(in thousands, except par value and share amounts)

	September 30,			December 31,
	2020			2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	27,760		$	87,820
Accounts receivable, net		3,929			2,960
Inventory, net		7,274			2,211
Prepaid expenses and other current assets		3,240			4,467
Total current assets		42,203			97,458
Property and equipment, net		284			18,389
Right-of-use lease assets		2,150			15,491
Restricted cash		699			909
Intangible assets, net		15,261			-
Goodwill		20,123			-
Total assets	$	80,720		$	132,247

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	3,928		$	4,177
Accrued expenses		7,683			9,312
Accrued payroll and related expenses		6,164			8,332
Lease liabilities, current portion		985			2,766
Total current liabilities		18,760			24,587
Lease liabilities, less current portion		1,249			26,481
Deferred royalty obligation, net		124,421			124,379
Other noncurrent liabilities		21,805			12,790
Total liabilities	$	166,235		$	188,237
Commitments and contingencies (Note 6)
Shareholders’ deficit:
Common Stock, $0.0001 par value; 100,000,000 shares authorized, 27,378,048 and 27,195,469 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		3			3
Series C-1² Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized, 3,906 shares issued and outstanding at September 30, 2020 and December 31, 2019; and liquidation preference of $3,906 at September 30, 2020 and December 31, 2019		3,906			3,906
Additional paid-in capital		983,850			977,432
Accumulated deficit		(1,073,274	)		(1,037,331	)
Total shareholders’ deficit		(85,515	)		(55,990	)
Total liabilities and shareholders’ deficit	$	80,720		$	132,247

September 30,
2019 December 31,
2018
(Unaudited)
ASSETS
Current assets:
Cash $ 104,768
$ 172,604
Accounts receivable, net 1,417
1,381
Inventory, net 1,910
2,020
Prepaid expenses and other current assets 4,783
5,111
Total current assets 112,878
181,116
Property and equipment, net 19,523
22,267
Right-of-use lease asset 15,829
—
Restricted cash 909
909
Total assets $ 149,139
$ 204,292

LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 5,338
$ 8,572
Accrued expenses 9,351
8,485
Accrued payroll and related expenses 5,118
7,509
Lease liability, current portion 2,705
—
Deferred rent, current portion —
1,370
Total current liabilities 22,512
25,936
Lease liability, less current portion 27,199
—
Deferred rent, less current portion —
13,609
Deferred royalty obligation, net 124,366
124,323
Other noncurrent liabilities 10,233
4,503
Total liabilities 184,310
168,371
Shareholders’ (deficit) equity:
Common Stock, $0.0001 par value; 100,000,000 shares authorized,
27,147,387 and 26,259,254 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
3
3
Series C-1² Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized,
3,906 shares issued and outstanding at September 30, 2019 and December 31, 2018; and liquidation preference of $3,906 at September 30, 2019 and December 31, 2018
3,906
3,906
Series F Convertible Preferred Stock, $0.0001 par value; 10,000 shares authorized,
0 and 2,737 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively; and liquidation preference of $0 and $2,737 at September 30, 2019 and December 31, 2018, respectively
—
2,737
Additional paid-in capital 973,018
950,258
Accumulated deficit (1,012,098 ) (920,983 )
Total shareholders’ (deficit) equity (35,171 ) 35,921
Total liabilities and shareholders’ (deficit) equity $ 149,139
$ 204,292

See accompanying notes to the condensed consolidated financial statements.

LA JOLLA PHARMACEUTICAL COMPANY

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenue
Net product sales	$	9,072		$	5,706		$	22,468		$	15,804
Total revenue		9,072			5,706			22,468			15,804
Operating expenses
Cost of product sales		2,489			554			4,013			1,605
Research and development		3,617			21,182			21,581			64,469
Selling, general and administrative		12,493			10,782			29,322			34,425
Total operating expenses		18,599			32,518			54,916			100,499
Loss from operations		(9,527	)		(26,812	)		(32,448	)		(84,695	)
Other income (expense)
Interest expense		(2,526	)		(2,863	)		(7,402	)		(8,398	)
Interest income		12			501			234			1,818
Other income—related party		-			-			4,085			-
Other income (expense)		281			-			(412	)		-
Total other income (expense), net		(2,233	)		(2,362	)		(3,495	)		(6,580	)
Net loss	$	(11,760	)	$	(29,174	)	$	(35,943	)	$	(91,275	)
Net loss per share, basic and diluted	$	(0.43	)	$	(1.08	)	$	(1.32	)	$	(3.37	)
Weighted-average common shares outstanding, basic and diluted		27,368			27,135			27,311			27,093

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Revenue
Net product sales $ 5,706
$ 3,470
$ 15,804
$ 5,872
Total revenue 5,706
3,470
15,804
5,872
Operating expenses
Cost of product sales 554
256
1,605
443
Research and development 21,182
30,439
64,469
89,735
Selling, general and administrative 10,782
21,139
34,425
66,319
Total operating expenses 32,518
51,834
100,499
156,497
Loss from operations (26,812 ) (48,364 ) (84,695 ) (150,625 )
Other (expense) income
Interest expense (2,863 ) (2,926 ) (8,398 ) (4,581 )
Interest income 501
545
1,818
1,155
Total other expense, net (2,362 ) (2,381 ) (6,580 ) (3,426 )
Net loss $ (29,174 ) $ (50,745 ) $ (91,275 ) $ (154,051 )
Net loss per share, basic and diluted $ (1.08 ) $ (1.93 ) $ (3.37 ) $ (6.15 )
Weighted-average common shares outstanding, basic and diluted 27,135
26,226
27,093
25,055

See accompanying notes to the condensed consolidated financial statements.

LA JOLLA PHARMACEUTICAL COMPANY

Condensed Consolidated Statements of Shareholders’ (Deficit) Equity

(Unaudited)

(in thousands)

																						Series C-1² Convertible Preferred Stock					Series F Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Shareholders' (Deficit)
																						Shares			Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Equity
	Series C-1² Convertible Preferred Stock			Series F Convertible Preferred Stock					Common Stock			Additional Paid-in Capital				Accumulated Deficit			Total Shareholders’ (Deficit) Equity
	Shares	Amount		Shares		Amount			Shares	Amount
Balance at December 31, 2018	4	$	3,906	3		$	2,737		26,259	$	3	Additional Paid-in Capital		$	950,258	Accumulated Deficit			Total Shareholders’ (Deficit) Equity			$	(920,983	)	$	35,921
Balance at December 31, 2019																							4		$	3,906		-	$	-		27,195	$	3	$	977,432	$	(1,037,331	)	$	(55,990	)
Share-based compensation expense	—	—		—		—			—	—		6,782				—			6,782				-			-		-		-		-		-		2,407		-			2,407
Issuance of common stock under 2013 Equity Plan																							-			-		-		-		44		-		305		-			305
Issuance of common stock under ESPP	—	—		—		—			52	—		283				—			283				-			-		-		-		38		-		200		-			200
Issuance of common stock for conversion of Series F Preferred Stock	—	—		(3	)	(2,737		)	782	—		2,737				—			—
Cumulative-effect adjustment from adoption of ASU 2018-07	—	—		—		—			—	—		(160		)		160			—
Net loss	—	—		—		—			—	—		—				(31,685		)	(31,685		)		-			-		-		-		-		-		-		(8,591	)		(8,591	)
Balance at March 31, 2019	4	3,906		—		—			27,093	3		959,900				(952,508		)	11,301
Balance at March 31, 2020																							4			3,906		-		-		27,277		3		980,344		(1,045,922	)		(61,669	)
Share-based compensation expense																							-			-		-		-		-		-		1,590		-			1,590
Issuance of common stock under 2013 Equity Plan																							-			-		-		-		50		-		300		-			300
Issuance of common stock under ESPP																							-			-		-		-		32		-		159		-			159
Net loss																							-			-		-		-		-		-		-		(15,592	)		(15,592	)
Balance at June 30, 2020																							4			3,906		-		-		27,359		3		982,393		(1,061,514	)		(75,212	)
Share-based compensation expense	—	—		—		—			—	—		6,321				—			6,321				-			-		-		-		-		-		1,388		-			1,388
Issuance of common stock under ESPP	—	—		—		—			32	—		201				—			201				-			-		-		-		19		-		69		-			69
Net loss	—	—		—		—			—	—		—				(30,416		)	(30,416		)		-			-		-		-		-		-		-		(11,760	)		(11,760	)
Balance at June 30, 2019	4	3,906		—		—			27,125	3		966,422				(982,924		)	(12,593		)
Share-based compensation expense	—	—		—		—			—	—		6,419				—			6,419
Issuance of common stock under ESPP	—	—		—		—			22	—		177				—			177
Net loss	—	—		—		—			—	—		—				(29,174		)	(29,174		)
Balance at September 30, 2019	4	$	3,906	—		$	—		27,147	$	3	$	973,018			$	(1,012,098	)	$	(35,171	)
Balance at September 30, 2020																							4		$	3,906		-	$	-		27,378	$	3	$	983,850	$	(1,073,274	)	$	(85,515	)

	Series C-1² Convertible Preferred Stock				Series F Convertible Preferred Stock						Common Stock				Additional Paid-in			Accumulated			Total Shareholders' (Deficit)
	Shares		Amount		Shares			Amount			Shares		Amount		Capital			Deficit			Equity
Balance at December 31, 2018		4	$	3,906		3		$	2,737			26,259	$	3	$	950,258		$	(920,983	)	$	35,921
Share-based compensation expense		-		-		-			-			-		-		6,782			-			6,782
Issuance of common stock under ESPP		-		-		-			-			52		-		283			-			283
Issuance of common stock for conversion of Series F Preferred Stock		-		-		(3	)		(2,737	)		782		-		2,737			-			-
Cumulative-effect adjustment from adoption of ASU 2018-07		-		-		-			-			-		-		(160	)		160			-
Net loss		-		-		-			-			-		-		-			(31,685	)		(31,685	)
Balance at March 31, 2019		4		3,906		-			-			27,093		3		959,900			(952,508	)		11,301
Share-based compensation expense		-		-		-			-			-		-		6,321			-			6,321
Issuance of common stock under ESPP		-		-		-			-			32		-		201			-			201
Net loss		-		-		-			-			-		-		-			(30,416	)		(30,416	)
Balance at June 30, 2019		4		3,906		-			-			27,125		3		966,422			(982,924	)		(12,593	)
Share-based compensation expense		-		-		-			-			-		-		6,419			-			6,419
Issuance of common stock under ESPP		-		-		-			-			22		-		177			-			177
Net loss		-		-		-			-			-		-		-			(29,174	)		(29,174	)
Balance at September 30, 2019		4	$	3,906		-		$	-			27,147	$	3	$	973,018		$	(1,012,098	)	$	(35,171	)

Series C-1²
Convertible
Preferred Stock

Series F
Convertible
Preferred Stock

Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Total
Shareholders’
(Deficit)
Equity
Shares Amount Shares Amount Shares Amount
Balance at December 31, 2017 4
$ 3,906
3
$ 2,737
22,167
$ 2
$ 803,071
$ (721,514 ) $ 88,202
Issuance of common stock for March 2018 financing —
—
—
—
3,910
1
109,808
—
109,809
Share-based compensation expense —
—
—
—
—
—
9,402
—
9,402
Exercise of stock options and warrants for common stock —
—
—
—
77
—
528
—
528
Net loss —
—
—
—
—
—
—
(50,528 ) (50,528 )
Balance at March 31, 2018 4

3,906

3

2,737

26,154

3

922,809

(772,042 )
157,413
Share-based compensation expense —
—
—
—
—
—
9,844
—
9,844
Exercise of stock options for common stock —
—
—
—
65
—
1,188
—
1,188
Net loss —
—
—
—
—
—
—
(52,778 ) (52,778 )
Balance at June 30, 2018 4

3,906

3

2,737

26,219

3

933,841

(824,820 )
115,667
Share-based compensation expense —
—
—
—
—
—
9,880
—
9,880
Exercise of stock options for common stock —
—
—
—
8
—
192
—
192
Net loss —
—
—
—
—
—
—
(50,745 ) (50,745 )
Balance at September 30, 2018 4
$ 3,906
3
$ 2,737
26,227
$ 3
$ 943,913
$ (875,565 ) $ 74,994

See accompanying notes to the condensed consolidated financial statements.

LA JOLLA PHARMACEUTICAL COMPANY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2020			2019
Operating activities
Net loss	$	(35,943	)	$	(91,275	)
Adjustments to reconcile net loss to net cash used for operating activities:
Share-based compensation expense		5,385			19,522
Depreciation expense		2,155			3,408
Inventory fair value step-up adjustment included in cost of product sales		1,186			-
Amortization of intangible assets		259			-
Amortization of right-of-use lease assets		1,091			969
Non-cash interest expense		5,339			6,971
Loss on short-term investments		502			-
Loss on disposal of property and equipment, net of gain on lease termination		59			15
Changes in operating assets and liabilities:
Accounts receivable, net		218			(36	)
Inventory, net		(1,482	)		110
Prepaid expenses and other current assets		2,445			328
Accounts payable		(1,649	)		(3,234	)
Accrued expenses		(5,786	)		(332	)
Accrued payroll and related expenses		(2,168	)		(2,391	)
Lease liabilities		(1,969	)		(1,873	)
Net cash used for operating activities		(30,358	)		(67,818	)
Investing activities
Acquisition of Tetraphase, net of cash, cash equivalents and restricted cash acquired		(33,513	)		-
Proceeds from the sale of property and equipment		3,070			-
Purchases of property and equipment		-			(679	)
Proceeds from the sale of short-term investments		2,497			-
Purchases of short-term investments		(2,999	)		-
Net cash used for investing activities		(30,945	)		(679	)
Financing activities
Net proceeds from issuance of common stock under 2013 Equity Plan		605			-
Net proceeds from issuance of common stock under ESPP		428			661
Net cash provided by financing activities		1,033			661
Net decrease in cash, cash equivalents and restricted cash		(60,270	)		(67,836	)
Cash, cash equivalents and restricted cash, beginning of period		88,729			173,513
Cash, cash equivalents and restricted cash, end of period	$	28,459		$	105,677
Supplemental disclosure of non-cash investing and financing activities
Conversion of Series F Convertible Preferred Stock into common stock	$	-		$	2,737
Cumulative-effect adjustment from adoption of ASU 2018-07	$	-		$	(160	)
Initial recognition of right-of-use lease asset	$	-		$	16,798
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	27,760		$	104,768
Restricted cash		699			909
Total cash, cash equivalents and restricted cash	$	28,459		$	105,677

Nine Months Ended September 30,
2019 2018
Operating activities
Net loss $ (91,275 ) $ (154,051 )
Adjustments to reconcile net loss to net cash used for operating activities:
Share-based compensation expense 19,522
29,126
Depreciation expense 3,408
3,245
Loss on disposal of equipment 15
236
Non-cash interest expense 6,971
4,421
Non-cash rent expense 969
—
Changes in operating assets and liabilities:
Accounts receivable, net (36 ) (1,537 )
Inventory, net 110
(1,101 )
Prepaid expenses and other current assets 328
(2,700 )
Accounts payable (3,234 ) (4,914 )
Accrued expenses (332 ) 5,906
Accrued payroll and related expenses (2,391 ) (73 )
Lease liability (1,873 ) —
Deferred rent —
1,110
Net cash used for operating activities (67,818 ) (120,332 )
Investing activities
Purchase of property and equipment (679 ) (2,252 )
Net cash used for investing activities (679 ) (2,252 )
Financing activities
Proceeds from the issuance of common stock under ESPP 661
—
Net proceeds from royalty financing —
124,289
Net proceeds from the issuance of common stock —
109,809
Net proceeds from the exercise of stock options for common stock —
1,908
Net cash provided by financing activities 661
236,006
Net (decrease) increase in cash and restricted cash (67,836 ) 113,422
Cash and restricted cash at beginning of period 173,513
91,824
Cash and restricted cash at end of period $ 105,677
$ 205,246
Supplemental disclosure of non-cash investing and financing activities:
Conversion of Series F Convertible Preferred Stock into common stock $ 2,737
$ —
Cumulative-effect adjustment from adoption of ASU 2018-07 $ (160 ) $ —
Initial recognition of right-of-use lease asset $ 16,798
$ —
Reconciliation of cash and restricted cash to the condensed consolidated balance sheets
Cash $ 104,768
$ 204,337
Restricted cash 909
909
Total cash and restricted cash $ 105,677
$ 205,246

See accompanying notes to the condensed consolidated financial statements.

LA JOLLA PHARMACEUTICAL COMPANY

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Business

La Jolla Pharmaceutical Company (collectively with its ~~wholly-owned~~wholly owned subsidiaries, “La Jolla” or the “Company”) is ~~a biopharmaceutical company focused on~~dedicated to the ~~discovery,~~ development and commercialization of innovative therapies ~~intended to significantly~~that improve outcomes in patients suffering from life-threatening diseases. ~~In December 2017, GIAPREZA™~~GIAPREZA^TM (angiotensin II) ~~was~~for injection is approved by the U.S. Food and Drug Administration (“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. ~~In August 2019, GIAPREZA was~~XERAVA^TM (eravacycline) for injection is a novel fluorocycline of the tetracycline class of antibacterials that is approved by the ~~European Commission~~FDA for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies. LJPC-0118 (artesunate) is La Jolla’s investigational product for the treatment of severe malaria. LJPC-401 (synthetic human hepcidin) is La Jolla's investigational product for the potential treatment of conditions characterized by iron overload. LJPC-401 is being investigated in a pivotal study in beta thalassemia patients with iron overload and in a Phase 2 studycomplicated intra-abdominal infections (“cIAI”) in patients ~~with hereditary hemochromatosis.~~

18 years of age and older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. The Company’s consolidated financial results for periods ending September 30, 2020 and beyond include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020 (see Note 12).

As of September 30, 2020 and December 31, 2019, the Company had ~~$104.8~~cash and cash equivalents of $27.8 million ~~in cash, compared to $172.6~~and $87.8 million, ~~in cash as of December 31, 2018.~~respectively. Based on the Company’s current operating plans and projections, the Company expects that its existing cash and cash equivalents will be sufficient to fund operations for at least one year from the date this Quarterly Report on Form 10-Q is filed with the U.S. Securities and Exchange Commission (the “SEC”).

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying ~~unaudited~~ condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, ~~they~~certain information and disclosures required by GAAP for annual financial statements have been omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2018~~2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on March ~~4, 2019~~2, 2020 (the “Form 10-K”). The accompanying ~~unaudited~~ condensed consolidated financial statements include the accounts of La Jolla Pharmaceutical Company and its ~~wholly-owned~~wholly owned subsidiaries. All ~~significant~~ inter-company transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations for the three and nine months ended September 30, 2019, the condensed consolidated statement of shareholders' (deficit) equity for the three and nine ended September 30, 2019 and the condensed consolidated statement of cash flows for the nine months ended September 30, 2019.

The preparation of the Company’s ~~unaudited~~ condensed consolidated financial statements requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in the Company’s ~~unaudited~~ condensed consolidated financial statements and the accompanying notes. Actual results may differ materially from these estimates. Certain amounts previously reported in the financial statements have been reclassified to conform to the current year presentation. Such reclassifications did not affect net loss, shareholders’ (deficit) equity or cash flows. The results of operations for the three and nine months ended September 30, ~~2019~~2020 are not necessarily indicative of the results to be expected for the full year or any future interim periods. The accompanying condensed consolidated balance sheet as of December 31, ~~2018~~2019 has been derived from the audited consolidated balance sheet as of December 31, ~~2018~~2019 contained in the Form 10-K.

Summary of Significant Accounting Policies

During the nine months ended September 30, ~~2019,~~2020, other than the short-term investments, business combinations, intangible assets and goodwill policies described below, there have been no changes to the Company’s significant accounting policies as described in the Form ~~10-K, except~~10-K.

Short-term investments

Short-term investments are comprised of marketable equity securities that are “available-for-sale,” as ~~described below.~~

~~Leases~~

~~At lease commencement,~~such term is defined by the ~~Company records a lease liability based on the present~~Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 320. Marketable equity securities are classified as current assets. Short-term investments are measured at fair value, ~~of lease payments over the expected lease term. The Company calculates the present value of lease payments using the discount rate implicit~~and unrealized gains and losses are recorded in other income (expense), net in the ~~lease, unless that rate cannot be readily determined. In that case, the Company uses its incremental borrowing rate, which is the rate~~consolidated statements of interest that the Company would have to pay to borrow on a collateralized basis an amount equal to the lease payments over the expected lease term. The Company records a corresponding right-of-use lease asset based on the lease liability, adjusted for any lease incentives receivedoperations. Overnight sweep accounts are classified as cash and ~~any initial direct costs paid to the lessor prior to the lease commencement date.~~

After lease commencement, the Company measures its leases as follows: (i) the lease liability based on the present value of the remaining lease payments using the discount rate determined at lease commencement; and (ii) the right-of-use lease asset based on the remeasured lease liability, adjusted for any unamortized lease incentives received, any unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease agreement. Any lease incentives received and any initial direct costs are amortized on a straight-line basis over the expected lease term. Rent expense is recorded on a straight-line basis over the expected lease term.

cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to ~~concentrations~~concentration of credit risk consist of ~~cash.~~cash and accounts receivable. The Company maintains its cash in checking and savings accounts at federally insured financial institutions in excess of federally insured limits.

~~The Company’s products are distributed~~

During the nine months ended September 30, 2020, 468 hospitals in the U.S. purchased GIAPREZA. During the nine months ended September 30, 2020, 646 hospitals in the U.S. purchased XERAVA. Hospitals purchase our products through ~~authorized~~a network of specialty and wholesale distributors ~~and select wholesalers (collectively, customers)~~(“Customers”). The Company does not believe that ~~resell its products~~the loss of one of these distributors would significantly impact the ability to ~~hospitals,~~distribute GIAPREZA or XERAVA, as the ~~end users.~~Company expects that sales volume would be absorbed by the remaining distributors. The following table includes the percentage of U.S. net product sales and accounts receivable balances for the Company’s ~~three~~3 major ~~customers,~~Customers, each of which comprised 10% or more of its U.S. net product sales:

	U.S. Net Product Sales						Accounts Receivable
	Three Months Ended			Nine Months Ended
	September 30, 2020			September 30, 2020			As of September 30, 2020
Customer A		37	%		38	%		28	%
Customer B		33	%		32	%		34	%
Customer C		26	%		27	%		33	%
Total		96	%		97	%		95	%

U.S. Net Product Sales Accounts Receivable
Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 As of September 30, 2019
Customer A 32 % 32 % 27 %
Customer B 38 % 34 % 35 %
Customer C 30 % 30 % 38 %
Total 100 % 96 % 100 %

Revenue Recognition

The Company has adopted ~~the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”)~~FASB ASC Topic ~~606 –~~ 606—Revenue from Contracts with Customers (“ASC 606”) at the time of its first commercial shipment of GIAPREZA in the first quarter of 2018. The Company had no revenue from product sales prior to the first quarter of 2018. There have been no contract assets or liabilities recorded to date relating to product revenue.

. Under ASC 606, the Company recognizes revenue when its ~~customers~~Customers obtain control of the Company’s product, which typically occurs on delivery. Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for those goods. To determine revenue recognition for contracts with ~~customers~~Customers within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a ~~customer;~~Customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies the relevant performance obligations.

There have been no contract assets or liabilities recorded to date relating to product sales.

Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns and administrative fees. Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted. These items include:

•

Chargebacks—Chargebacks are discounts the Company provides to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to Customers.

Chargebacks - Chargebacks are discounts the Company provides to distributors in the event that the sales prices to end users are below the distributors’ acquisition price. This may occur due to a direct contract with a health system, a group purchasing organization (“GPO”) agreement or a sale to a government facility. Chargebacks are estimated based on known chargeback rates and recorded as a reduction of revenue on delivery to the Company’s customers.

•

Discounts—The Company offers Customers various forms of incentives and consideration, including prompt-pay and other discounts. The Company estimates discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to Customers.

Discounts - The Company offers customers various forms of incentives and consideration, including prompt-pay and other discounts. The Company estimates discounts primarily based on contractual terms. These discounts are recorded as a reduction of revenue on delivery to the Company’s customers.

•

Returns—The Company offers Customers a limited right of return, generally for damaged or expired product. The Company estimates returns based on an internal analysis, which includes actual experience. The estimates for returns are recorded as a reduction of revenue on delivery to Customers.

Returns - The Company offers customers a limited right of return, generally for damaged or expired product. The Company estimates returns based on an internal analysis, which includes actual experience and a review of comparable companies. The estimates for returns are recorded as a reduction of revenue on delivery to the Company’s customers.

•

Administrative Fees—The Company pays administrative fees to GPOs for services and access to data. Additionally, the Company pays an Industrial Funding Fee as part of the U.S. General Services Administration’s Federal Supply Schedules program. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the applicable GPO or government agency.

Administrative Fees - The Company pays administrative fees to GPOs for services and access to data. Additionally, the Company pays an Industrial Funding Fee as part of the U.S. General Services Administration’s Federal Supply Schedules program. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the applicable GPO or government agency.

The Company will continue to assess its estimates of variable consideration as it accumulates additional historical data and will adjust these estimates accordingly.

Business Combinations

The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in La Jolla's financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized as part of the Purchase Price at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities will be included in other income (expense), net in the consolidated statements of operations. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

Intangible Assets

Intangible assets acquired in a business combination are initially recorded at fair value. Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. Intangible assets with an indefinite useful life are not amortized.

The Company reviews its intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the asset, including its eventual residual value, is compared to the carrying value to determine whether impairment exists. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. Fair value is estimated through discounted cash flow models to project cash flows from the asset.

Goodwill

Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill has an indefinite useful life and is not amortized.

The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is not the case, the Company has completed its goodwill impairment test and does not recognize an impairment charge. However, if that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements and has concluded that there are no recently issued accounting pronouncements that may have a material effect on the Company’s results of operations, financial condition or cash flows based on current information.

3. Net Loss per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of potential common shares. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding plus potential common shares. Convertible preferred stock and stock options ~~and warrants~~ are considered potential common shares and are included in the calculation of diluted net loss per share using the treasury stock method when their effect is dilutive. Potential common shares are excluded from the calculation of diluted net loss per share when their effect is anti-dilutive. As of September 30, ~~2019~~2020 and ~~2018,~~2019, there were ~~13.7~~10.0 million and ~~14.3~~13.7 million potential common shares, respectively, that were excluded from the calculation of diluted net loss per share because their effect was anti-dilutive.

~~Recent Accounting Pronouncements~~

In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting (“ASU 2018-07”). The standard expands the scope of Accounting Standards Codification (“ASC”) Topic 718 to include share-based payment awards granted to nonemployees in exchange for goods and services. ASU 2018-07 is effective for annual and interim reporting periods beginning after December 15, 2018.

In the first quarter 2019, the Company adopted ASU 2018-07. Prior to the adoption of ASU 2018-07, share-based payments awards granted to nonemployees were measured at fair value on their grant date, subject to periodic remeasurement, and share-based compensation expense was recognized on a straight-line basis over their vesting terms. After the adoption of ASU 2018-07, the fair value of share-based payment awards granted to nonemployees is not required to be remeasured periodically and share-based compensation expense will continue to be recorded on a straight-line basis over their vesting period, consistent with share-based payment awards granted to employees. As a result of the adoption of ASU 2018-07, the Company remeasured all of its outstanding nonemployee share-based payment awards at fair value and recognized a cumulative-effect adjustment of $0.2 million to accumulated deficit as of January 1, 2019.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). This guidance requires lessees to recognize operating leases with a term greater than one year on the balance sheet as a right-of-use asset and corresponding lease liability. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. Although ASU 2016-02 is required to be adopted at the earliest period presented using a modified retrospective approach, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which allows for an alternative transition method of adoption by recognizing a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption.

The Company adopted ASU 2016-02 on January 1, 2019 utilizing the alternative transition method allowed under ASU 2018-11. As a result, the Company recorded a lease liability and right-of-use lease asset of $31.8 million and $16.8 million, respectively, on its balance sheet as of January 1, 2019. The lease liability represents the present value of the remaining lease payments of the Company’s corporate headquarters lease (see Note 4), discounted using the Company’s incremental borrowing rate as of January 1, 2019. The corresponding right-of-use lease asset is recorded based on the lease liability, adjusted for the unamortized lease incentives received and the cumulative difference between rent expense and amounts paid under the corporate headquarters lease. The adoption of ASU 2016-02 did not have a material impact on either the statement of operations or statement of cash flows for the three and nine months ended September 30, 2019.

4. Balance Sheet Details

Restricted Cash

Restricted cash as of September 30, ~~2019 and December 31, 2018 represents~~2020 consists of: (i) a $0.5 million security deposit for the Company’s field force corporate credit card program; (ii) a $0.2 million standby letter of credit ~~for the Company’s building lease~~provided in lieu of a security deposit ~~during~~for the ~~term of such lease~~Watertown Lease (see Note ~~4). There is~~6); and (iii) a ~~requirement to maintain~~$40,000 security deposit for the Company’s corporate purchasing credit card. Restricted cash as of December 31, 2019 consists of a $0.9 million ~~of cash collateral in an account pledged as security for such~~standby letter of ~~credit.~~

credit provided in lieu of a security deposit for the San Diego Lease (see Note 6).

Inventory, Net

Inventory, net consisted of the following (in thousands):

	September 30,		December 31,
	2020		2019
Raw materials	$	802	$	-
Work-in-process		2,340		1,505
Finished goods		4,132		706
Total inventory, net	$	7,274	$	2,211

September 30,
2019 December 31,
2018
Work-in-process $ 1,129
$ 1,907
Finished goods 781
113
Total inventory, net $ 1,910
$ 2,020

As of September 30, ~~2019~~2020, inventory, net includes $2.1 million of the fair value step-up adjustment to Tetraphase’s inventory recorded in connection with the acquisition of Tetraphase (see Note 12). As of September 30, 2020 and December 31, ~~2018,~~2019, total inventory is recorded net of inventory reserves of $0.2 million and $0.1 million, respectively.

Property and ~~$0.8 million, respectively,~~Equipment, Net

Property and equipment, net consisted of ~~inventory reserves.~~the following (in thousands):

	September 30,			December 31,
	2020			2019
Software	$	733		$	733
Furniture and fixtures		598			2,598
Leasehold improvements		386			14,504
Computer hardware		310			1,296
Lab equipment		-			9,665
Total property and equipment, gross		2,027			28,796
Accumulated depreciation and amortization		(1,743	)		(10,407	)
Total property and equipment, net	$	284		$	18,389

The Company recorded a loss of approximately $12.9 million, net of $3.1 million of cash proceeds, in other income (expense), net, related to the disposal of tenant improvements and certain equipment in connection with the termination of the San Diego Lease. The $12.9 million loss is recorded in the consolidated statements of cash flows net of the gain from the termination of the San Diego Lease (see Note 6).

Intangible Assets, Net

Intangible assets, net consisted of the following (in thousands):

	September 30,			December 31,
	2020			2019
Technology	$	14,000		$	-
Trade name		1,520			-
Total intangible assets, gross		15,520			-
Accumulated amortization		(259	)		-
Total intangible assets, net	$	15,261		$	-

The intangible assets were recorded in connection with the acquisition of Tetraphase (see Note 12).

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	September 30,		December 31,
	2020		2019
Accrued interest expense	$	3,870	$	2,692
Accrued manufacturing costs		1,449		1,339
Accrued clinical study costs		426		3,496
Accrued other		1,938		1,785
Total accrued expenses	$	7,683	$	9,312

September 30,
2019 December 31,
2018
Accrued interest expense $ 3,458
$ 2,260
Accrued clinical study costs 2,793
2,430
Accrued manufacturing costs 1,685
1,823
Accrued other 1,415
1,972
Total accrued expenses $ 9,351
$ 8,485

~~4. Leases~~

On December 29, 2016, the Company entered into an agreement with BMR-Axiom LP to lease office and laboratory space as its corporate headquarters located at 4550 Towne Centre Court, San Diego, California (the “Lease”) for a period of 10 years commencing on October 30, 2017. The Company has an option to extend the Lease for an additional 5 years at the end

Other Noncurrent Liabilities

Other noncurrent liabilities consisted of the ~~initial term.~~

The Company provided a standby letter of credit for $0.9 million in lieu of a security deposit. This amount will decrease to $0.6 million after year two of the lease term and decrease to $0.3 million after year 5 of the lease term. The annual rent under the Lease is subject to escalation during the term. In addition to rent, the Lease requires the Company to pay certain taxes, insurance and operating costs relating to the leased premises. The Lease contains customary default provisions, representations, warranties and covenants. The Lease is classified as an operating lease.

~~Future minimum lease payments under the Lease as of September 30, 2019 are as follows~~following (in thousands):

	September 30,		December 31,
	2020		2019
Accrued interest expense	$	16,909	$	12,790
Fair value of CVRs (see Note 12)		2,610		-
Paycheck Protection Program loan		2,286		-
Total other noncurrent liabilities	$	21,805	$	12,790

2019 $ 1,000
2020 4,058
2021 4,174
2022 4,294
2023 4,417
Thereafter 18,134
Total future minimum lease payments 36,077
Less: discount (6,173 )
Total lease liability $ 29,904

The Company recorded a lease liability for the Lease based on the present value of the Lease payments over the expected Lease term, discounted using the Company’s incremental borrowing rate. The Company recorded a corresponding right-of-use lease asset based on the lease liability, adjusted for incentives received prior to the Lease commencement date. The option to extend the Lease was not recognized as a part of either the Company’s lease liability or right-of-use lease asset. Lease expense for each of the three and nine months ended September 30, 2019 and 2018 was $0.7 million and $2.1 million, respectively. Amortization for the right-of-use lease asset was $0.4 million and $1.0 million for the three and nine months ended September 30, 2019, respectively.

5. Deferred Royalty Obligation

In May ~~10,~~ 2018, the Company closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, the Company received $125.0 million in exchange for tiered royalty payments on worldwide net ~~product~~ sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net ~~product~~ sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of ~~180% of the $125.0 million received by the Company.~~$225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been ~~made or on January 1, 2031, whichever comes first.~~made. The Royalty Agreement was entered into by the Company’s ~~wholly-owned~~wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA.

On receipt of the $125.0 million payment from HCR, the Company recorded a deferred royalty obligation of $125.0 million, net of issuance costs of $0.7 million. For the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized interest expense, including amortization of the obligation discount, of ~~$2.8~~$2.5 million and ~~$3.0~~$2.8 million, respectively. For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized interest expense, including amortization of the obligation discount, of ~~$8.4~~$7.4 million and ~~$4.6~~$8.4 million, respectively. The carrying value of the deferred royalty obligation as of September 30, ~~2019~~2020 was $124.4 million, net of unamortized obligation discount of $0.6 million, and was classified as noncurrent. The related accrued interest expense ~~liability~~ was ~~$13.7~~$20.8 million and ~~$6.8~~$15.5 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, of which ~~$10.2~~$16.9 million and ~~$4.5~~$12.8 million was classified as other noncurrent liabilities, respectively. During the three and nine months ended September 30, ~~2019,~~2020, the Company made royalty payments to HCR of $0.6 million and ~~$1.4~~$2.1 million, respectively, and, as of September 30, ~~2019,~~2020, the Company recorded royalty obligations payable of ~~$0.6~~$0.7 million in accrued expenses. The deferred royalty obligation is classified as Level 3 in the ASC Topic 820-10, ~~Fair Value Measurements and Disclosures,~~ three-tier fair value hierarchy, and its carrying value approximates fair value.

Under the ~~event of certain material breaches~~terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of ~~an amount equal to~~ either $125.0 million or $225.0 million (depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR ~~or $225.0 million, minus aggregate royalties paid~~would have the right to ~~HCR, depending~~foreclose on the ~~type of breach.~~GIAPREZA-related assets. The Company concluded that certain of these contract provisions that could result in an acceleration of amounts due under the Royalty Agreement are embedded derivatives that require bifurcation from the deferred royalty obligation and fair value recognition. The Company determined the fair value of each derivative by assessing the probability of each event occurring, as well as the potential repayment amounts and timing of such repayments that would result under various scenarios. As a result of this assessment, the Company determined that the fair value of the embedded derivatives is immaterial as of September 30, 2020 and December 31, 2019. Each reporting period, the Company estimates the fair value of the embedded derivatives until the features lapse and/or the termination of the Royalty Agreement. Any change in the fair value of the embedded derivatives will be recorded as either a gain or loss on the consolidated statements of operations.

6. ~~Shareholders’ (Deficit) Equity~~

~~2018 Common Stock Offering~~

~~In March 2018,~~Commitments and Contingencies

Lease Commitments

San Diego Lease

On December 29, 2016, the Company ~~offered~~entered into an agreement with BMR-Axiom LP (the “Landlord”) to lease office and ~~sold 3,910,000~~laboratory space as its corporate headquarters located at 4550 Towne Centre Court, San Diego, California (the “San Diego Lease”) for a period of 10 years commencing on October 30, 2017 (the “Initial Lease Term”). The Company had an option to extend the San Diego Lease for an additional 5 years at the end of the Initial Lease Term.

On August 6, 2020, La Jolla received notice from the Landlord that the Landlord exercised its option to terminate the San Diego Lease effective August 31, 2020. The Landlord exercised its right to terminate the San Diego Lease and recapture the property after La Jolla provided notice to the Landlord of its intent to assign the San Diego Lease. In connection with the termination of the San Diego Lease, La Jolla will have no further obligations under the San Diego Lease after the August 31, 2020 termination date, including with respect to future payments under the San Diego Lease. The Company recorded a non-cash gain of approximately $12.9 million as other income (expense), net, in connection with the write-off of the lease liability and corresponding right-of-use lease asset. The $12.9 million gain is recorded in the consolidated statements of cash flows net of the loss on disposal of property and equipment in connection with the termination of the San Diego Lease (see Note 4).

The Company provided a standby letter of credit for $0.9 million in lieu of a security deposit. This amount decreased to $0.6 million after year two of the Initial Lease Term. As of September 30, 2020, there was 0 cash pledged as collateral for such letter of credit and recorded as restricted cash.

As of September 30, 2020, there was 0 lease liability and corresponding right-of-use asset related to the San Diego Lease. Lease expense for the San Diego Lease was $0.5 million and $1.8 million for the three and nine months ended September 30, 2020, respectively, and was $0.7 million and $2.1 million for the three and nine months ended September 30, 2019, respectively.

Watertown Lease

On November 16, 2006, Tetraphase entered into an agreement with ARE-480 Arsenal Street, LLC, to lease office and laboratory space as its corporate headquarters located at 480 Arsenal Way, Watertown, Massachusetts (the “Watertown Lease”). The Watertown Lease originally provided for an expiration on November 30, 2019. In November 2018, Tetraphase entered into an Eighth Amendment to the Watertown Lease to extend the term of the lease through November 30, 2022 (the “Lease Term”). In January 2020, Tetraphase entered into a Ninth Amendment to the Watertown Lease to surrender a portion of its leased space, which reduced the leased premises by a total of 15,899 square feet from approximately 37,438 square feet to approximately 21,539 square feet. Total aggregate remaining payments under the Watertown lease as of July 28, 2020 were $2.6 million.

Tetraphase provided a standby letter of credit for $0.2 million in lieu of a security deposit. As of September 30, 2020, $0.2 million of cash was pledged as collateral for such letter of credit and recorded as restricted cash. The annual rent under the Watertown Lease is subject to escalation during the Lease Term. In addition to rent, the Watertown Lease requires the Company to pay certain taxes, insurance and operating costs relating to the leased premises (collectively, “Lease Operating Costs”). The Watertown Lease contains customary default provisions, representations, warranties and covenants. The Watertown Lease is classified as an operating lease.

Future minimum lease payments, excluding Lease Operating Costs, under the Watertown Lease as of September 30, 2020 are as follows (in thousands):

2020	$	281
2021		1,138
2022		1,027
Thereafter		-
Total future minimum lease payments		2,446
Less: discount		(212	)
Total lease liabilities	$	2,234

As of July 28, 2020, the Company recorded a lease liability for the Watertown Lease based on the present value of the lease payments over the remaining Lease Term, discounted using the Company’s incremental borrowing rate. The Company recorded a corresponding right-of-use lease asset based on the lease liability. Subsequent to July 28, 2020 and through September 30, 2020, lease expense for the Watertown Lease was $0.2 million.

Contingencies

From time to time, the Company may become subject to claims and litigation arising in the ordinary course of business. The Company is not a party to any material legal proceedings, nor is it aware of any material pending or threatened litigation.

7. Shareholders’ Equity

Preferred Stock

As of September 30, 2020 and December 31, 2019, 3,906 shares of Series C-1² Convertible Preferred Stock (“Series C-1²Preferred”) were issued, outstanding and convertible into 6,735,378 shares of common stock in an underwritten public offering at a price of $29.50 per share for gross proceeds of approximately $115.3 million. The Company received proceeds of approximately $109.8 million, net of approximately $5.5 million in underwriting commissions, discounts and other issuance costs.

~~Preferred Stock~~

stock. In January 2019, the Company issued 782,031 shares of common stock upon the conversion of 2,737 shares of Series F Convertible Preferred Stock. As of September 30, 2020 and December 31, 2019, there were no0 shares of Series F Convertible Preferred Stock issued and outstanding.

~~Warrants~~

In March 2018, the Company issued 43,056 shares of common stock in a cashless exercise of 83,013 warrants to a third-party warrant holder. As of September 30, 2019, the Company had outstanding warrants to purchase 10,000 shares of common stock.

8. Equity Incentive Plans

2013 Equity Incentive Plan

A total of ~~8,100,000~~9,600,000 shares of common stock have been reserved for issuance under the La Jolla Pharmaceutical Company 2013 Equity Incentive Plan (the “2013 Equity Plan”). As of September 30, ~~2019, 941,077~~2020, 6,061,242 shares of common stock remained available for future grants under the 2013 Equity Plan.

2018 Employee Stock Purchase Plan

A total of 750,000 shares of common stock have been reserved for issuance under the La Jolla Pharmaceutical Company 2018 Employee Stock Purchase Plan (the “ESPP”). As of September 30, ~~2019, 611,599~~2020, 480,368 shares of common stock remained available for future grants under the ESPP.

Equity Awards

The activity related to equity awards, which are comprised of stock options and inducement grants, during the nine months ended September 30, ~~2019~~2020 is summarized as follows:

	Equity Awards			Weighted-average Exercise Price per Share		Weighted-average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2019		5,616,840		$	19.50
Granted		1,802,860		$	4.70
Exercised		(94,219	)	$	6.42
Cancelled/forfeited		(4,000,059	)	$	18.74
Outstanding at September 30, 2020		3,325,422		$	12.77		7.43	$	-
Exercisable at September 30, 2020		1,466,036		$	20.53		5.52	$	-

Equity
Awards

Weighted-
average
Exercise Price
per Share
Outstanding at December 31, 2018 6,466,214
$ 23.26
Granted⁽¹⁾
1,982,402
$ 6.43
Cancelled/forfeited (1,503,029 ) $ 20.62
Outstanding at September 30, 2019 6,945,587
$ 19.03

(1) In March 2019, the Company issued a stock option grant to the Company’s recently appointed Chief Commercial Officer to purchase 80,000 shares of common stock at an exercise price equal to the fair market value of the Company’s common stock on the grant date. The grant was awarded as an inducement grant outside of the 2013 Equity Plan. On the first anniversary of the grant date, 25% of the underlying shares become exercisable with the remaining shares vesting on a monthly basis over the subsequent three years, subject to continued service during that time.

Share-based Compensation Expense

The classification of share-based compensation expense is summarized as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Research and development	$	691	$	4,169	$	3,218	$	12,062
Selling, general and administrative		697		2,250		2,167		7,460
Total share-based compensation expense	$	1,388	$	6,419	$	5,385	$	19,522

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Research and development $ 4,169
$ 5,895
$ 12,062
$ 16,992
Selling, general and administrative 2,250
3,985
7,460
12,134
Total share-based compensation expense $ 6,419
$ 9,880
$ 19,522
$ 29,126

As of September 30, ~~2019,~~2020, total unrecognized share-based compensation expense related to unvested equity awards was ~~$41.0~~$8.0 million, which is expected to be recognized over a weighted-average period of ~~2.4~~2.6 years. As of September 30, ~~2019,~~2020, there was no unrecognized share-based compensation expense related to shares of common stock issued under the ESPP.

~~8. Company-wide Realignment~~

~~On October 18, 2018,~~

9. Other Income—Related Party

The Company has a non-voting profits interest in a related party, which provides the Company ~~effected~~with the potential to receive a portion of the future distributions of profits, if any. Investment funds affiliated with the Chairman of the Company’s board of directors have a controlling interest in the related party. During the nine months ended September 30, 2020, the Company received distributions of $4.1 million in connection with this profits interest.

10. License Agreements

In-license Agreements

George Washington University License

In December 2014, the Company entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated (the “GW License”) and assigned to La Jolla Pharma, LLC. Pursuant to the GW License, GW exclusively licensed to the Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the GW License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee, additional payments following the achievement of certain development and regulatory milestones and royalties. As a result of the European Commission’s approval of

GIAPREZA in August 2019, the Company made a milestone payment to GW in the amount of $0.5 million in the first quarter of 2020. The Company is obligated to pay a 6% royalty on net sales of GIAPREZA. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA. During the three and nine months ended September 30, 2020, the Company made royalty payments to GW of $0.3 million and $1.2 million, respectively.

Harvard University License

In August 2006, Tetraphase entered into a license agreement with Harvard University (“Harvard”), which was subsequently amended and restated (the “Harvard License”). Pursuant to the Harvard License, Harvard exclusively licensed to the Company certain intellectual property rights relating to tetracycline-based products, including XERAVA, including the exclusive rights to certain issued patents and patent applications covering such products. Under the Harvard License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA. For each product covered by the Harvard License, the Company is obligated to make certain payments totaling up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones, and to pay Harvard tiered royalties at percentages in the single digits based on net sales, if any, of tetracycline-based products, including XERAVA, by the Company, its affiliates and sublicensees in certain circumstances. The Company is also obligated to pay Harvard a specified share of non-royalty sublicensing and other revenues that it receives from sublicensees for the grant of sublicenses in certain circumstances, including the Everest License (see below), and to reimburse Harvard for specified patent prosecution and maintenance costs. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA. Subsequent to July 28, 2020 and through September 30, 2020, the Company paid $0.1 million of royalties to Harvard, and did 0t make any payments to Harvard related to clinical development and regulatory milestone payments.

Paratek Pharmaceuticals, Inc. License

In March 2019, Tetraphase entered into a license agreement with Paratek Pharmaceuticals, Inc. (“Paratek”), which was subsequently amended and restated (the “Paratek License”). Pursuant to the Paratek License, Paratek non-exclusively licensed to the Company certain intellectual property rights relating to XERAVA, including non-exclusive rights to certain issued patents and patent applications covering XERAVA. Under the Paratek License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell XERAVA. The Company is obligated to pay Paratek royalties at a low single digit percent based on net sales of XERAVA in the U.S. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering XERAVA. Subsequent to July 28, 2020 and through September 30, 2020, the Company paid $33,000 of royalties to Paratek.

Out-license Agreement

Everest Medicines Limited License

In February 2018, Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments.The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the quantity and timing of commercial supply. Subsequent to July 28,

2020 and through September 30, 2020, the Company has 0t received any payments from Everest related to either royalties or clinical development and regulatory milestones.

11. Company-wide ~~realignment to increase~~Realignments

On December 2, 2019, the Board of Directors of the Company approved a restructuring plan (the “2019 Realignment”) that reduced the Company’s headcount. The 2019 Realignment did not result in any reductions in headcount in the Company’s commercial organization supporting its ~~efficiency and focus on achieving its corporate goals.~~products. For the year ended December 31, ~~2018,~~2019, total ~~expense for these activities was $4.0 million, with $1.6 million included in research and development expense and $2.4 million included in selling, general and administrative expense. Total~~ expense was comprised of ~~$7.7~~$5.8 million for one-time termination benefits to the affected employees, including severance ~~costs,~~and health care benefits, offset by a ~~$3.7~~$0.9 million reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards. As of ~~March 31,~~September 30, 2020, the Company had paid $4.9 million of the $5.8 million cash severance and health care benefits charges, and the remaining $0.2 million of the health care benefits charges were included in accrued payroll and related expenses. The Company expects to complete making payments related to the 2019 Realignment by the end of the fourth quarter of 2020.

On May 28, 2020, the Board of Directors of the Company approved a restructuring plan (the “2020 Realignment”) to align its organization with the Company’s sole focus on the commercialization of its products. The 2020 Realignment reduced the Company’s headcount. For the nine months ended September 30, 2020, total expense was comprised of $4.1 million for one-time termination benefits to the affected employees, including severance and health care benefits, offset by a $0.4 million reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards. As of September 30, 2020, the Company had paid $2.6 million of the $4.1 million cash severance and health care benefits charges, and the remaining $1.5 million of the cash severance and health care benefits charges were included in accrued payroll and related expenses. The Company expects to complete making substantially all ~~severance costs had been paid. No expense for these activities was recorded during~~of the payments related to the 2020 Realignment by the end of the first quarter of 2021.

2020, total expense was comprised of $3.1 million for one-time termination benefits to the affected employees, including severance and health care benefits. As of September 30, 2020, the Company had paid $1.3 million of the $3.1 million cash severance and health care benefits charges, and the remaining $1.8 million of the cash severance and health care benefits charges were included in accrued payroll and related expenses. The Company expects to complete making substantially all of the payments related to this headcount reduction by the end of the second quarter of 2021.

12. Acquisition of Tetraphase Pharmaceuticals, Inc.

On June 24, 2020, La Jolla entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Tetraphase, a biopharmaceutical company focused on commercializing its novel tetracycline XERAVA to treat serious and life‑threatening infections, and TTP Merger Sub, Inc., a wholly owned subsidiary of La Jolla. On July 28, 2020, La Jolla completed its acquisition of Tetraphase for $43 million in upfront cash plus potential future cash payments of up to $16 million pursuant to contingent value rights (“CVRs”). The holders of the CVRs are entitled to receive potential future cash payments of up to $16 million in the aggregate upon the achievement of certain net sales of XERAVA in the U.S. as follows: (i) $2.5 million if 2021 XERAVA U.S. net sales are at least $20 million; (ii) $4.5 million if XERAVA U.S. net sales are at least $35 million during any calendar year ending on or prior to December 31, 2024; and (iii) $9 million if XERAVA U.S. net sales are at least $55 million during any calendar year ending on or prior to December 31, 2024. Following the acquisition, Tetraphase became a wholly owned subsidiary of La Jolla.

The acquisition of Tetraphase was accounted for as a business combination using the acquisition method pursuant to FASB ASC Topic 805. As the acquirer for accounting purposes, La Jolla has estimated the Purchase Price, assets acquired and liabilities assumed as of the acquisition date, with the excess of the Purchase Price over the fair value of net assets acquired recognized as goodwill. The estimated fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value.

The Purchase Price is comprised of the upfront cash of $43 million and the estimated fair value of potential future cash payments pursuant to the CVRs. The estimated fair value of assets acquired was $54.7 million, and the estimated fair value of liabilities assumed was $9.1 million.

The Purchase Price allocation as of the acquisition date is presented as follows (in thousands):

	July 28,
	2020
Cash	$	42,990
Fair value of CVRs		2,610
Total Purchase Price	$	45,600

Cash and cash equivalents		8,778
Accounts receivable		1,187
Inventory		4,767
Prepaid expenses and other current assets		1,218
Property and equipment		58
Right-of-use lease assets		2,302
Restricted cash		699
Identifiable intangible assets		15,520
Goodwill		20,123
Accounts payable		(1,400	)
Accrued expenses		(2,979	)
Lease liabilities, current portion		(967	)
Lease liabilities, less current portion		(1,420	)
Other noncurrent liabilities		(2,286	)
Total Purchase Price	$	45,600

The estimated fair value of potential future cash payments pursuant to the CVRs was based on a Monte Carlo simulation and is classified as Level 3 in the ASC Topic 820-10, three-tier fair value hierarchy.

The Company recorded a $3.3 million fair value step-up adjustment to Tetraphase’s inventory as of the acquisition date. Raw material components and active pharmaceutical ingredients were recorded based on estimated replacement cost. Finished drug product was valued at estimated selling cost, adjusted for costs of selling effort and a reasonable profit allowance for such selling effort from the viewpoint of a market participant. This fair value step-up adjustment is recorded as cost of products sales when the inventory is sold to Customers, $1.2 million of which was included in cost of product sales subsequent to July 28, 2020 and through September 30, 2020.

Identifiable intangible assets consist of certain technology and trade names acquired from Tetraphase, and include the value of the Harvard, Paratek and Everest Licenses (see Note 10). The acquired intangible assets have definite useful lives and are being amortized on a straight-line basis over an estimated useful life of 10 years. The acquired intangible assets are classified as Level 3 in the ASC Topic 820-10, three-tier fair value hierarchy.

Goodwill represents the excess of the Purchase Price over the fair value of the net assets acquired as of the acquisition date. Goodwill represents the value of the stronger platform to increase patient access to the Company’s commercial products and the operational synergies of the combined Company. Goodwill has an indefinite useful life and is not amortized. The goodwill is only deductible for tax purposes if the Company makes a U.S. Internal Revenue Code Section 338 (“Section 338”) election. The Company is currently evaluating whether to make a Section 338 election.

Subsequent to July 28, 2020 and through September 30, 2020, XERAVA U.S. net sales were $1.9 million and operating losses attributable to Tetraphase were $6.4 million, inclusive of $0.3 million of intangible asset amortization included in selling, general and administrative expense and $1.2 million of the inventory fair value step-up adjustment included in cost of product sales.

Acquisition-related expenses, which were comprised primarily of legal fees, were $0.3 million and $0.9 million for the three and nine months ended September 30, 2020, respectively, and were included in selling, general and administrative expense.

~~ITEM~~

Item 2. ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~In this report, all references to “we,” “our,” “us,” “La Jolla”~~Management’s Discussion and ~~“the Company” refer to La Jolla Pharmaceutical Company, a California corporation,~~Analysis of Financial Condition and ~~our subsidiaries, including La Jolla Pharma, LLC, on a consolidated basis.~~

Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and ~~accompanying~~the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and ~~accompanying~~the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March ~~4, 2019~~2, 2020 (the “Form 10-K”).

Forward-looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” ~~as defined by~~within the ~~Private Securities Litigation Reform Act~~meaning of ~~1995. We caution investors that~~the federal securities laws, and such statements may involve substantial risks and uncertainties. All statements, other than statements of historical facts included in this Quarterly Report on Form 10-Q, including statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, future expenses, financing needs, plans or intentions relating to acquisitions, business trends and other information referred to under this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,” “estimate,” “predict,” “potential,” “plan,” “anticipate,” “target,” “forecast” or the negative of these terms and similar expressions intended to identify forward-looking statements. Forward-looking statements are not historical facts and reflect our current views with respect to future events. Forward-looking statements are also based on ~~management’s expectations~~assumptions and ~~assumptions as~~are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the ~~date~~forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other factors are described under “Risk Factors” in Item 1A of our Form 10-K for the year ended December 31, 2019 and under “Risk Factors” in Item 1A of this Quarterly Report on Form ~~10-Q and involve substantial~~10-Q. We caution you that these risks, ~~and~~ uncertainties that could cause the actual outcomes to differ materially from what we currently expect. These risks and uncertainties include, but are not limited to, those associated with: GIAPREZA™ (angiotensin II) sales; cash used in operating activities; regulatory actions relating to La Jolla’s products by the U.S. Food and Drug Administration (“FDA”), European Medicines Agency (“EMA”) and/or other regulatory authorities; the outcomes of clinical studies of La Jolla’s products; and other factors may not contain all of the risks, uncertainties and ~~uncertainties identified~~other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our ~~filings with~~business in the ~~U.S. Securities and Exchange Commission. Forward-looking~~way expected. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date made and weare expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances. The outcomes of the events described in these forward-looking statements are subject to the risks, uncertainties and other factors described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections contained in our Form 10-K, and in other reports and registration statements that we file with the SEC.

~~Introduction~~

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying unaudited condensed consolidated financial statements and notes, which are included in Item 1 of this Quarterly Report on Form 10-Q, to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. Our discussion is organized as follows:

Business Overview~~. This section provides a general description of our business and significant events and transactions that we believe are important in understanding our financial condition and results of operations.~~

~~Program Overview.~~ ~~This section provides an overview of GIAPREZA, LJPC-0118 and LJPC-401.~~

~~Critical Accounting Policies and Estimates~~. This section provides a description of the material changes to our significant accounting policies, including the critical accounting policies and estimates, which are summarized in Note 2 to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

~~Results of Operations~~. This section provides an analysis of our results of operations presented in the accompanying unaudited condensed consolidated statements of operations by comparing the results for the three and nine months ended September 30, 2019 to the results for the three and nine months ended September 30, 2018.

~~Liquidity and Capital Resources. This section provides an analysis of our historical cash flows, as well as our future capital requirements.~~

~~Business Overview~~

La Jolla Pharmaceutical Company is ~~a biopharmaceutical company focused on~~dedicated to the ~~discovery,~~ development and commercialization of innovative therapies ~~intended to significantly~~that improve outcomes in patients suffering from life-threatening diseases. ~~In December 2017,~~GIAPREZA^TM (angiotensin II) for injection is approved by the U.S. Food and Drug Administration (“FDA”) as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. XERAVA^TM (eravacycline) for injection is a novel fluorocycline of the tetracycline class of antibacterials that is approved by the FDA for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of up to $16 million. Financial results for periods ending September 30, 2020 and beyond include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020.

For the three months ended September 30, 2020, GIAPREZA ~~was~~U.S. net sales were $7.2 million, up 24% from the three months ended June 30, 2020 and up 26% from the three months ended September 30, 2019. For the nine months ended September 30, 2020, GIAPREZA U.S. net sales were $20.6 million, up 30% from the same period in 2019.

Subsequent to July 28, 2020 and through September 30, 2020, XERAVA U.S. net sales were $1.9 million. For the three months ended September 30, 2020, XERAVA U.S. net sales were $2.7 million, up 80% from the three months ended June 30, 2020 and up 170% from the three months ended September 30, 2019. For the nine months ended September 30, 2020, XERAVA U.S. net sales were $5.9 million, up 181% from the same period in 2019.

Product Portfolio

^a	U.S.: GIAPREZA is a vasoconstrictor to increase blood pressure in adults with septic or other distributive shock

European Union: GIAPREZA is indicated for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies

^b	U.S.: XERAVA is a fluorocycline of the tetracycline class of antibacterials for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older

European Union: XERAVA is indicated for the treatment of cIAI in adults

GIAPREZA^TM (angiotensin II)

GIAPREZA^TM (angiotensin II) for injection is approved by the FDA as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock. ~~In August 2019,~~ GIAPREZA ~~was~~is approved by the European Commission (“EC”) for the treatment of refractory hypotension in adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies. ~~LJPC-0118 (artesunate)~~GIAPREZA mimics the body’s endogenous angiotensin II peptide, which is central to the renin-angiotensin-aldosterone system, which in turn regulates blood pressure. GIAPREZA is marketed in the U.S. by La ~~Jolla’s investigational product~~Jolla Pharmaceutical Company on behalf of La Jolla Pharma, LLC, its wholly owned subsidiary.

XERAVA^TM (eravacycline)

XERAVA^TM (eravacycline) for injection is a novel fluorocycline of the tetracycline class of antibacterials that is approved by the FDA for the treatment of severe malaria. LJPC-401 (synthetic human hepcidin) is La Jolla’s investigational product for the potential treatment of conditions characterized by iron overload. LJPC-401 is being investigated in a pivotal study in beta thalassemia patients with iron overload and in a Phase 2 studycIAI in patients ~~with hereditary hemochromatosis.~~

~~Program Overview~~

~~GIAPREZA~~^TM ~~(angiotensin II)~~

~~GIAPREZA~~^TM ~~(angiotensin II), injection for intravenous infusion, was~~18 years of age and older. XERAVA is approved by the ~~FDA in December 2017 as a vasoconstrictor indicated to increase blood pressure in adults with septic or other distributive shock and by the~~ EC ~~in August 2019~~ for the treatment of ~~refractory hypotension~~cIAI in ~~adults with septic or other distributive shock who remain hypotensive despite adequate volume restitution and application of catecholamines and other available vasopressor therapies. Angiotensin II~~adults. XERAVA is a major bioactive component of the renin-angiotensin-aldosterone system (the “RAAS”). The RAAS is one of three central regulators of blood pressure. In March 2018, we announced the commercial availability of GIAPREZAmarketed in the U.S. ~~GIAPREZA is available~~by Tetraphase Pharmaceuticals, Inc., a wholly owned subsidiary of La Jolla.

Product Candidates

In connection with the acquisition of Tetraphase, we acquired the following product candidates that are in ~~1 mL single-dose vials, each containing 2.5 mg of angiotensin II (as~~early-stage clinical or preclinical development: (1) TP-6076, a ~~sterile liquid) through authorized specialty distributors and select wholesalers.~~

More than 1 million Americans are affected by shock on an annual basis, with 1 in 3 patients being treated for shock in the intensive care unit. Distributive shock is the most common type of shock in the inpatient setting, with approximately 800,000 distributive shock cases in the U.S. each year. Of these cases, an estimated 90% are septic shock patients. Approximately 300,000 patients do not achieve adequate blood pressure response with standard-of-care vasopressor therapy (catecholamines and vasopressin). The inability to achieve or maintain adequate blood pressure results in inadequate blood flow to the body’s organs and tissue and is associated with a mortality rate exceeding most acute conditions requiring hospitalization. In the European Union (the “EU”), the annual incidence of sepsis in adults is estimated to be more than 500,000, with more than 170,000 progressing to septic shock.

The GIAPREZA clinical development program included a Phase 3 study of GIAPREZA in adult patients with septic or other distributive shock who remained hypotensive despite fluid and vasopressor therapy, known as ATHOS-3 (Angiotensin II for the Treatment of High-Output Shock). In ATHOS-3, patients were randomized in a 1:1 fashion to receive either: (i) GIAPREZA plus standard-of-care vasopressors; or (ii) placebo plus standard-of-care vasopressors. ATHOS-3 completed enrollment of 344 patients in the fourth quarter of 2016. In February 2017, we reported positive top-line results from ATHOS-3, and, in May 2017, the results of ATHOS-3 were published by The New England Journal of Medicine.

The analysis of the ATHOS-3 primary efficacy endpoint, defined as the percentage of patients achieving a pre-specified target blood pressure response, was highly statistically significant: 23% of the 158 placebo-treated patients had a blood pressure response compared to 70% of the 163 GIAPREZA-treated patients (p<0.00001). In addition, there was a consistent trend toward longer survival over the 28-day study period: 22% reduction in mortality risk through day 28 [hazard ratio=0.78 (0.57-1.07), p=0.12] for GIAPREZA-treated patients.

In this critically ill patient population: 92% of placebo-treated patients compared to 87% of GIAPREZA-treated patients experienced at least one adverse event, and 22% of placebo-treated patients compared to 14% of GIAPREZA-treated patients discontinued treatment due to an adverse event.

~~LJPC-0118~~

~~LJPC-0118 (artesunate) is an investigational product~~fully-synthetic fluorocycline derivative for the treatment of severe malaria. The active pharmaceutical ingredient in LJPC-0118, artesunate, was demonstrated to be superior to quinine in reducing mortality in patients with severe falciparum malaria infection in two randomized, controlled, clinical studies. Severe malaria iscertain multidrug-resistant gram-negative bacteria; (2) TP-271, a serious and sometimes fatal disease caused by a parasite that commonly infects a certain type of mosquito, which feeds on humans. Symptoms include, but are not limited to: fever, chills, sweating, hypoglycemia and shock. Severe malaria is often complicated by central nervous system infections that may lead to delirium, which may progress to coma. Infections usually occur a few weeks after being bitten. In 2017, an estimated 219 million cases of malaria occurred worldwide, with an estimated 200 million of these cases occurring in the World Health Organization (the “WHO”) African Region, and, in 2013, the global annual incidence of severe malaria was estimated to be 2 million cases. In 2017, an estimated 435,000 people died from malaria worldwide.

In April 2019, the FDA granted Breakthrough Therapy designation for LJPC-0118. Breakthrough Therapy designation is designed to expedite the development and review of drugs that are intended to treat serious or life-threatening diseases and for which preliminary clinical evidence indicates substantial improvement over available therapies on clinically significant endpoint(s).

~~In July 2019, the FDA granted Orphan Drug designation for LJPC-0118~~fully-synthetic fluorocycline for the treatment of ~~malaria. Orphan Drug designation is designed to incentivize the development of drugs~~respiratory disease caused by bacterial biothreat and biological products that treat rare diseases or conditions affecting fewer than 200,000 patients in the U.S. These incentives include: up to seven years of marketing exclusivity if the sponsor is the first to obtain regulatory approval from the FDA; tax credits related to clinical study expenses; an exemption from the FDA-user fee;antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia; and ~~FDA assistance in clinical study design.~~

~~La Jolla plans to file~~(3) TP-2846, a ~~New Drug Application (“NDA”) with the FDA for LJPC-0118~~tetracycline for the treatment of ~~severe malaria in the fourth quarter of 2019.~~

~~LJPC-401~~

LJPC-401 (synthetic human hepcidin) is La Jolla’s investigational product for the potential treatment of conditions characterized by iron overload. Hepcidin, an endogenous peptide hormone, is the body’s naturally occurring regulator of iron absorption and distribution. In healthy individuals, hepcidin prevents excessive iron accumulation in vital organs, such as the liver and heart, where it can cause significant damage and even result in death. We are developing LJPC-401 for the potential treatment of iron overload, which occurs as a result of primary iron overload diseases such as hereditary hemochromatosis (“HH”), or secondary iron overload diseases such as beta thalassemia (“BT”), sickle cell disease (“SCD”), myelodysplastic syndrome (“MDS”) and polycythemia vera.

HH is the most common genetic disease in Caucasians. HH is characterized by a genetic mutation that causes excessive iron absorption and accumulation due to hepcidin deficiency or insensitivity. Without normal levels of hepcidin, excessive amounts of iron accumulate in the body. Symptoms of the disease include joint pain, abdominal pain, fatigue and weakness. If left untreated, HH can lead to liver cirrhosis, liver cancer, heart disease and/or failure and diabetes.

~~There~~acute myeloid leukemia. At this time, there are no ~~FDA-approved therapies~~active studies nor anticipated future studies for HH, and the current standard treatment for HH is a blood removal procedure known as phlebotomy. Each phlebotomy procedure, which is usually conducted at a hospital, medical office or blood center, typically involves the removal of approximately one pint of blood. The required frequency of procedures varies by patient but often ranges from one-to-two times per week for an initial period after diagnosis and once every one-to-three months for life. Since most of the body’s iron is stored in red blood cells, chronic removal of blood can effectively lower iron levels if a phlebotomy regimen is adhered to. However, phlebotomy procedures may cause and may be associated with pain, bruising and scarring at the venous puncture site, joint pain, fatigue and dizziness during and following the procedure and disruption of daily activities. Furthermore, phlebotomy is not appropriate in patients with poor venous access, anemia or heart disease.

BT, SCD and MDS are genetic diseases of blood cells that can cause life-threatening anemia and usually require frequent and life-long blood transfusions. These blood transfusions cause excessive iron accumulation in the body, which is toxic to vital organs, such as the liver and heart. In addition, the underlying anemia causes excessive iron accumulation independent of blood transfusions.

In 2015, the EMA Committee for Orphan Medicinal Products (“COMP”) designated LJPC-401 as an orphan medicinal product for the treatment of beta thalassemia intermedia and major. In 2016, the EMA COMP designated LJPC-401 as an orphan medicinal product for the treatment of SCD.

In September 2016, we reported positive results from a Phase 1 study of LJPC-401 in patients at risk of iron overload suffering from HH, thalassemia and SCD. In this study, single, escalating doses of LJPC-401 were associated with a dose-dependent, statistically significant reduction in serum iron. LJPC-401 was well-tolerated with no dose-limiting toxicities. Injection-site reactions were the most commonly reported adverse event and were all mild or moderate in severity, self-limiting and fully resolved.

~~In June 2018, two presentations on LJPC-401 were given at the 23~~^rd Congress of the European Hematology Association (the “EHA”). The first was an oral presentation, entitled “A Phase 1, Open-Label Study to Determine the Safety, Tolerability, and Pharmacokinetics of Escalating Doses of LJPC-401 (Synthetic Human Hepcidin) in Patients with Iron Overload.” The second was a poster presentation, entitled “A Phase 1, Placebo-Controlled Study to Determine the Safety, Tolerability, and Pharmacokinetics of Escalating Subcutaneous Doses of LJPC-401 (Synthetic Human Hepcidin) in Healthy Adults.”

~~LJPC-401 is currently the subject of two clinical studies: LJ401-HH01 in patients with HH and LJ401-BT01 in patients with BT.~~

~~LJ401-HH01~~

In December 2017, we announced the initiation of LJ401-HH01, a Phase 2 clinical study of LJPC‑401 in patients with HH. LJ401-HH01 is a multinational, multicenter, randomized, placebo-controlled, double-blind, Phase 2 study designed to evaluate the safety and efficacy of LJPC-401 as a treatment for HH. The primary efficacy endpoint of the study is the change in transferrin saturation (“TSAT”), a standard measurement of iron levels in the body and one of the two key measurements used to detect iron overload, from baseline to end of treatment (16 weeks). Secondary efficacy endpoints include the requirement for and frequency of phlebotomy procedures during the study.

In June 2019, we announced positive results from the pre-specified interim analysis of LJ401-HH01. The interim analysis of efficacy included 26 patients who had reached the end of the 16-week treatment period (the efficacy population: 12 LJPC-401-treated patients; 14 placebo-treated patients), and the interim analysis of safety included 60 randomized patients (the safety population: 29 LJPC-401-treated patients; 31 placebo-treated patients). Results from the pre-specified interim analysis include the following:

The change in TSAT from baseline to the end of treatment was statistically significant: LJPC‑401‑treated patients had a mean reduction in TSAT of 42% compared to placebo-treated patients who had a mean reduction of 6% (p<0.0001).

The requirement for and frequency of phlebotomy procedures was statistically significant: LJPC-401-treated patients had 0.06 phlebotomies per month compared to placebo-treated patients who had 0.41 phlebotomies per month (p=0.003). There were 3 phlebotomies in 2 LJPC-401-treated patients and 24 phlebotomies in 9 placebo-treated patients.

LJPC-401 was well tolerated. The most frequent treatment-emergent adverse events (“TEAEs”) were injection site reactions (“ISRs”), which occurred in 79% of LJPC‑401-treated patients compared to 6% of placebo-treated patients. The ISRs were all mild or moderate in severity, and no ISRs resulted in treatment discontinuation. As of the interim analysis, there were no serious TEAEs reported.

~~We expect to announce top-line results of LJ401-HH01 in the fourth quarter of 2019.~~

~~LJ401-BT01~~

In September 2016, we announced that we reached agreement with the EMA on the design of a pivotal study of LJPC-401 for the treatment of BT patients suffering from iron overload, a major unmet need in an orphan patient population. In December 2017, we announced the initiation of LJ401-BT01, a pivotal, multinational, multicenter, randomized, controlled study that is designed to evaluate the safety and efficacy of LJPC-401 as a treatment for BT patients who, despite chelation therapy, have cardiac iron levels above normal. The primary efficacy endpoint of this study is the change in iron content in the heart after 6 months, as measured by cardiac magnetic resonance imaging (“MRI”). If this study is successful, we would anticipate filing an MAA for LJPC-401 in the EU.

~~We expect to announce top-line results of LJ401-BT01 in the second half of 2020.~~

~~Critical Accounting Policies and Estimates~~

The discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparationany of these ~~unaudited condensed consolidated financial statements requires us~~product candidates. We intend to ~~make estimates and judgments that affect~~seek out-licensing opportunities for these product candidates, however, at this time, we are unable to predict the ~~reported amounts~~likelihood of ~~assets, liabilities, revenues and expenses, and related disclosure~~successfully out-licensing any of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the resultsthese product candidates.

Components of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

There have been no material changes to the critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed on March 4, 2019, except for the lease policy disclosed in Note 2 to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

~~Recent Accounting Pronouncement~~s

~~Recent accounting pronouncements are disclosed in Note 2 to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.~~

Our Results of Operations

The following table summarizes our results of operations for each of the periods below (in thousands):

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2020			2019			Change			2020			2019			Change
Net product sales	$	9,072		$	5,706		$	3,366		$	22,468		$	15,804		$	6,664
Cost of product sales		2,489			554			1,935			4,013			1,605			2,408
Research and development expense		3,617			21,182			(17,565	)		21,581			64,469			(42,888	)
Selling, general and administrative expense		12,493			10,782			1,711			29,322			34,425			(5,103	)
Other income (expense), net		(2,233	)		(2,362	)		129			(3,495	)		(6,580	)		3,085
Net loss	$	(11,760	)	$	(29,174	)	$	17,414		$	(35,943	)	$	(91,275	)	$	55,332

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net product sales $ 5,706
$ 3,470
$ 15,804
$ 5,872
Cost of product sales (554 ) (256 ) (1,605 ) (443 )
Research and development expense (21,182 ) (30,439 ) (64,469 ) (89,735 )
Selling, general and administrative expense (10,782 ) (21,139 ) (34,425 ) (66,319 )
Other expense, net (2,362 ) (2,381 ) (6,580 ) (3,426 )
Net loss $ (29,174 ) $ (50,745 ) $ (91,275 ) $ (154,051 )

Financial results for periods ending September 30, 2020 and beyond include Tetraphase’s financial results subsequent to the acquisition closing date of July 28, 2020. Net ~~Product Sales~~

~~For~~loss for the three and nine months ended September 30, ~~2019, GIAPREZA U.S. net product sales were $5.7 million and $15.8 million, respectively, compared to $3.5 million and $5.9 million, respectively,~~2020 includes purchase price accounting adjustments of $1.5 million. Net loss for ~~the same periods in 2018. La Jolla launched GIAPREZA in the U.S. in March 2018.~~

~~Cost of Product Sales~~

~~For~~ the three and nine months ended September 30, ~~2019,~~2020 also includes $0.3 million and $0.9 million of one-time acquisition-related expenses. We expect our research and development expense and selling, general and administrative expense to decrease in the near term as we ~~recognized cost~~realize the benefits from integrating the operations of La Jolla and Tetraphase.

Net Product Sales

Net product sales consist solely of ~~$0.6~~revenue recognized from sales of GIAPREZA and XERAVA to hospitals in the U.S. through a network of specialty and wholesaler distributors (“Customers”). GIAPREZA U.S. net sales were $7.2 million and ~~$1.6~~$20.6 million for the three and nine months ended September 30, 2020, respectively, compared to ~~$0.3~~$5.7 million and ~~$0.4~~$15.8 million, respectively, for the same periods in ~~2018.~~ 2019. Subsequent to July 28, 2020 and through September 30, 2020, XERAVA U.S. net sales were $1.9 million. XERAVA U.S. net sales were $2.7 million and $5.9 million for the three and nine months ended September 30, 2020, respectively, compared to $1.0 million and $2.1 million, respectively, for the same periods in 2019.

Cost of Product Sales

Cost of product sales consists primarily ~~included royalty~~of expense associated with: (i) royalties payable to George Washington University, Harvard University and Paratek Pharmaceuticals, Inc.; (ii) the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase; (iii) manufacturing; (iv) regulatory fees; and (v) shipping and distribution. Cost of product ~~manufacturing costs.~~

~~In 2017, prior~~sales was $2.5 million and $4.0 million for the three and nine months ended September 30, 2020, respectively, compared to ~~approval by the FDA, approximately~~ $0.6 million ~~of direct material costs~~and $1.6 million, respectively, for the same periods in 2019. Subsequent to ~~manufacture GIAPREZA were recorded to research~~July 28, 2020 and ~~development expense. As of~~through September 30, ~~2019, inventory excludes approximately $0.2~~2020, cost of product sales includes $1.2 million of ~~manufacturing costs that were~~the inventory fair value step-up adjustment recorded ~~to research~~in connection with the acquisition of Tetraphase.

Research and Development Expense

Research and development expense ~~prior to FDA approval.~~

~~Research~~consists of non-personnel and ~~Development Expense~~

personnel expenses. The following table summarizes ~~our research and development expense~~these expenses for each of the periods below (in thousands):

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2020		2019		Change			2020		2019		Change
Non-personnel expense:
GIAPREZA	$	832	$	1,641	$	(809	)	$	3,675	$	4,662	$	(987	)
XERAVA		511		-		511			511		-		511
LJPC-0118		9		424		(415	)		926		1,559		(633	)
LJPC-401		-		4,552		(4,552	)		1,531		13,347		(11,816	)
Other programs		28		1,204		(1,176	)		28		5,047		(5,019	)
Facility		312		1,879		(1,567	)		2,872		5,455		(2,583	)
Other		198		1,089		(891	)		672		3,007		(2,335	)
Total non-personnel expense	$	1,890	$	10,789	$	(8,899	)	$	10,215	$	33,077	$	(22,862	)
Personnel expense:
Salaries, bonuses and benefits		1,036		6,224		(5,188	)		8,148		19,330		(11,182	)
Share-based compensation expense		691		4,169		(3,478	)		3,218		12,062		(8,844	)
Total personnel expense	$	1,727	$	10,393	$	(8,666	)	$	11,366	$	31,392	$	(20,026	)
Total research and development expense	$	3,617	$	21,182	$	(17,565	)	$	21,581	$	64,469	$	(42,888	)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Clinical development costs $ 7,097
$ 10,937
$ 20,982
$ 32,369
Personnel and related costs 6,224
8,413
19,330
26,757
Share-based compensation expense 4,169
5,895
12,062
16,992
Other research and development costs 3,692
5,194
12,095
13,617
Total research and development expense $ 21,182
$ 30,439
$ 64,469
$ 89,735

During the three ~~months ended September 30, 2019, research~~ and development expense decreased to $21.2 million from $30.4 million for the same period in 2018, or a decrease of $9.2 million. Clinical development costs decreased by $3.8 million due to a decrease of $2.6 million in costs related to our clinical development program for LJPC-0118 and a decrease of $2.0 million in clinical and regulatory activities for GIAPREZA. These decreases were partially offset by a $0.8 million increase in costs related to our clinical development programs for LJPC-401. Personnel and related costs decreased by $2.2 million primarily due to a Company-wide realignment to increase our efficiency and focus on achieving our corporate goals. Share-based compensation expense decreased by $1.7 million due to a decrease in the weighted-average fair value of unvested share-based compensation awards outstanding. Other research and development costs decreased by $1.5 million due to decreased costs to support our pre-clinical development programs.

~~During the~~ nine months ended September 30, ~~2019,~~2020, total research and development non-personnel expense decreased ~~to $64.5 million from $89.7 million for the same period in 2018, or~~primarily as a ~~decrease~~result of ~~$25.2 million. Clinical development costs decreased by $11.4 million primarily due to~~ decreases in ~~costs of: $7.8 million related~~program-related expenses as we de-prioritized our product candidates and focused on the commercialization of GIAPREZA and XERAVA. Further, facility-related expenses decreased primarily as a result of the termination of our San Diego Lease effective August 31, 2020 (see Note 6 to ~~clinical~~the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q).

During the three and ~~regulatory activities for GIAPREZA; $3.1 million related to our clinical~~nine months ended September 30, 2020, total research and development ~~program for LJPC-0118; and $2.0 million~~personnel expense, including share-based compensation expense, decreased as a result of reduced headcount in other costs to support our clinical development programs. These decreases were partially offset by a $1.5 million increase in costs related to our clinical development programs for LJPC-401. Personnel and related costs decreased by $7.4 million primarily due to2020 from a Company-wide realignment ~~to increase our efficiency~~in November 2019, partially offset by: (i) $2.4 million of one-time charges in 2020 resulting from a reduction of headcount from a Company-wide realignment in May 2020; and ~~focus on achieving our corporate goals. Share-based compensation expense decreased by $4.9~~(ii) $0.8 million ~~due to~~of one-time charges in 2020 resulting from a ~~decrease~~reduction of headcount from combining La Jolla and Tetraphase personnel in the weighted-average fair value of unvested share-based compensation awards outstanding. Other research and development costs decreased by $1.5 million due to decreased costs to support our pre-clinical development programs.

~~We do not expect research and development expense to increase significantly in the near term.~~

July 2020.

Selling, General and Administrative Expense

Selling, general and administrative expense consists of non-personnel and personnel expenses. The following table summarizes ~~our selling, general and administrative expense~~these expenses for each of the periods below (in thousands):

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2020		2019		Change			2020		2019		Change
Non-personnel expense:
Professional fees	$	1,946	$	981	$	965		$	4,173	$	3,076	$	1,097
Facility		941		394		547			1,988		1,167		821
Sales and marketing		782		1,509		(727	)		2,593		5,001		(2,408	)
Other		1,045		669		376			1,970		1,856		114
Total non-personnel expense	$	4,714	$	3,553	$	1,161		$	10,724	$	11,100	$	(376	)
Personnel expense:
Salaries, bonuses and benefits		7,082		4,979		2,103			16,431		15,865		566
Share-based compensation expense		697		2,250		(1,553	)		2,167		7,460		(5,293	)
Total personnel expense	$	7,779	$	7,229	$	550		$	18,598	$	23,325	$	(4,727	)
Total selling, general and administrative expense	$	12,493	$	10,782	$	1,711		$	29,322	$	34,425	$	(5,103	)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Personnel and related costs $ 4,979
$ 9,232
$ 15,865
$ 28,375
Share-based compensation expense 2,250
3,985
7,460
12,134
Selling and marketing costs 1,509
5,706
4,964
19,080
General and administrative costs 2,044
2,216
6,136
6,730
Total selling, general and administrative expense $ 10,782
$ 21,139
$ 34,425
$ 66,319

During the three months ended September 30, ~~2019,~~2020, total selling, general and administrative non-personnel expense ~~decreased to $10.8 million from $21.1 million for the same period~~increased primarily as a result of increases in ~~2018, or a decrease of $10.3 million. Personnel~~professional fee-related expenses, partially offset by decreases in sales and related costs decreased by $4.3 million primarily due to a Company-wide realignment to increase our efficiency and focus on achieving our corporate goals. Selling and marketing costs decreased by $4.2 million due to initial GIAPREZA-related launch initiatives in 2018. Share-based compensation expense decreased by $1.7 million due to a decrease in the weighted-average fair value of unvested share-based compensation awards outstanding.

marketing-related expenses. During the nine months ended September 30, ~~2019,~~2020, total selling, general and administrative non-personnel expense decreased ~~to $34.4~~primarily as a result of decreases in sales and marketing-related expenses, partially offset by increases in professional fee-related expenses. During the three and nine months ended September 30, 2020, La Jolla incurred one-time acquisition-related expenses of $0.3 million ~~from $66.3~~and $0.9 million, ~~for~~respectively. During the ~~same period in 2018, or a decrease of $31.9 million. Selling~~three and ~~marketing costs decreased by $14.1 million due~~nine months ended September 30, 2020, facility-related expenses allocated to initial GIAPREZA-related launch initiatives in 2018. Personnel and related costs decreased by $12.5 million primarily due to a Company-wide realignment to increase our efficiency and focus on achieving our corporate goals. Share-based compensation expense decreased by $4.7 million due to a decrease in the weighted-average fair value of unvested share-based compensation awards outstanding. Other general and administrative costs decreased by $0.6 million.

~~We do not expect~~ selling, general and administrative ~~expense~~increased as a result of increased selling, general and administrative headcount relative to ~~increase significantly in the near term.~~

~~Other Expense, Net~~

research and development headcount.

During the three months ended September 30, 2020, total selling, general and administrative personnel expense, including share-based compensation expense, increased as a result of $2.3 million of one-time charges resulting from a reduction of headcount from combining La Jolla and Tetraphase personnel in July 2020, partially offset by reduced headcount in 2020 from Company-wide realignments in November 2019 and ~~2018, other expenses were $2.4 million.~~May 2020. During the nine months ended September 30, 2020, total selling, general and administrative personnel expense, including share-based compensation expense, decreased as a result of reduced headcount in 2020 from a Company-wide realignment in November 2019, partially offset by: (i) $1.7 million of one-time charges in 2020 resulting from a reduction of headcount from a Company-wide realignment in May 2020;and (ii) $2.3 million of one-time charges in 2020 resulting from a reduction of headcount from combining La Jolla and Tetraphase personnel in July 2020.

Other Income (Expense), Net

Other income (expense), net consists of the receipt of distributions in connection with our non-voting profits interest in a related party, interest accrued for our deferred royalty obligation, gains and losses associated with the disposal of certain property and equipment, and interest income generated from cash held in savings accounts.

During the three months ended September 30, 2020, other expense, ~~increased~~net remained consistent compared to ~~$6.6~~the same period in 2019. During the nine months ended September 30, 2020, other expense, net decreased to $3.5 million from ~~$3.4~~$6.6 million for the same period in ~~2018. The increase in expense~~2019, a decrease of $3.1 million. This decrease was primarily due to ~~an increase~~the receipt of distributions of $4.1 million in connection with the Company’s non-voting profits interest in a related party and a $1.0 million decrease in interest ~~accrued~~expense for our deferred royalty obligation, partially offset by ~~an increase~~a $1.6 million decrease in interest income generated from cash held in savings accounts.

Liquidity and Capital Resources

~~Since January 2012, when the Company was effectively restarted with new assets and a new management team, through September 30, 2019, our cash used in operating activities was $408.7 million.~~

As of September 30, 2020 and December 31, 2019, we had ~~an accumulated deficit~~cash and cash equivalents of ~~$1,012.1~~$27.8 million and ~~have financed our operations through public and private offerings~~$87.8 million, respectively. On July 28, 2020, La Jolla completed the acquisition of securities, a royalty financing, revenues from collaborative agreements and net product sales, equipment financings and interest income on invested cash balances. As of September 30, 2019, we had $104.8Tetraphase for $43.0 million in ~~cash, compared to $172.6 million of cash at December 31, 2018.~~upfront cash. Based on our current operating plans and projections, we believe that our existing cash and cash equivalents will be sufficient to fund operations for at least one year from the date this Quarterly Report on Form 10-Q is filed with the SEC.

~~Cash~~

Net cash used for operating activities for the three and nine months ended September 30, 2020 was $9.8 million and $30.4 million, respectively, down 48% and 55%, respectively, from the same periods in 2019. Net cash used for operating activities for the three and nine months ended September 30, 2020, excluding cash expenditures related to reductions in headcount and transaction costs associated with the Tetraphase acquisition, was $5.6 million and $21.6 million, respectively, down 70% and 67%, respectively, from the same periods in 2019. Cash expenditures related to reductions in headcount were $3.3 million and $7.9 million for the three and nine months ended September 30, 2020, respectively, and zero and $2.3 million, respectively, for the same periods in 2019. Cash expenditures related to transaction costs associated with the Tetraphase acquisition were $0.9 million for the three and nine months ended September 30, 2020.

Cash used for investing activities was $30.9 million and $0.7 million for the nine months ended September 30, 2020 and 2019, ~~was $67.8 million, compared to $120.3 million for the same period in 2018.~~respectively. The ~~decrease~~increase in cash used for ~~operating~~investing activities resulted primarily from the acquisition of Tetraphase, net of cash, cash equivalents and restricted cash acquired, partially offset by proceeds from the sale of property and equipment.

Cash provided by financing activities was ~~a result of the decrease in our net loss, primarily offset by changes in non-cash expenses~~$1.0 million and ~~working capital.~~

~~Cash used for investing activities~~$0.7 million for the nine months ended September 30, 2020 and 2019, ~~was $0.7 million, compared to $2.3 million for the same period in 2018. Net cash used in investing activities was the result of purchases of property and equipment.~~

~~Cash provided by financing activities for the nine months ended September 30, 2019 was $0.7 million, compared to $236.0 million for the same period in 2018.~~respectively. The ~~decrease~~increase in cash provided by financing activities was primarily the result of ~~the receipt of $109.8 million of~~ net proceeds from ~~the March 2018~~issuance of common stock ~~offering~~under employee stock plans.

Since January 2012, when the Company was effectively restarted, through September 30, 2020, our cash used in operating activities was $456.3 million. As of September 30, 2020, we had an accumulated deficit of $1,073.3 million and ~~$124.3 million~~have financed our operations through public and private offerings of ~~net proceeds from the~~securities, a royalty financing, ~~in May 2018 (see Note 5).~~

revenues from net product sales, interest income on invested cash balances and other income.

Contractual Obligations

HealthCare Royalty Partners Royalty Agreement

In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net ~~product~~ sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net ~~product~~ sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of ~~180% of the $125.0 million received by us.~~$225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been ~~made or on January 1, 2031, whichever comes first.~~made. The Royalty Agreement was entered into by our wholly owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA.

In-license Agreements

George Washington University License

In December 2014, wethe Company entered into a patent license agreement with ~~the~~ George Washington University (“GW”), which ~~the parties~~subsequently was amended and restated ~~on March 1, 2016~~(the “GW License”) and ~~we subsequently~~ assigned to La Jolla Pharma, ~~LLC in connection with its entry into the Royalty Agreement.~~LLC. Pursuant to the ~~amended and restated license agreement,~~GW License, GW exclusively licensed to usthe Company certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the ~~license agreement, we are~~GW License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA. ~~We have~~The Company has paid a one-time license initiation fee, annual maintenance fees, an amendment fee, additional payments following the achievement of certain development and regulatory milestones and ~~royalty payments.~~royalties. As a result of the ~~EC’s~~European Commission’s approval of GIAPREZA in August 2019, ~~we will make~~the Company made a milestone payment to GW in the amount of $0.5 million in the ~~fourth~~first quarter of ~~2019. Additional milestones may be payable to GW for additional indications for which GIAPREZA~~2020. The Company is ~~approved, with each such additional indication resulting in potential milestone payments of up to $1.1 million. Following the commencement of commercial sales of GIAPREZA, we are~~ obligated to pay a 6% royalty on ~~products covered by the licensed rights.~~net sales of GIAPREZA. The ~~patents and patent applications covered by the GW license agreement are expected to expire between 2029 and 2038, and the~~ obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA.

Harvard University License

Paratek Pharmaceuticals, Inc. License

~~Off-Balance~~

Paratek License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell XERAVA. The Company is obligated pay Paratek royalties at a low single digit percent based on net sales of XERAVA in the U.S. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering XERAVA.

Out-license Agreement

Everest Medicines Limited License

In February 2018, Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the quantity and timing of commercial supply. Subsequent to July 28, 2020 and through September 30, 2020, the Company has not received any payments from Everest related to either royalties or clinical development and regulatory milestones.

Off−Balance Sheet Arrangements

We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in our financial condition, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

We believe the estimates, assumptions and judgments involved in the accounting policies described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our Form 10-K for the year ended December 31, 2019 are most critical to understanding and evaluating our reported financial results. During the three and nine months ended September 30, 2020, other than the business combinations accounting policy described below, there have been no material changes to the critical accounting policies and estimates as described in Item 7 of our Form 10-K for the year ended December 31, 2019.

The Company accounts for business combinations using the acquisition method pursuant to FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in La Jolla's financial results beginning on the respective acquisition dates, and that assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using a discounted cash flow model. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Each of these factors can significantly affect the value of the intangible asset. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. Contingent consideration liabilities are recognized as part of the Purchase Price at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liabilities will be included in other income (expense), net in the consolidated statements of operations. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition

date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

Recent Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

~~ITEM~~

Item 3. ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Quantitative and Qualitative Disclosure about Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

~~ITEM~~

Item 4. ~~CONTROLS AND PROCEDURES~~

~~We maintain~~Controls and Procedures

Management’s Evaluation of our Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation of our disclosure controls and procedures as of September 30, 2020, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in ~~our~~the reports ~~filed~~that it files or submits under the ~~Securities~~ Exchange Act ~~of 1934, is~~are recorded, processed, summarized and reported within the time periods specified in the ~~SEC’s~~U.S. Securities and Exchange Commission’s rules and ~~forms,~~forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that ~~such~~ information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our ~~chief~~principal executive officer and ~~chief~~principal financial officer, as appropriate to allow timely decisions regarding required disclosure. ~~In designing and evaluating the disclosure controls and procedures, management recognized~~Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable ~~and not absolute~~ assurance of achieving ~~the desired control objectives. In reaching a reasonable level of assurance,~~their objectives, and our management ~~was required to apply~~necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. ~~In addition, the design of any system of controls is also based~~

Changes in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Other than controls implemented in connection with the newly adopted lease policy as disclosed in Note 2 to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, there has beenInternal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

~~ITEM~~

Item 1. ~~LEGAL PROCEEDINGS~~

InLegal Proceedings

From time to time, we may become subject to claims and litigation arising in the ordinary course of ~~business, we may face various claims brought by third parties. Any of these claims could subject us to costly litigation. As of the date of this report, we~~business. We are not ~~currently~~ a party to any material legal proceedings, ~~that~~nor are we ~~believe could have a~~aware of any material ~~adverse effect on our business, financial condition~~pending or results of operations. However, litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could negatively affect our business, financial condition and results of operations.

threatened litigation.

~~ITEM~~

Item 1A. ~~RISK FACTORS~~

~~No material changes to risk factors have occurred as previously disclosed~~Risk Factors

An investment in ~~Item 1A~~shares of our ~~Annual~~common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and the other information contained in this Quarterly Report on Form ~~10-K~~10-Q before deciding to invest in shares of our common stock. The risks described below are not the only ones facing our Company. Additional risks not presently known to us or that we currently consider immaterial may also adversely affect our business. We have attempted to identify below the major factors that could cause differences between actual and planned or expected results, but we cannot assure you that we have identified all of those factors. Our business, financial condition, results of operations and prospects could be materially adversely affected by any of these risks or uncertainties. In such case, the trading price of shares of our common stock could decline, and you could lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

We are substantially dependent on the commercial success of GIAPREZA^TM (angiotensin II) and XERAVA^TM (eravacycline).

The success of our business is substantially dependent on our ability to successfully commercialize GIAPREZA^TM (angiotensin II) and XERAVA^TM (eravacycline), our commercial products. The market for effective pharmaceutical sales and marketing professionals is competitive, and maintaining these capabilities is expensive and challenging. If we are unable to maintain an effective sales and marketing organization, GIAPREZA and XERAVA sales could be adversely affected, and our business could suffer.

In the U.S. and most major foreign markets, drugs like GIAPREZA and XERAVA that are administered in the hospital must be purchased by the hospital and generally are not directly reimbursed by third-party payors. Hospitals instead are reimbursed for patient cases based on patients’ diagnosed conditions under the U.S. Medicare diagnosis-related group (“DRG”) system or other like systems for non-Medicare patients in the U.S. and in most major foreign markets. Adoption of new drugs that are administered in the hospital generally occurs more slowly than adoption of new drugs that are taken on an outpatient basis, which generally are paid for by third-party payors. If we are unsuccessful at convincing hospitals and health care providers to increase their rate of adoption of GIAPREZA and XERAVA, our business will suffer.

Catecholamines (primarily norepinephrine), which are available as generics and inexpensive, are typically used in the first line to treat distributive shock, while Vasostrict^® (Endo International plc) is typically used in the second line. In the randomized, Phase 3 study ATHOS-3, GIAPREZA demonstrated clinical benefit in patients who were not adequately responding to available vasopressors, including catecholamines and Vasostrict. GIAPREZA’s principle competition as a treatment in patients not adequately responding to available vasopressors is the use of these same vasopressors, particularly norepinephrine, at increased doses. If we are unable to successfully change treatment practices, the commercial prospects for GIAPREZA will be limited, and our business will suffer.

XERAVA competes with a number of antibiotics that are currently marketed for the ~~year ended~~treatment of cIAI and other multidrug resistant infections, including: AVYCAZ (ceftazidime and avibactam, marketed by AbbVie Inc.); MERREM IV^® (meropenem, marketed by AstraZeneca PLC); PRIMAXIN^® (imipenem and cilastatin, marketed by Merck & Co., Inc.); RECARBRIO™ (imipenem, cilastatin, and relebactam, marketed by Merck & Co., Inc.); TYGACIL^® (tigecycline, marketed by Pfizer Inc.); VABOMERE™ (meropenem and vaborbactam, marketed by Melinta Therapeutics, Inc.); ZERBAXA^® (ceftolozane and tazobactam, marketed by Merck & Co., Inc.); ZOSYN^® (piperacillin and tazobactam, marketed by Pfizer Inc.); and current and future generic versions of marketed antibiotics. If we are unable to successfully change treatment practices, the commercial prospects for XERAVA will be limited, and our business will suffer.

Our estimates of the potential market sizes for GIAPREZA and XERAVA are based on prescription and sales data for relevant in-market products, the results of clinical studies, medical literature and other information. If

the potential market sizes for GIAPREZA and XERAVA are smaller than our estimates, the commercial prospects for GIAPREZA and XERAVA may be limited, and our business may suffer.

The commercial success of GIAPREZA and XERAVA will depend on our ability to obtain an uninterrupted supply of GIAPREZA and XERAVA from our contract manufacturers.

We do not currently own or operate manufacturing facilities for the production of GIAPREZA or XERAVA. We rely on sole-source third-party manufacturers to produce GIAPREZA and XERAVA and expect to continue to do so to meet our development and commercial needs. In all of our manufacturing agreements, we require that third-party contract manufacturers produce active pharmaceutical ingredients (“APIs”) and drug products in accordance with the U.S. Food and Drug Administration’s (“FDA’s”) current Good Manufacturing Practices (“cGMPs”) and all other applicable laws and regulations. The long-term commercial success of GIAPREZA and XERAVA will depend in part on the ability of our contract manufacturers to supply cGMP-compliant API and drug product without interruption. If there is an interruption in the supply of GIAPREZA and XERAVA from our contract manufacturers, our business will suffer.

Our ability to realize the benefits from the acquisition of Tetraphase is substantially dependent on the commercial success of XERAVA and the cost savings resulting from the timely and effective integration of the operations of La Jolla and Tetraphase.

Our ability to realize the benefits from the acquisition of Tetraphase is substantially dependent on our ability to successfully commercialize XERAVA. Combining with La Jolla may not accelerate XERAVA’s availability to patients in need, and our presence in the hospital may not increase with a second innovative therapy. If we are unsuccessful at convincing hospitals and health care providers to increase their rate of adoption of XERAVA, our sales could be adversely affected, and our business could suffer.

Further, our ability to realize the benefits from the acquisition of Tetraphase is substantially dependent on the cost savings resulting from the timely and effective integration of the operations of La Jolla and Tetraphase. The process of integrating the operations of La Jolla and Tetraphase could encounter unexpected costs and delays, which include: the loss of key personnel; the loss of key customers; the loss of key suppliers; and unanticipated issues in integrating sales, marketing and administrative functions. If we are unable to timely and effectively integrate the operations of La Jolla and Tetraphase, our costs could be adversely affected, and our business could suffer. Further, even if the integration is timely and effective, we may never realize the cost savings expected from the integration of the operations of our two companies.

GIAPREZA’s and XERAVA’s market exclusivity periods will depend on the validity and enforceability of issued and pending patents covering GIAPREZA and XERAVA.

As of September 30, 2020, we owned or had in-licensed 12 issued U.S. patents, 9 pending U.S. patent applications, 5 issued foreign patents and 45 pending foreign patent applications that cover GIAPREZA. The U.S. patents and patent applications expire between 2029 and 2040, and the foreign patents and patent applications expire between 2034 and 2040.

As of September 30, 2020, we owned or had in-licensed 3 issued U.S. patents, 1 pending U.S. patent applications, 16 issued foreign patents and 6 pending foreign patent applications that cover XERAVA. The U.S. patents and patent applications expire between 2023 and 2030, and the foreign patents and patent applications expire between 2029 and 2040.

As of September 30, 2020, we have also filed applications for Supplementary Protection Certificates based on European Patent No. 2323972 covering the composition of matter and use of XERAVA. Some applications have been granted and others are pending.

As of September 30, 2020, we also owned 1 pending U.S. patent application and 9 pending foreign patent applications that cover crystalline forms of eravacycline. Any U.S. patents that may be issued will expire in 2037 absent any adjustment, extension or filing of a terminal disclaimer. Likewise, any foreign patents that may be issued will expire in 2037.

Although we believe the bases for these patents and patent applications are sound, they are untested, and there is no assurance that they will not be successfully challenged. There can be no assurance that any patent previously issued will protect GIAPREZA or XERAVA from generic competition or that any patent application will

result in an issued patent that will protect GIAPREZA or XERAVA from generic competition. Furthermore, there can be no assurance that GIAPREZA or XERAVA will not be held to infringe valid patents held by others. If our owned and in-licensed intellectual property do not protect GIAPREZA or XERAVA from generic competition, GIAPREZA or XERAVA sales will decline, and our business will suffer. If either GIAPREZA or XERAVA is held to infringe valid patents held by others, we could be subject to liability, and our business could suffer.

Product liability lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales.

Patients suffering from distributive shock are gravely ill and have a high mortality rate. Although 28-day mortality in patients treated with GIAPREZA was lower than in patients treated with placebo in the randomized, Phase 3 study ATHOS-3, there was a higher incidence of arterial and venous thrombotic and thromboembolic events in patients treated with GIAPREZA in this study. Some patients who are treated with GIAPREZA will die due to their underlying illness or suffer adverse events (which may or may not be drug related). Additionally, patients suffering from cIAI may become gravely ill and may die due to underlying illness or suffer adverse events (which may or may not be drug related). As such, we may face product liability lawsuits. Although we carry product liability insurance, product liability lawsuits against us could cause us to incur substantial liabilities and reduce GIAPREZA and XERAVA sales. Furthermore, any such lawsuits could impair our business reputation and result in the initiation of investigations by regulators.

Our ability to continue commercializing GIAPREZA and XERAVA is dependent on our fulfillment of contractual obligations to certain parties.

HealthCare Royalty Partners Royalty Agreement

In May 2018, we closed a $125.0 million royalty financing agreement (the “Royalty Agreement”) with HealthCare Royalty Partners (“HCR”). Under the terms of the Royalty Agreement, we received $125.0 million in exchange for tiered royalty payments on worldwide net sales of GIAPREZA. HCR is entitled to receive quarterly royalties on worldwide net sales of GIAPREZA beginning April 1, 2018. Quarterly payments to HCR under the Royalty Agreement start at a maximum royalty rate, with step-downs based on the achievement of annual net product sales thresholds. Through December 31, 2021, the royalty rate will be a maximum of 10%. Starting January 1, 2022, the maximum royalty rate may increase by 4% if an agreed-upon, cumulative net product sales threshold has not been met, and, starting January 1, 2024, the maximum royalty rate may increase by an additional 4% if a different agreed-upon, cumulative net product sales threshold has not been met. The Royalty Agreement is subject to maximum aggregate royalty payments to HCR of $225.0 million. The Royalty Agreement expires upon the first to occur of January 1, 2031 or when the maximum aggregate royalty payments have been made. The Royalty Agreement was entered into by our wholly-owned subsidiary, La Jolla Pharma, LLC, and HCR has no recourse under the Royalty Agreement against La Jolla Pharmaceutical Company or any assets other than GIAPREZA. However, under the terms of the Royalty Agreement, La Jolla Pharma, LLC has certain obligations, including the obligation to use commercially reasonable and diligent efforts to commercialize GIAPREZA. If La Jolla Pharma, LLC is held to not have met these obligations, HCR would have the right to terminate the Royalty Agreement and demand payment from La Jolla Pharma, LLC of either $125.0 million or $225.0 million (depending on which obligation La Jolla Pharma, LLC is held to not have met), minus aggregate royalties already paid to HCR. In the event that La Jolla Pharma, LLC fails to timely pay such amount if and when due, HCR would have the right to foreclose on the GIAPREZA-related assets.

George Washington University License

In December 2014, we entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated (the “GW License”) and assigned to La Jolla Pharma, LLC. Pursuant to the GW License, GW exclusively licensed to us certain intellectual property rights relating to GIAPREZA, including the exclusive rights to certain issued patents and patent applications covering GIAPREZA. Under the GW License, La Jolla Pharma, LLC is obligated to use commercially reasonable efforts to develop, commercialize, market and sell GIAPREZA and make certain payments to GW, including a 6% royalty on net sales of GIAPREZA. If La Jolla Pharma, LLC is held to not have met its obligations, GW could terminate the GW License and La Jolla Pharma, LLC would no longer have rights to the GW issued patents and patent applications covering GIAPREZA.

Harvard University License

exclusively licensed to the Company certain intellectual property rights relating to tetracycline-based products, including XERAVA, including the exclusive rights to certain issued patents and patent applications covering such products. Under the Harvard License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell tetracycline-based products, including XERAVA. For each product covered by the Harvard License, the Company is obligated to make certain payments totaling up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones, and to pay Harvard tiered royalties at percentages in the single digits based on net sales, if any, of tetracycline-based products, including XERAVA, by the Company, its affiliates and sublicensees in certain circumstances. The Company is also obligated to pay Harvard a specified share of non-royalty sublicensing and other revenues that it receives from sublicensees for the grant of sublicenses in certain circumstances, including the Everest License (see below), and to reimburse Harvard for specified patent prosecution and maintenance costs. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA. If Tetraphase is held to not have met its obligations, Harvard could terminate the Harvard License and Tetraphase would no longer have rights to the Harvard issued patents and patent applications covering XERAVA.

Paratek Pharmaceuticals, Inc. License

In March 2019, Tetraphase entered into a license agreement with Paratek Pharmaceuticals, Inc. (“Paratek”), which was subsequently amended and restated (the “Paratek License”). Pursuant to the Paratek License, Paratek non-exclusively licensed to the Company certain intellectual property rights relating to XERAVA, including non-exclusive rights to certain issued patents and patent applications covering XERAVA. Under the Paratek License, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market and sell XERAVA. The Company is obligated pay Paratek royalties at a low single digit percent based on net sales of XERAVA in the U.S. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering XERAVA. If Tetraphase is held to not have met its obligations, Paratek could terminate the Paratek License and Tetraphase would no longer have rights to the Paratek issued patents and patent applications covering XERAVA.

Everest Medicines Limited License

In February 2018, ~~filed~~Tetraphase entered into a license agreement with Everest Medicines Limited (“Everest”), which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, Tetraphase granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of cIAI and other indications in mainland China, Taiwan, Hong Kong, Macau, South Korea, Singapore, the Malaysian Federation, the Kingdom of Thailand, the Republic of Indonesia, the Socialist Republic of Vietnam and the Republic of the Philippines (collectively, the “Territory”). The Company is eligible to receive up to an aggregate of $11.0 million in future clinical development and regulatory milestone payments and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive tiered royalties from Everest at percentages in the low double digits on sales, if any, in the Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Territory. In addition, royalties payable under the Everest License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Pursuant to the Everest License, Everest will be solely responsible for the development and commercialization of licensed products in the Territory. The Company agreed to use commercially reasonable efforts to manufacture drug product for clinical development, which will be paid by Everest at the cost to manufacture, as well as manufacture drug product for commercial supply, which will be paid by Everest at cost plus a reasonable margin. The Company has not yet entered into a commercial supply agreement with Everest, which would set the quantity and timing of commercial supply. Subsequent to July 28, 2020 and through September 30, 2020, the Company has not received any payments from Everest related to either royalties or clinical development and regulatory milestones. If Tetraphase is held to not have met its obligations, the commercial prospects for XERAVA in the Territory will be limited, and our business will suffer.

Our ability to hire and retain key employees is uncertain.

As of October 30, 2020, we employed 65 employees. The market for effective professionals in the pharmaceutical industry is competitive, and hiring and retaining these professionals is expensive and challenging. If we are unable to hire and retain key employees, we may be unable to effectively execute on our operating plan, and our business could suffer.

Business interruptions resulting from geopolitical actions, natural disasters, public health crises or other catastrophic events could have an adverse impact on our business.

Business interruptions resulting from geopolitical actions, such as war and terrorism, natural disasters, public health crises, such as a pandemic, or other catastrophic events could have an adverse impact on our business. For example, if one of these events were to adversely affect one of our contract manufacturers, our supply of GIAPREZA and XERAVA could be interrupted. Furthermore, in the case of a pandemic, the ability of our critical care specialists to access hospitals and call on physicians may be curtailed, which may adversely affect product sales.

Our overall financial performance, including but not limited to net product sales and net cash used for operating activities, may not meet our expectations.

Our overall financial performance, including but not limited to net product sales and net cash used for operating activities, is difficult to predict and may fluctuate from quarter to quarter and year to year. Historical financial performance may not be indicative of future financial performance. For example, our net product sales may be below expectations, and our costs to operate our business, including cost of product sales, research and development expenses and selling, general and administrative expenses, could exceed our estimates. If our overall financial performance does not meet our expectations, our business could suffer.

Our capital requirements and our potential need for, and ability to obtain, additional financing are uncertain.

As of September 30, 2020, we had cash of $27.8 million. GIAPREZA and XERAVA are our approved products and our only sources of product revenue. The amount and timing of future funding requirements, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA, and our ability to control expenses. If necessary, we will raise additional capital through equity or debt financings or collaboration agreements. We can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we need to raise additional capital and are unable to do so, we may be forced to curtail or cease our operations.

The ongoing COVID-19 pandemic may disrupt our operations and affect our ability to sell GIAPREZA and XERAVA.

We are unable to accurately predict the full impact that the ongoing Coronavirus Disease 2019 (“COVID‑19”) pandemic will have on our results from operations, financial condition and our ability to sell GIAPREZA and XERAVA due to numerous factors that are not within our control, including its duration and severity of the outbreak. Stay-at-home orders, business closures, travel restrictions, supply chain disruptions and employee illness or quarantines could result in disruptions to our operations, which could adversely impact our results from operations and financial condition. In addition, the COVID-19 pandemic has resulted in ongoing volatility in financial markets. If our access to capital is restricted or associated borrowing costs increase as a result of developments in financial markets relating to the COVID-19 pandemic, our operations and financial condition could be adversely impacted.

RISKS RELATED TO OUR INDUSTRY

We are subject to various federal, state and foreign laws and regulations governing the health care industry that could result in substantial penalties for noncompliance.

We are subject to various federal, state and foreign laws and regulations governing the health care industry that could result in substantial penalties for noncompliance. These laws and regulations may impact our ability to operate, including our sales and marketing efforts. In addition, we may be subject to patient privacy regulation by federal, state and foreign governments that govern jurisdictions in which we conduct our business. The laws and regulations that may affect our ability to operate include:

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The federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example gifts, cash payments, donations, the furnishing of

supplies or equipment, waivers of payment, ownership interests, and providing any item, service or compensation for something other than fair market value.

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Federal false claims and civil monetary penalties laws, including the federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services that are false or fraudulent. Although we may not submit claims directly to payors, manufacturers can be held liable under these laws in a variety of ways. These include: providing inaccurate billing or coding information to customers; improperly promoting a product’s off-label use; violating the federal Anti-Kickback Statute; or misreporting pricing information to government programs.

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Provisions of the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created new federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program or making false statements in connection with the delivery of or payment for health care benefits, items or services.

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The federal Physician Payment Sunshine Act requirements, under the Patient Protection and Affordable Care Act (“PPACA”), which require manufacturers of certain drugs and biologics to track and report to U.S. Centers for Medicare & Medicaid Services (“CMS”) payments and other transfers of value they make to U.S. physicians and teaching hospitals as well as physician ownership and investment interests in the manufacturer.

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Various federal, state and foreign data privacy and security laws and regulations. These include provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations (“HITECH”), which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information in the U.S. and the General Data Protection Regulation (“GDPR”) in the European Union that became effective in May 2018. We may not be directly subject to certain of these laws and regulations, such as privacy and security requirements under HIPAA; however, we may be subject to criminal penalties for knowingly, aiding and embedding these violations.

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Section 1927 of the Social Security Act, which requires that manufacturers of drugs and biological products covered by Medicaid report pricing information to CMS on a monthly and quarterly basis, including the best price available to any customer of the manufacturer, with certain exceptions for government programs, and pay prescription rebates to state Medicaid programs based on a statutory formula derived from reported pricing information.

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State and/or foreign law equivalents of each of the above federal laws, such as the recently effective California Consumer Privacy Act, many of which differ from each other in significant ways and may not have the same effect, which complicates our compliance efforts.

If we are found to be in violation of any of the laws or regulations described above or any other laws or regulations that apply to us, we may be subject to substantial penalties, including civil and criminal penalties, damages, fines and possible exclusion from participation in Medicare, Medicaid and other federal health care programs. If we are subjected to substantial penalties, our business will suffer, and we may be forced to curtail or cease our operations

Drug development involves a lengthy and expensive process with an uncertain outcome.

Drug development involves a lengthy and expensive process with an uncertain outcome. Failure can occur at any time during drug development. The results of nonclinical studies and early clinical studies may not be predictive of the results of later-stage clinical studies. For example, the safety or efficacy results of clinical studies do not ensure that later clinical studies will demonstrate similar results. Even if clinical studies demonstrate the safety and efficacy of the product candidate, there is no assurance that such product candidate will receive regulatory approval.

Drugs approved by the FDA, European Commission (“EC”) and/or other regulatory agencies are subject to ongoing regulation.

Any products manufactured or distributed by us pursuant to FDA, EC and/or other regulatory agency approvals may be subject to continuing regulation by such agencies, including record-keeping requirements and reporting of adverse experiences with the ~~SEC~~drug. Drug manufacturers and their subcontractors are required to

register their establishments with the FDA, EC and/or other regulatory agencies and may be subject to periodic unannounced inspections by such agencies for compliance with cGMPs, which impose certain procedural and documentation requirements on ~~March 4, 2019.~~us and our third-party manufacturers. Even after regulatory approval is obtained, under certain circumstances, such as later discovery of previously unknown safety risks, the FDA, EC and/or other regulatory agencies can withdraw approval or subject the drug to additional restrictions.

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment.

The price per share of our common stock may fluctuate significantly, and you may lose all or part of your investment. These fluctuations could be based on various factors, including factors described elsewhere in this Quarterly Report on Form 10-Q and below:

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changes in analyst estimates, ratings and price targets;

•

negative press reports or other negative publicity, whether or not true, about our business;

•

developments concerning the pharmaceutical and biotechnology industry in general;

•

market sentiment towards pharmaceutical and biotechnology stocks;

•

developments concerning the overall economy; and

•

market sentiment toward equity securities.

We have never paid a dividend on shares of our common stock, and you should rely on price appreciation of shares of our common stock for return on your investment.

We have never paid a dividend on shares of our common stock. Even if we decide to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations, financial condition, contractual restrictions and other factors. You should not rely on dividend income from shares of our common stock and should rely on price appreciation of shares of our common stock for return on your investment.

Conversion of our convertible preferred stock would result in substantial dilution for our existing shareholders of common stock.

As of September 30, 2020, there were approximately 27.4 million shares of common stock outstanding. We may be required to issue up to approximately 6.7 million additional shares of common stock upon conversion of existing convertible preferred stock. The issuance of these additional shares would represent approximately 20% dilution to our existing shareholders of common stock.

If we need to obtain additional financing in the future, such financing could result in dilution to your investment, adversely affect the price per share of our common stock and/or create future operating and financial restrictions.

As of September 30, 2020, we had cash of $27.8 million. GIAPREZA and XERAVA are our approved products and our only source of product revenue. The amount and timing of future funding requirements, if any, will depend on many factors, including the success of our commercialization efforts for GIAPREZA and XERAVA and our ability to control expenses. If necessary, we will raise additional capital through equity or debt financings. We can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we issue additional equity securities or securities convertible into equity securities, you will suffer dilution to your investment, and such issuance may adversely affect the price per share of our common stock. Any new debt financing we enter into may involve covenants that restrict our operations, which may include limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens or pay dividends.

~~ITEM~~

Item 2. ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

Unregistered Sales of Equity Securities and Use of Proceeds

None.

~~None.~~

~~ITEM~~

Item 3. ~~DEFAULTS UPON SENIOR SECURITIES~~

Defaults upon Senior Securities

None.

~~ITEM~~

Item 4. ~~MINE SAFETY DISCLOSURES~~

Mine Safety Disclosures

Not applicable.

~~ITEM~~

Item 5. ~~OTHER INFORMATION~~

~~None.~~

Other Information

In connection with the acquisition of Tetraphase, the Company incurred one-time charges related to a reduction in the combined Company’s headcount. For the three and nine months ended September 30, 2020, total expense was comprised of $3.1 million for one-time termination benefits to the affected employees, including severance and health care benefits. As of September 30, 2020, the Company had paid $1.3 million of the $3.1 million cash severance and health care benefits charges, and the remaining $1.8 million of the cash severance and health care benefits charges were included in accrued payroll and related expenses. The Company expects to complete making substantially all of the payments related to this headcount reduction by the end of the second quarter of 2021.

~~ITEM~~

Item 6. ~~EXHIBITS~~

Exhibits

Exhibit No.		Exhibit Description

10.1+		Employment Offer Letter by and between La Jolla Pharmaceutical Company and Larry Edwards dated as of July 28, 2020
~~Exhibit Number~~		~~Description~~
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

+		Indicates a management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		La Jolla Pharmaceutical Company

Date:	November ~~12, 2019~~9, 2020	By:	/s/ ~~George Tidmarsh~~Larry Edwards
		~~George Tidmarsh, M.D., Ph.D.~~	Larry Edwards
			President and Chief Executive Officer
			(~~Principal Executive Officer)~~principal executive officer)

			/s/ ~~Dennis Mulroy~~Michael Hearne
		~~Dennis Mulroy~~	Michael Hearne
			Chief Financial Officer
			(~~Principal Financial~~principal financial and ~~Accounting Officer)~~accounting officer)



~~California~~		~~33-0361285~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~4550 Towne Centre Court,~~ 4747 Executive Drive, Suite 240, San Diego, CA		92121
(Address of principal executive offices)		(Zip Code)



Large accelerated filer	o	☐	Accelerated filer	x	☒

Non-accelerated filer	o	☐	Smaller reporting company	x	☒

			Emerging growth company	o	☐

PART I. FINANCIAL INFORMATION

~~PART I — FINANCIAL INFORMATION~~

~~ITEM~~Item 1. Financial Statements	1

Condensed Consolidated Balance Sheets as of September 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019	1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	2

Condensed Consolidated Statements of Shareholders’ (Deficit) Equity for the Three and Nine Months Ended September 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	3

Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2020 and 2019 ~~and 2018~~ (Unaudited)	5

Notes to Condensed Consolidated Financial Statements (Unaudited)	6

~~ITEM~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13 17

~~ITEM~~Item 3. Quantitative and Qualitative Disclosures about Market Risk	20 24

~~ITEM~~Item 4. Controls and Procedures	20 24

PART ~~II —~~II. OTHER INFORMATION	25

~~ITEM~~Item 1. Legal Proceedings	21 25

~~ITEM~~Item 1A. Risk Factors	21 25

~~ITEM~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21 31

~~ITEM~~Item 3. Defaults upon Senior Securities	21 32

~~ITEM~~Item 4. Mine Safety Disclosures	21 32

~~ITEM~~Item 5. Other Information	21 32

~~ITEM~~Item 6. Exhibits	22 32

SIGNATURES	23 33



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


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



	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash	$	104,768		$	172,604
Accounts receivable, net	1,417			1,381
Inventory, net	1,910			2,020
Prepaid expenses and other current assets	4,783			5,111
Total current assets	112,878			181,116
Property and equipment, net	19,523			22,267
Right-of-use lease asset	15,829			—
Restricted cash	909			909
Total assets	$	149,139		$	204,292

LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$	5,338		$	8,572
Accrued expenses	9,351			8,485
Accrued payroll and related expenses	5,118			7,509
Lease liability, current portion	2,705			—
Deferred rent, current portion	—			1,370
Total current liabilities	22,512			25,936
Lease liability, less current portion	27,199			—
Deferred rent, less current portion	—			13,609
Deferred royalty obligation, net	124,366			124,323
Other noncurrent liabilities	10,233			4,503
Total liabilities	184,310			168,371
Shareholders’ (deficit) equity:
Common Stock, $0.0001 par value; 100,000,000 shares authorized, 27,147,387 and 26,259,254 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	3			3
Series C-1² Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized, 3,906 shares issued and outstanding at September 30, 2019 and December 31, 2018; and liquidation preference of $3,906 at September 30, 2019 and December 31, 2018	3,906			3,906
Series F Convertible Preferred Stock, $0.0001 par value; 10,000 shares authorized, 0 and 2,737 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively; and liquidation preference of $0 and $2,737 at September 30, 2019 and December 31, 2018, respectively	—			2,737
Additional paid-in capital	973,018			950,258
Accumulated deficit	(1,012,098		)	(920,983		)
Total shareholders’ (deficit) equity	(35,171		)	35,921
Total liabilities and shareholders’ (deficit) equity	$	149,139		$	204,292



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue
Net product sales	$	5,706		$	3,470		$	15,804		$	5,872
Total revenue	5,706			3,470			15,804			5,872
Operating expenses
Cost of product sales	554			256			1,605			443
Research and development	21,182			30,439			64,469			89,735
Selling, general and administrative	10,782			21,139			34,425			66,319
Total operating expenses	32,518			51,834			100,499			156,497
Loss from operations	(26,812		)	(48,364		)	(84,695		)	(150,625		)
Other (expense) income
Interest expense	(2,863		)	(2,926		)	(8,398		)	(4,581		)
Interest income	501			545			1,818			1,155
Total other expense, net	(2,362		)	(2,381		)	(6,580		)	(3,426		)
Net loss	$	(29,174	)	$	(50,745	)	$	(91,275	)	$	(154,051	)
Net loss per share, basic and diluted	$	(1.08	)	$	(1.93	)	$	(3.37	)	$	(6.15	)
Weighted-average common shares outstanding, basic and diluted	27,135			26,226			27,093			25,055



	U.S. Net Product Sales				Accounts Receivable
	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019		As of September 30, 2019
Customer A	32	%	32	%	27	%
Customer B	38	%	34	%	35	%
Customer C	30	%	30	%	38	%
Total	100	%	96	%	100	%



2019	$	1,000
2020	4,058
2021	4,174
2022	4,294
2023	4,417
Thereafter	18,134
Total future minimum lease payments	36,077
Less: discount	(6,173		)
Total lease liability	$	29,904



	Equity Awards		Weighted- average Exercise Price per Share
Outstanding at December 31, 2018	6,466,214		$	23.26
Granted⁽¹⁾	1,982,402		$	6.43
Cancelled/forfeited	(1,503,029	)	$	20.62
Outstanding at September 30, 2019	6,945,587		$	19.03

California		33-0361285

~~Securities registered pursuant to Section 12(b) of the Act:~~

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, ~~Par Value~~par value $0.0001 per ~~Share~~share

The Nasdaq Capital Market