# HERON THERAPEUTICS, INC. /DE/ (HRTX) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HERON THERAPEUTICS, INC. /DE/'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/818033/000156459022007618/hrtx-10k_20211231.htm
Accession: 0001564590-22-007618
Filing date: 2022-02-28
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HRTX/
All MD&A years: /company/HRTX/mda/
Next year: /company/HRTX/mda/fy2022/ (FY 2022)

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 set forth 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” included in Item 1A of 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.

Introduction

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the Consolidated Financial Statements and Notes, included in Item 8 of this Annual Report on Form 10-K, to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. Our discussion is organized as follows:

[[GREPCENT_TABLE]]
[["","\u2022","Overview. This section provides a general description of our business and operating expenses."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Critical accounting policies and estimates. This section contains a discussion of the accounting policies that we believe are important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including the critical accounting policies and estimates, are summarized in Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Results of operations. This section provides an analysis of our results of operations presented in the accompanying consolidated statements of operations and comprehensive loss by comparing the results for the year ended December 31, 2021 to the results for the year ended December 31, 2020. For the discussion covering the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Item 7, \u201cManagement\u2019s Discussion and Analysis of Financial Condition and Results of Operations\u201d in our Annual Report of Form 10-K for the year ended December 31, 2020 filed with the SEC on February 24, 2021."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Liquidity and capital resources. This section provides an analysis of our cash flows and a discussion of our outstanding commitments and contingencies that existed as of December 31, 2021. Included in this discussion is our financial capacity to fund our future commitments and a discussion of other financing arrangements."]]
[[/GREPCENT_TABLE]]

Overview

We are a commercial-stage biotechnology company focused on improving the lives of patients by developing best-in-class treatments to address some of the most important unmet patient needs. Our advanced science, patented technologies, and innovative approach to drug discovery and development have allowed us to create and commercialize a portfolio of products that aim to advance the standard of care for acute care and oncology patients.

CINVANTI® (aprepitant) injectable emulsion (“CINVANTI”) and SUSTOL® (granisetron) extended-release injection (“SUSTOL”) are both approved in the U.S. for the prevention of chemotherapy-induced nausea and vomiting. ZYNRELEF® (bupivacaine and meloxicam) extended-release solution (“ZYNRELEF”) is approved in the U.S. and 31 European countries for the management of postoperative pain. Within our acute care franchise, we are also developing HTX-019, an investigational agent for the prevention of postoperative nausea and vomiting (“PONV”) and HTX-034, an investigational agent, our next-generation product candidate for the management of postoperative pain.

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Net Product Sales

Net product sales include revenue recognized for sales of CINVANTI, SUSTOL and ZYNRELEF (collectively, our “Products”) to a limited number of specialty distributors and full line wholesalers (collectively, “Customers”), less applicable sales allowances. See the “Critical Accounting Policies and Estimates” section of this Annual Report on Form 10-K for further details on our revenue recognition policy.

Cost of Product Sales

Cost of product sales relates to the costs to produce, package and deliver our Products to our Customers. These costs include raw materials, labor, manufacturing and quality control overhead, and depreciation of equipment, as well as shipping and distribution costs. See the “Critical Accounting Policies and Estimates” section of this Annual Report on Form 10-K for further details on our inventory policy.

Research and Development Expense

All costs of research and development are expensed in the period incurred. Research and development expense primarily consists of salaries, stock-based compensation expense and other related costs for personnel in manufacturing, clinical and preclinical development, regulatory, quality and medical affairs. Other research and development expense includes professional fees paid to outside service providers and consultants, facilities costs and materials used in the clinical and preclinical trials and research and development.

At this time, due to the risks inherent in the clinical trial process, we are unable to estimate with any certainty the costs we will incur in the continued development of our Product Candidates. Other than costs for outsourced services associated with our clinical programs, we generally do not track research and development expense by project; rather, we track such expense by the type of cost incurred.

We expect research and development expense to decrease in 2022, as ZYNRELEF was approved in May 2021, the NDA for HTX-019 for PONV was submitted in November 2021, and the data needed to support a future efficacy supplement to further expand the ZYNRELEF indication includes pharmacokinetic, safety and pharmacodynamic data from a limited number of procedures.

General and Administrative Expense

General and administrative expense primarily consists of salaries, stock-based compensation expense and other related costs for personnel in executive, finance and accounting, information technology, legal and human resource functions. Other general and administrative expense includes professional fees for legal, investor relations, accounting and other general corporate purposes, facility costs and insurance not otherwise included in research and development expense. We expect general and administrative expense in 2022 to remain consistent with 2021.

Sales and Marketing Expense

Sales and marketing expense primarily consists of salaries and related costs for personnel, stock-based compensation expense and other related costs for sales operations, marketing and market access. Other sales and marketing costs include professional fees and commercialization costs related to launch activities for ZYNRELEF and ongoing costs related to CINVANTI and SUSTOL. We expect sales and marketing expense to increase in 2022, as 2021 did not include a full year of costs for our acute care sales force because ZYNRELEF was launched in July 2021.

Other Income (Expense), Net

Other income (expense), net primarily consists of interest income earned on our cash, cash equivalents and short-term investments. In addition, other income (expense), net includes interest expense and the amortization of debt discount and debt issuance costs related to our convertible notes payable, and impairment of property and equipment.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, investments, inventory, accrued clinical liabilities, income taxes and stock-based compensation. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis of 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.

Our critical accounting policies used in the preparation of our consolidated financial statements involve significant judgments and estimates and include the following:

Revenue Recognition

Product Sales

Our Products are distributed in the U.S. through a limited number of Customers that resell to healthcare providers and hospitals, the end users of our Products.

Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for our Products. To determine revenue recognition for contracts with customers within the scope of Topic 606, we perform the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations.

Product Sales Allowances

We recognize product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with Customers, historical product returns, rebates or discounts taken, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions. If actual future results vary from our estimates, we may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. Our product sales allowances include:

[[GREPCENT_TABLE]]
[["","\u2022","Product Returns\u2014We allow our Customers to return product for credit for up to 12 months after its product expiration date. As such, there may be a significant period of time between the time the product is shipped and the time the credit is issued on returned product."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Distributor Fees\u2014We offer contractually determined discounts to our Customers. These discounts are paid no later than two months after the quarter in which product was shipped."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Group Purchasing Organization (\u201cGPO\u201d) Discounts and Rebates\u2014We offer cash discounts to GPO members. These discounts are taken when the GPO members purchase product from our Customers, who then charge back to us the discount amount. Additionally, we offer volume and contract-tier rebates to GPO members. Rebates are based on actual purchase levels during the quarterly rebate purchase period."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","GPO Administrative Fees\u2014We pay administrative fees to GPOs for services and access to data. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the GPOs\u2019 members."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u2022","Medicaid Rebates\u2014We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state\u2019s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which the product was sold."]]
[[/GREPCENT_TABLE]]

We believe our estimated allowance for product returns requires a high degree of judgment and is subject to change based on our experience and certain quantitative and qualitative factors. We believe our estimated allowances for distributor fees, GPO discounts, rebates and administrative fees and Medicaid rebates do not require a high degree of judgment because the amounts are settled within a relatively short period of time.

Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or significant events indicate that a change in estimate is appropriate. Changes in product sales allowance estimates could materially affect our results of operations and financial position.

Investments

We invest in various types of securities, including U.S. treasury bills and government agency obligations, corporate debt securities and commercial paper. As of December 31, 2021, we had $71.5 million in investments which were classified as Level 1 or 2 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices for similar assets, quoted prices in markets that are not active or other inputs that are observable. These securities have been initially valued at the transaction price and subsequently valued utilizing a third-party service provider who assesses the fair value using inputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures. We perform certain procedures to corroborate the fair value of these holdings, and in the process, we apply judgment and estimates that if changed, could significantly affect our statements of financial positions.

Inventory

Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis. We periodically analyze our inventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and inventory quantities that are in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as cost of product sales.

Accrued Clinical Liabilities

We accrue clinical costs based on work performed, which relies on estimates of the progress of the clinical trials and the related expenses incurred. Clinical trial related contracts vary significantly in duration, and may be for a fixed amount, based on the achievement of certain contingent events or deliverables, a variable amount based on actual costs incurred, capped at a certain limit or contain a combination of these elements. Revisions are recorded to research and development expense in the period in which the facts that give rise to the revision become known. Historically, revisions have not resulted in material changes to research and development expense; however, a modification in the protocol of a clinical trial or cancellation of a clinical trial could result in a material charge to our results of operations.

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Income Taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes for each of the jurisdictions in which we operate. This process involves estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes.

We assess the likelihood that we will be able to recover our deferred tax assets. In doing so, we consider all available evidence, both positive and negative, including our historical levels of income and losses, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies. A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. At December 31, 2021, we established a valuation allowance to offset our deferred tax assets due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.

Should there be a change in our ability to recover our deferred tax assets, we would recognize a benefit to our tax provision in the period in which we determine that it is more likely than not that we will recover our deferred tax assets.

Stock-based Compensation

We generally grant stock-based payment awards under our stockholder-approved, stock-based compensation plans. We have granted, and may in the future grant, stock options and restricted stock awards to employees, directors, consultants and advisors under our Amended and Restated 2007 Equity Incentive Plan. In addition, all of our employees are eligible to participate in our 1997 Employee Stock Purchase Plan, as amended, which enables employees to purchase common stock at a discount through payroll deductions. Prior to our relisting on The Nasdaq Capital Market in January 2014, we issued non-plan stock option grants to certain employees, as set forth under Item 12 of this Annual Report on Form 10-K. These non-plan stock option grants were registered with the U.S. Securities and Exchange Commission (“SEC”) on Form S-8.

We estimate the fair value of stock options granted using the Black-Scholes option pricing model. This fair value is then amortized over the requisite service periods of the awards. The Black-Scholes option pricing model requires the input of subjective assumptions, including each option’s expected life and price volatility of the underlying stock. Expected volatility is based on our historical stock price volatility. The expected life of employee stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under the simplified method.

As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience. Changes in assumptions used under the Black-Scholes option pricing model could materially affect our net loss and net loss per share.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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Results of Operations

Years Ended December 31, 2021 and 2020

Net Product Sales

For the year ended December 31, 2021, net product sales were $86.3 million, compared to $88.6 million for the same period in 2020.

Net Product Sales – Oncology Care

For the year ended December 31, 2021, net product sales of CINVANTI were $73.5 million, compared to $87.8 million for the same period in 2020. The decrease in net product sales of CINVANTI for the year ended December 31, 2021 was due to the COVID-19 pandemic related reduction in cancer screening procedures resulting in fewer new patient treatment starts, as well as the lingering impact of generic arbitrage. CMS reimbursement rates for any buy-and-bill products are based on the Average Selling Price (“ASP”) of that product, including any generic products with the same J-code, plus 6%. ASP is based on a historical four-quarter rolling average calculation, which becomes effective two quarters later. This four-quarter averaging period and two-quarter lag means that when generic products first enter the market, they benefit from being able to be reimbursed at a much higher ASP relative to the actual sale price. This period of time when generic products receive higher reimbursement rates than sale price is known as “generic arbitrage,” and it can last several quarters. Generic versions of EMEND® IV (fosaprepitant) launched in September 2019 and compete with CINVANTI. Although the impact of this generic arbitrage continues to linger in certain accounts, we expect growth of net product sales for our oncology care franchise in 2022 and beyond.

For the year ended December 31, 2021, net product sales of SUSTOL were $9.9 million, compared to $0.8 million for the same period in 2020. On October 1, 2019, we made a business decision to discontinue all discounting of SUSTOL to improve the reimbursement and net selling price of the product, which resulted in significantly lower SUSTOL net product sales in 2020. In the first quarter of 2021, we reinstated the promotion and contracting of SUSTOL, resulting in higher net product sales for the year ended December 31, 2021, compared to the same period in 2020.

Net Product Sales – Acute Care

For the year ended December 31, 2021, net product sales of ZYNRELEF were $2.9 million. There was no comparable activity in 2020, as we commenced commercial sales of ZYNRELEF in the U.S. in July 2021.

Cost of Product Sales

For the year ended December 31, 2021, cost of product sales was $46.0 million, compared to $36.2 million for the same period in 2020. Cost of product sales primarily included raw materials, labor and overhead related to the manufacturing of our Products, as well as shipping and distribution costs. In addition, cost of product sales for the years ended December 31, 2021 and 2020 included charges resulting from the write-off of short-dated SUSTOL inventory of $3.8 million and $0.1 million, respectively.

Prior to FDA approval, $23.6 million of costs to manufacture ZYNRELEF were recorded to research and development expense in prior periods. We began capitalizing raw materials, labor and overhead related to the manufacturing of ZYNRELEF following FDA approval in May 2021.

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Research and Development Expense

Research and development expense consisted of the following (in thousands):

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2021","","","2020"],["ZYNRELEF (HTX-011) related costs","","$","46,804","","","$","95,496"],["CINVANTI-related costs","","","8,711","","","","7,280"],["PONV-related costs","","","6,232","","","","666"],["HTX-034-related costs","","","3,260","","","","4,578"],["SUSTOL-related costs","","","1,435","","","","2,362"],["Personnel costs and other expenses","","","44,897","","","","43,420"],["Stock-based compensation expense","","","19,482","","","","20,731"],["Total research and development expense","","$","130,821","","","$","174,533"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2021, research and development expense was $130.8 million, compared to $174.5 million for the same period in 2020. This decrease was primarily due to decreases in costs related to ZYNRELEF, HTX-034 and SUSTOL of $48.7 million, $1.3 million and $0.9 million, respectively, partially offset by increases in costs related to HTX-019 for PONV and CINVANTI of $5.6 million and $1.4 million, respectively, as well as an increase in personnel and related costs of $1.5 million.

General and Administrative Expense

For the year ended December 31, 2021, general and administrative expense was $40.2 million, compared to $42.2 million for the same period in 2020. This decrease was primarily due to a decrease in stock-based compensation expense.

Sales and Marketing Expense

For the year ended December 31, 2021, sales and marketing expense was $87.2 million, compared to $63.9 million for the same period in 2020. This increase was primarily due to an increase in costs to support the launch activities for ZYNRELEF and costs to support the ongoing commercialization of CINVANTI and SUSTOL.

Other Income (Expense), Net

For the year ended December 31, 2021, other income (expense), net was ($2.9) million, compared to $0.9 million for the same period in 2020. The decrease was primarily due to a decrease in interest income earned on our short-term investments and an increase in interest expense on our convertible notes payable.

Liquidity and Capital Resources 

We have incurred significant operating losses and negative cash flows from operations, and we had an accumulated deficit of $1.6 billion as of December 31, 2021. As of December 31, 2021, we had cash, cash equivalents and short-term investments of $157.6 million, compared to $208.5 million as of December 31, 2020. Based on our current operating plan and projections, management believes that the Company’s existing cash, cash equivalents and short-term investments will be sufficient to meet the Company’s anticipated cash requirements for at least one year from the date this Annual Report on Form 10-K is filed with the SEC. Our capital requirements and liquidity going forward will depend on numerous factors, including but not limited to: the costs associated with the U.S. commercial launch of ZYNRELEF and our Product Candidates, if approved, and making ZYNRELEF and our Product Candidates commercially available outside of the U.S.; the degree of commercial success of our Products and our Product Candidates, if approved; the scope, rate of progress, results and costs of preclinical testing and clinical trials; the timing and cost to manufacture our Products and our Product Candidates; the number and characteristics of product development programs we pursue and the pace of each program, including the timing of clinical trials; the time, cost and outcome involved in seeking other regulatory approvals; scientific progress in our research and development programs; the magnitude and scope of our research and development programs; our

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ability to establish and maintain strategic collaborations or partnerships for research, development, clinical testing, manufacturing and marketing of our Product Candidates; the impact of competitive products; the cost and timing of establishing sales, marketing and distribution capabilities if we commercialize products independently; the cost of establishing clinical and commercial supplies of our Product Candidates and any other products that we may develop; the extent of the impact of the ongoing COVID-19 pandemic on our business; and general market conditions. Management’s view of our liquidity relies on estimates and assumptions about the market opportunity for the expanded U.S. label of ZYNRELEF, which estimates and assumptions are subject to significant uncertainty, particularly due to the short amount of time that has passed since the label was expanded in December 2021.

We may not be able to raise sufficient additional capital when needed on favorable terms, or at all. If we are unable to obtain adequate funds, we may be required to curtail significantly or cease our operations. If we issue additional equity securities or securities convertible into equity securities to raise funds, our stockholders will suffer dilution of their investment, and such issuance may adversely affect the market price of our common stock.

Any new debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include, among other things, limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem capital stock or make investments. In the event that additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, Product Candidates or Products on terms that are not favorable to us or require us to enter into a collaboration arrangement that we would otherwise seek to develop and commercialize ourselves. If adequate funds are not available, we may default on our indebtedness, be required to delay, reduce the scope of, or eliminate one or more of our product development programs and reduce personnel-related and other costs, which would have a material adverse effect on our business.

Our net loss for the year ended December 31, 2021 was $220.7 million, or $2.24 per share, compared to a net loss of $227.3 million, or $2.50 per share, for the same period in 2020.

Our net cash used for operating activities for the year ended December 31, 2021 was $203.4 million, compared to $184.8 million for the same period in 2020. The increase in net cash used for operating activities was primarily due to changes in working capital associated with the ongoing commercialization of CINVANTI and ZYNRELEF.

Our net cash provided by investing activities for the year ended December 31, 2021 was $32.7 million, compared to $209.0 million for the same period in 2020. The decrease in cash provided by investing activities was primarily due to a decrease in net maturities of short-term investments of $35.7 million for the year ended December 31, 2021, compared to net purchases of short-term investments of $215.8 million for the year ended December 31, 2020.

Our net cash provided by financing activities for the year ended December 31, 2021 was $156.0 million, compared to $9.1 million for the same period in 2020. The increase in cash provided by financing activities was due primarily to net proceeds received from a convertible note financing of $149.0 million for the year ended December 31, 2021.

Historically, we have financed our operations, including technology and product research and development, primarily through sales of our common stock and debt financings.

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Material Cash Requirements

As of December 31, 2021, we had an operating lease for 52,148 square feet of laboratory and office space in San Diego, California, with a lease term that expires on December 31, 2025. In October 2021, we entered into a sublease agreement to sublet 23,873 square feet of laboratory and office space in San Diego, California, which is anticipated to be delivered to the subtenant on or before May 1, 2022. The sublease agreement expires on December 31, 2025 and is coterminous with the operating lease for the subleased space. As of December 31, 2021, we had total operating lease obligations of $12.0 million, with $2.9 million due in one year and $9.1 million due within two to five years.

At December 31, 2021, capital expenditures consisted of non-cancellable commitments for equipment related to scale-up activities at our third-party manufacturers. Total capital expenditures of $2.1 million were not included in our consolidated financial statements for the year ended December 31, 2021 and are due within one year. We intend to use our current financial resources to fund our commitments under the capital expenditure obligations.

At December 31, 2021, purchase obligations primarily consisted of non-cancellable commitments with third-party manufacturers in connection with the manufacturing of our Products. Total purchase obligations of $98.7 million were not included in our consolidated financial statements for the year ended December 31, 2021 and are due within one to two years. We intend to use our current financial resources to fund our commitments under these purchase obligations.

As of December 31, 2021, $150.0 million aggregate principal amount of the convertible notes were outstanding (see Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K).

We enter into agreements with clinical sites and clinical research organizations for the conduct of our clinical trials and contract manufacturing organizations for the manufacture and supply of preclinical, clinical and commercial materials and drug product. We make payments to these clinical sites and clinical research organizations based in part on the number of eligible patients enrolled and the length of their participation in the clinical trials. In some of our agreements with contract manufacturing organizations, we are required to meet minimum purchase obligations. Under certain of these agreements, we may be subject to penalties in the event that we prematurely terminate these agreements. At this time, due to the variability associated with clinical site agreements, contract research organization agreements and contract manufacturing agreements, we are unable to estimate with certainty the future costs we will incur. We intend to use our current financial resources to fund our obligations under these commitments.

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