UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒

~~FORM~~ ~~10-Q~~



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

For the quarterly period ended ~~June 30, 2020~~

March 31, 2021


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

For the transition period from ____ to ____

Commission File Number: 1-36282

LA JOLLA PHARMACEUTICAL COMPANY

(Exact name of registrant as specified in its charter)

California		33-0361285



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

~~4550 Towne Centre Court,~~ 201 Jones Road, Suite 400, Waltham, MA	~~San Diego,~~	CA	~~92121~~ 02451
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (~~858~~) ~~207-4264~~

(617) 715-3600

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



~~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 $0.0001 per share	LJPC	The	Nasdaq	Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	☐	Accelerated filer	☒	☐

Non-accelerated filer	☐	☒	Smaller reporting company		☒

			Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No☒

As of ~~July 27, 2020,~~April 3, 2021, there were ~~27,362,100~~27,448,571 shares of common stock outstanding.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	1

Condensed Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 (Unaudited) and December 31, ~~2019~~2020	1

Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	2

Condensed Consolidated Statements of Shareholders’ ~~(Deficit) Equity~~Deficit for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	3

Condensed Consolidated Statements of Cash Flows for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	5 4

Notes to Condensed Consolidated Financial Statements (Unaudited)	6 5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13 18

Item 3. Quantitative and Qualitative Disclosures about Market Risk	19 25

Item 4. Controls and Procedures	19 25

PART II. OTHER INFORMATION	26

Item 1. Legal Proceedings	19 26

Item 1A. Risk Factors	19 26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20 26

Item 3. Defaults upon Senior Securities	20 26

Item 4. Mine Safety Disclosures	20 26

Item 5. Other Information	20 26

Item 6. Exhibits	21 26

SIGNATURES	22 27

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LA JOLLA PHARMACEUTICAL COMPANY

Condensed Consolidated Balance Sheets

(in thousands, except par value and share amounts)

	March 31,			December 31,
	2021			2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	38,634		$	21,221
Accounts receivable, net		4,153			5,834
Inventory, net		5,374			6,013
Prepaid expenses and other current assets		6,104			3,388
Total current assets		54,265			36,456
Goodwill		20,123			20,123
Intangible assets, net		14,485			14,873
Right-of-use lease assets		490			536
Property and equipment, net		186			215
Restricted cash		40			40
Total assets	$	89,589		$	72,243

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,098		$	2,762
Accrued expenses		8,721			6,494
Accrued payroll and related expenses		1,693			2,878
Lease liabilities, current portion		196			204
Total current liabilities		11,708			12,338
Deferred royalty obligation, net		124,453			124,437
Accrued interest expense on deferred royalty obligation, less current portion		20,884			19,111
Lease liabilities, less current portion		294			332
Other noncurrent liabilities		4,568			4,112
Total liabilities		161,907			160,330
Commitments and contingencies (Note 6)
Shareholders’ deficit:
Common Stock, $0.0001 par value; 100,000,000 shares authorized, 27,448,571 and 27,402,648 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		3			3
Series C-1² Convertible Preferred Stock, $0.0001 par value; 11,000 shares authorized, 3,906 shares issued and outstanding at March 31, 2021 and December 31, 2020; and liquidation preference of $3,906 at March 31, 2021 and December 31, 2020		3,906			3,906
Additional paid-in capital		986,107			984,756
Accumulated deficit		(1,062,334	)		(1,076,752	)
Total shareholders’ deficit		(72,318	)		(88,087	)
Total liabilities and shareholders’ deficit	$	89,589		$	72,243

June 30,
2020 December 31,
2019
(Unaudited)
ASSETS
Current assets:
Cash $ 68,353
$ 87,820
Short-term investments 3,062
—
Accounts receivable, net 1,843
2,960
Inventory, net 3,120
2,211
Prepaid expenses and other current assets 2,792
4,467
Total current assets 79,170
97,458
Property and equipment, net 12,827
18,389
Right-of-use lease asset 14,792
15,491
Restricted cash 606
909
Total assets $ 107,395
$ 132,247

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable $ 2,481
$ 4,177
Accrued expenses 6,772
9,312
Accrued payroll and related expenses 5,741
8,332
Lease liability, current portion 2,890
2,766
Total current liabilities 17,884
24,587
Lease liability, less current portion 25,000
26,481
Deferred royalty obligation, net 124,406
124,379
Other noncurrent liabilities 15,317
12,790
Total liabilities 182,607
188,237
Commitments and contingencies (Note 6)
Shareholders’ deficit:
Common Stock, $0.0001 par value; 100,000,000 shares authorized,
27,358,611 and 27,195,469 shares issued and outstanding at June 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 June 30, 2020 and December 31, 2019; and liquidation preference of $3,906 at June 30, 2020 and December 31, 2019
3,906
3,906
Additional paid-in capital 982,393
977,432
Accumulated deficit (1,061,514 ) (1,037,331 )
Total shareholders’ deficit (75,212 ) (55,990 )
Total liabilities and shareholders’ deficit $ 107,395
$ 132,247

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
	March 31,
	2021			2020
Revenue
Net product sales	$	8,637		$	7,591
License revenue		25,500			-
Total revenue		34,137			7,591
Operating expenses
Cost of product sales		2,731			716
Cost of license revenue		3,600			-
Selling, general and administrative		8,755			8,152
Research and development		1,558			9,183
Total operating expenses		16,644			18,051
Income (loss) from operations		17,493			(10,460	)
Other (expense) income
Interest expense		(2,609	)		(2,406	)
Interest income		2			190
Other income—related party		-			4,085
Other expense		(450	)		-
Total other (expense) income, net		(3,057	)		1,869
Income (loss) before income taxes		14,436			(8,591	)
Provision for income taxes		18			-
Net income (loss)	$	14,418		$	(8,591	)
Earnings (loss) per share
Basic	$	0.53		$	(0.32	)
Diluted	$	0.42		$	(0.32	)
Shares used in computing earnings (loss) per share
Basic		27,427			27,238
Diluted		34,183			27,238

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenue
Net product sales $ 5,805
$ 5,703
$ 13,396
$ 10,098
Total revenue 5,805
5,703
13,396
10,098
Operating expenses
Cost of product sales 808
551
1,524
1,051
Research and development 8,781
22,043
17,964
43,287
Selling, general and administrative 8,677
11,323
16,829
23,643
Total operating expenses 18,266
33,917
36,317
67,981
Loss from operations (12,461 ) (28,214 ) (22,921 ) (57,883 )
Other income (expense)
Interest expense (2,470 ) (2,806 ) (4,876 ) (5,535 )
Interest income 32
604
222
1,317
Other income—related party —
—
4,085
—
Other expense (693 ) —
(693 ) —
Total other income (expense), net (3,131 ) (2,202 ) (1,262 ) (4,218 )
Net loss $ (15,592 ) $ (30,416 ) $ (24,183 ) $ (62,101 )
Net loss per share, basic and diluted $ (0.57 ) $ (1.12 ) $ (0.89 ) $ (2.29 )
Weighted-average common shares outstanding, basic and diluted 27,326
27,108
27,282
27,071

See accompanying notes to the condensed consolidated financial statements.

LA JOLLA PHARMACEUTICAL COMPANY

Condensed Consolidated Statements of Shareholders’ ~~(Deficit) Equity~~

Deficit

(Unaudited)

(in thousands)

	Series C-1² Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Shareholders'
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance at December 31, 2020		4	$	3,906		27,403	$	3	$	984,756	$	(1,076,752	)	$	(88,087	)
Share-based compensation expense		-		-		-		-		1,116		-			1,116
Issuance of common stock under 2013 Equity Plan		-		-		29		-		154		-			154
Issuance of common stock under ESPP		-		-		17		-		81		-			81
Net income		-		-		-		-		-		14,418			14,418
Balance at March 31, 2021		4	$	3,906		27,449	$	3	$	986,107	$	(1,062,334	)	$	(72,318	)

	Series C-1² Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Shareholders' (Deficit)
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance at December 31, 2019		4	$	3,906		27,195	$	3	$	977,432	$	(1,037,331	)	$	(55,990	)
Share-based compensation expense		-		-		-		-		2,407		-			2,407
Issuance of common stock under 2013 Equity Plan		-		-		44		-		305		-			305
Issuance of common stock under ESPP		-		-		38		-		200		-			200
Net loss		-		-		-		-		-		(8,591	)		(8,591	)
Balance at March 31, 2020		4	$	3,906		27,277	$	3	$	980,344	$	(1,045,922	)	$	(61,669	)

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, 2019 4
$ 3,906
—
$ —
27,195
$ 3
$ 977,432
$ (1,037,331 ) $ (55,990 )
Share-based compensation expense —
—
—
—
—
—
2,407
—
2,407
Issuance of common stock under 2013 Equity Plan —
—
—
—
44
—
305
—
305
Issuance of common stock under ESPP —
—
—
—
38
—
200
—
200
Net loss —
—
—
—
—
—
—
(8,591 ) (8,591 )
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 )

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
$ 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 )

See accompanying notes to the condensed consolidated financial statements.

LA JOLLA PHARMACEUTICAL COMPANY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2021			2020
Operating activities
Net income (loss)	$	14,418		$	(8,591	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Share-based compensation expense		1,116			2,407
Depreciation expense		29			1,060
Non-cash interest expense		1,736			1,682
Inventory fair value step-up adjustment included in cost of product sales		850			-
Amortization of intangible assets		388			-
Loss on change in fair value of contingent value rights		450			-
Amortization of right-of-use lease assets		46			345
Loss on disposal of property and equipment		-			148
Changes in operating assets and liabilities:
Accounts receivable, net		1,681			(592	)
Inventory, net		(211	)		251
Prepaid expenses and other current assets		(2,716	)		1,084
Accounts payable		(1,664	)		(2,282	)
Accrued expenses		2,286			(2,404	)
Accrued payroll and related expenses		(1,185	)		(4,683	)
Lease liabilities		(46	)		(674	)
Net cash provided by (used for) operating activities		17,178			(12,249	)
Investing activities
Proceeds from the sale of property and equipment		-			1,143
Net cash provided by investing activities		-			1,143
Financing activities
Net proceeds from issuance of common stock under 2013 Equity Plan		154			305
Net proceeds from issuance of common stock under ESPP		81			200
Net cash provided by financing activities		235			505
Net increase (decrease) in cash, cash equivalents and restricted cash		17,413			(10,601	)
Cash, cash equivalents and restricted cash, beginning of period		21,261			88,729
Cash, cash equivalents and restricted cash, end of period	$	38,674		$	78,128
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	38,634		$	77,219
Restricted cash		40			909
Total cash, cash equivalents and restricted cash	$	38,674		$	78,128

Six Months Ended June 30,
2020 2019
Operating activities
Net loss $ (24,183 ) $ (62,101 )
Adjustments to reconcile net loss to net cash used for operating activities:
Share-based compensation expense 3,997
13,103
Depreciation and amortization expense 1,798
2,263
Loss on disposal of equipment 904
15
Unrealized gains on short-term investments (63 ) —
Non-cash interest expense 3,392
4,678
Non-cash rent expense 699
639
Changes in operating assets and liabilities:
Accounts receivable, net 1,117
(512 )
Inventory, net (909 ) 52
Prepaid expenses and other current assets 1,675
22
Accounts payable (1,696 ) (3,664 )
Accrued expenses (3,378 ) 974
Accrued payroll and related expenses (2,591 ) (3,429 )
Lease liability (1,357 ) (1,241 )
Net cash used for operating activities (20,595 ) (49,201 )
Investing activities
Proceeds from the sale of property and equipment 2,860
—
Purchases of property and equipment —
(441 )
Purchases of short-term investments (2,999 ) —
Net cash used for investing activities (139 ) (441 )
Financing activities
Net proceeds from issuance of common stock under 2013 Equity Plan 605
—
Net proceeds from issuance of common stock under ESPP 359
484
Net cash provided by financing activities 964
484
Net decrease in cash and restricted cash (19,770 ) (49,158 )
Cash and restricted cash at beginning of period 88,729
173,513
Cash and restricted cash at end of period $ 68,959
$ 124,355
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 $ 68,353
$ 123,446
Restricted cash 606
909
Total cash and restricted cash $ 68,959
$ 124,355

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 subsidiaries, “La Jolla” or the “Company”) is dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases. 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^™ (eravacycline) for injection is approved by the FDA as a tetracycline class antibacterial indicated 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. and its subsidiaries (“Tetraphase”), a biopharmaceutical company focused on commercializing ~~its novel tetracycline,~~ XERAVA,^TM ~~(eravacycline), to treat serious and life-threatening infections,~~ for $43 million in upfront cash plus potential future cash payments of up to $16 million. The Company’s consolidated financial results exclude Tetraphase’s financial results prior to the acquisition closing date of July 28, 2020 (see Note 11).

In January 2021, La Jolla and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC, entered into a license agreement with PAION AG to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland. Pursuant to the agreement: (i) the Company has received an upfront cash payment of $22.5 million, less a 15% refundable withholding tax; and (ii) the Company is entitled to receive potential commercial milestone payments of up to $109.5 million and royalties on net sales of GIAPREZA and XERAVA.

In March 2021, under its license agreement with Everest Medicines Limited (“Everest”), the Company received a $3.0 million milestone payment associated with the submission of a New Drug Application (“NDA”) with the China National Medical Products Administration (“NMPA”) for ~~injection is a novel fluorocycline of the tetracycline class of antibacterials that is approved by the FDA~~XERAVA for the treatment of ~~complicated intra-abdominal infections (“cIAI”)~~cIAI in patients ~~18 years~~in China. The Company previously granted Everest an exclusive license to develop and commercialize XERAVA for the treatment of ~~age~~cIAI and ~~older~~. ~~See Note 12.~~

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. The Company is eligible to receive an additional $8.0 million regulatory milestone payment and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive royalties from Everest on sales, if any, by Everest of products containing eravacycline.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had cash and ~~short-term investments~~cash equivalents of ~~$71.4~~$38.6 million and ~~$87.8~~$21.2 million, respectively. Based on the Company’s current operating plans and projections, the Company expects that its existing cash and ~~short-term investments~~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~~Company’s 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 108 of SEC Regulation S-X. Accordingly, 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, ~~2019~~2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on March ~~2, 2020~~8, 2021 (the “Form 10-K”). The accompanying condensed consolidated financial statements include the accounts of La Jolla Pharmaceutical Company and its wholly owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.

The preparation of the Company’s 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 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~~deficit or cash flows. The results of operations for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 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, ~~2019~~2020 has been derived from the audited consolidated balance sheet as of December 31, ~~2019~~2020 contained in the Form 10-K.

Summary of Significant Accounting Policies

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, other than the ~~short-term investments~~license revenue recognition policy described below, there have been no changes to the Company’s significant accounting policies as described in Note 2 of the Form 10-K.

~~Short-term investments~~

Short-term investments are comprised of marketable equity securities that are “available-for-sale,” as such term is defined by the 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, and unrealized gains and losses are recorded in other income (expense), net in the consolidated statements of operations.

Concentration of Credit Risk

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

During the ~~six~~three months ended ~~June 30, 2020, 409~~March 31, 2021, 291 hospitals in the U.S. purchased GIAPREZA. During the three months ended March 31, 2021, 390 hospitals and other healthcare organizations in the U.S. purchased XERAVA. Hospitals and other healthcare organizations purchase our products through a network of specialty and wholesale distributors. These specialty and wholesale distributors ~~(“Customers”).~~are considered our customers for accounting purposes. The Company does not believe that the loss of one of these distributors would significantly impact the ability to distribute ~~GIAPREZA,~~our products, as the 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 March 31, 2021			As of March 31, 2021
Customer A		38	%		30	%
Customer B		33	%		39	%
Customer C		25	%		29	%
Total		96	%		98	%

Business Combinations

The Company accounts for business combinations using the acquisition method pursuant to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“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 (expense) income, 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.

U.S. Net Product Sales Accounts Receivable
Three Months Ended June 30, 2020 Six Months Ended June 30, 2020 As of June 30, 2020
Customer A 38 % 38 % 22 %
Customer B 33 % 31 % 41 %
Customer C 25 % 29 % 33 %
Total 96 % 98 % 96 %

~~Revenue Recognition~~

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.

The Company recognized 0 impairment charge for the three months ended March 31, 2021.

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 ~~adopted~~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 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.

The Company recognized 0 impairment charge for the three months ended March 31, 2021.

Revenue Recognition

Pursuant to FASB ASC Topic ~~606—~~606—Revenue from Contracts with Customers (“ASC 606”)~~. Under ASC 606,~~, the Company recognizes revenue when its 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 within the scope of ASC 606, the Company performs the following 5 steps: (i) identify the contract(s) with a 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.~~

Product Sales

Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of chargebacks, discounts, returns, Medicaid rebates 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 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 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 the Company’s customers.

•

Medicaid Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the

quarter in which product was sold. The estimates for rebates 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 are recorded as a reduction of revenue on delivery to ~~the Company’s~~ customers.

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

License Revenue

We enter into out-license agreements with counterparties to develop and/or commercialize our products in territories outside of the U.S. in exchange for: (i) nonrefundable, upfront license fees; (ii) development and regulatory milestone payments; and/or (iii) sales-based royalties and milestones.

If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from nonrefundable, upfront fees allocated to the license when the license is transferred to the customer and the customer can benefit from the license. For licenses that are bundled with other performance obligations, management uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of progress and related revenue recognition.

At the inception of each arrangement that include milestone and other payments, other than sales-based milestone payments and nonrefundable, upfront license fees, we evaluate whether achieving each milestone payment or other payment is considered probable and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within our control, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs.

For arrangements that include sales-based royalties and milestone payments, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of: (i) when the related sales occur; or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.

Recent Accounting Pronouncements

~~Management~~

The Company has ~~considered~~implemented all ~~recent~~new accounting pronouncements that are in effect and ~~has concluded~~that may impact its financial statements and does not believe that there are ~~no recently issued~~any other new accounting pronouncements that ~~may~~have been issued that might have a material ~~effect~~impact on ~~the Company’s~~its financial position and results of ~~operations, financial condition or cash flows based on current information.~~

operations.

3. ~~Net Loss~~Earnings (Loss) per Share

Basic ~~net loss~~earnings (loss) per share is calculated by dividing net ~~loss~~income (loss) by the weighted-average number of common shares outstanding during the period, without consideration of potential common shares. Diluted ~~net loss~~earnings (loss) per share is calculated by dividing net ~~loss~~income (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~~earnings (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~~earnings (loss) per share when their effect is anti-dilutive. ~~As of June 30, 2020 and 2019,~~For the three months ended March 31, 2021, there were ~~10.2 million and 14.0~~6.8 million potential common shares that were included in the calculation of diluted earnings per share, which consists of: (i) 6.7 million shares of common stock issuable upon conversion of existing convertible preferred stock; and (ii) 21,000 stock options. For the three months ended March 31, 2021 and 2020, there were 4.1 million and 11.6 million, respectively, of potential common shares that were excluded from the calculation of diluted ~~net~~ loss per share because their effect was anti-dilutive.

4. Balance Sheet Details

Restricted Cash

Restricted cash as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019 represents~~2020 consisted of a ~~standby letter of credit~~$40,000 security deposit for the Company’s building lease in lieu of a security deposit during the term of such lease (see Note 6). There is a requirement to maintain $0.6 million of cash collateral in an account pledged as security for such letter of credit.

corporate purchasing credit card.

Inventory, Net

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

	March 31,		December 31,
	2021		2020
Raw materials	$	802	$	802
Work-in-process		3,235		3,213
Finished goods		1,337		1,998
Total inventory, net	$	5,374	$	6,013

June 30,
2020 December 31,
2019
Work-in-process $ 1,801
$ 1,505
Finished goods 1,319
706
Total inventory, net $ 3,120
$ 2,211

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, inventory, net included 0 and $0.9 million, respectively, of the fair value step-up adjustment to Tetraphase’s inventory recorded in connection with the acquisition of Tetraphase (see Note 11). As of March 31, 2021 and December 31, 2020, total inventory is recorded net of inventory reserves of ~~$0.2~~$1.1 million and ~~$0.1~~$0.9 million, respectively.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assetsconsisted of the following (in thousands):

	March 31,		December 31,
	2021		2020
Refundable withholding tax	$	3,375	$	-
Prepaid manufacturing costs		529		930
Prepaid clinical costs		294		820
Prepaid insurance		319		505
Other prepaid expenses and current assets		1,587		1,133
Total prepaid expenses and other current assets	$	6,104	$	3,388

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

June 30,
2020 December 31,
2019
Leasehold improvements $ 14,504
$ 14,504
Furniture and fixtures 2,549
2,598
Computer hardware 1,296
1,296
Software 733
733
Lab equipment —
9,665
Total property and equipment, gross 19,082
28,796
Accumulated depreciation and amortization (6,255 ) (10,407 )
Total property and equipment, net $ 12,827
$ 18,389

	March 31,			December 31,
	2021			2020
Computer hardware	$	310		$	310
Furniture and fixtures		309			309
Software		203			733
Total property and equipment, gross		822			1,352
Accumulated depreciation and amortization		(636	)		(1,137	)
Total property and equipment, net	$	186		$	215

Intangible Assets, Net

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

	Weighted-average	March 31,			December 31,
	Years	2021			2020
Technology	10	$	14,000		$	14,000
Trade name	10		1,520			1,520
Total intangible assets, gross			15,520			15,520
Accumulated amortization			(1,035	)		(647	)
Total intangible assets, net		$	14,485		$	14,873

The intangible assets were recorded in connection with the acquisition of Tetraphase (see Note 11).The Company recorded amortization expense of $0.4 million and 0 for the three months ended March 31, 2021 and 2020, respectively.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	March 31,		December 31,
	2021		2020
Accrued interest expense on deferred royalty obligation, current portion	$	3,514	$	3,567
Accrued royalties and in-license fees		2,445		685
Accrued manufacturing costs		1,306		627
Accrued professional fees		581		660
Accrued clinical costs		22		20
Accrued other		853		935
Total accrued expenses	$	8,721	$	6,494

Other Noncurrent Liabilities

Other noncurrent liabilities consisted of the following (in thousands):

	March 31,		December 31,
	2021		2020
Paycheck Protection Program loan	$	2,308	$	2,302
Fair value of contingent value rights (see Note 11)		2,260		1,810
Total other noncurrent liabilities	$	4,568	$	4,112

On April 22, 2020, Tetraphase entered into a promissory note for $2.3 million under the Paycheck Protection Program (the “PPP Loan”). The interest rate on the PPP Loan is 1.0% per annum. The PPP Loan is unsecured and guaranteed by the U.S. Small Business Administration (the “SBA”). The principal amount of the PPP Loan may be forgiven under the Paycheck Protection Program, subject to certain requirements and to the extent that the PPP Loan proceeds are used to pay permitted expenses, including certain payroll, rent and utility payments. The Company intends to apply for forgiveness of the PPP Loan. The Company will be obligated to make monthly payments of principal and interest with respect to any unforgiven portion of the PPP Loan. The obligation to repay the PPP Loan may be accelerated upon the occurrence of an event of default.

June 30,
2020 December 31,
2019
Accrued interest expense $ 3,530
$ 2,692
Accrued manufacturing costs 1,369
1,339
Accrued clinical study costs 815
3,496
Accrued other 1,058
1,785
Total accrued expenses $ 6,772
$ 9,312

5. Deferred Royalty Obligation

In May 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 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 the Company’s 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 ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized interest expense, including amortization of the obligation discount, of ~~$2.5~~$2.6 million and ~~$2.8 million, respectively. For the six months ended June 30, 2020 and 2019, the Company recognized interest expense, including amortization of the obligation discount, of$4.9 million and $5.5~~$2.4 million, respectively. The carrying value of the deferred royalty obligation as of ~~June 30, 2020~~March 31, 2021 was ~~$124.4~~$124.5 million, net of unamortized obligation discount of ~~$0.6~~$0.5 million, and was classified as noncurrent. The related accrued interest expense was ~~$18.8~~$24.4 million and ~~$15.5~~$22.7 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, of which ~~$15.3~~$20.9 million and ~~$12.8~~$19.1 million was classified as ~~other~~ noncurrent liabilities, respectively. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and March 31, 2020, the Company made royalty payments to HCR of ~~$0.8~~$0.9 million and ~~$1.5~~$0.7 million, respectively, and, as of ~~June 30, 2020,~~March 31, 2021, 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 FASB ASC Topic 820-10, three-tier fair value hierarchy, and its carrying value approximates fair value.

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. 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 ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. 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 material 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. Commitments and Contingencies

Lease Commitments

Future minimum lease payments, excluding Lease Operating Costs, as of March 31, 2021 are as follows (in thousands):

2021	$	175
2022		181
2023		166
Thereafter		-
Total future minimum lease payments		522
Less: discount		(32	)
Total lease liabilities	$	490

Lease expense under current and former leases was approximately $0.1 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. Cash paid for amounts included in the measurement of lease liabilities was $50,000 and $1.6 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, the weighted-average remaining lease term and the weighted-average discount rate for the Company’s only operating lease, the Waltham Sublease, was 2.6 years and 4.0%, respectively.

Waltham Sublease

In December ~~29, 2016,~~2020, the Company entered into ana sublease agreement ~~with BMR-Axiom LP~~for office space in Waltham, Massachusetts (the “Landlord”) 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 “Initial Lease Term”“Waltham Sublease”). The ~~Company has an option to extend the Lease for an additional 5 years at the end of the Initial Lease Term.~~

~~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~~Waltham Sublease commenced on December 21, 2020 and ~~will decrease to $0.3 million after year 5 of the Initial Lease Term. As of June~~expires on November 30, ~~2020, $0.6 million of cash was pledged as collateral for such letter of credit and recorded as restricted cash. The annual rent under the Lease is subject to escalation during the term.~~2023. In addition to rent of approximately $15,000 per month, the ~~Lease~~Waltham Sublease requires the Company to pay certain taxes, insurance and operating costs relating to the leased ~~premises.~~premises (collectively, “Lease Operating Costs”). The ~~Lease~~Waltham Sublease contains customary default provisions, representations, warranties and covenants. The ~~Lease~~Waltham Sublease is classified as an operating lease.

~~Future minimum lease payments under the Lease as of June 30, 2020 are as follows (in thousands):~~

2020 $ 2,039
2021 4,174
2022 4,294
2023 4,417
2024 4,544
Thereafter 13,590
Total future minimum lease payments 33,058
Less: discount (5,168 )
Total lease liability $ 27,890

The Company ~~recorded~~recognizes the Waltham Sublease expense in the consolidated statements of operations and records a lease liability and right-of-use asset for this lease.

San Diego Sublease

In September 2020, the ~~Lease based on~~Company entered into a sublease agreement for office space in San Diego, California with an entity of which the ~~present value~~Chairman of the ~~Lease payments over~~Company’s board of directors is also the ~~Initial Lease Term, discounted using~~chairman and chief executive officer (the “San Diego Sublease”). The San Diego Sublease term is approximately 7 years, and the ~~Company’s incremental borrowing rate.~~rent is approximately $12,000 per month. The San Diego Sublease is cancellable without penalty by either party with 30-days’ written notice. The San Diego Sublease is a short-term lease for accounting purposes. The Company ~~recorded~~made payments of approximately $36,000 under the San Diego Sublease during the three months ended March 31, 2021. The Company recognizes the San Diego Sublease payments in the consolidated statements of operations and does not record 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 Initial Lease Term was not recognized as a part of either the Company’s lease liability or right-of-use ~~lease asset. Lease expense was $0.7 million and $1.4 million~~asset for the three and six months ended June 30, 2020, respectively, and for the same periods in 2019. Amortization for the right-of-use lease asset was $0.4 million and $0.7 million for the three and six months ended June 30, 2020,~~respectively, and was $0.3 million and $0.6 million for the three and six months ended June 30, 2019, respectively.~~

this lease.

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 ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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 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 ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019, there were no shares~~2020, the Series C-1² Preferred liquidation preference was approximately $3.9 million. The Series C-1² Preferred does not pay a dividend. The holders of the Series ~~F Convertible~~C-1² Preferred ~~Stock issued and outstanding.~~

~~Warrants~~

~~As of June 30, 2020 and December 31, 2019,~~do not have voting rights, other than for general protective rights required by the Company had outstanding warrants to purchase 10,000 shares of common stock. The Company did not recognize share-based compensation expense for these outstanding warrants for the three and six months ended June 30, 2020 and 2019.

California General Corporation Law.

8. Equity Incentive Plans

2013 Equity Incentive Plan

A total of 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 ~~June 30, 2020, 5,940,653~~March 31, 2021, 5,488,481 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 ~~June 30, 2020, 499,805~~March 31, 2021, 438,845 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 ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 is summarized as follows:

								Equity Awards			Weighted- average Exercise Price per Share		Weighted- average Remaining Contractual Term⁽¹⁾ (years)		Aggregate Intrinsic Value⁽²⁾

	Equity Awards		Weighted- average Exercise Price per Share		Weighted- average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2019	5,616,840		$	19.50
Outstanding at December 31, 2020									4,121,666		$	8.67
Granted	806,923		$	5.27					335,548		$	5.48
Exercised	(94,219	)	$	6.42					(29,000	)	$	5.25
Cancelled/forfeited	(2,883,533	)	$	19.43					(316,695	)	$	8.00
Outstanding at June 30, 2020	3,446,011		$	16.59	5.87 years	$	35,037
Exercisable at June 30, 2020	2,144,609		$	20.84	4.27 years	$	—
Outstanding at March 31, 2021									4,111,519		$	8.48		8.39	$	175,807
Exercisable at March 31, 2021									1,146,185		$	17.18		5.68	$	21,693

⁽¹⁾Represents the weighted-average remaining contractual term of stock options.

⁽²⁾ Aggregate intrinsic value represents the product of the number of equity awards outstanding or equity awards exercisable multiplied by the difference between the Company’s closing stock price per share on the last trading day of the period, which was $4.24 as of March 31, 2021, and the exercise price.

Share-based Compensation Expense

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

	Three Months Ended
	March 31,
	2021		2020
Selling, general and administrative	$	840	$	844
Research and development		276		1,563
Total share-based compensation expense	$	1,116	$	2,407

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Research and development $ 964
$ 3,960
$ 2,527
$ 7,893
Selling, general and administrative 626
2,361
1,470
5,210
Total share-based compensation expense $ 1,590
$ 6,321
$ 3,997
$ 13,103

As of ~~June 30, 2020,~~March 31, 2021, total unrecognized share-based compensation expense related to unvested equity awards was ~~$8.6~~$9.8 million, which is expected to be recognized over a weighted-average period of ~~2.2~~3.1 years. As of ~~June 30, 2020,~~March 31, 2021, there was no0 unrecognized share-based compensation expense related to shares of common stock issued under the ESPP.

9. Other Income—Related Party

The Company has a non-voting profits interest in a related party, which provides the Company 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 ~~six~~three months ended ~~June 30,~~March 31, 2021, the Company did 0t receive any distributions in connection with this profits interest. During the three months ended March 31, 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 ~~on March 1, 2016~~ (the “GW License”) and ~~subsequently~~ 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~~La Jolla Pharma, LLC 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 ~~EC’s~~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.~~GIAPREZA and 15% on payments received from sublicensees. The ~~patents and patent applications covered by the GW License are expected to expire between 2029 and 2034, and the~~ obligation to pay royalties under this agreement extends through the last-to-expire patent covering GIAPREZA.

~~11. Company-wide 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 GIAPREZA. For the year ended December 31, 2019, total expense was comprised of $5.8 million for one-time termination benefits to the affected employees, including severance and health care benefits, offset by a $0.9 million reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards. As of June 30, 2020, the Company had paid $4.8 million of the $5.8 million cash severance and health care benefits charges, and the remaining $1.0 million of the health care benefits charges were included in accrued payroll and related expenses.

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 GIAPREZA. The 2020 Realignment reduced the Company’s headcount. For During the three months ended ~~June 30, 2020, total expense was comprised of $4.1 million for one-time termination benefits to the affected employees, including severance~~March 31, 2021 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 June 30,~~ 2020, the Company ~~had~~made payments to GW of $2.8 million and $0.4 million, respectively.

Harvard University

In August 2006, the Company 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 for the following: (i) up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA, starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty of 7.5% based on the achievement of annual net product sales thresholds; and (iv) 20% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA. During the three months ended March 31, 2021, the Company paid ~~$0.7~~$0.1 million of royalties to Harvard, and did 0t make any payments to Harvard related to clinical development and regulatory milestones.

Paratek Pharmaceuticals, Inc.

In March 2019, the ~~$4.1~~Company 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. The Company is obligated to pay Paratek a 2.25% royalty based on direct U.S. net sales of XERAVA. The Company’s obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial sale of XERAVA and shall continue until there are no longer any valid claims of the Paratek patents, which will expire in October 2023. During the three months ended March 31, 2021, the Company paid $51,000 of royalties to Paratek.

Out-license Agreements

PAION AG

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC, entered into an exclusive license agreement (the “PAION License”) with PAION AG and its wholly owned subsidiary (collectively, “PAION”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla has received an upfront cash payment of $22.5 million, ~~cash severance~~less a 15% refundable withholding tax, and ~~health care benefits charges,~~is entitled to receive potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company agreed to use commercially reasonable efforts to negotiate and enter into a separate commercial supply agreement to manufacture drug product for commercial supply. The Company has not yet entered into a commercial supply agreement with PAION, which would set the quantity and timing of commercial supply. The Company has not received any payments from PAION related to either royalties or commercial milestones.

Everest Medicines Limited

~~benefits charges~~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 Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Everest 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. During the three months ended March 31, 2021, the Company received a $3.0 million milestone payment associated with the submission of an NDA with the China NMPA for XERAVA for the treatment of cIAI in patients in China. Amounts due under the Harvard University license agreement were included ~~in accrued payroll~~as research and ~~related expenses. The Company expects to make substantially all~~development expense on the consolidated statements of ~~the remaining payments resulting from the 2020 Realignment in the third quarter of 2020.~~operations.

~~12. Subsequent Events~~

11. 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 ~~will be~~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.

CVRs are measured at fair value on a recurring basis. During the three months ended March 31, 2021, the Company recorded a $0.5 million loss in other (expense) income in the consolidated statements of operations resulting from the change in fair value of CVRs.

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 product sales when the inventory is sold to customers, $0.9 million of which was included in cost of product sales during the three months ended March 31, 2021.

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.

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 did not make a Section 338 election.

12. Company-wide Realignments

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 year ended December 31, 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 March 31, 2021, the Company had made substantially all of the payments related to the 2020 Realignment.

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 year ended December 31, 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 March 31, 2021, the Company had paid $2.5 million of the $3.1 million cash severance and health care benefits charges, and the remaining $0.6 million of the cash severance and health care benefits charges were included in accrued payroll and related expenses. The Company expects to make substantially all of the payments related to this headcount reduction by the end of the second quarter of 2021.

13. Income Taxes

For the three months ended March 31, 2021, the Company recorded an $18,000 provision for income taxes related to state income taxes. For the three months ended March 31, 2020, the Company did 0t record a provision for income taxes. As of March 31, 2021 and December 31, 2020, the Company established a full valuation allowance against its federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets. There were 0 unrecognized tax benefits as of March 31, 2021 and December 31, 2020. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.

14. Subsequent Events

On April 21, 2021, La Jolla received a distribution of $2.5 million in connection with its non-voting profits interest (see Note 9). The distribution will be recorded as other income for the three months ended June 30, 2021.

On May 6, 2021, the Company entered into a commercial supply agreement with Everest whereby the Company will supply Everest a minimum quantity of XERAVA through December 31, 2023 and will transfer to Everest certain XERAVA-related manufacturing know-how. Pursuant to the supply agreement, the Company is entitled to receive $5.0 million of technology transfer payments in 2021 and will be reimbursed for manufacturing costs at 110% of costs through December 31, 2023.

Item 2. Management’s Discussion and Analysis of Financial Condition and 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 the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March ~~2, 2020~~8, 2021 (the “Form 10-K”).

Forward-looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of 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 assumptions and 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 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.~~2020. We caution you that these risks, uncertainties and other factors may not contain all of the risks, uncertainties and 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 business in the way expected. All forward-looking statements in this Quarterly Report on Form 10-Q apply only as of the date made and are 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.

Business Overview

La Jolla Pharmaceutical Company is dedicated to the development and commercialization of innovative therapies that improve outcomes in patients suffering from life-threatening diseases. 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. ~~For the three and six months ended June 30, 2020, U.S. net sales of GIAPREZA were $5.8 million and $13.4 million, up 2% and 33%, respectively, from the same periods in 2019.~~

XERAVA^™ (eravacycline) ~~On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc., a biopharmaceutical company focused on commercializing its novel tetracycline, XERAVA~~^TM ~~(eravacycline), to treat serious and life-threatening infections, for $43 million in upfront cash plus potential future cash payments of up to $16 million~~. ~~XERAVA~~ for injection ~~is a novel fluorocycline of the tetracycline class of antibacterials that~~ is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and ~~older. For the three~~older.

On July 28, 2020, La Jolla completed its acquisition of Tetraphase Pharmaceuticals, Inc. and ~~six months ended June 30, 2020, U.S. net sales~~its subsidiaries (“Tetraphase”), a biopharmaceutical company focused on commercializing XERAVA, for $43 million in upfront cash plus potential future cash payments of ~~XERAVA, which was launched in October 2018, were $1.5 million and $3.2 million,~~ up ~~88% and 191%, respectively, from the same periods in 2019. Complete~~to $16 million. La Jolla’s consolidated financial results of Tetraphase for the six months ended June 30, 2020 will be included in an amended Form 8-K to be filed by La Jolla on or before October 13, 2020. Financial results for periods ending September 30, 2020 and beyond will includeexclude Tetraphase’s financial results ~~subsequent~~prior to the acquisition closing date of July 28, 2020.

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. The Company is eligible to receive an additional $8.0 million regulatory milestone payment and up to an aggregate of $20.0 million in sales milestone payments. The Company is also entitled to receive royalties from Everest on sales, if any, by Everest of products containing eravacycline.

Product Portfolio



⁽¹⁾ For U.S. and European approval ⁽²⁾ 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 ⁽³⁾ U.S.: XERAVA is a tetracycline class antibacterial indicated for the treatment of cIAIs in patients 18 years of age and older European Union: XERAVA is indicated for the treatment of cIAI in adults GIAPREZA^™	~~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 novel 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. GIAPREZA 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. GIAPREZA mimics the body’s endogenous angiotensin II peptide, which is central to the renin-angiotensin-aldosterone system (“RAAS”), which in turn regulates blood pressure. GIAPREZA is marketed in the U.S. by La Jolla Pharmaceutical Company on behalf of La Jolla Pharma, LLC, its wholly owned ~~subsidiary.~~subsidiary, and will be marketed in Europe by PAION AG on behalf of La Jolla Pharma, LLC.

XERAVA^TM™ (eravacycline)

XERAVA^TM™ (eravacycline) for injection ~~is a novel fluorocycline of the tetracycline class of antibacterials that~~ is approved by the FDA as a tetracycline class antibacterial indicated for the treatment of ~~cIAI~~complicated intra-abdominal infections (“cIAI”) in patients 18 years of age and older. XERAVA is approved by the EC for the treatment of cIAI in adults. XERAVA is marketed in the U.S. by Tetraphase Pharmaceuticals, Inc., a wholly owned subsidiary of La ~~Jolla.~~Jolla, and will be marketed in Europe by PAION AG on behalf of Tetraphase. Everest, the Company’s licensee for 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, recently submitted an NDA in China.

Product Candidates

In connection with the acquisition of Tetraphase, we acquired the following product candidates that are in early stage clinical development: (1) TP-6076, an IV formulation of a fully synthetic fluorocycline derivative for the treatment of certain multidrug-resistant gram-negative bacteria; (2) TP-271, an IV and oral formulation of a fully synthetic fluorocycline for the treatment of respiratory disease caused by bacterial biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia; and (3) TP-2846, an IV formulation of a tetracycline for the treatment of acute myeloid leukemia. At this time, there are no active studies nor anticipated future studies for any of these product candidates. We intend to seek out-

license opportunities for these product candidates; however, at this time, we are unable to predict the likelihood of successfully out-licensing any of these product candidates.

Components of Our Results of Operations

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

	Three Months Ended
	March 31,
	2021			2020			Change
Net product sales	$	8,637		$	7,591		$	1,046
License revenue		25,500			-			25,500
Cost of product sales		2,731			716			2,015
Cost of license revenue		3,600			-			3,600
Selling, general and administrative expense		8,755			8,152			603
Research and development expense		1,558			9,183			(7,625	)
Other (expense) income, net		(3,057	)		1,869			(4,926	)
Provision for income taxes		18			-			18
Net income (loss)	$	14,418		$	(8,591	)	$	23,009

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Change 2020 2019 Change
Net product sales $ 5,805
$ 5,703
$ 102
$ 13,396
$ 10,098
$ 3,298
Cost of product sales (808 ) (551 ) (257 ) (1,524 ) (1,051 ) (473 )
Research and development expense (8,781 ) (22,043 ) 13,262
(17,964 ) (43,287 ) 25,323
Selling, general and administrative expense (8,677 ) (11,323 ) 2,646
(16,829 ) (23,643 ) 6,814
Other income (expense), net (3,131 ) (2,202 ) (929 ) (1,262 ) (4,218 ) 2,956
Net loss $ (15,592 ) $ (30,416 ) $ 14,824
$ (24,183 ) $ (62,101 ) $ 37,918

Net Product Sales

Net product sales consist ~~solely~~ of revenue recognized from sales of GIAPREZA and XERAVA to hospitals and other healthcare organizations in the U.S. through a network of specialty and ~~wholesaler~~wholesale distributors ~~(“Customers”)~~. These specialty and wholesale distributors are considered our customers for accounting purposes.For the three months ended March 31, 2021, La Jolla’s net product sales were $8.7 million, compared to $7.6 million for the same period in 2020. GIAPREZA U.S. net sales were ~~$5.8 million and $13.4~~$6.9 million for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021, compared to ~~$5.7~~$7.6 million ~~and $10.1 million, respectively,~~ for the same ~~periods~~period in ~~2019.~~

2020. XERAVA U.S. net sales were $1.8 million for the three months ended March 31, 2021, compared to zero for the same period in 2020. La Jolla acquired Tetraphase, which commercialized XERAVA, on July 28, 2020.

License Revenue

License revenue consists of revenue from out-license agreements with counterparties to develop and/or commercialize our products in territories outside of the U.S. in exchange for: (i) nonrefundable, upfront license fees; (ii) development, regulatory or commercial milestone payments; and/or (iii) sales-based royalties. License revenue was $25.5 million for the three months ended March 31, 2021, which consists of: (i) a $22.5 million upfront cash payment in connection with the PAION License; and (ii) a $3.0 million regulatory milestone cash payment in connection with the Everest License.

Cost of Product Sales

Cost of product sales consists primarily ~~consists~~ of expense associated with: (i) royalties ~~paid or~~ payable to George Washington University, Harvard University and Paratek Pharmaceuticals, Inc.; (ii) the ~~costs to produce, package~~inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase; (iii) manufacturing; (iv) regulatory fees; and ~~deliver GIAPREZA to our Customers. These costs include raw materials, labor and manufacturing and quality control, as well as~~(v) shipping and ~~distribution costs.~~distribution. Cost of product sales was ~~$0.8 million and $1.5~~$2.7 million for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021, compared to ~~$0.6~~$0.7 million ~~and $1.1 million, respectively,~~ for the same ~~periods~~period in ~~2019.~~2020. Cost of product sales excludes XERAVA for the three months ended March 31, 2020. For the three months ended March 31, 2021, cost of product sales includes $0.9 million of the inventory fair value step-up adjustment recorded in connection with the acquisition of Tetraphase.

~~Research~~

Cost of License Revenue

Cost of license revenue consists of amounts due under in-license agreements in connection with license revenuefrom commercially approved product. Cost of license revenue recognized in connection with product that is not commercially approved is recorded as research and ~~Development~~development expense. Cost of license revenue was $3.6 million for the three months ended March 31, 2021, which consists of amounts due under the George Washington University and Harvard University license agreements in connection with the upfront cash payment received from the PAION License.

Selling, General and Administrative Expense

~~Research~~

Selling, general and ~~development~~administrative expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) professional fees for legal, patent, consulting, accounting and audit services; (ii) sales and marketing costs such as speaker programs, advertising and promotion; (iii) facilities and information technology; and (iv) insurance. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in sales, finance and administrative functions. We expect our selling, general and administrative expense to decrease in the near term.

The following table summarizes these expenses for each of the periods below (in thousands):

	Three Months Ended
	March 31,
	2021		2020		Change
Non-personnel expense:
Professional fees	$	1,528	$	871	$	657
Sales and marketing		1,195		1,223		(28	)
Facility		14		493		(479	)
Other		792		586		206
Total non-personnel expense		3,529		3,173		356
Personnel expense:
Salaries, bonuses and benefits		4,386		4,135		251
Share-based compensation expense		840		844		(4	)
Total personnel expense		5,226		4,979		247
Total selling, general and administrative expense	$	8,755	$	8,152	$	603

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Change 2020 2019 Change
Non-personnel expenses:

GIAPREZA $ 1,762
$ 1,623
$ 139
$ 2,843
$ 3,021
$ (178 )
LJPC-0118 404
113
291
917
1,135
(218 )
LJPC-401 —
4,880
(4,880 ) 1,531
8,795
(7,264 )
Other programs —
2,280
(2,280 ) —
3,843
(3,843 )
Facility 1,124
1,785
(661 ) 2,560
3,576
(1,016 )
Other —
992
(992 ) 474
1,918
(1,444 )
Total non-personnel expense $ 3,290
$ 11,673
$ (8,383 ) $ 8,325
$ 22,288
$ (13,963 )
Personnel expenses:
Salaries, bonuses and benefits 4,527
6,410
(1,883 ) 7,112
13,106
(5,994 )
Share-based compensation expense 964
3,960
(2,996 ) 2,527
7,893
(5,366 )
Total personnel expense $ 5,491
$ 10,370
$ (4,879 ) $ 9,639
$ 20,999
$ (11,360 )
Total research and development expense $ 8,781
$ 22,043
$ (13,262 ) $ 17,964
$ 43,287
$ (25,323 )

During the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, total ~~research~~selling, general and ~~development~~administrative non-personnel expense ~~decreased~~increased compared to the same period in 2020 primarily as a result of: (i) increases in professional fee-related expenses due to one-time legal fees in connection with the execution of an out-license agreement and a commercial supply agreement, as well as increased surveillance programs, regulatory consulting and regulatory filing fees resulting from the acquisition of Tetraphase; and (ii) increases in other expenses due to intangible asset amortization resulting from the acquisition of Tetraphase; partially offset by decreases in facility-related expenses as a result of the termination of our San Diego Lease effective August 31, 2020 (see Note 6 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q).

During the three months ended March 31, 2021, total selling, general and administrative personnel expense increased compared to the same period in 2020 primarily as a result of ~~decreases~~an increase in ~~LJPC-401~~- ~~and other programs-related expenses. During the three and six months ended June 30, 2020, total research and development~~ 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 $2.4 million of one-time charges in 2020 resulting from another Company-wide realignment in May 2020.~~

~~Selling, General and Administrative Expense~~

~~Selling,~~allocations to general and administrative activities.

Research and Development Expense

Research and development expense consists of non-personnel and personnel expenses. Non-personnel-related expense includes expense related to: (i) manufacturing development; (ii) amounts due under in-license agreements for drug product that is not commercially approved; (iii) facilities and information technology; and (iv) conducting clinical studies. Personnel-related expense includes expense related to salaries, benefits and share-based compensation for personnel engaged in research and development functions. We expect our research and development expense to decrease in the near term.

The following table summarizes these expenses for each of the periods below (in thousands):

	Three Months Ended
	March 31,
	2021		2020		Change
Non-personnel expense:
XERAVA	$	262	$	-	$	262
GIAPREZA		175		1,081		(906	)
LJPC-401		30		1,531		(1,501	)
LJPC-0118		5		513		(508	)
Facility		3		1,436		(1,433	)
Other		573		474		99
Total non-personnel expense		1,048		5,035		(3,987	)
Personnel expense:
Salaries, bonuses and benefits		234		2,585		(2,351	)
Share-based compensation expense		276		1,563		(1,287	)
Total personnel expense		510		4,148		(3,638	)
Total research and development expense	$	1,558	$	9,183	$	(7,625	)

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 Change 2020 2019 Change
Non-personnel expenses:

Professional fees $ 1,356
$ 1,139
$ 217
$ 2,227
$ 2,095
$ 132
Sales and marketing 588
1,471
(883 ) 1,811
3,492
(1,681 )
Facility 554
393
161
1,047
773
274
Other 339
595
(256 ) 925
1,187
(262 )
Total non-personnel expense $ 2,837
$ 3,598
$ (761 ) $ 6,010
$ 7,547
$ (1,537 )
Personnel expenses:
Salaries, bonuses and benefits 5,214
5,364
(150 ) 9,349
10,886
(1,537 )
Share-based compensation expense 626
2,361
(1,735 ) 1,470
5,210
(3,740 )
Total personnel expense $ 5,840
$ 7,725
$ (1,885 ) $ 10,819
$ 16,096
$ (5,277 )
Total selling, general and administrative expense $ 8,677
$ 11,323
$ (2,646 ) $ 16,829
$ 23,643
$ (6,814 )

During the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, total ~~selling, general~~research and ~~administrative~~development non-personnel expense decreased compared to the same period in 2020 primarily as a result of the following: (i) decreases in ~~sales~~program-related expenses as we de-prioritized our product candidates and ~~marketing-related expenses.~~ focused on the commercialization of GIAPREZA and XERAVA; and (ii) decreases in facility-related expenses primarily as a result of the termination of our San Diego Lease effective August 31, 2020 (see Note 6 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q); partially offset by increases in manufacturing and clinical development costs related to the acquisition of XERAVA.

During the three months ended ~~June 30, 2020, La Jolla incurred $0.6 million of professional fees related the acquisition of Tetraphase. During the three~~March 31, 2021, total research and ~~six months ended June 30, 2020, total selling, general and administrative~~development personnel expense, including share-based compensation expense, decreased compared to the same period in 2020 as a result of reduced ~~headcount in 2020 from a Company-wide realignment in November 2019, partially offset by $1.7 million of one-time charges in 2020 resulting from another Company-wide realignment in May 2020.~~

headcount.

Other (Expense) Income, ~~(Expense),~~ Net

Other (expense) income, ~~(expense),~~ net ~~primarily~~ consists of the following: (i) interest expense accrued for our deferred royalty obligation; (ii) loss from changes in the fair value of contingent value rights (“CVRs”); (iii) income from distributions received in connection with our non-voting profits interest in a related ~~party, interest accrued for our deferred royalty obligation~~party; and (iv) interest income generated from cash held in savings ~~accounts.~~ accounts.

During the three months ended ~~June 30, 2020,~~March 31, 2021, other ~~expense~~,(expense) income, net ~~increased~~was $(3.1) million, compared to ~~$3.1~~$1.9 million ~~from $2.2 million for~~in the same period in ~~2019, an increase~~2020. This $5.0 million decrease in other income was due to: (i) a $4.1 million decrease in the receipt of ~~$0.9 million. This increase was primarily due to~~distributions in connection with the Company’s non-voting profits interest in a ~~$0.9~~related party; (ii) a $0.5 million loss ~~on disposal~~from changes in the fair value of ~~equipment~~CVRs; (iii) a $0.2 million increase in interest expense for our deferred royalty obligation; and (iv) a ~~$0.6~~$0.2 million decrease in interest income generated from cash held in savings accounts ~~partially offset by a $0.3 million decrease in interest expense for our deferred royalty obligation. During the six months ended June 30, 2020, other expense~~, net decreased to $1.3 million from $4.2 million for the same period in 2019, a decrease of $2.9 million. This decrease was primarily due to the receipt of distributions of $4.1 million in connection with the Company’s non-voting profits interest in a related party and a $0.6 million decrease in interest expense for our deferred royalty obligation, partially offset by a $1.1 million decrease in interest income generated from cash held in savings accounts and a $0.9 million loss on disposal of equipment..

Liquidity and Capital Resources

~~Since January 2012, when the Company was effectively restarted, through June 30, 2020, our cash used in operating activities was $447 million.~~

As of June 30, 2020, we had an accumulated deficit of $1,062 million and have financed our operations through public and private offerings of securities, a royalty financing, revenues from net product sales, interest income on invested cash balances and other income.

~~As of June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had cash and ~~short-term investments~~cash equivalents of ~~$71.4~~$38.6 million and ~~$87.8~~$21.2 million, respectively. ~~On July 28, 2020, La Jolla completed the acquisition of Tetraphase for $43.0 million in upfront cash.~~ Based on our current operating plans and projections, we believe that our existing cash and ~~short-~~

~~term investments~~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 used for~~

La Jolla’s net cash provided by (used for) operating activities for the three months ended March 31, 2021 was ~~$20.6~~$17.2 million, ~~and $49.2~~compared to $(12.2) million for the ~~six~~same period in 2020. La Jolla’s net cash provided by (used for) operating activities excluding net receipts in connection with license agreements and payments related to reductions in headcount for the three months ended ~~June 30, 2020 and 2019, respectively. The decrease in cash used for operating activities~~March 31, 2021 was ~~a result of decreases in our net loss and changes in working capital, partially offset by decreased non-cash expenses.~~

~~Cash used for investing activities was~~ ~~$0.1~~$(1.8) million, ~~and $0.4~~ compared to $(9.2) million for the ~~six months ended June 30, 2020 and 2019, respectively. The decrease~~same period in ~~cash used for investing activities resulted from the sale of property and equipment, partially offset by purchases of short-term investments.~~

~~Cash provided by financing activities was $1.0 million and $0.5~~2020. Net receipts in connection with license agreements were $19.8 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021, compared to zero for the same period in 2020. Payments related to reductions in headcount were $0.8 million for the three months ended March 31, 2021, compared to $3.0 million for the same period in 2020.

The Company expects to fund future operations with existing cash or cash generated from operations, if any. The amount and ~~2019, respectively. The increase in cash provided by~~timing of additional future funding needs, 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 ~~activities was primarily the result of net proceeds from issuance of common stock under employee stock plans.~~

will be available to us on favorable terms, or at all.

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 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.~~

GIAPREZA.

In-license Agreements

George Washington University

In December 2014, wethe Company entered into a patent license agreement with George Washington University (“GW”), which was subsequently amended and restated ~~on March 1, 2016~~ (the “GW License”) and ~~subsequently~~ assigned to La Jolla Pharma, LLC. Pursuant to the 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 GW License, ~~we are~~La Jolla Pharma, LLC 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 royalties. As a result of the ~~EC’s~~European Commission’s approval of GIAPREZA in August 2019, wethe Company made a milestone payment to GW in the amount of $0.5 million in the first quarter of 2020. ~~We are~~The Company is obligated to pay a 6% royalty on net sales of ~~GIAPREZA.~~GIAPREZA and 15% on payments received from sublicensees. The ~~patents and patent applications covered by the GW License are expected to expire between 2029 and 2034, and the~~ obligation to pay royalties under this agreement extends through the last-to-expire patent covering ~~GIAPREZA.~~GIAPREZA.

Harvard University

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 for the following: (i) up to approximately $15.1 million upon the achievement of certain clinical development and regulatory milestones; (ii) a 5% royalty on direct U.S. net sales of XERAVA; (iii) a single-digit tiered royalty on direct ex-U.S. net sales of XERAVA, starting at a minimum royalty rate of 4.5%, with step-ups to a maximum royalty of 7.5% based on the achievement of annual net product sales thresholds; and (iv) 20% on payments received from sublicensees. The obligation to pay royalties under this agreement extends through the last-to-expire patent covering tetracycline-based products, including XERAVA.

Paratek Pharmaceuticals, Inc.

In March 2019, the Company 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. The Company is obligated to pay Paratek a 2.25% royalty based on direct U.S. net sales of XERAVA. The Company’s obligation to pay royalties with respect to the licensed product is retroactive to the date of the first commercial sale of XERAVA and shall continue until there are no longer any valid claims of the Paratek patents, which will expire in October 2023.

Out-license Agreements

PAION AG

On January 12, 2021, La Jolla Pharmaceutical Company and certain of its wholly owned subsidiaries, including La Jolla Pharma, LLC, entered into an exclusive license agreement with PAION AG and its wholly owned subsidiary (collectively, “PAION”) (the “PAION License”). Pursuant to the PAION License, La Jolla granted PAION an exclusive license to commercialize GIAPREZA and XERAVA in the European Economic Area, the United Kingdom and Switzerland (collectively, the “PAION Territory”). La Jolla has received an upfront cash payment of $22.5 million, less a 15% refundable withholding tax, and is entitled to receive potential commercial milestone payments of up to $109.5 million and double-digit tiered royalty payments. In addition, royalties payable under the PAION License will be subject to reduction on account of generic competition and after patent expiration in a jurisdiction. Pursuant to the PAION License, PAION will be solely responsible for the future development and commercialization of GIAPREZA and XERAVA in the PAION Territory. PAION is required to use commercially reasonable efforts to commercialize GIAPREZA and XERAVA in the PAION Territory. The Company agreed to use commercially reasonable efforts to negotiate and enter into a separate commercial supply agreement to manufacture drug product for commercial supply. The Company has not yet entered into a commercial supply agreement with PAION, which would set the quantity and timing of commercial supply. The Company has not received any payments from PAION related to either royalties or commercial milestones.

Everest Medicines Limited

In February 2018, the Company entered into a license agreement with Everest, which was subsequently amended and restated (the “Everest License”). Pursuant to the Everest License, the Company 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 “Everest Territory”). The Company is eligible to receive an additional $8.0 million regulatory milestone payment 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 Everest Territory of products containing eravacycline. Royalties are payable with respect to each jurisdiction in the Everest Territory until the latest to occur of: (1) the last-to-expire of specified patent rights in such jurisdiction in the Everest Territory; (2) expiration of marketing or regulatory exclusivity in such jurisdiction in the Everest Territory; or (3) 10 years after the first commercial sale of a product in such jurisdiction in the Everest 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. During the three months ended March 31, 2021, the Company received a $3.0 million milestone payment associated with the submission of an NDA with the China NMPA for XERAVA for the treatment of cIAI in patients in China.

Off−Balance Sheet Arrangements

We have no ~~off-balance~~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.~~

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~~2020 are most critical to understanding and evaluating our reported financial results. During the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, other than the license revenue recognition policy described in Note 2 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, 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~~.

2020.

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 3. Quantitative and Qualitative ~~Disclosure~~Disclosures 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 4. 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 ~~June 30, 2020,~~March 31, 2021, 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 the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that 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 principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal 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 1. Legal Proceedings

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

Item 1A. Risk Factors

Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form ~~10-K, except for the additional risk factor set forth below.~~

~~Our ability to realize the benefits from the acquisition of Tetraphase Pharmaceuticals, Inc. is substantially dependent on the commercial success of XERAVA~~^TM ~~(eravacycline) 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~~^TM (eravacycline). 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 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.

~~The ongoing COVID-19 pandemic may disrupt our operations and affect our ability to sell GIAPREZA~~^TM ~~(angiotensin II) 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~~^TM (angiotensin II) 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.

10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~

On May 6, 2021, Tetraphase Pharmaceuticals, Inc. (“Tetraphase”), a wholly owned subsidiary of La Jolla Pharmaceutical Company, entered into a commercial supply agreement with Everest Medicines Limited and Everest Medicines (Singapore) Pte. Ltd (collectively, “Everest”) whereby Tetraphase will supply Everest a minimum quantity of XERAVA through December 31, 2023 and will transfer to Everest certain XERAVA-related manufacturing know-how. Pursuant to the supply agreement, Tetraphase is entitled to receive $5.0 million of technology transfer payments in 2021 and will be reimbursed for manufacturing costs at 110% of costs through December 31, 2023.

Item 6. Exhibits

Exhibit No.		Exhibit Description

31.1
~~Exhibit No.~~		~~Exhibit Description~~
2.1*		~~Agreement and Plan of Merger by and among the La Jolla, Merger Sub and Tetraphase, dated June 24, 2020~~

10.1*		~~Form of Contingent Value Rights Agreement, by and between La Jolla and the Rights Agent~~

~~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)

* Filed as an exhibit to Registrant’s Current Report on Form 8-K filed on June 24, 2020, and incorporated herein by reference.

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:	~~August 6, 2020~~ May 7, 2021	By:	/s/ Larry Edwards
			Larry Edwards
			Director, President and Chief Executive Officer
			(~~Principal Executive Officer)~~principal executive officer)

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



	June 30, 2020			December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash	$	68,353		$	87,820
Short-term investments	3,062			—
Accounts receivable, net	1,843			2,960
Inventory, net	3,120			2,211
Prepaid expenses and other current assets	2,792			4,467
Total current assets	79,170			97,458
Property and equipment, net	12,827			18,389
Right-of-use lease asset	14,792			15,491
Restricted cash	606			909
Total assets	$	107,395		$	132,247

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	2,481		$	4,177
Accrued expenses	6,772			9,312
Accrued payroll and related expenses	5,741			8,332
Lease liability, current portion	2,890			2,766
Total current liabilities	17,884			24,587
Lease liability, less current portion	25,000			26,481
Deferred royalty obligation, net	124,406			124,379
Other noncurrent liabilities	15,317			12,790
Total liabilities	182,607			188,237
Commitments and contingencies (Note 6)
Shareholders’ deficit:
Common Stock, $0.0001 par value; 100,000,000 shares authorized, 27,358,611 and 27,195,469 shares issued and outstanding at June 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 June 30, 2020 and December 31, 2019; and liquidation preference of $3,906 at June 30, 2020 and December 31, 2019	3,906			3,906
Additional paid-in capital	982,393			977,432
Accumulated deficit	(1,061,514		)	(1,037,331		)
Total shareholders’ deficit	(75,212		)	(55,990		)
Total liabilities and shareholders’ deficit	$	107,395		$	132,247



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue
Net product sales	$	5,805		$	5,703		$	13,396		$	10,098
Total revenue	5,805			5,703			13,396			10,098
Operating expenses
Cost of product sales	808			551			1,524			1,051
Research and development	8,781			22,043			17,964			43,287
Selling, general and administrative	8,677			11,323			16,829			23,643
Total operating expenses	18,266			33,917			36,317			67,981
Loss from operations	(12,461		)	(28,214		)	(22,921		)	(57,883		)
Other income (expense)
Interest expense	(2,470		)	(2,806		)	(4,876		)	(5,535		)
Interest income	32			604			222			1,317
Other income—related party	—			—			4,085			—
Other expense	(693		)	—			(693		)	—
Total other income (expense), net	(3,131		)	(2,202		)	(1,262		)	(4,218		)
Net loss	$	(15,592	)	$	(30,416	)	$	(24,183	)	$	(62,101	)
Net loss per share, basic and diluted	$	(0.57	)	$	(1.12	)	$	(0.89	)	$	(2.29	)
Weighted-average common shares outstanding, basic and diluted	27,326			27,108			27,282			27,071



	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		Additional Paid-in Capital		Accumulated Deficit			Total Shareholders’ (Deficit) Equity
Balance at December 31, 2019	4	$	3,906	—	$	—	27,195	$	3	$	977,432	$	(1,037,331	)	$	(55,990	)
Share-based compensation expense	—	—		—	—		—	—		2,407		—			2,407
Issuance of common stock under 2013 Equity Plan	—	—		—	—		44	—		305		—			305
Issuance of common stock under ESPP	—	—		—	—		38	—		200		—			200
Net loss	—	—		—	—		—	—		—		(8,591		)	(8,591		)
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	)



	U.S. Net Product Sales				Accounts Receivable
	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020		As of June 30, 2020
Customer A	38	%	38	%	22	%
Customer B	33	%	31	%	41	%
Customer C	25	%	29	%	33	%
Total	96	%	98	%	96	%



	June 30, 2020			December 31, 2019
Leasehold improvements	$	14,504		$	14,504
Furniture and fixtures	2,549			2,598
Computer hardware	1,296			1,296
Software	733			733
Lab equipment	—			9,665
Total property and equipment, gross	19,082			28,796
Accumulated depreciation and amortization	(6,255		)	(10,407		)
Total property and equipment, net	$	12,827		$	18,389



	June 30, 2020		December 31, 2019
Accrued interest expense	$	3,530	$	2,692
Accrued manufacturing costs	1,369		1,339
Accrued clinical study costs	815		3,496
Accrued other	1,058		1,785
Total accrued expenses	$	6,772	$	9,312



2020	$	2,039
2021	4,174
2022	4,294
2023	4,417
2024	4,544
Thereafter	13,590
Total future minimum lease payments	33,058
Less: discount	(5,168		)
Total lease liability	$	27,890