BridgeBio Pharma, Inc. (BBIO) FY 2021 MD&A

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 the financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In some cases, you can identify these statements by forward-looking words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Annual Report on Form 10-K. The forward-looking statements in this Annual Report on Form 10-K represent our views as of the date of this Annual Report on Form 10-K. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report on Form 10-K.

Overview

BridgeBio Pharma, Inc. (we or the Company) is a team of experienced drug discoverers, developers, and innovators working to create life-altering medicines that target well-characterized genetic diseases at their source. BridgeBio was founded in 2015 to identify and advance transformative medicines to treat patients who suffer from Mendelian diseases, which are diseases that arise from defects in a single gene, and cancers with clear genetic drivers. Our pipeline of over 30 development programs ranges from early science to advanced clinical trials and our commercial organization is focused on delivering our two approved therapies and preparing for commercial launch of additional therapies. Several of our programs target indications that we believe present the potential for our product candidate, if approved, to target portions of market opportunities of at least $1.0 billion in annual sales.

We focus on genetic diseases because they exist at the intersection of high unmet patient need and tractable biology. Our approach is to translate research pioneered at academic laboratories and leading medical institutions into products that we hope will ultimately reach patients. We are able to realize this opportunity through a confluence of scientific advances: (i) identification of the genetic underpinnings of disease as more cost-efficient genome and exome sequencing becomes available; (ii) progress in molecular biology; and (iii) the development and maturation of longitudinal data and retrospective studies that enable the linkage of genes to diseases. We believe that this early-stage innovation represents one of the greatest practical sources for new drug creation.

Since our inception in 2015, we have focused substantially all of our efforts and financial resources on acquiring and developing product and technology rights, building our intellectual property portfolio and conducting research and development activities for our product candidates within our wholly-owned subsidiaries and controlled entities, including partially-owned subsidiaries and subsidiaries we consolidate based on our deemed majority control of such entities as determined using either the variable interest entity, or VIE model, or the voting interest entity, or VOE model. To support these activities, we and our wholly-owned subsidiary, BridgeBio Services, Inc., (i) identify and secure new programs, (ii) set up new wholly-owned subsidiaries or controlled entities, (iii) recruit key management team members, (iv) raise and allocate capital across the portfolio and (v) provide certain shared services, including accounting, legal, information technology and human resources, as well as workspaces. We have not generated any significant revenue from product sales. To date, we have funded our operations with proceeds from the sale of our equity securities, issuance of convertible notes, debt borrowings and, to a lesser extent, revenue from licensing arrangements and product sales.

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Since our inception, we have incurred significant operating losses. For the years ended December 31, 2021, 2020 and 2019, we incurred net losses of $586.5 million, $505.5 million and $288.6 million, respectively. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our product candidates at our wholly-owned subsidiaries and controlled entities. We expect to continue to incur operating and net losses for at least the next several years.

Due to the inherently unpredictable nature of preclinical and clinical development, and given our novel therapeutic approaches and the stage of development of our product candidates, we cannot determine and are unable to estimate with certainty the timelines we will require and the costs we will incur for the development of our product candidates. Clinical and preclinical development timelines and costs, and the potential of development success, can differ materially from expectations due to a variety of factors. For example, in light of developments relating to the continuing impact of SARS-CoV-2, the novel strain of coronavirus that causes Coronavirus disease 19, or COVID-19, the focus of healthcare providers and hospitals on fighting the virus and any variants of the virus, we have experienced delays in or temporary suspension of the enrollment of patients in our subsidiaries’ ongoing clinical trials. We additionally may experience delays in certain ongoing key program activities, including commencement of planned clinical trials, as well as non-clinical experiments and Investigational New Drug application-enabling good laboratory practice toxicology studies. The exact duration of delays and their overall impact on our business are currently unknown and we are continuing to actively monitor the ongoing COVID-19 pandemic as it continues to rapidly evolve. Accordingly, we may take further precautionary and preemptive actions as may be required by federal, state or local authorities or that we determine are in the best interests of public health and safety and that of our patient community, employees, partners, suppliers and stockholders. We cannot predict the effects that such actions, the duration of the COVID-19 pandemic, or its continuing impact on global business operations and economic conditions may have on our business or strategy, including the effects on our ongoing and planned clinical development activities and prospects, or on our financial and operating results. For example, depending on the full impact and prevalence of COVID-19 over time, we anticipate that we will report initial data from the ongoing Phase 2 dose-escalation and expansion study of infigratinib in children with achondroplasia in mid-2022.

Basis of Presentation and Consolidation

Since our inception, we have created wholly-owned subsidiaries or made investments in certain controlled entities, including partially-owned subsidiaries for which we have majority voting interest under the VOE model or for which we are the primary beneficiary under the VIE model, which we refer to collectively as our consolidated entities. Ownership interests in entities over which we have significant influence, but not a controlling financial interest, are accounted for as cost and equity method investments. Ownership interests in consolidated entities that are held by entities other than us are reported as redeemable convertible noncontrolling interests and noncontrolling interests in our consolidated balance sheets. Losses attributed to redeemable convertible noncontrolling interests and noncontrolling interests are reported separately in our consolidated statements of operations.

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Results of Operations

Comparison of the years ended December 31, 2021 and 2020

We have included our financial results for 2021 compared to 2020. Additional information required by Item 7 for the year ended December 31, 2019 can be found in Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission, or the SEC, on February 25, 2021 and is incorporated herein by reference.

The following table summarizes the results of our operations for the periods indicated:

The results of operations for the years ended December 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other future annual or interim period.

Cash, Cash Equivalents, Marketable Securities and Investment in Equity Securities

As of December 31, 2021, we had cash, cash equivalents and marketable securities of $787.5 million and investment in equity securities of $49.1 million. We consider our investment in equity securities as a source of our liquidity as we may liquidate these shares to fund current operations, should the need arise. In January 2021, we issued an aggregate principal amount of $747.5 million of our 2.25% Convertible Senior Notes due 2029, or the 2029 Notes, in a private offering, or the 2021 Note Offering, to qualified institutional buyers. We received net proceeds from the 2021 Note Offering of approximately $731.4 million, after deducting the purchasers’ discount. We used approximately $61.3 million of the net proceeds from the 2021 Note Offering to pay for the cost of capped call transactions and approximately $50.0 million to pay for the repurchase of shares of our common stock.

In October 2020, we entered into a merger agreement with Eidos Therapeutics, Inc., or Eidos, Globe Merger Sub I, Inc. and Globe Merger Sub II, Inc. (the two latter companies being our indirect wholly-owned subsidiaries), providing for, in a series of merger transactions, or the Merger Transactions, the acquisition by us of all of the outstanding shares of common stock of Eidos, or the Eidos Common Stock, other than shares of Eidos Common Stock that (i) are owned by Eidos as treasury stock, (ii) are owned by us and our subsidiaries and, in each case, not owned on behalf of third parties and (iii) are subject to an Eidos restricted share award. On January 26, 2021, we closed and completed the Merger Transactions with Eidos. The acquisition of the outstanding Eidos Common Stock was settled through cash payments of $21.3 million and the issuance of shares of our common stock.

In April 2021, we executed the Sixth Amendment to the Loan and Security Agreement with Hercules Capital, Inc., or Hercules, in which we received proceeds of $25.0 million from an additional term loan. We used a portion of the proceeds from such borrowing to prepay the outstanding principal of $17.5 million under Eidos’ Loan and Security Agreement with Silicon Valley Bank and Hercules, or the SVB and Hercules Loan Agreement.

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In November 2021, we entered into a Loan and Security Agreement, or the Loan Agreement, with certain lenders and U.S. Bank National Association (as Administrative and Collateral Agent) in which the lenders agreed to extend terms loans. Under the Loan Agreement, we received net proceeds from the Tranche 1 Advance of $431.3 million, after deducting debt discount and issuance costs. We used a portion of the net proceeds from the Tranche 1 Advance to prepay the outstanding principal of $100.0 million under the Loan and Security Agreement with Hercules.

For the year ended December 31, 2021, we received an aggregate of $54.5 million in license revenue payments comprising mainly of upfront, launch and regulatory-related milestone payments.

For the year ended December 31, 2021, we paid regulatory-related milestone payments in connection with our products approved by the U.S. Food and Drug Administration, or FDA, the more significant of which aggregated to $35.0 million.

For the year ended December 31, 2021, we repurchased shares of our common stock in the open market in the amount of approximately $150.0 million, which represents the total authorized and approved amount under the 2021 Share Repurchase Program.

Revenue

License revenue mainly includes the recognition of upfront and milestone payments received in connection with our license and collaboration agreements. The level of license revenue to be recognized depends in part upon the estimated recognition period of the upfront payments allocated to continuing performance obligations, the achievement of milestones and other contingent events, the amount of research and development work, and entering into new collaboration agreements, if any.

License revenue for the year ended December 31, 2021 was $65.9 million, of which:

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$56.0 million primarily relates to the recognition of upfront, launch and regulatory-related milestone payments in connection with the License and Collaboration Agreement entered into in March 2021 between our subsidiary, QED Therapeutics, Inc., or QED, and Helsinn Group, or the QED-Helsinn License and Collaboration Agreement, and

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$8.5 million relates to the recognition of regulatory milestone achievement under the License Agreement between our subsidiary, Navire Pharma, Inc., or Navire, and LianBio.

License revenue for the year ended December 31, 2020 was $8.2 million arising primarily from the recognition of the $8.0 million upfront payment received by Navire from LianBio upon entering into the License Agreement mentioned above.

Transactions with LianBio were considered related party transactions up until its initial public offering, or IPO, in November 2021, when our right to appoint or remove one director to the board of directors of LianBio was terminated (see Note 7 to our consolidated financial statements). LianBio is no longer considered a related party after its IPO.

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Operating Costs and Expenses

Research and Development Expenses

Research and development expenses increased by $114.0 million in 2021 compared to 2020 primarily due to an increase in personnel costs and external costs. Higher personnel costs was attributed to the increase in the number of employees to support progression in our research and development programs, including our increasing research pipeline. The increase in personnel costs was also driven by increases in stock-based compensation related to performance-based milestone compensation arrangements for regulatory and development milestones achieved and determined to be probable of achievement. Stock-based compensation recorded in research and development expense in 2021 was $56.2 million as compared to $22.7 million in 2020. The increase in external costs was a result of increased manufacturing activities for early to late-stage programs.

Under the QED-Helsinn License and Collaboration Agreement, Helsinn shares 60% of our research and development costs for infigratinib for certain indications as agreed under the agreement. In 2021, Helsinn’s share of the research and development costs amounted to $38.4 million, which was reflected as a reduction of research and development expenses.

Research and development costs consist primarily of external costs, such as fees paid to consultants, contractors, contract manufacturing organizations, or CMOs, and contract research organizations, or CROs, in connection with our preclinical and clinical development activities and are tracked on a program-by-program basis. License fees and other costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in the specific program expense. License fees and other costs incurred prior to designating a product candidate are included in early-stage research programs.

The following table summarizes our research and development expenses by program incurred for the following periods:

Selling, General and Administrative Expenses

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Selling, general and administrative expenses increased by $46.5 million in 2021 compared to 2020 due to costs incurred to support organizational growth, including staged build-out of our commercial organization as part of commercial launch readiness activities. Stock-based compensation recorded in selling, general and administrative expense in 2021 was $49.4 million as compared to $35.8 million in the prior year.

Additionally, under the QED-Helsinn License and Collaboration Agreement, the parties agreed to co-commercialize TRUSELTIQTM (infigratinib) in the United States and share profits and losses on a 50:50 basis. In 2021, our share of the co-commercialization loss of $8.9 million was recorded as a reduction of our selling, general and administrative expenses.

Other Income (Expense), Net

Interest Income

Interest income consists of interest income earned on our cash equivalents and marketable securities. The decrease in interest income in 2021 compared to 2020 was driven by a general decline in interest rates, as the U.S. Federal Reserve lowered the risk-free interest rate to nearly zero, that began at the start of the COVID-19 pandemic and continued through the current period.

Interest Expense

Interest expense in 2021 consists primarily of interest expense incurred under our 2029 Notes issued in January 2021, our 2027 Notes issued in March 2020, our term loan with various lenders under the Loan Agreement, dated November 17, 2021, our now fully-paid term loan with Hercules Capital, Inc., or Hercules, pursuant to our Loan and Security Agreement, dated June 19, 2018, as amended from time to time, and our now fully-paid term loan with Silicon Valley Bank, or SVB, and Hercules pursuant to the Loan and Security Agreement, dated November 13, 2019, or the SVB and Hercules Loan Agreement.

Interest expense in 2020 consists primarily of interest expense incurred under our 2027 Notes and our then term loans with Hercules and with SVB and Hercules.

The increase of $10.1 million in 2021 compared to 2020 was primarily attributed to an increase in principal amounts of our debt.

Other Income (Expense)

Other income (expense) in 2021 consists mainly of the unrealized gain on conversion of our equity method investment in LianBio to investment in equity security of $68.5 million upon LianBio’s IPO in November 2021, partially offset by unrealized losses from changes in fair value of such equity security investment through December 31, 2021 of $37.7 million (see Note 7 to our consolidated financial statements) and loss on early extinguishment of our debt of $3.3 million. Other income (expense) during the year also includes changes in fair value of the LEO Call Option liability. In March 2021, LEO elected to terminate the LEO Call Option, which resulted in derecognition of the LEO Call Option liability of $5.6 million.

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Other income (expense) in 2020 consists mainly of the income recognized as a result of the change in fair value of the warrants to acquire shares in a LianBio subsidiary of approximately $3.3 million (see Note 7 to our consolidated financial statements), partially offset by our loss from the change in fair value of the LEO Call Option liability of $1.5 million.

Income Taxes

Prior to the 2019 Reorganization (see Note 15 to our consolidated financial statements), which was a tax-free reorganization, BridgeBio Pharma LLC, or BBP LLC, was treated as a pass‑through entity for U.S. federal income tax purposes, and as such, was generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income was passed through to its unitholders. Therefore, no provision or liability for federal income tax has been included in our consolidated financial statements prior to the reorganization. For our consolidated entities, income taxes are accounted for under the asset and liability method as described below.

Upon the Reorganization on July 1, 2019, we became subject to corporate U.S. federal and state income taxation. For U.S. federal income tax purposes, we are required to file a consolidated U.S. federal income tax return for the consolidated entities that meet the requirements as prescribed by the consolidated regulations. Those entities that do not meet the threshold to be included in the consolidated filing continue to file separate U.S. federal income tax returns. To the extent we incur operating losses in the periods in which we are treated as a corporation for tax purposes, net operating loss carryforwards may generally be used by us to offset cash taxes on future taxable income, subject to applicable tax laws.

As of December 31, 2021, we had net operating losses of approximately $1.5 billion and $229.2 million for federal and state income tax purposes, respectively, available to reduce future taxable income, if any. The federal net operating losses generated prior to 2018 in the amount of $37.5 million will begin to expire in 2035 and losses generated after 2018 in the amount of $1.5 billion will carry over indefinitely and would be subject to an 80% taxable income limitation in the year utilized. State net operating losses will generally begin to expire in 2038. As of December 31, 2021, we had federal research and development and orphan drug credit carryforwards of $73.3 million, which will expire beginning in 2036 if not utilized. As of December 31, 2021, we had state research and development credit carryforwards of $12.5 million. The state research and development tax credits will expire at various dates while the California research and development tax credits will carry over indefinitely.

A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Based on the weight of the available evidence, which includes our consolidated entities’ historical operating losses and forecast of future losses, we have provided a valuation allowance against the deferred tax assets resulting from the tax loss and credits carried forward. As a result of the issuance of our 2027 Notes in 2020, it was determined that our existing deferred tax assets do not fully offset the deferred tax liabilities when reviewing the reversals of temporary differences. This resulted in a deferred tax liability of $1.1 million that was recognized for the year ended December 31, 2020. We have derecognized the deferred tax liability on January 1, 2021 upon early adoption of ASU 2020-06, with no impact on the provision for income tax. The valuation allowance increased by $199.5 million and $95.5 million for the years ended December 31, 2021 and 2020, respectively.

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to an ownership change limitation as provided by section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. In the event that we have a change of ownership, utilization of the net operating loss and tax credit carryforwards may be restricted.

Net Loss Attributable to Redeemable Convertible Noncontrolling Interests and Noncontrolling Interests

Net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests in our consolidated statements of operations consists of the portion of the net loss of those consolidated entities that is not allocated to us. Changes in the amount of net loss attributable to noncontrolling interests are directly impacted by changes in the net loss of our consolidated entities and are the result of ownership percentage changes. Refer to Note 6 to our consolidated financial statements.

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Net loss attributable to redeemable convertible noncontrolling interests and noncontrolling interests was $23.9 million in 2021, compared to $56.8 million in 2020.

Liquidity and Capital Resources

We have historically financed our operations primarily through the sale of our equity securities, issuance of convertible notes, debt borrowings and revenue from certain licensing arrangements. As of December 31, 2021, we had cash, cash equivalents and marketable securities of $787.5 million and investment in equity securities of $49.1 million. We consider our investment in equity securities as a source of our liquidity as we may liquidate these shares to fund current operations, should the need arise. The funds that were held by our wholly-owned subsidiaries and controlled entities are available for specific entity usage, except in limited circumstances. As of December 31, 2021, our outstanding debt was $1.7 billion, net of debt issuance costs and accretion.

Since our inception, we have incurred significant operating losses. For the years ended December 31, 2021, 2020 and 2019, we incurred net losses of $586.5 million, $505.5 million and $288.6 million, respectively. We incurred net cash outflow from operations of $497.9 million, $399.7 million, and $253.6 million for the same periods, respectively. We had an accumulated deficit as of December 31, 2021 of $1.4 billion. While we expect to be more strategic in our spend on clinical and preclinical development, we expect to continue to incur operating and net losses over the next several years as we continue to fund our drug development and discovery efforts, as well as costs related to commercial launch readiness for our late-stage programs. In particular, to the extent we advance our programs into and through later-stage clinical trials without a partner, we will incur substantial expenses. Our current business plan is also subject to significant uncertainties and risks as a result of, among other factors, our ability to generate product sales sufficient to achieve profitability, which will depend heavily on the successful development and eventual commercialization of our product candidates at our consolidated entities as well as our ability to partner in the development of certain clinical programs.

Our short-term and long-term liquidity requirements include contractual payments related to our 2029 Notes, 2027 Notes and term loans (see Note 10 to our consolidated financial statements), as well as obligations under our real estate leases and certain manufacturing commitments (see Note 14 to our consolidated financial statements for more information on our real estate leases and the more significant manufacturing agreement that we entered into).

We also have performance-based milestone compensation arrangements with certain employees and consultants, whose vesting is contingent upon meeting various regulatory and development milestones, with fixed monetary amounts known at inception that can be settled in the form of cash or equity at our sole election, upon achievement of each contingent milestone (see Note 9 to our consolidated financial statements).

Additionally, we have certain contingent payment obligations under various license and collaboration agreements in which we are required to make milestone payments upon successful completion and achievement of certain intellectual property, clinical, regulatory and sales milestones. We also enter into agreements in the normal course of business with CROs and other vendors for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice with potential termination charges.

We expect our cash and cash equivalents, marketable securities and investment in equity securities will fund our operations for at least the next 12 months based on current operating plans and financial forecasts. If our current operating plans or financial forecasts change, including the effects of the ongoing COVID-19 pandemic on our research and development activities, we may require additional funding sooner in the form of public or private equity offerings, debt financings or additional collaborations and licensing arrangements. However, future financing may not be available in amounts or on terms acceptable to us, if at all.

In addition, we are closely monitoring ongoing developments in connection with the continuing COVID-19 pandemic, which may negatively impact our financial and operating results. We will continue to assess our operating costs and expenses and our cash and cash equivalents and, if circumstances warrant, we will make appropriate adjustments to our operating plan.

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Sources of Liquidity

Initial public offerings and at-the-market share issuances

In December 2019 and February 2020, Eidos, then our controlled subsidiary and a public company, received net proceeds of $23.9 million and $24.1 million, respectively, from its at-the-market issuance of shares. Prior to the effectiveness of the Merger Transactions with Eidos, all cash and cash equivalents held by Eidos were restricted and could be applied solely to fund the operations of Eidos.

On July 1, 2019, we completed the IPO of our common stock. As part of the IPO, we issued and sold 23,575,000 shares of our common stock, which included 3,075,000 shares sold pursuant to the exercise of the underwriters’ option to purchase additional shares, at a public offering price of $17.00 per share. We received net proceeds of approximately $366.2 million from the IPO, after deducting underwriters’ discounts and commissions of $28.1 million and offering costs of $6.5 million.

On July 7, 2020, we filed a shelf registration statement on Form S-3ASR, or the 2020 Shelf, with the SEC in relation to the registration of common stock, preferred stock, debt securities, warrants and units or any combination thereof. We also simultaneously entered into an Open Market Sale Agreement, or the 2020 Sales Agreement, with Jefferies LLC and SVB Leerink LLC, or collectively, the Sales Agents,), to provide for the offering, issuance and sale by us of up to an aggregate of $350.0 million of our common stock from time to time in “at-the-market” offerings under the 2020 Shelf and subject to the limitations thereof. We will pay to the applicable Sales Agents cash commissions of up to 3.0% of the gross proceeds of sales of common stock under the 2020 Sales Agreement. We have not issued any shares or received any proceeds from this offering through December 31, 2021.

Debt

As of December 31, 2021, we have borrowings under the 2029 Notes, the 2027 Notes and the Loan Agreement, which are discussed below. As of December 31, 2020, our debt consisted of borrowings under the 2027 Notes, as well as term loans under the Amended Hercules Loan and Security Agreement and the Silicon Valley Bank and Hercules Loan and Security Agreement, both of which were prepaid in full during 2021.

2029 Notes

In January 2021, we issued an aggregate principal amount of $747.5 million of our 2029 Notes, pursuant to an Indenture dated January 28, 2021, or the 2029 Notes Indenture, between us and U.S. Bank National Association, as trustee, or the 2029 Notes Trustee, in a private offering to qualified institutional buyers, or the 2021 Note Offering, pursuant to Rule 144A under the Securities Act.

The 2029 Notes accrue interest payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2021, at a rate of 2.25% per year. The 2029 Notes will mature on February 1, 2029, unless earlier converted, redeemed or repurchased. The 2029 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

We received net proceeds from the 2021 Note Offering of approximately $731.4 million, after deducting the 2029 Notes Initial Purchasers’ discount. There were no direct offering expenses borne by us for the 2029 Notes. We used approximately $61.3 million of the net proceeds from the 2021 Note Offering to pay for the cost of the 2021 Capped Call Transactions and approximately $50.0 million to pay for the repurchase of shares of our common stock. We intend to use the remainder of the net proceeds from the 2021 Note Offering for general corporate purposes, which may include research and development and clinical development costs to support the advancement of our drug candidates, including the continued growth of our commercial and medical affairs capabilities, the conduct of clinical trials and preclinical research and development activities, working capital, capital expenditures, repayment of outstanding indebtedness, general and administrative expenses, and other general corporate purposes.

A holder of 2029 Notes may convert all or any portion of its 2029 Notes at its option at any time prior to the close of business on the business day immediately preceding November 1, 2028 only under certain circumstances.

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On or after November 1, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2029 Notes at any time.

We may not redeem the 2029 Notes prior to February 6, 2026. We may redeem for cash all or any portion of the 2029 Notes, at our option, on a redemption date occurring on or after February 6, 2026 and on or before the 41st scheduled trading day immediately before the maturity date, under certain circumstances. No sinking fund is provided for the 2029 Notes. If we undergo a fundamental change (as defined in the 2029 Notes Indenture), holders may require us to repurchase for cash all or any portion of their 2029 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2029 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The 2029 Notes Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the 2029 Notes Trustee or the holders of not less than 25% in aggregate principal amount of the 2029 Notes then outstanding may declare the entire principal amount of all the Notes plus accrued special interest, if any, to be immediately due and payable. The 2029 Notes are our general unsecured obligations and rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the 2029 Notes; equal in right of payment with all of our liabilities that are not so subordinated, including our 2027 Notes; effectively junior to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

Refer to Note 10 in our consolidated financial statements for other details, including our future minimum payments under the 2029 Notes.

2027 Notes

In March 2020, we issued an aggregate principal amount of $550.0 million of our 2027 Notes, pursuant to an Indenture dated March 9, 2020, or the Indenture, between BridgeBio and U.S. Bank National Association, as trustee, or the Trustee, in a private offering to qualified institutional buyers, or the 2020 Note Offering, pursuant to Rule 144A under the Securities Act.

The 2027 Notes are senior, unsecured obligations of BridgeBio and accrue interest payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2020, at a rate of 2.50% per year. The 2027 Notes will mature on March 15, 2027, unless earlier converted or repurchased. Upon conversion, the 2027 Notes are convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

We received net proceeds from the Note Offering of approximately $537.0 million, after deducting the Initial Purchasers’ discount and offering expenses. We used approximately $49.3 million of the net proceeds from the Note Offering to pay for the cost of the Capped Call Transactions, and approximately $75.0 million to pay for the repurchases of shares of our common stock in connection with the Note Offering.

A holder of 2027 Notes may convert all or any portion of its 2027 Notes at its option at any time prior to the close of business on the business day immediately preceding December 15, 2026 only under certain circumstances.

On or after December 15, 2026 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2027 Notes at any time.

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We may not redeem the 2027 Notes prior to the maturity date, and no sinking fund is provided for the 2027 Notes. If we undergo a fundamental change (as defined in the Indenture), holders may require us to repurchase for cash all or any portion of their 2027 Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the 2027 Notes then outstanding may declare the entire principal amount of all the Notes plus accrued special interest, if any, to be immediately due and payable. The 2027 Notes are our general unsecured obligations and rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to the 2027 Notes; equal in right of payment with all of our liabilities that are not so subordinated; effectively junior to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries.

Refer to Note 10 in our consolidated financial statements for other details, including our future minimum payments under the 2027 Notes.

Loan and Security Agreement

In November 2021, we entered into the Loan Agreement, by and among (i) U.S. Bank National Association, in its capacity as administrative agent (in such capacity, the Administrative Agent), and collateral agent (in such capacity, the Collateral Agent), (ii) certain lenders, or the Lenders, (iii) BridgeBio, as a borrower, and (iv) certain subsidiaries of BridgeBio, as guarantors, or the Guarantors.

Pursuant to the terms and conditions of the Loan Agreement, the Lenders agreed to extend term loans to us in an aggregate principal amount of up to $750.0 million, comprised of (i) a tranche 1 advance of $450.0 million, or the Tranche 1 Advance, and (ii) a tranche 2 advance of $300.0 million, or the Tranche 2 Advance, or collectively, the Term Loan Advances. The Tranche 1 Advance under the Loan Agreement was funded on November 17, 2021. The Tranche 2 Advance, which will remain available for funding until December 31, 2022, is available at our election after the occurrence of certain milestone events relating to data from our clinical trials.

As security for our obligations under the Loan Agreement, each of BridgeBio and the Guarantors granted the Collateral Agent, for the benefit of the Lenders, a continuing security interest in substantially all of the assets of BridgeBio and the Guarantors, (including all equity interests owned or hereafter acquired by BridgeBio and the Guarantors), subject to certain customary exceptions. Upon exceeding certain investment and disposition thresholds, additional subsidiaries of BridgeBio will be required to join as guarantors.

Any outstanding principal on the Term Loan Advances will accrue interest at a fixed rate equal to 9.0% per annum, 3.00% of which can be paid in kind, or PIK. Interest payments are payable quarterly following the funding of a Term Loan Advance. We will be required to make principal payments on the outstanding balance of the Term Loan Advances commencing on January 2, 2025, or the Term Loan Amortization Date, in nine quarterly installments, plus interest. If we have achieved certain milestone events relating to data from the clinical trial of acoramidis, or the Acoramidis Milestone, on or prior to January 1, 2025, then the Term Loan Amortization Date will be automatically extended to January 2, 2026. Any amounts outstanding under the Term Loan Advances are due and payable on November 17, 2026, or the Maturity Date.

We may prepay the outstanding principal amount of the Term Loan Advances at any time (in whole, but not in part), plus accrued and unpaid interest and a prepayment premium ranging from 1% to 3% of the principal amount outstanding depending on the timing of payment (plus a customary make-whole amount if prepaid on or prior to November 17, 2022).

At the Lenders’ election, we are also required to make mandatory prepayments upon the occurrence of certain prepayment events related to the repurchase or redemption of pledged collateral, entry into certain royalty transactions, disposition of other assets or subsidiaries, entry into licensing and other monetization transactions (all such events “prepayment events”), which could be 50% or 75% of net cash proceeds from such transaction depending on achievement of the Acoramidis Milestone.

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Subject to the mandatory prepayment requirements for certain prepayment events, the Loan Agreement contains customary affirmative and limited negative covenants which, among other things, limit our ability to (i) incur additional indebtedness, (ii) pay dividends or make certain distributions, (iii) dispose of our assets, grant liens, license or encumber our assets or (iv) fundamentally alter the nature of our business. BridgeBio and the Guarantors have broad ability to license our intellectual property, dispose of other assets and enter into monetization and royalty transactions, subject in each case to the requirement to make a mandatory prepayment described above. The Loan Agreement provides that BridgeBio and Guarantors may, subject to certain limitations, (x) repurchase BridgeBio’s equity interest and the equity interest of any of its subsidiaries, (y) enter into any joint ventures or similar investments, and (z) make other investments and acquisitions. Subject to the mandatory prepayment requirement described above, portfolio companies owned by BridgeBio that are not parties to the Loan Agreement are, subject to certain exceptions, not subject to any covenants or limitations under the Loan Agreement.

The Loan Agreement also contains customary events of default, including, among other things, our failure to make any principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or the breach of the covenants under the Loan Agreement. Upon the occurrence of an event of default, the Lenders may, among other things, accelerate our obligations under the Loan Agreement.

We received net proceeds from the Tranche 1 Advance of $431.3 million, after deducting debt discount and issuance costs of $18.7 million.

Refer to Note 10 in our consolidated financial statements for other details, including our future minimum payments under the Loan Agreement.

Cash Flows

The following table summarizes our cash flows during the periods indicated:

Net Cash Flows Used in Operating Activities

Net cash used in operating activities was $497.9 million in 2021, consisting primarily of our net loss of $586.5 million, adjusted for non-cash items including $99.5 million in stock-based compensation expense, $29.9 million in net gains from investment in equity securities, $5.8 million in depreciation and amortization, $5.8 million in accretion of debt, $5.6 million in noncash lease expense and $5.6 million of income from the derecognition of the LEO Call Option liability, as well as $4.4 million net cash outflow related to changes in operating assets and liabilities. The $4.4 million net cash outflow related to changes in operating assets and liabilities was attributed mainly to an increase of $19.7 million in receivable from licensing and collaboration agreements, an increase of $9.8 million in other assets and a decrease of $6.1 million in operating lease liabilities, partially offset by an increase of $12.0 million in other accrued and other long-term liabilities, an increase of $11.2 million in accrued research and development liabilities and an increase of $7.4 million in accrued compensation and benefits.

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Net cash used in operating activities was $399.7 million in 2020, consisting primarily of our net loss of $505.5 million, adjusted for non-cash items such as $58.5 million in stock-based compensation expense, $17.7 million in accretion of our 2027 Notes and term loans, $6.0 million in fair value of shares issued under our license agreements, $4.7 million in acquired in-process research and development assets and $3.1 million in noncash lease expense, partially offset by $3.3 million in income resulting from the change in fair value of our warrants, as well as net cash inflow of $14.9 million related to changes in operating assets and liabilities. The $14.9 million net cash inflow related to changes in operating assets and liabilities was attributed mainly to an increase of $8.6 million in accrued compensation and benefits, an increase of $6.2 million in accrued research and development liabilities and an increase of $8.3 million in other accrued and other long-term liabilities partially offset by an increase in prepaid expenses and other current assets of $7.1 million.

Net Cash Flows Used in Investing Activities

Net cash used in investing activities was $200.8 million in 2021, consisting primarily of purchases of marketable securities of $589.9 million, purchases of investment in equity securities of $53.4 million, acquisition of intangible assets of $35.0 million and purchases of property and equipment of $13.2 million, partially offset by $380.2 million and $62.7 million in maturities and sale, respectively, of marketable securities, $34.2 million in sale of investment in equity securities and $13.7 million increase in cash and cash equivalents from consolidation of PellePharm.

Net cash used in investing activities was $53.0 million in 2020, consisting primarily of purchases of marketable securities of $287.9 million, purchases of property and equipment of $7.5 million and payments of merger transaction costs of $6.9 million, partially offset by $249.1 million in maturities of marketable securities.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities was $736.4 million for in 2021, consisting primarily of net proceeds from the issuance of our 2029 Notes of $731.4 million, from net borrowings under our term loans of $456.3 million and from stock option exercises of $16.6 million, partially offset by repurchases of our common stock of $200.0 million, prepayments of the Amended Hercules Term Loan and the Tranche A loan aggregating to $124.1 million and purchase of capped calls of $61.3 million. We also used cash of $85.1 million to repurchase the noncontrolling interest of Eidos and pay for related direct transaction costs.

Net cash provided by financing activities was $447.2 million in 2020, consisting primarily of the net proceeds from the issuance of our 2027 Notes of $537.0 million, at-the-market issuance by Eidos of $24.1 million and stock option exercises of $12.9 million, offset by the repurchase of our common stock of $75.0 million and purchase of capped calls of $49.3 million, both in relation to the issuance of our 2027 Notes.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements for the periods in this report.

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License Arrangements and Multiple-Element Arrangements

Revenue from non-refundable, upfront license or technology access payments under license arrangements that are not dependent on any future performance by us is recognized when such amounts are earned. If we have continuing obligations to perform under the arrangement, such fees are recognized over the estimated period of continuing performance obligation.

When we enter into license agreements, we assess whether the arrangements fall within the scope of ASC 808, Collaborative Arrangements (ASC 808) based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of ASC 808, we assess whether the payments between us and our partner fall within the scope of other accounting literature. If we conclude that payments from the partner to us represent consideration from a customer, such as license fees, contract manufacturing, and research and development activities, we account for those payments within the scope of ASC 606, Revenue from Contracts with Customers. However, if we conclude that our partner is not a customer for certain activities and associated payments, such as for certain collaborative research, development, manufacturing, and commercial activities, we present such payments as a reduction of research and development expense or selling, general and administrative expense, based on where we present the underlying expense. Additionally, if we reimburse our collaboration partners for these activities, we present such reimbursements as research and development expense or selling, general and administrative expense, depending upon the nature of the underlying expense.

If our collaborative arrangement provides for the sharing of profits and losses with our partner for commercialization activities, the treatment of our share in the profit-sharing structure depends on who the selling party is. If we are the selling party and the deemed principal, we record our collaboration partner’s share of profits as an addition to selling, general and administrative expenses and our collaboration partner’s share of loss as a reduction in selling, general and administrative expenses. If our partner is the selling party and the deemed principal, we record our share of profits as collaboration revenue and our share of losses as an addition to selling, general and administrative expenses.

Revenue Recognition

For elements or transactions that we determine should be accounted for under ASC 606, we perform the following five 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) we satisfy our performance obligation. We apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to the customer.

At inception of the arrangement, we assess the promised goods or services to identify the performance obligations within the contract. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation, on a relative standalone selling price basis, when (or as) the performance obligation is satisfied. As part of the accounting for these arrangements, we develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. These key assumptions may include forecasted revenue or costs, development timelines, discount rates and probabilities of clinical and regulatory success.

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License Fees: For arrangements that include a grant of a license to our intellectual property, we consider whether the license grant is distinct from the other performance obligations included in the arrangement. Generally, we would conclude that the license is distinct if the customer is able to benefit from the license with the resources available to it. For licenses that are distinct, we recognize revenues from nonrefundable, upfront license fees and other consideration allocated to the license when the license term has begun and we have provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement. For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, we use judgment in determining the appropriate method of measuring progress for purposes of recognizing revenue from the up-front license fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments: At the inception of each arrangement that includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. We generally include these milestone payments when they are achieved because there is considerable uncertainty in the research and development processes that trigger these payments under our agreements. Similarly, we include approval milestone payments in the transaction price once the product is approved by the applicable regulatory agency. At the end of each subsequent reporting period, we re-evaluate the probability of achieving such development and regulatory milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis.

Sales-based Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we will determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate and if such is the case, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Accrued Research and Development Liabilities

We record accruals for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and include these costs in accrued research and development liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations. These costs are a significant component of our research and development expenses.

Examples of estimated research and development expenses that we accrue include:

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fees paid to CROs in connection with preclinical and toxicology studies and clinical trials;

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fees paid to investigative sites in connection with clinical trials;

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fees paid to CMOs in connection with the production of product and clinical trial materials; and

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professional service fees for consulting and related services.

We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors, such as the successful enrollment of patients and the completion of clinical trial milestones. Our service providers generally invoice us monthly in arrears for services performed. 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 we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. We record advance payments to service providers as prepaid assets.

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We record accruals for the estimated costs of our contract manufacturing activities performed by third parties. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to our vendors. Payments under the contracts include upfront payments and milestone payments, which depend on factors such as the achievement of the completion of certain stages of the manufacturing process. For purposes of recognizing expense, we assess whether we consider the production process sufficiently defined to be considered the delivery of a good or the delivery of a service, where processes and yields are developing and less certain. If we consider the process to be the delivery of a good, we recognize expense when the drug product is delivered, or we otherwise bear risk of loss. If we consider the process to be the delivery of a service, we recognize expense based on our best estimates of the contract manufacturer’s progress towards completion of the stages in the contract. We base our estimates on the best information available at the time. However, additional information may become available to us which may allow us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity becomes more certain. Any increases or decreases in cost are generally considered to be changes in estimates and will be reflected in research and development expenses in the period identified.

To date, we have not experienced significant changes in our estimates of accrued research and development liabilities after a reporting period. However, due to the nature of estimates, there is no assurance that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies and other research activities.

Accrued Milestone Compensation Arrangements

We have performance-based milestone compensation arrangements with certain employees and consultants, whose vesting is contingent upon meeting various regulatory and development milestones, with fixed monetary amounts known at inception that can be settled in the form of (i) cash, (ii) equity of BridgeBio, or (iii) cash or equity of BridgeBio at our sole election, upon achievement of each contingent milestone. For arrangements that involve settlement by cash or equity of BridgeBio at our sole election, we will classify the milestone compensation arrangements as liability-classified awards when it is probable of achievement because of the possible fixed monetary amounts settlement outcomes. The arrangements would also result in settlement with a variable number of shares based on the then-current stock price at achievement date of each contingent milestone should we elect to settle in equity.

We record accruals for the compensation expense arising from each development milestone when the specific contingent development milestone is probable of achievement and such accruals are measured at each reporting period. We estimate the probability of achieving such milestones based on the progression and expected outcome of the related clinical programs. We base our estimates on the best available information at that time. However, additional information may become available to us which may allow us to make a more accurate estimate in future periods. In this event, we may be required to record adjustments to milestone compensation expenses in future periods. Any increases or decreases in such expenses are generally considered to be changes in estimates and will be reflected in the period identified.

To date, we have not experienced significant changes in our estimates of accrued milestone compensation expenses after a reporting period. However, due to the nature of estimates, there is no assurance that we will not make changes to our estimates in the future as we become aware of additional information about the progression and expected outcome of our clinical programs.

Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” to our consolidated financial statements appearing under Part II, Item 8 for more information.

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