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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
_________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to_________.
Commission File Number: 001-38796
_________________________
GOSSAMER BIO, INC.
(Exact name of Registrant as specified in its charter).
_________________________
Delaware47-5461709
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3013 Science Park RoadSan DiegoCalifornia92121
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (858) 684-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value per shareGOSSNasdaq Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes    ☒       No     ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes      ☒     No      ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
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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 4, 2021, the registrant had 76,463,531 shares of common stock ($0.0001 par value) outstanding.
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
GOSSAMER BIO, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and par value amounts)
September 30, 2021December 31, 2020
ASSETS
Current assets
Cash and cash equivalents$213,474 $486,055 
Marketable securities152,546 26,573 
Restricted cash64 565 
Prepaid expenses and other current assets7,908 9,129 
Total current assets373,992 522,322 
Property and equipment, net5,621 5,534 
Operating lease right-of-use assets6,311 10,550 
Other assets1,114 1,027 
Total assets$387,038 $539,433 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable1,185 7,508 
Accrued research and development expenses13,806 10,431 
Accrued expenses and other current liabilities20,905 20,711 
Total current liabilities35,896 38,650 
Long-term convertible senior notes148,378 143,642 
Long-term debt28,991 28,744 
Operating lease liabilities - long-term3,964 7,713 
Total liabilities217,229 218,749 
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.0001 par value; 70,000,000 shares authorized; no shares issued or outstanding as of September 30, 2021 and December 31, 2020
  
Common stock, $0.0001 par value; 700,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 76,225,279 shares issued and
75,300,074 shares outstanding as of September 30, 2021, and 75,524,254 shares issued and 73,874,904 shares outstanding as of December 31, 2020
8 8 
Additional paid-in capital924,914 897,607 
Accumulated deficit(755,250)(577,530)
Accumulated other comprehensive income137 599 
Total stockholders' equity169,809 320,684 
Total liabilities and stockholders' equity$387,038 $539,433 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GOSSAMER BIO, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
Three months ended September 30,Nine months ended September 30,
2021202020212020
Operating expenses:
Research and development$43,190 $41,846 $129,335 $121,944 
In process research and development15 275 60 18,080 
General and administrative12,459 11,448 35,068 33,851 
Total operating expenses55,664 53,569 164,463 173,875 
Loss from operations(55,664)(53,569)(164,463)(173,875)
Other income (expense), net
Interest income191 580 525 3,076 
Interest expense(4,889)(4,715)(14,503)(7,913)
Other income (loss)115 (108)721 (44)
Total other expense, net(4,583)(4,243)(13,257)(4,881)
Net loss$(60,247)$(57,812)$(177,720)$(178,756)
Other comprehensive income (loss):
Foreign currency translation, net of tax(64)68 (274)59 
Unrealized gain (loss) on marketable securities, net of tax(73)(293)(188)25 
Other comprehensive income (loss)(137)(225)(462)84 
Comprehensive loss(60,384)(58,037)(178,182)(178,672)
Net loss per share, basic and diluted$(0.80)$(0.80)$(2.38)$(2.67)
Weighted average common shares outstanding, basic and diluted75,001,510 72,245,897 74,592,632 66,931,512 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GOSSAMER BIO, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
 
Common stockAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive income (loss)Total stockholders' equity
SharesAmount
Balance as of December 31, 202073,874,904 $8 $897,607 $(577,530)$599 $320,684 
Vesting of restricted stock238,962 — — — —  
Exercise of stock options5,721 — 15 — — 15 
Stock-based compensation— — 8,708 — — 8,708 
Issuance of common stock pursuant to Employee Stock Purchase Plan95,004 — 759 — — 759 
Issuance of common stock for restricted stock units vested278,559 — — — —  
Net loss— — — (57,641)— (57,641)
Other comprehensive loss— — — — (441)(441)
Balance as of March 31, 202174,493,150 $8 $907,089 $(635,171)$158 $272,084 
Vesting of restricted stock231,710 — — — —  
Exercise of stock options103,922 — 271 — — 271 
Stock-based compensation— — 8,054 — — 8,054 
Issuance of common stock for restricted stock units vested6,170 — — — —  
Net loss— — — (59,832)— (59,832)
Other comprehensive income— — — — 116 116 
Balance as of June 30, 202174,834,952 $8 $915,414 $(695,003)$274 $220,693 
Vesting of restricted stock228,084 — — — —  
Exercise of stock options171,252 — 1,357 — — 1,357 
Stock-based compensation— — 7,587 — — 7,587 
Issuance of common stock pursuant to Employee Stock Purchase Plan65,786 — 556 — — 556 
Net loss— — — (60,247)— (60,247)
Other comprehensive income— — — — (137)(137)
Balance as of September 30, 202175,300,074 $8 $924,914 $(755,250)$137 $169,809 
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Common stockAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive income (loss)Total stockholders' equity
SharesAmount
Balance as of December 31, 201961,635,477 $7 $686,390 $(334,170)$258 $352,485 
Vesting of restricted stock404,637 — — — —  
Exercise of stock options4,309 — 15 — — 15 
Stock-based compensation— — 8,244 — — 8,244 
Issuance of common stock pursuant to Employee Stock Purchase Plan49,889 — 556 — — 556 
Net loss— — — (54,074)— (54,074)
Other comprehensive loss— — — — (763)(763)
Balance as of March 31, 202062,094,312 $7 $695,205 $(388,244)$(505)$306,463 
Issuance of common stock in connection with public offering, net of underwriting discounts, commissions, and offering costs9,433,963 1 117,093 — — 117,094 
Equity component of convertible note issuance— — 53,635 — — 53,635 
Debt issuance costs attributable to
   convertible feature
— — (109)— — (109)
Vesting of restricted stock404,637 — — — —  
Exercise of stock options39,698 — 139 — — 139 
Stock-based compensation— — 8,900 — — 8,900 
Net loss— — — (66,870)— (66,870)
Other comprehensive income— — — — 1,072 1,072 
Balance as of June 30, 202071,972,610 $8 $874,863 $(455,114)$567 $420,324 
Vesting of restricted stock404,637 $— $— $— $— $ 
Exercise of stock options32,268 — 131 — — 131 
Stock-based compensation— — 8,923 — — 8,923 
Issuance of common
   stock pursuant to
   Employee Stock
   Purchase Plan
63,397 — 744 — — 744 
Other additional paid-in capital— — 16 — — 16 
Net loss — — — (57,812)— (57,812)
Other comprehensive loss— — — — (225)(225)
Balance as of September 30, 202072,472,912 $8 $884,677 $(512,926)$342 $372,101 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GOSSAMER BIO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine months ended September 30,
20212020
Cash flows from operating activities
Net loss$(177,720)$(178,756)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,292 1,044 
Stock-based compensation expense24,349 26,067 
In process research and development expenses60 18,080 
Amortization of operating lease right-of-use assets2,593 2,015 
Amortization of debt discount and issuance costs4,983 2,294 
Amortization of premium on investments, net of accretion of discounts186 24 
Net realized gain on investments (256)
Loss on disposal of property and equipment84 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets1,221 (3,340)
Other assets(87)698 
Operating lease liabilities(2,706)(1,294)
Accounts payable(6,808)10 
Accrued expenses4,715 2,768 
Accrued research and development expenses3,375 (7,019)
Accrued compensation and benefits(3,918)(1,959)
Net cash used in operating activities(148,381)(139,624)
Cash flows from investing activities
Research and development asset acquisitions, net of cash acquired(60)(18,080)
Purchase of marketable securities(143,897)(108,969)
Maturities of marketable securities17,550 199,029 
Sales of marketable securities 83,515 
Purchase of property and equipment(1,463)(1,253)
Net cash provided by (used in) investing activities(127,870)154,242 
Cash flows from financing activities
Proceeds from issuance of common stock in a public offering, net 117,110 
Proceeds from issuance of convertible debt, net 193,596 
Purchase of shares pursuant to Employee Stock Purchase Plan1,315 1,300 
Proceeds from the exercise of stock options1,643 285 
Net cash provided by financing activities2,958 312,291 
Effect of exchange rate changes on cash, cash equivalents and restricted cash211 (42)
Net increase (decrease) in cash, cash equivalents and restricted cash(273,082)326,867 
Cash, cash equivalents and restricted cash, at the beginning of the period486,620 135,089 
Cash, cash equivalents and restricted cash, at the end of the period$213,538 $461,956 
Supplemental disclosure of cash flow information:
Cash paid for interest$7,055 $1,911 
Supplemental disclosure of noncash investing and financing activities:
Right-of-use assets obtained in exchange for lease liabilities$ $3,106 
Derecognition ROU lease assets obtained in exchange for operating lease liabilities$1,650 $ 
Change in unrealized gain (loss) on marketable securities, net of tax$188 $25 
Unpaid property and equipment$ $83 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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GOSSAMER BIO, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Description of the Business
Gossamer Bio, Inc. (including its subsidiaries, referred to as “we,” “us,” “our,”, or the “Company”) is a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutics in the disease areas of immunology, inflammation and oncology. The Company was incorporated in the state of Delaware on October 25, 2015 (originally as FSG Bio, Inc.) and is based in San Diego, California.
The condensed consolidated financial statements include the accounts of Gossamer Bio, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions among the consolidated entity have been eliminated in consolidation.
Liquidity and Capital Resources
The Company has incurred significant operating losses since its inception. As of September 30, 2021, the Company had an accumulated deficit of $755.3 million. From the Company’s inception through September 30, 2021, the Company has funded its operations primarily through equity and debt financings. The Company raised $942.0 million from October 2017 through September 30, 2021 through Series A and Series B convertible preferred stock financings, a convertible note financing, its initial public offering, or IPO, its Credit Facility (as defined in Note 5 below), and concurrent underwritten public offerings of its 5.00% convertible senior notes due 2027 (the “2027 Notes”) and common stock in May 2020. See Note 5 for additional information regarding the Credit Facility and the 2027 Notes. In addition, the Company received $12.8 million in cash in connection with the January 2018 acquisition of AA Biopharma Inc.
The Company expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As a result, the Company will need to raise capital through equity offerings, debt financings and other capital sources, including potential collaborations, licenses and other similar arrangements. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these condensed consolidated financial statements were available to be issued. There can be no assurance that the Company will be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.
COVID-19
The COVID-19 pandemic has caused significant business disruption around the globe. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the pandemic worldwide and the impact on the Company’s clinical trials, employees and vendors. At this point, the degree to which COVID-19 may continue to impact the Company’s financial condition or results of operations remains uncertain. A prolonged pandemic could have a material and adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to complete certain clinical trials and other efforts required to advance the development of its product candidates and raise additional capital. For example, certain sites temporarily closed enrollment in the Company's Phase 2 clinical trial in pulmonary arterial hypertension ("PAH") in 2020 as a result of the COVID-19 pandemic and related staffing shortages at sites and key vendors. In addition, due to the challenges of enrolling patients worldwide posed by the COVID-19 pandemic, the Company has experienced and may continue to experience delays in enrollment of patients in its Phase 2 clinical trial of seralutinib, also known as GB002, in PAH, as well as delays in reporting data results from its ongoing trials.
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2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions of the Securities and Exchange Commission (“SEC”) on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021. The results of operations for the interim period shown in this report are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2020, has been derived from the audited financial statements at that date.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s condensed consolidated financial statements relate to the allocation of the 2027 Notes into liability and equity components and accrued research and development expenses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06, Debt: Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments and contracts in an entity's own equity. This guidance is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2020. The Company is currently assessing the impact this standard will have on its consolidated financial statements or related financial statement disclosures.
Net Loss Per Share
Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. The Company uses the if-converted method for assumed conversion of the 2027 Notes to compute the weighted average shares of common stock outstanding for diluted net loss per share. Diluted net loss per share excludes the potential impact of the Company’s common stock options and unvested shares of restricted stock and the potential shares issuable upon conversion of the 2027 Notes because their effect would be anti-dilutive due to the Company’s net loss. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per common share are the same.
The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per share as it would be anti-dilutive:
As of September 30,
20212020
2027 Notes12,321,900 12,321,900 
Shares issuable upon exercise of stock options9,540,332 10,266,895 
Non-vested shares under restricted stock grants3,020,509 4,530,998 
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3. Balance Sheet Accounts and Supplemental Disclosures
Property and Equipment
Property and equipment, net consisted of the following (in thousands):
Estimated
Useful Life
(in years)
September 30,
2021
December 31,
2020
Office equipment
3-7
$1,097 $1,153 
Computer equipment5123 123 
Software3130 116 
Lab equipment
2-5
5,605 4,210 
Leasehold improvements
6-7
2,562 2,540 
Construction in processN/A 15 
Total property and equipment9,517 8,157 
Less: accumulated depreciation3,896 2,623 
Property and equipment, net$5,621 $5,534 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
As of
September 30,
2021
December 31,
2020
Accrued compensation$9,591 $12,194 
Operating lease liabilities, current3,030 3,633 
Accrued professional service fees1,475 2,823 
Accrued interest, current3,558 1,094 
Accrued other806 742 
Accrued litigation liability, current2,400  
Accrued in process research and development45 225 
Total accrued expenses$20,905 $20,711 

4. Fair Value Measurements and Available for Sale Investments
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company classifies its cash equivalents and available-for-sale investments within Level 1 or Level 2. The fair value of the Company’s investment grade corporate debt securities and commercial paper is determined using proprietary valuation models and analytical tools, which utilize market pricing or prices for similar instruments that are both objective and publicly
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available, such as matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, and offers.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the hierarchy for assets measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 (in thousands):
Fair Value Measurements at End of Period Using:
Total
Fair Value
Quoted Market
Prices for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of September 30, 2021
Money market funds$154,055 $154,055 $ $ 
Commercial paper113,896  113,896  
Corporate debt securities38,650  38,650  
As of December 31, 2020
Money market funds$411,104 $411,104 $ $ 
U.S. Treasury and agency securities18,280 18,280   
Corporate debt securities26,573  26,573  
The Company did not reclassify any investments between levels in the fair value hierarchy during the periods presented.
Fair Value of Other Financial Instruments
As of September 30, 2021 and December 31, 2020, the carrying amounts of the Company’s financial instruments, which include cash, interest receivable, accounts payable and accrued expenses, approximate fair values because of their short maturities.
Interest receivable as of September 30, 2021 and December 31, 2020, was $0.2 million and $0.2 million, respectively, and is recorded as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets.
The Company believes that its Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and, accordingly, the carrying value of the Credit Facility approximates fair value. The Company estimates the fair value of long-term debt utilizing an income approach. The Company uses a present value calculation to discount principal and interest payments and the final maturity payment on these liabilities using a discounted cash flow model based on observable inputs. The debt instrument is then discounted based on what the current market rates would be as of the reporting date. Based on the assumptions used to value these liabilities at fair value, the debt instrument is categorized as Level 2 in the fair value hierarchy.
As of September 30, 2021, the fair value of the Company’s 2027 Notes was $213.0 million.  The fair value was determined on the basis of market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy (see Note 5).
Available for Sale Investments
The Company invests its excess cash in U.S. Treasury and agency securities and debt instruments of corporations and commercial obligations, which are classified as available-for-sale investments. These investments are carried at fair value and are included in the tables below.  The Company evaluates securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors. Realized gains and losses are calculated using the specific identification method and recorded as interest income or expense. The Company does not generally intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
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The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by security type, classified in marketable securities and long-term investments as of September 30, 2021 are as follows (in thousands):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Total
Fair Value
Marketable securities
Commercial paper$113,896 $ $ $113,896 
Corporate debt securities38,661 16 (27)38,650 
Total marketable securities$152,557 $16 $(27)$152,546 
At each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are due to credit-related factors. The Company records an allowance for credit losses when unrealized losses are due to credit-related factors. Factors considered when evaluating available-for-sale investments for impairment include the severity of the impairment, changes in underlying credit ratings, the financial condition of the issuer, the probability that the scheduled cash payments will continue to be made and the Company’s intent and ability to hold the investment until recovery of the amortized cost basis. The Company intends and has the ability to hold its investments in unrealized loss positions until their amortized cost basis has been recovered. As of September 30, 2021, there were no material declines in the market value of the Company’s available-for-sale investments due to credit-related factors.
Contractual maturities of available-for-sale debt securities, as of September 30, 2021, were as follows (in thousands):
Estimated
 Fair Value
Due within one year$144,888 
One to two years7,658 
Total$152,546 
The Company has the ability, if necessary, to liquidate any of its cash equivalents and marketable securities to meet its liquidity needs in the next 12 months. Accordingly, those investments with contractual maturities greater than one year from the date of purchase are classified as current assets on the accompanying condensed consolidated balance sheets.
5. Indebtedness
Credit Facility
On May 2, 2019, the Company entered into a credit, guaranty and security agreement, as amended on September 18, 2019 and July 2, 2020 (the “Credit Facility”), with MidCap Financial Trust (“MidCap”), as agent and lender, and the additional lenders party thereto from time to time (together with MidCap, the “Lenders”), pursuant to which the Lenders, including affiliates of MidCap and Silicon Valley Bank, agreed to make term loans available to the Company for working capital and general business purposes, in a principal amount of up to $150.0 million in term loan commitments, including a $30.0 million term loan that was funded at the closing date, with the ability to access the remaining $120.0 million in two additional tranches (each $60.0 million), subject to specified availability periods, the achievement of certain clinical development milestones, minimum cash requirements and other customary conditions. The Company, GB001, Inc., GB002, Inc., and GB004, Inc., each wholly-owned subsidiaries of the Company, are designated as co-borrowers to the Credit Facility, whereas GB003, Inc., GB005, Inc., GB006, Inc., GB007, Inc., GB008, Inc. and Gossamer Bio Services, Inc., each wholly-owned subsidiaries of the Company, are designated as guarantors. The remaining two tranches are available no earlier than the satisfaction of the applicable funding conditions, including the applicable clinical development milestones, and no later than December 31, 2022. As of September 30, 2021, no other tranches under the Credit Facility were available to be drawn. The Credit Facility is secured by substantially all of the Company’s and its domestic subsidiaries’ personal property, including intellectual property.
Each term loan under the Credit Facility bears interest at an annual rate equal to the sum of (i) one-month LIBOR (customarily defined, with a change to prime rate if LIBOR funding becomes unlawful or impractical) plus (ii) 7.00%, subject to a LIBOR floor of 2.00%.  The borrower is required to make interest-only payments on the term loan for all payment dates prior to July 1, 2022.  The term loans under the Credit Facility will begin amortizing on July 1, 2022, with equal monthly payments of principal plus interest being made by the Company to the Lenders in consecutive monthly installments following such interest-only period until the Credit Facility matures on January 1, 2025.  Upon final repayment of the term loans, the borrower must pay an exit fee of 1.75% of the amount borrowed under the Credit Facility, less any partial exit fees previously
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paid.  Upon partial prepayment of a portion of the term loans, the borrower must pay a partial exit fee of 1.75% of the principal being prepaid. At the borrower’s option, the borrower may prepay the outstanding principal balance of the term loan in whole or in part, subject to a prepayment fee of 3.00% of any amount prepaid if the prepayment occurs through and including the first anniversary of the second amendment effective date, 2.00% of the amount prepaid if the prepayment occurs after the first anniversary of the second amendment effective date through and including the second anniversary of the second amendment effective date, and 1.00% of any amount prepaid after the second anniversary of the second amendment effective date and prior to January 1, 2025.
The Credit Facility includes affirmative and negative covenants applicable to the Company and certain of its subsidiaries. The affirmative covenants include, among others, covenants requiring such entities to maintain their legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage, maintain property, pay taxes, satisfy certain requirements regarding accounts and comply with laws and regulations.  The negative covenants include, among others, restrictions on such entities from transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, amending material agreements and organizational documents, selling assets and suffering a change in control, in each case subject to certain exceptions.  The Company and certain of its subsidiaries are also subject to an ongoing minimum cash financial covenant in which they must maintain unrestricted cash in an amount not less than 25% of the outstanding principal amount of the term loans. As of September 30, 2021, the Company was in compliance with these covenants.
The Credit Facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 3.00% and would provide MidCap, as agent, with the right to exercise remedies against the Company and/or certain of its subsidiaries, and the collateral securing the Credit Facility, including foreclosure against the properties securing the credit facilities, including cash.  These events of default include, among other things, failure to pay any amounts due under the Credit Facility, a breach of covenants under the Credit Facility, insolvency or the occurrence of insolvency events, the occurrence of a change in control, the occurrence of certain U.S. Food and Drug Administration (“FDA”) and regulatory events, failure to remain registered with the SEC and listed for trading on Nasdaq, the occurrence of a material adverse change, the occurrence of a default under a material agreement reasonably expected to result in a material adverse change, the occurrence of certain defaults under certain other indebtedness in an amount greater than $2.5 million and the occurrence of certain defaults under subordinated indebtedness and convertible indebtedness.
Debt as of September 30, 2021 consisted of the following (in thousands):
September 30, 2021December 31, 2020
Term loan$30,000 $30,000 
Debt discount and issuance costs(1,009)(1,256)
Long-term debt$28,991 $28,744 
The scheduled future minimum principal payments are as follows (in thousands)
September 30, 2021
2021 (remaining 3 months)$ 
20225,806 
202311,613 
202411,613 
2025968 
Total$30,000 
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5.00% Convertible Senior Notes due 2027
On May 21, 2020, the Company issued $200.0 million aggregate principal amount of 5.00% convertible senior notes due 2027 in a public offering. The 2027 Notes were registered pursuant to the Company’s Shelf Registration Statement (as defined in Note 7 below). The interest rate on the 2027 Notes is fixed at 5.00% per annum. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2020. The 2027 Notes will mature on June 1, 2027. The net proceeds from the offering, after deducting the underwriting discounts and commissions and other offering costs, were approximately $193.6 million. The 2027 Notes may be settled in cash, shares of the Company’s common stock, or a combination thereof, solely at the Company’s election. The initial conversion rate of the 2027 Notes is 61.6095 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $16.23 per share, subject to adjustments. In addition, following certain corporate events that occur prior to the maturity date or if the Company issues a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its 2027 Notes in connection with such a corporate event during the related redemption period in certain circumstances. 
The 2027 Notes are senior unsecured obligations of the Company, ranking senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2027 Notes, and are effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness, including all indebtedness under the Credit Facility.
Holders may convert their notes at their option only in the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; (4) if the Company calls such notes for redemption; and (5) at any time from, and including, March 1, 2027 until the close of business on the scheduled trading day immediately before the maturity date.
The Company will not have the right to redeem the 2027 Notes prior to June 6, 2024. On or after June 6, 2024 and on or before the 50th scheduled trading day immediately before the maturity date, the Company may redeem the 2027 Notes, in whole or in part, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect on (1) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2)the trading day immediately before the date the Company sends such notice. In the case of any optional redemption, the Company will redeem the 2027 Notes at a redemption price equal to 100% of the principal amount of such Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
If the Company undergoes a fundamental change prior to the maturity date of the 2027 Notes, holders of the 2027 Notes may require the Company to repurchase for cash all or part of their 2027 Notes at a repurchase price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The indenture governing the 2027 Notes provides for customary terms and covenants, including that upon certain events of default, either the trustee or the holders of not less than 25% in aggregate principal amount of the 2027 Notes then outstanding may declare the unpaid principal amount of the 2027 Notes and accrued and unpaid interest, if any, thereon immediately due and payable. As of September 30, 2021, the Company was in compliance with these covenants. In the case of certain events of bankruptcy, insolvency or reorganization, the principal amount of the 2027 Notes together with accrued and unpaid interest, if any, thereon will automatically become and be immediately due and payable.
As of September 30, 2021, there were no events or market conditions that would allow holders to convert the 2027 Notes.  At the time the 2027 Notes become convertible within 12 months of the balance sheet date, the carrying value of the 2027 Notes will be reclassified to short-term.
In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components.  The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was $53.5 million and was determined by deducting the fair value of the liability component from the par
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value of the 2027 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The debt discount is amortized to interest expense over the term of the 2027 Notes at an effective interest rate of 11.17% over the contractual terms of the 2027 Notes.
In accounting for the debt issuance costs of $0.4 million related to the 2027 Notes, the Company allocated the total amount incurred to the liability and equity components of the 2027 Notes based on their relative fair values. Issuance costs attributable to the liability component were $0.3 million and will be amortized to interest expense using the effective interest method over the contractual terms of the 2027 Notes. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.
The net carrying amount of the liability component of the 2027 Notes was as follows (in thousands):
September 30, 2021December 31, 2020
Principal amount$200,000 $200,000 
Unamortized debt discount(51,367)(56,080)
Unamortized debt issuance cost(255)(278)
Net carrying amount$148,378 $143,642 
The net carrying amount of the equity component of the 2027 Notes was as follows (in thousands):
September 30, 2021December 31, 2020
Debt discount related to the value of conversion option$53,635 $53,635 
Debt issuance cost(109)(109)
Net carrying amount$53,526 $53,526 
The following table sets forth the interest expense recognized related to the 2027 Notes (in thousands):
Three months ended September 30,Nine months ended September 30,
2021202020212020
Contractual interest expense$2,500 $2,500 $7,472 $3,639 
Amortization of debt discount1,606 1,436 4,713 2,078 
Amortization of debt issuance cost7 7 23 10 
Total interest expense related to the 2027 Notes$4,113 $3,943 $12,208 $5,727 
6. Licenses, Asset Acquisitions and Contingent Consideration
The following purchased assets were accounted for as asset acquisitions as substantially all of the fair value of the assets acquired were concentrated in a group of similar assets and/or the acquired assets were not capable of producing outputs due to the lack of employees and early stage of development. Because the assets had not yet received regulatory approval, the fair value attributable to these assets was recorded as in process research and development (“IPR&D”) expenses in the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2021.
The Company accounts for contingent consideration payable upon achievement of certain regulatory, development or sales milestones in such asset acquisitions when the underlying contingency is met.
License from Pulmokine, Inc. (Seralutinib)
On October 2, 2017, the Company, entered into a license agreement with Pulmokine, Inc. under which it was granted an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Pulmokine to develop and commercialize seralutinib and certain backup compounds for the treatment, prevention and diagnosis of any and all disease or conditions. The Company also has the right to sublicense its rights under the license agreement, subject to certain conditions. The assets acquired are in the early stages of the FDA approval process, and the Company intends to further develop the assets acquired through potential FDA approval as evidenced by the milestone arrangement in the contract. The development activities cannot be performed without significant cost and effort by the Company. The agreement will remain in effect from the effective date, unless terminated earlier, until, on a licensed product-by-licensed product and country-by-country basis, the later of ten years from the date of first commercial sale or when there is no longer a valid patent claim covering such licensed product or specified regulatory exclusivity for the licensed product in such country. The Company is obligated to make future development and regulatory milestone payments of up to $63.0 million, commercial milestone payments of up to $45.0 million, and sales
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milestone payments of up to $190.0 million. The Company is also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging from the mid-single digits to the high single-digits. The Company made an upfront payment of $5.5 million in October 2017. In December 2020, the Company accrued a milestone payment of $5.0 million in connection with the initiation of the first Phase 2 clinical trial of seralutinib. As of September 30, 2021, no other milestones had been accrued as the underlying contingencies had not yet been met.
License from Aadi Bioscience, Inc. (GB004)
On June 24, 2018, the Company entered into a license agreement with Aerpio Pharmaceuticals, Inc., now known as Aadi Bioscience, Inc. (“Aadi”), under which the Company was granted an exclusive worldwide license and sublicense to certain intellectual property rights owned or controlled by Aadi to develop and commercialize GB004, and certain other related compounds for all applications. The Company made an upfront payment of $20.0 million in June 2018, which represented the purchase consideration for an asset acquisition. On May 11, 2020, the Company entered into an amendment to the license agreement with Aadi pursuant to which the Company made an upfront payment of $15.0 million to Aadi for a reduction in future milestone payments and royalties. Under the amended license agreement, the Company is obligated to make future approval milestone payments of up to $40.0 million and a sales milestone payment of $50.0 million. The Company also has the right to sublicense its rights under the license agreement, subject to certain conditions. The Company is also obligated to pay tiered royalties on sales for each licensed product, at percentages ranging from low- to mid-single digits, subject to certain customary reductions. Aadi retains its twenty percent (20.00%) participation right on a disposition of GB004. As of September 30, 2021, no milestones had been accrued as the underlying contingencies had not yet been met.
Adhaere Pharmaceuticals, Inc. Acquisition (GB1275)
On September 21, 2018, the Company acquired Adhaere Pharmaceuticals, Inc. (“Adhaere”) pursuant to a merger agreement for an upfront payment of $7.5 million in cash, and with the acquisition acquired the rights to GB1275 and certain backup compounds. The Company is obligated to make future regulatory, development and sales milestone payments of up to $62.0 million and pay tiered royalties on worldwide net sales, at percentages ranging from low to mid-single digits, subject to customary reductions. The Company recorded IPR&D of $7.5 million in connection with the acquisition of Adhaere. In May 2019, the Company made a milestone payment of $1.0 million in connection with the filing of the Investigational New Drug application for the GB1275 program. As of September 30, 2021, no other milestones had been accrued as the underlying contingencies had not yet been met.
The Company recorded the following IPR&D expense on the condensed consolidated statements of operations (in thousands):
Three months ended September 30,Nine months ended September 30,
2021202020212020
GB004 275  15,275 
Other preclinical programs15  60 2,805 
Total in process research and development$15 $275 $60 $18,080 
7. Stockholders’ Equity
Common stock
Each share of common stock is entitled to one vote. Common stock owners are entitled to dividends when funds are legally available and declared by the Board.
Shelf Registration Statement and Stock Offering
On April 10, 2020, the Company filed a universal shelf registration statement on Form S-3, covering the offering from time to time of common stock, preferred stock, debt securities, warrants and units, which registration statement became automatically effective on April 10, 2020 (the “Shelf Registration Statement”).
On May 21, 2020, the Company completed a public offering of 9,433,963 shares of its common stock at a public offering price of $13.25 per share. The net proceeds from the offering, after deducting underwriting discounts and commissions and other offering costs, were approximately $117.1 million. The shares sold in the offering were registered pursuant to the Company’s Shelf Registration Statement.
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Shares of Common Stock Subject to Repurchase
On December 3, 2015, the Company issued 9,160,888 shares of common stock as founder shares for services rendered to the Company, valued at $0.0001 par value per share, for a total of approximately $4,100 (the "founder shares"). On January 4, 2018, incremental vesting conditions were placed on the previously issued founder shares. Fifty percent of the previously issued founder shares vested on January 4, 2018, and the remaining founder shares are subject to vesting restrictions over a period of five years. These shares are subject to repurchase by the Company upon a founder's termination of employment or service to the Company.
Pursuant to the employment agreements with the Company’s founders executed January 4, 2018, the Company provided for certain potential additional issuances of common stock (the “anti-dilution shares”) to each of the founders to ensure the total number of shares of common stock held by them and their affiliates (inclusive of any shares subject to equity awards granted by the Company) would represent 15% of the Company’s fully-diluted capitalization until such time as the Company raised $300.0 million in equity capital, including the capital raised in the Series A financing.
In furtherance of this obligation, on May 21, 2018, the Company issued 251,547 shares of common stock to the founders for services rendered to the Company, valued at $2.61 per share with an additional 251,547 shares of restricted stock subject to the same vesting restrictions and vesting period as the founder shares. In addition, on September 6, 2018, the Company issued 1,795,023 shares of common stock to the founders for services rendered to the Company, valued at $9.63 per share, with an additional 1,795,023 shares of restricted stock subject to the same vesting restrictions and vesting period as the founder shares.
In November 2017, in connection with the issuance of the Series A convertible preferred stock, certain employees entered into stock restriction agreements, whereby 1,305,427 shares are subject to forfeiture by the Company upon the stockholder’s termination of employment or service to the Company.
During the nine months ended September 30, 2021, 25,389 shares were forfeited due to termination of employment. For the year ended December 31, 2020, 441,801 shares were forfeited due to termination of employment. Any shares subject to repurchase by the Company are not deemed, for accounting purposes, to be outstanding until those shares vest. As such, the Company recognizes the measurement date fair value of the restricted stock over the vesting period as compensation expense. As of September 30, 2021 and December 31, 2020, 925,208 and 1,649,348 shares of common stock were subject to repurchase by the Company, respectively. The unvested stock liability related to these awards is immaterial to all periods presented.
8. Equity Incentive Plans
2019 Equity Incentive Plan
In January 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Incentive Award Plan (the “2019 Plan”). The 2019 Plan became effective on February 6, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock or cash-based awards to individuals who are then employees, officers, directors or consultants of the Company, and employees and consultants of the Company’s subsidiaries. A total of 5,750,000 shares of common stock were approved to be initially reserved for issuance under the 2019 Plan. The number of shares that remained available for issuance under the 2017 Plan (as defined below) as of the effective date of the 2019 Plan were, and shares subject to outstanding awards under the 2017 Plan as of the effective date of the 2019 Plan that are subsequently canceled, forfeited or repurchased by the Company will be, added to the shares reserved under the 2019 Plan. In addition, the number of shares of common stock available for issuance under the 2019 Plan will be automatically increased on the first day of each calendar year during the ten-year term of the 2019 Plan, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 5% of the outstanding number of shares of the Company’s common stock on December 31 of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. As of September 30, 2021, an aggregate of 2,866,077 shares of common stock were available for issuance under the 2019 Plan and 8,710,907 shares of common stock were subject to outstanding awards under the 2019 Plan.
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2019 Employee Stock Purchase Plan
In January 2019, the Company’s board of directors and stockholders approved and adopted the 2019 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective as of February 6, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The ESPP permits participants to purchase common stock through payroll deductions of up to 20% of their eligible compensation. A total of 700,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP will be automatically increased on the first day of each calendar year during the first ten-years of the term of the ESPP, beginning with January 1, 2020 and ending with January 1, 2029, by an amount equal to 1% of the outstanding number of shares of the Company’s common stock on December 31 of the preceding calendar year or such lesser amount as determined by the Company’s board of directors. During the nine months ended September 30, 2021, 160,790 shares were issued pursuant to the ESPP. As of September 30, 2021, an aggregate of 1,844,007 shares of common stock were available for issuance under the ESPP.
2017 Equity Incentive Plan
The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) permitted the granting of incentive stock options, non-statutory stock options, restricted stock, restricted stock units and other stock-based awards. Subsequent to the adoption of the 2019 Plan, no additional equity awards can be made under the 2017 Plan. As of September 30, 2021, 2,924,731 shares of common stock were subject to outstanding options under the 2017 Plan, and 41,606 shares of restricted stock awards granted under the 2017 plan were unvested.
Stock Options
The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates its expected volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The following table summarizes stock option activity during the nine months ended September 30, 2021:
Shares Subject to
Options Outstanding
Weighted-
Average
 
SharesWeighted-
Average
Exercise
Price
Remaining
Contractual
Life
(Years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding as of December 31, 20209,401,082 $13.42 8.1$10,182 
Options granted2,923,501 $9.67 
Options exercised(280,895)$5.85 
Options forfeited/cancelled(2,503,356)$14.01 
Outstanding as of September 30, 20219,540,332 $12.33 7.5$22,958 
Options vested and exercisable as of September 30, 20214,521,056 $12.74 6.6$12,414 
The aggregate intrinsic value in the above table is calculated as the difference between fair value of the Company’s common stock price on September 30, 2021 and the exercise price of the stock options. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2021 was $0.7 million.
The weighted-average grant date fair value per share for the stock option grants during the nine months ended September 30, 2021 was $6.85.
The aggregate fair value of stock options that vested during the nine months ended September 30, 2021 was $17.3 million.
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Restricted Stock
The summary of the Company’s restricted stock activity is as follows:
Number of
Restricted
Stock Units
Outstanding
Weighted-
Average
Grant Date
Fair Value
Nonvested at December 31, 20203,330,821 $7.16 
Granted1,349,885