GLOBAL BLOOD THERAPEUTICS, INC. 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, 2021 , included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission onFebruary 23, 2022 , 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 driven by our mission to discover, develop and deliver life-changing treatments that provide hope to underserved patient communities, starting with sickle cell disease, or SCD. Founded in 2011, our goal is to transform the treatment and care of SCD, a lifelong, devastating inherited blood disorder that is marked by red blood cell destruction and occluded blood flow and hypoxia, which leads to anemia, stroke, multi-organ failure, severe pain crises, and shortened patient life span. SCD is also marked by a historical lack of understanding, investment and attention. Although the fundamental cause of SCD has been understood for decades, therapeutic innovation and access to care have historically lagged compared to many other rare diseases. For example, there are approximately three times more individuals inthe United States living with SCD than cystic fibrosis. However, since the enactment of the Orphan Drug Act passed in 1983, only four drugs have been approved for SCD compared to at least 15 drugs approved for cystic fibrosis. As a result of the lack of treatment options, patients with SCD suffer serious morbidity and premature mortality. We continue to make progress on our mission to bring innovative therapies to the SCD community. Our first medicine, Oxbryta, an oral therapy taken once daily, is the first and only FDA-approved treatment that directly inhibits sickle hemoglobin polymerization, the root cause of the sickling and destruction of red blood cells in SCD. Oxbryta was granted accelerated approval by theU.S. Food and Drug Administration , or FDA, inNovember 2019 , for the treatment of SCD in adults and children 12 years of age and older, and we have since continued to grow Oxbryta commercially, with the net number of patients taking Oxbryta increasing each quarter. In addition, inOctober 2021 , Oxbryta was recognized byPrix Galien USA with the prestigious Best Biotechnology Product award. We have also been working to expand Oxbryta's reach to patients at younger ages as we believe early intervention is critically important for SCD patients. Starting a disease-modifying therapy earlier in life could potentially help prevent symptoms and end-organ damage that occurs over time in SCD patients. This could potentially improve the daily lives of children and their families, improve patient outcomes and lead to less utilization of healthcare, reducing healthcare costs for patients and families, and the overall healthcare system. InDecember 2021 , the FDA granted accelerated approval to expand Oxbryta's indication for the treatment of SCD to children ages 4 to less than 12 years. The FDA also approved Oxbryta tablets for oral suspension, a dispersible, once-daily tablet dosage form suitable for patients ages 4 to less than 12 years as well as for older patients who have difficulty swallowing whole tablets. We will continue to study Oxbryta in patients as young as 6 months old, as we look to potentially further expand access to Oxbryta. Worldwide, there are millions of people living with SCD, which occurs predominantly in populations of African, Middle Eastern and South Asian descent and has an estimated global incidence of 250,000 to 300,000 births annually. We are executing what we view as a thoughtful and sustainable approach and will consider distribution and funding approaches to potentially provide access to our products globally, including in sub-Saharan Africa andIndia . Across our current focus areas ofthe United States ,Europe , theGulf Cooperation Council , or GCC, region of theMiddle East , andLatin America , we believe there is an opportunity to bring Oxbryta to more than 350,000 people living with SCD in the next several years. With respect toEurope , theEuropean Commission , or EC, granted marketing authorization for Oxbryta inFebruary 2022 for the treatment of hemolytic anemia (which is low hemoglobin due to red blood cell destruction) due to SCD in adult and pediatric patients 12 years of age and older as monotherapy or in combination with hydroxycarbamide (hydroxyurea), and such authorization includes all member states of theEuropean Union , or EU, as well as the additional member states of the European Economic Area (Iceland ,Liechtenstein andNorway ), or EEA. InJuly 2022 , the MHRA granted our application using the EC Decision Reliance Procedure for a 20 --------------------------------------------------------------------------------Great Britain marketing authorization for Oxbryta for the treatment of hemolytic anemia due to SCD in adult and pediatric patients 12 years of age and older as monotherapy or in combination with hydroxycarbamide (hydroxyurea). To provide early access to patients prior to potentially receiving marketing approval, we established early access and named patient programs for eligible SCD patients outsidethe United States , including in theUnited Kingdom ,France ,Germany andBrazil . TheUnited Kingdom andFrance have the majority of SCD patients inEurope . Under the exclusive agreement with our distribution partner, Biopharma-Middle East andAfrica , or Biopharma-MEA, we continue to advance efforts to expand access to Oxbryta in the six countries that make up the GCC region (Bahrain ,Kuwait ,Oman ,Qatar ,Saudi Arabia , and theUnited Arab Emirates , orUAE ). In the GCC, theU.S. approval of Oxbryta can be referenced to allow access to the medicine while health authorities conduct their reviews. In the third quarter of 2021, we were granted marketing authorization for Oxbryta by theMinistry of Health and Prevention (MOHAP) in theUAE for the treatment of SCD in adults and children 12 years of age and older, with theUAE being the first country outside of theU.S. to grant regulatory approval of Oxbryta. Oxbryta has also been approved inOman for the treatment of SCD in adults and children 12 years of age and older. We have ongoing and planned clinical trials in multiple countries to further evaluate the safety and efficacy of Oxbryta, including trials designed to demonstrate that improving hemoglobin and reducing hemolysis leads to an improvement in organ dysfunction. These trials include the Phase 2a HOPE-KIDS 1 Study, an open-label, single- and multiple-dose trial evaluating the safety, tolerability, pharmacokinetics and exploratory treatment effect of Oxbryta in pediatric patients as young as 6 months of age. These trials also include the HOPE-KIDS 2 Study, a post-approval confirmatory study we initiated inDecember 2019 as a condition of the accelerated approval of Oxbryta inthe United States , that is using transcranial Doppler, or TCD, flow velocity to seek to demonstrate a decrease in stroke risk in children with SCD 2 to 15 years of age. Beyond Oxbryta, we are engaged in other research and development activities. Our development program includes inclacumab, a P-selectin inhibitor, currently in Phase 3 clinical development to investigate its potential to reduce the incidence of painful vaso-occlusive crises, or VOCs, and resulting hospital admissions. We are also advancing GBT021601, or GBT601, our next generation hemoglobin polymerization inhibitor, which was discovered by our scientists and is being studied in Phase 1 and Phase 2/3 clinical trials. The Phase 1 clinical trial was completed in late 2021 and, based on patient demand, then restarted in the second quarter of 2022 to evaluate a higher daily dose of GBT601 than previously studied. InJune 2022 , we announced the initiation of the Phase 2 portion of the planned Phase 2/3 clinical trial of GBT601, with the primary outcome measure of the Phase 2 portion being the number of patients with a change from baseline in hemoglobin, or Hb, levels through Week 12. In addition, our drug discovery teams continue to work on new targets to potentially develop the next wave of treatments for SCD. As part of our efforts to build our pipeline, we have entered into in-license and collaboration agreements and regularly evaluate opportunities to in-license, acquire or invest in new business, technology or assets or engage in related discussions with other business entities. We licensed inclacumab fromF. Hoffmann-La Roche Ltd. andHoffmann-La Roche Inc. (together, "Roche") under the License Agreement we entered into inAugust 2018 , or Roche Agreement. Prior to licensing inclacumab to us, Roche conducted clinical studies that enrolled more than 700 non-SCD patients and demonstrated an encouraging pharmacokinetic, safety, and tolerability profile for inclacumab. We expect to be able to leverage the safety data from Roche's prior clinical studies, as we proceed with our development of inclacumab as a potential treatment to reduce the frequency of VOCs in patients with SCD and to reduce the hospital VOC readmission rate for patients that require inpatient treatment for an initial VOC episode. InJuly 2021 , we announced the initiation of two pivotal Phase 3 clinical trials of inclacumab. One study is a chronic prevention study with the primary endpoint of the rate of VOCs over a 48-week treatment period, and the other study is focusing on hospital readmissions with the primary endpoint of the rate of readmission to hospitals for VOC within 90 days following an initial hospitalization for a VOC. We also have an ongoing early-stage research program under our collaboration with Syros Pharmaceuticals, Inc., or Syros, under a License and Collaboration Agreement, or the Syros Agreement, entered into inDecember 2019 , to discover, develop and commercialize novel therapies for SCD and beta thalassemia. We are currently exploring orally available, small molecule drugs designed to upregulate fetal hemoglobin. Under the Syros Agreement, 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 . In addition, we entered into a license agreement withSanofi S.A. , or Sanofi, inMarch 2021 , under which we received an exclusive license under certain intellectual property controlled by Sanofi to use, develop, manufacture, commercialize and otherwise exploit certain compounds, including compounds directed against or that modulate one of two specified targets, or Licensed Compounds, for the treatment of human diseases worldwide. We currently intend to explore the Licensed Compounds for the potential treatment of SCD, and we believe the mechanisms are distinct and potentially complementary to that of Oxbryta. InMarch 2020 , theCenters for Disease Control and Prevention , orCDC , declared a global pandemic related to SARS-CoV-2, the virus that causes coronavirus disease 2019, or COVID-19, and the pandemic has impacted our business, including our commercialization of Oxbryta and our research and development activities. For example, we have continued to see significantly lower rates of weekly new patient prescriptions for Oxbryta compared to a peak in earlyMarch 2020 , and we expect the rate of new patient 21 -------------------------------------------------------------------------------- prescriptions may remain at these lower levels depending on the course of the pandemic. While we have resumed most of our operations that were temporarily paused at the beginning of the pandemic, our approach in some cases has changed to adapt to the new environment, such as the increased use of digital and internet-based education and outreach to engage with healthcare professionals, or HCPs, and payors. We do not know how the adjustments we have made in our operations or the pandemic in general will impact our business in the long term. Notably, the 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 2022, and we are continuing to produce Oxbryta tablets. Overall, our business model is aligned with our social purpose, which is centered on highlighting the disparities and inequalities of people living with SCD. This includes helping to address these issues through education, support of and engagement with the SCD community, as well as charitable giving, such as throughThe GBT Foundation we established in 2021. We believe that fostering a values-driven culture, developing and supporting our people, and creating a more diverse, equitable and inclusive environment for our employees can help us to better deliver for SCD patients. OnAugust 7, 2022 , we entered into an Agreement and Plan of Merger, or Merger Agreement, with Pfizer Inc., aDelaware corporation, or Pfizer, andRibeye Acquisition Corp. , aDelaware corporation and a wholly owned subsidiary of Pfizer, or Merger Sub, pursuant to which, and upon the terms and subject to the conditions described therein, Merger Sub will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Pfizer, which we refer to as the Merger. Under the terms of the Merger Agreement, our company will be acquired for a total enterprise value of approximately$5.4 billion , including debt and net of cash acquired, or a total equity value of approximately$5.8 billion . At the closing of the Merger, each issued and outstanding share of our common stock (other than shares owned by the Company, any subsidiary of the Company, Pfizer, Merger Sub or any other subsidiary of Pfizer and other than stockholders of the Company who have validly exercised their statutory rights of appraisal under the DGCL) will be converted into the right to receive$68.50 per share, net to the seller in cash, without interest and subject to any required withholding of taxes. The Merger is expected to close as early as the fourth quarter of 2022. If the Merger Agreement is terminated under specified circumstances, we will be required to pay Pfizer a termination fee of$217 million . The Merger Agreement also provides that, in connection with the termination of the Merger Agreement under specified antitrust related circumstances, Pfizer will be required to pay us a "reverse termination fee" of$326 million . 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 and debt financing, including several follow-on offerings. InDecember 2019 , we entered into a$150.0 million term loan agreement, or 2019 Term Loan, with funds managed byPharmakon Advisors LP , which are BioPharma Credit PLC, as collateral agent,Biopharma Credit Investments V (Master) LP , as a lender, andBPCR Limited Partnership , as a lender, and collectively withBiopharma Credit Investments V (Master) LP , the Lenders, and drew down proceeds of$72.5 million net of debt issuance costs, and we drew down the remaining$74.8 million net of debt issuance costs inNovember 2020 . InDecember 2021 , we entered into an Amended and Restated Loan Agreement, or A&R Term Loan, which amended the 2019 Term Loan to increase the total term loan by$100.0 million . We received total proceeds, net of the debt issuance costs of$3.5 million , of an additional$96.5 million . InDecember 2021 , we issued an aggregate principal amount of$345.0 million of 1.875% convertible senior notes due 2028, or the 2028 Notes, in a private placement. The aggregate principal amount on the 2028 Notes sold reflects the full exercise by the initial purchasers of their option to purchase an additional$45.0 million in aggregate principal amount of the 2028 Notes. We received total proceeds, net of debt issuance and offering costs of$11.0 million , of$334.0 million from the offering. In the six months endedJune 30, 2022 , we have sold and issued 2,065,358 shares of common stock pursuant to the at-the-market offering program, or ATM, we entered into inAugust 2020 , with total gross proceeds of$50.0 million before deducting underwriting discounts, commissions, and other offering expenses payable by us of$1.5 million . Our net losses were$163.9 million and$144.5 million for the six months endedJune 30, 2022 , and 2021. As ofJune 30, 2022 , we had an accumulated deficit of$1.453 billion . 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$664.0 million in cash, cash equivalents and investments as ofJune 30, 2022 .
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.
There have been no material changes to our critical accounting policies and estimates from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report.
22
--------------------------------------------------------------------------------Results of Operations
Comparison of the Three Months Ended
Three Months Ended June 30,
2022 2021 $ Change % Change
(in thousands, except percentages)
Product sales, net $ 71,550 $ 47,555 $ 23,995 50 %
Costs and operating expenses:
Cost of sales 1,413 748 665 89
Research and development 64,775 51,784 12,991 25
Selling, general and administrative 81,088 61,093 19,995 33
Total costs and operating expenses 147,276 113,625 33,651 30
Loss from operations (75,726 ) (66,070 ) (9,656 ) 15
Interest income 1,664 164 1,500 915
Interest expense (8,402 ) (3,677 ) (4,725 ) 129
Other income (expense), net 186 21 165 786
Total other income (expense), net (6,552 ) (3,492 ) (3,060 ) 88
Loss before income taxes (82,278 ) (69,562 ) (12,716 ) 18
Provision for income taxes 192 30 162 540
Net loss $ (82,470 ) $ (69,592 ) $ (12,878 ) 19 %
Product sales, net
Product sales consist of sales of Oxbryta, which was approved by the FDA in
November 2019 for the treatment of SCD in adults and children 12 years of age
and older and approved by the FDA in December 2021 for the treatment of SCD in
children ages 4 to less than 12 years. Product sales, net were $71.6 million and
$47.6 million for the three months ended June 30, 2022 , and 2021, respectively.
The increase was due to higher volume of sales of $16.5 million driven by
increased patient demand and an increase in distributor inventory of
approximately $7.5 million related to the establishment of an additional
specialty distributor.
Cost of sales
Cost of sales of$1.4 million and$0.7 million for the three months endedJune 30, 2022 and 2021, respectively, is related to manufacturing costs incurred after FDA approval for the cost of Oxbryta sold. The increase was due to higher volume of sales driven by patient demand. 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 through the inventory previously expensed to research and development by the end of 2022, 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.
Research and development
The following table summarizes our research and development expenses incurred during the respective periods (in thousands, except percentages):
Change
Three Months Ended June 30, 2022/2021
2022 2021 $ %
Costs incurred by development program:
Oxbryta for the treatment of SCD $ 21,906 $ 23,623 $ (1,717 ) -7 %
Other preclinical programs 13,029 11,603 1,426 12
Inclacumab for the treatment of SCD 20,964 11,447 9,517 83
GBT601 for the treatment of SCD 8,876 5,111 3,765 74
Total research and development expenses
25 %
Research and development, or R&D, expenses increased by $13.0 million , or 25%,
to $64.8 million for the three months ended June 30, 2022 from $51.8 million for
the three months ended June 30, 2021 . The increase was primarily due to an
increase of $9.5 million in external costs related to our inclacumab program due
to an increase in manufacturing activities and ongoing clinical trial
activities, $3.8 million in external costs related to GBT601 due to ongoing
clinical trial activities, and $1.4 million in external costs related to other
preclinical programs. The increase was partially offset by a decrease of $1.7
million in external costs related to Oxbryta due to a decrease in manufacturing
activities for Oxbryta clinical studies. R&D related stock-based compensation
expense was $5.9 million and $4.9 million for the three months ended June 30,
2022 , and 2021, respectively.
23
--------------------------------------------------------------------------------Selling, general and administrative expenses
Selling, general and administrative, or SG&A, expenses increased by$20.0 million , or 33%, to$81.1 million for the three months endedJune 30, 2022 from$61.1 million for the three months endedJune 30, 2021 . The increase was primarily due to an increase of$8.9 million in professional and consulting services due to increases in medical affairs and commercial related activities for Oxbryta, an increase of$8.4 million in personnel costs due to higher headcount, and an increase of$3.9 million in other general and administrative expenses supporting our growth. The increase was offset by a decrease of$1.2 million in stock-based compensation expenses due to employee turnover. SG&A related stock-based compensation expense was$13.9 million for the three months endedJune 30, 2022 , and$15.1 million for the three months endedJune 30, 2021 .
Total other expenses, net
Total other expense, net increased by$3.1 million or 88%, to$6.6 million for the three months endedJune 30, 2022 from$3.5 million for the three months endedJune 30, 2021 . The increase was primarily due to an increase of$4.4 million in interest expense associated with the A&R Term Loan and the 2028 Notes issued inDecember 2021 , which was offset by an increase of$1.5 million in interest income as a result of the higher interest rates on investments.
Comparison of the Six Months Ended
Six Months Ended June 30,
2022 2021 $ Change % Change
(in thousands, except percentages)
Product sales, net $ 126,710 $ 86,598 $ 40,112 46 %
Costs and operating expenses:
Cost of sales 2,468 1,332 1,136 85
Research and development 117,608 102,641 14,967 15
Selling, general and administrative 155,622 120,059 35,563 30
Total costs and operating expenses 275,698 224,032 51,666 23
Loss from operations (148,988 ) (137,434 ) (11,554 ) 8
Interest income 2,164 493 1,671 339
Interest expense (16,607 ) (7,366 ) (9,241 ) 125
Other income (expense), net (100 ) (62 ) (38 ) 61
Total other income (expense), net (14,543 ) (6,935 ) (7,608 ) 110
Loss before income taxes (163,531 ) (144,369 ) (19,162 ) 13
Provision for income taxes 362 153 209 137
Net loss $ (163,893 ) $ (144,522 ) $ (19,371 ) 13 %
Product sales, net
Product sales, net were
Cost of sales
Cost of sales were$2.5 million and$1.3 million for the six months endedJune 30, 2022 , and 2021, respectively. The increase was due to higher volume of sales driven by patient demand and increased manufacturing costs of Oxbryta incurred after FDA approval. 24 --------------------------------------------------------------------------------
Research and development
The following table summarizes our research and development expenses incurred during the respective periods (in thousands, except percentages):
Change
Six Months Ended June 30, 2022/2021
2022 2021 $ %
Costs incurred by development program:
Oxbryta for the treatment of SCD $ 42,787 $ 47,704 $ (4,917 ) -10 %
Other preclinical programs 26,136 24,055 2,081 9
Inclacumab for the treatment of SCD 31,429 21,576 9,853 46
GBT601 for the treatment of SCD 17,256 9,306 7,950 85
Total research and development expenses
$ 14,967 15 % Research and development, or R&D, expenses increased by$15.0 million , or 15%, to$117.6 million for the six months endedJune 30, 2022 from$102.6 million for the six months endedJune 30, 2021 . The increase was primarily due to an increase of$9.9 million in external costs related to our inclacumab program due to an increase in manufacturing activities and ongoing clinical trial activities,$8.0 million in external costs related to GBT601 due to ongoing clinical trial activities and$2.1 million in external costs related to other preclinical programs. The increase was partially offset by a decrease of$5.0 million in external costs related to Oxbryta due to a decrease in manufacturing activities for Oxbryta clinical studies. R&D related stock-based compensation expense was$11.5 million and$10.2 million for the six months endedJune 30, 2022 , and 2021, respectively.
Selling, general and administrative expenses
Selling, general and administrative, or SG&A, expenses increased by$35.6 million , or 30%, to$155.6 million for the six months endedJune 30, 2022 from$120.1 million for the six months endedJune 30, 2021 . The increase was primarily due to an increase of$14.8 million in personnel costs due to higher headcount, an increase of$13.2 million in professional and consulting services due to increases in medical affairs and commercial related activities for Oxbryta, and an increase of$10.3 million in other general and administrative expenses supporting our growth. The increase was offset by a decrease of$2.7 million in stock-based compensation expenses due to employee turnover. SG&A related stock-based compensation expense was$27.5 million for the six months endedJune 30, 2022 , and$30.1 million for the six months endedJune 30, 2021 .
Total other expenses, net
Total other expense, net increased by$7.6 million or 110%, to$14.5 million for the six months endedJune 30, 2022 from$6.9 million for the six months endedJune 30, 2021 . The increase was primarily due to an increase of$8.8 million in interest expense associated with the A&R Term Loan and the 2028 Notes issued inDecember 2021 , which was offset by$1.7 million increase in interest income from our investment portfolio.
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 equity and debt financing. As of
InAugust 2020 , we filed a shelf registration statement on Form S-3, or Shelf Registration Statement, with theSEC relating to the registration of our common stock, preferred stock, debt securities, warrants and units or any combination thereof. Concurrently with the filing of the Shelf Registration Statement, we entered into a Sales Agreement withSVB Leerink LLC , or Sales Agent, to provide for the offering, issuance and sale by us of up to an aggregate of$200.0 million of our common stock from time to time in "at-the-market" offerings under the Shelf Registration Statement, or Sales Agreement. We have agreed to pay to the Sales Agent cash commissions of up to 3.0% of the gross proceeds from sales of common stock pursuant to the Sales Agreement. In the six months endedJune 30, 2022 , we have sold and issued 2,065,358 shares of common stock pursuant to the Sales Agreement, with total gross proceeds received in 2022 of$50.0 million before deducting underwriting discounts, commissions, and other offering expenses payable by us of$1.5 million . As ofJune 30, 2022 , we are authorized to sell up to a remaining$104.6 million in shares of our common stock under the Sales Agreement. InDecember 2021 , we issued an aggregate principal amount of$345.0 million of 1.875% convertible senior notes due 2028 in a private placement, or 2028 Notes. The aggregate principal amount on the 2028 Notes sold reflects the full exercise by the initial purchasers of their option to purchase to purchase an additional$45.0 million in aggregate principal amount of the 2028 Notes. We received total proceeds, net of debt issuance and offering costs of$11.0 million , of$334.0 million from the offering. 25 -------------------------------------------------------------------------------- In connection with the issuance of the 2028 Notes, we entered into capped call transactions with certain of the initial purchasers of the 2028 Notes and other financial institutions, totaling$46.8 million , which we refer to as the Capped Calls. The Capped Calls cover, subject to customary adjustments, the number of shares of our common stock that initially underlie the 2028 Notes (or 10,866,983 shares of our common stock). The Capped Calls have an initial strike price and an initial cap price of$31.7475 per share and$49.80 per share, respectively, subject to certain adjustments. Conditions that cause adjustments to the initial strike price of the Capped Calls mirror conditions that result in corresponding adjustments to the conversion price of the 2028 Notes. The Capped Calls are expected to offset the potential dilution to our common stock as a result of any conversion of the 2028 Notes, subject to a cap based on the cap price. 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 12 months without giving effect to our potential acquisition by Pfizer and assuming we remain a standalone entity. 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. If the potential acquisition by Pfizer is not completed within the timeframe we currently expect, we believe we may continue to require additional financing to commercialize Oxbryta, advance Oxbryta through clinical development, to acquire and develop other product candidates and to fund operations for the foreseeable future, and, as such, 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. In addition, the Merger Agreement contains restrictions on our issuance of shares of our common stock, subject to certain exceptions described therein, including pursuant to the Sales Agreement. 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:
•
the completion of the acquisition by Pfizer within the timeframe we currently expect;
•
our ability to successfully commercialize Oxbryta, inclacumab, GBT601 and any other product candidates we may identify and develop;
•
the manufacturing, selling, and marketing costs associated with the commercialization of Oxbryta and the potential commercialization of inclacumab, GBT601 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, GBT601 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 conduct and complete multiple ongoing studies (including our HOPE-KIDS 1 Study, our Phase 3 HOPE-KIDS 2 Study, and other studies;
•
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 inthe United States ) 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 and our product candidates;
•
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, GBT601 or any other product candidate that we may identify and develop;
•
the costs of obtaining clinical and commercial supplies of Oxbryta, inclacumab, GBT601 and any other product candidates we may identify and develop;
•
our ability to advance our development programs, including for Oxbryta, inclacumab, GBT601 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, GBT601 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;
26
--------------------------------------------------------------------------------•
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, all subject to whether
the potential acquisition by Pfizer is completed within the timeframe we
currently expect. 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 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):
Six Months Ended June 30,
2022 2021
Cash used in operating activities $ (116,161 ) $ (123,577 )
Net cash provided by (used in) investing activities (357,161 ) 45,750
Cash provided by financing activities 50,199
2,072
Effect of exchange rate changes on cash and cash
259
equivalents (446 )
Net decrease in cash, cash equivalents and restricted cash
$ (423,569 )
Cash flows from operating activities
Cash used in operating activities for the six months endedJune 30, 2022 was$116.2 million , consisting of a net loss of$163.9 million , which was partially offset by non-cash charges of$39.0 million for stock-based compensation and$6.2 million for net depreciation and amortization expense, including$1.5 million for non-cash interest expense. The change in our net operating assets and liabilities was due primarily to a decrease of$6.8 million in accounts payable due to timing of payments, an increase of$6.8 million in inventories, a decrease of$2.7 million in operating lease liabilities due to payments made during the period, a decrease of$2.5 million in accrued compensation, an increase of$1.0 million in accounts receivable and an increase of$0.4 million in other non-current assets. The cash outflow was offset by an increase of$14.0 million in accrued liabilities due to timing of receipt of invoices, an increase of$5.9 million in other non-current liabilities, and a decrease of$3.0 million in prepaid expenses and other current assets. Cash used in operating activities for the six months endedJune 30, 2021 was$123.6 million , consisting of a net loss of$144.5 million , which was partially offset by non-cash charges of$41.2 million for stock-based compensation,$3.0 million for net depreciation and amortization expense, and$0.5 million for non-cash interest expense. The change in our net operating assets and liabilities was due primarily to a decrease of$9.7 million in accounts payable due to timing of payments and receipt of invoices, an increase of$7.7 million in accrued liabilities due to timing of services performed, a decrease of$7.1 million in prepaid expenses and other current assets, a decrease of$6.8 million in inventories, a decrease of$4.7 million in accrued compensation primarily due to the payment of annual employee bonuses, a decrease of$2.3 million in operating lease liabilities due to payments made during the period, and an increase in accounts receivable of$2.0 million due to timing of cash receipts associated with Oxbryta commercial sales.
Cash flows from investing activities
Cash used in investing activities for the six months ended
Cash provided by investing activities for the six months ended
Cash flows from financing activities
Cash provided by financing activities for the six months endedJune 30, 2022 , was$50.2 million , primarily from the net proceeds of$48.5 million from the issuance of common stock pursuant to the ATM and proceeds of$2.8 million from the issuance of common stock to participants in our employee stock purchase plan and exercise of stock options, which was offset by$1.1 million in taxes paid related to net share settlement of equity awards. Cash provided by financing activities for the six months endedJune 30, 2021 was$2.1 million , primarily from proceeds of$4.1 million from the issuance of common stock to participants in the employee stock purchase plan and exercise of stock options, which was partially offset by$2.0 million in taxes paid related to net share settlement of equity awards. 27 --------------------------------------------------------------------------------
Contractual Obligations and Other Commitments
Except as noted below, there are no other material changes to our contractual obligations and commitments outside the ordinary course of business during the six months endedJune 30, 2022 , as compared to those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . In the ordinary course of business, we enter into various firm purchase commitments related to research development activities and manufacturing activities. We have entered into agreements with certain vendors for the provision of goods and services, which include manufacturing services with contract manufacturing organizations and research and development services with contract research organizations. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement. As ofJune 30, 2022 , we have noncancelable contractual obligations under the terms of a manufacturing agreement of approximately$1.3 million . See Note 6, Long-term Debt, and Note 7, Convertible Debt, of the notes to our condensed consolidated financial statements for further details on our future debt repayment obligations. See Note 8, Commitments and Contingencies, of the notes to our condensed consolidated financial statements for further details on our future lease repayment obligation.
As of
Inflation
Inflation has increased during the periods covered by this Quarterly Report, and is expected to continue to increase for the near future. Inflationary factors, such as increases in the cost of our product components, interest rates and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the future, especially if inflation rates continue to rise.
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