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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022.

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

For the transition period from            to           .

Commission file number: 001-35347

Clovis Oncology, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

90-0475355

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

5500 Flatiron Parkway, Suite 100

Boulder, Colorado

80301

(Address of principal executive offices)

(Zip Code)

(303625-5000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock par Value $0.001 per share

CLVS

The NASDAQ Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of April 29, 2022 was 143,879,140.

CLOVIS ONCOLOGY, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I. Financial Information

3

ITEM 1.

Financial Statements (unaudited)

3

Consolidated Statements of Operations and Comprehensive Loss — for the three months ended  March 31, 2022 and 2021

3

Consolidated Balance Sheets — as of March 31, 2022 and December 31, 2021

4

Consolidated Statements of Stockholders’ Equity (Deficit) – for the three months ended March 31, 2022 and 2021

5

Consolidated Statements of Cash Flows — for the three months ended March 31, 2022 and 2021

6

Notes to Unaudited Consolidated Financial Statements

7

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

43

ITEM 4.

Controls and Procedures

44

PART II. Other Information

45

ITEM 1.

Legal Proceedings

45

ITEM 1A.

Risk Factors

45

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

ITEM 3.

Defaults Upon Senior Securities

45

ITEM 4.

Mine Safety Disclosures

45

ITEM 5.

Other Information

45

ITEM 6.

Exhibits

45

SIGNATURES

50

2

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CLOVIS ONCOLOGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

`

Three months ended March 31, 

    

2022

    

2021

    

(in thousands, except per share amounts)

Revenues:

Product revenue

$

34,247

$

38,053

Operating expenses:

 

  

 

  

Cost of sales - product

8,070

8,268

Cost of sales - intangible asset amortization

1,343

1,343

Research and development

 

42,250

 

52,805

Selling, general and administrative

 

29,213

 

29,941

Other operating expenses

3,730

3,707

Total expenses

 

84,606

 

96,064

Operating loss

 

(50,359)

 

(58,011)

Other income (expense):

 

  

 

  

Interest expense

 

(9,100)

 

(8,037)

Foreign currency loss

 

(978)

 

(546)

Other income

 

148

 

183

Other income (expense), net

 

(9,930)

 

(8,400)

Loss before income taxes

 

(60,289)

 

(66,411)

Income tax benefit

 

120

 

134

Net loss

(60,169)

(66,277)

Other comprehensive income (loss):

 

  

  

 

  

Foreign currency translation adjustments, net of tax

 

435

  

 

(80)

Other comprehensive income (loss)

 

435

  

 

(80)

Comprehensive loss

$

(59,734)

$

(66,357)

Loss per basic and diluted common share:

Basic and diluted net loss per common share

$

(0.44)

$

(0.64)

Basic and diluted weighted average common shares outstanding

 

138,205

 

104,246

See accompanying Notes to Unaudited Consolidated Financial Statements.

3

CLOVIS ONCOLOGY, INC.

Consolidated Balance Sheets

(In thousands, except for share amounts)

March 31, 

2022

December 31, 

    

(Unaudited)

    

2021

 

ASSETS

 

  

  

Current assets:

 

  

  

Cash and cash equivalents

$

122,241

$

143,428

Accounts receivable, net

27,296

26,868

Inventories, net

14,504

13,688

Prepaid research and development expenses

 

4,928

 

2,397

Other current assets

 

16,566

 

11,706

Total current assets

 

185,535

 

198,087

Inventories

106,118

109,848

Property and equipment, net

 

5,987

 

6,554

Right-of-use assets, net

18,675

19,109

Intangible assets, net

 

59,029

 

60,371

Goodwill

 

63,074

 

63,074

Other assets

 

13,111

 

15,790

Total assets

$

451,529

$

472,833

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

22,332

$

27,308

Accrued research and development expenses

 

34,314

 

35,121

Lease liabilities

3,556

3,414

Borrowings under financing agreement

17,000

8,500

Other accrued expenses

 

44,630

 

50,871

Total current liabilities

 

121,832

 

125,214

Long-term lease liabilities - less current portion

19,004

19,731

Convertible senior notes

 

437,284

 

436,772

Borrowings under financing agreement - less current portion

176,715

169,956

Total liabilities

 

754,835

 

751,673

Commitments and contingencies (Note 14)

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

Common stock, $0.001 par value per share, 200,000,000 shares authorized at March 31, 2022 and December 31, 2021, respectively; 143,869,226 and 129,109,543 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

 

144

 

129

Additional paid-in capital

 

2,676,965

 

2,641,712

Accumulated other comprehensive loss

 

(42,995)

 

(43,430)

Accumulated deficit

 

(2,937,420)

 

(2,877,251)

Total stockholders' deficit

 

(303,306)

 

(278,840)

Total liabilities and stockholders' deficit

$

451,529

$

472,833

See accompanying Notes to Unaudited Consolidated Financial Statements.

4

CLOVIS ONCOLOGY, INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

    

    

    

    

    

    

    

Accumulated

    

    

    

    

Additional

Other

Common Stock

Paid-In

Comprehensive

Accumulated

Shares

Amount

Capital

Income (Loss)

Deficit

Total

(in thousands, except for share amounts)

January 1, 2022

129,109,543

$

129

$

2,641,712

$

(43,430)

$

(2,877,251)

$

(278,840)

Issuance of common stock, net of issuance costs

13,870,410

14

28,622

28,636

Issuance of common stock from vesting of restricted stock units

889,273

1

(1)

Share-based compensation expense

 

 

6,632

 

 

 

6,632

Foreign currency translation adjustments

 

 

 

435

 

 

435

Net loss

 

 

 

 

(60,169)

 

(60,169)

March 31, 2022

143,869,226

144

2,676,965

(42,995)

(2,937,420)

(303,306)

    

    

    

    

    

    

    

Accumulated

    

    

    

    

Additional

Other

Common Stock

Paid-In

Comprehensive

Accumulated

Shares

Amount

Capital

Income (Loss)

Deficit

Total

(in thousands, except for share amounts)

January 1, 2021

103,699,109

$

104

$

2,498,179

$

(44,304)

$

(2,612,727)

$

(158,748)

Exercise of stock options

5,609

 

 

27

 

 

 

27

Issuance of common stock from vesting of restricted stock units

853,239

1

(1)

Share-based compensation expense

 

 

4,039

 

 

 

4,039

Foreign currency translation adjustments

 

 

 

(80)

 

 

(80)

Net loss

 

 

 

 

(66,277)

 

(66,277)

March 31, 2021

104,557,957

105

2,502,244

(44,384)

(2,679,004)

(221,039)

See accompanying Notes to Unaudited Consolidated Financial Statements

5

CLOVIS ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

Three months ended March 31, 

    

2022

    

2021

 

Operating activities

  

 

  

Net loss

$

(60,169)

$

(66,277)

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

 

 

  

Share-based compensation expense

 

6,632

 

4,039

Depreciation and amortization

 

1,923

 

2,241

Amortization of debt issuance costs

 

558

 

639

Other

368

877

Changes in operating assets and liabilities:

 

 

  

Accounts receivable

(765)

4,732

Inventory

3,685

3,665

Prepaid and accrued research and development expenses

 

(1,323)

 

2,125

Other operating assets and liabilities

 

(4,879)

 

(5,005)

Accounts payable

 

(4,818)

 

(6,290)

Other accrued expenses

 

293

 

(2,636)

Net cash used in operating activities

 

(58,495)

 

(61,890)

Investing activities

 

  

 

  

Purchases of property and equipment

 

(62)

 

(118)

Net cash used in investing activities

 

(62)

 

(118)

Financing activities

 

  

 

  

Proceeds from sale of common stock, net of issuance costs

28,636

Proceeds from borrowings under financing agreement

9,221

13,802

Proceeds from the exercise of stock options and employee stock purchases

 

 

27

Payments on finance leases

(386)

Payments on other long-term liabilities

(67)

Net cash provided by financing activities

 

37,857

 

13,376

Effect of exchange rate changes on cash and cash equivalents

 

(487)

 

(675)

Decrease in cash and cash equivalents

 

(21,187)

 

(49,307)

Cash and cash equivalents at beginning of period

 

143,428

 

240,229

Cash and cash equivalents at end of period

$

122,241

$

190,922

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

3,224

$

3,292

Non-cash investing and financing activities:

 

  

 

  

Vesting of restricted stock units

$

1,763

$

7,129

See accompanying Notes to Unaudited Consolidated Financial Statements.

6

CLOVIS ONCOLOGY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

Clovis Oncology, Inc. (together with its consolidated subsidiaries, the “Company”, “Clovis”, “we”, “our”, “us”) is a biopharmaceutical company focused on acquiring, developing and commercializing innovative anti-cancer agents in the United States, Europe and additional international markets. We target our development programs for the treatment of specific subsets of cancer populations, and simultaneously develop, with partners, for those indications that require them, diagnostic tools intended to direct a compound in development to the population that is most likely to benefit from its use. We have and intend to continue to license or acquire rights to oncology compounds in all stages of development. In exchange for the right to develop and commercialize these compounds, we generally expect to provide the licensor with a combination of upfront payments, milestone payments and royalties on future sales. In addition, we generally expect to assume the responsibility for future drug development and commercialization costs. We currently operate in two segments. Since inception, our operations have consisted primarily of developing in-licensed compounds, evaluating new product acquisition candidates and general corporate activities and since 2016 we have also marketed and sold products.

Our marketed product Rubraca® (rucaparib), an oral small molecule inhibitor of poly ADP-ribose polymerase (“PARP”), is marketed in the United States for two indications specific to recurrent epithelial ovarian, fallopian tube or primary peritoneal cancer and also an indication specific to metastatic castration-resistant prostate cancer (“mCRPC”). The initial indication received approval from the United States Food and Drug Administration (“FDA”) in December 2016 and covers the treatment of adult patients with deleterious BRCA (human genes associated with the repair of damaged DNA) mutation (germline and/or somatic)-associated epithelial ovarian, fallopian tube, or primary peritoneal cancer who have been treated with two or more chemotherapies and selected for therapy based on an FDA-approved companion diagnostic for Rubraca. Rubraca received a second approval from the FDA in April 2018 for the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. Diagnostic testing is not required for patients to be prescribed Rubraca in this maintenance treatment indication.

In May 2020, the FDA approved Rubraca for the treatment of adult patients with mCRPC associated with a deleterious BRCA mutation (germline and/or somatic) who have been treated previously with androgen receptor-directed therapy and a taxane-based chemotherapy and selected for therapy based on an FDA-approved companion diagnostic for Rubraca. The FDA approved this indication under accelerated approval based on objective response rate and duration of response data from the TRITON2 clinical trial. As an accelerated approval, continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials. The TRITON3 clinical trial is expected to serve as the confirmatory study for Rubraca’s approval in mCRPC as well as the basis for us to seek a potential second-line label expansion. We anticipate the initial data readout from TRITON3 in the third quarter of 2022.

In Europe, the European Commission granted a conditional marketing authorization in May 2018 for Rubraca as monotherapy treatment of adult patients with platinum-sensitive, relapsed or progressive, BRCA mutated (germline and/or somatic), high-grade epithelial ovarian, fallopian tube, or primary peritoneal cancer, who have been treated with two or more prior lines of platinum-based chemotherapy, and who are unable to tolerate further platinum-based chemotherapy. In January 2019, the European Commission granted a variation to the marketing authorization to include the maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. With this approval, Rubraca is now authorized in Europe for certain patients in the recurrent ovarian cancer maintenance setting regardless of their BRCA mutation status. Following successful reimbursement negotiations, Rubraca is marketed in each of Germany, United Kingdom, Italy, France, Spain, the Netherlands and Switzerland.

Beyond our labeled indications, we have a clinical development program underway to further evaluate Rubraca in a variety of solid tumor types, either as monotherapy or in combination with other agents, including the ATHENA Phase 3 study as part of our ongoing clinical collaboration with Bristol Myers Squibb Company (“Bristol Myers Squibb”) to evaluate its immunotherapy OPDIVO® (nivolumab) in combination with Rubraca.

7

On March 31, 2022, we announced positive top-line data from the monotherapy portion of the ATHENA (GOG 3020/ENGOT-ov45) trial (ATHENA-MONO) demonstrating that Rubraca as maintenance treatment successfully achieved the primary endpoint of significantly improved investigator-assessed progression-free survival (“PFS”) compared with placebo. Benefit was observed in both primary efficacy analyses of newly-diagnosed patients with advanced ovarian cancer following successful treatment with platinum-based chemotherapy: those who had homologous recombination deficiency (HRD-positive), including deleterious BRCA mutations, as well as all patients randomized in the trial (overall intent-to-treat population (“ITT”)). Benefit in PFS was also seen in the exploratory subgroups of patients with BRCA mutant (BRCAm) tumors, BRCA wild type HRD-negative and BRCA wild type HRD-positive and in patients with unknown biomarker status. The safety of Rubraca observed in the ATHENA-MONO study was consistent with both the US and European labels.

The timing for Phase 3 data readouts from each of TRITON3 and ATHENA-COMBO is contingent upon the occurrence of the protocol-specified PFS events, and timing estimates are based on event-based projections.

We hold worldwide rights to Rubraca.

FAP-2286 is our initial product candidate to emerge from our targeted radionuclide collaboration with 3B Pharmaceuticals GmbH (“3BP”). FAP-2286 is a peptide-targeted radionuclide therapy (“PTRT”) and imaging agent targeting fibroblast activation protein (“FAP”). PTRT uses cancer cell-targeting peptides to deliver radiation-emitting radionuclides specifically to tumors. Following the clearance by the FDA of two INDs submitted in December 2020 to support the use of FAP-2286 as an imaging and treatment agent, we initiated the phase 1 portion of the LuMIERE clinical study in June 2021. LuMIERE is a phase 1/2 study of FAP-2286 labeled with lutetium-177 (177Lu-FAP-2286) evaluating the compound in patients with advanced solid tumors to determine the dose, schedule, and tolerability of FAP-2286 as a therapeutic agent with expansion cohorts planned in multiple tumor types as part of a global development program. We are currently enrolling patients in the third dose cohort, and we plan to initiate phase 2 expansion cohorts during the fourth quarter of 2022. FAP-2286 labeled with gallium-68 (68Ga-FAP-2286) is being utilized to identify tumors that contain FAP for treatment in this study.

We plan to present phase 1 clinical data from LuMIERE in an oral presentation at the Society of Nuclear Medicine & Molecular Imaging (“SNMMI”) Annual Meeting in June 2022. During 2022, we also anticipate additional presentations of non-clinical data for FAP-2286 and the launch of our combination study program to explore FAP-2286 in combination with other oncology compounds, and in 2023, a potential IND filing of FAP-2286 linked to a FAP-targeted alpha-emitter PTRT.

We hold U.S. and global rights to FAP-2286, excluding Europe (defined to include Russia, Turkey and Israel), where 3BP retains rights. We are also collaborating with 3BP on a discovery program directed to up to three additional, undisclosed targets for targeted radionuclide therapy, to which we would have global rights for any resulting product candidates.

Lucitanib, our product candidate currently in clinical development, is an investigational, oral, potent angiogenesis inhibitor which inhibits vascular endothelial growth factor receptors 1 through 3 (“VEGFR1-3”), platelet-derived growth factor receptors alpha and beta (“PDGFR α/β”) and fibroblast growth factor receptors 1 through 3 (“FGFR1-3”). Lucitanib inhibits the same three pathways as Lenvima® (lenvatinib), which has received an FDA approval for use in certain populations of patients with endometrial cancer in combination with Keytruda® (pembrolizumab), a PD-1 inhibitor. This, together with preclinical data for lucitanib in combination with a PD-1 inhibitor that demonstrated enhanced anti-tumor activity compared to that of single agents, represent a scientific rationale for development of lucitanib in combination with a PD-1 inhibitor, and in February 2019, lucitanib was added to our clinical collaboration with Bristol Myers Squibb. The phase 1b/2 LIO-1 study evaluated the combination of lucitanib and Opdivo in gynecologic cancers. Interim data from the non-clear cell ovarian cancer expansion cohort were presented at the American Society of Clinical Oncology (“ASCO”) 2021 and the initial efficacy data do not support further development in non-clear cell ovarian cancer. The remaining three cohorts, which include non-clear cell endometrial, cervical and clear-cell ovarian and endometrial cancers, showed sufficient responses in stage one of each of the cohorts to advance to stage 2. The data from the cervical cohort was presented at the Society of Gynecologic Oncology (“SGO”) 2022 Annual Meeting on Women’s Cancer in March 2022 and represent encouraging data in this subset of gynecological cancers. Phase 2 LIO-1 efficacy and safety data results across the different types of gynecologic cancers will also be presented at the ASCO 2022 Annual Meeting in June. However, given the competing priorities, including development of FAP-2286, we have determined that we will not pursue further development of lucitanib in gynecological cancers at this time.

8

We hold the global (excluding China) development and commercialization rights for lucitanib.

Going Concern and Management Plans

We have incurred significant net losses since inception and have relied on our ability to fund our operations through debt and equity financings. We expect operating losses and negative cash flows to continue for the foreseeable future even with Rubraca now generating revenues. Rubraca revenues have not been consistent in prior quarters, mainly as a result of the impact of COVID-19 and competition from other products on the market, including the impact on second-line maintenance that may result from an increase in first-line maintenance treatment of ovarian cancer, which has made forecasting revenues difficult. In addition to factors described, future Rubraca revenues will depend, in part, on the timing and extent of any recovery from the impacts of COVID-19, with any such recovery of revenues expected to take several quarters to have a meaningful impact on our financial results. We do not expect to generate a sufficient amount of Rubraca revenues to finance our cash requirements in the foreseeable future, and which we may never be able to do in sufficient amounts. We require significant cash resources to execute our business plans and we will need to raise additional cash to continue to fund our operating plan. We cannot be certain that additional funding will be available on acceptable terms, or at all, especially given that we will need our stockholders to approve an amendment to our certificate of incorporation to increase the number of shares of common stock that we are authorized to issue. The aforementioned factors, which are largely outside of our control, raise substantial doubt about our ability to continue as a going concern within one year from the date of filing of this quarterly report.

In the near term, we believe there is some flexibility within our operating plan, particularly with managing certain discretionary expenses, to adjust to variations in our expected Rubraca revenues and the availability and timing of potential sources of financings to meet our working capital requirements. However, based on our current cash, cash equivalents and liquidity available under our ATHENA clinical financing agreement, together with current estimates for revenues generated by sales of Rubraca, we will need to raise additional capital in the near term in order to fund our operating plan for the next 12 months and to continue as a going concern. Our ability to obtain additional financing (including through collaborating and licensing arrangements) will depend on a number of factors, including, among others, our ability to generate positive data from our clinical studies and to obtain label expansions through regulatory approvals, the condition of the capital markets and the other risks described under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). We expect to finance our operating plan through a combination of public or private equity or debt offerings, collaborations, strategic alliances and other similar licensing arrangements in both the short term and the long term.

We currently have capacity to issue approximately $16.5 million of additional shares of common stock under our previously established ATM Program, assuming the remaining authorized but unissued shares of our common stock are sold at an offering price of $2.03 per share, the closing price of our common stock on the Nasdaq Global Select Market on May 2, 2022. There can be no assurance that we will be able to sell any shares of our common stock under the ATM Program or regarding the price at which we will be able to sell any such shares, and any sales of shares of our common stock under the ATM Program may be at prices that result in additional dilution to existing stockholders of the Company.

We will not be able to raise sufficient additional capital through public or private equity offerings (or offerings of securities convertible into our equity securities) until our stockholders approve a proposed reverse stock split of our common stock at our 2022 Annual Meeting of Stockholders, which, when implemented by our board of directors, will have the effect of increasing the number of authorized but unissued and unreserved shares of our common stock that are available to be issued. We cannot be certain that our stockholders will approve such a proposal. In the event our stockholders do not approve such a proposal, our ability to raise capital to fund our operations beyond the next 12 months will be significantly limited.

In light of the uncertainty about our ability to raise sufficient capital through potential equity offerings (or offerings of securities convertible into equity securities), we are considering other sources of funding, potentially through incurring further indebtedness or entering into strategic partnerships or licensing arrangements for one or more of our products or product candidates in which we may have to give up certain of our future commercialization or other rights to obtain interim funding. We are exploring various partnership and licensing arrangements for our products and product candidates outside the U.S., but those will largely depend on our ability to generate positive data from our

9

clinical studies and to obtain label expansions through regulatory approvals. We cannot be certain that such other sources of funding will be available to us or on acceptable terms or in sufficient amounts to meet our requirements.

In the event that we are unable to raise sufficient additional capital, which is dependent on factors outside of our control, we will need to cut expenses further, including potentially delaying, scaling back or eliminating certain of our pipeline development programs, and undertake a more significant restructuring of our operations, in order to continue as a going concern and fund our committed obligations and working capital requirements. There can be no assurances that we will be able to achieve such a restructuring or that such a restructuring will be successful over the long term to allow us to fund our requirements and our plan to invest sufficient amounts to fund the development of FAP-2286 to its potential.

Basis of Presentation

All financial information presented includes the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited financial statements of Clovis Oncology, Inc. included herein reflect all adjustments that, in the opinion of management, are necessary to fairly state our financial position, results of operations and cash flows for the periods presented herein. Interim results may not be indicative of the results that may be expected for the full year. Certain information and footnote disclosures normally included in audited financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto which are included in our 2021 Form 10-K for a broader discussion of our business and the opportunities and risks inherent in such business.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and revenue and related disclosures. On an ongoing basis, we evaluate our estimates, including estimates related to revenue deductions, intangible asset impairment, clinical trial accruals and share-based compensation expense. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

2. Summary of Significant Accounting Policies

Recently Adopted Accounting Standards

In August 2020, the FASB issued guidance that simplifies an issuer’s accounting for debt and equity instruments. The guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early application is permitted. We adopted this guidance on January 1, 2022 and there was no material impact on our consolidated financial statements and related disclosures.

Revenue Recognition

We are currently approved to sell Rubraca in the United States and Europe markets. We distribute our product principally through a limited number of specialty distributor and specialty pharmacy providers, collectively, our customers. Our customers subsequently sell our products to patients and health care providers. Separately, we have arrangements with certain payors and other third parties that provide for government-mandated and privately-negotiated rebates, chargebacks and discounts. 

Product Revenue

Revenue from product sales are recognized when the performance obligation is satisfied, which is when customers obtain control of our product at a point in time, typically upon delivery. We expense incremental costs of obtaining a

10

contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less.

Reserves for Variable Consideration

 

Revenues from product sales are recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established and which result from price concessions that include rebates, chargebacks, discounts, co-pay assistance, estimated product returns and other allowances that are offered within contracts between us and our customers, health care providers, payors and other indirect customers relating to the sales of our product. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable or a current liability. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price 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 in the future vary from our estimates, we adjust these estimates, which would affect product revenue and earnings in the period such variances become known.

Government Rebates. Rebates include mandated discounts under the Medicaid Drug Rebate Program, the Medicare coverage gap program, the Tricare health program and various European National Health Service, Sick Fund and Clawback programs. Rebates are amounts owed after the final dispensing of products to a benefit plan participant and are based upon contractual agreements or legal requirements with the public-sector benefit providers. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included in accrued expenses on the Consolidated Balance Sheets. Our rebate estimates are based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. The accrual for rebates is based on the expected utilization from historical data we have accumulated since the Rubraca product launch.

GPO and Payor Rebates. We contract with various private payor organizations and group purchasing organizations (“GPO”), primarily insurance companies, pharmacy benefit managers and hospitals, for the payment of rebates with respect to utilization of our products. We estimate these rebates and record such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.

Chargebacks. Chargebacks are discounts that occur when contracted customers, which currently consist primarily of GPOs, Public Health Service (“PHS”) organizations and federal government entities purchasing via the Federal Supply Schedule, purchase directly from our specialty distributors at a discounted price. The specialty distributor, in turn, charges back the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by the healthcare provider. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. The accrual for specialty distributor chargebacks is estimated based on known chargeback rates and known sales to specialty distributors adjusted for the estimated utilization by healthcare providers.

Discounts and Fees. Our payment terms generally range from 30 to 60 days. Specialty distributors and specialty pharmacies are offered various forms of consideration, including service fees and prompt pay discounts for payment within a specified period. We expect these customers will earn prompt pay discounts and therefore, we deduct the full amount of these discounts and service fees from product sales when revenue is recognized.

Co-pay assistance. Patients who have commercial insurance and meet certain eligibility requirements may receive co-pay assistance. The intent of this program is to reduce the patient’s out of pocket costs. Liabilities for co-pay assistance are based on actual program participation provided by third-party administrators at month end.

     

Returns. Consistent with industry practice, we generally offer customers a right of return limited only to product that is considered short dated or product that is six months beyond the expiration date. To date, we have had minimal

11

product returns and we currently do not have an accrual for product returns. We will continue to assess our estimate for product returns based on additional historical experience.

Cost of Sales – Product

Product cost of sales consists primarily of materials, third-party manufacturing costs as well as freight and royalties owed to our licensing partners for Rubraca sales.

Cost of Sales – Intangible Asset Amortization

Cost of sales for intangible asset amortization consists of the amortization of capitalized milestone payments made to our licensing partners upon FDA approval of Rubraca. Milestone payments are amortized on a straight-line basis over the estimated remaining patent life of Rubraca.

Accounts Receivable

We provide an allowance for credit losses based on experience and specifically identified risks. Accounts receivable are charged off against the allowance when we determine that recovery is unlikely and we cease collection efforts.

Inventory

Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out (“FIFO”) basis. Inventories include active pharmaceutical ingredient (“API”), contract manufacturing costs and overhead allocations. We begin capitalizing incurred inventory related costs upon regulatory approval. Prior to regulatory approval, incurred costs for the manufacture of the drugs that could potentially be available to support the commercial launch of our products are recognized as research and development expense.

We regularly analyze our inventory levels for excess quantities and obsolescence (expiration), considering factors such as historical and anticipated future sales compared to quantities on hand and the remaining shelf-life of Rubraca. Rubraca finished goods have a shelf-life of four years from the date of manufacture. We expect to sell the finished goods prior to expiration. The API currently has a shelf-life of five years from the date of manufacture but can be retested at an immaterial cost with no expected reduction in potency, thereby extending its shelf-life as needed. We expect to consume substantially all of the API over a period of approximately seven years based on our long-range sales projections of Rubraca.

We write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and/or inventory in excess of expected sales requirements. Expired inventory would be disposed of and the related costs would be written off as cost of product revenue. Inventories that are not expected to be consumed within 12 months following the balance sheet date are classified as long-term inventories. Long-term inventories primarily consist of API.

API is currently produced by Lonza. As the API has undergone significant manufacturing specific to its intended purpose at the point it is purchased by us, we classify the API as work-in-process inventory. In addition, we currently manufacture Rubraca finished goods with a single third-party manufacturer. The disruption or termination of the supply of API or the disruption or termination of the manufacturing of our commercial products could have a material adverse effect on our business, financial position and results of operations. API that is written off due to damage and certain costs related to our production train at Lonza are included in Other Operating Expenses on the Consolidated Statements of Operations and Comprehensive Loss.

Inventory used in clinical trials is expensed as research and development expense when it has been identified for such use.

Segment Information

We have two operating and reportable segments, U.S. and ex-U.S., based on product revenue by geographic areas. We designated our reporting segments based on the internal reporting used by the Chief Operating Decision Maker

12

(“CODM”), which is our Chief Executive Officer, for making decisions and assessing performance as the source of our reportable segments. The CODM allocates resources and assesses the performance of each operating segment based on product revenue by geographic areas. Accordingly, we view our business as two reportable operating segments to evaluate performance, allocate resources, set operational targets and forecast our future period financial results.

We manage our assets on a company basis, not by segments, as many of our assets are shared or commingled. Our CODM does not regularly review asset information by reportable segment. The majority of long-lived assets for both segments are located in the United States.

Research and Development Expense

Research and development costs are charged to expense as incurred and include, but are not limited to, salary and benefits, share-based compensation, clinical trial activities, drug development and manufacturing, companion diagnostic development and third-party service fees, including contract research organizations and investigative sites.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred and are reflected on the Consolidated Balance Sheets as prepaid or accrued research and development expenses.

Our other significant accounting policies are described in Note 2, Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in our 2021 Form 10-K.

3. Financial Instruments and Fair Value Measurements

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three levels of inputs that may be used to measure fair value include:

Level 1:

Quoted prices in active markets for identical assets or liabilities. Our Level 1 assets consist of money market investments. We do not have Level 1 liabilities.

Level 2:

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. We do not have Level 2 assets or liabilities.

Level 3:

Unobservable inputs that are supported by little or no market activity. We do not have Level 3 assets or liabilities.

The following table identifies our assets and liabilities that were measured at fair value on a recurring basis (in thousands):

    

Balance

    

Level 1

    

Level 2

    

Level 3

 

March 31, 2022

Assets:

Money market investments

$

72,941

$

72,941

$

$

Total assets at fair value

$

72,941

$

72,941

$

$

December 31, 2021

Assets:

Money market investments

$

72,934

$

72,934

$

$

Total assets at fair value

$

72,934

$

72,934

$

$

There were no liabilities that were measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021.

13

Financial instruments not recorded at fair value include our convertible senior notes. At March 31, 2022, the carrying amount of the 2024 Notes (2019 Issuance) was $84.5 million, which represents the aggregate principal amount net of remaining debt issuance costs, and the fair value was $57.5 million. At March 31, 2022, the carrying amount of the 2024 Notes (2020 Issuance) was $56.9 million, which represents the aggregate principal amount net of remaining debt issuance costs, and the fair value was $44.0 million. At March 31, 2022, the carrying amount of the 2025 Notes was $295.9 million, which represents the aggregate principal amount net of remaining debt issuance costs, and the fair value was $205.1 million. The fair value was determined using Level 2 inputs based on the indicative pricing published by certain investment banks or trading levels of the convertible senior notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system. See Note 9, Debt for discussion of the convertible senior notes. The carrying amounts of accounts payable and accrued expenses approximate their fair value due to their short-term maturities.

4. Inventories

The following table presents inventories as of March 31, 2022 and December 31, 2021 (in thousands):

March 31, 

December 31,

    

2022

    

2021

Work-in-process

 

$

83,462

 

$

85,084

Finished goods, net

 

37,160

 

38,452

Total inventories

 

$

120,622

 

$

123,536

5. Other Current Assets

Other current assets were comprised of the following (in thousands):

March 31, 

December 31, 

    

2022

    

2021

 

Prepaid insurance

$

3,772

$

794

Prepaid IT

593

769

Prepaid variable considerations

1,483

1,336

Prepaid expenses - other

 

3,474

 

1,936

Value-added tax ("VAT") receivable

5,519

4,307

Receivable - other

 

1,661

 

2,499

Other

 

64

 

65

Total

$

16,566

$

11,706

6. Intangible Assets and Goodwill

Intangible assets related to capitalized milestones under license agreements consisted of the following (in thousands):

March 31, 

December 31,

2022

    

2021

Intangible asset - milestones

$

79,850

$

79,850

Accumulated amortization

 

(20,821)

 

(19,479)

Total intangible asset, net

$

59,029

$

60,371

The estimated useful lives of these intangible assets are based on the estimated remaining patent life of Rubraca and extend through 2031 in Europe and 2035 in the U.S.

We recorded amortization expense of $1.3 million related to capitalized milestone payments during the three months ended March 31, 2022 and March 31, 2021. Amortization expense is included in cost of sales – intangible asset amortization on the Consolidated Statements of Operations and Comprehensive Loss.

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Estimated future amortization expense associated with intangibles is expected to be as follows (in thousands):

2022 (remaining nine months)

$

4,028

2023

5,371

2024

5,371

2025

5,371

2026

5,371

Thereafter

33,517

$

59,029

7. Other Accrued Expenses

Other accrued expenses were comprised of the following (in thousands):

March 31, 

December 31, 

    

2022

    

2021

 

Accrued personnel costs

$

10,459

$

15,714

Accrued interest payable for convertible senior notes

 

2,609

 

3,283

Income tax payable

871

1,579

Accrued corporate legal fees and professional services

185

141

Accrued royalties

5,226

5,463

Accrued variable considerations

17,907

17,211

Accrued legal settlement loss

2,325

2,325

Accrued expenses - other

 

5,048

 

5,155

Total

$

44,630

$

50,871

8. Leases

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. We elected not to recognize on the balance sheet leases with terms of one year or less. Lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received.

The components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, maintenance, consumables, etc.) and non-components (e.g. property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values assigned to the lease components and non-lease components.

Our facilities operating leases have lease components, non-lease components and non-components, which we have separated because the non-lease components and non-components have variable lease payments and are excluded from the measurement of the lease liabilities. The lease component results in a right-of-use asset being recorded on the balance sheet and amortized as lease expense on a straight-line basis to the statements of operations.

We lease all of our office facilities in the U.S. and Europe. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew. The exercise of lease renewal options is at our sole discretion. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Prior to June 30, 2021, we had a finance lease and operating lease for certain equipment at the production train at Lonza, our non-exclusive manufacturer of the Rubraca API. Pursuant to the terms of Amendment 2 discussed in Note

15

14, Commitments and Contingencies, we derecognized the lease components recognized under the original agreement with Lonza. This includes the operating lease liabilities and right-of-use (“ROU”) assets, finance lease liabilities and ROU assets and leasehold improvement assets and liability.

The components of lease expense and related cash flows were as follows (in thousands):

Three months ended March 31, 

Three months ended March 31, 

    

2022

    

2021

Lease cost

Finance lease cost:

Amortization of right-of-use assets

$

$

474

Interest on lease liabilities

 

 

185

Operating lease cost

 

1,215

 

1,253

Short-term lease cost

 

77

 

80

Variable lease cost

639

523

Total lease cost

$

1,931

$

2,515

Operating cash flows from finance leases

$

$

185

Operating cash flows from operating leases

$

1,215

$

1,253

Financing cash flows from finance leases

$

$

386

The weighted-average remaining lease term and weighted-average discount rate were as follows:

    

March 31, 2022

    

March 31, 2021

Weighted-average remaining lease term (years)

Operating leases

5.6

6.4

Finance leases

N/A

4.8

Weighted-average discount rate

Operating leases

8%

8%

Finance leases

N/A

8%

Future minimum commitments due under these lease agreements as of March 31, 2022 are as follows (in thousands):

Operating Leases

2022 (remaining nine months)

 

4,076

 

2023

 

4,906

 

2024

 

4,650

 

2025

4,805

2026

4,934

Thereafter

 

4,899

 

Present value adjustment

(5,710)

Present value of lease payments

$

22,560

16

9. Debt

The following is a summary of our convertible senior notes at March 31, 2022 and December 31, 2021 (principal amount in thousands):

Principal Amount

Principal Amount

Conversion rate per $1,000

March 31, 2022

December 31, 2021

Interest Rate

Maturity Date

principal amount (shares)

2024 Notes (2019 Issuance)

 

85,782

 

85,782

4.50%

August 1, 2024

137.2213

2024 Notes (2020 Issuance)

57,500

57,500

4.50%

August 1, 2024

160.3334

2025 Notes

 

300,000

 

300,000

1.25%

May 1, 2025

13.1278

Total

443,282

443,282

Unamortized debt issuance costs

(5,998)

(6,510)

Convertible senior notes

$

437,284

$

436,772

Our convertible senior notes are governed by the terms of their respective indentures between the Company, as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee. Holders may convert all or any portion of the senior notes at any time prior to the close of business on the business day immediately preceding the maturity date. Upon conversion, the holders will receive shares of our common stock at an initial conversion rate as noted above. The conversion rate is subject to adjustment upon the occurrence of certain events described in the indentures.

If we undergo a fundamental change, as defined in the indenture, prior to the maturity date of the senior notes, holders may require us to repurchase for cash all or any portion of the senior notes at a fundamental change repurchase price equal to 100% of the principal amount of the senior notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

The senior notes rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the senior notes; equal in right of payment to all of our liabilities that are not so subordinated; effectively junior in right of payment to any secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

The debt issuance costs are presented as a deduction from the convertible senior notes on the Consolidated Balance Sheets and are amortized as interest expense over the expected life of the convertible senior notes using the effective interest method.

Maturities of our convertible notes consisted of the following as of March 31, 2022 (in thousands):

2022 (remaining nine months)

$

2023

2024

143,282

2025

300,000

2026

Thereafter

443,282

Less debt issuance costs

(5,998)

Current portion

Long-term portion

$

437,284

Sixth Street Financing Agreement

On May 1, 2019, we entered into a financing agreement (the “Financing Agreement”) with certain affiliates of Sixth Street Partners, LLC (“Sixth Street”) in which we plan to borrow from Sixth Street amounts required to reimburse our actual costs and expenses incurred during each fiscal quarter (limited to agreed budgeted amounts), as such expenses are incurred, related to the ATHENA clinical trial, in an aggregate amount of up to $175 million (the amount actually borrowed, the “Borrowed Amount”). ATHENA is our largest clinical trial, with a target enrollment of 1,000 patients across more than 270 sites in at least 25 countries. The Clovis-sponsored phase 3 ATHENA study in advanced ovarian cancer is in the first-line maintenance treatment setting evaluating Rubraca plus nivolumab (PD-1 inhibitor), Rubraca, nivolumab and a placebo in newly-diagnosed patients who have completed platinum-based chemotherapy. This study initiated in the second quarter of 2018 completed enrollment during the second quarter of 2020, and top-line data from

17

the ATHENA-MONO study was announced during the first quarter of 2022. Top-line data readout from the ATHENA-COMBO study is anticipated in the first quarter of 2023, contingent upon the occurrence of the protocol-specified PFS events.

We incur borrowings under the Financing Agreement on a quarterly basis, beginning with such expenses incurred during the quarter ended March 31, 2019 and ending generally on the earliest to occur of (i) the termination of the ATHENA Trial, (ii) the date of completion of all activities under the ATHENA Trial Clinical Study Protocol, (iii) the date on which we pay the Discharge Amount (as defined in the Financing Agreement), (iv) the date of the occurrence of a change of control of us (or a sale of all or substantially all of our assets related to Rubraca) or our receipt of notice of certain breaches by us of our obligations under material in-license agreements related to Rubraca and (v) September 30, 2022.

We are obligated to repay on a quarterly basis, 30 days after the end of the quarter, beginning on the earliest to occur of (i) the termination of the ATHENA Trial, (ii) the approval by the FDA of an update to the label portion of the Rubraca new drug application (“NDA”) to include in such label the treatment of an indication resulting from the ATHENA Trial, (iii) the date on which we determine that the results of the ATHENA Trial are insufficient to achieve such an expansion of the Rubraca label to cover an indication based on the ATHENA Trial and (iv) September 30, 2022 (the “Repayment Start Date”). We expect to make the first payment by October 30, 2022, unless one of the other events occurs prior to September 30, 2022.

9.75% (which rate may be increased incrementally up to approximately 10.25% in the event the Borrowed Amount exceeds $166.5 million) of the direct Rubraca net sales recorded by us and our subsidiaries worldwide and our future out-licensees in the United States, if any, during such quarter;

19.5% of any royalty payments received by us and our subsidiaries during such quarter based on the sales of Rubraca by our future out-licensees outside the United States, if any; and

19.5% of any other amounts received by us and our subsidiaries in connection with any other commercialization arrangement for Rubraca, including any upfront and milestone payments and proceeds of infringement claims (which payments are not subject to the caps described below).

Quarterly payments are capped at $8.5 million, unless the label portion of the Rubraca NDA is expanded by the FDA to include on such label the treatment of an indication resulting from the ATHENA Trial, in which case the quarterly payment is capped at $13.5 million. In the event the aggregate Borrowed Amount exceeds $166.5 million, such quarterly limits will be incrementally increased to a maximum of approximately $8.9 million and $14.2 million, respectively. The maximum amount required to be repaid under the agreement is two times the aggregate Borrowed Amount, which may be $350 million in the event we borrow the full $175 million under the Financing Agreement. Quarterly payments are due within 30 days after each calendar quarter. Our first quarterly payment is estimated to be due on October 30, 2022, 30 days after the Repayment Start Date.

In the event we have not made payments on or before December 30, 2025 equal to at least the Borrowed Amount, we are required to make a lump sum payment in an amount equal to such Borrowed Amount less the aggregate of all prior quarterly payments described above. All other payments are contingent on the performance of Rubraca. There is no final maturity date on the Financing Agreement.

Our obligations under the Financing Agreement are secured under a Pledge and Security agreement by a first priority security interest in all of our assets related to Rubraca, including intellectual property rights and a pledge of the equity of our wholly owned subsidiaries, Clovis Oncology UK Limited and Clovis Oncology Ireland Limited. In addition, the obligations are guaranteed by Clovis Oncology UK Limited and Clovis Oncology Ireland Limited, secured by a first priority security interest in all the assets of those subsidiaries.

Pursuant to the Financing Agreement, we have agreed to certain limitations on our operations, including limitations on making certain restricted junior payments, including payment of dividends, limitation on liens and certain limitations on the ability of our non-guarantor subsidiaries to own certain assets related to Rubraca and to incur indebtedness.

18

We may terminate the Financing Agreement at any time by paying the lenders an amount (the “Discharge Amount”) equal to the sum of (a) (A) (i) if such date is prior to the Repayment Start Date, 1.75 times the Borrowed Amount or (ii) if such date is after the Repayment Start Date, 2.00 times the Borrowed Amount minus (B) the aggregate amount of all quarterly payments previously paid to the lenders plus (b) all other obligations which have accrued but which have not been paid under the loan documents, including expense reimbursement.

In the event of (i) a change of control of us, we must pay the Discharge Amount to the lenders and (ii) an event of default under the Financing Agreement (which includes, among other events, breaches or defaults under or terminations of our material in-license agreements related to Rubraca and defaults under our other material indebtedness), the lenders have the right to declare the Discharge Amount to be immediately due and payable.

If an event of default were to occur under the Financing Agreement, or if an event of default were to be determined to be probable, we would classify all our obligations that become due and payable thereunder as current liabilities.

For the three months ended March 31, 2022, we used an effective interest rate of 13.7%, which is based on the estimate of remaining cash flows. For subsequent periods, we will use the prospective method whereby a new effective interest rate is determined based on the revised estimate of remaining cash flows. The new rate is the discount rate that equates the present value of the revised estimate of remaining cash flows with the carrying amount of the debt, and it will be used to recognize interest expense for the remaining periods. Under this method, the effective interest rate is not constant, and any change in expected cash flows is recognized prospectively as an adjustment to the effective yield.

Amounts reflected on the balance sheet and in the table below in respect of the Financing Agreement represent the maximum amounts payable by us to the lenders during the periods indicated. Payments due under our Financing Agreement are based, for the most part, on net sales of Rubraca by us and our licensees. Rubraca sales have not been consistent historically and sales in future periods are difficult to predict. Therefore, expected maturities of our Financing Agreement as of March 31, 2022 (in thousands) are shown below based on the quarterly capped amount described above and certain other mandatory payments set forth in the Financing Agreement. Actual payments may fluctuate and may be less than the amounts reflected in the table below. See above for a full description of the Financing Agreement and our payment obligations thereunder.

2022 (remaining nine months)

$

8,500

2023

34,000

2024

34,000

2025

79,939

2026

34,000

Thereafter

122,438

312,877

Less debt issuance costs

(1,232)

Less unrecognized interest

(117,930)

Current portion

(17,000)

Long-term portion

$

176,715

The following table sets forth total interest expense recognized during the three months ended March 31, 2022 and 2021 (in thousands):

Three months ended March 31, 

    

2022

    

2021

 

Interest on convertible notes

$

2,549

$

2,977

Amortization of debt issuance costs

 

558

 

639

Interest on finance lease

185

Interest on borrowings under financing agreement

5,993

4,210

Other interest

26

Total interest expense

$

9,100

$

8,037

19

10. Stockholders’ Equity

Common Stock

The holders of common stock are entitled to one vote per share on all matters to be voted upon by our stockholders. Subject to the preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our Board of Directors.

On May 17, 2021, we entered into a distribution agreement (the “Distribution Agreement”) with J.P. Morgan Securities LLC and BofA Securities, Inc., as agents (the “Agents”), pursuant to which we may offer and sell, from time to time, through the Agents, shares of our common stock having an aggregate offering price of up to $75.0 million in transactions that are deemed to be “at the market” offerings as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including directly on the Nasdaq Global Select Market or into any other existing trading market for the Shares, or sales made to or through a market maker, in block transactions or by any other method permitted by law, including negotiated transactions. Sales may be made at market prices prevailing at the time of a sale or at prices related to prevailing market prices or at negotiated prices. During the period between May 18, 2021 and June 9, 2021, we sold an aggregate of 13,492,231 shares of our common stock under the Distribution Agreement resulting gross proceeds of $75.0 million and net proceeds to us of $72.5 million, after deducting commissions and offering expenses, effectively closing out sales we may make pursuant to the Distribution Agreement. We have used and intend to use the net proceeds of this offering for general corporate purposes, including funding of our development programs, sales and marketing expenses associated with Rubraca, repayment, repurchase or refinance of our debt obligations, payment of milestones pursuant to our license agreements, general and administrative expenses, acquisition or licensing of additional product candidates or businesses and working capital.

On August 16, 2021, we entered into a distribution agreement (the “August Distribution Agreement”) with the Agents, pursuant to which we may offer and sell, from time to time, through the Agents, shares of our common stock, having an aggregate offering price of up to $125.0 million in transactions that are deemed to be “at the market” offerings as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including directly on the Nasdaq Global Select Market or into any other existing trading market for the shares, or sales made to or through a market maker, in block transactions or by any other method permitted by law, including privately negotiated transactions. Sales may be made at market prices prevailing at the time of a sale or at prices related to prevailing market prices or at negotiated prices. During the period between August 17, 2021 and September 15, 2021, we sold an aggregate of 9,379,976 shares of our common stock under the August Distribution Agreement resulting in gross proceeds of $43.0 million and net proceeds to us of $41.5 million, after deducting commissions and offering expenses. During the period between November 5, 2021 and November 16, 2021, we sold an aggregate of 731,292 shares of our common stock resulting in gross proceeds of $3.1 million and net proceeds to us of $3.0 million, after deducting commissions and offering expenses.

During the period between January 18, 2022 and March 3, 2022, we sold an aggregate of 13,870,410 shares of our common stock resulting in gross proceeds of $29.8 million and net proceeds to us of $28.6 million, after deducting commissions and offering expenses.

We have used and intend to use the net proceeds of this offering for general corporate purposes, including funding of our development programs, sales and marketing expenses associated with Rubraca, repayment, repurchase or refinance of our debt obligations, payment of milestones pursuant to our license agreements, general and administrative expenses, acquisition or licensing of additional product candidates or businesses and working capital.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of changes in foreign currency translation adjustments, which includes changes in a subsidiary’s functional currency, and unrealized gains and losses on available-for-sale securities.

20

The changes in accumulated balances related to each component of other comprehensive income (loss) are summarized for the three months ended March 31, 2022 and 2021, as follows (in thousands):

Foreign Currency

Unrealized

Total Accumulated

 

Translation Adjustments

Losses

Other Comprehensive Loss

 

2022

2021

2022

2021

2022

2021

Balance at Jan 1,

$

(43,291)

$

(44,165)

$

(139)

$

(139)

$

(43,430)

$

(44,304)

Other comprehensive income

435

(80)

435

(80)

Total before tax

(42,856)

(44,245)

(139)

(139)

(42,995)

(44,384)

Tax effect

 

 

 

Balance at March 31, 

$

(42,856)

$

(44,245)

$

(139)

$

(139)

$

(42,995)

$

(44,384)

There were no reclassifications out of accumulated other comprehensive loss in each of the three months ended March 30, 2022 and 2021.

11. Share-Based Compensation

Share-based compensation expense for all equity-based programs, including stock options, restricted stock units and the employee stock purchase plan, for the three months ended March 31, 2022 and 2021 was recognized in the accompanying Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands):

Three months ended March 31, 

 

    

2022

    

2021

 

 

Research and development

$

3,229

$

2,876

Selling, general and administrative

 

3,403

 

1,163

Total share-based compensation expense

$

6,632

$

4,039

We did not recognize a tax benefit related to share-based compensation expense during the three months ended March 31, 2022 and 2021, as we maintain net operating loss carryforwards and have established a valuation allowance against the entire net deferred tax asset as of March 31, 2022 and 2021.

Stock Options

The following table summarizes the activity relating to our options to purchase common stock for the three months ended March 31, 2022:

    

    

    

Weighted

    

 

Weighted

Average

Aggregate

 

Average

Remaining

Intrinsic

 

Number of

Exercise

Contractual

Value

 

Options

Price

Term (Years)

(Thousands)

 

Outstanding at December 31, 2021

7,010,039

$

33.36

 

  

 

  

Granted

516,250

1.96

 

  

 

  

Exercised

 

  

 

  

Forfeited

(342,217)

26.30

 

  

 

  

Outstanding at March 31, 2022

7,184,072

$

31.44

 

5.7

$

35

Vested and expected to vest at March 31, 2022

6,963,967

$

32.29

 

5.6

$

28

Vested and exercisable at March 31, 2022

5,384,051

$

39.88

 

4.6

$

The aggregate intrinsic value in the table above represents the pretax intrinsic value, based on our closing stock price of $2.02 as of March 31, 2022, which would have been received by the option holders had all option holders with in-the-money options exercised their options as of that date.

21

The following table summarizes information about our stock options as of and for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts):

Three months ended March 31, 

   

2022

   

2021

 

Weighted-average grant date fair value per share

$

1.47

$

4.94

Intrinsic value of options exercised

$

$

14

Cash received from stock option exercises

$

$

27

As of March 31, 2022, the unrecognized share-based compensation expense related to unvested options, adjusted for expected forfeitures, was $6.2 million and the estimated weighted-average remaining vesting period was 1.7 years.

Restricted Stock

The following table summarizes the activity relating to our unvested restricted stock units (“RSUs”) for the three months ended March 31, 2022:

Weighted

 

Average

 

Number of

Grant Date

 

Units

Fair Value

 

Unvested at December 31, 2021

3,683,422

$

8.36

Granted

2,749,649

 

1.95

Vested

(889,273)

 

8.43

Forfeited

(70,411)

 

6.96

Unvested at March 31, 2022

5,473,387

$

5.15

Expected to vest after March 31, 2022

4,537,263

$

5.47

As of March 31, 2022, the unrecognized share-based compensation expense related to unvested RSUs, adjusted for expected forfeitures, was $25.6 million and the estimated weighted-average remaining vesting period was 2.0 years.

12. License Agreements

Rucaparib

In June 2011, we entered into a license agreement with Pfizer, Inc. (“Pfizer”) to obtain the exclusive global rights to develop and commercialize Rubraca. The exclusive rights are exclusive even as to Pfizer and include the right to grant sublicenses. Pursuant to the terms of the license agreement, we made a $7.0 million upfront payment to Pfizer and are required to make additional payments to Pfizer for the achievement of certain development and regulatory and sales milestones and royalties on sales as required by the license agreement. Prior to the FDA approval of Rubraca, we made milestone payments of $1.4 million, which were recognized as acquired in-process research and development expense.

During 2016 through 2020, we paid Pfizer a total of $82.5 million in milestone payments related to the FDA and European Commission approvals received for Rubraca. These milestone payments were recognized as intangible assets and are amortized over the estimated remaining useful life of Rubraca.

We are obligated under the license agreement to use commercially reasonable efforts to develop and commercialize Rubraca and we are responsible for all ongoing development and commercialization costs for Rubraca. We are required to make regulatory milestone payments to Pfizer of up to an additional $8.0 million in aggregate if specified clinical study objectives and regulatory filings, acceptances and approvals are achieved. In addition, we are obligated to make sales milestone payments to Pfizer if specified annual sales targets for Rubraca are met, which relate to annual sales targets of $250.0 million and above, which, in the