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

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

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

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, an emerging growth company, or a smaller reporting 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.

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 ~~May 5,~~August 1, 2023, the registrant had ~~33,036,126~~33,499,825 shares of Class A common stock, $0.001 par value per share, and ~~4,515,316~~4,650,209 shares of Class B common stock, $0.001 par value per share, outstanding.

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, all statements, other than statements of historical or present facts, including statements regarding our future financial condition, future revenues, projected costs, prospects, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “target,” “project,” “model,” “should,” “would,” “plan,” “expect,” “predict,” “could,” “seek,” “goals,” “potential,” and similar terms or expressions that concern our expectations, strategy, plans, or intentions. These forward-looking statements include, but are not limited to, statements about:

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context requires otherwise, references to “Reata,” “the Company,” “we,” “us,” or “our” in this Quarterly Report on Form 10-Q refer to Reata Pharmaceuticals, Inc. and its subsidiaries. We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below.


	March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022
	(unaudited)						(unaudited)
Assets
Cash and cash equivalents	$	84,940		$	42,312		$	48,843		$	42,312
Marketable debt securities		236,019			345,202			281,371			345,202
Accounts receivable, net								22,662			—
Prepaid expenses and other current assets		11,583			10,256			46,031			10,256
Inventory, current								2,942			—
Total current assets		332,542			397,770			401,849			397,770
Property and equipment, net		11,060			11,179			11,303			11,179
Operating lease right-of-use-assets		103,807			105,258			78,598			105,258
Inventory, noncurrent		5,713			—			10,338			—
Other assets		460			284			499			284
Total assets	$	453,582		$	514,491		$	502,587		$	514,491
Liabilities and stockholders’ equity
Liabilities and stockholders’ equity (deficit)
Accounts payable	$	14,448		$	18,706		$	19,860		$	18,706
Accrued direct research liabilities		19,445			13,836			25,135			13,836
Other current liabilities		17,499			24,267			71,991			24,267
Liability related to sale of future royalties, current								5,650			—
Operating lease liabilities, current		3,206			2,151			2,456			2,151
Total current liabilities		54,598			58,960			125,093			58,960
Operating lease liabilities, noncurrent		114,727			117,313			90,417			117,313
Liability related to sale of future royalties, net		414,930			403,913
Term loan, net of debt issuance cost								73,130			—
Liability related to sale of future royalties, noncurrent								126,656			403,913
Total noncurrent liabilities		529,657			521,226			290,203			521,226
Commitments and contingencies
Stockholders’ equity:
Common stock A, $0.001 par value: 500,000,000 shares authorized; issued and outstanding – 33,010,817 and 31,762,052 at March 31, 2023 and December 31, 2022, respectively		33			32
Common stock B, $0.001 par value: 150,000,000 shares authorized; issued and outstanding – 4,516,934 and 4,913,348 at March 31, 2023 and December 31, 2022, respectively		5			5
Stockholders’ equity (deficit):
Common stock A, $0.001 par value: 500,000,000 shares authorized; issued and outstanding – 33,331,586 and 31,762,052 at June 30, 2023 and December 31, 2022, respectively								33			32
Common stock B, $0.001 par value: 150,000,000 shares authorized; issued and outstanding – 4,515,246 and 4,913,348 at June 30, 2023 and December 31, 2022, respectively								5			5
Additional paid-in capital		1,552,938			1,501,800			1,577,904			1,501,800
Accumulated deficit		(1,683,649	)		(1,567,532	)		(1,490,651	)		(1,567,532	)
Total stockholders’ equity		(130,673	)		(65,695	)
Total liabilities and stockholders’ equity	$	453,582		$	514,491
Total stockholders’ equity (deficit)								87,291			(65,695	)
Total liabilities and stockholders’ equity (deficit)							$	502,587		$	514,491


	Three Months Ended						Three Months Ended					Six Months Ended
	March 31						June 30					June 30
	2023			2022			2023		2022			2023		2022
Collaboration revenue
Revenues
Product revenues, net							$	20,038	$	—		$	20,038	$	—
License and milestone	$	—		$	893			—		754			—		1,648
Other revenue		195			21			2,708		8			2,903		29
Total collaboration revenue		195			914
Total revenues								22,746		762			22,941		1,677
Operating cost and expenses
Cost of products sold								846		—			846		—
Research and development		55,477			39,804			57,120		39,331			112,597		79,136
Selling, general and administrative		54,885			24,841			45,690		25,143			100,575		49,984
Litigation settlement								11,000		—			11,000		—
Depreciation		288			308			293		273			581		581
Total operating cost and expenses		110,650			64,953			114,949		64,747			225,599		129,701
Other income (expense), net		(5,662	)		(9,772	)		285,201		(9,571	)		279,539		(19,343	)
Loss from operations		(116,117	)		(73,811	)
Benefit from (provision for) taxes on income		—			(31	)
Net loss	$	(116,117	)	$	(73,842	)
Net loss per share—basic and diluted	$	(3.14	)	$	(2.03	)
Weighted-average number of common shares used in net loss per share basic and diluted		36,948,063			36,412,621
Income (loss) from operations								192,998		(73,556	)		76,881		(147,367	)
Benefit from (provision for) for taxes on income								—		1			—		(30	)
Net income (loss)							$	192,998	$	(73,555	)	$	76,881	$	(147,397	)
Net income (loss) per share—basic							$	5.12	$	(2.02	)	$	2.06	$	(4.04	)
Net income (loss) per share—diluted							$	4.65	$	(2.02	)	$	1.89	$	(4.04	)
Weighted-average number of common shares used in net income (loss) per share—basic								37,671,678		36,467,802			37,311,872		36,440,364
Weighted-average number of common shares used in net income (loss) per share—diluted								41,506,900		36,467,802			40,758,929		36,440,364


	Three Months Ended March 31, 2023																	Three Months Ended June 30, 2023
	Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’			Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Deficit			Equity			Shares		Amount		Shares			Amount		Capital		Deficit			Equity (Deficit)
Balance at December 31, 2022		31,762,052	$	32		4,913,348		$	5	$	1,501,800	$	(1,567,532	)	$	(65,695	)
Net loss		—		—		—			—		—		(116,117	)		(116,117	)
Balance at March 31, 2023																			33,010,817	$	33		4,516,934		$	5	$	1,552,938	$	(1,683,649	)	$	(130,673	)
Net income (loss)																			—		—		—			—		—		192,998			192,998
Compensation expense related to stock-based compensation		—		—		—			—		38,057		—			38,057			—		—		—			—		20,363		—			20,363
Exercise of options		519,224		1					—		13,080		—			13,081			86,385		—		49,985			—		3,807		—			3,807
Issuance of common stock upon vesting of restricted stock units		333,127				—			—		1		—			1			109,232		—		50,831			—		—		—			—
Issuance of common stock under employee stock purchase plan																			22,648		—		—			—		796		—			796
Conversion of common stock Class B to Class A		396,414		—		(396,414	)		—		—		—			—			102,504		—		(102,504	)		—		—		—			—
Balance at March 31, 2023		33,010,817	$	33		4,516,934		$	5	$	1,552,938	$	(1,683,649	)	$	(130,673	)
Balance at June 30, 2023																			33,331,586	$	33		4,515,246		$	5	$	1,577,904	$	(1,490,651	)	$	87,291


	Three Months Ended March 31, 2022																	Three Months Ended June 30, 2022
	Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’			Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Deficit			Equity			Shares		Amount		Shares			Amount		Capital		Deficit			Equity
Balance at December 31, 2021		31,478,197	$	31		4,919,249		$	5	$	1,441,584	$	(1,255,631	)	$	185,989
Balance at March 31, 2022																			31,525,514	$	31		4,919,249		$	5	$	1,457,222	$	(1,329,473	)	$	127,785
Net loss		—		—		—			—		—		(73,842	)		(73,842	)		—		—		—			—		—		(73,555	)		(73,555	)
Compensation expense related to stock-based compensation		—		—		—			—		15,444		—			15,444			—		—		—			—		13,864		—			13,864
Exercise of options		—		—		9,375			—		194		—			194			2,336		—		20,649			—		541		—			541
Issuance of common stock upon vesting of restricted stock units		35,107				2,835			—		—		—			—			16,963		1		1,531			—		—		—			1
Conversion of common stock Class B to Class A		12,210		—		(12,210	)		—		—		—			—			28,081		—		(28,081	)		—		—		—			—
Balance at March 31, 2022		31,525,514	$	31		4,919,249		$	5	$	1,457,222	$	(1,329,473	)	$	127,785
Balance at June 30, 2022																			31,572,894	$	32		4,913,348		$	5	$	1,471,627	$	(1,403,028	)	$	68,636


	Three Months Ended						Six Months Ended
	March 31						June 30
	2023			2022			2023			2022
Operating activities
Net loss	$	(116,117	)	$	(73,842	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							$	76,881		$	(147,397	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		288			308			581			581
Amortization of debt issuance costs								49			—
Non-cash interest expense on liability related to sale of future royalty		11,017			9,871			17,678			20,148
Non-cash gain on extinguishment of liability								(289,286	)		—
Stock-based compensation expense		38,057			15,444			58,420			29,308
Amortization of discount (premium) on marketable debt securities		(1,954	)		—			(4,633	)		(347	)
Changes in operating assets and liabilities:
Income tax receivable and payable		9			—
Accounts receivables, net								(22,662	)		—
Prepaid expenses, other current assets and other assets		(1,334	)		877			(35,053	)		(3,496	)
Inventory		(5,713	)		—			(13,280	)		—
Accounts payable		(4,355	)		(4,525	)		1,009			(5,756	)
Accrued expenses, other current and long-term liabilities		(1,268	)		(8,914	)		58,850			(5,133	)
Operating lease obligations		(80	)		3,489			69			6,433
Deferred revenue		—			(893	)		—			(1,648	)
Net cash used in operating activities		(81,449	)		(58,185	)		(151,377	)		(107,307	)
Investing activities
Purchases of property and equipment		(141	)		(288	)		(415	)		(2,562	)
Purchases of marketable securities		(63,864	)		—			(303,956	)		(333,970	)
Maturity from marketable securities		175,000						372,420			—
Net cash provided by (used in) investing activities		110,995			(288	)		68,049			(336,532	)
Financing activities
Exercise of options		13,081			194			16,888			735
Issuance of common stock		1			—
Employee stock purchase plan								796			—
Payment of debt issuance costs								(389	)		—
Proceeds from long-term debt								72,564			—
Net cash provided by financing activities		13,082			194			89,859			735
Net increase (decrease) in cash and cash equivalents		42,628			(58,279	)		6,531			(443,104	)
Cash and cash equivalents at beginning of year		42,312			590,258			42,312			590,258
Cash and cash equivalents at end of period	$	84,940		$	531,979		$	48,843		$	147,154
Supplemental disclosures:
Cash paid for interest							$	1,312		$	—
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	—		$	4,885
Reduction of right-of-use assets and liability due to lease modification							$	23,357		$	4,885
Purchases of equipment in accounts payable, accrued expenses, other current, and long-term liabilities	$	106		$	2,258		$	368		$	55
Accrued for debt issuance costs							$	210		$	—

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the ~~three~~six months ended ~~March 31,~~June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The consolidated balance sheet at December 31, 2022, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the annual consolidated financial statements and footnotes thereto of the Company.

~~New Accounting Pronouncements~~

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its condensed consolidated financial statements and disclosures.

~~Summary~~Summary of Significant Accounting Policies

The significant accounting policies used in the preparation of these condensed consolidated financial statements for the ~~three~~six months ended ~~March 31,~~June 30, 2023 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, with the exception of the ~~following:~~following.

Inventory

We capitalize inventory costs related to products to be sold in the ordinary course of business. We make a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. Pre-launch inventory is held as an asset when there is a high probability of regulatory approval for the product and when there are probable future economic profits. Inventory may consist of raw materials, work in process and finished goods. We began capitalizing inventory related to SKYCLARYS in the quarter ended March 31, 2023, as we received approval of SKYCLARYS in February 2023, and the related costs were expected to be recoverable through the commercialization of SKYCLARYS. Prior to the start of capitalizing inventory, costs for commercially saleable product and materials ~~of $39.2~~ ~~million~~ were incurred and included in research and development ~~expenses.~~expenses, of which $38.6 million was remaining at June 30, 2023. As a result, cost of product revenues related to SKYCLARYS will initially reflect a lower average per unit cost of materials over the next 35-40 months as previously expensed inventory is utilized for commercial production and sold to customers.

Inventories are valued under the specific identification method and are stated at the lower of cost or net realizable value. We measure inventory based on lot-based costing where inventory is valued at the purchase price for the specific lot. We assess recoverability of inventory each reporting period to determine any write down to net realizable value resulting from excess or obsolete inventories.

Revenue Recognition

We recognize revenue when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when collectability of the consideration to which we are entitled in exchange for the goods or services we transfer to the customer is determined to be probable.

At contract inception, once the contract is determined to be within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606, we assess whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation. Goods and services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. We then allocate the transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognize the associated revenue when (or as) each performance obligation is satisfied. Our estimate of the transaction price for each contract includes all variable consideration to which we expect to be entitled.

Amounts are recorded as accounts receivable when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial.

Product Revenues, Net

Our net product revenues are recognized, net of variable consideration related to certain allowances and accruals, at the time the customer obtains control of our product. We use the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, or the most likely amount method, which

is the single most likely amount in a range of possible considerations, to estimate variable consideration related to our product sales.

We record reserves, based on contractual terms, for components related to product sold during the reporting period, as well as our estimate of product that remains in the distribution channel inventory at the end of the reporting period that we expect will be sold to qualified healthcare providers. On a quarterly basis, we update our estimates and record any needed adjustments in the period we identify the adjustments. The following are the components of variable consideration related to product revenues:

Trade Discounts and Allowances. We provide customary invoice discounts on product sales to our customers for prompt payment and we pay fees for distribution services, such as fees for certain data that customers provide to us. We estimate our customers will earn these discounts and fees and deduct these discounts and fees in full from gross product revenues and accounts receivable at the time we recognize the related revenues.

Product Returns. We provide for returns in accordance with our “Return Goods Policy” defined within each customer agreement.

Chargebacks. We estimate obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to the customer who directly purchases from us. The customer charges us for the difference between what it pays to us for the product and the selling price to the qualified healthcare providers.

Rebates. We are subject to discount obligations under government programs, including Medicaid in the United States and similar programs in certain other countries, including countries in which we are accruing for estimated rebates because final pricing has not yet been negotiated. We are also subject to potential rebates in connection with our value-based agreements with certain commercial payors. We record reserves for rebates in the same period the related product revenue is recognized, resulting in a reduction of product revenues and a current liability that is included in accrued expenses on our consolidated balance sheet. Our estimate for rebates is based on statutory discount rates, expected utilization or an estimated number of patients on treatment, as applicable.

Co-payment Assistance. We offer co-payment assistance to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance. We estimate the average co-payment assistance amounts for our products based on expected customer demographics and record any such amounts within accrued expenses on our consolidated balance sheet.

Concentration of Credit Risk and Major Customers

We sell our products through exclusive arrangements with a specialty distributor and specialty pharmacy, both of which are part of McKesson Corporation. As a result, for the three-month period ended June 30, 2023, one individual customer accounted for substantially all of our net product revenue.

3. Product Revenues, Net

Net product revenue is recognized when product is shipped and title passes to the customer, typically at time of delivery. At the time of sale, estimates for various revenue allowances are recorded based on historical trends and judgmental estimates. Trade discounts and allowances are recorded as a reduction of accounts receivables. chargebacks, co-payment assistance, Medicare, Medicaid and other rebates are reflected as a component of other current liabilities.

To date, the Company’s only source of product revenue has been from the sales of SKYCLARYS, which it began shipping to customers in the United States in June of 2023. Net product revenues were $20.0 million for the three months ended June 30, 2023.

The following table presents the balance of our receivables related to our net product revenues:


	Six Months Ended
	June 30
	2023
	(in thousands)
Receivables included in "Accounts receivables, net"	$	22,662

4. Collaboration Agreements

Subsequent to the 2019 reacquisition of certain rights originally licensed to AbbVie Inc. (AbbVie) (see “AbbVie,” below), the Company’s collaboration revenue and deferred revenue have been generated primarily from licensing fees and reimbursements for expenses received under our exclusive license with Kyowa Kirin (the Kyowa Kirin Agreement).

Kyowa Kirin

In December 2009, the Company entered into an exclusive license with Kyowa Kirin to develop and commercialize bardoxolone in the licensed territory. The terms of the agreement include payment to the Company of a nonrefundable, up-front license fee of $35.0 million and additional development and commercial milestone payments. As of ~~March 31,~~June 30, 2023, the Company has received $50.0 million related to regulatory development milestone payments from Kyowa ~~Kirin and has the potential in the future to achieve another $47.0~~ ~~million from regulatory milestones and $140.0~~ million from commercial milestones. The Company also has the potential to achieve tiered royalties ranging from the low teens to the low 20 percent range, depending on the country of sale and the amount of annual net sales, on net sales by Kyowa Kirin in the licensed territory. The Company is participating on a joint steering committee with Kyowa Kirin to oversee the development and commercialization activities related to bardoxolone. Any future milestones and royalties received are subject to mid to lower single digit percent declining tiered commissions to certain consultants as compensation for negotiations of the Kyowa Kirin Agreement.

Kirin.

The Company regularly evaluates its remaining performance obligation under the Kyowa Kirin Agreement. Accordingly, revenue may fluctuate from period to period due to changes to its estimated performance obligation period and variable considerations. The Company began recognizing revenue related to the up-front payment upon execution of the Kyowa Kirin Agreement as the Company’s period of performance began. In March 2021, the Company’s performance obligation period under the Kyowa Kirin Agreement was extended to and completed in June 2022. On July 27, 2021, Kyowa Kirin submitted a New Drug Application (NDA) in Japan to the Ministry of Health, Labour and Welfare for bardoxolone for improvement of renal function in patients with Alport syndrome. Based on this submission, the Company earned a $5.0 million milestone payment, variable consideration previously considered constrained, under the Kyowa Kirin Agreement. As a result, the Company recorded $4.7 million in collaboration revenue, a cumulative catch-up for the portion of this milestone that was satisfied in prior periods, and $0.3 million in deferred revenue that was recognized over the remaining performance obligation period. Under the Kyowa Kirin Agreement, we will not recognize any deferred revenue subsequent to June 30, 2022.

In May 2023, Kyowa Kirin reported results from the AYAME study, a Phase 3 trial which was conducted in Japan studying the safety and efficacy of bardoxolone in patients with diabetic kidney disease. Based on the results of AYAME and its potential regulatory impact, we and Kyowa Kirin have decided to discontinue our bardoxolone ~~CKD~~chronic kidney disease (CKD) programs, including the FALCON and EAGLE clinical trials. ~~See Note 13, Subsequent Events,~~We expect to ~~our condensed consolidated financial statements for further details.~~substantially complete site close-out activities related to FALCON and EAGLE by October 2023.

AbbVie

In September 2010, the Company entered into a license agreement with AbbVie (the AbbVie License Agreement) for an exclusive license to develop and commercialize bardoxolone in the Licensee Territory (as defined in the AbbVie License Agreement).

In December 2011, the Company entered into a collaboration agreement with AbbVie (the Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators.

In October 2019, the Company and AbbVie entered into an Amended and Restated License Agreement (the Reacquisition Agreement) pursuant to which the Company reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the AbbVie License Agreement and the Collaboration Agreement. In exchange for such rights, the Company agreed to pay AbbVie $330.0 million, all of which was subsequently paid. Additionally, the Company will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and certain next-generation Nrf2 activators. The execution of the Reacquisition Agreement ended our performance obligations under the Collaboration Agreement.

As of December 31, 2021, the Company has fully satisfied its payable to AbbVie, therefore no interest expense was recognized thereafter.

4.5. Other Current Liabilities

The following tables summarize our other current liabilities (in thousands), as of June 30, 2023:


	Six Months Ended
	June 30
	2023		2022
	(in thousands)
Paid Time Off Accrual	$	4,953	$	4,022
Bonus Accrual		6,813		12,160
Accrued Expenses1		47,634		2,919
Other		12,591		5,166
Total other current liabilities	$	71,991	$	24,267

1) See Note 17, Subsequent Events, to our condensed consolidated financial statements for update on bardoxolone securities litigation.

6. Liability Related to Sale of Future Royalties

On June 24, 2020, the Company closed on the Development and Commercialization Funding Agreement with an affiliate of Blackstone Life Sciences, LLC (BXLS), which ~~provides~~provided funding for the development and commercialization of bardoxolone for the treatment of CKD caused by Alport syndrome, autosomal dominant polycystic kidney disease (ADPKD), and certain other rare CKD indications in return for future royalties (the Development Agreement). The Development Agreement ~~includes~~included a $300.0 million payment by an affiliate of BXLS in return for various percentage royalty payments on worldwide net sales of bardoxolone, once approved in the United States or certain specified European countries, by Reata and its licensees, other than Kyowa Kirin. The royalty percentage ~~will~~was initially to be in the mid-single digits and, in future years, ~~can vary~~could have varied between higher-mid single digit percentages to low-single digit percentages depending on various milestones, including indication approval dates, cumulative royalty payments, and cumulative net sales. Pursuant to the Development Agreement, we ~~have~~had granted BXLS a security interest in substantially all of our assets. After a bardoxolone product approval ~~has~~would have been obtained by the Company, the Company iswould have been obligated to make certain minimum cumulative payment amounts in 2025 through 2033, but only until BXLS ~~has~~had achieved a certain internal rate of return target.

In addition, concurrent with the Development Agreement, the Company had entered into a common stock purchase agreement (the Purchase Agreement) with affiliates of BXLS to sell an aggregate of 340,793 shares of the Company’s Class A common stock, par value $0.001 per share (the Class A common stock), at $146.72 per share for a total of $50.0 million.

The Company had concluded that there were two units of accounting for the consideration received, comprised of the liability related to the sale of future royalties and the common shares. The Company historically had allocated the $300.0 million from the Development Agreement and $50.0 million from the Purchase Agreement between the two units of accounting on a relative fair value basis at the time of the transaction. The Company allocated $294.5 million, which ~~includes~~included $0.8 million in transaction costs incurred, in transaction consideration to the liability, and $55.5 million to the common shares. The Company determined the fair value of the common shares based on the closing stock price on June 24, 2020, the closing date of the Development Agreement. At inception, the effective interest rate under the Development Agreement, including transaction costs, was approximately 13.8%.

During the first quarter of 2022, the Company reassessed the expected royalty payments and lowered our previous estimate of future sales for which royalties will be paid. Accordingly, we ~~have~~had prospectively adjusted and recognized lower non-cash interest expense using a 10.9% effective interest rate, as of March 31, 2023.

On May 4, 2023, with the Company's discontinuation of bardoxolone development, the Company entered into an Amended and Restated Development and Commercialization Funding Agreement (the Amended Funding Agreement) with BXLS. The Amended Funding Agreement provides that all covenants in the Development and Commercialization Funding Agreement regarding commercialization of bardoxolone, restricting the incurrence of indebtedness, and restricting license and licensing transactions are removed and all prior security interests granted to BXLS are released.

In addition, the Amended Funding Agreement provides for a low, single digit royalty payment to BXLS on net sales of omaveloxolone for FA. Pursuant to the Amended Funding Agreement, to secure our payment obligations to BXLS, (i) we have granted BXLS a security interest in a segregated deposit account and (ii), subject to certain

limitations as set forth in the Amended Funding Agreement, have agreed to maintain in such account an initial balance and thereafter an amount equal to the aggregate amount of omaveloxolone royalty payments made for the immediately preceding two calendar quarter period.

The Amended Funding Agreement also provides that, with respect to any change of control of the Company prior to January 1, 2028, we will pay to BXLS a change of control payment in an amount equal to (x) if the date of such change of control is prior to June 10, 2023, $375 million or (y) if the date of such change of control is on or after June 10, 2023, $300.0 million, or, in each case, potentially a lesser amount based on the sum of certain payments to BXLS, including the Omav Licensing Payments (as defined below), prior to the change of control.

The Amended Funding Agreement also provides that, in the event that prior to the earlier of a change of control of the Company or January 1, 2028, we or one of our affiliates enters into certain material transactions with respect to commercialization of our omaveloxolone product in France, Germany, Italy, Spain, the United Kingdom or the United States (collectively, Omav Licensing Transactions), then, with respect to any payment received in connection with an Omav Licensing Transaction, we shall pay to BXLS an amount equal to a certain percentage of each such payment (the Omav Licensing Payments) until such time as (i) BXLS has received $300 million, or potentially a lesser amount based on the sum of certain payments previously made to BXLS, or (ii) BXLS has received a change of control payment.

In connection with the Amended Funding Agreement, the Company recognized a $289.3 million gain on extinguishment of the historical liability related to the sale of future royalties and the recognition of the expected royalty payments of the new liability related to the sale of future royalties as of May 4, 2023. We are using a 12.6% effective interest rate as of May 4, 2023 through June 30, 2023.

The following table shows the activity within the liability related to sale of future royalties for the ~~three~~six months ended ~~March 31,~~June 30, 2023:

Liability Related to Sale of Future Royalties

(in thousands)

Balance at December 31, 2022
$
404,634

Non-cash interest expense recognized

11,000

Balance at March 31, 2023

415,634

Less: Unamortized transaction cost

(704
)
Carrying value at March 31, 2023
$
414,930


	Liability Related to Sale of Future Royalties
	(in thousands)
Balance at December 31, 2022	$	404,634
Plus: Non-cash interest expense recognized between December 31, 2022 and May 4, 2023		15,237
Balance at May 4, 2023 prior to the Amended Funding Agreement		419,871
Less: Unamortized transaction costs as of May 4, 2023		(699	)
Carrying value at May 4, 2023, prior to the Amended Funding Agreement	$	419,172
Less: Net Gain on extinguishment of liability related to the sale of future royalties		(289,286	)
Fair value of new liability related to sale of future royalties	$	129,886
Plus: Non-cash interest expense recognized between May 4, 2023 and June 30, 2023		2,420
Carrying value at June 30, 2023	$	132,306
Liability related to sale of future royalties, current	$	5,650
Liability related to sale of future royalties, non-current	$	126,656

On May 4, 2023, we entered into an Amended and Restated Development and Commercialization Funding Agreement (the Amended Funding Agreement) with BXLS. See Note 13, Subsequent Events, to our condensed consolidated financial statements or further details.7. Inventory

~~5. Inventory~~13

All of the Company’s inventories relate to the manufacturing of SKYCLARYS. The following table sets forth the Company’s inventories as of ~~March 31,~~June 30, 2023:


	Three Months Ended		Six Months Ended
	March 31		June 30
	2023		2023
	(in thousands)		(in thousands)
Raw materials	$	3,446	$	3,903
Work-in-process		2,267		8,875
Finished goods		—		502
Total	$	5,713
Total inventory			$	13,280
Inventory, current			$	2,942
Inventory, noncurrent			$	10,338

~~Inventory~~

8. Term Loan

The Company entered into a loan agreement in ~~excess~~May 2023 (the Loan Agreement) with BioPharma Credit, PLC, (as the Collateral Agent), BPCR Limited Partnership (as a Lender), and Biopharma Credit Investments V (Master) LP, acting by its general partner, BioPharma Credit Investments V GP LLC (as a Lender) that provides for a senior secured term loan facility of up to $275.0 million to be funded in four committed tranches: (i) Tranche A Loan in an aggregate principal amount of $75.0 million (the Tranche A Loan) that was funded on May 12, 2023 (the Tranche A Closing Date); (ii) a Tranche B Loan in an aggregate principal amount of $50.0 million (the Tranche B Loan) to be funded, subject to certain conditions including the first commercial sale in the US of our omaveloxolone product; (iii) a Tranche C Loan in an aggregate principal amount of $75.0 million (the Tranche C Loan) to be funded, subject to certain conditions including achieving a trailing twelve-month net product sales and royalty revenues milestone ranging from $40.0 million to $55.0 million based on the date of the first commercial sale of our omaveloxolone product; and (iv) a Tranche D Loan in an aggregate principal amount ~~expected~~of $75.0 million (the Tranche D Loan and, together with the Tranche A Loan, the Tranche B Loan, and the Tranche C Loan, the Term Loans) to be ~~sold within one year is classified~~funded at the Company’s option, subject to certain conditions including achieving a trailing twelve-month net product sales and royalty revenues milestone of $100.0 million for any trailing twelve month period ending on or prior to December 31, 2024. See Note 17, Subsequent Events, to our condensed consolidated financial statements for update on funding of Tranche B.

The Term Loans mature on either (i) the 5th anniversary of the Tranche A Closing Date (the “Maturity Date”); or (ii) if we do not satisfy the Tranche B Loan borrowing conditions on or prior to December 31, 2023, the Maturity Date shall be December 31, 2023. Repayment of outstanding principal of the Term Loans will be made in eight equal quarterly payments of principal commencing on June 30, 2026; provided however, that if we achieve a trailing twelve-month net product sales and royalty revenues milestone of $250.0 million as ~~noncurrent inventory. At~~of March 31, ~~2023,~~2027, at our option, repayment of outstanding principal of the Term Loans will be made in four equal quarterly payments of principal commencing on June 30, 2027.

The Term Loans bear interest at 7.50% plus three-month SOFR per annum with a SOFR floor of 2.50%. Interest is due and payable quarterly with the first payment due on June 30, 2023. The Company adopted the prospective method to account for future cash payments. Under the prospective method, the effective interest rate is not constant, and any change in the expected cash flows is recognized prospectively as an adjustment to the effective yield.

Our obligations under the Loan Agreement are guaranteed on a full and unconditional basis by the Guarantors, consisting of our U.S. and certain of our foreign subsidiaries, and are secured by substantially all of the respective Credit Parties assets, including intellectual property, subject to certain exceptions. Pursuant to the Loan Agreement, and subject to certain restrictions, proceeds of the Term Loans are being used to fund the Company’s ~~inventories were classified~~general corporate and working capital requirements.

The Loan Agreement contains certain customary representations and warranties. In addition, the Loan Agreement includes affirmative covenants, such as ~~noncurrent inventory.~~the requirement to maintain a minimum net revenue commencing with the fiscal quarter ending December 31, 2023 through the fiscal quarter ending December 31, 2028. Further, the Loan Agreement includes certain other affirmative covenants and negative covenants, including, covenants and restrictions that, among other things, restrict the Company’s ability to incur liens, incur additional indebtedness, make

investments, engage in certain mergers and acquisitions or asset sales, and declare dividends or redeem or repurchase capital stock. The Loan Agreement also contains customary events of default, including among other things, the Company’s failure to make any principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or its breach of the covenants under the Loan Agreement. Upon the occurrence of an event of default, the Lenders may, among other things, accelerate the Company’s obligations under the Loan Agreement. A change of control of the Company triggers a mandatory prepayment of the Term Loans within fifteen days.

As of June 30, 2023, the Company was in full compliance with these covenants and there were no events of default under the Term Loans. The Company has determined that the risk of subjective acceleration under the material adverse events clause is not probable and therefore has classified the outstanding principal in non-current liabilities based on scheduled principal payments.

In connection with the closing of Tranche A, the Company incurred $3.0 million in debt discounts and issuance costs of which $1.5 million related to all the tranches of the Term Loans and was thus allocated pro rata between the funded and unfunded tranches. The debt discount and issuance costs allocated to Tranche A have been presented as a deduction to the Term Loan balance and are amortized into interest expense using the effective interest method. Until the unfunded Tranche B, Tranche C and Tranche D have been drawn, the associated debt issuance costs of $1.1 million have been recognized as assets. As of June 30, 2023, the total remaining unamortized debt discount and debt offering costs related to Tranche A of $1.9 million will be amortized using the effective interest rate over the remaining term of 4.9 years. The overall effective interest rate for Tranches A was 13.4% as of June 30, 2023.

10. Other Income (Expense), Net


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31						June 30						June 30
	2023			2022			2023			2022			2023			2022
	(in thousands)						(in thousands)
Other income (expense), net
Investment income	$	3,435		$	132		$	3,992		$	786		$	7,426		$	918
Interest Expense								(1,312	)		—			(1,312	)		—
Non-cash interest expense on liability related to sale of future royalty		(11,017	)		(9,871	)		(6,661	)		(10,277	)		(17,678	)		(20,148	)
Net gain on extinguishment of liability								289,286			—			289,286			—
Other income (expense)		1,920			(33	)		(104	)		(80	)		1,817			(113	)
Total other income (expense), net	$	(5,662	)	$	(9,772	)	$	285,201		$	(9,571	)	$	279,539		$	(19,343	)

Investment Income

~~Interest~~Investment income consists primarily of interest generated from our cash and cash equivalents and marketable debt securities.

Interest Expense

Interest expense consists primarily of interest on our borrowings under our loan agreement.

Non-Cash Interest Expense on Liability Related to Sale of Future Royalties

Non-cash interest expense consists of recognition of interest expense based on the Company’s current estimate of future royalties expensed to be paid over the estimated term of the Development Agreement.

Net Gain on Extinguishment of Liability

Net gain on extinguishment of liability consists of the between the net carrying value of the old liability related to sale of future royalties and the fair value of the new liability related to sale of future royalties in the Income Statement. See Note 6, Liability Related to Sale of Future Royalties, to our condensed consolidated financial statements for detail on the gain on extinguishment of liability.

Other Income (Expense)

Other income (expense) consists primarily of gains and losses on foreign currency exchange, sales of assets, lease termination and employee retention credit.

In the ~~three~~six months ended ~~March 31,~~June 30, 2023, other income included $2.0 million, related to the employee retention credit (ERC) under the Coronavirus Aid, Relief, and Economic Security Act (the CARES ~~Act.~~Act).

8.11. Leases

The Company headquarters is located in Plano, Texas, where it leases approximately 122,000 square feet of office space. The Company leases additional space located in Irving, Texas, where it leases approximately 34,890 square feet of office and laboratory space.

On February 4, 2022, the Company extended the lease for the office and laboratory space in Irving, Texas, to October 31, 2024, with an option to extend for a fixed ~~12-month~~twelve-month period.

On March 8, 2022, the Company extended the lease for the Plano office to December 31, 2023.

The Company has an additional lease of a single-tenant, build-to-suit building of approximately 327,400 square feet of office and laboratory space located in Plano, Texas with an initial lease term of 16 years. The Company entered into the lease agreement on October 15, 2019 (the 2019 Lease Agreement), and at the Company’s option, it may renew

the lease for two consecutive five-year renewal periods or one ten-year renewal period. On December 15, 2021, the Company obtained control of the space, and, accordingly, the Company recorded related right-of-use assets and the lease liabilities during the fourth quarter of 2021. The Company recorded the liability associated with the 2019 Lease Agreement at the present value of the lease payments not yet paid, using the discount rate as of the commencement date. As the discount rate implicit in the 2019 Lease Agreement was not readily determinable, the Company utilized its incremental borrowing ~~rate.~~rate at that time. The renewals are not assumed in the determination of the lease term, since they are not deemed to be reasonably assured at the inception of the lease. At inception, the Company recorded $124.5 million as a right-of-use asset, which represented a lease liability of $133.2 million, net of $8.7 million of lease incentives recognized.

On June 19, 2023, the Company amended the 2019 Lease Agreement, which increases the tenant allowance (lease incentives) by up to $5.1 million. As consideration for the additional tenant improvement allowance and related payment terms, the Company agreed to an increase in the base rent than set forth in the original lease. As a result of the lease modification, the Company remeasured its lease liability from $113.3 million to $89.9 million in accordance with Accounting Standards Update 842, Lessors—Certain Leases with Variable Lease Payments, or ASC 842, a reduction of $23.4 million with a corresponding reduction to our right of use asset, using our incremental borrowing rate of 12.72% at the time of the lease modification.

For the ~~three~~six months ended ~~March 31,~~June 30, 2023, the Company paid $~~3.9~~7.7 million for amounts included in the measurement of lease liabilities. During the three and six months ended ~~March 31,~~June 30, 2023, the Company recorded total rent expense of $4.4 million and $8.7 million, respectively. During the three and six months ended June 30, 2022, the Company recorded total rent expense of $4.3 million and $~~4.3~~8.6 million, respectively.

Supplemental balance sheet and other information related to the Company’s operating leases is as follows:


		As of March 31,							As of June 30,
		2023			2022				2023			2022
Weighted-average remaining lease term (in years)	Weighted-average remaining lease term (in years)		15.0			15.6		Weighted-average remaining lease term (in years)		14.8			15.6
Weighted-average discount rate			6.5	%		6.5	%			12.6	%		6.5	%

Maturities of lease liabilities by fiscal year for the Company’s operating leases:


	As of March 31, 2023			As of June 30, 2023
	(in thousands)			(in thousands)
2023 (remaining nine months)	$	5,835
2023 (remaining six months)(1)				$	1,984
2024 ~~(1)~~		6,457			7,696
2025		11,777			14,279
2026		12,007			14,558
2027		12,241			14,842
Thereafter		143,829			174,393
Total lease payments (1)		192,146			227,752
Less: Imputed interest		(74,213	)		(134,879	)
Present value of lease liabilities	$	117,933		$	92,873

(1) Above table includes one year rent abatement applied beginning in June 2023 following FDA approval of SKYCLARYS

In 2022, our stockholders approved the Reata Pharmaceuticals, Inc. 2022 Employee Stock Purchase Plan ~~(the "ESPP")~~(ESPP), pursuant to which 500,000 shares of common stock were authorized for issuance. Under the ESPP, each offering period is twelve months, with two six-month purchase periods. At the end of each purchase period the employees may purchase shares of common stock through payroll deductions made over the term of the purchase period. The per-share purchase price at the end of each purchase period is equal to the lesser of 85% of the closing price of the Company’s common stock at the beginning of the offering period or the purchase date. As of ~~March 31,~~June 30, 2023, the Company has ~~not~~ issued ~~any~~22,648 shares of Class A common stock in relation to the ~~ESPP.~~ESPP and received $0.8 million in cash related to the ESPP plan. The Company recorded approximately $~~0.2~~0.3 million and $0.6 million, respectively in compensation expense related to the ESPP during the three and six months ended ~~March 31,~~June 30, 2023.

The following table summarizes time-based and performance-based stock compensation expense reflected in the consolidated statements of operations:


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31				June 30				June 30
	2023		2022		2023		2022		2023		2022
	(in thousands)				(in thousands)
Research and development	$	14,270	$	7,606	$	8,530	$	6,344	$	22,800	$	13,951
Selling, general and administrative		23,787		7,838		11,833		7,520		35,620		15,357
Total stock compensation expense	$	38,057	$	15,444	$	20,363	$	13,864	$	58,420	$	29,308

Restricted Stock Units (RSUs)

The following table summarizes RSUs as of ~~March 31,~~June 30, 2023, and changes during the ~~three~~six months ended ~~March 31,~~June 30, 2023, under the Second Amended and Restated Long Term Incentive Plan (LTIP Plan):

Number of
RSUs

Weighted-Average
Grant Date Fair
Value

Outstanding at January 1, 2023

1,151,656

$
45.45

Granted

453,049

40.03

Vested

(352,042
)

34.64

Forfeited

(13,113
)

50.56

Outstanding at March 31, 2023

1,239,550

$
46.48


	Number of RSUs			Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2023		1,151,656		$	45.45
Granted		526,509			47.89
Vested		(509,197	)		38.23
Forfeited		(27,421	)		43.34
Outstanding at June 30, 2023		1,141,547		$	49.84

As of ~~March 31,~~June 30, 2023, total unrecognized compensation expense related to RSU and performance-based RSU awards that were deemed probable of vesting was approximately $~~41.2~~41.7 million, which excludes ~~36,500~~37,750 shares of unvested performance-based RSUs that were deemed not probable of vesting totaling unrecognized stock-based compensation expense of $~~4.4~~4.6 million.

Stock Options

The following table summarizes stock option activity as of ~~March 31,~~June 30, 2023, and changes during the ~~three~~six months ended ~~March 31,~~June 30, 2023, under the LTIP Plan and standalone option agreements:


	Number of Options			Weighted- Average Price		Number of Options			Weighted- Average Price
Outstanding at January 1, 2023		6,009,199		$	65.92		6,009,199		$	65.92
Granted		1,784,222			37.69		1,981,191			43.50
Exercised		(519,224	)		25.21		(655,595	)		25.94
Forfeited		(248,260	)		188.95		(292,835	)		166.36
Expired		(44,033	)		111.59		(72,848	)		139.66
Outstanding at March 31, 2023		6,981,904		$	56.57
Exercisable at March 31, 2023		3,376,690		$	64.37
Outstanding at June 30, 2023							6,969,112		$	58.32
Exercisable at June 30, 2023							3,696,610		$	63.80

As of ~~March 31,~~June 30, 2023, total unrecognized compensation expense related to stock options and ~~performance- based~~performance-based stock options that were deemed probable of vesting was approximately $~~92.1~~91.6 million, which excludes 172,500 shares of unvested performance-based stock options that were deemed not probable of vesting totaling unrecognized stock-based compensation expense of $13.2 million.

The total intrinsic value of all outstanding options and exercisable options as of ~~March 31,~~June 30, 2023 was $~~313.6~~366.3 million and $~~141.1~~186.8 million, respectively.

~~The number of weighted average options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented~~ ~~8,221,454~~ ~~and~~ ~~6,878,671~~ ~~shares as of March 31, 2023 and 2022, respectively.~~

~~13.~~16. Net Income Per Share

The computation of basic and diluted net loss income per share attributable to stockholders of the Company is summarized in the following table (in thousands, except per share amounts):


	Three Months Ended					Six Months Ended
	June 30					June 30
	2023		2022			2023		2022
Numerator
Net income (loss)	$	192,998	$	(73,555	)	$	76,881	$	(147,397	)
Denominator
Weighted-average number of common shares used in net loss per share — basic		37,671,678		36,467,802			37,311,872		36,440,364
Dilutive potential common shares:
Employee stock options		3,435,527		—			2,953,652		—
RSUs		370,262		—			457,086		—
Employee stock purchase plan		29,433		—			36,319		—
Weighted-average number of common shares used in net loss per share — diluted		41,506,900		36,467,802			40,758,929		36,440,364
Net income (loss) per share — basic	$	5.12	$	(2.02	)	$	2.06	$	(4.04	)
Net income (loss) per share — diluted	$	4.65	$	(2.02	)	$	1.89	$	(4.04	)

The number of weighted average options and RSUs that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented 4,304,870 and 6,896,379 shares for the three months ended June 30, 2023 and 2022, respectively.

The number of weighted average options and RSUs that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive represented 4,699,922 and 6,896,379 shares for the six months ended June 30, 2023 and 2022, respectively.

In addition, the Amended Funding Agreement provides for a low, single digit royalty payment to BXLS on net sales of omaveloxolone for Friedreich's ataxia. Pursuant to the Amended Funding Agreement, to secure our payment obligations to BXLS, (i) we have granted BXLS a security interest in a segregated deposit account and (ii), subject to certain limitations as set forth in the Amended Funding Agreement, have agreed to maintain in such account an initial balance and thereafter an amount equal to the aggregate amount of Omav Royalty payments made for the immediately preceding two calendar quarter period.

~~We are currently evaluating the net impact on the liability related to sale of future royalties and any adjustments will be recorded in second quarter financial statements.~~

On May 5, 2023, the Company, entered into an agreement (the Term Loan) with BPCR Limited Partnership and BioPharma Credit Investments V (Master) LP, as Lenders, which are funds managed by Pharmakon Advisors, LP, and BioPharma Credit PLC, as the collateral agent for the Lenders, pursuant to which the Lenders agreed to make term loans to the Company in an aggregate principal amount of up to $275 million. The initial tranche of $75 million will be funded on May 12, 2023, the second tranche of $50 million is conditioned on meeting certain regulatory or product production criteria and two final tranches of $75 million each will be made available based on the achievement of certain commercial sales milestones; with the fourth tranche being optional to the Company. The Term Loan bears interest at 7.50% plus three-month SOFR per annum, with a SOFR floor of 2.50%. Repayment terms are quarterly interest-only payments for three years, then quarterly amortization over the following two years. The Term Loan is secured by substantially all of the assets of the Company, its U.S. subsidiaries, and its U.K., Swiss, and Irish subsidiaries.

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 consolidated financial statements and related notes and other financial information appearing in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, operations, and product candidates, includes forward-looking statements that involve risks and uncertainties. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and discussed elsewhere in this Quarterly Report on Form 10-Q.

We are a biopharmaceutical company focused on identifying, developing, and commercializing innovative therapies that change patients’ lives for the better. We concentrate on small-molecule therapeutics with novel mechanisms of action for the treatment of serious or life-threatening diseases with few or no approved therapies and unmet need. Our first product, SKYCLARYS®(omaveloxolone), is the first and only drug approved by the ~~U.S.~~United States Food and Drug Administration (FDA) for the treatment of ~~Friedreich's ataxia (FA)~~FA in adults and adolescents aged 16 years and older. We have submitted a Marketing Authorization Application (MAA) for omaveloxolone for the treatment of FA to the European Medicines Agency (EMA) in Europe and the application is under review. We are also developing cemdomespib (previously referred to as RTA 901), the lead product candidate from our Hsp90 modulator program, in neurological indications and Nrf2 activators for neurological diseases.

Omaveloxolone activates the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation, in nonclinical models. Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, we believe our Nrf2 activators have many potential clinical applications.

We possess exclusive, worldwide rights to develop, manufacture, and commercialize omaveloxolone and our Nrf2 activators. We are the exclusive licensee of cemdomespib and have worldwide commercial rights.

On July 28, 2023, ~~Kyowa Kirin reported results from~~we entered into the ~~AYAME study, a Phase 3 trial~~Merger Agreement, pursuant to which, ~~was conducted in Japan studying the safety~~ and ~~efficacy of bardoxolone in patients with diabetic kidney disease. Based~~ on the ~~results~~terms and subject to the conditions thereof, Merger Sub will merge with and into us, and we will survive as a wholly-owned subsidiary of ~~AYAME~~Biogen. Under the terms of the Merger Agreement, Biogen, through the Merger Sub, will acquire all of our outstanding shares of common stock with the total equity value of the transaction estimated to be approximately $7.53 billion. Subject to the terms and ~~its potential regulatory impact,~~conditions of the Merger Agreement, each share of our common stock that is issued and outstanding immediately prior to the Effective Time, other than any such shares (i) owned immediately prior to the Effective Time by Biogen, Merger Sub or us, or by any of Biogen’s or Merger Sub’s direct or indirect wholly-owned subsidiaries or (ii) owned by our stockholders who are entitled to demand and have properly and validly demanded their appraisal rights under Delaware law, will be canceled and extinguished and automatically converted into the right to receive Merger Consideration, without interest and subject to any applicable withholding taxes. The Merger is expected to close in the fourth quarter of 2023, assuming satisfaction or waiver of all of the conditions to the Merger.

The obligation of the parties to consummate the Merger is subject to certain customary conditions, including: (i) receipt of the affirmative vote of the holders of a majority of the voting power of the outstanding our common stock to adopt the Merger Agreement and approve of the transactions contemplated thereby, (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act of 1976, and (iii) the absence of any law or order prohibiting or otherwise preventing the consummation of the acquisition of our common stock by Biogen or the Merger. If the Merger Agreement is terminated under specified circumstances, we ~~and Kyowa Kirin have decided~~will be required to ~~discontinue our bardoxolone CKD programs,~~pay Biogen a termination fee of $264.0 million. The Merger Agreement also provides that, in connection with the termination of the Merger Agreement under specified circumstances including ~~the FALCON and EAGLE clinical trials. See Note 13, Subsequent Events,~~antitrust related circumstances, Merck will be required to ~~our condensed consolidated financial statements for further details.~~pay us a termination fee of $301.0 million.

In February 2023, we announced that the FDA approved SKYCLARYS, the first and only drug approved by the FDA for the treatment of FA in adults and adolescents 16 years of age and older. FA is a rare, inherited neurodegenerative disorder that is typically diagnosed during adolescence. Patients with FA experience progressive loss of coordination, muscle weakness, and fatigue, which commonly progresses to motor incapacitation and wheelchair reliance by their teens or early twenties, and eventually death. ~~FA affects approximately 5,000 diagnosed patients in the U.S.~~

~~We are evaluating strategies to support global label expansion for younger pediatric patients.~~ In ~~the second quarter of~~June 2023, ~~we plan to request a meeting with~~ the FDA approved a PAS to discuss possible label expansion for younger pediatric patients who are not included in the approved label. A pediatric pharmacokinetic study evaluating safety, tolerability, and pharmacokinetic profile (PK) of omaveloxolone in FA patients is planned to begin in the fourth quarter of 2023.

We have completed the final stages of SKYCLARYS drug product manufacturing and packaging. As previously reported, a process-related drug substance impurity above the reporting threshold was observed. This impurity is part of the omaveloxolone drug substance process chemistry that was previously at levels below the reporting threshold. An NDA supplement was submitted to the FDA to increaseupdate the drug substance specification for ~~this impurity above the current specification. The~~SKYCLARYS. With approval of ~~this supplement is required~~the PAS, we initiated shipment of SKYCLARYS in June 2023 to release SKYCLARYs drug product to our specialty pharmacy. The FDA is reviewing the supplement as a Prior Approval Supplement under Priority Review with an approval target action date in mid-August. The FDA stated that the review of the supplement was prioritized and that the approval potentially should come earlier than the action date. We believe that the information providedpatients in the ~~NDA supplement, which was developed based upon FDA and international harmonized guidance, is sufficient~~United States.

Net product revenues were $20.0 million for the three months ended June 30, 2023. We expect net product revenues to ~~support~~increase over the ~~proposed change. Provided that there are no major review issues with the supplement, we believe that~~remaining six months of 2023, as new patients begin SKYCLARYS ~~will be available through the specialty pharmacy no later than mid-August 2023.~~treatment.

We submitted an MAA for omaveloxolone for the treatment of patients with FA to the EMA in the fourth quarter of 2022 and the application is under review. ~~We recently~~In the second quarter of 2023, we received the omaveloxolone MAA Day 120 List of Questions from the EMA. The EMA separates their questions into “major” and “other” categories. With respect to major questions on clinical efficacy, the EMA invited us to discuss the robustness of the efficacy results and suggested the discussion could include the impact of imbalances in baseline characteristics on the pivotal study results and extrapolation of the results to patients with advanced disease and patient groups not included in the pivotal trial. They also asked us to justify inclusion of the pes cavus population in the indication. With respect to major questions on clinical safety, the EMA asked us to discuss the similarities between Nrf2 activators with respect to chemical structure and safety and to discuss suitable contraindications and warnings for cardiac, renal, diabetic and other conditions taking into account the populations studied. With respect to major questions on drug product quality, the EMA requested us to clarify the information on the potential for nitrosamine formation and to provide further information on active substance control strategies. We believe that we have the data and analyses necessary to address the requests of the EMA, and we plan to provide responses to the EMA in the third quarter of 2023.

We are continuing to make progress on our pediatric program. EMA provided guidance that recommended a randomized controlled trial. We will take this advice into account and continue the dialogue with the EMA and FDA. Based on these considerations, we plan to request a meeting with FDA during the third quarter of 2023.

Cemdomespib for Neurological Indications, Including Diabetic Peripheral Neuropathic Pain

We are developing cemdomespib, a novel, once-daily, oral ~~HSP90~~Hsp90 modulator for patients with ~~DPNP.~~diabetic peripheral neuropathic pain (DPNP). We have finalized the design of a randomized, double-blind, placebo-controlled Phase 2 trial of cemdomespib in patients with ~~diabetic peripheral neuropathic pain (DPNP)~~DPNP and plan to start the trial in the third quarter of 2023. ~~We are the exclusive licensee of cemdomespib and have worldwide commercial rights.~~

In May 2023, Kyowa Kirin reported results from the AYAME study, a Phase 3 trial which was conducted in Japan studying the safety and efficacy of bardoxolone in patients with diabetic kidney disease. AYAME met the primary and key secondary endpoints, and no significant safety issues were noted. However, there was no separation in the occurrence of ESRD events between the bardoxolone and placebo groups after three years of treatment.

Based on the results of AYAME and its potential regulatory impact, we and Kyowa Kirin have decided to discontinue our bardoxolone CKD programs, including the ongoing FALCON Phase 3 trial in patients with ADPKD and EAGLE open-label extension study in patients with Alport syndrome and ADPKD. We will be communicating these plans with regulators and our clinical trial sites immediately.

The following chart outlines each of our programs by indication and phase of development:

1SKYCLARYS® (omaveloxolone) is indicated for the treatment of FA in adults and adolescents aged 16 years and older.

3Plan to initiate a Phase 2 trial of cemdomespib in patients with DPNP in the third quarter of 2023.

In February 2023, the FDA approved SKYCLARYS for the treatment of FA in adults and adolescents aged 16 years and older. FA is a rare, inherited neurodegenerative disorder that is typically diagnosed during adolescence and can lead to premature death. We are seeking approval for omaveloxolone for the treatment of FA in Europe and plan to seek approval in additional countries and regions outside the U.S. Because mitochondrial dysfunction is a key feature of many neurological diseases, we believe Nrf2 activators may be broadly applicable to treat neurological

diseases by activating Nrf2 to normalize and improve mitochondrial function and adenosine triphosphate (ATP) production.

We are also developing cemdomespib for the treatment of neurological diseases. Cemdomespib is a highly potent and selective C-terminal modulator of Hsp90, which has a critical role in mitochondrial function, protein folding, and inflammation. Cemdomespib has demonstrated profound efficacy in a wide range of animal models of neurological disease, including diabetic neuropathy, neuroinflammation, and neuropathic pain. We ~~have finalized the design of~~plan to initiate a randomized, double-blind, placebo-controlled Phase 2 trial of cemdomespib in patients with DPNP ~~and plan to start the trial~~ in the third quarter of 2023.

Patients with FA experience progressive loss of coordination, muscle weakness, and fatigue, that commonly progresses to motor incapacitation and wheelchair reliance. Diagnosis of FA typically occurs by genetic testing, and most people with FA are diagnosed in their teens and early twenties. Patients with FA typically require a wheelchair in their twenties and the mean age of death for patients with FA is in the mid-thirties. Childhood-onset FA can occur as early as age five, is more common than later onset FA, and normally involves more rapid disease progression. Based on literature and proprietary research, we believe FA affects approximately 6,000 patients in the United States and approximately 22,000 individuals globally. ~~According to a recent insurance claim analysis, we estimate that there are approximately 5,000 patients diagnosed with FA~~

In February 2023, we announced FDA approval of our first product SKYCLARYS (omaveloxolone), the first drug indicated for the treatment of FA in adults and adolescents 16 years of age and older. With this approval, the FDA granted a rare pediatric disease priority review voucher. In June 2023, the FDA approved a PAS to update the drug substance specification for SKYCLARYS. With approval of the PAS, we initiated shipment of SKYCLARYS in June 2023 to patients in the United States.

In the United States, we believe that there are approximately 5,000 diagnosed FA patients today that can be linked to healthcare providers (HCPs), of which an estimated 4,500 represent our total on-label addressable market and excludes patients under the age of 16. Through the evaluation of ICD-10 claims data, we have identified approximately 2,500 target HCPs treating patients with FA today.

Net product revenues were $20.0 million for the three months ended June 30, 2023. We ~~are evaluating strategies~~expect net product revenues to ~~support global label expansion for younger pediatric patients. In~~increase over the ~~second quarter~~remaining six months of 2023, ~~we plan to request a meeting with the FDA to discuss possible label expansion for younger pediatric~~as new patients ~~who are not included in the approved label. A pediatric pharmacokinetic study evaluating safety, tolerability, and pharmacokinetic profile (PK) of omaveloxolone in FA patients is planned to~~ begin ~~in the fourth quarter of 2023.~~

~~Additional pediatric study plans will be finalized after receiving an opinion from EMA scientific advice (see~~ ~~Regulatory Interactions in Europe~~ ~~section) and FDA feedback.~~SKYCLARYS treatment.

We have agreed with the FDA on multiple post-marketing requirements. The first is to conduct a clinical drug-drug interaction study to determine the effect of concomitant administration of a moderate CYP3A4 inducer on the pharmacokinetics of SKYCLARYS in healthy volunteers. Second, we have committed to conduct a thorough QT study to assess the risk of QT prolongation with SKYCLARYS. ~~We plan to initiate these studies in the second half of 2023.~~ Third, we have committed to conduct a study to assess the concentration of SKYCLARYS in breast milk (milk only). Fourth, we have committed to conduct a global pregnancy and lactation surveillance program to collect prospective and retrospective data in women exposed to SKYCLARYS to assess risk of maternal and fetal/neonate complications. Finally, we have agreed to conduct additional non-clinical studies. We are on track with the agreed upon milestones.

Beyond our post-marketing requirements, we will sponsor a voluntary, post-marketing, prospective, observational, multinational registry study of patients treated commercially with SKYCLARYS. The primary objective of the registry is to evaluate the long-term safety of SKYCLARYS in FA patients in the real-world setting.

We have completed the final stages of SKYCLARYS drug product manufacturing and packaging. As previously reported, a process-related drug substance impurity above the reporting threshold was observed. This impurity is part of the omaveloxolone drug substance process chemistry that was previously at levels below the reporting threshold. An NDA supplement was submitted to the FDA to increase the drug substance specification for this impurity above the current specification. The approval of this supplement is required to release SKYCLARYs drug product to our specialty pharmacy. The FDA is reviewing the supplement as a Prior Approval Supplement under Priority Review with an approval target action date in mid-August. The FDA stated that the review of the supplement was prioritized and that the approval potentially should come earlier than the action date. We believe that the information provided in the NDA supplement, which was developed based upon FDA and international harmonized guidance, is sufficient to support the proposed change. Provided that there are no major review issues with the supplement, we believe that SKYCLARYS will be available through the specialty pharmacy no later than mid-August 2023.

We are continuing to ~~submission of the MAA, we received a positive opinion from the Pediatric Committee~~make progress on our ~~Pediatric Investigation Plan,~~pediatric program. EMA provided guidance that recommended a randomized controlled trial. We will take this advice into account and ~~as agreed in this~~continue the dialogue with the EMA and FDA. Based on these considerations, we plan ~~we have submitted~~to request a ~~request for scientific advice seeking additional input on~~meeting with FDA during the ~~protocol design.~~third quarter of 2023.

Because mitochondrial dysfunction is a key feature of many neurological and neuromuscular diseases, we believe Nrf2 activators may be broadly applicable to treat such diseases by activating Nrf2 to normalize and improve mitochondrial function and ATP production.

Based on our understanding of the pathophysiology of neurological diseases, characterized by mitochondrial dysfunction, inflammation, and oxidative stress, we believe our Nrf2 activators may be applicable to both rare diseases such as spinocerebellar ataxia, Huntington’s disease, progressive supranuclear palsy, frontotemporal dementia, primary progressive multiple sclerosis, and others, as well as non-rare diseases such as Parkinson’s disease, Alzheimer’s disease, epilepsy, and others. Consistent with this, we have observed promising activity of omaveloxolone and our other Nrf2 activators in preclinical models of many of these diseases. Our Nrf2 activators reduced seizure frequency in refractory, progressive epilepsy models and restored mitochondrial function in patient biopsy samples and preclinical models of FA, Huntington’s disease, amyotrophic lateral sclerosis (ALS), familial and sporadic Parkinson’s disease, and frontotemporal dementia. In clinical trials, improvements in neuromuscular function have been observed in FA patients treated with omaveloxolone as assessed by the modified Friedreich’s Ataxia Rating Scale, and improvements in mitochondrial function, as measured by reductions in blood lactate and heart rate, have been observed in patients with primary mitochondrial disease.

We have developed additional small molecule activators of Nrf2, including RTA 415 and RTA 417, which are currently in preclinical development. The non-clinical profiles of these totwo molecules support advancement to clinical studies and have shown broad activity in non-clinical models of inflammation, autoimmune disease, and neurodegeneration. Late Investigational New Drug (IND)~~-directed~~-enabling studies are currently underway or planned, and we anticipate IND filings in 2024 for both molecules. We are currently evaluating the impact of provisions of the Inflation Reduction Act (IRA) on our future development plans for omaveloxolone and our other Nrf2 activators.

Cemdomespib is the lead product candidate from our Hsp90 modulator program, which includes highly potent and selective C-terminal modulators of Hsp90. We have observed favorable activity of cemdomespib in a range of preclinical models of neurological disease, including models of diabetic neuropathy, neuroinflammation, and neuropathic pain.

Historically, other companies have explored N-terminal Hsp90 inhibitors for cancer therapeutics; however, this approach has been associated with multiple adverse effects including peripheral neuropathy and ocular toxicity. Binding at the C-terminus of Hsp90 leads to increased transcription of Hsp70, a cytoprotective and molecular chaperone gene, which facilitates cell survival in response to stress without the deleterious activities of N-terminal inhibition.

In preclinical rodent disease models, we observed that cemdomespib administered orally once-daily rescued compromised nerve function, restored thermal and mechanical sensitivity, and improved nerve conductance velocity and mitochondrial function. These effects are dose-dependent, reversible, and ~~HSP70-dependent.~~Hsp70-dependent.

We completed a Phase 1 ~~SAD/MAD~~single ascending dose and multiple ascending dose trial of oral, once daily cemdomespib in healthy adult volunteers to evaluate the safety, tolerability, and pharmacokinetic (PK) profile. The PK was approximately dose-proportional up to the highest doses evaluated with a half-life ranging from two to nine hours. Human exposures easily exceeded the exposures necessary for efficacy in multiple animal models. No safety or tolerability concerns were reported. In the third quarter of 2022, we completed additional Phase 1 clinical pharmacology studies of cemdomespib, including a drug-drug interaction study which demonstrated an acceptable profile.

We have finalized the design of a randomized, double-blind, placebo-controlled ~~two-part, 12-week~~ Phase 2 trial of cemdomespib in patients with ~~DPNP.~~DPNP and plan to start the trial in the third quarter of 2023. The trial will assess pain using the numeric pain rating scale (NPRS). We plan to enroll 192 patients randomized in each part for a total of 384 patients. Patients are allowed to take up to one standard of care medication. In order for patients to enroll, they must not have achieved adequate pain control upon entry with a NPRS pain intensity score of at least 4 on a 0 to 10 point scale at screening. We will conduct an exposure-response analysis using Part 1 data to select doses for Part 2. The primary endpoint is the change in average pain intensity assessed by NPRS at Week 12. ~~We plan to initiate the trial in the third quarter of 2023.~~

There are about four million patients with moderate to severe DPNP in the United States, and about two million adult patients diagnosed with DPNP seek treatment annually. We are the exclusive licensee of cemdomespib and have worldwide commercial rights.

We and Kyowa Kirin, our strategic collaborator in CKD in Japan, were developing bardoxolone for the treatment of CKD in multiple indications, including ADPKD, CKD caused by Alport syndrome, and type 1 and 2 diabetic CKD.

On February 25, 2022, we received a Complete Response Letter (CRL) from the FDA with respect to its review of our NDA for bardoxolone in the treatment of patients with CKD caused by Alport syndrome. The CRL indicated that the FDA cannot approve the NDA in its present form. Based on its review, the FDA concluded that it does not believe the submitted data demonstrates that bardoxolone is effective in slowing the loss of kidney function in patients with Alport syndrome and reducing the risk of progression to kidney failure and requested additional data to support the efficacy and safety of bardoxolone. Their conclusion was based on efficacy and safety concerns primarily set forth in the FDA’s briefing book and discussed at the Cardiovascular and Renal Drugs Advisory Committee meeting held on December 8, 2021.

We have been sponsoring FALCON, a Phase 3, international, multi-center, randomized, double-blind, placebo-controlled trial studying the safety and efficacy of bardoxolone in patients with ADPKD, a rare and serious hereditary form of CKD. In fourth quarter of 2022, we had received scientific advice from the EMA that the proposed Phase 3 clinical study cannot be used as a standalone study to support the indication of bardoxolone in ADPKD. The EMA recommended that we evaluate, in addition to the traditional endpoints, the effect of bardoxolone on total kidney volume in these patients and requested that we seek additional guidance on our program.

In May 2023, Kyowa Kirin reported results from the AYAME study, Phase 3 trial of bardoxolone in patients with diabetic kidney disease. The primary endpoint iswas time to onset of a ≥ 30% decrease in ~~eGFR~~estimated glomerular filtration rate (eGFR) from baseline or ~~ESRD.~~end-stage renal disease (ESRD). The secondary endpoints ~~are~~were time to onset of a ≥ 40% decrease in eGFR from baseline or ESRD, time to onset of a ≥ 53% decrease in eGFR from baseline or ESRD, time to onset of ESRD, and change in eGFR from baseline at each evaluation time point.

AYAME met the primary and key secondary endpoints and no significant safety issues were observed in patients receiving bardoxolone. However, there was no separation in the occurrence of ESRD events between the bardoxolone and placebo groups after three years of treatment.

Based on the results of AYAME and its potential regulatory impact, we and Kyowa Kirin ~~have~~ decided to discontinue our bardoxolone CKD programs, including the ~~ongoing~~ FALCON Phase 3 trial in patients with ADPKD and EAGLE open-label extension study in patients with Alport syndrome and ADPKD. We ~~will be communicating these plans with regulators~~expect to substantially complete site close-out activities related to FALCON and ~~our clinical trial sites immediately.~~EAGLE by October 2023.

On February 28, 2023, we received FDA approval of SKYCLARYS for the treatment of FA and launched SKYCLARYS in the United States as the first approved product for this disease. Commercialization efforts began immediately following approval with launch strategies that support physician education and utilization, patient activation, and access to therapy. Reata field sales representatives began physician engagements on March 6th. The sales organization consists of a team of Region Business Directors and Neurology Account Managers responsible for educating healthcare providers (HCPs) currently treating FA. Our Field Access Team was also deployed at approval to help facilitate access to SKYCLARYS. The Access team consists of National Account Directors focused on SKYCLARYS coverage by top national and regional payers, and a Patient Access Liaison Team, hired to support practice-level access needs. Together, this team’s primary responsibility is to facilitate patient access to the drug by working to minimize and navigate payer criteria. Coverage by most national and regional payers is expected to take approximately four to eight weeks or longer via medical exception while formulary review progresses over the next three to six months. Patient access services through Reata REACH went live and were operational at approval, including the REACH call center and website. SKYCLARYS patient enrollment forms became available for download at approval. Reata REACH has been accepting patient enrollment forms submitted by HCPs and is working with payers for coverage authorization through prior authorization and medical exceptions.

In the United States, there are approximately 5,000 diagnosed FA patients today that can be linked HCPs, of which an estimated 4,500 represent our total on-label addressable market and excludes patients under the age of 16. Through the evaluation of ICD-10 claims data, we have identified approximately 2,500 target HCPs treating patients with FA today.

Our ability to launch omaveloxolone is dependent on the successful filing and defense of an MAA and approval by the EMA or other regulatory agencies. Outside of the United States, where appropriate and depending on the terms of our contractual arrangements, we plan, either alone, or with new collaboration partners, to commercialize our products.

~~With regards to omaveloxolone, if~~ If approved, we plan to launch omaveloxolone commercially in certain countries in the EUEuropean Union beginning in ~~the second quarter of 2024.~~mid-2024. In parallel to our regulatory activities to respond to the EMA’s questions concerning our regulatory submission, we have been ~~setting up~~establishing affiliates in EU countries and building-up our local staff in preparation for commercial ~~launch infrastructure and~~launch. We have also been working with local experts in preparing our reimbursement dossiers for submission in target countries. Beyond the ~~EU,~~European Union, we continue to evaluate market‌ opportunities for our products in other markets. ‌

To date, we have focused most of our efforts and resources on developing our product candidates, conducting preclinical studies and clinical trials, and build-out of commercial infrastructure for SKYCLARYS. In February 2023, we announced that the FDA approved SKYCLARYS, ~~for the treatment of FA in adults and adolescents 16 years of age and older~~which became commercially available in the ~~U.S. We believe SKYCLARYS commercial drug product will be available through the specialty pharmacy no later than mid-August 2023, at which time we will start to generate product revenue.~~United States on June 27,2023. We have historically financed our operations primarily through revenue generated from our collaborations with AbbVie and Kyowa Kirin, from sales of our securities, secured loans, and a strategic financing from BXLS. We have not received any payments or revenue from collaborations other than nonrefundable upfront, milestone, and cost sharing payments from our collaborations with AbbVie and Kyowa Kirin, from the Development Agreement with BXLS, and from reimbursements of expenses under the terms of our agreement with Kyowa Kirin. We have incurred losses in each year since our inception, other than in ~~2014. As~~2014 and during the current quarter ended June 30, 2023. Net income during the current quarter includes a non-recurring gain on extinguishment of March 31, 2023, we had $84.9 million of cash and cash equivalents, marketable debt securities of $236.0 million and an accumulated deficit of $1,683.6 million. We continue to incur significant research and development and other expensesliability related to ~~our ongoing operations. We anticipate that we will continue to incur losses.~~the sale of future royalties of $289.3 million. As we have successfully ~~launch~~launched SKYCLARYS, and have started to generate commercial product revenue, we anticipate that our losses will decrease in the foreseeable future, before we reach profitability. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Our failure to become and remain profitable could depress the market price of our Class A common stock and could impair our ability to raise capital, expand our business, diversify our product offerings, or continue our operations.

The probability of success for each of our product candidates and clinical programs and our ability to generate product revenue and become profitable depend upon a variety of factors, including the quality of the product candidate, clinical results, investment in the program, competition, manufacturing capability, commercial viability, and our

collaborators’ ability to successfully execute our development and commercialization plans. We ~~will~~may also require additional capital through equity, debt, or royalty financings or collaboration arrangements in order to fund our operations and execute on our business plans, and there is no assurance that such financing or arrangements will be available to us on commercially reasonable terms or at all. For a description of the numerous risks and uncertainties associated with product development and raising additional capital, see “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Our revenue to date has been generated primarily from licensing fees received under our collaborative license agreements and reimbursements for expenses. We currently have not generated any revenue from the sale of products to date. In February 2023, we announced that the FDA approved SKYCLARYS for the treatment of FA in adults and adolescents 16 years of age and older in the ~~U.S. We believe~~United States. SKYCLARYS ~~commercial drug product will be~~became commercially available ~~through~~in the ~~specialty pharmacy no later than mid-August~~United States on June 27, 2023, at which time we ~~will start~~started to generate product revenue. In the future, we may generate revenue from product sales, royalties on product sales, reimbursements for collaboration services under our current collaboration agreements, or license fees, milestones, or upfront payments if we enter into any new collaborations or license agreements. We expect that our future ~~revenue~~product revenues will ~~fluctuate from quarter~~increase over the remaining six months of 2023, as we continue to ~~quarter for many reasons, including the uncertain timing and amount of any such payments and sales.~~add new patients onto SKYCLARYS.

Our revenue prior to June 2023, has been generated primarily from licensing fees received under our collaborative license agreements and reimbursements for expenses. Our license and milestone revenue has been generated primarily from the Kyowa Kirin Agreement, the AbbVie License Agreement, and the Collaboration Agreement and consists of upfront payments and milestone payments. License revenue recorded with respect to the Kyowa Kirin Agreement, the AbbVie License Agreement, and the Collaboration Agreement consists solely of the recognition of deferred revenue. Under our revenue recognition policy, collaboration revenue associated with upfront, non-refundable license payments received under our license and collaboration agreements are deferred and recognized ratably over the expected term of the performance obligations under each agreement. Under the Reacquisition Agreement, we no longer have performance obligations under the AbbVie License Agreement and the Collaboration Agreement. ~~Under the Kyowa Kirin Agreement, we will not recognize any deferred revenue subsequent to June 30, 2022.~~

In May 2023, Kyowa Kirin reported results from the AYAME study, a Phase 3 trial which was conducted in Japan studying the safety and efficacy of bardoxolone in patients with diabetic kidney disease. Based on the results of AYAME and its potential regulatory impact, we and Kyowa Kirin have decided to discontinue our bardoxolone CKD programs, including the FALCON and EAGLE clinical trials. ~~See Note 13, Subsequent Events,~~We expect to ~~our condensed consolidated financial statements for further details.~~substantially complete site close-out activities related to FALCON and EAGLE by October 2023.

The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates. From our inception through ~~March 31,~~June 30, 2023, we have incurred a total of ~~$1,315.2~~$1,372.4 million in research and development expense, a majority of which relates to the development of bardoxolone and omaveloxolone. We expect our research and development expense to continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidates portfolio. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming, and we consider the active management and development of our clinical pipeline to be crucial to our long-term success. The actual probability of success for each product candidate and preclinical program may be affected by a variety of factors, including the safety and efficacy data for product candidates, investment in the program, competition, manufacturing capability, and commercial viability.

Research and development costs are expensed as incurred. Costs for certain development activities such as clinical trials are highly judgmental and are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials and preclinical studies on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing costs, we estimate the time period over which services will be performed and the level of effort to be expended in each period.

To date, we have not experienced material changes in our estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.

Kyowa Kirin has allowed us to conduct clinical studies of bardoxolone in certain rare forms of kidney diseases in Japan and has reimbursed us the majority of the costs for our CARDINAL study in Japan. Kyowa Kirin is the in-country caretaker in our FALCON study in Japan and we are reimbursing Kyowa Kirin for the costs of a certain number of patients in the study.

In May 2023, Kyowa Kirin reported results from the AYAME study, a Phase 3 trial which was conducted in Japan studying the safety and efficacy of bardoxolone in patients with diabetic kidney disease. Based on the results of AYAME and its potential regulatory impact, we and Kyowa Kirin have decided to discontinue our bardoxolone CKD programs, including the FALCON and EAGLE clinical trials. ~~See Note 13, Subsequent Events,~~We expect to ~~our condensed consolidated financial statements or further details.~~substantially complete site close-out activities related to FALCON and EAGLE by October 2023.

The following table summarizes our research and development expenses incurred during the three and six months ended ~~March 31,~~June 30, 2023:

The program-specific expenses summarized in the table above include costs that we directly allocate to our product candidates. Our other research and development expenses include salaries, benefits, stock-based compensation and preclinical, research, and discovery costs, which we do not allocate on a program-specific basis.

Selling, general and administrative expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, commercial, and human resource functions. Selling, general and administrative expenses also include facility-related costs, professional fees, accounting and legal services, depreciation expense, other external services, and expenses associated with obtaining and maintaining our intellectual property rights.

We anticipate that our selling, general and administrative expenses will increase in the future as we continue to build-out our global commercial and compliance infrastructure and field team to support the launch of SKYCLARYS in the ~~U.S.,~~United States, as well as the potential launch of SKYCLARYS into additional markets, assuming regulatory approvals, and continue to advance and develop our pipeline and advance our product candidates, ~~including partnered programs,~~ into later-stage development, and prepare regulatory submissions. However, we expect that certain expenses will be variable depending on the timing of manufacturing batches, clinical trial enrollment and results, regulatory review of our product candidates and programs, and stock-based compensation expenses due to our determination regarding the probability of vesting for performance-based awards. In connection with the pending acquisition of the Company by Biogen, we expect to incur non-recurring acquisition and transaction fees, which include legal and advisory fees.

Litigation settlements and contingencies consists of expenses related to actual or anticipated litigation settlements.

Other income (expense) includes interest and gains earned on our cash and cash equivalents, and marketable debt securities, amortization of debt issuance costs, interest expense on our Term Loans, imputed interest on long term payables, foreign currency exchange gains and losses, gain on extinguishment of a liability, and non-cash interest expense on liability related to the sale of future royalties.

~~On May 4, 2023, we entered into the Amended Funding Agreement with BXLS. See Note 13, Subsequent Events, to our condensed consolidated financial statements or further details.~~

~~On May 5, 2023, we entered into a Term Loan arrangement. See Note 13, Subsequent Events, to our condensed consolidated financial statements or further details.~~

Provision for taxes on income consists of net ~~loss,~~income, taxed at federal tax rates and adjusted for certain permanent differences. Realization of deferred tax assets is generally dependent upon future earnings by jurisdiction, of which the timing and amount are uncertain for the majority of our deferred tax assets, and valuation allowances are maintained against them. Changes in valuation allowances also affect the tax provision.

Comparison of the Three Months Ended ~~March 31,~~June 30, 2023 and 2022 (unaudited)

The following table sets forth our results of operations for the three months ended ~~March 31:~~June 30:


	2023			2022			Change $			Change %			2023		2022			Change $			Change %
	(in thousands, except for percentage data)												(in thousands, except for percentage data)
Collaboration revenue
Revenues
Product revenues, net													$	20,038	$	—		$	20,038			100
License and milestone	$	—		$	893		$	(893	)		(100	)		—		754			(754	)		(100	)
Other revenue		195			21			174			829			2,708		8			2,700		**
Total collaboration revenue		195			914			(719	)		(79	)
Total revenues														22,746		762			19,284			2,531
Operating cost and expenses
Cost of products sold														846		—			846			100
Research and development		55,477			39,804			15,673			39			57,120		39,331			17,789			45
Selling, general and administrative		54,885			24,841			30,044			121			45,690		25,143			20,547		**
Litigation settlement														11,000		—			11,000			100
Depreciation		288			308			(20	)		(6	)		293		273			20			7
Total operating cost and expenses		110,650			64,953			45,697			70			114,949		64,747			50,202			78
Other income (expense), net		(5,662	)		(9,772	)		4,110			42			285,201		(9,571	)		294,772		**
Loss from operations		(116,117	)		(73,811	)		(42,306	)		57
Benefit from (provision for) taxes on income		—			(31	)		31			100
Net loss	$	(116,117	)	$	(73,842	)	$	(42,275	)		57
Income (loss) from operations														192,998		(73,556	)		263,854			(359	)
Benefit from (provision for) for taxes on income														—		1			(1	)		100
Net income (loss)													$	192,998	$	(73,555	)	$	263,853			(359	)

We expect net product revenues to increase over the remaining six months of 2023, as new patients begin SKYCLARYS treatment.

License and milestone revenue represented approximately 0% and ~~98%~~99% of total ~~revenue~~revenues for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively. License and milestone revenue decreased by 100%, primarily due to the Company reaching the end of the performance obligation of the Kyowa Kirin Agreement as of June 30, 2022.

Other revenue ~~was immaterial for~~increased by $2.7 million during the three months ended ~~March 31,~~June 30, 2023, ~~and 2022.~~

~~On February 28, 2023, the FDA approved SKYCLARYS for the treatment of FA in the U.S. No product revenue was recognized for~~compared to the three months ended ~~March 31, 2023 or~~June 30, 2022, primarily due to an increase in reimbursements of our manufacturing expenses from Kyowa Kirin for ~~the three months ended March 31, 2022.~~manufacturing.

The following table summarizes our expenses, including as a percentage of total expenses, for the three months ended ~~March 31:~~June 30:

Cost of products sold was $0.8 million for the three months ended June 30, 2023, consisted of costs to manufacture, and distribute our marketed product, SKYCLARYS. Based on our policy to expense costs associated with the manufacture of our products prior to reaching probable of regulatory approval, certain of the costs of units recognized as revenue during the three months ended June 30, 2023, had been expensed to Research and development expenses and, therefore, are not included in cost of products sold during this period. We expect cost of products sold to increase and gross margin to decrease as we deplete these inventories and we expect to use the remaining pre-commercialization inventory for product sales through the next approximately 35-40 months.

Research and development expenses increased by ~~$15.7~~$17.8 million, or ~~39%~~45%, for the three months ended ~~March 31,~~June 30, 2023, compared to the three months ended ~~March 31,~~June 30, 2022. The increase is due to an increase in stock-based compensation due to the vesting of certain performance-based equity grants, ~~related to the receipt of FDA approval of SKYCLARYS on February 28, 2023,~~ and certain ongoing clinical study costs.

Research and development expenses, as a percentage of total expenses, was 50% and ~~61%~~60% for the three months ended ~~March~~ June 30, 2023 and 2022, respectively. The decrease of 10% was due to the proportionately larger increase in selling, general and administrative expenses, compared to research and development expenses.

Selling, general and administrative expenses increased by $20.5 million, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. The increase was primarily due to an increase in stock-based compensation due to the vesting of certain performance-based equity grants, increase in sales related personnel cost due to increase in headcount, and increase in commercial activities for SKYCLARYS.

Selling, general and administrative expenses, as a percentage of total expenses, was 40% and 39%, three months ended June 30, 2023 and 2022, respectively. The increase of 1% was due to the proportionately larger increase in selling, general and administrative expenses, compared to research and development expenses.

Litigation settlement increased by $11.0 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, due to the securities litigation settlement agreement in principle reached on July 31, 2023. See Note 17, Subsequent Events, to our condensed consolidated financial statements for further details.

Other income (expense), net increased by $294.8 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. The increase was primarily due to a $3.2 million increase in interest income generated from marketable debt securities, a $1.3 increase due to interest expense paid in correlation to the long-term debt, a $289.3 million related to the gain on extinguishment of liability, and a $3.6 million decrease of interest expense attributable to the payable to BXLS under the Development Agreement. See Note 6, Liability Related to Sale of Future Royalties, to our condensed consolidated financial statements for detail on the net gain on extinguishment of liability.

Benefit from (Provision for) taxes on income was immaterial for the three months ended June 30, 2023 and 2022.

The following table sets forth our results of operations for the six months ended June 30:

We expect net product revenues to increase over the remaining six months of 2023, as new patients begin SKYCLARYS treatment.

License and milestone revenue represented approximately 0% and 98% of total revenue for the six months ended June 30, 2023 and 2022, respectively. License and milestone revenue decreased by $1.6 million, primarily due to the Company reaching the end of the performance obligation of the Kyowa Kirin Agreement as of June 30, 2022.

Other revenue increased by $2.9 million for the six months ended June 30, 2023 , compared to the six months ended June 30, 2022, primarily due to an increase in reimbursements of our expenses from Kyowa Kirin for manufacturing.

The following table summarizes our expenses, including as a percentage of total expenses, for the six months ended June 30:

Cost of products sold was $0.8 million for the six months ended June 30, 2023, consisted of costs to manufacture, and distribute our marketed product, SKYCLARYS. Based on our policy to expense costs associated with the manufacture of our products prior to reaching probable of regulatory approval, certain of the costs of units recognized as revenue during the six months ended June 30, 2023, had been expensed to Research and development expenses and, therefore, are not included in cost of products sold during this period. We expect cost of products sold to increase and gross margin to decrease as we deplete these inventories and we expect to use the remaining pre-commercialization inventory for product sales through the next approximately 35-40 months.

Research and development expenses increased by $33.5 million, or 42%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The increase is due to an increase in stock-based compensation due to the vesting of certain performance-based equity grants, and certain ongoing clinical study costs.

Research and development expenses, as a percentage of total expenses, was 49% and 60% for the six months ended June 30, 2023 and 2022, respectively. The decrease of 11% was due to the proportionately larger increase in selling, general and administrative expenses, compared to research and development expenses.

Selling, general and administrative expenses increased by ~~$30.0~~$50.6 million ~~or 121%,~~ for the ~~three~~six months ended ~~March 31,~~June 30, 2023 compared to the three months ended ~~March 31,~~June 30, 2022. The increase ~~was primarily~~is due to an increase in stock-based compensation due to the vesting of certain performance-based equity grants, ~~related~~increase in sales-related personnel costs due to ~~the receipt of FDA approval of SKYCLARYS on February 28, 2023,~~increase in headcount, and ~~increased~~increase in commercial activities for SKYCLARYS.

Selling, ~~general~~General and administrative expenses, as a percentage of total expenses, was ~~49%~~45% and ~~38%~~39%, ~~for the three~~six months ended ~~March 31,~~June 30, 2023, and 2022, respectively. The increase of ~~11%~~6% was due to the proportionately larger increase in selling, general and administrative expenses, compared to research and development expenses.

Litigation settlement increased by $11.0 million, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, due to the securities litigation settlement agreement in principle reached on July 31, 2023. See Note 17, Subsequent Events, to our condensed consolidated financial statements for further details.

Other income (expense), net decreased by ~~$4.1~~$298.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, compared to the ~~three~~six months ended ~~March 31,~~June 30, 2022. The ~~decrease~~increase was primarily due to a ~~$3.3~~$6.5 million increase in interest income generated from marketable debt securities, a $1.3 increase due to interest expense paid in correlation to the long-term debt, a $289.3 million related to the gain in extinguishment of liability, a $2.5 million decrease of interest expense attributable to the payable to BXLS under the Development Agreement and a $2.0 million increase related to the employee retention credit under the CARES ~~Act, and a $1.1 million increase~~Act. See Note 6, Liability Related to Sale of ~~interest expense attributable~~Future Royalties, to our condensed consolidated financial statements for detail on the ~~payable to BXLS under the Development Agreement.~~gain on extinguishment of liability.

Benefit from (Provision for) taxes on income was immaterial for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022.

~~Since our inception,~~In February 2023, we ~~have~~announced that the FDA approved SKYCLARYS, for the treatment of FA in adults and adolescents 16 years of age and older in the United States. SKYCLARYS became commercially available in the United States on June 27, 2023, at which time we started to generate product revenue. Prior to the current quarter, we funded our operations primarily through collaboration and license agreements, the sale of preferred and common stock, the sale of royalty interests, and secured loans. Through ~~March 31,~~June 30, 2023, we have raised gross cash proceeds of $476.6 million through the sale of convertible preferred stock and $785.0 million from payments under license and collaboration agreements. We also obtained $1,222.1 million in net proceeds from our initial public offering, follow-on offerings, and the sale of our Class A common stock under the Purchase Agreement, ~~and~~ $299.0 million in net proceeds from the sale of future royalties under the Development ~~Agreement. We have not generated any revenue~~Agreement, and recent proceeds from ~~the sale~~Term Loans of ~~any products.~~$75.0 million. As of ~~March 31,~~June 30, 2023, we had available cash and cash equivalents of approximately ~~$84.9~~$48.8 million and marketable debt securities of ~~$236.0~~$281.4 million. Our cash and cash equivalents and marketable debt securities are invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

The following table sets forth the primary sources and uses of cash for each of the ~~three~~six months ended ~~March 31:~~June 30:

Net cash used in operating activities was ~~$81.5~~$151.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, consisting primarily of a net ~~loss~~income of ~~$116.1~~$76.9 million adjusted for non-cash items including stock-based compensation expense of ~~$38.1~~$58.4 million, non-cash interest expense on liability related to sale of future royalty of ~~$11.0~~$17.7 million, amortization of premium on marketable debt securities of ~~$2.0~~$4.7 million, a net gain of extinguishment of a liability of $289.3 million and a net change in operating assets and liabilities of ~~$12.7~~$11.1 million. The change in operating assets and liabilities that impacted our use of cash in operations include ~~a decrease~~an increase in accounts receivable of ~~$4.4~~$22.7 million, an increase of $1.0 million in accounts payable due to timing of payments, an increase of ~~$5.7~~$13.3 million in inventory and an increase of ~~$1.3~~$35.0 million in prepaids and other assets, and ~~a decrease~~an increase of ~~$1.3~~$58.9 million in direct research and other current and long-term liabilities.

Net cash used in operating activities was $107.3 million for the six months ended June 30, 2022, consisting primarily of a net loss of $147.4 million adjusted for non-cash items including stock-based compensation expense of $29.3 million, non-cash interest expense on liability related to sale of future royalty of $20.1 million, and a net decrease in operating assets and liabilities of $9.6 million. The significant items in the change in operating assets that impacted our use of cash in operations include a decrease of $5.7 million in accounts payable due to timing of payments, and a decrease of $5.1 million in direct research and other current and long-term liabilities, primarily due to annual bonus payments.

Net cash provided by investing activities was ~~$111.0~~$68.0 million and net cash used in investing activities was ~~$0.3~~$336.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, respectively. The change is due to the purchase of ~~$63.9~~$304.0 million in marketable debt securities during the period, offset by cash received of ~~$175.0~~$372.4 million from maturities of marketable securities.

Net cash provided by financing activities was ~~$13.1 million and $0.2~~$89.9 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, consisting of stock options exercises of $16.9 million, an increase of proceeds from the purchase of shares under the Employee Stock Purchase Plan of $0.8 million, payment of debt issuance cost of $0.4 million and proceeds from long-term debt of $72.6 million.

Net cash provided by financing activities was $0.7 million for the six months ended June 30, 2022, ~~respectively,~~ primarily consisting of stock options exercises.

~~To date, we have not generated any revenue from product sales. We believe~~ SKYCLARYS ~~commercial drug product will be~~became commercially available ~~through~~in the ~~specialty pharmacy no later than mid-August~~United States on June 27, 2023, at which time we ~~will start~~started to generate revenue from product ~~revenue. We anticipate that~~sales. Due to the announced planned merger, we ~~will continue to incur losses in the future periods. As we launch SKYCLARYS and generate commercial product revenue, we anticipate that~~are discontinuing with our ~~losses will decrease in the foreseeable future, before we reach profitability.~~existing cash guidance. We are subject to all the risks related to the development and commercialization of novel therapeutics, including those described under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business. ~~We anticipate that we will need substantial additional funding in connection with our continuing operations.~~

In October 2019, we entered into the 2019 Lease Agreement, relating to a new headquarter building lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas.

In June 2020, we closed on the Development Agreement and Purchase Agreement, each dated June 10, 2020, under which certain BXLS entities paid us an aggregate of $350.0 million in exchange for future royalties on bardoxolone and an aggregate of 340,793 shares of our Class A common stock at $146.72 per share.

On May 4, 2023, we entered into an Amended Funding Agreement with BXLS. The Amended Funding Agreement amends and restates in its entirety our existing Development and Commercialization Funding Agreement, dated as of June 10, 2020 (the Development Agreement) between us and BXLS. See Note 6, Liability Related to Sale of Future Royalties, to our condensed consolidated financial statements for further details.

In December 2020, we closed a follow-on underwritten public offering of 2,000,000 shares of our Class A common stock for gross proceeds of $281.7 million. Net proceeds to us from the offering were approximately $277.5 million, after deducting underwriting discounts and commissions and offering expenses.

In July 2021, Kyowa Kirin announced the submission of an NDA in Japan for bardoxolone for improvement of renal function in patients with Alport syndrome. We earned a $5.0 million milestone related to this event that was received and began to be recognized in the third quarter of 2021.

On May 4,5, 2023, we entered into a term loan arrangement that provides for a senior secured term loan facility of up to $275.0 million to be funded in four committed tranches. (i) a Tranche A Loan in an ~~Amended Funding Agreement~~aggregate principal amount of $75.0 million (the ~~“Amended Funding Agreement”~~“Tranche A Loan”) that was funded on May 12, 2023 (the Tranche A Closing Date); (ii) a Tranche B Loan in an aggregate principal amount of $50.0 million (the “Tranche B Loan”) to be funded, subject to certain conditions including the first commercial sale in the United States of our omaveloxolone product; (iii) a Tranche C Loan in an aggregate principal amount of $75.0 million (the “Tranche C Loan”) to be funded, subject to certain conditions including achieving a trailing twelve-month net product sales and royalty revenues milestone ranging from $40.0 million to $55.0 million based on the date of the first commercial sale of our omaveloxolone product; and (iv) a Tranche D Loan in an aggregate principal amount of $75.0 million (the “Tranche D Loan” and, together with ~~BXLS.~~the Tranche A Loan, the Tranche B Loan, and the Tranche C Loan, the “Term Loans”) to be funded at the Company’s option, subject to certain conditions including achieving a trailing twelve-month net product sales and royalty revenues milestone of $100.0 million for any trailing twelve month period ending on or prior to December 31, 2024. See Note ~~13,~~ 8, Term Loan, and Note 17, Subsequent Events, to our condensed consolidated financial statements orfor further details.

~~On May 5, 2023, we entered into a Term Loan arrangement. See Note 13, Subsequent Events, to our condensed consolidated financial statements or further details.~~

Our longer-term liquidity requirements will require us to raise additional capital, such as through additional equity, debt, or royalty financings or collaboration arrangements. Our future capital requirements will depend on many factors, including product revenue and the timing of our expenditures related to clinical trials. We believe our existing cash and cash equivalents and marketable debt securities will be sufficient to enable us to fund our operations through the end of 2026. However, we anticipate opportunistically raising additional capital before that time through equity offerings, collaboration or license agreements, additional debt financings, or royalty financings in order to maintain adequate capital reserves. In addition, we may choose to raise additional capital at any time for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates. Decisions about the timing or nature of any financing will be based on, among other things, our perception of our liquidity and of the market opportunity to raise equity, debt, or royalty financing. Additional securities may include common stock, preferred stock, or debt securities. We may explore strategic collaborations or license arrangements for any of our product candidates. If we do explore any arrangements, there can be no assurance that any agreement will be reached, and we may determine to cease exploring a potential transaction for any or all of the assets at any time. If an agreement is reached, there can be no assurance that any such transaction would provide us with a material amount of additional capital resources.

Until we can generate a sufficient amount of revenue from SKYCLARYS and our other product candidates, we ~~expect to~~may finance future cash needs through public or private equity or debt offerings, loans, royalty financings, and collaboration or license transactions. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional equity or debt securities, it could result in dilution to our existing stockholders or increased fixed payment obligations, and any such securities may have rights senior to those of our common stock. If we incur indebtedness or obtain royalty financing, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business, and any such debt or royalty financing could be secured by some or all of our assets. Any of these events could significantly harm our business, financial condition, and prospects. For a description of the numerous risks and uncertainties associated with product development and raising additional capital, see “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition, and results of operations could be materially adversely affected.

We have various contractual obligations and other commitments that require payments at certain specified periods. The following table summarizes our contractual obligations and commitments as of ~~March 31,~~June 30, 2023 (unaudited):

(1) Above table includes one year rent abatement applied beginning in June 2023 following FDA approval of SKYCLARYS

The terms of the ~~Development~~Amended Funding Agreement require us to ~~potentially to~~ pay a low single-digit future royalty ~~payments~~ based on omaveloxolone net product ~~development success.~~revenue and contains a change in control provision whereby the company could be liable for repayment of $310.0 million. The above table excludes such obligations as the amount ~~and timing~~ of such obligations ~~are unknown or uncertain,~~will fluctuate from time to time based on net product revenues, net, which are further described in Note 4,6, Liability Related to Sale of Future Royalties, to our Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

~~On May 4, 2023, we entered into an Amended Funding Agreement with BXLS. See Note 13, Subsequent Events, to our condensed consolidated financial statements for further details.~~

~~On May 5, 2023, we entered into a Term Loan arrangement. See Note 13, Subsequent Events, to our condensed consolidated financial statements for further details.~~

As of ~~March 31,~~June 30, 2023, we have ~~several~~ on-going clinical trials in various stages. Under agreements with various CROs and clinical trial sites, we incur expenses related to clinical trials of our product candidates and potential other clinical candidates. The timing and amounts of these disbursements are contingent upon the achievement of certain milestones, patient enrollment, and services rendered or as expenses are incurred by the CROs or clinical trial sites. Therefore, we cannot estimate the potential timing and amount of these payments, and they have been excluded from the table above.

In May 2023, Kyowa Kirin reported results from the AYAME study, a Phase 3 trial which was conducted in Japan studying the safety and efficacy of bardoxolone in patients with diabetic kidney disease. Based on the results of AYAME and its potential regulatory impact, we and Kyowa Kirin have decided to discontinue our bardoxolone CKD programs, including the FALCON and EAGLE clinical trials. ~~See Note 13, Subsequent Events,~~We expect to ~~our condensed consolidated financial statements for further details.~~substantially complete site close-out activities related to FALCON and EAGLE by October 2023.

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses, income taxes, and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part I, Item 7, “Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K. ~~There~~Except those that have been disclosed in Note 2, Summary of Significant Accounting Policies, of the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2022.

Since our inception, we have not had any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements, and we have not engaged in any other off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange ~~Commission (SEC).~~Commission. Please refer to any changes to significant accounting policies during the quarter ended ~~March 31,~~June 30, 2023 in Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~For a discussion of recent accounting pronouncements, please see Note 2, Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.~~None.

We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations. We had cash and cash equivalents of ~~$84.9~~$48.8 million and marketable debt securities of ~~$236.0~~$281.4 million at ~~March 31,~~June 30, 2023, primarily invested in U.S. government treasuries. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general U.S. interest rates, particularly if our investments are in short-term securities. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate and hypothetical increase of 100 basis points in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect a sudden change in market interest rates to affect materially our operating results or cash flows.

We contract with research, development, and manufacturing organizations and investigational sites globally. Generally, these contracts are denominated in United States dollars. However, we may be subject to fluctuations in foreign currency rates in connection with agreements not denominated in United States dollars. We do not hedge our foreign currency exchange rate risk.

We will pay interest under our Loan Agreement at a floating rate. See Note ~~13, Subsequent Events,~~8, Term Loan, to our consolidated financial statements for further details.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~March 31,~~June 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under 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 is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, 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 management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

During the three months ended ~~March 31,~~June 30, 2023, in connection with the ~~approval~~first sale of SKYCLARYS, we designed and implemented new procedures and controls around our revenue and inventory processes. No other change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended ~~March 31,~~June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

For a discussion of material pending legal proceedings, please read Note ~~12,~~15, Commitments and Contingencies – Litigation, to our condensed consolidated financial statements included in Part I, Item I, “Financial Statements (Unaudited),” of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

In addition to other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties currently unknown to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition, or future results. ~~There~~Other than as set forth below, there have been no material changes in our risk factors from those described in the Annual Report on Form 10-K for the year ended December 31, 2022.

The Merger may not be completed within the expected timeframe, or at all, and significant delay or the failure to complete the Merger could adversely affect our business and the market price of our common stock.

On July 28, 2023, we entered into the Merger Agreement with Biogen and Merger Sub, pursuant to which, and on the terms and subject to the conditions thereof, Merger Sub will merge with and into us, and we will survive as a wholly-owned subsidiary of Biogen. The consummation of the Merger is subject to customary closing conditions, including, among other things, (i) adoption of the Merger Agreement and approval of the Merger by the affirmative vote of the holders of at least a majority of the voting power of all shares of our common stock entitled to vote thereon, (ii) the expiration or termination of the required waiting period applicable to the consummation of the Merger under the HSR Act, and (iii) the absence of any (A) injunction, order or decree by any court of competent jurisdiction preventing the consummation of the Merger or the acquisition of shares of our common stock by Biogen or Merger Sub, and (B) law or order that prohibits or makes illegal the consummation of the Merger or the acquisition of shares of our common stock by Biogen or Merger Sub.

The governmental authorities from which authorizations under the HSR Act are required have broad discretion in administering the governing laws and regulations, and may take into account various facts and circumstances in their consideration of the Merger, including other potential transactions in the pharmaceutical industry or other industries. These governmental authorities may initiate proceedings seeking to prevent, or otherwise seek to prevent, the Merger entirely or until certain requirements are met. Under the terms of the Merger Agreement, the parties have agreed to use their respective reasonable best efforts to take, or cause to be taken, all actions that are necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and each of the other transactions contemplated by the Merger Agreement, including, subject to certain conditions and only to the extent such action is conditioned on the consummation of the transactions contemplated by the Merger Agreement, (i) obtaining each third-party consent or regulatory approval necessary, proper or advisable to complete the Merger, and (ii) proposing, negotiating, committing to, or effecting a sale or disposition of such assets or businesses that are required to be divested or a license or grant of commercialization rights to businesses, product lines, fields of use, divisions, business arrangements, contracts, assets or interests therein of Reata or Biogen, subject to certain limitations.

Many of the conditions to consummation of the Merger are not within our control or the control of Biogen or Merger Sub, and we cannot predict when or if these conditions will be satisfied. There can be no assurance that our business, our relationships or our financial condition will not be adversely affected, as compared to the condition prior to the announcement of the Merger, if the Merger is not consummated within the expected timeframe, or at all. Failure

to complete the Merger within the expected timeframe, or at all, could adversely affect our business and the market price of our common stock in a number of ways, including the following:

The announcement and pendency of our acquisition by Biogen could adversely affect our business, prospects, financial condition, and results of operations.

The announcement and pendency of the Merger could cause disruptions in and create uncertainty surrounding our business, which could have an adverse effect on our business, prospects, financial condition, and results of operations, regardless of whether the Merger is completed.

These risks to our business include the following, all of which could be exacerbated by a delay in the completion of the Merger:

The Merger Agreement contains provisions that could discourage a potential competing acquirer of our company or could result in any competing proposal being at a lower price than it might otherwise be.

During the pendency of the Merger, we are subject to certain restrictions on our ability to solicit alternative acquisition proposals from third parties, to provide information to third parties and to enter into or continue discussions or negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions. In

addition, we may be required to pay Biogen a termination fee of approximately $264.0 million in specified circumstances, including if the Merger Agreement is terminated in specified circumstances following our receipt of a Superior Proposal (as defined in the Merger Agreement). These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of our company from considering or proposing such an acquisition, including, if the Merger Agreement is terminated prior to the consummation of the Merger, after such termination of the Merger Agreement, even if it were prepared to pay a purchase price per share higher than the purchase price per share proposed to be paid in the Merger. These provisions might also result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances under the Merger Agreement, including, in certain circumstances, after a valid termination of the Merger Agreement in accordance with the terms thereof.

While the Merger Agreement is in effect, we are subject to restrictions on our business activities.

The Merger Agreement includes restrictions on the conduct of our business (including the businesses of our respective subsidiaries) prior to the completion of the Merger, generally requiring us to use reasonable best efforts to conduct our operations in all material respects according to our ordinary and usual course of business consistent with past practice and preserve intact our business organization and to preserve the present relationships with those persons having significant business relationships with us or our subsidiaries and not to engage in specified types of transactions or take specified actions during this period unless required by law or the Merger Agreement or agreed to in writing by Biogen. In addition, we are subject to a variety of specified restrictions. Unless we obtain Biogen’s prior written consent (which consent may not be unreasonably withheld, conditioned or delayed), except as specifically required by the Merger Agreement or required by applicable law, we may not, among other things and subject to certain exceptions, limitations and qualifications, incur additional indebtedness, issue additional shares of our common stock of the common stock of our subsidiaries other than in connection with stock awards outstanding as of July 28, 2023, repurchase our common stock, pay dividends, acquire certain assets or securities, sell or dispose of intellectual property, or enter into material contracts or make certain capital expenditures. We may find that these and other contractual restrictions in the Merger Agreement delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management believes they may be advisable. If any of these effects were to occur, it could materially and adversely affect our operating results, financial position, cash flows or the price of our common stock.

Lawsuits may be filed against us and/or [Biogen] challenging the transactions contemplated by the Merger Agreement. An adverse ruling in any such lawsuit may delay or prevent the proposed acquisition from being completed.

Lawsuits arising out of or relating to the Merger Agreement, our proxy statement or the proposed acquisition of us by Biogen may be filed in the future. One of the conditions to completion of the Merger is the absence of any injunction or other order being in effect that prohibits completion of the Merger. Accordingly, if a plaintiff is successful in obtaining an injunction, then such order may prevent the proposed acquisition from being completed, or from being completed within the expected timeframe.

On May 5, 2023, we, as the borrower, and certain of our direct and indirect subsidiaries party thereto from time to time, as the guarantors (the Guarantors and, collectively with the us, the Credit Parties), entered into a loan agreement (the Loan Agreement) with BPCR Limited Partnership (as a Lender), BioPharma Credit Investments V (Master) LP (as a Lenders), and BioPharma Credit PLC, as collateral agent for the Lenders (in such capacity, the Collateral Agent), pursuant to which the Lenders agreed to make term loans to the Borrower in an aggregate principal amount of up to $275 million. The proceeds of the loans will be used to fund our general corporate and working capital requirements.

Pursuant to the terms of the Loan Agreement, the Term Loans will be advanced in up to four tranches. The first tranche (the Tranche A Loan) is expected to be advanced in the amount of $75 million on May 12, 2023, five (5) business days following the effective date of the Loan Agreement (the “Tranche A Closing Date”), subject to entering into a customary security agreement and the satisfaction of other customary conditions precedent. The second tranche (the Tranche B Loan) of $50 million will be advanced following the earlier to occur of (i) the approval of our prior approval submission by the FDA and (ii) the production of the fourth batch of omaveloxolone capsules within the

parameters and subject to the requirements of the approval of omaveloxolone by the FDA received in February 2023 (the Tranche B Trigger Date), subject to the satisfaction of customary conditions precedent, including that the Tranche B Trigger Date must occur on or prior to March 31, 2024; provided, however, that if the Tranche B Loan borrowing conditions are not satisfied on or prior to March 31, 2024, then no Tranche B Loan or other loans shall be extended. The third tranche (the Tranche C Loan) of $75 million will be advanced following our achieving a trailing twelve-month net product sales and royalty revenues milestone ranging from $40 million to $55 million based on the date of the first commercial sale of our omaveloxolone product, subject the prior funding of the Tranche B Loan and to the satisfaction of customary conditions precedent; provided, however, that if the Tranche C Loan borrowing conditions are not satisfied on or prior to March 31, 2024, then no Tranche C Loan shall be extended. The fourth tranche (the Tranche D Loan, and together with the Tranche A Loan, the Tranche B Loan and the Tranche C Loan, the Term Loans) of $75 million will be advanced following our achieving a trailing twelve-month net product sales and royalty revenues milestone of $100 million for any trailing twelve month period ending on or prior to December 31, 2024, subject to the prior funding of the Tranche B Loan and the Tranche C Loan and subject to the satisfaction of customary conditions precedent; provided, however, that if the Tranche D Loan borrowing conditions are not satisfied on or prior to December 31, 2024, then no Tranche D Loan shall be extended. The Tranche A Loan, Tranche B Loan and Tranche C Loan are mandatory and the failure of the Company to borrow either the Tranche B Loan or Tranche C Loan following satisfaction of the applicable conditions precedent shall be an Event of Default. Funding of the Tranche D Loan, subject to satisfaction of the applicable conditions precedent, is at our option.

~~The Term Loans will mature on the 5~~th year anniversary of the Tranche A Closing Date (Maturity Date), provided that if we do not satisfy the Tranche B Loan borrowing conditions on or prior to March 31, 2024, the Maturity Date shall be March 31, 2024. Repayment of outstanding principal of the Term Loans will be made in eight equal quarterly payments of principal commencing on June 30, 2026; provided however, that if we achieve a trailing twelve month net product sales and royalty revenues milestone of $250 million as of March 31, 2027, at our option, repayment of outstanding principal of the Term Loans will be made in four equal quarterly payments of principal commencing on June 30, 2027.

The Term Loans bear interest at 7.50% plus three-month SOFR per annum with a SOFR floor of 2.50%. We will pay to the Lenders an additional consideration (the Additional Consideration) equal to 2.00% of the Lenders’ total committed amount to fund the Term Loans, payable with respect to each Term Loan on the funding date of such Term Loan; provided however, if we achieve the Tranche B Loan and Tranche C Loan net product sales and royalty revenues milestones noted above but fail to timely borrow the Tranche B Loan or Tranche C Loan (including as a result of the prior prepayment in full of the Term Loans), then upon such failure any unpaid Additional Consideration with respect to the Tranche B Loan or Tranche C Loan shall become immediately due and payable. We may elect to prepay the Term Loans in whole prior to the Maturity Date with such prepayments being subject to a prepayment premium equal to the principal amount so prepaid multiplied by 3% if made prior to the 3rd anniversary of the funding date of the applicable Term Loan, 2% if made on or after the 3rd anniversary of the funding date of the applicable Term Loan but prior to the 4th anniversary of the funding date of the applicable Term Loan, and 1% if made on or after the 4th anniversary of the funding date of the applicable Term Loan but prior to the Maturity Date. In addition to the prepayment premium, prepayments of any Term Loan prior to the 2nd anniversary of the funding date of such Term Loan are subject to a makewhole amount equal to the sum of all interest that would have accrued through such 2nd anniversary. If the Term Loans are accelerated following the occurrence of an event of default or the Maturity Date occurs on March 31, 2024, as described above, we shall immediately pay to the Lenders the sum of all obligations for principal, interest, and the applicable makewhole and prepayment premium and the Tranche B Loan and Tranche C Loan Additional Consideration. We are required to prepay the Term Loans, together with any applicable make-whole and prepayment premiums and any unpaid Additional Consideration in respect of the Tranche B Loan and Tranche C Loan, upon a change of control and prior to certain prepayments or redemptions of permitted convertible debt, subject to exceptions for refinancings and conversions or exchanges for equity.

Our obligations under the Loan Agreement are guaranteed on a full and unconditional basis by the Guarantors, consisting of our US and certain of our foreign subsidiaries, and are secured by substantially all of the respective Credit Parties’ assets, including intellectual property, subject to certain exceptions.

The Loan Agreement contains customary affirmative and restrictive covenants and representations and warranties. We and our subsidiaries are bound by certain affirmative covenants setting forth actions that are required during the term of the Loan Agreement, including, without limitation, certain information delivery requirements, obligations to maintain certain insurance, and certain notice requirements. Additionally, we and our subsidiaries are bound by certain restrictive covenants setting forth actions that are not permitted to be taken during the term of the

Loan Agreement without the Lenders’ prior written consent, including, without limitation, (i) selling or disposing of assets, including certain intellectual property, (ii) amending, modifying or waiving certain material agreements or organizational documents, (iii) consummating certain change in control transactions, (iv) incurring certain additional indebtedness, (v) incurring any non-permitted lien or other encumbrance on our or our subsidiaries’ assets, (vi) paying dividends or making any distribution or payment on or redeeming, retiring or purchasing any equity interests, and (vii) making payments of certain subordinated indebtedness, in each case, subject to certain exceptions. The Loan Agreement also contains a financial covenant requiring that we achieve certain trailing twelve month net product sales and royalty revenues, measured and tested on a quarterly basis. The Loan Agreement also contains the following events of default: (i) our failure to pay principal, interest and other amounts when due, (ii) the breach of the covenants under the Loan Agreement, (iii) the occurrence of a material adverse change or a withdrawal event in respect of our omaveloxolone product, (iv) certain attachments of the Credit Parties assets and restraints on their business, (v) certain bankruptcy or insolvency events, (vi) cross-default of third-party indebtedness, (vii) the failure to pay judgements rendered against them, (viii) material misrepresentations, (ix) the loan documents ceasing to create a valid security interest in a material portion of the collateral, and (x) the occurrence of certain ERISA events. Upon the occurrence of an event of default, the Lenders may, among other things, accelerate our obligations under the Loan Agreement (including all obligations for principal, interest and any applicable make-whole and prepayment premiums); provided that upon an event of default relating to certain bankruptcy or insolvency events, all obligations will be immediately accelerated.

The foregoing description of the terms of the Loan Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, reference to the Loan Agreement, which the Company has filed as an exhibit to this Quarterly Report.None.

On May 4, 2023, we entered into an Amended Funding Agreement with an affiliate of Blackstone Life Sciences, LLC (BXLS). The Amended Funding Agreement amends and restates in its entirety our existing Development and Commercialization Funding Agreement, dated as of June 10, 2020 (the Original Funding Agreement) between us and BXLS.

The Amended Funding Agreement provides for (i) a low, single digit royalty on net sales of our omaveloxolone product for FA (subject to a fixed dollar cap and limited in time to the twenty years following commercial launch of the omaveloxolone product) (the Omav Royalty); and (ii) a single digit royalty on net sales of our bardoxolone product (limited in time to the fifteen years following the commercial launch of the bardoxolone product).

The Amended Funding Agreement also provides that, with respect to any change of control of the Company prior to January 1, 2028, we will pay to BXLS a change of control payment in an amount equal to (x) if the date of such change of control is prior to June 10, 2023, $375 million and (y) if the date of such change of control is on or after June 10, 2023, $300 million, or, in each case, potentially a lesser amount based on the sum of certain payments to BXLS, including the Omav Licensing Payments (as defined below), prior to the change of control.

Pursuant to the Amended Development Agreement, to secure our payment obligations to BXLS we have (i) granted BXLS a security interest in a segregated deposit account and (ii), subject to certain limitations as set forth in the Amended Funding Agreement, agreed to maintain in such account an initial balance and thereafter an amount equal to the aggregate amount of Omav Royalty payments made for the immediately preceding two calendar quarter period. In addition, substantially all covenants regarding commercialization of bardoxolone and restricting the incurrence of indebtedness and license and licensing transactions, as well as termination events providing for liquidated damages, in the Original Funding Agreement were removed and all prior security interests granted to BXLS were released.

The foregoing description of the terms of the Amended Funding Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, reference to the Amended Funding Agreement, which the Company has filed as an exhibit to this Quarterly Report.

# Certain exhibits and schedules to the Agreement and Plan of Merger have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish copies of any such omitted exhibits and schedules to the U.S. Securities and Exchange Commission upon request.

¥Information in this exhibit identified by brackets is confidential and has been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is not material and is the type of information that the Company

customarily treats as private or confidential. An unredacted copy of this exhibit will be furnished to the Securities and Exchange Commission on a supplemental basis upon request.

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.


Delaware		11-3651945
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5320 Legacy Drive Plano, Texas		75024
(Address of principal executive offices)		(Zip Code)


-
		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		1
DEFINED TERMS		3
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Stockholders’ Equity ~~(Deficit)~~	6
	Consolidated Statements of Cash Flows	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1823
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3439
Item 4.	Controls and Procedures	3439
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3540
Item 1A.	Risk Factors	3540
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3542
Item 3.	Defaults Upon Senior Securities	3542
Item 4.	Mine Safety Disclosures	3542
Item 5.	Other Information	3542
Item 6.	Exhibits	3943
Signatures		4045



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value (1)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value (1)
Marketable debt securities:
U.S. treasury securities		236,019		17		(27	)		236,009		281,371		37		(15	)		281,393
Total	$	236,019	$	17	$	(27	)	$	236,009	$	281,371	$	37	$	(15	)	$	281,393


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31				June 30				June 30
	2023		2022		2023		2022		2023		2022
	(in thousands)				(in thousands)
Bardoxolone	$	10,910	$	6,462	$	11,454	$	7,956	$	22,363	$	14,418
Omaveloxolone		7,481		7,597		8,682		7,284		16,163		13,881
Cemdomespib (previously referred to as RTA 901)		2,448		1,407		3,379		2,226		5,827		3,633
Other research and development expenses		34,638		24,338		33,605		21,865		68,244		47,204
Total research and development expenses	$	55,477	$	39,804	$	57,120	$	39,331	$	112,597	$	79,136


	Payments due by period										Payments due by period
	Less than 1 year		1 to 3 years		4 to 5 years		6 years and beyond		Total		Less than 1 year		1 to 3 years		4 to 5 years		6 years and beyond		Total
	(unaudited, in thousands)										(unaudited, in thousands)
Operating lease obligations(1)	$	5,961	$	20,090	$	24,325	$	141,770	$	192,146	$	2,297	$	27,670	$	29,636	$	168,149	$	227,752
Term loan obligations												-		9,375		65,625		-		75,000
Total contractual obligations	$	5,961	$	20,090	$	24,325	$	141,770	$	192,146	$	2,297	$	37,045	$	95,261	$	168,149	$	302,752


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


Abbreviated Term		Defined Term
AbbVie		AbbVie Inc.
ADPKD		Autosomal dominant polycystic kidney disease
ALS		Amyotrophic lateral sclerosis
ATP		Adenosine triphosphate
bardoxolone		Bardoxolone methyl
Biogen		Biogen Inc.
BXLS		Blackstone Life Sciences, LLC
Cemdomespib		Previously referred to as RTA 901
CKD		Chronic kidney disease
Class A Common Stock		Class A common stock, par value $0.001 per share, of the Company
Class B Common Stock		Class B common stock, par value $0.001 per share, of the Company
CRL		Complete Response Letter
CRO		Contract research organization
DPNP		Diabetic peripheral neuropathic pain
eGFR		Estimated glomerular filtration rate
EMA		European Medicines Agency
ESPP		Reata Pharmaceuticals, Inc. 2022 Employee Stock Purchase Plan
ESRD		End stage renal disease
Exchange Act		Securities Exchange Act of 1934
FA		Friedreich’s ataxia
FDA		United States Food and Drug Administration
HCP		Healthcare providers
Kyowa Kirin		Kyowa Kirin Co., Ltd.
PAS		Prior Approval Supplement
LTIP Plan		Second Amended and Restated Long Term Incentive Plan
MAA		Marketing Authorization Application
Merger Sub		River Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of Biogen
NDA		New Drug Application
NPRS		Numeric pain rating scale
PAS		Prior Approval Supplement
PK		Pharmacokinetic
RSU		Restricted Stock Unit
SEC		U.S. Securities and Exchange Commission
U.S. GAAP		Accounting principles generally accepted in the United States


	Six Months Ended June 30, 2023
	Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Deficit			Equity (Deficit)
Balance at December 31, 2022		31,762,052	$	32		4,913,348		$	5	$	1,501,800	$	(1,567,532	)	$	(65,695	)
Net income (loss)		—		—		—			—		—		76,881			76,881
Compensation expense related to stock-based compensation		—		—		—			—		58,420		—			58,420
Exercise of options		228,110		—		427,485			—		16,888		—			16,888
Issuance of common stock upon vesting of restricted stock units		439,801		—		53,388			—		—		—			—
Issuance of common stock under employee stock purchase plan		22,648		—		—			—		796		—			796
Conversion of common stock Class B to Class A		878,975		1		(878,975	)		—		—		—			1
Balance at June 30, 2023		33,331,586	$	33		4,515,246		$	5	$	1,577,904	$	(1,490,651	)	$	87,291


	Six Months Ended June 30, 2022
	Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Deficit			Equity
Balance at December 31, 2021		31,478,197	$	31		4,919,249		$	5	$	1,441,584	$	(1,255,631	)	$	185,989
Net loss		—		—		—			—		—		(147,397	)		(147,397	)
Compensation expense related to stock-based compensation		—		—		—			—		29,308		—			29,308
Exercise of options		2,336		—		30,024			—		735		—			735
Issuance of common stock upon vesting of restricted stock units		52,070		1		4,366			—		—		—			1
Issuance of Common Stock		40,291		—		(40,291	)				—					—
Balance at June 30, 2022		31,572,894	$	32		4,913,348		$	5	$	1,471,627	$	(1,403,028	)	$	68,636


	2023		% of Total Expenses			2022		% of Total Expenses			2023		% of Total Expenses			2022		% of Total Expenses
	(in thousands, except for percentage data)										(in thousands, except for percentage data)
Cost of products sold											$	846		1	%	$	—		—
Research and development	$	55,477		50	%	$	39,804		61	%		57,120		50	%		39,331		60	%
Selling, general and administrative		54,885		49	%		24,841		38	%		45,690		40	%		25,143		39	%
Litigation settlement												11,000		9	%		—		—
Depreciation		288		1	%		308		1	%		293		—			273		1	%
Total expenses	$	110,650				$	64,953
Total operating cost and expenses											$	114,949				$	64,747


Exhibit Number		Description

2.1#		Agreement and Plan of Merger, dated as of July 28, 2023, by and among Reata Pharmaceuticals, Inc., Biogen Inc. and River Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on July 31, 2023).
3.1		Thirteenth Amended and Restated Certificate of Incorporation, dated May 11, 2016 (incorporated by reference to Exhibit 3.7 to the Company’s Form S-1 (File No. 333-208843), filed with the SEC on May 16, 2016).

3.2		Third ~~Amended~~Amendment and Restated Bylaws, dated as of March 1,31, 2023 ~~(incorporated~~(Incorporated by reference to Exhibit 3.1 to the ~~Company’s~~Company's Form 8-K (File No. 001-37785), filed with the SEC on March 1, ~~2023).~~2023.

~~10.1#~~10.1¥		Amendment No. 2 to Exclusive License Agreement, dated as of April 5, 2022, by and between the KU Center for Technology Commercialization, Inc. and the Registrant, as ~~amended.~~amended (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2023 (File No. 001-37785), filed with the SEC on May 10, 2023).

10.2*10.2		Loan Agreement, dated May 5, 2023, by and among BPCR Limited Partnership and BioPharma Credit Investments V (Master) LP, as Lenders, BioPharma Credit PLC, as Collateral Agent, and Reata Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2023 (File No. 001-37785), filed with the SEC on May 10, 2023).

~~10.3*#~~10.3¥		Amended and Restated Development and Commercialization Funding Agreement between the Company and BXLS V – River L.P, dated as of May 4, 2023 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended March 31, 2023 (File No. 001-37785), filed with the SEC on May 10, 2023).

10.4*		Amendment No. 2 to Lease Agreement dated October 15, 2019, as amended by the First Amendment to Lease Agreement, dated May 27, 2020

10.5*		Indemnification Agreement by and between the Company and Rajiv Patni, dated as of June 12 2023.

10.6*		Employment Agreement by and between the Company and Rajiv Patni, dated as of June 12, 2023.

10.7*		Amended and Restated Termination of Expansion Agreements dated October 15, 2019, by and between TC Legacy Land Venture LLC, and Reata Pharmaceuticals, Inc.

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-1d4(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		Inline XBRL Instance Document - The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL 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 (embedded within the Inline XBRL document)


Date: ~~May 10,~~August 7, 2023	REATA PHARMACEUTICALS, INC.

	By:	/s/ J. Warren Huff
	Name:	J. Warren Huff
	Title:	Chief Executive Officer


	By:		/s/ Manmeet S. Soni
	Name:		Manmeet S. Soni
	Title:		Chief Operating Officer, Chief Financial Officer, and President