~~(Former name, former address and former fiscal year, if changes since last report)~~

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 November ~~7, 2019,~~4, 2020, the registrant had ~~24,765,410~~28,836,422 shares of Class A common stock, $0.001 par value per share, and ~~5,506,495~~5,044,931 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. ~~All~~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.

Abbreviated Term		Defined Term
~~6MWD~~		~~6-minute walk distance~~
AbbVie		AbbVie Inc.
ADL		Activities of Daily Living questionnaire
ADPKD		Autosomal dominant polycystic kidney disease
AE		Adverse event
ALS		Amyotrophic lateral sclerosis
ASU		Accounting Standards Update
Bardoxolone		Bardoxolone methyl
BXLS		Blackstone Life Sciences, LLC
CARES Act		Coronavirus Aid, Relief, and Economic Security Act
CGIC		Clinical global impression of change
CKD		Chronic kidney disease
COVID-19		Coronavirus disease
CRO		Contract research organization
~~CTD-PAH~~		~~Pulmonary arterial hypertension associated with connective tissue disease~~
~~DSMB~~		~~Data safety monitoring board~~
~~EGC~~		~~Emerging growth company~~
eGFR		Estimated glomerular filtration rate
ESKD		End stage kidney disease
Exchange Act		Securities Exchange Act of 1934
FA		Friedreich’s ataxia
FARA		Friedreich’s Ataxia Research Alliance
FASB		Financial Accounting Standards Board
FDA		United States Food and Drug Administration
FSGS		Focal segmental glomerulosclerosis
GFR		Glomerular filtration rate
IgAN		IgA nephropathy
~~I-PAH~~IST		~~Idiopathic form of PAH~~
~~IPO~~		~~Initial public offering~~
~~IRS~~		~~Internal Revenue Service~~
~~JOBS Act~~		~~Jumpstart Our Business Startups Act of 2012~~Investigator-Sponsored Trial
KKC		Kyowa Kirin Co., Ltd. ~~(formerly KHK or Kyowa Hakko Kirin Co., Ltd.)~~
mFARS		Modified Friedreich’s Ataxia Rating Scale
NDA		New Drug Application
~~PAH~~NYU		~~Pulmonary arterial hypertension~~New York University Grossman School of Medicine
~~Retained eGFR~~PGIC		~~eGFR~~Patient global impression of change ~~after~~
Registrational trial		An adequate and well-controlled trial designed to be sufficient to apply for regulatory approval of a ~~four-week withdrawal of~~ drug candidate, although notwithstanding the Company’s design a regulatory agency may determine that further clinical studies or data are required
SAE		Serious adverse event
Sarbanes-Oxley Act		The Sarbanes-Oxley Act of 2002
SEC		U.S. Securities and Exchange Commission
T1D CKD		Type 1 diabetic CKD
T2D CKD		Type 2 diabetic CKD

	September 30, 2019			December 31, 2018			September 30, 2020			December 31, 2019
	(unaudited)						(unaudited)
Assets
Cash and cash equivalents	$	240,149		$	337,790		$	578,263		$	664,324
Prepaid expenses and other current assets		6,382			4,483			6,566			4,952
Income tax receivable								22,203			0
Total current assets		246,531			342,273			607,032			669,276
Property and equipment, net		2,859			1,445			4,664			2,996
Other assets		9,733			1,490			1,301			10,148
Total assets	$	259,123		$	345,208		$	612,997		$	682,420
Liabilities and stockholders’ (deficit) equity
Liabilities and stockholders’ equity
Accounts payable		3,582			4,473			9,081			1,908
Accrued direct research liabilities		19,848			15,416			17,991			23,774
Other current liabilities		14,398			4,696			15,002			11,631
Current portion of long-term debt, net of debt issuance cost		5,313			—
Current portion of payable to collaborators								0			150,000
Current portion of deferred revenue		31,421			31,335			4,688			4,701
Total current liabilities		74,562			55,920			46,762			192,014
Other long-term liabilities		6,198			524			2,820			6,982
Long-term debt, net of current portion and debt issuance cost		74,923			79,219
Term loan, net of debt issuance costs								0			155,017
Liability related to sale of future royalties, net								304,663			0
Payable to collaborators, net of current portion								71,726			66,862
Deferred revenue, net of current portion		170,863			194,386			1,182			4,688
Total noncurrent liabilities		251,984			274,129			380,391			233,549
Commitments and contingencies
Stockholders’ (deficit) equity:
Common stock A, $0.001 par value: 500,000,000 shares authorized; issued and outstanding – 24,525,768 and 24,000,683 at September 30, 2019 and December 31, 2018, respectively		25			24
Common stock B, $0.001 par value: 150,000,000 shares authorized; issued and outstanding – 5,598,731 and 5,728,175 shares at September 30, 2019 and December 31, 2018		6			6
Stockholders’ equity:
Common stock A, $0.001 par value: 500,000,000 shares authorized; issued and outstanding – 28,833,595 and 27,878,550 at September 30, 2020 and December 31, 2019, respectively								29			28
Common stock B, $0.001 par value: 150,000,000 shares authorized; issued and outstanding – 5,045,092 and 5,318,157 shares at September 30, 2020 and December 31, 2019, respectively								5			5
Additional paid-in capital		456,097			435,452			1,078,279			967,317
Accumulated deficit		(523,551	)		(420,323	)		(892,469	)		(710,493	)
Total stockholders’ (deficit) equity		(67,423	)		15,159
Total liabilities and stockholders’ (deficit) equity	$	259,123		$	345,208
Total stockholders’ equity								185,844			256,857
Total liabilities and stockholders’ equity							$	612,997		$	682,420

	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30						September 30
	2019			2018			2019			2018			2020			2019			2020			2019
Collaboration revenue
License and milestone	$	7,898		$	4,766		$	23,437		$	44,452		$	1,182		$	7,898		$	3,519		$	23,437
Other revenue		344			409			409			685			219			344			2,308			409
Total collaboration revenue		8,242			5,175			23,846			45,137			1,401			8,242			5,827			23,846
Expenses
Research and development		32,279			27,144			87,948			71,979			37,183			32,279			121,620			87,948
General and administrative		14,283			7,486			36,027			24,802			18,314			14,283			55,701			36,027
Depreciation		258			105			659			311			289			258			851			659
Total expenses		46,820			34,735			124,634			97,092			55,786			46,820			178,172			124,634
Other income (expense)
Investment income		1,311			1,094			4,812			1,787
Interest expense		(2,389	)		(2,360	)		(7,199	)		(3,773	)
Loss on extinguishment of debt		—			—			—			(1,007	)
Other income (expense)		—			—			7			—
Total other income (expense)		(1,078	)		(1,266	)		(2,380	)		(2,993	)
Other income (expense), net														(11,164	)		(1,078	)		(31,967	)		(2,380	)
Loss before taxes on income		(39,656	)		(30,826	)		(103,168	)		(54,948	)		(65,549	)		(39,656	)		(204,312	)		(103,168	)
Provision for taxes on income		38			9			60			15
Benefit from (provision for) taxes on income														93			(38	)		22,336			(60	)
Net loss	$	(39,694	)	$	(30,835	)	$	(103,228	)	$	(54,963	)	$	(65,456	)	$	(39,694	)	$	(181,976	)	$	(103,228	)
Net loss per share—basic and diluted	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)	$	(1.94	)	$	(1.32	)	$	(5.45	)	$	(3.44	)
Weighted-average number of common shares used in net loss per share basic and diluted		30,110,391			28,704,853			30,004,211			27,022,269			33,713,507			30,110,391			33,401,599			30,004,211

Unaudited Consolidated Statements of Stockholders’ Equity (Deficit) ~~Equity~~

	Three Months Ended September 30, 2019																			Three Months Ended September 30, 2020
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’			Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity			Shares		Amount		Shares			Amount		Capital		Deficit			Equity
Balance at June 30, 2019		24,466,407	$	24		5,631,527		$	6	$	450,354	$	—	$	(483,857	)	$	(33,473	)
Balance at June 30, 2020																					28,526,532	$	29		5,058,319		$	5	$	1,058,606	$	(827,013	)	$	231,627
Net loss		—		—		—			—		—		—		(39,694	)		(39,694	)		—		—		—			—		—		(65,456	)		(65,456	)
Compensation expense related to stock options		—		—		—			—		5,380		—		—			5,380			—		—		—			—		11,580		—			11,580
Exercise of options		—		—		26,565			—		363		—		—			363			—		—		293,836			—		8,093		—			8,093
Conversion of common stock Class B to Class A		59,361		1		(59,361	)		—		—		—		—			1			307,063		—		(307,063	)		—		—		—			—
Balance at September 30, 2019		24,525,768	$	25		5,598,731		$	6	$	456,097	$	—	$	(523,551	)	$	(67,423	)
Balance at September 30, 2020																					28,833,595	$	29		5,045,092		$	5	$	1,078,279	$	(892,469	)	$	185,844

	Nine Months Ended September 30, 2019																			Nine Months Ended September 30, 2020
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’			Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity			Shares		Amount		Shares			Amount		Capital		Deficit			Equity
Balance at December 31, 2018		24,000,683	$	24		5,728,175		$	6	$	435,452	$	—	$	(420,323	)	$	15,159
Balance at December 31, 2019																					27,878,550	$	28		5,318,157		$	5	$	967,317	$	(710,493	)	$	256,857
Net loss		—		—		—			—	$	—		—		(103,228	)		(103,228	)		—		—		—			—	$	—		(181,976	)		(181,976	)
Compensation expense related to stock options		—		—		—			—	$	14,090		—		—			14,090			—		—		—			—	$	45,684		—			45,684
Exercise of options		—		—		395,641			—	$	6,448		—		—			6,448			—		—		341,187			—	$	9,879		—			9,879
Conversion of common stock Class B to Class A		525,085		1		(525,085	)		—	$	—		—		—			1			614,252		1		(614,252	)		—	$	—		—			1
Other shareholder transactions		—		—		—			—	$	107		—		—			107
Balance at September 30, 2019		24,525,768	$	25		5,598,731		$	6	$	456,097	$	—	$	(523,551	)	$	(67,423	)
Issuance of Common Stock																					340,793		—		—			—		55,399		—			55,399
Balance September 30, 2020																					28,833,595	$	29		5,045,092		$	5	$	1,078,279	$	(892,469	)	$	185,844

	Three Months Ended September 30, 2019
	Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Deficit			(Deficit)
Balance at June 30, 2019		24,466,407	$	24		5,631,527		$	6	$	450,354	$	(483,857	)	$	(33,473	)
Net loss		—		—		—			—		—		(39,694	)		(39,694	)
Compensation expense related to stock options		—		—		—			—		5,380		—			5,380
Exercise of options		—		—		26,565			—		363		—			363
Conversion of common stock Class B to Class A		59,361		1		(59,361	)		—		—		—			1
Balance at September 30, 2019		24,525,768	$	25		5,598,731		$	6	$	456,097	$	(523,551	)	$	(67,423	)

	Three Months Ended September 30, 2018																			Nine Months Ended September 30, 2019
	Common Stock A				Common Stock B					Additional Paid-In		Shareholder Notes		Total Accumulated			Total Stockholders’			Common Stock A				Common Stock B					Additional Paid-In		Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount		Capital		Receivable		Deficit			(Deficit) Equity			Shares		Amount		Shares			Amount		Capital		Deficit			Equity (Deficit)
Balance at June 30, 2018		20,244,675	$	20		5,961,183		$	6	$	196,013	$	—	$	(363,913	)	$	(167,874	)
Balance at December 31, 2018																					24,000,683	$	24		5,728,175		$	6	$	435,452	$	(420,323	)	$	15,159
Net loss		—		—		—			—		—		—		(30,835	)		(30,835	)		—		—		—			—		—		(103,228	)		(103,228	)
Compensation expense related to stock options		—		—		—			—		2,745		—		(10	)		2,735			—		—		—			—		14,090		—			14,090
Exercise of options		—		—		41,672			—		672		—		—			672			—		—		395,641			—		6,448		—			6,448
Public offering of common stock, net of offering costs		3,450,000		4		—			—		232,843		—		—			232,847
Conversion of common stock Class B to Class A		189,290		—		(189,290	)		—		—		—		—			—			525,085		1		(525,085	)		—		—		—			1
Balance at September 30, 2018		23,883,965	$	24		5,813,565		$	6	$	432,273	$	—	$	(394,758	)	$	37,545
Other shareholder transactions																					—		—		—			—		107		—			107
Balance at September 30, 2019																					24,525,768	$	25		5,598,731		$	6	$	456,097	$	(523,551	)	$	(67,423	)

Nine Months Ended September 30, 2018

Common Stock A

Common Stock B

Additional
Paid-In

Shareholder
Notes

Total
Accumulated

Total
Stockholders’

Shares

Amount

Shares

Amount

Capital

Receivable

Deficit

(Deficit) Equity

Balance at December 31, 2017

19,975,340

$
20

6,166,166

$
7

$
190,145

$
(2
)

$
(337,143
)

$
(146,973
)
Net loss

—

—

—

—

—

—

(54,963
)

(54,963
)
Compensation expense
   related to stock options

—

—

—

—

7,781

—

(18
)

7,763

Exercise of options

—

—

106,024

—

1,498

—

—

1,498

Proceeds from payments of
   shareholder promissory
    notes

—

—

—

—

6

2

—

8

Public offering of common stock, net of offering costs

3,450,000

4

—

—

232,843

—

—

232,847

Conversion of common stock
   Class B to Class A

458,625

—

(458,625
)

(1
)

—

—

—

(1
)
Adoption of new accounting
   guidance

—

—

—

—

—

—

(2,634
)

(2,634
)
Balance at September 30, 2018

23,883,965

$
24

5,813,565

$
6

$
432,273

$
—

$
(394,758
)

$
37,545

	Nine Months Ended						Nine Months Ended
	September 30,						September 30
	2019			2018			2020			2019
Operating activities
Net loss	$	(103,228	)	$	(54,963	)	$	(181,976	)	$	(103,228	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		659			311			851			659
Amortization of debt issuance costs		1,017			549
Amortization of debt issuance costs and implied interest								5,850			1,017
Non-cash interest expense on liability related to sale of future royalty								11,077			0
Stock-based compensation expense		14,090			7,783			45,684			14,090
Loss on extinguishment of debt		—			1,007			11,183			0
Gain on lease termination								(816	)		0
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,899	)		(1,304	)
Other assets		20			14
Income tax receivable								(22,203	)		0
Prepaid expenses and other current assets and other assets								150			(1,879	)
Accounts payable		(440	)		2,933			7,033			(440	)
Accrued direct research and other current and long-term liabilities		11,442			10,836
Accrued direct research, other current, and long-term liabilities								(514	)		11,442
Payable to collaborators								(150,000	)		0
Deferred revenue		(23,437	)		(13,452	)		(3,519	)		(23,437	)
Net cash used in operating activities		(101,776	)		(46,286	)		(277,200	)		(101,776	)
Investing activities
Purchases of property and equipment		(2,420	)		(370	)		(539	)		(2,420	)
Net cash used in investing activities		(2,420	)		(370	)		(539	)		(2,420	)
Financing activities
Proceeds from issuance of common stock		—			232,846
Proceeds from long-term debt		—			60,000
Payments on deferred issuance costs		—			(2,289	)
Proceeds from issuance of common stock, net								55,398			0
Payments on long-term debt								(167,170	)		0
Exercise of options		6,448			1,504			9,879			6,448
Other shareholder transactions		107			—
Proceeds from sale of future royalties, net								293,571			107
Net cash provided by financing activities		6,555			292,061			191,678			6,555
Net (decrease) increase in cash and cash equivalents		(97,641	)		245,405
Net decrease in cash and cash equivalents								(86,061	)		(97,641	)
Cash and cash equivalents at beginning of year		337,790			129,780			664,324			337,790
Cash and cash equivalents at end of period	$	240,149		$	375,185		$	578,263		$	240,149
Supplemental disclosures
Cash paid for interest	$	6,226		$	2,715		$	8,021		$	6,226
Purchases of equipment in accounts payable and other current liabilities	$	145		$	31
Accrued deferred offering cost	$	—		$	22
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	8,262		$	—		$	0		$	8,262
Purchases of equipment in accounts payable, accrued direct research, other current, and long-term liabilities							$	2,282		$	145

The Company’s mission is to identify, develop, and commercialize innovative therapies that change patients’ lives for the better. The Company focuses on small-molecule therapeutics with novel mechanisms of action for the treatment of severe, life-threatening diseases with few or no approved therapies. The Company’s lead programs are in rare forms of chronic kidney disease (CKD) and a rare ~~forms~~neurological disease. The Company announced positive topline data from registrational trials for both of ~~neurological diseases. The Company’s~~its lead product candidates, bardoxolone methyl (bardoxolone) in patients with CKD caused by Alport syndrome, and omaveloxolone in patients with a neurological ~~diseases,~~disorder called Friedreich’s ataxia (FA). Both bardoxolone and omaveloxolone activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation. Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, the Company believes bardoxolone and omaveloxolone have many potential clinical applications.

~~The Company has reported top-line efficacy~~ Reata possesses exclusive, worldwide rights to develop, manufacture and ~~safety Year 1 results from its registrational CARDINAL Phase 3 clinical trial of~~commercialize bardoxolone, omaveloxolone, and our next-generation Nrf2 activators, excluding certain Asian markets for bardoxolone in CKD caused by Alport syndrome. Alport syndrome is a rare and serious hereditary disease with no approved therapy. The trial met its primary and key secondary Year 1 endpoints. CARDINAL demonstrated a statistically significant change in the estimated glomerular filtration rate (eGFR) relativecertain indications, which are licensed to placebo after 48 weeks of treatment and in retained eGFR, which is the change in eGFR after 48 weeks of treatment and a four-week withdrawal period. Subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

The Company has reported top-line efficacy and safety results from its registrational part 2 portion of the MOXIe Phase 2 trial of omaveloxolone in Friedreich’s ataxia (FA). FA is a rare, inherited, debilitating, and degenerative neuromuscular disorder with no approved therapy. The trial demonstrated statistically significant evidence of efficacy for its primary endpoint of change in the modified Friedreich’s Ataxia Rating Scale (mFARS) relative to placebo after 48 weeks of treatment. Subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

~~The Company is also conducting two additional registrational trials: FALCON, studying bardoxolone in patients with autosomal dominant polycystic kidney disease (ADPKD)~~Kyowa Kirin Co., ~~and CATALYST, studying bardoxolone in patients with a rare and serious form of pulmonary arterial hypertension (PAH) caused by connective tissue disease (CTD-PAH)~~Ltd. (KKC). ~~The Company initiated enrollment of FALCON in May 2019, and the Company expects to have top-line data from CATALYST in mid-2020.~~

The Company’s consolidated financial statements include the accounts of all majority-owned subsidiaries. Accordingly, the Company’s share of net earnings and losses from these subsidiaries is included in the consolidated statements of operations. Intercompany profits, transactions, and balances have been eliminated in consolidation.

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 of 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 nine months ended September 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020. The consolidated balance sheet at December 31, ~~2018,~~2019, 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.

The ~~Company’s~~ significant accounting policies used in the preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2020 are ~~described~~consistent with those discussed in Note 2 ~~of Notes~~ to ~~Consolidated Financial Statements included~~the consolidated financial statements in ~~its~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018 (2018 Annual Report~~2019, except as noted below with respect to the Company’s liability related to the sale of future royalties and as noted within the “Recent Accounting Pronouncements – Recently Adopted Accounting Pronouncements” section.

On June 10, 2020, the Company entered into a Development and Commercialization Funding Agreement with an affiliate of Blackstone Life Sciences, LLC (BXLS) that provides 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 (Development Agreement). The Company accounted for the Development Agreement as a sale of future revenues resulting in a debt classification, primarily because the Company has significant continuing involvement in generating the future revenue on which the royalties are based. The debt will be amortized under the effective interest rate method and, accordingly, the Company is recognizing non-cash interest expense over the estimated term of the Development Agreement. The liability related to sale of future royalties, and the debt amortization, are based

on ~~Form 10-K). During~~ the ~~first quarter~~Company’s current estimate of ~~2019,~~future royalties expected to be paid over the ~~Company adopted Accounting Standards Update (ASU) No. 2016-02,~~ ~~Leases~~ ~~(Topic 842). As a result~~estimated term of the ~~adoption of Topic 842,~~Development Agreement. The Company will periodically assess the ~~Company has updated~~expected royalty payments and, if materially different than its ~~Leases accounting policies.~~previous estimate, will prospectively adjust and recognize the related non-cash interest expense. ~~There were no other changes~~The transaction costs associated with the liability will be amortized to ~~its significant accounting policies from those disclosed~~non-cash interest expense over the estimated term of the Development Agreement. See Note 5, Liability Related to Sale of Future Royalties, of Notes to Consolidated Financial Statements contained in ~~its 2018 Annual~~this Quarterly Report on Form ~~10-K.~~10-Q.

AsThe Company categorizes its financial instruments measured at fair value into a three-level fair value hierarchy that prioritizes the inputs used in determining the fair value of ~~September 30, 2019,~~ the ~~Company had cash and cash equivalents~~asset or liability. The three levels of ~~$240,149,000.~~ the fair value hierarchy are as follows:

The Company has ~~experienced losses and negative operating cash flows for many years since inception and has no marketed drug or other products. The Company’s ability~~determined the fair value of the liability related to ~~generate~~the sale of future ~~revenue depends upon the results of its development programs, the success of which cannot be guaranteed.~~

~~The Company expects its current cash and its access to additional equity or debt funding will enable it to meet its current obligations through December 31, 2020. See Note 9,~~ ~~Subsequent Events~~.

~~At the inception of an arrangement, the Company determines if an arrangement~~royalties is ~~or contains, a lease~~ based on the ~~unique facts and circumstances present in that arrangement. Lease assets represent the~~ Company’s ~~right~~current estimates of future royalties expected to ~~use an underlying asset for the lease term, and lease liabilities represent the obligation~~be paid to ~~make lease payments arising from the lease. These assets and liabilities are initially recognized at the lease commencement date based on the present value of lease payments~~BXLS, over the lease term calculated using its incremental borrowing rate based on the information available at commencement unless the implicit rate is readily determinable. Lease assets also include upfront lease payments, lease incentives paid, and direct costs incurred and exclude lease incentives received. The lease term used to calculate the lease assets and related lease liabilities includes the options to extend or terminate the lease when it is reasonably certain that the Company will exercise those options. Lease expense for operating leases is recognized on a straight-line basis over the expected lease term as an operating expense while the expense for finance leases is recognized as depreciation expense over the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

~~The Company will account for each lease component separately from the nonlease components. The depreciable~~ life of ~~lease assets and leasehold improvements is limited by~~ the ~~expected lease term unless there is a transfer~~arrangement, which are considered Level 3. See Note 5, Liability Related to Sale of ~~title or purchase option reasonably certain~~Future Royalties, of ~~its exercise.~~

~~Leases with an initial term of 12 months or less are not recorded~~Notes to Consolidated Financial Statements contained in this Quarterly Report on ~~the balance sheet, and the expenses for these short-term leases and operating leases are recognized on a straight-line basis over the lease term.~~Form 10-Q.

The Company is an emerging growth company (EGC), as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and, therefore, will be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. The Company will remain an EGC until December 31, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) issued Topic 842, amended by ASU 2018-11, Leases (Topic 842): Targeted ~~Improvements~~.Improvements. The new guidance requires a lessee to recognize assets and liabilities for all leases with lease terms of more than 12 months and provide additional disclosures. Topic 842 requires adoption using a modified retrospective transition approach with either 1) transition provisions at the beginning of the earliest comparative period ~~records~~with its cumulative adjustment recognized to retained earnings at the beginning of the earliest period presented or 2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption. We adopted this standard on January 1, 2019, using the cumulative-effect adjustment approach. We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.

As a result of implementing Topic 842, the Company recognized an operating lease right-of-use asset of $1,544,000 and an operating lease liability of $1,659,000 on January 1, 2019, with no impact on its beginning retained earnings, consolidated statements of operations, or cash flows. See Note 5, ~~Leases, for further details.~~

~~In July 2018, the FASB issued ASU No. 2018-09,~~ ~~Codification Improvements~~ (ASU 2018-09). This ASU provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. The adoption of this guidance did not have a material impact on our financial position, results of operations or disclosures.

~~In July 2019,~~ ~~the FASB issued ASU No. 2019-07,~~ ~~Codification Updates to SEC Sections~~. The ASU clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply. The guidance is effective upon issuance. ~~The adoption of this guidance did not have a significant impact on~~ ~~the Company’s reported consolidated financial results.~~

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements~~(Topic~~ (Topic 808) (ASU 2018-18). This update provides clarification on the interaction between Revenue ~~Recognition~~from Contracts with Customers (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics. This update is effective in fiscal years, including interim periods, beginning after December 15, ~~2020,~~2019, and early adoption is permitted. The Company adopted this standard on January 1, 2020 and its adoption did not have a material impact on the Company’s consolidated financial statements and related disclosure.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to defer and recognize as an asset. This guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this standard on January 1, 2020 and its adoption did not have material impact to the Company’s consolidated financial statements and related disclosure.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The Board issued this Update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness. The main provision that impacts the Company is the removal of the exception to the incremental approach of intra-period tax allocation when there is a loss from continuing operations and income or gain from other items. ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact ~~on its financial statements~~ of adopting this ~~guidance.~~guidance on its consolidated financial statements.

In September 2010, the Company entered into a license agreement with AbbVie Inc. (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 ~~Inc. (AbbVie)~~ (the AbbVie Collaboration Agreement) to jointly research, develop, and commercialize the Company’s portfolio of second and later generation oral Nrf2 activators. The terms of the Collaboration Agreement include payment to the Company of a nonrefundable, up-front payment of $400,000,000. The Company is also participating with AbbVie on joint steering committees.

The up-front payment and the Company’s collaboration on research, development, and commercialization are accounted for as a single unit of accounting. Revenue is being recognized ratably through December 2026, which is the estimated minimum period that is needed to complete the performance obligations under the terms of the Collaboration Agreement. The Company began recognizing revenue related to the up-front payment upon execution of the Collaboration Agreement. During the three months ended September 30, 2019 and 2018, the Company recognized approximately $6,717,000, and during the nine months ended September 30, 2019 and 2018, recognized $19,931,000, as collaboration revenue. As of September 30, 2019, the Company recorded deferred revenue totaling approximately $191,714,000 of which approximately $26,720,000 is reflected as the current portion of deferred revenue.

On October 9, 2019, the Company and AbbVie entered into an Amended and Restated License Agreement (the ~~Amended AbbVie~~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 ~~dated~~and the AbbVie Collaboration Agreement. In exchange for such rights, the Company agreed to pay AbbVie $330.0 million, of which $100.0 million was paid as of December 31, 2019, $150.0 million was paid on June 30, 2020, and $80.0 million will be payable on November 30, 2021. 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 Company recognized interest expense related to the Reacquisition Agreement of approximately $1.7 million and $0 million, during the three months ended September 30, 2020 and 2019, respectively, and $4.9 million and $0 million, during the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, the Company’s payable to collaborators was $80.0 million, with a present value of $71.7 million.

The execution of the Reacquisition Agreement ended our performance obligations under the AbbVie Collaboration Agreement and included the write off of the remaining related deferred revenue balance, after which no further revenue was recognized. Accordingly, there was 0 revenue recognized in 2020. The Company recognized revenue related to the AbbVie Collaboration Agreement totaling approximately $6.7 million and $19.9 million during the three and nine months ended September 30, 2019, respectively. The deferred revenue balance was $0 million as of September ~~21, 2010, which the Company entered into with AbbVie (the License Agreement), and the Collaboration Agreement. See Note 9,~~ ~~Subsequent Events~~.30, 2020.

In December 2009, the Company entered ainto an exclusive license ~~agreement~~ with ~~Kyowa Kirin Co., Ltd. (KKC)~~KKC (the KKC Agreement)~~, which granted KKC an exclusive license~~ to develop and commercialize bardoxolone in the licensed territory. The Company received a nonrefundable, up-front license fee of ~~$35,000,000~~$35.0 million in 2009 and regulatory milestones totaling ~~$45,000,000~~$45.0 million in 2010, 2012, and 2018 and could receive additional regulatory milestones of ~~$52,000,000~~$52.0 million and commercial milestones of ~~$140,000,000,~~$140.0 million, as well as 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 KKC in the licensed territory.

The up-front payment and regulatory milestones are accounted for as a single unit of accounting. Revenue is being recognized ratably through December 2021, which is the estimated minimum period that is needed to

complete the deliverables under the terms of the KKC Agreement. The Company began recognizing revenue related to the up-front payment upon execution of the KKC Agreement. ~~During~~The Company recognized collaboration revenue totaling approximately $1.2 million during each of the three months ended September 30, 2020 and 2019 and ~~2018, the Company recognized approximately $1,181,000 and $(2,951,000), respectively, and~~$3.5 million during each of the nine months ended September 30, ~~2019~~2020 and ~~2018, recognized $3,506,000 and $23,521,000, respectively, as collaboration revenue.~~2019. As of September 30, ~~2019,~~2020, the

Company recorded deferred revenue totaling approximately ~~$10,570,000~~$5.9 million of which approximately ~~$4,701,000~~$4.7 million is reflected as the current portion of deferred revenue.

On June 14, 2018, the Company entered into an Amended and Restated Loan and Security Agreement (the Restated Loan Agreement) with Oxford Finance LLC and Silicon Valley Bank (collectively, the Lenders), which amended and restated the Loan and Security Agreement entered into among Reata and the Lenders on March 31, 2017, as amended on November 3, 2017 (the Loan Agreement).

Under the Restated Loan Agreement, the Term A Loan was increased to $80,000,000, and the Term B Loan availability was increased to $45,000,000, available to be drawn within 30 days, but no later than December 31, 2019, after the achievement of one of two milestones. If the Company is entitled to draw the Term B Loan but does not draw the Term B Loan by December 31, 2019, the Company is obligated to pay a non-utilization fee of $450,000.

All outstanding Term Loans will mature on June 1, 2023. Under the Term A Loan, the Company will make interest-only payments for 24 months through June 1, 2020; however, if the Company draws the Term B Loan, the Company will make interest-only payments for 36 months through June 1, 2021. The interest-only payment period will be followed by 36 equal monthly payments, or 24 equal monthly payments if the Company draws the Term B Loan, of principal and interest payments. The Term Loans will bear interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue or 1.91%, with a minimum rate of 9.7% and maximum rate of 12.29%.

The Company has the option to prepay all, but not less than all, of the borrowed amounts, provided that the Company will be obligated to pay a prepayment fee equal to (a) the aggregate amount of interest that the Company would have paid through the maturity date if prepayment is made on or before the first anniversary of the applicable funding date of the Term Loan, (b) 4.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the first anniversary date and on or before the second anniversary of the applicable funding date, (c) 3.0% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the second anniversary date and on or before the third anniversary of the applicable funding date, or (d) 1.5% of the outstanding principal balance of the applicable Term Loan if prepayment is made after the third anniversary date and on or before the fourth anniversary of the applicable funding date. The Company will also be required to make a final exit fee payment of 6.5% of the principal balance of the Term A Loan and 4.0% of the Term B Loan, payable on the earliest of the prepayment of the Term Loans, acceleration of any Term Loan, or at maturity of the Term Loans. As of September 30, 2019, the Term A Loan has an effective interest rate of 10.71% before debt issuance costs and final exit fee and 13.26% including debt issuance costs and final exit fee. The Company was in compliance with all covenants under the Restated Loan Agreement as of September 30, 2019.

The Company may use the proceeds from the Term Loans for working capital and to fund its general business requirements. The Company’s obligations under the Restated Loan Agreement are secured by substantially all of its current and future assets, including its owned intellectual property.

~~The future principal payments by fiscal year for the Company’s Term A Loan:~~

On October 9, 2019, the Company entered into the First Amendment to the Amended and Restated Loan and Security Agreement (the ~~Amendment)~~Amended Restated Loan Agreement). Under the Amended Restated Loan Agreement, the Term A Loan principal amount was $80.0 million, and the Term B Loan availability was increased from $45.0 million to $75.0 million (collectively with the ~~Lenders,~~Term A Loan, the Term Loans). On December 20, 2019, the Company borrowed $75.0 million under the Term B Loan resulting in a principal balance of the Term Loans of $155.0 million.

On June 24, 2020, the Company paid off the total outstanding balance of the Term Loans prior to the maturity date. The payoff consisted of (i) the outstanding principal balance of $155.0 million, (ii) exit fees of $6.7 million, which ~~amended~~has been partially accrued up to the date of repayment, (iii) prepayment fees of $5.4 million, and (iv) accrued and unpaid interest of $1.0 million. At the time of payoff, all liabilities and obligations under the Amended Restated Loan Agreement were terminated. In connection with the payoff of the Term Loans, the Company recorded a loss on extinguishment of debt of $11.2 million in the nine months ended September 30, 2020.

On June 24, 2020, the Company closed on the Development Agreement with BXLS. The Development Agreement includes 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 KKC. The royalty percentage will initially be in the mid-single digits and, in future years, can vary 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 granted BXLS a security interest in substantially all of our assets.

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

The Company concluded that there were 2 units of accounting for the consideration received, comprised of the liability related to the sale of future royalties and the common shares. The Company 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 $294.2 million, which includes $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 the June 24, 2020, the closing date of the Development Agreement. The effective interest rate under the Development Agreement, including transaction costs, is approximately 13.8%.

The following table shows the activity within the liability related to sale of future royalties for the nine months ended September 30, 2020:

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2020			2019			2020			2019
Other income (expense), net
Investment income	$	104		$	1,311		$	2,660		$	4,812
Interest expense		(1,671	)		(2,389	)		(13,183	)		(7,199	)
Non-cash interest expense on liability related to sale of future royalty		(10,413	)		0			(11,077	)		0
Other income (expense)		816			0			(10,367	)		7
Total other income (expense), net	$	(11,164	)	$	(1,078	)	$	(31,967	)	$	(2,380	)

Interest income consists primarily of interest generated from our cash and cash equivalents.

Interest expense consists primarily of interest on our borrowing activities under our loan agreements and the imputed interest from amount due to AbbVie under the Reacquisition Agreement.

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.

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

In June 2020, the Company paid off the Term Loans and recorded a loss on the extinguishment of debt of $11.2 million, which consisted primarily of prepayment fees, exit fees and unamortized debt issuance costs.

In September 2020, the Company’s sublease agreement for its offices in Plano, Texas was terminated, resulting in recognition of a $0.8 million gain on lease termination. See Note 9,7, ~~Subsequent Events~~Leases., of Notes to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

The ~~Company has offices~~Company’s headquarters are located ~~in Irving, Texas, where it leases approximately 34,890 square feet of office and laboratory space, and~~ in Plano, Texas, where it leases approximately 122,000 square feet of office space. On September 2, 2020, the Company’s sublease agreement for its offices in Plano, Texas (the Sublease Agreement), was terminated due to the bankruptcy filing of its lessor. In connection with the termination, the Company was relieved from its obligations under the Sublease Agreement and derecognized the right-of-use asset of approximately $5.7 million and operating lease liabilities of approximately $6.5 million as of September 30, 2020, which resulted in a gain on lease termination of $0.8 million recorded in the three and nine months ended September 30, 2020. On October 1, 2020, the Company entered into a lease agreement with the owner of its offices in Plano, Texas (the Plano Lease Agreement), with lease terms extending through June 30, 2022 with an option to renew up to three months. The Company will record approximately $4.8 million as a right-of-use asset and operating lease liabilities in October 2020.

The ~~Company’s~~Company leases ~~have remaining contractual~~additional office and laboratory space of approximately 34,890 square feet located in Irving, Texas, with lease terms ofextending through April 30, 2022 with an option to renew up to four successive three-month periods.

The Company has an additional lease of a single-tenant, build-to-suit building of approximately ~~33 months, which includes~~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 ~~options~~lease agreement on October 15, 2019 (the 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. The Company does not have control of the space or the construction prior to ~~extend~~completion of construction. Therefore, 0 right-of-use or lease liabilities were recorded in connection with the ~~leases for~~Lease Agreement as of September 30, 2020. Under the First Amendment to the Lease Agreement executed in May 2020, the landlord will fund the Company’s leasehold improvements up to ~~one year. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.~~$31.3 million, of which the Company has recorded a leasehold incentive obligation of approximately $2.1 million as other long-term liabilities as of September 30, 2020.

At September 30, ~~2019,~~2020, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were ~~8.3%~~9.6% and ~~2.5~~2.1 years, respectively. During the three and nine months ended September 30, ~~2019,~~2020, cash paid for amounts included for the measurement of lease liabilities was ~~$1,667,000.~~$0.7 million and $2.7 million, respectively. During the three and nine months ended September 30, ~~2019~~2020, the Company recorded operating lease expense of ~~$911,000~~$1.0 million and ~~$2,489,000,~~$2.8 million, respectively. The Company has elected to net the amortization of the right-of-use assets and the reduction of the lease liabilities principal in accrued direct research and other current and long-term liabilities in the consolidated statements of cash flows.

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

Balance Sheet Classification

As of September 30, 2019

Balance Sheet Classification

As of September 30, 2020

(in thousands)

Non-current right-of-use assets

Other assets

8,262

Other assets

1,167

Current lease liabilities

Other current liabilities

2,941

Other current liabilities

564

Non-current lease liabilities

Other long-term liabilities

6,198

Other long-term liabilities

705

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

	As of September 30, 2019			As of September 30, 2020
	(in thousands)			(in thousands)
2019 (remaining three months)	$	718
2020		3,999
2020 (remaining three months)				$	164
2021		4,090			667
2022		1,178			574
Total lease payments		9,985			1,405
Less: Imputed interest		(846	)		(136	)
Present value of lease liabilities	$	9,139		$	1,269

On ~~October 15, 2019,~~March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S. economy and to provide assistance to individuals, families, and businesses affected by COVID-19. Accordingly, under its provisions, for the nine months ended September 30, 2020, the Company ~~entered into~~recognized a ~~lease agreement, relating~~tax benefit and receivable of $22.1 million associated with the ability to carryback an applicable prior year’s net operating losses to a preceding year to generate a refund.

For the ~~lease~~three months ended September 30, 2020, the Company’s effective tax rate was a benefit of ~~approximately 327,400 square feet~~0.1% compared to an expense of ~~office and laboratory space located in Plano, Texas (Lease Agreement). See Note 9,~~ ~~Subsequent Events.~~

0.1% for the three months ended September 30, 2019. The Company’s effective tax rate for the three months ended September 30, 2020 varies with the statutory rate primarily due to valuation allowances on deferred taxes. For the nine months ended September 30, 2020, the Company’s effective tax rate was a benefit of 10.9% compared to an expense of 0.1% for the nine months ended September 30, 2019. The Company’s effective tax rate for the nine months ended September 30, 2020 varies with the statutory rate primarily due to the favorable impact ~~of nondeductible stock-based compensation~~associated with the CARES Act and ~~the~~ changes in the valuation allowance related to certain deferred tax assets generated or utilized in the applicable period. The Company’s deferred tax assets for the United States have been fully offset by a valuation allowance at September 30, ~~2019,~~2020, and the Company expects to maintain this valuation allowance until there is sufficient evidence that future earnings can be achieved, which is uncertain at this time.

The IRS examination team has completed its examination of the Company’s 2013, 2014, and 2015 U.S. tax returns and proposed adjustments with respect to certain items that were reported by the Company for the 2013 tax year. In June 2018, the Company received the Revenue Agent Report from the IRS. The Company believes that it has accurately reported all amounts in its tax returns and has submitted an administrative protest with the IRS contesting the examination team’s proposed adjustments. The Company intends to vigorously defend its reported positions and believes the ultimate resolution of the adjustments proposed by the IRS examination team will not have a material adverse effect on its consolidated financial statements.

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

The following table summarizes RSUs as of September 30, 2020, under the Second Amended and Restated Long Term Incentive Plan (LTIP Plan) agreement:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

(in thousands)

Research and development

$
1,885

$
988

$
5,235

$
2,924

General and administrative

3,495

1,757

8,855

4,859

$
5,380

$
2,745

$
14,090

$
7,783

	Number of RSUs		Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2020		50,000	$	72.70
Granted		41,776	$	163.31
Vested		0	$	0
Forfeited		0	$	0
Outstanding at September 30, 2020		91,776	$	113.94

As of September 30, 2020, the performance targets for the performance-based RSUs have not been met. Accordingly, the total unrecognized stock-based compensation expense related to these performance-based RSUs is approximately $4.2 million. As of September 30, 2020, the Company recognized $0.7 million in compensation expense related to time-based RSUs.

The following table summarizes stock option activity as of September 30, ~~2019,~~2020, and changes during the nine months ended September 30, ~~2019,~~2020, under the ~~Second Amended and Restated Long Term Incentive Plan~~LTIP and standalone option agreements:

	Number of Options			Weighted-Average Exercise Price		Number of Options			Weighted-Average Exercise Price
Outstanding at January 1, 2019		3,320,571			21.20
Outstanding at January 1, 2020							4,038,949		$	41.24
Granted		1,624,133			64.94		1,045,699		$	199.49
Exercised		(395,641	)		16.30		(341,187	)	$	29.67
Forfeited		(276,306	)		34.42		(183,209	)	$	95.97
Outstanding at September 30, 2019		4,272,757			37.51
Exercisable at September 30, 2019		1,743,886			22.56
Expired							(250	)	$	207.20
Outstanding at September 30, 2020							4,560,002		$	76.19
Exercisable at September 30, 2020							2,244,139		$	38.84

Stock-based compensation expense for the three and nine months ended September 30, 2020, included accelerated recognition of expense due to modifications of outstanding stock options as a result of the death of an executive and employees who entered into consulting agreements at the termination of employment, which were considered to be non-substantive services. Accordingly, the Company recognized $0.0 million and $10.0 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2020, the Company has approximately 288,000 shares of performance-based stock options for which the performance targets have not been met. Accordingly, the total unrecognized stock-based compensation expense related to these performance-based stock options is approximately $34.1 million.

The total intrinsic value of all outstanding options and exercisable options at September 30, ~~2019~~2020 was ~~$184,473,000~~$203.6 million and ~~$100,782,000,~~$142.3 million, respectively.

From time to time, the Company ~~granted 50,000 RSUs under~~is a ~~Restricted Stock Unit Agreement. As~~party to legal proceedings in the ~~awards granted~~course of its business, including the matters described below. The claims and legal proceedings in which the Company could be involved include challenges to the scope, validity or enforceability of patents relating to its product candidates, and challenges by it to the scope, validity or enforceability of the patents held by others. These may include claims by third parties that the Company infringes their patents. The outcome of any such legal proceedings, regardless of the merits, is inherently uncertain. In addition, litigation and related matters are ~~performance-based, there was $3,635,000~~costly and may divert the attention of ~~unrecognized compensation expense related~~our management and other resources that would otherwise be engaged in other activities. If the Company were unable to ~~these RSUs.~~prevail in any such legal proceedings, its business, results of operations, liquidity and financial condition could be adversely affected. The Company recognizes accruals for litigations to the extent that it can conclude that a loss is both probable and reasonably estimable and recognizes legal expenses as incurred.

8.On October 15, 2020, Toshif Patel filed a complaint for alleged violation of federal securities laws against the Company, its Chief Executive Officer and its Chief Financial Officer in the United States District Court for the Eastern District of Texas. The complaint purports to bring a federal securities class action on behalf of a class of persons who acquired the Company’s common stock between October 15, 2019 and August 7, 2020. The complaint alleges, among other things, that the defendants made false and misleading statements regarding the sufficiency of its MOXIe Part 2 study results to support a single study marketing approval of omaveloxolone for the treatment of FA in the United States. The plaintiff seeks, among other things, the designation of this action as a class action, an award of unspecified compensatory damages and interest, costs, and expenses, including counsel fees and expert fees.

The Company believes that the allegations contained in the complaint are without merit and intends to defend the case vigorously. The Company cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018			2020			2019			2020			2019
	(in thousands, except share and per share data)												(in thousands, except share and per share data)
Numerator
Net loss	$	(39,694	)	$	(30,835	)	$	(103,228	)	$	(54,963	)	$	(65,456	)	$	(39,694	)	$	(181,976	)	$	(103,228	)
Denominator
Weighted-average number of common shares used in net loss per share – basic		30,110,391			28,704,853			30,004,211			27,022,269			33,713,507			30,110,391			33,401,599			30,004,211
Dilutive potential common shares		—			—			—			—			0			0			0			0
Weighted-average number of common shares used in net loss per share – diluted		30,110,391			28,704,853			30,004,211			27,022,269			33,713,507			30,110,391			33,401,599			30,004,211
Net loss per share – basic	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)	$	(1.94	)	$	(1.32	)	$	(5.45	)	$	(3.44	)
Net loss per share – diluted	$	(1.32	)	$	(1.07	)	$	(3.44	)	$	(2.03	)	$	(1.94	)	$	(1.32	)	$	(5.45	)	$	(3.44	)

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 4,560,002 and 4,272,757 ~~and 3,337,262~~ shares ~~for the nine months ended~~as of September ~~30, 2019 and 2018, respectively.~~

~~On October 9, 2019, the Company and AbbVie entered into the~~ ~~Amended AbbVie~~ 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 License Agreement and the Collaboration Agreement. Except as otherwise set forth in the ~~Amended AbbVie~~ ~~Agreement, the other provisions of the License Agreement and the Collaboration Agreement have been terminated. Under the~~ ~~Amended AbbVie~~ Agreement, certain licenses granted to AbbVie will continue, for which AbbVie has granted exclusive sublicenses to the Company, resulting in its reacquiring worldwide rights to bardoxolone, excluding certain Asian countries that the Company previously licensed to KKC, and worldwide rights to omaveloxolone and the other second-generation Nrf2 activators (the Second-Generation Activators), in each case that the Company had licensed to AbbVie under the License Agreement and the Collaboration Agreement. In exchange, the Company will pay AbbVie $330,000,000, of which $75,000,000 is payable on December 8, 2019, $150,000,000 is payable on June 30, 2020 and ~~$105,000,000 is payable~~2019, respectively.

See Note 7, Leases, of Notes to Consolidated Financial Statements contained in this Quarterly Report on November 30, 2021. If the Company raises cash proceeds of $200,000,000 or more in one or more equity offerings, it is required to prepay AbbVie $25,000,000, which prepayment will reduce the amount payable to AbbVie on November 30, 2021, from $105,000,000 to $80,000,000. The Company also will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and an identified list of existing Second-Generation Activators. By reacquiring its rights, the Company was relieved from its obligations under the License Agreement and the Collaboration Agreement.

~~On October 9, 2019, the Company entered into the~~ ~~Amendment~~ with the Lenders, which amended the Restated Loan Agreement entered into among Reata and the Lenders on June 14, 2018. Under the Amendment, the Term B Loan availability was increased from $45,000,000 to $75,000,000 and the availability period was increased from within 30 days to 60 days after the achievement of the one of two milestones. As one of the milestones was achieved on October 14, 2019, the availability period will end on December 13, 2019.

Under the Restated Loan Agreement, the Company has significantly increased its current obligations, but the Company believes that its current cash, along with its access to additional equity or debt funding, will enable the Company to meet its current obligations through December 31, 2020.

On October 15, 2019, the Company entered into the Lease Agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas. The term of the Lease is estimated to commence mid-2022, when construction is completed, and continue for 16 years, with up to 10 years of extension at the Company’s option. The initial annual base rent will be determined based on the project cost, subject to an initial annual cap of approximately $13,344,000, which may increase in certain circumstances. Beginning in the third lease year, the base rent will increase 1.95% per annum each year. In addition to the annual base rent, the Company will pay for taxes, insurance, utilities, operating expenses, assessments under private covenants, maintenance and repairs, certain capital repairs and replacements, and building management fees.

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 heading “Risk Factors” and discussed elsewhere in this Quarterly Report on Form 10-Q.

We are a ~~clinical stage~~clinical-stage 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 severe, life-threatening diseases with few or no approved therapies. Our lead programs are in rare forms of ~~CKD~~chronic kidney disease (CKD) and a rare ~~forms of~~ neurological disease. ~~The Company’s~~We have announced positive topline data from registrational trials for both of our lead product candidates, bardoxolone methyl (bardoxolone) in patients with CKD caused by Alport syndrome and omaveloxolone in patients with a neurological ~~disease,~~disorder called Friedreich’s ataxia (FA). Both bardoxolone and omaveloxolone activate the transcription factor Nrf2 to normalize mitochondrial function, restore redox balance, and resolve inflammation. Because mitochondrial dysfunction, oxidative stress, and inflammation are features of many diseases, we believe bardoxolone and omaveloxolone have many potential clinical applications. We possess exclusive, worldwide rights to develop, manufacture, and commercialize bardoxolone, omaveloxolone, and our next-generation Nrf2 activators, excluding certain Asian markets for bardoxolone in certain indications, which are licensed to KKC.

On November ~~11, 2019,~~9, 2020, we announced that the Phase 3 ~~portion of the~~ CARDINAL study of bardoxolone in patients with CKD caused by Alport syndrome met its primary and key secondary endpoints at the end of Year ~~1 endpoints. After 48 weeks~~2. At Week 100, in the intent-to-treat (ITT) population, which included eGFR values for patients who either remained on or have discontinued study drug, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in estimated glomerular filtration rate (eGFR) of 7.7 mL/min/1.73 m² (p=0.0005). In the modified ITT (mITT) analysis, which assessed the effect of receiving treatment by excluding values after patients discontinued treatment, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR at Week 100 of ~~9.50~~11.3 mL/min/1.73 m² (p<0.0001). ~~After 48~~At Week 104 (four weeks after last dose in second year of ~~treatment and a four-week withdrawal period,~~treatment), patients in the ITT population treated with bardoxolone had a statistically significant improvement compared to placebo in mean ~~retained~~change from baseline in eGFR of ~~5.14~~4.3 mL/min/1.73 m² (p=~~0.0012)~~0.023). Bardoxolone treatment was generally reported to be well-tolerated and showed a similar safety profile to the Phase 2 portion of the CARDINAL study. Based on these positive results, and subject to discussions with regulatory authorities, the Company plans to proceed with the submission of regulatory filings for marketing approval in the United States and internationally.

On October 14, 2019, we announced that the registrational Part 2 portion of the MOXIe Phase 2 trial of omaveloxolone in patients with FA met its primary endpoint of change in mFARS relative to placebo after 48 weeks of treatment. Patients treated with omaveloxolone (150 mg/day) demonstrated a statistically significant, placebo-corrected 2.40 point mean improvement (decrease) in mFARS after 48 weeks of treatment (p=0.014). Omaveloxolone treatment was generally reported to be well-tolerated. Based on these positive results and ~~subject to discussions~~following a recently completed pre-NDA meeting with ~~regulatory authorities,~~ the ~~Company plans~~U.S. Food and Drug Administration (FDA), we plan to proceed with the submission of ~~regulatory filings~~an NDA for full marketing approval ~~of omaveloxolone for the treatment of FA~~ in the United States in the first quarter of 2021. We also plan to pursue marketing approval outside of the United States and ~~internationally.~~work has commenced on preparations to file for marketing approval in Europe.

~~We are also conducting two additional registrational trials: FALCON, studying~~Additionally, we provided data on kidney function from patients with Alport syndrome from EAGLE, a long-term extension study of bardoxolone in patients with ~~ADPKD,~~rare forms of CKD. Change from baseline in eGFR has been assessed for 14 patients with Alport syndrome who were treated with bardoxolone for three years, with four-week off-treatment periods occurring at Weeks 48 and ~~CATALYST, studying bardoxolone~~100. Bardoxolone treatment resulted in a mean increase from baseline in eGFR of 11.5 mL/min/1.73 m² at Year 1, 13.3 mL/min/1.73 m² at Year 2, and 11.0 mL/min/1.73 m² at Year 3.

As previously announced, at a Type C meeting, the FDA provided us guidance that although it does not have any concerns with the reliability of the modified Friedreich’s Ataxia Rating Scale (mFARS) primary endpoint

results from the registrational Part 2 of the MOXIe trial (Part 2) of omaveloxolone in FA patients, it was not convinced that the results from Part 2 support a single study approval. The FDA stated that we will need to conduct a second pivotal trial that confirms the mFARS results of Part 2 with a similar magnitude of effect. As an alternative, Reata proposed a second study (the Baseline-Controlled Study, previously called the crossover study) in which patients serve as their own controls, and changes in mFARS during the pre-treatment period in either Part 1 or Part 2 of the MOXIe study are compared to changes in mFARS during the treatment period in the open-label extension study (MOXIe Extension). The design of the Baseline-Controlled Study was discussed and agreed upon by external experts and Reata, and the statistical analysis plan (SAP) was submitted to the FDA prior to conducting the analysis contemplated by the proposed plan. The FDA acknowledged it would consider the study design but, to date, it has not provided comments on the study design.

The Baseline-Controlled Study met its primary endpoint of paired difference in annualized mFARS slope with a statistically significant 3.76 point improvement (p=0.0022) between the treatment and pre-treatment periods in the primary analysis population. Further, all sensitivity analyses of the primary analysis showed a significant treatment effect. Thus, we believe that the results of the Baseline-Controlled Study support the positive mFARS results of Part 2 and provide additional evidence of the effectiveness of omaveloxolone in FA.

We completed the Baseline-Controlled Study in October 2020 and provided the results to the FDA. The FDA confirmed that it will review the study results and may request a meeting with us to discuss the conclusions of its review. If the FDA views these results as sufficient to increase the persuasiveness of data from Part 2, our plan would be to submit an NDA in mid-2021. However, there can be no assurance that the FDA will accept the design of the Baseline-Controlled Study or view these results as sufficient, in which case we will determine next steps, including whether it is feasible to conduct a second pivotal study in patients with ~~a rare and serious form~~FA as previously suggested by the FDA. At present, we plan to pursue marketing approval outside of ~~CTD-PAH. We initiated enrollment in FALCON in May 2019. We completed enrollment of CATALYST and expect to have top-line data in mid-2020. We have received orphan drug designation from~~ the United States ~~Food~~ and ~~Drug Administration (FDA)~~work has commenced on preparations to file for ~~bardoxolone for the treatment of Alport syndrome, PAH, and ADPKD and for omaveloxolone for the treatment of FA.~~marketing approval in Europe.

The following chart ~~below is a summary~~outlines each of our ~~current registrational programs:~~programs by indication and phase:

~~We are developing bardoxolone for the treatment of patients with the following rare forms of CKD:~~

In addition, KKC, our strategic collaborator in CKD, is currently conducting its registrational trial of bardoxolone in diabetic (type 1 and 2) CKD in Japan. KKC completed patient enrollment in this trial in June 2019 and expects to have topline data in the first half of 2022.

NYU has initiated an Investigator-Sponsored Trial (IST) (Phase 2/3 trial) of bardoxolone in COVID-19 patients called BARCONA.

**See discussion below under “Regulatory Update on Omaveloxolone for Friedreich’s Ataxia”

As the coronavirus disease (COVID-19) emerged as a pandemic with serious public health implications during the first quarter of 2020, we undertook a series of measures to protect the health and safety of patients and health care workers involved in our ongoing clinical studies, while maintaining the conduct of our studies in accordance with guidance provided by the FDA and the European Medicines Agency. For example, we have implemented the use of at-home visits as an alternative to in-clinic visits when necessary to collect blood draws and to assess patient safety and arranged for home delivery of the study drug to patients. We issued an addendum to the SAP to accommodate COVID-19 impact. We continue to utilize these measures to ensure continued access to drug treatment and appropriate safety monitoring.

We are developing bardoxolone for the treatment of patients with certain rare forms of CKD, including Alport syndrome, ADPKD, and other rare forms of CKD that, in the aggregate, affect more than 700,000 patients in the United States. CKD is characterized by a progressive worsening in the rate at which the kidney filters waste products from the blood, called the glomerular filtration rate (GFR). When GFR ~~gets too low,~~drops below approximately 15 mL/min/1.73 m², patients develop end-stage kidney disease (ESKD) and require dialysis or a kidney transplant to survive. Dialysis leads to a reduced quality of life and increases the likelihood of serious and life-threatening complications. The five-year survival rate for hemodialysis patients is only approximately 42%.

eGFR is an estimate of GFR that nephrologists use to track the decline in kidney function and progression of CKD. In 11 separate CKD clinical trials, bardoxolone has been shown to improve eGFR in patients with diverse etiologies of CKD. We believe that bardoxolone treatment has the potential to delay or prevent GFR declines that cause the need for dialysis or a transplant in patients with Alport syndrome, ADPKD, and other rare forms of CKD.

Alport syndrome is a rare, ~~and serious hereditary disease that can manifest as early as the first decade~~genetic form of ~~life, causes average annual declines in eGFR of approximately 3 to 4 mL/min/1.73 m~~²~~, and affects approximately 30,000 to 60,000 patients~~CKD caused by mutations in the ~~United States.~~genes encoding type IV collagen, which is a major structural component of the glomerular basement membrane in the kidney. The kidneys of patients with Alport syndrome progressively lose the capacity to filter waste products out of the blood, which can lead to ESKD and the need for chronic dialysis treatment or a kidney transplant. Alport syndrome affects both children and adults. In patients with the most severe forms of the disease, approximately 50% ~~of patients~~ progress to dialysis by age 25, 90% by age 40, and nearly 100% by age 60. According to the Alport Syndrome Foundation, Alport syndrome affects approximately 30,000 to 60,000 people in the United States. There are currently no approved therapies ~~for~~to treat CKD caused by Alport ~~syndrome anywhere in the world.~~ syndrome.

On November ~~11, 2019,~~9, 2020, we announced ~~the topline, Year 1 results from~~that the Phase 3 ~~portion~~CARDINAL study of ~~CARDINAL studying~~ bardoxolone in Alport syndrome patients. The Phase 3 portion of CARDINAL is an international, multi-center, double-blind, placebo-controlled, randomized registrational trial that enrolled 157 patients with Alport syndrome at approximately 50 study sites in the United States, Europe, Japan, and Australia. Pediatric patients represented approximately 15% of enrolled patients. Patients were randomized one-to-one to bardoxolone or placebo. The primary endpoint for the study was the change in eGFR, an important measure of the ability of the kidney to filter waste products out of the blood, after 48 weeks of treatment. The key secondary endpoint for the study was the change in retained eGFR after 48 weeks of treatment and withdrawal of drug for four weeks. After 52 weeks, patients who completed the first 48 weeks of treatment are restarted on study drug with their original treatment assignments and continue on study drug for a second year. The second-year on-treatment eGFR will be measured after 100 weeks of treatment and the retained eGFR will be measured at Week 104 after withdrawal of drug for four weeks. Additionally, patients who complete the study and meet eligibility requirements can participate in the open-label extension. The FDA has provided us with written guidance that, in patients with CKD caused by

Alport syndrome ~~an analysis~~met its primary and key secondary endpoints at the end of retained eGFR demonstrating an improvement versus placebo after one year of bardoxolone treatment may support a NDA submission for accelerated approval and an improvement versus placebo after two years of treatment may support full approval.

~~After 48 weeks of treatment,~~Year 2. At Week 100, in the ITT population, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR of ~~9.50~~7.7 mL/min/1.73 m² ~~(p<0.0001)~~(p=0.0005). Patients treated with bardoxolone experienced a ~~statistically significant increase~~mean change from baseline in ~~mean~~ eGFR of ~~4.72~~-0.8 mL/min/1.73 m²~~(p<0.0004)~~, while patients treated with placebo experienced a ~~statistically significant decline~~mean change from baseline in ~~mean~~ eGFR of ~~-4.78~~-8.5 mL/min/1.73 m² ~~(p<0.0002)~~. ~~Patients’ retained eGFR was also assessed at Week 52, after 48 weeks of treatment and four weeks of drug withdrawal. At Week 52,~~In the mITT analysis, patients treated with bardoxolone had a statistically significant improvement compared to placebo in mean ~~retained~~change from baseline in eGFR at Week 100 of ~~5.14~~11.3 mL/min/1.73 m² ~~(p=0.0012)~~(p<0.0001). ~~Patients~~In the mITT analysis, patients treated with bardoxolone experienced a ~~nonsignificant decline~~mean increase from baseline in ~~mean retained~~ eGFR of ~~-0.96~~1.7 mL/min/1.73 m² ~~(p=0.45)~~, while patients treated with placebo experienced a ~~statistically significant~~mean decline from baseline in ~~mean retained~~ eGFR of ~~-6.11~~-9.6 mL/min/1.73 m² ~~(p<0.0001)~~. ~~Similar efficacy at~~At Week ~~48 and Week 52~~104 (four weeks after last dose in second year of treatment), patients in the ITT population treated with bardoxolone had a statistically significant improvement compared to placebo in mean change from baseline in eGFR of 4.3 mL/min/1.73 m² (p=0.023). Patients treated with bardoxolone experienced a mean change from baseline in eGFR of -4.5 mL/min/1.73 m², while patients treated with placebo experienced a mean change from baseline in eGFR of -8.8 mL/min/1.73 m².

Efficacy was observed across multiple subgroups at Week 100 and Week 104, including ~~among~~ pediatric ~~patients.~~patients and patients with different genetic subtypes of Alport syndrome. The largest treatment effect at Week 104 was observed in the pediatric subgroup where the difference between treatment groups was 14.6 mL/min/1.73 m² (p=0.004). The risk of kidney failure events (defined as ESKD, confirmed 30% eGFR decline, or confirmed eGFR < 15

mL/min/1.73 m²) was reduced by approximately 50% in bardoxolone-treated patients (9 patients versus 17 patients in placebo, with a hazard ratio of 0.49 and a p-value of 0.086).

Bardoxolone was generally reported to be well tolerated in this study, and ~~showed a similar~~the safety profile was similar to ~~the Phase 2 portion of the CARDINAL study.~~that observed in prior trials. Seventy-five patients (97%) receiving bardoxolone and 7377 patients ~~(91%~~(96%) receiving placebo experienced an adverse event (AE). ~~Nine~~Ten patients ~~(12%~~(13%) receiving bardoxolone and four patients (5%) receiving placebo discontinued study drug due to an AE, and no individual AE contributed to more than two discontinuations in either group.

Four patients (5%) receiving bardoxolone and 10 patients (13%) receiving placebo experienced a treatment-emergent serious adverse event (SAE). No fluid overload or major adverse cardiac events were reported in patients treated with bardoxolone. Blood pressure was reduced relative to baseline in the bardoxolone group but was not significantly different between the two groups. The reported AEs were generally mild to moderate in intensity, and the most common AEs observed more frequently in patients treated with bardoxolone compared to patients treated with placebo were muscle spasms and increases in aminotransferases, and ~~muscle spasms. Increases~~are thought to be associated with the pharmacology of the drug.

Eight patients (10%) receiving bardoxolone and 15 patients (19%) receiving placebo experienced a treatment-emergent serious adverse event (SAE). No SAEs were reported in ~~aminotransferases are~~pediatric patients treated with bardoxolone. No fluid overload or major adverse cardiac events were reported in patients treated with bardoxolone. Blood pressure was not significantly different between the two groups. The urinary albumin-to-creatinine ratio (UACR) was not significantly different between treatment groups at Week 100 or Week 104. Non-kidney symptoms associated with Alport syndrome, including psychiatric, hearing, vestibular, and ocular AEs, occurred less frequently in bardoxolone-treated patients.

We also reported results from the EAGLE study, in which the change from baseline in eGFR was assessed for 14 patients with Alport syndrome who were treated with bardoxolone for three years (two years in CARDINAL and one year in EAGLE), with four-week off treatment periods occurring at Weeks 48 and 100. Bardoxolone treatment resulted in a ~~pharmacological effect~~mean increase from baseline in eGFR of 11.5 mL/min/1.73 m² at Year 1, 13.3 mL/min/1.73 m² at Year 2, and 11.0 mL/min/1.73 m² at Year 3.

We recently completed the previously announced pre-NDA meeting with the FDA to discuss the NDA submission content and plans. Based on that meeting and the FDA’s responses and the subsequently announced positive results of the Year 2 data of the CARDINAL Phase 3 study, we plan to proceed with an NDA filing for full marketing approval of bardoxolone ~~which increases production~~in patients with CKD caused by Alport syndrome in the first quarter of ~~aminotransferases~~ 2021. We will also continue preparations to file for marketing approval in ~~vitro~~. The aminotransferase increases observed in CARDINAL were associated with improvements (reductions) in total bilirubin and were not associated with liver injury, and we believe they are related to restoration of mitochondrial function. Laboratory markers associated with pharmacodynamic activity, including urinary albumin to creatinine ratio and aminotransferases, were unchanged relative to placebo at Week 52 after a four week withdrawal.Europe.

ADPKD is ~~an inherited,~~a rare and serious hereditary form of CKD caused by a genetic defect in PKD1 or PKD2 ~~and is characterized by~~genes leading to the formation of fluid-filled cysts in the ~~kidneys. Inflammation appears~~kidneys and other organs. Cyst growth can cause the kidneys to ~~play a role in cyst growth~~expand up to five to seven times their normal volume, leading to pain and progressive loss of kidney function. ADPKD affects both men and women of all racial and ethnic groups and is ~~associated~~the leading inheritable cause of kidney failure with disease progression in ADPKD. PKD1 is the most common mutation, causing about 85% of ADPKD cases, and patients generally progress to ESKD, on average, by age 54. ADPKD is the most common single-gene disorder of the kidneys, and there are an estimated ~~400,000~~diagnosed population of 140,000 patients in the United ~~States,~~States. Despite current standard of care treatment, an estimated 50% of ADPKD patients progress to ESKD and require dialysis or a kidney transplant by 60 years of age.

In a Phase 2 study called PHOENIX, bardoxolone demonstrated a statistically significant increase from baseline in mean eGFR of 9.3 mL/min/1.73 m² (p<0.0001) after 12 weeks of treatment in 31 patients with ~~approximately 140,000 diagnosed. The only therapy approved~~ADPKD. Available historical data for ~~ADPKD is tolvaptan, which was approved~~29 of these patients showed an average annual decline in eGFR of 4.8 mL/min/1.73 m² in the ~~United States in 2018.~~

~~We have initiated a registrational Phase 3 trial called FALCON~~three-year period prior to study entry. The FDA has provided us with written guidance that, in patients with ~~ADPKD.~~ADPKD, an analysis of eGFR during the off-treatment period demonstrating an improvement versus placebo after one year of bardoxolone treatment may support accelerated approval, and an improvement versus placebo after two years of treatment may support full approval. In May 2019, we began enrollment in FALCON, is an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial studying the safety and efficacy of bardoxolone in approximately 300 patients with ~~ADPKD randomized one-to-one~~ADPKD. The trial will enroll a broad range of patients from 18 to ~~active drug or placebo.~~70 years old with an eGFR between 30 to 90 mL/min/1.73 m². The enrollment of new patients was temporarily paused in March of 2020 due to safety concerns related to the COVID-19 global pandemic. We began ~~enrollment~~to lift the screening hold in FALCON in ~~May 2019.~~June 2020, and currently, most sites are able to screen and randomize patients. The ~~FDA has provided us with guidance that,~~measures we implemented to the conduct of FALCON in patients with ADPKD, an analysis of retained eGFR, demonstrating an improvement versus placebo after one year of bardoxolone treatment, may support an NDA submission for accelerated approval of bardoxolone for the treatment of ADPKD,response to COVID-19 have been effective, and we anticipate no meaningful impact on data demonstrating an improvement versus placebo in retained eGFR after two years of treatment may support full approval. We will measure the retained eGFR benefit versus placebo at 52 weeks after treatment on study drug for 48 weeks and a four-week withdrawal of drug. After 52 weeks, patients will resume study drug and will continue on study drug for a second year. The second-year retained eGFR benefit will be measured at Week 104.integrity due to COVID-19.

Three additional rare forms of CKD were studied in PHOENIX, ~~was an open-label, multi-center Phase 2 trial evaluating the safety and efficacy of bardoxolone in patients with ADPKD,~~ including IgA nephropathy (IgAN), type 1 diabetic CKD (T1D CKD), and focal segmental glomerulosclerosis (~~FSGS)~~(FSGS). In ~~aggregate, the prevalence~~each of these ~~diseases exceeds 700,000 patients in the United States, representing~~Phase 2 cohorts, bardoxolone demonstrated a meaningful market for bardoxolone in rare forms of CKD. A total of 103 patients were enrolled in the trial in four separate cohorts, including 31 patients with ADPKD, 26 with IgAN, 28 with T1D CKD, and 18 with FSGS. Patients were treated with bardoxolone for 12 weeks in all four cohorts, and each cohort showed statistically significant ~~increases~~increase from baseline in mean eGFR after 12 weeks of treatment. We plan to pursue each of these rare and serious forms of CKD as commercial indications.

The FDA has granted orphan drug designation to bardoxolone for the treatment of Alport syndrome and ADPKD, and the European Commission has granted orphan drug designation to bardoxolone for the treatment of Alport syndrome.

We plan to evaluate the ~~change~~potential effect of bardoxolone in ~~mean~~CKD patients at risk of rapid disease progression. This double-blind placebo-controlled Phase 2 trial is currently being developed to evaluate the efficacy and safety of bardoxolone in patients with CKD secondary to a variety of etiologies who are at risk of rapid progression. The study will require patients to have at least one of several risk factors for rapid progression of kidney disease prior to study enrollment. Patients with eGFR ~~from baseline across all four cohorts of 7.8~~as low as 20 and as high as 60 mL/min/1.73 m² ~~(n=103; p<0.0001). Of~~will be enrolled in the study and the treatment duration will be 12 weeks.

Researchers at NYU Grossman School of Medicine (NYU) have initiated an IST, known as BARCONA, to study the effect of bardoxolone in patients ~~that reached Week 12, 88% experienced increases~~suffering from COVID-19. Serious complications of COVID-19 are caused by excessive, systemic inflammation, which can result in ~~eGFR at Week 12. We observed that bardoxolone significantly reduced mean systolic blood pressure by 3.8 mmHg (n=103; p=0.002)~~dysfunction of the lungs, kidneys, and ~~mean diastolic blood pressure by 2.8 mmHg (n=103; p=0.0009). Urinary albumin excretion was low upon study entry~~other organs. Acute kidney injury has been reported to occur in up to 28% of all hospitalized COVID-19 patients, and ~~remained unchanged by bardoxolone treatment (n=103; p=0.6). The most commonly reported AE across all cohorts was muscle spasms, which were~~in up to 72% of patients who do not ~~associated with clinical signs or symptoms~~survive COVID-19. Bardoxolone and its analogs have demonstrated anti-inflammatory activity in animal models of ~~muscle injury. The overall rate~~acute lung and kidney injury, have increased survival in models of ~~SAEs was low, with three patients reporting SAEs while they received trial drug, none~~systemic inflammation, have been shown to suppress replication of ~~which were reported as related to bardoxolone.~~

~~Based on the eGFR~~several types of viruses and have shown improvements ~~observed~~ in ~~PHOENIX patients, we plan to pursue IgAN, T1D CKD, and FSGS as commercial indications. We believe that registrational~~kidney function in multiple clinical trials ~~similar~~that enrolled over 3,000 patients with various forms of CKD where approximately 1,800 were exposed to bardoxolone treatment.

The Phase 2 BARCONA study is a randomized, double-blind trial that will enroll approximately 40 patients with a primary endpoint of safety and treatment duration of up to 29 days in hospitalized patients. Major exclusion criteria include patients who are intubated and on invasive mechanical ventilation for three or more days, prior hospitalization for heart failure, or eGFR <30 mL/min/1.73 m². To further mitigate any safety risk, the trial was designed to pause after the enrollment of five patients to assess safety. The first five patients were enrolled, and the Executive Steering Committee reviewed the blinded safety data and decided to continue with enrollment. As with all trials conducted at NYU, the trial will be overseen by a Data Safety Monitoring Board that meets every other week.

We were involved in the design of the trial, have a member on the study’s executive steering committee, and are providing drug supply, as requested by NYU. Any further enrollment in a potential Phase 3 ~~CARDINAL~~trial will be gated based on an assessment of Phase 2 safety and ~~FALCON trials, with~~activity, as well as feasibility of conducting a two-year duration and a retained eGFR benefit endpoint after one and two years of treatment, would be sufficient to form the basis of an NDA submission to the FDA seeking approval of bardoxolone for the treatment of these forms of CKD.Phase 3 trial.

~~Prior to our CARDINAL Phase 3 trial, bardoxolone has been evaluated in multiple clinical~~Clinical trials enrolling over 2,000 patients exposed to ~~active drug and has~~bardoxolone have demonstrated consistent, clinically meaningful improvement in kidney function across several disease states as measured by eGFR and other markers of kidney function. Specifically, we have observed statistically significant increases in eGFR in all Phase 2 and Phase 3 clinical trials in ~~seven distinct~~numerous patient populations treated with bardoxolone, including patients with ~~PAH and~~ CKD caused by type 2 diabetes (T2D CKD), Alport syndrome, ADPKD, IgAN, T1D CKD, and ~~FSGS~~.FSGS.

We believe these data, in addition to the CARDINAL Phase 3 Year 2 data, support the potential for bardoxolone to delay or prevent dialysis, kidney transplant, and death in patients with Alport syndrome and other ~~rare~~ forms of CKD.

Additional observations from the prior clinical trials of bardoxolone include the following:

We are developing omaveloxolone for the treatment of patients with FA and recently announced the results of our registrational Phase 2 MOXIe trial in patients with FA. In addition, we have studied omaveloxolone and other Nrf2 activators in preclinical models of Huntington’s disease, ALS, Parkinson’s disease, Alzheimer’s disease and epilepsy, and we plan to pursue the development of omaveloxolone and our other Nrf2 activators for one or more of these diseases. We are also developing RTA 901 in neurodegeneration and neuroprotection indications.

We are developing omaveloxolone for the treatment of patients with FA, an inherited, debilitating, and degenerative neuromuscular disorder that is ~~usually~~normally diagnosed during adolescence and can ~~ultimately~~ lead to premature death. Patients with FA experience progressive loss of coordination, muscle weakness, and fatigue, which commonly ~~progress~~progresses to motor incapacitation and wheelchair reliance. Symptoms generally occur in children, with patients requiring a wheelchair by their teens or early ~~20s. Based on literature and proprietary research, we believe~~twenties. FA affects approximately 5,000 children and adults in the United States and 22,000 individuals globally. There are currently no approved therapies to treat FA.

Regulatory Update on Omaveloxolone for ~~the treatment of FA anywhere in the world.~~ Friedreich’s Ataxia

Our Phase 2 trial, called MOXIe, was a two-part, international, multi-center, randomized, double-blind, placebo-controlled registrational trial that studied the safety and efficacy of omaveloxolone in patients with FA. Additionally, patients who completed the study and ~~meet~~met eligibility requirements ~~can~~could participate in the ~~open-label extension.~~MOXIe Extension during which investigators and patients remained blinded to prior treatment assignments. In October 2019, we announced that Part ~~1 of MOXIe was a dose-ranging study designed to assess safety and identify an optimal dose of omaveloxolone to test~~2 in the registrational part 2 portion of the study. A dose of 150 mg per day was selected for part 2, and no safety concerns were noted by the data safety monitoring board (DSMB) that oversaw the trial and reviewed all safety data.

Based on data from part 1 of MOXIe, we designed and powered part 2 of MOXIe, an international, multi-center, double-blind, placebo-controlled, randomized registrational Phase 2 trial, that enrolled 103 patients with FA at 11 trial sites in the United States, Europe, and Australia. Part 2 of MOXIe is the largest global, interventional trial ever conducted in FA. Patients were randomized one-to-one to omaveloxolone or placebo. The primary analysis population included patients without ~~pes cavus~~ ~~(n=82), a musculoskeletal foot deformity that may interfere with the patient’s ability to perform some components of the neurological exam used to score the~~met its primary endpoint of ~~the study. Safety analyses were evaluated in the all randomized population (n=103).~~

~~The primary endpoint for the trial was the~~ change in ~~the~~ mFARS ~~score~~ relative to placebo after 48 weeks of treatment. ~~The mFARS is~~Patients treated with omaveloxolone (150 mg/day) demonstrated a physician-assessed neurological rating scale used to measure FA disease progression. The FDA has indicated that mFARS is an acceptable primary endpoint to evaluate the effect of omaveloxolone for the treatment of patients with FA. Omaveloxolone treatment demonstrated statistically significant, ~~evidence of efficacy for the primary endpoint of the trial, producing a~~ placebo-corrected 2.40 point mean improvement (decrease) in mFARS ~~(n=82; p=~~after 48 weeks of treatment (p=0.014). Patients treated with omaveloxolone ~~experienced~~demonstrated improvement relative to placebo in every subcategory measured under mFARS. Omaveloxolone treatment was generally reported to be well-tolerated.

Following the announcement of the positive data from Part 2 in October 2019, we have planned, subject to discussion with the FDA, to proceed with a ~~mean improvement (decrease)~~submission for marketing approval of omaveloxolone for the treatment of FA in the United States. As previously announced, at a Type C meeting, the FDA provided us guidance that, although it does not have any concerns with the reliability of the mFARS primary endpoint results in Part 2, it was not convinced that the results from Part 2 support a single study approval. The FDA stated that we will need to conduct a second pivotal trial that confirms the mFARS results of Part 2 with a similar magnitude of effect. As an alternative, Reata proposed the Baseline-Controlled Study in which patients served as their own controls by comparing their treatment period during the MOXIe Extension with their pre-treatment period in either Part 1 of the MOXIe study (Part 1) or Part 2. The design of the Baseline-Controlled Study was discussed and agreed upon by external experts and Reata, and the SAP was submitted to the FDA prior to conducting the analysis contemplated by

the proposed plan. The FDA acknowledged it would consider the study design but, to date, it has not provided comments on the study design.

The Baseline-Controlled Study evaluated the efficacy of omaveloxolone treatment using a baseline-controlled analysis design from patients in Part 1 and patients assigned to the placebo-arm of Part 2 who were enrolled in the MOXIe Extension. Efficacy was assessed by comparing the annualized rate of change in mFARS during the pre-treatment period to the annualized rate of ~~1.55 points from baseline, while patients treated with placebo experienced a mean worsening (increase)~~change in mFARS ~~of 0.85 points from baseline.~~

~~Further,~~during the ~~observed placebo-corrected improvements in mFARS were time-dependent, increasing over the course of~~ treatment ~~with the largest improvement observed after~~period for patients who received approximately 48 weeks of ~~treatment. Omaveloxolone~~omaveloxolone in the MOXIe Extension (the paired difference). The pre-treatment period for Part 1 patients is the period from enrollment in Part 1 to enrollment in the MOXIe Extension. The pre-treatment period for Part 2 patients is the 48-week treatment ~~also~~period, during which they received placebo in Part 2.

The primary efficacy analyses were analyzed according to a statistical hierarchy. The primary analysis population included Part 1 and Part 2 patients without pes cavus who had an mFARS assessment at Week 48 of the MOXIe Extension. The Part 2 placebo population was then analyzed separately followed by the Part 1 population.

The Baseline-Controlled Study demonstrated statistically significant evidence of efficacy (p=0.0022) for the primary endpoint of the paired difference in annualized mFARS ~~at Week 48 when~~slopes between the ~~pes cavus~~ ~~patients were included~~treatment and pre-treatment periods in the primary analysis ~~(the all randomized population)~~population (Table 1, Hierarchy 1). InEvaluation of the ~~all randomized population, omaveloxolone treatment produced~~data for patients from Part 2 and Part 1, separately, also demonstrated a statistically significant ~~placebo-corrected 1.93 point mean~~treatment effect, consistent with the primary analysis of the Baseline-Controlled Study and Part 2. All three analysis populations, including the primary analysis population, the Part 2 placebo population, and the Part 1 population, on average, demonstrated worsening (positive slope) during the pre-treatment period and an improvement ~~(decrease)~~(negative slope) during the treatment period. There was no significant difference between the paired differences of patients from Part 1 and Part 2 (two-sample t-test, p=0.53), confirming suitability for pooling for the primary analysis population (Part 1 and Part 2 combined).

Table 1: Analyses of Annualized Rate of Change in mFARS ~~(n=103; p=0.034). Omaveloxolone~~

Sensitivity analyses were performed to assess multiple alternate methods for calculating slope and comparing treatment ~~also improved several secondary endpoints~~and pre-treatment periods. Additionally, analyses were performed using the all enrolled population, which included patients with and without pes cavus. All of these analyses consistently demonstrated a significant treatment effect and upheld the conclusion of the primary analysis.

In conclusion, the Baseline-Controlled Study met its primary endpoint of paired difference in annualized mFARS slope with a statistically significant paired difference between the treatment and pre-treatment periods in the ~~trial.~~

~~Omaveloxolone was reported to be generally well-tolerated in this trial. Four (8%) omaveloxolone~~primary analysis population of a 3.76 improvement (p=0.0022), and all sensitivity analyses of the primary analysis showed a significant treatment effect. Thus, we believe that the results of the Baseline-Controlled Study, which utilized patients as their own control, support the positive mFARS results of Part 2 and ~~two (4%) placebo patients discontinued trial drug due to an AE. The reported AEs were generally mild to moderate in intensity, and~~provide evidence of the most common AEs (i.e., reported in > 20% of patients in either treatment group) observed more frequently in omaveloxolone compared to placebo were headache, nausea, increased aminotransferases, fatigue, and abdominal pain. Increases in aminotransferases are a pharmacological effecteffectiveness of omaveloxolone in FA.

We completed the Baseline-Controlled Study in October 2020 and provided the results to the FDA. The FDA confirmed that it will review the study results after which ~~increases production~~it may request a meeting with us to discuss the conclusions of ~~aminotransferases~~its review. Assuming that the FDA views these results as sufficient to increase the persuasiveness of data from Part 2, our plan would be to submit an NDA in ~~vitro, which~~mid-2021. However, there can be no assurance that the FDA will accept the design of the Baseline-Controlled Study or view these results as sufficient to support submission of an NDA for approval of omaveloxolone without the conduct of a second study. In that event, we ~~believe are related~~will determine next steps, including whether it is feasible to ~~restoration of mitochondrial function. In MOXIe, the aminotransferase increases were associated with improvements (reductions) in total bilirubin and were not associated with liver injury.~~

The overall rate of SAEs was low, with three patients on omaveloxolone and three patients on placebo reporting SAEs while on treatment. Two additional omaveloxolone-treated patients reported SAEs approximately two weeks after receiving their final dose. No new safety signals were identified, and the reported SAEs were sporadic and generally expectedconduct a second pivotal study in FA ~~patients. In~~patients to confirm the three omaveloxolone patients who reported SAEs while receiving omaveloxolone, none led to discontinuation. Atrial fibrillation was balanced and reported in one omaveloxolone and one placebo patient. One omaveloxolone patient reported anemia that was due to a complicationresults of a procedure and was considered unrelated to omaveloxolone. One omaveloxolone patient reported multiple SAEs, including viral upper respiratory tract infection and laryngitis, along with palpitations, non-cardiac chest pain, and sinus tachycardia. While several of these SAEs were considered possibly related to omaveloxolone, no imbalances in infection or arrhythmia adverse events were observed overall inPart 2 as previously suggested by the ~~trial.~~

~~Based on the positive MOXIe results, and subject to discussions with regulatory authorities,~~FDA. At present, we plan to ~~proceed with~~pursue marketing approval outside of the ~~submission of regulatory filings~~United States and work has commenced on preparations to file for marketing approval in Europe.

In September 2020, additional data analyses from Part 2 were presented at the ~~United States~~American Academy of Neurology’s Emerging Science conference and ~~internationally.~~the FARA 2020 Biomarker & Clinical Endpoint Meeting by Dr. David Lynch, M.D., Ph.D. Dr. Lynch is an attending physician at the Children’s Hospital of Philadelphia, professor of neurology at the Perelman School of Medicine at the University of Pennsylvania, and the principal investigator of the MOXIe study. These analyses provided new insights that were not communicated previously in the announcement of topline results in 2019.

An analysis of the change in mFARS from baseline demonstrated that patients in the omaveloxolone arm performed numerically better than placebo on all subsections of the mFARS exam. Furthermore, omaveloxolone patients in subgroups that typically have a worse prognosis and progress faster, including patients with longer GAA1 repeats, patients with cardiomyopathy, non-ambulatory patients, and younger patients, on average, experienced a larger placebo-corrected improvement in mFARS compared to the study population as a whole.

Additionally, all secondary endpoints either favored the omaveloxolone arm or were neutral. Patients on omaveloxolone experienced a nominal improvement in the Activities of Daily Living questionnaire (ADL), with all nine questions favoring the omaveloxolone arm. On average, ADL for patients on omaveloxolone did not change from baseline, while placebo-treated patients worsened. Both patient global impression of change (PGIC) and clinical global impression of change (CGIC) numerically favored omaveloxolone, and improvement in PGIC correlated with the observed improvement in mFARS.

In October 2020, the results from Part 2 evaluating the efficacy and safety of omaveloxolone in patients with FA were published in the journal Annals of Neurology.

In addition, we have observed compelling activity of omaveloxolone and our other Nrf2 activators in preclinical models of Parkinson’s disease, dementia, epilepsy, Huntington’s disease, and amyotrophic lateral sclerosis (ALS), and we plan to pursue the development of omaveloxolone and our other Nrf2 activators for one or more of these diseases.

We are also developing RTA 901 in neurological indications. RTA 901 is the lead product candidate from our Hsp90 modulator ~~program, which includes highly potent and selective C-terminal modulators of Hsp90.~~program. We have observed favorable activity of RTA 901 in a range of preclinical models of ~~neurodegeneration and neuroprotection,~~neurological disease, including models of diabetic neuropathy, ~~neural inflammation,~~neuroinflammation, and neuropathic pain. RTA 901, administered orally once-daily, has been observed to rescue existing nerve function, restore thermal and mechanical sensitivity, and improve nerve conductance velocity and mitochondrial function in rodent disease models. We have completed a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 901 administered orally, once-daily in healthy adult ~~volunteers. No~~volunteers, and no safety or tolerability concerns were reported. We plan to continue development for RTA 901 in neurological diseases, such as diabetic neuropathy. We are the exclusive licensee of RTA 901 and have worldwide commercial rights.

In addition, ~~to our lead programs in rare forms of CKD and rare forms of neurological diseases,~~ we are exploring additional clinical and preclinical programs. We believe bardoxolone has many potential clinical applications, and we are studying bardoxolone in CTD-PAH in our registrational Phase 3 CATALYST trial.developing RTA 1701, is the lead product candidate from our proprietary series of RORγt inhibitors, for the potential treatment of a broad range of autoimmune, inflammatory, and fibrotic diseases. We have completed a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 1701 in healthy adult volunteers.

We are studying bardoxolone in CTD-PAH, which is a late and often fatal manifestation of many types of autoimmune diseases, including systemic sclerosis (scleroderma), systemic lupus erythematosus, mixed connective tissue disease, and others. CTD-PAH is a subset of PAH, which results in a progressive increase in pulmonary vascular resistance, ultimately leading to right ventricular heart failure and death. Based on literature and proprietary research, we believe there are approximately 12,000 patients with CTD-PAH in the United States and 50,000 worldwide.

In comparison to patients with the idiopathic form of PAH (I-PAH), patients with CTD-PAH generally have a worse prognosis and experience a higher occurrence of small vessel fibrosis and pulmonary veno-obstructive diseases. CTD-PAH represents approximately 30% of the overall PAH population and approximately 10 to 15% of patients with scleroderma or lupus erythematosus. Patients with CTD-PAH are less responsive to existing vasodilator therapies than patients with I-PAH and have a five-year survival rate of approximately 44%, in contrast with a five-year survival rate of approximately 68% for patients with I-PAH. Currently approved therapies, all systemic vasodilators, are used to treat all etiologies of PAH. A meta-analysis of 11 registrational trials comprised of more than 2,700 patients demonstrated that the currently approved therapies are less beneficial for patients with CTD-PAH compared to patients with I-PAH as measured by 6-minute walk distance (6MWD). Patients with CTD-PAH experienced improvement in their 6MWD of only 9.6 meters, or approximately one-third, compared to the improvements observed in patients with I-PAH of 30 meters. Bardoxolone is an Nrf2 activator, not a systemic vasodilator, and directly targets the bioenergetic and inflammatory components of PAH. Additionally, because bardoxolone does not have systemic hemodynamic effects or cause drug-drug interactions in patients with PAH, it may be used in combination with other therapies to a greater incremental effect than an additional vasodilator.

Initial results from our Phase 2 LARIAT trial in patients with PAH showed that bardoxolone provided the greatest improvement in 6MWD to patients with CTD-PAH. Patients with CTD-PAH treated with bardoxolone demonstrated a statistically significant increase in mean 6MWD of 38.2 meters (p<0.001) compared to baseline and a placebo-corrected change in 6MWD of 28.4 meters (p=0.07). Further analysis of data from patients with CTD-PAH who would be eligible for inclusion in our Phase 3 trial, CATALYST, demonstrated a statistically significant increase in mean 6MWD of 42.7 meters (p<0.001) compared to baseline and a placebo-corrected change in 6MWD of 48.5 meters (p=0.005).

We are currently conducting CATALYST, an international, multi-center, randomized, double-blind, placebo-controlled Phase 3 trial that studies the safety and efficacy of bardoxolone in patients with CTD-PAH when added to standard-of-care therapy. The trial has been fully enrolled with 202 patients with CTD-PAH, and we expect to have top-line data from the CATALYST trial in mid-2020. Data from CATALYST demonstrating an improvement in 6MWD versus placebo may support an NDA submission for approval of bardoxolone for the treatment of CTD-PAH. No safety concerns have been reported by the DSMB.

RTA 1701 is the lead product candidate from our proprietary series of RORγt inhibitors for the potential treatment of a broad range of autoimmune, inflammatory, and fibrotic diseases. RTA 1701 is an orally-bioavailable, RORγt-selective allosteric inhibitor that suppresses Th17 differentiation ~~in vitro~~ and demonstrates strong efficacy in rodent disease models of autoimmune disease. RTA 1701 also potently suppresses production of IL-17A, a clinically important cytokine, in human immune cells and when dosed orally to non-human primates. We have conducted a Phase 1 trial to evaluate the safety, tolerability, and pharmacokinetic profile of RTA 1701 in healthy adult volunteers. No safety or tolerability concerns were reported, and we observed an acceptable pharmacokinetic profile. We plan to continue development for RTA 1701 in autoimmune, inflammatory, or fibrotic diseases. We retain all rights to our RORγt inhibitors, which are not subject to any existing commercial collaborations.

To date, we have focused most of our efforts and resources on developing our product candidates and conducting preclinical studies and clinical trials. We have historically financed our operations primarily through revenue generated from our collaborations with AbbVie and KKC, from sales of our securities, with secured loans, and ~~secured loans.~~most recently from 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 KKC, from the Development Agreement with BXLS, and from reimbursements of expenses under the

terms of our agreement with KKC. We have incurred losses in each year since our inception, other than in 2014. As of September 30, ~~2019,~~2020, we had ~~$240.1~~$578.3 million of cash and cash equivalents and an accumulated deficit of ~~$523.6~~$892.5 million.

~~On October 9, 2019, we and AbbVie entered into the~~ ~~Amended AbbVie~~ Agreement pursuant to which we reacquired the development, manufacturing, and commercialization rights concerning its proprietary Nrf2 activator product platform originally licensed to AbbVie in the License Agreement and the Collaboration Agreement. Except as otherwise set forth in the ~~Amended AbbVie~~ ~~Agreement, the other provisions of the License Agreement and the Collaboration Agreement have been terminated. Under the~~ ~~Amended AbbVie~~ Agreement, certain licenses granted to AbbVie will continue, for which AbbVie has granted exclusive sublicenses to us, resulting in our reacquiring worldwide rights to bardoxolone, excluding certain Asian countries that we previously licensed to KKC, and worldwide rights to omaveloxolone and the Second-Generation Activators, in each case that we had licensed to AbbVie under the License Agreement and the Collaboration Agreement. In exchange, we will pay AbbVie $330 million, of which $75 million is payable on December 8, 2019, $150 million is payable on June 30, 2020, and $105 million is payable on November 30, 2021. If we raise cash proceeds of $200 million or more in one or more equity offerings, we are required to prepay AbbVie $25 million, which prepayment will reduce the amount payable to AbbVie on November 30, 2021, from $105 million to $80 million. We also will pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a product-by-product basis, of omaveloxolone and an identified list of existing Second-Generation Activators. By reacquiring its rights, we were relieved from our obligations under the License Agreement and the Collaboration Agreement.

We continue to incur significant research and development and other expenses related to our ongoing operations. Despite contractual product development commitments and the potential to receive future ~~payment~~payments from KKC, we anticipate that we will continue to incur losses for the foreseeable future, and we anticipate that our losses will increase as we continue our development of, ~~and~~ seek regulatory approval for, and potential commercialization of our product candidates. If we do not successfully develop and obtain regulatory approval of our existing product candidates or any future product candidates and effectively manufacture, market, and sell any products that are approved, we may never generate revenue from product sales. Furthermore, even if we do generate revenue from product sales, we may never again achieve or sustain profitability on a quarterly or annual basis. 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.

Our revenue to date has been generated primarily from licensing fees received under our collaborative license agreements and reimbursements for expenses. We currently have no approved products and have not generated any revenue from the sale of products to date. In the future, we may generate revenue from product sales, royalties on product sales, reimbursements for collaboration services under ~~the KKC Agreement,~~our current collaboration agreements, or license fees, milestones, or other upfront payments if we enter into any new collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.

Our license and milestone revenue has been generated primarily from the KKC Agreement, the AbbVie License Agreement, ~~with AbbVie,~~ and the AbbVie Collaboration Agreement ~~with AbbVie~~ and consists of upfront payments and milestone payments. License revenue recorded with respect to the KKC Agreement, the AbbVie License Agreement, and the AbbVie 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. ~~The~~Under the Reacquisition Agreement, we no longer have performance obligations under the AbbVie License Agreement and the AbbVie Collaboration ~~Agreement with AbbVie were terminated under the~~ ~~Amended AbbVie~~ Agreement. The related remaining balance of deferred revenue for the License Agreement was fully recognized in 2017 and, as discussed below, the remaining deferred balance of $191.7 million related to the Collaboration Agreement will be terminated in the fourth quarter of 2019. Based on existing collaboration agreements, weWe only expect to recognize revenue under the KKC Agreement, which extends through 2021.

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 September 30, ~~2019,~~2020, we have incurred a total of ~~$734.7~~$896.6 million in research and development expense, ~~the~~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 candidate portfolio. The process of conducting the necessary 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 contract research organizations (CROs) that conduct and manage clinical trials 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. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

To date, we have not experienced ~~significant~~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.

Currently, KKC ~~is not participating in the development~~has allowed us to conduct clinical studies of bardoxolone in ~~CTD-PAH, ADPKD, or other~~certain rare forms of kidney diseases ~~but is reimbursing~~in Japan and has reimbursed us the majority of the costs for our ~~registrational trial in CKD caused by Alport syndrome~~CARDINAL study in Japan and is ~~responsible~~paying for the costs ~~for~~of a certain number of patients as the in-country caretaker in our ~~registrational trial in ADPKD~~FALCON study in Japan. ~~Our~~We reduced our expenses ~~were reduced~~ by $0.0 million and $0.5 million for KKC’s share of ~~the study~~CARDINAL costs for the nine months ended September 30, ~~2019.~~ 2020 and 2019, respectively.

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018		2020		2019		2020		2019
	(unaudited; in thousands)								(unaudited; in thousands)
Bardoxolone methyl	$	12,511	$	11,281	$	31,904	$	32,337	$	14,113	$	12,511	$	37,765	$	31,904
Omaveloxolone	$	5,999		6,817		17,478		14,105		5,770		5,999		20,711		17,478
RTA 901	$	560		62		1,616		328		1,527		560		3,489		1,616
RTA 1701	$	452		621		1,433		2,125		152		452		2,026		1,433
Other research and development expenses	$	12,757		8,363		35,517		23,084		15,621		12,757		57,629		35,517
Total research and development expenses	$	32,279	$	27,144	$	87,948	$	71,979	$	37,183	$	32,279	$	121,620	$	87,948

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 ~~employee-related expenses for~~ research and development ~~functions~~salaries, benefits, stock-based compensation and preclinical, research, and discovery costs, which we do not allocate on a program-specific basis.

General and administrative expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource functions. Other general and administrative expenses include personnel expense, 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 general and administrative expenses will increase in the future as we ~~increase~~prepare for our ~~headcount to support our continued research and development and~~ potential commercialization of our product candidates. We have also incurred, and anticipate incurring in the future, increased expenses associated with being a public company, including exchange listing and SEC requirements, director and officer insurance premium, legal, audit and tax fees, compliance with the Sarbanes-Oxley Act, regulatory compliance programs, and investor relations costs. ~~Based on positive results from CARDINAL~~Additionally, if and ~~MOXIe, and subject to discussions with~~when we believe the first regulatory ~~authorities,~~approval of one of our product candidates appears likely, we ~~plan to proceed with the submission of regulatory filings for marketing approval in the United States and internationally. Accordingly, we have increased and~~ anticipate ~~continued increases~~an increase in payroll and related expenses as a result of our preparation for commercial operations, especially for the sales and marketing of our product candidates.

Other income ~~represents~~(expense) includes interest and gains earned on our cash and cash equivalents, ~~which include money market funds.~~interest expense on term loans, amortization of debt issuance costs, imputed interest on long term payables, loss on extinguishment of debt, gain on termination of lease, foreign currency exchange gains and losses, gains and losses on sales of assets, and non-cash interest expense on liability related to the sale of future royalties.

Provision for taxes on income consists of net loss, taxed at federal tax rates and adjusted for certain permanent differences. We maintain a full valuation allowance against our net deferred tax ~~assets.~~assets in the United States. Changes in this valuation allowance also affect the tax provision.

Comparison of the Three Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)

The following table sets forth our results of operations for the three months ended September 30:

	2019			2018			Change $			Change %			2020			2019			Change $			Change %
	(in thousands)												(in thousands)
Collaboration revenue
License and milestone	$	7,898		$	4,766		$	3,132			66		$	1,182		$	7,898		$	(6,716	)		(85	)
Other revenue		344			409			(65	)		(16	)		219			344			(125	)		(36	)
Total collaboration revenue		8,242			5,175			3,067			59			1,401			8,242			(6,841	)		(83	)
Expenses
Research and development		32,279			27,144			5,135			19			37,183			32,279			4,904			15
General and administrative		14,283			7,486			6,797			91			18,314			14,283			4,031			28
Depreciation		258			105			153			146			289			258			31			12
Total expenses		46,820			34,735			12,085			35			55,786			46,820			8,966			19
Other income (expense)
Investment income		1,311			1,094			217			20
Interest expense		(2,389	)		(2,360	)		(29	)		(1	)
Total other income (expense)		(1,078	)		(1,266	)		188			15
Other income (expense), net														(11,164	)		(1,078	)		(10,086	)	**
Loss before taxes on income		(39,656	)		(30,826	)		(8,830	)		(29	)		(65,549	)		(39,656	)		(25,893	)		(65	)
Provision for taxes on income		38			9			29			322
Benefit from (provision for) taxes on income														93			(38	)		131		**
Net loss	$	(39,694	)	$	(30,835	)	$	(8,859	)		(29	)	$	(65,456	)	$	(39,694	)	$	(25,762	)		(65	)
** Percentage not meaningful

License and milestone revenue represented approximately ~~96%~~84% and ~~92%~~96% of total revenue for the three months ended September 30, 2020 and 2019, respectively, and ~~2018, respectively.~~consisted primarily of the recognition of deferred revenue. License and milestone revenue ~~increased~~decreased by ~~$3.1~~$6.7 million or ~~66%~~85% during the three months ended September 30, ~~2019~~,2020, compared to the three months ended September 30, ~~2018. A reduction~~2019, primarily due to the Reacquisition Agreement in October 2019, which ended our performance obligations under the AbbVie Collaboration Agreement and resulted in the writing off of the related remaining deferred revenue balance, after which no further revenue was recognized. Total revenue of $1.2 million was recognized during the three months ended September 30, 2020 from deferred revenue related to ~~an adjustment in the calculation of a regulatory milestone revenue included as variable consideration in the transaction price under~~ the KKC ~~Agreement was recognized in the prior year period. Since we did not have a similar event in the current period, the revenue increased by comparison.~~Agreement.

Other revenue was immaterial for the three months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

The following table summarizes the sources of our revenue for the three months ended September 30:

The following table summarizes our expenses, as a percentage of total expenses, for the three months ended September 30:

2019

2018

(in thousands)

License and milestone

Collaboration Agreement

$
6,717

$
6,717

KKC Agreement

1,181

(2,951
)
Other

—

1,000

Total license and milestone

7,898

4,766

Other revenue

344

409

Total collaboration revenue

$
8,242

$
5,175

	2020		% of Total Expenses			2019		% of Total Expenses
	(in thousands)
Research and development	$	37,183		66	%	$	32,279		68	%
General and administrative		18,314		33	%		14,283		31	%
Depreciation		289		1	%		258		1	%
Total expenses	$	55,786				$	46,820

Research and development expenses increased by ~~$5.1~~$4.9 million, or ~~19%~~15%, for the three months ended September 30, ~~2019,~~2020, compared to the three months ended September 30, ~~2018.~~2019. The increase was primarily due to ~~$3.3~~$5.1 million in increased ~~personnel and equity~~personnel-related stock-based compensation expenses related to ~~support~~the growth of our development activities ~~$0.9~~and $2.1 million in increased ~~medical affairs~~manufacturing and ~~other research activities, and $0.7 million caused by two components: increased manufacturing~~regulatory costs to support product registration ~~and startup activities for FALCON and the extension trials for our registrational programs, which were~~ offset by a decrease in clinical study expenses related to studies terminated in the first quarter 2020; and $1.9 million in decreased ~~clinical expenses due to fully enrolled and completed studies.~~

medical affairs expenses. Research and development expenses, as a percentage of total expenses, was ~~69%~~66% and ~~78%~~68% for the three months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively. The decrease of 9% was primarily due to a proportionately larger increase in general and administrative expenses such as personnel and equity compensation expenses and rent and office expenses to support growth in our development activities.

General and administrative expenses increased by ~~$6.8~~$4.0 million, or ~~91%~~28%, for the three months ended September 30, ~~2019,~~2020, compared to the three months ended September 30, ~~2018.~~ 2019. The increase was primarily due to ~~$3.3~~$4.9 million in increased personnel and ~~equity~~stock-based compensation expenses, ~~$1.7~~offset by a decrease of $0.7 million in ~~increased rent~~marketing and office expenses to support growth in our development activities, $0.3 million in increased professional fees related to audit, legal, and tax-related services, and $0.9 million in increase patent fees.

commercialization expenses. General and administrative expenses, as a percentage of total expenses, was ~~31%~~33% and ~~22%~~31%, for the three months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively. ~~The increase of 9% was primarily due to a proportionately larger increase in general and administrative expenses, compared to research and development expenses.~~

~~Depreciation was~~Other income (expense), net increased by ~~$0.2~~$10.1 million ~~or 146%,~~ for the three months ended September 30, ~~2019,~~2020, compared to the three months ended September 30, ~~2018,~~2019. The increase was primarily due to ~~increases in property and equipment~~$10.4 million from non-cash interest expense on liability related to ~~growth in personnel and office space.~~

~~Investment income increased by $0.2 million, or 20%, for~~ the ~~three months ended September 30, 2019, compared to the three months ended September 30, 2018, due to investment and interest income earned on higher average balances~~sale of ~~cash and cash equivalents.~~future royalties.

~~Interest expense during the three months ended September 30, 2019 was consistent with the three months ended September 30, 2018.~~

~~Provision for~~Benefit from taxes on income was immaterial for the three months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

Comparison of the Nine Months Ended September 30, 2020 and 2019 ~~and 2018~~ (unaudited)

The following table sets forth our results of operations for the nine months ended September 30:

	2019			2018			Change $			Change %			2020			2019			Change $			Change %
	(in thousands)												(in thousands)
Collaboration revenue
License and milestone	$	23,437		$	44,452		$	(21,015	)		(47	)	$	3,519		$	23,437		$	(19,918	)		(85	)
Other revenue		409			685			(276	)		(40	)		2,308			409			1,899		**
Total collaboration revenue		23,846			45,137			(21,291	)		(47	)		5,827			23,846			(18,019	)		(76	)
Expenses
Research and development		87,948			71,979			15,969			22			121,620			87,948			33,672			38
General and administrative		36,027			24,802			11,225			45			55,701			36,027			19,674			55
Depreciation		659			311			348			112			851			659			192			29
Total expenses		124,634			97,092			27,542			28			178,172			124,634			53,538			43
Other income (expense)
Investment income		4,812			1,787			3,025			169
Interest expense		(7,199	)		(3,773	)		(3,426	)		(91	)
Loss on extinguishment of debt		—			(1,007	)		1,007			100
Other income (expense)		7			—			7			100
Total other income (expense)		(2,380	)		(2,993	)		613			20
Other income (expense), net														(31,967	)		(2,380	)		(29,587	)	**
Loss before taxes on income		(103,168	)		(54,948	)		(48,220	)		(88	)		(204,312	)		(103,168	)		(101,144	)		(98	)
Provision for taxes on income		60			15			45			300
Benefit from (provision for) taxes on income														22,336			(60	)		22,396		**
Net loss	$	(103,228	)	$	(54,963	)	$	(48,265	)		(88	)	$	(181,976	)	$	(103,228	)	$	(78,748	)		(76	)
** Percentage not meaningful

License and milestone revenue represented approximately 60% and 98% of total revenue ~~for each of the nine months ended September 30, 2019 and 2018. License and milestone revenue decreased by $21.0 million, or 47%,~~ for the nine months ended September 30, 2020, and 2019, respectively, and consisted primarily of the recognition of deferred revenue. License and milestone revenue decreased by $19.9 million or 85% during the nine months ended September 30, 2020, compared to the nine months ended September 30, ~~2018. Additional revenue related~~2019, primarily due to ~~variable consideration that was included~~the Reacquisition Agreement in October 2019, which ended our performance obligations under the AbbVie Collaboration Agreement and resulted in the ~~transaction price under~~writing off of the ~~KKC Agreement~~related remaining deferred revenue balance, after which no further revenue was ~~recognized~~ ~~in the prior year period. Since we did not have a similar event in the current period, the~~recognized. Total revenue ~~decreased by comparison.~~

~~Other revenue decreased by $0.3~~of $3.5 million ~~or 40%,~~was recognized during the nine months ended September 30, ~~2019,~~2020 from deferred revenue related to the KKC Agreement.

Other revenue increased by $1.9 million for the nine months ended September 30, 2020, compared to the nine months ended September 30, ~~2018,~~2019, primarily due to ~~a decrease~~an increase in reimbursements of expenses from KKC for expenses incurred.

The following table summarizes the sources of our revenue for the nine months ended September 30:

The following table summarizes our expenses, as a percentage of total expenses, for the nine months ended September 30:

2019

2018

(in thousands)

License and milestone

Collaboration Agreement

$
19,931

$
19,931

KKC Agreement

3,506

23,521

Other

—

1,000

Total license and milestone

23,437

44,452

Other revenue

409

685

Total collaboration revenue

$
23,846

$
45,137

	2020		% of Total Expenses			2019		% of Total Expenses
	(in thousands)
Research and development	$	121,620		68	%	$	87,948		70	%
General and administrative		55,701		31	%		36,027		29	%
Depreciation		851		1	%		659		1	%
Total expenses	$	178,172				$	124,634

Research and development expenses increased by ~~$16.0~~$33.7 million, or ~~22%~~38%, for the nine months ended September 30, ~~2019,~~2020, compared to the nine months ended September 30, ~~2018.~~ 2019. The increase was primarily due to ~~$8.6~~$26.8 million in increased ~~personnel and equity compensation~~personnel-related expenses related to ~~support~~the growth of our development

activities ~~$3.3~~and accelerated recognition of stock-based compensation expense as a result of the death of an executive and employees who entered into consulting agreements at the termination of employment; $11.1 million in increased ~~medical affairs~~manufacturing and ~~other research activitiesto support our registrational trials, and~~ ~~$3.6 million caused by two components: increased manufacturing~~regulatory costs to support product registration and ~~startup activities for FALCON~~increased clinical pharmacology and ~~the extension trials~~toxicity study expenses for our ~~registrational~~RTA 901 and RTA 1701 programs, which were offset by a decrease in clinical study expenses related to studies terminated in the first quarter 2020; and $4.6 million in decreased ~~clinical expenses due to fully enrolled~~medical affairs and ~~completed studies.~~

research expenses. Research and development expenses, as a percentage of total expenses, was ~~71%~~68% and ~~74%~~70% for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively. The decrease of 3% is primarily due to a proportionately larger increase in general and administrative expenses such as personnel and equity compensation expenses and rent and office expenses to support growth in our development activities.

General and administrative expenses increased by ~~$11.2~~$19.7 million, or ~~45%~~55%, for the nine months ended September 30, ~~2019,~~2020, compared to the nine months ended September 30, ~~2018.~~ 2019. The increase was primarily due to ~~$8.4~~$19.0 million in increased personnel and ~~equity~~stock-based compensation expenses, ~~$3.8 million in increased rent and office expenses to support growth in our development activities, and~~ $0.9 million in increased ~~professional fees related to audit, legal, and tax-related services,~~insurance expenses, which were offset by a ~~decrease~~$0.2 million in ~~sublicense fees of $2.5 million~~marketing and ~~other expenses related to the achievement of a KKC milestone in 2018.~~

commercialization expenses. General and administrative expenses, as a percentage of total expenses, was ~~29%~~31% and ~~26%~~29%, for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively.~~The 3% increase was~~ ~~primarily due to a proportionately larger increase in general and administrative expenses, compared to research and development expenses.~~

~~Depreciation was~~Other income (expense), net increased by ~~$0.3~~$29.6 million ~~or 112%,~~ for the nine months ended September 30, ~~2019,~~2020, compared to the nine months ended September 30, ~~2018,~~2019. The increase was primarily due to ~~increases in property and equipment~~$11.2 million from loss on debt extinguishment, $11.1 million from non-cash interest expense on liability related to ~~growth~~the sale of future royalties, and $5.9 million of additional interest expense attributable to additional borrowings under the Term B Loan drawn in ~~personnel~~December 2019 and ~~office space.~~the payable due to collaborator related to the Reacquisition Agreement in October 2019.

~~Investment~~Benefit from taxes on income increased by ~~$3.0~~$22.2 million ~~or 169%,~~ for the nine months ended September 30, ~~2019,~~2020, compared to the nine months ended September 30, ~~2018,~~2019. The increase was primarily due to ~~investment and interest income earned on higher average balances~~a tax refund filed under the provisions of ~~cash and cash equivalents.~~

~~Interest expense increased by $3.4 million, or 91%, for~~ the ~~nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, due to additional borrowings under our Restated Loan Agreement entered in June 2018.~~

~~Provision for taxes on income was immaterial for the nine months ended September 30, 2019 and 2018.~~

~~Cash-based Operating Expenses (non-GAAP) for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)~~

Total expenses (GAAP) were $46.8 million and $124.6 million for the three and nine months ended September 30, 2019, respectively, compared to $34.7 million and $97.1 million for the three and nine months ended September 30, 2018, respectively. Our cash-based operating expenses (a non-GAAP measure calculated as total expenses, less stock-based compensation expense and depreciation expense) were $41.2 million and $109.9 million for the three and nine months ended September 30, 2019, respectively, compared to $31.9 million and $89.0 million for the three and nine months ended September 30, 2018, respectively.CARES Act.

We expect our cash-based operating expenses to continue to increase in the future as we advance bardoxolone and omaveloxolone through ongoing and future clinical trials, scale manufacturing for registrational and validation purposes, advance other product candidates into mid and later stage clinical trials, expand our product candidate portfolio, increase both our research and development and administrative personnel, and plan for commercialization of our product candidates.

We believe cash-based operating expenses, in addition to GAAP financial measures, provides a meaningful measure of our ongoing business and operating performance, by allowing investors to analyze our financial results similarly to how management analyzes our financial results by viewing period expense totals more indicative of effort directly expended to advance the business and our product candidates. The table below reconciles cash-based operating expenses to total expenses as reported on the Unaudited Consolidated Statements of Operations:

~~For additional information about our non-GAAP financial measure, see “—Non-GAAP Financial Measure”.~~

Since our inception, we have funded our operations primarily through collaboration and license agreements, the sale of preferred and common stock, secured loans, and ~~secured loans.~~the sale of future royalties. Through September 30, ~~2019,~~2020, we have raised gross cash proceeds of $476.6 million through the sale of convertible preferred stock and $780.0 million from payments under license and collaboration agreements. We also obtained ~~$402.3~~$944.7 million in net proceeds from our ~~IPO~~initial public offering, follow-on offerings, and ~~follow-on offerings~~the sale of our Class A common stock under the Purchase Agreement, and ~~$77.2~~$299.0 million in net proceeds from the sale of future royalties under the Development Agreement. We also obtained $151.6 million in net proceeds from our Amended Restated Loan ~~Agreement.~~Agreement, which we paid off in June 2020. We have not generated any revenue from the sale of any products. As of September 30, ~~2019,~~2020, we had available cash and cash equivalents of approximately ~~$240.1~~$578.3 million. Our cash and cash equivalents 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 nine months ended September ~~30 (unaudited):~~30:

	2019			2018			2020			2019
	(in thousands)						(in thousands)
Net cash (used in) provided by:
Operating activities	$	(101,776	)	$	(46,286	)	$	(277,200	)	$	(101,776	)
Investing activities		(2,420	)		(370	)		(539	)		(2,420	)
Financing activities		6,555			292,061			191,678			6,555
Net change in cash and cash equivalents	$	(97,641	)	$	245,405		$	(86,061	)	$	(97,641	)

Net cash used in operating activities was $277.2 million for the nine months ended September 30, 2020, consisting primarily of a net loss of $182.0 million adjusted for non-cash items including stock-based compensation expense of $45.7 million, loss on extinguishment of debt of $11.2 million, non-cash interest expense on liability related to sale of future royalty of $11.1 million, depreciation and amortization expense of $6.7 million, and a net increase in operating assets and liabilities of $169.1 million. The significant items in the change in operating assets that impacted our use of cash in operations were an increase in income tax receivable of $22.2 million and a decrease in payable to collaborators of $150.0 million for a payment made on June 30, 2020 under the Reacquisition Agreement.

Net cash used in operating activities was $101.8 million for the nine months ended September 30, 2019, consisting primarily of a net loss of $103.2 million adjusted for non-cash items including stock-based compensation expense of $14.1 million, depreciation and amortization expense of $1.7 million, and a net decrease in operating assets and liabilities of $14.4 million. The significant items in the change in operating assets that impacted our use of cash in operations include increases in accrued direct research and other current and long-term liabilities of $11.4 million primarily due to activities directly related to our clinical trials and other activities to support our registrational trials, an increase in prepaid expenses and other current assets of $1.9 million due to increases in prepaid subscriptions and insurance premiums, and decreases in amounts earned or due from collaboration agreements and deferred revenue of $23.4 million. The decrease in deferred revenue is due to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with AbbVie and KKC, which resulted in recognition of $23.4 million of license and milestone revenue.

~~Net cash used in operating activities was $46.3 million for the nine months ended September 30, 2018,~~ consisting primarily of a net loss of $55.0 million adjusted for non-cash items including stock-based compensation expense of $7.8 million, depreciation and amortization expense of $0.9 million, loss on extinguishment of debt of $1.0 million, and a net increase in operating assets and liabilities of $1.0 million. The significant items in the change in operating assets and liabilities include an increase in prepaid expenses, other current assets, and other assets of $1.3 million primarily due to receivables from KKC related to reimbursement for expenses incurred, an increase in accrued direct research and other current and long-term liabilities of $10.8 million due clinical trial activities, and a decrease in deferred revenue of $13.5 million. The decrease in deferred revenue is due to the ratable recognition of revenue over the expected term of the performance obligations under our collaboration agreements with AbbVie and KKC, which resulted in recognition of $43.5 million of license and milestone revenue, offset by the achievement of the regulatory milestone of $30 million related to the KKC Agreement, which was recognized as deferred revenue.

Net cash used in investing activities of $0.5 million and $2.4 million for the nine months ended September 30, 2020 and 2019, respectively, were primarily due to capital expenditures in connection with an expansion of our office space and ~~purchases~~our purchase of property and ~~equipment.~~equipment in 2019.

Net cash ~~used in investing~~provided by financing activities was $191.7 million for the nine months ended September 30, ~~2018 was not significant.~~

~~Financing Activities~~2020, primarily due to $55.4 million and $293.6 million in funding received from the Purchase Agreement and Development Agreement with BXLS, respectively, and $9.9 million from options exercised, offset by $167.2 million to pay off our Term Loans.

Net cash provided by financing activities of $6.6 million for the nine months ended September 30, 2019 were primarily due to stock option ~~exercises.~~

Net cash provided by financing activities of $292.1 million for the nine months ended September 30, 2018 were primarily due to net proceeds of $232.8 million from our follow-on public offering and $57.7 million from our Restated Loan Agreement.exercises.

To date, we have not generated any revenue from product sales. We do not know when or whether we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one or more of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all the risks related to the development and commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business. We continue to incur additional costs associated with operating as a public company. We anticipate that we will need substantial additional funding in connection with our continuing operations.

On October 1, 2020, we entered into the Plano Lease Agreement relating to our headquarters and offices located in Plano, Texas, with lease terms extending through June 30, 2022 with an option to renew up to three months. We will record approximately $4.8 million as a right-of-use asset and lease liability in October 2020.

On June 24, 2020, we closed on the Development Agreement and Purchase Agreement, each dated June 10, 2020, under which certain Blackstone 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 June 24, 2020, we paid off our Term Loans with Oxford Finance LLC and Silicon Valley Bank, which included payments for principal of $155.0 million, prepayment fees of $5.4 million, exit fees of $6.7 million, and accrued and unpaid interest of $1.0 million.

On March 27, 2020, the United States enacted the CARES Act. Under its provisions, for the nine months ended September 30, 2020, we recognized a tax benefit and receivable of $22.1 million associated with the ability to carryback an applicable prior year’s net operating losses to a preceding year to generate a refund.

On November 18, 2019, we closed a follow-on underwritten public offering of 2,760,000 shares of our Class A common stock for gross proceeds of $505.1 million. Net proceeds to us from the offering were approximately $491.9 million, after deducting underwriting discounts and commissions and offering expenses.

On October 15, 2019, we entered into athe Lease Agreement, relating to the lease of approximately 327,400 square feet of office and laboratory space located in Plano, Texas. The term of the Lease is estimated to commence mid-2022, when construction is completed, and continue for 16 years, with up to 10 years of extension at our option. The initial annual base rent will be determined based on the project cost, subject to an initial annual cap of approximately $13.3 million, which may increase in certain circumstances. Beginning in the third lease year, the base rent will increase 1.95% per annum each year. In addition to the annual base rent, we will pay for taxes, insurance, utilities, operating expenses, assessments under private covenants, maintenance and repairs, certain capital repairs and replacements, and building management fees.

On October 9, 2019, we and AbbVie entered into the ~~Amended AbbVie~~Reacquisition Agreement pursuant to which we reacquired the development, manufacturing, and commercialization rights concerning ~~its~~our proprietary Nrf2 activator product platform originally licensed to AbbVie in the AbbVie License Agreement and the AbbVie Collaboration Agreement. In exchange for such rights, we will pay AbbVie ~~$330~~$330.0 million, of which ~~$75~~$100.0 million ~~is payable on~~was paid as of December 8,31, 2019, ~~$150~~$150.0 million ~~is payable~~was paid on June 30, 2020, and ~~$105~~$80.0 million is payable on November 30, 2021. ~~If we raise cash proceeds of $200 million or more in one or more equity offerings, we are required to prepay AbbVie $25 million, which prepayment~~We will ~~reduce the amount payable to AbbVie on November 30, 2021, from $105 million to $80 million. We~~ also ~~will~~ pay AbbVie an escalating, low single-digit royalty on worldwide net sales, on a ~~product-by-product~~product-by-

product basis, of omaveloxolone and an identified list of existing Second-Generation Activators. As a result of entering into the Amended AbbVie Agreement, while we are finalizing our assessment of the accounting for the transaction, we anticipate that we will recognize a charge in the fourth quarter of 2019, which will reflect the repurchase of the rights and the termination of the future obligations on which the Company has deferred revenue recorded as of September 30, 2019.certain next-generation Nrf2 activators. The termination of our deferred revenue balance will not have an impact on our cash flow.

~~On October 9, 2019, we entered into the~~ ~~Amendment~~ with the Lenders, which amended the Restated Loan Agreement entered into among us and the Lenders on June 14, 2018. Under the Amendment, the Term B Loan availability was increased from $45 million to $75 million and the availability period was increased from within 30 days to 60 days after the achievement of the one of two milestones. As one of the milestones was achieved on October 14, 2019, the availability period will end on December 13, 2019. If we borrow under the Term B Loan, we expect to incur additional related interest expense. As of September 30, 2019, the current portion of the loan is $5.3 million, which is based on the interest-only payment period under the Term A Loan. If we draw the Term B Loan, the interest-only period will extend through June 1, 2021, and the current portion of the loan will be $0 until July 1, 2020.

On July 27, 2018, we closed a follow-on underwritten public offering of 3,450,000 shares of its Class A common stock for gross proceeds of $248.4 million. Net proceeds to us from the offering were approximately $232.8 million, after deducting underwriting discounts and commissions and offering expenses.

On June 14, 2018, we amended and restated our Loan Agreement. Under our Restated Loan Agreement, the Term A Loan was increased from $20.0 million to $80.0 million, of which Reata borrowed an additional $60.0 million on June 14, 2018, which resulted in an outstanding principal balance of $80.0 million under the Term A Loan at June 14, 2018.

In November 2017, we entered into an at-the-market equity offering sales agreement with Stifel, Nicolaus & Company, Incorporated, that established a program pursuant to which they may offer and sell up to $50.0 million of our Class A common stock from time to time in at-the-market transactions as stated in the prospectus supplement filed with the SEC pursuant to Rule 424(b)(5), dated as of November 9, 2017. To date, no sales have been made under the at-the-market offering program.

~~Under the~~ ~~Amended AbbVie~~ Agreement, we have significantly increased our current obligations, but we believe that our current cash, along with our access to additional equity or debt funding, will enable us to meet our current obligations through December 31, 2020. Our longer term liquidity requirements will require us to raise additional ~~capital.~~capital, such as through additional equity, debt, or royalty financings or collaboration arrangements. Our future capital requirements will depend on many factors, including the receipt of milestones under ~~the~~our KKC Agreement and the timing of our expenditures related to clinical trials. We believe our existing cash and cash equivalents will be sufficient to enable us to fund our operations through the end of 2023. However, we anticipate opportunistically raising additional capital before that time through equity offerings, collaboration or license agreements, additional debt, 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 ~~debt.~~royalty financing. Additional securities may include common stock, preferred stock, or debt securities. We may explore strategic collaborations or license arrangements for ~~certain~~any of our ~~earlier stage assets, including RTA 901 and RTA 1701.~~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 our product candidates, if ever, we expect to finance future cash needs through public or private equity or debt offerings, ~~commercial~~ loans, royalty financings, and collaboration or license ~~transactions, and royalty financings.~~transactions. The outbreak of COVID-19 has caused significant disruption of global financial markets, which may reduce our ability to access capital, which could negatively affect our liquidity. 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. ~~If we sell royalty interests, we may be required to make significant royalty payments for an extended period of time.~~ 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, ~~2018~~ 2019and in the Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019.~~March 31, 2020, under “Part II, Item 1A. Risk Factors.”

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.

~~As of September 30, 2019, there~~We have ~~been no material changes, outside of the ordinary course of business, in our outstanding~~various contractual obligations ~~from those disclosed within “Management’s Discussion~~ and ~~Analysis of Financial Condition and Results of Operations”, as contained in our Annual Report on Form 10-K for year ended December 31, 2018.~~

~~Below are~~other commitments that require payments at certain specified periods. The following table summarizes our contractual obligations and commitments as of September 30, ~~2019~~2020 (unaudited):

	Payments due by period								Payments due by period
	Less than 1 year		1 to 3 years		4 to 5 years		Total		Less than 1 year		1 to 3 years		4 to 5 years		Total
	(in thousands)								(in thousands)
Operating lease obligations(1)	$	3,336	$	2,424	$	—	$	5,760	$	606	$	799	$	—	$	1,405
Outstanding secured term loan		6,666		55,556		17,778		80,000
Payable to collaborators										—		80,000		—		80,000
Total contractual obligations	$	10,002	$	57,980	$	17,778	$	85,760	$	606	$	80,799	$	—	$	81,405

The terms of the Development Agreement require us to pay potential future royalty payments based on product development success. The above table excludes such obligations as the amount and timing of such obligations are unknown or uncertain, which are further described in Note 5, Liability Related to Sale of Future Royalties, to Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q.

As of September 30, ~~2019,~~2020, 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.

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 United States generally accepted accounting principles. 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 for the year ended December 31, ~~2018. During the quarter ended March 31, 2019 we adopted Topic 842. As a result of this adoption, we updated our Leases policies.~~2019. There have been no other changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

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 SEC.

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.

In addition to the U.S. GAAP financial measures, this Quarterly Report on Form 10-Q includes cash-based operating expenses, a non-GAAP financial measure, which the Company defines as total expenses excluding stock-based compensation expense and depreciation expense. A reconciliation of this non-GAAP financial measure to its most directly comparable U.S. GAAP financial measure is included in “—Results of Operations—Cash-based Operating Expenses (non-GAAP) for the three and nine months ended September 30, 2019 (unaudited)” above.

Non-GAAP financial measures should be considered in addition to, not in isolation or as a substitute for, U.S. GAAP financial measures. In addition, our non-GAAP financial measure may differ from similarly named measures used by other companies. You should carefully evaluate our non-GAAP financial measure, the adjustments included in our non-GAAP financial measure, and the reasons we consider it appropriate for analysis supplemental to our GAAP information. This non-GAAP financial measure has important limitations as an analytical tool due to the exclusion of some but not all items that affect the most directly comparable GAAP financial measure.

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 ~~$240.1~~$578.3 million at September 30, ~~2019,~~2020, consisting primarily of funds in operating cash accounts. 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 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 also have interest rate exposure as a result of our Term A Loan. As of September 30, 2019, the outstanding principal amount of our Term A Loan was $80.0 million. Our Term A Loan bears interest at a floating per annum rate calculated as 7.79% plus the greater of the 30-day U.S. Dollar LIBOR rate reported in The Wall Street Journal or 1.91%, with a minimum rate of 9.7% and a maximum rate of 12.29%. Changes in the U.S. Dollar LIBOR rate may therefore affect our interest expense associated with the Term A Loan. An increase of 100 basis points in interest rates would increase expense by approximately $0.8 million annually based on the amounts currently outstanding and would not materially affect our results of operations.

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.

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 September 30, ~~2019.~~2020. 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 ~~(15 U.S.C. 78a~~ ~~et seq.~~) 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 September 30, ~~2019,~~2020, 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.

There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and ~~15(d)-15(f)~~15d-15(f) promulgated under the Exchange Act, during the three months ended September 30, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~We are not currently subject~~For a discussion of material pending legal proceedings, please read Note 10, Commitments and Contingencies – Litigation, to ~~any material legal proceedings.~~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, ~~2018,~~ 2019, and our Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019,~~March 31, 2020, 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 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, ~~2018~~ 2019 and the Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019.~~March 31, 2020.

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	1617
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	3536
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	3637
Item 5.	Other Information	3637
Item 6.	Exhibits	3738
Signatures		3839

	As of September 30, 2019		As of December 31, 2018
	(in thousands)
Current portion of long-term debt¹	$	6,667	$	—
Less current portion of unamortized issuance cost		1,354		—
Total current portion of long-term debt, net of debt issuance cost		5,313		—

Principal Amount		80,000		80,000
Exit Fee		5,200		5,200
Less long-term unamortized issuance cost		3,610		5,981
Less current portion of long-term debt		6,667	$	—
Total long-term debt, net of current portion and debt issuance cost	$	74,923	$	79,219
¹ Current portion of principal payments reflects the interest-only payment period under the Term A Loan. If the Company draws the Term B Loan, the interest-only period will extend through June 1, 2021, and the current portion will be $0 until July 1, 2020.

	Liability Related to Sale of Future Royalties
	(in thousands)
Transaction date balance	$	294,454
Non-cash interest expense recognized, net of transaction cost amortization		11,077
Balance at September 30, 2020		305,531
Less: Unamortized transaction cost		(868	)
Carrying value at September 30, 2020	$	304,663

~~Program~~	~~Current Registrational Trial~~	~~Next Expected Milestone~~
~~CKD caused by Alport syndrome~~	~~CARDINAL~~	~~Regulatory Filings~~
~~Bardoxolone~~
FA	~~MOXIe~~	~~Regulatory Filings~~
~~Omaveloxolone~~
~~ADPKD~~	~~FALCON~~	~~Completion of Enrollment~~
~~Bardoxolone~~
~~CTD-PAH~~	~~CATALYST~~	~~Phase 3 Data~~
~~Bardoxolone~~

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

	Nine Months Ended September 30, 2018
	Common Stock A				Common Stock B						Additional Paid-In		Shareholder Notes			Total Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital		Receivable			Deficit			(Deficit) Equity
Balance at December 31, 2017		19,975,340	$	20		6,166,166		$	7		$	190,145	$	(2	)	$	(337,143	)	$	(146,973	)
Net loss		—		—		—			—			—		—			(54,963	)		(54,963	)
Compensation expense related to stock options		—		—		—			—			7,781		—			(18	)		7,763
Exercise of options		—		—		106,024			—			1,498		—			—			1,498
Proceeds from payments of shareholder promissory notes		—		—		—			—			6		2			—			8
Public offering of common stock, net of offering costs		3,450,000		4		—			—			232,843		—			—			232,847
Conversion of common stock Class B to Class A		458,625		—		(458,625	)		(1	)		—		—			—			(1	)
Adoption of new accounting guidance		—		—		—			—			—		—			(2,634	)		(2,634	)
Balance at September 30, 2018		23,883,965	$	24		5,813,565		$	6		$	432,273	$	—		$	(394,758	)	$	37,545

	Number Performance Based RSUs		Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2019		—		—
Granted		50,000		72.70
Vested		—		—
Forfeited		—		—
Outstanding at September 30, 2019		50,000		72.70

Hierarchy	Analysis Population	Pre-treatment Mean (SE)	Treatment Mean (SE)	Paired Difference Mean (SE)	p-value
1	Primary Population (n=34)	2.28 (0.49)	-1.47 (0.96)	-3.76 (1.13)	0.0022
2	Part 2 Placebo (n=14)	2.84 (1.05)	-1.79 (1.56)	-4.62 (1.89)	0.029
3	Part 1 (n=20)	1.90 (0.40)	-1.26 (1.25)	-3.15 (1.43)	0.040

Exhibit Number		Description

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		Second Amended and Restated Bylaws, dated as of December 7, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on December 7, 2016).

10.1+*		~~Indemnification Agreement by and between the Company and Manmeet S. Soni dated August 28, 2019.~~

10.2+*		~~Employment Agreement by and between the Company and Manmeet S. Soni dated August 28, 2019.~~

10.3+*		~~Restricted Stock Unit Agreement.~~

10.4+*		~~Notice of Grant of Restricted Stock Units for employees.~~

~~10.5#~~		Amended and Restated License Agreement, dated as of October 9, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on October 10, 2019).

~~10.6~~		~~First Amendment to Amended and Restated Loan and Security Agreement, dated as of October 9, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 0~~0~~1-37785), filed with the SEC on October 10, 2019).~~

~~10.7~~		~~Lease Agreement, dated as of October 15, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on October 16, 2019).~~

~~10.8~~		~~Expansion Agreement, dated as of October 15, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on October 16, 2019).~~

~~10.9#~~		Fifth Supplement to Exclusive License and Supply Agreement, dated August 22, 2019, between Reata Pharmaceuticals, Inc. and Kyowa Kirin Co., Ltd (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on August 22, 2019).

~~10.10#~~		Sixth Supplement to Exclusive License and Supply Agreement, dated August 22, 2019, between Reata Pharmaceuticals, Inc. and Kyowa Kirin Co., Ltd (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-37785), filed with the SEC on August 22, 2019).

31.1*		Certification of Principal Executive 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.

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

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: November ~~12, 2019~~9, 2020	REATA PHARMACEUTICALS, INC.

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

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