RIGEL PHARMACEUTICALS INC (RIGL) FY 2023 MD&A

Overview

We are a biotechnology company dedicated to developing and providing novel therapies that significantly improve the lives of patients with hematologic disorders and cancer. We focus on products that address signaling pathways that are critical to disease mechanisms.

Our first product approved by the FDA is TAVALISSE (fostamatinib disodium hexahydrate) tablets, the only approved oral SYK inhibitor for the treatment of adult patients with chronic ITP who have had an insufficient response to a previous treatment. The product is also commercially available in Europe and the UK (as TAVLESSE), and in Canada, Israel and Japan (as TAVALISSE) for the treatment of chronic ITP in adult patients.

Our second FDA-approved product is REZLIDHIA (olutasidenib) capsules for the treatment of adult patients with R/R AML with a susceptible IDH1 mutation as detected by an FDA-approved test. We began our commercialization of REZLIDHIA in December 2022. We in-licensed olutasidenib from Forma, with exclusive, worldwide rights for its development, manufacturing and commercialization.

We continue to advance the development of our IRAK1/4 inhibitor program, in an open-label, Phase 1b trial to determine the tolerability and preliminary efficacy of the drug in patients with lower-risk MDS who are refractory or resistant to prior therapies.

In February 2024, we entered into an Asset Purchase Agreement with Blueprint to purchase certain assets comprising the right to research, develop, manufacture and commercialize GAVRETO (pralsetinib) in the US. GAVRETO (pralsetinib) is a once daily, small molecule, oral, kinase inhibitor of wild-type RET and oncogenic RET fusions. GAVRETO is approved by the FDA for the treatment of adult patients with metastatic RET fusion-positive NSCLC as detected by an FDA-approved test. GAVRETO is also approved under accelerated approval based on overall response rate and duration response rate, for the treatment of adult and pediatric patients 12 years of age and older with advanced or metastatic RET fusion-positive thyroid cancer who require systemic therapy and who are radioactive iodine-refractory (if radioactive iodine is appropriate).

We have strategic development collaborations with the MD Anderson to expand our evaluation of REZLIDHIA (olutasidenib) in AML and other hematologic cancers, and with CONNECT to conduct a Phase 2 clinical trial to evaluate REZLIDHIA (olutasidenib) in combination with temozolomide as maintenance therapy in newly diagnosed pediatric and young adult patients with HGG harboring an IDH1 mutation.

We have a RIPK1 inhibitor program in clinical development with our partner Lilly. We also have product candidates in clinical development with partners BerGenBio and Daiichi.

For discussions of recent business updates, please refer to “Part I, Item 1, Business – Business Updates” of this Annual Report on Form 10-K.

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Critical Accounting Estimates

The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully described in “Note 1- Description of Business and Summary of Significant Accounting Policies” in the “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. We believe our critical accounting estimates which require subjective and complex judgments include estimates around our product sales allowances and discounts; estimates around accounting for collaboration arrangements; and estimates around research and development accruals.

Product Sales Allowances and Discounts

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Our revenues from product sales are recognized at net sales price when our customers, the specialty distributors, obtain control of our product, which occurs at a point in time, upon delivery to such specialty distributors. Under the revenue recognition guidance, we are required to estimate the transaction price, including variable consideration that is subject to a constraint, in our contracts with our customers. Variable considerations are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Revenue from product sales is recorded net of certain variable considerations which includes estimated government-mandated rebates and chargebacks, PBM rebates, distribution fees, estimated product returns and other deductions.

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Provisions for sales discounts, returns and allowances are provided for in the period the related revenue is recorded. Our estimates are based on available customer and payor data received from the specialty pharmacies and distributors, as well as third-party market research data. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

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Contract Revenues from Collaborations

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In the normal course of business, we conduct research and development programs independently and in connection with our corporate collaborators, pursuant to which we license certain rights to our intellectual property to third parties. The terms of these arrangements typically include payment to us for a combination of one or more of the following: upfront license fees; development, regulatory and commercial milestone payments; product supply services; and royalties on net sales of licensed products.

Upfront License Fees: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from upfront license fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. 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.

For arrangements that require us to share in the development costs but to which we do not participate in the co-development work, the portion of the upfront fee attributed to our share in the future development costs is excluded from the transaction price. If such share in the development costs is payable beyond 12 months from the delivery of the corresponding license, a significant financing component is deemed to exist. If a significant financing component is identified, we adjust the transaction price by reducing the upfront fee by the net present value of our share in future development costs over the expected commitment period. Such discounted amount will be reported as a liability in the balance sheet, with a corresponding interest expense being accreted based on a discount rate applied over the expected commitment period.

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Development, Regulatory or Commercial Milestone Payments: At the inception of each arrangement that includes payments based the achievement of certain development, regulatory and commercial or launch events, 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. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until uncertainty associated with the approvals has been resolved. The transaction price is then allocated to each performance obligation, on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. 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, and are recorded as part of contract revenues from collaborations during the period of adjustment.

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Product Supply Services: Arrangements that include a promise for future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations.

Sales-based Milestone Payments and Royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate to and if such is the case, we 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).

Research and Development Accruals

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We have various contracts with third parties related to our research and development activities. Costs that are incurred but not billed to us as of the end of the period are accrued. We make estimates of the amounts incurred in each period based on the information available to us and our knowledge of the nature of the contractual activities generating such costs. Clinical trial contract expenses are accrued based on units of activity. Expenses related to other research and development contracts, such as research contracts, toxicology study contracts and manufacturing contracts are estimated to be incurred generally on a straight-line basis over the duration of the contracts. Raw materials and study materials not related to our approved drug, purchased for us by third parties are expensed at the time of purchase.

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We make significant judgments and estimates in determining the accrual balance in each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, such estimates for the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Variations in assumptions used to estimate accruals including, but not limited to, the number of patients enrolled, the rate of patient enrollment and the actual services performed may result in adjustments in research and development accruals in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our financial condition and results of operations.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see “Note 1- Description of Business and Summary of Significant Accounting Policies”, in the “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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Results of Operations

Revenues

The following table summarizes revenues from each of our customers who individually accounted for 10% or more (wherein * denotes less than 10%) of the total net product sales and revenues from collaborations:

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Revenue from product sales is related to our sale of our products in the US, net of chargebacks, discounts and fees, government and other rebates and returns. TAVALISSE net product sales in 2023 was $93.7 million, increased by $17.9 million or 24% compared to $75.8 million in 2022. The increase was primarily due to increased quantities sold as a result of increased number of patients under therapy, as well as higher price per bottle, partially offset by increased revenue reserves primarily due to higher government rebates. REZLIDHIA net product sales in 2023 was $10.6 million, increased by $9.7 million compared to $0.9 million in 2022. The increase was primarily due to increased quantities sold as we began our commercialization of REZLIDHIA in December 2022.

Following table summarizes our revenues by collaborative partners for the periods presented:

In 2023, contract revenues from collaborations consisted of revenue from Grifols of $8.8 million related to the delivery of drug supplies and earned royalty, revenue from Kissei of $2.2 million related to the delivery of drug supplies, and revenue from Medison of $0.5 million related to the delivery of drug supplies, earned royalty and milestone revenue. In 2022, contract revenues from collaborations consisted of $27.6 million in revenue from Kissei primarily related to the $25.0 million milestone revenue associated with the NDA application and approval of fostamatinib for the treatment of patients with chronic ITP in Japan and delivery of drug supplies, $5.7 million in revenue from Medison related to the release of outstanding financing liability associated with the buy-back option, $3.0 million in revenue from Grifols related to the delivery of drug supplies, earned royalty and recognition of deferred revenue associated with research and

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development services, $2.0 million in revenue related to our license agreement with Knight, and $0.7 million in revenue related to our license agreement with Lilly.

Government contracts revenue was related to the income we recognized from the government award granted to us by the DOD in January 2021 to support our Phase 3 clinical trial to evaluate the safety and efficacy of fostamatinib in hospitalized COVID-19 patients, and the award granted to us by Biomedical Advanced Research and Development (BARDA), part of the Office of the Assistant Secretary for the Preparedness and Response at the DHHS in August 2023 for our evaluation of fostamatinib in mitigating the impact of long-term respiratory distress. During the year ended December 31, 2023, 2022, and 2021, we recognized $1.0 million, $4.5 million and $10.5 million, respectively, of revenue from the award granted by the DOD. In addition, during the year ended December 31, 2023, we recognized $0.1 million of revenue from the award granted by BARDA.

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Our potential future revenues may include product sales, payments from our collaboration partners and from new collaboration partners with whom we enter into agreements in the future, if any, and from existing government grants and any future grants we may be entitled to, if any, the timing and amount of which is unknown at this time. Our net product sales may be impacted by changes to the government program rebates and new private payor rebate contracts we entered or may enter in the future. As of December 31, 2023, we have deferred revenue of $1.4 million associated with our collaboration agreement with Kissei, which amount will be recognized as revenue upon satisfaction of our remaining performance obligation.

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Cost of Product Sales

The cost of product sales includes the cost of inventories sold to specialty distributors and to our collaborative partners. Inventories sold for the periods presented include inventory quantities acquired or produced prior to the FDA approval of the product, and do not reflect the full cost of the inventories sold, since such costs incurred prior to FDA approval were previously expensed and charged to research and development expense. In particular, we still utilize active pharmaceutical ingredient with zero cost for our TAVALISSE inventories, which we expect to utilize for the next 2 to 3 years. As such, we recognize lower cost of product sales in the periods where we sell inventory quantities acquired or produced prior to the FDA approval of the product. As we acquire or produce more FDA approved inventory quantities in the future, our inventory cost in the balance sheet and cost of product sales will reflect the full cost of acquiring or producing such products. Cost of product sales may also include reserves for potential excess, dated or obsolete inventories based upon assumptions about future demand and market conditions, as well as product shelf life. Further, following the approval of REZLIDHIA, we recognize amortization expense from capitalized intangible asset and royalty expense on REZLIDHIA sales within cost of sales.

The increase in cost of product sales in 2023 compared to 2022 was due to $2.5 million increase as a result of higher amortization expense due to the timing of capitalization of intangible assets and higher royalty expense due to the timing of commercialization of REZLIDHIA, $2.8 million due to higher inventory reserves and increased delivery of drug supplies pursuant to our supply agreements with our collaborative partners, and $0.1 million due to increased quantities sold for TAVALISSE and REZLIDHIA.

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Research and Development Expense

Stock-based compensation expense included within research and development expense in 2023 include incremental stock-based compensation charge of approximately $0.5 million as a result of modification of certain stock option grants.

The decrease in research and development expense in 2023 compared to 2022 was primarily due to decreased clinical trial related expenses of $14.2 million due to the timing of trial completion activities of our Phase 3 clinical trials of fostamatinib for the treatment of hospitalized high-risk patients with COVID-19 and wAIHA, as well as decreased clinical trial related expenses of $5.7 million due to the timing of trial activities of our IRAK1/4 inhibitor program. In addition, research and development expense in the year ended December 31, 2022 include $4.5 million upfront and milestone payments to Forma that were recorded as in-process research and development (IPR&D). Further, personnel-related costs decreased by $2.7 million, consultants and third-party services decreased by $2.3 million, and other research and development expense including allocated facilities and laboratory costs decreased by $6.4 million.

Our research and development expenditures include costs related to preclinical and clinical trials, scientific personnel, supplies, equipment, consultants, sponsored research, stock-based compensation, and allocated facility costs. In 2022, our research and development expense also include upfront payment and pre-regulatory approval milestone payment related to our in-licensed agreement with Forma. We expect to continue to incur significant research and development expense as we continue our activities in our clinical studies including our IRAK1/4 inhibitor program; our collaborative partnerships with MD Anderson and CONNECT to evaluate REZLDHIA (olutasidenib) in AML, other hematologic cancers and glioma; and any other clinical programs we may pursue in the future.

In November 2021, we exited our early-stage research to focus our resources on our mid to late-stage development programs and our commercialization efforts. In October 2022, we announced further reduction in our workforce resulting to elimination of certain positions primarily in development as well as administration group. We continue to expect cost savings on our research and development costs because of this reduction in workforce. We believe that this strategy strengthens our ability to execute on near-term value drivers, such as growing product sales, expanding the addressable market for our products, and advancing our other clinical trials.

We do not track fully burdened research and development costs separately for each of our drug candidates. We review our research and development expense by focusing on three categories: research, development, and other. Our research team is focused on identifying and evaluating product candidates in our focused range of therapeutic indications that can be developed into small molecule therapeutics in our own proprietary programs or with potential collaborative partners. “Research” expenses relate primarily to personnel expenses, lab supplies, fees to third-party research consultants and compounds. Our development group leads the implementation of our clinical and regulatory strategies and prioritizes disease indications in which our compounds may be studied in clinical trials. “Development” expenses relate primarily to clinical trials, personnel expenses, costs related to our regulatory filings, lab supplies and fees to third-party research consultants. “Other” expenses primarily consist of allocated facilities costs and allocated stock-based compensation expense relating to personnel in research and development groups. “Other” expenses also include the upfront payment to Forma and pre-regulatory approval milestone recorded as research and development expense in 2022.

In addition to reviewing the three categories of research and development expense described in the preceding paragraph, we principally consider qualitative factors in making decisions regarding our research and development programs, which include enrollment in clinical trials and the results thereof, the clinical and commercial potential for our drug candidates and competitive dynamics. We also make our research and development decisions in the context of our overall business strategy, which includes the evaluation of potential collaborations for the development of our drug candidates.

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Preclinical testing and clinical development are long, expensive and uncertain processes, and we cannot reliably predict the timing of such clinical trial activities. In general, biopharmaceutical development involves a series of steps, beginning with identification of a potential target and including, among others, proof of concept in animals and Phase 1, 2 and 3 clinical trials in humans. Significant delays in clinical testing could materially impact our product development costs and timing of completion of the clinical trials. We do not know whether planned clinical trials will begin on time, will need to be halted or revamped or will be completed on schedule, or at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a trial, delays from scale up, delays in reaching agreement on acceptable clinical trial agreement terms with prospective clinical sites, delays in obtaining institutional review board approval to conduct a clinical trial at a prospective clinical site or delays in recruiting subjects to participate in a clinical trial.

We currently do not have reliable estimates of total costs for a particular drug candidate to reach the market. Our potential products are subject to a lengthy and uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval.

The following table presents our total research and development expense by category:

“Other” expenses in 2023, 2022 and 2021 consisted of allocated facilities costs of $1.0 million, $5.0 million and $5.8 million, respectively, and stock-based compensation expense of $2.1 million, $2.2 million and $1.7 million, respectively. “Other” expenses in 2022 also include upfront payment and pre-regulatory approval milestone payments of $4.5 million related to our in-license agreement with Forma.

Selling, General and Administrative Expense

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Stock-based compensation expense included within selling, general and administrative expense in 2022 include incremental stock-based compensation charges of approximately $1.4 million as a result of modifications of certain stock option grants.

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The decrease in selling, general and administrative expense in 2023 compared to 2022 was partly due to lower stock-based compensation expense of $3.5 million due to stock option modifications as discussed above, as well as lower stock-based compensation expense related to our time-based and performance-based stock awards. In addition, other various sales, general and administrative costs including allocated facilities expenses decreased by $2.8 million, and consulting and other third-party services decreased by $0.9 million. These decreases were partially offset by the increase in commercial related expenses of $0.5 million.

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We expect to incur significant selling, general and administrative expenses, as we expect our commercial related expenses to increase as we continue to expand our commercial activities of our products. We continue to deploy resources to enable our field-based employees to engage with healthcare providers. These engagements have enabled our field team to cover existing prescribers, as well as develop relationships with new prescribers to identify appropriate patients for our products.

Restructuring charges

Restructuring charges in 2022 comprised cash severance, bonus and related employee benefits and taxes of affected employees related to our reduction in workforce primarily in development and administration groups during the fourth quarter of 2022.

Interest Income and Expense

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Interest income is related to our interest-bearing cash and investment balances. The increase in interest income in 2023 compared to 2022 was primarily driven by higher interest rates.

Interest expense comprised primarily of interest on the outstanding term loan with MidCap. The increase in interest expense in 2023 compared to 2022 was primarily due to higher interest expense on our term loan with Midcap of $3.9 million driven by higher outstanding term loan balance, as well as higher interest rates. The increase in interest expense was partly offset by the interest expense recognized in 2022 related to the accretion of financing liability with Lilly of $0.7 million.

Liquidity and Capital Resources

Liquidity

As of December 31, 2023 and 2022, we had approximately $56.9 million and $58.2 million, respectively, in cash, cash equivalents and short-term investments. We continue to maintain investment portfolios primarily in money market funds, US treasury bills, government-sponsored enterprise securities, and corporate bonds and commercial paper. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation. We view our investments portfolio as available-for-sale and are available for use in current operations. Wherever possible, we seek to minimize the potential effects of concentration and degrees of risk. We continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary.

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Following summarizes our cash flow activity for the periods presented:

Net cash used in operating activities in 2023 was primarily due to payments of our operating expenses, partially offset by the proceeds from sales of our products, cash receipt from our collaboration partners, including the $20.0 million regulatory milestone payment from Kissei received in January 2023, and cash received from government awards. Net cash used in operating activities in 2022 was primarily due to payments of our operating expenses, partially offset by the proceeds from sales of our products, cash received from collaboration partners and government award.

Net cash used in investing activities in 2023 comprised payment of milestone obligations to Forma recorded as intangible assets of $15.0 million, partially offset by net maturities of short-term investments of $10.4 million and proceeds from sale of property and equipment of $0.3 million. Net cash provided by investing activities in 2022 comprised net maturities of short-term investments of $72.3 million and proceeds from sale of property and equipment of $0.9 million, partially offset by capital expenditures of $0.5 million.

Net cash provided by financing activities in 2023 was primarily due to the net cash proceeds from term loan financing (Tranche 5) of $20.0 million and proceeds from exercise of stock options and participation in the Purchase Plan of $1.0 million, partially offset by our cost share payments to Lilly of $2.6 million. Net cash provided by financing activities in 2022 was primarily due to the net cash proceeds from term loan financing (Tranche 3 and 4) of $19.5 million and proceeds from exercises of stock options and participation in the Purchase Plan of $2.1 million, partially offset by our cost share payments to Lilly of $15.1 million.

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We believe that our existing capital resources are sufficient to support our current and projected funding requirements, including the continued commercialization of our products, through at least the next 12 months from the date of issuance of this Annual Report on Form 10-K. We used estimates and assumptions that may differ from actual, and we could utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with commercializing our products, the development of our product candidates and other research and development activities, we are unable to estimate with certainty our future product revenues, our revenues from our current and future collaborative partners, the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials and other research and development activities.

Capital Resources

Since inception, we have financed our operations primarily through sales of equity securities, debt financing, from sales of our products, government grants, and contract payments under our collaboration agreements.

Under our existing collaboration agreements that we entered in the ordinary course of business, we received or may be entitled to receive upfront cash payments, payments contingent upon specified events achieved by such partners and royalties on any net sales of products sold by such partners under the agreements. As of December 31, 2023, total future contingent payments to us under our existing agreements, excluding terminated agreements, could exceed $1.3 billion if all potential product candidates achieved all of the payment triggering events under all of our current agreements. This estimated future contingent amount does not include any estimated royalties that could be due to us if the partners successfully commercialize any of the licensed products. Future events that may trigger payments to us under the agreements are based solely on our partners’ future efforts and achievements of specified development, regulatory and/or commercial events. See further discussion in “Note 4 - Sponsored Research and License Agreements and Government Contracts” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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In August 2020, we entered into an Open Market Sale Agreement with Jefferies LLC (Jefferies), as a sole agent, pursuant to which we may sell from time to time, through Jefferies, shares of our common stock in sales deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act, subject to conditions specified in the Open Market Sale Agreement, including maintaining an effective registration statement covering the sale of shares under the Open Market Sale Agreement. We have a shelf registration statement filed with the SEC that was declared effective on May 3, 2022, which registered, among other securities, a base prospectus which covers the offering, issuance, and sale by us of up to $250.0 million in the aggregate of the securities identified from time to time in one or more offerings, which include the $100.0 million of shares of our common stock that may be offered, issued and sold under the Open Market Sale Agreement. As of December 31, 2023, we have not sold any shares of common stock under such Open Market Sale Agreement.

We have a Credit Agreement with MidCap entered in September 2019, and subsequently amended in March 2021 (First Amendment), in February 2022 (Second Amendment) and in July 2022 (Third Amendment). The Credit Agreement provides for $60.0 million term loan credit facility, which was fully funded as of December 31, 2023.

Our operations will require significant additional funding in the foreseeable future. Unless and until we can generate sufficient cash from our operating activities, we may choose to raise additional funds through public and/or private offerings of equity securities, debt financings, or from other sources. However, certain external factors such as global pandemics, the global tensions arising from the Russia-Ukraine war and Hamas-Israel war, political and economic legislations, and other factors may continue to rapidly evolve which could significantly disrupt the global financial markets. Our ability to raise additional funds may be adversely impacted by potential worsening of global economic conditions and volatility in the credit and financial markets in the US and worldwide. We could experience an inability to access additional funds, which could in the future negatively affect our capacity for certain corporate development transactions or our ability to make important, opportunistic investments. To the extent that we raise additional funds through the sale of equity, our shareholders’ ownership interest may experience substantial dilution. Our current credit facility with MidCap and any debt financing that we can obtain in the future may involve operating covenants that may restrict our business. To the extent that we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish some of our rights to our technologies or product candidates or grant licenses on terms that are not favorable to us.

Our future funding requirements will depend upon many factors, including, but not limited to:

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Insufficient funds may require us to delay, scale back or eliminate some or all of our commercial efforts and/or research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose or may adversely affect our ability to operate as a going concern.

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Material Cash Requirements

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We conduct our commercial activities and research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, CROs and universities. We have contractual arrangements with these parties, however our contracts with them are cancelable generally on reasonable notice within one year and our obligations under these contracts are primarily based on services performed. We do not have any purchase commitments under any collaboration arrangements.

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We have agreements with certain clinical research organizations to conduct our clinical trials including our recent strategic development collaborations with MD Anderson and CONNECT, as well as with third parties relative to our commercialization of our products. The timing of payments for any amounts owed under the respective agreements will depend on various factors including, but not limited to, patient enrollment and other progress of the clinical trials, and various activities related to commercialization. We expect that we will continue to enter into contracts in the normal course of business with various third parties who support our clinical trials, support our preclinical research studies, and provide other services related to our operating purposes as well as our commercialization of our products. We can terminate these agreements at any time, and if terminated, we would not be liable for the full amount of the respective agreements. Instead, we will be liable for services provided through the termination date plus certain cancellation charges, if any, as defined in each of the respective agreements. In addition, these agreements may, from time to time, be subjected to amendments as a result of any change orders executed by the parties.

As discussed in detail in “Note 4 - Sponsored Research and License Agreements and Government Contracts” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, pursuant to the amended Lilly Agreement, and us providing the first opt-out notice to Lilly on September 29, 2023, we are responsible for funding the development costs for R552 in the US, Europe, and Japan, up to $22.6 million through April 1, 2024. Through December 31, 2023, Lilly billed us $18.6 million of the funding development costs, of which $0.8 million is outstanding as of December 31, 2023. The amended Lilly Agreement, however, provides us the right to opt-in to co-funding the R552 development, upon us providing notice to Lilly within 30 days of certain events, as specified in the Lilly Agreement. If we decide to exercise our opt-in right, we will be required to continue to share in global development costs, and if we later exercise our second opt-out right (no later than April 1, 2025), our share in global development costs will be up to a specified cap through December 31, 2025, as provided for in the Lilly Agreement.

Additionally, as discussed in detail in “Note 4 – Sponsored Research and License Agreements and Government Contracts” of our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, pursuant to our license and transition services agreement, Forma is entitled to potential development and regulatory milestone payments of up to $67.5 million, commercial milestone payments of up to $165.5 million, and tiered royalty payments. In 2022, certain milestones were met which entitled Forma to receive $17.5 million milestone payments, of which, $2.5 million was paid in the fourth quarter of 2022 and $15.0 million was paid in the first quarter of 2023. No new milestone was met during the year ended December 31, 2023.

Pursuant to an Asset Purchase Agreement with Blueprint entered in February 2024, we agreed to pay Blueprint a purchase price of $15.0 million, $10.0 million of which is payable upon our first commercial sale of GAVRETO (pralsetinib) and an additional $5.0 million of which is payable on the first anniversary of the closing date of the agreement, subject to certain conditions. Blueprint is also eligible to receive up to $97.5 million in future commercial

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milestone payments and up to $5.0 million in future regulatory milestone payments, in addition to tiered royalties ranging from 10% to 30%. Simultaneously and in conjunction with entering into the Asset Purchase Agreement, we also entered into certain supporting agreements, including a customary transition agreement, pursuant to which, during the transition period, Blueprint will transition regulatory and distribution responsibility for GAVRETO (pralsetinib) to us. We also agreed to purchase certain drug product inventories from Blueprint.

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As of December 31, 2023, we have a contractual commitment related to our facilities leased facilities of $1.0 million, with approximately $0.7 million payable within 12 months. See “Note 11 – Leases” to our “Notes to Financial Statements” contained in “Part II, Item 8, Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further discussions of our leases.

As discussed above, we have a contractual commitment with respect to our credit facility with MidCap. Under the amended Credit Agreement, the term loans mature on September 1, 2026, and the interest-only period is through October 1, 2024. The interest rate applicable to the term loans under the amended Credit Agreement is the sum of one-month SOFR, plus an adjustment of 0.11448%, subject to 1.50% applicable floor, plus applicable margin of 5.65%. A final payment fee of 2.5% of principal is due at maturity date of the term loans. As of December 31, 2023, the outstanding principal amount of the loan was $60.0 million, and no principal payments are due within 12 months. We are also obligated to pay annual administrative fees. As of December 31, 2023, future interest calculated using the base interest rate as per the Credit Agreement, and the final fee payments associated with the credit facility amounted to $9.4 million, with approximately $4.4 million payable within 12 months.

We are also subject to claims related to the patent protection of certain of our technologies, as well as purported securities class action lawsuit, other litigations, and other contractual agreements. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual matter. We do not have other material contractual commitments with respect to matters discussed above.

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