UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

§ 240.13d-2(a)

(Amendment No.  )¹

Principia Biopharma Inc.

(Name of Issuer)

Common Stock, $0.0001 par value per share

(Title of Class of Securities)

74257L108

(CUSIP Number)

JAMES KRATKY

BVF PARTNERS L.P.

44 Montgomery St., 40th Floor

San Francisco, California 94104

(415) 525-8890

ADAM W. FINERMAN, ESQ.

OLSHAN FROME WOLOSKY LLP

1325 Avenue of the Americas

New York, New York 10019

(212) 451-2300

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

August 25, 2020

(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ☒.

Note:  Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits.  See § 240.13d-7 for other parties to whom copies are to be sent.

1              The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

(1) Represents 2,726,500 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 2,726,500 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 2,039,000 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 2,039,000 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 354,700 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 354,700 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 4,765,500 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 5,231,900 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 5,231,900 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

(1) Represents 5,231,900 shares of Common Stock underlying certain call options that are currently exercisable as further described in Item 6.

The following constitutes the Schedule 13D filed by the undersigned (the “Schedule 13D”).

This statement relates to shares of the Common Stock, $0.0001 par value per share (the “Shares”), of Principia Biopharma Inc., a Delaware corporation (the “Issuer”). The address of the principal executive offices of the Issuer is 220 East Grand Avenue, South San Francisco, California 94080.

(a)       This statement is filed by:

Each of the foregoing is referred to as a “Reporting Person” and collectively as the “Reporting Persons.” Each of the Reporting Persons is party to that certain Joint Filing Agreement, as further described in Item 6. Accordingly, the Reporting Persons are hereby filing a joint Schedule 13D.

(b)       The business address of BVF, BVF GP, BVF2, BVF2 GP, BVF GPH, Partners, BVF Inc. and Mr. Lampert is 44 Montgomery St., 40^th Floor, San Francisco, California 94104. The business address of Trading Fund OS and Partners OS is PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

(c)       The principal business of each of BVF, BVF2, and Trading Fund OS is investing in securities. The principal business of BVF GP, BVF2 GP, and Partners OS is serving as the general partner of BVF, BVF2, and Trading Fund OS, respectively. The principal business of BVF GPH is serving as the sole member of each of BVF GP and BVF2 GP. The principal business of Partners is serving as the investment manager of each of BVF, BVF2, Trading Fund OS and the Partners Managed Account, and the sole member of Partners OS. The principal business of BVF Inc. is serving as the general partner of Partners and the managing member of BVF GPH. Mr. Lampert is the sole officer and director of BVF Inc.

(d)       No Reporting Person has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors).

(e)       No Reporting Person has, during the last five years, been party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

(f)       Mr. Lampert is a citizen of the United States of America.

The call options purchased by each of BVF, BVF2, Trading Fund OS, and held in the Partners Managed Account, were purchased with working capital (which may, at any given time, include margin loans made by brokerage firms in the ordinary course of business) in open market purchases, except as otherwise noted. The aggregate purchase price of certain call options exercisable into the 2,726,500 Shares beneficially owned by BVF is approximately $1,108,995, including brokerage commissions. The aggregate purchase price of certain call options exercisable into the 2,039,000 Shares beneficially owned by BVF2 is approximately $829,341, including brokerage commissions. The aggregate purchase price of certain call options exercisable into the 354,700 Shares beneficially owned by Trading Fund OS is approximately $144,268, including brokerage commissions. The aggregate purchase price of certain call options exercisable into the 111,700 Shares held in the Partners Managed Account is approximately $45,551, including brokerage commissions.

The Reporting Persons purchased the Shares based on the Reporting Persons’ belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares on the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.

The Reporting Persons have sent a letter to the Board of Directors of the Issuer, a copy of which is attached hereto as Exhibit 99.1, in conjunction with the proposed acquisition of the Issuer by Sanofi.

No Reporting Person has any present plan or proposal which would relate to or result in any of the matters set forth in subparagraphs (a) - (j) of Item 4 of Schedule 13D except as set forth herein or such as would occur upon or in connection with completion of, or following, any of the actions discussed herein. The Reporting Persons intend to review their investment in the Issuer on a continuing basis. Depending on various factors including, without limitation, the Issuer’s financial position and investment strategy, the price levels of the Shares, conditions in the securities markets and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to their investment in the Issuer as they deem appropriate including, without limitation, engaging in communications with management and the Board of Directors of the Issuer, engaging in discussions with stockholders of the Issuer and others about the Issuer and the Reporting Persons’ investment, making proposals to the Issuer concerning changes to the capitalization, ownership structure, board structure (including board composition) or operations of the Issuer, purchasing additional Shares, selling some or all of their Shares, engaging in short selling of or any hedging or similar transaction with respect to the Shares, or changing their intention with respect to any and all matters referred to in Item 4.

(a)                The aggregate percentage of Shares reported owned by each person named herein is based on 33,236,216 Shares outstanding, which is the total number of Shares outstanding as of August 16, 2020, as disclosed in Exhibit 2.1 to the Issuer’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 17, 2020.

As of the date hereof, (i) BVF beneficially owned 2,726,500 Shares, representing 2,726,500 Shares underlying certain call options currently exercisable, representing percentage ownership of approximately 8.2% of the Shares outstanding, (ii) BVF2 beneficially owned 2,039,000 Shares, representing 2,039,000 Shares underlying certain call options currently exercisable, representing percentage ownership of approximately 6.1% of the Shares outstanding, (iii) Trading Fund OS beneficially owned 354,700 Shares, representing 354,700 Shares underlying certain call options currently exercisable, representing percentage ownership of approximately 1.1% of the Shares outstanding, and (iv) 111,700 Shares were held in the Partners Managed Account, representing 111,700 Shares underlying certain call options currently exercisable, representing percentage ownership of less than 1% of the Shares outstanding.

BVF GP, as the general partner of BVF, may be deemed to beneficially own the 2,726,500 Shares beneficially owned by BVF, representing percentage ownership of approximately 8.2% of the Shares outstanding.

BVF2 GP, as the general partner of BVF2, may be deemed to beneficially own the 2,039,000 Shares beneficially owned by BVF2, representing percentage ownership of approximately 6.1% of the Shares outstanding.

Partners OS, as the general partner of Trading Fund OS, may be deemed to beneficially own the 354,700 Shares beneficially owned by Trading Fund OS, representing percentage ownership of approximately 1.1% of the Shares outstanding.

BVF GPH, as the sole member of each of BVF GP and BVF2 GP, may be deemed to beneficially own the 4,765,500 Shares beneficially owned in the aggregate by BVF and BVF2, representing percentage ownership of approximately 14.3% of the Shares outstanding.

Partners, as the investment manager of BVF, BVF2, Trading Fund OS and the Partners Managed Account and the sole member of Partners OS, may be deemed to beneficially own the 5,231,900 Shares beneficially owned in the aggregate by BVF, BVF2, Trading Fund OS, and held in the Partners Managed Account, representing percentage ownership of approximately 15.7% of the Shares outstanding.

BVF Inc., as the general partner of Partners, may be deemed to beneficially own the 5,231,900 Shares beneficially owned by Partners, representing percentage ownership of approximately 15.7% of the Shares outstanding.

Mr. Lampert, as a director and officer of BVF Inc. may be deemed to beneficially own the 5,231,900 Shares beneficially owned by BVF Inc., representing percentage ownership of approximately 15.7% of the Shares outstanding.

(b)       Each of BVF, BVF2 and Trading Fund OS shares with Partners voting and dispositive power over the Shares each such entity beneficially owns. BVF shares with BVF GP voting and dispositive power over the Shares beneficially owned by BVF. BVF2 shares with BVF2 GP voting and dispositive power over the Shares beneficially owned by BVF2. Each of BVF GP and BVF2 GP shares with BVF GPH voting and dispositive power over the Shares each such entity beneficially owns. Trading Fund OS shares with Partners OS voting and dispositive power over the Shares beneficially owned by Trading Fund OS. Partners, BVF Inc. and Mr. Lampert share voting and dispositive power over the 5,231,900 Shares they may be deemed to beneficially own with BVF, BVF GP, BVF2, BVF2 GP, Trading Fund OS, Partners OS, BVF GPH and the Partners Managed Account.

(c)       Schedule A annexed hereto lists all transactions in securities of the Issuer by the Reporting Persons during the past sixty days. All of such transactions were effected in the open market.

(d)       No person other than the Reporting Persons is known to have the right to receive, or the power to direct the receipt of dividends from, or proceeds from the sale of, the Shares.

(e)       Not applicable.

BVF purchased exchange-listed American-style call options representing 2,726,500 Shares, which have an exercise price of $100 and expire on November 20, 2020, as set forth in Schedule A, which is incorporated herein by reference.

BVF2 purchased exchange-listed American-style call options representing 2,039,000 Shares, which have an exercise price of $100 and expire on November 20, 2020, as set forth in Schedule A, which is incorporated herein by reference.

Trading Fund OS purchased exchange-listed American-style call options representing 354,700 Shares, which have an exercise price of $100 and expire on November 20, 2020, as set forth in Schedule A, which is incorporated herein by reference.

Exchange-listed American-style call options representing 111,700 Shares are held in the Partners Managed Account. Such call options have an exercise price of $100 and expire on November 20, 2020, as set forth in Schedule A, which is incorporated herein by reference.

On August 25, 2020, the Reporting Persons entered into a Joint Filing Agreement in which the Reporting Persons agreed to the joint filing on behalf of each of them of statements on Schedule 13D, with respect to securities of the Issuer, to the extent required by applicable law. A copy of this agreement is attached hereto as Exhibit 99.2 hereto and is incorporated herein by reference.

BVF GP and BVF2 GP are the general partners of BVF and BVF2, respectively, pursuant to their respective limited partnership agreements, which provide BVF GP and BVF2 GP with broad authority over the activities and assets of BVF and BVF2. Pursuant to such limited partnership agreements, BVF GP and BVF2 GP are entitled to allocations based on realized and unrealized gains on the respective assets of BVF and BVF2.

Partners is the sole member of Partners OS and the investment manager of BVF, BVF2, and Trading Fund OS, pursuant to their respective investment management agreements which authorize Partners, among other things, to invest the funds of BVF, BVF2, and Trading Fund OS in the Shares and other securities and to vote, exercise or convert and dispose of such securities. Pursuant to such investment management agreements, Partners is entitled to receive fees based on assets under management and allocations based on realized and unrealized gains on such assets from each of BVF, BVF2, and Trading Fund OS.

Pursuant to investment management agreements with the Partners Managed Account, Partners and BVF Inc. have authority, among other things, to invest funds of the Partners Managed Account in the Shares and other securities and to vote, exercise or convert and dispose of such securities. Pursuant to such investment management agreements, Partners and BVF Inc. receive fees based on realized and unrealized gains thereon.

Other than as described herein, there are no contracts, arrangements, understandings or relationships among the Reporting Persons, or between the Reporting Persons and any other person, with respect to the securities of the Issuer.

SIGNATURES

After reasonable inquiry and to the best of his or its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: August 25, 2020

Schedule A

Transactions in the Shares During the Past Sixty Days

BIOTECHNOLOGY VALUE FUND, L.P.

BIOTECHNOLOGY VALUE FUND II, L.P.

Biotechnology Value Trading Fund OS LP

BVF PARTNERS L.P.

(Through the Partners Managed Account)

________________________

¹ Represents Shares underlying exchange-listed American-style call options. These call options expire on November 20, 2020. 

Exhibit 99.1

August 25, 2020

To the Board of Directors of Principia Biopharma:

I intend for this to be one of the friendliest and most supportive “activist” letters ever written!  

As the Founder and General Partner of the Biotechnology Value Fund, I have been investing in biotechnology companies for nearly 30 years.  Over that long stretch, I have witnessed the building of a great number of companies, including some truly excellent ones, and I am fortunate to have invested in a number of them.  Bottom line: Principia is one of the most promising and valuable companies in which BVF has ever had the privilege to invest.  We hold the company in the highest regard and are very appreciative of the outstanding job Principia’s management and board have done on behalf of patients and shareholders alike. Thank you!

It is for this reason that we feel the proposed sale of the company to Sanofi would be a suboptimal and, frankly, sad outcome.  If the proposed sale is consummated, we believe we may all look back a few years from now with profound regret.  As a friend of the company, we intend to support whatever Principia ultimately elects to do. However, given our unique perspective, we feel it is important that we express our views in the hope that they may influence the outcome in some positive fashion.  

With regards to the outcome, if it were up to us, we would prefer that Principia remain independent throughout its current steep value-creation phase. This is arguably in the best interest of all parties, including Sanofi.  Our second choice would be for Sanofi, or another large biopharma company, to buy control of Principia, but in a manner that preserves downstream economics for Principia shareholders.  Our third choice would be for Principia to be acquired outright, but for a price that more accurately reflects our assessment of the company’s tremendous value. 

For the benefit of interested parties that are less familiar with Principia, we wish to share our perspective on what makes the company so special and so valuable. The company’s value can be segmented into several discrete components. One of the attributes that makes Principia so unique is that each of these components has an unusually high probability of success because BTK, the common target of Principia’s drug candidates, is an extremely well validated target that has already proven safe and commercially successful in other diseases. We believe each of Principia’s drug candidates has demonstrated excellent selectivity for BTK, a critical characteristic for safe application in autoimmune diseases. Additionally, each candidate can be expanded from a first approved use into a broad range of additional diseases.

Component 1.  Rilzabrutinib initial indications:

Sanofi and Principia’s partnership around SAR442168 for multiple sclerosis has attracted much warranted attention, but paradoxically this has resulted in an extreme underappreciation of rilzabrutinib’s blockbuster potential. Rilzabrutinib is a BTK inhibitor that is wholly owned by Principia and is in mid to late stage clinical development for three autoimmune diseases: Pemphigus Vulgaris, Immune Thrombocytopenic Purpura (ITP), and IgG4-Related Disease. The drug has to date shown to be safe and effective, with a rapid onset of action. To highlight just one example, patients with ITP suffer from persistent platelet destruction and spontaneous bleeding episodes. Intravenous immunoglobulin (IVIG) is a core treatment option for ITP patients despite its inconvenient method of administration, supply-constraints and inordinately expensive price. The key attribute in IVIG’s favor is its fast onset of action. Distinct from other currently marketed ITP products, rilzabrutinib shares IVIG’s ability to swiftly halt platelet destruction, but does so in the form of a convenient, orally administered pill. We believe rilzabrutinib’s unique characteristics indicate a bright commercial future as it advances the standard of care for ITP, Pemphigus Vulgaris, and IgG4-Related Disease. 

Component 2.  Rilzabrutinib expansion indications:

Rilzabrutinib has the potential to expand into numerous other diseases as a consequence of BTK‘s critical role in autoimmunity and allergy. These include diseases in which other mechanistically related drugs (e.g., FcRn inhibitors, Rituxan, Xolair) are effective.

Rilzabrutinib is competitive with the FcRn class in treating autoantibody-mediated diseases because of BTK’s function in B-cells and, importantly, myeloid cells (which are activated by autoantibodies). It is illustrative to note the value of companies developing FcRn inhibitors; Argenx and Immunovant are valued at $11B and $3B respectively, largely attributable to each company’s FcRn inhibitor.  Just two days after the public announcement of Sanofi’s offer for Principia, Johnson & Johnson announced a proposed acquisition of Momenta Pharmaceuticals for $6.5 Billion, valuing the company predominantly for its FcRn inhibitor, Nipocalimab. This price tag, equivalent to $170/share for Principia, should give all of us pause.

Consideration of Novartis and Roche’s joint $2B Xolair (IgE inhibitor) franchise is also instructive. BTK’s role in mediating allergic responses has been, until recently, largely underappreciated. However, BTK is essential for IgE-mediated inflammation. Novartis is evaluating a BTK inhibitor for Chronic Spontaneous Urticaria (CSU), a core market for Xolair. Roche’s fenebrutinib recently demonstrated that BTK inhibition is a remarkably effective mechanism for CSU, but we believe the drug was discontinued due to molecule-specific liver toxicity. Rilzabrutinib could offer a safe, effective, orally administered option for CSU and additional IgE-mediated diseases.

Rilzabrutinib’s positive clinical data in its first and most advanced indication, Pemphigus Vulgaris, suggest that the drug would also be effective in Bullous Pemphigoid, due to common autoantibody-driven destruction of skin. Similarly, the positive data in Immune Thrombocytopenic Purpura would likely translate to Warm Autoimmune Hemolytic Anemia, due to common autoantibody-driven destruction of blood cells. Beyond these two specific examples of rilzabrutinib’s broad applicability, the drug may merit evaluation in diseases such as Myasthenia Gravis, Chronic Inflammatory Demyelinating Polyneuropathy, ANCA-Associated Vasculitis, Membranous Nephropathy, and Systemic Sclerosis.

Recent comments from John Reed (Sanofi) and Jim Birchenough (Wells Fargo) support this perspective: 

We believe Sanofi’s $3.7B offer grossly undervalues rilzabrutinib.

Component 3.  SAR442168 (“168”) for multiple sclerosis:

168 is a very promising drug candidate for multiple sclerosis; the drug was discovered by Principia and licensed to Sanofi for development and marketing.  Based on recently reported positive Phase 2 clinical trial results, Sanofi has remarkably launched four parallel Phase 3 clinical trials. Principia retains a significant royalty (up to a mid-teen percentage of sales) on Sanofi’s sales of 168 as well as an option to co-market 168 should Principia (or another acquirer) wish to do so.  

Sanofi believes 168 has a high probability of becoming a blockbuster drug in MS, a market with current aggregate annual sales in excess of $20 billion. Given the high likelihood of success of 168 in MS and the magnitude of the opportunity for a potentially best-in-disease agent, we believe Sanofi’s proposed purchase price of $3.7 billion undervalues even this single component of Principia’s value. 

·         “In short, we believe we have a potential multi-blockbuster on our hands.”

Component 4.  168 in other neurological diseases, including Alzheimer’s Disease:

Component 5.  168 beyond the central nervous system:

Should the proposed sale to Sanofi close, the transaction will enable Sanofi to develop 168 for indications outside of the central nervous system.

Component 6. PRN473:

PRN473 is a topical BTK inhibitor that is wholly owned by Principia and is currently in a Phase 1 trial. BTK’s role in IgE-mediated inflammation enables a unique opportunity for a topically applied medicine in diseases such as atopic dermatitis and urticaria. 

Component 7.  Drug discovery platform:

Principia has demonstrated an ability to generate highly selective small molecule drug candidates against challenging targets. This competitive advantage will likely yield additional promising drug candidates in the coming years.

In conclusion, the purpose of this letter is to share our view of the extraordinary value you have created at Principia. We do so with the utmost respect and humility. While we are not advocating for any specific action, we do hope that our perspective may help catalyze a more favorable outcome for Principia. We are open to discussing our views with any interested parties.

Sincerely,

Mark Lampert

BVF Partners L.P.

Exhibit 99.2 

JOINT FILING AGREEMENT

In accordance with Rule 13d-1(k)(1)(iii) under the Securities Exchange Act of 1934, as amended, the persons named below agree to the joint filing on behalf of each of them of a Statement on Schedule 13D dated August 25, 2020 (including amendments thereto) with respect to the shares of Common Stock, $0.0001 par value per share, of Principia Biopharma Inc. This Joint Filing Agreement shall be filed as an Exhibit to such Statement.

Dated: August 25, 2020