Development Derivative Liability

3 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In January 2020, the Company entered into the SFJ Agreement, pursuant to which SFJ has agreed to provide up to $120.0 million in funding and project management services in connection with the REVERSE-IT trial, a global Phase 3 clinical trial of bentracimab. During the term of the SFJ Agreement, the Company has primary responsibility for clinical development and regulatory activities for bentracimab in the United States and the European Union, while SFJ has primary responsibility for clinical development and regulatory activities for bentracimab in China and Japan and provides clinical trials operational support in the European Union.

In addition to the $90.0 million of initial funding, the Company has elected to receive an additional $30.0 million of funding having met specific, pre-defined clinical development milestones for bentracimab. From the inception of the SFJ Agreement through March 31, 2022, SFJ has provided funding and paid for amounts on the Company's behalf in the aggregate amount of $94.6 million under the SFJ Agreement. The Company also expects that SFJ will fund or reimburse an additional $25.4 million of clinical trial costs and other expenses.

If the United States Food and Drug Administration ("FDA") approves a Biologics License Application for bentracimab, the Company has agreed to pay to SFJ an initial payment of $5.0 million and an additional $325.0 million in the aggregate in seven additional annual payments (the “U.S. Approval Payments”). If the EMA or the national regulatory authorities in certain European countries provide marketing approval of bentracimab, the Company will pay SFJ an initial payment of $5.0 million and an additional $205.0 million in the aggregate in seven additional annual payments (the “EU Approval Payments”). The majority of the U.S. Approval Payments and the EU Approval Payments will be made from the third anniversary to the seventh anniversary of marketing approval in the applicable jurisdiction. If either the Pharmaceuticals and Medical Devices

Agency (the “PMDA”) of Japan or the National Medical Products Administration (the “NMPA”) of China provides marketing approval of bentracimab, the Company will pay SFJ an initial payment of $1.0 million and then an additional $59.0 million in the aggregate in eight additional annual payments (the “Japan/China Approval Payments”), with the majority of the payments to be made from the fifth anniversary to the eighth anniversary of marketing approval. The Japan/China Approval Payments will only be paid once regardless of receipt of marketing approval in both Japan and China. The U.S. Approval Payments, EU Approval Payments and Japan/China Approval Payments will be proportionately adjusted in the event that the actual funding from SFJ is lower or greater than $120.0 million. The Company will not be obligated to make the U.S. Approval Payments if it does not receive marketing approval for bentracimab from the FDA, the EU Approval Payments if it does not receive marketing approval for bentracimab from the EMA or the national regulatory authority in certain European countries or the Japan/China Approval Payments if it does not receive marketing approval for bentracimab from either the PMDA or the NMPA.

Upon execution of the SFJ Agreement, the Company issued to SFJ a warrant to purchase an aggregate of 2,200,000 shares of common stock at an exercise price of $6.50 per share with a contractual term of ten years. The warrant is exercisable in two tranches: Tranche A and Tranche B. Tranche A represents warrants for 1,100,000 shares that are immediately exercisable by SFJ. Tranche B represents warrants for 1,100,000 shares that are exercisable at the earlier of (i) the achievement of certain development milestones or (ii) the consummation of an Acquisition, as defined in the SFJ Agreement. The warrants are equity-classified and were valued at $7.9 million at issuance using a probability adjusted Black-Scholes valuation technique.

The Company accounts for the SFJ Agreement as a derivative instrument that increases and decreases as consideration is received and repayments are made, respectively. The derivative is further adjusted at each reporting period to its estimated fair value. At March 31, 2022, the derivative is presented as a liability in the Company's condensed balance sheet. Any changes in fair value are recorded within the Company's statement of operations. The liability was initially recorded at a value of $2.1 million, which incorporates the $10.0 million upfront payment from SFJ and the issuance of the Company's common stock warrants to SFJ. During the three months ended March 31, 2022 and 2021, SFJ provided additional funding and paid for amounts on the Company's behalf in the aggregate amount of $3.3 million and $15.1 million, respectively, and the development derivative liability was subsequently remeasured at March 31, 2022, as a Level 3 derivative. The change in fair value resulted in a $7.2 million gain and $1.4 million loss from remeasurement of development derivative liability on the statement of operations for the three months ended March 31, 2022 and 2021, respectively.

The development derivative liability is valued using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The valuation method incorporates certain unobservable Level 3 key inputs including (i) the probability and timing of funding, (ii) the probability and timing of achieving regulatory approvals, (iii) the Company's cost of borrowing (16.00% plus the risk free borrowing rate) and (iv) SFJ's cost of borrowing (2.50% plus the risk free borrowing rate).

The following table presents activity for the development derivative liability during the three months ended March 31, 2022 (in thousands):


	Development Derivative Liability
Balance at December 31, 2021	$	114,843
Funding during the period	3,334
Change in fair value	(7,233)
Balance at March 31, 2022	$	110,944