIDS 2 Study (a post-approval confirmatory study we initiated inDecember 2019 that is using transcranial Doppler, or TCD, flow velocity to seek to demonstrate a decrease in stroke risk in children 2 to 15 years of age). We also expect to conduct additional clinical studies of Oxbryta, including to seek to expand the potential approved product label into younger pediatric populations. Beyond Oxbryta, we are also engaged in other research and development activities, all of which are currently in earlier development stages, including working on new targets to develop the next generation of treatments for SCD. As part of our efforts to build our pipeline, we regularly evaluate opportunities to in-license, acquire or invest in new business, technology or assets or engage in related discussions with other business entities. 15 -------------------------------------------------------------------------------- Table of Contents InAugust 2018 , we entered into the License Agreement, or Roche Agreement, withF. Hoffmann-La Roche Ltd. and Hoffmann-LaRoche Inc. (together, "Roche") pursuant to which Roche granted us an exclusive and sublicensable worldwide license under certain patent rights and know-how to develop and commercialize inclacumab, a p-selectin inhibitor in development to address pain crises associated with the disease, including any modified compounds targeting p-selectin and derived from inclacumab, for all indications and uses, except diagnostic use. Roche retained a non-exclusive, worldwide, perpetual, royalty-free license to inclacumab solely for any diagnostic use. We are developing inclacumab as a treatment for vaso-occlusive crises, or VOCs, in patients with SCD, and we expect to be able to leverage the safety data from Roche's prior clinical studies, which were not in patients with SCD, as we proceed with our development of inclacumab. We expect to initiate a pivotal clinical study in the first half of 2021. InDecember 2019 , we entered into the License and Collaboration Agreement, or Syros Agreement, with Syros Pharmaceuticals, Inc., or Syros, to discover, develop and commercialize novel therapies for SCD and beta thalassemia. Under the agreement, Syros will use its leading gene control platform to identify therapeutic targets and discover drugs that potentially induce fetal hemoglobin, and we have an option to obtain an exclusive worldwide license to develop, manufacture and commercialize any compounds or products resulting from the collaboration, subject to Syros' option to co-promote the first product inthe United States . The outbreak of the novel coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (COVID-19), has evolved into a global pandemic that has impacted our business, including our commercialization of Oxbryta and our research and development activities. For example, we have implemented a temporary work from home policy, temporarily suspended our field team from in-person interactions, including visits to physician offices, clinics and hospitals as well as in-person meetings with payors, and delayed or paused certain of our research and development activities, including pausing screening and enrollment in all GBT-sponsored studies, including our Phase 2a HOPE-KIDS 1 Study, our Phase 3 HOPE-KIDS 2 Study and our dose optimization study that is intended to assess doses of Oxbryta of up to 3,000 mg per day. Notably, the COVID-19 pandemic has not significantly impacted our supply of Oxbryta. We continue to believe we have an adequate supply of Oxbryta to sustain estimated patient need through the remainder of this year and into 2021, and we are continuing to produce Oxbryta tablets. In addition, we are continuing to engage with healthcare professionals and payors through increased use of digital and internet-based education and outreach. We have seen a significant decrease in weekly new patient prescriptions for Oxbryta from a peak in early March, and we expect the rate of new patient prescriptions to remain lower as the second quarter progresses, possibly through the third quarter, and potentially longer. While we intend to resume normal operations as soon as practicable, we do not know for certain the extent or duration of these and other disruptions or the long-term impact on our business. We own or jointly own and have exclusively licensed rights to Oxbryta and our product candidates inthe United States ,Europe and other major markets. We are the sole owner of issuedU.S. patents covering Oxbryta, including its composition of matter, methods of use, formulations and polymorphs of Oxbryta. These issuedU.S. patents covering Oxbryta will expire between 2032 and 2037, absent any applicable patent term extensions. We own or co-own additional pending patent applications inthe United States and multiple foreign countries relating to Oxbryta. We are not profitable and have incurred losses and negative cash flows from operations each year since our inception. Our net losses were$73.0 million and$48.9 million for the three months endedMarch 31, 2020 and 2019, respectively. As ofMarch 31, 2020 , we had an accumulated deficit of$811.9 million . Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. We had$315.5 million in cash and cash equivalents and$299.7 million in marketable securities as ofMarch 31, 2020 . Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles, orU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 16 -------------------------------------------------------------------------------- Table of Contents There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report. Results of Operations Comparison of the Three Months EndedMarch 31, 2020 and 2019 Three Months Ended March 31, 2020 2019 $ Change % Change (in thousands, except percentages) Product sales, net$ 14,118 $ -$ 14,118 * Costs and operating expenses: Cost of sales 135 - 135 * Research and development 39,773 34,468 5,305 15 %
Selling, general and administrative 47,662 18,055 29,607
164 %
Total costs and operating expenses 87,570 52,523 35,047
67 % Loss from operations (73,452 ) (52,523 ) (20,929 ) 40 % Interest income 2,856 3,831 (975 ) (25 )% Interest expenses (2,314 ) (181 ) (2,133 ) * Other expenses, net (116 ) (50 ) (66 ) 132 % Net loss$ (73,026 ) $ (48,923 ) $ (24,103 ) 49 % * Change is not meaningful Product sales, net Product sales consist of sales of Oxbryta, which was approved by the FDA in lateNovember 2019 . We commenced shipments of Oxbryta and fully launched with a deployed sales force inDecember 2019 . The following table summarizes activity with respect to our sales allowances and accruals for the period endedMarch 31, 2020 (in thousands): Rebates, co-payment assistance, Medicare Part D coverage gap, Prompt payment product returns and discounts and distributor fees chargebacks Total Balances at December 31, 2019 $ 529 $ 113$ 642 Provision related to current period sales 1,543 339 1,882 Credit or payments made during the period (75 )
(280 ) (355 )
Balance at March 31, 2020 $ 1,997 $ 172$ 2,169 Cost of sales Cost of sales of$135,000 for the three months endedMarch 31, 2020 , is related to manufacturing costs incurred after FDA approval for the cost of Oxbryta sold. Prior to receiving FDA approval for Oxbryta inNovember 2019 , we recorded all costs incurred in the manufacture of Oxbryta as research and development expense. We expect to sell inventory previously expensed to research and development over approximately the current year, and accordingly we expect our costs of product sales of Oxbryta to increase as a percentage of net sales in future periods as we produce and sell inventory that reflects the full cost of manufacturing the product. 17 -------------------------------------------------------------------------------- Table of Contents Research and development Research and development expenses consist primarily of costs incurred for the development of Oxbryta and product candidates, which include: • employee-related expenses, which include salaries, benefits and stock-based compensation;
• expenses incurred under agreements with consultants, third-party
research firms, manufacturing organizations for products not approved by the FDA, and investigative clinical trial sites that conduct research and development activities on our behalf;
• the costs related to production of clinical supplies, including fees
paid to contract manufacturers; • laboratory and vendor expenses related to the execution of nonclinical
studies and clinical trials; • payments upon achievement of certain clinical development and regulatory milestones in relation with license agreement; and
• facilities and other allocated expenses, which include expenses for
rent and maintenance of facilities, depreciation and
amortization
expense and other supplies. We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are performed. A significant component of our total operating expenses is our investment in research and development activities, including the clinical development of Oxbryta. We allocate research and development salaries, benefits, stock-based compensation and indirect costs to Oxbryta, inclacumab and other product candidates that we may pursue on a program-specific basis. We expect our research and development expenses will increase in future periods as we continue to invest in research and development activities related to developing Oxbryta and product candidates, and as programs advance into later stages of development and we begin to conduct larger clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and research and development is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. The following table summarizes our research and development expenses incurred during the respective periods (in thousands, except percentages): Three Months Ended March 31, 2020 2019 $ Change % Change Costs incurred by development program: Oxbryta for the treatment of SCD$ 23,460 $ 27,725 $ (4,265 ) (15 )% Other preclinical programs 9,316 5,363 3,953 74 % Inclacumab for the treatment of SCD 6,997 1,380 5,617 407 %
Total research and development expenses
15 %
Research and development, or R&D, expenses increased by$5.3 million or 15%, to$39.8 million for the three months endedMarch 31, 2020 from$34.5 million for the three months endedMarch 31, 2019 . The increase was primarily due to an increase of$5.6 million in external costs related to our inclacumab program driven by manufacturing scale-up activities. In addition, there was an increase of$4.0 million in internal and external costs associated with our preclinical program, including higher pre-clinical research activities related to the Syros Agreement, which we entered into inDecember 2019 . The increase is partially offset by a$4.3 million decrease in manufacturing costs for Oxbryta that was previously expensed to R&D. Following the approval of Oxbryta inNovember 2019 , we capitalize manufacturing costs to inventory. R&D related stock-based compensation expense was$5.4 million for the three months endedMarch 31, 2020 and$4.0 million for the three months endedMarch 31, 2019 . The increase was primarily due to hiring additional personnel. 18 -------------------------------------------------------------------------------- Table of Contents Selling, general and administrative expenses Selling, general and administrative expenses consist primarily of costs incurred in our commercial, executive, finance, corporate development, human resource, information technology, legal, compliance and other general and administrative functions, which include: • employee-related expenses, which include salaries, benefits and stock-based compensation; • fees to third party vendors providing customer support services; • expenses incurred under agreements with consultants; and
• facilities and other allocated expenses, which include expenses for
rent and maintenance of facilities, depreciation and
amortization
expense and other supplies. We expense all selling, general and administrative costs in the periods in which they are incurred. We expect our selling, general and administrative expenses to continue to grow as we progress through the commercial launch of Oxbryta for the treatment of SCD. Selling, general and administrative, or SG&A, expenses increased by$29.6 million or 164%, to$47.7 million for the three months endedMarch 31, 2020 from$18.1 million for the three months endedMarch 31, 2019 . The increase was primarily due to an increase of$12.9 million in salary and benefit costs due to higher headcounts primarily in the commercial function, an increase of$5.6 million in stock-based compensation expense as a result of our hiring additional personnel and stock price appreciation, an increase of$9.2 million in professional and consulting services due to the growth of our operations and the commercialization of Oxbryta, and an increase of$1.9 million in other general and administrative expenses due to the growth of our operations. SG&A related stock-based compensation expense was$11.0 million for the three months endedMarch 31, 2020 and$5.4 million for the three months endedMarch 31, 2019 . Liquidity, Capital Resources and Plan of Operations We are not profitable and have incurred losses and negative cash flows from operations each year since our inception. We have financed our operations primarily through sale of equity securities. As ofMarch 31, 2020 , we had$315.5 million in cash and cash equivalents and$299.7 million in marketable securities. Our primary use of cash is to fund operations. Cash used to fund operations is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We believe that our existing capital resources will be sufficient to fund our planned operations for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We believe we may continue to require additional financing to commercialize Oxbryta, advance Oxbryta through clinical development, to develop other potential product candidates and to fund operations for the foreseeable future. We may continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. Our future funding requirements will depend on many factors, including: • our ability to successfully commercialize Oxbryta, inclacumab and any other product candidates we may identify and develop in any territories; • the manufacturing, selling, and marketing costs associated with the commercialization of Oxbryta and the potential commercialization of inclacumab and any other product candidates we may identify and develop, including the cost and timing of establishing or
maintaining
our sales and marketing capabilities in any territory(ies); • the amount and timing of sales and other revenues from Oxbryta, inclacumab and any other product candidates we may identify and develop, including the sales price and the availability of adequate third-party reimbursement; • the time and cost necessary to wind down our completed Phase 3 HOPE Study, to conduct and complete multiple ongoing studies
(including our
HOPE-KIDS 1 Study, Phase 3 HOPE-KIDS 2 Study and our OLE study in HOPE study countries);
• the time and cost necessary to conduct and complete any additional
clinical studies required to pursue additional regulatory
approvals for
Oxbryta for SCD, including our Phase 3 HOPE-KIDS 2 Study (which
is
intended as our required confirmatory study to move from our
current
Subpart H approval to a full approval of Oxbryta) and any
studies to
support potential label expansions into younger SCD pediatric populations, or any other post-marketing studies for Oxbryta for SCD; • the progress, data and results of clinical trials of Oxbryta; 19
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Table of Contents
• the progress, timing, scope and costs of our nonclinical studies, our
clinical trials and other related activities, including our
ability to
enroll subjects in a timely manner for our ongoing and future clinical trials of Oxbryta, inclacumab or any other product candidate that we may identify and develop; • the costs of obtaining clinical and commercial supplies of Oxbryta, inclacumab and any other product candidates we may identify and develop; • our ability to advance our development programs, including for Oxbryta, inclacumab and any other potential product candidate programs we may identify and pursue, the timing and scope of these development activities, and the availability of approval for any of our other product candidates;
• our ability to successfully obtain any additional regulatory approvals
from any regulatory authorities, and the scope of any such
regulatory
approvals, to market and sell Oxbryta, inclacumab and any other product candidates we may identify and develop in any territory(ies); • the cash requirements of any future acquisitions or discovery of product candidates;
• the time and cost necessary to respond to technological and market
developments; • the extent to which we may acquire or in-license other product candidates and technologies, and the costs and
timing
associated with any such acquisitions or in-licenses; • our ability to attract, hire, and retain qualified personnel; and
• the costs of maintaining, expanding, and protecting our intellectual
property portfolio. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for commercialization, clinical trials and other research and development expenditures. With the exception of our Term Loan, we currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of Oxbryta and other product candidates and ongoing developments in connection with the COVID-19 pandemic, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated commercialization, clinical trials and research and development activities. The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2020 2019 Cash used in operating activities$ (78,622 ) $ (40,316 ) Cash provided by (used in) investing activities 91,126 (100,651 ) Cash provided by financing activities 784
22,446
Net increase (decrease) in cash, cash equivalents and restricted cash$ 13,288 $ (118,521 ) Cash flows from operating activities Cash used in operating activities for the three months endedMarch 31, 2020 was$78.6 million , consisting of a net loss of$73.0 million , which was partially offset by non-cash charges of$16.4 million for stock-based compensation and$3.2 million for net depreciation and amortization expense. The change in our net operating assets and liabilities was due primarily to an increase of$13.2 million in inventories as we began capitalizing manufacturing of Oxbryta as inventory upon receipt of FDA approval inNovember 2019 , a decrease of$6.8 million in accrued liabilities due to timing of services performed, a decrease of$6.3 million in accrued compensation primarily due to the payment of annual employee bonuses, an increase of$2.6 million in accounts payable due to timing of payments and receipt of invoices, and an increase in accounts receivable of$1.9 million due to timing of cash receipts associated with Oxbryta commercial sales. Cash used in operating activities for the three months endedMarch 31, 2019 was$40.3 million , consisting of a net loss of$48.9 million , which was partially offset by non-cash charges of$9.5 million for stock-based compensation and$1.6 million for net depreciation and amortization expense. The change in our net operating assets and liabilities was due primarily to an increase of$1.3 million in accounts payable due to timing of payments and receipt of invoices, and a decrease of$4.4 million in accrued compensation primarily due to the payment of annual employee bonus. 20 -------------------------------------------------------------------------------- Table of Contents Cash flows from investing activities Cash provided by investing activities for the three months endedMarch 31, 2020 was$91.1 million , consisting of purchases of marketable securities of$58.0 million and purchases of property and equipment of$2.5 million , which are partially offset by maturities of marketable securities of$151.6 million . Cash used in investing activities for the three months endedMarch 31, 2019 was$100.7 million , consisting of purchases of marketable securities of$164.2 million , which are partially offset by maturities of marketable securities of$63.6 million . Cash flows from financing activities Cash provided by financing activities for the three months endedMarch 31, 2020 was$0.8 million , primarily from proceeds of$3.0 million from the issuance of common stock to participants in the employee stock purchase plan and exercise of stock options, which are partially offset by$2.1 million tax paid related to net share settlement of equity awards. Cash provided by financing activities for the three months endedMarch 31, 2019 was$22.4 million , primarily from net proceeds of$21.2 million from the issuance of common stock in connection with the overallotment option exercised by our underwriters inJanuary 2019 and to a lesser extent, proceeds of$1.9 million from the issuance of common stock to participants in the employee stock purchase plan and exercise of stock options, which are partially offset by$0.7 million tax paid related to net share settlement of equity awards. Off-Balance Sheet Arrangements As ofMarch 31, 2020 , we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K as promulgated by theSEC . Contractual Obligations and Other Commitments As of the date of this report, there were no material changes to our contractual obligations and commitments outside the ordinary course of business during the three months endedMarch 31, 2020 , as compared to those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Accounting Pronouncements Adopted InAugust 2018 , theFinancial Accounting Standards Board , or FASB, issued Accounting Standards Update, or ASU, No.
2018-15,
Intangibles-Goodwill andOther-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , or ASU 2018-15. ASU No.
2018-15
requires a customer that is a party to a cloud computing service contract to follow the internal-use software guidance in Subtopic 350-40 to determine which implementation costs to capitalize and which costs to expense. The amendments in this update are effective for annual reporting periods beginning afterDecember 15, 2019 , and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We adopted ASU No.
2018-15
in the first quarter of 2020 and applied the guidance prospectively to the implementation costs incurred in our implementations of various cloud computing arrangements that are service contracts. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements. InAugust 2018 , the FASB issued ASU No.
2018-13,
Fair Value Measurement (Topic 820) . The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including removals of, modification to, and additional disclosure requirements from Topic 820. The amendment of ASU No.
2018-13
removes disclosure requirements from Topic 820 in the areas of (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019 . Except for certain amendments related to Level 3 fair value measurements, all the other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU No.
2018-13.
We have adopted ASU No.
2018-13
in the first quarter of 2020 and applied the guidance retrospectively. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements. InJune 2016 , the FASB issued ASU No.
2016-13,
Measurement of Credit Losses on Financial Instruments (Topic 326) , which amends the guidance on the impairment of financial instruments. The new standard adds toU.S. GAAP an impairment model that is based on expected losses rather than incurred losses, which is known as the current expected credit loss, or CECL model. The CECL model applies to most debt instruments (other than those measured at fair value), trade and other receivables, financial guarantee contracts, and loan commitments. Available-for-sale debt securities are scoped out of this guidance. Our investment 21 -------------------------------------------------------------------------------- Table of Contents portfolio primarily consists of available-for-sale debt securities carried at fair value. Our accounts receivable do not have long terms and we do not expect to write off accounts receivable. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019 . Early adoption of the amendments in this update is permitted. We have adopted ASU No.
2016-13
in the first quarter of 2020 prospectively. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risks as ofMarch 31, 2020 have not changed materially from those discussed in Item 7A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onFebruary 26, 2020 . Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as ofMarch 31, 2020 . Based on the evaluation of our disclosure controls and procedures as ofMarch 31, 2020 , our Chief Executive Officer and Chief Financial Officer have concluded that, as ofMarch 31, 2020 , our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control over Financial Reporting During the first quarter of the current fiscal year, we implemented controls related to the accounting for product sales and related reserves, accounts receivable, and inventory and their related financial statement reporting. There were no other changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months endedMarch 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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