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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021
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: 001-35006 
https://cdn.kscope.io/463f6198e25da2e435d6c1b3e9e83e66-sppi-20210930_g1.jpg
SPECTRUM PHARMACEUTICALS INC

(Exact name of registrant as specified in its charter)
Delaware93-0979187
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
11500 South Eastern AvenueSuite 220HendersonNevada89052
(Address of principal executive offices)(Zip Code)

(702) 835-6300
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueSPPIThe NASDAQ Global Select Market

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, a 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  
As of November 8, 2021, 163,956,341 shares of the registrant’s common stock were outstanding.



Table of Contents
Spectrum Pharmaceuticals, Inc.
Quarterly Report on Form 10-Q
For the Three and Nine Months Ended September 30, 2021
TABLE OF CONTENTS
ItemPage
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited):
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
.

SPECTRUM PHARMACEUTICALS, INC. ®, and ROLONTIS® are registered trademarks of Spectrum Pharmaceuticals, Inc. and its affiliates. REDEFINING CANCER CARE™ and the Spectrum Pharmaceuticals’ logos are trademarks owned by Spectrum Pharmaceuticals, Inc. Any other trademarks are the property of their respective owners.


2


Table of Contents
Part I: Financial Information

Item 1: Financial Statements

SPECTRUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
(Unaudited)
September 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$107,435 $46,009 
Marketable securities26,160 134,016 
Accounts receivable, net 67 
Other receivables3,863 2,394 
Prepaid expenses and other current assets2,540 4,161 
Total current assets139,998 186,647 
Property and equipment, net507 3,577 
Facility and equipment under lease2,881 2,247 
Other assets4,415 4,327 
Total assets$147,801 $196,798 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities$48,982 $43,771 
Accrued payroll and benefits8,290 9,375 
Total current liabilities57,272 53,146 
Other long-term liabilities11,065 9,409 
Total liabilities68,337 62,555 
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding
  
Common stock, $0.001 par value; 300,000,000 shares authorized; 163,957,900 and 146,083,110 issued and outstanding at September 30, 2021 and December 31, 2020, respectively
164 146 
Additional paid-in capital1,086,989 1,021,221 
Accumulated other comprehensive loss(3,481)(1,829)
Accumulated deficit(1,004,208)(885,295)
Total stockholders’ equity79,464 134,243 
Total liabilities and stockholders’ equity$147,801 $196,798 
See accompanying notes to these unaudited condensed consolidated financial statements.
3


Table of Contents
SPECTRUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Operating costs and expenses:
Selling, general and administrative$12,243 $15,116 $41,515 $44,654 
Research and development20,850 24,453 69,335 62,192 
Total operating costs and expenses33,093 39,569 110,850 106,846 
Loss from continuing operations before other income (expense) and income taxes(33,093)(39,569)(110,850)(106,846)
Other income (expense):
Interest income, net11 188 121 1,217 
Other income (expense), net9 (9,131)(7,948)(15,720)
Total other income (expense) 20 (8,943)(7,827)(14,503)
Loss from continuing operations before income taxes(33,073)(48,512)(118,677)(121,349)
Provision for income taxes from continuing operations (6)(9)(15)
Loss from continuing operations(33,073)(48,518)(118,686)(121,364)
Income (loss) from discontinued operations, net of income taxes(11)66 (227)255 
Net loss$(33,084)$(48,452)$(118,913)$(121,109)
Basic and diluted loss per share:
Loss from continuing operations$(0.21)$(0.37)$(0.77)$(1.02)
Income (loss) from discontinued operations$(0.00)$0.00 $(0.00)$0.00 
Net loss per share, basic and diluted$(0.21)$(0.37)$(0.78)$(1.02)
Weighted average shares outstanding, basic and diluted159,261,818 131,455,727 153,341,854 118,664,914 

See accompanying notes to these unaudited condensed consolidated financial statements.

4


Table of Contents
SPECTRUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net loss$(33,084)$(48,452)$(118,913)$(121,109)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of tax (1)73 (1,130)(61)
Foreign currency translation adjustments(153)457 (522)835 
Other comprehensive income (loss)(154)530 (1,652)774 
Total comprehensive loss$(33,238)$(47,922)$(120,565)$(120,335)
See accompanying notes to these unaudited condensed consolidated financial statements.

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Table of Contents

SPECTRUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)

Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Loss 
Accumulated DeficitTotal
Stockholders' Equity
SharesAmount
Balance as of December 31, 2020146,083,110 $146 $1,021,221 $(1,829)$(885,295)$134,243 
Net loss— — — — (35,697)(35,697)
Other comprehensive loss, net— — — (1,678)— (1,678)
Recognition of stock-based compensation expense— — 4,212 — — 4,212 
Issuance of common shares under an at-the-market sales agreement5,678,893 6 21,351 — — 21,357 
Restricted stock award grants, net of forfeitures1,966,333 2 — — — 2 
Balance as of March 31, 2021153,728,336 $154 $1,046,784 $(3,507)$(920,992)$122,439 
Net loss— — — — (50,132)(50,132)
Other comprehensive income, net— — — 180 — 180 
Recognition of stock-based compensation expense— — 4,360 — — 4,360 
Issuance of common shares under an at-the-market sales agreement10,172,498 10 31,255 — — 31,265 
Issuance of common stock upon exercise of stock options1,250 — 2 — — 2 
Issuance of common stock for employee stock purchase plan163,463 — 474 — — 474 
Restricted stock award grants, net of forfeitures39,127 — — — — — 
Issuance of common stock upon vesting of restricted stock units1,386 — — — — — 
Balance as of June 30, 2021164,106,060 $164 $1,082,875 $(3,327)$(971,124)$108,588 
Net loss— — — — (33,084)(33,084)
Other comprehensive income, net— — — (154)— (154)
Recognition of stock-based compensation expense— — 4,114 — — 4,114 
Restricted stock award grants, net of forfeitures(148,160)— — — — — 
Balance as of September 30, 2021163,957,900 $164 $1,086,989 $(3,481)$(1,004,208)$79,464 

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Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Loss 
Accumulated DeficitTotal
Stockholders' Equity
SharesAmount
Balance as of December 31, 2019113,299,612 $113 $918,205 $(3,498)$(724,427)$190,393 
Net loss— — — — (40,572)(40,572)
Other comprehensive loss, net— — — (1,329)— (1,329)
Recognition of stock-based compensation expense— — 5,010 — — 5,010 
Issuance of common stock to 401(k) plan for employees96,959 — 265 — — 265 
Restricted stock award grants, net of forfeitures1,377,508 1 — — — 1 
Balance as of March 31, 2020114,774,079 $114 $923,480 $(4,827)$(764,999)$153,768 
Net loss— — — — (32,085)(32,085)
Other comprehensive income, net— — — 1,573 — 1,573 
Recognition of stock-based compensation expense— — 3,988 — — 3,988 
Issuance of common shares under an at-the-market sales agreement 1,024,286 1 3,070 — — 3,071 
Issuance of common stock for employee stock purchase plan98,362 — 282 — — 282 
Restricted stock award grants, net of forfeitures1,926,385 3 (3)— — — 
Issuance of common stock upon vesting of restricted stock units861 — — — — — 
Balance as of June 30, 2020117,823,973 $118 $930,817 $(3,254)$(797,084)$130,597 
Net loss— — — — (48,452)(48,452)
Other comprehensive income, net— — — 530 — 530 
Recognition of stock-based compensation expense— — 4,108 — — 4,108 
Issuance of common stock from public offering, net24,916,667 25 69,708 — — 69,733 
Issuance of common shares pursuant to at-the-market offering, net2,926,112 3 11,828 — — 11,831 
Issuance of common stock upon exercise of stock options3,542 — 13 — — 13 
Restricted stock award grants, net of forfeitures260,878 — — — — — 
Balance as of September 30, 2020145,931,172 $146 $1,016,474 $(2,724)$(845,536)$168,360 

See accompanying notes to these unaudited condensed consolidated financial statements.
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SPECTRUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 Nine Months Ended
September 30,
 20212020
Cash Flows From Operating Activities:
Loss from continuing operations$(118,686)$(121,364)
Income (loss) from discontinued operations, net of income taxes(227)255 
Net loss(118,913)(121,109)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization212 (105)
Stock-based compensation 12,686 13,371 
Loss on disposal of manufacturing equipment3,057  
Non-cash lease expense1,151 1,148 
Other non-cash items281 585 
Realized gain on sale of equity holdings(4,580)(678)
Unrealized loss on equity holdings 12,816 16,029 
Changes in operating assets and liabilities:
Accounts receivable, net66 1 
Other receivables(1,391)6,370 
Prepaid expenses and other current assets1,620 (2,663)
Other assets(89)6 
Accounts payable and other accrued liabilities4,376 426 
Accrued payroll and benefits(1,085)427 
Other long-term liabilities654 (2,134)
Net cash used in operating activities(89,139)(88,326)
Cash Flows From Investing Activities:
Proceeds from maturities of investments109,771 94,929 
Proceeds from sale of equity holdings4,406 1,843 
Purchases of investments(16,568)(73,581)
Purchases of property and equipment, net(140)(6,991)
Net cash provided by investing activities97,469 16,200 
Cash Flows From Financing Activities:
Proceeds from sale of common stock, net of offering expenses 69,733 
Proceeds from sale of common stock under an at-the-market sales agreement, net52,622 14,902 
Proceeds from sale of stock under our employee stock purchase plan474 283 
Proceeds from employees for exercises of stock options4 13 
Net cash provided by financing activities53,100 84,931 
Effect of exchange rates on cash and cash equivalents(4)(91)
Net increase in cash and cash equivalents61,426 12,714 
Cash and cash equivalents—beginning of period46,009 64,418 
Cash and cash equivalents—end of period$107,435 $77,132 
Supplemental disclosure of cash flow information:
Cash paid for facility and equipment under operating leases$1,626 $1,805 
Cash paid for income taxes$12 $14 
Noncash investing activities:
Additions of property and equipment that remain in accounts payable and other accrued liabilities$ $6,017 

See accompanying notes to these unaudited condensed consolidated financial statements.
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Spectrum Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

Note 1. Description of Business, Basis of Presentation, And Operating Segment
(a) Description of Business
Spectrum Pharmaceuticals, Inc. (“Spectrum”, the “Company”, “we”, “our”, or “us”) is a biopharmaceutical company, with a primary strategy comprised of acquiring, developing, and commercializing novel and targeted oncology therapies. Our in-house development organization includes clinical development, regulatory, quality and data management.
We have three drugs in development:
ROLONTIS, a novel long-acting granulocyte colony-stimulating factor (“G-CSF”) for chemotherapy-induced neutropenia. We submitted a Biologics License Application (“BLA”) for ROLONTIS in December 2019, and in August 2021, we received a Complete Response Letter from the U.S. Food and Drug Administration (the “FDA”) regarding our Biologics License Application (“BLA”), citing deficiencies related to manufacturing and indicating that a reinspection will be necessary. We are currently working on remediating the manufacturing deficiencies and expect that this work will be complete in the fourth quarter of 2021 and plan to resubmit thereafter;

Poziotinib, a novel irreversible tyrosine kinase inhibitor under investigation for non-small cell lung cancer (“NSCLC”) tumors with various mutations. A New Drug Application (“NDA”) based on data from Cohort 2 of ZENITH20, which evaluated previously treated patients with NSCLC with HER2 exon 20 insertion mutation, is expected to be filed with the FDA in 2021; and

Anti-CD20-IFNα, an antibody-interferon fusion molecule directed against CD20 that is in Phase 1 development for treating relapsed or refractory non-Hodgkin’s lymphoma patients.
Our business strategy is the development of our late-stage assets through commercialization and the sourcing of additional assets that are synergistic with our existing portfolio (through purchase acquisitions, in-licensing transactions, or co-development and marketing arrangements).
(b) Basis of Presentation
Interim Financial Statements
The interim financial data for the three and nine months ended September 30, 2021 and 2020 is unaudited and is not necessarily indicative of our operating results for a full year. In the opinion of our management, the interim data includes normal and recurring adjustments necessary for a fair presentation of our financial results for the three and nine months ended September 30, 2021 and 2020. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the Securities and Exchange Commission (“SEC”) rules and regulations relating to interim financial statements. Certain prior period amounts have been reclassified for consistency with the current year presentation. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and Notes thereto included within our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (filed with the SEC on March 31, 2021).
Discontinued Operations - Sale of our Commercial Product Portfolio
In March 2019, we completed the sale of our seven then-commercialized drugs, including FUSILEV, KHAPZORY, FOLOTYN, ZEVALIN, MARQIBO, BELEODAQ, and EVOMELA (the “Commercial Product Portfolio”) to Acrotech Biopharma LLC (“Acrotech”) (the “Commercial Product Portfolio Transaction”). Upon closing, we received $158.8 million in
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

an upfront cash payment. We are also entitled to receive up to an aggregate of $140 million upon Acrotech's future achievement of certain regulatory milestones (totaling $40 million) and sales-based milestones (totaling $100 million) relating to the Commercial Product Portfolio.
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and with the rules and regulations of the SEC. These financial statements include the financial position, results of operations, and cash flows of Spectrum and its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions among these legal entities have been eliminated in consolidation. Substantially all of the accumulated other comprehensive loss is comprised of foreign currency translation adjustments at September 30, 2021.
Liquidity and Capital Resources
We believe that our $133.6 million in aggregate cash, cash equivalents and marketable securities as of September 30, 2021, are sufficient to fund our current and planned operations for at least the next twelve months. We may however, require additional liquidity as we continue to execute our business strategy, and in connection with opportunistic acquisitions or licensing arrangements. We anticipate that to the extent that we require additional liquidity, it will be funded through additional equity or debt financings, or out-licensing arrangements. However, we cannot provide assurance that we will be able to obtain this additional liquidity on terms favorable to us or our current stockholders, if at all. Additionally, our liquidity and our ability to fund our capital requirements are also dependent on our future financial performance which is subject to various market and economic factors that are beyond our control.
(c) Operating Segment
We operate one reportable operating segment that is focused exclusively on developing (and eventually marketing) oncology and hematology drug products. For the three and nine months ended September 30, 2021 and 2020, all of our revenues and operating costs and expenses were solely attributable to these activities (and as applicable, classified as “discontinued” within the accompanying Condensed Consolidated Statements of Operations).
Note 2. Summary of Significant Accounting Policies And Use of Estimates
The preparation of financial statements in conformity with GAAP requires our management to make informed estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses. These amounts may materially differ from the amounts ultimately realized and reported due to the inherent uncertainty of any estimate or assumption. On an on-going basis, our management evaluates (as applicable) its most critical estimates and assumptions, including those related to: (i) the realization of our tax assets and estimates of our tax liabilities; (ii) the fair value of our investments; (iii) the valuation of our stock options and the periodic expense recognition of stock-based compensation; and (iv) the potential outcome of our ongoing or threatened litigation.
Our accounting policies and estimates that most significantly impact the presented amounts within these Condensed Consolidated Financial Statements are further described below:
(i) Revenue Recognition
In March 2019, we completed the Commercial Product Portfolio Transaction. In accordance with applicable GAAP (ASC 205-20, Presentation of Financial Statements), the revenue-deriving activities of our sold commercial operation are separately classified as “discontinued” for all periods presented within the accompanying Condensed Consolidated Statements of Operations.
Required Elements of Our Revenue Recognition: Revenue from our (a) product sales, (b) out-license arrangements, and (c) service arrangements is recognized under Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”) in a manner that reasonably reflects the delivery of our goods and/or services to customers in return for expected consideration and includes the following elements:
(1)we ensure that we have an executed contract(s) with our customer that we believe is legally enforceable;
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

(2)we identify the “performance obligations” in the respective contract;
(3)we determine the “transaction price” for each performance obligation in the respective contract;
(4)we allocate the transaction price to each performance obligation; and
(5)we recognize revenue only when we satisfy each performance obligation.
    These five elements, as applied to each of our revenue categories, are summarized below:
(a) Product Sales: We sell our products to pharmaceutical wholesalers/distributors or to our product licensees (i.e., our customers). Our wholesalers/distributors in turn sell our products directly to clinics, hospitals, and private oncology-based practices. Revenue from our product sales is recognized as physical delivery of product occurs (when our customer obtains control of the product), in return for agreed-upon consideration.
Our gross product sales (i.e., delivered units multiplied by the contractual price per unit) are reduced by our corresponding gross-to-net (“GTN”) estimates using the “expected value” method, resulting in reported “product sales, net” that reflects the amount we ultimately expect to realize in net cash proceeds, taking into account our current period gross sales and related cash receipts, and the subsequent cash disbursements on these sales that we estimate for the various GTN categories discussed below. These estimates are based upon information received from external sources (such as written or oral information obtained from our customers with respect to their period-end inventory levels and sales to end-users during the period), in combination with management’s informed judgments. Due to the inherent uncertainty of these estimates, the actual amount incurred (of some, or all) of product returns, government chargebacks, prompt pay discounts, commercial rebates, Medicaid rebates, and distribution, data, and group purchasing organization (“GPO”) administrative fees may be materially above or below the amount estimated, then requiring prospective adjustments to our reported net product sales.
These GTN estimate categories (that comprise our GTN liabilities) are each discussed below:
Product Returns Allowances: Our customers are contractually permitted to return certain purchased products within the contractual allowable time before/after the applicable expiration date. Returns outside of this aforementioned criteria are not customarily allowed. We estimate expected product returns using our historical return rates. Returned product is typically destroyed since substantially all are due to imminent expiry and cannot be resold.
Government Chargebacks: Our products are subject to pricing limits under certain federal government programs (e.g., Medicare and 340B Drug Pricing Program). Qualifying entities (i.e., end-users) purchase products from our customers at their qualifying discounted price. The chargeback amount we incur represents the difference between our contractual sales price to our customer, and the end-user’s applicable discounted purchase price under the government program. There may be significant lag time between our reported net product sales and our receipt of the corresponding government chargeback claims from our customers.
Prompt Pay Discounts: Discounts for prompt payment are estimated at the time of sale, based on our eligible customers’ prompt payment history and the contractual discount percentage.
Commercial Rebates: Commercial rebates are based on (i) our estimates of end-user purchases through a GPO, (ii) the corresponding contractual rebate percentage tier we expect each GPO to achieve, and (iii) our estimates of the impact of any prospective rebate program changes made by us.
Medicaid Rebates: Our products are subject to state government-managed Medicaid programs, whereby rebates are issued to participating state governments. These rebates arise when a patient treated with our product is covered under Medicaid, resulting in a discounted price for our product under the applicable Medicaid program. Our Medicaid rebate accrual calculations require us to project the magnitude of our sales, by state, that will be subject to these rebates. There is a significant time lag in our receiving rebate notices from each state (generally several months or longer after our sale is recognized). Our estimates are based on our historical claim levels by state, as supplemented by management’s judgment.
Distribution, Data, and GPO Administrative Fees: Distribution, data, and GPO administrative fees are paid to authorized wholesalers/distributors of our products for various commercial services including: contract administration, inventory management, delivery of end-user sales data, and product returns processing. These fees are based on a contractually-determined percentage of our applicable sales.
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

(b) License Fees: Our out-license arrangements allow licensees to market our product(s) in certain territories for a specific term (representing the out-license of “functional intellectual property”). These arrangements may include one or more of the following forms of consideration: (i) upfront license fees, (ii) sales royalties, (iii) sales milestone-achievement fees, and (iv) regulatory milestone-achievement fees. We recognize revenue for each based on the contractual terms that establish our right to collect payment once the performance obligation is achieved, as follows:
(1) Upfront License Fees: We determine whether upfront license fees are earned at the time of contract execution (i.e., when rights transfer to the customer) or over the actual (or implied) contractual period of the out-license. As part of this determination, we evaluate whether we have any other requirements to provide substantive services that are inseparable from the performance obligation of the license transfer. Our customers’ “distinct” rights to licensed “functional intellectual property” at the time of contract execution results in concurrent revenue recognition of all upfront license fees (assuming that there are no other performance obligations at contract execution that are inseparable from this license transfer).
(2) Royalties: Under the “sales-or-usage-based royalty exception” we recognize revenue in the same period that our licensees complete product sales in their territory for which we are contractually entitled to a percentage-based royalty receipt.
(3) Sales Milestones: Under the “sales-or-usage-based royalty exception” we recognize revenue in full within the period that our licensees achieve annual or aggregate product sales levels in their territories for which we are contractually entitled to a specified lump-sum receipt.
(4) Regulatory Milestones: Under the terms of the respective out-license, regulatory achievements may either be our responsibility, or that of our licensee.
When our licensee is responsible for the achievement of the regulatory milestone, we recognize revenue in full (for the contractual amount due from our licensee) in the period that the approval occurs (i.e., when the “performance obligation” is satisfied by our customer) under the “most likely amount” method. This revenue recognition remains “constrained” (i.e., not recognized) until regulatory approval occurs, given its inherent uncertainty and the requirement of a significant revenue reversal not being probable if achievement does not occur. At each reporting period, we re-evaluate the probability of milestone achievement and the associated revenue constraint; any resulting adjustments would be recorded on a cumulative catch-up basis, thus reflected in our financial statements in the period of adjustment.
When we are responsible for the achievement of a regulatory milestone, the “relative selling price method” is applied for purposes of allocating the transaction price to our performance obligations. In such case, we consider (i) the extent of our effort to achieve the milestone and/or the enhancement of the value of the delivered item(s) as a result of milestone achievement and (ii) if the milestone payment is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. We have historically assessed the contractual value of these milestones upon their achievement to be identical to the allocation of value of our performance obligations and thus representing the “transaction price” for each milestone at contract inception. We recognize this revenue in the period that the regulatory approval occurs (i.e., when we complete the “performance obligation”) under the “most likely amount” method, and revenue recognition is otherwise “constrained” until regulatory approval occurs, given its inherent uncertainty and the requirement of a significant revenue reversal not being probable if achievement does not occur. At each reporting period, we re-evaluate the probability of milestone achievement and the associated revenue constraint; any resulting adjustments would be recorded on a cumulative catch-up basis, thus reflected in our financial statements in the period of adjustment.
(c) Service Revenue: We receive fees under certain arrangements for (i) sales and marketing services, (ii) supply chain services, (iii) research and development services, and (iv) clinical trial management services.
Our rights to receive payment for these services may be established by (1) a fixed-fee schedule that covers the term of the arrangement, so long as we meet ongoing performance obligations, (2) our completion of product delivery in our capacity as a procurement agent, (3) the successful completion of a phase of drug development, (4) favorable results from a clinical trial, and/or (5) regulatory approval events.
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

We consider whether revenue associated with these service arrangements is reportable each period, based on our completed services or deliverables (i.e., satisfied “performance obligations”) during the reporting period, and the terms of the arrangement that contractually result in fixed payments due to us. The promised service(s) within these arrangements are distinct and explicitly stated within each contract, and our customer benefits from the separable service(s) delivery/completion. Further, the nature of the promise to our customer as stated within the respective contract is to deliver each named service individually (not a transfer of combined items to which the promised goods or services are inputs), and thus are separable for revenue recognition.
(ii) Cash and Cash Equivalents
Cash and cash equivalents consist of bank deposits and highly liquid investments with maturities of three months or less from the purchase date.
(iii) Marketable Securities
Marketable securities consist of our holdings in equity securities (including mutual funds), bank CDs, government-related debt securities, and corporate debt securities. For equity securities and mutual funds, any realized gains (losses) or unrealized gains (losses) are recognized in “other income (expense), net” within the Condensed Consolidated Statements of Operations. Debt securities and bank CDs are classified as “available-for-sale” investments and (1) realized gains (losses) are recognized in “other income (expense), net” within the Condensed Consolidated Statements of Operations and (2) unrealized gains (losses) are recognized as a component of “accumulated other comprehensive loss” within the Condensed Consolidated Statements of Stockholders’ Equity.
(iv) Accounts Receivable, Net
Our accounts receivable, net of allowance for credit losses, are derived from our product sales and license fees, and do not bear interest. The allowance for credit losses is management’s best estimate of the amount of expected credit losses in our existing accounts receivable and any anticipated discounts. The allowance for credit losses is adjusted each period through earnings to reflect expected credit losses over the remaining life of the asset. Account balances are written off against the allowance after appropriate collection efforts are exhausted.
(v) Inventories
We value our inventory at the lower of (i) the actual cost of its purchase or manufacture, or (ii) its net realizable value. Inventory cost is determined on the first-in, first-out method. We regularly review our inventory quantities in process of manufacture and on hand. When appropriate, we record a provision for obsolete and excess inventory to derive its net realizable value, which takes into account our sales forecast by product and corresponding expiry dates of each product lot.
Manufacturing costs of drug products that are pending FDA approval during clinical development and trials, and at-risk inventory build in anticipation of commercialization, are exclusively recognized through “research and development” expense on the accompanying Condensed Consolidated Statements of Operations.
(vi) Property and Equipment, Net
Our property and equipment, net is stated at historical cost, and is depreciated on a straight-line basis over an estimated useful life that corresponds with its designated asset category. We evaluate the recoverability of “long-lived assets” (which includes property and equipment) whenever events or changes in circumstances in our business indicate that the asset’s carrying amount may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset group. An impairment loss would be recorded for the excess of net carrying value over the fair value of the asset impaired. The fair value is estimated based on expected discounted future cash flows or other methods such as orderly liquidation value based on assumptions of asset class and observed market data. An orderly liquidation value is the amount that could be realized upon liquidation, given a sufficient amount of time to find a purchaser for a sale of assets in their existing condition and location, as of a specific date, and assuming the sale is to market participants who can utilize such assets in their highest and best use. The orderly liquidation values are applied against the carrying values of the assets and the impairment loss is measured as the difference between the liquidation value and the carrying value of the assets.
See Note 4(d) for further discussion related to an impairment that occurred during the year ended December 31, 2020.
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

(vii) Stock-Based Compensation
Stock-based compensation expense for equity awards granted to our employees and members of our Board of Directors is recognized on a straight-line basis over each award’s vesting period. Recognized compensation expense is net of an estimated forfeiture rate, representing the percentage of awards that are expected to be forfeited prior to vesting, though is ultimately adjusted for actual forfeitures. We use the Black-Scholes option pricing model to determine the fair value of stock options and stock appreciation rights (as of the date of grant) that have service conditions for vesting. We use the Monte Carlo valuation model to value equity awards (as of the date of grant) that have combined market conditions and service conditions for vesting.
The recognition of stock-based compensation expense and the initial calculation of stock option fair value requires uncertain assumptions, including (a) the pre-vesting forfeiture rate of the award, (b) the expected term that the stock option will remain outstanding, (c) our stock price volatility over the expected term (and that of our designated peer group with respect to certain market-based awards), and (d) the prevailing risk-free interest rate for the period matching the expected term.
With regard to (a)-(d) above: we estimate forfeiture rates based on our employees’ overall forfeiture history, which we believe will be representative of future results. We estimate the expected term of stock options granted based on our employees’ historical exercise patterns, which we believe will be representative of their future behavior. We estimate the volatility of our common stock on the date of grant based on the historical volatility of our common stock for a look-back period that corresponds with the expected term. We estimate the risk-free interest rate based upon the U.S. Department of the Treasury yields in effect at award grant, for a period equaling the expected term of the stock option.
(viii) Basic and Diluted Net Loss per Share
We calculate basic and diluted net loss per share using the weighted average number of common shares outstanding during the periods presented. In periods of a net loss, basic and diluted loss per share are the same. For the diluted earnings per share calculation, we adjust the weighted average number of common shares outstanding to include only stock options, warrants, and other common stock equivalents outstanding during the period to the extent that they are dilutive.
There were 12,708,185 shares and 9,648,862 shares of outstanding securities (including stock options, restricted stock units, stock appreciation rights, and performance awards) as of September 30, 2021 and 2020, respectively, that were excluded from the calculation of diluted net loss per share because their inclusion would have been anti-dilutive.

(ix) Income Taxes

Deferred tax assets and liabilities are recorded based on the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the financial statements, as well as operating losses and tax credit carry forwards using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain.
We apply an estimated annual effective tax rate (“ETR”) approach for calculating a tax provision for interim periods. Our ETR differs from the U.S. federal statutory tax rate primarily as a result of nondeductible expenses and the impact of a valuation allowance on our deferred tax assets, which we record because we believe that, based upon a weighting of positive and negative factors, it is more likely than not that these deferred tax assets will not be realized. If/when we were to determine that our deferred tax assets are realizable, an adjustment to the corresponding valuation allowance would increase our net income in the period that such determination was made.
In the event that we are assessed interest and/or penalties from taxing authorities that have not been previously accrued, such amounts would be included in “benefit for income taxes from continuing operations” within the accompanying Condensed Consolidated Statements of Operations for the period in which we received the notice.
In March 2020, we elected to early adopt ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
(x) Research and Development Expenses
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

Our research and development costs are expensed as incurred. Research and development costs consist primarily of salaries, benefits, and other staff-related costs including associated stock-based compensation, laboratory supplies, clinical trial and related clinical manufacturing costs, costs related to manufacturing preparations, fees paid to other entities that conduct certain research and development activities on our behalf and payments made pursuant to license agreements. Clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the status of activities and the invoices received from our external service providers. We adjust our accruals as actual costs become known. Where contingent milestone payments are due to third parties under research and development or license agreements, the milestone payment obligations are expensed when the clinical or regulatory milestone results are achieved.
(xi) Fair Value Measurements
We determine measurement-date fair value based on the proceeds that would be received through the sale of the asset, or that we would pay to settle or transfer the liability, in an orderly transaction between market participants. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include the following:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that are publicly accessible at the measurement date.
Level 2: Observable prices that are based on inputs not quoted on active markets, but that are corroborated by market data. These inputs may include quoted prices for similar assets or liabilities or quoted market prices in markets that are not active to the general public.
Level 3: Unobservable inputs are used when little or no market data is available.
Note 3. Fair Value Measurements
The table below summarizes certain asset and liability fair values that are included within our accompanying Condensed Consolidated Balance Sheets, and their designations among the three fair value measurement categories:
 September 30, 2021
Fair Value Measurements
 Level 1Level 2Level 3Total
Assets:
Money market funds$92,172 $ $ $92,172 
Equity securities10,237   10,237 
Government-related debt securities10,023   10,023 
Mutual funds5,900 9  5,909 
Key employee life insurance, cash surrender value(1)
 4,287  4,287 
$118,332 $4,296 $ $122,628 
Liabilities:
Deferred executive compensation liability(2)
$ $10,489 $ $10,489 
$ $10,489 $ $10,489 
(1) Included within other assets on our Condensed Consolidated Balance Sheets, and the amount is based on the stated cash surrender value of life insurance policies of named current and former employees at each period-end.

(2) Included $1.1 million within accounts payable and other accrued liabilities and $9.4 million within other long-term liabilities on our Condensed Consolidated Balance Sheets. The amounts are based on the period-end market value of mutual fund investments selected by employee participants of the deferred compensation plan.
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

December 31, 2020
Fair Value Measurements
Level 1Level 2Level 3Total
Assets:
Government-related debt securities$92,928 $ $ $92,928 
Corporate debt securities 8,848  8,848 
Money market funds40,560   40,560 
Equity securities24,946   24,946 
Bank CDs 1,721  1,721 
Mutual funds5,573 9  5,582 
Key employee life insurance, cash surrender value(1)
 3,963  3,963 
$164,007 $14,541 $ $178,548 
Liabilities:
Deferred executive compensation liability(2)
$ $9,783 $ $9,783 
$ $9,783 $ $9,783 
(1) Included within other assets on our Condensed Consolidated Balance Sheets, and the amount is based on the stated cash surrender value of life insurance policies of named current and former employees at each period-end.
(2) Included $1.3 million within accounts payable and other accrued liabilities and $8.5 million within other long-term liabilities on our Condensed Consolidated Balance Sheets. The amounts are based on the period-end market value of mutual fund investments selected by employee participants of the deferred compensation plan.

We did not have any transfers between “Level 1” and “Level 2” measurement categories for any periods presented.
Our carrying amounts of financial instruments such as cash equivalents, accounts receivable, prepaid expenses, accounts payable, and other accrued liabilities approximate their fair values due to their short-term nature of settlement.
Note 4. Balance Sheet Account Detail
The composition of selected financial statement captions that comprise the accompanying Condensed Consolidated Balance Sheets are summarized below:

(a) Cash and Cash Equivalents and Marketable Securities

We maintain cash balances with select major financial institutions. The Federal Deposit Insurance Corporation (FDIC) and other third parties insure a fraction of these deposits. Accordingly, these cash deposits are not insured against the possibility of a substantial or complete loss of principal and are inherently subject to the credit risk of the corresponding financial institution. There were no material unrealized losses on our investment securities at September 30, 2021 or December 31, 2020.
Our investment policy requires that purchased investments may only be in highly-rated and liquid financial instruments and limits our holdings of any single issuer (excluding any debt or equity securities that may be received from our strategic partners in connection with an out-license arrangement).
The carrying amount of our equity securities, money market funds, and bank CDs approximates their fair value (utilizing “Level 1” or “Level 2” inputs) because of our ability to immediately convert these instruments into cash with minimal expected change in value. As of September 30, 2021, our held securities that remain in an unrealized loss position for less than one year were insignificant and are presented in the table below.
The following is a summary of our presented composition of “cash and cash equivalents” and “marketable securities”:
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

Historical or Amortized CostFair
Value
Cash and Cash
Equivalents
Marketable
 Securities
September 30, 2021
Money market funds$92,172 $92,172 $92,172 $ 
Equity securities(1)
3,528 10,237  10,237 
Government-related debt securities10,023 10,023  10,023 
Mutual funds4,753 5,900  5,900 
Bank deposits15,263 15,263 15,263  
Total cash and cash equivalents and marketable securities$125,739 $133,595 $107,435 $26,160 
December 31, 2020
Money market funds$40,560 $40,560 $40,560 $ 
Equity securities3,764 24,946  24,946 
Government-related debt securities92,881 92,928  92,928 
Corporate debt securities8,846 8,848  8,848 
Mutual funds4,497 5,573  5,573 
Bank CDs1,715 1,721  1,721 
Bank deposits5,449 5,449 5,449  
Total cash and cash equivalents and marketable securities$157,712 $180,025 $46,009 $134,016 
(1)Our aggregate equity holdings consist of 6.7 million common shares of CASI Pharmaceuticals, Inc., a NASDAQ-listed biopharmaceutical company, with a fair market value of $7.9 million as of September 30, 2021. We completed the sale of 1.8 million shares of common stock and recognized a $4.2 million gain within “other expense, net” within the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021. Additionally, we hold 0.8 million common shares of Unicycive Therapeutics, Inc., a NASDAQ-listed biopharmaceutical company, with a fair market value of $2.3 million as of September 30, 2021.
(b) Other Receivables
“Other receivables” consists of the following:
September 30, 2021December 31, 2020
Other miscellaneous receivables $2,443 $901 
Income tax receivable - current portion 1,297 1,297 
Interest receivable from marketable securities123 196 
Other receivables$3,863 $2,394 
(c) Prepaid Expenses and Other Current Assets
“Prepaid expenses and other current assets” consists of the following:
September 30, 2021December 31, 2020
Prepaid expenses and deferred costs$2,370 $1,996 
Prepaid insurance170 2,165 
Prepaid expenses and other current assets$2,540 $4,161 
(d) Property and Equipment, net
“Property and equipment, net” consists of the following: 
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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

September 30, 2021December 31, 2020
Manufacturing equipment$ $3,245 
Computer hardware and software1,802 1,680 
Laboratory equipment5 5 
Leasehold improvements1,267 1,267 
Office furniture307 248 
Property and equipment, at cost3,381 6,445 
(Less): Accumulated depreciation(2,874)(2,868)
Property and equipment, net$507 $3,577 
Depreciation expense was immaterial for the three and nine months ended September 30, 2021 and 2020, respectively.

Manufacturing equipment was comprised of our owned ROLONTIS production equipment on location at our contract manufacturer. As of December 31, 2020, we determined that we would no longer proceed with the technology transfer and validation of a second manufacturing source for ROLONTIS and communicated this decision to the second source manufacturer. We had invested significant capital to prepare this facility for production. Due to the decision to halt this work, we determined that the value of certain ROLONTIS production equipment had a carrying amount in excess of the anticipated recoverable value as there would be no future cash flows from these assets other than through the sale of this equipment. We determined the fair value of these assets under an orderly liquidation value method, and based on the valuation performed we recorded an impairment of $19.7 million to our carrying value for this equipment, which was recorded as research and development expense for the year ended December 31, 2020 within the Consolidated Statements of Operations. During the three months ended September 30, 2021, this equipment was surrendered in connection with the termination of our agreement with our second source manufacturer and we recorded incremental research and development expense of $2.9 million. Fair value was based on observable market data (“Level 2”). Due to the specialized nature of this production equipment, adjustments to observable market data were applied (“Level 3”).
(e) Accounts Payable and Other Accrued Liabilities
“Accounts payable and other accrued liabilities” consists of the following:
September 30, 2021December 31, 2020
Trade accounts payable and other $40,914 $34,385 
Lease liability - current portion1,451 1,544 
Commercial Product Portfolio accruals (Note 7)6,617 7,842 
Accounts payable and other accrued liabilities $48,982 $43,771 
Amounts presented within “accounts payable and other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets for our categories of GTN estimates related to the Commercial Product Portfolio accruals were as follows:
Commercial/Medicaid Rebates and Government ChargebacksDistribution, Data, Inventory and
GPO Administrative Fees
Product Return AllowancesTotal
Balance as of December 31, 2019$14,671 $1,138 $4,714 $20,523 
(Less): Payments and credits against GTN accruals (12,070)(196)(415)(12,681)
Balance as of December 31, 2020$2,601 $942 $4,299 $7,842 
(Less): Payments and credits against GTN accruals (1,160) (65)(1,225)
Balance as of September 30, 2021$1,441 $942 $4,234 $6,617 


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Notes to Condensed Consolidated Financial Statements
(all tabular amounts presented in thousands, except share, per share, interest rate, and number of years)
(Unaudited)

Note 5. Stock-Based Compensation
In June 2018, we adopted the 2018 Long-Term Incentive Plan, which provided for the issuance of restricted stock awards and units, incentive and nonqualified stock options, performance unit awards, stock appreciation rights, and other stock-based awards to employees, consultants and members of our Board of Directors.
We report our stock-based compensation expense (inclusive of our incentive stock plan and employee stock purchase plan) in the accompanying Condensed Consolidated Statements of Operations within “total operating costs and expenses” for the three and nine months ended September 30, 2021 and 2020, as follows: