UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2020    

OR

Commission File Number 1-36282

LA JOLLA PHARMACEUTICAL COMPANY

(Exact name of Registrant as specified in its Charter)

Registrant’s telephone number, including area code: (617) 715-3600

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes ☐ No ☒

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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on the Nasdaq Capital Market on June 30, 2020, was $78.0 million.

As of February 8, 2021, there were 27,428,407 shares of common stock outstanding.

Table of Contents

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements can be identified by words such as “intends,” “believes,” “anticipates,” “indicates,” “plans,” “expects,” “suggests,” “may,” “should,” “potential,” “designed to,” “will” and similar expressions that predict or indicate future events and trends that do not relate to historical matters. You should not unduly rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

These forward-looking statements include, but are not limited to, statements regarding:

These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from the anticipated future results, performance or achievements expressed or implied by any forward-looking statements, including the factors described under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should evaluate all forward-looking statements made in this Annual Report on Form 10-K, including the documents we incorporate by reference, in the context of these risks, uncertainties and other factors.

We caution you that the risks, uncertainties and other factors referred to above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will affect us or our business in the way expected. All forward-looking statements in this Annual Report on Form 10-K apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Annual Report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

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PART I

In this Annual Report on Form 10-K, all references to “we,” “our,” “us,” “La Jolla” or “the Company” refer to La Jolla Pharmaceutical Company, a California corporation, and our wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase Pharmaceuticals, Inc., on a consolidated basis.

Item 1.  Business

Overview

We are dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases. GIAPREZA™ (angiotensin II) injection is approved by the U.S. Food and Drug Administration (“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. XERAVA™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. Financial results for the period ending December 31, 2020 include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020.

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”) to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland whereby La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments.

As of December 31, 2020, La Jolla had $21.2 million of cash and cash equivalents. On a pro forma basis, adjusting for $18.9 million of upfront net proceeds from the PAION License, net of the amounts due under the George Washington University and Harvard University license agreements, La Jolla had cash and cash equivalents of $40.1 million.

For the three and twelve months ended December 31, 2020, GIAPREZA U.S. net sales were $8.7 million and $29.3 million, respectively, up 19% and 27%, respectively, from the same periods in 2019. Subsequent to July 28, 2020 and through December 31, 2020, XERAVA U.S. net sales were $4.2 million. For the three and twelve months ended December 31, 2020, including the period prior to the acquisition of Tetraphase, XERAVA U.S. net sales were $2.3 million and $8.2 million, respectively, up 53% and 128%, respectively, from the same periods in 2019.

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Product Portfolio

GIAPREZA™ (angiotensin II)

GIAPREZA™ (angiotensin II) injection is approved by the FDA as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. GIAPREZA is approved by the European Commission (“EC”) for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies. GIAPREZA mimics the body’s endogenous angiotensin II peptide, which is central to the renin-angiotensin-aldosterone system (“RAAS”), which in turn regulates blood pressure. GIAPREZA is marketed in the U.S. by La Jolla Pharmaceutical Company on behalf of La Jolla Pharma, LLC, its wholly owned subsidiary, and will be marketed in Europe by PAION AG on behalf of La Jolla Pharma, LLC.

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Distributive shock is the most common form of shock (Vincent et al, New England Journal of Medicine 2013; 369(18):1726−1734).

Types of Shock⁽¹⁾

Distributive shock is a leading cause of death in hospitalized patients. Septic shock accounts for more than 90% of distributive shock (Vincent et al, New England Journal of Medicine 2013; 369(18):1726–1734). Shock affects one-third of patients in the intensive care unit (“ICU”) (Sakr et al, Critical Care Medicine 2006; 34:589–597). The mortality rate of distributive shock exceeds that of most acute conditions requiring hospitalization.

Mortality Rate

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The RAAS is one of three systems that work in harmony to regulate blood pressure. GIAPREZA regulates blood pressure through the RAAS. Other therapeutic options regulate blood pressure through the adrenal system and vasopressin system.

In Healthy Individuals, Three Systems Work in Harmony to Regulate Blood Pressure

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Annually in the U.S., approximately 130,000−200,000 patients fail to respond to current vasopressor options.

Response to Current Vasopressor Options

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Angiotensin II for the Treatment of High-Output Shock (“ATHOS-3”)

GIAPREZA was approved by the FDA and the EC based on the results of ATHOS-3, which were published in the New England Journal of Medicine in August 2017. ATHOS-3 was a multinational, randomized, double-blind, placebo-controlled study in which 321 adults with septic or other distributive shock who remained hypotensive despite fluid and vasopressor therapy received either GIAPREZA or placebo, both in addition to background vasopressor therapy. The primary endpoint was mean arterial pressure (“MAP”) response, defined as a MAP of 75 mm Hg or higher or an increase in MAP from baseline of at least 10 mm Hg without an increase in the dose of background vasopressors at Hour 3 (Khanna et al, New England Journal of Medicine 2017; 377:419–430).

ATHOS-3 Study Design⁽¹⁾

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GIAPREZA significantly improved blood pressure response. Specifically, the primary endpoint was achieved by 70% of GIAPREZA-treated patients compared to 23% of placebo-treated patients (p <0.0001).

Primary Endpoint: Mean Arterial Pressure Response^(1),(2)

GIAPREZA provides the ability to rapidly achieve and adjust therapeutic response. GIAPREZA rapidly increased MAP with a median time to MAP response of approximately 5 minutes. The plasma half-life of GIAPREZA is less than 1 minute.

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In addition, a positive survival trend was observed. Mortality through Day 28 was 46% on GIAPREZA and 54% on placebo (hazard ratio 0.78; 95% confidence interval 0.57–1.07).

Positive Survival Trend Observed (N=321)^(1),(2)

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The most common adverse reactions that were reported in greater than 10% of GIAPREZA-treated patients were thromboembolic events.

Adverse Reactions Occurring in ≥4% of Patients Treated with GIAPREZA and ≥1.5% More Often than in Placebo-treated Patients⁽¹⁾

Note: There is a potential for venous and arterial thrombotic and thromboembolic events in patients who receive GIAPREZA. As stated in the GIAPREZA FDA prescribing information, use concurrent venous thromboembolism (“VTE”) prophylaxis.

Percentage of Patients Experiencing ≥1 Adverse Event, ≥1 Serious Adverse Event and Discontinuing Treatment Due to an Adverse Event⁽¹⁾

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XERAVA™ (eravacycline)

XERAVA™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older. XERAVA is approved by the EC for the treatment of cIAI in adults. XERAVA is marketed in the U.S. by Tetraphase Pharmaceuticals, Inc., a wholly owned subsidiary of La Jolla, and will be marketed in Europe by PAION AG on behalf of Tetraphase Pharmaceuticals, Inc.

cIAIs are the second most common source of severe sepsis in the ICU (Brun-Buisson et al, JAMA 1995; 274(12):968–974). cIAIs are defined as consequences of perforations of the gastrointestinal tract that result in contamination of the peritoneal space (Solomkin et al, Clinical Infectious Diseases 2018; 69(6):921–929).

Source of Severe Sepsis in the ICU (%)⁽¹⁾

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The use of antimicrobial agents that have activity against gram-negative, gram-positive and anaerobic pathogens is strongly recommended for the empiric treatment (treatment without a specific pathogen diagnosis) of patients with cIAI. The increased prevalence of resistant bacteria makes the selection of appropriate treatment more challenging (Mazuski et al, Surgical Infections 2017; 18(1):1–76).

2,733 Baseline Pathogens in 846 Patients with cIAI

3.2 Pathogens/Patient⁽¹⁾

Approximately 3 million patients with cIAIs receive approximately 17 million days of broad-spectrum antibiotics.

~3 MM Patients with cIAIs Receive Broad-Spectrum Antibiotics

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Investigating Gram-negative Infections Treated with Eravacycline (“IGNITE”)

XERAVA was approved by the FDA and the EC based on the results of IGNITE1 and IGNITE4, which were published in JAMA Surgery in March 2017 and Clinical Infectious Diseases in December 2018, respectively.

IGNITE1 was a multinational, randomized, double-blind, active-controlled study in 538 patients with clinical evidence of cIAIs requiring urgent surgical or percutaneous intervention who received either XERAVA or ertapenem. The primary endpoint was clinical cure, defined as complete resolution or significant improvement of signs or symptoms of the index infection, at the test of cure (“TOC”) visit. The TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered.

IGNITE4 was a multinational, randomized, double-blind, active controlled study in 499 patients with clinical evidence of cIAIs requiring urgent surgical or percutaneous intervention who received either XERAVA or meropenem. The primary endpoint was clinical cure, defined as complete resolution or significant improvement of signs or symptoms of the index infection, at the TOC visit. The TOC visit was conducted 25 to 31 calendar days after the first dose of the study drug was administered.

IGNITE1 and IGNITE4 Study Design

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XERAVA demonstrated statistical noninferiority in clinical cure rate in the micro-ITT population, which included all randomized subjects who had baseline bacterial pathogens that caused cIAIs and against at least one of which the investigational drug has in vitro (in a test tube) antibacterial activity (N=846).

Primary Endpoint: Clinical Cure Rate⁽¹⁾

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Clinical cure rates across patients with gram-negative, gram-positive and anaerobic pathogens, including those with resistant strains, are shown in the following tables.

Clinical Cure Rates at TOC by Selected Baseline Pathogens in the Micro-ITT Population⁽¹⁾

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XERAVA Demonstrated High Clinical Cure Rates Against Resistant Pathogens⁽¹⁾

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The most common adverse reactions that were reported in XERAVA-treated patients in IGNITE1 and IGNITE4 were infusion site reactions.

Selected Adverse Reactions Reported in ≥1% of Patients Receiving XERAVA⁽¹⁾

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Product Candidates

In connection with the acquisition of Tetraphase, we acquired the following product candidates that are in early stage clinical or preclinical development: (1) TP-6076, an IV formulation of a fully synthetic fluorocycline derivative for the treatment of certain multidrug-resistant gram-negative bacteria; (2) TP-271, an IV and oral formulation of a fully synthetic fluorocycline for the treatment of respiratory disease caused by bacterial biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia; and (3) TP-2846, an IV formulation of a tetracycline for the treatment of acute myeloid leukemia. At this time, there are no active studies nor anticipated future studies for any of these product candidates. We intend to seek out-licensing opportunities for these product candidates; however, at this time, we are unable to predict the likelihood of successfully out-licensing any of these product candidates.

Sales and Marketing Organization

La Jolla employs an experienced sales and marketing team dedicated to the commercialization of GIAPREZA and XERAVA. As of December 31, 2020, this team consisted of 39 professionals, including 29 critical care specialists.

Customers

During the year ended December 31, 2020, 521 hospitals in the U.S. purchased GIAPREZA. During the year ended December 31, 2020, 750 hospitals and other healthcare organizations in the U.S. purchased XERAVA. Hospitals and other healthcare organizations purchase our products through a network of specialty and wholesale distributors. We do not believe that the loss of any one of these distributors would significantly impact our ability to distribute GIAPREZA or XERAVA, as we expect that sales volume would be absorbed by the remaining distributors. Due to the relatively short lead-time required to fill orders for GIAPREZA and XERAVA, backlog is not material to our business.

Competition

Catecholamines (primarily norepinephrine), which are available as generics and inexpensive, are typically used first line to treat distributive shock, while Vasostrict^® (Endo International plc) is typically used second line. In the randomized, Phase 3 study ATHOS-3, GIAPREZA demonstrated clinical benefit in patients who were not adequately responding to available vasopressors, including catecholamines and Vasostrict. GIAPREZA’s principal competition as a treatment in patients not adequately responding to available vasopressors is the use of these same vasopressors, particularly norepinephrine, at increased doses. If we are unable to successfully change treatment practices, the commercial prospects for GIAPREZA will be limited, and our business will suffer.

XERAVA competes with a number of antibiotics that are currently marketed for the treatment of cIAI and other multidrug resistant infections, including: AVYCAZ (ceftazidime and avibactam, marketed by AbbVie Inc.); MERREM IV^® (meropenem, marketed by AstraZeneca PLC); PRIMAXIN^® (imipenem and cilastatin, marketed by Merck & Co., Inc.); RECARBRIO™ (imipenem, cilastatin, and relebactam, marketed by Merck & Co., Inc.); TYGACIL^® (tigecycline, marketed by Pfizer Inc.); VABOMERE™ (meropenem and vaborbactam, marketed by Melinta Therapeutics, Inc.); ZERBAXA^® (ceftolozane and tazobactam, marketed by Merck & Co., Inc.); ZOSYN^® (piperacillin and tazobactam, marketed by Pfizer Inc.); and current and future generic versions of marketed antibiotics. If we are unable to successfully change treatment practices, the commercial prospects for XERAVA will be limited, and our business will suffer.

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Manufacturing

We do not currently own or operate manufacturing facilities for the production of GIAPREZA or XERAVA. We rely on third-party manufacturers to produce GIAPREZA and XERAVA and expect to continue to do so to meet our development and commercial needs. In all of our manufacturing agreements, we require that contract manufacturers produce active pharmaceutical ingredients (“APIs”) and drug products in accordance with the FDA’s current Good Manufacturing Practices (“cGMPs”) and all other applicable laws and regulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect our proprietary rights related to GIAPREZA and XERAVA. The long-term commercial success of GIAPREZA and XERAVA will depend in part on the ability of our contract manufacturers to supply cGMP-compliant API and drug product without interruption.

Regulatory Exclusivity

GIAPREZA and XERAVA are New Chemical Entities (“NCEs”) approved by the FDA. In the U.S., NCEs approved by the FDA are eligible for market exclusivity under the U.S. Federal Food, Drug, and Cosmetic Act (“FDCA”), which can prevent the approval of generic versions of the NCE for 5 to 7.5 years from the date of the initial approval of the NCE. Specifically, the FDCA provides a 5-year period of marketing exclusivity within the U.S. to the applicant that gains approval of an NDA for an NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an Abbreviated New Drug Application (“ANDA”) or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all of the data required for approval. However, an application may be submitted 4 years after the NDA approval of the NCE if it contains a certification of patent invalidity or non-infringement. This certification will trigger an automatic stay in the approval of any generic competition until the earlier of: (a) 30 months from the certification; or (b) a court ruling of patent invalidity or non-infringement for the relevant patents. In the absence of a court ruling, the 30-month stay will be extended by such amount of time (if any) that is required for 7.5 years to have elapsed from the date of NDA approval of the NCE.

Under the Generating Antibiotic Incentives Now (“GAIN”) provisions of the Food and Drug Administration Safety and Innovation Act (“FDASIA”), the FDA may designate a product as a qualified infectious disease product (“QIDP”). In order to receive this designation, a drug must qualify as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections. We obtained a QIDP designation for the IV formulation of XERAVA for cIAI in July 2013. Upon approving an application for a QIDP, the FDA will extend by an additional five years any non-patent marketing exclusivity period awarded, such as a five-year exclusivity period awarded for an NCE. This extension is in addition to any pediatric exclusivity extension awarded. XERAVA has been awarded this five-year exclusivity under FDASIA.

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Intellectual Property

Patents and other proprietary rights are important to our business. As of February 19, 2021, the intellectual property portfolio relating to GIAPREZA included 12 issued U.S. patents, 8 pending U.S. patent applications, 8 issued foreign patents, 45 pending foreign patent applications, and 1 international patent application filed under the Patent Cooperation Treaty (“PCT”). The issued U.S. patents, and patents that may issue from the pending U.S. patent applications, will expire between 2029 and 2038, absent any disclaimers, extensions, or adjustments of patent term. The foreign patents, and patents that may issue from the pending foreign patent applications, will expire between 2034 and 2037, absent any disclaimers, extensions, or adjustments of patent term. Patents that may issue from applications claiming priority to the PCT application will expire in 2040, absent any disclaimers, extensions, or adjustments of patent term.

As of February 19, 2021, we owned 2 issued U.S. patents, 1 pending U.S. patent application, 17 issued foreign patents and 5 pending foreign patent applications relating to XERAVA. The issued U.S. patents, and the patent that may issue from the pending U.S. patent application, will have an expiration date of August 7, 2029, absent any disclaimers, extensions or adjustments of patent term. The term of one of the U.S. patents has received 508 days of patent term adjustment. The foreign patents, and patents that may issue from the pending foreign applications, will likewise have an expiration date of August 7, 2029, absent any disclaimers, extensions or adjustments of patent term.

As of February 19, 2021, we also filed applications for Supplementary Protection Certificates based on European Patent No. 2323972 covering the composition of matter and use of XERAVA. Some applications have been granted and others are pending.

As of February 19, 2021, we also owned 1 pending U.S. patent application and 10 pending foreign patent applications that relate to crystalline forms of eravacycline. Any U.S. patent that may issue from the pending patent application will expire in 2037 absent any disclaimers, extensions, or adjustments of patent term. Likewise, any foreign patents that may issue from the pending foreign patent applications will expire in 2037.

The following table summarizes our issued patents and pending applications for GIAPREZA, XERAVA and other tetracycline-related intellectual property.

Material Contracts

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations.”

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Government Regulation

Pharmaceutical products, including GIAPREZA and XERAVA, are subject to extensive government regulation. In the U.S., the FDA regulates pharmaceutical products. FDA regulations govern the testing, research and development activities, manufacturing, quality, storage, advertising, promotion, labeling, sale and distribution of pharmaceutical products. Accordingly, there is a rigorous process for the approval of new drugs and ongoing oversight of marketed products. We may also be subject to foreign regulatory requirements governing clinical studies and drug products if products are tested or marketed abroad. The approval process outside of the U.S. varies from jurisdiction to jurisdiction and the time required may be longer or shorter than that required for FDA approval.

Regulation in the U.S.

The FDA testing and approval process requires substantial time, effort and financial resources. We cannot assure you that any of our product candidates will ever obtain approval. The FDA approval process for new drugs includes, without limitation:

Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements on us and our third-party manufacturers. Even after regulatory approval is obtained, under certain circumstances, such as later discovery of previously unknown safety risks, the FDA can withdraw approval or subject the drug to additional restrictions.

The FDA closely regulates the marketing and promotion of drugs. Drugs may only be marketed in a manner consistent with their FDA-approved labeling. Approval may be subject to post-marketing surveillance and other record-keeping and reporting obligations. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing.

The failure to comply with FDA’s requirements may result in adverse publicity, warning letters, corrective advertising, restrictions on marketing or manufacturing, refusals to review pending product applications, refusals to permit the import or export of products, seizures, injunctions, and civil and criminal penalties.

Third-party Payor Coverage and Reimbursement

In the U.S. and most major foreign markets, drugs like GIAPREZA and XERAVA that are administered in the hospital must be purchased by the hospital and generally are not reimbursed by third-party payors. Hospitals instead are reimbursed for patient cases based on patients’ diagnosed conditions under the U.S. Medicare diagnosis-related group (“DRG”) system or other like systems for non-Medicare patients in the U.S. and in most major foreign markets. Adoption of new drugs that are administered in the hospital generally occurs more slowly than adoption of new drugs that are taken on an outpatient basis, which generally are paid for by third-party payors.

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U.S. Health Care Fraud and Abuse Laws and Compliance Requirements

We are subject to various federal and state laws targeting fraud and abuse in the health care industry. These laws may impact, among other things, our sales and marketing efforts. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

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Regulation in Non-U.S. Jurisdictions

In addition to regulations in the U.S., we may be subject to a variety of foreign regulations governing clinical studies and commercial sales and distribution of GIAPREZA, XERAVA or future products. For example, clinical studies conducted in the European Union must be done under a clinical trial application (“CTA”), which is usually supported by an Investigational Medicinal Product Dossier (“IMPD”), and the oversight of ethics committees. If we market GIAPREZA in foreign countries, we also will be subject to foreign regulatory requirements governing marketing approval for pharmaceutical products. The requirements governing the conduct of clinical studies, product approval, pricing and reimbursement vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the regulatory authorities of foreign countries must be obtained before marketing the product in those countries. The approval process varies from country to country, and the time required for such approvals may differ substantially from that required for FDA approval. Foreign regulatory approval processes involve many of the risks associated with FDA marketing approval discussed above. There is no assurance that any FDA approval of any of our product candidates will result in similar foreign approvals or vice versa. The process for clinical studies in the European Union and other countries is similar, and studies are heavily scrutinized by the designated ethics committees and regulatory authorities. In addition, foreign regulations may include applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to health care professionals and entities.

In Europe, the European Union General Data Protection Regulation (2016/679) (“GDPR”) contains provisions specifically directed at the processing of health information. The GDPR provides for potentially significant sanctions and contains extraterritoriality measures intended to bring non-EU companies under the regulation. In addition to the GDPR, individual countries in Europe and elsewhere in the world have enacted similar data privacy legislation. This legislation imposes increased compliance obligations and regulatory risk, including the potential for significant fines for noncompliance.

Other Laws and Regulations

We are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including laws relating to the oversight activities of the U.S. Securities and Exchange Commission (“SEC”) and the regulations of the Nasdaq Capital Market, on which our shares of common stock are traded. We are also subject to various laws and regulations relating to safe working conditions, laboratory practices and the experimental use of animals.

Human Capital

As of December 31, 2020, we employed 59 full-time equivalent employees. None of our employees are represented by labor unions or covered by collective bargaining agreements, and we consider our relations with our employees to be good. We also hire consultants and contract with third parties, as needed, to provide additional resources to support our business activities.

Our key human capital management objectives are to identify, recruit, integrate, retain and motivate our new and existing employees. We believe that our compensation and benefit programs are appropriately designed to attract and retain qualified talent. Employees receive an annual base salary and are eligible to earn performance-based cash bonuses. To create and maintain a successful work environment, we offer a comprehensive package of additional benefits that support the physical and mental health and wellness of all of our employees and their families. Additionally, we grant equity awards in order to allow for directors, officers, employees and consultants of La Jolla to share in the performance of the Company.

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Corporate and Other Information

The Company was incorporated in Delaware in 1989 and reincorporated in California in 2012. Effective April 15, 2021, our principal executive offices will be located at 201 Jones Road, Suite 400, Waltham, Massachusetts 02451. Our telephone number is (617) 715-3600. Shares of our common stock trade on the Nasdaq Capital Market under the symbol “LJPC.” Our website address is www.ljpc.com. Information contained on or accessible through our website is not a part of this Annual Report on Form 10-K, and the inclusion of our website address in this Annual Report on Form 10-K is an inactive textual reference only.

We file electronically with the SEC our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available on our website at www.ljpc.com, free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing these reports with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

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Item 1A. Risk Factors

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the material risks and uncertainties described below before deciding whether to purchase shares of our common stock. In assessing these risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our audited financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations, cash flow, reputation and prospects could be materially and adversely affected by any of these risks and uncertainties, including risks and uncertainties not currently known to us or that we currently do not believe to be material. In any such case, the trading price of shares of our common stock could decline, and you could lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

We are substantially dependent on the commercial success of GIAPREZA™ (angiotensin II) and XERAVA™ (eravacycline).

The success of our business is substantially dependent on our ability to successfully commercialize GIAPREZA™ (angiotensin II) and XERAVA™ (eravacycline). The market for effective pharmaceutical sales and marketing professionals is competitive, and maintaining these capabilities is expensive and challenging. If we are unable to maintain an effective sales and marketing organization, GIAPREZA and XERAVA sales could be adversely affected, and our business could suffer.

In the U.S. and most major foreign markets, drugs like GIAPREZA and XERAVA that are administered in the hospital must be purchased by the hospital and generally are not directly reimbursed by third-party payors. Hospitals instead are reimbursed for patient cases based on patients’ diagnosed conditions under the U.S. Medicare diagnosis-related group (“DRG”) system or other like systems for non-Medicare patients in the U.S. and in most major foreign markets. Adoption of new drugs that are administered in the hospital generally occurs more slowly than adoption of new drugs that are taken on an outpatient basis, which generally are paid for by third-party payors. If we are unsuccessful at convincing hospitals and health care providers to increase their rate of adoption of GIAPREZA and XERAVA, our business will suffer.

Catecholamines (primarily norepinephrine), which are available as generics and inexpensive, are typically used in the first line to treat distributive shock, while Vasostrict^® (Endo International plc) is typically used in the second line. In the randomized, Phase 3 study ATHOS-3, GIAPREZA demonstrated clinical benefit in patients who were not adequately responding to available vasopressors, including catecholamines and Vasostrict. GIAPREZA’s principle competition as a treatment in patients not adequately responding to available vasopressors is the use of these same vasopressors, particularly norepinephrine, at increased doses. If we are unable to successfully change treatment practices, the commercial prospects for GIAPREZA will be limited, and our business will suffer.

XERAVA competes with a number of antibiotics that are currently marketed for the treatment of cIAI and other multidrug resistant infections, including: AVYCAZ (ceftazidime and avibactam, marketed by AbbVie Inc.); MERREM IV^® (meropenem, marketed by AstraZeneca PLC); PRIMAXIN^® (imipenem and cilastatin, marketed by Merck & Co., Inc.); RECARBRIO™ (imipenem, cilastatin, and relebactam, marketed by Merck & Co., Inc.); TYGACIL^® (tigecycline, marketed by Pfizer Inc.); VABOMERE™ (meropenem and vaborbactam, marketed by Melinta Therapeutics, Inc.); ZERBAXA^® (ceftolozane and tazobactam, marketed by Merck & Co., Inc.); ZOSYN^® (piperacillin and tazobactam, marketed by Pfizer Inc.); and current and future generic versions of marketed antibiotics. If we are unable to successfully change treatment practices, the commercial prospects for XERAVA will be limited, and our business will suffer.

In an effort to remain competitive in the marketplace, we may determine, from time to time, to change our pricing, dosage forms and strengths, and other marketing strategies for GIAPREZA and XERAVA, including altering the amount or availability of discounts or rebates. Any such changes could have short-term or long-term negative impacts on our net sales, which would cause our business and results of

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operations to suffer. Price increases or changes to our marketing strategies may also negatively affect our reputation and our ability to secure and maintain reimbursement coverage for GIAPREZA and XERAVA, which could result in decreased demand and cause our business and results of operations to suffer. If we are unable to successfully price or market GIAPREZA or XERAVA, the commercial prospects for GIAPREZA and XERAVA will be limited, and our business will suffer.

Our estimates of the potential market sizes for GIAPREZA and XERAVA are based on prescription and sales data for relevant in-market products, the results of clinical studies, medical literature and other information. If the potential market sizes for GIAPREZA and XERAVA are smaller than our estimates, the commercial prospects for GIAPREZA and XERAVA may be limited, and our business may suffer.

The commercial success of GIAPREZA and XERAVA will depend on our ability to obtain an uninterrupted supply of GIAPREZA and XERAVA from our contract manufacturers.

We do not currently own or operate manufacturing facilities for the production of GIAPREZA or XERAVA. We rely on sole-source contract manufacturers to produce GIAPREZA and XERAVA and expect to continue to do so to meet our development and commercial needs. In all of our manufacturing agreements, we require that contract manufacturers produce active pharmaceutical ingredients (“APIs”) and drug products in accordance with the U.S. Food and Drug Administration’s (“FDA’s”) current Good Manufacturing Practices (“cGMPs”) and all other applicable laws and regulations. The long-term commercial success of GIAPREZA and XERAVA will depend in part on the ability of our contract manufacturers to supply cGMP-compliant API and drug product without interruption. If there is an interruption in the supply of GIAPREZA and XERAVA from our contract manufacturers, our business will suffer.

Our ability to realize the benefits from the acquisition of Tetraphase is substantially dependent on the commercial success of XERAVA.

Our ability to realize the benefits from the acquisition of Tetraphase is substantially dependent on our ability to successfully commercialize XERAVA. Combining with La Jolla may not accelerate XERAVA’s availability to patients in need, and our presence in the hospital may not increase with a second innovative therapy. If we are unsuccessful at convincing hospitals and health care providers to increase their rate of adoption of XERAVA, our sales could be adversely affected, and our business could suffer.

Product liability or other lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales.

Patients suffering from distributive shock are gravely ill and have a high mortality rate. Although 28-day mortality in patients treated with GIAPREZA was lower than in patients treated with placebo in the randomized, Phase 3 study ATHOS-3, there was a higher incidence of arterial and venous thrombotic and thromboembolic events in patients treated with GIAPREZA in this study. Some patients who are treated with GIAPREZA will die due to their underlying illness or suffer adverse events (which may or may not be drug related). Additionally, patients suffering from cIAI may become gravely ill and may die due to underlying illness or suffer adverse events (which may or may not be drug related). As such, we may face product liability lawsuits. Although we carry product liability insurance, product liability lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales. Furthermore, any such lawsuits could impair our business reputation and result in the initiation of investigations by regulators.

Additionally, we may not have and may not be able to obtain insurance on acceptable terms or with adequate coverage against potential liabilities or other losses if any claim or lawsuit is brought against us, regardless of the success or failure of the claim or lawsuit. Even where claims are submitted to insurance carriers for defense and indemnity, there can be no assurance that the claims will be fully covered by insurance or that the indemnitors or insurers will remain financially viable to cover the cost of such claims. Any such claims or lawsuits could materially impact our financial condition, and our business could suffer.

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Our ability to continue commercializing GIAPREZA is dependent on our fulfillment of contractual obligations under the royalty financing agreement with HealthCare Royalty Partners.

In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA. However, under the terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of either $125.0 million or $225.0 million (depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR would have the right to foreclose on the GIAPREZA-related assets.

The commercial success of GIAPREZA and XERAVA in certain ex-US territories is dependent on the fulfillment of contractual obligations under the Company’s out-license agreements.

PAION AG License

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company agreed to use commercially reasonable efforts to negotiate and enter into a separate commercial supply agreement to manufacture drug product for commercial supply. The Company has not yet entered into a commercial supply agreement with PAION, which would set the quantity and timing of commercial supply. The Company has not received any payments from PAION related to either royalties or commercial milestones. If the Company is held to not have met its commercial supply obligations, or if PAION is unable to successfully develop and commercialize GIAPREZA or XERAVA in the PAION Territory, the commercial prospects for GIAPREZA and XERAVA in the PAION Territory will be limited, and our business will suffer.

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Everest Medicines Limited License

In February 2018, Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Everest Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the quantity and timing of commercial supply. Subsequent to July 28, 2020 and through December 31, 2020, the Company has not received any payments from Everest related to either royalties or clinical development and regulatory milestones. If Tetraphase is held to not have met its commercial supply obligations, or if Everest is unable to successfully develop and commercialize XERAVA in the Everest Territory, the commercial prospects for XERAVA in the Everest Territory will be limited, and our business will suffer.

Our overall financial performance, including but not limited to net product sales and net cash used for or provided by operating activities, may not meet our expectations.

Our overall financial performance, including but not limited to net product sales and net cash used for or provided by operating activities, including any milestone and/or royalty payments resulting from licensing agreements and any distributions received in connection with our non-voting profits interest, is difficult to predict and may fluctuate from quarter to quarter and year to year. Historical financial performance may not be indicative of future financial performance. For example, our net product sales may be below expectations, and our costs to operate our business, including cost of product sales, research and development expenses and selling, general and administrative expenses, could exceed our estimates. Furthermore, we may not receive any future distributions in connection with our non-voting profits interest. If our overall financial performance does not meet our expectations, our business could suffer.

Our capital requirements and our potential need for, and ability to obtain, additional financing are uncertain.

As of December 31, 2020, we had cash and cash equivalents of $21.2 million. GIAPREZA and XERAVA are our approved products and our only sources of product revenue. The amount and timing of future funding requirements, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA, and our ability to control expenses. If necessary, we will raise additional capital through equity or debt financings or collaboration agreements. We can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we need to raise additional capital and are unable to do so, we may be forced to curtail or cease our operations.

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Future utilization of net operating loss carryforwards or research and development credit carryforwards may be impaired due to changes in ownership.

Our net operating loss and research and development credit carryforwards may be subject to limitation under Section 382 of the Internal Revenue Code of 1986 (the “IRC”). As a result, our deferred tax assets and related valuation allowance may be reduced for the estimated impact of the net operating loss and research and development credit carryforwards that we estimate may expire unused. Utilization of our remaining net operating loss and research and development credit carryforwards may still be subject to substantial annual limitations due to ownership change limitations provided by the IRC and similar state provisions, including those that may come in conjunction with market trades by our shareholders or future equity financings.

Our ability to hire and retain key employees is uncertain.

The market for effective professionals in the pharmaceutical industry is competitive, and hiring and retaining these professionals is expensive and challenging. If we are unable to hire and retain key employees, we may be unable to effectively execute on our operating plan, and our business could suffer.

Our employees may engage in misconduct, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

We are exposed to the risk of employee misconduct, which could include intentional failures to comply with regulatory standards and requirements, such as FDA regulations, federal and state healthcare fraud and abuse laws and regulations, or similar laws and regulations established and enforced by comparable foreign regulatory authorities. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in protecting us from governmental actions or lawsuits. If any such actions are instituted against us, and we are not successful in defending ourselves, those actions, including the imposition of significant fines or other sanctions, could have a material adverse effect on our business and results of operations.

Failure to obtain regulatory approval in international jurisdictions would prevent our products, our product candidates or any other products the Company or its current or future out-licensees may develop from being marketed abroad.

In the event the Company or its current or future out-licensees pursue the right to market and sell our products, our product candidates or any other products we may develop in jurisdictions other than the U.S. or the European Union, the Company or its current or future out-licensees would be required to obtain separate marketing approvals and comply with numerous and varying regulatory requirements in each country or jurisdiction. The approval procedures vary among countries and may involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA or European Commission (“EC”) approval. The regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country or jurisdiction. In the event the Company or its current or future out-licensees choose to pursue them, the Company or its current or future out-licensees may not obtain approvals from regulatory authorities in such countries on a timely basis, if at all. Approval by the FDA or EC does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. If the Company or its current or future out-licensees are unable in the future to obtain approval of a product or product candidate by regulatory authorities other countries or jurisdictions, the commercial prospects of that product or product candidate may be significantly diminished and our business could suffer.

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We may not be successful in our efforts to out-license our product candidates.

Although a substantial amount of our effort will focus on the commercialization of GIAPREZA and XERAVA, we also may seek to out-license our product candidates. We cannot assure you that our efforts to out-license our product candidates will be successful.

RISKS RELATED TO INTELLECTUAL PROPERTY

GIAPREZA’s and XERAVA’s market exclusivity periods will depend on the validity and enforceability of issued and pending patents covering GIAPREZA and XERAVA.

We depend on patents and other intellectual property rights to prevent others from improperly benefiting from our commercial products, GIAPREZA and XERAVA, and products or inventions that we develop or acquire. For details about our intellectual property portfolio protecting GIAPREZA and XERAVA, see the section titled “Business—Intellectual Property.”

We plan to file additional patent applications that, if issued, would provide further protection for GIAPREZA and XERAVA. Although we believe the bases for these patents and patent applications are sound, they are untested, and there is no assurance that they will not be successfully challenged. There can be no assurance that any patent previously issued will protect GIAPREZA or XERAVA from generic competition or that any patent application will result in an issued patent that will protect GIAPREZA or XERAVA from generic competition. Furthermore, there can be no assurance that GIAPREZA or XERAVA will not be held to infringe valid patents held by others. If our owned and in-licensed intellectual property do not protect GIAPREZA or XERAVA from generic competition, GIAPREZA or XERAVA sales will decline, and our business will suffer. If either GIAPREZA or XERAVA is held to infringe valid patents held by others, we could be subject to liability, and our business could suffer.

If we fail to comply with our obligations under our in-license agreements, we may lose rights to critical patents that are important to the commercialization and net sales potential of GIAPREZA and XERAVA.

We have licensed patent rights covering GIAPREZA from George Washington University (“GW”) and licensed patent rights covering XERAVA from Harvard University (“Harvard”) and Paratek Pharmaceuticals, Inc. (“Paratek”). If, for any reason, our in-license agreements with GW, Harvard or Paratek are terminated or we otherwise lose those rights, it would materially and adversely affect our business. Our in-license agreements with GW, Harvard and Paratek impose, and any future collaboration agreements or license agreements we enter into are likely to impose, various development, commercialization, commercial supply, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement or other obligations on us. Failure to fulfill these obligations would pose a material risk to our patent protection and commercial prospects for GIAPREZA and XERAVA, and our business would suffer.

If our products or our product candidates infringe the rights of others, we could be subject to expensive litigation, become liable for substantial damages, be required to obtain licenses from others or be prohibited from selling our products or product candidates altogether.

Our competitors or others may have patent rights that they choose to assert against us or our licensors, licensees, suppliers, customers or potential marketing partners. Moreover, we may not know about patents or patent applications that our products or product candidates would infringe. Because patent applications do not publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our products or product candidates would infringe. In addition, if third parties file patent applications or obtain patents claiming inventions also claimed by us or our licensors in issued patents or pending applications, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office (“USPTO”) to determine priority of invention. If third parties file oppositions in foreign countries, we may

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also have to participate in opposition proceedings in foreign tribunals to defend the patentability of claims in our foreign patent applications.

If a third party claims that we infringe its proprietary rights, any of the following may occur:

Any of these events would have a material adverse effect on our business, results of operations and financial condition.

Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Changes in either the patent laws or interpretation of the patent laws in the U.S. or other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or pending applications, or that we or our licensor were the first to file for patent protection of such inventions.

Assuming the other requirements for patentability are met, in the U.S., prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while, outside the U.S., the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (“Leahy-Smith Act”), enacted on September 16, 2011, the U.S. has moved to a first-to-file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, results of operations and financial condition.

Among some of the other changes introduced by the Leahy-Smith Act are changes that limit where a patentee may file a patent infringement suit and provide new opportunities for third parties to challenge issued patents in the USPTO. We may be subject to the risk of third-party prior art submissions on pending applications or become a party to opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patents for our products or product candidates. There is a lower standard of evidence necessary to invalidate a patent claim in a USPTO proceeding relative to the standard in U.S. federal courts. This could lead third parties to challenge and successfully invalidate our patents that would not otherwise be invalidated if challenged through the court system.

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RISKS RELATED TO OUR INDUSTRY

We are subject to various federal, state and foreign laws and regulations governing the health care industry that could result in substantial penalties for noncompliance.

We are subject to various federal, state and foreign laws and regulations governing the health care industry that could result in substantial penalties for noncompliance. These laws and regulations may impact our ability to operate, including our sales and marketing efforts. In addition, we may be subject to patient privacy regulation by federal, state and foreign governments that govern jurisdictions in which we conduct our business. The laws and regulations that may affect our ability to operate include:

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If we are found to be in violation of any of the laws or regulations described above or any other laws or regulations that apply to us, we may be subject to substantial penalties, including civil and criminal penalties, damages, fines and possible exclusion from participation in Medicare, Medicaid and other federal health care programs. If we are subjected to substantial penalties, our business will suffer, and we may be forced to curtail or cease our operations.

Drugs approved by the FDA, EC and/or other regulatory agencies are subject to ongoing regulation.

Any products manufactured or distributed by us pursuant to FDA, EC and/or other regulatory agency approvals may be subject to continuing regulation by such agencies, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA, EC and/or other regulatory agencies and may be subject to periodic unannounced inspections by such agencies for compliance with cGMPs, which impose certain procedural and documentation requirements on us and our third-party manufacturers. Even after regulatory approval is obtained, under certain circumstances, such as later discovery of previously unknown safety risks, the FDA, EC and/or other regulatory agencies can withdraw approval, recall the product or subject the drug to additional restrictions. In addition, governments outside of the U.S. tend to impose strict price controls, which may adversely effect our revenues or our royalty payments received from license agreements.

Drug development involves a lengthy and expensive process with an uncertain outcome.

Drug development involves a lengthy and expensive process with an uncertain outcome. Failure may occur at any time during drug development. The results of nonclinical studies and early clinical studies may not be predictive of the results of later-stage clinical studies. For example, the safety or efficacy results of clinical studies do not ensure that later clinical studies will demonstrate similar results. Even if clinical studies demonstrate the safety and efficacy of the product candidate, there is no assurance that such product candidate will receive regulatory approval.

Business interruptions resulting from geopolitical actions, natural disasters, public health crises or other catastrophic events could have an adverse impact on our business.

Business interruptions resulting from geopolitical actions, such as war and terrorism, natural disasters, public health crises, such as a pandemic, or other catastrophic events could have an adverse impact on our business. For example, if one of these events were to adversely affect one of our contract manufacturers, our supply of GIAPREZA and XERAVA could be interrupted. Furthermore, in the case of a pandemic, the ability of our critical care specialists to access hospitals and call on physicians may be curtailed, which may adversely affect product sales.

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The ongoing COVID-19 pandemic may disrupt our operations and affect our ability to sell GIAPREZA and XERAVA.

We are unable to accurately predict the full impact that the ongoing Coronavirus Disease 2019 (“COVID‑19”) pandemic will have on our results from operations, financial condition and our ability to sell GIAPREZA and XERAVA due to numerous factors that are not within our control, including its duration and severity of the outbreak. Stay-at-home orders, business closures, travel restrictions, supply chain disruptions and employee illness or quarantines could result in disruptions to our operations, which could adversely impact our results from operations and financial condition. In addition, the COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted.

RISKS RELATED TO OWNERSHIP OF SHARES OF OUR COMMON STOCK

The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment.

The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment. These fluctuations could be based on various factors, including factors described elsewhere in this Annual Report on Form 10-K and below:

Any of these factors may result in large and sudden changes in the volume and trading price of shares of our common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of management, result in negative press reports and, if adversely determined, have a material adverse effect on our results of operations and financial condition.

We have never paid a dividend on shares of our common stock, and you should rely on price appreciation of shares of our common stock for return on your investment.

We have never paid a dividend on shares of our common stock. Even if we decide to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations, financial condition, contractual restrictions and other factors. You should not rely on dividend income from shares of our common stock and should rely on price appreciation of shares of our common stock for a return, if any, on your investment.

Conversion of our convertible preferred stock would result in substantial dilution for our existing shareholders of common stock.

As of December 31, 2020, there were approximately 27.4 million shares of common stock outstanding. We may be required to issue up to approximately 6.7 million additional shares of common stock upon conversion of existing convertible preferred stock. The issuance of these additional shares would represent approximately 20% dilution to our existing shareholders of common stock.

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If we need to obtain additional financing in the future, such financing could result in dilution to your investment, adversely affect the price per share of our common stock and/or create future operating and financial restrictions.

As of December 31, 2020, we had cash and cash equivalents of $21.2 million. GIAPREZA and XERAVA are our approved products and our only source of product revenue. The amount and timing of future funding requirements, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA and our ability to control expenses. If necessary, we will raise additional capital through equity or debt financings. We can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we issue additional equity securities or securities convertible into equity securities, you will suffer dilution to your investment, and such issuance may adversely affect the price per share of our common stock. Any new debt financing we enter into may involve covenants that restrict our operations, which may include limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens or pay dividends.

Our directors, executive officers and principal shareholders have substantial control over the Company, which could limit your ability to influence the outcome of key transactions, including a change of control.

As of February 25, 2021, our current directors, officers and shareholders who own greater than 5% of our outstanding shares of common stock, together with their affiliates, beneficially own, in the aggregate, approximately 55% of our outstanding shares of common stock. As a result, these current directors, officers and shareholders, if they act, will be able to influence or control matters requiring approval by our shareholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. In addition, our current directors, officers and shareholders, acting together, would have the ability to control the management and affairs of the Company. They may also have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our shareholders of an opportunity to receive a premium for their shares of common stock as part of a sale of the Company and could affect the market price of shares of our common stock.

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GENERAL RISK FACTORS

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

Our business and operations may be materially adversely affected in the event of computer system failures or security breaches.

Despite the implementation of security measures, our internal computer systems, and those of other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event were to occur and interrupt our operations, it could result in a material disruption of our development programs. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees, access to our customer or clinical data or disruption of the manufacturing process, we could incur liability and the further development of our products or product candidates could be delayed. We may also be vulnerable to cyber-attacks or other malfeasance by hackers, employees and others. This type of breach of our cybersecurity may compromise our confidential information or our financial information and adversely affect our business or result in legal proceedings.

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Item 1B.  Unresolved Staff Comments

Not applicable.

Item 2.  Properties

Effective April 15, 2021, our principal executive offices will be located at 201 Jones Road, Suite 400, Waltham, Massachusetts 02451. We also maintain offices at 4747 Executive Drive, Suite 240, San Diego, California 92121. We lease approximately 7,388 square feet of office space in Waltham and sublease approximately 2,368 square feet of office space in San Diego.

Item 3.  Legal Proceedings

We are not currently a party to any material legal proceedings.

Item 4.  Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

Market Information

Shares of our common stock are traded on the Nasdaq Capital Market under the symbol “LJPC.”

Holders of Record

As of February 8, 2021, we had 4 holders of record. Certain shares of common stock are held in “street” name, and, accordingly, the number of beneficial owners of such shares of common stock is not known or included in the foregoing number. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.

Dividend Policy

We have never paid dividends on shares of our common stock, and we do not have any plans to pay dividends in the foreseeable future. Any determination to pay dividends to holders of shares of our common stock will be at the discretion of our board of directors (“Board”) and will depend on many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in the agreements governing any indebtedness we may enter into and other factors that our Board deems relevant.

Item 6. Selected Financial Data.

Not required.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our audited financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” set forth in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Business Overview

La Jolla Pharmaceutical Company is dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases. GIAPREZA™ (angiotensin II) injection is approved by the U.S. Food and Drug Administration (“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. XERAVA™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. Financial results for the period ending December 31, 2020 include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020.

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement (“PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”) to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland whereby La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments.

As of December 31, 2020, La Jolla had $21.2 million of cash and cash equivalents. On a pro forma basis, adjusting for $18.9 million of upfront net proceeds from the PAION License, net of the amounts due under the George Washington University and Harvard University license agreements, La Jolla had cash and cash equivalents of $40.1 million.

For the three and twelve months ended December 31, 2020, GIAPREZA U.S. net sales were $8.7 million and $29.3 million, respectively, up 19% and 27%, respectively, from the same periods in 2019. Subsequent to July 28, 2020 and through December 31, 2020, XERAVA U.S. net sales were $4.2 million. For the three and twelve months ended December 31, 2020, including the period prior to the acquisition of Tetraphase, XERAVA U.S. net sales were $2.3 million and $8.2 million, respectively, up 53% and 128%, respectively, from the same periods in 2019.

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Results of Operations

The following table summarizes our results of operations for each of the periods below (in thousands):

Financial results for the period ending December 31, 2020 include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020. Net loss for the year ended December 31, 2020 includes $2.5 million of purchase price accounting adjustments and $0.9 million of one-time acquisition-related expenses.

Net Product Sales

Net product sales consist solely of revenue recognized from sales of GIAPREZA and XERAVA to hospitals and other healthcare organizations in the U.S. through a network of specialty and wholesale distributors. These specialty and wholesale distributors are considered our customers for accounting purposes. GIAPREZA U.S. net sales were $29.3 million for the year ended December 31, 2020, compared to $23.1 million for the same period in 2019. Subsequent to July 28, 2020 and through December 31, 2020, XERAVA U.S. net sales were $4.2 million. XERAVA U.S. net sales were $8.2 million for the year ended December 31, 2020, including the period prior to the acquisition of Tetraphase, compared to $3.6 million for the same period in 2019.

Cost of Product Sales

Cost of product sales consists primarily of expense associated with: (i) royalties payable to George Washington University, Harvard University and Paratek Pharmaceuticals, Inc.; (ii) the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase; (iii) manufacturing; (iv) regulatory fees; and (v) shipping and distribution. Cost of product sales was $7.8 million for the year ended December 31, 2020, compared to $2.4 million for the same period in 2019. Subsequent to July 28, 2020 and through December 31, 2020, cost of product sales includes $2.5 million of the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase. For the year ended December 31, 2020, cost of product sales also included charges resulting from the reserve of short-dated GIAPREZA inventory of $0.8 million.

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Selling, General and Administrative Expense

Selling, general and administrative expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) professional fees for legal, patent, consulting, accounting and audit services; (ii) sales and marketing costs such as speaker programs and medical communications; (iii) facilities and information technology; and (iv) insurance. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in sales, finance and administrative functions. We expect selling, general and administrative expense to decrease in the near term.

The following table summarizes these expenses for each of the periods below (in thousands):

During the year ended December 31, 2020, total selling, general and administrative non-personnel expense decreased primarily as a result of decreases in sales and marketing-related expenses primarily due to reduced travel, speaker programs and other marketing activities; partially offset by: (i) increases in professional fee-related expenses, including $0.9 million of one-time acquisition-related expenses; and (ii) increases in facility-related and other expenses primarily as a result of an increase of overhead expenses allocated to selling, general and administrative activities.

During the year ended December 31, 2020, total selling, general and administrative personnel expense decreased as a result of decreases in salaries, bonuses and benefits and share-based compensation expense as a result of reduced headcount in 2020; partially offset by increases of one-time charges in 2020 resulting from: (i) a reduction of headcount from a Company-wide realignment in May 2020; and (ii) a reduction in headcount as a result of combining La Jolla and Tetraphase personnel in July 2020.

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Research and Development Expense

Research and development expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) manufacturing development; (ii) contract research organizations conducting clinical studies; and (iii) facilities and information technology. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in research and development functions. We expect our research and development expense to significantly decrease in the near term.

The following table summarizes these expenses for each of the periods below (in thousands):

During the year ended December 31, 2020, total research and development non-personnel expense decreased primarily as a result of the following: (i) decreases in program-related expenses as we de-prioritized our product candidates and focused on the commercialization of GIAPREZA and XERAVA; and (ii) decreases in facility-related and other expenses primarily as a result of the termination of our San Diego Lease effective August 31, 2020 (see Note 6 to the consolidated financial statements included in Item 15 of this Annual Report on Form 10-K) and a reduction of overhead expenses allocated to research and development activities.

During the year ended December 31, 2020, total research and development personnel expense, including share-based compensation expense, decreased as a result of reduced headcount in 2020.

Other Income (Expense), Net

Other income (expense), net consists of the following: (i) interest expense accrued for our deferred royalty obligation; (ii) income from distributions received in connection with our non-voting profits interest in a related party; (iii) gains and losses associated with the disposal of certain property and equipment; (iv) gains and losses associated with the termination of leases; (v) gains from changes in the fair value of contingent value rights; and (vi) interest income generated from cash held in savings accounts.

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During the year ended December 31, 2020, other expense, net decreased to $3.6 million from $6.7 million for the same period in 2019, a decrease of $3.1 million. This decrease was primarily due to a $4.3 million increase in the receipt of distributions in connection with the Company’s non-voting profits interest in a related party, a $0.8 million gain from the change in fair value of contingent value rights and a $0.7 million decrease in interest expense for our deferred royalty obligation, partially offset by a $1.9 million decrease in interest income generated from cash held in savings accounts.

Liquidity and Capital Resources

As of December 31, 2020 and December 31, 2019, we had cash and cash equivalents of $21.2 million and $87.8 million, respectively. On a pro forma basis, adjusting for $18.9 million of upfront net proceeds from the PAION License, net of the amounts due under the George Washington University and Harvard University license agreements, the Company had cash and cash equivalents of $40.1 million. Based on our current operating plans and projections, we believe that our existing cash and cash equivalents will be sufficient to fund operations for at least one year from the date this Annual Report on Form 10-K is filed with the SEC.

Net cash used for operating activities for the three and twelve months ended December 31, 2020 was $7.3 million and $37.6 million, respectively, down 57% and 56%, respectively, from the same periods in 2019. Net cash used for operating activities for the three and twelve months ended December 31, 2020, excluding cash expenditures related to reductions in headcount and transaction costs associated with the Tetraphase acquisition, was $5.7 million and $27.2 million, respectively, down 65% and 67%, respectively, from the same periods in 2019. Cash expenditures related to reductions in headcount were $1.6 million and $9.5 million for the three and twelve months ended December 31, 2020, respectively, and $0.9 million and $3.2 million, respectively, for the same periods in 2019. Cash expenditures related to transaction costs associated with the Tetraphase acquisition were zero and $0.9 million for the three and twelve months ended December 31, 2020, respectively.

Cash used for investing activities was $30.9 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively. The increase in cash used for investing activities resulted primarily from the acquisition of Tetraphase, net of cash, cash equivalents and restricted cash acquired, partially offset by proceeds from the sale of property and equipment.

Cash provided by financing activities was $1.1 million and $0.9 million for the year ended December 31, 2020 and 2019, respectively. The increase in cash provided by financing activities was primarily the result of net proceeds from issuance of common stock under employee stock plans.

Since January 2012, when the Company was effectively restarted, through December 31, 2020, our cash used in operating activities was $463.5 million. As of December 31, 2020, we had an accumulated deficit of $1,076.8 million and have financed our operations through public and private offerings of securities, a royalty financing, revenues from net product sales, interest income on invested cash balances and other income.

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Contractual Obligations

HealthCare Royalty Partners Royalty Agreement

In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA.

In-license Agreements

George Washington University License

In December 2014, the Company entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated (the “GW License”) and assigned to La Jolla Pharma, LLC. Pursuant to the GW License, GW exclusively licensed to the Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the GW License, La Jolla Pharma, LLC is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee, additional payments following the achievement of certain development and regulatory milestones and royalties. As a result of the European Commission’s approval of GIAPREZA in August 2019, the Company made a milestone payment to GW in the amount of $0.5 million in the first quarter of 2020. The Company is obligated to pay a 6% royalty on net sales of GIAPREZA and 15% on payments from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA.

Harvard University License

In August 2006, Tetraphase entered into a license agreement with Harvard University (“Harvard”), which was subsequently amended and restated (the “Harvard License”). Pursuant to the Harvard License, Harvard exclusively licensed to the Company certain intellectual property rights relating to tetracycline-based products, including XERAVA, including the exclusive rights to certain issued patents and patent applications covering such products. Under the Harvard License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA. For each product covered by the Harvard License, the Company is obligated to make certain payments for the following: (i) up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA, starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty of 7.5% based on the achievement of annual net product sales thresholds; and (iv) 20% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA.

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Paratek Pharmaceuticals, Inc. License

In March 2019, Tetraphase entered into a license agreement with Paratek Pharmaceuticals, Inc. (“Paratek”), which was subsequently amended and restated (the “Paratek License”). Pursuant to the Paratek License, Paratek non-exclusively licensed to the Company certain intellectual property rights relating to XERAVA, including non-exclusive rights to certain issued patents and patent applications covering XERAVA. The Company is obligated pay Paratek a 2.25% royalty based on direct U.S. net sales of XERAVA. The Company’s obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial sale of XERAVA and shall continue until there are no longer any valid claims of the Paratek patents, which will expire in October 2023.

Out-license Agreements

PAION AG License

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC and Tetraphase, entered into an exclusive licensing agreement with PAION AG and its wholly owned subsidiary (collectively, “PAION”) (the “PAION License”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla is entitled to receive an upfront cash payment of $22.5 million plus potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company agreed to use commercially reasonable efforts to negotiate and enter into a separate commercial supply agreement to manufacture drug product for commercial supply. The Company has not yet entered into a commercial supply agreement with PAION, which would set the quantity and timing of commercial supply. The Company has not received any payments from PAION related to either royalties or commercial milestones.

Everest Medicines Limited License

In February 2018, Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Everest Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Everest Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Everest Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the

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quantity and timing of commercial supply. Subsequent to July 28, 2020 and through December 31, 2020, the Company has not received any payments from Everest related to either royalties or clinical development and regulatory milestones.

Off−Balance Sheet Arrangements

We have no off−balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be 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 materially from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in the notes to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K, we believe that the following accounting policies and estimates are most critical to understanding and evaluating our reported financial results.

Revenue Recognition

The Company has adopted Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 606—Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company recognizes revenue when its customers obtain control of the Company’s product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. Specialty and wholesale distributors are considered our customers for accounting purposes. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies the relevant performance obligations. There have been no contract assets or liabilities recorded to date relating to product sales.

Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns, Medicaid rebates and administrative fees. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items include:

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The Company will continue to assess its estimates of variable consideration as it accumulates additional historical data and will adjust these estimates accordingly.

Business Combinations

The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in La Jolla's financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized as part of the Purchase Price at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities will be included in other income (expense), net in the consolidated statements of operations. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

Intangible Assets

Intangible assets acquired in a business combination are initially recorded at fair value. Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. Intangible assets with an indefinite useful life are not amortized.

The Company reviews its intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the

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carrying amount of the assets, the assets are written down to their estimated fair values. Fair value is estimated through discounted cash flow models to project cash flows from the asset.

Goodwill

Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill has an indefinite useful life and is not amortized.

The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is not the case, the Company has completed its goodwill impairment test and does not recognize an impairment charge. However, if that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill.

Accrued Expenses

As part of the process of preparing the financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed by service providers and estimating the level of service performed and the associated cost incurred for services that have not yet been invoiced. We make estimates of accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known at that time. We periodically confirm the accuracy of recorded estimates with the service providers and make adjustments, if necessary.

We base our accrued expenses on our estimates of the services received and efforts expended pursuant to our contractual arrangements. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment accordingly. The financial terms of our contractual agreements may be subject to interpretation, and the timing of payment relative to the timing of services rendered may vary.

Interest Expense

The deferred royalty obligation royalty from our financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners, which was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, is repaid based on the net sales of GIAPREZA. Interest expense and the amortization of issuance costs related to the deferred royalty obligation are recognized over the expected repayment term using the effective interest method. The assumptions used in determining the expected repayment term of the deferred royalty obligation require us to make estimates that could impact the effective interest rate. Each reporting period, we update our estimate of accrued interest expense under the Royalty Agreement based on actual and forecasted net sales of GIAPREZA. Changes in interest expense resulting from changes in the effective interest rate, if any, are recorded on a prospective basis.

Recent Accounting Pronouncements

Recent accounting pronouncements are disclosed in Note 2 to the accompanying audited consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

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Item 8. Financial Statements and Supplementary Data

The financial statements required by this item are set forth at the end of this Annual Report on Form 10-K beginning on page F-1 and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures. Based on that evaluation of our disclosure controls and procedures as of December 31, 2020, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

As of December 31, 2020, our management used the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework (2013) (“COSO Framework”) to evaluate the effectiveness of internal control over financial reporting.

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 and has concluded that such internal control over financial reporting was effective.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officer and Corporate Governance

The information required by this Item is expected to be contained in our Definitive Proxy Statement for the 2021 Annual Meeting of Shareholders (the “2021 Proxy Statement”), which we expect to be filed with the U.S. Securities and Exchange Commission (“SEC”) within 120 days of the end of our fiscal year ended December 31, 2020 and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct and Ethics is posted on our website located at www.ljpc.com in the Corporate Governance section under “Investor Relations.” We intend to disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, and waivers of the Code of Business Conduct and Ethics granted to executive officers and directors, on our website within 4 business days following the date of the amendment or waiver.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the sections entitled “Executive Compensation,” “Executive Compensation—Director Compensation,” “Executive Compensation—Compensation Committee Interlocks and Insider Participation,” “Executive Compensation—Risk Management and Mitigation” and “Executive Compensation—Compensation Committee Report.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the sections entitled “Certain Relationships and Related—Person Transactions,” “Corporate Governance” and “Corporate Governance—Board Committees.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the sections entitled “Certain Relationships and Related—Person Transactions,” “Corporate Governance” and “Corporate Governance—Board Committees.”

Item 14. Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to information in our 2021 Proxy Statement, including under the section entitled “Proposal 2: Ratification of Selection of Independent Registered Public Accounting Firm.”

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The response to this portion of Item 15 is set forth under Item 8 hereof.

(a)(2) Financial Statement Schedules

No financial statement schedules are provided because the information called for is not required or is shown in the financial statements or the notes thereto.

(a)(3) Exhibits

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Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Larry Edwards and Michael Hearne, and each of them, the true and lawful attorneys-in-fact and agents of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, to sign in any and all capacities (including, without limitation, the capacities listed below), with respect to this Annual Report on Form 10-K, and any and all amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the U.S. Securities and Exchange Commission (the “SEC”), and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and anything necessary to be done to enable La Jolla Pharmaceutical Company to comply with the provisions of the Securities Exchange Act of 1934 (the “Exchange Act”) and all the requirements of the SEC, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute, or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons in the capacities set forth opposite their names and on the dates indicated below.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of La Jolla Pharmaceutical Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of La Jolla Pharmaceutical Company and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, shareholders’ deficit and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the Company’s Audit Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

REVENUE RECOGNITION—VARIABLE CONSIDERATION

Critical Audit Matter Description

As described in Note 2 to the consolidated financial statements, the Company’s revenue is recorded at the transaction price, net of estimates for variable consideration consisting primarily of chargebacks, discounts, and returns. Variable consideration is estimated using the expected-value amount method,

F-2

which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from estimates. If actual results vary materially from estimates, the Company will adjust these estimates, which will affect net sales of the products and results from operations in the period such estimates are adjusted.

We identified the determination of variable consideration as a critical audit matter. Significant judgment is exercised by the Company in estimating variable consideration when determining the amount of revenue to recognize.

Given these factors, the related audit effort in evaluating management’s judgments in determining the amount of variable consideration used to determine the transaction price was extensive and required a high degree of auditor judgment.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

TETRAPHASE ACQUISITION—FAIR VALUE OF INTANGIBLE ASSETS

Critical Audit Matter Description

As described in Note 11 to the consolidated financial statements, the Company accounted for the Tetraphase Pharmaceuticals, Inc. acquisition as a business combination and allocated the purchase price amongst the tangible and intangible assets acquired and liabilities assumed. Auditing the accounting for the acquisition was complex due to the significant estimation uncertainty in determining the fair values of identified intangible assets and liabilities. The Company recorded technology and trade name intangible assets of $14.0 million and $1.5 million, respectively, and a contingent value rights obligation of $2.6 million.

We identified the fair valuation of intangible assets recorded in connection with the Tetraphase acquisition as a critical audit matter. The fair value estimates were based on underlying assumptions about future performance of the acquired business, which involves significant estimation uncertainty. The significant assumptions used to form the basis of the forecasted results included revenue growth rates, earnings metrics, and discount rates. These significant assumptions were forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

F-3

/s/ BAKER TILLY US, LLP

We have served as the Company's auditor since 2012.

San Diego, California

March 8, 2021

F-4

LA JOLLA PHARMACEUTICAL COMPANY

Consolidated Balance Sheets

(in thousands, except par value and share amounts)

See accompanying notes.

F-5

LA JOLLA PHARMACEUTICAL COMPANY

Consolidated Statements of Operations

(in thousands, except per share amounts)

See accompanying notes.

F-6

LA JOLLA PHARMACEUTICAL COMPANY

Consolidated Statements of Shareholders’ Deficit

(in thousands)