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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 September 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 November 6, 2020
Common Stock, $0.001 par value29,364,824



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)

September 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
$39,353 $74,025 
Other receivables
 1,233 
Prepaid expenses and other assets
10,595 3,565 
Total current assets
49,948 78,823 
Property and equipment, net
6,164 1,924 
Operating lease right-of-use assets
2,038 1,715 
Other assets
57 32 
Total assets
$58,207 $82,494 
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt
$5,341 $2,378 
Accounts payable
2,124 2,921 
Accrued expenses and other current liabilities
3,905 3,180 
Total current liabilities
11,370 8,479 
Long-term debt, net
8,117 12,326 
Operating lease liabilities, net
1,667 1,508 
Development derivative liability
32,224  
Other long-term liabilities
477 203 
Total liabilities
53,855 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 September 30, 2020 and December 31, 2019
  
Common stock, $0.001 par value; 200,000,000 shares authorized; 29,389,288 shares
issued and 29,359,321 shares outstanding at September 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 September 30, 2020 and December 31, 2019
(24)(24)
Additional paid-in capital
234,695 222,131 
Accumulated deficit
(230,348)(162,158)
Total stockholders’ equity
4,352 59,978 
Total liabilities and stockholders' equity
$58,207 $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 September 30,Nine Months Ended September 30,
2020201920202019
Revenue:
Grant revenue$ $241 $320 $1,097 
Revenue under collaborative agreement   500 
Total revenue 241 320 1,597 
Operating expenses:
Research and development17,416 9,028 49,721 22,530 
General and administrative3,076 2,803 9,477 7,523 
Total operating expenses20,492 11,831 59,198 30,053 
Loss from operations(20,492)(11,590)(58,878)(28,456)
Other income (expense):
Loss from remeasurement of development derivative liability(4,273) (8,435) 
Interest income3 451 235 1,259 
Interest expense(362)(266)(1,119)(711)
Foreign exchange gain (loss)(19)14 7 (8)
Total other income (expense)(4,651)199 (9,312)540 
Net loss$(25,143)$(11,391)$(68,190)$(27,916)
Net loss per common share, basic and diluted$(0.86)$(0.40)$(2.36)$(1.03)
Weighted average common shares outstanding, basic and diluted29,243,181 28,719,932 28,941,669 27,065,774 

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 
Issuance of common stock in public offering, net481,325 — — — 2,469 — 2,469 
Exercises of stock options
16,429 — — — 24 — 24 
Stock-based compensation
— — — — 609 — 609 
Net loss
— — — — — (25,143)(25,143)
Balance at September 30, 202029,389,288 $29 (29,967)$(24)$234,695 $(230,348)$4,352 
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 
Exercises of stock options
55,204 — — — 95 — 95 
Stock-based compensation
— — — — 491 — 491 
Net loss
— — — — — (11,391)(11,391)
Balance at September 30, 201928,782,811 $29 (29,967)$(24)$221,626 $(150,827)$70,804 

See accompanying notes to unaudited condensed financial statements.
4


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

Nine Months Ended September 30,
20202019
Operating activities
Net loss
$(68,190)$(27,916)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
166 124 
Stock-based compensation
1,655 999 
Loss from remeasurement of development derivative liability
8,435  
Non-cash interest expense
381 354 
Non-cash research and development expense
14,748  
Other non-cash transactions
100  
Changes in operating assets and liabilities:
Other receivables1,233 (350)
Prepaid expenses and other assets
(6,958)354 
Accounts payable
(1,117)(114)
Accrued expenses and other current liabilities
935 (556)
Net cash used in operating activities
(48,612)(27,105)
Investing activities
Purchases of property and equipment
(1,257)(824)
Acquisition of intellectual property rights
(100) 
Net cash used in investing activities
(1,357)(824)
Financing activities
Proceeds from development derivative liability
13,861  
Proceeds from issuance of common stock in public offering, net
2,942 46,277 
Payments of deferred stock offering costs
(184) 
Long-term borrowings, net
 3,089 
Proceeds from exercise of stock options
42 221 
Repayments of long-term debt
(1,364)(938)
Net cash provided by financing activities15,297 48,649 
Net (decrease) increase in cash and cash equivalents(34,672)20,720 
Cash, cash equivalents and restricted cash at the beginning of the period
74,025 61,051 
Cash and cash equivalents at the end of the period$39,353 $81,771 
Supplemental disclosure for cash flow
Cash paid for interest
$737 $357 
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
$576 $1,991 
Purchases of property and equipment by incurring development derivative liability$3,105 $ 
Purchases of property and equipment included in accounts payable and accrued expenses$867 $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, bentracimab (also known as 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, pemziviptadil (also known as PB1046), is in Phase 2 development for the treatment of pulmonary arterial hypertension ("PAH"). Pemziviptadil 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 September 30, 2020, had an accumulated deficit of $230.3 million. The Company expects to continue to incur net losses for at least the next several years. As of September 30, 2020, the Company had cash and cash equivalents of $39.4 million and working capital of $38.6 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 bentracimab. Management believes that its existing cash and cash equivalents as of September 30, 2020, in addition to the $58.3 million in clinical trial costs and other expenses that the Company expects SFJ will fund or reimburse pursuant to the SFJ Agreement, will be sufficient to fund operating expenses and capital requirements into the first quarter of 2022.
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"). As of September 30, 2020, the Company had $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.
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 nine months ended September 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 September 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 nine months ended September 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 September 30,
20202019
Common stock options
3,717,406 2,481,403 
Warrants to purchase common stock
2,349,595 125,333 
Employee stock purchase program341,930  
Total
6,408,931 2,606,736 
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 September 30, 2020:
Assets
Cash equivalents
$39,133 $39,133 $ $ 
Liabilities
Development derivative liability
$32,224 $ $ $32,224 
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 September 30, 2020 and December 31, 2019 (in thousands):

As of September 30,
2020
As of December 31,
2019
Lab equipment$2,109 $2,112 
Computer hardware, software and telephone140 279 
Furniture and fixtures107 107 
Leasehold improvements67 67 
Construction in progress5,525 1,318 
7,948 3,883 
Less accumulated depreciation(1,784)(1,959)
Property and equipment, net$6,164 $1,924 
5.    Accrued Expenses and Other Current Liabilities
The following table presents the composition of accrued expenses and other current liabilities as of September 30, 2020 and December 31, 2019 (in thousands):
As of September 30,
2020
As of December 31,
2019
Accrued clinical and related costs$1,492 $819 
Accrued compensation and related costs1,532 1,746 
Accrued interest74 84 
Operating lease liability, short-term451 265 
Accrued other356 266 
Accrued expenses and other current liabilities$3,905 $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 made 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%. In July 2020, the Company began making principal plus interest payments as part of an amortization period of 33 months of equal monthly payments 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 $0.3 million for the three months ended September 30, 2020 and 2019, respectively, and $1.1 million and $0.7 million for the nine months ended September 30, 2020 and 2019, respectively. The
13


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
balance of the Final Payment liability was $0.5 million as of September 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 September 30, 2020.
Based on a 33-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 September 30, 2020 (in thousands):

Years Ending December 31,
2020 (remaining three months)$1,364 
20215,455 
20225,455 
20231,363 
Thereafter 
Total principal payments13,637 
Less unamortized loan fees(179)
Total term loan borrowings$13,458 
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 REVERSE-IT trial, a global Phase 3 clinical trial of bentracimab. During the term of the SFJ Agreement, the Company will have primary responsibility for clinical development and regulatory activities for bentracimab in the United States and the European Union, while SFJ will have primary responsibility for clinical development and regulatory activities for bentracimab in China and Japan and will provide clinical trials operational support in the European Union.
From the inception of the SFJ Agreement through September 30, 2020, SFJ has provided funding and paid for amounts on the Company's behalf in the aggregate amount of $31.7 million under the SFJ Agreement. In addition, the Company expects that SFJ will fund or reimburse an additional $58.3 million of clinical trial costs and other expenses. 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 bentracimab.
If the United States Food and Drug Administration ("FDA") approves a Biologics License Application for bentracimab, 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 bentracimab, 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 bentracimab, 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 bentracimab from the FDA, the EU Approval Payments if it does not receive marketing approval for bentracimab 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 bentracimab 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
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PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
earlier of (i) the achievement of certain development milestones or (ii) the consummation of an Acquisition, as defined in the SFJ 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 September 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 nine months ended September 30, 2020, SFJ provided additional funding and paid for amounts on the Company's behalf in the aggregate amount of $21.7 million, and the development derivative liability was subsequently remeasured at September 30, 2020, as a Level 3 derivative. The change of fair value resulted in a $4.3 million and $8.4 million loss from remeasurement of development derivative liability on the condensed statements of operations for the three and nine months ended September 30, 2020, respectively.
The derivative is valued using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The valuation method incorporates certain unobservable Level 3 key inputs including (i) the probability and timing of funding, (ii) the probability and timing of achieving regulatory approvals, (iii) the Company's cost of borrowing (16.00% plus the risk free borrowing rate) and (iv) SFJ's cost of borrowing (2.50% plus the risk free borrowing rate).
The following table presents activity for the development derivative liability during the nine months ended September 30, 2020 (in thousands):
Development
Derivative
Liability
Balance at December 31, 2019$ 
Initial payment, net of common stock warrants
2,075 
Funding during the period
21,714 
Change in fair value8,435 
Balance at September 30, 2020$32,224 
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 September 30, 2020, the weighted average remaining lease term for the Company’s leases was 4.8 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 September 30, 2020 are as follows (in thousands):

Year Ending December 31,
2020 (remaining three months)$140 
2021564 
2022555 
2023419 
2024279 
Thereafter
499 
Total future minimum lease payments
2,456 
Less: Present value adjustment
(338)
Operating lease liabilities
$2,118 

The Company recognizes rent expense for the operating leases on a straight-line basis. Rent expense was $0.2 million for the three months ended September 30, 2020 and 2019, and $0.4 million for the nine months ended September 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 nine months ended September 30, 2020, the Company sold 561,848 shares of common stock pursuant to the ATM Program for gross proceeds of $2.9 million.
11.    Stock-Based Compensation
Stock-based compensation expense has been reported in the Company’s condensed statements of operations for the three and nine months ended September 30, 2020 and 2019 as follows (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
General and administrative
$422 $395 $1,164 $792 
Research and development
187 96 491 207 
Total stock-based compensation
$609 $491 $1,655 $999 

As of September 30, 2020, the total unrecognized compensation expense related to unvested employee and non-employee stock option awards was $5.4 million, which is expected to be recognized in expense over a weighted-average period of approximately 2.6 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 $46,000 and $0.1 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, no shares of common stock had been issued under the ESPP.
As of September 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 1.1 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”). During the quarter ended September 30, 2020, the Company made a contingent milestone payment of $2.0 million and is obligated to make remaining contingent milestone payments totaling up to an aggregate of $15.0 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 royalty costs under the MedImmune License in the three and nine months ended September 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 bentracimab and provides MedImmune with the return of rights to bentracimab 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 nine months ended September 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 September 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 September 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 nine months ended September 30, 2020 and incurred no costs and $0.3 million in costs in the three and nine months ended September 30, 2019, respectively.
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 bentracimab worldwide outside of specified Asian countries, and to commercialize bentracimab, 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 $0.3 million under the Wacker License Agreement for the three and nine months ended September 30, 2020, respectively, and $0.1 million for the three and nine months ended September 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 nine months ended September 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 pemziviptadil 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. As of March 31, 2020, the Company had received all $2.8 million in funding available under the SBIR grant. The Company recognized zero and $0.2 million of revenue under the SBIR grants in the three months ended September 30, 2020 and 2019, respectively and $0.3 million and $1.1 million in the nine months ended September 30, 2020 and 2019, respectively.  
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 nine months ended September 30, 2020 and zero and $0.5 million for the three and nine months ended September 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.
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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, bentracimab (also known as 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 bentracimab in the United States through an accelerated approval process. In our completed Phase 2a clinical trial of bentracimab, 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, pemziviptadil (also known as PB1046), is a once-weekly fusion protein currently in a Phase 2b clinical trial for the treatment of pulmonary arterial hypertension, or PAH. Pemziviptadil 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 bentracimab and pemziviptadil 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 bentracimab 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 bentracimab. During the term of the SFJ Agreement, we will have primary responsibility for clinical development and regulatory activities for bentracimab in the United States and the European Union, while SFJ will have primary responsibility for clinical development and regulatory activities for bentracimab in China and Japan and will provide clinical trials operations support in the European Union.
The FDA granted Breakthrough Therapy designation for bentracimab in April 2019. The European Medicines Agency, or EMA, granted bentracimab 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 REVERSE-IT 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 REVERSE-IT 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. We expect to enroll the first 100 patients in the REVERSE-IT trial in the second half of 2021, and we are targeting to submit our BLA for bentracimab in the second half of 2022, although those timelines 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 REVERSE-IT trial. After we submit our BLA with data from the first 100 patients, we intend to complete the REVERSE-IT trial and establish a post-approval registry in accordance with FDA requirements. The Committee for Medicinal Products for Human Use, or CHMP, of the EMA has also generally agreed with our proposed development plan for bentracimab.
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With respect to our pemziviptadil program, we are resuming enrollment of new patients in our Phase 2b clinical trial for the treatment of PAH after having previously paused enrollment temporarily as a precaution to minimize potential exposure of this patient population at high risk of serious illness from COVID-19 and to reprioritize drug supply to our VANGARD trial. We currently expect to report the top-line results of this trial in the second half of 2021.
We have a limited operating history. Since our inception in 2002, our operations have focused on developing our clinical and preclinical product candidates and our proprietary ELP technology, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials and preclinical studies. We do not have any product candidates approved for sale and have not generated any revenue from product sales. Since inception, we have financed our operations primarily through the sale of equity and debt securities and our term loans with Silicon Valley Bank, or SVB, and WestRiver Innovation Lending Fund VIII, L.P., or WestRiver.
In April 2019, we received $46.3 million in net proceeds from an underwritten public offering of our common stock. In May 2019, we received an additional $2.5 million under our term loan with SVB and WestRiver, or our 2019 Loan, and in October 2019, we received an additional $5.0 million under our 2019 Loan. In January 2020, we entered into the SFJ Agreement pursuant to which SFJ has agreed to provide us up to $120.0 million of funding to support the clinical development of bentracimab. As of September 30, 2020, SFJ has provided funding and paid for amounts on our behalf in the aggregate amount of $31.7 million under the SFJ Agreement. In addition, we expect that SFJ will fund or reimburse an additional $58.3 million of clinical trial costs and other expenses. SFJ will also provide up to an additional $30.0 million of funding upon the achievement of specified clinical development milestones with respect to our ongoing REVERSE-IT trial of bentracimab.
Since our inception, we have incurred significant operating losses. Our net loss was $68.2 million for the nine months ended September 30, 2020. As of September 30, 2020, we had an accumulated deficit of $230.3 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:
continue our ongoing clinical trials of bentracimab and pemziviptadil, as well as initiate and complete additional clinical trials, as needed;
seek to expand our geographical reach through the SFJ Agreement and the corresponding clinical development support fees that we will incur;
pursue regulatory approvals for bentracimab as a reversal agent for the antiplatelet drug ticagrelor and pemziviptadil for the treatment of PAH;
develop PB6440 for treatment-resistant hypertension;
seek to discover and develop additional clinical and preclinical product candidates;
scale up our clinical and regulatory capabilities;
establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval, including bentracimab and pemziviptadil;
adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, manufacturing and scientific personnel;
add operational, financial and management information systems and personnel, including personnel to support our product development and possible future commercialization efforts; and
incur additional legal, accounting and other expenses in operating as a public company.
Recent Developments
First Patient Dosed in Canada in REVERSE-IT Trial
In October 2020, we announced the expansion of our global REVERSE-IT trial for bentracimab into Canada, where the first patients outside of the United States have now been enrolled and dosed.
VANGARD Trial Discontinued
In October 2020, we elected to discontinue our VANGARD trial of pemziviptadil for the treatment of hospitalized COVID-19 patients who are at high risk for rapid clinical deterioration and acute respiratory distress syndrome after a strategic
22


review of the trial, including an assessment of the evolving COVID-19 treatment landscape, feedback from the FDA and an interim analysis of the VANGARD trial data. Pemziviptadil was generally well tolerated and there was no adverse safety signal reported in the trial.
FINANCIAL OVERVIEW
Components of Operating Results
Revenue
Grant Revenue
Grant revenue is derived from government grants that support our efforts on specific research projects. We recognize 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.
Research and Development Expense
Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:
expenses incurred under agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our clinical trials and preclinical studies;
manufacturing and supply scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial supply and potential commercial supply, including manufacturing validation batches;
clinical development support fees that we incur related to the SFJ Agreement;
outsourced professional scientific development services;
employee-related expenses, which include salaries, benefits and stock-based compensation;
licensing costs payable to third parties for use of their intellectual property;
expenses relating to regulatory activities; and
facilities, laboratory materials and supplies used to support our research activities.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expense to increase significantly over the next several years as we increase personnel costs, including stock-based compensation, conduct our later-stage clinical trials for bentracimab and pemziviptadil, develop PB6440, conduct other preclinical studies and clinical trials and prepare regulatory filings and, if we receive regulatory approval for one or more product candidates, prepare for commercialization efforts.
The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates, or when, if ever, material net cash inflows may commence from those candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:
delays caused by the COVID-19 pandemic;
delays in regulators or institutional review boards authorizing us or our investigators to commence our clinical trials or in our ability to negotiate agreements with clinical trial sites or contract research organizations;
our ability to secure adequate supply of our product candidates for our trials;
the number of clinical sites included in the trials;
the length of time required to enroll suitable patients;
the number of patients that ultimately participate in the trials;
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the number of doses that patients receive;
any side effects associated with our product candidates;
the duration of patient follow-up; and
the results of our clinical trials.
Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory approval for our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Product commercialization will take several years and millions of dollars in development costs.
General and Administrative Expense
General and administrative expense consists principally of salaries and related costs for personnel in executive and administrative functions, including stock-based compensation, travel expenses and recruiting expenses. Other general and administrative expense includes professional fees for legal, accounting and tax-related services and insurance costs.
We anticipate that our general and administrative expense will increase as we continue to operate as a public reporting company and continue to develop bentracimab, pemziviptadil, PB6440 and our future product candidates. We believe that these increases likely will include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel and increased fees for outside consultants, lawyers and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investor relations, disclosure and similar requirements applicable to public reporting companies.
Loss From Remeasurement of Development Derivative Liability
Loss from remeasurement of development derivative liability reflects the revaluation at each reporting date of our development derivative liability based on the present value of the estimated consideration to be received and the estimated consideration to be paid pursuant to the contractual terms under the SFJ Agreement, which is determined to be fair value. The liability is remeasured at the end of each quarter as a Level 3 derivative, with the change in fair value recorded in the condensed statements of operations.
Interest Expense
Interest expense consists of interest expense on our convertible promissory notes and term loan. Following the conversion of the convertible promissory notes into shares of redeemable convertible Series D preferred stock in August 2018, we no longer recognize interest on the convertible promissory notes. We recognize interest on our term loan with SVB and WestRiver.
License, Co-Development and Other Agreements
MedImmune Limited License Agreement
In November 2017, we entered into an exclusive license agreement, or the MedImmune License, with MedImmune Limited, or MedImmune, a wholly owned subsidiary of AstraZeneca plc. Pursuant to the MedImmune License, MedImmune granted us an exclusive, worldwide license under certain patent rights owned or controlled by MedImmune to develop and commercialize any products covered by the MedImmune License, or the MedImmune Licensed Products, for the treatment, palliation, diagnosis or prevention of any human disorder or condition. Under the MedImmune License, we paid MedImmune an upfront fee of $0.1 million. We are also required to pay MedImmune: quarterly fees relating to technical services provided by MedImmune; up to $18.0 million in clinical and regulatory milestone fees, $3.0 million of which had been incurred as of September 30, 2020; up to $50.0 million in commercial milestone fees; and mid-single digit to low-teen royalty percentages on net sales of MedImmune Licensed Products, subject to reduction in specified circumstances. In addition, the MedImmune License
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offers an option for third-party product storage costs. From the inception of the MedImmune License through September 30, 2020, we have incurred costs of $3.6 million under the MedImmune License.
Co-Development Agreement with SFJ Pharmaceuticals
In January 2020, we entered into the SFJ Agreement, pursuant to which SFJ will provide us funding to support the global development of bentracimab as a reversal agent for the antiplatelet drug ticagrelor in patients with uncontrolled major or life-threatening bleeding or requiring urgent surgery or an invasive procedure. In March 2020, we obtained the consent of Silicon Valley Bank, or SVB, to grant SFJ a security interest in all of the assets owned or controlled by us that are necessary for the manufacture, use or sale of bentracimab. Under the SFJ Agreement, SFJ has agreed to pay us up to $120.0 million to support the clinical development of bentracimab. From the inception of the SFJ Agreement through September 30, 2020, SFJ has provided funding and paid for amounts on our behalf in the aggregate amount of $31.7 million. In addition, we expect that SFJ will fund or reimburse an additional $58.3 million of clinical trial costs and other expenses. SFJ will also provide up to an additional $30.0 million of funding upon the achievement of specified milestones with respect to our clinical development of bentracimab. During the term of the SFJ Agreement, we will have primary responsibility for clinical development and regulatory activities for bentracimab in the United States and the European Union, while SFJ will have primary responsibility for clinical development and regulatory activities for bentracimab in China and Japan and will provide clinical trials operational support in the European Union.
Under the terms of the SFJ Agreement, following the FDA approval of a BLA for bentracimab, we will pay SFJ an initial payment of $5.0 million and an additional $325.0 million in the aggregate in seven additional annual payments. If the EMA or the national regulatory authority in certain European countries approve a BLA for bentracimab, we will pay SFJ an initial payment of $5.0 million and an additional $205.0 million in the aggregate in seven additional annual payments. If either the PMDA of Japan or the NMPA of China approves a marketing application for bentracimab, we 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.
Within 120 days following approval of a BLA for bentracimab in one of the jurisdictions described above, we have the right, at our option, to make a one-time cash payment to SFJ to buy out all or a portion of the future unpaid approval payments for such jurisdiction (i.e., the U.S. Approval Payments, EU Approval Payments or Japan/China Approval Payments, as applicable) for a price reflecting a mid-single-digit discount rate. Within 120 days following a change of control of our company, we or our successor have the right, at its option, to make a one-time cash payment to SFJ to buy out all or a portion of the future unpaid approval payments in any of the jurisdictions in which a BLA for bentracimab was approved prior to the change of control for a price reflecting a mid-single-digit discount rate, provided that SFJ has not previously assigned the right to receive such payments to a third party (in which event we or our successor shall not have such right).

If following termination of the SFJ Agreement we continue to develop bentracimab and obtain BLA approval in the United States, the European Union, Japan or China, we will make the applicable approval payments for such jurisdiction to SFJ as if the SFJ Agreement had not been terminated, less any payments made upon termination, except that if we terminate the SFJ Agreement for SFJ’s failure to make any payment to us when due, or SFJ terminates the SFJ Agreement due to a material adverse event, as defined in the SFJ Agreement, then our obligation to make such approval payments would be reduced by 50%.
Duke License Agreement
In October 2006, we entered into an exclusive license agreement, or the Duke License, with Duke University, or Duke, which we most recently amended in April 2019. Pursuant to the Duke License, Duke granted us an exclusive, worldwide license under certain patent rights owned or controlled by Duke, and a non-exclusive, worldwide license under certain know-how of Duke, to develop and commercialize any products covered by the Duke License, or Duke licensed products, relating to ELPs. Under the Duke License, we paid Duke an upfront fee of $37,000, additional fees in connection with amendments to the Duke License of $0.2 million and other additional licensing fees of $0.2 million. In consideration for license rights granted to us, we initially issued Duke 24,493 shares of our common stock. Until we reached a certain stipulated equity milestone, which we reached in October 2007, we were obligated to issue additional shares of common stock to Duke from time to time so that its aggregate ownership represented 7.5% of our issued and outstanding capital stock. We are also required to pay Duke: up to $2.2 million in regulatory and clinical milestone fees; up to $0.4 million in commercial milestone fees; low single-digit royalty percentages on net sales of Duke licensed products, with minimum aggregate royalty payments of $0.2 million payable following our achievement of certain commercial milestones; and up to the greater of $0.3 million or a low double-digit percentage of the fees we receive from a third party in consideration of forming a strategic alliance with respect to certain patent rights covered under the Duke License. We also must pay Duke the first $1.0 million of non-royalty payments we receive from a sublicensee, and thereafter a low double-digit percentage of any additional nonroyalty payments we receive, subject to certain conditions. From the inception of the Duke License through September 30, 2020, we have incurred royalty costs of $0.3 million under the
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Duke License. We are also required to apply for, prosecute and maintain all U.S. and foreign patent rights under the Duke License.
Wacker License Agreement
In April 2019, we entered into a license agreement, or the Wacker License Agreement, with Wacker Biotech GmbH, or Wacker, pursuant to which Wacker granted us an exclusive license under certain of Wacker’s intellectual property rights to use Wacker’s proprietary E. coli strain for the manufacture of bentracimab worldwide outside of specified Asian countries and to commercialize bentracimab, if approved, manufactured by us or on our behalf using Wacker’s proprietary E. coli strain throughout the world. We have 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, we are 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 our 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. We incurred $0.1 million and $0.3 million in costs under the Wacker License Agreement for the three and nine months ended September 30, 2020, respectively, and $0.1 million for the three and nine months ended September 30, 2019.
Viamet Asset Purchase Agreement
In January 2020, we entered into the PB6440 Agreement with Viamet Pharmaceuticals Holdings, LLC and its wholly-owned subsidiary, Selenity Therapeutics (Bermuda), Ltd., or the Sellers, pursuant to which we 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 us under the PB6440 Agreement, or together, Compounds. Under the terms of the PB6440 Agreement, we paid the Sellers an upfront fee of $0.1 million upon the closing of the transaction, and we 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. We incurred zero and $0.1 million in costs under the PB6440 Agreement for the three and nine months ended September 30, 2020, respectively.
Results of Operations
Comparison of the Three Months Ended September 30, 2020 and 2019
The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended
September 30,
Change
20202019
Grant revenue$— $241 $(241)
Operating expenses:
Research and development
17,416 9,028 8,388 
General and administrative
3,076 2,803 273 
Total operating expenses
20,492 11,831 8,661 
Loss from operations
(20,492)(11,590)(8,902)
Other income (expense):
Loss from remeasurement of development derivative liability
(4,273)— (4,273)
Interest income
451 (448)
Interest expense
(362)(266)(96)
Foreign exchange gain (loss)(19)14 (33)
Total other income (expense)
(4,651)199 (4,850)
Net loss
$(25,143)$(11,391)$(13,752)
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Grant Revenue
Grant revenue was zero for the three months ended September 30, 2020, compared to $0.2 million for the three months ended September 30, 2019. We did not incur any costs that qualified for grant reimbursement under our government grants during the three months ended September 30, 2020. As of March 31, 2020, we had received all $2.8 million in funding available under the Small Business Innovation Research grants we received from the National Institutes of Health to support the clinical development of pemziviptadil for the treatment of PAH.
Research and Development Expense
Research and development expense was $17.4 million for the three months ended September 30, 2020, compared to $9.0 million for the three months ended September 30, 2019. The increase of $8.4 million was primarily attributable to increased drug manufacturing and clinical development activities and a licensing milestone payment related to bentracimab and pemziviptadil and increased personnel costs due to additional headcount.
The following table summarizes our research and development expenses by functional area for the three months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended
September 30,
Change
20202019
Preclinical and clinical development
$15,004 $7,460 $7,544 
Compensation and related benefits
1,750 1,136 614 
Stock-based compensation
187 96 91 
Facilities expense
327 179 148 
Other
148 157 (9)
Total research and development expenses
$17,416 $9,028 $8,388 

We track our external research and development expenses on a program-by-program basis. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and consumable costs, which are deployed across multiple projects under development. The following table summarizes our research and development expenses by product candidate for the three months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended
September 30,
Change
20202019
External research and development expense by program:
Bentracimab$12,281 $4,816 $7,465 
Pemziviptadil2,462 2,283 179 
Unallocated research and development expense:
Compensation and stock-based compensation
1,937 1,232 705 
Other research and development
736 697 39 
Total research and development expenses
$17,416 $9,028 $8,388 
General and Administrative Expense
General and administrative expense was $3.1 million for the three months ended September 30, 2020, compared to $2.8 million for the three months ended September 30, 2019. The increase of $0.3 million was primarily attributable to increases in professional services related to legal and consulting services, directors and officers liability insurance and personnel expense due to additional headcount.
Loss From Remeasurement of Derivative Liability
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Loss from remeasurement of derivative liability was $4.3 million for the three months ended September 30, 2020. The liability was initially recorded at the present value of the estimated consideration to be received and the estimated consideration to be paid pursuant to the contractual terms of the SFJ Agreement, which was determined to have been fair value. The derivative liability was subsequently remeasured at the end of the quarter as a Level 3 derivative.
Interest Income
Interest income was $3,000 for the three months ended September 30, 2020, compared to $0.5 million for the three months ended September 30, 2019. The decrease of $0.5 million was attributable to lower balances of cash and cash equivalents and lower interest rates during 2020.
Interest Expense
Interest expense was $0.4 million for the three months ended September 30, 2020, compared to $0.3 million for the three months ended September 30, 2019. The increase of $0.1 million was attributable to increased borrowings on the 2019 Loan.
Comparison of the Nine Months Ended September 30, 2020 and 2019
The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019 (in thousands):
Nine Months Ended
September 30,
Change
20202019
Revenue:
Grant revenue$320 $1,097 $(777)
Revenue under collaborative agreement— 500 (500)
Total revenue320 1,597 (1,277)
Operating expenses:
Research and development49,721 22,530 27,191 
General and administrative9,477 7,523 1,954 
Total operating expenses59,198 30,053 29,145 
Loss from operations(58,878)(28,456)(30,422)
Other income (expense):
Loss from remeasurement of development derivative liability(8,435)— (8,435)
Interest income235 1,259 (1,024)
Interest expense(1,119)(711)(408)
Foreign exchange gain (loss)(8)15 
Total other income (expense)(9,312)540 (9,852)
Net loss$(68,190)$(27,916)$(40,274)
Revenue
Grant revenue was $0.3 million for the nine months ended September 30, 2020, compared to $1.1 million for the nine months ended September 30, 2019. We incurred fewer costs that qualified for grant reimbursement under our government grants during the nine months ended September 30, 2020. Revenue under collaborative agreement was zero for the nine months ended September 30, 2020, compared to $0.5 million for the nine months ended September 30, 2019, which reflected the receipt of an upfront payment in April 2019 under our agreement with ImmunoForge.
Research and Development Expense
Research and development expense was $49.7 million for the nine months ended September 30, 2020, compared to $22.5 million for the nine months ended September 30, 2019. The increase of $27.2 million was primarily attributable to increased costs associated with drug manufacturing and clinical development activities and a licensing milestone payment related
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to bentracimab and pemziviptadil, general research activities, a licensing milestone payment and increased personnel costs due to additional headcount.
The following table summarizes our research and development expenses by functional area for the nine months ended September 30, 2020 and 2019 (in thousands):
Nine Months Ended
September 30,
Change
20202019
Preclinical and clinical development
$42,705 $18,064 $24,641 
Compensation and related benefits
5,127 3,257 1,870 
Stock-based compensation
491 207 284 
Facilities expense
772 566 206 
Other
626 436 190 
Total research and development expenses
$49,721 $22,530 $27,191 
We track our external research and development expenses on a program-by-program basis. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and consumable costs, which are deployed across multiple projects under development. The following table summarizes our research and development expenses by product candidate for the nine months ended September 30, 2020 and 2019 (in thousands):
Nine Months Ended
September 30,
Change
20202019
External research and development expense by program:
Bentracimab$32,185 $12,742 $19,443 
Pemziviptadil9,408 4,369 5,039 
Unallocated research and development expense:
Compensation and stock-based compensation
5,618 3,464