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

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

For the quarterly period ended June 30, 2022
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, par value $0.001 per share
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 StockShares of Common Stock Outstanding as of August 8, 2022
Common Stock, $0.001 par value49,858,116



Table of Contents
Page
1


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

June 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$7,804 $41,800 
Prepaid expenses and other assets3,760 6,984 
Total current assets11,564 48,784 
Property and equipment, net9,322 10,230 
Operating lease right-of-use assets1,222 1,469 
Other assets58 57 
Total assets$22,166 $60,540 
Liabilities and stockholders' deficit
Current liabilities:
Current portion of long-term debt$4,073 $5,413 
Current portion of deferred sublicense revenue1,400 1,547 
Accounts payable6,320 12,570 
Accrued expenses and other current liabilities12,886 8,353 
Total current liabilities24,679 27,883 
Long-term debt, net 1,359 
Operating lease liabilities, net869 1,073 
Long-term portion of deferred sublicense revenue7,443 7,622 
Development derivative liability106,573 114,843 
Other long-term liabilities 794 
Total liabilities139,564 153,574 
Commitments and contingencies (Note 8, 9, 10, 13)
Stockholders’ deficit:
    Preferred stock, $0.001 par value; 10,000,000 shares authorized; zero shares issued and
       outstanding at June 30, 2022 and December 31, 2021
  
Common stock, $0.001 par value; 200,000,000 shares authorized; 49,888,083 shares
issued and 49,858,116 shares outstanding at June 30, 2022; 48,220,557 shares
issued and 48,190,590 shares outstanding at December 31, 2021
50 48 
Treasury stock, at cost, 29,967 shares as of June 30, 2022 and December 31, 2021
(24)(24)
Additional paid-in capital302,176 298,736 
Accumulated deficit(419,600)(391,794)
Total stockholders’ deficit(117,398)(93,034)
Total liabilities and stockholders' deficit$22,166 $60,540 

See accompanying notes to unaudited condensed financial statements.

2


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

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue:
Sublicense revenue$208 $10,338 $325 $10,338 
Total revenue208 10,338 325 10,338 
Operating expenses:
Research and development20,939 27,366 35,275 49,686 
General and administrative4,581 4,025 8,590 7,352 
Total operating expenses25,520 31,391 43,865 57,038 
Loss from operations(25,312)(21,053)(43,540)(46,700)
Other income/(expense):
Gain/(loss) from remeasurement of development derivative liability8,719 (5,777)15,952 (7,203)
Interest income17 5 20 7 
Interest expense(116)(254)(264)(539)
Foreign exchange gain/(loss)27  26 (2)
Total other income/(expense)8,647 (6,026)15,734 (7,737)
Net loss before income taxes(16,665)(27,079)(27,806)(54,437)
Provision for income taxes 1,600  1,600 
Net loss$(16,665)$(28,679)$(27,806)$(56,037)
Net loss per common share, basic and diluted$(0.34)$(0.60)$(0.57)$(1.41)
Weighted average common shares outstanding, basic and diluted49,182,813 47,985,871 48,910,437 39,680,408 

See accompanying notes to unaudited condensed financial statements.

3


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

Common Stock
Treasury Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity (Deficit)
Shares
Amount
Shares
Amount
Balance at December 31, 202148,220,557 $48 (29,967)$(24)$298,736 $(391,794)$(93,034)
Issuance of common stock, net500,000 1 — — 1,182 — 1,183 
Stock-based compensation
— — — — 597 — 597 
Net loss
— — — — — (11,141)(11,141)
Balance at March 31, 202248,720,557 $49 (29,967)$(24)$300,515 $(402,935)$(102,395)
Issuance of common stock, net854,677 1 — — 733 — 734 
Exercises of stock options
 — — —  —  
Issuance of common stock under employee stock purchase plan312,849 — — — 213 — 213 
Stock-based compensation
— — — — 715 — 715 
Net loss
— — — — — (16,665)(16,665)
Balance at June 30, 202249,888,083 $50 (29,967)$(24)$302,176 $(419,600)$(117,398)
Balance at December 31, 202029,471,854 $29 (29,967)$(24)$235,516 $(260,723)$(25,202)
Issuance of common stock in public offering, net18,400,000 19 — — 60,065 — 60,084 
Exercise of stock options110,146 — — — 217 — 217 
Stock-based compensation
— — — — 670 — 670 
Net loss— — — — — (27,358)(27,358)
Balance at March 31, 202147,982,000 $48 (29,967)$(24)$296,468 $(288,081)$8,411 
Issuance of common stock in public offering, net — — — 157 — 157 
Exercises of stock options3,615 — — — 6 — 6 
Issuance of common stock under employee stock purchase plan72,105 — — — 202 — 202 
Stock-based compensation
— — — — 728 — 728 
Net loss
— — — — — (28,679)(28,679)
Balance at June 30, 202148,057,720 $48 (29,967)$(24)$297,561 $(316,760)$(19,175)

See accompanying notes to unaudited condensed financial statements.
4


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

Six Months Ended June 30,
20222021
Operating activities
Net loss$(27,806)$(56,037)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,204 1,057 
Stock-based compensation1,312 1,398 
(Gain)/loss from remeasurement of development derivative liability(15,952)7,203 
Non-cash interest expense77 173 
Non-cash research and development expense7,395 23,705 
Changes in operating assets and liabilities:
Receivable from sublicense (18,400)
Prepaid expenses and other assets3,504 8,855 
Accounts payable(6,439)(585)
Accrued expenses and other current liabilities3,735 1,679 
Deferred sublicense revenue(325)9,662 
Net cash used in operating activities(33,295)(21,290)
Investing activities
Purchases of property and equipment(107)(385)
Net cash used in investing activities(107)(385)
Financing activities
Proceeds from issuance of common stock in public offering, net1,920 60,351 
Payments of deferred stock offering costs (40)
Proceeds from exercise of stock options 223 
Issuance of common stock under employee stock purchase plan213 202 
Repayments of long-term debt(2,727)(2,727)
Net cash (used in)/provided by financing activities(594)58,009 
Net (decrease)/increase in cash and cash equivalents(33,996)36,334 
Cash and cash equivalents at the beginning of the period41,800 28,122 
Cash and cash equivalents at the end of the period$7,804 $64,456 
Supplemental disclosure for cash flow
Cash paid for interest$187 $366 
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment by incurring development derivative liability$ $4,160 
Purchases of property and equipment included in accounts payable and accrued expenses$205 $44 

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 cardiovascular diseases. The Company’s lead product candidate, bentracimab (also known as PB2452), is a novel reversal agent for the antiplatelet drug ticagrelor. The Company is also developing its preclinical product candidate, PB6440, for treatment-resistant hypertension.
Going Concern
The Company has experienced net losses and negative cash flows from operations and, as of June 30, 2022, had an accumulated deficit of $419.6 million. The Company expects to continue to incur net losses for at least the next several years. As of June 30, 2022, the Company had cash and cash equivalents of $7.8 million and negative working capital of $13.1 million. In January 2020, the Company entered into a co-development agreement (the "SFJ Agreement") with SFJ Pharmaceuticals X, Ltd., an SFJ Pharmaceuticals Group company ("SFJ"), pursuant to which SFJ provides funding and operational support for the clinical development of bentracimab. Management believes that its existing cash and cash equivalents as of June 30, 2022, in addition to the $21.0 million in clinical trial costs and other expenses that the Company expects SFJ will fund or reimburse pursuant to the SFJ Agreement, will not be sufficient to fund operating expenses and capital requirements for 12 months from the date of the issuance of these condensed financial statements. These factors raise substantial doubt about the Company's ability to continue as a going concern. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty. Under the SFJ Agreement, if the Company fails to remedy such going concern condition during the periods specified in the agreement, SFJ may elect to have the Company's business related to bentracimab transferred to SFJ.
The Company plans to address its liquidity needs through the pursuit of additional funding through a combination of equity or debt financings, or other third-party financing, marketing and distribution arrangements and other collaborations, strategic alliances and transactions and licensing arrangements. However, there is no assurance that these funding efforts will be successful. In this regard, the Company currently has an effective shelf registration statement on Form S-3 (the "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 (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 common stock that may be issued and sold under an "at-the-market" sales agreement (the "ATM Program"). The $60.0 million of common stock that may be issued and sold under the ATM Program is included in the $200.0 million of securities that may be issued and sold under the 2019 Shelf Registration Statement. As of June 30, 2022, the Company had $130.6 million of common stock remaining that can be sold under the 2019 Shelf Registration Statement, of which $55.0 million may be sold under the ATM Program.
The Company is continuing to assess the effect that the COVID-19 pandemic, geopolitical tensions, such as Russia's incursion into Ukraine, and the resulting global slowdown of economic activity, decades-high inflation, rising interest rates, and a potential recession in the United States may have on its business and operations. The extent to which these uncertainties 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 duration and effect of business disruptions, the geographic distribution of COVID-19 and its variants over time, the efficacy and availability and pace of administration of vaccines and antiviral agents against the disease, the continued duration of the outbreak, 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, these uncertainties may be difficult to assess or predict, continued adverse macroeconomic conditions and the growing pandemic have resulted in and could result in further 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, geopolitical tensions or other macroeconomic factors could materially affect the Company's business and the value of its common stock.
6


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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, necessary for a fair presentation of the accompanying condensed financial statements have been made. Although these interim financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. The unaudited interim results of operations and cash flows for the three and six months ended June 30, 2022 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, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 24, 2022, 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”).
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, the deferral and recognition of revenue under the exclusive sublicense agreement (the “Alfasigma Sublicense”) entered into with Alfasigma S.p.A. (“Alfasigma”) 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 deposits 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 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.
Deferred Sublicense Revenue
When consideration is received, or such consideration is unconditionally due, from a customer prior to the Company completing its performance obligation to the customer under the terms of a contract, a contract liability is recorded as deferred revenue. Deferred revenues expected to be recognized as revenue within the 12 months following the condensed balance sheet
7


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
date are classified as current liabilities. Deferred revenues not expected to be recognized as revenue within the 12 months following the condensed balance sheet date are classified as long-term liabilities.
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.
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 depreciation method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term.
Leases
At lease commencement, the Company records a lease liability based on the present value of lease payments over the expected lease term including any options to extend the lease that the Company is reasonably certain to exercise. The Company calculates the present value of lease payments using an incremental borrowing rate as the Company’s leases do not provide an implicit interest rate. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. At the lease commencement date, the Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives received and any initial direct costs paid to the lessor prior to the lease commencement date. The Company may enter into leases with an initial term of 12 months or less (“Short-Term Leases”). For any Short-Term Leases, the Company records the rent expense on a straight-line basis and does not record the leases on the condensed balance sheet. The Company had no Short-Term Leases as of June 30, 2022 or December 31, 2021.
After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of all of its long-lived assets, including property and equipment and right-of-use assets to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the asset’s ability to generate net positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business objectives. Should an impairment exist, the impairment loss would be measured based on the extent that the estimated fair value is less than its carrying value. The Company did not recognize any impairment losses in either the six months ended June 30, 2022 or the year ended December 31, 2021.
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.
8


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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.

Revenue Recognition

Sublicense Revenue
Sublicensing arrangements may contain multiple components, which may include (i) sublicenses; (ii) research and development activities; and (iii) the manufacturing and supply of certain materials. Payments pursuant to these arrangements may include non-refundable payments, upfront payments, milestone payments upon the achievement of significant regulatory and development events or sales of product at certain agreed-upon amounts, sales milestones and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.
In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under a sublicense agreement, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue as the Company satisfies each performance obligation.
The Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction price is allocated among the performance obligations. The estimation of the stand-alone selling price may include such estimates as forecasted revenues and costs, development timelines, discount rates and probabilities of regulatory and commercial success. The Company also applies significant judgment when evaluating whether contractual obligations represent distinct performance obligations, allocating transaction price to performance obligations within a contract, determining when performance obligations have been met, assessing the recognition and future reversal of variable consideration and determining and applying appropriate methods of measuring progress for performance obligations satisfied over time.
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 and restricted stock units; however, future grants under the Company’s equity compensation plan and 2022 Inducement Plan may also consist of shares of restricted stock, stock appreciation rights, performance stock awards and other stock awards. The Company also maintains the 2018 Employee Stock Purchase Plan (the "ESPP") under which it may issue shares of common stock. The Company estimates the fair value of stock options, restricted stock units, 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, restricted stock units and 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. 
9


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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.
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 outstanding stock options and restricted stock units under the Company's equity incentive plans, warrants issued from time to time and shares of common stock to be potentially issued under the ESPP, 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:
As of June 30,
20222021
Common stock options5,447,593 4,359,395 
Warrants to purchase common stock2,323,711 2,323,711 
Employee stock purchase plan1,577,880 275,077 
Unvested restricted stock units278,618  
Total
9,627,802 6,958,183 

Recent Accounting Pronouncements
There were no new accounting pronouncements that were issued or became effective since the issuance of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 that had, or are expected to have, a material impact on its consolidated financial position, results of operations or cash flows.
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-
10


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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):

Fair Value Measurements at Reporting Date
Total
Level 1
Level 2
Level 3
As of June 30, 2022:
Assets:
Cash equivalents$7,570 $ $ $7,570 
Liabilities:
Development derivative liability (Note 8)$ $ $106,573 $106,573 
As of December 31, 2021:
Assets:
Cash equivalents$41,550 $ $ $41,550 
Liabilities:
Development derivative liability (Note 8)$ $ $114,843 $114,843 
11


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
4.    Property and Equipment
The following table presents the composition of property and equipment, net (in thousands):

As of June 30,
2022
As of December 31,
2021
Lab equipment$13,121 $12,995 
Computer hardware, software and telephone148 148 
Furniture and fixtures230 221 
Leasehold improvements104 105 
Construction in progress843 681 
14,446 14,150 
Less accumulated depreciation(5,124)(3,920)
Property and equipment, net$9,322 $10,230 

Depreciation expense was $0.6 million for each of the three months ended June 30, 2022 and 2021, and $1.2 million and $1.1 million for the six months ended June 30, 2022 and 2021, respectively.
5.    Accrued Expenses and Other Current Liabilities
The following table presents the composition of accrued expenses and other current liabilities (in thousands):
As of June 30,
2022
As of December 31,
2021
Accrued clinical and related costs$8,093 $3,985 
Accrued compensation and related costs1,256 2,850 
Accrued final payment liability (Note 6)859  
Accrued interest22 38 
Current portion of operating lease liability430 475 
Accrued other2,226 1,005 
Accrued expenses and other current liabilities$12,886 $8,353 
6.    Debt
In March 2019, the Company entered into a loan (the "2019 Loan") with Silicon Valley Bank ("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”), and 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%, followed by an amortization period of 33 months of equal monthly payments of principal plus interest until paid in full. In addition to and not in substitution for the Company’s regular monthly payments of principal plus accrued interest, the Company is required to make a final payment equal to 6% of the aggregate principal amount of the advances (“Final Payment”) on the maturity date.
Upon execution of the 2019 Loan and the draw of Tranche 1, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 37,606 shares of common stock with an exercise price of $4.73 per share. In May 2019, upon the draw of Tranche 2, the Company issued to SVB and WestRiver warrants to purchase an aggregate of 12,130 shares of common stock with an exercise price of $10.86 per share. In October 2019, upon the draw of Tranche 3, the Company issued to SVB and
12


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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.
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 was in compliance with all covenants under the 2019 Loan as of June 30, 2022.
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. The balance of the Final Payment liability was $0.9 million as of June 30, 2022 and is included in accrued expenses and other current liabilities on the condensed balance sheet as of June 30, 2022, and was included in other long-term liabilities on the balance sheet as of December 31, 2021. The debt discount and the Final Payment liability are being amortized to interest expense over the term of the 2019 Loan using the effective-interest method. Interest expense, including amortization of the debt discount related to the term debt and the Final Payment liability, totaled $0.1 million and $0.3 million for the three months ended June 30, 2022 and 2021, respectively, and $0.3 million and $0.5 million for the six months ended June 30, 2022 and 2021, respectively.
The following table sets forth by year the Company’s required future principal payments as of June 30, 2022 (in thousands):
Years Ending December 31,
2022 (remaining six months)$2,727 
20231,364 
Total principal payments4,091 
Less unamortized loan fees(18)
Total term loan borrowings$4,073 
7.    Deferred Sublicense Revenue

In June 2021, the Company entered into the Alfasigma Sublicense with Alfasigma, under which the Company granted to Alfasigma exclusive rights to develop, use, sell, have sold, offer for sale and import any product composed of or containing bentracimab (the "Licensed Products") in the European Union and European Economic Area, as well as the United Kingdom, Russia, Ukraine and certain other countries within the Commonwealth of Independent States, Europe and central Asia, (the "Sublicense Territory"). Under the terms of the Alfasigma Sublicense, the Company received a $20.0 million upfront payment from Alfasigma in July 2021 and will be eligible to receive up to $35.0 million upon the achievement of certain pre-revenue regulatory milestones, up to $190.0 million upon the achievement of certain commercial milestones and tiered royalty payments based on net sales, with percentages starting in the low double digits and escalating to the mid-twenties. Also, as part of the overall arrangement, the Company has agreed to supply the Licensed Products to Alfasigma at the lower of cost or a price not to exceed certain agreed amounts.
Under the Alfasigma Sublicense, the Company is responsible for developing the Licensed Products and securing regulatory approval with the European Medicines Agency (the “EMA”), and the Medicines and Healthcare products Regulatory Agency (the “MHRA”), including in accordance with the SFJ Agreement, after which any marketing authorizations will be assigned to Alfasigma. Alfasigma is obligated to obtain and maintain any regulatory approvals necessary to market and sell the Licensed Products (including pricing approvals and post-marketing commitments) and is also responsible for securing regulatory approval in the countries within the Sublicense Territory outside of the European Union and the United Kingdom.
The Company first assessed the Alfasigma Sublicense under ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether the Alfasigma Sublicense or units of accounts within the Alfasigma Sublicense represent a collaborative arrangement based on the risks and rewards and activities of the parties. The Company concluded that Alfasigma represented a customer and applied relevant guidance from ASC 606, Revenue from Contracts with Customers (“ASC 606”) to evaluate the appropriate accounting under the Alfasigma Sublicense. In accordance with this guidance, the Company identified the following commitments under the arrangement: (i) exclusive sublicense rights to develop, use, sell, have sold, offer for sale and import Licensed Products (the “License”); (ii) development and regulatory activities (“Development and Regulatory Activities”); and (iii) the requirement to supply Alfasigma with the Licensed Product at the lower of cost or a price not to exceed certain agreed amounts (the “Supply of Licensed Product”). The Company determined that these three commitments represent distinct
13


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
performance obligations for purposes of recognizing revenue and will recognize revenue as it fulfills these performance obligations.
The Company determined that the upfront payment of $20.0 million constitutes the transaction price as of the outset of the Alfasigma Sublicense. Future potential regulatory and development milestone payments were fully constrained as the risk of significant revenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestones is not within the Company’s control and is subject to certain research and development success or regulatory approvals and therefore carry significant uncertainty. The Company will reevaluate the likelihood of achieving these milestones at the end of each reporting period and adjust the transaction price in the period the risk is resolved. In addition, the Company will recognize any consideration related to sales-based milestones and royalties when the subsequent sales occur since those payments relate primarily to the License, which was delivered by the Company to Alfasigma upon entering into the Alfasigma Sublicense.
The transaction price was allocated to the three performance obligations based on the estimated stand-alone selling prices at contract inception. The stand-alone selling price of the License was based on a discounted cash flow approach and considered several factors including, but not limited to, discount rate, development timeline, regulatory risks, estimated market demand and future revenue potential using an adjusted market approach. The stand-alone selling price of the Development and Regulatory Activities and the Supply of Licensed Product was estimated using the expected cost-plus margin approach. The Company allocated the upfront portion of the transaction price to the performance obligations as of June 30, 2022 as follows (in thousands):
Transaction PriceCumulative Sublicense Revenue RecognizedDeferred Sublicense Revenue
License$10,223 $10,223 $ 
Development and Regulatory Services2,647 934 1,713 
Supply of License Product7,130  7,130 
$20,000 $11,157 8,843 
Less current portion of long-term deferred sublicense revenue(1,400)
Total long-term deferred sublicense revenue$7,443 

The Company reevaluates the transaction price and the total estimated costs expected to be incurred to satisfy the performance obligations and adjusts the deferred sublicense revenue at the end of each reporting period. Such changes will result in a change to the amount of sublicense revenue recognized and deferred sublicense revenue.
8.    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 has primary responsibility for clinical development and regulatory activities for bentracimab in the United States and the European Union, while SFJ has primary responsibility for clinical development and regulatory activities for bentracimab in China and Japan and provides clinical trials operational support in the European Union.
In addition to the $90.0 million of initial funding, the Company has elected to receive an additional $30.0 million of funding having met specific, pre-defined clinical development milestones for bentracimab. From the inception of the SFJ Agreement through June 30, 2022, SFJ has provided funding and paid for amounts on the Company's behalf in the aggregate amount of $99.0 million under the SFJ Agreement. The Company also expects that SFJ will fund or reimburse an additional $21.0 million of clinical trial costs and other expenses.
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 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
14


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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 a warrant to purchase an aggregate of 2,200,000 shares of common stock at an exercise price of $6.50 per share with a contractual term of ten years. The warrant is exercisable in two tranches: Tranche A and Tranche B. Tranche A represents warrants for 1,100,000 shares that are immediately exercisable by SFJ. Tranche B represents warrants for 1,100,000 shares that are exercisable at the earlier of (i) the achievement of certain development milestones or (ii) the consummation of an Acquisition, as defined in the SFJ Agreement. The warrants are equity-classified and were valued at $7.9 million at issuance using a probability adjusted Black-Scholes valuation technique.
The Company accounts for the SFJ Agreement as a derivative instrument that increases and decreases as consideration is received and repayments are made, respectively. The derivative is further adjusted at each reporting period to its estimated fair value. At June 30, 2022, 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 statement of operations. The liability was initially recorded at a value of $2.1 million, which incorporates the $10.0 million upfront payment from SFJ and the issuance of the Company's common stock warrants to SFJ. During the six months ended June 30, 2022 and 2021, SFJ provided additional funding and paid for amounts on the Company's behalf in the aggregate amount of $7.7 million and $30.4 million, respectively, and the development derivative liability was subsequently remeasured at June 30, 2022, as a Level 3 derivative. The change in fair value resulted in a $8.7 million gain and a $5.8 million loss for the three months ended June 30, 2022 and 2021, respectively, and a $16.0 million gain and $7.2 million loss for the six months ended June 30, 2022 and 2021, respectively, from remeasurement of development derivative liability on the statement of operations.
The development derivative liability is valued using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The valuation method incorporates certain unobservable Level 3 key inputs including (i) the probability and timing of funding, (ii) the probability and timing of achieving regulatory approvals, (iii) the Company's cost of borrowing (16.00% plus the risk free borrowing rate) and (iv) SFJ's cost of borrowing (2.50% plus the risk free borrowing rate).
The following table presents activity for the development derivative liability during the six months ended June 30, 2022 (in thousands):
Development
Derivative
Liability
Balance at December 31, 2021$114,843 
Funding during the period
7,682 
Change in fair value(15,952)
Balance at June 30, 2022$106,573 
9.    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.
10.    Leases
15


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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 September 2023, with an option to extend the lease for an additional three years. This lease contains escalating rent payments. In December 2018, the Company entered into a lease for office space in San Diego, California, which expires in October 2022. In June 2020, the Company entered into a lease for additional office space in Malvern, Pennsylvania, which expires in September 2023. As of June 30, 2022, the weighted average remaining lease term for the Company’s leases was 3.6 years, and the weighted average discount rate used to determine the right-of-use assets and corresponding operating lease liabilities was 6.0%.
Maturities of operating lease liabilities as of June 30, 2022 are as follows (in thousands):

Year Ending December 31,
2022 (remaining six months)$266 
2023416 
2024278 
2025283 
2026215 
Total future minimum lease payments
1,458 
Less present value adjustments(160)
Operating lease liabilities
$1,298 

The Company recognizes rent expense for the operating leases on a straight-line basis. Rent expense was $0.2 million and $0.4 million for the three and six months ended June 30, 2022 and 2021, respectively.
11.    Stockholders’ Equity
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, which expires in January 2023, 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. The $60.0 million of common stock that may be issued and sold under the ATM Program is included in the $200.0 million of securities that may be issued and sold under the 2019 Shelf Registration Statement. As of June 30, 2022, the Company has $130.6 million of common stock remaining that can be sold under the 2019 Shelf Registration Statement, of which $55.0 million may be sold under the ATM Program.
Shares Sold Under the ATM Program
The Company sold 854,677 shares for net proceeds of $0.7 million during the three months ended June 30, 2022, and 1,354,677 shares for net proceeds of $1.9 million during the six months ended June 30, 2022 and did not sell any shares of common stock pursuant to the ATM Program during the three and six months ended June 30, 2021. As of June 30, 2022, the Company has sold 1,916,525 shares of common stock pursuant to the ATM Program for net proceeds of $4.9 million.
March 2021 Offering
In March 2021, pursuant to the 2019 Shelf Registration Statement, the Company completed an underwritten public offering of its common stock, which resulted in the issuance and sale of an aggregate of 18,400,000 shares of common stock at a public offering price of $3.50 per share, generating net proceeds of $60.2 million, after deducting underwriting discounts and commissions and other offering costs.
16


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
12.    Stock-Based Compensation
Stock-based compensation expense has been reported in the Company’s condensed statements of operations as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
General and administrative
$500 $510 $943 $984 
Research and development
215 219 369 414 
Total stock-based compensation
$715 $729 $1,312 $1,398 

As of June 30, 2022, the total unrecognized compensation expense related to unvested employee and non-employee stock option awards was $4.4 million, which is expected to be recognized in expense over a weighted-average period of 2.6 years. As of June 30, 2022, the total unrecognized compensation expense related to unvested employee and non-employee restricted stock units was $0.3 million, which is expected to be recognized in expense over a weighted-average period of 2.6 years. These amounts include grants of stock options and restricted stock units made under the 2018 Equity Incentive Plan and the 2022 Inducement Plan, which was established on January 14, 2022.
In October 2018, the Company's board of directors and stockholders approved the ESPP, which became effective on October 17, 2018. The ESPP is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code for U.S. employees.
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 the Company's 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 $0.1 million for the three months ended June 30, 2022 and 2021 and $0.2 million and $0.1 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the Company issued 513,864 shares of common stock under the ESPP.
As of June 30, 2022, the total unrecognized compensation expense related to the ESPP was $0.5 million, which is expected to be recognized over a weighted-average period of approximately 1.3 years.

13.    License and Other Agreements
MedImmune Limited License Agreement
In November 2017, the Company entered into a license agreement (“MedImmune License”) with MedImmune Limited (“MedImmune”). MedImmune is a wholly-owned subsidiary of AstraZeneca plc (“AstraZeneca”). Pursuant to the terms of the MedImmune License, MedImmune granted the Company exclusive global rights for the purpose of developing and commercializing products under the MedImmune License (“MedImmune licensed product”). The Company has made contingent milestone payments of $3.0 million and is obligated to make remaining 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 each of the three and six months ended June 30, 2022 and 2021.
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 each of the three and six months ended June 30, 2022 and 2021. AstraZeneca is a stockholder of the Company.
17


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
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 2030. The Company is required to apply for, prosecute and maintain all United States and foreign patent rights under the Duke License.
The Company is obligated to pay up to $2.2 million upon the achievement of clinical development and regulatory milestones and up to $0.4 million upon the achievement of commercial milestones. The Duke License may be terminated by Duke if the Company fails to meet certain clinical development and regulatory milestones within specified timeframes. As of June 30, 2022, the Company was in compliance with its development obligations.
The Company is required to use commercially reasonable efforts to develop one or more products or processes and introduce them into commercial markets. Duke will receive low single-digit royalty percentages on net sales of Duke licensed products by the Company or its sublicensee, with minimum aggregate royalties of $0.2 million payable following the Company’s achievement of certain commercial milestones. No sales of Duke licensed products or services have occurred since the effective date through June 30, 2022.
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 non-royalty 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 each of the three and six months ended June 30, 2022 and 2021.
Alfasigma Sublicense
In June 2021, the Company entered into the Alfasigma Sublicense with Alfasigma under which the Company granted to Alfasigma exclusive rights to develop, use, sell, have sold, offer for sale and import the Licensed Products in the Sublicense Territory. Under the terms of the Alfasigma Sublicense, in July 2021, the Company received a $20.0 million upfront payment from Alfasigma and will be eligible to receive up to $35.0 million upon the achievement of certain pre-revenue regulatory milestones, up to $190.0 million upon the achievement of certain commercial milestones and tiered royalty payments on net sales, with percentages starting in the low double digits and escalating to the mid-twenties.
With respect to the up to $35.0 million of regulatory milestone payments: (i) $10.0 million is payable following acceptance by the EMA of the filing of the first drug approval application for a Licensed Product; (ii) $12.5 million is payable following achievement of conditional regulatory approval from the EMA; and (iii) the remaining $12.5 million is payable following achievement of unconditional regulatory approval from the EMA allowing for prescribing of a Licensed Product for the reversal of the antiplatelet effects of ticagrelor in both (a) patients with uncontrolled major or life-threatening bleeding and (b) patients requiring urgent surgery or an invasive procedure.
Under the Alfasigma Sublicense, the Company is responsible for developing the Licensed Products and securing regulatory approval with the EMA and the MHRA, including in accordance with the SFJ Agreement, after which any marketing authorizations will be assigned to Alfasigma. Alfasigma is obligated to obtain and maintain any regulatory approvals necessary to market and sell the Licensed Products (including pricing approvals and post-marketing commitments) and is also responsible for securing regulatory approval in countries outside of Europe and the United Kingdom. Alfasigma will purchase its requirements from the Company for a set period, after which the Company is obligated to supply a lesser amount of Alfasigma's requirements, for Licensed Product at the lower of cost or a price not to exceed certain agreed amounts.
Unless earlier terminated, the Alfasigma Sublicense automatically expires, with respect to each Licensed Product and each country in the Sublicense Territory, on the latest of (1) the tenth anniversary of the first commercial sale of such Licensed Product in such country, (2) the expiration of the last out-licensed patent of such Licensed Product in such country and (3) the expiration of regulatory exclusivity, if any, of such Licensed Product in such country.
18


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
In connection with the Alfasigma Sublicense, the Company and Alfasigma also entered into an Acknowledgement of Grant of Sublicense with MedImmune (the “Acknowledgement of Grant”), which provides for, among other things, (i) a potential assignment of the Alfasigma Sublicense from the Company to MedImmune or (ii) a potential assignment of the Medimmune License from the Company to Alfasigma, in either case in the event that the Company breaches certain obligations under the Medimmune License that are not cured or remedied and SFJ has grounds to execute a “Program Transfer” (as defined in the SFJ Agreement) but elects not to do so. The Company recognized $0.2 million and $10.3 million in revenue under the Alfasigma Sublicense for the three months ended June 30, 2022 and 2021, respectively, and $0.3 million and $10.3 million revenue under the Alfasigma Sublicense for the six months ended June 30, 2022 and 2021, 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 completed a technology transfer of its current manufacturing process for bentracimab from Wacker to BioVectra Inc. (“BioVectra”), another manufacturer certified for good manufacturing practices (“cGMP”), and has engaged BioVectra to manufacture drug substance for the Company’s ongoing clinical trials and to manufacture commercial supply of bentracimab following regulatory approval, if obtained. The Company incurred $0.1 million in costs for each of the three months ended June 30, 2022 and 2021, and $0.2 million in costs under the Wacker License Agreement for each of the six months ended June 30, 2022 and 2021.
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 no costs under the PB6440 Agreement for each of the three and six months ended June 30, 2022 and 2021.
BioVectra Supply Agreement
In March 2021, the Company entered into a supply agreement with BioVectra (the "BioVectra Agreement") for the manufacture and supply by BioVectra of bulk drug substance for bentracimab for commercial distribution following regulatory approval, if obtained. The Company has also engaged BioVectra to manufacture drug substance for the Company's ongoing clinical trials.
Under the terms of the BioVectra Agreement, BioVectra has committed to maintaining capacity to manufacture an agreed number of batches of product each year for commercial distribution, and the Company has committed to purchase a specified minimum number of batches of product per year (the "Minimum Annual Commitment"), although it is free to contract with third parties for the manufacture of bentracimab. The Company will pay a supply price per batch of bentracimab to be determined after the manufacturing process for the bentracimab is validated in accordance with the BioVectra Agreement, plus the cost of certain consumables, raw materials, and third-party testing.
19


PhaseBio Pharmaceuticals, Inc.
Notes to Condensed Financial Statements
(unaudited)
Pursuant to the Minimum Annual Commitments, the Company is obligated to purchase a minimum of (i) approximately $14.0 million of batches of bentracimab in years 2022 through 2023, (ii) approximately $37.0 million of batches of bentracimab in 2024, and (iii) approximately $48.0 million of batches of bentracimab in each of years 2025 through 2031. In the event the Company does not purchase the applicable Minimum Annual Commitment in a given year, it will be obligated to make a payment to BioVectra in an amount equal to the then-applicable supply price per batch multiplied by the difference between the Minimum Annual Commitment for such year and the number of batches of product it actually purchased in such year, except in the event that BioVectra was unable to deliver the number of batches ordered by the Company in such year. The Company will have the right to reduce the Minimum Annual Commitments for the year 2026 and subsequent years by up to a specified maximum percentage per year. Further, if the Company is only able to obtain regulatory approval for products incorporating bentracimab in only one of the United States or Europe, BioVectra and the Company have agreed to discuss in good faith an amendment to the BioVectra Agreement to reflect decreased requirements for product and impacts to the supply price to reflect lower volume commitments. The Company incurred $7.4 million in costs under the BioVectra Agreement in each of the three and six months ended June 30, 2022. The Company did not incur any costs under the BioVectra Agreement in the three and six months ended June 30, 2021.
14.    Revenue
Sublicense revenue
Sublicense revenue relates to the revenue that the Company recognized in relation to the Alfasigma Sublicense. The Company recognized sublicense revenue of $0.2 million and $10.3 million in the three months ended June 30, 2022 and 2021, respectively, and $0.3 million and $10.3 million in the six months ended June 30, 2022 and 2021, respectively.
15.    Related Party Transactions
As described above in Note 13, 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 our audited financial statements and notes thereto as of and for the periods ended December 31, 2021 and 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 24, 2022 (the "Annual Report on Form 10-K"). Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to PhaseBio Pharmaceuticals, Inc.
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,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “target,” “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. 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, except as required by law.
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies for cardiovascular diseases. Our lead product candidate, bentracimab (also known as PB2452), is a novel reversal agent for the antiplatelet drug ticagrelor. Bentracimab has been generally well tolerated in our completed trials, with no drug-related serious adverse events, or SAEs. In our completed Phase 2a and Phase 2b clinical trials 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. We are currently conducting our pivotal Phase 3 REVERSE-IT trial of bentracimab in patients who present with uncontrolled major or life-threatening bleeding or who require urgent surgery or invasive procedure. In a prespecified interim analysis of 150 enrolled patients (142 of whom enrolled required urgent surgery or an invasive procedure and eight of whom enrolled with uncontrolled major or life-threatening bleeding), bentracimab achieved the primary endpoint of the trial by immediately and sustainably reversing the antiplatelet effects of ticagrelor. 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. We are also developing our preclinical product candidate, PB6440, for treatment-resistant hypertension. Except for the rights that we granted to Alfasigma S.p.A., or Alfasigma, for bentracimab, we retain worldwide commercial rights to all of our product candidates.
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 to treat patients who present with uncontrolled bleeding or require surgery. We are targeting to submit a Biologics License Application, or BLA, to the FDA for bentracimab in the fourth quarter of 2022, although this timing could be impacted by the continued scope and duration of the COVID-19 pandemic. During our Type B pre-BLA meeting, the FDA agreed that our plans to submit a BLA with data from 25 to 30 patients with uncontrolled bleeding, together with data from the fully completed surgical cohort, in the REVERSE-IT trial appeared reasonable to support both bleeding and surgical indications for bentracimab. To date, and subject to final adjudication, the REVERSE-IT trial has enrolled more than 35 patients taking ticagrelor who experienced uncontrolled bleeding events. The FDA confirmed its prior recommendation that we complete enrollment in the REVERSE-IT trial following accelerated approval and we plan to continue to enroll bleeding patients in the trial to complete that requirement. The FDA also previously recommended that we establish a post-approval registry study that will be active ahead of a product launch following potential accelerated approval. The FDA also noted that, if during the review process our BLA application was deemed adequate to support approval for only one of the two requested indications, the FDA would consider separating and allowing for possible accelerated approval of only one of the two indications.
21


The FDA has indicated that whether the data from the surgery or uncontrolled bleeding patient populations is adequate to support both indications would be a review issue based on the data submitted.
In addition, our IND for bentracimab was approved by the Center for Drug Evaluation, or CDE, of the China National Medical Products Administration, or NMPA, in August 2021. We recently activated our first site and expect to begin enrolling patients in China throughout 2022, although this timing could be impacted by the scope and duration of the COVID-19 pandemic.
We initiated IND-enabling studies for PB6440 in 2021 and we plan to submit an IND in the first half of 2023. We are also targeting to begin a first-in-human trial in mid-2023, although our timelines could be impacted by the scope and duration of the COVID-19 pandemic.
As we advance our clinical programs for bentracimab 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 and its variants 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 or our ability to develop PB6440.
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, our term loans with Silicon Valley Bank, or SVB, and WestRiver Innovation Lending Fund VIII, L.P., or WestRiver, funds we have received under the SFJ Agreement and funds we have received pursuant to the Alfasigma Sublicense.
Since our inception, we have incurred significant operating losses. Our net loss was $27.8 million for the six months ended June 30, 2022. As of June 30, 2022, we had an accumulated deficit of $419.6 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, as well as initiate and complete additional clinical trials, as needed;
seek to expand our geographical reach through the SFJ Agreement and the Alfasigma Sublicense and the corresponding clinical development support fees and milestone payments that we will incur or may receive;
pursue regulatory approvals for bentracimab as a reversal agent for the antiplatelet drug ticagrelor;
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;
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.
FINANCIAL OVERVIEW
Components of Results of Operations
Revenue
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    Sublicense Revenue
Sublicense revenue relates to the revenue we recognized in relation to the Alfasigma Sublicense, which contains multiple components including (i) sublicenses; (ii) research and development activities; and (iii) the manufacturing and supply of certain materials. Payments pursuant to this arrangement include a non-refundable, upfront payment, milestone payments upon the achievement of significant regulatory and development events, sales of product at certain agreed-upon amounts, sales milestones and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.
In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the sublicense agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations and (v) recognition of revenue as we satisfy each performance obligation.
Operating Expenses
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;
expenses relating to regulatory activities; and
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 continue to be a significant and increasing cost over the next several years as we increase personnel costs, including stock-based compensation, conduct our later-stage clinical trials for bentracimab, develop PB6440, conduct other preclinical studies and clinical trials, prepare regulatory filings and, if we receive regulatory approval for one or more product candidates, prepare for commercialization efforts. After a strategic review, we decided to stop development of pemziviptadil for the treatment of pulmonary arterial hypertension, or PAH, in order to reprioritize resources and capital towards pre-commercialization activities for bentracimab and the advancement of other pipeline programs, including PB6440 for resistant hypertension.
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 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 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;
the number of doses patients receive;
any side effects associated with our product candidates;
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the impacts of the COVID-19 pandemic on our ability to initiate trial sites, enroll and assess patients, supply study drug and report trial results;
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 expect that general and administrative expenses will increase over the next several years to support our continued research and development activities of our current and future product candidates, manufacturing activities, potential commercialization of bentracimab and the increased costs operating as a public company. 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.
Other Income (Expense)
Gain/(Loss) From Remeasurement of Development Derivative Liability
Gain/(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 Income
Interest income consists of interest income from funds held in our cash and cash equivalent accounts.
Interest Expense
Interest expense consists of interest expense 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 June 30, 2022; 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 offers an
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option for third-party product storage costs. From the inception of the MedImmune License through June 30, 2022, we have incurred costs of $3.6 million under the MedImmune License.
Co-Development Agreement with SFJ Pharmaceuticals
In January 2020, we entered into an agreement with SFJ Pharmaceuticals, or the SFJ Agreement, pursuant to which SFJ provides 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. In addition to the $90.0 million of initial funding, we have elected to receive an additional $30.0 million of funding having met specific, pre-defined clinical development milestones for bentracimab. From the inception of the SFJ Agreement through June 30, 2022, SFJ has provided funding and paid for amounts on our behalf in the aggregate amount of $99.0 million under the SFJ Agreement. We also expect that SFJ will fund or reimburse an additional $21.0 million of clinical trial costs and other expenses. During the term of the SFJ Agreement, we have primary responsibility for clinical development and regulatory activities for bentracimab in the United States and the European Union, while SFJ has 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 the equivalent of a BLA, known as a Marketing Authorization Application, or MAA, 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 China NMPA 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 or MAA 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 or MAA 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 or MAA 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 with Duke University, or Duke, which was most recently amended in April 2019, or the Duke License. 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 non-royalty payments we receive, subject to certain conditions.
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From the inception of the Duke License through June 30, 2022, we have incurred royalty costs of $0.3 million under the Duke License. We are also required to apply for, prosecute and maintain all U.S. and foreign patent rights under the Duke License.
Alfasigma Sublicense Agreement
In June 2021, we entered into the Alfasigma Sublicense, with Alfasigma, under which we granted to Alfasigma exclusive rights to develop, use, sell, have sold, offer for sale and import any product composed of or containing bentracimab, or Licensed Products, in the Sublicense Territory. Under the terms of the Alfasigma Sublicense, in July 2021, we received a $20.0 million upfront payment from Alfasigma and we will be eligible to receive up to $35.0 million upon the achievement of certain pre-revenue regulatory milestones, up to $190.0 million upon the achievement of certain commercial milestones and tiered royalty payments on net sales, with percentages starting in the low double digits and escalating to the mid-twenties.
With respect to the up to $35.0 million of regulatory milestone payments: (i) $10.0 million is payable following acceptance by the EMA of the filing of the first drug approval application for a Licensed Product; (ii) $12.5 million is payable following achievement of conditional regulatory approval from the EMA; and (iii) the remaining $12.5 million is payable following achievement of unconditional regulatory approval from the EMA allowing for prescribing of a Licensed Product for the reversal of the antiplatelet effects of ticagrelor in both (a) patients with uncontrolled major or life-threatening bleeding and (b) patients requiring urgent surgery or an invasive procedure.
Under the Alfasigma Sublicense, we are responsible for developing the Licensed Products and securing regulatory approval with the EMA and the MHRA, including in accordance with the SFJ Agreement, after which any marketing authorizations will be assigned to Alfasigma. Alfasigma is obligated to obtain and maintain any regulatory approvals necessary to market and sell the Licensed Products (including pricing approvals and post-marketing commitments) and is also responsible for securing regulatory approval in countries outside of Europe and the United Kingdom. We have also agreed to provide Licensed Products to Alfasigma at the lower of cost or a price not to exceed certain agreed amounts. We recognized $0.2 million and $10.3 million in revenue under the Alfasigma Sublicense for the three months ended June 30, 2022 and 2021, respectively, and $0.3 million and $10.3 million for the six months ended June 30, 2022 and 2021, respectively.
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 completed a technology transfer of our current manufacturing process for bentracimab from Wacker to BioVectra Inc., or BioVectra, another cGMP manufacturer, and have engaged BioVectra to manufacture drug substance for our ongoing clinical trials and to manufacture commercial supply of bentracimab following regulatory approval, if obtained. From the inception of the Wacker License Agreement through June 30, 2022, we have incurred $1.1 million in costs.
Viamet Asset Purchase Agreement
In January 2020, we entered into a purchase agreement, or 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, the 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. From the inception of the PB6440 Agreement through June 30, 2022, we have incurred $0.1 million in costs under the PB6440 Agreement.
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BioVectra Supply Agreement
In March 2021, we entered into a supply agreement with BioVectra, or the BioVectra Agreement, for the manufacture and supply by BioVectra of bulk drug substance for bentracimab for commercial distribution following regulatory approval, if obtained. We have also engaged BioVectra to manufacture drug substance for our ongoing clinical trials.
Under the terms of the BioVectra Agreement, BioVectra has committed to maintaining capacity to manufacture an agreed number of batches of product each year for commercial distribution, and we have committed to purchase a specified minimum number of batches of product per year, or the Minimum Annual Commitment, although we are free to contract with third parties for the manufacture of bentracimab. We will pay a supply price per batch of bentracimab to be determined after the manufacturing process for bentracimab is validated in accordance with the BioVectra Agreement, plus the cost of certain consumables, raw materials, and third-party testing.
Pursuant to the Minimum Annual Commitments, we are obligated to purchase a minimum of (i) approximately $14.0 million of batches of bentracimab in years 2022 through 2023, (ii) approximately $37.0 million of batches of bentracimab in 2024, and (iii) approximately $48.0 million of batches of bentracimab in each of years 2025 through 2031. In the event we do not purchase the applicable Minimum Annual Commitment in a given year, we will be obligated to make a payment to BioVectra in an amount equal to the then-applicable supply price per batch multiplied by the difference between the Minimum Annual Commitment for such year and the number of batches of bentracimab we actually purchased in such year, or the Minimum Shortfall Payment, except in the event that BioVectra was unable to deliver the number of batches ordered by us in such year. In the event of certain serious or extended failures by BioVectra to supply product in the quantities ordered by us in a given year, our Minimum Annual Commitment for such year (and potentially one or more subsequent years) will be subject to reduction, and our obligation to make a Minimum Shortfall Payment for such year (and potentially one or more subsequent years) will be waived. We will have the right to reduce the Minimum Annual Commitments for the year 2026 and subsequent years by up to a specified maximum percentage per year. Further, if we are only able to obtain regulatory approval for products incorporating bentracimab in only one of the U.S. or Europe, BioVectra and we have agreed to discuss in good faith an amendment to the BioVectra Agreement to reflect decreased requirements for product and impacts to the supply price to reflect lower volume commitments. We incurred $7.4 million in costs under the BioVectra Agreement in each of the three and six months ended June 30, 2022. We did not incur any costs under the BioVectra Agreement in the three and six months ended June 30, 2021.
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Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations (in thousands):

Three Months Ended June 30,
Change
20222021
Revenue:
Sublicense revenue$208 $10,338 $(10,130)
Total revenue208 10,338 (10,130)
Operating expenses:
Research and development20,939 27,366 (6,427)
General and administrative4,581 4,025 556 
Total operating expenses25,520 31,391 (5,871)
Loss from operations(25,312)(21,053)(4,259)
Other income/(expense):
Gain/(loss) from remeasurement of development derivative liability8,719 (5,777)14,496 
Interest income17 12 
Interest expense(116)(254)138 
Foreign exchange gain27 — 27 
Total other income/(expense)8,647 (6,026)14,673 
Net loss before income taxes(16,665)(27,079)$10,414 
Provision for income taxes— 1,600 $(1,600)
Net loss$(16,665)$(28,679)$12,014 
Sublicense Revenue
Sublicense revenue was $0.2 million for the three months ended June 30, 2022, compared to $10.3 million for the three months ended June 30, 2021. The decrease was attributable to the revenue we recognized from the initial payment pursuant to the Alfasigma Sublicense in July 2021.
Research and Development Expense
Research and development expense was $20.9 million for the three months ended June 30, 2022, compared to $27.4 million for the three months ended June 30, 2021. The decrease of $6.4 million was primarily attributable to drug manufacturing activity in 2021, study site startup costs for the Phase 2b trial related to bentracimab in 2021, and the voluntary ending of the Phase 2b trial of pemziviptadil in the fourth quarter of 2021, partially offset by an increase in costs related to development of PB6440, and personnel costs and other costs associated with our general research and development efforts.
The following table summarizes our research and development expenses by functional area (in thousands):
Three Months Ended June 30,
Change
20222021
Preclinical and clinical development$17,145 $24,079 $(6,934)
Compensation and related benefits2,053 1,843 210 
Stock-based compensation215 219 (4)
Facilities expense413 399 14 
Other1,113 826 287 
Total research and development expenses$20,939 $27,366 $(6,427)
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The following table summarizes our research and development expenses by product candidate (in thousands):
Three Months Ended June 30,
Change
20222021
External research and development expense by program:
Bentracimab$14,772 $21,564 $(6,792)
Pemziviptadil365 2,218 (1,853)
Unallocated research and development expense:
Compensation and stock-based compensation2,268 2,062 206 
Other research and development3,534 1,522 2,012 
Total research and development expenses$20,939 $27,366 $(6,427)
We have ceased development of pemziviptadil and are reprioritizing resources and capital towards pre-commercialization activities of bentracimab and the advancement of other pipeline programs, including PB6440 for resistant hypertension.
General and Administrative Expense
General and administrative expense was $4.6 million for the three months ended June 30, 2022, compared to $4.0 million for the three months ended June 30, 2021. The increase of $0.6 million was primarily attributable to increases in consulting costs and personnel expenses due to additional headcount as compared to the three months ended June 30, 2021.
Gain/(Loss) From Remeasurement of Development Derivative Liability
Gain from remeasurement of development derivative liability was $8.7 million for the three months ended June 30, 2022, compared to loss of $5.8 million for the three months ended June 30, 2021. This 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 is subsequently remeasured at the end of each quarter as a Level 3 derivative. The change is primarily related to the change in the risk-free interest rate offset by payments received from SFJ.
Interest Income
Interest income was $17,000 for the three months ended June 30, 2022, compared to $5,000 for the three months ended June 30, 2021. The increase of $12,000 was attributable to higher interest rates during partially offset by lower balances of cash and cash equivalents.
Interest Expense
Interest expense was $0.1 million for the three months ended June 30, 2022, compared to $0.3 million for the three months ended June 30, 2021. The decrease of $0.2 million was primarily attributable to lower outstanding borrowings on the 2019 Loan during the three months ended June 30, 2022. See "Note 6. Debt" to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for information concerning the 2019 Loan.
Foreign Exchange Gain
Foreign exchange gain was $27,000 for the three months ended June 30, 2022, compared to zero for the three months ended June 30, 2021. The increase was attributable to fluctuations in foreign exchange rates.
Provision for Income Taxes
Provision for income taxes was zero for the three months ended June 30, 2022, compared to $1.6 million for the three months ended June 30, 2021. The decrease was attributable to international withholding tax on the initial payment from Alfasigma made in 2021.
Comparison of the Six Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations (in thousands):
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Six Months Ended June 30,
Change
20222021
Revenue:
Sublicense revenue$325 $10,338 $(10,013)
Total revenue325 10,338 (10,013)
Operating expenses:
Research and development35,275 49,686 (14,411)
General and administrative8,590 7,352 1,238 
Total operating expenses43,865 57,038 (13,173)
Loss from operations(43,540)(46,700)3,160 
Other income/(expense):
Gain/(loss) from remeasurement of development derivative liability15,952 (7,203)23,155