The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes thereto and management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission (theSEC ) onFebruary 17, 2022 . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results or timing of certain events could differ materially from the results or timing described in, or implied by, these forward-looking statements.
Overview
We are a global precision therapy company that is inventing life-changing medicines for people with cancer and blood disorders. Applying an approach that is both precise and agile, we create therapies that selectively target genetic drivers, with the goal of staying one step ahead across stages of disease. Since 2011, we have leveraged our research platform, including expertise in molecular targeting and world-class drug design capabilities, to rapidly and reproducibly translate science into a broad pipeline of precision therapies. Today, we are delivering our approved medicines, AYVAKIT®/AYVAKYT® (avapritinib) and GAVRETO® (pralsetinib), to patients in theU.S. andEurope , and we are globally advancing multiple programs for systemic mastocytosis (SM), lung cancer and other genomically defined cancers, and cancer immunotherapy. Our drug discovery approach combines our biological insights with our proprietary compound library and chemistry expertise to design highly selective and potent precision therapies, with the goal of delivering significant and durable clinical benefit to patients based on the genetic driver of their disease. This uniquely targeted, scalable approach is designed to empower the rapid design and development of new treatments and increase the likelihood of success. In addition, our business model integrates our research engine with robust clinical development and commercial capabilities in oncology and hematology to create a cycle of innovation.
Systemic Mastocytosis and other Mast Cell Disorders - AYVAKIT® / AYVAKYT® (avapritinib) and BLU-263
Avapritinib
We are developing and commercializing avapritinib for the treatment of advanced SM and developing avapritinib for the treatment of non-advanced SM. SM is a rare hematologic disorder that causes an overproduction of mast cells and the accumulation of mast cells in the bone marrow and other organs, which can lead to a wide range of debilitating symptoms and, in advanced forms of the disease, organ dysfunction and failure. Nearly all cases of SM are driven by the KIT D816V mutation, which aberrantly activates mast cells. Avapritinib is approved in theU.S. under the brand name AYVAKIT for the treatment of adult patients with advanced SM, including aggressive SM (ASM), SM with an associated hematologic neoplasm (SM-AHN), and mast cell leukemia (MCL). InMarch 2022 , theEuropean Commission expanded the marketing authorization for AYVAKYT to include the treatment of adult patients with ASM, SM-AHN, or MCL, after at least one systemic therapy. We launched AYVAKYT in advanced SM inGermany within one week after receiving theEuropean Commission approval and plan to make AYVAKYT commercially available in other European countries based on local reimbursement and access pathways. At theEuropean Hematology Association (EHA) Annual Meeting inJune 2022 , we presented data showing that AYVAKIT improved overall survival (OS) and other clinical outcomes in patients with advanced SM, when indirectly compared to real-world data for prior best available therapies. We are also evaluating avapritinib in an ongoing registration-enabling Phase 2 clinical trial in non-advanced SM, which we refer to as our PIONEER trial. InJanuary 2022 , we announced that the PIONEER trial was fully enrolled. 36
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InJune 2022 , we announced that we updated the primary endpoint of the registration-enabling PIONEER trial of AYVAKIT in patients with non-advanced SM, based on a written recommendation from the FDA on statistical considerations ahead of the planned database lock. InAugust 2022 , we reported positive top-line data for Part 2 of the PIONEER trial of AYVAKIT plus best available care versus placebo plus best available care (control arm), demonstrating clinically meaningful and highly significant improvements across the primary and key secondary endpoints, including patient-reported symptoms and objective measures of mast cell burden. AYVAKIT had a favorable safety profile compared to the control arm, supporting the potential for long-term treatment. Based on these positive results and a strong safety profile, we plan to submit a supplemental new drug application (sNDA) to the FDA for avapritinib in non-advanced SM in the fourth quarter of 2022, with a subsequent submission of a type II variation marketing authorization application to theEuropean Medicines Agency (EMA) anticipated in the first quarter of 2023. The FDA has granted breakthrough therapy designation to avapritinib for (i) the treatment of advanced SM, including the subtypes of ASM, SM-AHN and MCL, and (ii) the treatment of moderate to severe indolent SM. In addition, the FDA has granted orphan drug designation to avapritinib for the treatment of mastocytosis, and theEuropean Commission has granted orphan medicinal product designation to avapritinib for the treatment of mastocytosis.
BLU-263
We are developing BLU-263, an investigational, orally available, potent and highly selective KIT inhibitor, for the treatment of non-advanced SM and other mast cell disorders. BLU-263 is designed to have equivalent potency as avapritinib, with low off-target activity and lower central nervous system (CNS) penetration relative to avapritinib based on preclinical data, which we believe will enable development of BLU-263 in a broad population of patients with non-advanced SM, including patients with lower disease burden and potentially patients with other mast cell disorders. InApril 2021 , we presented results from a Phase 1 trial of BLU-263 in healthy volunteers at the virtualAmerican Association for Cancer Research (AACR) Annual Meeting, which showed that BLU-263 was well-tolerated at all doses tested. Based on these data, we initiated the Phase 2/3 trial of BLU-263 in patients with non-advanced SM, which we refer to as our HARBOR trial, in the second quarter of 2021. We anticipate presenting initial data from the HARBOR trial in the fourth quarter of 2022.
RET-altered Cancers - GAVRETO® (pralsetinib)
We are developing and commercializing pralsetinib for the treatment of RET fusion-positive non-small cell lung cancer (NSCLC), and for the treatment of RET-altered thyroid carcinoma, including medullary thyroid cancer (MTC). We are also developing pralsetinib for the treatment of other RET-altered solid tumors. We have granted exclusive licenses toF. Hoffmann-La Roche Ltd andGenentech, Inc. , a member of the Roche Group (which we refer to together as Roche) and CStone Pharmaceuticals (CStone), to develop and commercialize pralsetinib in their respective territories. See "-Collaborations and Licenses Summary" below.
Pralsetinib received accelerated approval in the
Through our collaboration with Roche, theEuropean Commission granted conditional marketing authorization for GAVRETO as a monotherapy for the treatment of adults with RET fusion-positive advanced NSCLC not previously treated with a RET inhibitor. Roche submitted a Type II variation MAA to the EMA for pralsetinib for RET-altered thyroid cancers inDecember 2021 , as well as marketing applications for pralsetinib for RET-altered NSCLC and thyroid cancers across multiple global geographies in 2021. Marketing applications are planned for pralsetinib for RET-altered NSCLC and thyroid cancers across additional
global geographies in 2022. 37 Table of Contents Through our collaboration with CStone,China's NMPA approved GAVRETO for the treatment of RET fusion-positive NSCLC patients previously treated with platinum-based chemotherapy. InMarch 2022 ,China's National Medicinal Products Administration (NMPA) approved GAVRETO for the treatment of RET-mutant MTC and RET fusion-positive thyroid cancer. InFebruary 2022 , theTaiwan Food and Drug Administration (TFDA) accepted CStone's NDA for the treatment of patients with RET fusion-positive locally advanced or metastatic NSCLC, RET-mutant MTC, and RET fusion-positive TC. GAVRETO was approved inHong Kong inJuly 2022 for the treatment of RET fusion-positive NSCLC. We evaluated pralsetinib in an ongoing registration-enabling Phase 1/2 clinical trial in patients with RET-altered NSCLC, MTC and other advanced solid tumors, which we referred to as the ARROW trial. In addition, Roche is conducting multiple ongoing studies, including a registration-enabling Phase 3 clinical trial in treatment-naïve patients with RET fusion-positive NSCLC, which is referred to as the ACCELERET-Lung trial; and a registration-enabling Phase 3 clinical trial in patients with locally advanced or metastatic RET-mutated MTC who have not previously received a standard of care multi-kinase inhibitor therapy, which is referred to as the ACCELERET-MTC trial. The ARROW trial was fully enrolled inDecember 2021 and was subsequently transferred to Roche inMay 2022 . Pursuant to our collaboration with Roche, we are co-developing pralsetinib globally in RET-altered solid tumors, including NSCLC, MTC and other thyroid cancers, as well as other solid tumors. The FDA has granted breakthrough therapy designation to pralsetinib for (i) the treatment of patients with RET fusion-positive NSCLC that has progressed following platinum-based chemotherapy, and (ii) the treatment of patients with RET mutation-positive MTC that requires systemic treatment and for which there are no acceptable alternative treatments. In addition, the FDA has granted orphan drug designation to pralsetinib for the treatment of RET-rearranged NSCLC, JAK1/2-positive NSCLC or TRKC-positive NSCLC.
PDGFRA-Driven Gastrointestinal Stromal Tumors - AYVAKIT® / AYVAKYT® (avapritinib)
We are commercializing avapritinib for the treatment of patients with PDGFRA exon 18 gastrointestinal stromal tumors (GIST), a rare disease that is a sarcoma, or tumor of bone or connective tissue, of the gastrointestinal tract. Avapritinib is approved in theU.S. under the brand name AYVAKIT for the treatment of adults with unresectable or metastatic GIST harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations, and is approved inEurope with conditional marketing authorization under the brand name AYVAKYT as a monotherapy for the treatment of adult patients with unresectable or metastatic GIST harboring a PDGFRA D842V mutation. Through our collaboration with CStone, AYVAKIT was approved byChina's NMPA for the treatment of adults with unresectable or metastatic GIST harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations and also received accelerated approval from the TFDA and approval inHong Kong , both for adults with unresectable or metastatic GIST harboring PDGFRA D842V mutations. The FDA has granted breakthrough therapy designation for avapritinib for the treatment of unresectable or metastatic GIST harboring the PDGFRA D842V mutation. In addition, the FDA has granted orphan drug designation to avapritinib for the treatment of GIST, and theEuropean Commission has granted orphan medicinal product designation to avapritinib for the treatment of GIST.
EGFR-Mutated NSCLC - BLU-945, BLU-701, BLU-525, and BLU-451
We are developing a portfolio of investigational epidermal growth factor receptor (EGFR) inhibitors with the potential to address a spectrum of common and uncommon EGFR activating mutations, including exon 19 deletions, the L858R mutation and exon 20 insertions. Patients with EGFR-driven NSCLC have high medical needs despite current standards of care. First, osimertinib has demonstrated shorter overall survival and progression-free survival in patients whose tumors have activating L858R mutations, and there are limited treatment options for exon 20 insertion-driven NSCLC. Second, the majority of patients will ultimately progress due to tumor resistance, and preventing mutations from emerging is an important treatment goal. Third, the brain is a common site of disease progression that has proven difficult to treat. We are working to address the challenges and prolong patient benefit by advancing development of rational combinations with our investigational EGFR therapies. Ultimately, we are seeking to address the significant 38
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medical needs in EGFR-mutant NSCLC that affect approximately 60,000 patients in
major markets, including the
EGFR-Positive NSCLC - BLU-945 BLU-945 is a selective and potent investigational inhibitor of the activating EGFR L858R mutation and on-target T790M and C797S resistance mutations. Early data from the ongoing dose escalation part of the Phase 1/2 trial of BLU-945, which we refer to as our SYMPHONY trial, were presented at the AACR Annual Meeting inApril 2022 . BLU-945 demonstrated dose-dependent decreases in EGFR variant allele fractions via circulating tumor DNA (ctDNA) analysis and radiographic tumor reductions. BLU-945 was well-tolerated, with no significant AEs associated with wild-type EGFR inhibition. In the second quarter of 2022, we initiated a BLU-945 and osimertinib combination cohort in the ongoing Phase 1/2 SYMPHONY trial. InOctober 2022 , preclinical data presented at the EORTC-NCI-AACR Molecular Targets and Cancer Therapeutics Symposium showed that BLU-945 in combination with osimertinib prolonged tumor regression and survival in EGFR L858R-driven, treatment-naïve, patient-derived xenograft models. InNovember 2022 , at our Investor Day, we reported updated monotherapy dose escalation data showing BLU-945 was well-tolerated and led to target ctDNA responses and tumor shrinkage. In the late-line setting, significant off-target resistance was identified at baseline and end-of-treatment by ctDNA analysis, leading us to prioritize clinical development of BLU-945 in combination with osimertinib in the first line, where we do not expect multiple overlapping driver mutations. In addition, at our Investor Day we reported early SYMPHONY trial dose escalation data showing BLU-945 in combination with osimertinib has been well-tolerated to-date. We plan to define a recommended phase 2 dose for the combination of BLU-945 and osimertinib and initiate a dose expansion cohort in the first quarter of 2023.
EGFR-Positive NSCLC - BLU-701 and BLU-525
BLU-701 is a selective and potent investigational inhibitor of activating EGFR L858R or exon 19 deletion mutations and the on-target C797S resistance mutation. Based on emerging clinical and preclinical data,Blueprint Medicines plans to prioritize development of BLU-525, a next-generation EGFR inhibitor, and deprioritize further development of BLU-701. Compared to BLU-701, BLU-525 has a distinct chemical structure with improved kinome selectivity and differentiated metabolism, and equivalent EGFR mutation coverage, wild-type EGFR selectivity and CNS penetration. Data supporting the preclinical profile of BLU-525 were reported at the EORTC-NCI-AACR Molecular Targets and Cancer Therapeutics Symposium inOctober 2022 . We plan to submit an investigational new drug application to the FDA for BLU-525 in the first quarter of 2023.
EGFR Exon 20 Insertion-Positive NSCLC - BLU-451
BLU-451 is a selective and potent investigational inhibitor under development for the treatment of EGFR exon 20 insertion-positive NSCLC. InDecember 2021 , we completed our acquisition ofLengo Therapeutics, Inc. , along with its lead compound LNG-451, which we refer to as BLU-451. InApril 2022 , we presented the first preclinical data for BLU-451 at the AACR Annual Meeting demonstrating that BLU-451 is a wild-type EGFR-sparing, CNS penetrant molecule which potently inhibited a broad range of exon 20 insertions and uncommon oncogenic point mutations. In addition, BLU-451 led to measurable tumor regression in a preclinical intracranial tumor model. Based on these foundational preclinical data, inMarch 2022 we initiated the Phase 1/2 trial of BLU-451 in patients with EGFR-driven NSCLC harboring exon 20 insertion mutations, which we refer to as our CONCERTO trial. InNovember 2022 , at our Investor Day, we presented a case report of a patient with EGFR exon 20 insertion-positive NSCLC, in which BLU-451 led to a confirmed partial response following prior treatment with chemotherapy and immunotherapy, CLN-081 and BDTX-189. We plan to present initial data from the CONCERTO trial of BLU-451 in the first half of 2023.
CDK2-Vulnerable Cancers - BLU-222
We are developing an investigational inhibitor, BLU-222, targeting CDK2 for the treatment of patients with CDK2-vulnerable cancers. CDK2 is cell cycle regulator and an important cancer target, with relevance across multiple malignancies, including hormone-receptor-positive breast cancer and other CCNE1 amplified
tumors, such as subsets of 39 Table of Contents ovarian and endometrial cancer. In subsets of patients across multiple cancer types, aberrant CCNE1 hyperactivates CDK2, resulting in cell cycle dysregulation and tumor proliferation. Aberrant CCNE1 has been observed as a primary driver of disease, as well as a mechanism of resistance to CDK4/6 inhibitors and other therapies. At the AACR Annual Meeting inApril 2022 , we presented preclinical data showing BLU-222 demonstrated significant antitumor activity in a CCNE1-amplified ovarian cancer model. BLU-222 in combination with standard of care agents, including chemotherapy and the PARP inhibitor olaparib, led to sustained tumor regression even after treatment cessation. In the first quarter of 2022, we initiated the Phase 1/2 trial of BLU-222 in CDK2-vulnerable cancers, which we refer to as our VELA trial. BLU-222 is being developed as monotherapy and in combination with other agents, including CDK4/6 inhibitors and ER antagonists, in hormone-receptor-positive, HER2-negative breast cancer (HR+/HER- BC), and as a single agent and in combination in CCNE1-amplified tumor types. We plan to present initial clinical data for BLU-222 in the first half of 2023.
Advanced Cancers - BLU-852
BLU-852 is a selective and potent investigational inhibitor of MAP4K1, a well-characterized immunokinase involved in the regulation of immune cells. Preclinical data presented at the virtual AACR Annual Meeting inApril 2021 show that MAP4K1 inhibition enhanced intratumoral immune cell activation, overcame Treg mediated T cell suppression, and reduced tumor burden both as a monotherapy and in combination with checkpoint inhibition. These preclinical data support the continued development of BLU-852. Under our ongoing cancer immunotherapy collaboration, we expect Roche to initiate a Phase 1 trial of BLU-852, as a single agent and in combination with atezolizumab, in advanced cancers in 2023.
Discovery Platform
We plan to continue to leverage our discovery platform to systematically and reproducibly identify kinases that are drivers of diseases in genomically defined patient populations, and craft drug candidates that potently and selectively target these kinases. In addition, we plan to expand our discovery platform by building capabilities, supported by external collaborations, for targeted protein degradation of both kinase and non-kinase targets in precision oncology, with the goal of advancing transformative therapies to patients and further broadening the significant productivity of our research engine. Beyond the discovery programs described above, we have multiple pre-development candidate programs for undisclosed kinase targets. In 2022, we nominated two development candidates from our discovery programs: a KIT exon 13 inhibitor, IDRX-73 (formerly known as BLU-654), and BLU-525. We will also be sharing our vision for our expanded discovery platform at our Investor Day onNovember 1, 2022 , inNew York City . Under our targeted protein degradation collaboration with Proteovant, we plan to research and advance up to two novel protein degrader programs into development, with the option to expand to two additional programs. Under our immunotherapy collaboration with Roche, we are conducting activities for up to two discovery programs, including BLU-852. See "-Collaborations and Licenses" Summary below.
Mast Cell Disorders - wild-type KIT inhibition
We are pursuing a research program targeting wild-type KIT, which aims to build on our KIT target leadership to design a best-in-class oral precision therapy for prevalent mast cell diseases, including chronic urticaria. Wild-type KIT plays a central role in mast cell survival, proliferation and activation. In addition, mast cells are the primary effector cells in several allergic-inflammatory diseases, including both inducible and spontaneous chronic urticaria. Chronic urticaria is a debilitating inflammatory skin disorder characterized by wheals (hives), and sleep disruption, stress and anxiety due to severe itching are major contributors to disease burden. We have identified multiple examples of compounds meeting our target product profile, which includes potent and selective inhibition of wild-type KIT, low potential for drug/drug interactions, and activity that is peripherally restricted.
Development and Commercialization Rights
We currently have worldwide development and commercialization rights to avapritinib, other than the rights
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licensed to CStone for these drug candidates in Mainland China,Hong Kong ,Macau andTaiwan (the CStone territory). We have entered into distribution agreements for certain European countries in which we do not have our own infrastructure, and we plan to pursue additional regulatory approvals and commercialization of avapritinib in additional countries, including through additional distribution agreements.
We have granted Roche an exclusive license to develop and commercialize
pralsetinib worldwide, excluding the CStone territory and the
We currently have worldwide development and commercialization rights to BLU-945 and BLU-701, other than the rights licensed to Zai Lab for these drug candidates in Mainland China,Hong Kong ,Macau , andTaiwan (collectively, the Zai territory).
Other than the discovery-stage cancer immunotherapy programs (including BLU-852) under our collaboration with Roche, we have worldwide development and commercialization rights to all of our development and discovery programs, including BLU-451, BLU-222 and BLU-263.
We have granted an exclusive worldwide license to Clementia, a wholly-owned subsidiary of Ipsen S.A., to develop and commercialize BLU-782.
We have granted an exclusive worldwide license to IDRx for a development candidate-stage KIT exon 13 inhibitor, IDRX-73 (formerly known as BLU-654).
Collaborations and Licenses
Roche-Immunotherapy Collaboration. InMarch 2016 , we entered into a collaboration with Roche to discover, develop and commercialize small molecule therapeutics targeting kinases believed to be important in cancer immunotherapy (including the kinase target MAP4K1, which is believed to play a role in T cell regulation), as single products or possibly in combination with other therapeutics. Roche-Pralsetinib Collaboration. InJuly 2020 , we entered into a collaboration with Roche to develop and commercialize pralsetinib for the treatment of RET-altered cancers. Under the collaboration, we andGenentech are co-commercializing GAVRETO in theU.S. , and Roche has exclusive commercialization rights for pralsetinib outside of theU.S. , excluding the CStone territory. We and Roche are also co-developing pralsetinib globally in RET-altered solid tumors, including NSCLC, MTC and other thyroid cancers, and expanding development of pralsetinib in multiple treatment settings. CStone. InJune 2018 , we entered into a collaboration with CStone to develop and commercialize avapritinib, pralsetinib and fisogatinib, as well as back-up forms and certain other forms, in the CStone territory either as a monotherapy or as part of a combination therapy. Clementia. InOctober 2019 , we entered into a license agreement with Clementia, a wholly-owned subsidiary of Ipsen S.A., and granted Clementia an exclusive, worldwide, royalty-bearing license to develop and commercialize BLU-782, as well as specified other compounds related to the BLU-782 program. BLU-782 is an investigational, orally available, potent and highly selective inhibitor that targets mutant ALK2 in development for the treatment of FOP. The FDA has granted a rare pediatric disease designation, orphan drug designation and fast track designation to BLU-782, each for the treatment of FOP. Clementia initiated patient dosing in a Phase 2 clinical trial of BLU-782, now referred to as IPN60130, in the first quarter of 2022. Zai Lab. InNovember 2021 , we entered into a collaboration with Zai Lab to develop and commercialize BLU-701, BLU-945, including their respective back-up forms and certain other forms thereof, for the treatment of EGFR-driven NSCLC inGreater China , including Mainland China,Hong Kong ,Macau andTaiwan . The collaboration aims to accelerate and expand global development of BLU-701 and BLU-945, and potential future candidates. 41
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Proteovant. InFebruary 2022 , we entered into a collaboration with Proteovant to research and advance novel targeted protein degrader therapies to address medical needs in oncology and hematology. The collaboration will leverage Proteovant's artificial intelligence-enhanced targeted protein degradation platform and our small molecule precision medicine capabilities to discover and advance up to two novel protein degrader target programs into development, with the option to extend to two additional programs. IDRx. InAugust 2022 , we entered into the IDRx License Agreement and a Stock Purchase Agreement with IDRx, a recently launched clinical-stage biopharmaceutical company. Pursuant to these agreements, we licensed a development candidate-stage KIT exon 13 inhibitor, IDRX-73 (formerly known as BLU-654), to IDRx in exchange for 4,509,105 shares of IDRx's Series A preferred stock received as noncash consideration and the eligibility to receive up to$217.5 million in contingent cash payments, including specified development, regulatory and sales-based milestone payments and tiered royalty payments.
Mergers & Acquisitions Summary
Lengo Therapeutics. InDecember 2021 , we completed our acquisition ofLengo Therapeutics, Inc. , along with its lead compound LNG-451, now known as BLU-451, which is in development for the treatment of NSCLC in patients with EGFR exon 20 insertion mutations. The acquisition also brought additional undisclosed preclinical precision oncology programs and research tools, including a catalog of covalent, highly brain penetrant kinase inhibitors that we plan to add to our proprietary compound library to further enable future drug discovery efforts. We will continue to evaluate additional collaborations, acquisitions, partnerships and licenses that could maximize the value of our programs and allow us to leverage the expertise of strategic collaborators, partners and licensors, including in additional geographies where we may not have current operations or expertise. We are also focused on engaging in collaborations, acquisitions, partnerships and license agreements to capitalize on or expand our discovery platform.
Financing Arrangement Summary
Royalty Purchase. InJune 2022 , we entered into a Royalty Purchase Agreement with Royalty Pharma. Pursuant to this Royalty Purchase Agreement, we received an upfront cash payment of$175.0 million and the right to receive up to$165.0 million in certain milestone payments, subject to the achievement of specified net sales milestones by Roche, in exchange for all of our existing rights to receive royalty payments on the net sales of GAVRETO worldwide excluding the CStone territory andU.S. territory under the terms of the Roche pralsetinib collaboration agreement. Synthetic Royalty Facility. InJune 2022 , we entered a Future Revenue Purchase Agreement withSixth Street Partners . InJuly 2022 , upon the closing of the transaction pursuant to the Future Revenue Purchase Agreement, we received gross proceeds of$250.0 million in exchange for future royalty payments at a rate of 9.75% on up to$900 million each year of (i) aggregate worldwide annual net product sales of AYVAKIT/ AYVAKYT (avapritinib) and (ii) if it is approved, aggregate worldwide annual net product sales of BLU-263, but excluding sales inGreater China , subject to a cumulative cap of 1.45 times the upfront invested capital or a total of$362.5 million . In the event that certain revenue targets are not achieved by specified dates, the royalty rate and cumulative cap shall be increased to 15% and 1.85 times the invested capital (or$462.5 million ), respectively. Debt Facility. InJune 2022 , we entered into a Financing Agreement for up to$660.0 million withSixth Street Partners . The Financing Agreement provides for (i) a senior secured term loan facility of up to$150.0 million and (ii) a senior secured delayed draw term loan facility of up to$250.0 million to be funded in two tranches at the Company's choice. The loans will mature onJune 30, 2028 and bear interest at a variable rate equal to either the SOFR plus six and one half percent (6.50%) or the base rate plus five and one half percent (5.50%), subject to a floor of one percent (1%) and two percent (2%) with respect to the SOFR and base rate, respectively. The initial gross proceeds of$150.0 million was funded inJuly 2022 . In addition, we may at any time request an incremental term loan in an amount not to exceed$260.0 million on terms to be agreed and subject to the consent of the lenders providing such incremental term loan. 42 Table of Contents
Note on the Ongoing COVID-19 Pandemic
Due to the continued evolution and global impact of the ongoing COVID-19 pandemic, we cannot precisely determine or quantify the impact this pandemic will have on our business, operations and financial performance. For our ongoing and planned clinical trials, while we anticipate and have experienced some delays or disruptions due to the COVID-19 pandemic, we have successfully worked with impacted clinical trial sites to ensure study continuity. We actively monitor for COVID-19-related impacts to our supply chain, and we currently have sufficient supply or plans for supply to meet our anticipated global commercial and clinical development needs for our approved drugs and clinical-stage drug candidates. COVID-19 may also impact and has impacted our commercial activities for AYVAKIT/AYVAKYT and GAVRETO, including patient access to testing and identification, but we have observed an increase in in-person engagements and will continue to conduct commercial and medical affairs field activities across our portfolio in virtual formats where in-person interactions are not feasible. We will continue to assess the duration, scope and severity of the COVID-19 pandemic as it evolves and the existing and potential impacts on our business, operations and financial performance, and we will continue to work closely with our third-party vendors, collaborators and other parties in order to seek to advance our pipeline of targeted therapies as quickly as possible, while keeping the health and safety of our employees and their families, healthcare providers, patients and communities a top priority. Please refer to our Risk Factors in Part II, Item IA of this Quarterly Report on Form 10-Q for further discussion of risks related to the COVID-19 pandemic.
Financial Operations Overview
To date, we have financed our operations primarily through public offerings of our common stock, private placements of our convertible preferred and common stock, collaborations, a license agreement, future royalty and revenue monetization, and a term loan. ThroughSeptember 30, 2022 , we have received an aggregate of$3.6 billion from such transactions, including$1.9 billion in aggregate gross proceeds from the sale of common stock in our initial public offering (IPO), follow-on public offerings, through our "at the market" stock offering program and the equity investment by Roche,$115.1 million in gross proceeds from the issuance of convertible preferred stock,$175.0 million in gross proceeds from our Royalty Purchase Agreement with Royalty Pharma,$250.0 million in gross proceeds from our Future Revenue Purchase Agreement withSixth Street Partners ,$1.0 billion in upfront payments and milestone payments under our collaborations with Roche,CStone and Zai Lab, our license agreement with Clementia and our former collaboration withAlexion Pharma Holding (Alexion), and$150.0 million in gross proceeds from a term loan fromSixth Street Partners . SinceJanuary 2020 , we have also generated revenue through the sales of our approved drug products. Since inception, we have incurred significant operating losses, with the exception of the year endedDecember 31, 2020 . Our net loss was$398.9 million for the nine months endedSeptember 30, 2022 . For the year endedDecember 31, 2021 , our net loss was$644.1 million , which included$260.0 million of expenses related to the acquisition of Lengo, and our net income was$313.9 million for the year endedDecember 31, 2020 , primarily due to the collaboration revenue recorded under our collaboration with Roche for pralsetinib. Our net loss was$347.7 million for the year endedDecember 31, 2019 . As ofSeptember 30, 2022 , we had an accumulated deficit of$1,674.3 million . We expect to continue to incur significant expenses and operating losses over the next few years. We anticipate that our expenses will continue to increase in connection with our ongoing activities, particularly as we:
maintain and expand our sales, marketing and distribution infrastructure to
? continue to commercialize our drug and any current or future drug candidates
for which we may obtain marketing approval;
? seek marketing approval for our drug candidates, including avapritinib and
pralsetinib in additional indications or avapritinib in additional geographies;
continue to advance clinical development activities for avapritinib and
? pralsetinib and initiate or advance clinical development activities for other
current or future drug candidates as monotherapies or in combination with other
agents;
continue to discover, validate and develop additional drug candidates or
? development candidates, including BLU-945, BLU-701, BLU-525, BLU-451, BLU-263 and BLU-222; 43 Table of Contents
continue to manufacture increasing quantities of drug substance and drug
product material for use in preclinical studies, clinical trials and
? commercialization and to purchase quantities of other agents for use in our
clinical trial as we develop our drugs and drug candidates as potential
combination therapies or for use as comparator agents;
? conduct development and commercialization activities for companion diagnostic
tests for our drugs and drug candidates;
? conduct research and development activities under our collaborations with
Roche, CStone, Zai Lab and Proteovant;
? maintain, expand and protect our intellectual property portfolio;
acquire or in-license additional businesses, technologies, drugs or drug
? candidates, form strategic alliances or create joint ventures with third
parties; and
? hire additional research, clinical, quality, manufacturing, regulatory,
commercial and general and administrative personnel.
Revenue
InJanuary 2020 , the FDA granted approval of avapritinib under the brand name AYVAKIT for the treatment of adults with unresectable or metastatic GIST harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations. InSeptember 2020 , theEuropean Commission granted conditional marketing authorization to AYVAKYT as a monotherapy for the treatment of adult patients with unresectable or metastatic GIST harboring the PDGFRA D842V mutation. InJune 2021 , the FDA granted a subsequent approval for AYVAKIT, expanding the labeled indications to include adult patients with advanced SM, including aggressive SM, SM with an associated hematological neoplasm and mast cell leukemia. InMarch 2022 , theEuropean Commission expanded the marketing authorization for AYVAKYT to include the treatment of adult patients with ASM, SM-AHN, or MCL, after at least one systemic therapy. InSeptember 2020 , the FDA granted accelerated approval to pralsetinib under the brand name GAVRETO for the treatment of adult patients with metastatic RET fusion-positive NSCLC as detected by an FDA approved test. InDecember 2020 , the FDA granted a subsequent accelerated approval for GAVRETO, expanding the labeled indications to include adult and pediatric patients 12 years of age and older with advanced or metastatic RET-mutant MTC who require systemic therapy, or with advanced or metastatic RET fusion-positive thyroid cancer who require systemic therapy and who are radioactive iodine-refractory (if radioactive iodine is appropriate). For the three and nine months endedSeptember 30, 2022 , our revenue primarily consisted of product sales of AYVAKIT/ AYVAKYT as well as collaboration and license revenue under our collaborations with CStone and Roche and license agreements with Clementia and IDRx. We transferred certain responsibilities associated with product sales to customers, pricing and distribution matters related toU.S. product sales of GAVRETO to Roche onJuly 1, 2021 , and have not recorded any net product revenue from product sales of GAVRETO after this date. For additional information, see Note 10, Collaboration and License Agreements, to our unaudited condensed consolidated financial statements. Collaboration and license revenue for the three and nine months endedSeptember 30, 2022 primarily includes amounts that were recognized related to upfront consideration, milestone payments, amounts due to us for supply of inventory (under our collaboration agreements) and research and development services, and royalties on drug sales. In the future, we expect to generate revenue from a combination of sources, including sales of our current drug product and any current or future drug candidates for which we receive marketing approval, royalties on drug sales, upfront, milestone, profit sharing and other payments, if any, under any current or future collaborations and licenses, including revenues related to the supply of our drug candidates or approved drugs to our various collaboration partners. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of product sales, license fees, research and development services, payments for manufacturing services, and option fees, milestone payments or other payments under our collaboration or license agreements, if any. 44 Table of Contents Cost of Sales Our cost of sales includes the cost of producing and distributing inventories that are related to product revenue as well as the sale of drug substance and drug product to our collaboration partners during the respective period, including salary related expenses and stock-based compensation expense for employees involved with production and distribution, freight, and indirect overhead costs. In addition, shipping and handling costs for product shipments are recorded in cost of sales as incurred. Prior to receiving the initial FDA approval for AYVAKIT and GAVRETO inJanuary 2020 andSeptember 2020 , respectively, and subsequent approval for AYVAKIT inJune 2021 , we manufactured inventory to be sold upon commercialization and recorded approximately$37.7 million related to this inventory as research and development expense. As a result, certain manufacturing costs related to the inventory build-up incurred before FDA approval were expensed in prior periods and are therefore excluded from the cost of goods sold for the three and nine months endedSeptember 30, 2022 . We estimate our cost of goods sold related to product revenue as a percentage of net product revenue will continue to be positively impacted as we sell through certain inventory that was previously expensed prior to FDA approval. We expect to utilize low-cost inventory for an extended period of time. Once the low-cost inventory balances are sold through, we estimate our costs of goods sold related to product sales to remain in the mid-single digit percentage range. Cost of goods sold related to sales of drug products to our collaboration partners are at lower margins and will partially offset the positive impact of the previously expensed inventory.
Expenses
Collaboration Loss Sharing
OnJuly 1, 2021 , Roche took over certain responsibilities associated with product sales to customers, pricing and distribution matters related to GAVRETO in theU.S. and became the principal for recording product sales to customers in theU.S. Collaboration loss sharing consists of our share of the losses incurred from sales of GAVRETO to customers in theU.S. under our collaboration for pralsetinib with Roche. For additional information, see Note 10, Collaboration and License Agreements, to our unaudited condensed consolidated financial statements. We expect collaboration loss sharing will fluctuate from quarter to quarter as a result of the timing and amount of GAVRETO sales.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities, including our drug discovery efforts, and the development of our drug candidates, which include:
? expenses incurred to acquire in-process research and development asset with no
alternative future use;
? employee-related expenses including salaries, benefits, and stock-based
compensation expense;
expenses incurred under agreements with third parties that conduct research and
? development, preclinical activities, clinical activities and manufacturing on
our behalf;
? expenses incurred under agreements with third parties for the development and
commercialization of companion diagnostic tests;
expenses incurred in connection with research and development activities under
? our immunotherapy collaboration with Roche, development activities under our
collaboration for pralsetinib with Roche, and research and development
activities under our collaboration with Proteovant;
? the cost of consultants in connection with our research and development
activities;
? the cost associated with regulatory quality assurance and quality control operations; 45 Table of Contents
the cost of lab supplies and acquiring, developing and manufacturing
? preclinical study materials, clinical trial materials and commercial supply
materials; and
facilities, depreciation, and other expenses, which include direct and
? allocated expenses for rent and maintenance of facilities, insurance, and other
operating costs in support of research and development activities.
Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. The successful development of our drug candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these drug candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our current or future drug candidates for which we received marketing approval. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
? establishing an appropriate safety profile with IND-enabling toxicology
studies;
? successful initiation, enrollment in, and completion of clinical trials;
? receipt of marketing approvals from applicable regulatory authorities;
? establishing manufacturing capabilities or making arrangements with third-party
manufacturers to ensure adequate clinical and commercial supply;
? obtaining and maintaining patent and trade secret protection and regulatory
exclusivity for AYVAKIT/AYVAKYT, GAVRETO and our drug candidates;
? commercializing AYVAKIT/AYVAKYT, GAVRETO and our drug candidates, if and when
approved, whether alone or in collaboration with others;
? market acceptance of AYVAKIT/AYVAKYT, GAVRETO and any future drug we may
commercialize; and
? continued acceptable safety profile of the drugs following approval.
A change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs and timing associated with the development of that drug candidate.
Research and development activities are central to our business model. Drug 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 research and development costs to increase significantly for the foreseeable future as our drug candidate development programs progress and as we conduct and continue our clinical trials to evaluate our approved drugs for additional indications. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our approved drugs or drug candidates for which we may receive marketing approval, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future commercial and regulatory factors beyond our control will impact our clinical development
programs and plans. 46 Table of Contents A significant portion of our research and development expenses have been external expenses, which we track on a program-by-program basis following nomination as a development candidate. Our internal research and development expenses are primarily personnel-related expenses, including stock-based compensation expense. Except for internal research and development expenses related to collaboration agreements, we do not track our internal research and development expenses on a program-by-program basis as they are deployed across multiple projects under development. The following table summarizes our external research and development expenses by program for the three and nine months endedSeptember 30, 2022 and 2021. Other development and pre-development candidate expenses, unallocated expenses and internal research and development expenses have been classified separately.
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) (in thousands)
Avapritinib external expenses $ 17,240$ 13,664 $ 41,174 $ 46,169 Pralsetinib external expenses 3,028 7,744 22,658 18,529 BLU-263 external expenses 10,574 6,084 28,595 15,233 EFGR franchise (BLU-525/701/945) expenses 15,901 10,930 52,838 33,229 BLU-222 external expenses 11,454 4,042 32,173 9,290 BLU-451 external expenses 6,963 - 13,466 - Other development and pre-development candidate expenses and unallocated expenses 28,931 14,591 69,342 46,789 Internal research and development expenses 33,890 27,364 99,333 74,918 Total research and development expenses $ 127,981 $
84,419
Pralsetinib external expenses includes reduction for reimbursable expenses from
Roche or increases in reimbursements to Roche under our collaboration for
* pralsetinib with Roche, and other development and pre-development candidate
expenses includes reduction for reimbursable expenses under our other
collaboration agreement.
We expect that our research and development expenses will increase in future periods as we expand our operations and incur additional costs in connection with our clinical trials and preparing regulatory filings. These increases will likely include the costs related to the implementation and expansion of clinical trial sites and related patient enrollment, monitoring, program management and manufacturing expenses for active pharmaceutical ingredient (API), drug product and drug substance for current and future clinical trials and commercial inventory. In addition, we expect that our research and development expenses will increase in future periods as we incur additional costs in connection with research and development activities under our immunotherapy collaboration with Roche, development activities under our collaboration for pralsetinib with Roche, research and development activities under our collaboration with Proteovant and development activities for companion diagnostic tests for any current and future drug candidates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of compensation and benefits, including stock-based compensation expense, for commercial operations and for personnel in executive, finance, accounting, commercial, business development, information technology, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, commercial development activities, legal fees related to intellectual property and corporate matters and fees for accounting and consulting services. We expect that our selling, general and administrative expenses will continue to increase in the future to support additional research and development activities and commercialization activities, including expanding our sales, marketing and distribution infrastructure to commercialize any drugs for which we may obtain marketing approval for additional indications or in additional geographies and expanding our operations globally. These increases will likely include increased costs related to the hiring of additional personnel, legal, auditing and filing fees and general compliance and consulting expenses, among other expenses. We have incurred and will continue to incur additional expenses associated with operating as a public company and expanding the scope of our operations. 47
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Interest Income (Expense), Net
Interest income (expense), net consists primarily of interest expense related to our financing arrangements with Royalty Pharma andSixth Street Partners . Interest expense on liabilities related to the sale of future royalties and revenues consists of the periodic interest calculated using the effective interest rate method over the future estimated royalty payments due to Royalty Pharma andSixth Street Partners over the life of the agreements. Interest expense on the term loan withSixth Street Partners results from the amortization of the debt liability using the effective interest method over the maturity of the term loan. For additional information, see Note 3, Financing Arrangements, to our unaudited condensed consolidated financial statements.
Interest income (expense), net also includes income earned on cash equivalents and marketable securities.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency transaction gains or losses.
Income Tax Expense
Income tax expense consists of federal, state and foreign income taxes incurred.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies and estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Operations Overview-Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no significant changes to our critical accounting policies and estimates sinceDecember 31, 2021 with the exception of the below new policies.
Investments in non-marketable equity securities of privately-held companies that do not have readily determinable fair values are carried at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Each period we assess relevant transactions to identify observable price changes, and regularly monitor these investments to evaluate whether there is an indication of impairment. We evaluate whether an investment's fair value is less than its carrying value using an estimate of fair value, if such an estimate is available. For periods in which there is no estimate of fair value, we evaluate whether an event or change in circumstances has occurred that may have a significant adverse effect on the value of the investment.
Liabilities related to the sale of future royalties and revenues
We account for net proceeds from sales of our rights to receive future royalty payments and from sales of future revenues as liabilities related to the sale of future royalties and revenues if we have significant continuing involvement in the generation of the related future cash flows. Interest on the liabilities related to the sale of future royalties and revenues will be recognized using the effective interest rate method over the life of the related royalty or revenue stream. The liabilities related to the sale of future royalties and revenues and the related interest expenses are based on our current estimates of future royalties and revenues as well as commercial milestones expected to be achieved and received over the life of the arrangement, which we determine by using forecasts of the underlying drug products of the underlying regions. We periodically assess the expected payments and to the extent the amount or timing of the future estimated payments is materially different than previous estimates, we account for any such change by adjusting carrying value of the liabilities related to the sale of future royalties and revenues, and prospectively recognizing the related interest expenses. 48 Table of Contents Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the three months endedSeptember 30, 2022 and 2021, together with the changes in those items
in dollars and as a percentage: Three Months Ended September 30, 2022 2021 Dollar Change % Change (in thousands) Revenues: Product revenue, net$ 28,634 $ 17,270 $ 11,364 66 %
Collaboration and license revenue 9,843 6,918 2,925 42 License revenue - related party 27,500 -
27,500 100 Total revenues 65,977 24,188 41,789 173 Cost and operating expenses: Cost of sales 3,000 3,790 (790) (21) Collaboration loss sharing 1,665 3,269 (1,604) (49) Research and development 127,981 84,419 43,562 52
Selling, general and administrative 57,608 49,806 7,802 16 Total cost and operating expenses 190,254 141,284 48,970 35 Other income (expense): Interest income (expense), net (8,396) 552 (8,948) (1,621) Other income (expense), net 396 (522) 918 176 Total other income (expense), net (8,000) 30 (8,030) (26,767) Loss before income taxes (132,277) (117,066)
(15,211) (13) Income tax expense (886) (175) (711) (406) Net loss$ (133,163) $ (117,241) $ (15,922) (14) % Product Revenue, Net
Net product revenue increased by
We started generating revenue from sales of AYVAKIT in the first quarter of 2020 following FDA approval of AYVAKIT for the treatment of adults with unresectable or metastatic GIST harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations. InSeptember 2020 , theEuropean Commission granted conditional marketing authorization to avapritinib under the brand name AYVAKYT as a monotherapy for the treatment of adult patients with unresectable or metastatic GIST harboring the PDGFRA D842V mutation. InJune 2021 , the FDA granted a subsequent approval for AYVAKIT, expanding the labeled indications to include adult patients with advanced SM, including aggressive SM, SM with an associated hematological neoplasm and mast cell leukemia. InMarch 2022 , theEuropean Commission expanded the marketing authorization for AYVAKYT to include the treatment of adult patients with ASM, SM-AHN, or MCL, after at least one systemic therapy.
The following table summarizes revenue recognized from sales of AYVAKIT/AYVAKYT
during the three months ended
Three Months Ended September 30, 2022 2021 United Rest of United Rest of States World Total States World Total
AYVAKIT/AYVAKYT
The increase in net product revenue of AYVAKIT/AYVAKYT was primarily driven by the FDA andEuropean Commission approvals to expand the labeled indications to include adult patients with advanced SM. 49
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Collaboration and License Revenue
Collaboration and license revenue increased by$2.9 million from$6.9 million for the three months endedSeptember 30, 2021 to$9.8 million for the three months endedSeptember 30, 2022 . The following table summarizes the revenue recognized from our collaboration and license agreements during the three months endedSeptember 30, 2022 and 2021 (in thousands): Three Months EndedSeptember 30, 2022 2021
Collaboration with Roche for pralsetinib
2,915$ 4,654 Cancer immunotherapy with Roche 2,475 1,408 Other 171 -
Total collaboration and license revenue
Revenue recognized under our collaboration with Roche for pralsetinib for the three months endedSeptember 30, 2022 was primarily associated with manufacturing services related to ex-US territory-specific activities and royalties on drug sales. Revenue recognized under our CStone collaboration for the three months endedSeptember 30, 2022 was primarily generated by royalties on drug sales and the manufacturing services associated with CStone territory-specific activities during the quarter. Revenue recognized under our cancer immunotherapy collaboration with Roche for the three months endedSeptember 30, 2022 consisted of amortization of the total transaction price of the arrangement achieved as of such period. Revenue recognized under our collaboration with Roche for pralsetinib for the three months endedSeptember 30, 2021 was primarily associated with manufacturing and other services related to Roche territory-specific activities. Revenue recognized under our CStone collaboration for the three months endedSeptember 30, 2021 was primarily generated by royalties on drug sales and the manufacturing services associated with CStone territory-specific activities during the quarter, including supply of drug substance and drug product to CStone for sale in their territory. Revenue recognized under our cancer immunotherapy collaboration with Roche for three months endedSeptember 30, 2021 consisted of amortization of the total$64.5 million of upfront and milestone payments achieved as of such period.
License revenue -
License revenue - related party was$27.5 million for the three months endedSeptember 30, 2022 , which represents the license revenue recorded under the IDRx License Agreement. For additional information, see Note 10, Collaboration and License Agreements, to our unaudited condensed consolidated financial statements.
Cost of Product Sales
Cost of product sales decreased by$0.8 million from$3.8 million during the three months endedSeptember 30, 2021 to$3.0 million for the three months endedSeptember 30, 2022 , and was related to manufacturing costs associated with our products sales as well as costs associated with the sale of drug products to our collaboration partners. The following table summarizes the cost of sales by type during the three months endedSeptember 30, 2022 and 2021 (in thousands): Three Months Ended September 30, 2022 2021 Cost of product sales$ 710 $ 1,408 Cost of collaboration sales 2,290 2,382 Total cost of sales$ 3,000 $ 3,790 50 Table of Contents The decrease in costs of product sales was primarily driven by costs incurred in the prior year that weren't present in the current year, including a write-down of$0.4 million for the three months endedSeptember 30, 2021 . In addition, costs associated with our net product revenue remain at higher margins as certain costs associated with the manufacture of our drugs prior to FDA approval were recorded as research and development expenses and, therefore, were not included in cost of sales during such period.
Collaboration Loss Sharing
Our loss sharing under the collaboration with Roche for pralsetinib decreased by$1.6 million from$3.3 million for the three months endedSeptember 30, 2021 to$1.7 million for the three months endedSeptember 30, 2022 .
Research and Development Expense
Research and development expense increased by$43.6 million from$84.4 million for the three months endedSeptember 30, 2021 to$128.0 million for the three months endedSeptember 30, 2022 . The increase in research and development expense was primarily due to an increase of$26.2 million in increased clinical supply manufacturing and clinical development activities due to the progression and expansion of our clinical trials, an increase of$8.5 million in costs related to early discovery and expanding the platform, and an increase of$8.9 million in personnel expenses.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by$7.8 million from$49.8 million for the three months endedSeptember 30, 2021 to$57.6 million for the three months endedSeptember 30, 2022 . The increase in selling, general and administrative expense was primarily related to an increase of$3.4 million in personnel expenses associated with the expansion of our commercial infrastructure for commercialization of AYVAKIT/AYVAKIT, including a$0.4 million increase in stock-based compensation expense, an increase of$3.0 million in other general expenses to operate the business, and an increase of$1.4 million in commercial expenses primarily related to the expansion of our commercial infrastructure for commercialization of AYVAKIT/AYVAKYT.
Interest Income (Expense), Net
Interest expense, net, increased by$8.9 million from$0.6 million interest income for the three months endedSeptember 30, 2021 to$8.4 million interest expense for the three months endedSeptember 30, 2022 . This increase was due to the interest charges on the liabilities related to the sale of future royalties and revenues with Royalty Pharma andSixth Street Partners as well as the term loan withSixth Street Partners .
Other Income (Expense), Net
Other income, net, increased by
Income Tax Expense
Income tax expense increased by$0.7 million from$0.2 million for the three months endedSeptember 30, 2021 to$0.9 million for three months endedSeptember 30, 2022 . InJune 2022 , we entered into a Royalty Purchase Agreement with Royalty Pharma and a Future Revenue Purchase Agreement withSixth Street Partners . Pursuant to the agreements, we received gross proceeds of$175.0 million from Royalty Pharma inJune 2022 and$250.0 million fromSixth Street Partners inJuly 2022 . Both cash considerations in their entirety are considered as taxable income for the calendar year endingDecember 31, 2022 which resulted in the Company being in an estimated taxable income position for the calendar year endingDecember 31, 2022 and the increase in income tax expense for three months endedSeptember 30, 2022 . For additional information, see Note 13, Income Taxes, to our unaudited condensed consolidated financial statements. 51
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Comparison of Nine Months Ended
The following table summarizes our results of operations for the nine months endedSeptember 30, 2022 and 2021, together with the changes in those items in dollars and as a percentage: Nine Months Ended September 30, 2022 2021 Dollar Change % Change (in thousands) Revenues:
Product revenue, net$ 80,929 $ 37,658 $ 43,271 115 % Collaboration and license revenue 56,826 35,401 21,425 61 License revenue - related party 27,500 -
27,500 100 Total revenues 165,255 73,059 92,196 126 Cost and operating expenses: Cost of sales 12,965 10,385 2,580 25 Collaboration loss sharing 7,076 3,269 3,807 116 Research and development 359,579 244,157 115,422 47
Selling, general and administrative 173,354 141,093 32,261 23 Total cost and operating expenses 552,974 398,904 154,070 39 Other income (expense): Interest income (expense), net (7,527) 1,923 (9,450) (491) Other income (expense), net 575 (1,109) 1,684 152 Total other income (expense), net (6,952) 814 (7,766) (954) Loss before income taxes (394,671) (325,031) (69,640) (21) Income tax expense (4,200) (368) (3,832) (1,041) Net loss$ (398,871) $ (325,399) $ (73,472) (23) % Product Revenue, Net
Net product revenue increased by
We started generating revenue from sales of AYVAKIT in the first quarter of 2020 following FDA approval of AYVAKIT for the treatment of adults with unresectable or metastatic GIST harboring a PDGFRA exon 18 mutation, including PDGFRA D842V mutations. InSeptember 2020 , theEuropean Commission granted conditional marketing authorization to avapritinib under the brand name AYVAKYT as a monotherapy for the treatment of adult patients with unresectable or metastatic GIST harboring the PDGFRA D842V mutation. InJune 2021 , the FDA granted a subsequent approval for AYVAKIT, expanding the labeled indications to include adult patients with advanced SM, including aggressive SM, SM with an associated hematological neoplasm and mast cell leukemia. InMarch 2022 , theEuropean Commission expanded the marketing authorization for AYVAKYT to include the treatment of adult patients with ASM, SM-AHN, or MCL, after at least one systemic therapy. We started generating revenue from sales of GAVRETO in the third quarter of 2020 following the initial FDA approval of GAVRETO. GAVRETO was originally approved for the treatment of adult patients with metastatic RET fusion-positive NSCLC and subsequently approved for adult and pediatric patients 12 years of age and older with advanced or metastatic thyroid cancer who require systemic therapy and who are radioactive iodine-refractory (if radioactive iodine is appropriate). We transferred certain responsibilities associated with product sales to customers, pricing and distribution matters related toU.S. product sales of GAVRETO to our collaboration partner onJuly 1, 2021 , and have not recorded any net product revenue from product sales of GAVRETO after this date. For additional information, see Note 10, Collaboration and License Agreements, to our unaudited condensed consolidated financial statements. 52
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The following table summarizes revenue recognized from sales of AYVAKIT/AYVAKYT and GAVRETO during the nine months endedSeptember 30, 2022 and 2021 (in thousands): Nine Months Ended September 30, 2022 2021 United Rest of United Rest of States World Total States World Total AYVAKIT/AYVAKYT$ 70,888 $ 10,041 $ 80,929 $ 26,949 $ 6,003 $ 32,952 GAVRETO - - - 4,706
- 4,706
Total product revenue, net
The increase in net product revenue of AYVAKIT/AYVAKYT was primarily driven by the FDA andEuropean Commission approvals to expand the labeled indications to include adult patients with advanced SM.
Collaboration and License Revenue
Collaboration and license revenue increased by$21.4 million from$35.4 million for the nine months endedSeptember 30, 2021 to$56.8 million for the nine months endedSeptember 30, 2022 . The following table summarizes the revenue recognized from our collaboration and license agreements during the nine months endedSeptember 30, 2022 and 2021 (in thousands): Nine Months Ended September 30, 2022 2021 Clementia license agreement$ 30,000 $ 40 CStone collaboration 18,209 26,228
Collaboration with Roche for pralsetinib 5,573 4,539 Cancer immunotherapy with Roche
1,710 4,293 Other 1,334 301
Total collaboration and license revenue
Revenue recognized under our license agreement with Clementia for the nine months endedSeptember 30, 2022 consisted of a specified development milestone payment. Revenue recognized under our CStone collaboration for the nine months endedSeptember 30, 2022 consisted of$4.0 million in a specified regulatory milestone payment and$14.2 million associated with the manufacturing services related to CStone territory-specific activities and royalties on drug sales. Revenue recognized under our collaboration with Roche for pralsetinib for the nine months endedSeptember 30, 2022 was associated with manufacturing services related to ex-US territory-specific activities and royalties on drug sales. Revenue recognized under our cancer immunotherapy collaboration with Roche for the nine months endedSeptember 30, 2022 consisted of amortization of the total transaction price of the arrangement achieved as of such period. Revenue recognized under our CStone collaboration for the nine months endedSeptember 30, 2021 primarily consisted of$9.0 million in milestone revenue related to regulatory and development milestones that were achieved during the period and$17.2 million related to manufacturing services associated with CStone territory-specific activities during the period, including supply of drug substance and drug product to CStone for sale in their territory, and royalties on the drug sales. Revenue recognized under our collaboration with Roche for pralsetinib for the nine months endedSeptember 30, 2021 was associated with manufacturing and other services related to Roche territory-specific activities. Revenue recognized under our cancer immunotherapy collaboration with Roche for the nine months endedSeptember 30, 2021 was primarily related to amortization of the$64.5 million of upfront and milestone payments received as of such
period. 53 Table of Contents
License Revenue -
License revenue - related party was$27.5 million for the nine months endedSeptember 30, 2022 , which represents license revenue recorded under the IDRx License Agreement. For additional information, see Note 10, Collaboration and License Agreements, to our unaudited condensed consolidated financial statements.
Cost of Product Sales
Cost of product sales increased by$2.6 million from$10.4 million during the nine months endedSeptember 30, 2021 to$13.0 million for the nine months endedSeptember 30, 2022 , and was related to manufacturing costs associated with our products sales as well as costs associated with the sale of drug product to our collaboration partners. The following table summarizes the cost of sales by type during the nine months endedSeptember 30, 2022 and 2021 (in thousands): Nine Months EndedSeptember 30, 2022 2021
Cost of product sales
$ 12,965 $ 10,385 The increase in total costs of sales was primarily driven by the increase in sales to our collaboration partners. The decrease in cost of product sales was driven by costs incurred in the prior year that weren't present in the current year, including a write-down of$0.8 million for the nine months endedSeptember 30, 2021 . Costs associated with our net product revenue remain at higher margins as certain costs associated with the manufacture of our drugs prior to FDA approval were recorded as research and development expenses and, therefore, were not included in cost of sales during such period.
Collaboration Loss Sharing
Our loss sharing under the collaboration with Roche for pralsetinib increased by$3.8 million from$3.3 million for the nine months endedSeptember 30, 2021 to$7.1 million for the nine months endedSeptember 30, 2022 .
Research and Development Expense
Research and development expense increased by$115.4 million from$244.2 million for the nine months endedSeptember 30, 2021 to$359.6 million for the nine months endedSeptember 30, 2022 . The increase in research and development expense was primarily due to an increase of$67.7 million in increased clinical supply manufacturing and clinical development activities due to the progression and expansion of our clinical trials, an increase of$22.2 million in costs related to early discovery and expanding the platform, and an increase of$25.5 million in personnel expenses, including an increase of$0.9 million in stock-based compensation expense.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by$32.3 million from$141.1 million for the nine months endedSeptember 30, 2021 to$173.4 million for the nine months endedSeptember 30, 2022 . The increase in selling, general and administrative expense was primarily related to an increase of$19.3 million in personnel expenses, including a$3.0 million increase in stock-based compensation expense, an increase of$9.6 million in other general expenses to operate the business, and an increase of$3.3 million in commercial expenses primarily related to the expansion of our commercial infrastructure for commercialization of AYVAKIT/AYVAKYT.
Interest Income (Expense), Net
Interest expense, net, increased by
54
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due to the interest charges on the liabilities related to the sale of future royalties and revenues with Royalty Pharma andSixth Street Partners as well as the term loan withSixth Street Partners .
Other Income (Expense), Net
Other income (expense), net, increased by$1.7 million from$1.1 million expense for the nine months endedSeptember 30, 2021 to$0.6 million income for the nine months endedSeptember 30, 2022 .
Income Tax Expense
Income tax expense increased by$3.8 million from$0.4 million for the nine months endedSeptember 30, 2021 to$4.2 million for the nine months endedSeptember 30, 2022 . In June, 2022, we entered into a Royalty Purchase Agreement with Royalty Pharma and a Future Revenue Purchase Agreement withSixth Street Partners . Pursuant to the agreements, we received gross proceeds of$175.0 million from Royalty Pharma inJune 2022 and$250.0 million fromSixth Street Partners inJuly 2022 . Both cash considerations in their entirety are considered as taxable income for the calendar year endingDecember 31, 2022 which resulted in the Company being in a taxable income position for the calendar year endingDecember 31, 2022 and the increase in income tax expense for the nine months endedSeptember 30, 2022 . For additional information, see Note 13, Income Taxes, to our unaudited condensed consolidated financial statements.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through public offerings of our common stock, private placements of our convertible preferred and common stock, collaborations, a license agreement, future royalty and revenue monetization, and a term loan. ThroughSeptember 30, 2022 , we have received an aggregate of$3.6 billion from such transactions, including$1.9 billion in aggregate gross proceeds from the sale of common stock in our IPO, follow-on public offerings, through our "at the market" stock offering program and the equity investment by Roche,$115.1 million in gross proceeds from the issuance of convertible preferred stock,$175.0 million in gross proceeds from our Royalty Purchase Agreement with Royalty Pharma,$250.0 million in gross proceeds from our Future Revenue Purchase Agreement withSixth Street Partners ,$1.0 billion in upfront payments and milestone payments under our collaborations with Roche,CStone and Zai Lab, our license agreement with Clementia and our former collaboration with Alexion, and$150.0 million in gross proceeds from a term loan fromSixth Street Partners . SinceJanuary 2020 , we have also generated revenue through the sales of our approved drug products.
As of
Cash Flows
The following table provides information regarding our cash flows for the nine
months ended
Nine Months Ended September 30, (in thousands) 2022 2021
Net cash used in operating activities$ (380,872) $ (284,539) Net cash provided by (used in) investing activities (96,258)
121,094
Net cash provided by financing activities 559,319
32,787
Net increase (decrease) in cash, cash equivalents, and restricted cash$ 82,189
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Net Cash Provided by (Used in) Investing Activities. For the nine months endedSeptember 30, 2022 , compared to the same period in 2021, the$217.4 million increase in net cash used in investing activities was primarily due to an increase of$211.5 million in net proceeds used to purchase available-for-sale marketable securities. Net Cash Provided by Financing Activities. For the nine months endedSeptember 30, 2022 , compared to the same period in 2021, the$526.5 million increase in net cash provided by financing activities was due to an increase of$553.6 million in net proceeds received under the Royalty Purchase Agreement with Royalty Pharma, the Future Revenue Purchase Agreement withSixth Street Partners , and the term loan withSixth Street Partners , which was partially offset by a decrease in net proceeds received from stock options exercises and employee stock purchase plan.
Debt Financing
InJune 2022 , we entered into a Royalty Purchase Agreement with Royalty Pharma. Pursuant to the Royalty Purchase Agreement, we received an upfront payment of$175.0 million in consideration for our rights to receive royalty payments on the net sales of GAVRETO worldwide excluding the CStone territory andU.S. territory under the terms of the Roche pralsetinib collaboration agreement. Net proceeds from the transaction were recorded as liabilities related to sale of future royalties and revenues on the consolidated balance sheet and as ofSeptember 30, 2022 , the carrying value of the liability related to this arrangement was$173.6 million . Pursuant to the Royalty Purchase Agreement, we are eligible to receive certain milestone payments totaling up to$165.0 million , subject to the achievement of specified net sales milestones by Roche. The potential milestone payments will be added to the carrying value of the liability related to this arrangement when the milestones are achieved and received. For additional information, see Note 3, Financing Arrangements to our unaudited condensed consolidated financial statements. InJuly 2022 , we closed a Future Revenue Purchase Agreement withSixth Street Partners and received gross proceeds of$250.0 million in exchange for future royalty payments at a rate of 9.75% on up to$900 million each year of (i) aggregate worldwide annual net product sales of AYVAKIT/ AYVAKYT (avapritinib) and (ii) if it is approved, aggregate worldwide annual net product sales of BLU-263, but excluding sales inGreater China , subject to a cumulative cap of 1.45 times the upfront invested capital or a total of$362.5 million . In the event that certain revenue targets are not achieved by specified dates, the royalty rate and cumulative cap shall be increased to 15% and 1.85 times the invested capital (or$462.5 million ), respectively. Net proceeds from the transaction were recorded as liabilities related to sale of future royalties and revenues on the consolidated balance sheet and as ofSeptember 30, 2022 , the carrying value of the liability related to this arrangement was$250.1 million . InJuly 2022 , we closed a Financing Agreement for up to$660.0 million withSixth Street Partners . The Financing Agreement entered into by the parties in connection with the transaction provides for (i) a senior secured term loan facility of up to$150.0 million and (ii) a senior secured delayed draw term loan facility of up to$250.0 million to be funded in two tranches at our choice. The loans will mature onJune 30, 2028 and bear interest at a variable rate equal to either the Secured Overnight Financing Rate (SOFR) plus six and one half percent (6.50%) or the base rate plus five and one half percent (5.50%), subject to a floor of one percent (1%) and two percent (2%) with respect to the SOFR and base rate, respectively. The initial gross proceeds of$150.0 million was funded inJuly 2022 . In addition, we may at any time request an incremental term loan in an amount not to exceed$260.0 million on terms to be agreed and subject to the consent of the lenders providing such incremental term loan. As ofSeptember 30, 2022 , the carrying value of the term loan was$138.4 million . Our obligations under the financing agreement will be secured, subject to certain exceptions, by security interests in the substantially all of our assets and our certain subsidiaries. The financing agreement contains negative covenants that, among other things and subject to certain exceptions, could restrict the our ability to incur additional liens, incur additional indebtedness, make investments, including acquisitions, engage in fundamental changes, sell or dispose of assets that constitute collateral, including certain intellectual property, pay dividends or make any distribution or payment on or redeem, retire or purchase any equity interests, amend, modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness. The financing agreement also requires us to have consolidated liquidity of at least (i)$50.0 million during the period commencing from the date on which the term loans are funded to the date which is the day before the next term loans are funded and (ii)$80.0 million for each day thereafter. For additional information, see Note 3, Financing Arrangements, to our unaudited condensed 56 Table of Contents
consolidated financial statements.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate or continue clinical trials of, and seek marketing approval for our drug candidates, including marketing approval for avapritinib and pralsetinib for additional indications or avapritinib in additional geographies, to the extent these expenses are not the responsibility of our collaborators. In addition, we expect to incur additional significant commercialization expenses for AYVAKIT/AYVAKYT, GAVRETO and other drug candidates, if approved, related to drug sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of potential collaborators or licensors. We will also incur additional significant costs if we choose to pursue additional indications or geographies for any of our approved drugs or drug candidates or otherwise expand more rapidly than we presently anticipate. Accordingly, we may seek to obtain additional funding from time to time in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate certain of our research and development programs or future commercialization efforts.
As of
Our future capital requirements will depend on many factors, including:
the success of our commercialization efforts and market acceptance for
? AYVAKIT/AYVAKYT, GAVRETO or any of our current or future drug candidates for
which we receive marketing approval;
the costs of maintaining, expanding or contracting for sales, marketing and
? distribution capabilities in connection with commercialization of
AYVAKIT/AYVAKYT and any of our current or future drug candidates for which we
receive marketing approval;
the costs of securing manufacturing, packaging and labeling arrangements to
ensure adequate supply for development activities and commercial production,
? including API, drug substance and drug product material for use in preclinical
studies, clinical trials, our compassionate use program and for use as commercial supply, as applicable;
the cost of purchasing quantities of agents for use in our clinical trials in
? connection with our efforts to develop our drugs and drug candidates, including
for development as combination therapies;
the scope, progress, results and costs of drug discovery, preclinical
? development, laboratory testing and clinical trials for our approved drugs and
drug candidates;
the costs, timing and outcome of regulatory review of marketing applications
? for our drug candidates, including seeking marketing approval for avapritinib
and pralsetinib for additional indications or avapritinib in additional geographies;
the success of our collaborations with Roche, CStone, Zai Lab and Proteovant
? and our license agreements with Clementia and IDRx, as well as our ability to
establish and maintain additional collaborations, partnerships or licenses on
favorable terms, if at all;
the achievement of milestones or occurrence of other developments that trigger
? payments under our existing collaboration or license agreements, or any
collaboration, partnership or license agreements that we may enter into in the future; 57 Table of Contents
the extent to which we are obligated to reimburse, or entitled to reimbursement
? of, research and development, clinical or other costs under future
collaboration agreements, if any;
? the extent to which we acquire or in-license other approved drugs, drug
candidates or technologies and the terms of any such arrangements;
? the success of our current or future collaborations for the development and
commercialization of companion diagnostic tests;
the costs of preparing, filing and prosecuting patent applications, maintaining
? and enforcing our intellectual property rights and defending intellectual
property-related claims; and
? the costs of continuing to expand our operations.
Identifying potential drug candidates, conducting preclinical development and testing and clinical trials and, for any drug candidates that receive marketing approval, establishing and maintaining commercial infrastructure is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain additional marketing approvals, including for avapritinib and pralsetinib in additional indications or avapritinib in additional geographies, and achieve substantial revenues for any of our drugs that receive marketing approval, including for AYVAKIT/AYVAKYT and GAVRETO. In addition, our drugs and any current or future drug candidates that receive marketing approvals, including avapritinib and pralsetinib for additional indications or avapritinib in additional geographies, may not achieve commercial success. Accordingly, we may need to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Until such time, if ever, as we can generate substantial drug revenues, we expect to finance our cash needs primarily through a combination of public and private equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds, other than our collaborations with Roche,CStone and Zai Lab, the license agreements with Clementia and IDRx, the Royalty Purchase Agreement with Royalty Pharma, and the Financing Agreement withSixth Street Partners , which are limited in scope and duration and subject to the achievement of milestones or royalties on sales of licensed products, if any. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that materially adversely affect the rights of our common stockholders. Additional debt financing, if available, would increase our fixed payment obligations and may involve agreements that include additional covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs, drugs or drug candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market drug and drug candidates that we would otherwise prefer
to develop and market ourselves. Contractual Obligations
Our contractual obligations primarily consist of our obligations under non-cancellable operating leases and unconditional purchase obligations related to certain commercial manufacturing agreements.
During the nine months ended
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