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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
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:
001-37539
 
Global Blood Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
27-4825712
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
181 Oyster Point Boulevard
South San Francisco, CA 94080
(Address of principal executive offices)
(650)
741-7700
(Registrant’s telephone number, including area code)
 
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
 
GBT
 
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
 12b-2
of the Exchange Act.
Large accelerated filer
 
 
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  ☒
As of May 1, 2020, there were 60,940,277 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.
 
 

TABLE OF CONTENTS
 
 
Page
 
 
 
3
 
 
 
 
 
 
 
 
Item 1.
 
 
 
3
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
Item 2.
 
 
 
15
 
Item 3.
 
 
 
22
 
Item 4.
 
 
 
22
 
 
 
 
 
 
 
 
22
 
 
 
 
 
 
 
 
Item 1.
 
 
 
22
 
Item 1A.
 
 
 
22
 
Item 2.
 
 
 
59
 
Item 3.
 
 
 
59
 
Item 4.
 
 
 
59
 
Item 5.
 
 
 
59
 
Item 6.
 
 
 
59
 
 
 
 
 
 
 
 
61
 
2

PART I. – FINANCIAL INFORMATION
Item 1.
Financial Statements
 
 
GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
                 
 
March 31, 2020
 
 
December 31, 2019
 
 
(Unaudited)
 
 
 
Assets
 
 
 
 
 
 
Current assets:
   
     
 
Cash and cash equivalents
  $
315,525
    $
302,237
 
Short-term marketable securities
   
215,295
     
307,732
 
Accounts receivable, net
   
4,578
     
2,637
 
Inventories
   
14,927
     
1,277
 
Prepaid expenses and other current assets
   
14,144
     
14,114
 
                 
Total current assets
   
564,469
     
627,997
 
Property and equipment, net
   
37,329
     
27,113
 
Long-term marketable securities
   
84,378
     
85,030
 
Operating lease
right-of-use
assets
   
52,082
     
52,775
 
Restricted cash
   
2,395
     
2,395
 
Other assets, noncurrent
   
493
     
789
 
                 
Total assets
  $
741,146
    $
796,099
 
                 
Liabilities and Stockholders’ Equity
 
 
 
 
 
 
Current liabilities:
   
     
 
Accounts payable
  $
13,696
    $
10,621
 
Accrued liabilities
   
34,562
     
41,358
 
Accrued compensation
   
11,269
     
17,578
 
Other liabilities, current
   
2,721
     
1,896
 
                 
Total current liabilities
   
62,248
     
71,453
 
Long-term debt
   
73,688
     
73,559
 
Operating lease liabilities, noncurrent
   
81,638
     
72,359
 
Other liabilities, noncurrent
   
—  
     
34
 
                 
Total liabilities
   
217,574
     
217,405
 
                 
Commitments and contingencies
   
     
 
Stockholders’ equity:
   
     
 
Preferred stock, $0.001 par value, 5,000,000 shares authorized as of March 31, 2020
(
unaudited
)
and December 31, 2019; no shares issued and outstanding
   
—  
     
—  
 
Common stock, $0.001 par value, 150,000,000 shares authorized as of March 31, 2020 (unaudited) and December 31, 2019, respectively; 60,886,371 and 60,644,380 shares issued and outstanding as of March 31, 2020 (unaudited) and December 31, 2019, respectively
   
61
     
61
 
Additional
paid-in
capital
   
1,334,238
     
1,316,795
 
Accumulated other comprehensive income 
   
1,215
     
754
 
Accumulated deficit
   
(811,942
)    
(738,916
)
                 
Total stockholders’ equity
   
523,572
     
578,694
 
                 
Total liabilities and stockholders’ equity
  $
741,146
    $
796,099
 
                 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
3

GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share amounts)
 
Three Months Ended March 31,
 
 
2020
 
 
2019
 
Product sales, net
  $
14,118
    $
—  
 
Costs and operating expenses:
   
     
 
Cost of sales
   
135
     
—  
 
Research and development
   
39,773
     
34,468
 
Selling, general and administrative
   
47,662
     
18,055
 
                 
Total costs and operating expenses
   
87,570
     
52,523
 
                 
Loss from operations
   
(73,452
)    
(52,523
)
Other income (expense):
   
     
 
Interest income
   
2,856
     
3,831
 
Interest expenses
   
(2,314
)    
(181
)
Other expenses, net
   
(116
)    
(50
)
                 
Total other income, net
   
426
     
3,600
 
                 
Net loss
   
(73,026
)    
(48,923
)
Other comprehensive income:
   
     
 
Net unrealized gain on marketable securities, net of tax
   
461
     
624
 
                 
Comprehensive loss
  $
(72,565
)   $
(48,299
)
                 
Basic and diluted net loss per common share
  $
(1.20
)   $
(0.87
)
                 
Weighted-average number of shares used in computing basic and diluted net loss per common share
   
60,787,710
     
56,231,587
 
                 
See accompanying notes to unaudited condensed consolidated financial statements.
4

GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)
                                                 
 
 
Common Stock
   
Additional
Paid-
In Capital
 
 
Accumulated
Other
Comprehensive
Income
 
 
Accumulated
Deficit
 
 
Total
Stockholders’
Equity
 
 
 
Shares
 
 
Amount
 
Balance at December 31, 2019
   
60,644,380
    $
61
    $  
1,316,795
    $
754
    $
(738,916
)   $
578,694
 
Issuance of common stock upon exercise of stock
options
   
33,937
     
—  
     
967
     
—  
     
—  
     
967
 
Issuance of common stock upon vesting of restricted
share units, net of shares withheld for employee
taxes
   
160,594
     
—  
     
(2,099
)    
—  
     
—  
     
(2,099
)
Issuance of common stock pursuant to ESPP purchases
   
47,460
     
—  
     
1,870
     
—  
     
—  
     
1,870
 
Stock-based compensation expense
   
—  
     
—  
     
16,705
     
—  
     
—  
     
16,705
 
Net unrealized gain on marketable securities
   
—  
     
—  
     
—  
     
461
     
—  
     
461
 
Net loss
   
—  
     
—  
     
—  
     
—  
     
(73,026
)    
(73,026
)
                                                 
Balance at March 31, 2020
   
60,886,371
    $
61
    $
1,334,238
    $
1,215
    $
(811,942
)   $
523,572
 
                                                 
 
 
 
 
 
 
 
 
                                                 
 
 
Common Stock
   
Additional
Paid-
In Capital
 
 
Accumulated
Other
Comprehensive
Income
 
 
Accumulated
Deficit
 
 
Total
Stockholders’
Equity
 
 
 
Shares
 
 
Amount
 
Balance at December 31, 2018
   
55,640,299
    $
56
    $  
1,044,941
    $
(48
)   $
(472,150
)   $
572,799
 
Issuance of common stock upon equity offerings, net
of issuance costs
   
511,363
     
—  
     
21,246
     
—  
     
—  
     
21,246
 
Issuance of common stock upon exercise of stock
options
   
52,288
     
—  
     
817
     
—  
     
—  
     
817
 
Issuance of common stock upon vesting of restricted
share units, net of shares withheld for employee
taxes
   
78,155
     
—  
     
(686
)    
—  
     
—  
     
(686
)
Issuance of common stock pursuant to ESPP purchases
   
30,745
     
—  
     
1,128
     
—  
     
—  
     
1,128
 
Vesting of restricted stock purchases
   
24,195
     
—  
     
80
     
—  
     
—  
     
80
 
Stock-based compensation expense
   
—  
     
—  
     
9,453
     
—  
     
—  
     
9,453
 
Net unrealized gain on marketable securities
   
—  
     
—  
     
—  
     
624
     
—  
     
624
 
Net loss
   
—  
     
—  
     
—  
     
—  
     
(48,923
)    
(48,923
)
                                                 
Balance at March 31, 2019
   
56,337,045
    $
56
    $
1,076,979
    $
576
    $
(521,073
)   $
556,538
 
                                                 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
 
5

GLOBAL BLOOD THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
                 
 
Three Months Ended March 31,
 
 
2020
 
 
2019
 
CASH FLOWS FROM OPERATING ACTIVITIES:
   
     
 
Net loss
  $
(73,026
)   $
(48,923
)
Adjustments to reconcile net loss to net cash used in operating activities:
   
     
 
Depreciation and amortization
   
2,238
     
2,094
 
Amortization (accretion) of premium (discount) on marketable securities
   
(101
)    
(565
)
Non-cash
interest expense
   
412
     
—  
 
Amortization of operating lease
right-of-use
assets
   
693
     
100
 
Stock-based compensation
   
16,367
     
9,453
 
Changes in operating assets and liabilities:
   
     
 
Accounts receivables
   
(1,941
)    
—  
 
Inventories
   
(13,218
)    
—  
 
Prepaid expenses and other assets
   
(147
)    
49
 
Accounts payable
   
2,567
     
1,272
 
Accrued liabilities
   
(6,766
)    
887
 
Accrued compensation
   
(6,309
)    
(4,407
)
Operating lease liabilities
   
1,762
     
(276
)
Other liabilities
   
(1,153
)    
—  
 
                 
Net cash used in operating activities
   
(78,622
)    
(40,316
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
   
     
 
Purchase of property and equipment
   
(2,524
)    
(56
)
Purchase of marketable securities
   
(57,936
)    
(164,177
)
Maturities of marketable securities
   
151,586
     
63,582
 
                 
Net cash provided by (used in) investing activities
   
91,126
     
(100,651
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
   
     
 
Proceeds from issuance of common stock in public offering, net
   
—  
     
21,207
 
Proceeds from issuance of common stock in settlement of employee stock purchase plan and exercise of stock options
   
2,968
     
1,925
 
Payments of debt issuance costs
   
(85
)    
—  
 
Tax paid related to net share settlement of equity awards
   
(2,099
)    
(686
)
                 
Net cash provided by financing activities
   
784
     
22,446
 
                 
Net increase (decrease) in cash, cash equivalents and restricted cash
   
13,288
     
(118,521
)
Cash, cash equivalents and restricted cash at beginning of period
   
304,632
     
277,752
 
                 
Cash, cash equivalents and restricted cash at end of period
  $
317,920
    $
159,231
 
                 
SUPPLEMENTAL DISCLOSURES OF
NON-CASH
INVESTING AND FINANCING INFORMATION:
   
     
 
Leasehold improvements paid for by landlord
  $
9,461
    $
—  
 
                 
Accrued purchase of property and equipment
  $
563
    $
146
 
                 
Accrued issuance costs
  $ (85
)
  $ (41
)
                 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
6

GLOBAL BLOOD THERAPEUTICS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Basis of Presentation
Global Blood Therapeutics
,
Inc., or the Company, we, us, or our, was incorporated in Delaware in February 2011 and commenced operations in May 2012. We are a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments that provide hope to underserved patient communities. In late November 2019, we received U.S. Food and Drug Administration, or FDA, accelerated approval for our first medicine, Oxbryta
®
(voxelotor) tablets for the treatment of sickle cell disease, or SCD, in adults and children 12 years of age and older. In early December 2019, we began to make Oxbryta available to patients through our special pharmacy partner network. Our principal operations are based in South San Francisco, California, and we operate in one segment.
Need for Additional Capital
In the course of our development activities, we have sustained operating losses and we expect such losses to continue over the next several years. Our ultimate success depends on the outcome of our commercial launch of Oxbryta, research and development and business development activities. Since inception through March 31, 2020, we have incurred cumulative net losses of $811.9 million. We expect to incur additional losses for the foreseeable future to commercialize Oxbryta and conduct product research and development, and expect to potentially raise additional capital to fully implement our business plan. If needed, we intend to raise such capital through borrowings, the issuance of additional equity, and potentially through strategic alliances with partner companies or other transactions. However, if such financing is not available at adequate levels, we will need to
re-evaluate
our operating plans. We believe that our existing cash and cash equivalents and marketable securities will be sufficient to fund our cash requirements for at least twelve months subsequent to the issuance of these financial statements.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2019 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of our financial information. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other interim period or for any other future year.
The accompanying unaudited interim condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2019 included in our Annual Report on Form
10-K,
filed with the SEC on February 26, 2020.
Use of Estimates
The preparation of the accompanying consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of
revenues
 
and expenses during the reporting period. We base our estimates and assumptions on historical experience when available and on various factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results could differ from these estimates under different assumptions or conditions.
7

Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
Significant Accounting Policies
Except as noted below, there have been no material revisions in our significant accounting policies described in Note 2 to the consolidated financial statements included in our Annual Report on Form
10-K
for the year ended December 31, 2019.
Accounting Pronouncements Adopted
In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No.
 2018-15,
Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract
, or ASU
2018-15.
ASU No.
 2018-15
requires a customer that is a party to a cloud computing service contract to follow the
internal-use
software guidance in Subtopic
350-40
to determine which implementation costs to capitalize and which costs to expense. The amendments in this update are effective for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We adopted ASU No.
 2018-15
in the first quarter of 2020 and applied the guidance prospectively to the implementation costs incurred in our implementations of various cloud computing arrangements that are service contracts. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No.
 2018-13,
Fair Value Measurement (Topic 820)
. The new standard modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including removals of, modification to, and additional disclosure requirements from Topic 820. The amendment of ASU No.
 2018-13
removes disclosure requirements from Topic 820 in the areas of (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Except for certain amendments related to Level 3 fair value measurements, all the other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU No.
 2018-13.
We have adopted ASU No.
 2018-13
in the first quarter of 2020 and applied the guidance retrospectively. The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU No.
 2016-13,
Measurement of Credit Losses on Financial Instruments (Topic 326)
, which amends the guidance on the impairment of financial instruments. The new standard adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses, which is known as the current expected credit loss, or CECL model. The CECL model applies to most debt instruments (other than those measured at fair value), trade and other receivables, financial guarantee contracts, and loan commitments.
Available-for-sale
debt securities are scoped out of this guidance. Our investment portfolio primarily consists of
available-for-sale
debt securities carried at fair value. Our accounts receivable do not have long terms and we do not expect to write off accounts receivable. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption of the amendments in this update is permitted. We have adopted ASU No.
 2016-13
in the first quarter of 2020 
prospectively.
The adoption of this new standard did not have a material impact on our condensed consolidated financial statements.
3. Fair Value Measurements
Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Our financial instruments consist of cash and cash equivalents, marketable securities, accounts receivables, accounts payable and accrued liabilities. Cash and cash equivalents, marketable securities and restricted cash are reported at their respective fair values on our condensed consolidated balance sheets. The remaining financial instruments are reported on our condensed consolidated balance sheets at cost that approximate current fair values due to their relatively short maturities.
Assets and liabilities recorded at fair value on a recurring basis in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1
– Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
8

Level 2
– Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3
– Unobservable inputs that are significant to the measurem
en
t of the fair value of the assets or liabiliti
es
 that are supported by little or no market data.
The following table summarizes our financial assets measured at fair value on a recurring basis (in thousands):
                                 
 
March 31, 2020
 
 
Total
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Financial Assets:
   
     
     
     
 
Money market funds
  $
 
 
294,863
    $
 
 
294,863
    $
—  
    $
 
 
 
—  
 
Corporate debt securities
   
118,390
     
—  
     
118,390
     
—  
 
U.S. government agency securities
   
79,579
     
—  
     
79,579
     
—  
 
Certificates of deposits
   
5,808
     
—  
     
5,808
     
—  
 
U.S. government securities
   
95,896
     
—  
     
95,896
     
—  
 
                                 
Total financial assets
  $
594,536
    $
294,863
    $
299,673
    $
 —  
 
                                 
 
 
 
 
 
 
 
 
 
 
                                 
 
December 31, 2019
 
 
Total
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Financial Assets:
   
     
     
     
 
Money market funds
  $
 
 
250,535
    $
 
 
250,535
    $
    $
 
 
 —  
 
Corporate debt securities
   
152,149
     
—  
     
152,149
     
—  
 
U.S. government agency securities
   
95,032
     
—  
     
95,032
     
—  
 
Certificates of deposits
   
6,282
     
—  
     
6,282
     
—  
 
U.S. government securities
   
140,244
     
—  
     
140,244
     
—  
 
                                 
Total financial assets
  $
644,242
    $
250,535
    $
 
 
393,707
    $
 —  
 
                                 
 
 
 
 
 
 
 
 
We estimate the fair valu
es
 of our investments in corporate debt securities, government and government related securities and certificates of deposits by taking into consideration valuations obtained from third-party pricing services. The fair value of our marketable securities classified within Level 2 is based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads,
two-sided
markets, benchmark securities, bids, offers and reference data including market research publications. At March 31, 2020 and December 31, 2019, the weighted average remaining contractual maturities of our Level 2 investments was less than one year and all of these investments are rated
A-1/P-1
or A/A2, or higher, by Moody’s a
nd
 S&P.
4.
Available-for-Sale
Securities
Estimated fair values of
available-for-sale
securities are generally based on prices obtained from commercial pricing services. The following table is a summary of available-for-sale securities recorded in cash and cash equivalents, restricted cash, or marketable securities in our condensed consolidated balance sheets (in thousands):
                                                                 
 
March 31, 2020
   
December 31, 2019
 
 
Amortized
Cost
 
 
Unrealized
Gains
 
 
Unrealized
(Losses)
 
 
Estimated Fair
Value
 
 
Amortized
Cost
 
 
Unrealized
Gains
 
 
Unrealized
(Losses)
 
 
Estimated Fair
Value
 
Financial Assets:
   
     
     
     
     
     
     
     
 
Money market funds
  $
 
 
294,863
    $
—  
    $
—  
    $
294,863
    $
 
 
250,535
    $
 —  
    $
—  
    $
250,535
 
Corporate debt securities
   
118,187
     
287
     
(84
)    
118,390
     
151,773
     
384
     
(8
)    
152,149
 
U.S. government agency securities
   
79,417
     
181
     
(19
)    
79,579
     
94,963
     
73
     
(4
)    
95,032
 
Certificates of deposits
   
5,766
     
42
     
—  
     
5,808
     
6,239
     
43
     
—  
     
6,282
 
U.S. government securities
   
95,088
     
808
     
—  
     
95,896
     
139,978
     
266
     
—  
     
140,244
 
                                                                 
Total
  $
593,321
    $
1,318
    $
(103
)   $
594,536
    $
643,488
    $
766
    $
(12
)   $
644,242
 
                                                                 
 
 
 
 
 
 
 
 
9

The following table summarizes the classification of the
available-for-sale
securities on our condensed consolidated balance sheets (in thousands):
                 
 
March 31, 2020
 
 
December 31, 2019
 
Cash and cash equivalents
  $
294,863
    $
251,480
 
Short-term marketable securities
   
215,295
     
307,732
 
Long-term marketable securities
   
84,378
     
85,030
 
                 
Total
  $
594,536
    $
644,242
 
                 
 
 
 
 
 
 
 
 
We do not intend to sell the investments that are in an unrealized loss position, and it is unlikely that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. We have determined that the gross unrealized losses on our marketable securities were temporary in nature during the periods presented.
5. Balance Sheet Components
Inventories
We began capitalizing inventories in November 2019 once the FDA approved Oxbryta. Inventories consist of the following (in thousands):
                 
 
March 31, 2020
 
 
December 31, 2019
 
Raw materials
  $
7,141
    $
700
 
Work-in-process
   
7,217
     
525
 
Finished goods
   
569
     
52
 
                 
Total inventories
  $
14,927
    $
1,277
 
                 
 
 
 
 
 
 
 
 
Property and Equipment
Property and equipment consists of the following (in thousands):
                 
 
March 31, 2020
 
 
December 31, 2019
 
Laboratory equipment
  $
8,472
    $
8,314
 
Computer equipment
   
2,224
     
2,224
 
Leasehold improvements
   
13,785
     
13,785
 
Construction-in-progress
   
31,679
     
19,289
 
                 
Total property and equipment
   
56,160
     
43,612
 
Less: accumulated depreciation and amortization
   
(18,831
)    
(16,499
)
                 
Property and equipment, net
  $
37,329
    $
27,113
 
                 
 
 
 
 
 
 
 
 
Accrued liabilities
Accrued liabilities consist of the following (in thousands):
                 
 
March 31, 2020
 
 
December 31, 2019
 
Accrued research and development costs
  $
9,659
    $
26,480
 
Accrued manufacturing costs
   
18,160
     
9,466
 
Accrued professional and consulting services
   
4,262
     
4,564
 
Accrued sales deductions
   
1,998
     
529
 
Other
   
483
     
319
 
                 
Total accrued liabilities
  $
34,562
    $
41,358
 
                 
 
 
 
 
 
 
 
 
10

Other liabilities, current 
Other liabilities consist of the following (in thousands):
                 
 
March 31, 2020
 
 
December 31, 2019
 
Operating lease liabilities, current
  $
2,691
    $
1,866
 
Other payable
   
30
     
30
 
                 
Total other liabilities, current
  $
2,721
    $
1,896
 
                 
 
 
 
 
 
 
 
 
6. Long-term Debt
Term Loan
On December 17, 2019, we entered into the Loan Agreement, or Term Loan, with funds managed by Pharmakon Advisors LP, which are BioPharma Credit PLC, as collateral agent and a lender, and Biopharma Credit Investments V (Master) LP, as a lender, and collectively, the Lenders, for a senior secured credit facility consisting of an initial tranche of $75.0 million and the option to draw an additional $75.0 million until December 31, 2020. The first tranche, in the amount of $75.0 million, was funded in connection with the closing date of the Term Loan in December 2019.
The Term Loan carries a
72-month
term. The Term Loan bears interest at a floating per annum interest rate equal to 7.00% plus the greater of (a) the
3-month
LIBOR rate and (b) 2%. In the event we default, the interest rate would be 3% above the rate that is otherwise applicable thereto. Interest on amounts outstanding are payable quarterly in arrears. The Term Loan repayment schedule provides for interest only payments for the first 39 months, followed by consecutive equal quarterly payments of principal and interest commencing in March 2023 and continuing through the maturity of December 2025.
We have the option to prepay all or a portion of the borrowed amounts under the Term Loan. If we exercise this option, we must pay a prepayment fee between 1% and 3% of the principal amount being prepaid depending on the timing of the prepayment, or Prepayment Fee. If the prepayment occurs before December 2022, we must also pay an amount equal to the sum of all interest that would have accrued and been payable from date of prepayment through December 2022, or Make Whole Amount. We are obligated to pay an additional fee to the Lenders determined by multiplying the principal amount being paid or prepaid multiplied by 2%, or Paydown Fee, when such payments are made.
In the event of default or change in control, all unpaid principal and all accrued and unpaid interest amounts (if any) become immediately due and payable, at which point, we will be subject to the Prepayment Fee, the Make Whole Amount (if any) and the Paydown Fee. Events of default include, but are not limited to, a payment default, a material adverse change, and insolvency. The obligations under the Term Loan are secured by a first priority security interest in and a lien on substantially all of our assets, subject to certain exceptions.
Debt issuance costs paid directly to the Lenders of $1.1 million and the other debt issuance costs of $0.4 million were
accounted for
as discounts on the Term Loan. These debt discounts along with the Paydown Fee are being amortized or accreted to interest expenses throughout the life of the Term Loan using the effective interest rate method. As of March 31, 2020, there were unamortized issuance costs and debt discounts of $1.4 million, which were recorded as a direct deduction from the Term Loan on the condensed consolidated balance sheet. In addition, we paid the Lenders $1.1 million for the option to draw the additional $75.0 million, which was capitalized as a deferred asset and which is included in other assets, current and amortized on a straight-line basis through December 31, 2020. As of March 31, 2020, the unamortized fee for the option to draw the additional fund
s
was $0.8 million.
Future payments of principal and interest on the Term Loan as of March 31, 2020 were as follows (in thousands):
         
Year ending December 31,
 
Amount
 
2020 (nine months)
  $
5,063
 
2021
   
6,750
 
2022
   
6,750
 
2023
   
31,406
 
2024
   
29,156
 
2025
   
26,906
 
         
Total minimum payments
   
106,031
 
Less amount representing interest
   
(29,531
)
Less amount representing Paydown Fee
   
(1,500
)
         
Long-term debt, gross
   
75,000
 
Discount on notes payable
   
(1,418
)
Accretion of Paydown Fee
   
106
 
         
Long-term debt
  $
73,688
 
         
 
 
 
 
 
 
 
 
11

7. Commitments and Contingencies
Leases
We have operating leases for our headquarters, where we have office and research and development laboratory facilities, and equipment. Our leases have remaining lease terms of 1 to 10 years. Most of these leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases include renewal options at our election, with renewal terms that can extend the lease term from 1 to 10 years. These optional periods have not been considered in the determination of the
right-of-use,
or ROU, assets or lease liabilities associated with these leases as we did not consider it reasonably certain that we would exercise the options.
Lease costs included in operating expenses in the consolidated statement of operations in relation to these operating leases were $3.1 million and $1.9 million for the three months ended March 31, 2020 and 2019, respectively. Included in these lease costs were variable lease cost
s, which were
 not included within the measurement of our operating ROU assets and operating lease liabilities in the amount of $0.7 million and $0.9 million for the three months ended March 31, 2020 and 2019, respectively. The variable lease cost is comprised primarily of our cost in certain research and development arrangements that contain embedded equipment, and our proportionate share of operating expenses, property taxes, and insurance in relation with our facility lease. These costs are classified as operating lease expense due to our election to not separate lease and
non-lease
components.
Supplemental cash flow information related to leases for the period reported is as follows (in thousands, except weighted-average remaining lease term and weighted-average discount rate):
                 
 
Three Months Ended March 31,
 
 
2020
 
 
2019
 
ROU assets obtained in exchange for new operating lease upon adoption of ASC 842
  $
—  
    $
14,177
 
Cash paid for amounts included in the measurement of lease liabilities
   
1,153
     
1,117
 
Weighted-average remaining lease term of operating leases (in years)
   
10
     
8.7
 
Weighted-average discount rate of operating leases
   
8.7
%    
13.2
%
 
 
 
 
 
 
 
 
The majority of our lease costs are driven by our operating lease for our headquarters in South San Francisco, where we have office and research and development laboratory facilities.
In March 2017, we entered into a noncancelable operating lease, or Existing Lease, for approximately 67,185 square feet of space in South San Francisco, California, or Existing Premises. The Existing Lease term commenced in November 2017 as we gained control over physical access to the Existing Premises. We have acquired $11.1 million of leasehold improvements at the Existing Premises with the tenant inducement allowance provided under the Existing Lease. We are required to repay $1.7 million of the tenant inducement allowance to the landlord in the form of additional monthly rent with interest applied over the term of the Existing Lease.
In August 2018, we entered into an amendment to the Existing Lease, or Lease Amendment, to relocate the leased premises from the Existing Premises to a
to-be-constructed
building consisting of approximately 164,150 rentable square feet of space, or Substitute Premises
.
The date on which we became responsible for paying rent under the Lease Amendment was March 13, 2020,
 
or
 the
Substitute Premises Payment Commencement Date. The Lease Amendment has a contractual term, or Substitute Premises Term, of 10 years from the Substitute Premises Payment Commencement Date. The Lease Amendment grants us an option to extend the Lease Amendment for an additional
10-year
period. Future minimum rental payments under the Lease Amendment during the
10-year
term are $121.5 million in the aggregate. Under the Lease Amendment, we are obligated to pay to the landlord certain costs, including taxes and operating expenses.
On October 1, 2019, we determined that the Lease Amendment for the Substitute Premises had commenced as we had the right to control the Substitute Premises.
The Lease Amendment also provides a tenant inducement allowance of up to $27.9 million, of which $4.1 million, if utilized, would be repaid to the landlord in the form of additional monthly rent with interest applied. As of March 31, 2020, we have capitalized $30.4 million of costs in
construction-in-progress
within property and equipment, net for construction of leasehold improvements at the Substitute Premises, which were mostly acquired with the tenant inducement provided under the Lease Amendment.
 
We intend to vacate the Existing Premises and surrender and deliver the Existing Premises to the landlord on or before June 1, 2020, upon which time we will have no further obligations with respect to the Existing Premises. Upon signing of the Lease Amendment, we
re-evaluated
the remaining useful life of the leasehold improvements at the Existing Premises and started to amortize the leasehold improvements over the remaining period of expected use, resulting in an acceleration of depreciation expenses for approximately $1.9 million and $1.7 million for the three months ended March 31, 2020 and 2019, respectively.
1
2

As of March 31, 2020, the maturities of our operating lease liabilities were as follows (in thousands):
Year ending December 31,
 
Amount
 
2020 (nine months)
  $
5,878
(a)
 
2021
   
11,736
 
2022
   
12,116
 
2023
   
12,508
 
2024
   
12,913
 
2025
   
13,333
 
Thereafter
   
61,035
 
         
Total lease payments
   
129,519
 
Less: Imputed interest
(b)
   
(45,190
)
         
Present value of operating lease liabilities
  $
84,329
 
         
(a)
Includes our lease payments of $7.1 million, which is partially offset by the expected receipt of the remaining tenant inducements of $1.2 million.
 
Contingencies
In the ordinary course of business, we may be subject to legal claims and regulatory actions that could have a material adverse effect on our business or financial position. We assess our potential liability in such situations by analyzing potential outcomes, assuming various litigation, regulatory and settlement strategies. If we determine a loss is probable and its amount can be reasonably estimated, we accrue an amount equal to the estimated loss.
No losses and no provision for a loss contingency have been recorded to date.
8. Stock-Based Compensation
We have three stock-based compensation plans – the Amended and Restated 2017 Inducement Equity Plan, or 2017 Inducement Plan, the 2015 Stock Option and Incentive Plan, or 2015 Plan, and the 2012 Stock Option and Grant Plan, or 2012 Plan. As of March 31, 2020, there were 755,891 shares reserved under the 2017 Inducement Plan and 4,528,603 shares reserved under the 2015 Plan for the future issuance of equity awards. Upon adoption of the 2015 Plan in July 2015, no new awards or grants are permitted under the 2012 Plan. See Note 10 to the Consolidated Financial Statements included in our Annual Report on Form
10-K
for the year ended December 31, 2019 for additional information related to these stock-based compensation plans.
Stock Options
The following summarizes option activity under the 2017 Inducement Plan, 2015 Plan and 2012 Plan:
 
Number of
Options
 
 
Weighted-
Average
Exercise Price
 
Outstanding — December 31, 2019
   
3,573,860
    $
36.24
 
Options granted
   
621,703
     
66.05
 
Options exercised
   
(33,937
)    
28.50
 
Options canceled
   
(27,905
)    
47.16
 
                 
Outstanding — March 31, 2020
   
4,133,721
    $
40.72
 
                 
The fair values of stock options granted to employees were calculated using the following assumptions:
 
Three Months Ended
March 31,
 
 
2020
 
 
2019
 
Expected term (in years)
   
6.1
     
6.1
 
Volatility
   
69.6%-69.9%
     
71.6%-72.2%
 
Risk-free interest rate
   
1.4%-1.8%
     
2.5%-2.6%
 
Dividend yield
   
— 
     
— 
 
 
1
3

Restricted Stock Units
The following table summarizes activity of restricted stock units, or RSUs, granted to employees with service-based vesting under the 2017 Inducement Plan and 2015 Plan and related information:
 
Number
of RSUs
 
 
Weighted-
Average
Grant Date Fair
Value
 
Non-vested
units — December 31, 2019
   
1,848,772
    $
49.19
 
RSUs granted
   
1,073,766
     
66.16
 
RSUs vested
   
(192,966
)    
45.68
 
RSUs forfeited
   
(38,413
)    
48.18
 
                 
Non-vested
units — March 31, 2020
   
2,691,159
    $
56.23
 
                 
Stock-Based Compensation Expense
Total stock-based compensation recognized by function included in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):
 
Three Months Ended
March 31,
 
 
20
20
 
 
2019
 
Research and development
  $
5,350
    $
4,023
 
Selling, general and administrative
   
11,017
     
5,430
 
                 
Total stock-based compensation expense
  $
16,367
    $
9,453
 
                 
 
9. Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Since we were in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.
The following securities were not included in the diluted net loss per share calculations because their effect was anti-dilutive:
                 
 
Three Months Ended
March 31,
 
 
2020
 
 
2019
 
Options to purchase common stock
   
4,133,721
     
3,813,995
 
Restricted stock subject to future vesting
   
—  
     
22,856
 
Restricted stock units
   
2,691,159
     
1,626,127
 
                 
Total
   
6,824,880
     
5,462,978
 
                 
 
 
 
 
14

Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
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 ended December 31, 2019, included in our Annual Report on Form
10-K
filed with the Securities and Exchange Commission on February 26, 2020, or our Annual Report.
This discussion and other parts of this Quarterly Report on Form
10-Q
contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. In some cases you can identify forward-looking statements by terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this Quarterly Report on Form
10-Q
titled “Risk Factors.” We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements.
Overview
We are a biopharmaceutical company dedicated to the discovery, development and delivery of life-changing treatments that provide hope to underserved patient communities. Founded in 2011, GBT is delivering on its goal to transform the treatment and care of sickle cell disease, or SCD, a lifelong, devastating inherited blood disorder that is marked by red blood cell, or RBC, destruction and occluded blood flow and hypoxia, leading to anemia, stroke, multi-organ failure, severe pain crises, and shortened patient life span. As a result of the historic lack of treatment options, patients with SCD suffer serious morbidity and premature mortality.
It is estimated the prevalence of SCD is approximately 100,000 individuals in the United States, where newborn screening is mandatory, and approximately 60,000 individuals in Europe. The global incidence of SCD is estimated to be 250,000 to 300,000 births annually, and SCD is concentrated in populations of African, Middle Eastern and South Asian descent.
In late November 2019, we received U.S. Food and Drug Administration, or FDA, accelerated approval for our first medicine, Oxbryta (voxelotor) tablets for the treatment of SCD in adults and children 12 years of age and older. Oxbryta, an oral therapy taken once daily, is the first
FDA-approved
treatment that directly inhibits sickle hemoglobin polymerization, an underlying cause of SCD.
The accelerated approval of Oxbryta is based on clinically meaningful and statistically significant improvements in hemoglobin levels, accompanied by reductions in RBC destruction (hemolysis). Data from the Phase 3 HOPE (Hemoglobin Oxygen Affinity Modulation to Inhibit HbS PolymErization) Study of 274 patients 12 years of age and older with SCD showed that, after 24 weeks of treatment, 51.1% of patients receiving Oxbryta achieved a greater than 1 g/dL increase in hemoglobin compared with 6.5% receiving placebo (p<0.001). The HOPE data also demonstrated corresponding improvements in other markers of hemolysis as well as a favorable safety and tolerability profile for Oxbryta.
In early December 2019, we began to make Oxbryta available to patients through our specialty pharmacy partner network. As part of the product launch, we are focused on securing reimbursement and expanding patient access, and we have established GBT Source Solutions
TM
, a comprehensive program for patients who are prescribed Oxbryta that provides a wide range of practical, educational and financial support customized to each patient’s needs.
We are conducting and plan to conduct additional studies of Oxbryta, including our Phase 2a HOPE-KIDS 1 Study (an open-label, single- and multiple-dose Phase 2a study that is evaluating the safety, tolerability, pharmacokinetics and exploratory treatment effect of Oxbryta in pediatric patients aged 4 to 17 years with SCD) and, as a condition of accelerated approval, our Phase 3 HOPE-KIDS 2 Study (a post-approval confirmatory study we initiated in December 2019 that is using transcranial Doppler, or TCD, flow velocity to seek to demonstrate a decrease in stroke risk in children 2 to 15 years of age). We also expect to conduct additional clinical studies of Oxbryta, including to seek to expand the potential approved product label into younger pediatric populations.
Beyond Oxbryta, we are also engaged in other research and development activities, all of which are currently in earlier development stages, including working on new targets to develop the next generation of treatments for SCD. As part of our efforts to build our pipeline, we regularly evaluate opportunities to
in-license,
acquire or invest in new business, technology or assets or engage in related discussions with other business entities.
15

In August 2018, we entered into the License Agreement, or Roche Agreement, with F.
Hoffmann-La
Roche Ltd. and
Hoffmann-La
Roche Inc. (together, “Roche”) pursuant to which Roche granted us an exclusive and sublicensable worldwide license under certain patent rights and
know-how
to develop and commercialize inclacumab, a
p-selectin
inhibitor in development to address pain crises associated with the disease, including any modified compounds targeting
p-selectin
and derived from inclacumab, for all indications and uses, except diagnostic use. Roche retained a
non-exclusive,
worldwide, perpetual, royalty-free license to inclacumab solely for any diagnostic use. We are developing inclacumab as a treatment for vaso-occlusive crises, or VOCs, in patients with SCD, and we expect to be able to leverage the safety data from Roche’s prior clinical studies, which were not in patients with SCD, as we proceed with our development of inclacumab. We expect to initiate a pivotal clinical study in the first half of 2021.
In December 2019, we entered into the License and Collaboration Agreement, or Syros Agreement, with Syros Pharmaceuticals, Inc., or Syros, to discover, develop and commercialize novel therapies for SCD and beta thalassemia. Under the agreement, Syros will use its leading gene control platform to identify therapeutic targets and discover drugs that potentially induce fetal hemoglobin, and we have an option to obtain an exclusive worldwide license to develop, manufacture and commercialize any compounds or products resulting from the collaboration, subject to Syros’ option to
co-promote
the first product in the United States.
The outbreak of the novel coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (COVID-19), has evolved into a global pandemic that has impacted our business, including our commercialization of Oxbryta and our research and development activities. For example, we have implemented a temporary work from home policy, temporarily suspended our field team from in-person interactions, including visits to physician offices, clinics and hospitals as well as in-person meetings with payors, and delayed or paused certain of our research and development activities, including pausing screening and enrollment in all GBT-sponsored studies, including our Phase 2a HOPE-KIDS 1 Study, our Phase 3 HOPE-KIDS 2 Study and our dose optimization study that is intended to assess doses of Oxbryta of up to 3,000 mg per day. Notably, the COVID-19 pandemic has not significantly impacted our supply of Oxbryta. We continue to believe we have an adequate supply of Oxbryta to sustain estimated patient need through the remainder of this year and into 2021, and we are continuing to produce Oxbryta tablets. In addition, we are continuing to engage with healthcare professionals and payors through increased use of digital and internet-based education and outreach. We have seen a significant decrease in weekly new patient prescriptions for Oxbryta from a peak in early March, and we expect the rate of new patient prescriptions to remain lower as the second quarter progresses, possibly through the third quarter, and potentially longer. While we intend to resume normal operations as soon as practicable, we do not know for certain the extent or duration of these and other disruptions or the long-term impact on our business.
We own or jointly own and have exclusively licensed rights to Oxbryta and our product candidates in the United States, Europe and other major markets. We are the sole owner of issued U.S. patents covering Oxbryta, including its composition of matter, methods of use, formulations and polymorphs of Oxbryta. These issued U.S. patents covering Oxbryta will expire between 2032 and 2037, absent any applicable patent term extensions. We own or
co-own
additional pending patent applications in the United States and multiple foreign countries relating to Oxbryta.
We are not profitable and have incurred losses and negative cash flows from operations each year since our inception. Our net losses were $73.0 million and $48.9 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had an accumulated deficit of $811.9 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. We had $315.5 million in cash and cash equivalents and $299.7 million in marketable securities as of March 31, 2020.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
16

There have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report.
Results of Operations
Comparison of the Three Months Ended March 31, 2020 and 2019
                                 
 
Three Months Ended
March 31,
   
$ Change
 
 
% Change
 
 
2020
 
 
2019
 
 
(in thousands, except percentages)
 
Product sales, net
  $
14,118
    $
—  
    $
14,118
     
*
 
Costs and operating expenses:
   
     
     
     
 
Cost of sales
   
135
     
—  
     
135
     
*
 
Research and development
   
39,773
     
34,468
     
5,305
     
15
%
Selling, general and administrative
   
47,662
     
18,055
     
29,607
     
164
%
                                 
Total costs and operating expenses
   
87,570
     
52,523
     
35,047
     
67
%
                                 
Loss from operations
   
(73,452
)    
(52,523
)    
(20,929
)    
40
%
Interest income
   
2,856
     
3,831
     
(975
)    
(25
)%
Interest expenses
   
(2,314
)    
(181
)    
(2,133
)    
*
 
Other expenses, net
   
(116
)    
(50
)    
(66
)    
132
%
                                 
Net loss
  $
(73,026
)   $
(48,923
)   $
(24,103
)    
49
%
                                 
 
 
 
 
* Change is not meaningful
 
 
 
Product sales, net
Product sales consist of sales of Oxbryta, which was approved by the FDA in late November 2019. We commenced shipments of Oxbryta and fully launched with a deployed sales force in December 2019.
The following table summarizes activity with respect to our sales allowances and accruals for the period ended March 31, 2020 (in thousands):
                         
 
Rebates,
 co-payment
assistance, Medicare
Part D coverage gap,
product returns and
distributor fees
 
 
Prompt payment
discounts and
chargebacks
 
 
Total
 
Balances at December 31, 2019
  $
529
    $
113
    $
642
 
Provision related to current period sales
   
1,543
     
339
     
1,882
 
Credit or payments made during the period
   
(75
)    
(280
)    
(355
)
                         
Balance at March 31, 2020
 
$
1,997
 
 
$
172
 
 
$
2,169
 
                         
 
 
 
Cost of sales
Cost of sales of $135,000 for the three months ended March 31, 2020, is related to manufacturing costs incurred after FDA approval for the cost of Oxbryta sold. Prior to receiving FDA approval for Oxbryta in November 2019, we recorded all costs incurred in the manufacture of Oxbryta as research and development expense. We expect to sell inventory previously expensed to research and development over approximately the current year, and accordingly we expect our costs of product sales of Oxbryta to increase as a percentage of net sales in future periods as we produce and sell inventory that reflects the full cost of manufacturing the product.
17

Research and development
Research and development expenses consist primarily of costs incurred for the development of Oxbryta and product candidates, which include:
  employee-related expenses, which include salaries, benefits and stock-based compensation;
 
 
 
  expenses incurred under agreements with consultants, third-party research firms, manufacturing organizations for products not approved by the FDA, and investigative clinical trial sites that conduct research and development activities on our behalf;
 
 
 
  the costs related to production of clinical supplies, including fees paid to contract manufacturers;
 
 
 
  laboratory and vendor expenses related to the execution of nonclinical studies and clinical trials;
 
 
 
  payments upon achievement of certain clinical development and regulatory milestones in relation with license agreement; and
 
 
 
  facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies.
 
 
 
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are performed.
A significant component of our total operating expenses is our investment in research and development activities, including the clinical development of Oxbryta. We allocate research and development salaries, benefits, stock-based compensation and indirect costs to Oxbryta, inclacumab and other product candidates that we may pursue on a program-specific basis.
We expect our research and development expenses will increase in future periods as we continue to invest in research and development activities related to developing Oxbryta and product candidates, and as programs advance into later stages of development and we begin to conduct larger clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and research and development is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
The following table summarizes our research and development expenses incurred during the respective periods (in thousands, except percentages):
                                 
 
Three Months Ended March 31,
   
$ Change
 
 
% Change
 
 
2020
 
 
2019
 
Costs incurred by development program:
 
 
 
 
 
 
 
 
 
 
 
 
Oxbryta for the treatment of SCD
  $
23,460
    $
27,725
    $
(4,265
)    
(15
)%
Other preclinical programs
   
9,316
     
5,363
     
3,953
     
74
%
Inclacumab for the treatment of SCD
   
6,997
     
1,380
     
5,617
     
407
%
                                 
Total research and development expenses
  $
39,773
    $
34,468
    $
5,305
     
15
%
                                 
 
 
 
Research and development, or R&D, expenses increased by $5.3 million or 15%, to $39.8 million for the three months ended March 31, 2020 from $34.5 million for the three months ended March 31, 2019. The increase was primarily due to an increase of $5.6 million in external costs related to our inclacumab program driven by manufacturing
scale-up
activities. In addition, there was an increase of $4.0 million in internal and external costs associated with our preclinical program, including higher
pre-clinical
research activities related to the Syros Agreement, which we entered into in December 2019. The increase is partially offset by a $4.3 million decrease in manufacturing costs for Oxbryta that was previously expensed to R&D. Following the approval of Oxbryta in November 2019, we capitalize manufacturing costs to inventory. R&D related stock-based compensation expense was $5.4 million for the three months ended March 31, 2020 and $4.0 million for the three months ended March 31, 2019. The increase was primarily due to hiring additional personnel.
18

Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of costs incurred in our commercial, executive, finance, corporate development, human resource, information technology, legal, compliance and other general and administrative functions, which include:
  employee-related expenses, which include salaries, benefits and stock-based compensation;
 
 
 
  fees to third party vendors providing customer support services;
 
 
 
  expenses incurred under agreements with consultants; and
 
 
 
  facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies.