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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________
FORM 10-Q
______________________________________________________________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-38697
______________________________________________________________________________________

PhaseBio Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware
03-0375697
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1 Great Valley Parkway, Suite 30
Malvern, Pennsylvania 19355
(Address including zip code of principal executive offices)
(610) 981-6500
(Registrant’s telephone number, including area code)
______________________________________________________________________________________

Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock
PHAS
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Class of Common StockOutstanding Shares as of August 6, 2020
Common Stock, $0.001 par value29,342,892



Table of Contents
Page
1


PART 1. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
PHASEBIO PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)

June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
$53,025  $74,025  
Other receivables
  1,233  
Prepaid expenses and other assets
10,716  3,565  
Total current assets
63,741  78,823  
Property and equipment, net
4,876  1,924  
Operating lease right-of-use assets
2,136  1,715  
Other assets
57  32  
Total assets
$70,810  $82,494  
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt
$5,015  $2,378  
Accounts payable
6,967  2,921  
Accrued expenses and other current liabilities
5,820  3,180  
Total current liabilities
17,802  8,479  
Long-term debt, net
9,768  12,326  
Operating lease liabilities, net
1,773  1,508  
Development derivative liability
14,686    
Other long-term liabilities
388  203  
Total liabilities
44,417  22,516  
Commitments and contingencies (Note 8)


Stockholders’ equity:
    Preferred stock, $0.001 par value; 10,000,000 shares authorized; zero shares issued and
       outstanding at June 30, 2020 and December 31, 2019
    
Common stock, $0.001 par value; 200,000,000 shares authorized; 28,891,534 shares
issued and 28,861,567 shares outstanding at June 30, 2020; 28,796,371 shares
issued and 28,766,404 shares outstanding at December 31, 2019
29  29  
Treasury stock, at cost, 29,967 shares as of June 30, 2020 and December 31, 2019
(24) (24) 
Additional paid-in capital
231,593  222,131  
Accumulated deficit
(205,205) (162,158) 
Total stockholders’ equity
26,393  59,978  
Total liabilities and stockholders' equity
$70,810  $82,494  

See accompanying notes to unaudited condensed financial statements.

2


PHASEBIO PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenue:
Grant revenue$  $203  $320  $856  
Revenue under collaborative agreement  500    500  
Total revenue  703  320  1,356  
Operating expenses:
Research and development20,856  7,781  32,305  13,502  
General and administrative3,242  2,404  6,401  4,720  
Total operating expenses24,098  10,185  38,706  18,222  
Loss from operations(24,098) (9,482) (38,386) (16,866) 
Other income (expense):
Loss from remeasurement of development derivative liability(3,708)   (4,162)   
Interest income21  491  232  808  
Interest expense(379) (219) (757) (445) 
Foreign exchange gain (loss)22  (22) 26  (22) 
Total other income (expense)(4,044) 250  (4,661) 341  
Net loss$(28,142) $(9,232) $(43,047) $(16,525) 
Net loss per common share, basic and diluted$(0.98) $(0.33) $(1.50) $(0.63) 
Weighted average common shares outstanding, basic and diluted28,805,238  27,932,610  28,789,256  26,224,986  

See accompanying notes to unaudited condensed financial statements.

3


PHASEBIO PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)

Common Stock
Treasury Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity
Shares
Amount
Shares
Amount
Balance at December 31, 201928,796,371  $29  (29,967) $(24) $222,131  $(162,158) $59,978  
Issuance of common stock warrants
—  —  —  —  7,925  —  7,925  
Exercises of stock options
14,236  —  —  —  17  —  17  
Stock-based compensation
—  —  —  —  471  —  471  
Net loss
—  —  —  —  —  (14,905) (14,905) 
Balance at March 31, 202028,810,607  29  (29,967) (24) 230,544  (177,063) 53,486  
Issuance of common stock in public offering, net80,523  —  —  —  473  —  473  
Exercises of stock options
404  —  —  —  1  —  1  
Stock-based compensation
—  —  —  —  575  —  575  
Net loss
—  —  —  —  —  (28,142) (28,142) 
Balance at June 30, 202028,891,534  $29  (29,967) $(24) $231,593  $(205,205) $26,393  
Balance at December 31, 201824,528,242  $25  (29,967) $(24) $173,837  $(122,911) $50,927  
Issuance of common stock warrants
—  —  —  —  210  —  210  
Exercise of stock options
150  —  —  —  —  —    
Stock-based compensation
—  —  —  —  238  —  238  
Net loss—  —  —  —  —  (7,293) (7,293) 
Balance at March 31, 201924,528,392  25  (29,967) (24) 174,285  (130,204) 44,082  
Issuance of common stock warrants—  —  —  —  86  —  86  
Issuance of common stock in public offering, net4,124,475  4  —  —  46,273  —  46,277  
Exercises of stock options74,740  —  —  —  126  —  126  
Stock-based compensation
—  —  —  —  270  —  270  
Net loss
—  —  —  —  —  (9,232) (9,232) 
Balance at June 30, 201928,727,607  $29  (29,967) $(24) $221,040  $(139,436) $81,609  

See accompanying notes to unaudited condensed financial statements.
4


PHASEBIO PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Six Months Ended June 30,
20202019
Operating activities
Net loss
$(43,047) $(16,525) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
111  74  
Stock-based compensation
1,046  508  
Loss from remeasurement of development derivative liability
4,162    
Non-cash interest expense
261  254  
Non-cash research and development expense
5,735    
Other non-cash transactions
100    
Changes in operating assets and liabilities:
Other receivables1,233  (948) 
Prepaid expenses and other assets
(7,107) (2,008) 
Accounts payable
4,302  1,243  
Accrued expenses and other current liabilities
419  (1,463) 
Net cash used in operating activities
(32,785) (18,865) 
Investing activities
Purchases of property and equipment
(1,079) (429) 
Acquisition of intellectual property rights
(100)   
Net cash used in investing activities
(1,179) (429) 
Financing activities
Proceeds from development derivative liability
12,649    
Proceeds from issuance of common stock in public offering, net
472  46,308  
Payments of deferred stock offering costs
(175)   
Long-term borrowings, net
  3,089  
Proceeds from exercise of stock options
18  126  
Repayments of long-term debt
  (938) 
Net cash provided by financing activities12,964  48,585  
Net (decrease) increase in cash and cash equivalents(21,000) 29,291  
Cash, cash equivalents and restricted cash at the beginning of the period
74,025  61,051  
Cash, cash equivalents and restricted cash at the end of the period
$53,025  $90,342  
Supplemental disclosure for cash flow
Cash paid for interest
$496  $191  
Supplemental disclosure of non-cash investing and financing activities
Issuance of warrants in conjunction with development derivative liability
$7,925  $  
Accrued interest on term loan refinanced to principal
$  $308  
Issuance of warrants in conjunction with debt
$  $296  
Debt refinanced with new term loan
$  $6,563  
Initial recognition of operating lease right-of-use assets and operating lease liabilities
$564  $1,991  
Deferred stock offering costs included in accounts payable and accrued expenses$  $31  
Purchases of property and equipment included in accounts payable and accrued expenses$2,741  $6  

See accompanying notes to unaudited condensed financial statements.
5


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
1. Organization and Description of Business
Description of Business
PhaseBio Pharmaceuticals, Inc. (the “Company”) was incorporated as a Delaware corporation on January 10, 2002. The Company is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies for cardiopulmonary diseases. The Company’s lead product candidate, PB2452, is a novel reversal agent for the antiplatelet drug ticagrelor, which the Company is developing for the reversal of the antiplatelet effects of ticagrelor in patients with uncontrolled major or life-threatening bleeding or requiring urgent surgery or an invasive procedure. The Company’s second product candidate, PB1046, is in Phase 2 development for the treatment of pulmonary arterial hypertension ("PAH") and in a Phase 2 clinical trial for the treatment of hospitalized COVID-19 patients at high risk for rapid clinical deterioration and acute respiratory distress syndrome ("ARDS"), which the Company refers to as the VANGARD trial. PB1046 utilizes the Company’s proprietary half-life extending elastin-like polypeptide technology, which also serves as an engine for the Company’s preclinical pipeline. The Company is also developing its preclinical product candidate, PB6440, for treatment-resistant hypertension.
Liquidity
The Company has experienced net losses and negative cash flows from operations since its inception and, as of June 30, 2020, had an accumulated deficit of $205.2 million. The Company expects to continue to incur net losses for at least the next several years. As of June 30, 2020, the Company had cash and cash equivalents of $53.0 million and working capital of $45.9 million. In January 2020, the Company entered into a co-development agreement ("SFJ Agreement") with SFJ Pharmaceuticals X, Ltd., an SFJ Pharmaceuticals Group company ("SFJ"), pursuant to which SFJ will provide funding and operational support for the clinical development of PB2452. Management believes that its existing cash and cash equivalents as of June 30, 2020, in addition to the $2.4 million received in July 2020 through the issuance of common stock under the Company's ATM Program (as defined below) and the $71.6 million in anticipated services and proceeds that the Company will receive pursuant to the SFJ Agreement, will be sufficient to fund operating expenses and capital requirements into the second half of 2021.
The Company currently has an effective shelf registration statement on Form S-3 ("2019 Shelf Registration Statement") on file with the Securities and Exchange Commission ("SEC"), which expires in January 2023. The 2019 Shelf Registration Statement currently permits the offering, issuance and sale by the Company of up to an aggregate offering price of $200.0 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination, of which $60.0 million may be offered, issued and sold in "at-the-market" sales pursuant to an equity distribution agreement with Citigroup Global Markets Inc. and William Blair & Company, L.L.C. (the "ATM Program").
The Company is continuing to assess the effect that the COVID-19 pandemic may have on its business and operations. The extent to which COVID-19 may impact the Company's business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the geographic distribution of the disease over time, the efficacy and availability of vaccines and antiviral agents against the disease, the continued duration of the outbreak, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the continued duration of, COVID-19 may be difficult to assess or predict, a continued and growing pandemic could result in significant disruption of global financial markets, reducing the Company's ability to access capital, which could in the future negatively affect its liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect the Company's business and the value of its common stock.
Basis of Presentation
The accompanying condensed financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial reporting and the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. All adjustments, consisting only of normal recurring adjustments,
6


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
necessary for a fair presentation of the accompanying condensed financial statements have been made. Although these interim condensed financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. The unaudited interim results of operations and cash flows for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the full year. The unaudited interim condensed financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 30, 2020, wherein a more complete discussion of significant accounting policies and certain other information can be found.
Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”). Certain non-significant reclassifications have been made to conform the prior period presentation.  
The Company manages its operations as a single reportable segment for the purposes of assessing performance and making operating decisions.
2. Significant Accounting Policies
Use of Estimates
The preparation of the Company’s condensed financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed financial statements and accompanying notes. The most significant estimates in the Company’s condensed financial statements relate to the valuation of the development derivative liability and the clinical trial accruals. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results could differ materially from those estimates and assumptions.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains certain deposit accounts and money market funds in federally insured financial institutions in excess of federally insured limits. The Company could experience losses on the money market funds in the future.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking and money market accounts.
Fair Value of Financial Instruments
The carrying amounts of other receivables, prepaid expenses and other assets, accounts payable and accrued expenses and other current liabilities are reasonable estimates of their fair value because of the short maturity of these items. Based on the borrowing rates currently available to the Company for loans with similar terms, the Company believes the fair values of the term loan and operating lease liabilities and corresponding right-of-use assets approximate their respective carrying values.
Development Derivative Liability
Development derivative liability is recorded based on the present value of the estimated consideration to be received and the estimated consideration to be paid pursuant to contractual terms of the SFJ Agreement, which was determined to have been fair value. The liability is remeasured quarterly, as a Level 3 derivative, with any change in fair value recorded in the form of a gain (loss) from remeasurement of development derivative liability on the condensed statements of operations.
7


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated useful lives of the assets (three to five years) using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term.
Leases
At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise. The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. The Company may enter into leases with an initial term of 12 months or less (“Short-Term Leases”). For any Short-Term Leases, the Company records the rent expense on a straight-line basis and does not record the leases on the condensed balance sheet. The Company had no Short-Term Leases as of June 30, 2020 or December 31, 2019.
After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment and right-of-use assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate net positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives. Should an impairment exist, the impairment loss would be measured based on the extent that the estimated fair value is less than its carrying value. The Company did not recognize any impairment losses in either the six months ended June 30, 2020 or the year ended December 31, 2019.
Preclinical and Clinical Trial Accruals
The Company accrues and expenses amounts incurred in connection with preclinical studies and clinical trial activities performed by third parties based upon estimates of the proportion of work completed over the life of the individual trial and subject enrollment rates in accordance with agreements with clinical research organizations, contract manufacturing organizations and clinical trial sites. The Company determines the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including the Company’s clinical development plan.
Management makes estimates of the Company’s accrued expenses as of each balance sheet date in the Company’s condensed financial statements based on facts and circumstances known to the Company at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
8


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Research and Development Expense
Research and development costs are expensed as incurred. Costs incurred in obtaining technology licenses are charged to research and development expense if the technology has no alternative future use.
Stock-Based Compensation
The Company measures and recognizes compensation expense for all stock-based compensation based on the estimated fair value at the date of grant. Currently, the Company’s stock-based awards consist only of stock options; however, future grants under the Company’s equity compensation plan may also consist of shares of restricted stock, restricted stock units, stock appreciation rights, performance awards and performance units. The Company also maintains an employee stock purchase program ("ESPP") under which it may issue shares. The Company estimates the fair value of stock options and shares that will be issued under the ESPP using the Black-Scholes option-pricing model, which requires the use of estimates. The Company recognizes stock-based compensation cost for ratably vesting stock options and for shares that it will issue under the ESPP on a straight-line basis over the requisite service period of the award and records forfeitures in the period in which they occur.
The Black-Scholes option-pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected dividend yield of the Company’s common stock, the expected volatility of the price of the Company’s common stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future. 
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the condensed financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits, if any, within income tax expense, and any accrued interest and penalties are included within the related tax liability line.
Grant Revenue
Grant revenue is derived from government grants that support the Company’s efforts on specific research projects. The Company has determined that the government agencies providing grants to the Company are not customers. The Company recognizes grant revenue when there is reasonable assurance of compliance with the conditions of the grant and reasonable assurance that the grant revenue will be received.
Revenue Under Collaborative Agreement
The Company generates revenues from payments received under a collaborative agreement. Under such collaboration agreements, the Company recognizes revenue when it transfers promised goods or services to partners in an amount
9


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with partners, the Company performs the following five steps: (i) identifies the promised goods or services in the contract; (ii) identifies the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determines the transaction price, including the constraint on variable consideration; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the Company satisfies the performance obligations.
For revenue from such collaborative agreements, the Company generally collects an upfront license payment from the collaboration partner and is also entitled to receive event-based payments subject to the collaboration partner's achievement of specified development, regulatory and sales-based milestones. In addition, the Company is generally entitled to royalties if products under the collaboration are commercialized. Although such agreements are in form structured as collaborative agreements, for accounting purposes they represent contracts with partners that are not subject to accounting literature on collaborative arrangements. If the Company grants to collaboration partners a license to the Company’s intellectual property, the Company does not develop assets jointly with the collaboration partner and does not share in significant risks of their development or commercialization activities.
Transaction price for a contract represents the amount to which the Company is entitled in exchange for providing goods and services to the partner. Transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved. Apart from the upfront license payment, all other fees the Company may earn under such collaborative agreements are subject to significant uncertainties of product development. Achievement of many of the event-based development and regulatory milestones may not be probable until such milestones are actually achieved. This generally relates to milestones such as obtaining marketing authorization approvals and successful completion of clinical trials. With respect to other development milestones, e.g. dosing of a first patient in a clinical trial, achievement could be considered probable prior to its actual occurrence, based on the progress towards commencement of the trial. The Company does not include any amounts subject to uncertainties into the transaction price until it is probable that the amount will not result in a significant reversal of revenue in the future. At the end of each reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price.
Because such agreements generally only have one type of performance obligation, a license, which is generally all transferred at the same time as agreement inception, allocation of the transaction price among multiple performance obligations is not required.
Upfront amounts allocated to licenses are recognized as revenue when the licenses are transferred to the collaboration partners. Development milestones and other fees are recognized in revenue when their occurrence becomes probable.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities, which include redeemable convertible preferred stock, warrants and outstanding stock options under the Company’s stock option plan, have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position.
The following table sets forth the outstanding, potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

10


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
As of June 30,
20202019
Common stock options
3,740,815  2,433,115  
Warrants to purchase common stock
2,349,595  125,333  
Employee stock purchase program271,012    
Total
6,361,422  2,558,448  
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. Among the changes, entities are no longer required to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, but will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Effective January 1, 2020, the Company adopted this ASU, which did not have a material impact on its condensed financial statements and related disclosures.
3. Fair Value Measurement
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The Company classifies fair value measurements in one of the following three categories for disclosure purposes:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs that are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The Company’s cash equivalents are classified using Level 1 inputs within the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.
The fair value of the Company's financial commitment to SFJ in conjunction with the SFJ Agreement is presented as a development derivative liability based on Level 3 inputs.
The following table summarizes the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy (in thousands):

11


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Total
Fair Value Measurements at Reporting Date
Level 1
Level 2
Level 3
As of June 30, 2020:
Assets
Cash equivalents
$52,774  $52,774  $  $  
Liabilities
Development derivative liability
$14,686  $  $  $14,686  
As of December 31, 2019:
Assets
Cash equivalents
$73,761  $73,761  $  $  

4. Property and Equipment
The following table presents the composition of property and equipment, net as of June 30, 2020 and December 31, 2019 (in thousands):

As of June 30,
2020
As of December 31,
2019
Lab equipment$2,255  $2,112  
Computer hardware, software and telephone279  279  
Furniture and fixtures107  107  
Leasehold improvements67  67  
Construction in progress4,238  1,318  
6,946  3,883  
Less accumulated depreciation(2,070) (1,959) 
Property and equipment, net$4,876  $1,924  
5. Accrued Expenses and Other Current Liabilities
The following table presents the composition of accrued expenses and other current liabilities as of June 30, 2020 and December 31, 2019 (in thousands):
As of June 30,
2020
As of December 31,
2019
Accrued clinical and related costs$3,935  $819  
Accrued compensation and related costs1,162  1,746  
Accrued interest81  84  
Operating lease liability, short-term425  265  
Accrued other217  266  
Accrued expenses and other current liabilities$5,820  $3,180  
6. Debt
Term Loans
October 2017 Loan Agreement with Silicon Valley Bank
In October 2017, the Company entered into a Loan and Security Agreement (“SVB Loan”) with Silicon Valley Bank (“SVB”), pursuant to which the Company could borrow up to $7.5 million, issuable in three separate tranches (“Growth Capital
12


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Advances”) of $3.5 million (“Tranche A”), $2.0 million (“Tranche B”) and $2.0 million (“Tranche C”). Each of the Growth Capital Advances were available upon the achievement of certain clinical and regulatory milestones. Under the terms of the SVB Loan, as amended, the Company was required to make interest-only payments through December 31, 2018, followed by an amortization period of 24 months of equal monthly payments of principal plus interest amounts until paid in full. The maturity date of the SVB Loan was December 31, 2020.
In connection with the SVB Loan, the Company issued to SVB a warrant to purchase 49,713 shares of Series C-1 at an exercise price of $9.659 per share, which became exercisable for common stock following the Initial Public Offering ("IPO"). The warrant is immediately exercisable and expires on October 18, 2027. The Company was required to make a final payment equal to 7% of the original aggregate principal amount of the Growth Capital Advances at maturity. In November 2017, the Company drew $3.5 million from Tranche A.
The Company had the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company would have been obligated to pay a prepayment fee equal to (a) 3.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made prior to the first anniversary of the effective date of the SVB Loan, (b) 2.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made by the second anniversary of the effective date of the SVB Loan or (c) 1.0% of the outstanding principal balance of the applicable Growth Capital Advances if prepayment was made after the second anniversary of the effective date of the SVB Loan.
The Company repaid the outstanding principal balance and accrued portion of the final payment under the SVB Loan in full using the first tranche from the new term loan entered into in March 2019 ("the 2019 Loan").
March 2019 Loan Agreement with Silicon Valley Bank and WestRiver Innovation Lending Fund VIII, L.P.
In March 2019, the Company entered into the 2019 Loan with SVB and WestRiver Innovation Lending Fund VIII, L.P. (“WestRiver”), pursuant to which the Company could borrow up to $15.0 million, issuable in three separate tranches (“Advances”), of $7.5 million (“Tranche 1”), which was issued upon execution of the 2019 Loan, $2.5 million, which was issued in May 2019 (“Tranche 2”) and $5.0 million, which was issued in October 2019 (“Tranche 3”), which the Company was required to draw upon the achievement of certain regulatory milestones (the “Tranche 3 Milestones”).
The maturity date of the 2019 Loan is March 1, 2023. Under the terms of the 2019 Loan, the Company is to make interest-only payments through June 30, 2020 with respect to Tranche 1, Tranche 2 and Tranche 3 at a rate equal to the greater of the Prime Rate plus 1.00%, as defined in the 2019 Loan, or 6.5%, followed by an amortization period of 33 months of equal monthly payments of principal plus interest until paid in full. In addition to and not in substitution for the Company’s regular monthly payments of principal plus accrued interest, the Company is required to make a final payment equal to 6% of the aggregate principal amount of the advances (“Final Payment”) on the maturity date.
Upon execution of the 2019 Loan and the draw of Tranche 1, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 37,606 shares of common stock with an exercise price of $4.73 per share. In May 2019, upon the draw of Tranche 2, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 12,130 shares of common stock with an exercise price of $10.86 per share. In October 2019, upon the draw of Tranche 3, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 24,262 shares of common stock with an exercise price of $3.88 per share. All warrants are immediately exercisable and expire ten years from the date of issuance.
Upon execution of the 2019 Loan, the Company drew $7.5 million from Tranche 1 and repaid the outstanding principal balance and the accrued portion of the Final Payment of the SVB Loan.
The Company’s obligations under the 2019 Loan are secured by a first-priority security interest in substantially all of the Company’s current and future assets. The Company is also obligated to comply with various other customary covenants, including restrictions on the Company’s ability to encumber its intellectual property assets.
The Company recorded a debt discount of $0.4 million for the estimated fair value of warrants and debt issuance costs upon the borrowings of Tranches 1, 2 and 3, which is being amortized to interest expense over the term of the 2019 Loan using the effective-interest method. Interest expense under the SVB Loan and the 2019 Loan, including amortization of the debt discount related to the term debt, totaled $0.4 million and $0.2 million for the three months ended June 30, 2020 and 2019, respectively, and $0.8 million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively. The balance of the
13


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Final Payment liability was $0.4 million as of June 30, 2020 and is included in other long-term liabilities on the condensed balance sheet. The Company is in compliance with all covenants under the 2019 Loan as of June 30, 2020.
Based on a 39-month amortization of the outstanding principal amounts for the 2019 Loan, the following table sets forth by year the Company’s required future principal payments as of June 30, 2020 (in thousands):

Years Ending December 31,
2020 (remaining six months)$2,528  
20215,316  
20225,677  
20231,479  
Thereafter  
Total principal payments15,000  
Less unamortized loan fees(217) 
Total term loan borrowings$14,783  
7. Development Derivative Liability
In January 2020, the Company entered into the SFJ Agreement, pursuant to which SFJ has agreed to provide up to $120.0 million in funding and project management services in connection with the global Phase 3 clinical trial of PB2452. During the term of the SFJ Agreement, the Company will have primary responsibility for clinical development and regulatory activities for PB2452 in the United States and the European Union, while SFJ will have primary responsibility for clinical development and regulatory activities for PB2452 in China and Japan and will provide clinical trials operational support in the European Union.
From the inception of the SFJ Agreement through June 30, 2020, SFJ has provided funding and paid for amounts on the Company's behalf in the aggregate amount of $18.4 million under the SFJ Agreement. SFJ will pay the Company an additional $71.6 million in six equal quarterly payments beginning with the quarter ending September 30, 2020 through the quarter ending December 31, 2021, less certain services to be provided or amounts to be paid in clinical trial cost reimbursements. SFJ will also provide up to an additional $30.0 million upon the achievement of specified milestones with respect to the Company's clinical development of PB2452.
If the United States Food and Drug Administration ("FDA") approves a Biologics License Application for PB2452, the Company has agreed to pay to SFJ an initial payment of $5.0 million and an additional $325.0 million in the aggregate in seven additional annual payments (the “U.S. Approval Payments”). If the European Medicines Agency ("EMA") or the national regulatory authorities in certain European countries provide marketing approval of PB2452, the Company will pay SFJ an initial payment of $5.0 million and an additional $205.0 million in the aggregate in seven additional annual payments (the “EU Approval Payments”). The majority of the U.S. Approval Payments and the EU Approval Payments will be made from the third anniversary to the seventh anniversary of marketing approval in the applicable jurisdiction. If either the Pharmaceuticals and Medical Devices Agency (the “PMDA”) of Japan or the National Medical Products Administration (the “NMPA”) of China provides marketing approval of PB2452, the Company will pay SFJ an initial payment of $1.0 million and then an additional $59.0 million in the aggregate in eight additional annual payments (the “Japan/China Approval Payments”), with the majority of the payments to be made from the fifth anniversary to the eighth anniversary of marketing approval. The Japan/China Approval Payments will only be paid once regardless of receipt of marketing approval in both Japan and China. The U.S. Approval Payments, EU Approval Payments and Japan/China Approval Payments will be proportionately adjusted in the event that the actual funding from SFJ is lower or greater than $120.0 million. The Company will not be obligated to make the U.S. Approval Payments if it does not receive marketing approval for PB2452 from the FDA, the EU Approval Payments if it does not receive marketing approval for PB2452 from the EMA or the national regulatory authority in certain European countries or the Japan/China Approval Payments if it does not receive marketing approval for PB2452 from either the PMDA or the NMPA.
Upon execution of the SFJ Agreement, the Company issued to SFJ 2,200,000 common stock warrants at an exercise price of $6.50 per share and a contractual term of ten years. The warrants were issued in two tranches: Tranche A and Tranche B. Tranche A represents 1,100,000 warrants that are immediately exercisable by SFJ, provided that SFJ may not sell such exercised shares until one year from the original warrant issuance date. Tranche B represents 1,100,000 warrants that are exercisable at the earlier of (i) the achievement of certain development milestones or (ii) the consummation of an Acquisition, as defined in the SFJ
14


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Agreement. The warrants are equity-classified and were valued at $7.9 million at issuance using a probability adjusted Black-Scholes valuation technique.
The Company accounts for the SFJ Agreement as a derivative instrument that increases and decreases as consideration is received and repayments are made, respectively. The derivative is further adjusted at each reporting period to its estimated fair value. At June 30, 2020, the derivative is presented as a liability in the Company's condensed balance sheet. Any changes in fair value are recorded within the Company's condensed statements of operations. The liability was initially recorded at a value of $2.1 million, which incorporates the $10.0 million upfront payment from SFJ and the issuance of the Company's common stock warrants to SFJ. During the six months ended June 30, 2020, SFJ provided additional funding and paid for amounts on the Company's behalf in the aggregate amount of $8.4 million, and the development derivative liability was subsequently remeasured at June 30, 2020, as a Level 3 derivative. The change of fair value resulted in a $4.2 million loss from remeasurement of development derivative liability on the condensed statements of operations.
The derivative is valued using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The valuation method incorporates certain unobservable Level 3 key inputs including (i) the probability and timing of funding, (ii) the probability and timing of achieving regulatory approvals, (iii) the Company's cost of borrowing (16.00% plus the risk free borrowing rate) and (iv) SFJ's cost of borrowing (2.50% plus the risk free borrowing rate).
The following table presents activity for the development derivative liability during the six months ended June 30, 2020 (in thousands):
Development
Derivative
Liability
Balance at December 31, 2019$  
Initial payment, net of common stock warrants
2,075  
Funding during the period
8,449  
Change in fair value4,162  
Balance at June 30, 2020$14,686  
8. Commitments and Contingencies
Legal Proceedings
The Company is not currently a party to any litigation, nor is management aware of any pending or threatened litigation against the Company, that it believes would materially affect the Company’s business, operating results, financial condition or cash flows.
9. Leases
The Company leases office and research and development facilities and equipment under various non-cancellable operating lease agreements.
In January 2010, the Company entered into a lease for office and laboratory space in Malvern, Pennsylvania (the “Malvern Lease”). The Malvern Lease commenced in March 2010 and was amended to extend its term to July 2018 and again to September 2023, with an option to extend the lease for an additional three years. This lease contains escalating rent payments. In December 2019, the Company entered into a lease for office space in San Diego, California, which expires in October 2022. In June 2020, the Company entered into a lease for additional office space in Malvern, Pennsylvania, which expires in September 2023. As of June 30, 2020, the weighted average remaining lease term for the Company’s leases was 5.0 years, and the weighted average discount rate used to determine the right-of-use assets and corresponding operating lease liabilities was 5.7%.
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PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Maturities of operating lease liabilities as of June 30, 2020 are as follows (in thousands):

Year Ending December 31,
2020 (remaining six months)$262  
2021561  
2022552  
2023416  
2024278  
Thereafter
498  
Total future minimum lease payments
2,567  
Less: Present value adjustment
(369) 
Operating lease liabilities
$2,198  

The Company recognizes rent expense for the operating leases on a straight-line basis. Rent expense was $0.1 million for the three months ended June 30, 2020 and 2019, and $0.2 million for the six months ended June 30, 2020 and 2019.
10. Stockholders’ Equity
April 2019 Offering
In April 2019, the Company completed an underwritten public offering of its common stock, which resulted in the issuance and sale of an aggregate of 4,124,475 shares of common stock at a public offering price of $12.00 per share, generating net proceeds of $46.3 million after deducting underwriting discounts and commissions and other offering costs.
Shelf Registration Statement
In December 2019, the Company filed the 2019 Shelf Registration Statement on Form S-3, which became effective in January 2020. The 2019 Shelf Registration Statement permits: (i) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $200.0 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination; and (ii) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $60.0 million of the Company's common stock that may be issued and sold in "at-the-market" sales under the ATM Program. During the six months ended June 30, 2020, the Company sold 80,523 shares of common stock pursuant to the ATM Program for gross proceeds of $0.5 million.
11. Stock-Based Compensation
Stock-based compensation expense has been reported in the Company’s condensed statements of operations for the three and six months ended June 30, 2020 and 2019 as follows (in thousands):

Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
General and administrative
$402  $205  $742  $397  
Research and development
173  65  304  111  
Total stock-based compensation
$575  $270  $1,046  $508  

As of June 30, 2020, the total unrecognized compensation expense related to unvested employee and non-employee stock option awards was $6.0 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.9 years.
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PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
In October 2018, the Company's board of directors and stockholders approved the 2018 Employee Stock Purchase Plan (the "ESPP"). The ESPP became effective on October 17, 2018, and is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
Under the ESPP, eligible employees are granted rights to purchase shares of common stock, which are funded through payroll deductions that cannot exceed 15% of each employee’s compensation. The ESPP generally provides for a 24-month offering period, which includes four six-month purchase periods. At the end of each purchase period, eligible employees are permitted to purchase shares of common stock at 85% of the lower of fair market value at the beginning of the offering period or fair market value at the end of the purchase period. The ESPP is considered a compensatory plan, and the Company recorded stock-based compensation expense of $21,000 for the three and six months ended June 30, 2020. As of June 30, 2020, no shares of common stock had been issued under the ESPP.
As of June 30, 2020, the total unrecognized compensation expense related to the ESPP was $0.4 million, which is expected to be recognized over a weighted-average period of approximately 1.4 years.
12. License and Other Agreements
MedImmune Limited License Agreement
In November 2017, the Company entered into a license agreement (“MedImmune License”) with MedImmune Limited (“MedImmune”). MedImmune is a wholly-owned subsidiary of AstraZeneca plc (“AstraZeneca”). Pursuant to the terms of the MedImmune License, MedImmune granted the Company exclusive global rights for the purpose of developing and commercializing products under the MedImmune License (“MedImmune licensed product”). The Company is obligated to make a series of contingent milestone payments totaling up to an aggregate of $18.0 million upon the achievement of clinical development and regulatory milestones. In addition, the Company will pay MedImmune tiered royalties ranging from mid-single-digit to low-teen percentages of net sales of any MedImmune licensed products and additional payments of up to $50.0 million in aggregate commercial milestones. The Company incurred no costs under the MedImmune License in the three and six months ended June 30, 2020 and 2019.
The Company also must pay quarterly fees relating to technical services provided by MedImmune. The MedImmune License requires the Company to cooperate with MedImmune on commercial messaging of PB2452 and provides MedImmune with the return of rights to PB2452 if certain commercial diligence requirements are not achieved by the Company. In addition, the MedImmune License offers an option for third-party product storage costs. The Company incurred no third-party product storage costs in the three and six months ended June 30, 2020 and 2019. AstraZeneca is a stockholder of the Company.
Duke License Agreement
In October 2006, the Company entered into a license agreement with Duke University (“Duke”) (as amended, the “Duke License”). Pursuant to the Duke License, Duke granted to the Company an exclusive, worldwide license under certain patent rights and a non-exclusive license to know-how owned or controlled by Duke to develop and commercialize any products or processes covered under the Duke License (the “Duke licensed products”). The Duke License was amended in February 2016 to allow Duke to use the Company’s technology in the area of small-molecule oncologics. The Duke License is a worldwide, sublicensable agreement and remains in full effect for the life of the last-to-expire patents included in the patent rights, which is estimated to be 2029. The Company is required to apply for, prosecute and maintain all United States and foreign patent rights under the Duke License.
The Company is obligated to pay up to $2.2 million upon the achievement of clinical development and regulatory milestones and up to $0.4 million upon the achievement of commercial milestones. The Duke License may be terminated by Duke if the Company fails to meet certain clinical development and regulatory milestones within specified timeframes. As of June 30, 2020, the Company was in compliance with its development obligations.
The Company is required to use commercially reasonable efforts to develop one or more products or processes and introduce them into commercial markets. Duke will receive low single-digit royalty percentages on net sales of Duke licensed products by the Company or its sublicensee, with minimum aggregate royalties of $0.2 million payable following the Company’s achievement of certain commercial milestones. No sales of Duke licensed products or services have occurred since the effective date through June 30, 2020.
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PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Certain alliance fee payments up to the greater of $0.3 million or a low double-digit percentage of the fees the Company receives from a third party in consideration of forming a strategic alliance may be required depending upon how the patent rights are commercialized. The Company must pay Duke the first $1.0 million of non-royalty payments it receives from a sublicensee, and thereafter a specified percentage of any additional nonroyalty payments it receives, subject to certain conditions. If Duke receives revenue as a result of a license or sublicense to a third-party in the field of small-molecule oncologics, it will pay the Company a specified percentage of the amount of such revenue in excess of $1.0 million. The Company incurred no costs under the Duke License in the three and six months ended June 30, 2020 and incurred $0.3 million in costs in the three and six months ended June 30, 2019.
Wacker License Agreement
In April 2019, the Company entered into a license agreement (“Wacker License Agreement”), with Wacker Biotech GmbH (“Wacker”), pursuant to which Wacker granted the Company an exclusive license under certain of Wacker’s intellectual property rights to use Wacker’s proprietary E. coli strain for the manufacture of PB2452 worldwide outside of specified Asian countries, and to commercialize PB2452, if approved, manufactured by the Company or on the Company’s behalf using Wacker’s proprietary E. coli strain throughout the world. The Company has the right to grant sublicenses under the license, subject to certain conditions as specified in the Wacker License Agreement. Under the terms of the agreement, the Company is required to pay a fixed, nominal per-unit royalty, which is subject to adjustment, and an annual license fee in a fixed Euro amount in the low to mid six digits. The agreement will be in force for an indefinite period of time, and upon the expiration of the Company’s royalty obligations, the license will be considered fully paid and will convert to a non-exclusive license. Either party may terminate the Wacker License Agreement for breach if such breach is not cured within a specified number of days. The Company incurred $0.1 million and $0.2 million under the Wacker License Agreement for the three and six months ended June 30, 2020, respectively, and no costs for the three and six months ended June 30, 2019.
Viamet Asset Purchase Agreement
In January 2020, the Company entered into a purchase agreement ("PB6440 Agreement") with Viamet Pharmaceuticals Holdings, LLC and its wholly-owned subsidiary, Selenity Therapeutics (Bermuda), Ltd., (the "Sellers"), pursuant to which the Company acquired all of the assets and intellectual property rights related to the Sellers’ proprietary CYP11B2 inhibitor compound, formerly known as SE-6440 or VT-6440, and certain other CYP11B2 inhibitor compounds that are covered by the patent rights acquired by the Company under the PB6440 Agreement, (together, "Compounds"). Under the terms of the PB6440 Agreement, the Company paid the Sellers an upfront fee of $0.1 million upon the closing of the transaction, and are required to pay the Sellers up to $5.1 million upon the achievement of certain development and intellectual property milestones with respect to certain product candidates that contain a Compound, up to $142.5 million upon the achievement of certain commercial milestones with respect to any approved product that contains a Compound and low- to mid-single digit royalty percentages on the net sales of approved products that contain a Compound, subject to customary reductions and offsets in specified circumstances. The Company incurred zero and $0.1 million in costs under the PB6440 Agreement for the three and six months ended June 30, 2020, respectively.
13. Revenue
Grant revenue
In February 2018, the Company received Small Business Innovation Research (“SBIR”) grants from the National Institutes of Health in an aggregate amount of $2.8 million to support the clinical development of PB1046 for the treatment of pulmonary arterial hypertension for the period from February 17, 2018 to July 31, 2020. In connection with the SBIR grants, the United States government will receive a non-exclusive, royalty-free license to use any technology the Company develops under such grants. The Company recognized zero and $0.2 million of revenue under the SBIR grants in the three months ended June 30, 2020 and 2019, respectively and $0.3 million and $0.9 million in the six months ended June 30, 2020 and 2019, respectively.  As of June 30, 2020, the Company has received all $2.8 million in funding available under the SBIR grant.
Revenue Under Collaborative Agreement
In April 2019, the Company entered into an agreement with ImmunoForge Co., Ltd. (“ImmunoForge”) for the exclusive, worldwide license of PB1023, a long-acting, recombinant glucagon-like peptide-1 analogue, for the treatment of certain diseases, including conditions related to sarcopenia.
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PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
In addition to upfront payments already received, the Company is eligible to receive milestone-based payments and mid-single digit royalty payments on net sales of licensed products, a percentage of which Duke University is entitled to receive pursuant to the Duke License. The Company recognized no revenue for the three and six months ended June 30, 2020 and $0.5 million for the three and six months ended June 30, 2019 related to the ImmunoForge agreement.
14. Related Party Transactions
As described above in Note 12, the Company is party to the MedImmune License. AstraZeneca, the parent company of MedImmune, is a related party of the Company.
15. Subsequent Events
In July 2020, the Company raised gross proceeds of $2.4 million pursuant to the ATM Program, selling 481,325 shares of common stock. The Company has $197.1 million of common stock remaining that can be sold under the 2019 Shelf Registration Statement, of which $57.1 million may be sold under the ATM Program.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.  
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the periods ended December 31, 2019 and 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K filed with the SEC on March 30, 2020. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to PhaseBio Pharmaceuticals, Inc.
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Forward-Looking Statements
The information in this discussion contains forward-looking statements and information 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, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies for cardiopulmonary diseases. Our lead product candidate, PB2452, is a novel reversal agent for the antiplatelet drug ticagrelor, which we are developing for the reversal of the antiplatelet effects of ticagrelor in patients with uncontrolled major or life-threatening bleeding or requiring urgent surgery or an invasive procedure. Based on feedback from the United States Food and Drug Administration, or FDA, we intend to seek approval of PB2452 in the United States through an accelerated approval process. In our completed Phase 2a clinical trial of PB2452, we observed immediate and complete reversal of ticagrelor’s antiplatelet activity within five minutes following initiation of infusion and sustained reversal for over 20 hours. Our second product candidate, PB1046, is a once-weekly fusion protein currently in a Phase 2b clinical trial for the treatment of pulmonary arterial hypertension, or PAH. In May 2020, we received FDA authorization to proceed with VANGARD, a Phase 2 clinical trial to evaluate PB1046 as a treatment for hospitalized COVID-19 patients who are at high risk for rapid clinical deterioration and acute respiratory distress syndrome, or ARDS. PB1046 utilizes our proprietary half-life extending elastin-like polypeptide, or ELP, technology, which also serves as an engine for our preclinical pipeline. We are also developing our preclinical product candidate, PB6440, for treatment-resistant hypertension. We retain worldwide commercial rights to all of our product candidates.
As we advance our clinical programs for PB2452 and PB1046 with site activations and patient enrollment, we remain in close contact with our clinical research organizations, clinical sites and suppliers to attempt to assess the impacts that COVID-19 may have on our clinical trials and current timelines and to consider whether we can implement appropriate mitigating measures to help lessen such impacts. At this time, however, we cannot fully forecast the scope of impacts that COVID-19 may have on our ability to initiate trial sites, enroll and assess patients, supply study drug and report trial results.
We are developing PB2452 pursuant to a co-development agreement, or the SFJ Agreement, with SFJ Pharmaceuticals X, Ltd., an SFJ Pharmaceuticals Group company, or SFJ. Under the SFJ Agreement, SFJ has agreed to pay us up to $120.0 million to support the clinical development of PB2452. During the term of the SFJ Agreement, we will have primary responsibility for clinical development and regulatory activities for PB2452 in the United States and the European Union, while SFJ will have primary responsibility for clinical development and regulatory activities for PB2452 in China and Japan and will provide clinical trials operations support in the European Union.
The FDA granted Breakthrough Therapy designation for PB2452 in April 2019. The European Medicines Agency, or EMA, granted PB2452 Priority Medicines, or PRIME, designation in February 2020. Based on feedback from the FDA, we intend to submit a Biologics License Application, or BLA, for potential accelerated approval based on an interim analysis of the first approximately 100 patients treated in our Phase 3 trial, with approximately 50 patients with uncontrolled major or life-threatening bleeding and approximately 50 patients requiring urgent surgery or an invasive procedure. We have commenced our pivotal Phase 3 clinical trial and are currently working to identify and initiate additional clinical sites for this study, although the COVID-19 pandemic has temporarily impacted the pace of site initiation and patient enrollment. Based on an 18-month estimated enrollment timeline for the first 100 patients in the Phase 3 trial, we are targeting to submit our BLA for PB2452 in the second half of 2022, although that timeline could be impacted by the continued scope and duration of the COVID-19 pandemic. To support full approval for patients with uncontrolled major or life-threatening bleeding or requiring urgent surgery or an invasive procedure, the FDA recommended enrollment of 200 total patients in the Phase 3 trial. After we submit our BLA with data from the first 100 patients, we intend to complete the Phase 3 trial and establish a post-approval registry in accordance with FDA
21


requirements. The Committee for Medicinal Products for Human Use, or CHMP, of the EMA has also generally agreed with our proposed development plan for PB2452.
With respect to our PB1046 program, we temporarily paused enrollment of new patients in our Phase 2b clinical trial for the treatment of PAH as a precaution to minimize potential exposure of this patient population at high risk of serious illness from COVID-19. However, we also informed investigators that they could continue dosing PB1046 and performing assessments for current trial participants if they deemed it appropriate and such activities were permitted by their respective institutions. Certain sites have resumed screening patients on a limited basis and we continue to work with trial sites to help design plans to enable them to resume new patient enrollment, once appropriate and permitted. Additionally, we continue to identify new trial sites for future initiation. We currently expect to report the top-line results of this trial in 2021.
The VANGARD trial will evaluate PB1046 as a treatment for hospitalized COVID-19 patients who are at high risk for rapid clinical deterioration and ARDS. The trial is a multi-center, randomized, double-blind, parallel-group trial that will assess the efficacy and safety of once-weekly subcutaneous injections of PB1046 in hospitalized COVID-19 patients. Approximately 210 patients are targeted to be enrolled at approximately 20 sites nationwide. The primary endpoint will measure days alive and free of respiratory failure. We enrolled the first patient in the trial in July 2020. Subject to the pace of enrollment and any further impacts of the COVID-19 pandemic, we are targeting to report top-line results of this trial late in the fourth quarter of 2020. The FDA has informed us that po