10-Q

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, 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: 000-31161

ARENA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	23-2908305
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6154 Nancy Ridge Drive, San Diego, CA	92121
(Address of principal executive offices)	(Zip Code)

858.453.7200

(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 $0.0001 per share	ARNA	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	☐	Small 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 shares of common stock outstanding as of the close of business on May 1, 2020:

Class	Number of Shares Outstanding
Common Stock, $0.0001 par value	50,337,038

ARENA PHARMACEUTICALS, INC.

INDEX

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets - As of March 31, 2020, and December 31, 2019	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - Three Months Ended March 31, 2020, and 2019	2
	Condensed Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31, 2020, and 2019	3
	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2020, and 2019	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	15
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	17
Item 6.	Exhibits	43
Signatures		44

TRADEMARKS AND CERTAIN TERMS

In this Quarterly Report on Form 10-Q, “Arena Pharmaceuticals,” “Arena,” “we,” “us” and “our” refer to Arena Pharmaceuticals, Inc., and our wholly owned subsidiaries on a consolidated basis, unless the context otherwise provides. “APD” is an abbreviation for Arena Pharmaceuticals Development.

Arena Pharmaceuticals ® and Arena ® are registered service marks of Arena. Any other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

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PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

	March 31,			December 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	190,428		$	243,274
Short-term investments, available-for-sale		609,582			496,291
Accounts receivable		268			1,654
Prepaid expenses and other current assets		29,859			18,715
Total current assets		830,137			759,934
Investments, available-for-sale		217,306			370,938
Land, property and equipment, net		24,727			25,128
Other non-current assets		17,501			18,123
Total assets	$	1,089,671		$	1,174,123
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	25,042		$	25,499
Accrued clinical and preclinical study fees		15,455			15,654
Current portion of lease financing obligations		3,955			3,814
Total current liabilities		44,452			44,967
Other long-term liabilities		12,149			12,078
Lease financing obligations, less current portion		44,585			45,613
Commitments and contingencies
Stockholders' equity:
Common stock		5			5
Additional paid-in capital		2,191,559			2,173,154
Accumulated other comprehensive income		125			1,303
Accumulated deficit		(1,203,204	)		(1,102,997	)
Total stockholders' equity		988,485			1,071,465
Total liabilities and stockholders' equity	$	1,089,671		$	1,174,123

See accompanying notes to unaudited condensed consolidated financial statements.

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ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except per share data)

(Unaudited)

	Three Months Ended
	March 31,
	2020			2019
Revenues:
United Therapeutics revenue	$	—		$	800,000
Royalty revenue		262			973
Collaboration and other revenue		—			84
Total revenues		262			801,057
Operating Costs and Expenses:
Research and development		78,533			45,396
General and administrative		26,442			16,578
Transaction costs		—			14,573
Total operating costs and expenses		104,975			76,547
Income (loss) from operations		(104,713	)		724,510
Interest and Other Income (Expense):
Interest income		4,946			6,487
Interest expense		(1,163	)		(1,241	)
Other income		723			711
Total interest and other income (expense), net		4,506			5,957
Income (loss) before income taxes		(100,207	)		730,467
Income tax provision		—			(110,333	)
Net income (loss)	$	(100,207	)	$	620,134
Net income (loss) per share, basic:	$	(2.00	)	$	12.53
Net income (loss) per share, diluted:	$	(2.00	)	$	12.10
Shares used in calculating net income (loss) per share, basic:		50,228			49,478
Shares used in calculating net income (loss) per share, diluted:		50,228			51,255
Comprehensive Income (Loss):
Net income (loss)	$	(100,207	)	$	620,134
Foreign currency translation loss		(14	)		(19	)
Unrealized gain (loss) on available-for-sale investments		(1,164	)		676
Comprehensive income (loss)	$	(101,385	)	$	620,791

See accompanying notes to unaudited condensed consolidated financial statements.

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ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

(Unaudited)

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital		Income (Loss)			Deficit			Equity
Balance at December 31, 2019		50,170,953	$	5	$	2,173,154	$	1,303		$	(1,102,997	)	$	1,071,465
Issuance of common stock upon exercise of options		125,761		—		3,191		—			—			3,191
Share-based compensation expense		—		—		15,214		—			—			15,214
Unrealized loss on available-for-sale investments		—		—		—		(1,164	)		—			(1,164	)
Translation loss		—		—		—		(14	)		—			(14	)
Net loss		—		—		—		—			(100,207	)		(100,207	)
Balance at March 31, 2020		50,296,714	$	5	$	2,191,559	$	125		$	(1,203,204	)	$	988,485

Balance at December 31, 2018	49,422,991	$	5	$	2,106,960	$	(155	)	$	(1,500,552	)	$	606,258
Issuance of common stock upon exercise of options	125,655		—		3,364		—			—			3,364
Share-based compensation expense	—		—		13,024		—			—			13,024
Unrealized gain on available-for-sale investments	—		—		—		676			—			676
Translation loss	—		—		—		(19	)		—			(19	)
Net income	—		—		—		—			620,134			620,134
Balance at March 31, 2019	49,548,646	$	5	$	2,123,348	$	502		$	(880,418	)	$	1,243,437

See accompanying notes to unaudited condensed consolidated financial statements.

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ARENA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2020			2019
Operating Activities:
Net income (loss)	$	(100,207	)	$	620,134
Adjustments to reconcile net income (loss) to net cash provided by (used in)      operating activities:
Depreciation and amortization		950			764
Deferred income taxes		—			110,333
Share-based compensation		15,214			13,024
Amortization of prepaid financing costs		22			22
Amortization of original issue discounts, net of premiums, on available-for-sale       investments		(264	)		(1,147	)
Changes in operating assets and liabilities:
Accounts receivable		1,498			2,003
Prepaid expenses and other assets		(9,818	)		(8,169	)
Payables and accrued liabilities		(1,116	)		1,080
Deferred rent		(324	)		(394	)
Net cash provided by (used in) operating activities		(94,045	)		737,650
Investing Activities:
Purchases of available-for-sale investments		(182,794	)		(249,525	)
Proceeds from sale and maturity of available-for-sale investments		222,235			76,088
Purchases of property and equipment		(532	)		(1,095	)
Net cash provided by (used in) investing activities		38,909			(174,532	)
Financing Activities:
Principal payments on lease financing obligations		(887	)		(760	)
Proceeds from issuance of common stock, net		3,191			3,364
Net cash provided by financing activities		2,304			2,604
Effect of exchange rate changes on cash		(14	)		(18	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(52,846	)		565,704
Cash, cash equivalents and restricted cash at beginning of period		243,500			161,900
Cash, cash equivalents and restricted cash at end of period	$	190,654		$	727,604

See accompanying notes to unaudited condensed consolidated financial statements.

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ARENA PHARMACEUTICALS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Arena Pharmaceuticals, Inc. should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission, or SEC, from which we derived our condensed consolidated balance sheet as of December 31, 2019. The accompanying condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year, particularly in light of the novel coronavirus pandemic, or COVID-19, and its impact on domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and or experience a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning the week of March 16, 2020, substantially all of our workforce began working from home. The effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Our future research and development expenses and general and administrative expenses may vary significantly if we experience an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities. For further information, refer to “Part II - Item 1A - Risk Factors” of this 10-Q.

Liquidity.

As of March 31, 2020, we had cash, cash equivalents and available-for-sale investments of approximately $1.0 billion. We believe our cash, cash equivalents and available-for-sale investments will be sufficient to fund our operations for at least the next 12 months.

We will require substantial cash to achieve our objectives of discovering, developing and commercializing drugs, as this process typically takes many years and potentially hundreds of millions of dollars for an individual drug. We may not have adequate available cash, or assets that could be readily turned into cash, to meet these objectives in the long term. We will need to obtain significant funds under our existing collaborations, under new collaborations, licensing or other commercial agreements for one or more of our drug candidates, programs or patent portfolios, or from other potential sources of liquidity, which may include the sale of equity, issuance of debt or other transactions. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with our clinical research organizations and suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects. To the extent we obtain additional funding through product collaborations, these arrangements would generally require us to relinquish rights to some of our product candidates or products, and we may not be able to enter into such agreements on acceptable terms, if at all.

Use of Estimates.

The preparation of financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. The amounts reported could differ under different estimates and assumptions.

Contingencies.

We disclose information regarding each material claim where the likelihood of a loss contingency is probable or reasonably possible. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. 

5

New Accounting Pronouncements.

In June 2016, the Financial Accounting Standards Board, or FASB, issued new accounting guidance codified in Accounting Standard Codification 326, Financial Instruments - Credit Losses, or Topic 326. The FASB has subsequently issued additional Accounting Standards Updates to clarify certain elements of the new accounting guidance. Topic 326 requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard became effective for us on January 1, 2020. The adoption of this guidance did not have a significant impact on our condensed consolidated financial statements and related disclosures.

Concentrations of Credit Risk.

Our financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash, cash equivalents and available-for-sale investments. We limit our exposure to credit losses by holding our cash primarily in US dollars or placing our cash and investments in US government, agency or government-sponsored enterprise obligations and in corporate debt instruments that are rated investment grade.

2. Cash, cash equivalents and restricted cash

The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the accompanying condensed consolidated balance sheets to the total of the amount presented in the condensed consolidated statements of cash flows, in thousands:

	March 31,		December 31,
	2020		2019
Cash and cash equivalents	$	190,428	$	243,274
Restricted cash included in other non-current assets		226		226
Total cash, cash equivalents and restricted cash presented in the condensed    consolidated statement of cash flows	$	190,654	$	243,500

The restricted cash relates to our property leases. The restriction will lapse when the related leases expire.

3. Fair Value Disclosures

We measure our financial assets and liabilities at fair value, which is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We use the following three-level valuation hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value our financial assets and liabilities:

Level 1	-	Observable inputs such as unadjusted quoted prices in active markets for identical instruments.
Level 2	-	Quoted prices for similar instruments in active markets or inputs that are observable for the asset or liability, either directly or indirectly.
Level 3	-	Significant unobservable inputs based on our assumptions.

6

The following tables present our valuation hierarchy for our financial assets and liabilities that are measured at fair value on a recurring basis, in thousands:

	Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2020:
Assets:
Money market funds(1)	$	116,667	$	116,667	$	—	$	—
US government and government agency notes(2)		422,395		422,395		—		—
Corporate debt instruments(2)		414,493		—		414,493		—
					.
December 31, 2019:
Assets:
Money market funds(1)	$	147,752	$	147,752	$	—	$	—
US government and government agency notes(3)		398,419		398,419		—		—
Corporate debt instruments(3)		483,788		—		483,788		—

(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

(2) Included in available-for-sale investments in the accompanying condensed consolidated balance sheets.

(3) Included in either cash and cash equivalents or available-for-sale investments in the accompanying condensed consolidated balance sheets.

4. Investments, Available-for-Sale

Investments, available-for-sale, consisted of the following, in thousands:

March 31, 2020:	Maturity in years	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US government and government agency     notes	< 1	$	310,740	$	1,633	$	(15	)	$	312,358
Corporate debt securities	< 1		297,302		668		(746	)		297,224
Short-term investments, available-for-sale		$	608,042	$	2,301	$	(761	)	$	609,582
US government and government agency     notes	1 – 5	$	99,872	$	174	$	(8	)	$	100,038
Corporate debt securities	1 – 5		118,927		156		(1,815	)		117,268
Investments, available-for-sale		$	218,799	$	330	$	(1,823	)	$	217,306
December 31, 2019:	Maturity in years	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US government and government agency     notes	< 1	$	201,046	$	292	$	(5	)	$	201,333
Corporate debt securities	< 1		294,481		495		(18	)		294,958
Short-term investments, available-for-sale		$	495,527	$	787	$	(23	)	$	496,291
US government and government agency     notes	1 – 5	$	197,157	$	85	$	(155	)	$	197,087
Corporate debt securities	1 – 5		173,322		603		(74	)		173,851
Investments, available-for-sale		$	370,479	$	688	$	(229	)	$	370,938

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5. Land, Property and Equipment

Land, property and equipment consisted of the following, in thousands:

	March 31,			December 31,
	2020			2019
Cost	$	74,470		$	73,922
Less accumulated depreciation and amortization		(49,743	)		(48,794	)
Land, property and equipment, net	$	24,727		$	25,128

6. Accounts Payable and Other Accrued Liabilities

Accounts payable and other accrued liabilities consisted of the following, in thousands:

	March 31,		December 31,
	2020		2019
Accounts payable	$	12,659	$	6,043
Accrued compensation		7,887		14,329
Other accrued liabilities		4,496		5,127
Total accounts payable and other accrued liabilities	$	25,042	$	25,499

7. Collaborations and License Agreements

Refer to our Annual Report on Form 10-K for the year ended December 31, 2019, for more information on our significant collaboration and license agreements.

In the first quarter of 2019, we received an upfront payment of $800.0 million under an exclusive license agreement with United Therapeutics. Under this agreement, we granted United Therapeutics an exclusive, worldwide, royalty-bearing license to develop, manufacture and commercialize ralinepag in any formulation. United Therapeutics is responsible for all development, manufacturing and commercialization of the licensed products globally.

8. Share-based Compensation

We recognized share-based compensation expense as follows, in thousands:

	Three months ended
	March 31,
	2020		2019
Research and development	$	6,591	$	6,707
General and administrative		8,623		6,317
Total share-based compensation expense	$	15,214	$	13,024

The following table summarizes our stock option activity during the three months ended March 31, 2020, in thousands (except per share data):

	Options			Weighted- Average Exercise Price
Outstanding at January 1, 2020		8,535		$	34.31
Granted		2,107			45.04
Exercised		(126	)		25.37
Forfeited/cancelled/expired		(142	)		44.45
Outstanding at March 31, 2020		10,374		$	36.46

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In March 2020, a total of 138,104 Restricted Stock Units, or RSUs, were granted to the employees in a company-wide grant. The RSUs vest over four years from the grant date. The grant-date fair value of $6.4 million is recognized as compensation expense over the vesting period.

9. Income (Loss) Per Share

We calculate basic and diluted income (loss) per share using the weighted-average number of shares of common stock outstanding during the period.

Since we have a net loss for the three months ended March 31, 2020, in addition to excluding potentially dilutive out-of-the money securities, we have excluded from our calculation of diluted income (loss) per share all potentially dilutive in-the-money (i) stock options, (ii) RSUs, and (iii) Performance-Based Restricted Stock Unit awards, or  PRSUs, and our diluted net income (loss) per share is the same as our basic net income (loss) per share.

The following table presents the weighted-average number of potentially dilutive securities that were excluded from our calculation of diluted net income (loss) per share because they were anti-dilutive, in thousands:

	Three months ended
	March 31,
	2020		2019
Stock options		6,874		5,471
RSUs and PRSUs		215		—
Total		7,089		5,471

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

This discussion and analysis should be read in conjunction with our financial statements and notes thereto included in this quarterly report on Form 10-Q, or Quarterly Report, and the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2019, or 2019 Annual Report, as filed with the Securities and Exchange Commission, or SEC. Operating results are not necessarily indicative of results that may occur in future periods.

This Quarterly Report includes forward-looking statements that involve a number of risks, uncertainties and assumptions. These forward-looking statements can generally be identified as such because the context of the statement will include words such as “may,” “will,” “intend,” “plan,” “believe,” “anticipate,” “expect,” “estimate,” “predict,” “potential,” “continue,” “likely,” or “opportunity,” the negative of these words or other similar words. Similarly, statements that describe our plans, strategies, intentions, expectations, objectives, goals or prospects and other statements that are not historical facts are also forward-looking statements. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Readers of this Quarterly Report are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the time this Quarterly Report was filed with the SEC. These forward-looking statements are based largely on our expectations and projections about future events and future trends affecting our business, and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. These risks and uncertainties include, without limitation, the risk factors identified in our SEC reports, including this Quarterly Report. In addition, past financial or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Except as required by law, we undertake no obligation to update publicly or revise our forward-looking statements.

OVERVIEW AND RECENT DEVELOPMENTS

We are a biopharmaceutical company focused on delivering novel, transformational medicines with optimized pharmacology and pharmacokinetics to patients globally. Our internally-developed pipeline includes multiple potentially first- or best-in-class assets with broad clinical utility.

Our most advanced investigational clinical programs include:

• Etrasimod, which we are evaluating in a Phase 3 program for ulcerative colitis, or UC, a Phase 2b/3 program for Crohn’s disease, or CD, and a Phase 2b program in atopic dermatitis, or AD. We also plan to evaluate etrasimod in a Phase 2b program for eosinophilic esophagitis, or EOE, and a Phase 2 program in alopecia areata, or AA.

• Olorinab, which we are evaluating for a broad range of visceral pain conditions associated with gastrointestinal diseases and is currently in a Phase 2b trial for treatment of abdominal pain associated with irritable bowel syndrome, or IBS.

• APD418, which we are evaluating in a Phase 1 trial for acute heart failure, or AHF.

We continue to leverage our two decades of world-class G protein-coupled receptor, or GPCR, target discovery research to develop breakthrough drugs and ultimately deliver these to patients with large unmet needs. Our long-term pipeline prospects include an enhanced collaboration with Beacon Discovery across a broad range of immune-mediated inflammatory targets and compounds. We are also working on the buildout of our wholly owned subsidiary, Arena Neuroscience, Inc., which is expected to focus on programs and platforms in the area of neuroscience, including identifying and developing potential treatments for neurological conditions with microglial neuroinflammation. Initially, we anticipate that Arena Neuroscience will direct its activities towards the further evaluation and development of AN352, an early clinical stage compound that is expected to be evaluated for the treatment of rare epilepsies, as well as AN143 and AN659, preclinical stage compounds. To support its development activities, we may pursue third party investments in Arena Neuroscience.

We have license agreements or collaborations with various companies, including:

• United Therapeutics (ralinepag in a Phase 3 program for pulmonary arterial hypertension),

• Everest Medicines Limited (etrasimod in a Phase 3 program for UC in Greater China and select countries in Asia),

• Beacon Discovery (early research platform for GPCR targets), and

• Boehringer Ingelheim International GmbH (undisclosed orphan GPCR program for central nervous system – preclinical).

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In April 2020, we announced positive topline data from a Phase 1 clinical study evaluating controlled-release delivery profiles, or CR, for our investigational agent, etrasimod, a highly selective, once-daily, oral sphingosine 1-phosphate (S1P) receptor modulator. We plan to expand our current development program to rapidly develop etrasimod CR and integrate it into multiple, ongoing clinical development programs.

In February 2020, we entered into a Sales Agreement, or the Sales Agreement, with Credit Suisse Securities (USA) LLC, SVB Leerink LLC and Cantor Fitzgerald & Co., as sales agents (collectively, the “Sales Agents”), pursuant to which we may offer and sell up to $250.0 million of shares of our common stock from time to time through the Sales Agents. Sales of shares of our common stock may be made at market prices by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We are not obligated to sell any shares under the Sales Agreement. Each of the Sales Agents has agreed to use its commercially reasonable efforts to sell on our behalf all of the shares of common stock requested to be sold by us, consistent with its normal trading and sales practices, on mutually agreed terms among the Sales Agents and us. We have not yet completed any sales of our common stock under the Sales Agreement.

Also in February 2020, we announced that Kevin R. Lind, our Executive Vice President and Chief Financial Officer, has been appointed the President and Chief Executive Officer of our wholly owned subsidiary, Arena Neuroscience. We appointed Laurie D. Stelzer as our Executive Vice President and Chief Financial Officer, effective March 2020, replacing Mr. Lind in that capacity.

In January 2020, we announced the retirement of Steven W. Spector, J.D. from his positions as our Executive Vice President, General Counsel and Secretary, effective March 2020. We appointed Joan Schmidt as Executive Vice President, General Counsel and Secretary, effective March 2020, replacing Mr. Specter in that capacity.

In February 2020, the FDA issued a drug safety communication announcing that it requested Eisai voluntarily withdraw lorcaserin (previously marketed in the United States as BELVIQ and BELVIQ XR) from the U.S. market based on the FDA’s analysis of data from a study completed by Eisai and a change in the FDA’s risk-benefit assessment of BELVIQ. Eisai agreed to voluntarily withdraw BELVIQ products from the U.S. market, as requested by the FDA and from certain foreign markets.

In December 2019, an outbreak of a novel strain of coronavirus, or COVID-19, was identified in Wuhan, China. In March 2020, the World Health Organization categorized the novel COVID-19 as a pandemic, and it continues to spread throughout the United States and other countries across the world. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Beginning the week of March 16, 2020, substantially all of our workforce began working from home. The effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Our future research and development expenses and general and administrative expenses may vary significantly based on developments related to the coronavirus outbreak and impact of it and COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities.

RESULTS OF OPERATIONS

Three months ended March 31, 2020, and 2019

Revenues. We recognized revenues of $0.3 million for the three months ended March 31, 2020, compared to $801.1 million for the three months ended March 31, 2019. This decrease was primarily from the revenue associated with the upfront payment of $800.0 million we received in January 2019 pursuant to our collaboration and license agreement with United Therapeutics.

Absent any new collaborations, we expect our 2020 revenues will primarily consist of potential milestone payments from our existing collaborations and license agreements.

Revenues from milestones and royalties are difficult to predict, and our overall revenues will likely continue to vary from quarter to quarter and year to year. In the short term, we expect the amount of revenue we earn to fluctuate.

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Research and development expenses.

In millions	Three months ended
	March 31,
Type of expense	2020		2019
External clinical and preclinical study fees	$	51.3	$	25.9
Salary and other personnel costs (excluding non-cash      share-based compensation)		16.2		10.1
Non-cash share-based compensation		6.6		6.7
Facility costs		2.0		1.3
Other		2.4		1.4
Total research and development expenses	$	78.5	$	45.4

Research and development expenses, which account for the majority of our expenses, consist primarily of salaries and other personnel costs, clinical trial costs (including payments to contract research organizations, or CROs), preclinical study fees and facility costs. We expense research and development costs as they are incurred when these expenditures have no alternative future uses. We generally do not track our earlier-stage, internal research and development expenses by project; rather, we track such expenses by the type of cost incurred.

Research and development expenses increased by $33.1 million to $78.5 million for the three months ended March 31, 2020, from $45.4 million for the three months ended March 31, 2019. This increase was primarily due to increases of $25.4 million in external clinical and preclinical study fees, and $6.1 million in salary and other personnel costs. The increases in compensation costs are primarily due to an increase in the number of research and development employees.

We expect to incur substantial research and development expenses in 2020 and for the aggregate amount in 2020 to be greater than the amount incurred in 2019. We expect our internal costs to be higher primarily due to higher external clinical trial costs and increasing headcount in connection with advancing the etrasimod and olorinab programs. Our actual expenses may be higher or lower than anticipated due to various factors, including our progress and results. For example, patient enrollment in our Phase 3 clinical program for etrasimod is expected to be competitive and challenging, and could take longer than originally projected, which may result in our related external expenses being lower in 2020 than anticipated (but which might increase the overall costs for completing this multi-year program).

Included in the $51.3 million of total external clinical and preclinical study fees noted in the table above for the three months ended March 31, 2020, were the following:

• $38.4 million related to etrasimod, and

• $8.3 million related to olorinab.

Included in the $25.9 million of total external clinical and preclinical study fees noted in the table above for the three months ended March 31, 2019, were the following:

• $16.9 million related to etrasimod,

• $3.2 million related to ralinepag, and

• $2.9 million related to olorinab.

General and administrative expenses.

In millions	Three months ended
	March 31,
Type of expense	2020		2019
Non-cash share-based compensation	$	8.6	$	6.3
Salary and other personnel costs (excluding non-cash      share-based compensation)		7.9		4.2
Legal, accounting and other professional fees		6.4		4.3
Facility and equipment costs		1.7		1.2
Other		1.8		0.6
Total general and administrative expenses	$	26.4	$	16.6

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General and administrative expenses increased by $9.8 million to $26.4 million for the three months ended March 31, 2020, from $16.6 million for the three months ended March 31, 2019. This increase was primarily due to an increase of $3.7 million in salary and other personnel costs, an increase of $2.3 million in non-cash share-based compensation expenses, and an increase of $2.1 million in legal, accounting and other professional fees. The increases in compensation costs are primarily due to an increase in the number of general and administrative employees. We expect that our 2020 general and administrative expenses will be higher than in 2019.

Interest and other income (expense), net. Interest and other income, net decreased by $1.5 million to $4.5 million for the three months ended March 31, 2020, from $6.0 million for the three months ended March 31, 2019. This decrease was primarily due to a decrease of $1.5 million in interest income from our available-for-sale investments activity.

LIQUIDITY AND CAPITAL RESOURCES

In general, developing drugs and obtaining marketing approval is a long, uncertain and expensive process, and our ability to execute on our plans and achieve our goals depends on numerous factors, many of which we do not control. To date, we have generated limited revenues. We expect to continue to incur substantial net losses for the foreseeable future as we advance our clinical development programs and support our collaborators.

We have accumulated a large deficit since inception that has primarily resulted from the significant research and development expenditures we have incurred in seeking to identify and develop compounds that could become marketed drugs. We expect to continue to incur substantial losses for at least the short term. To date, we have obtained cash and funded our operations primarily through the sale of common stock, the issuance of debt and related financial instruments, payments from collaborators and customers, and sale leaseback transactions.

We believe our cash resources are sufficient to allow us to continue operations for at least the next 12 months from the date this Quarterly Report is filed with the SEC. There is no guarantee that adequate funds will be available when needed from additional debt or equity financing, development and commercialization partnerships or from other sources, or on terms acceptable to us. If our efforts to obtain sufficient additional funds are not successful, we would be required to delay, scale back, or eliminate some or all of our research or development, manufacturing operations, administrative operations, and clinical or regulatory activities, which could negatively affect our ability to achieve certain corporate goals.

Short term liquidity.

At March 31, 2020, we had $1.0 billion in cash, cash equivalents and available-for-sale investments. Our potential sources of liquidity in the short term include (i) milestone and other payments from collaborators or licensees, (ii) entering into new collaboration, licensing or commercial agreements for one or more of our drug candidates or programs, (iii) the sale or lease of our facilities or other assets and (iv) sale of equity, issuance of debt or other transactions.

Long term liquidity.

It will require substantial cash to achieve our objectives of discovering, developing and commercializing drugs, and this process typically takes many years and potentially several hundreds of millions of dollars for an individual drug. We may not have adequate available cash, or assets that could be readily turned into cash, to meet these objectives in the long term. We will need to obtain significant funds under our existing licensing or collaboration agreements, under new collaboration, licensing or other commercial agreements for one or more of our drug candidates and programs or patent portfolios, or from other potential sources of liquidity, which may include the sale of equity, including shares offered and sold under the Sales Agreement, issuance of debt or other transactions. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are not able to secure adequate additional funding when required, we may be forced to make reductions in spending, extend payment terms with our CROs and suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects. To the extent we obtain additional funding through product collaborations, these arrangements would generally require us to relinquish rights to some of our product candidates or products, and we may not be able to enter into such agreements on acceptable terms, if at all.

In addition to potential payments from our current collaborators, as well as funds from public and private financial markets, potential sources of liquidity in the long term include (i) upfront, milestone, royalty and other payments from any future collaborators or licensees and (ii) revenues from sales of any drugs we obtain regulatory approval to commercialize on our own. The length of time that our current cash and cash equivalents and any available borrowings will sustain our operations will be based on, among other things, the rate of adoption and commercial success of any drugs we or our collaborators obtain regulatory approval to market,

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regulatory decisions affecting our and our collaborator’s drug candidates, prioritization decisions regarding funding for our programs, progress in our clinical and earlier-stage programs, the time and costs related to current and future clinical trials and nonclinical studies, our research, development, manufacturing and commercialization costs (including personnel costs), our progress in any programs under collaborations, costs associated with intellectual property, our capital expenditures, and costs associated with securing any in-licensing opportunities. Any significant shortfall in funding may result in us reducing our development and/or research activities, which, in turn, would affect our development pipeline and ability to obtain cash in the future.

We evaluate from time to time potential acquisitions, in-licensing and other opportunities. Any such transaction may impact our liquidity as well as affect our expenses if, for example, our operating expenses increase as a result of such acquisition or license or we use our cash to finance the acquisition or license.

Sources and uses of our cash.

Net cash used in operating activities was $94.0 million in the three months ended March 31, 2020, compared to net cash provided by operating activities of $737.7 million in the three months ended March 31, 2019. This change was primarily the result of an $800.0 million upfront payment from United Therapeutics received in the three months ended March 31, 2019, an increase of $20.3 million in payments made for external clinical study fees, and an increase in cash expenditures of approximately $11.3 million for personnel costs resulting primarily from an increase in the number of employees.

Net cash provided by investing activities was $38.9 million in the three months ended March 31, 2020, compared to net cash used in investing activities of $174.5 million in the three months ended March 31, 2019. This change was primarily due to a net increase of $212.9 million in proceeds from sales and maturities of available-for-sale investments, net of purchases, and a decrease of $0.6 million in purchases of property and equipment.

Net cash of $2.3 million was provided by financing activities in the three months ended March 31, 2020, as a result of $3.2 million in proceeds from stock option exercises, partially offset by $0.9 million on our lease financing obligations. Net cash of $2.6 million was provided by financing activities in the three months ended March 31, 2019, as a result of $3.4 million in proceeds from stock option exercises, which were partially offset by $0.8 million on our lease financing obligations.

CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES

The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial condition and results of operations and demanding of management’s judgment. Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with US generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base our estimates on historical experience and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from those estimates.

Impairment of Investments

We recognize an impairment charge when the declines in the fair values of our available-for-sale investments below their cost basis are judged to be other than temporary. The ultimate value realized on these securities is subject to market price volatility until they are sold.

If the fair value of a debt security is less than its amortized cost, we assess whether the impairment is other than temporary. An impairment is considered other than temporary if (i) we have the intent to sell the security, (ii) it is more likely than not that we will be required to sell the security before recovery of its entire amortized cost basis, or (iii) we do not expect to recover the entire amortized cost of the security. If an impairment is considered other than temporary based on (i) or (ii) described in the prior sentence, the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other than temporary based on condition (iii), the amount representing credit loss, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security, will be recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive income. In estimating the amount and timing of cash flows expected to be collected, we consider all available information, including past events, current conditions, the remaining payment terms of the security, the financial condition of the issuer, expected defaults, and the value of underlying collateral.

Our remaining critical accounting policies and management estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes from the information we included in this section of our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 4.  Controls and Procedures.

Based on an evaluation carried out as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective at the reasonable assurance level. There were no changes to our internal control over financial reporting that occurred during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.

We are not currently subject to any material legal proceedings.

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Item 1A.  Risk Factors.

RISK FACTORS

Investment in our stock involves a high degree of risk. You should consider carefully the risks described below, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, or SEC, before making investment decisions regarding our stock. If any of the following events actually occur, our business, operating results, prospects or financial condition could be materially and adversely affected. This could cause the trading price of our common stock to decline and you may lose all or part of your investment. Moreover, the risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, operating results, prospects or financial condition.

The risk factors set forth below with an asterisk (*) before the title are new risk factors or ones containing substantive changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC.

Risks Relating to Our Business

* Drug development programs are expensive, time consuming, uncertain and susceptible to change, interruption, delay or termination.

Drug development programs are very expensive, time consuming and difficult to design and implement. Our drug candidates are in various stages of clinical and preclinical development and are prone to the risks of failure inherent in research and development. Clinical trials and preclinical studies are needed to demonstrate that drug candidates are safe and effective to the satisfaction of the FDA, and similar non-US regulatory authorities, and the FDA or other regulatory authority may require us to, or we or others may decide to, conduct additional research and development even after a drug is approved. The commencement or completion of our clinical trials or preclinical studies could be substantially delayed or prevented by several factors, including the following:

• limited number of, and competition for, suitable patients required for enrollment in our clinical trials or animals to conduct our preclinical studies;

• limited number of, and competition for, suitable sites to conduct our clinical trials or preclinical studies;

• delay or failure to obtain a meeting, approval or agreement from the applicable regulatory authority to commence a clinical trial or approve a study protocol;

• delay or failure to obtain sufficient supplies of drug candidates, drugs or other materials for the trial or study;

• delay or failure to reach agreement on acceptable agreement terms or protocols;

• delays or other disruptions related to the COVID-19 pandemic (which we discuss in greater detail below in these risk factors); and

• delay or failure to obtain institutional review board, or IRB, approval to conduct a clinical trial at a prospective site.

In addition, the FDA, other regulatory authorities, collaborators, or we may suspend, delay or terminate our development programs at any time for various reasons, including those listed above affecting the commencement or completion of trials and the following:

• side effects experienced by study participants or other safety issues;

• lack of effectiveness of any drug candidate during clinical trials;

• slower than expected rates of patient recruitment and enrollment or lower than expected patient retention rates;

• inadequacy of or changes in the manufacturing process or compound formulation;

• delays in obtaining regulatory approvals to commence a study, or “clinical holds,” or delays requiring suspension or termination of a study by a regulatory authority, such as the FDA, after a study is commenced;

• changes in applicable regulatory policies and regulations;

• delays in identifying and reaching agreement on acceptable terms with prospective clinical trial sites;

• uncertainty regarding proper dosing;

• unfavorable results from clinical trials or preclinical studies, including those conducted by us, our partners or our licensees;

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• failure of our clinical research organizations to comply with all regulatory and contractual requirements or otherwise perform their services in a timely or acceptable manner;

• scheduling conflicts with participating clinicians and clinical institutions;

• failure to design appropriate clinical trial protocols;

• insufficient data to support regulatory approval;

• termination of clinical trials at one or more clinical trial sites;

• inability or unwillingness of medical investigators to follow our clinical protocols;

• failure of participating clinicians and clinical institutions to comply with all legal, regulatory and contractual requirements or otherwise perform in a timely or acceptable manner;

• difficulty in maintaining contact with subjects during or after treatment, which may result in incomplete data;

• lack of sufficient funding to continue clinical trials or preclinical studies; or

• changes in business priorities or perceptions of the value of the program.

There is typically a high rate of attrition from the failure of drug candidates proceeding through clinical trials, and many companies have experienced significant setbacks in advanced development programs even after promising results in earlier studies or trials. We have experienced setbacks in our internal and partnered development programs and expect to experience additional setbacks from time to time in the future. In addition, even if the earlier-stage results of our development programs are favorable, these programs may take significantly longer than expected to complete or may not be completed at all. If we or our collaborators abandon or are delayed in our development efforts related to any drug or drug candidate, we may not be able to generate sufficient revenues to continue our operations at the current or planned level or be profitable, our reputation in the industry and in the investment community would likely be significantly damaged, additional funding may not be available to us or may not be available on terms we or others believe are favorable, and our stock price may decrease significantly.

We may not be successful in initiating, enrolling patients in, or completing our studies or trials or advancing our programs on our projected timetable, if at all. Any failure to initiate or delays in our studies, trials or development programs, or unfavorable results or decisions or negative perceptions regarding any of our programs, could cause our stock price to decline significantly. This is particularly the case with respect to our clinical programs.

* We will need to obtain additional funds or enter into collaboration agreements to execute on our corporate strategy, and we may not be able to do so at all or on terms you view as favorable; your ownership may be substantially diluted if we do obtain additional funds; you may not agree with the manner in which we allocate our available resources; and we may not be profitable.

It takes many years and potentially hundreds of millions of dollars to successfully develop a compound into a marketed drug. We have accumulated a large deficit that has primarily resulted from the significant expenditures we have made in research and development since our inception. We expect that our losses and operating expenses will continue to be substantial.

All of our internal programs are in the development stage, and we may not have adequate funds to develop all of our compounds into marketed drugs.

We may seek to obtain additional funding through the capital markets or other financing sources. Additional funding may not be available to us or may not be available on terms we or others believe are favorable, including due to negative impacts on the stock market and investor sentiment resulting from the COVID-19 pandemic. Our ability to obtain additional funding may depend on many factors, including those outside our control. Should we obtain additional funding, your ownership interest may be diluted or otherwise negatively impacted.

We have entered into, and may in the future seek to enter into, collaboration or other agreements with other entities to continue to develop and, if successful, commercialize one or more of our drug candidates. We may not be able to enter into any such agreements on terms that we or third parties, including investors or analysts, view as favorable, if at all. Our ability to enter into any such agreement for any of our programs or drug candidates depends on many factors, potentially including the outcomes of additional testing (including clinical trial results) or regulatory applications for marketing approval, and we do not control these outcomes.

We may allocate our resources in ways that do not improve our results of operations or enhance the value of our assets, and our stockholders and others may also not agree with the manner in which we choose to allocate our resources or obtain additional funding.

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We may also eliminate, scale back or delay some or all of our research and development programs, and any such reductions or failure to apply our resources effectively or to obtain additional funding could narrow, slow or otherwise adversely impact the development and commercialization of one or more of our drug candidates, which could reduce our opportunities for success and have a material adverse effect on our business, our prospects and the market price of our common stock.

In addition, we cannot assure you that we will be profitable or, if we are profitable for any particular time period, that we will be profitable in the future.

Our business may be negatively impacted based on the clinical trials and preclinical studies of, and decisions affecting, one or more of our drug candidates.

The results and timing of clinical trials and preclinical studies obtained by us or our collaborators or licensees, as well as related decisions by us, collaborators, licensees and regulators, can affect our stock price. Results of clinical trials and preclinical studies are uncertain and subject to different interpretations by regulatory agencies, us or others. The design of these trials and studies (which may change significantly and be more expensive than anticipated depending on results and regulatory decisions), as well as related analyses of such results, including adverse effects, may not be viewed favorably by us or third parties, including investors, analysts, current or potential collaborators, the academic and medical communities, and regulators, which could adversely impact the development and opportunities for regulatory approval of drug candidates and commercialization (and even result in withdrawal from the market) of approved drugs. The same may be true of decisions regarding the focus and prioritization of our research and development efforts. Stock prices of companies in our industry have declined significantly when such results and decisions were unfavorable or perceived negatively or when a drug candidate or product did not otherwise meet expectations.

The development, approval or commercialization of any of our drug candidates could be negatively affected by circumstances related to other drug candidates or approved products.

Information on our drug candidates in clinical development is preliminary and incomplete, and for such drug candidates, particularly in the earlier stages of development, information on approved products in the same or related drug classes may indicate potential risks related to the development of our drug candidates. In particular, safety issues affecting other drugs or drug candidates may result in increased regulatory scrutiny of the safety of our drugs or drug candidates, may raise potential adverse publicity and may affect product sales or result in litigation. For example, etrasimod is an orally available modulator of the S1P receptors. An approved drug that is also an orally available modulator of the S1P receptors, Gilenya, is associated with risks such as adverse cardiovascular effects, including lowering of the heart rate and heart blocks, infection, macular edema, respiratory effects, fetal risk, a rare brain infection, and elevations in liver enzymes. These adverse reactions and risks may be associated with S1P receptor modulation and could be found to be associated with the use of etrasimod. Such adverse reactions and risks, either actual or perceived, could negatively impact the development, approval or commercialization of etrasimod, or our ability to enter into a collaboration on acceptable terms.

Topline data may not accurately reflect the complete results of a particular study or trial.

We may publicly disclose topline or interim data from time to time, which are based on a preliminary analysis of then-available efficacy and safety data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial.

We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and others, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular drug candidate or drug and our company in general. In addition, the information we may publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you, regulators or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business.

Our hypothesis that selectively targeting receptors can lead to more efficacious or safer drugs may not be correct.

In general, we have designed and optimized the drug candidates that we or our collaborators and licensees are developing (including etrasimod, olorinab, APD418 and ralinepag) to selectively target certain receptors found on cells in humans. Our hypothesis is that selectivity may allow our drug candidates to address diseases more efficaciously or without some of the negative effects associated with less selective drugs. In certain cases, we believe early research and, if available, early clinical testing, provides preliminary support for our hypothesis. However, our hypothesis may not be correct, early research and early phase clinical testing

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may not be predictive of efficacy or safety in later trials, and our drug candidates may not be approved or, if approved, have the desired efficacy or safety profile.

It is generally our strategy to develop drug candidates that we believe will be first-in-class, best-in-class, or similar descriptions, or otherwise have broad clinical utility, optimized pharmacology or optimized pharmacokinetics. Some or all of our drug candidates may not achieve these goals. For example, failure to complete enrollment in clinical trials on schedule or at all could prevent a drug candidate from being first-in-class. Similarly, comparing data from different trials, or making predictions based on preclinical data, may not allow us to correctly determine whether our drug candidates are superior to competitive drugs or drug candidates in the same way that comparisons can be made from conducting trials in which our and a competitive drug is tested “head to head” in the same trial. The failure of our drugs or drug candidates to be first-in-class, best-in-class, or similar descriptions, or have broad clinical utility, optimized pharmacology, or optimized pharmacokinetics, or a lack of “head to head” data, could adversely affect development, regulatory approval, third-party payor support, or market adoption, which would have a material adverse impact on our business.

The results of preclinical studies and completed clinical trials are not necessarily predictive of future results, and our current drug candidates or any approved drugs may not be further developed or have favorable results in later studies or trials.

Preclinical studies and Phase 1 and Phase 2 clinical trials are not primarily designed to test the efficacy of a drug candidate, but rather to test safety, to study pharmacokinetics and pharmacodynamics, and to understand the drug candidate’s side effects at various doses and schedules. Favorable results in early studies or trials may not be confirmed in later studies or trials, including preclinical studies that continue or that are initiated after earlier clinical trials and large-scale clinical trials, and our drug candidates or drugs in subsequent trials or studies may fail to show desired safety and efficacy despite having progressed through earlier-stage trials. For example, we have announced positive topline Phase 2 results for etrasimod in patients with ulcerative colitis, but these results may not be confirmed in any subsequent Phase 3 study. By way of another example, the impact of etrasimod on heart rate that was observed in completed clinical trials may not be observed in subsequent trials, and it could be viewed negatively by the FDA or other regulatory agencies.

Unfavorable results from clinical trials or preclinical studies could result in delays, modifications or abandonment of ongoing or future clinical trials, or abandonment of a program. Clinical and preclinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Negative or inconclusive results or adverse medical events during such trials or studies could cause a clinical trial to be delayed, repeated or terminated; a program to be abandoned; or negatively impact a related marketed drug, which could have a material adverse effect on our business, financial condition and results of operations.

* Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

• regulatory authorities may withdraw approvals of such product;

• regulatory authorities may require additional warnings on the label;

• we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

• we could be sued and held liable for harm caused to patients; and

• our reputation may suffer.

For example, in February 2020 the FDA issued a drug safety communication announcing that it requested Eisai voluntarily withdraw lorcaserin (previously marketed in the United States as BELVIQ and BELVIQ XR) from the U.S. market based on the

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FDA’s analysis of data from a study completed by Eisai and a change in the FDA’s risk-benefit assessment of BELVIQ. Eisai agreed to voluntarily withdraw lorcaserin products from the U.S. market, as requested by the FDA, and from certain foreign markets.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

Drug discovery and development is intensely competitive in the therapeutic areas on which we focus. If the number of our competitors increase or they develop treatments that are approved faster, marketed better, less expensive or demonstrated to be more effective or safer than our drugs or drug candidates, our commercial opportunities will be reduced or eliminated.

Many of the drugs we or our collaborators are attempting or may attempt to discover and develop may compete with existing therapies in the United States and other territories. In addition, many companies are pursuing the development of new drugs that target the same diseases and conditions that we target. For example, with regard to etrasimod, there are other drugs that have a similar mechanism of action that entered Phase 3 clinical development before etrasimod for the same indications that we are pursuing, such as ulcerative colitis.

Our competitors, particularly large pharmaceutical companies, may have substantially greater research, development and marketing and sales capabilities and greater financial, scientific and human resources than we do. Companies that complete clinical trials, obtain required regulatory agency approvals and commence commercial sale of their drugs before we do for the same indication may achieve a significant competitive advantage, including certain patent and marketing exclusivity rights. In addition, our competitors’ drugs may have fewer side effects, more desirable characteristics (such as efficacy, route of administration or frequency of dosing), or be viewed more favorably by patients, healthcare providers, healthcare payers, the medical community, the media or others than our drug candidates or drugs, if any, for the same indication. Our competitors may also market generic or other drugs that compete with our drugs at a lower price than our drugs, which may negatively impact our drug sales, if any. Any results from our research and development efforts, or from our joint efforts with our existing or any future collaborators, may not compete successfully with existing or newly discovered products or therapies.

Our revenues in the future will be substantially dependent on the success of our or our collaborators’ and licensees’ marketing of drugs we have discovered or developed. To the extent such drugs are not commercially successful, our business, financial condition and results of operations may be materially adversely affected, and the price of our common stock may decline.

We believe our revenues will be substantially dependent on the success of the drugs we or our collaborators and licensees successfully develop. We do not know whether or when such drug candidates will be approved by regulatory authorities for sale or commercialized. Even if approved and commercialization begins, we do not know if such commercialization will be successful or otherwise meet our, your, analysts’ or others’ expectations, and the market price of our common stock could decline significantly. For example, sales of lorcaserin to date have been less than we and others initially anticipated, and, in February 2020, Eisai (as well as its distributor in South Korea) determined to withdraw lorcaserin (previously marketed in the United States as BELVIQ and BELVIQ XR) from the market based on concerns raised by the FDA.

We cannot guarantee future product sales or achievement of milestones under our collaborations and license agreements. For example, our license agreement with United Therapeutics for ralinepag does not contain a covenant obligating United Therapeutics to use any particular efforts to develop or commercialize any product, and we may never receive any milestone or royalty payments under this license agreement. In addition, our collaboration and license agreements, may be terminated in certain circumstances, which may result in us not receiving additional milestone or other payments under the terminated agreement.

The degree of market acceptance and commercial success of a drug will depend on a number of factors, including the following, as well as risks identified in other risk factors:

• the number of patients treated with the drug and their results;

• market acceptance and use of the drug, which may depend on the public’s awareness and view of the drug, economic changes, national and world events, potentially seasonal and other fluctuations in demand, the timing and impact of current or new competition, and the drug’s perceived advantages or disadvantages over alternative treatments (including relative convenience, ease of administration, and prevalence and severity of any adverse events, including any unexpected adverse events);

• the actual and perceived safety and efficacy of the drug on both a short- and long-term basis among actual or potential patients, healthcare providers and others in the medical community, regulatory agencies and insurers and other payers, including related decisions by any such entity or individual;

• incidence and severity of any side effects, including as a result of off-label use or in combination with one or more drugs;

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• new data relating to the drug, including as a result of additional studies, trials or analyses of the drug or related drugs or drug candidates, whether conducted by us or by others;

• physicians’ awareness of the drug, and the willingness of physicians to prescribe and of patients to use the drug;

• the claims, limitations, warnings and other information in the drug’s current or future labeling;

• any current or future scheduling designation for the drug by the U.S. Drug Enforcement Administration, or DEA, or any comparable foreign authorities;

• our or our collaborators’ maintenance of an effective sales force, marketing team, strategy and program, and medical affairs group and related functions, as well as its sales, marketing and other representatives accurately describing the drug consistent with its approved labeling;

• the price and perceived cost-effectiveness of the drug, including as compared to possible alternatives;

• the ability of patients and physicians and other providers to obtain and maintain coverage and adequate reimbursement, if any, by third-party payers, including government payers;

• the ability and desire of group purchasing organizations, or GPOs, including distributors and other network providers, to sell the drug to their constituencies;

• introduction of counterfeit or unauthorized versions of the drug;

• to the extent the drug is approved and marketed in a jurisdiction with a significantly lower price than in another jurisdiction, the impact of the lower pricing in the higher-priced territory, including on the pricing of reimbursement, if available, and by the diversion of lower-priced of the drug into the higher-priced territory; and

• the availability of adequate commercial manufacturing and supply chain for the drug.

* Our drugs may not be commercially successful if not widely covered and adequately reimbursed by third-party payers, and we may depend on others to obtain and maintain third-party payer access; inadequate third-party coverage and reimbursement could make entering into agreements with pharmaceutical companies to collaborate or commercialize our drugs more difficult and diminish our revenues.

Our and our collaborators’ and licensee’s ability to successfully commercialize any of our drugs that have been or may be approved will depend, in part, on government regulation and the availability of coverage and adequate reimbursement from third-party payers, including private health insurers and government payers, such as the Medicaid and Medicare programs, increases in government-run, single-payer health insurance plans and compulsory licenses of drugs. We expect government and third-party payers will continue their efforts to contain healthcare costs by limiting coverage and reimbursement levels for new drugs. In addition, many countries outside of the U.S. have nationalized healthcare systems in which the government pays for all such products and services and must approve product pricing, and some U.S. politicians advocate for implementation of a comparable system in the United States. A government or third-party payer decision not to approve pricing, or provide adequate coverage and reimbursements, for our drugs, if any, could limit market acceptance of and demand for our drugs.

It is increasingly difficult to obtain coverage and adequate reimbursement levels from third-party payers, and significant uncertainty exists as to the coverage and reimbursement of newly approved prescription drug products. We or our collaborators also face competition in negotiating for coverage from pharmaceutical companies and others with competitive drugs or other treatment, and these competitors may have significantly more negotiating leverage or success with respect to individual payers than we or our collaborators may have.

Federal and state healthcare reform measures that have been or may be implemented in the future, may result in more rigorous coverage criteria, more limited coverage and downward pressure on the price that we may receive for any approved product, which could seriously decrease our future revenues. The Patient Protection and Affordable Care Act, as amended, or the ACA, which was enacted in 2010, is one such healthcare reform measure that has made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. In the years since its enactment, there have been, and continue to be, significant developments in, and continued legislative, executive, and judicial activity around, attempts to repeal, replace, or modify the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act of 2017, or TCJA, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also

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eliminates the health insurer tax. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. In December 2018, the United States Department of Health and Human Services’ Centers for Medicare & Medicaid Services, or CMS, published a new final rule permitting further collections and payments to and from certain ACA qualified health plans, or QHPs, and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On April 27, 2020, the United States Supreme Court reversed a Federal Circuit decision that previously upheld Congress’s denial of $12 billion in "risk corridor" funding. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the TCJA. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall of 2020. It is unclear how this litigation and other efforts to repeal and replace the ACA will impact the ACA and our business and operations.

Further, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Moreover, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority. While some measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. It is possible that additional governmental action is taken to address the COVID-19 pandemic. For example, the CARES Act suspended the 2% Medicare rate reduction sequester from May 1, 2020 through December 31, 2020, and extended the sequester by one year, through 2030. Further, on April 18, 2020, CMS announced that qualified health plan issuers under the ACA may suspend activities related to the collection and reporting of quality data that would have otherwise been reported between May and June 2020 given the challenges healthcare providers are facing responding to COVID-19.

In addition, there has been heightened scrutiny in the United States and other countries of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. In the United States, such scrutiny has resulted in congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of additional cost containment measures or other healthcare reforms may also limit our commercial opportunities by reducing the amount a potential collaborator or licensee is willing to pay to license our programs or drug candidates in the future, which may prevent us from being able to establish and maintain collaborations and license agreements, generate revenue, attain profitability, or commercialize our products.

Forecasting potential sales for drugs will be difficult, and if our projections are inaccurate, our business may be harmed and our stock price may be adversely affected.

Our business planning requires us to forecast or make assumptions regarding demand and revenues for our drugs if they are approved despite numerous uncertainties. These uncertainties may be increased if we rely on our collaborators to conduct commercial activities and provide us with accurate and timely information. Actual results may deviate materially from projected results for various reasons, including the following, as well as risks identified in other risk factors:

• the rate of adoption in the particular market, including fluctuations in demand for various reasons, such as fluctuations related to economic changes, national and world events, holidays and seasonal changes;

• pricing (including discounting or other promotions), reimbursement, product returns or recalls, competition, labeling, DEA scheduling, adverse events and other items that impact commercialization;

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• lack of patient and physician familiarity with the drug;

• lack of patient use and physician prescribing history;

• lack of commercialization experience with the drug;

• actual sales to patients may significantly differ from expectations based on sales to wholesalers;

• uncertainty relating to when the drug may become commercially available to patients and rate of adoption in other territories; and

• other changes in regulatory or commercial conditions.

Revenues from drug sales may be based in part on estimates, judgment and accounting policies, and incorrect estimates or regulators’ or others’ disagreement regarding such estimates or accounting policies may result in changes to guidance, projections or previously reported results. Expected and actual product sales and quarterly and other results may greatly fluctuate, and such fluctuations can adversely affect the market price of our common stock, perceptions of our ability to forecast demand and revenues, and our ability to maintain and fund our operations.

Our efforts will be seriously jeopardized if we are unable to attract and retain key and other employees.

Our success depends on the continued contributions of our principal management, development and scientific personnel, and the ability to hire and retain key and other personnel. We face competition for such personnel, and we believe that risks and uncertainties related to our business may impact our ability to hire and retain key and other personnel. If we do not recruit and retain effective management and other key employees, particularly our executive officers, our operations, our ability to generate or raise additional capital, and our business in general, may be adversely impacted. For example, to execute our clinical programs, our strategy is to maintain a sufficient and robust program management function with clinical expertise. We are in the process of modifying and building this function, and we may not be able to establish the function we believe necessary to support our clinical goals and meet our corporate objectives.

* We are expanding our organization and may experience difficulties in managing this growth, which could disrupt our operations.

Although we are currently limiting our recruiting and hiring activities to key positions as a result of the ongoing COVID-19 pandemic, as part of our long-term business plan, we are seeking to expand our employee base to increase our managerial, scientific, operational, manufacturing supply, commercial, financial and other resources and to hire more consultants and contractors, including in and outside of headquarters in San Diego, California. For example, in addition to our headquarters in San Diego, we currently have operations in Boston, Massachusetts and Zug, Switzerland. Future growth will impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. Moreover, if our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to develop and then commercialize any approved products and compete effectively will depend, in part, on our ability to effectively manage any future growth.

* Data generated or analyzed with respect to product use in the market or required postmarketing or other studies or trials may result in decreased demand, lower sales, product recall, regulatory action or litigation.

An NDA holder (or the equivalent outside the United States) is responsible for assessing and monitoring the safety of a drug that has been approved for marketing, including reviewing reports of adverse safety events. In addition, NDA holders often conduct additional studies or trials or analyze new or previous data related to an approved drug, including with respect to required postmarketing studies and in connection with seeking additional regulatory approvals in new territories.

Any new data generated, including from adverse event reports or required postmarketing, registration or other studies or trials, may result in label changes, adversely affect sales or development, result in withdrawal of the drug from the market, or result in litigation. In addition, analyses of previous data can have similar risks. Regulatory agencies may consider the new data or analyses in reviewing marketing applications for drug candidates in their territories or impose post-approval requirements that require significant

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additional expenditures. For example, in February 2020, the FDA requested that Eisai withdraw lorcaserin (previously marketed in the United States as BELVIQ and BELVIQ XR) from the U.S. market based on the FDA’s analysis of data from a study completed by Eisai and a change in the FDA’s risk-benefit assessment of BELVIQ, and regulators in other countries have taken similar steps. Eisai agreed to voluntarily withdraw lorcaserin products from the U.S. market, as requested by the FDA, and from certain foreign markets. Following these events, lawsuits relating to lorcaserin against us and others have been filed in the United States and abroad.

The discovery of significant problems with a product or class of products similar to any approved drug could have an adverse effect on our or our collaborator’s or licensee’s commercialization.

If we license or otherwise partner our drugs, our failure to maintain such agreements or poor performance or results under such agreements could negatively impact our business.

Our collaborators and licensees may have primary responsibility for the regulatory approval, marketing and distribution, and, in certain circumstances, development, of our drug candidate(s) in the territory or territories under the applicable collaboration. We may have limited or no control over our collaborator’s decisions, including the amount and timing of resources that any of these collaborators will dedicate to such activities. This is the case for our ralinepag exclusive license agreement with United Therapeutics and our lorcaserin Transaction Agreement with Eisai.

When we enter collaboration and license agreements, we are subject to a number of other risks, including:

• our collaborators and licensees may not comply with applicable laws or regulatory guidelines, which could adversely impact the development or commercialization of the drug candidate;

• there could be disagreements regarding the agreements or the study or development that delay or terminate the commercialization, research, study or development, delay or eliminate potential payments under the agreements or increase our costs under or outside of the agreements;

• our collaborators and licensees may not effectively allocate adequate resources, may have limited experience in a particular territory, or may generate unfavorable data or results; and

• our collaborators and licensees may not perform as expected, including with regard to making any required payments, and the agreements may not provide adequate protection or may not be effectively enforced.

We or our collaborators or licensees might terminate our agreements in certain circumstances or amend the terms of our agreement, and investors and analysts may not view any termination or amendment as favorable.

* We rely on other companies, including third-party manufacturers and sole-source suppliers, to manufacture all our drugs and drug candidates, and we or such other companies may encounter failures or difficulties or not receive or provide adequate supply, which could adversely affect development or commercialization.

We do not own or operate manufacturing facilities that can produce active pharmaceutical ingredient, or API, intermediates and other material required to make our drug candidates. Instead, we rely on other companies to supply API, intermediates and other materials. Certain of these materials are available from only one or a small number of suppliers, and using a new supplier, if available, could result in substantial delay and greater cost. Our and our manufacturers’ dependence on single or limited sources of materials may adversely affect our ability to develop and deliver drug products on a timely and competitive basis, or at all.

Any performance failure on the part of us or a third-party manufacturer could result in a product recall or seizure, delay or otherwise adversely affect sales of an approved product or the clinical development or regulatory approval of one or more of our other drug candidates. We or third-party manufacturers may encounter difficulties involving production yields, regulatory compliance, lot release, quality control and quality assurance, as well as shortages of qualified personnel.

The ability to adequately and timely manufacture and supply drug product is dependent on the uninterrupted and efficient operation of the manufacturing facilities, which is impacted by many manufacturing variables, including:

• availability or contamination of raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier;

• ability to accommodate changes in dosage or formulation;

• capacity of our facilities or those of our contract manufacturers;

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• having the ability to adjust to changes in actual or anticipated use of the facility, including with respect to having sufficient capacity and a sufficient number of qualified personnel;

• facility contamination by microorganisms or viruses or cross contamination;

• compliance with regulatory requirements, including inspectional notices of violation and warning letters;

• maintenance and renewal of any required licenses or certifications;

• changes in actual or forecasted demand;

• timing and number of production runs;

• production success rates and bulk drug yields; and

• timing and outcome of product quality testing.

In addition, we or our third-party manufacturers may encounter delays and problems in manufacturing our drug candidates or drugs for a variety of reasons, including accidents during operation, failure of equipment, delays in receiving materials, natural or other disasters, health epidemics (including COVID-19), political or governmental unrest or changes, social unrest, intentional misconduct or other factors inherent in operating complex manufacturing facilities. Commercially available starting materials, reagents and excipients may be or become scarce or more expensive to procure, and we may not be able to obtain favorable terms in agreements with subcontractors. We or our third-party manufacturers may not be able to operate our respective manufacturing facilities in a cost-effective manner or in a time frame that is consistent with our expected future manufacturing needs. If we or our third-party manufacturers cease or interrupt production or if our third-party manufacturers and other service providers fail to supply materials, products or services to us for any reason, such interruption could delay progress on our programs, or interrupt the commercial supply, with the potential for additional costs and lost revenues. If this were to occur, we may also need to seek alternative means to fulfill our manufacturing needs.

We may not be able to enter into or maintain agreements with manufacturers whose facilities and procedures comply with applicable law. Manufacturers are subject to ongoing periodic inspection (which may be unannounced) by the FDA, the DEA, corresponding state and foreign authorities and other regulatory authorities to ensure strict compliance with Current Good Manufacturing Practices, or cGMPs, regulations and other applicable government regulations and corresponding foreign standards. We do not have control over a third-party manufacturer’s compliance with these regulations and standards. If we or one of our manufacturers or other company in the supply chain fail to maintain compliance or otherwise experience setbacks, we or they could be subject to civil or criminal penalties, the production of one or more of our drug candidates or any approved products could be interrupted or suspended, or our product could be recalled or withdrawn, resulting in delays, additional costs and potentially lost revenues.

Our drug candidates are subject to extensive regulation, and we may not receive required regulatory approvals, or timely approvals, for any of our drug candidates.

Preclinical and clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, marketing and distribution, and other activities relating to developing and manufacturing drugs are subject to extensive regulation by the FDA and other regulatory agencies. We and others we contract with are subject to periodic inspections (which may be unannounced) by the FDA, the DEA and other regulatory agencies. Failure to comply with applicable regulatory requirements may, either before or after product approval, subject us to administrative or judicially imposed sanctions that may negatively impact research and development or commercialization, or otherwise negatively impact our business. Regulatory agencies have in the past inspected certain aspects of our business, and we were provided with observations of objectionable conditions or practices with respect to our business. There is no assurance that regulatory agencies will not provide us with observations in future inspections or that we satisfactorily addressed observations provided to us in past inspections.

Regulatory approval of a drug candidate is not guaranteed, and our business and reputation may be harmed by any failure or significant delay in receiving regulatory approval. The number and types of preclinical studies and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to target and the regulations applicable to any particular drug candidate. Despite the time and expense exerted in preclinical and clinical studies, failure can occur at any stage, and we could encounter problems that cause us to abandon clinical trials or to repeat or perform additional preclinical studies and clinical trials.

We cannot predict when or whether, or assure you that, our collaborators’ or our past or any future regulatory submissions or responses will be sufficient to the applicable regulatory authority or others, that the applicable regulatory authority or others will consider data or our analyses, interpretations or procedures related to any of our drug candidates as sufficient or persuasive, or that any regulatory authority will ever approve any of our drug candidates in the future.

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To market any drugs outside of the United States, we and our current or future collaborators must comply with numerous and varying regulatory requirements of other countries. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks associated with FDA approval as well as additional risks, some of which may be unanticipated. Approval by the FDA or any other regulatory authority does not assure or predict with any certainty that any other regulatory authority will approve the drug.

In addition, existing regulatory policies and laws may change. We cannot predict the likelihood, nature or extent of new government regulation, either in the United States or in other countries, or the impact on our drug candidates or drugs. For example, new FDA regulation could delay or prevent marketing approvals, increase the cost of research and development, and result in narrower product labeling and expensive post-marketing requirements.

Fast Track, Breakthrough Therapy, Accelerated Approval, Priority Review, or similar designations by the FDA or other applicable regulatory agencies may not lead to a faster development or review process.

The FDA may grant Fast Track, Breakthrough Therapy, Accelerated Approval, Priority Review, or other designation to product candidates that meet applicable guidelines in order to speed the availability of certain drugs. Other applicable regulatory agencies may grant similar designations. These designations may apply only to the combination of a product candidate and a specific indication or patient population. Product candidates that receive these designations may not actually receive faster clinical development or regulatory review or approval any sooner than other product candidates that do not have such designation, or at all. Furthermore, a product’s receipt of such a designation does not increase the likelihood that the product candidate will receive marketing approval. The FDA or other regulatory agency may also withdraw a designation if it determines that the product candidate no longer meets the relevant criteria.

For example, the FDA has granted Fast Track designation for APD418 for treatment of decompensated heart failure, or DHF, in patients who have heart failure with reduced ejection fraction, or HFrEF. Despite receiving Fast Track designation, such designation may be withdrawn in the future, and in any event APD418 may not actually receive faster clinical development or regulatory review or approval any sooner than other product candidates that do not have such designation, or at all.

Our activities and drugs will still be subject to extensive postmarketing regulation if approved.

Following regulatory approval of any of our drug candidates, we and our collaborators will be subject to ongoing obligations and continued regulatory review from the FDA and other applicable regulatory agencies, such as continued adverse event reporting requirements. There may also be additional postmarketing obligations imposed by the FDA or other regulatory agencies. These obligations may result in significant expense and limit the ability to commercialize such drugs.

The FDA or other regulatory agencies may also require that the sponsor of the NDA or foreign equivalent, as applicable, conduct additional clinical trials to further assess approved drugs after approval under a post-approval commitment. Such additional studies may be costly and may impact the commercialization of the drug. Unfavorable trial results from postmarketing studies could negatively impact market acceptance of the drug, limit the revenues we generate from sales, result in the drug’s withdrawal from the market, negatively impact the potential approval of the drug in other territories and result in litigation.

The FDA or other regulatory agencies may also impose significant restrictions on the indicated uses for which a drug may be marketed. Additionally, the FDA may require a Risk Evaluation and Mitigation Strategies, or REMS, study, including in connection with a drug’s approval, to help ensure that the benefits of the drug outweigh its risks. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate healthcare providers of the drug’s risks, limitations on who may prescribe or dispense the drug, requirements that patients enroll in a registry or undergo certain health evaluations or other measures that the FDA deems necessary to ensure the safe use of the drug.

With regard to any of drug that receives regulatory approval, the labeling, packaging, adverse event reporting, storage, advertising and promotion for the drug will be subject to extensive regulatory requirements. We and the manufacturers of our products are also required to comply with cGMP regulations, which include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture our products, and these facilities are subject to ongoing regulatory inspections. In addition, regulatory agencies subject a drug, its manufacturer and the manufacturer’s facilities to continual review and inspections. The subsequent discovery of previously unknown problems with a drug, including adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured, may result in restrictions on the marketing of that drug, up to and including withdrawal of the drug from the market. In the United States, the DEA and comparable state-level agencies also heavily

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regulate the manufacturing, holding, processing, security, recordkeeping and distribution of drugs that are considered controlled substances, and the DEA periodically inspects facilities for compliance with its rules and regulations.

Our ability to generate revenues from any of our drugs that receive regulatory approval will be subject to a variety of risks, many of which are out of our control.

Any drug that may be approved for marketing may not gain market acceptance among patients, healthcare providers, healthcare payers or the medical community. We believe that the degree of market acceptance and our ability to generate revenues from such products will depend on a number of factors, including:

• timing of market introduction of our drugs and competitive drugs and alternative treatments;

• physician and patient awareness of our drugs;

• actual and perceived efficacy and safety of our drugs;

• incidence and severity of any side effects;

• potential or perceived advantages or disadvantages as compared to alternative treatments;

• effectiveness of sales, marketing and distribution support;

• price of our future products, both in absolute terms and relative to alternative treatments;

• the general marketplace for the particular drug;

• the effect of current and future healthcare laws on our drug candidates;

• availability of coverage and adequate reimbursement from government and other third-party payers; and

• product labeling or product insert requirements of the FDA or other regulatory authorities.

If our approved drugs fail to achieve market acceptance, we may not be able to generate significant revenues to be profitable.

Collaboration and license agreement relationships may lead to disputes, divert management’s attention, expose us to liability and delay drug development and commercialization, and we may not realize the full commercial potential of our drug candidates or drugs.

We may have conflicts with our prospective, current or past collaborators or licensees, such as conflicts concerning rights and obligations under our agreements (including, for example, relating to indemnification for product liability claims and losses), the interpretation of preclinical or clinical data, the achievement of milestone or other payments, the ownership of intellectual property, or research and development, regulatory, commercialization, litigation or other strategy. Collaborators or licensees may stop supporting our drug candidates or drugs, including if they no longer view the program as in their best financial or other interests or they develop or obtain rights to competing drug candidates or drugs. In addition, collaborators or licensees may fail to effectively develop, obtain approval for or commercialize our drugs, which may result in us not realizing their full commercial potential. If any conflicts arise with any of our current, past or prospective collaborators or licensees, the other party may act in a manner that is adverse to our interests. Any such disagreement could result in one or more of the following, each of which could delay, or lead to termination of, development or commercialization of our drug candidates or drugs, and in turn prevent us from generating revenues or cause us to incur liabilities:

• unwillingness or inability on the part of a collaborator or licensee to pay for studies or other research, milestones, royalties or other payments that we believe are due to us under a collaboration;

• uncertainty regarding ownership of intellectual property rights arising from our collaboration or license agreement activities, which could prevent us from entering into additional collaborations;

• unwillingness on the part of a collaborator or licensee to keep us informed regarding the progress of its development, regulatory, commercialization, pharmacovigilance or other activities or to permit public disclosure of the results of those activities;

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• slowing or cessation of a collaborator’s or licensee’s research, development, regulatory or commercialization efforts with respect to our drug candidates or drugs; or

• litigation or arbitration with our collaborator or licensee, or with third parties (including relating to product liability, intellectual property or other subject matters).

Setbacks and consolidation in the pharmaceutical and biotechnology industries could make entering into agreements with pharmaceutical companies to collaborate or commercialize our drugs more difficult and diminish our revenues.

Setbacks in the pharmaceutical and biotechnology industries, such as those caused by safety concerns relating to drugs or drug candidates, as well as competition from generic drugs, litigation and industry consolidation, may have an adverse effect on us, including by making it more difficult to enter into agreements with pharmaceutical companies to collaborate or commercialize our drugs and diminishing our revenues. For example, the FDA may be more cautious in approving our drug candidates based on safety concerns relating to these or other drugs or drug candidates, or pharmaceutical companies may be less willing to enter into new collaborations or continue existing collaborations if they are integrating a new operation as a result of a merger or acquisition or if their therapeutic areas of focus change following a merger.

We and our collaborators rely on third parties to conduct clinical trials and preclinical studies. If those parties do not comply with regulatory and contractual requirements, successfully carry out their contractual obligations or meet expected deadlines, our drug candidates may not advance in a timely manner or at all.

In the course of our discovery, preclinical testing and clinical trials, we and our collaborators rely on third parties, including investigators, clinical research organizations, manufacturers and laboratories, to perform critical services. For example, we rely on third parties to conduct our clinical trials and many of our preclinical studies. Clinical research organizations are responsible for many aspects of the trials, including finding and enrolling subjects for testing and administering the trials. Although we rely on these third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, commonly referred to as Good Clinical Practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. Our reliance on third parties does not relieve us of these responsibilities and requirements. These third parties may not be available when we need them or, if they are available, may not comply with all legal, regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner, and we may need to enter into new arrangements with alternative third parties and our preclinical studies or clinical trials may be extended, delayed or terminated. These independent third parties may also have relationships with other commercial entities, some of which may compete with us. In addition, if such third parties fail to perform their obligations in compliance with legal and regulatory requirements and our protocols, our preclinical studies or clinical trials may not meet regulatory requirements or may need to be repeated. As a result of our dependence on third parties, we may face delays or failures outside of our direct control. These risks also apply to the development activities of collaborators, and we do not control their research and development, clinical trial or regulatory activities.

We may participate in new strategic transactions that could impact our liquidity, increase our expenses, present significant distractions to our management and be viewed as unfavorable.

From time to time we consider strategic transactions, such as out-licensing or in-licensing of compounds or technologies, acquisitions of companies, asset purchases and spin-offs. Additional potential transactions we may consider include a variety of different business arrangements, such as strategic collaborations, joint ventures, restructurings, divestitures, business combinations and investments. In addition, another entity may pursue us as an acquisition target. Any such transaction may be viewed as unfavorable by our stockholders or others and may require us to incur non-recurring or other charges, may create potential liabilities, may increase our near- and long-term expenditures and may pose significant integration challenges, require additional expertise or disrupt our management or business, which could harm our operations and financial results.

When we evaluate significant proposed transactions we conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we ultimately may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the intended advantages of the transaction. If we fail to realize the expected benefits from any transaction we may consummate, whether as a result of unidentified risks, integration difficulties, regulatory setbacks or other events, our business, results of operations and financial condition could be adversely affected.

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* We may incur substantial liabilities for any product liability claims or otherwise as a drug product developer.

We develop, test, manufacture and expect to commercialize drugs for use by humans. We face an inherent risk of product liability exposure related to the testing of our drug candidates in clinical trials, and a risk with the commercialization of lorcaserin (previously marketed in the United States as BELVIQ and BELVIQ XR) as well as any other drug that may be approved for marketing.

Whether or not we are ultimately successful in any product liability or related litigation, such litigation would consume substantial amounts of our financial and managerial resources, and might result in adverse publicity, all of which would impair our business. In addition, damages awarded in a product liability action could be substantial and could have a negative impact on our financial condition.

An individual may bring a liability claim against us if one of our drugs or drug candidates causes, or merely appears to have caused, an injury. Regardless of merit or eventual outcome, liability claims may result in:

• decreased demand for our drug;

• injury to our reputation;

• increased difficulty to attract, or withdrawal of, clinical trial subjects;

• costs of related litigation;

• substantial monetary awards to subjects or other claimants;

• loss of revenues; and

• the inability to commercialize our drug candidates.

We have limited product liability insurance that covers our clinical trials and products, as well as indemnification protection in certain of our collaboration or license agreements. We may not be able to maintain or obtain insurance coverage at a reasonable cost, we may not have insurance coverage that will be adequate to satisfy any liability that may arise, and our collaborators or licensees may not indemnify us, which could have an adverse effect on our results of operations and financial condition.

For example, in December 2016, we granted Eisai an exclusive, royalty-bearing license, or transferred intellectual property, to develop, manufacture and commercialize lorcaserin in all countries and territories of the world. Our subsidiary Arena Pharmaceuticals GmbH in Liquidation (“Arena GmbH”) previously manufactured BELVIQ, as well as other products for commercialization or clinical trials, up until the sale of our manufacturing business to Siegfried effective March 31, 2018. Under our agreements with Eisai, we and Eisai will each bear 50% of losses arising from any alleged defective manufacturing of BELVIQ by Arena GmbH prior to the date of the sale to Siegfried, and Eisai will be solely responsible for any expenses and losses associated with other product liability claims. In February 2020, the FDA requested that Eisai withdraw lorcaserin (previously marketed in the United States as BELVIQ and BELVIQ XR) from the U.S. market based on the FDA’s analysis of data from a study completed by Eisai and a change in the FDA’s risk-benefit assessment of BELVIQ, and regulators in other countries have taken similar steps. Eisai agreed to voluntarily withdraw lorcaserin products from the U.S. market, as requested by the FDA, and from certain foreign markets. Following these events, lawsuits relating to lorcaserin against us and others have been filed in the United States and abroad. Any damages awarded in connection with lorcaserin litigation could be substantial and have a negative impact on our financial condition. Eisai or others could also take the position that some or all claims fall outside their indemnification obligations, or they could be unable to indemnify us, in connection with litigation or other claims, and seeking to enforce rights to indemnification could require significant financial resources and management attention. Even if we are fully indemnified or are successful in defending against all claims, such claims could still consume significant financial resources and management attention and result in adverse publicity, all of which could have a negative impact on our financial condition and our business.

We have significant contractual obligations that may adversely affect our cash flow, cash position and stock price.

We have long-term leases on real properties and other contractual obligations, and limited revenues. If we are unable to generate cash from operations in the future sufficient to meet our financial obligations we will need to obtain additional funds from other sources, and we may not be able to do so at all or on terms favorable to our stockholders or us.

Also, if we do not have sufficient cash in the future and are unable to generate cash from operations or obtain additional funds from other sources sufficient to meet our contractual obligations, we may have to delay or curtail some or all of our development and commercialization programs, sell or license some or all of our assets on terms that you or others may view as unfavorable, or default on obligations under our agreements.

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* We may be subject, directly or indirectly, to federal and state healthcare laws, including but not limited to fraud and abuse and false claims laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties and prosecution.

In the United States, drug manufacturers and marketers are subject to various state and federal fraud and abuse laws, including, without limitation, the Federal Anti-Kickback Statute and Federal False Claims Act. There are similar laws in other countries. These laws may impact, among other things, the research, manufacturing, sales, marketing and education programs for our drugs.

The Federal Anti-Kickback Statute prohibits persons and entities from knowingly and willingly soliciting, offering, receiving or providing any remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the purchase, lease, order or the furnishing or arranging for, a good, item, facility or service, for which payment may be made, in whole or in part, under a federal healthcare program such as the Medicare and Medicaid programs. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The Federal Anti-Kickback Statute is broad and, despite a series of narrow statutory exceptions and regulatory safe harbors, prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Moreover, the ACA, among other things, amended the intent requirement of the Federal Anti-Kickback Statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them. The ACA also provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal Civil False Claims Act. Many states have also adopted laws similar to the Federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.

The Federal Civil False Claims Act prohibits, among other things, persons or entities from knowingly presenting, or causing to be presented, a false claim to, or the knowing use of false statements to obtain payment from the federal government. Suits filed under the Federal Civil False Claims Act can be brought by any individual on behalf of the government, known as “qui tam” actions, and such individuals, commonly known as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The filing of qui tam actions has caused a number of pharmaceutical, medical device and other healthcare companies to have to defend a Federal Civil False Claims Act action. When an entity is determined to have violated the Federal Civil False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties for each separate false claim, in addition to other penalties that may apply. Various states have also enacted laws modeled after the Federal Civil False Claims Act, some of which are broader in scope and may apply regardless of payer.

The Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Additionally, the civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. 

The Federal Physician Payments Sunshine Act, created under the ACA, and its implementing regulations requires certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the U.S. Department of Health and Human Services, or HHS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

We may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, impose specified requirements on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their business associates that perform services involving the use or disclosure of individually identifiable health information relating to the privacy, security and transmission of individually identifiable health information. Further, we may also be subject to state health information privacy and data breach notification laws which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus requiring additional compliance efforts.

Additionally, the Drug Supply Chain Security Act imposes obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements, manufacturers will be required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product

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identifier, and keep certain records regarding the drug product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers will also be required to verify that purchasers of the manufacturers’ products are appropriately licensed. Further, manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

We are unable to predict whether we could be subject to actions under any of these fraud and abuse or other laws, or the impact of such actions. If we are found to be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, we may be subject to penalties, including significant civil, criminal and/or administrative penalties, damages, fines, individual imprisonment, disgorgement, possible exclusion from government healthcare reimbursement programs, integrity oversight and reporting obligations to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, all of which could have a material adverse effect on our business and results of operations.

We may not be able to effectively integrate, manage or maintain our international operations, and such difficulty could adversely affect our business operations, financial condition, results of operations and stock price.

We have certain clinical operations personnel in Switzerland, and we engage in clinical trials and manufacturing activities in many territories outside of the United States. There are significant risks associated with foreign operations, including, but not limited to, compliance with local laws and regulations, the protection of our intellectual property, the ability to integrate our corporate culture with local customs and cultures, the distraction to our management, foreign currency exchange rates and the impact of shifts in the United States and local economies on those rates, and integration of our policies and procedures, including disclosure controls and procedures and internal control over financial reporting, with our international operations.

With respect to local laws and regulations, the European Union, Switzerland and certain other foreign territories have restrictions on the transfer, use and maintenance of certain personal data, including providing that transfers of personal data outside of their territories may only take place if the country to which the personal data is transferred ensures an “adequate” level of privacy protection. The European Commission has previously found that the United States did not provide adequate levels of protection. In addition, the European Commission has approved a data protection regulation, known as the General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR contains provisions specifically directed at the processing of health information, higher sanctions and extra-territoriality measures intended to bring non-EU companies under the regulation. We conduct clinical trials in the EU, and in the future we may expand our business operations to include additional operations in the EU. With such expansion, we would be subject to increased governmental regulation, including the GDPR, in the EU countries in which we operate, including restrictions on data transfers that may negatively impact our ability and increase our costs to maintain international operations. Penalties for non-compliance with the GDPR are steep, with potential fines of up to 4% of our global revenue.

Additionally, the California Consumer Privacy Act, or CCPA, went into effect on January 1, 2020. The CCPA created new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. It requires covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personal information, and allow for a new cause of action for data breaches. The CCPA may impact our business activities and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protected health information.

Across the United States and globally, laws and regulations governing data privacy and security continue to develop and evolve. The data privacy and security laws and regulations to which we are subject will likely impact (possibly significantly) our business activities. Many of the laws and regulations that apply to us contain ambiguous provisions or impose requirements that differ from country to country, creating uncertainty. Compliance with the enhanced obligations imposed by such laws and regulations may require us to revise our business practices, allocate more resources to privacy and security, and implement new technologies. Such efforts may result in significant costs to our business.

Failure to comply with data privacy and security laws and regulations could result in regulatory penalties and significant legal liability and could have a material adverse impact on our financial results.

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We and third parties we contract with use hazardous materials in our operations.

Our activities involve the use of materials that could be hazardous to human health and safety or the environment. We cannot completely eliminate the risks associated with their use, storage or disposal, which could cause:

• interruption of our development or manufacturing efforts;

• injury to our employees and others;

• environmental damage resulting in costly clean up; and

• liabilities under domestic or foreign laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products.

In such an event, we may be held liable for any resulting damages, and any such liability could exceed our resources. Although we carry insurance in amounts and type that we consider commercially reasonable, we cannot be certain that the coverage or coverage limits of our insurance policies will be adequate, and we do not have insurance coverage for losses relating to an interruption of our research and development efforts caused by contamination.

* Our business, including our preclinical and clinical programs, may be significantly and adversely affected by the COVID-19 pandemic.

The outbreak of COVID-19, the disease caused by the novel strain of coronavirus first reported in Wuhan, China in December 2019, has spread to many countries, including the United States and Switzerland, where we have operations, and many other countries where we are conducting or plan to conduct clinical trials. COVID-19 is impacting domestic and worldwide economic activity, including global financial markets on which we rely for financing to fund our operations. The COVID-19 pandemic poses the risk that we or our clinical trial subjects, employees, contractors, collaborators and vendors may be prevented from conducting certain clinical trials or other business activities for an indefinite period of time, including due to “stay-at-home” orders or shutdowns that have been or may be requested or mandated by governmental authorities. Beginning the week of March 16, 2020, substantially all of our workforce began working from home either all or substantially all of the time. The effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course

The COVID-19 pandemic has impacted and may continue to impact our clinical programs, including our etrasimod, olorinab, and APD418 programs. For example, some clinical site activations and patient enrollment and screening rates have slowed. These changes, however, are highly variable and their aggregate impact remains uncertain. As a result, it is not possible at this time to estimate the impact COVID-19 could have on our clinical programs. If the COVID-19 pandemic continues to spread in the United States and around the world, we may experience, or continue to experience, disruptions that could severely impact our preclinical studies and clinical trials, including:

• delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

• delays or difficulties in enrolling or retaining patients in our clinical trials;

• delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

• delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;

• changes in local regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

• diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

• interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;

• risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;

• interruptions in preclinical studies due to restricted or limited operations at our research and development facilities;

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• delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

• limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

• refusal of the FDA or other regulatory authorities to accept data from clinical trials in affected geographies; and

• interruption or delays to our sourced discovery and clinical activities.

The COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, preclinical studies and clinical programs will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, stay-at-home orders, travel restrictions and “social distancing” in the United States, Switzerland and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

* Our business and operations might be disrupted or adversely affected by catastrophic events and security breaches, including any cybersecurity incidents.

Our U.S. operations are primarily located in a business park in San Diego. We also have certain operations in Boston, Massachusetts, and Zug, Switzerland. We depend on our facilities and on collaborators, licensees, contractors and vendors for the continued operation of our business, some of whom are located in Europe and Asia. As a result, natural disasters or other catastrophic events in various parts of the world, including interruptions in the supply of natural resources, political and governmental changes, disruption in transportation networks or delivery services, severe weather conditions, wildfires and other fires, explosions, actions of animal rights activists, terrorist attacks, earthquakes, wars and public health issues (including the COVID-19 pandemic) could disrupt our operations or those of our collaborators, contractors and vendors or contribute to unfavorable economic or other conditions that could adversely impact us.

In addition, we depend on the efficient and uninterrupted operation of our computer and communications systems, which we use for, among other things, sensitive company data, including our financial data, intellectual property and other proprietary business information.

While certain of our operations have business continuity and disaster recovery plans and other security measures intended to prevent and minimize the impact of IT-related interruptions, our IT infrastructure and the IT infrastructure of our current and any future collaborators, contractors and vendors are vulnerable to damage from cyberattacks, computer viruses, unauthorized access, electrical failures and natural disasters or other catastrophic events. We could experience failures in our information systems and computer servers, which could result in an interruption of our normal business operations and require substantial expenditure of financial and administrative resources to remedy. System failures, accidents or security breaches can cause interruptions in our operations and can result in a material disruption of our research and development programs and other business operations. The loss of data from completed or future studies or clinical trials could result in delays in our research, development or regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Similarly, we and our licensees rely on third parties to conduct studies and clinical trials of our drug candidates and manufacture our drug candidates, and similar events relating to these third parties’ computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the development of any of our other drug candidates and the commercialization of drugs could be delayed or otherwise adversely affected.

Even though we believe we carry commercially reasonable business interruption and liability insurance, and our contractors may carry liability insurance that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policies or for which we or our contractors do not have coverage. For example, we are not insured against a terrorist attack. Any natural disaster or catastrophic event could have a significant negative impact on our operations and financial results. Moreover, any such event could delay our research and development programs and adversely affect, which may include stopping, our commercial production.

* We and our employees and directors may be named as defendants in litigation that could result in substantial costs and divert management’s attention.

Securities class action litigation may be brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because companies in the pharmaceuticals industry often experience significant stock price volatility. For example, beginning in 2010, a number of lawsuits were filed against us and certain of our employees and directors alleging we and the other defendants violated the federal securities laws by making materially false and misleading statements regarding our lorcaserin trials, thereby artificially inflating the price of our common stock. These lawsuits were settled in 2018.

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In addition, in February 2020, the FDA issued a drug safety communication announcing that it requested Eisai voluntarily withdraw lorcaserin (previously marketed in the United States as BELVIQ and BELVIQ XR) from the U.S. market based on the FDA’s analysis of data from a study completed by Eisai and a change in the FDA’s risk-benefit assessment of BELVIQ. Eisai agreed to voluntarily withdraw BELVIQ products from the U.S. market as requested by the FDA, and from certain foreign markets. As a result of these events, we have been named in lawsuits filed in the United States and abroad relating to lorcaserin.

While we carry liability insurance, any losses we incur in connection with any future lawsuits may not be covered by insurance in an amount sufficient to cover our losses or at all, and our assets may be insufficient to cover any amounts that exceed our insurance coverage. We may have to pay damage awards or otherwise may enter into settlement arrangements in connection with any future claims. A settlement of any of future lawsuit against us could also involve the issuance of common stock or other equity, which may dilute your ownership interest. Any payments or settlement arrangements could have material adverse effects on our business, operating results, financial condition or your ownership interest. Even if the plaintiffs’ claims are not successful, any future lawsuit against us and/or our directors or executive officers could result in substantial costs and significantly and adversely impact our reputation and divert our management’s attention and resources, which could have a material adverse effect on our business, operating results or financial condition. In addition, any such lawsuits may make it more difficult to finance our operations, obtain certain types of insurance (including directors’ and officers’ liability insurance), and attract and retain qualified executive officers, other employees and directors.

* Negative U.S. and global economic conditions may pose challenges to our business strategy, which relies on funding from collaborators or the financial markets, and may create other financial risks for us.

While significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations and liquidity, and on the global economy as a whole, the COVID-19 pandemic has already had a significant adverse impact on domestic and global economies, as well as global financial markets. Negative conditions in the U.S. or global economy, including financial markets, may adversely affect our business and the business of our current and prospective collaborators, distributors and licensees, which we sometimes refer to generally as our collaborators, and others with which we do or may conduct business. The duration and severity of these conditions is uncertain. If negative economic conditions persist or worsen, we may be unable to secure funding to sustain our operations or to find suitable collaborators to advance our internal programs, even if we achieve positive results from our research and development or business development efforts. Such negative conditions could also impact commercialization of any drugs we and our collaborators and licensees develop, as well as our financial condition. From time to time, we may maintain a portfolio of investments in marketable debt securities, which are recorded at fair value. Although we have established investment guidelines relative to diversification and maturity with the objectives of maintaining safety of principal and liquidity, we rely on credit rating agencies to help evaluate the riskiness of investments, and such agencies may not accurately predict such risk. In addition, such agencies may reduce the credit quality of our individual holdings, which could adversely affect their value. Lower credit quality and other market events, such as changes in interest rates and deterioration in credit markets, may have an adverse effect on the fair value of our investment holdings and cash position.

Currency fluctuations may negatively affect our financial condition.

We primarily spend and generate cash in U.S. dollars and present our consolidated financial statements in U.S. dollars. However, a portion of our expected and potential payments and receipts, including relating to our Swiss operations and under certain of our agreements, are in foreign currencies. A fluctuation of the exchange rates of foreign currencies versus the U.S. dollar may, thus, adversely affect our financial results, including cash balances, expenses and revenues. We may in the future enter into hedging transactions to try to reduce our foreign currency exposure, but there is no assurance that such transactions will occur or be successful.

Laws, rules and regulations, including relating to public companies, may be costly and impact our ability to attract and retain directors and executive officers.

Laws and regulations affecting public companies, including rules adopted by the SEC and by Nasdaq, judicial rulings and other laws and regulations, including, for example, of state, federal and foreign governments and relating to privacy, may result in increased costs to us, particularly as we continue to develop the required capabilities in the United States and abroad to develop and commercialize our products. These laws, rules and regulations could make it more difficult or costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws, rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees or as executive officers. We cannot estimate accurately the amount or timing of additional costs we may incur to respond to these laws, rules and regulations.

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Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

The withdrawal of the United Kingdom, from the European Union, commonly referred to as “Brexit,” may adversely impact our ability to obtain regulatory approvals of our product candidates in the European Union, result in restrictions or imposition of taxes and duties for importing our product candidates into the European Union, and may require us to incur additional expenses in order to develop, manufacture and commercialize our product candidates in the European Union.

Following the result of a referendum in 2016, the United Kingdom left the European Union on January 31, 2020, commonly referred to as “Brexit.” Pursuant to the formal withdrawal arrangements agreed between the United Kingdom and the European Union, the United Kingdom will be subject to a transition period until December 31, 2020, or the Transition Period, during which EU rules will continue to apply. Negotiations between the United Kingdom and the European Union are expected to continue in relation to the customs and trading relationship between the United Kingdom and the European Union following the expiry of the Transition Period.

Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from EU directives and regulations, Brexit, following the Transition Period, could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom or the European Union. For example, as a result of the uncertainty surrounding Brexit, the EMA relocated to Amsterdam from London. Following the Transition Period, the United Kingdom will no longer be covered by the centralized procedures for obtaining EU-wide marketing authorization from the EMA and, unless a specific agreement is entered into, a separate process for authorization of drug products, including our product candidates, will be required in the United Kingdom, the potential process for which is currently unclear. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. In addition, we may be required to pay taxes or duties or be subjected to other hurdles in connection with the importation of our product candidates into the European Union, or we may incur expenses in establishing a manufacturing facility in the European Union in order to circumvent such hurdles. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom or the European Union for our product candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve profitability of our business. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may impose unexpected duty costs or other non-tariff barriers on us. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular, trade between the impacted nations and the United Kingdom.

Our disclosure controls and procedures and our internal control over financial reporting may not prevent potential errors and fraud.

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all potential errors and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, and no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, or misstatements due to error, if any, within the company have been detected. While we believe that our disclosure controls and procedures and internal control over financial reporting are and have been effective at the reasonable assurance level, we intend to continue to examine and refine our disclosure controls and procedures and internal control over financial reporting and to monitor ongoing developments in these areas.

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* Our ability to use net operating losses and certain other tax attributes to offset future taxable income or taxes may be limited.

As of December 31, 2019, we had federal and state net operating loss carryforwards of $933.2 million. Portions of our federal net operating loss carryforwards of $539.3 million will begin to expire, if not utilized, beginning in 2029, and our state net operating loss carryforwards of $393.9 million begin expiring in 2028. Our net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. In January 2019, a taxable income-generating event, the transaction pursuant to the United Therapeutics Agreement, resulted in it being more likely than not that a portion of our net operating loss carryforwards would be used to offset our estimates of taxable income in 2019. If the estimates we have made, or the assumptions on which we relied, in estimating our taxable income in 2019 prove inaccurate, our net operating loss carryforwards to be used to offset our taxable income in 2019 may vary from our estimates. Under the TCJA, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses in tax years beginning after December 31, 2020 is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to federal tax laws. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We have experienced ownership changes in the past and we may experience additional ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

* Current and future tax laws and regulation could adversely affect our business and financial condition.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of our domestic and foreign earnings. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, the TCJA significantly revised the Internal Revenue Code of 1986, as amended.  Future guidance from the Internal Revenue Service and other tax authorities with respect to the TCJA may affect us, and certain aspects of the TCJA could be repealed or modified in future legislation. For example, the CARES Act modified certain provisions of the TCJA. In addition, it is uncertain if and to what extent various states will conform to the TCJA, the CARES Act, or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the TCJA or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.

Changes or modifications in financial accounting standards, including those related to revenue recognition, may harm our results of operations.

From time to time, the Financial Accounting Standards Board, or FASB, either alone or jointly with other organizations, promulgates new accounting principles that could have an adverse impact on our financial position, results of operations or reported cash flows. Any difficulties in adopting or implementing any new accounting standard, or updating or modifying our internal controls as needed on a timely basis, could result in our failure to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. In addition, if we were to change our critical accounting estimates, including those related to the recognition of revenue, our operating results could be significantly affected.

Risks Relating to Our Intellectual Property

Our success is dependent on intellectual property rights held by us and third parties and our interest in these rights is complex and uncertain.

Our success will depend on our own and on current or future collaborators’ abilities to obtain, maintain and defend patents. In particular, the patents directed to our drug candidates and drugs are important to developing and commercializing drugs and to our revenue. We have numerous U.S. and foreign patents issued and patent applications pending for our technologies. There is no assurance that any of our patent applications will issue, or that any of the patents will be enforceable or will cover a drug or other commercially significant technology or method, or that the patents will be held to be valid for their expected terms.

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The procedures for obtaining a patent are complex. These procedures require an analysis of the scientific technology related to the invention and many sophisticated legal issues. Obtaining patent rights outside the United States often requires the translation of highly technical documents and an improper translation may jeopardize our patent protection. Ensuring adequate quality of translators and foreign patent attorneys is often very challenging. Consequently, the process for having our pending patent applications issue as patents will be difficult, complex, time consuming and expensive. Our patent position is very uncertain and we do not know when, or if, we will obtain additional patents, or if the scope of the patents obtained will be sufficient to protect our drugs, or be considered sufficient by parties reviewing our patent positions pursuant to a potential marketing, licensing or financing transaction.

In addition, other entities may challenge the validity or enforceability of our patents in litigation or administrative proceedings. We cannot make assurances as to how much protection, if any, our patents will provide if we attempt to enforce them or they are challenged. It is possible that a competitor or a generic pharmaceutical provider may successfully challenge our patents and those challenges may result in reduction or elimination of our patent coverage.

We also rely on confidentiality agreements and trade secrets to protect our technologies. However, such information is difficult to protect. We require our employees to contractually agree not to improperly use our confidential information or disclose it to others, but we may be unable to determine if our employees have conformed or will conform to their legal obligations under these agreements. We also enter into confidentiality agreements with prospective collaborators, collaborators, service providers and consultants, but we may not be able to adequately protect our trade secrets or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others of this information. Many of our employees and consultants were, and many of them may currently be, parties to confidentiality agreements with other pharmaceutical and biotechnology companies, and the use of our technologies could violate these agreements. In addition, third parties may independently discover our trade secrets or other proprietary information.

Some of our research and development collaborators and scientific consultants have rights to publish data and information to which we have rights. We generally seek to prevent our collaborators and consultants from disclosing scientific discoveries before we have the opportunity to file patent applications on such discoveries. In some of our collaborations, we do not control our collaborators’ ability to disclose their own discoveries under the collaboration and in some of our academic relationships we are limited to relatively short periods to review a proposed publication and file a patent application. If we cannot maintain confidentiality in connection with our collaborations and relationships, our ability to receive patent protection or protect our proprietary information will be impaired.

We believe that the United States is by far the largest single market for pharmaceuticals in the world. Because of the critical nature of patent rights to our industry, changes in U.S. patent laws could have a profound effect on our future profits, if any. It is unknown which, if any, patent laws will change, how changes to the patent laws will ultimately be enforced by the courts and how it would impact our business.

A dispute regarding the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be costly and result in delays or termination of our future research, development, manufacturing and sales activities.

Our commercial success depends upon our ability to develop and manufacture our drugs and drug candidates, market and sell drugs, and conduct our research and development activities without infringing or misappropriating the proprietary rights of others. There are many issued patents and pending patent applications owned by others relating to research and development programs that could be determined to be similar, identical or superior to ours or our licensors or collaborators. We may be exposed to future litigation by others based on claims that our drugs, drug candidates, technologies or activities infringe the intellectual property rights of others. Numerous issued patents and pending patent applications owned by others exist in the areas of our research and development, including some which purport to allow the patent holder to control the use of all drugs that modulate a particular drug target regardless of whether the infringing drug bears any structural resemblance to a chemical compound known to the patent holder at the time of patent filing. Numerous issued patents and pending patent applications owned by others also exist in the therapeutic areas in which we are developing drugs. There are also numerous issued patents and pending patent applications owned by others that are directed to chemical compounds or synthetic processes that may be necessary or useful to our research, development, manufacturing or commercialization activities. These could materially affect our ability to develop our drug candidates or manufacture, import or sell drugs, and our activities, or those of our licensors or collaborators, could be determined to infringe these patents. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our drugs, drug candidates or technologies may infringe. There also may be existing patents owned by others, of which we are not aware, that our drug candidates or technologies may infringe. Further, there may be issued patents or pending patent applications owned by others in fields relevant to our business, of which we are or may become aware, that we believe (i) are invalid, unenforceable, or we do not infringe; (ii) relate to immaterial portions of our overall research and development, manufacturing and commercialization efforts; or (iii) in the case of pending patent applications, the resulting patent would not be granted or, if granted, would not likely be enforced in a manner that would materially impact such efforts. We cannot assure you that others holding any of these patents or patent applications will not assert infringement claims against us and seek

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damages or enjoinment of our activities. We also cannot assure you that, in the event of litigation, we will be able to successfully assert non-infringement, unenforceability, invalidity or immateriality, or that any infringement claims will be resolved in our favor.

In addition, others may infringe or misappropriate our proprietary rights. We may have to institute costly legal action to protect our intellectual property rights, or we may not be able to afford the costs of enforcing or defending our intellectual property rights.

There could be significant litigation and other administrative proceedings in our industry that affect us regarding patent and other intellectual property rights. Any legal action or administrative action against us, or our collaborators, claiming damages or seeking to enjoin commercial activities relating to our research and development, manufacturing and commercialization activities could:

• require us, or our collaborators, to obtain a license which may not be available on commercially reasonable terms, if at all;

• prevent us from importing, making, using, selling or offering to sell the subject matter claimed in patents held by others and subject us to potential liability for damages;

• consume a substantial portion of our managerial, scientific and financial resources; or

• be costly, regardless of the outcome.

Furthermore, because of the substantial amount of pre-trial document and witness discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised. In addition, during the course of intellectual property litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the trading price of our common stock.

We are aware of third-party patents, as well as third-party patent applications, that could adversely affect the potential commercialization of etrasimod. For example, we are aware of third-party patents, as well as a third-party patent application, with broad claims to administering an S1P modulator by starting with a lower dose and then increasing to a higher, standard daily dose. While we do not believe that any such claims that would cover the potential commercialization of etrasimod are valid and enforceable, we may be incorrect in this belief.

We have been contacted from time to time by third parties regarding their intellectual property rights, sometimes asserting that we may need a license to use their technologies. If we fail to obtain any required licenses or make any necessary changes to our technologies, we may become involved in expensive and time-consuming litigation or we may be unable to develop or commercialize some or all of our drugs or drug candidates.

We cannot predict the outcome of any litigation matter. For example, our existing patents could be invalidated, found unenforceable or found not to cover a generic form of our drugs.

We cannot protect our intellectual property rights throughout the world.

Filing, prosecuting, defending and enforcing patents on all of our drug candidates throughout the world would be prohibitively expensive. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties (for example, the patent owner has failed to “work” the invention in that country or the third party has patented improvements). In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Compulsory licensing of life-saving drugs is also becoming increasingly popular in developing countries either through direct legislation or international initiatives. Such compulsory licenses could be extended to include some of our drug candidates, which could limit our potential revenue opportunities. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which makes it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

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Risks Relating to Our Securities

* Our stock price will likely be volatile, and your investment in our stock could decline in value.

Our stock price has fluctuated historically. From January 1, 2019 to May 1, 2020, the market price of our stock was as low as $32.95 per share and as high as $64.48 per share. The stock market, particularly in recent years, has experienced significant volatility particularly with respect to pharmaceutical and biotechnology stocks, and this trend may continue. The ongoing COVID-19 pandemic, for example, has negatively affected the stock market and investor sentiment and has resulted in significant volatility.

Very few drug candidates being tested will ultimately receive regulatory approval, and companies in our industry sometimes experience significant volatility in their stock price. Our stock price may fluctuate significantly depending on a variety of factors, including:

• results or decisions affecting the development or commercialization of any of our drug candidates or drugs, including the results of studies, trials and other analyses;

• the success, failure or setbacks of our or a perceived competitor’s drugs or drug candidates;

• the timing of the development of our drug candidates;

• discussions or recommendations affecting our drugs or drug candidates by the FDA or other reviewers of preclinical or clinical data or other information related to our drug candidates or drugs;

• regulatory actions or decisions or legislation affecting drugs or drug candidates, including ours and those of our competitors;

• the commercial availability and success or failure of any of our drug candidates;

• the development and implementation of our continuing development and research plans;

• the entrance into, or failure to enter into, a new collaboration or the modification or termination of an existing collaboration or other material transaction;

• the timing and receipt by us of milestone and other payments or failing to achieve and receive the same;

• fluctuation in prescriptions, sales or financial results (including with respect to revenue recognition, expenses and other operating results) or inaccurate sales or cash forecasting;

• accounting restatements and changes;

• supply chain or manufacturing issues;

• changes in our research and development budget or the research and development budgets of our existing or potential collaborators;

• the introduction, development or withdrawal of drug candidates or drugs by others that target the same diseases and conditions that we or our collaborators target or the introduction of new drug discovery techniques;

• expenses related to, and the results of, litigation, other disputes and other proceedings;

• financing strategy or decisions;

• the allocation of our resources;

• our ability, or the perception by investors of our ability, to continue to meet all applicable requirements for continued listing of our common stock on The Nasdaq Stock Market, and the possible delisting of our common stock if we are unable to do so;

• developments in intellectual property rights or related announcements;

• disruptions caused by man-made or natural disasters or public health pandemics or epidemics or other business interruptions, including, for example, the COVID-19 pandemic; and

• capital market and other macroeconomic conditions.

We are not able to control many of these factors. If our financial or scientific results in a particular period do not meet stockholders’ or analysts’ expectations, our stock price may decline, and such decline could be significant.

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Any future equity or debt issuances or other financing transactions may have dilutive or adverse effects on our existing stockholders.

We have been opportunistic in our efforts to obtain cash, and we expect we will evaluate various funding alternatives from time to time. We may issue additional shares of common stock or convertible securities that could dilute your ownership in our company and may include terms that give new investors rights that are superior to yours. We have effective registration statements to sell shares of our common stock and certain other securities, and we may elect to sell shares pursuant to such registration from time to time.

Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our common stock to decline. In addition, we may also raise additional funds through the incurrence of debt or other financing transaction, and the investors may have rights superior to your rights in the event we are not successful and are forced to seek the protection of bankruptcy laws or the transaction may otherwise adversely affect our business prospects and existing stockholders.

Our executive officers and directors may sell shares of their stock, and these sales could adversely affect our stock price.

Sales of our stock by our executive officers and directors, or the perception that such sales may occur, could adversely affect the market price of our stock. Our executive officers and directors may sell stock in the future, either as part, or outside, of trading plans under Rule 10b5-1 of the SEC.

* There are a substantial number of shares of our common stock that may become eligible for future sale in the public market, and the sale of our common stock could cause the market price of our common stock to fall.

As of May 1, 2020, there were (i) options to purchase 10,298,289 shares of our common stock outstanding under our equity incentive plans at a weighted-average exercise price of $36.46 per share, (ii) 162,739 restricted stock unit awards outstanding under our equity incentive plans, (iii) performance restricted stock units outstanding under our equity incentive plans under which up to 433,445 shares of common stock may be issuable upon achievement of all specified performance goals, (iv) 1,321,226 additional shares of common stock remaining issuable under our Amended and Restated 2017 Long-Term Incentive Plan, and (v) 1,000,000 shares issuable under our 2019 Employee Stock Purchase Plan.

Once issued, the shares described above will be available for immediate resale in the public market. The market price of our common stock could decline as a result of such resales due to the increased number of shares available for sale in the market. As of May 1, 2020, there were 50,337,038 shares of our common stock outstanding.

The holders of our common stock and other securities may take actions that are contrary to your interests, including selling their stock.

A small number of stockholders may hold or acquire a significant amount of our outstanding stock. From time to time, there is a large short interest in our stock. These holders of such stock or positions may seek control of us, may support transactions that we or you do not believe are favorable, and may have interests that are different from yours. In addition, sales of a large number of shares of our stock by these large stockholders or other stockholders within a short period of time could adversely affect our stock price.

We may also be involved in disagreements with the holders of our stock, warrants or other securities in the future. Such disagreements may lead to proxy contests or litigation, which may be expensive and consume management’s time, involve settlements, the terms of which may not be favorable to us, or result in other negative consequences to our business.

Certain of our agreements, provisions in our charter documents, possible future agreements and Delaware law could delay or prevent a change in management or a takeover attempt that you may consider to be in your best interests.

There is a standstill provision in our transaction agreement with Eisai, and we may enter into agreements with similar provisions. In addition, we may in the future adopt a stockholders’ rights agreement, which would cause substantial dilution to any person who attempts to acquire us in a manner or on terms not approved by our board of directors. These provisions or agreements, as well as other provisions in our certificate of incorporation and bylaws and under Delaware law, could delay or prevent the removal of directors and management and could make more difficult a merger, tender offer or proxy contest involving us that you may consider to be in your best interests. For example, our charter provisions:

• allow our board of directors to issue preferred stock without stockholder approval;

• limit who can call a special meeting of stockholders;

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• eliminate stockholder action by written consent; and

• establish advance notice requirements for nomination for election to the board of directors or for proposing matters to be acted upon at stockholders’ meetings.

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Item 6.  Exhibits.

EXHIBIT NO.	DESCRIPTION
3.1	Fifth Amended and Restated Certificate of Incorporation of Arena (incorporated by reference to Exhibit 3.1 to Arena’s quarterly report on Form 10-Q for the quarter ended June 30, 2002, filed with the Securities and Exchange Commission on August 14, 2002, Commission File No. 000-31161)
3.2	Certificate of Amendment of the Fifth Amended and Restated Certificate of Incorporation of Arena (incorporated by reference to Exhibit 4.2 to Arena’s registration statement on Form S-8 filed with the Securities and Exchange Commission on June 28, 2006, Commission File No. 333-135398)
3.3	Certificate of Amendment No. 2 of the Fifth Amended and Restated Certificate of Incorporation of Arena, as amended (incorporated by reference to Exhibit 4.3 to Arena’s registration statement on Form S-8 filed with the Securities and Exchange Commission on June 30, 2009, Commission File No. 333-160329)
3.4	Certificate of Amendment No. 3 of the Fifth Amended and Restated Certificate of Incorporation of Arena, as amended (incorporated by reference to Exhibit 3.4 to Arena’s registration statement on Form S-8 filed with the Securities and Exchange Commission on June 20, 2012, Commission File No. 333-182238)
3.5	Certificate of Amendment No. 4 of the Fifth Amended and Restated Certificate of Incorporation of Arena, as amended (incorporated by reference to Exhibit 3.1 to Arena’s current report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2017, Commission File No. 000-31161)
3.6	Amended and Restated Bylaws of Arena (incorporated by reference to Exhibit 3.1 to Arena’s current report on Form 8-K filed with the Securities and Exchange Commission on October 9, 2014, Commission File No. 000-31161)
4.1	Form of common stock certificate (incorporated by reference to Exhibit 4.7 to Arena’s registration statement on Form S-8, filed with the Securities and Exchange Commission on June 22, 2017, Commission File No. 333-218905)
10.1	Sales Agreement, dated February 27, 2020, by and among Arena, Credit Suisse Securities (USA) LLC, SVB Leerink LLC and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 1.2 to Arena’s registration statement on Form S-3 filed with the Securities and Exchange Commission on February 27, 2020, Commission File No. 333-236717)
10.2	Employment Agreement, dated as of December 10, 2019, by and between Arena and Joan Schmidt
10.3	Amendment No. 1, dated as of February 24, 2020, by and between Arena and Joan Schmidt to the Employment Agreement
10.4	Employment Agreement, dated as of February 22, 2020, by and between Arena and Laurie Stelzer
10.5	Form of Performance Restricted Stock Unit Grant Agreement under the Arena Amended and Restated 2017 Long-Term Incentive Plan entered into by and between Arena and each of Joan Schmidt and Laurie Stelzer
10.6	Transition and Retirement Agreement, dated as of January 13, 2020, by and between Arena and Steven Spector
10.7	Consulting Services Agreement, dated as of March 2, 2020, by and between Arena and Steven Spector
10.8	Arena’s Amended and Restated 2017 Long-Term Incentive Plan, amended as of April 3, 2020
31.1	Certification of principal executive officer pursuant to Rule 13a-14(A) promulgated under the Securities Exchange Act of 1934
31.2	Certification of principal financial officer pursuant to Rule 13a-14(A) promulgated under the Securities Exchange Act of 1934
32.1	Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(B) promulgated under the Securities Exchange Act of 1934
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibit 101. INS)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	May 7, 2020	ARENA PHARMACEUTICALS, INC.
		By:	/s/ Amit D. Munshi
			Amit D. Munshi
			President and Chief Executive Officer (principal executive officer)
		By:	/s/ Laurie D. Stelzer
			Laurie D. Stelzer
			Executive Vice President and Chief Financial Officer (principal financial and accounting officer)

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EX-10.2

Exhibit 10.2

 

CONFIDENTIAL

December 10, 2019

Ms. Joan Schmidt

Dear Joan,

Congratulations! Arena Pharmaceuticals, Inc. (“Arena” or “Company”) is very pleased to offer you the position of Executive Vice President and General Counsel, reporting to Amit Munshi, President and CEO. Your position will be based in Boston, MA. This position also requires occasional travel, including travel to the Company’s other locations in San Diego, CA and Zug, Switzerland.

Compensation
Your annualized salary will be $420,000.00 payable at the semi-monthly rate of $17,500.00 in accordance with Arena's normal payroll policies and procedures.  This is an exempt position, which means you are paid on a salary basis for the job you perform, not by the hour, and that you are not eligible for overtime.

You will be eligible to participate in an Arena Bonus Plan in 2020, with a bonus target potential of 50% (fifty percent) of your annualized base salary. Such a bonus would be contingent upon the successful achievement of corporate and individual objectives, and subject to approval by the Board of Directors. Such bonus, if any, will be prorated based on the number of months worked in the plan year, and you must be actively employed with Arena on the bonus payment date to be eligible to earn the bonus. Your salary and any bonus will be subject to customary federal, state and local taxes and withholdings.  

In connection with your acceptance of this offer of employment and the commencement of your employment, we will recommend to the Compensation Committee of the Board of Directors, or other authorized committee, that you be granted a stock option of 150,000 (one-hundred fifty thousand) shares on the 15^th of the month following the month of your hire date, subject to approval by the Board of Directors and the terms of the Company’s Equity Incentive Plan effective on the date of grant (the “Option Grant”). Such Option Grant shall vest on the following schedule: 25% upon the one-year anniversary, then 1/48 vesting monthly thereafter over the remaining 36 months. Your entitlement to any stock options that may be approved is conditioned upon your signing of our standard form of stock option agreement and subject to its terms and the terms of the Equity Incentive Plan under which the option(s) was granted. 

In addition, in the event that your current employer does not pay your annual bonus for 2019 and you join Arena on or before March 2, 2020, Arena will pay you a one-time signing bonus up to $163,000 (one hundred sixty-three thousand dollars) gross, subject to bonus tax rates (the “One Time Bonus”).  The One Time Bonus shall be paid only if you do not receive a 2019 annual bonus payment from your current employer, and any payment is conditioned upon your written documentation certifying that you did not receive a 2019 annual bonus payment, or an equivalent, from your current company.  The One Time Bonus, if payable, will be paid within 30 calendar days of your full-time date of hire, and shall be fully repayable by you to Arena if you voluntarily terminate your employment or you are involuntarily terminated for cause (as defined in the Company’s Severance Benefits Plan) within twelve (12) months of the commencement of your full-time employment and assumes full-time employment throughout that 12-month period. The amount repayable to the Company is due on or prior to your date of termination.

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                                                                                                                                                                                                                           Candidate Initials

Relocation Benefits

Your position is located in our Boston, MA office. As such, you will be eligible for relocation benefits under Arena’s Relocation Policy, which you will be required to sign as a condition of receiving benefits. The expectation is that you will relocate from your current location in the New York City area to the Boston area no later than 90 (ninety) days following your date of hire. Upon commencement of your employment and execution of the Relocation Policy, you will be eligible for relocation benefits under our Relocation Policy Tier 1. All relocation benefits you are provided (either directly paid to you or that are paid on your behalf by the Company) are fully repayable by you to Arena if you voluntarily terminate your employment or you are involuntarily terminated for cause (as defined in the company’s Severance Benefits Plan) within twenty-four (24) months of your employment start date and the 24-month repayment period assumes continuous, full-time employment throughout that period. The amounts repayable to the Company are due on or prior to your date of termination.

By signing this offer letter, you acknowledge your agreement to the repayment requirements for both the One Time Bonus and Relocation Benefits.

Employee Benefits

You are eligible to accrue a maximum of 120 hours of paid vacation per calendar year, accruing from a zero balance on your hire date and capped as set forth in the Arena Employee Handbook. You are also eligible to take a maximum of 48 hours of sick leave per calendar year. In addition, Arena offers a holiday schedule which includes a week off in Summer and Winter between Christmas and New Years’ Day.

Effective as of your date of hire you may be eligible to participate in Arena’s health insurance plans, 401(k) and other benefit plans according to the terms and conditions of those plans.  A brochure outlining these benefits is available upon request and information is also available through our Benefits team.  Arena reserves the right to change the terms or cancel its compensation and benefits programs at any time.

Employment Relationship

Your employment will be “at-will.” This means that you or Arena may terminate the employment relationship at any time, for any reason or no reason, with or without cause and with or without prior notice. This “at will” status may not be changed except by written agreement signed by both you and the Chief Executive Officer.

Employment Contingency

This offer of employment and/or your employment by Arenais contingent upon:

• Successful completion of a background and reference checks prior to your date of hire

• Submitting proof of your identity and your legal right to work in the US (work authorization) within three days of your date of hire, in conformance with I-9 requirements

• Execution of the attached Memo of Understanding on or before your date of hire

• Execution of Arena’s Employee Proprietary Information and Inventions Agreement on or before your date of hire

• Certification of receipt and understanding of Arena’s Code of Business Conduct and Ethics, and Insider Trading Policy on or before your date of hire

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By signing this offer letter, you represent that you have reviewed and understand the description of your duties in the role you have been offered, and that your employment with Arena will not conflict with or violate any agreement or understanding with your former employer or other person or entity.

Arena Policies and Procedures

You will be required to abide by and agree to all Arena policies and procedures, including but not limited to those set forth in the Arenaemployee handbook and accompanying policies. Upon your date of hire, you will be provided the employee handbook and other company policies and procedures for review and will be required to acknowledge receipt of the with your signature.

This letter and the documents to which it refers set forth the complete offer we are extending to you and supersedes and replaces any prior inconsistent statements or discussions.  It may be changed only by a subsequent written agreement signed by the head of Human Resources or the Chief Executive Officer.

Joan, we are enthusiastic about the prospects of your joining the Arena team and look forward to a mutually rewarding professional relationship. This offer shall remain effective until 5:00pm PT on Monday, December 16, 2019, and is contingent upon your commencement of work on or before March 2, 2020.  If the terms of this offer are acceptable to you, please sign in the space provided below indicating your agreement to the provisions of this offer of employment.  

Sincerely,

/s/ Suzanne Zoumaras

Suzanne Zoumaras

EVP & Chief Human Resources Officer

Acceptance:

I have read the terms of this offer of employment from Arena Pharmaceuticals, Inc. and accept and agree to them.

/s/ Joan Schmidt12/16/2019

Joan SchmidtDate

Enclosures:

Employee Proprietary Information and Inventions Agreement

Code of Business Conduct and Ethics

Insider Trading Policy

Memo of Understanding

Relocation Summary

Copy of Severance Benefits Plan

Benefits Summary

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EX-10.3

Exhibit 10.3

 

AMENDMENT No. 1

to

Joan Schmidt Offer of Employment

dated December 10, 2019

This Amendment No. 1 is made as of February 24, 2020 between Arena Pharmaceuiticals, Inc. (“Arena” or “Company”) and Joan Schmidt (“Candidate”).   Whereas the Company and the Candidate signed an Offer of Employment dated December 10, 2019 and fully executed on January 12, 2020, the parties hereby agree to amend the terms of the Offer of Employment as set forth below:

1. Equity Award.  The section of the Offer Employment relating to the equity award (or “Option Grant”) is replaced in its entirety with the following:

“As an incentive to accept Arena’s offer of employment and in connection with your acceptance of this offer of employment and the commencement of your employment, we will recommend to the Compensation Committee of the Board of Directors, or other authorized committee, that you be granted an option to purchase 132,000 (one-hundred thirty-two thousand) shares of the Company’s common stock (the “Stock Option Award”) and a Performance Restricted Stock Unit consisting of 6,300 shares of the Company’s common stock (the “PRSU Award”) (collectively the “Equity Awards”).  The Equity Awards will be granted on March 15, 2020 and are subject the terms and conditions of the Company’s Equity Incentive Plan(s) under which each award is granted and the Grant Agreement associated with each award, including the applicable vesting criteria.”

2. One Time Bonus.  The section of the Offer Employment relating to the One Time Bonus shall be removed, as you confirmed receipt of your 2019 annual bonus from your then-current employer.  

3. Except as explictly set forth herein, the Offer of Employment will remain in full force and effect.

Please indicate your acceptance of this Amendment to the Offer of Employment byu signing below and returning a copy to me

Warm regards,

ARENA PHARMACEUITCALS, INC.

By:  /s/ Suzanne Zoumaras

        Suzanne Zoumaras

        EVP & Chief Human Resources Officer

Agreed and Accepted

This 24th day of February, 2020

        /s/ Joan Schmidt      

        Joan Schmidt

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EX-10.4

Exhibit 10.4

 

CONFIDENTIAL

February 22, 2020

Ms. Laurie Stelzer

Dear Laurie,

Congratulations! Arena Pharmaceuticals, Inc. (“Arena” or “Company”) is very pleased to offer you the position of Executive Vice President and Chief Financial Officer, reporting to Amit Munshi, President and CEO.  Your position will be based in San Diego, CA. This position requires approximately 30-50% travel that will vary based on business needs.

Compensation
Your annualized salary will be $480,000 payable at the semi-monthly rate of $20,000 in accordance with Arena's normal payroll policies and procedures.  This is an exempt position, which means you are paid on a salary basis for the job you perform, not by the hour, and that you are not eligible for overtime.

You will be eligible to participate in an Arena Bonus Plan in 2020, with a bonus target potential of 50% (fifty percent) of your annualized base salary. Such a bonus would be contingent upon the successful achievement of corporate and individual objectives, and subject to approval by the Board of Directors. Such bonus, if any, will be prorated based on the number of months worked in the plan year, and you must be actively employed with Arena on the bonus payment date to be eligible to earn the bonus. Your salary and any bonus will be subject to customary federal, state and local taxes and withholdings.  

As an incentive to accept Arena’s offer of employment and in connection with your acceptance of this offer of employment and the commencement of your employment, we will recommend to the Compensation Committee of the Board of Directors, or other authorized committee, that you be granted an option to purchase 132,000 (one-hundred thirty-two thousand) shares of the Company’s common stock (the “Stock Option Award”) and a Performance Restricted Stock Unit consisting of 6,300 shares of the Company’s common stock (the “PRSU Award”) (collectively the “Equity Awards”).  The Equity Awards will be granted on your date of hire and are subject the terms and conditions of the Company’s Equity Incentive Plan(s) under which each award is granted and the Grant Agreement associated with each award, including the applicable vesting criteria.

In addition, subject to the commencement of employment, Arena will pay you a one-time bonus of $25,000 (twenty-five thousand dollars) gross, subject to bonus tax rates (the “Sign-on Bonus”). The Sign-on Bonus will be paid within 30 calendar days of your date of hire, and will be fully repayable by you to Arena if your employment with the Company terminates, for any reason other than involuntary reduction in force, prior to the twelfth (12th) month anniversary of your employment start date and assumes continuous, full-time employment throughout that 12-month period. The Sign-On Bonus is repayable to the Company is due on or prior to your date of termination. By signing this offer letter, you acknowledge your agreement to the repayment requirements for the Sign-On Bonus.

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Employee Benefits

You are eligible to accrue a maximum of 120 hours of paid vacation per calendar year, accruing from a zero balance on your hire date and capped as set forth in the Arena Employee Handbook. You are also eligible to take a maximum of 48 hours of sick leave per calendar year. In addition, Arena offers a holiday schedule which includes a week off in Summer and Winter between Christmas and New Years’ Day.

Effective as of your date of hire you may be eligible to participate in Arena’s health insurance plans, 401(k) and other benefit plans according to the terms and conditions of those plans.  A brochure outlining these benefits is available upon request and information is also available through our Benefits team.  Arena reserves the right to change the terms or cancel its compensation and benefits programs at any time.

Employment Relationship

Your employment will be “at-will.” This means that you or Arena may terminate the employment relationship at any time, for any reason or no reason, with or without cause and with or without prior notice. This “at will” status may not be changed except by written agreement signed by both you and the Chief Executive Officer.

Employment Contingency

This offer of employment and/or your employment by Arenais contingent upon:

• Successful completion of a background and reference checks prior to your date of hire

• Submitting proof of your identity and your legal right to work in the US (work authorization) within three days of your date of hire, in conformance with I-9 requirements

• Execution of the attached Memo of Understanding on or before your date of hire

• Execution of Arena’s Employee Proprietary Information and Inventions Agreement on or before your date of hire

• Certification of receipt and understanding of Arena’s Code of Business Conduct and Ethics, and Insider Trading Policy on or before your date of hire

By signing this offer letter, you represent that you have reviewed and understand the description of your duties in the role you have been offered, and that your employment with Arena will not conflict with or violate any agreement or understanding with your former employer or other person or entity.

Arena Policies and Procedures

You will be required to abide by and agree to all Arena policies and procedures, including but not limited to those set forth in the Arenaemployee handbook and accompanying policies. Upon your date of hire, you will be provided the employee handbook and other company policies and procedures for review and will be required to acknowledge receipt of the with your signature.

This letter and the documents to which it refers set forth the complete offer we are extending to you and supersedes and replaces any prior inconsistent statements or discussions.  It may be changed only by a subsequent written agreement signed by the head of Human Resources or the Chief Executive Officer.

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Laurie, we are enthusiastic about the prospects of your joining the Arena team and look forward to a mutually rewarding professional relationship. This offer shall remain effective until 5:00pm PT on Monday, February 23, 2020, and is contingent upon your commencement of work on or before March 16, 2020.  If the terms of this offer are acceptable to you, please sign in the space provided below indicating your agreement to the provisions of this offer of employment.  

Sincerely,

/s/ Suzanne Zoumaras

Suzanne Zoumaras

EVP & Chief Human Resources Officer

Acceptance:

I have read the terms of this offer of employment from Arena Pharmaceuticals, Inc. and accept and agree to them.

/s/ Laurie Stelzer2/23/2020

Laurie StelzerDate

Enclosures:

Employee Proprietary Information and Inventions Agreement

Code of Business Conduct and Ethics

Insider Trading Policy

Confidentiality Reminder Memo

Copy of Severance Benefits Plan

2020 Benefits Summary

PRSU Program Overview

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EX-10.5

Exhibit 10.5

Arena Pharmaceuticals, Inc., 2017 Long-Term Incentive Plan

Performance Restricted Stock Unit Grant Agreement

THISGRANT AGREEMENT (this “Agreement”), effective as of ________________ (the “Grant Date”), is entered into by and between Arena Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and ______________ (the “Participant”) and evidences the terms of the Company’s grant to the Participant of a performance restricted stock unit (“PRSU”) award on the terms and conditions set forth herein (the “Award”).

1.Target and Maximum Number of PRSUs under the Award.  The Award is for the below Target PRSUs, with potential to earn additional PRSUs upon a designated level of performance above target, up to the maximum number of PRSUs equal to 200% of Target PRSUs, subject to the conditions and adjustments specified herein, including the Award Determination, Vesting and Issuance Criteria attached as Attachment I to this Agreement (the “Vesting and Issuance Criteria”). Each PRSU represents the right to potentially be issued one Share on a future date.

Number of PRSUs at target performance:  (“Target PRSUs”)

2.Subject to the Plan.  This Agreement is subject to the provisions of the Arena Pharmaceuticals, Inc., 2017 Long-Term Incentive Plan (the “Plan”).  Certain terms are defined in this Agreement, and, unless the context requires otherwise, other capitalized terms used herein shall have the same meaning as in the Plan.  Except as provided herein, in the event of a conflict between the provisions of the Plan and this Agreement, the Plan shall control.

3.Account.  The Company shall credit to a bookkeeping account (the “Account”) maintained by the Company for the Participant’s benefit the Maximum PRSUs. On each date that cash dividends are paid on the Shares, the Company will credit the Account with a number of additional PRSUs equal to the result of dividing (i) the product of the Maximum PRSUs credited to the Account on the record date for such dividend and the per Share amount of such dividend by (ii) the Fair Market Value of one Share on the date such dividend is paid by the Company to stockholders. The additional PRSUs shall be or become vested to the same extent as the PRSUs that resulted in the crediting of such additional PRSUs, and Shares shall not be issued in settlement unless and until the underlying PRSUs vest.

4.Vesting.  The number of PRSUs that may vest will be determined based on the Company’s actual performance against the performance goals specified in the Vesting and Issuance Criteria, subject to the Participant’s satisfaction of the service vesting conditions set forth therein. The Target PRSUs represent the number of PRSUs that would vest if the Participant satisfies the service vesting conditions set forth in the Vesting and Issuance Criteria and the Company achieves exactly 100% of the Company’s target goal specified in the Vesting and Issuance Criteria. In no event will more than the Maximum PRSUs (plus additional PRSUs representing dividend equivalents set forth in Section 3) vest. With respect to the Participant, this Agreement shall supersede any individually negotiated agreement with Company (or an Affiliate) and any generally applicable severance or change-in-control plan, policy, or practice, whether written or unwritten, of the Company (or an Affiliate) to the extent that such agreement, plan, policy or practice provides for vesting acceleration of equity awards.

5.Capitalization Adjustments.  The number of PRSUs credited to the Account shall be equitably and appropriately adjusted as provided in Section 12.2 of the Plan.

6.Termination of Employment or Service.In the event the Participant ceases to be in the continuous service of the Company or an Affiliate as any of an Employee, a Consultant or a Director, the number of PRSUs that may vest, if at all, will be determined in accordance with the Vesting and Issuance Criteria.  

7.Payment of Shares.  The Company shall make a payment to the Participant of Shares based on the number of the vested PRSUs credited to the Participant’s Account upon the applicable vesting date specified in the Vesting and Issuance Criteria.   However, if a scheduled vesting date falls on a date that is not a trading day, such delivery shall instead fall on the next following trading day.  Notwithstanding the foregoing, in the event that the Company determines

that any Shares are scheduled under this Agreement to be delivered on a day (the “Original Distribution Date”) on which the Company determines that a sale by the Participant of such Shares on the open market would be prohibited for any reason, including because it would (i) violate the registration requirements under the Securities Act or (ii) violate any of the provisions of the federal securities laws (or any Company or, if applicable, Affiliate policy related thereto) or (iii) violate a “lock-up” agreement undertaken in connection with an issuance of securities by the Company or (iv) not be permitted under applicable securities lawsor Company policies, including insider trading policies applicable to the Participant and (v) the Company elects, prior to the Original Distribution Date, not to satisfy its tax withholding obligation by withholding Shares from the Shares otherwise due to the Participant on the Original Distribution Date under this Agreement, then such Shares shall not be delivered on such Original Distribution Date and shall instead be delivered as soon as practicable on the date on which the sale of such Shares by the Participant on the open market would not be in violation of any of such registration requirements, the federal securities laws (or any Company or, if applicable, Affiliate policy related thereto), lock-up agreement or would otherwise be permitted under applicable securities laws or Company policies; provided, however, that in no event shall the delivery of the Shares be delayed pursuant to this provision beyond the later of (a) December 31 of the calendar year in which the Original Issuance Date occurs (that is, the last day of the Participant’s taxable year in which the Original Issuance Date occurs), and (b) if and only if permitted in a manner that complies with U.S. Treasury Regulation Section 1.409A-1(b)(4), the date that is the 15th day of the third calendar month of the year following the year in which the Shares under this Agreement are no longer subject to a “substantial risk of forfeiture” within the meaning of U.S. Treasury Regulation Section 1.409A-1(d).

8.Form of Payment.  Payments pursuant to Section 7 shall be made in Shares (or, if settlement occurs as a result of vesting of PRSUs pursuant to a Change in Control, settlement may be made in the same consideration paid to the stockholders of the Company for Shares pursuant to the Change in Control) equal to the number of vested PRSUs credited to the Account

9.Beneficiary.  In the event of the Participant’s death prior to payment of the PRSUs credited to the Account, payment shall be made to the last beneficiary designated in writing that is received by the Company prior to the Participant’s death or, if no designated beneficiary survives the Participant, such payment shall be made to the Participant’s estate.

10.Change in Control; Parachute Payments.  In the event of a Change in Control, the number of PRSUs that may vest will be determined in accordance with the Vesting and Issuance Criteria. If any payment or benefit the Participant would receive in connection with a change in control from the Company or otherwise (a “Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion of the Payment, up to and including the total Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Participant’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of stock awards; reduction of employee benefits. If acceleration of vesting of stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of the Participant’s stock awards. Notwithstanding the foregoing, to the extent that it is permitted under Sections 409A, 280G and 4999 of the Code, the Participant may designate a different order of reduction in payments or benefits constituting “parachute payments”.

The Company shall appoint a nationally recognized independent accounting firm to make the determinations required hereunder, which accounting firm shall not then be serving as accountant or auditor for the individual, entity or group that effected the Change in Control. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and the Participant within ten (10) calendar days after the date on which the

Participant’s right to a Payment is triggered (if requested at that time by the Company or the Participant) or such other time as requested by the Company or the Participant. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and the Participant with an opinion reasonably acceptable to the Participant that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and the Participant.

11.Source of Payments.  The Participant’s right to receive payment under this Agreement shall be an unfunded entitlement and shall be an unsecured claim against the general assets of the Company. The Participant has only the status of a general unsecured creditor hereunder, and this Agreement constitutes only a promise by the Company to pay the value of the Account on the payment date.

12.Miscellaneous.

(a)Withholding.  The Participant agrees to pay to the Company, or to make satisfactory arrangement with the Company for payment of, any federal, state or local taxes, if any, required by law to be withheld in respect of the PRSUs.  The Participant hereby agrees that the Company or an Affiliate, as applicable, may withhold the applicable taxes from the Participant’s wages or other remuneration. At the discretion of the Company, the applicable taxes may be withheld in kind from the Shares otherwise deliverable to the Participant on the payment in settlement of the PRUs, up to the lesser of Participant’s minimum required withholding rate or such other rate that will not trigger a negative accounting impact. Unless the tax withholding obligations of the Company and/or any Affiliate are satisfied, the Company shall have no obligation to deliver to the Participant any Shares. In the event the Company’s obligation to withhold arises prior to the delivery to the Participant of the Shares or it is determined after the delivery of Shares to the Participant that the amount of the Company’s withholding obligation was greater than the amount withheld by the Company, the Participant agrees to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.

(b)No Rights of a Stockholder.  The Participant shall not have any of the rights of a stockholder with respect to the Shares that may be issued in settlement of the PRSUs until such Shares have been issued.

(c)Nontransferability of PRSUs. Except to the extent and under such terms and conditions as determined by the Committee, the PRSUs shall not be transferable otherwise than by will or the laws of descent and distribution or as provided in Section 9.

(d)Severability.  The provisions of this Agreement shall be deemed severable. If any provision of this Agreement shall be held unlawful or otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction or by reason of a change in a law or regulation, such provision shall (i) be deemed limited to the extent that such court of competent jurisdiction deems it lawful, valid and/or enforceable (or, if applicable, to the extent necessary to comply with the change in the law or regulation), and as so limited shall remain in full force and effect, and (ii) not affect any other provision of this Agreement or part thereof, each of which shall remain in full force and effect.

(e)Governing Law.  This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of Delaware, other than its conflict of laws principles.

(f)Headings.  The headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(g)Notices.  All notices required or permitted under this Agreement shall be in writing and shall be sufficiently made or given if hand delivered or mailed by registered or certified mail, postage prepaid. Notice by mail shall be deemed delivered at the time and on the date on which the same is postmarked.

Notices to the Company should be addressed to:

Arena Pharmaceuticals, Inc.

6154 Nancy Ridge Drive

San Diego, California 92121

Attention:  Chief Financial Officer

With a copy to: General Counsel

Notices to the Participant should be addressed to the Participant at the Participant’s address as it appears on the Company’s records. The Company or the Participant may by writing to the other party, designate a different address for notices. If the receiving party consents in advance, notice may be transmitted and received via facsimile or via such other electronic transmission mechanism as may be available to the parties. Such notices shall be deemed delivered when received.

(h)Agreement Not a Contract.  This Agreement (and the grant of PRSUs) is not an employment or service contract, and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on the Participant’s part to continue as an Employee, a Consultant or a Director, or of the Company or an Affiliate to continue the Participant’s service as an Employee, a Consultant or a Director.  The Participant’s employment shall remain at-will, if applicable, and subject to termination by the Company or an Affiliate, as applicable, at any time, with or without cause or notice.

(i)Entire Agreement; Modification.  Except as provided in the next sentence, this Agreement and the Plan constitute the entire agreement between the parties with respect to the subject matter contained herein and may not be modified, except as provided in the Plan or in a written document signed by each of the parties hereto, and may be rescinded only by a written agreement signed by both parties.This Agreement and Plan may be modified or superseded by the specific provisions, if any, of a written agreement, plan or other arrangement (regardless of whether entered into or established before, concurrently or after the date of this Agreement) of the Company or an Affiliate that is applicable to the Participant, to the extent such an agreement, plan or other arrangement provides a greater benefit to the Participant and otherwise does not cause the payments hereunder to fail to comply with the provisions of Section 409A of the Code.

(j)Section 409A of the Code.  This Award is intended to be exempt from the application of Section 409A of the Code, including but not limited to by reason of complying with the “short-term deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)(4) and will be construed and administered in such a manner and any ambiguities herein shall be interpreted accordingly.  Notwithstanding the foregoing, if it is determined that the Award fails to satisfy the requirements of the short-term deferral rule and is otherwise not exempt from, and determined to be deferred compensation subject to Section 409A of the Code, this Award shall comply with Section 409A to the extent necessary to avoid adverse personal tax consequences and any ambiguities herein shall be interpreted accordingly.  Any provision of this Agreement that would cause the payment or settlement thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code.  To the extent that the PRSUs are “deferred compensation” subject to the requirements of Section 409A of the Code, then notwithstanding anything contained in this Agreement to the contrary, if the Company determines that as of the date of payment the Participant is a “specified employee” (as such term is defined under Section 409A of the Code), any Shares payable by reason of the Participant’s “separation from service” for purposes of Section 409A of the Code (“Separation from Service”) with the Company (or an Affiliate) for any reason other than death or “disability” (as such term is defined under Section 409A of the Code), if applicable, will not be paid until the date that is six months following the date of Separation from Service (or such earlier time permitted under Section 409A of the Code without the imposition of any accelerated or additional taxes under Section 409A of the Code).

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Grant Date.

                                                      ARENA PHARMACEUTICALS, INC.

By: ______________________________________

     _______________________________________

Participant

Attachment I

Award Determination, Vesting and Issuance Criteria

The PRSUs awarded hereunder shall vest, if at all, based upon achievement of both (A) Performance Goal(s) related to Share price and (B) Participant’s continued service to the Company, as described below and subject to the terms and conditions of the Plan, the Agreement and this Attachment I.

1.Performance Goals and Vesting.

(a)Target Performance. The “Target Goal” is met when both (i) during the Performance Period, the Closing Price equals or exceeds $67.50 on either (1) five consecutive trading days or (2) ten non-consecutive trading days (such full condition in (i), the “Target Price”) and (ii) Participant continues in service of the Company or an Affiliate as any of an Employee, a Consultant or a Director for the Service Period.  Upon achievement of the Target Goal, the Target PRSUs shall vest on the last day of the Service Period.

(b)Maximum Performance. The “Maximum Goal” is met when both (i) during the Performance Period, the Closing Price equals or exceeds $75.00 on either (1) five consecutive trading days or (2) ten non-consecutive trading days (such full condition in (i), the “Maximum Price”) and (ii) Participant continues in service of the Company or an Affiliate as any of an Employee, a Consultant or a Director for the Service Period.  Upon achievement of the Maximum Goal, the Maximum PRSUs shall vest on the last day of the Service Period.

(c)Maximum and Cumulative Performance Goal Achievement. The maximum number of PRSUs that may vest under the Award is the Maximum PRSUs.  PRSUs may only vest in respect of a particular Performance Goal upon the first occurrence of such Performance Goal. In the event that more than one Performance Goal is achieved during the Performance Period, the total number of PRSUs that vest under the Award shall in no event be more than the number of PRSUs corresponding to the highest Performance Goal achieved during the Performance Period.  For example, if during the Performance Period the Target Goal is met and the Target PRSUs vest and subsequently the Maximum Goal is met, the total number of PRSUs that are vested upon achievement of the Maximum Goal (including the previously vested Target PRSUs) is the Maximum PRSUs (not the Maximum PRSUs plus the Target PRSUs).  

(d)Dividends.  If additional PRSUs are credited to the Participant’s Account as a result of cash dividends paid on the Shares, as described in Section 3 of the Agreement, such additional PRSUs shall vest to the extent the PRSUs that resulted in the crediting of such additional PRSUs vest, if at all, in accordance with Section 3 of the Agreement and references in this Attachment I to Target and Maximum PRSUs shall be deemed to also include any such additional PRSUs credited as dividend equivalents.

2.Award Vesting Requirements.  Except as specifically provided below in Section 3 and 4(a), the Participant must remain in the continuous service of the Company or an Affiliate as any of an Employee, a Consultant or a Director through the end of the Service Period, including following achievement of a Target Price or Maximum Price in order for a Performance Goal to be met and for any PRSUs to vest.  For the avoidance of doubt, once a Target Price or Maximum Price is met, the PRSUs shall vest on the last day of the Service Period (if applicable), irrespective of the trading price performance of the Shares following achievement of such Target Price or Maximum Price.  Shares will be issued in respect of the number of the vested PRSUs on the vesting date or such later date pursuant to Section 7 of the Agreement.  Any portion of the Award that is not vested as of the earlier of (i) the end of the Performance Period, (ii) the effective time of a Change in Control (after giving effect to any vesting upon such Change in Control described in Section 3), and (iii) the Participant’s Termination of Service (after giving effect to any vesting upon a Qualifying Death/Disability Termination described in Section 4(a)), will immediately terminate and be forfeited.

3.Impact of a Change in Control.  If a Change in Control occurs during the Performance Period and prior to the Participant’s Termination of Service, then the number of PRSUs that will be eligible to become vested under the Award as a result of the Change in Control, if any, shall be determined based on the Change in Control Price.  If the Change in Control Price is equal to or greater than $67.50 or $75, the Target Goal or Maximum Goal, respectively, shall be deemed achieved, and as of immediately prior to, but subject to the effectiveness of, such Change in Control, the applicable Target

PRSUs or Maximum PRSUs will vest (provided that if the Change in Control Price falls in between the $67.50 or $75 prices, the number of PRSUs that vest will be determined by straight line interpolation between the Target PRSUs and Maximum PRSUs, reduced by any PRSUs that previously vested under the Award.

For example, if the Change in Control Price is $71.25 per share, , then a number of PRSUs equal to 150% of the Target PRSUs (derived using straight line interpolation between Target PRSUs and Maximum PRSUs) shall become vested as of immediately prior to such Change in Control.  

Any PRSUs that do not become vested as of the Change in Control (after giving effect to the foregoing provisions of this Section 3) shall automatically terminate and be forfeited, without the payment of any consideration to Participant, as of the effective time of the Change in Control.  The provisions of this Section 3 shall govern the terms of the Award upon a Change in Control in lieu of the provision of Section 11 of the Plan.

4.Impact of Termination of Service.

(a)Death or Disability.  In the event of Participant’s Qualifying Death/Disability Termination, the Participant shall vest, as of the Participant’s Qualifying Death/Disability Termination, in number of PRSUs that would have vested had the Participant remained in the continuous service of the Company or an Affiliate as any of an Employee, a Consultant or a Director through the end of the Service Period, and any other PRSUs credited to the Account that do not so vest will immediately terminate and be forfeited as of such Qualifying Death/Disability Termination.  In the event of Participant’s Termination of Service due to death or Disability that is not a Qualifying Death/Disability Termination (including but not limited to Participant’s Termination of Service due to death or Disability prior to the date a Target Price or Maximum Price is met), any portion of the Award that is not vested as of such Termination of Service will immediately terminate and be forfeited on such date.

(b)Other Terminations.  In the event the Participant’s Termination of Service for any reason other than as a result of a Qualifying Death/Disability Termination, the PRSUs credited to the Account that were not vested at the Participant’s Termination of Service will immediately terminate and be forfeited as of such date.  

5.Definitions:

(a)“Change in Control” has the meaning set forth in Section 11.3 of the Plan, except that: (i) Section 11.3(i) and Section 11.3(iii)(C) of the Plan shall be excluded and (ii) it shall also include the occurrence of any other event that the Board determines by an approved resolution constitutes a Change in Control.  

(b)“Change in Control Price” means the per-Share consideration received by the Company stockholders in a Change in Control, provided that if such consideration consists in whole or in part of non-cash consideration, the Committee will determine the value of the non-cash per-Share consideration for purposes of this Award in good faith in its sole discretion.  

(c)“Closing Price” means the closing sales price for one (1) Share as reported by the Nasdaq Stock Market (or, if the Nasdaq Stock Market is not the principal trading market for the Shares, the closing sales price reported by the principal trading market for the Shares).

(d)“Disability” means the Participant’s becoming disabled within the meaning of Section 22(e)(3) of the Code. The Committee may require such proof of Disability as the Committee in its sole and absolute discretion deems appropriate and the Committee’s determination as to whether the Participant has incurred a Disability shall be final and binding on all parties concerned.

(e) “Maximum PRSUs” means the number of PRSUs equal to 200% of the Target PRSUs.

(f)“Performance Goal” means each of the Target Goal and Maximum Goal as described in Section 1 above.  In the event of any stock split, reverse stock split or other event described in Section 12.2 of the Plan that affects the Shares, each Performance Goal shall be equitably adjusted as determined appropriate by the Committee in its sole discretion.

(g) “Performance Period” means the period commencing on the Grant Date and ending on (and including) January 3, 2022.

(h)“Qualifying Death/Disability Termination” means a Participant’s Termination of Service due to such Participant’s death or Disability that occurs at a time when the Participant is an Employee and upon or after the date a Target Price or Maximum Price is met but before the end of the Service Period.

(i)“Service Period” means the period commencing on the Grant Date and ending on the date that is the earlier of (i) or (ii) below:

(i)the later of (a) 90 calendar days following the achievement of the Target Price or Maximum Price, as applicable, and (b) the one year anniversary of the Grant Date and

(ii) immediately prior to the effective time of a Change in Control.

(j)“Target PRSUs” means the number of PRSUs set forth in Section 1 of the Agreement.

(k)“Termination of Service” means the date the Participant ceases to be in the continuous service of the Company or an Affiliate as any of an Employee, a Consultant or a Director for any reason.  

EX-10.6

Exhibit 10.6

Arena Pharmaceuticals, Inc.

January 13, 2020

Steven Spector

Re: Transition and Retirement Agreement

Dear Steven,

This letter shall constitute the Transition and Retirement Agreement (the “Agreement”) between you and Arena Pharmaceuticals, Inc. (the “Company”).

1.Retirement Date. Your employment with the Company will continue through March 1, 2020, which will become your employment termination date (the “Retirement Date”). As of the Retirement Date, you will be deemed to have resigned from any employment, officer, or director positions you hold with the Company or its subsidiaries.

2.Transition Period.

a.Duties. Between now and the Retirement Date (the “Transition Period”), you will continue to perform your regular duties; provided, however, that you will also transition your duties and responsibilities to your successor (in accordance with a plan to be developed by you and Amit Munshi, CEO), and perform such other tasks as may be reasonably requested (collectively, the “Transition Services”). You agree to perform your Transition Services in good faith and to the best of your abilities. During the Transition Period, you must continue to comply with the Company’s policies and procedures and with all of your statutory and contractual obligations to the Company. During the Transition Period and thereafter, you must continue to comply with your obligations under your “Arena Pharmaceuticals, Inc. Proprietary Information and Invention Assignment Agreement” (a copy of which is attached hereto as Exhibit A).

b.Compensation/Benefits. During the Transition Period, your base salary will remain the same, and you will continue to be eligible for the Company’s standard health and welfare benefits, subject to the terms and conditions applicable to such plans and programs. Your Company stock options and performance restricted stock unit awards will continue to vest under the existing terms and conditions set forth in the governing plan documents and award agreements. You will receive your annual performance bonus payment for 2019 at the same time as the Company’s other executives on or before March 15 2020, which amount will be determined pursuant to the terms of the Company’s Annual Incentive Plan for 2019 (such amount, the “2019 Annual Bonus”). Subject to Section 2.c. below, the requirement that you be employed as of the payment date for such bonus shall be waived.

c.Termination. Nothing in this Agreement alters your employment at will status. Accordingly, during the Transition Period, you are entitled to resign your employment at

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any time and the Company may terminate your employment at any time for any reason. If, prior to the Retirement Date, either (i) you resign your employment or (ii) the Company terminates your employment for Cause (as defined in the Arena Pharmaceuticals, Inc. Severance Benefit Plan, as amended and restated effective January 4, 2019, a copy of which is attached hereto as Exhibit B (the “Severance Benefit Plan”)), you will no longer be eligible to receive Severance Benefits as defined below. If your employment ends prior to the Retirement Date for any other reason (including death or Disability, as defined in the Severance Benefit Plan), you or your estate will receive the Severance Benefits, subject to the terms and conditions below (provided, however, in such instance you will not be required to comply with Section 2.a above). If, prior to the payment of the 2019 Annual Bonus, either (x) you resign your employment or (y)the Company terminates your employment for Cause, you will no longer be eligible to receive the 2019 Annual Bonus; in all other cases, including your death or Disability, you or your estate will be paid your 2019 Annual Bonus.

3.Accrued Salary and Vacation/Paid Time Off. On the Retirement Date, the Company will pay you all accrued salary and accrued but unused vacation/paid time off earned through the last day of your employment, subject to standard payroll deductions and withholdings.

4.Severance Benefits. In full satisfaction of any obligation to provide you with benefits for a Covered Termination under the terms of the Severance Benefit Plan, if you: (i) timely return this fully signed Agreement to the Company and allow it to become effective; (ii) comply with your obligations hereunder; and (iii) sign the Retirement Date Release attached hereto as Exhibit C on or within twenty-one (21) days after the Retirement Date and allow that release to become effective; then the Company will provide you with the following severance benefits (the “Severance Benefits”):

a.Cash Severance. The Company will pay you, as severance, $990,522, which is the equivalent of eighteen (18) months of your base salary in effect as of the Retirement Date and 1.5 times the amount of your target annual bonus (the “Severance Payment”). The Severance Payment will be paid in a lump sum, subject to standard payroll deductions and withholdings, within five (5) business days after the earlier of: (i) the first business day that is six (6) months following the Retirement Date; or (ii) your death.

b.Health Insurance. To the extent provided by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended or, if applicable, state insurance laws (collectively, “COBRA”), and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits. You will be provided with a separate notice describing your rights and obligations under COBRA laws on or after the Retirement Date. As an additional Severance Benefit, provided that you timely elect continued coverage under COBRA, the Company will pay your COBRA premiums directly to continue your group medical, dental and/or vision insurance coverage (including coverage for eligible dependents, if applicable), through the period starting on the Retirement Date and ending on the earliest of: (i) the last day of the month that is eighteen (18) months after the Retirement Date; or (ii) the date you cease to be eligible for COBRA continuation coverage for any reason, including plan termination (the “COBRA Premium Period”). For purposes of this Section, references to COBRA premiums shall not include any amounts payable by you under a Code Section 125

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health care reimbursement plan. Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot pay the COBRA premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then regardless of whether you elect continued health coverage under COBRA, and in lieu of providing the COBRA premiums, the Company will instead pay you, on the last day of each remaining month of the COBRA Premium Period, a fully taxable cash payment equal to 140% of (x) the value of your last monthly group health insurance premiums immediately prior to the Retirement Date or (y) the value of your last monthly COBRA premiums paid by the Company, as applicable (dependent on the time the Company makes such determination that it cannot pay the COBRA premiums directly), and in either case subject to applicable tax withholdings (such amount, the “Health Care Benefit Payment”). The Health Care Benefit Payment shall be paid in monthly installments on the same schedule that the COBRA premiums would otherwise have been paid and shall be paid until the earlier of: (i) expiration of the COBRA Premium Period; or (ii) the date you are no longer enrolled in such COBRA coverage.

c. Equity Acceleration and Extended Exercise Period. The Company will accelerate the vesting of all stock option awards issued by the Company and held by you as of your Retirement Date (collectively, the “Option Awards”) such that, as of the Retirement Date, you will be immediately vested in the portion of the Option Awards that were scheduled to vest under the vesting schedule of such Option Awards during the eighteen (18) months immediately following the Retirement Date. For purposes of calculating the vesting acceleration in the preceding sentence, any unvested portion of Option Awards that are scheduled to vest in one or more annual installments shall be treated as if the original grant provided for vesting in equal monthly installments rather than annually. Additionally, the Company will extend the exercise period for all Option Awards that are vested as of your Retirement Date (including those whose vesting accelerates pursuant to this Section 4.c.) until the later of: (i) the original post-termination exercise period provided in your stock option agreement; or (ii) eighteen (18) months after the Retirement Date; provided that in no event shall any Option Award be exercisable beyond the original contractual life of the Option Award. The further vesting of all Option Awards will be suspended as of your Retirement Date (after applying the vesting acceleration pursuant to this Section 4.c.), except to the extent the vesting of the Option Awards further accelerate pursuant to the terms of the Consulting Services Agreement attached as Exhibit D (the “Consulting Agreement”) or otherwise pursuant to the terms of the Company’s applicable long-term incentive plan. Except as expressly modified in this Agreement (or the Consulting Agreement), the Option Awards shall continue to be governed by the terms of the applicable grant notice, stock option agreement and the Company’s long-term incentive plan. Pursuant to tax rules governing the portion of your Option Awards that are considered “incentive stock options” (the “ISOs”) under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), such Option Awards may lose ISO status as of your Retirement Date as a result of the vesting acceleration described above (due to the IRS $100K limitation on ISOs) and will lose ISO status in any event three months following your Retirement Date, after which such Option Awards will be deemed nonqualified stock options. In addition, the Consulting Agreement provides for an additional extension of the exercise period for certain of the Option Awards under the circumstances described in the Consulting Agreement (the “Extended Options”) and, as a result, any Extended Options that are ISOs will lose ISO status immediately. The Company encourages you to seek independent advice concerning the tax status of your

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Option Awards and the corresponding tax implications of this Agreement and the benefits hereunder.

In addition, as further described in the Consulting Agreement, your performance restricted stock unit awards that were granted on January 4, 2019 and that remain outstanding as of your Retirement Date (the “PRSUs”) will remain outstanding and you will remain eligible to receive shares of Company common stock in respect of such PRSUs until March 15, 2021, unless such PRSUs are terminated earlier under the circumstances set forth in the Consulting Agreement.

c.Attorneys’ Fees. The Company will reimburse you for documented attorneys’ fees actually incurred by you for the purpose of reviewing this Agreement and advising on it up to a maximum of $5,000.00. Such reimbursement will only be payable to you upon submission of appropriate documentation of payment. For the avoidance of doubt, to the extent that any reimbursements payable to you are subject to the provisions of Section 409A (as defined below): (i) any such reimbursements will be paid no later than December 31 of the year following the year in which the expense was incurred, (ii) the amount of expenses reimbursed in one year will not affect the amount eligible for reimbursement in any subsequent year, and (iii) the right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.

d.Termination Due to Death or Disability. Subject to applicable state or federal law, your employment with the Company will automatically terminate upon your death or Disability (as defined by the Severance Benefit Plan). Under the Severance Benefit Plan, you are not entitled to any severance benefits in the case of your death or Disability. However, as part of this Agreement, the Company will provide you with the Severance Benefits set forth in this Agreement upon your death or Disability occurring prior to the Retirement Date; provided, however, that you, your estate, or your representative (as applicable) signs the Retirement Date Release attached hereto as Exhibit C on or within twenty-one (21) days after the date your employment with the Company ends due to your death or Disability and allows that release to become effective.

5.Consulting Engagement. In exchange for your: (i) entering into this Agreement and allowing it to become effective; (ii) complying with it; and (iii) signing the Retirement Date Release and allowing it to become effective; then, as an additional benefit, the Company agrees to retain you as a consultant under the terms specified in the Consulting Agreement. Your consulting services to the Company under the Consulting Agreement are not expected to exceed more than 20% of the average level of services you performed to the Company in the three years preceding your Retirement Date.

6.No Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement (including its exhibits and the agreements, plans, instruments and insurance policies referenced herein and therein), you have not earned, will not earn by the Retirement Date, are not entitled to, and will not receive from the Company, any additional compensation, severance, or benefits on or after the Retirement Date, with the exception of any vested right you may have under the express terms of any written ERISA-qualified benefit plan (e.g., 401(k) account). By way of example, you acknowledge that you have

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not earned and are not owed any equity, bonus, incentive compensation, severance benefits, or commissions, except as may be provided in this Agreement (including its exhibits).

7.Expense Reimbursements. You agree that, within thirty (30) days after the Retirement Date, you will submit your final documented expense reimbursement statement reflecting all unreimbursed business expenses that you incurred through the Retirement Date, if any, for which you seek reimbursement. The Company will reimburse you for reasonable business expenses pursuant to its regular business practice.

8.Return of Company Property. On the Retirement Date (or earlier if requested by the Company), you agree to return to the Company (or delete) all Company documents (and all copies thereof) and other Company property which you are aware is in your possession or control, including, but not limited to, Company hardcopy or electronic files, email, correspondence, data, images, notes, drawings, records, plans, forecasts, reports, studies, analyses, proposals, agreements, financial information, research and development information, sales and marketing information, customer lists, prospect information, pipeline reports, sales reports, operational and strategic information, personnel information, specifications, code, software, databases, computer-recorded information, tangible property and equipment (including, but not limited to, computers, printers, mobile telephones, servers), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). Notwithstanding the foregoing or anything provided below, the Company will allow you to retain Company documents or property in your possession or control (i) you deem potentially helpful for you to perform services in accordance with the Consulting Agreement, or (ii) as otherwise approved by the Company in writing. You agree that you will make a diligent search to locate any such Company documents or property by the Retirement Date. If you have used any personally owned computer, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, after the Retirement Date you shall permanently delete (and not reinstate) such Company confidential or proprietary information from those systems; and you agree to provide the Company access to your system as requested to verify that the necessary deletion is done. Your compliance with this paragraph is a condition precedent to your receipt of the Severance Benefits.

9.Public Announcement and Transition Messaging. The Company plans to announce your retirement from the Company publicly shortly following the execution of this Agreement. The Company and you agree that, in communications with Company employees and/or third parties about the circumstances related to your termination of service from the Company, the Company and your statements shall be consistent with the talking points previously exchanged between the Company and you or as subsequently agreed.

10.Nondisparagement. You agree not to disparage the Company, and the Company’s officers, directors, employees, parents and subsidiaries, in any manner which could reasonably cause substantial harm to them or their business, business reputation or personal reputation, and the Company agrees to instruct its current executive officers and directors to not disparage you in any manner which could reasonably cause substantial harm to you or your business, business reputation or personal reputation; provided that you and the Company and its executive officers and directors may respond accurately to any question, inquiry or request for

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information if required by legal process or in connection with a government investigation. In addition, nothing in this provision or this Agreement is intended to prohibit or restrain you in any manner from making disclosures that (i) are protected under the whistleblower provisions of federal or state law or regulation or under other applicable law or regulation, nor prevent you from disclosing information about unlawful acts in the workplace, including, but not limited to, sexual harassment or (ii) which in good faith you reasonably deem necessary in the performance of your duties to the Company either prior to the Retirement Date or under the Consulting Agreement.

11.No Admissions. The promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by the Company to you or any other person, and the Company makes no such admission.

12.Cooperation. You agree to voluntarily cooperate with the Company, if you have knowledge of facts relevant to any threatened or pending claim, investigation, audit or litigation against or by the Company, by making yourself reasonably available for interviews with the Company or its legal counsel, preparing for and providing truthful and accurate deposition and trial testimony.  

13.Release of Claims.

a.General Release. In exchange for the consideration provided to you under this Agreement, you hereby generally and completely release the Company and its affiliated, related, parent and subsidiary entities, and each of their respective current and former directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorney’s fees, damages, and obligations, of every kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, arising out of or in any way related to (i) your employment, (ii) the termination of your employment or (iii) events, acts conduct or omissions between the Company and you occurring at any time prior to and including the date you sign this Agreement, except for Excluded Claims (defined below) (collectively, the “Released Claims”).

b.Scope of Release. Subject to the foregoing, the Released Claims include, but are not limited to: (i) all claims arising out of or in any way related to your employment with the Company, or the termination of that employment; (ii) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation, paid time off, sick time, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership, equity, or profits interests in the Company; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act (as amended)(the “ADEA”), and the California Labor Code (as amended).  

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c.ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you have under the ADEA, and that the consideration given for the waiver and releases you have given in this Agreement is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised, as required by the ADEA, that: (i) your waiver and release does not apply to any rights or claims that arise after the date you sign this Agreement; (ii) you should consult with an attorney prior to signing this Agreement (although you may choose voluntarily not to do so); (iii) you have twenty-one (21) days to consider this Agreement (although you may choose voluntarily to sign it sooner); (iv) you have seven (7) days following the date you sign this Agreement to revoke it (in a written revocation sent to me); and (v) this Agreement will not be effective until the date upon which the revocation period expires without such revocation, which will be the eighth day after you sign this Agreement provided that you do not revoke it (the “Effective Date”).

d.Waiver of Unknown Claims. In giving the releases set forth in this Agreement, which include claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to your release of claims herein, including but not limited to the release of unknown and unsuspected claims.

e.Excluded Claims. Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (i) any rights or claims for indemnification you may have pursuant to your indemnification agreement with the Company, under the certificate of incorporation, bylaws, operating agreements or other charter documents of the Company or its subsidiaries, or under applicable law; (ii) any rights under the Company’s director and officer insurance policy, and any other Company or subsidiary insurance policy; (iii) any rights which cannot be waived as a matter of law, including without limitation claims under the California Fair Employment and Housing Act, to the extent such claims are not waivable as a matter of law with this release; (iv) any rights you have to file or pursue a claim for workers’ compensation or unemployment insurance; and (v) any claims relating to or arising from the breach of this Agreement (including its exhibits and the agreements, plans, instruments and insurance policies referenced herein and therein). You hereby represent and warrant that, as of the date of this Agreement, other than the Excluded Claims, you are not aware of any claims you have or might have against any of the Released Parties that are not included in the Released Claims.

14.Protected Rights. Nothing in this Agreement limits your ability to file a charge or complaint with the Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). You further understand that this Agreement does not limit your ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government

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Agency, including providing documents or other information, without notice to the Company. While this Agreement does not limit your right to receive an award for information provided to the Securities and Exchange Commission, you understand and agree that, to maximum extent permitted by law, you are otherwise waiving any and all rights you may have to individual relief based on any claims that you have released and any rights you have waived by signing this Agreement.

15.Representations.You hereby represent that, as of the date of this Agreement, you have been paid all compensation owed and for all hours worked (except for the consideration to be provided to you under this Agreement and compensation not paid for the Company’s current payroll period), you have received all the leave and leave benefits and protections for which you are eligible pursuant to the federal Family and Medical Leave Act, the California Family Rights Act, or otherwise, and you have not suffered any on-the-job injury for which you have not already filed a workers’ compensation claim.

16.Dispute Resolution. To ensure the timely and economical resolution of disputes that may arise in connection with your employment with the Company, you and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution or interpretation of this Agreement, your employment, or the termination of your employment, including but not limited to statutory claims, will be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in San Diego, California, conducted by JAMS, Inc. (“JAMS”) under the then-applicable JAMS rules (available at the following web address: https://www.jamsadr.com/rules-employment-arbitration/, and which will be provided to you on request). By agreeing to this arbitration procedure, both you and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. In addition, all claims, disputes or causes of action under this provision, whether by you or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity. The arbitrator may not consolidate the claims of more than one person or entity, and may not preside over any of form of representative or class proceeding. To the extent the preceding sentences in this paragraph regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration. This provision shall not apply to an action or claim that cannot be subject to mandatory arbitration under applicable law, including without limitation, claims brought pursuant to the California Private Attorney General Act of 2004 (as amended), the California Fair Employment and Housing Act (as amended), and the California Labor Code (as amended), to the extent such claims are not permitted by applicable law(s) to be submitted to mandatory arbitration and the applicable law(s) are not preempted by the Federal Arbitration Act or otherwise invalid (collectively, the “Arbitration Excluded Claims”). In the event you intend to bring multiple claims, including one of the Arbitration Excluded Claims listed above, the Arbitration Excluded Claims may be publicly filed with a court, while any other claims will remain subject to mandatory arbitration. You will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (i) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (ii) issue a written arbitration decision, to include the arbitrator’s

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essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that you or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS’ arbitration fees in excess of the amount of court fees that would be required of you if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

17.Tax Provisions.

a.Section 409A. All severance benefits and other payments provided under the Agreement (including the Consulting Agreement) are intended to satisfy the requirements for an exemption from application of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”) to the maximum extent that an exemption is available (including but not limited to the exemption provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A 1(b)(9)) and any ambiguities herein shall be interpreted accordingly; provided, however, that to the extent such an exemption is not available, the severance benefits and other payments provided under the Agreement (including the Consulting Agreement) are intended to comply with the requirements of Section 409A of the Code to the extent necessary to avoid adverse personal tax consequences and any ambiguities herein shall be interpreted accordingly. Specifically, the cash severance benefits under Section 4.a. of this Agreement are intended to comply with the payment limitation applicable to “specified employees” contained in Section 409A(a)(2)(B)(i), in order to avoid causing you to incur the additional 20% tax under Section 409A. Each payment under this Agreement shall be treated as a separate and distinct payment for purposes of Section 409A.

b.Section 280G. If any payment or benefit you may receive (including after your Retirement Date) in connection with a change in control from the Company or otherwise (a “Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the parachute provisions of Section 4(e) of the Severance Benefit Plan shall apply and you acknowledge and agree (x) that, in order to avoid the Excise Tax, you may be required to return certain payments or benefits to the Company pursuant to the provisions of Section 4(e), and (y) to cooperate with the Company (or its acquirer) to promptly return any such payments or benefits as may be required pursuant to Section 4(e).

18.Miscellaneous. This Agreement, together with its exhibits, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to the subject matter hereof. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other agreements, promises, warranties or representations concerning its subject matter, including but not limited to your Amended and Restated Termination Protection Agreement, as amended. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure

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to the benefit of both you and the Company, their heirs, successors and assigns. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California, as applied to contracts made and to be performed entirely within California, without regard to conflicts of law principles. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination shall not affect any other provision of this Agreement and the provision in question shall be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible under applicable law. This Agreement may be executed in counterparts which shall be deemed to be part of one original, and facsimile and electronic signatures shall be equivalent to original signatures.

19.notice of default or breach; Opportunity to Cure.Prior to the Company asserting you are in default or breach of this Agreement (or any exhibit), you must (a) receive a written notice which indicates in reasonable detail the facts and circumstances claimed to provide a basis for such breach or default; and (b) be provided with an opportunity during the 30 days following the receipt of such notice to cure or otherwise correct any such default or breach. The Company represents that, as of the date of this Agreement, it is not aware of any facts or circumstances, including any prior action or statement by you, that would constitute a breach or default by you of any provision in this Agreement had the Agreement been in effect at the time of the facts and circumstances.

[Signature page to follow.]

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If this Agreement is acceptable to you, please sign and date below within twenty-one (21) days, and provide me with a fully signed Agreement. The Company’s offer contained herein will automatically expire if we do not receive the fully signed Agreement within this timeframe.

We wish you the best in your future endeavors.

Sincerely,

Arena Pharmaceuticals, Inc.

By:/s/ Suzanne Zoumaras

Suzanne C. Zoumaras

Executive Vice President and Chief Human Resources Officer

Exhibit A: Arena Pharmaceuticals, Inc. Proprietary Information and Invention Assignment Agreement

Exhibit B: Arena Pharmaceuticals, Inc. Severance Benefit Plan

Exhibit C: Retirement Date Release

Exhibit D: Consulting Services Agreement

Understood, Accepted and Agreed:

/s/ Steven Spector

Steven Spector

1/13/2020

Date

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Exhibit A

ARENA PHARMACEUTICALS, INC. PROPRIETARY INFORMATION AND INVENTION ASSIGNMENT AGREEMENT

Exhibit B

Arena Pharmaceuticals, Inc. Severance Benefit Plan

Exhibit C

Retirement Date Release

(To be signed and returned to the Company on or within twenty-one (21) days after the Retirement Date)

In exchange for the consideration to be provided to me pursuant to that certain Transition and Retirement Agreement between me and Arena Pharmaceuticals, Inc. (the “Company”) (the “Agreement”), I hereby provide the following Retirement Date Release. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Agreement.

I hereby generally and completely release the Company and its affiliated, related, parent and subsidiary entities, and each of their respective current and former directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, insurers, affiliates, and assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorney’s fees, damages and obligations of every kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, arising out of or in any way related to (i) my employment, (ii) the termination of my employment or (iii) events, acts conduct or omissions between the Company and me occurring at any time prior to and including the time I sign this Retirement Date Release,except for Excluded Claims (defined below) (collectively, the “Released Claims”).

Subject to the foregoing, the Released Claims include, but are not limited to: (i) all claims arising out of or in any way related to your employment with the Company, or the termination of that employment; (ii) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation, paid time off, sick time, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership, equity, or profits interests in the Company; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act of 1967 (as amended) (the “ADEA”), and the California Labor Code (as amended).  

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and releases in this Retirement Date Release is in addition to anything of value to which I am already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (i) my waiver and release does not apply to any rights or claims that arise after the date I sign this Retirement Date Release; (ii) I should consult with an attorney prior to signing this Retirement Date Release (although I may choose voluntarily not to do so); (iii) I have twenty-one (21) days to consider this Retirement Date Release (although I may choose to voluntarily sign it sooner); (iv) I have seven (7) days following the date I sign this Retirement Date Release to revoke it, with such revocation to be effective only if I deliver written notice of revocation to the Company within the seven (7)-day period; and (v) the Retirement Date Release will not be effective until the date upon which the revocation period has expires without such revocation, which will be the eighth day after I sign this Retirement Date Release provided that I do not revoke it (the “Release Effective Date”).

In giving the general release of claims herein, which includes claims that may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code, which reads as follows: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” I hereby expressly waive

and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Retirement Date Release.

Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (i) any rights or claims for indemnification I may have pursuant to my written indemnification agreement with the Company, under the certificate of incorporation, bylaws, operating agreements or other charter documents of the Company or its subsidiaries, or under applicable law; (ii) any rights under the Company’s director and officer insurance policy, and any other Company or subsidiary insurance policy; (iii) any rights which cannot be waived as a matter of law, including without limitation claims under the California Fair Employment and Housing Act, to the extent such claims are not waivable as a matter of law with this release; (iv) any rights I have to file or pursue a claim for workers’ compensation or unemployment insurance; and (v) any claims relating to or arising from the breach of the Agreement (or its exhibits, and the agreements, plans, instruments and insurance policies referenced herein and therein).

Except as prohibited by law or regulation, (i) I represent that I have not filed any claims against the Company and agree that I will not file any claim against the Company or seek any compensation for any claim other than the payments and benefits referenced in the Agreement (or the exhibits) and (ii) I agree to indemnify and hold the Company harmless from and against any and all loss, cost, and expense, including, but not limited to court costs and attorney’s fees, arising from or in connection with any action which may be commenced, prosecuted, or threatened by me or for my benefit, upon my initiative, or with my voluntary aid or approval, contrary to the provisions of this Retirement Date Release.

This Retirement Date Release, together with the Agreement (and its exhibits), constitutes the entire agreement between me, and the Company with respect to the subject matter hereof. I am not relying on any representation not contained herein or in the Agreement (or exhibits). The provisions of this Retirement Date Release shall be deemed severable, and the invalidity or unenforceability of any provision hereof shall not affect the validity or enforceability of the other provisions hereof, and, to the greatest extent legally possible, effect shall be given to the intent manifested by the portion held invalid or inoperative.

Understood and Agreed:

___________________________________________________________

Steven SpectorDate

Exhibit D

Consulting Services Agreement

EX-10.7

Exhibit 10.7

CONSULTING SERVICES AGREEMENT

THIS CONSULTING SERVICES AGREEMENT (the “Agreement”) is entered into as of March 2, 2020 (“Effective Date”) by and between Arena Pharmaceuticals, Inc., a Delaware corporation (“Arena”), and Steven Spector (“Consultant”).

WHEREAS, Arena wishes to obtain the services of Consultant for certain purposes and Consultant wishes to provide such services, all subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and intending to be legally bound hereby, Arena and Consultant hereby agree as follows:

1.Services to be Provided. During the term of this Agreement, Consultant shall perform for Arena (and if applicable, Arena’s Affiliates) services (the “Services”), described in the written addendum referencing this Agreement (the “Exhibit”). The Exhibit shall automatically be incorporated into this Agreement by reference. Arena acknowledges and agrees that during the term of this Agreement, Consultant may perform work for other clients and/or, if Consultant is an individual, for an employer. Consultant agrees that Consultant will not utilize the confidential information, funds, personnel, space, equipment or facilities of any other client or any employer while performing services for Arena. All services performed pursuant to this Agreement shall be performed in a good, timely, efficient and professional manner and, if Consultant is a company or other entity, solely by Consultant’s qualified employees. As used herein, “Affiliate” means any entity, which controls, is controlled by, or is under common control with Arena or Consultant, as applicable. In this context “control” shall mean ownership by one entity, directly or indirectly, of more than fifty percent (50%) of the voting stock of another entity, which voting stock is entitled to vote for the election of directors, or otherwise has the actual right and ability to control and direct the management and business affairs of such other entity.

2.Term. This Agreement will begin on the Effective Date and continue until December 31, 2020, unless otherwise terminated earlier as permitted herein.

3.Compensation; No Benefits; Licenses; Insurance; Taxes.

(a)As compensation for Consultant’s performance of the Services, Arena (or its Affiliate) shall pay Consultant the amounts specified in the Exhibit, in accordance with the payment schedule set forth in the Exhibit. Consultant shall be responsible for all expenses incurred in connection with the performance of the Services, including travel, hotel and meal expenses, unless such expenses are reasonable and approved in advance by Arena. Arena agrees to pre-approve and pay reasonable travel, hotel and meal expenses incurred by Consultant in connection with Services requested by Arena. All such pre-approved expenses shall be invoiced to Arena at cost and Consultant shall include copies of all receipts for such expenses. Consultant shall not incur, and Arena shall not be responsible for, any fees or expenses in excess of the amounts set forth in the Exhibit or amendment thereto that has been signed by an authorized representative of Arena.

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(b)Except as provided in the Transition Agreement (defined below) or in this Agreement, neither Consultant nor any employee, agent or representative of Consultant, if applicable, is an employee of Arena or is entitled to participate in, or receive any benefit or right as an Arena employee under, any Arena employee benefit and welfare plans, including, without limitation, employee insurance, pension, savings and security plans, as a result of Consultant entering into this Agreement.

(c)Consultant is solely responsible for filing all tax returns and submitting all payments as required by any federal, state or local tax authority arising from the payment of fees to Consultant under this Agreement, and agrees to do so in a timely manner. If applicable, Arena will report the fees paid to Consultant under this Agreement by filing Form 1099-MISC (or other applicable form) with the Internal Revenue Service as required by law.

(d)Consultant is solely responsible for obtaining any business or similar licenses required by any federal, state or local authority.  

(e)Arena will not obtain workers’ compensation insurance on behalf of, or for the benefit of, Consultant or Consultant’s employees. If employees of Consultant perform Services, Consultant will obtain (at Consultant’s own expense) workers’ compensation insurance to the extent required by law.

4.Ownership of Work Product

(a)All findings, conclusions, data, inventions, discoveries, trade secrets, techniques, processes, know-how, trademarks, servicemarks, brands, trade dress and tag lines, whether or not patentable or otherwise registrable, that are made by Consultant, either alone or with others, in the performance of the Services or which result, to any extent, from use of Arena’s (or Arena’s Affiliate’s) premises or property (collectively, “Inventions”) shall become the exclusive property of Arena or its designee. Consultant shall provide Arena prompt written notice of each Invention. Consultant hereby assigns, transfers and conveys all of Consultant’s right, title and interest in and to any and all Inventions to Arena or its designee.

(b)Upon the request and at the expense of Arena or its designee, Consultant will, and will cause Consultant’s employees, if any, to, execute and deliver any and all instruments and documents and take such other acts as may be necessary or desirable to document such transfer or to enable Arena or its designee to apply for, prosecute and enforce patents, trademark registrations or copyrights in any jurisdiction with respect to any Inventions or to obtain any extension, validation, re-issue, continuance or renewal of any such intellectual property right. Without limiting the foregoing, Consultant shall, and shall cause Consultant’s employees, if any, to, assign, grant and convey unto Arena or its designee all of Consultant’s right, title and interest, now existing or that may exist in the future, in and to any copyrights in any findings, reports, data compilations and other information and material resulting from the performance of the Services. Consultant (including Consultant’s employees, if any) shall not submit applications for copyright registration in any country for any information or materials created by Consultant pursuant to this Agreement.

(c)Consultant acknowledges and agrees that the work (the services to be rendered), and all rights therein, including without limitation, copyright, belongs to and shall be the sole and exclusive property of Arena or its designee.

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(d)The provisions of this Section 4 shall survive the expiration or sooner termination of the term of this Agreement.

5.Confidentiality. Consultant shall limit access to confidential or proprietary information (as defined below) of Arena, its Affiliates and its corporate collaborators, to those employees, if any, who require it for the performance of Services, are bound by a written obligation of non-use and confidentiality no less restrictive than this section, and are under the direct control and supervision of Consultant. Consultant will not, and will further not permit its employees, if any, to, either during or after the term of this Agreement, disclose to any third person or use any confidential or proprietary information of Arena, its Affiliates or its corporate collaborators for any purpose other than the performance of the Services without the prior written authorization of Arena. This obligation shall not apply to information that is in the public domain through no fault of Consultant. For purposes of this Section 5, “confidential or proprietary information” is defined as any information disclosed hereunder by Arena or its Affiliates, or on behalf of Arena or its Affiliates, or developed by Consultant in the performance of Services, including without limitation the structure and activity of any chemical compositions provided to Consultant pursuant to this Agreement, as well as synthetic and analytical methods, biomaterials, micro-organisms, cells, cell lines and the progeny and derivatives thereof, including all modified and recombinant DNA molecules and all vectors and hosts containing the same, patent applications, pre-clinical or clinical data, marketing methods and plans, pricing information, manufacturing information and other unpublished information related to the business or the financial condition of Arena and its Affiliates and corporate collaborators. The provisions of this Section 5 shall survive the expiration or sooner termination of this Agreement.

6.Termination. This Agreement may be terminated upon the mutual agreement of Arena and Consultant. In addition, (i) Consultant may terminate this Agreement and Consultant’s consulting relationship with Arena for any reason whatsoever, upon thirty (30) days’ written notice to Arena and (ii) Arena may terminate this Agreement and Consultant’s consulting relationship for Cause as provided herein. “Cause” for Arena to terminate Consultant hereunder shall mean the occurrence of one or more of the following events if such event results in a demonstrably harmful impact on Arena’s business or reputation: (1) Consultant’s willful and continued failure to substantially perform his or her duties with Arena (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Consultant by Arena’s Board of Directors which specifically identifies the manner in which the Board of Directors believes that Consultant has not substantially performed his duties. For a termination to be for Cause pursuant to this Agreement, Consultant must (a) receive a written notice which indicates in reasonable detail the facts and circumstances claimed to provide a basis for the termination for Cause; and (b) be provided with an opportunity to be heard no earlier than 30 days following the receipt of such notice (during which notice period Consultant has the opportunity to cure and has failed to cure or resolve the behavior in question); (2) Consultant’s conviction of, or plea of guilty or nolo contendere to, a felony or any crime involving fraud, dishonesty or moral turpitude; (3) Consultant’s willful engaging in gross misconduct; or (4) Consultant’s unauthorized use or disclosure of material confidential information or material trade secrets of Arena.

7.Return of Arena Property. Except as otherwise approved by Arena in writing, Consultant will return to Arena any property of Arena, its Affiliates and corporate collaborators,

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in Consultant’s possession, at any time when so requested by Arena and in any event upon termination of this Agreement or the Exhibit.

8.No Conflicting Agreements. Consultant represents that Consultant is not a party to any existing agreements that would prevent Consultant from entering into and performing this Agreement. Consultant will not enter into any other agreement that is in conflict with Consultant’s obligations under this Agreement. Consultant shall not seek or use funding to support the Services from any third party (including the U.S. Government), without the prior written consent of Arena. If Consultant is a member or employee of, or affiliated with, a university or other third party, Consultant represents that Consultant has complied with any and all applicable policies and procedures of such university or other third party pertaining to the disclosure of proposed agreements for services and, to the extent necessary or required, received approval from such university or other third party to enter into this Agreement and be bound by the terms herein. Without limiting the foregoing, Consultant represents that receipt and use of confidential or proprietary information hereunder will not conflict with any agreement Consultant has with any university or third party which Consultant is a member of, employed by or affiliated with, and that no university or third party shall have any interest or rights in such confidential or proprietary information or any Inventions. If requested by Arena, Consultant will provide to Arena, and will require Consultant’s employees, if any, providing Services to provide to Arena, information concerning payments and equity holdings that could be viewed as creating a conflict of interest with respect to the provision of Services hereunder, as well as other information that is required or requested by regulatory authorities.

9.Independent Contractor. Consultant is an independent contractor under this Agreement. Neither party shall have the power to bind the other party to any agreement, contract, obligation or liability. Consultant shall not communicate on behalf of Arena or its Affiliates, or report on the Services rendered under this Agreement to any third party without specific written authorization by Arena.

10.No Health Care Providers.  Consultant represents and warrants that Consultant is not a health care provider, and no health care provider will receive payment for Services under this Agreement. The term “health care provider” includes any person with a valid medical (or other applicable) license or certification to practice in the United States, or any other individual or entity based primarily in the United States, in each case, that is in a position to prescribe, purchase, recommend, refer, or arrange for the purchase, sale, or formulary placement of Arena products, including, but not limited to, physicians, pharmacists, nurses, nurse practitioners, physician assistants, medical directors, hospitals, pharmacies, pharmacy benefit managers, group purchasing organizations, wholesalers, insurers, and any individual employed by such entities with responsibility or authority to purchase, prescribe, recommend, influence, or arrange for the purchase or sale of Arena’s products.

11.Formulary Committee Participation. To the extent Consultant (or any employee or permitted subcontractor of Consultant performing Services)is a member of a committee of any government entity that sets prescription drug formularies or develops clinical guidelines, during the term of this Agreement and for two years following the term, Consultant (or such employee or permitted subcontractor, as applicable) will disclose to such committee the existence of this Agreement and the nature of the Services, and will follow any procedure set forth by such committee relative to Services under this Agreement. Consultant will notify Arena of such

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committee membership and of any such procedure that Consultant is required to follow by the committee relative to the Services under this Agreement.

12.Entire Agreement and Amendment. This Agreement is the sole agreement between Consultant and Arena with respect to the Services to be performed hereunder and it supersedes all prior agreements and understandings with respect thereto, whether oral or written, with the exception of the Transition and Retirement Agreement between Consultant and Arena dated January 13, 2020 (the “Transition Agreement”) and any agreements, plans, instruments and insurance policies referenced herein or therein. No modification to any provision of this Agreement shall be binding unless in writing and signed by both Consultant and a duly authorized representative of Arena. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and permitted assigns of the parties hereto.

13.Assignment and Subcontracts. The duties and responsibilities of Consultant hereunder are of a personal nature and shall not be assigned, subcontracted or delegated in whole or in part by Consultant without Arena’s prior written consent. Consultant remains responsible for the actions and omissions of Consultant’s permitted subcontractors as if the Services were performed by Consultant and Consultant will enforce the terms of Subcontracts (as defined below) against such subcontractors if so requested by Arena. The terms of each Subcontract shall ensure that all obligations of Consultant and restrictions on Consultant designated in this Agreement shall apply to subcontractors to the extent any failure of such provisions to apply to subcontractors would eliminate or denigrate any of Arena’s rights under this Agreement. In any agreement between Consultant and a subcontractor: (a) pursuant to which a subcontractor performs Services related to this Agreement, or (b) that otherwise represents a subcontracting of Consultant’s obligations under this Agreement (each, a “Subcontract”), Arena will be named as a third party beneficiary of such Subcontract, with the right to enforce all rights and obligations thereunder. Consultant shall prohibit Consultant’s subcontractors from further subcontracting or otherwise delegating Services under this Agreement. Arena may withdraw its consent regarding any subcontractor at any time. In the event Consultant performs any of its obligations under this Agreement through a subcontractor, then Consultant shall at all times be fully responsible for the payment of such subcontractor.

14.Governing Law. This Agreement shall be governed by and interpreted in accordance with laws of the State of California, without giving effect to any conflict of law provisions.

15.Notices. All notices required hereunder shall be in writing and be delivered personally, sent by an internationally recognized express courier service (e.g., FedEx), transmitted via facsimile, or sent via registered or certified mail (postage prepaid) requiring return receipt, and shall be deemed given as of: (i) the date of delivery, if sent by personal delivery; (ii) two days after the date of deposit, if sent by express courier service; (iii) the date of transmission, if faxed with confirmatory printout of transmission; or (iv) one week after the date of mailing, if sent by mail. Notices shall be addressed as provided below or to such other addressee as either party may in the future designate by written notice to the other in accordance with the terms hereof:

If to Arena, to:

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Arena Pharmaceuticals, Inc.

6154 Nancy Ridge Drive

San Diego, CA 92121

USA

Facsimile No.: 858.677.0065

Attention: Chief Executive Officer

With a copy to: General Counsel

If to Consultant, to:

Steven Spector

13517 Penfield Point

San Diego, CA 92130

16.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, all of which together shall constitute one and the same instrument. One or more counterparts of this Agreement may be delivered by facsimile or PDF transmission with the intent that it or they shall constitute an original counterpart hereof.

17.Invalidity and Waiver. If any portion of this Agreement is held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be deemed valid and operative, and, to the greatest extent legally possible, effect shall be given to the intent manifested by the portion held invalid or inoperative. The failure by either party to enforce against the other party any term or provision of this Agreement shall not be deemed to be a waiver of such party’s right to enforce against the other party the same or any other such term or provision in the future.

18.Conflict of Terms. To the extent any terms contained in the Exhibit conflict with this Agreement, the terms of the Exhibit shall prevail unless otherwise specified.

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have duly executed, or caused to be duly executed, this Agreement as of the date first above written.

Arena Pharmaceuticals, Inc.	Steven Spector
By: /s/ Suzanne Zoumaras	/s/ Steven Spector
Name: Suzanne Zoumaras
Title: EVP & CHRO
6154 Nancy Ridge Drive San Diego, CA 92121	13517 Penfield Point San Diego, CA 92130

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Telephone Number: 858-453-7200	Telephone Number: 858-472-3336
Date: 1/13/2020	Date: 1/13/2020

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The following is made part of the Consulting Services Agreement entered into as of March 2, 2020, by and between Arena Pharmaceuticals, Inc. (“Arena”) and Steven Spector (the “Agreement”)

Exhibit

Description of Consulting Services and Compensation

Effective Date: March 2, 2020

Scope of Services:

Consultant shall provide consulting services to Arena relating to such matters as may be reasonably requested by Arena’s Chief Executive Officer or his designee. Consultant’s consulting services shall not exceed thirty (30) hours per month.

Consultant shall be available by, including, but not limited to, phone, email, and in person, at such reasonable times as are agreed upon by both parties, to provide advice and consultation to Arena.

Compensation:

Consultant shall be paid $350.00/hour; provided, however, that, for each month during the term of the Agreement from March 2, 2020 to September 2, 2020, Consultant will receive a monthly minimum payment equivalent to fifteen (15) hours of work.  

All of Consultant’s stock options previously granted by Arena that are outstanding as of the Retirement Date (as defined in the Transition Agreement) are referred to herein as the “Option Awards”. The vesting of the Option Awards shall be accelerated as described in the Transition Agreement.  As of the Retirement Date, further vesting of the Option Awards shall be suspended but the Option Awards shall continue to remain outstanding and exerciseable during and after the Term of this Agreement (but in any event, not longer than the original contractual life of the options), in accordance with the Transition Agreement and, if applicable, the potential additional vesting acceleration and extended exercise benefits described below under “Accelerated Vesting and Extended Exercise Period.

In addition, any portion of Consultant’s performance restricted stock unit awards granted on January 4, 2019 that are outstanding as of the Retirement Date (the “PRSUs”) will remain outstanding until the earlier of: (i) March 15, 2021; (ii) termination of the Agreement by Arena for Cause; and (iii) termination of the Agreement by Consultant prior to December 31, 2020 (unless otherwise agreed to in writing between Consultant and Arena); and (iv) termination of the PRSUs pursuant to the terms of the PRSU Agreement (as defined below) and Arena’s 2017 Long-Term Incentive Plan (other than termination due to termination of Consultant’s services with Arena) (such earliest date, the “PRSU Termination Date”).

Until the PRSU Termination Date, Consultant will remain eligible to be issued shares of Arena common stock pursuant to the vesting and issuance criteria set forth in the PRSU Grant Agreement (including Attachment I thereto) (the “PRSU Agreement”) on the same terms and at the same time as Consultant would have received such shares if Consultant’s employment or other services with Arena would have continued through the PRSU Termination Date, provided that if, under the terms of the PRSU Agreement, shares of Arena common stock would be issued to Consultant after March 15, 2021 as a result of a Target Price or Maximum Price (as defined in the PRSU Agreement) occurring prior to March 15, 2021 (and prior to the PRSU Termination Date), such shares shall instead be issued to Consultant on March 15, 2021 and any continuing employment or service required for achievement, and any remaining Service Period (as defined in the PRSU Agreement) required for

issuance, of such shares shall be waived. Any PRSUs remaining outstanding following the PRSU Termination Date shall immediately be forfeited for no consideration.

Except as expressly modified in this Exhibit or the Transition Agreement, the PRSUs shall continue to be governed by the terms of the PRSU Agreement and Arena’s 2017 Long-Term Incentive Plan.

Expenses: Consultant shall be reimbursed for reasonable travel, hotel and meal expenses incurred in accordance with Section 3(a) of the Agreement.

Term:

This Exhibit shall remain in effect until the earlier to occur of (a) December 31, 2020, or (b) termination of the Agreement as permitted in the Agreement. The provisions under “Compensation”, “Expenses”, “Schedule of Payments” and “Accelerated Vesting and Extended Exercise Period” shall survive the expiration of the term of this Exhibit.

Schedule of Payments:

Consultant shall be paid in full any undisputed invoiced amount within thirty (30) days from Arena’s receipt of invoice and a completed and signed Form W-9 or equivalent tax form from Consultant.

Invoice:

Consultant shall send to Arena monthly invoices. For all work performed, the invoice shall outline the date work was performed, the number of hours worked in each such day, and a brief description of the work performed on behalf of Arena in a form reasonably acceptable to Arena. All invoices shall be sent to Arena, attention Accounts Payable at invoices@arenapharm.com.

The period of work covered by each invoice shall not be more than one month and all work performed in any calendar month shall be invoiced within ten (10) days of each month end.

Accelerated Vesting and Extended Exercise Period:

Upon termination of the Agreement for any reason (including death or Disability, as defined in the Arena Pharmaceuticals, Inc. Severance Benefit Plan, as amended and restated effective January 4, 2019) other than (i) termination by Arena for Cause or (ii) termination by Consultant prior to December 31, 2020, and provided that Consultant (a) complies with the obligations hereunder and with the Transition Agreement (excluding any obligations arising following death of Disability (other than the release requirement set forth below)); and (b) on or within twenty-one (21) days after the termination of the Agreement, signs a release of claims in substantially the same form as the Retirement Date Release attached to the Transition Agreement, which will be provided by Arena (the “Release”), and allows the Release to become effective, then Arena will accelerate the vesting of all of the Option Awards such that, as of the date of the effective date of the Release, Consultant will be deemed vested in all remaining unvested Option Awards (the “Accelerated Vesting”). In addition, subject to satisfaction of such conditions, Arena will extend the exercise period for all Option Awards (i.e., not only the portion of such Option Awards whose vesting was accelerated as provided in the prior sentence, but also the portion of such Option Awards that were previously vested) other than the Excluded Options (as defined below) until thirty-six (36) months after the termination of the Agreement, but in any event not beyond the original contractual life of each such Option Award (the “Extended Exercise Period”). The “Excluded Options” means the following Option Awards: (i) the Option Award granted on March 17, 2010 covering up to 3,726 shares (Grant Number 20003927), (ii) the Option Award granted on March 15, 2011 covering up to 7,970 shares (Grant Number 20004190), (iii) the Option Award granted on March 19, 2012 covering up to 5,525 shares (Grant

Number 20004415), (iv) the Option Award granted on December 17, 2013 covering up to 1,812 shares (Grant Number 2004731), (v) the Option Award granted on December 15, 2014 covering up to 1,875 shares (Grant Number 20005024), and (vi) the Option Award granted on December 15, 2015 covering up to 7,276 shares (Grant Number 20005306).

For the avoidance of doubt, if, prior to December 31, 2020, Consultant terminates the Agreement for any reason, or at any time Arena terminates the Agreement or the consulting relationship for Cause, then Consultant will no longer be eligible to receive the Accelerated Vesting or the Extended Exercise Period (as defined above). If the Agreement is terminated due to Consultant’s death or Disability, Arena will provide the Accelerated Vesting and the Extended Exercise Period; provided, however, that Consultant, Consultant’s estate or Consultant’s representative (as applicable) signs the Release on or within twenty-one (21) days after the date the Agreement terminates due to Consultant’s death or Disability and allows that release to become effective.

The portion of the Option Awards subject to the Extended Exercise Period that are also considered “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, as amended (the “ISOs”) will immediately lose ISO status upon the execution of the Transition Agreement. Arena encourages Consultant to seek independent advice concerning the tax status of Consultant’s Option Awards and the corresponding tax implications of the Agreement, this Exhibit, and the benefits hereunder.

Except as expressly modified in this Exhibit or in the Transition Agreement, the Option Awards shall continue to be governed by the terms of the applicable grant notice, stock option agreement and Arena’s long-term incentive plan.

Counterparts:

This Exhibit may be executed by exchange of signatures by facsimile or exchange of PDF copies, and in two or more counterparts, each of which will be deemed an original document, and all of which, together with this writing, will be deemed one instrument.

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have duly executed, or caused to be duly executed, this Exhibit effective as of the Effective Date above written.

Arena Pharmaceuticals, Inc.	Steven Spector
By: /s/ Suzanne Zoumaras	/s/ Steven Spector
Name: Suzanne Zoumaras
Title: EVP & CHRO
Date: 1/13/2020	Date: 1/13/2020

EX-10.8

Exhibit 10.8

ARENA PHARMACEUTICALS, INC.
AMENDED AND RESTATED 2017 LONG-TERM INCENTIVE PLAN

Arena Pharmaceuticals, Inc. (the “Company”), a Delaware corporation, hereby adopts the following Amended and Restated 2017 Long-Term Incentive Plan (the “Restatement”) which amends and restates the terms of the Company’s Amended and Restated 2017 Long-Term Incentive Plan that was previously in effect (the “Plan”) effective as set forth in Section 13.13.

1.PURPOSE OF THE PLAN

The purpose of the Plan is to assist the Company and its Affiliates in attracting and retaining employees, directors, consultants and advisors of the Company and its Affiliates who are expected to contribute to the Company’s success and achieve long-term objectives that will benefit the stockholders of the Company through the additional incentives inherent in the Awards hereunder.

2.DEFINITIONS

2.1.“Affiliate” shall mean, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act. The Board or the Committee shall have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.

2.2.“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Performance Award or any other right, interest or option relating to Shares or other property (including cash) granted pursuant to the provisions of the Plan.

2.3.“Award Agreement” shall mean any written agreement, contract or other instrument or document evidencing any Award granted hereunder, including through an electronic medium.

2.4.“Board” shall mean the Board of Directors of the Company.

2.5.“Cause” shall mean, unless otherwise provided in an Award Agreement or another agreement between the Participant and the Company or an Affiliate or a plan maintained by the Company or an Affiliate in which the Participant participates, a determination by the Committee that the Participant has breached his or her employment or service contract with the Company, or has been engaged in disloyalty to the Company, including, without limitation, fraud, embezzlement, theft, commission of a felony or proven dishonesty in the course of his or her employment or service, or has disclosed trade secrets or confidential information of the Company to persons not entitled to receive such information, or has breached any written noncompetition or nonsolicitation agreement between the Participant and the Company or has engaged in such other behavior detrimental to the interests of the Company as the Committee determines in its sole discretion. Any determination of “cause” for the purposes of outstanding Awards held by such Participant shall have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose. Notwithstanding the foregoing, neither this provision nor the Plan is intended to, and neither shall be interpreted in a manner that limits or restricts a participant from exercising any legally protected whistleblower rights (including pursuant to Rule 21F under the Securities Exchange Act of 1934).

2.6.“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

2.7.“Committee” shall mean the Compensation Committee of the Board or a subcommittee thereof formed by the Compensation Committee to act as the Committee hereunder. The Committee shall consist of no fewer than two Directors, each of whom is (i) a “Non-Employee Director” within the meaning of Rule 16b-3 of the Exchange Act, (ii) an “outside director” within the meaning of Section 162(m) of the Code to the extent applicable, and (iii) an “independent director” for purpose of the rules of the Nasdaq Stock Market (or such other principal U.S. national securities exchange on which the Shares are traded) to the extent required by such rules.

2.8.“Consultant” shall mean any consultant or advisor who is a natural person and who provides services to the Company or any Affiliate, so long as such person (i) renders bona fide services that are not in connection with the offer and sale of the Company’s securities in a capital raising transaction and (ii) does not directly or indirectly promote or maintain a market for the Company’s securities.

2.9.INTENTIONALLY RESERVED

2.10.“Director” shall mean a non-employee member of the Board.

2.11.“Dividend Equivalents” shall have the meaning set forth in Section 12.5.

2.12.“Employee” shall mean any employee of the Company or any Affiliate and any prospective employee conditioned upon, and effective not earlier than, such person becoming an employee of the Company or any Affiliate.

2.13.“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

2.14.“Fair Market Value” shall mean, with respect to Shares as of any date, (i) the per Share closing price of the Shares as reported on the Nasdaq Stock Market on that date (or if there was no reported closing price on such date, on the last preceding date on which the closing price was reported), (ii) if the Shares are not then listed on the Nasdaq Stock Market, the closing price on such other principal U.S. national securities exchange on which the Shares are listed (or if there was no reported closing price on such date, on the last preceding date on which the closing price was reported); or (iii) if the Shares are not listed on a U.S. national securities exchange, the Fair Market Value of Shares shall be determined by the Committee in its sole discretion using appropriate criteria. The Fair Market Value of any property other than Shares shall mean the market value of such property determined by such methods or procedures as shall be established from time to time by the Committee.

2.15.“Incentive Stock Option” shall mean an Option which when granted is intended to be, and qualifies as, as an incentive stock option for purposes of Section 422 of the Code.

2.16.“Inducement Award” shall mean an Award that is granted pursuant to Section 3.3 of the Plan.

2.17.“Inducement Award Rules” shall mean Nasdaq Listing Rule 5635(c)(4), the related guidance under Nasdaq IM 5635-1 and any successor rule or guidance.

2.18.“Inducement Shares” shall have the meaning set forth in Section 3.3.

2.19.“Limitations” shall have the meaning set forth in Section 10.5.

2.20.“Option” shall mean any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine.

2.21.“Participant” shall mean an Employee, Director or Consultant who is selected by the Committee to receive an Award under the Plan.

2.22.“Payee” shall have the meaning set forth in Section 13.1.

2.23.“Performance Award” shall mean any Award of Performance Cash, Performance Shares or Performance Units granted pursuant to Article 9.

2.24.“Performance Cash” shall mean any cash incentives granted pursuant to Article 9 payable to the Participant upon the achievement of such performance goals as the Committee shall establish.

2.25.“Performance Period” shall mean that period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award are to be measured.

2.26.“Performance Share” shall mean any grant pursuant to Article 9 of a unit valued by reference to a designated number of Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish.

2.27.“Performance Unit” shall mean any grant pursuant to Section 9 of a unit valued by reference to a designated amount of property other than Shares (or cash), which value may be paid to the Participant by delivery of such property as the Committee shall determine, including cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish.

2.28.“Permitted Assignee” shall have the meaning set forth in Section 12.3.

2.29.“Prior Plans” shall mean, collectively, the Company’s 2006 Long-Term Incentive Plan, as amended, 2009 Long-Term Incentive Plan, 2012 Long-Term Incentive Plan and 2013 Long-Term Incentive Plan. Awards granted under the Prior Plans continue to be governed under the terms of those Prior Plans.

2.30.“Restricted Stock” shall mean any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such other restrictions as the Committee, in its sole discretion, may impose (including any restriction on the right to vote such Share and the right to receive any dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.

2.31.“Restricted Stock Award” shall have the meaning set forth in Section 7.1.

2.32.“Restricted Stock Unit Award” shall have the meaning set forth in Section 8.1.

2.33.“Restricted Stock Unit” means an Award that is valued by reference to a Share, which value may be paid to the Participant by delivery of cash, Shares or such other property as the Committee shall determine, which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.

2.34.“Returning Shares” means any shares subject to stock options or other stock awards granted under our Prior Plans that are released because the awards expire, are forfeited or are settled for cash.

2.35.“Shares” shall mean the shares of common stock, $0.0001 par value, of the Company.

2.36.“Stock Appreciation Right” shall mean the right granted to a Participant pursuant to Section 6.

2.37.“Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Affiliate or with which the Company or any Affiliate combines.

2.38.“Vesting Period” shall mean the period of time specified by the Committee during which vesting restrictions for an Award are applicable.

3.SHARES SUBJECT TO THE PLAN

3.1.Number of Shares.

(a)Subject to adjustment as provided in Section 3.1(b) and Section 12.2, as of the effective date of the 2019 Restatement of the Plan, a total of 3,520,170 Shares were available for issuance under the Plan, less one (1) Share for every one (1) Share that was subject to an Option or Stock Appreciation Right granted under the Plan after March 31, 2019, and prior to the effective date of the 2019 Restatement, and 1.75 Shares for every one (1) Share that was subject to an award other than an Option or Stock Appreciation Right granted under the Plan after March 31, 2019, and prior to the effective date of the 2019 Restatement. Any Shares that are subject to Options or Stock Appreciation Rights granted under the Plan after the effective date of the 2019 Restatement, including after the effective date of this Restatement, are counted against this limit as one (1) Share for every one (1) Share granted, and any Shares that are subject to Awards other than Options or Stock Appreciation Rights granted under the Plan after the effective date of the 2019 Restatement, including after the effective date of this Restatement, are counted against this limit as 1.75 Shares for every one (1) Share granted. After the original effective date of the Plan (as provided in Section 13.13), no awards may be granted under the Prior Plans.

(b)If after March 31, 2019, (i) any Shares subject to an Award are forfeited, an Award expires or an Award is settled for cash (in whole or in part), or (ii) after March 31, 2019, any Shares subject to an award under the Prior Plans are forfeited, or an award under the Prior Plans expires or is settled for cash (in whole or in part), the Shares subject to such Award or award under the Prior Plans shall, to the extent of such forfeiture, expiration or cash settlement, again be available for Awards under the Plan, in accordance with Section 3.1(d) below. Notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under paragraph (a) of this Section: (i) Shares tendered by the Participant or withheld by the Company in payment of the purchase price of an Option, or to satisfy any tax withholding obligation with respect to any Award, (ii) Shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof, and (iii) Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options or options granted under the Prior Plans.

(c)Shares issued under Substitute Awards that qualify for an exemption from the applicable stockholder-approval requirements under Nasdaq Listing Rule 5635(c) or its successor shall not reduce the Shares authorized for grant under the Plan and shall not be subject to the applicable Limitations authorized for grant to a Participant under Section 10.5, nor shall Shares subject to a Substitute Award again be available for Awards under the Plan to the extent of any forfeiture, expiration or cash settlement as provided in paragraph (b) above.

(d)Any Shares that again become available for grant pursuant to this Section shall be added back as (i) one (1) Share if such Shares were subject to Options or Stock Appreciation Rights granted under the Plan or options or stock appreciation rights granted under the Prior Plans, and (ii) as 1.75 Shares if such Shares were subject to Awards other than Options or Stock Appreciation Rights granted under the Plan or awards other than options or stock appreciation rights granted under the Prior Plans.

3.2.Character of Shares.  Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased in the open market or otherwise. The Company will keep available at all times the number of Shares reasonably required to satisfy then-outstanding Awards.

3.3.Inducement Share Pool and Inducement Award Rules.  Subject to adjustment as provided under Section 12.2., an additional 491,460 Shares are reserved under the Plan exclusively for the grant of Inducement Awards in compliance with the Inducement Award Rules (the “Inducement Shares”).  The Inducement Shares that may be awarded under this Section 3.3 shall be in addition to and shall not reduce the Shares available for issuance under Section 3.1(a) of the Plan.

The following rules and restrictions shall apply to any Inducement Award granted pursuant to the Plan:

(a) An Inducement Award may be granted only to an Employee who has not previously been an Employee or a Director of the Company or an Affiliate, except following a bona fide period of non-employment, as an inducement material to the individual’s entering into employment with the Company within the meaning of the Inducement Award Rules.  

(b) No Inducement Award may be designated as an Incentive Stock Option.

(c) All Inducement Awards must be granted by a Committee consisting of the majority of the Company’s independent directors or the Company’s Compensation Committee, in each case in accordance with the requirements of the Inducement Award Rules.  

(d) The Inducement Shares underlying any Inducement Awards shall be subject to the same share counting and share reversion provisions as described in Section 3.1, except that such Inducement Shares shall count against, or shall be added back to, the reserve of Inducement Shares available for grant under this Section 3.3, and shall not count against, or be added back to, the Shares available for issuance under Section 3.1(a) of the Plan.

(e)Inducement Awards shall not be amended without stockholder approval to the extent required by the Inducement Award Rules.

3.4.Non-Employee Director Aggregate Compensation Limit. The aggregate value of all compensation granted or paid, as applicable, to any individual for service as a Director with respect to any period commencing on the date of the Company’s annual meeting of stockholders for a particular year and ending on the day immediately prior to the date of the Company’s annual meeting of stockholders for the next subsequent year, including Awards granted and cash fees paid or payable by the Company to such Director, will not exceed (i) $750,000 in total value or (ii) in the event such Director is first appointed or elected to the Board during such period, or with respect to a lead director or chairman role $1,000,000 in total value, in each case calculating the value of any Awards based on the grant date fair value of such Awards for financial reporting purposes. For the avoidance of doubt, any compensation shall be counted towards this limit for the service year in which it is earned (and not when settled or paid in the event it is deferred).

3.5.Minimum Vesting Period.  Notwithstanding any other provision of the Plan to the contrary, equity-based Awards granted under the Plan shall vest no earlier than the first anniversary of the date the Award is granted (excluding, for this purpose, any (i) Substitute Awards, (ii) Shares delivered in lieu of fully vested cash Awards, and (iii) Awards to Directors that vest on the earlier of the one year anniversary of the date of grant or the next annual meeting of stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting); provided, that, the Committee may grant equity-based Awards without regard to the foregoing minimum Vesting Period with respect to a maximum of five percent (5%) of the available share reserve authorized for issuance under the Plan pursuant to Section 3.1(a) (subject to adjustment under Section 12.2); and, provided further, for the avoidance of doubt, that the foregoing restriction does not apply to the Committee’s discretion to provide for accelerated exercisability or vesting of any Award, including in cases of retirement, death, disability or a Change in Control, in the terms of the Award or otherwise.

4.ELIGIBILITY AND ADMINISTRATION

4.1.Eligibility.  Any Employee, Director or Consultant shall be eligible to be selected as a Participant.

4.2.Administration.

(a)The Plan shall be administered by the Committee. The Committee shall have full power and authority, subject to the provisions of the Plan and subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to: (i) select the Employees, Directors and Consultants to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Awards, not inconsistent with the provisions of the Plan, to be granted to each Participant hereunder; (iii) determine the number of Shares (or dollar value) to be covered by each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent with the provisions of the Plan, of any Award granted hereunder (including the power to amend outstanding Awards waive or accelerate any vesting terms or restrictions, subject to any stockholder approval requirement applicable under the Inducement Award Rules for amendment of an Inducement Award); (v) determine whether, to what extent and under what circumstances Awards may be settled in cash, Shares or other property; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other property and other amounts payable with respect to an Award made under the Plan shall be deferred either automatically or at the election of the Participant; (vii) determine whether, to what extent and under what circumstances any Award shall be canceled or suspended; (viii) interpret and administer the Plan and any instrument or agreement entered into under or in connection with the Plan, including any Award Agreement; (ix) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent that the Committee shall deem desirable to carry it into effect; (x) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (xi) determine whether any Award, other than an Option or Stock Appreciation Right, will have Dividend Equivalents; and (xii) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan.

(b)Decisions of the Committee shall be final, conclusive and binding on all persons or entities, including the Company, any Participant, and any Affiliate. A majority of the members of the Committee may determine its actions, including fixing the time and place of its meetings.

(c)To the extent not inconsistent with applicable law, including the Delaware General Corporation Law, or the rules and regulations of the Nasdaq Stock Market (or such other principal U.S. national securities exchange on which the Shares are traded) including the Inducement Award Rules, the Committee may delegate to: (i) a committee of one or more members of the Board the authority to take action on behalf of the Committee under the Plan including the right to grant, cancel, suspend or amend Awards and (ii) one or more “executive officers” within the meaning of Rule 16a-1(f) of the Exchange Act or a committee of executive officers the right to grant Awards to Employees who are not executive officers of the Company (provided that the Committee resolutions regarding such delegation will specify the total number of Shares that may be subject to the Awards granted by such person or persons) and the authority to take action on behalf of the Committee pursuant to the Plan to cancel or suspend Awards to Employees who are not directors or executive officers of the Company.

(d)The Board in its discretion may ratify and approve actions taken by the Committee. In addition, to the extent not inconsistent with applicable law or the rules and regulations of the Nasdaq Stock Market or such other principal U.S. national securities exchange on which the Shares are traded, the Board may take any action under the Plan that the Committee is authorized to take. In the event the Board takes such action references to the Committee hereunder shall be understood to refer to the Board.

5.OPTIONS

5.1.Grant of Options.  Options may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan. Any Option shall be subject to the terms and conditions of this Article and to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable.

5.2.Award Agreements.  All Options granted pursuant to this Article shall be evidenced by a written Award Agreement in such form and containing such terms and conditions as the Committee shall determine which are not inconsistent with the provisions of the Plan. The terms of Options need not be the same with respect to each Participant. Granting an Option pursuant to the Plan shall impose no obligation on the recipient to exercise such Option. Any individual who is granted an Option pursuant to this Article may hold more than one Option granted pursuant to the Plan at the same time.

5.3.Option Price.  Other than in connection with Substitute Awards, the option price per each Share purchasable under any Option granted pursuant to this Article shall not be less than 100% of the Fair Market Value of one Share on the date of grant of

such Option; provided, however, that in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate, the option price per share shall be no less than 110% of the Fair Market Value of one Share on the date of grant. Other than pursuant to Section 12.2, the Committee shall not without the approval of the Company’s stockholders (a) lower the option price per Share of an Option after it is granted, (b) cancel an Option when the option price per Share exceeds the Fair Market Value of one Share in exchange for cash or another Award (other than in connection with a Change in Control as defined in Section 11.3 or Substitute Awards), and (c) take any other action with respect to an Option that would be treated as a repricing under the rules and regulations of the Nasdaq Stock Market (or such other principal U.S. national securities exchange on which the Shares are traded).

5.4.Option Term.  The term of each Option shall be fixed by the Committee in its sole discretion; provided that no Option shall be exercisable after the expiration of seven (7) years from the date the Option is granted, except in the event of death or disability; provided, however, that the term of the Option shall not exceed five (5) years from the date the Option is granted in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate.

5.5.Exercise of Options.

(a)Vested Options granted under the Plan may be exercised by the Participant or by a Permitted Assignee thereof (or by the Participant’s executors, administrators, guardian or legal representative, as may be provided in an Award Agreement) as to all or part of the Shares covered thereby, by the giving of notice of exercise to the Company or its designated agent, specifying the number of Shares to be purchased. The notice of exercise shall be in such form, made in such manner, and shall comply with such other requirements consistent with the provisions of the Plan as the Committee may from time to time prescribe.

(b)Unless otherwise provided in an Award Agreement, full payment of such purchase price shall be made at the time of exercise and shall be made (i) in cash or cash equivalents (including certified check or bank check or wire transfer of immediately available funds), (ii) by tendering previously acquired Shares (either actually or by attestation), valued at their then Fair Market Value, (iii) with the consent of the Committee, by delivery of other consideration (including, where permitted by law and the Committee, other Awards) having a Fair Market Value on the exercise date equal to the total purchase price, (iv) with the consent of the Committee, by withholding Shares otherwise issuable in connection with the exercise of the Option, (v) through any other method specified in an Award Agreement (including same-day sales through a broker), or (vi) any combination of any of the foregoing. In no event may any Option granted hereunder be exercised for a fraction of a Share. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

(c)Notwithstanding the foregoing, an Award Agreement may provide that if on the last day of the term of an Option the Fair Market Value of one Share exceeds the option price per Share, the Participant has not exercised the Option and the Option has not expired, the Option shall be deemed to have been exercised by the Participant on such day with payment made by withholding Shares otherwise issuable in connection with the exercise of the Option. In such event, the Company shall deliver to the Participant the number of Shares for which the Option was deemed exercised, less the number of Shares required to be withheld for the payment of the total purchase price and required withholding taxes (in accordance with Section 13.1); provided, however, any fractional Share shall be settled in cash.

(d)No Option granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable for any Shares until at least six months following the date of grant of the Option. Notwithstanding the foregoing, consistent with the provisions of the Worker Economic Opportunity Act, (i) in the event of the Employee’s death or disability, (ii) upon a corporate transaction in which such Option is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Employee’s retirement (as such term may be defined in the Employee’s Award Agreement or in another applicable agreement or in accordance with the Company’s then current employment policies and guidelines), any such vested Options may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay.

5.6.Form of Settlement.  In its sole discretion, the Committee may provide in the form of Award Agreement that the Shares to be issued upon an Option’s exercise shall be in the form of Restricted Stock or other similar securities.

5.7.Incentive Stock Options.  The Committee may grant Options intended to qualify as “incentive stock options” as defined in Section 422 of the Code, to any employee of the Company or any Affiliate, subject to the requirements of Section 422 of the Code; provided, however, that “incentive stock options” may not be granted as Inducement Awards. Notwithstanding anything in Section 3.1 to the contrary and solely for the purposes of determining whether Shares are available for the grant of “incentive stock options” under the Plan, the maximum aggregate number of Shares that may be issued pursuant to “incentive stock options” granted

under the Plan on and after the date the 2019 Restatement became effective is 3,520,170 Shares less the number of Shares issued pursuant to “incentive stock options” granted under the Plan after March 31, 2019, and prior to the date the 2019 Restatement became effective, subject to adjustment as provided in Section 12.2.

5.8.Extension of Termination Date.  Unless otherwise provided in a Participant’s Award Agreement and in the sole determination of the Committee, if the sale of any Common Stock received on exercise of an Option following the termination of the Participant’s employment by or services to the Company (other than for Cause) would be prohibited at any time solely because the issuance of Shares would violate (i) the registration requirements under the Securities Act, (ii) the Company’s insider trading policy, or (iii) a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, then the Option will terminate on the earlier of (a) the expiration of a total period of 90 days (that need not be consecutive) after the termination of the Participant’s employment by or services to the Company during which the exercise of the Option would not be in violation of any of such registration requirement, insider trading policy or lock-up agreement, and (b) the expiration of the term of the Option as set forth in the applicable Award Agreement.

6.STOCK APPRECIATION RIGHTS

6.1.Grant and Exercise.  The Committee may provide Stock Appreciation Rights (a) in conjunction with all or part of any Option granted under the Plan or at any subsequent time during the term of such Option, (b) in conjunction with all or part of any Award (other than an Option) granted under the Plan or at any subsequent time during the term of such Award, or (c) without regard to any Option or other Award, in each case upon such terms and conditions as the Committee may establish in its sole discretion.

6.2.Terms and Conditions.  Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, including the following:

(a)Upon the exercise of a Stock Appreciation Right, the holder shall have the right to receive the excess of (i) the Fair Market Value of one Share on the date of exercise (or such amount less than such Fair Market Value as the Committee shall so determine at any time during a specified period before the date of exercise) over (ii) the grant price of the Stock Appreciation Right.

(b)Upon the exercise of a Stock Appreciation Right, the Committee shall determine in its sole discretion whether payment shall be made in cash, in whole Shares or other property, or any combination thereof.

(c)The terms and conditions of Stock Appreciation Rights need not be the same with respect to each recipient.

(d)The Committee may impose such other conditions on the exercise of any Stock Appreciation Right, as it shall deem appropriate. A Stock Appreciation Right shall have (i) a grant price per Share of not less than the Fair Market Value of one Share (x) on the date of grant or (y) if applicable, on the date of grant of an Option with respect to a Stock Appreciation Right granted in exchange for or in tandem with, but subsequent to, the Option (subject to the requirements of Section 409A of the Code with respect to a Stock Appreciation Right granted in exchange for or in conjunction with, but subsequent to, an Option), except in the case of Substitute Awards or in connection with an adjustment provided in Section 12.2, and (ii) a term not greater than seven (7) years. In addition to the foregoing, but subject to Section 12.2, the Committee shall not without the approval of the Company’s stockholders (x) lower the grant price per Share of any Stock Appreciation Right after it is granted, (y) cancel any Stock Appreciation Right when the grant price per Share exceeds the Fair Market Value of the underlying Shares in exchange for cash or another Award (other than in connection with a Change in Control as defined in Section 11.3 or Substitute Awards), and (z) take any other action with respect to any Stock Appreciation Right that would be treated as a repricing under the rules and regulations of the Nasdaq Stock Market (or such other principal U.S. national securities exchange on which the Shares are traded).

(e)In no event may any Stock Appreciation Right granted hereunder be exercised for a fraction of a Share. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date of such issuance.

(f)An Award Agreement may provide that if on the last day of the term of a Stock Appreciation Right the Fair Market Value of one Share exceeds the grant price per Share of the Stock Appreciation Right, the Participant has not exercised the Stock Appreciation Right or the tandem Option (if applicable), and neither the Stock Appreciation Right nor the Option has expired, the Stock Appreciation Right shall be deemed to have been exercised by the Participant on such day. In such event, the Company shall make payment to the Participant in accordance with this Section, reduced by the number of Shares (or cash) required for withholding taxes (in accordance with Section 13.1); any fractional Share shall be settled in cash.

(g)No Stock Appreciation Right granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, shall be first exercisable for any Shares until at least six months following the date of grant of the Stock Appreciation Right. Notwithstanding the foregoing, consistent with the provisions of the Worker Economic

Opportunity Act, (i) in the event of the Employee’s death or disability, (ii) upon a corporate transaction in which such Stock Appreciation Right is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Employee’s retirement (as such term may be defined in the Employee’s Award Agreement or in another applicable agreement or in accordance with the Company’s then current employment policies and guidelines), any such vested Stock Appreciation Rights may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of a Stock Appreciation Right will be exempt from his or her regular rate of pay.

(h)Extension of Termination Date.  Unless otherwise provided in a Participant’s Award Agreement and in the sole determination of the Committee, if the sale of any Common Stock received on exercise of a Stock Appreciation Right following the termination of the Participant’s employment by or services to the Company (other than for Cause) would be prohibited at any time solely because the issuance of Shares would violate (i) the registration requirements under the Securities Act, (ii) the Company’s insider trading policy, or (iii) a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, then the Stock Appreciation Right will terminate on the earlier of (a) the expiration of a total period of 90 days (that need not be consecutive) after the termination of the Participant’s employment by or services to the Company during which the exercise of the Stock Appreciation Right would not be in violation of any of such registration requirement, insider trading policy or lock-up agreement, and (b) the expiration of the term of the Stock Appreciation Right as set forth in the applicable Award Agreement.

7.RESTRICTED STOCK AWARDS

7.1.Grants.  Awards of Restricted Stock may be issued hereunder to Participants either alone or in addition to other Awards granted under the Plan (a “Restricted Stock Award”), and such Restricted Stock Awards may also be available as a form of payment of Performance Awards and other earned cash-based incentive compensation. A Restricted Stock Award shall be subject to vesting restrictions imposed by the Committee covering a period of time specified by the Committee. The Committee has absolute discretion to determine whether any consideration (other than services) is to be received by the Company or any Affiliate as a condition precedent to the issuance of Restricted Stock.

7.2.Award Agreements.  The terms of any Restricted Stock Award granted under the Plan shall be set forth in an Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan. The terms of Restricted Stock Awards need not be the same with respect to each Participant.

7.3.Rights of Holders of Restricted Stock.  Unless otherwise provided in the Award Agreement, beginning on the date of grant of the Restricted Stock Award and subject to execution of the Award Agreement, the Participant shall become a stockholder of the Company with respect to all Shares subject to the Award Agreement and shall have all of the rights of a stockholder, including the right to vote such Shares and the right to receive distributions made with respect to such Shares; provided, however, that any Shares or any other property distributable as a dividend or otherwise with respect to any Restricted Stock as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Restricted Stock and shall not be paid until and unless the underlying award vests.

8.RESTRICTED STOCK UNIT AWARDS

8.1.Grants.  Other Awards of units having a value equal to an identical number of Shares (“Restricted Stock Unit Awards”) may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan. Restricted Stock Unit Awards shall also be available as a form of payment of other Awards granted under the Plan and other earned cash-based incentive compensation.

8.2.Award Agreements.  The terms of Restricted Stock Unit Award granted under the Plan shall be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan. Restricted Stock Unit Awards shall be subject to vesting restrictions imposed by the Committee covering a period of time specified by the Committee. The terms of such Awards need not be the same with respect to each Participant. Notwithstanding anything contained herein to the contrary, cash dividends, stock and any other property (other than cash) distributed as a dividend or otherwise with respect to any Restricted Stock Unit Award shall either (i) not be paid at all, or (ii) be accumulated, and be subject to restrictions and risk of forfeiture to the same extent as the underlying Award and shall not be paid until and unless such restrictions and risk of forfeiture lapse.

8.3.Payment.  Except as provided in Article 10 or as may be provided in an Award Agreement, Restricted Stock Unit Awards may be paid in cash, Shares, other property, or any combination thereof, in the sole discretion of the Committee. Restricted Stock Unit Awards may be paid in a lump sum or in installments or, in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of Section 409A of the Code.

9.PERFORMANCE AWARDS

9.1.Grants. Performance Awards in the form of Performance Cash, Performance Shares or Performance Units, as determined by the Committee in its sole discretion, may be granted hereunder to Participants, for no consideration or for such minimum consideration as may be required by applicable law, either alone or in addition to other Awards granted under the Plan. The performance goals to be achieved for each Performance Period shall be conclusively determined by the Committee and may be based upon the criteria set forth in Section 10.2.

9.2.Award Agreements.  The terms of any Performance Award granted under the Plan shall be set forth in an Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan, including whether such Awards shall have Dividend Equivalents. The terms of Performance Awards need not be the same with respect to each Participant. Notwithstanding anything contained herein to the contrary, cash dividends, stock and any other property (other than cash) distributed as a dividend or otherwise with respect to any Award of Performance Shares shall either (i) not be paid at all, or (ii) be accumulated, and be subject to restrictions and risk of forfeiture to the same extent as the underlying Award, and shall not be paid unless and until the restrictions and risk of forfeiture lapse.

9.3.Terms and Conditions.  The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined by the Committee upon the grant of each Performance Award. The amount of the Award to be distributed shall be conclusively determined by the Committee.

9.4.Payment.  Except as provided in Article 11 or as may be provided in an Award Agreement, Performance Awards will be distributed only after the end of the relevant Performance Period. Performance Awards may be paid in cash, Shares, other property, or any combination thereof, in the sole discretion of the Committee. Performance Awards may be paid in a lump sum or in installments following the close of the Performance Period or, in accordance with procedures established by the Committee, on a deferred basis subject to the requirements of Section 409A of the Code.

10.PROVISIONS APPLICABLE TO PERFORMANCE-VESTING AWARDS

10.1.INTENTIONALLY RESERVED

10.2.Performance Criteria.  If the Committee determines that an Award shall be subject to the achievement of one or more objective performance goals established by the Committee, then such Award may be based on the attainment of specified levels of one or any combination of the following (or any other metric or goal as the Committee may determine): net sales; revenue; revenue or product revenue growth; bookings; operating income or loss (before or after taxes); pre- or after-tax income or loss (before or after allocation of corporate overhead and bonus); net earnings or loss; earnings or loss per share; net income or loss (before or after taxes); return on equity; total stockholder return; return on assets or net assets; attainment of strategic and operational initiatives; appreciation in and/or maintenance of the price of the Shares or any other publicly-traded securities of the Company; market share; gross profits; earnings or losses (including earnings or losses before taxes, earnings or losses before interest and taxes, earnings or losses before interest, taxes and depreciation or earnings or losses before interest, taxes, depreciation and amortization); economic value-added models (or equivalent metrics); comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels; operating margin; gross margin; year-end cash; cash margin; debt reduction; stockholder’s equity; market share; achievement of drug development milestones; regulatory achievements including approval of a drug candidate; progress of internal research or clinical programs; progress of partnered programs; implementation or completion of projects and processes; partner satisfaction; budget management; clinical achievements; completing phases of a clinical study (including the treatment phase) or announcing or presenting preliminary or final data from clinical studies, in each case, whether on particular timelines or generally; timely completion of clinical trials; submission of INDs and NDAs and other regulatory achievements; partner or collaborator achievements; internal controls, including those related to the Sarbanes-Oxley Act of 2002; research progress, including the development of programs; financing; investor relations, analysts and communication; manufacturing achievements (including obtaining particular yields from manufacturing runs and other measurable objectives related to process development activities); strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property); establishing relationships with commercial entities with respect to the marketing, distribution and sale of the Company’s products (including with group purchasing organizations, distributors and other vendors); supply chain achievements (including establishing relationships with manufacturers or suppliers of active pharmaceutical ingredients and other component materials and manufacturers of the Company’s products); co-development, co-marketing, profit sharing, joint venture or other similar arrangements; financing and other capital raising transactions (including sales of the Company’s equity or debt securities); sales or licenses of the Company’s assets, including its intellectual property (whether in a particular jurisdiction or territory or globally or through partnering transactions); implementation, completion or attainment of measurable objectives with respect to research, development, manufacturing, commercialization, products or projects, production volume levels, acquisitions and divestitures;

factoring transactions; and recruiting and maintaining personnel. Any performance goals that are financial metrics, may be determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), in accordance with accounting principles established by the International Accounting Standards Board (“IASB Principles”), or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP or under IASB Principles. Such performance goals also may be based solely by reference to the Company’s performance or the performance of an Affiliate, division, business segment or business unit of the Company, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. The Committee may also exclude charges related to an event or occurrence which the Committee determines should appropriately be excluded, including (a) restructurings or discontinued operations, (b) items that are “unusual” in nature or occur “infrequently” as determined under generally accepted accounting principles, (c) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management, or (d) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles. Notwithstanding the foregoing, the Committee, in its sole discretion, may grant performance-based Awards that are not intended to, and do not, meet the requirements set forth in this Section 10.2.

10.3.Adjustments.  Notwithstanding any provision of the Plan (other than Article 11), with respect to any Award that is subject to this Section 10, the Committee may adjust the amount payable pursuant to such Award.

10.4.Restrictions.  The Committee shall have the power to impose such other restrictions on Awards subject to this Article as it may deem necessary or appropriate.

10.5.Limitations on Grants to Individual Participants.  Subject to adjustment as provided in Section 12.2, no Participant may be granted (i) Options or Stock Appreciation Rights during any calendar year with respect to more than 800,000 Shares or (ii) Restricted Stock Awards, Performance Awards and/or Restricted Stock Unit Awards during any calendar year that are denominated in Shares and are subject to performance-based vesting under which more than 800,000 Shares may be earned (collectively, the “Limitations”). In addition to the foregoing, during any calendar year no Participant may be granted performance-based vesting Awards that are denominated in cash under which more than $10,000,000 may be earned.  

11.CHANGE IN CONTROL PROVISIONS

11.1.Impact on Certain Awards.  The Committee, in its discretion, may determine that in the event of a Change in Control of the Company (as defined in Section 11.3) Options and Stock Appreciation Rights outstanding as of the date of the Change in Control shall be cancelled and terminated without payment therefor if the Fair Market Value of one Share as of the date of the Change in Control is less than the Option per Share option price or Stock Appreciation Right per Share grant price.

11.2.Assumption or Substitution of Certain Awards.

(a)To the extent provided in an Award Agreement, in the event of a Change in Control of the Company in which the successor company assumes or substitutes for an Option, Stock Appreciation Right, Restricted Stock Award or Restricted Stock Unit Award (or in which the Company is the ultimate parent corporation and continues the Award), if a Participant’s employment with such successor company (or the Company) or a subsidiary thereof terminates within the time period following such Change in Control set forth in the Award Agreement (or prior thereto if applicable) and under the circumstances specified in the Award Agreement: (i) Options and Stock Appreciation Rights outstanding as of the date of such termination of employment will immediately vest, become fully exercisable, and may thereafter be exercised for the period of time set forth in the Award Agreement, (ii) the restrictions, limitations and other conditions applicable to Restricted Stock shall lapse and the Restricted Stock shall become free of all restrictions, limitations and conditions and become fully vested, and (iii) the restrictions, limitations and other conditions applicable to any Restricted Stock Unit Awards or any other Awards shall lapse, and such Restricted Stock Unit Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant. For the purposes of this Section, an Option, Stock Appreciation Right, Restricted Stock Award or Restricted Stock Unit Award shall be considered assumed or substituted for if following the Change in Control the Award confers the right to purchase or receive, for each Share subject to the Option, Stock Appreciation Right, Restricted Stock Award or Restricted Stock Unit Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change in Control by holders of Shares for each Share held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the transaction constituting a Change in Control is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of an Option, Stock Appreciation Right, Restricted Stock Award or Restricted Stock Unit Award, for each Share subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per Share consideration received by holders of Shares in the transaction constituting a Change in

Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.

(b)Unless otherwise provided in an Award Agreement, in the event of a Change in Control of the Company, to the extent that the successor company does not assume or substitute for an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Performance Award (or in which the Company is the ultimate parent corporation and does not continue the Award), then immediately prior to the Change in Control: (i) those Options and Stock Appreciation Rights outstanding as of the date of the Change in Control that are not assumed or substituted for (or continued) shall immediately vest and become fully exercisable, (ii) restrictions, limitations and conditions on Restricted Stock not assumed or substituted for (or continued) shall lapse and the Restricted Stock shall become free of all restrictions, limitations and conditions and become fully vested, (iii) the restrictions limitations and conditions applicable to any Restricted Stock Unit Awards or any other Awards not assumed or substituted for (or continued) shall lapse, and such Restricted Stock Unit Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant, (iv) all Performance Awards not assumed or substituted for (or continued) shall be considered to be earned and payable in full, and any deferral or other restriction shall lapse and such Performance Awards shall be immediately settled or distributed, and (v) all Awards not assumed or substituted for (or continued) shall terminate immediately after the Change in Control.

(c)The Committee, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Option and Stock Appreciation Right outstanding shall terminate within a specified number of days after notice to the Participant, and/or that each Participant shall receive, with respect to each Share subject to such Option or Stock Appreciation Right, an amount equal to the excess (if any) of the Fair Market Value of such Share immediately prior to the occurrence of such Change in Control over the exercise price per Share of such Option and/or Stock Appreciation Right; such amount to be payable in cash, in one or more kinds of stock or property (including the stock or property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine.

11.3.Change in Control.  For purposes of the Plan, unless otherwise provided in an Award Agreement, Change in Control means the occurrence of any one of the following events:

(i)During any twenty-four (24) month period, individuals who, as of the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;

(ii)Any “person” (as such term is defined in the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d 3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Affiliate, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction, as defined in paragraph (iii), or (E) by any person of Voting Securities from the Company, if a majority of the Incumbent Board approves in advance the acquisition of beneficial ownership of 50% or more of Company Voting Securities by such person;

(iii)The consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Affiliates that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or

becomes the beneficial owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non‑Qualifying Transaction”); or

(iv)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or the consummation of a sale, lease, exclusive license or other disposition of all or substantially all of the Company’s assets.

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than 50% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.

12.GENERALLY APPLICABLE PROVISIONS

12.1.Amendment and Termination of the Plan.  Each of the Board and the Committee may, from time to time, alter, amend, suspend or terminate the Plan as it shall deem advisable, subject to any requirement for stockholder approval imposed by applicable law, including the rules and regulations of the Nasdaq Stock Market (or such other principal U.S. national securities exchange on which the Shares are traded) and the Inducement Award Rules; provided that neither the Board or the Committee may amend the Plan in any manner that would result in noncompliance with Rule 16b-3 of the Exchange Act; and further provided that the Board and Committee may not, without the approval of the Company’s stockholders to the extent required by such applicable law, amend the Plan to (a) increase the number of Shares that may be the subject of Awards granted pursuant to the share reserve established in Section 3.1 of the Plan (except for adjustments pursuant to Section 12.2); (b) expand the types of awards available under the Plan; (c) materially expand the class of persons eligible to participate in the Plan; (d) amend any provision of Section 5.3 or the last sentence of Section 6.2(d); or (e) increase the maximum permissible term of the Plan or of any Option specified by Section 5.4 or the maximum permissible term of a Stock Appreciation Right specified by Section 6.2(d). The Board may not without the approval of the Company’s stockholders cancel an Option or Stock Appreciation Right in exchange for cash or take any action with respect to an Option or Stock Appreciation Right that may be treated as a repricing under the rules and regulations of the Nasdaq Stock Market (or such other principal U.S. national securities exchange on which the Shares are traded), including a reduction of the exercise price of an Option or the grant price of a Stock Appreciation Right or the exchange of an Option or Stock Appreciation Right for cash or another Award when the option price or grant price per Share exceeds the Fair Market Value of one Share. In addition, no amendments to, or termination of, the Plan shall in any way impair the rights of a Participant under any Award previously granted without such Participant’s consent.

12.2.Adjustments.  In the event of any merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property, other than a regular cash dividend), stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Shares or the value thereof, such adjustments and other substitutions shall be made to the Plan and to Awards as the Committee deems equitable or appropriate taking into consideration the accounting and tax consequences, including such adjustments in the aggregate number, class and kind of securities that may be delivered under the Plan under Section 3.1 and Section 3.3 and pursuant to Section 3.4, the Limitations, the maximum number of Shares that may be issued pursuant to Incentive Stock Options and, in the aggregate or to any one Participant, in the number, class, kind and option or exercise price of securities subject to outstanding Awards granted under the Plan (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of, or other awards denominated in the shares of, another company) as the Committee may determine to be appropriate in its sole discretion; provided, however, that the number of Shares subject to any Award shall always be a whole number.

12.3.Transferability of Awards.  Except as provided below, no Award and no Shares subject to Awards described in Article 8 that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution, and such Award may be exercised during the life of the Participant only by the Participant or the Participant’s guardian or legal representative. To the extent and under such terms and conditions as determined by the Committee, a Participant may assign or transfer an Award (each transferee thereof, a “Permitted Assignee”) to a “family member” as such term is defined in the General Instructions to Form S-8 (whether by gift or a domestic relations order for no consideration); provided that such Permitted Assignee shall be bound by and subject to all of the terms and conditions of the Plan and the Award Agreement relating to the transferred Award and shall execute an agreement satisfactory to the Company evidencing such obligations; and provided further that such Participant shall remain bound by

the terms and conditions of the Plan. The Company shall cooperate with any Permitted Assignee and the Company’s transfer agent in effectuating any transfer permitted under this Section. Options and Stock Appreciation Rights may not be transferred to a third party financial institution for value.

12.4.Termination of Employment.  The Committee shall determine and set forth in each Award Agreement whether any Awards granted in such Award Agreement will continue to be exercisable, continue to vest or be earned and the terms of such exercise, vesting or earning, on and after the date that a Participant ceases to be employed by or to provide services to the Company or any Affiliate (including as a Director), whether by reason of death, disability, voluntary or involuntary termination of employment or services, or otherwise. The date of termination of a Participant’s employment or services will be determined by the Committee, which determination will be final.

12.5.Deferral; Dividend Equivalents.  The Committee shall be authorized to establish procedures pursuant to which the payment of any Award may be deferred. Subject to the provisions of the Plan and any Award Agreement, the recipient of an Award (including any deferred Award) other than an Option or Stock Appreciation Right may, if so determined by the Committee, be entitled to receive, currently or on a deferred basis, cash, stock or other property dividends, or cash payments in amounts equivalent to cash, stock or other property dividends on Shares (“Dividend Equivalents”) with respect to the number of Shares covered by the Award, as determined by the Committee, in its sole discretion. The Committee may provide that such amounts and Dividend Equivalents (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Notwithstanding the foregoing, Dividend Equivalents shall in all events be subject to restrictions and risk of forfeiture to the same extent as the Award with respect to which such Dividend Equivalents have been credited and shall not be paid until and unless the underlying Award vests.

13.MISCELLANEOUS

13.1.Tax Withholding.  The Company shall have the right to make all payments or distributions pursuant to the Plan to a Participant (or a Permitted Assignee thereof) (any such person, a “Payee”) net of any applicable federal, state and local taxes required to be paid or withheld as a result of (a) the grant of any Award, (b) the exercise of an Option or Stock Appreciation Right, (c) the delivery of Shares or cash, (d) the lapse of any restrictions in connection with any Award or (e) any other event occurring pursuant to the Plan. The Company or any Affiliate shall have the right to withhold from wages or other amounts otherwise payable to such Payee such withholding taxes as may be required by law, or to otherwise require the Payee to pay such withholding taxes. If the Payee shall fail to make such tax payments as are required, the Company or its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Payee or to take such other action as may be necessary to satisfy such withholding obligations. The Committee shall be authorized to establish procedures for election by Participants to satisfy such obligation for the payment of such taxes by tendering previously acquired Shares (either actually or by attestation, valued at their then Fair Market Value), or by directing the Company to retain Shares (up to the Participant’s maximum statutory tax withholding rate or such other rate that will not cause an adverse accounting consequence or cost) otherwise deliverable in connection with the Award, subject to the discretion of the Committee and in accordance with Company policies.

13.2.Right of Discharge Reserved; Claims to Awards.  Nothing in the Plan nor the grant of an Award hereunder shall confer upon any Employee, Director or Consultant the right to continue in the employment or service of the Company or any Affiliate or affect any right that the Company or any Affiliate may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) any such Employee, Director or Consultant at any time for any reason. Except as specifically provided by the Committee, the Company shall not be liable for the loss of existing or potential profit from an Award granted in the event of termination of an employment or other relationship. No Employee, Director or Consultant shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Employees, Directors or Consultants under the Plan. In addition, in the event a Participant’s regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee) after the date of grant of any Award to the Participant, the Compensation Committee has the right in its sole discretion to (x) make a corresponding reduction in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced.

13.3.Prospective Recipient.  The prospective recipient of any Award under the Plan shall not, with respect to such Award, be deemed to have become a Participant, or to have any rights with respect to such Award, until and unless such recipient shall have accepted the Award in accordance with the procedures established by the Company, and otherwise complied with the then applicable terms and conditions.

13.4.Substitute Awards.  Notwithstanding any other provision of the Plan, the terms of Substitute Awards may vary from the terms set forth in the Plan to the extent the Committee deems appropriate to conform, in whole or in part, to the provisions of the awards in substitution for which they are granted.

13.5.Cancellation of Award.

(a)Notwithstanding anything to the contrary contained herein, an Award Agreement may provide that the Award shall be canceled if the Participant, without the consent of the Company, while employed by, or providing services to, the Company or any Affiliate or after termination of such employment or services, establishes a relationship with a competitor of the Company or any Affiliate or engages in activity that is in conflict with or adverse to the interest of the Company or any Affiliate (including conduct contributing to any financial restatements or financial irregularities), as determined by the Committee in its sole discretion. The Committee may provide in an Award Agreement that if within the time period specified in the Agreement the Participant establishes a relationship with a competitor or engages in an activity referred to in the preceding sentence, the Participant will forfeit any gain realized on the vesting or exercise of the Award and must repay such gain to the Company. In addition, all Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company adopts, including any clawback policy the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate.

(b)In the event the Participant ceases to be employed by, or provide services to, the Company on account of a termination for Cause by the Company, any Award held by the Participant shall terminate as of the date the Participant ceases to be employed by, or provide services to, the Company. In addition, notwithstanding any other provisions of this Section, if the Committee determines that the Participant has engaged in conduct that constitutes Cause at any time while the Participant is employed by, or providing services to, the Company or after the Participant’s termination of employment or services, any Awards held by the Participant shall immediately terminate. In the event a Participant’s employment or services is terminated for Cause, in addition to the immediate termination of all Awards, the Participant shall automatically forfeit all shares underlying any exercised portion of an Option for which the Company has not yet delivered the share certificates, upon refund by the Company of the option price paid by the Participant for such shares.

13.6.Stop Transfer Orders.  All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

13.7.Nature of Payments.  All Awards made pursuant to the Plan are in consideration of services performed or to be performed for the Company or any Affiliate, division or business unit of the Company. Any income or gain realized pursuant to Awards under the Plan constitutes a special incentive payment to the Participant and shall not be taken into account, to the extent permissible under applicable law, as compensation for purposes of any of the employee benefit plans of the Company or any Affiliate except as may be determined by the Committee or by the Board or board of directors of the applicable Affiliate.

13.8.Other Plans.  Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

13.9.Severability.  The provisions of the Plan shall be deemed severable. If any provision of the Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction or by reason of a change in a law or regulation, such provision shall (a) be deemed limited to the extent that such court of competent jurisdiction deems it lawful, valid and/or enforceable and as so limited shall remain in full force and effect, and (b) not affect any other provision of the Plan or part thereof, each of which shall remain in full force and effect. If the making of any payment or the provision of any other benefit required under the Plan shall be held unlawful or otherwise invalid or unenforceable by a court of competent jurisdiction, such unlawfulness, invalidity or unenforceability shall not prevent any other payment or benefit from being made or provided under the Plan, and if the making of any payment in full or the provision of any other benefit required under the Plan in full would be unlawful or otherwise invalid or unenforceable, then such unlawfulness, invalidity or unenforceability shall not prevent such payment or benefit from being made or provided in part, to the extent that it would not be unlawful, invalid or unenforceable, and the maximum payment or benefit that would not be unlawful, invalid or unenforceable shall be made or provided under the Plan.

13.10.Construction.  As used in the Plan, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation”

13.11.Unfunded Status of the Plan.  The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver the Shares or payments in lieu of or with respect to Awards hereunder; provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.

13.12.Governing Law.  The Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware, without reference to principles of conflict of laws, and construed accordingly.

13.13.Effective Date of Plan; Effective Dates of Plan Restatements; Termination of Plan.  The Plan originally became effective on June 13, 2017. The Plan was previously amended and restated effective on June 13, 2019 (the “2019 Restatement”) and again on February 10, 2020, and March 12, 2020.  This Restatement of the Plan is adopted effective April 3, 2020. Awards may be granted under the Plan at any time and from time to time on or prior to the tenth anniversary of the effective date of the Plan, on which date the Plan will expire except as to Awards then outstanding under the Plan. Such outstanding Awards shall remain in effect until they have been exercised or terminated, or have expired.

13.14.Foreign Employees and Consultants.  Awards may be granted to Participants who are foreign nationals or employed or providing services outside the United States, or both, on such terms and conditions different from those applicable to Awards to Employees employed or providing services in the United States as may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company’s obligation with respect to tax equalization for Employees or Consultants on assignments outside their home country.

13.15.Compliance with Section 409A of the Code. This Plan is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent that an Award or the payment, settlement or deferral thereof is subject to Section 409A of the Code, the Award shall be granted, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. Any provision of this Plan that would cause the grant of an Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code.

Should any payments made in accordance with the Plan to a “specified employee” (as defined under Section 409A of the Code) be determined to be payments from a nonqualified deferred compensation plan and are payable in connection with a Participant’s “separation from service” (as defined under Section 409A of the Code), that are not exempt from Section 409A of the Code as a short-term deferral or otherwise, these payments, to the extent otherwise payable within six (6) months after the Participant’s separation from service, and to the extent necessary to avoid the imposition of taxes under Section 409A of the Code, will be paid in a lump sum on the earlier of the date that is six (6) months and one day after the Participant’s date of separation from service or the date of the Participant’s death. For purposes of Section 409A of the Code, the payments to be made to a Participant in accordance with this Plan shall be treated as a right to a series of separate payments.

13.16.Captions.  The captions in the Plan are for convenience of reference only, and are not intended to narrow, limit or affect the substance or interpretation of the provisions contained herein.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Amit D. Munshi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arena Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2020

/s/ Amit D. Munshi

Amit D. Munshi, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Laurie D. Stelzer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Arena Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2020

/s/ Laurie D. Stelzer

Laurie D. Stelzer, Executive Vice President

and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Arena Pharmaceuticals, Inc. (the “Company”) for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Amit D. Munshi, as President and Chief Executive Officer of the Company, and Laurie D. Stelzer, as Executive Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his or her knowledge:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Amit D. Munshi	/s/ Laurie D. Stelzer
Amit D. Munshi	Laurie D. Stelzer
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer
Date: May 7, 2020	Date: May 7, 2020

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Share-based Compensation - Share Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 15,214	$ 13,024
Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	6,591	6,707
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 8,623	$ 6,317

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Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit
Beginning Balance at Dec. 31, 2018	$ 606,258	$ 5	$ 2,106,960	$ (155)	$ (1,500,552)
Beginning Balance (in shares) at Dec. 31, 2018		49,422,991
Issuance of common stock upon exercise of options	3,364		3,364
Issuance of common stock upon exercise of options (in shares)		125,655
Share-based compensation expense	13,024		13,024
Unrealized gain (loss) on available-for-sale investments	676			676
Translation loss	(19)			(19)
Net income (loss)	620,134				620,134
Ending Balance at Mar. 31, 2019	1,243,437	$ 5	2,123,348	502	(880,418)
Ending Balance (in shares) at Mar. 31, 2019		49,548,646
Beginning Balance at Dec. 31, 2019	1,071,465	$ 5	2,173,154	1,303	(1,102,997)
Beginning Balance (in shares) at Dec. 31, 2019		50,170,953
Issuance of common stock upon exercise of options	3,191		3,191
Issuance of common stock upon exercise of options (in shares)		125,761
Share-based compensation expense	15,214		15,214
Unrealized gain (loss) on available-for-sale investments	(1,164)			(1,164)
Translation loss	(14)			(14)
Net income (loss)	(100,207)				(100,207)
Ending Balance at Mar. 31, 2020	$ 988,485	$ 5	$ 2,191,559	$ 125	$ (1,203,204)
Ending Balance (in shares) at Mar. 31, 2020		50,296,714

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Fair Value Disclosures (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables present our valuation hierarchy for our financial assets and liabilities that are measured at fair value on a recurring basis, in thousands:

	Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2020:
Assets:
Money market funds(1)	$	116,667	$	116,667	$	—	$	—
US government and government agency notes(2)		422,395		422,395		—		—
Corporate debt instruments(2)		414,493		—		414,493		—
					.
December 31, 2019:
Assets:
Money market funds(1)	$	147,752	$	147,752	$	—	$	—
US government and government agency notes(3)		398,419		398,419		—		—
Corporate debt instruments(3)		483,788		—		483,788		—

(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

(2) Included in available-for-sale investments in the accompanying condensed consolidated balance sheets.

(3) Included in either cash and cash equivalents or available-for-sale investments in the accompanying condensed consolidated balance sheets.

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Fair Value Disclosures

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Disclosures

3. Fair Value Disclosures

We measure our financial assets and liabilities at fair value, which is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We use the following three-level valuation hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value our financial assets and liabilities:

Level 1	-	Observable inputs such as unadjusted quoted prices in active markets for identical instruments.
Level 2	-	Quoted prices for similar instruments in active markets or inputs that are observable for the asset or liability, either directly or indirectly.
Level 3	-	Significant unobservable inputs based on our assumptions.

The following tables present our valuation hierarchy for our financial assets and liabilities that are measured at fair value on a recurring basis, in thousands:

	Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2020:
Assets:
Money market funds(1)	$	116,667	$	116,667	$	—	$	—
US government and government agency notes(2)		422,395		422,395		—		—
Corporate debt instruments(2)		414,493		—		414,493		—
					.
December 31, 2019:
Assets:
Money market funds(1)	$	147,752	$	147,752	$	—	$	—
US government and government agency notes(3)		398,419		398,419		—		—
Corporate debt instruments(3)		483,788		—		483,788		—

(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

(2) Included in available-for-sale investments in the accompanying condensed consolidated balance sheets.

(3) Included in either cash and cash equivalents or available-for-sale investments in the accompanying condensed consolidated balance sheets.

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Share-based Compensation

3 Months Ended

Mar. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share-based Compensation

8. Share-based Compensation

We recognized share-based compensation expense as follows, in thousands:

	Three months ended
	March 31,
	2020		2019
Research and development	$	6,591	$	6,707
General and administrative		8,623		6,317
Total share-based compensation expense	$	15,214	$	13,024

The following table summarizes our stock option activity during the three months ended March 31, 2020, in thousands (except per share data):

	Options			Weighted- Average Exercise Price
Outstanding at January 1, 2020		8,535		$	34.31
Granted		2,107			45.04
Exercised		(126	)		25.37
Forfeited/cancelled/expired		(142	)		44.45
Outstanding at March 31, 2020		10,374		$	36.46

In March 2020, a total of 138,104 Restricted Stock Units, or RSUs, were granted to the employees in a company-wide grant. The RSUs vest over four years from the grant date. The grant-date fair value of $6.4 million is recognized as compensation expense over the vesting period.

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Fair Value Disclosures - Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value Measurements, Recurring - USD ($) $ in Thousands		Mar. 31, 2020		Dec. 31, 2019
Assets:
Money market funds	[1]	$ 116,667		$ 147,752
US government and government agency notes		422,395	[2]	398,419	[3]
Corporate debt instruments		414,493	[2]	483,788	[3]
Quoted Prices in Active Markets (Level 1)
Assets:
Money market funds	[1]	116,667		147,752
US government and government agency notes		422,395	[2]	398,419	[3]
Significant Other Observable Inputs (Level 2)
Assets:
Corporate debt instruments		$ 414,493	[2]	$ 483,788	[3]

[1]   (1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

[2]   (2) Included in available-for-sale investments in the accompanying condensed consolidated balance sheets.

[3]   (3) Included in either cash and cash equivalents or available-for-sale investments in the accompanying condensed consolidated balance sheets.

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Share-based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Share Based Compensation Expense

We recognized share-based compensation expense as follows, in thousands:

	Three months ended
	March 31,
	2020		2019
Research and development	$	6,591	$	6,707
General and administrative		8,623		6,317
Total share-based compensation expense	$	15,214	$	13,024

Summary of Stock Option Activity

The following table summarizes our stock option activity during the three months ended March 31, 2020, in thousands (except per share data):

	Options			Weighted- Average Exercise Price
Outstanding at January 1, 2020		8,535		$	34.31
Granted		2,107			45.04
Exercised		(126	)		25.37
Forfeited/cancelled/expired		(142	)		44.45
Outstanding at March 31, 2020		10,374		$	36.46

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Collaborations and License Agreements - Additional Information (Detail) - United Therapeutics - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Collaborative agreement upfront payments		$ 800.0
Collaborative arrangement right description	Under this agreement, we granted United Therapeutics an exclusive, worldwide, royalty-bearing license to develop, manufacture and commercialize ralinepag in any formulation.

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Accounts Payable and Other Accrued Liabilities - Accounts Payable and Other Accrued Liabilities (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Payables And Accruals [Abstract]
Accounts payable	$ 12,659	$ 6,043
Accrued compensation	7,887	14,329
Other accrued liabilities	4,496	5,127
Total accounts payable and other accrued liabilities	$ 25,042	$ 25,499

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Cash, Cash Equivalents, and Restricted Cash - Reconciliation of Components of Cash, Cash Equivalents, and Restricted Cash (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Cash Cash Equivalents Restricted Cash And Restricted Cash Equivalents [Abstract]
Cash and cash equivalents	$ 190,428	$ 243,274
Restricted cash included in other non-current assets	$ 226	$ 226
Restricted Cash, Asset, Statement of Financial Position [Extensible List]	us-gaap:OtherAssetsNoncurrent	us-gaap:OtherAssetsNoncurrent
Total cash, cash equivalents and restricted cash presented in the condensed consolidated statement of cash flows	$ 190,654	$ 243,500

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Accounts Payable and Other Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2020

Payables And Accruals [Abstract]

Accounts Payable and Other Accrued Liabilities

Accounts payable and other accrued liabilities consisted of the following, in thousands:

	March 31,		December 31,
	2020		2019
Accounts payable	$	12,659	$	6,043
Accrued compensation		7,887		14,329
Other accrued liabilities		4,496		5,127
Total accounts payable and other accrued liabilities	$	25,042	$	25,499

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Share-based Compensation - Summary of Stock Option Activity (Detail) - Stock options shares in Thousands	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Number of stock options
Outstanding at January 1, 2020 | shares	8,535
Granted | shares	2,107
Exercised | shares	(126)
Forfeited/cancelled/expired | shares	(142)
Outstanding at March 31, 2020 | shares	10,374
Weighted Average Exercise Price ($ per share)
Outstanding at January 1, 2020 | $ / shares	$ 34.31
Granted | $ / shares	45.04
Exercised | $ / shares	25.37
Forfeited/cancelled/expired | $ / shares	44.45
Outstanding at March 31, 2020 | $ / shares	$ 36.46

XML

Cash, Cash Equivalents, and Restricted Cash (Tables)

3 Months Ended

Mar. 31, 2020

Cash Cash Equivalents Restricted Cash And Restricted Cash Equivalents [Abstract]

Reconciliation of Components of Cash, Cash Equivalents, and Restricted Cash

The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the accompanying condensed consolidated balance sheets to the total of the amount presented in the condensed consolidated statements of cash flows, in thousands:

	March 31,		December 31,
	2020		2019
Cash and cash equivalents	$	190,428	$	243,274
Restricted cash included in other non-current assets		226		226
Total cash, cash equivalents and restricted cash presented in the condensed    consolidated statement of cash flows	$	190,654	$	243,500

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Investments, Available-for-Sale

3 Months Ended

Mar. 31, 2020

Investments Debt And Equity Securities [Abstract]

Investments, Available-for-Sale

4. Investments, Available-for-Sale

Investments, available-for-sale, consisted of the following, in thousands:

March 31, 2020:	Maturity in years	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US government and government agency     notes	< 1	$	310,740	$	1,633	$	(15	)	$	312,358
Corporate debt securities	< 1		297,302		668		(746	)		297,224
Short-term investments, available-for-sale		$	608,042	$	2,301	$	(761	)	$	609,582
US government and government agency     notes	1 – 5	$	99,872	$	174	$	(8	)	$	100,038
Corporate debt securities	1 – 5		118,927		156		(1,815	)		117,268
Investments, available-for-sale		$	218,799	$	330	$	(1,823	)	$	217,306
December 31, 2019:	Maturity in years	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US government and government agency     notes	< 1	$	201,046	$	292	$	(5	)	$	201,333
Corporate debt securities	< 1		294,481		495		(18	)		294,958
Short-term investments, available-for-sale		$	495,527	$	787	$	(23	)	$	496,291
US government and government agency     notes	1 – 5	$	197,157	$	85	$	(155	)	$	197,087
Corporate debt securities	1 – 5		173,322		603		(74	)		173,851
Investments, available-for-sale		$	370,479	$	688	$	(229	)	$	370,938

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Collaborations and License Agreements

3 Months Ended

Mar. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Collaborations and License Agreements

7. Collaborations and License Agreements

Refer to our Annual Report on Form 10-K for the year ended December 31, 2019, for more information on our significant collaboration and license agreements.

In the first quarter of 2019, we received an upfront payment of $800.0 million under an exclusive license agreement with United Therapeutics. Under this agreement, we granted United Therapeutics an exclusive, worldwide, royalty-bearing license to develop, manufacture and commercialize ralinepag in any formulation. United Therapeutics is responsible for all development, manufacturing and commercialization of the licensed products globally.

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Operating Activities:
Net income (loss)	$ (100,207)	$ 620,134
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	950	764
Deferred income taxes		110,333
Share-based compensation	15,214	13,024
Amortization of prepaid financing costs	22	22
Amortization of original issue discounts, net of premiums, on available-for-sale investments	(264)	(1,147)
Changes in operating assets and liabilities:
Accounts receivable	1,498	2,003
Prepaid expenses and other assets	(9,818)	(8,169)
Payables and accrued liabilities	(1,116)	1,080
Deferred rent	(324)	(394)
Net cash provided by (used in) operating activities	(94,045)	737,650
Investing Activities:
Purchases of available-for-sale investments	(182,794)	(249,525)
Proceeds from sale and maturity of available-for-sale investments	222,235	76,088
Purchases of property and equipment	(532)	(1,095)
Net cash provided by (used in) investing activities	38,909	(174,532)
Financing Activities:
Principal payments on lease financing obligations	(887)	(760)
Proceeds from issuance of common stock, net	3,191	3,364
Net cash provided by financing activities	2,304	2,604
Effect of exchange rate changes on cash	(14)	(18)
Net increase (decrease) in cash, cash equivalents and restricted cash	(52,846)	565,704
Cash, cash equivalents and restricted cash at beginning of period	243,500	161,900
Cash, cash equivalents and restricted cash at end of period	$ 190,654	$ 727,604

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 01, 2020
Cover [Abstract]
Entity Registrant Name	ARENA PHARMACEUTICALS, INC.
Trading Symbol	ARNA
Entity Central Index Key	0001080709
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity File Number	000-31161
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	23-2908305
Entity Address, Address Line One	6154 Nancy Ridge Drive
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92121
City Area Code	858
Local Phone Number	453.7200
Entity Common Stock, Shares Outstanding		50,337,038
Document Quarterly Report	true
Document Transition Report	false
Title of 12(b) Security	Common Stock, par value $0.0001 per share
Security Exchange Name	NASDAQ

XML

Investments, Available-for-Sale - Schedule of Investments, Available-for-Sale (Detail) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Short-term investments, available-for-sale
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	$ 608,042	$ 495,527
Gross Unrealized Gains	2,301	787
Gross Unrealized Losses	(761)	(23)
Estimated Fair Value	609,582	496,291
Short-term investments, available-for-sale | US government and government agency notes
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	310,740	201,046
Gross Unrealized Gains	1,633	292
Gross Unrealized Losses	(15)	(5)
Estimated Fair Value	312,358	201,333
Short-term investments, available-for-sale | Corporate debt securities
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	297,302	294,481
Gross Unrealized Gains	668	495
Gross Unrealized Losses	(746)	(18)
Estimated Fair Value	297,224	294,958
Investments, available-for-sale
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	218,799	370,479
Gross Unrealized Gains	330	688
Gross Unrealized Losses	(1,823)	(229)
Estimated Fair Value	217,306	370,938
Investments, available-for-sale | US government and government agency notes
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	99,872	197,157
Gross Unrealized Gains	174	85
Gross Unrealized Losses	(8)	(155)
Estimated Fair Value	$ 100,038	$ 197,087
Investments, available-for-sale | US government and government agency notes | Minimum
Schedule Of Available For Sale Securities [Line Items]
Maturity in years	1 year	1 year
Investments, available-for-sale | US government and government agency notes | Maximum
Schedule Of Available For Sale Securities [Line Items]
Maturity in years	5 years	5 years
Investments, available-for-sale | Corporate debt securities
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	$ 118,927	$ 173,322
Gross Unrealized Gains	156	603
Gross Unrealized Losses	(1,815)	(74)
Estimated Fair Value	$ 117,268	$ 173,851
Investments, available-for-sale | Corporate debt securities | Minimum
Schedule Of Available For Sale Securities [Line Items]
Maturity in years	1 year	1 year
Investments, available-for-sale | Corporate debt securities | Maximum
Schedule Of Available For Sale Securities [Line Items]
Maturity in years	5 years	5 years

XML

Income (Loss) Per Share (Tables)

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Potentially Dilutive Securities Excluded from Calculation of Diluted Net Income (Loss) Per Share

The following table presents the weighted-average number of potentially dilutive securities that were excluded from our calculation of diluted net income (loss) per share because they were anti-dilutive, in thousands:

	Three months ended
	March 31,
	2020		2019
Stock options		6,874		5,471
RSUs and PRSUs		215		—
Total		7,089		5,471

XML

Income (Loss) Per Share

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Income (Loss) Per Share

9. Income (Loss) Per Share

We calculate basic and diluted income (loss) per share using the weighted-average number of shares of common stock outstanding during the period.

Since we have a net loss for the three months ended March 31, 2020, in addition to excluding potentially dilutive out-of-the money securities, we have excluded from our calculation of diluted income (loss) per share all potentially dilutive in-the-money (i) stock options, (ii) RSUs, and (iii) Performance-Based Restricted Stock Unit awards, or  PRSUs, and our diluted net income (loss) per share is the same as our basic net income (loss) per share.

The following table presents the weighted-average number of potentially dilutive securities that were excluded from our calculation of diluted net income (loss) per share because they were anti-dilutive, in thousands:

	Three months ended
	March 31,
	2020		2019
Stock options		6,874		5,471
RSUs and PRSUs		215		—
Total		7,089		5,471

XML

Land, Property and Equipment

3 Months Ended

Mar. 31, 2020

Property Plant And Equipment [Abstract]

Land, Property and Equipment

5. Land, Property and Equipment

Land, property and equipment consisted of the following, in thousands:

	March 31,			December 31,
	2020			2019
Cost	$	74,470		$	73,922
Less accumulated depreciation and amortization		(49,743	)		(48,794	)
Land, property and equipment, net	$	24,727		$	25,128

XML

Cash, Cash Equivalents, and Restricted Cash

3 Months Ended

Mar. 31, 2020

Cash Cash Equivalents Restricted Cash And Restricted Cash Equivalents [Abstract]

Cash, Cash Equivalents, and Restricted Cash

2. Cash, cash equivalents and restricted cash

The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the accompanying condensed consolidated balance sheets to the total of the amount presented in the condensed consolidated statements of cash flows, in thousands:

	March 31,		December 31,
	2020		2019
Cash and cash equivalents	$	190,428	$	243,274
Restricted cash included in other non-current assets		226		226
Total cash, cash equivalents and restricted cash presented in the condensed    consolidated statement of cash flows	$	190,654	$	243,500

The restricted cash relates to our property leases. The restriction will lapse when the related leases expire.

XML

Investments, Available-for-Sale (Tables)

3 Months Ended

Mar. 31, 2020

Investments Debt And Equity Securities [Abstract]

Schedule of Investments, Available-for-Sale

Investments, available-for-sale, consisted of the following, in thousands:

March 31, 2020:	Maturity in years	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US government and government agency     notes	< 1	$	310,740	$	1,633	$	(15	)	$	312,358
Corporate debt securities	< 1		297,302		668		(746	)		297,224
Short-term investments, available-for-sale		$	608,042	$	2,301	$	(761	)	$	609,582
US government and government agency     notes	1 – 5	$	99,872	$	174	$	(8	)	$	100,038
Corporate debt securities	1 – 5		118,927		156		(1,815	)		117,268
Investments, available-for-sale		$	218,799	$	330	$	(1,823	)	$	217,306
December 31, 2019:	Maturity in years	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US government and government agency     notes	< 1	$	201,046	$	292	$	(5	)	$	201,333
Corporate debt securities	< 1		294,481		495		(18	)		294,958
Short-term investments, available-for-sale		$	495,527	$	787	$	(23	)	$	496,291
US government and government agency     notes	1 – 5	$	197,157	$	85	$	(155	)	$	197,087
Corporate debt securities	1 – 5		173,322		603		(74	)		173,851
Investments, available-for-sale		$	370,479	$	688	$	(229	)	$	370,938

XML

Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Revenues:
Total revenues	$ 262	$ 801,057
Operating Costs and Expenses:
Research and development	78,533	45,396
General and administrative	26,442	16,578
Transaction costs		14,573
Total operating costs and expenses	104,975	76,547
Income (loss) from operations	(104,713)	724,510
Interest and Other Income (Expense):
Interest income	4,946	6,487
Interest expense	(1,163)	(1,241)
Other income	723	711
Total interest and other income (expense), net	4,506	5,957
Income (loss) before income taxes	(100,207)	730,467
Income tax provision		(110,333)
Net income (loss)	$ (100,207)	$ 620,134
Net income (loss) per share, basic:	$ (2.00)	$ 12.53
Net income (loss) per share, diluted:	$ (2.00)	$ 12.10
Shares used in calculating net income (loss) per share, basic:	50,228	49,478
Shares used in calculating net income (loss) per share, diluted:	50,228	51,255
Comprehensive Income (Loss):
Net income (loss)	$ (100,207)	$ 620,134
Foreign currency translation loss	(14)	(19)
Unrealized gain (loss) on available-for-sale investments	(1,164)	676
Comprehensive income (loss)	(101,385)	620,791
Royalty Revenue
Revenues:
Total revenues	$ 262	973
Collaboration and Other Revenue
Revenues:
Total revenues		84
United Therapeutics | Collaboration and License Revenue
Revenues:
Total revenues		$ 800,000

XML

Income (Loss) Per Share - Potentially Dilutive Securities Excluded from Calculation of Diluted Net Income (Loss) Per Share (Detail) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total antidilutive securities excluded from calculation of diluted net loss per share (shares)	7,089	5,471
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total antidilutive securities excluded from calculation of diluted net loss per share (shares)	6,874	5,471
RSUs and PRSUs
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total antidilutive securities excluded from calculation of diluted net loss per share (shares)	215

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Arena Pharmaceuticals, Inc. should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission, or SEC, from which we derived our condensed consolidated balance sheet as of December 31, 2019. The accompanying condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year, particularly in light of the novel coronavirus pandemic, or COVID-19, and its impact on domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and or experience a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning the week of March 16, 2020, substantially all of our workforce began working from home. The effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Our future research and development expenses and general and administrative expenses may vary significantly if we experience an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities. For further information, refer to “Part II - Item 1A - Risk Factors” of this 10-Q.

Liquidity.

As of March 31, 2020, we had cash, cash equivalents and available-for-sale investments of approximately $1.0 billion. We believe our cash, cash equivalents and available-for-sale investments will be sufficient to fund our operations for at least the next 12 months.

We will require substantial cash to achieve our objectives of discovering, developing and commercializing drugs, as this process typically takes many years and potentially hundreds of millions of dollars for an individual drug. We may not have adequate available cash, or assets that could be readily turned into cash, to meet these objectives in the long term. We will need to obtain significant funds under our existing collaborations, under new collaborations, licensing or other commercial agreements for one or more of our drug candidates, programs or patent portfolios, or from other potential sources of liquidity, which may include the sale of equity, issuance of debt or other transactions. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with our clinical research organizations and suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects. To the extent we obtain additional funding through product collaborations, these arrangements would generally require us to relinquish rights to some of our product candidates or products, and we may not be able to enter into such agreements on acceptable terms, if at all.

Use of Estimates.

The preparation of financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. The amounts reported could differ under different estimates and assumptions.

Contingencies.

We disclose information regarding each material claim where the likelihood of a loss contingency is probable or reasonably possible. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. 

New Accounting Pronouncements.

In June 2016, the Financial Accounting Standards Board, or FASB, issued new accounting guidance codified in Accounting Standard Codification 326, Financial Instruments - Credit Losses, or Topic 326. The FASB has subsequently issued additional Accounting Standards Updates to clarify certain elements of the new accounting guidance. Topic 326 requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard became effective for us on January 1, 2020. The adoption of this guidance did not have a significant impact on our condensed consolidated financial statements and related disclosures.

Concentrations of Credit Risk.

Our financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash, cash equivalents and available-for-sale investments. We limit our exposure to credit losses by holding our cash primarily in US dollars or placing our cash and investments in US government, agency or government-sponsored enterprise obligations and in corporate debt instruments that are rated investment grade.

XML

Land, Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2020

Property Plant And Equipment [Abstract]

Land, Property and Equipment

Land, property and equipment consisted of the following, in thousands:

	March 31,			December 31,
	2020			2019
Cost	$	74,470		$	73,922
Less accumulated depreciation and amortization		(49,743	)		(48,794	)
Land, property and equipment, net	$	24,727		$	25,128

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 190,428	$ 243,274
Short-term investments, available-for-sale	609,582	496,291
Accounts receivable	268	1,654
Prepaid expenses and other current assets	29,859	18,715
Total current assets	830,137	759,934
Investments, available-for-sale	217,306	370,938
Land, property and equipment, net	24,727	25,128
Other non-current assets	17,501	18,123
Total assets	1,089,671	1,174,123
Current liabilities:
Accounts payable and other accrued liabilities	25,042	25,499
Accrued clinical and preclinical study fees	15,455	15,654
Current portion of lease financing obligations	3,955	3,814
Total current liabilities	44,452	44,967
Other long-term liabilities	12,149	12,078
Lease financing obligations, less current portion	44,585	45,613
Commitments and contingencies
Stockholders' equity:
Common stock	5	5
Additional paid-in capital	2,191,559	2,173,154
Accumulated other comprehensive income	125	1,303
Accumulated deficit	(1,203,204)	(1,102,997)
Total stockholders' equity	988,485	1,071,465
Total liabilities and stockholders' equity	$ 1,089,671	$ 1,174,123

XML

Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Arena Pharmaceuticals, Inc. should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission, or SEC, from which we derived our condensed consolidated balance sheet as of December 31, 2019. The accompanying condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year, particularly in light of the novel coronavirus pandemic, or COVID-19, and its impact on domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and or experience a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning the week of March 16, 2020, substantially all of our workforce began working from home. The effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Our future research and development expenses and general and administrative expenses may vary significantly if we experience an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities. For further information, refer to “Part II - Item 1A - Risk Factors” of this 10-Q.

Liquidity

Liquidity.

As of March 31, 2020, we had cash, cash equivalents and available-for-sale investments of approximately $1.0 billion. We believe our cash, cash equivalents and available-for-sale investments will be sufficient to fund our operations for at least the next 12 months.

We will require substantial cash to achieve our objectives of discovering, developing and commercializing drugs, as this process typically takes many years and potentially hundreds of millions of dollars for an individual drug. We may not have adequate available cash, or assets that could be readily turned into cash, to meet these objectives in the long term. We will need to obtain significant funds under our existing collaborations, under new collaborations, licensing or other commercial agreements for one or more of our drug candidates, programs or patent portfolios, or from other potential sources of liquidity, which may include the sale of equity, issuance of debt or other transactions. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with our clinical research organizations and suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects. To the extent we obtain additional funding through product collaborations, these arrangements would generally require us to relinquish rights to some of our product candidates or products, and we may not be able to enter into such agreements on acceptable terms, if at all.

Use of Estimates

Use of Estimates.

The preparation of financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the reported amounts (including assets, liabilities, revenues and expenses) and related disclosures. The amounts reported could differ under different estimates and assumptions.

Contingencies

Contingencies.

We disclose information regarding each material claim where the likelihood of a loss contingency is probable or reasonably possible. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. 

New Accounting Pronouncements

New Accounting Pronouncements.

In June 2016, the Financial Accounting Standards Board, or FASB, issued new accounting guidance codified in Accounting Standard Codification 326, Financial Instruments - Credit Losses, or Topic 326. The FASB has subsequently issued additional Accounting Standards Updates to clarify certain elements of the new accounting guidance. Topic 326 requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The new standard became effective for us on January 1, 2020. The adoption of this guidance did not have a significant impact on our condensed consolidated financial statements and related disclosures.

Concentrations of Credit Risk

Concentrations of Credit Risk.

Our financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash, cash equivalents and available-for-sale investments. We limit our exposure to credit losses by holding our cash primarily in US dollars or placing our cash and investments in US government, agency or government-sponsored enterprise obligations and in corporate debt instruments that are rated investment grade.

Fair Value Measurements

We measure our financial assets and liabilities at fair value, which is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We use the following three-level valuation hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value our financial assets and liabilities:

Level 1	-	Observable inputs such as unadjusted quoted prices in active markets for identical instruments.
Level 2	-	Quoted prices for similar instruments in active markets or inputs that are observable for the asset or liability, either directly or indirectly.
Level 3	-	Significant unobservable inputs based on our assumptions.

Income (Loss) Per Share

We calculate basic and diluted income (loss) per share using the weighted-average number of shares of common stock outstanding during the period.

Since we have a net loss for the three months ended March 31, 2020, in addition to excluding potentially dilutive out-of-the money securities, we have excluded from our calculation of diluted income (loss) per share all potentially dilutive in-the-money (i) stock options, (ii) RSUs, and (iii) Performance-Based Restricted Stock Unit awards, or  PRSUs, and our diluted net income (loss) per share is the same as our basic net income (loss) per share.

XML

Accounts Payable and Other Accrued Liabilities

3 Months Ended

Mar. 31, 2020

Payables And Accruals [Abstract]

Accounts Payable and Other Accrued Liabilities

6. Accounts Payable and Other Accrued Liabilities

Accounts payable and other accrued liabilities consisted of the following, in thousands:

	March 31,		December 31,
	2020		2019
Accounts payable	$	12,659	$	6,043
Accrued compensation		7,887		14,329
Other accrued liabilities		4,496		5,127
Total accounts payable and other accrued liabilities	$	25,042	$	25,499

XML

Share-based Compensation - Additional Information (Detail) - Restricted Stock Units (RSUs) [Member] $ in Millions	3 Months Ended
	Mar. 31, 2020 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Units granted | shares	138,104
Vesting period	4 years
RSU grant-date fair value | $	$ 6.4

XML

Land, Property and Equipment - Land, Property and Equipment (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Property Plant And Equipment [Abstract]
Cost	$ 74,470	$ 73,922
Less accumulated depreciation and amortization	(49,743)	(48,794)
Land, property and equipment, net	$ 24,727	$ 25,128

XML

Basis of Presentation - Additional Information (Detail) $ in Billions	Mar. 31, 2020 USD ($)
Accounting Policies [Abstract]
Cash and cash equivalents and available-for-sale investments	$ 1.0