Biohaven Pharmaceutical Holding Co Ltd. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

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

Commission File Number: 001-38080

Biohaven Pharmaceutical Holding Company Ltd.

(Exact Name of Registrant as Specified in its Charter)


British Virgin Islands						Not applicable
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

c/o Biohaven Pharmaceuticals, Inc.
215 Church Street, New Haven, CT						06510
(Address of principal executive offices)						(Zip Code)

(203) 404-0410

(Registrant’s telephone number, including area code)

N/A

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

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Shares, no par value	BHVN	New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Small 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 7(a)(2)(B) of the Securities 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 5, 2020, the registrant had 59,939,166 common shares, without par value per share, outstanding.


	Table of Contents
		Page
Part I	Financial Information

Item 1.	Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	65

Part II	Other Information

Item 1.	Legal Proceedings	66
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68

Item 6.	Exhibits	69
Signatures		70

Form 10-Q Table of Contents

Part 1. Financial Information

Item 1. Condensed Consolidated Financial Statements


Index to Condensed Consolidated Financial Statements
						Page
Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019						2
Condensed Consolidated Statements of Operations for three and nine months ended September 30, 2020 and 2019						3
Condensed Consolidated Statements of Comprehensive Loss for three and nine months ended September 30, 2020 and 2019						4
Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2020 and 2019						5
Notes to Condensed Consolidated Financial Statements						6

Index to Condensed Consolidated Financial Statements

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)


	September 30, 2020		December 31, 2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	316,231	$	316,727
Marketable securities	229,983		—
Trade receivables, net	79,522		—
Inventories	20,131		—
Prepaid expenses and other current assets	62,418		11,554
Total current assets	708,285		328,281
Property and equipment, net	8,802		8,152


Equity method investment	1,866		5,338
Intangible assets, net	39,811		—

Other assets	23,251		2,493
Total assets	$	782,015	$	344,264
Liabilities and Shareholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	43,976	$	14,071
Accrued expenses and other current liabilities	126,267		52,102


Current portion of mandatorily redeemable preferred shares	46,875		—


Total current liabilities	217,118		66,173
Long-term debt	264,135		—
Liability related to sale of future royalties, net	318,594		144,111
Mandatorily redeemable preferred shares, net	119,456		103,646
Derivative liabilities	1,940		37,690



Other long-term liabilities	14,590		68
Total liabilities	935,833		351,688
Commitments and contingencies (Note 19)
Contingently redeemable non-controlling interests	60,000		—
Shareholders’ Equity (Deficit):
Common shares, no par value; 200,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 59,707,780 and 52,385,283 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	1,205,384		881,426
Additional paid-in capital	103,419		83,523
Accumulated other comprehensive income	251		—
Accumulated deficit	(1,521,433)		(972,373)
Total shareholders’ equity (deficit) attributable to Biohaven Pharmaceutical Holding Company Ltd.	(212,379)		(7,424)
Non-controlling interests	(1,439)		—
Total shareholders' equity (deficit)	(213,818)		(7,424)
Total liabilities and shareholders' equity (deficit)	$	782,015	$	344,264

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index to Condensed Consolidated Financial Statements

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Product revenue, net	$	17,664	$	—	$	28,513	$	—
Cost of goods sold	4,244		—		7,726		—
Gross profit	13,420		—		20,787		—
Operating expenses:
Research and development	57,044		61,674		155,539		278,654
Selling, general and administrative	119,533		28,778		339,936		65,467
Total operating expenses	176,577		90,452		495,475		344,121
Loss from operations	(163,157)		(90,452)		(474,688)		(344,121)
Other income (expense):

Interest expense	(4,608)		—		(4,835)		—
Non-cash interest expense on mandatorily redeemable preferred shares	(7,310)		(4,378)		(19,864)		(8,333)
Non-cash interest expense on liability related to sale of future royalties	(11,955)		(7,312)		(31,950)		(19,284)

Change in fair value of derivatives	(1,940)		(1,717)		(7,071)		(2,980)
Loss from equity method investment	(607)		(1,993)		(3,472)		(4,308)
Other	(3,062)		8		(3,278)		(25)
Total other expense, net	(29,482)		(15,392)		(70,470)		(34,930)
Loss before provision for income taxes	(192,639)		(105,844)		(545,158)		(379,051)
Provision for income taxes	3,989		323		5,341		490
Net loss	(196,628)		(106,167)		(550,499)		(379,541)
Less: Net loss attributable to non-controlling interests	(1,439)		—		(1,439)		—
Net loss attributable to Biohaven Pharmaceutical Holding Company Ltd.	$	(195,189)	$	(106,167)	$	(549,060)	$	(379,541)
Net loss per share attributable to Biohaven Pharmaceutical Holding Company Ltd. — basic and diluted	$	(3.27)	$	(2.04)	$	(9.42)	$	(8.04)
Weighted average common shares outstanding—basic and diluted	59,677,989		52,077,240		58,282,697		47,210,615

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index to Condensed Consolidated Financial Statements

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(196,628)	$	(106,167)	$	(550,499)	$	(379,541)
Other comprehensive income, net of tax:
Foreign currency translation adjustments	324		—		324		—

Net unrealized losses related to available-for-sale debt securities	(73)		—		(73)		—
Other comprehensive income	251		—		251		—
Comprehensive loss	(196,377)		(106,167)		(550,248)		(379,541)
Less: comprehensive loss attributable to non-controlling interests	(1,439)		—		(1,439)		—
Comprehensive loss attributable to Biohaven Pharmaceutical Holding Company Ltd.	$	(194,938)	$	(106,167)	$	(548,809)	$	(379,541)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index to Condensed Consolidated Financial Statements

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(550,499)	$	(379,541)
Adjustments to reconcile net loss to net cash used in operating activities:




Non-cash share-based compensation expense	43,206		34,855
Non-cash interest expense on mandatorily redeemable preferred shares	19,864		8,333
Non-cash interest expense on liability related to sale of future royalties	31,950		19,284
Non-cash expense related to license agreement	—		5,646

Change in fair value of derivatives	7,071		2,980
Loss from equity method investment	3,472		4,308
Depreciation and amortization	4,625		437
Other non-cash items	80		—
Changes in operating assets and liabilities:
Trade receivables, net	(79,522)		—
Inventories	(18,124)		—
Prepaid expenses and other current assets	(46,088)		1,494

Other assets	(45)		(352)
Accounts payable	27,898		810
Accrued expenses and other current liabilities	65,410		26,862
Other long-term liabilities	62		(2,000)
Net cash used in operating activities	(490,641)		(276,884)
Cash flows from investing activities:
Purchases of marketable securities	(230,233)		—
Purchases of property and equipment	(1,501)		(1,637)

Payments for leasehold improvements	(1,600)		—
Payments for intangible assets	(41,500)		—
Net cash used in investing activities	(274,834)		(1,637)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	264,000		—
Proceeds from issuance of common shares	283,333		303,221
Proceeds from sale of future royalties	147,476		—

Proceeds from sale of contingently redeemable non-controlling interests	60,000		—
Proceeds from obligation to perform R&D services	2,124		—
Proceeds from issuance of mandatorily redeemable preferred shares	—		125,000

Proceeds from exercise of warrants	—		1,998
Payments of issuance costs	(2,300)		(1,150)
Payment of term loan commitment fee	(2,000)		—
Proceeds from exercise of stock options	17,815		2,777

Repayment of principal for finance leases	(991)		—
Net cash provided by financing activities	769,457		431,846
Effect of exchange rate changes on cash, cash equivalents and restricted cash	324		—
Net increase in cash, cash equivalents and restricted cash	4,306		153,325
Cash, cash equivalents and restricted cash at beginning of period	317,727		264,249
Cash, cash equivalents and restricted cash at end of period	$	322,033	$	417,574
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,564	$	—
Cash paid for income taxes	$	1,406	$	835

The accompanying notes are an integral part of these condensed consolidated financial statements.

Index to Condensed Consolidated Financial Statements

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

1. Nature of the Business and Basis of Presentation

Biohaven Pharmaceutical Holding Company Ltd. (“we,” “us”, "our," "Biohaven" or the “Company”) was incorporated in Tortola, British Virgin Islands in September 2013. We are a biopharmaceutical company with a portfolio of innovative product candidates targeting neurological diseases, including rare disorders. The Company's lead product, NURTEC™ ODT (rimegepant), was approved by the U.S. Food and Drug Administration ("FDA") on February 27, 2020, and available by prescription in U.S. pharmacies on March 12, 2020. NURTEC ODT is the first and only calcitonin gene-related peptide ("CGRP") receptor antagonist available in a quick-dissolve orally dissolving tablet ("ODT") formulation that is approved by the FDA for the acute treatment of migraine in adults. Our other product candidates are based on multiple mechanisms — CGRP receptor antagonists, glutamate modulators and myeloperoxidase inhibition—which we believe have the potential to significantly alter existing treatment approaches across a diverse set of neurological indications with high unmet need in both large and orphan indications.

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry, including, but not limited to, the risks associated with developing product candidates at each stage of non-clinical and clinical development; the challenges associated with gaining regulatory approval of such product candidates; the risks associated with commercializing pharmaceutical products for marketing and sale; the potential for development by third parties of new technological innovations that may compete with the Company’s products; the dependence on key personnel; the challenges of protecting proprietary technology; the need to comply with government regulations; the high costs of drug development; and the uncertainty of being able to secure additional capital when needed to fund operations.

Subsequent to its May 2017 initial public offering, the Company has primarily raised funds through sales of equity in private placements and public offerings, sale of a revenue participation rights related to future royalties and debt financing. The Company has incurred recurring losses since its inception, had an accumulated deficit as of September 30, 2020, and expects to continue to generate operating losses during the commercial launch of NURTEC ODT. To execute its business plans, the Company will continue to require additional funding to support its continuing operations and pursue its growth strategy.

In January 2020, the Company issued and sold 4,830,917 common shares at a public offering price of $51.75 per share for net proceeds of approximately $245,877 after deducting underwriting discounts and commissions of approximately $3,623 and other offering expenses of approximately $500. In addition, in February 2020, the underwriter of the January follow-on offering exercised its option to purchase additional shares, and the Company issued and sold 724,637 common shares for net proceeds of approximately $36,956 after deducting underwriting discounts and commissions of approximately $543. Thus, the aggregate net proceeds to the Company from the follow-on offering, after deducting underwriting discounts and commissions and other offering costs, were approximately $282,833.

In August 2020, the Company and Biohaven Pharmaceuticals, Inc., the Company’s wholly-owned subsidiary (together with the Company, the "Borrowers"), entered into a five-year financing agreement (the "Sixth Street Financing Agreement") with Sixth Street Specialty Lending, Inc. as administrative agent, various lenders (the "Lenders") and certain of the Company's subsidiaries, as guarantors. Pursuant to the Sixth Street Financing Agreement, the Lenders agreed to extend a senior secured credit facility to the Borrowers providing for term loans in an aggregate principal amount up to $500,000. Also in August 2020, the Company entered into a funding agreement (the "2020 RPI Funding Agreement") with RPI 2019 Intermediate Finance Trust ("RPI 2019 IFT") providing for up to $250,000 of funding in exchange for rights to participation payments based on global net sales of products containing zavegepant and rimegepant and certain payments based on success-based milestones relating to zavegepant and entered into a share purchase agreement providing for the issuance and sale to RPI 2019 IFT of series B preferred shares for an aggregate purchase price of $200,000, payable in installments between 2021 and 2024 (the "Series B Preferred Shares"). For further detail on these August 2020 transactions see Note 4, “Fair Value of Financial Assets and Liabilities,” Note 9, “Liability Related to Sale of Future Royalties, net” and Note 18, "Debt."

In September 2020, the Company's Asia-Pacific subsidiary, BioShin Limited, issued and sold $60,000 Series A preferred shares (the "BioShin Series A Preferred Shares") to a group of investors led by OrbiMed, with participation from Cormorant Asset Management LLC, HBM Healthcare Investments Ltd, Surveyor Capital (a Citadel Company), and Suvretta Capital Management, LLC.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

1. Nature of the Business and Basis of Presentation (Continued)

As of November 9, 2020, the issuance date of our condensed consolidated financial statements, the Company expects that its cash, cash equivalents and marketable securities as of September 30, 2020, and the funds available from the Sixth Street Financing Agreement, and Series B Preferred Shares will be sufficient to fund its current forecast for operating expenses, including commercialization of NURTEC ODT, financial commitments and other cash requirements for more than one year. The Company may need to raise additional capital until it is profitable. If no additional capital is raised through either public or private equity financings, debt financings, strategic relationships, alliances and licensing agreements, or a combination thereof, the Company may delay, limit or reduce discretionary spending in areas related to research and development activities and other general and administrative expenses in order to fund its operating costs and working capital needs.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its controlled subsidiaries after elimination of all significant intercompany accounts and transactions. Investments in companies in which the Company owns less than a 50% equity interest and where it exercises significant influence over the operating and financial policies of the investee are accounted for using the equity method of accounting.

2. Summary of Significant Accounting Policies

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, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. As of September 30, 2020 cash equivalents was primarily comprised of money market funds. The Company had no cash equivalents as of December 31, 2019.

Restricted Cash

Restricted cash included in other current assets in the condensed consolidated balance sheet represents employee contributions to the Company's employee share purchase plan held for future purchases of the Company's outstanding shares. See Note 14 "Share-Based Compensation" for additional information on the Company's employee share purchase plan.

Restricted cash included in other assets in the condensed consolidated balance sheets represents collateral held by a bank for a letter of credit ("LOC") issued in connection with the leased office space in Yardley, Pennsylvania. See Note 19 ‘‘Commitments and Contingencies’’ for additional information on the real estate lease. The following represents a reconciliation of cash and cash equivalents in the condensed consolidated balance sheets to total cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flow:


	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	316,231	$	316,727
Restricted cash (included in other current assets)	4,802		—
Restricted cash (included in other assets)	1,000		1,000
Total cash, cash equivalents and restricted cash in the statement of cash flows	$	322,033	$	317,727

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

Marketable Securities

We invest our excess cash balances in marketable securities of highly rated financial institutions and investment-grade debt instruments. We seek to diversify our investments and limit the amount of investment concentrations for individual institutions, maturities and investment types. We classify marketable debt securities as available-for-sale and, accordingly, record such securities at fair value. We classify these securities as current assets as these investments are intended to be available to the Company for use in funding current operations.

Unrealized gains and losses on our marketable debt securities that are deemed temporary are included in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, we evaluate the extent to which the decline is determined to be other-than-temporary and would mark the security to market through a charge to our consolidated statement of operations. Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in operating results, with the amount of loss relating to other factors recorded in accumulated other comprehensive income (loss).

We utilize the specific identification method in computing realized gains and losses. Realized gains and losses on our marketable securities were not material for the three and nine months ended September 30, 2020.

Trade Receivables, Net

The Company’s trade accounts receivable consists of amounts due from pharmacy wholesalers in the U.S. (collectively, its "Customers") related to sales of NURTEC ODT and have standard payment terms. For certain Customers, the trade accounts receivable for the Customer is net of distribution service fees, prompt pay discounts and other adjustments. The Company monitors the financial performance and creditworthiness of its Customers so that it can properly assess and respond to changes in their credit profile. The Company reserves against trade accounts receivable for estimated losses that may arise from a Customer’s inability to pay and any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected. The reserve amount for estimated losses was not significant as of September 30, 2020.

Inventory

The Company values its inventories at the lower-of-cost or net realizable value. The Company determines the cost of its inventories, which includes costs related to products held for sale in the ordinary course of business, products in process of production for such sale and items to be currently consumed in the production of goods to be available for sale, on a first-in, first-out (FIFO) basis. Due to the nature of the Company’s supply chain process, inventory that is owned by the Company, is physically stored at third-party warehouses, logistics providers and contract manufacturers. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and writes down any excess and obsolete inventories to their net realizable value in the period in which the impairment is first identified. If they occur, such impairment charges are recorded as a component of cost of goods sold in the condensed consolidated statements of operations.

The Company capitalizes inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. Products which may be used in clinical development programs are excluded from inventory and charged to research and development expense as incurred. Prior to the initial date regulatory approval is received, costs related to the production of inventory are recorded as research and development expense on the Company’s condensed consolidated statements of operations in the period incurred. Following FDA approval of NURTEC ODT on February 27, 2020, the Company subsequently began capitalizing costs related to inventory manufacturing.

Intangible Assets

The Company had no intangible assets as of December 31, 2019. The Company is required to pay milestone payments of $41,500 related to the FDA approval and launch of NURTEC ODT. These milestone payments were capitalized as an intangible asset, and will be amortized to cost of goods sold over the remaining expected life of the patents. For the three and nine months ended September 30, 2020, the Company recognized $724 and $1,689, respectively, of amortization on the asset and recorded the expense to cost of goods sold.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

Estimated future amortization expense for the intangible assets subsequent to September 30, 2020 is a follows:


2020 (remaining three months)						724
2021						2,895
2022						2,895
2023						2,895
2024						2,895
Thereafter						27,506
						39,811

Impairment of Long-lived Assets

The Company monitors its long-lived assets and finite-lived intangibles for indicators of impairment. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets. The Company believes no impairment of long-lived assets existed as of September 30, 2020 or December 31, 2019.

Fair Value Measurements

Certain assets of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1— Quoted prices in active markets for identical assets or liabilities.

•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s Series A preferred shares derivative liability and Series B preferred shares forward contracts are carried at fair value, determined according to the fair value hierarchy described above (see Note 4).

Derivative Instruments

The Company recognizes all derivatives at fair value either as assets or liabilities in the condensed consolidated balance sheets and changes in fair value of such instruments are recognized in current period earnings, unless specific hedge accounting criteria are met on its derivative instruments. As of September 30, 2020, the Company accounted for its Series B preferred forward contract as a derivative instrument (see Note 4, and 10) . As of December 31, 2019, the Company accounted for certain scenarios as described in the Series A preferred shares agreement with RPI as a derivative liability (see Note 4).

Leases

The Company determines if an arrangement contains a lease at the inception of a contract. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at the

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

commencement date based on the present value of the remaining future minimum lease payments. If the interest rate implicit in the Company’s leases is not readily determinable, the Company utilizes an estimate of its incremental borrowing rate based on market sources including interest rates for companies with similar credit quality for agreements of similar duration, determined by class of underlying asset, to discount the lease payments. The operating lease right-of-use assets also include lease payments made before commencement and exclude lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the term of the short-term lease and variable lease costs are expensed as incurred.

For our real estate lease, the Company elected the practical expedient to include both the lease and non-lease components as a single component and account for it as an operating lease. In addition, payments made by the Company for improvements to the underlying asset, if the payment relates to an asset of the lessor, are recorded as prepaid rent within other assets in the condensed consolidated balance sheets and expensed as part of the amortization of the right-of-use asset. The commencement date for the Company's leased office space in Yardley, Pennsylvania occurred during the second quarter of 2020. In connection with the commencement of the office lease, the Company reclassified $2,850 for leasehold improvements related to assets of the lessor from prepaid rent to operating right-of-use asset. As of September 30, 2020, the Company had restricted cash of $1,000 included in other assets in the condensed consolidated financial statements, which represents collateral held by a bank for an LOC issued in connection with the leased office space in Yardley, Pennsylvania. The restricted cash is deposited in a non-interest bearing account. See Note 19 ‘‘Commitments and Contingencies’’ for additional information on the real estate lease.

For our vehicle leases, the Company elected the practical expedient to include both the lease and non-lease components as a single component and account for it as a finance lease. Each of the Company's vehicle leases are considered a single lease under a master service agreement, and each vehicle lease has a residual value guarantee equivalent to the wholesale value of the vehicle at termination of the lease. During the third quarter of 2020, the Company took delivery of the majority of its commercial car fleet. In connection with the vehicle leases, the Company recorded finance lease right-of-use assets in other assets and finance lease liabilities in other long-term liabilities on its condensed consolidated balance sheet. See Note 19 "Commitments and Contingencies" for additional information on the vehicle leases.

Foreign Currency Translation

The financial statements of our subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using period-end exchange rates for assets and liabilities, historical exchange rates for stockholders’ equity and weighted average exchange rates for operating results. Translation gains and losses are included in accumulated other comprehensive income (loss), net of tax, in stockholders’ equity. Foreign currency transaction gains and losses are included in other income (expense) in the condensed consolidated statement of operations.

Revenue Recognition

Pursuant to Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when a customer obtains control of promised goods or services. The Company records the amount of revenue that reflects the consideration that it expects to receive in exchange for those goods or services. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services that it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. The Company recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

Product Revenue, Net

The Company sells its product principally to its Customers in the United States. The Company’s Customers subsequently resell the products to pharmacies and health care providers. In accordance with ASC 606, the Company recognizes net product revenues from sales when the Customers obtain control of the Company’s products, which typically occurs upon delivery to the Customer. The Company’s payment terms are generally between 30 - 65 days.

Revenues from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from (a) invoice discounts for prompt payment and distribution service fees, (b) government and private payor rebates, chargebacks, discounts and fees, (c) product returns and (d) costs of co-pay assistance programs for patients, as well as other incentives for certain indirect customers. Reserves are established for the estimates of variable consideration based on the amounts earned or to be claimed on the related sales. The reserves are classified as reductions to trade receivable, net if payable to a Customer or accrued expenses if payable to a third-party. Where appropriate, the Company utilizes the expected value method to determine the appropriate amount for estimates of variable consideration based on factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The amount of variable consideration that is included in the transaction price may be constrained and is included in net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

Distribution Service Fees: The Company engages with wholesalers to distribute its products to end customers. The Company pays the wholesalers a fee for services such as: Data Reporting, Inventory Management, Chargeback Administration and Service Level Commitment. The Company estimates the amount of distribution services fees to be paid to the Customers and adjusts the transaction price with the amount of such estimate at the time of sale to the Customer.

Shelf Stock Adjustments: The Company provides its Customers with a shelf stock adjustment for all product inventories held by the customer upon any decrease in price. The Company estimates the Customer’s inventory levels and the probability of pricing adjustments using management forecasts, and adjusts the transaction price with the amount of such estimate at the time of sale to the Customer.

Prompt Pay Discounts: The Company provides its Customers with a percentage discount on their invoice if the Customers pay within the agreed upon timeframe. The Company estimates the probability of Customers paying promptly and the percentage of discount outlined in the agreement, and deducts the full amount of these discounts from its gross product revenues and accounts receivable at the time such revenues are recognized.

Product Returns: The Company provides Customers a return credit in the amount of the purchase price paid by Customers for all products returned in accordance with the Company’s returned goods policy. In the initial sales period, the Company estimates its provision for sales returns based on industry data and adjusts the transaction price with such estimate at the time of sale to the Customer. Once sufficient history has been collected for product returns, the Company utilizes that history to inform its estimate assumption. Once the product is returned, it is destroyed. The Company does not record a right-of-return asset.

Chargeback: A chargeback is the difference between the manufacturer's invoice price to the wholesaler and the wholesaler’s customers contract price. The wholesaler tracks these sales and "charges back" the manufacturer for the difference between the negotiated prices paid between the wholesaler's customers and wholesaler's acquisition cost. Biohaven estimates the percentage of goods sold that are eligible for chargeback and adjusts the transaction price for such discount at the time of sale to the Customer.

Administration Fees: Biohaven engages with Pharmacy Benefit Managers ("PBMs") to administer prescription-drug plans for people with third-party insurance through a self-insured employer, health insurance plan, labor union or government plan. The Company pays PBMs “administrative fees” for their role in providing utilization data, administering rebates, and administering claims payments. Biohaven estimates the amount of administration fees to be paid to PBMs and adjusts the transaction price with the amount of such estimate at the time of sale to the Customer.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

Rebates: Rebates apply to:

•Medicaid, managed care, expansion programs, the AIDS Drug Assistance Program, the State Pharmaceutical Assistance Program, and supplemental rebates to all applicable states as defined by the statutory government pricing calculation requirements under the Medicaid Drug Rebate Program;

•Tricare rebate to the TRICARE third party administrator based on the statutory calculation defined in the Agreement with Defense Health Agency; and

•Part D and Commercial Managed Care rebates are paid based on the contracts with PBMs and Managed Care Organizations. Rebates are paid to these entities upon receipt of an invoice from the contracted entity which is based on the utilization of the product by the members of the contracted entity.

The Company estimates the percentage of goods sold that are eligible for rebates and adjusts the transaction price for such discounts at the time of sale to the Customers.

Coverage Gap: The Medicare Part D coverage gap (also called the "donut hole") is a period of consumer payment for prescription medication costs which lies between the initial coverage limit and the catastrophic-coverage threshold, when the patient is a member of a Medicare Part D prescription-drug program administered by the Centers for Medicare & Medicaid Services. The Company estimates the percentage of goods sold under Coverage Gap and adjusts the transaction price for such discount at the time of sale to the Customer.

Bridge Program: A Bridge Program helps start a patient on a new therapy, especially in cases where payers may have barriers (e.g. prior authorizations and appeals) in place before agreeing to pay for a new drug. Under a Bridge Program the Customer distributes the product free of cost to eligible individuals for a period of time. The Company estimates the percentage of Bridge Program product to be provided at each sale to the customer and adjusts the transaction price with the amount of such estimate. The Company does not recognize revenue on Bridge program provided products. The volume of drug to be supplied under the Bridge Program is estimated by the Company at the time of sale to the Customer.

Stocking Allowance: The Company offers a stocking allowance for new product launches. Stocking allowances are one-time payments that a manufacturer makes to a wholesaler as a condition of the initial placement of the manufacturer’s products in the wholesaler’s warehouse. The Company uses the agreed upon fees and its forecasts for initial product sales to calculate the stocking allowance and adjusts the transaction price with the amount of such estimate at the time of sale to the Customer.

The Company makes significant estimates and judgments that materially affect its recognition of net product revenue. Claims by third-party payors for rebates, chargebacks and discounts frequently are submitted to the Company significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. The Company will adjust its estimates based on new information, including information regarding actual rebates, chargebacks and discounts for its products, as it becomes available.

Cost of Goods Sold

Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of NURTEC ODT, including third-party manufacturing costs, packaging services, freight-in, third-party royalties payable on the Company’s net product revenues and amortization of intangible assets associated with NURTEC ODT. Cost of goods sold may also include period costs related to certain inventory manufacturing services and inventory adjustment charges. In connection with the FDA approval of NURTEC on February 27, 2020, the Company subsequently began capitalizing inventory manufactured or purchased after this date. As a result, certain manufacturing costs associated with product shipments of NURTEC ODT were expensed prior to FDA approval and, therefore, are not included in cost of goods sold during the current period. These previously expensed costs were not material for the three and nine months ended September 30, 2020.

Advertising Costs

We expense the costs of advertising as incurred. We incurred and expensed advertising costs in the amount of $33,086 and $72,601 for the three and nine months ended September 30, 2020, respectively, and none for the three and nine months ended September 30, 2019. These costs were included in selling, general and administrative expenses in the condensed consolidated statements of operations.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist of cash, cash equivalents, and marketable securities. Our cash management policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, supranational and sovereign obligations, certain qualifying money market mutual funds, certain repurchase agreements, and places restrictions on credit ratings, maturities, and concentration by type and issuer. We are exposed to credit risk in the event of a default by the financial institutions holding our cash, cash equivalents and marketable securities to the extent recorded on the balance sheet.

We are also subject to credit risk from our accounts receivable related to our product sales. We monitor our exposure within accounts receivable and record a reserve against uncollectible accounts receivable as necessary. We extend credit primarily to pharmaceutical wholesale distributors. Customer creditworthiness is monitored and collateral is not required. Historically, we have not experienced credit losses on our accounts receivable and as of September 30, 2020, allowances on receivables was not material.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. The accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2020 and the results of its operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods or any future year or period. The financial information included herein should be read in conjunction with the financial statements and notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Recently Adopted Accounting Pronouncements

Effective January 1, 2020 the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This ASU provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model. This new standard amends the current guidance on the impairment of financial instruments and adds an impairment model known as current expected credit loss ("CECL") model that is based on expected losses rather than incurred losses. Under the new guidance, an entity will recognize as an allowance its estimate of expected credit losses. The FASB subsequently issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, derivatives and Hedging, and Topic 825, Financial Instruments and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses to clarify and address certain items related to the amendments in ASU 2016-13. ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition relief, was issued to provide entities that have certain instruments within the scope of ASC 326 with an option to irrevocably elect the fair value option under ASC 825-10, Financial Instruments - Overall, applied on an instrument-by-instrument basis for eligible instruments. The adoption of ASU 2016-13 did not have an effect on the Company's condensed consolidated financial statements as the Company's first trade accounts receivables were recorded following the adoption.

Effective January 1, 2020 the Company adopted ASU No. 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 ("ASU 2018-15"), a new standard on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement ("CCA") that aligns the requirements for capitalizing implementation costs in a CCA service contract with existing internal-use software guidance. The standard also provides classification guidance

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

2. Summary of Significant Accounting Policies (Continued)

on these implementation costs as well as additional quantitative and qualitative disclosures. The adoption of ASU 2018-15 did not have an effect on the Company’s condensed consolidated financial statements.

Effective January 1, 2020 the Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which modifies the disclosure requirements on fair value measurements. The adoption of ASU 2018-13 had no effect on the Company’s condensed consolidated financial statements and no significant effect on the related fair value disclosures.

In March 2020, the FASB issued ASU 2020-03. This ASU improves and clarifies various financial instruments topics, including the CECL standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The Company adopted ASU 2020-03 on issuance. The adoption of ASU 2020-03 did not have a significant effect on the Company's condensed consolidated financial statements.

Future Adoption of New Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its condensed consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The new standard addresses accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts to acquire investments. The standard is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. Adoption of the standard requires changes to be made prospectively. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its condensed consolidated financial statements.

In August 2020 the FASB issued ASU No. 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update addresses issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. The amendments in ASU 2020-06 are effective for fiscal years beginning after December 15, 2021, with early adoption permitted but no earlier that fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption of the standard requires changes to be made through either a modified retrospective method of transition or a fully retrospective method. In applying the modified retrospective method, the updated guidance is applied to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. The Company is currently evaluating the impact that the adoption of ASU 2020-06 will have on its condensed consolidated financial statements.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

3. Marketable Securities

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of available-for-sale debt securities by type of security at September 30, 2020 was as follows:


	Amortized Cost		Allowance for Credit Losses		Net Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate bonds
U.S.	$	136,664	$	—	$	136,664	$	3	$	(69)	$	136,598
Foreign	16,084		—		16,084		—		(14)		16,070
Government related obligations
U.S.	79,947		—		79,947		7		—		79,954

Total	$	232,695	$	—	$	232,695	$	10	$	(83)	$	232,622

The Company had no available-for-sale debt securities at December 31, 2019.

The Company had 39 available-for-sale debt securities in an unrealized loss position, with an aggregate fair value of $141,493, as of September 30, 2020. As of September 30, 2020, the Company did not intend to sell these securities, and did not believe it was more likely than not that it would be required to sell these securities prior to the anticipated recovery of their amortized cost basis. We did not have any investments in a continuous unrealized loss position for more than twelve months as of September 30, 2020.

The fair values of debt securities available-for-sale by classification in the condensed consolidated balance sheets were as follows:


	September 30, 2020
Cash and cash equivalents	$	2,639
Marketable securities	229,983

Total	$	232,622

The net amortized cost and fair value of debt securities available-for-sale at September 30, 2020 are shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity.


	Net Amortized Cost		Fair Value
Due to mature:
Less than one year	$	224,672	$	224,615
One year through five years	8,023		8,007
Total	$	232,695	$	232,622

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

3. Marketable Securities (continued)

Net Investment Income

Sources of net investment income included in other under other income (expense) in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020		2020
Gross investment income from debt securities available-for-sale	$	36	$	36
Investment expenses	—		—
Net investment income (excluding net realized capital gains or losses)	36		36
Net realized capital gains (losses)	—		—
Net investment income	$	36	$	36

The Company had no net investment income during the three and nine months ended September 30, 2019.

The Company had no maturities or sales of available-for-sale debt securities or resulting realized gains and losses for the three and nine months ended September 30, 2020.

4. Fair Value of Financial Assets and Liabilities

The Company held financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020, and held no financial assets measured at fair value on a recurring basis as of December 31, 2019.

The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, and indicate the level of the fair value hierarchy utilized to determine such fair value:


		Fair Value Measurement as of September 30, 2020 Using:
Balance Sheet Classification	Type of Instrument	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	Money market funds	$	167,343	$	—	$	—	$	167,343
Cash equivalents	U.S. corporate bonds	—		2,639		—		2,639
Marketable securities	U.S. treasury bills	—		79,954		—		79,954
Marketable securities	U.S. corporate bonds	—		133,959		—		133,959
Marketable securities	Foreign corporate bonds	—		16,070		—		16,070
Total assets		$	167,343	$	232,622	$	—	$	399,965

Liabilities:
Series B preferred shares forward contracts		—		—		1,940		1,940
Total liabilities		$	—	$	—	$	1,940	$	1,940

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

4. Fair Value of Financial Assets and Liabilities (Continued)


	Fair Value Measurement as of December 31, 2019 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Series A preferred shares derivative liability	$	—	$	—	$	37,690	$	37,690
Total liabilities	$	—	$	—	$	37,690	$	37,690

There were no securities transferred between Level 1, 2 and 3 during the nine months ended September 30, 2020.

The fair value of the Company's long-term debt, classified as a Level 2 liability, approximates its carrying value of $264,135 at September 30, 2020.

The Company had no financial assets carried on the condensed consolidated balance sheets at adjusted cost that required an estimated fair value at September 30, 2020 and no financial assets and liabilities carried on the condensed consolidated balance sheets carried at adjusted cost that required an estimated fair value at December 31, 2019.

Valuation of Series A Preferred Shares Derivative Liability

The following table provides a roll forward of the aggregate fair value of the Company’s Series A preferred shares derivative liability (see Note 10) for which fair value is determined by Level 3 inputs for the nine months ended September 30, 2020 and 2019:


	Series A Derivative Liability



Balance at December 31, 2019	$	37,690
Change in fair value	5,131
Settlement of Series A preferred shares derivative liability	(42,821)
Balance at September 30, 2020	$	—

Transaction date balance	$	33,815
Change in fair value	2,980

Balance at September 30, 2019	$	36,795

The fair value of the derivative liability recognized in connection with the Series A preferred shares agreement with RPI, as described in Note 10, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the derivative liability relates to certain scenarios outlined in the agreement that would result in accelerated payments as compared to the agreement's host instrument. The with-and-without valuation method was used to determine the fair value of the embedded derivatives within the agreement.

As inputs into the valuation, the Company considered the type and probability of occurrence of certain events, the amount of the payments, the expected timing of certain events, and a risk-adjusted discount rate using credit spreads of biopharmaceutical companies in similar stages of development to the Company. In accordance with ASC 815, Derivatives and Hedging, the fair value of the derivative was recorded on the balance sheet as a Series A preferred shares derivative liability with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations.

Upon the FDA's approval of NURTEC ODT the Company remeasured the derivative using the inputs noted above. In the first quarter of 2020, the Company partially settled the derivative liability associated with this approval of $42,821, which modified the timing of the payment obligation related to the redeemable preferred share liability. During the second quarter of 2020, the Company recorded a $650 gain in other income in its condensed consolidated statement of operations.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

4. Fair Value of Financial Assets and Liabilities (Continued)

Valuation of Liability Related to Sale of Future Royalties

In June 2018, and as described in Note 9, the Company entered into a funding agreement with RPI, accounted for as a liability financing. As of September 30, 2020, the fair value of the liability related to sale of future royalties, used in determining the effective interest rate of the liability, is based on the Company's current estimates of future royalties expected to be paid to RPI over the life of the arrangement, which is considered Level 3.

Series B Preferred Shares Forward Contracts

The following table provides a roll forward of the aggregate fair value of the Company's Series B Preferred Shares Forward Contracts for which fair value is determined by Level 3 inputs for the nine months ended September 30, 2020:


	Forward Contracts



Transaction date balance	$	—
Change in fair value	1,940

Balance at September 30, 2020	$	1,940

In August 2020, the Company entered into Series B preferred share agreement, whereby RPI will invest in the Company through the purchase of up to 3,992 Series B preferred shares at a price of $50,100 per share (the "RPI Series B Preferred Share Agreement"). The gross proceeds from the transaction with RPI will be used for the clinical development of zavegepant and other general corporate purposes. The shares will be issued in quarterly increments from March 31, 2021 to December 31, 2024.

The holders of the Company's outstanding Series B Preferred Shares will have the right to require redemption of the shares in certain circumstances. If a Change of Control occurs, as defined in the Company's memorandum and article of association, and the Series B Preferred Shares have not previously been redeemed, the holders of a majority of outstanding Series B Preferred Shares will have an option to redeem outstanding shares in a single payment at a price equal to 1.77 times the original issuance price of the Series B Preferred Shares.

The Company may redeem the Series B Preferred Shares at its option at any time in a single payment at a price equal to 1.77 times the original issuance price of the Series B Preferred Shares.

The Company is required to redeem the Series B Preferred Shares for 1.77 times the original purchase price, payable beginning March 31, 2025 in equal quarterly installments through December 31, 2030. Accordingly, the Company has concluded that the agreement to issue Series B Preferred Shares at a future date represents a forward contract, and classified as a derivative. The Company initially measured the forward contract at a fair value of zero. For detail of the transaction, see Note 9, "Liability Related to Sale of Future Royalties, net."

The Company will subsequently remeasure the fair value and recognize any gains or losses through other income (expense) in its condensed consolidated statement of operations. From the transaction date in August 2020 through September 30, 2020 the Company recognized $1,940 expense in other expense.

The fair value of the derivative recognized in connection with the RPI Series B Preferred Share Agreement was determined based on significant inputs not observable in the market, and therefore represents a Level 3 measurement within the fair value hierarchy. The fair value of the derivative primarily relates to the difference between the fair value of the Series B Preferred Shares and the contractual future purchase price. The fair value of the Series B Preferred Shares is calculated based on the cash flows to RPI (1.77 times the original purchase price as scheduled or accelerated upon certain events, as described previously) and the Company's estimated cost of capital for those cash flows. The cash flows to RPI are based on probability adjusted cash flows from certain scenarios outlined in the agreement that would result in accelerated payments modeled using a Monte Carlo simulation. As inputs into the valuation, the Company considered the type and probability of occurrence of certain change of control events, the amount of the payments, the expected timing of certain acceleration of payments, and a risk-adjusted discount rate. Assessing the probability of certain change of control events over a 10-year time period requires significant judgement and the successful completion of a change of control is largely dependent on the outcome of potential negotiations

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

4. Fair Value of Financial Assets and Liabilities (Continued)

with a third party. Due to this uncertainty, our expectation of the probability of the timing of a change of control event at the reporting date could reasonably be different than the timing of an actual change of control event, and if so, would mean the estimated fair value could be significantly higher or lower than the fair value determined.

Upon issuance of the Series B Preferred Shares, they will qualify as mandatorily redeemable instruments and will be classified as a preferred shares liabilities. The Company will then measure the liability at fair value, and subsequently accrete the carrying value to the redemption value through interest expense using the effective interest rate method. The Company had no Series B Preferred Shares issued and outstanding as of September 30, 2020 and December 31, 2019.

Any Series B Preferred Shares that are not redeemed on an applicable redemption date described above will accrue interest at 18% per annum, until the shares are redeemed. If Series B Preferred Shares remain unredeemed for a period of one year after the applicable redemption date, the holders of the unredeemed shares will have the right to convert such preferred shares into a number of common shares equal to (a) the redemption price plus any accrued interest, divided by (b) the five day volume-weighted average trading price of the Company's common shares for the five days immediately preceding the conversion date for such unredeemed shares.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	As of September 30, 2020		As of December 31, 2019
Prepaid clinical trial costs	$	11,745	$	6,101
Prepaid manufacturing	21,570		—
Prepaid commercial costs	16,772		—
Other prepaid and current assets	12,331		5,453
	$	62,418	$	11,554

6. Equity Method Investment

The Company has a variable interest in Kleo Pharmaceuticals, Inc., a privately held Delaware corporation (“Kleo”), through its equity investment. Kleo is a variable interest entity due to the equity investment at risk being insufficient to finance its activities. An assessment of whether or not the Company has the power to direct activities that most significantly impact Kleo’s economic performance and to identify the party that obtains the majority of the benefits of the investment was performed as of September 30, 2020 and December 31, 2019, and will be performed as of each subsequent reporting date. After each of these assessments, the Company concluded that the activities that most significantly impact Kleo’s economic performance are the ability to direct the research activities, the ability to select vendors to perform the research, the ability to maintain research staff and the ability to raise additional funds, each of which are directed by Kleo. Based on the outcome of these assessments, the Company concluded that the investment should be accounted for under the equity method.

The Company has recorded its investments in Kleo to date based on the costs of those investments, as adjusted for the Company’s proportional share of Kleo’s net income or loss in each period. The Company's ownership interest in outstanding stock of Kleo for the nine months ended September 30, 2020 and 2019 was 41.9%. The Company records future adjustments to the carrying value of its investment at each reporting date equal to its proportionate share of Kleo’s net loss for the corresponding period. The Company recorded other expense and a corresponding reduction in the carrying value of its investment in Kleo as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Proportionate share of Kleo's net loss	$	607	$	1,993	$	3,472	$	4,308

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

6. Equity Method Investment (Continued)

The carrying value of the Company’s investment in Kleo was $1,866 and $5,338 as of September 30, 2020 and December 31, 2019, respectively, and is reported as equity method investment on the condensed consolidated balance sheet. The carrying value of the investment represents the Company’s maximum loss exposure as of the balance sheet date. The following table provides a roll-forward of the carrying value of the Company’s equity method investment:


	Carrying Value
Balance at December 31, 2019	$	5,338

Loss recognized in connection with equity method investment	(3,472)
Balance at September 30, 2020	$	1,866

Balance at December 31, 2018	$	11,414

Loss recognized in connection with equity method investment	(4,308)
Balance at September 30, 2019	$	7,106

7. Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following:


	As of September 30, 2020		As of December 31, 2019
Accrued development milestones	$	7,167	$	12,000
Accrued employee compensation and benefits	19,835		3,521
Accrued clinical trial costs	15,097		16,476
Accrued commercialization and other professional fees	12,244		15,408
Other accrued expenses and current liabilities	71,924		4,697
	$	126,267	$	52,102

8. Inventories

Inventories consisted of the following:


	As of September 30, 2020
Raw materials	976
Work-in-process	16,898
Finished goods	2,257
	$	20,131

The Company had no inventories as of December 31, 2019.

9. Liability Related to Sale of Future Royalties, net

2018 RPI Funding Agreement

In June 2018, the Company entered into a funding agreement (the "2018 RPI Funding Agreement") to sell tiered, sales-based royalty rights on global net sales of pharmaceutical products containing the compounds rimegepant or zavegepant (previously known as BHV-3500 and vazegepant) and certain derivative compounds thereof ("Products") to RPI, a Delaware statutory trust. The Company issued to RPI the right to receive certain revenue participation payments, subject to certain reductions, based on the future global net sales of the Products for each calendar quarter during the royalty term contemplated by the 2018 RPI Funding Agreement, in exchange for $100,000 in cash.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

9. Liability Related to Sale of Future Royalties, net (Continued)

Concurrent with the 2018 RPI Funding Agreement, the Company entered into a common stock purchase agreement (the "Purchase Agreement") with RPI. Pursuant to the Purchase Agreement, the Company sold 1,111,111 common shares of the Company to RPI at a price of $45.00 per share, for gross proceeds of $50,000.

The Company concluded that there were two units of account for the consideration received comprised of the liability related to sale of future royalties and the common shares. The Company allocated the $100,000 from the 2018 RPI Funding Agreement and $50,000 from the Purchase Agreement among the two units of account on a relative fair value basis at the time of the transaction. The Company allocated $106,047 in transaction consideration to the liability, and $43,953 to the common shares. The Company determined the fair value of the common shares based on the closing share price on the transaction date, adjusted for the trading restrictions. The transaction costs of $377 were allocated in proportion to the allocation of total consideration to the two units of account. The effective interest rate under the 2018 RPI Funding Agreement, including transaction costs, is approximately 27% as of September 30, 2020.

2020 RPI Funding Agreement

In August 2020, the Company entered into a funding agreement with RPI 2019 Intermediate Finance Trust (“RPI 2019 IFT”) providing for up to $250,000 of funding in exchange for rights to participation payments based on global net sales of products containing zavegepant and rimegepant and certain payments based on success-based milestones relating to zavegepant (the "2020 RPI Funding Agreement"). Under the 2020 RPI Funding Agreement, RPI 2019 IFT will be entitled to receive tiered, sales based participation rights up to 3.0% of future global net sales of products containing zavegepant, 0.4% of future global net sales of products containing rimegepant, and payments tied to success-based milestones as described below. The Company received $150,000 in cash and up to $100,000 upon achievement of certain development milestones for zavegepant (including the commencement of the oral zavegepant Phase 3 program).

If at any time during the 180 days following the closing of the 2020 RPI Funding Agreement, the Company enters into a definitive agreement to consummate a Change of Control (as defined in the Company's articles and memorandum of association), the Company will have the option to repurchase the participation rights and milestone payment rights for a purchase price of 2.0x of the amount received under the agreement at that date, contingent upon the closing of a Change of Control (the "Buy-Back Option").

The success-based milestone payments range from 0.6x to 2.95x of the funded amount depending on the number of regulatory approvals achieved for zavegepant (including 1.9x for the first zavegepant migraine regulatory approval) and would be paid over a ten-year period. If the Company consummates a Change of Control, and the Buy-Back Option has not previously been exercised, RPI 2019 IFT has the option to accelerate each unpaid milestone payment which has or thereafter occurs.

The Company concluded that there were two units of account for the $150,000 in initial consideration received, which comprised of a liability related to sale of future royalties for products containing rimegepant, and a research and development arrangement with RPI 2019 IFT for zavegepant. The Company allocated the $150,000 from the 2020 RPI Funding Agreement among the two units of account based on the present value of probability adjusted net sales at the time of the transaction. The Company allocated $147,876 in transaction consideration to the liability related to sale of future royalties and $2,124 to the obligation to perform contractual services in other long-term liabilities in the condensed consolidated balance sheets. The transaction costs of $400 were allocated only to the liability related to sale of future royalties. The effective interest rate under the 2020 RPI Funding Agreement, including transaction costs, is approximately 6% as of September 30, 2020. Since there is a substantive and genuine transfer of risk to RPI 2019 IFT for the development of zavegepant, the $2,124 of consideration allocated to the development of zavegepant is being recognized by the Company as an obligation to perform contractual services and therefore is a reduction of research and development expenses as incurred. The reduction to research and development expenses for the three and nine months ended September 30, 2020 was $110.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

9. Liability Related to Sale of Future Royalties, net (Continued)

The following table shows the activity within the liability related to sales of future royalties account for the nine months ended September 30, 2020 and 2019, respectively, related to the 2018 and 2020 RPI Funding Agreements.


	Nine Months Ended September 30,
	2020		2019
Liability related to sale of future royalties - beginning balance	$	144,111	$	117,515
Additional liability related to the 2020 RPI Funding Agreement, net of issuance costs	147,476		—
Royalty revenues payable to RPI	(667)		—
Non-cash interest expense on liability related to sale of future royalties	31,950		19,284
Liability related to sale of future royalties - ending balance	$	322,870	$	136,799

10. Mandatorily Redeemable Preferred Shares, net

In April 2019, the Company sold 2,495 Series A preferred shares (the "Series A Preferred Shares") to RPI at a price of $50,100 per preferred share pursuant to a Series A preferred share purchase agreement (the "Preferred Share Agreement"). The gross proceeds from the transaction with RPI were $125,000, with $105,000 of the proceeds used to purchase a priority review voucher ("PRV") issued by the United States Secretary of Health and Human Services to potentially expedite the regulatory review of the new drug application ("NDA") for the ODT formulation of rimegepant and the remainder of the proceeds to be used for other general corporate purposes. Pursuant to the Preferred Share Agreement, the Company had the option to issue additional Series A Preferred Shares to RPI in up to three additional closings for an aggregate amount of $75,000. The Company was not obligated to issue any additional Series A Preferred Shares, subject to a fee up to $3,000 if not all of the Series A Preferred Shares were issued. In the third quarter of 2020, the Company determined it will not exercise the option to issue additional Series A Preferred Shares and accordingly recognized the full $3,000 fee in other expense in the condensed consolidated statements of operations.

The holders of the Company's outstanding Series A Preferred Shares will have the right to require redemption of the shares in certain circumstances. If a Change of Control, as defined in the Company's memorandum and article of association, occurs and the Series A Preferred Shares have not previously been redeemed, the Company must redeem the Series A Preferred Shares for two times (2x) the original purchase price of the Series A Preferred Shares payable in a lump sum at the closing of the Change of Control or in equal quarterly installments following the closing of the Change of Control through December 31, 2024.

The Company may redeem the Series A Preferred Shares at its option at any time for two times (2x) the original purchase price, which redemption price may be paid in a lump sum or in equal quarterly installments through December 31, 2024.

In the event that the Company defaults on any obligation to redeem Series A Preferred Shares when required, the redemption amount shall accrue interest at the rate of eighteen percent (18%) per annum. If any such default continues for at least one year, the holders of such shares shall be entitled to convert, subject to certain limitations, such Series A Preferred Shares into common shares, with no waiver of their redemption rights.

The Company is required to redeem the Series A Preferred Shares for two times (2x) the original purchase price, payable beginning March 31, 2021 in equal quarterly installments through December 31, 2024. Accordingly, the Company has concluded the Series A Preferred Shares are mandatorily redeemable instruments and classified as a liability. The Company initially measured the liability at fair value, and will subsequently accrete the carrying value to the redemption value through interest expense using the effective interest rate method. The effective interest rate under the Preferred Share Agreement, including transaction costs, was determined to be approximately 18%, and the Company recognized $7,310 and $19,864 in interest expense for the three and nine months ended September 30, 2020, respectively. The Company had 2,495 Series A preferred shares issued and outstanding as of September 30, 2020 and December 31, 2019.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

10. Mandatorily Redeemable Preferred Shares, net (Continued)

The following table shows the activity within the preferred share liability for the nine months ended September 30, 2020:


	Carrying Value
Net balance at December 31, 2019	$	103,646
Partial settlement of Series A preferred shares derivative liability	42,821
Non-cash interest expense recognized, including transaction cost amortization	19,864
Net balance at September 30, 2020	$	166,331

Certain scenarios as described in the Preferred Share Agreement were determined by the Company to result in a derivative liability. The with-and-without valuation method was used to determine the fair value of the embedded derivatives within the agreement. As inputs into the valuation, the Company considered the type and probability of occurrence of certain events, the amount of the payments, the expected timing of certain events, and a risk-adjusted discount rate. In accordance with ASC 815, Derivatives and Hedging, the fair value of the derivative was recorded on the balance sheet as a Series A preferred shares derivative liability with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations (see Note 4 for details on the fair value measurement).

Upon the FDA's approval of NURTEC ODT the Company remeasured the derivative using the inputs noted above. In the first quarter of 2020, the Company partially settled the Series A preferred shares derivative liability associated with this approval of $42,821, which modified the timing of the payment obligation related to the redeemable preferred share liability. During the second quarter of 2020, the Company recorded a $650 gain in other income in its condensed consolidated statement of operations.

On August 7, 2020, the Company entered into the RPI Series B Preferred Share Agreement, pursuant to which RPI agreed to invest in the Company through the purchase of up to 3,992 Series B Preferred Shares at a price of $50,100 per share. The shares will be issued in quarterly increments from March 31, 2021 to December 31, 2024. Upon issuance of the Series B Preferred Shares, they will qualify as mandatorily redeemable instruments and be classified as a Series B preferred shares liability. The Company will then measure the liability at fair value, and subsequently accrete the carrying value to the redemption value through interest expense using the effective interest rate method. The Company had no Series B preferred shares issued and outstanding, as of September 30, 2020 and December 31, 2019.

11. Warrants

Guarantor and Co-Guarantor Warrants

On August 30, 2016, the Company entered into a one-year credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”) providing for a term loan in the principal amount of $5,000 (the “Loan”) and borrowed the full $5,000 available under the Credit Agreement. The Credit Agreement was fully satisfied with a principal repayment to Wells Fargo of $5,000 on August 31, 2017.

In connection with entering into the Credit Agreement, the Company issued warrants to purchase common shares to two of the Company’s directors in connection with a guarantee of its obligations under the agreement. Both warrants, each to purchase 107,500 common shares at an exercise price of $9.2911 per share, were exercised in March 2019, resulting in proceeds to the Company of $1,998. The common shares settled in the second quarter of 2019.

Fox Chase Chemical Diversity Center Inc.

In May 2019, the Company entered into an agreement with Fox Chase Chemical Diversity Center Inc. ("FCCDC") for FCCDC's TDP-43 assets (the "FCCDC Agreement"). The FCCDC Agreement provides the Company with a plan and goal to identify one or more new chemical entity candidates for preclinical development for eventual clinical evaluation for the treatment of one or more TDP-43 proteinopathies. As consideration, Biohaven issued 100,000 of its common shares to FCCDC valued at $5,646. As of the end of the second quarter of 2019, the payment was recorded in accounts payable and research and development expense as the shares had not settled during the quarter. Upon settlement of the shares in July 2019, the Company transferred the value of the common shares issued to FCCDC from accounts payable to common shares.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

11. Warrants (Continued)

In addition to the common shares issued to FCCDC, Biohaven is obligated to pay FCCDC milestone payments totaling up to $4,500 with $1,000 for each additional NDA filing (See Note 16). The Company also issued a warrant to FCCDC, granting FCCDC the option to purchase up to 100,000 Biohaven common shares, at a strike price of $56.46 per share, subject to vesting upon achievement of certain milestones in development of TD-43. The warrant has accelerated vesting in the event of a change of control of Biohaven.

12. Shareholders' Equity

Changes in shareholders’ equity for the three and nine months ended September 30, 2020 were as follows:


	Common Shares
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Biohaven Shareholders' Equity (Deficit)		Non-controlling Interests		Total Shareholders' Equity (Deficit)
Balance as of December 31, 2019	52,385,283	$	881,426	$	83,523	$	(972,373)	$	—	$	(7,424)	$	—	$	(7,424)



Issuance of common shares, net of offering costs	5,555,554	282,833		—		—		—		282,833		—		282,833


Issuance of common shares under equity incentive plan	447,111	10,880		(8,273)		—		—		2,607		—		2,607
Non-cash share-based compensation expense	—	—		16,879		—		—		16,879		—		16,879
Net loss	—	—		—		(172,937)		—		(172,937)		—		(172,937)
Balance as of March 31, 2020	58,387,948	$	1,175,139	$	92,129	$	(1,145,310)	$	—	$	121,958	$	—	$	121,958


Issuance of common shares under equity incentive plan	1,137,617	23,866		(12,118)		—		—		11,748		—		11,748
Non-cash share-based compensation expense	—	—		11,762		—		—		11,762		—		11,762
Net loss	—	—		—		(180,934)		—		(180,934)		—		(180,934)
Balance as of June 30, 2020	59,525,565	$	1,199,005	$	91,773	$	(1,326,244)	$	—	$	(35,466)	$	—	$	(35,466)




Issuance of common shares under equity incentive plan	182,215	6,379		(2,919)		—		—		3,460		—		3,460
Non-cash share-based compensation expense	—	—		14,565		—		—		14,565		—		14,565
Net loss	—	—		—		(195,189)		—		(195,189)		(1,439)		(196,628)
Other comprehensive income	—	—		—		—		251		251		—		251
Balance as of September 30, 2020	59,707,780	$	1,205,384	$	103,419	$	(1,521,433)	$	251	$	(212,379)	$	(1,439)	$	(213,818)

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

12. Shareholders' Equity (Continued)

Changes in shareholders’ equity for the three and nine months ended September 30, 2019 were as follows:


	Common Shares
	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity (Deficit)
Balance as of December 31, 2018	44,197,549	$	554,384	$	40,104	$	(443,568)	$	150,920






Issuance of common shares under equity incentive plan	85,445	1,961		(896)		—		1,065
Non-cash share-based compensation expense	—	—		7,330		—		7,330
Net loss	—	—		—		(62,304)		(62,304)
Balance as of March 31, 2019	44,282,994	$	556,345	$	46,538	$	(505,872)	$	97,011
Issuance of common shares, net of offering costs	6,976,745	281,100		—		—		281,100
Exercise of related party warrants	215,000	7,201		(5,203)		—		1,998
Exercise of stock options	26,875	320		(172)		—		148
Non-cash share-based compensation expense	—	—		17,554		—		17,554
Net loss	—	—		—		(211,070)		(211,070)
Balance as of June 30, 2019	51,501,614	$	844,966	$	58,717	$	(716,942)	$	186,741
Issuance of common shares upon completion of underwriters' exercise of option from follow-on equity offering, net of offering costs	525,000	21,221		—		—		21,221
Issuance of common shares as payment for TDP-43 asset	100,000	5,646		—		—		5,646
Exercise of stock options	91,070	2,756		(1,192)		—		1,564
Share-based compensation expense	—	—		9,971		—		9,971
Net loss	—	—		—		(106,167)		(106,167)
Balance as of September 30, 2019	52,217,684	$	874,589	$	67,496	$	(823,109)	$	118,976

Issuance of Series A Preferred Shares and Employee Share Options by Consolidated Subsidiary

In September 2020, the Company's Asia-Pacific Subsidiary, BioShin Limited, authorized, issued and sold 15,384,613 BioShin Series A Preferred Shares at a price of $3.90 per share for a total of $60,000 to a group of investors led by OrbiMed, with participation from Cormorant Asset Management LLC, HBM Healthcare Investments Ltd, Surveyor Capital (a Citadel Company), and Suvretta Capital Management, LLC (the "BioShin Investors"). The BioShin Series A Preferred Shares contain both a call option by the Company and a put option held by the BioShin Investors. The call and put options have mirroring features that allow for the Company to buy, or the BioShin Investors to sell the preferred shares following a change of control of the Company at the greater of the fair market value of the BioShin preferred shares on execution of the options or a multiple of 2.5x to 3.5x dependent on when the change of control occurs, prior to an initial public offering of BioShin. Due to the contingently redeemable features, the Company has classified the BioShin Series A Preferred Shares in mezzanine equity since the redemption is out of the Company's control. In the event that a change of control becomes probable, the Company will accrete the carrying value of the BioShin Series A Preferred Shares to their redemption value.

In connection with the BioShin Series A Preferred Shares issuance, BioShin Limited executed the 2020 Equity Incentive Plan ("BioShin 2020 Equity Incentive Plan") and granted options under the BioShin 2020 Equity Incentive Plan to certain employees. The compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award (generally three years) using the straight-line method. The Company is accounting for the expense being recognized over the requisite service period as non-controlling interest in shareholder's equity. The Company recognized $1,439 in non-controlling interest relating to the options for the three and nine months ended September 30, 2020.

Issuance of Common Shares for the January 2020 Offering

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

12. Shareholders' Equity (Continued)

exercised its option to purchase additional shares, and the Company issued and sold 724,637 common shares for net proceeds of approximately $36,956 after deducting underwriting discounts and commissions of approximately $543. Thus, the aggregate net proceeds to the Company from the follow-on offering, after deducting underwriting discounts and commissions and other offering costs, were approximately $282,833.

Exercise of Related Party Warrants

In connection with a guarantee of its obligations under the Credit Agreement, the Company issued warrants, each to purchase 107,500 common shares at an exercise price of $9.2911 per share, to two of its directors. Both warrants were exercised in March 2019, and common shares settled in the second quarter of 2019 (See Note 11).

13. Accumulated Other Comprehensive Income (Loss)

Shareholders’ equity included the following activity in accumulated other comprehensive income for the three and nine months ended September 30, 2020:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020		2020
Net unrealized investment gains (losses):
Beginning of period balance	$	—	$	—
Other comprehensive loss(1)	(73)		(73)

Other comprehensive loss	(73)		(73)
End of period balance	(73)		(73)

Foreign currency translation adjustments:
Beginning of period balance	—		—
Other comprehensive income	324		324
Other comprehensive income	324		324
End of period balance	324		324

Total beginning of period accumulated other comprehensive income	—		—
Total other comprehensive income	251		251
Total end of period accumulated other comprehensive income	$	251	$	251

(1) There was no tax on other comprehensive income (loss) during the period

The Company had no accumulated other comprehensive income (loss) included in shareholders' equity as of December 31, 2019.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

14. Share-Based Compensation

Non-Cash Share-Based Compensation Expense

Non-cash share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award (generally three to four years) using the straight-line method. Non-cash share-based compensation expense, consisting of expense for stock options, Restricted Share Units ("RSUs") and Employee Share Purchase Plan ("ESPP"), was classified in the condensed consolidated statements of operations as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development expenses	$	5,250	$	3,638	$	17,927	$	17,668
Selling, general and administrative expenses	9,315		6,333		25,279		17,187
	$	14,565	$	9,971	$	43,206	$	34,855
Less: Share-based compensation expense attributable to non-controlling interests	$	(1,439)	$	—	$	(1,439)	$	—
Share-based compensation expense attributable to Biohaven Pharmaceutical Holding Company Ltd.	$	13,126	$	9,971	$	41,767	$	34,855

Stock Options

All stock option grants are awarded at fair value on the date of grant. The fair value of stock options is estimated using the Black-Scholes option pricing model and stock-based compensation is recognized on a straight-line basis over the requisite service period. Stock options granted generally become exercisable over a three-year or four-year period from the grant date. Stock options generally expire 10 years after the grant date.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company's common shares for those stock options that had exercise prices lower than the fair value of the Company's common shares at September 30, 2020.

As of September 30, 2020, the Company's unrecognized compensation expense related to unvested stock options totaled $65,128, which the Company expects to be recognized over a weighted-average period of 1.95 years. The Company expects approximately 3,471,272 of the unvested stock options to vest over the requisite service period.

The following table is a summary of the Company's stock option activity for the nine months ended September 30, 2020:


	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	9,423,015	$24.58
Granted	311,338	$53.60
Exercised	(1,700,357)	$11.69
Forfeited	(87,876)	$42.32
Outstanding at September 30, 2020	7,946,120	$28.28	7.23	$	292,267
Options exercisable at September 30, 2020	4,474,848	$20.13	6.43	$	200,903
Vested at September 30, 2020 and expected to vest in the future	7,946,120	$28.28	7.23	$	292,267

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

14. Share-Based Compensation (Continued)

Restricted Share Units

The Company’s RSUs are considered nonvested share awards and require no payment from the employee. For each RSU, employees receive one common share at the end of the vesting period. The employee can elect to receive the one common share net of taxes or pay for taxes separately and receive the entire share. Compensation cost is recorded based on the market price of the Company’s common shares on the grant date and is recognized on a straight-line basis over the requisite service period.

As of September 30, 2020, there was $20,487 of total unrecognized compensation cost related to Company RSUs that are expected to vest. These costs are expected to be recognized over a weighted-average period of 2.29 years. The total fair value of RSUs vested during the nine months ended September 30, 2020 was $5,035.

The following table is a summary of the RSU activity for the nine months ended September 30, 2020:


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested outstanding as of December 31, 2019	88,950	$57.40
Granted	499,525	$55.14
Forfeited	(11,957)	$54.30
Vested	(90,258)	$56.10
Unvested outstanding as of September 30, 2020	486,260	$55.40

Employee Share Purchase Plan

In April 2020, the Company’s board of directors approved the rules and procedures of the ESPP approved by shareholders of the Company on May 3, 2017. The ESPP allows each eligible employee who is participating in the plan to purchase shares by authorizing payroll deductions of up to 15% of eligible earnings. Unless the participating employee has previously withdrawn from the offering, accumulated payroll deductions will be used to purchase shares on the last business day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25,000 worth of ordinary shares, valued at the start of the purchase period, under the ESPP in any calendar year. There is no minimum holding period associated with shares purchased pursuant to this plan. An employee’s purchase rights terminate immediately upon termination of employment.

The Company accounts for employee share purchases made under its ESPP using an estimate of the grant date fair value, which is determined in accordance with ASC 718, Stock Compensation. The purchase price discount and the look-back feature cause the ESPP to be compensatory and the Company to recognize compensation expense. The compensation cost is recognized on a straight-line basis over the requisite service period. The Company recognized $990 and $1,724 of compensation expense for the three and nine months ended September 30, 2020, respectively. The Company values ESPP shares using the Black-Scholes model.

As of September 30, 2020, there was $830 of unrecognized share compensation expense related to the ESPP, which is expected to be recognized over the remaining offer period ending November 30, 2020. There were no shares issued under the ESPP during the three and nine months ended September 30, 2020.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

15. Net Loss Per Share

Basic and diluted net loss per share attributable to common shareholders of Biohaven Pharmaceutical Holding Company Ltd. was calculated as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net loss	$	(196,628)	$	(106,167)	$	(550,499)	$	(379,541)
Net income (loss) attributable to non-controlling interests	(1,439)		—		(1,439)		—

Net loss attributable to common shareholders of Biohaven Pharmaceutical Holding Company Ltd.	$	(195,189)	$	(106,167)	$	(549,060)	$	(379,541)
Denominator:
Weighted average common shares outstanding—basic and diluted	59,677,989		52,077,240		58,282,697		47,210,615
Net loss per share attributable to common shareholders of Biohaven Pharmaceutical Holding Company Ltd.—basic and diluted	$	(3.27)	$	(2.04)	$	(9.42)	$	(8.04)

The Company’s potential dilutive securities, which include stock options, restricted share units, and warrants to purchase common shares, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders of the Company is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect:


	As of September 30,
		2020	2019
Options to purchase common shares		7,946,120	8,560,514
Warrants to purchase common shares		106,751	106,751
Restricted share units		486,260	—
		8,539,131	8,667,265

16. License and Other Agreements

Yale University

In September 2013, the Company entered into an exclusive license agreement with Yale University (the "Yale Agreement") to obtain a license to certain patent rights for the commercial development, manufacture, distribution, use and sale of products and processes resulting from the development of those patent rights, related to the use of riluzole in treating various neurological conditions, such as general anxiety disorder, post-traumatic stress disorder and depression. As part of the consideration for this license, the Company issued Yale 250,000 common shares and granted Yale the right to purchase up to 10% of the securities issued in specified future equity offerings by the Company, in addition to the obligation to issue shares to prevent anti-dilution. The obligation to contingently issue equity to Yale was no longer outstanding as of December 31, 2018.

The Yale Agreement was amended and restated in May 2019. As amended, the Company agreed to pay Yale up to $2,000 upon the achievement of specified regulatory milestones and annual royalty payments of a low single-digit percentage based on net sales of riluzole-based products from the licensed patents or from products based on troriluzole. Under the amended and restated agreement, the royalty rates are reduced as compared to the original agreement. In addition, under the amended and restated agreement, the Company may develop products based on riluzole or troriluzole. The amended and restated agreement

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

16. License and Other Agreements (Continued)

retains a minimum annual royalty of up to $1,000 per year, beginning after the first sale of product under the agreement. If the Company grants any sublicense rights under the Yale Agreement, it must pay Yale a low single-digit percentage of sublicense income that it receives. To date, no milestone or royalty payments have been made under this agreement.

The Yale Agreement, as amended and restated, requires the Company to meet certain due diligence requirements based upon specified milestones relating to riluzole or troriluzole based products. The Company can elect to extend the deadline for its compliance with the due diligence requirements by a maximum of one year upon the payment to Yale of up to $150. The Company is also required to reimburse Yale for any fees that Yale incurs related to the filing, prosecution, defending and maintenance of patent rights licensed under the Yale Agreement. In the event that the Company fails to make any payments, commits a material breach, fails to maintain adequate insurance or challenges the patent rights of Yale, Yale can terminate the Yale Agreement. The Company can terminate the Yale Agreement (i) upon 90 days' notice to Yale, (ii) if Yale commits a material breach of the Yale Agreement or (iii) as to a specific country if there are no valid patent rights in such country. The Yale Agreement expires on a country-by-country basis upon the later of the date on which the last patent rights expire in such country or ten years from the date of the first sale of a product incorporating the licensed patents or the Company’s patents relating to troriluzole.

For the three and nine months ended September 30, 2020 and 2019, the Company did not record any expense or make any milestone or royalty payments under the Yale agreement.

ALS Biopharma Agreement

In August 2015, the Company entered into an agreement (the "ALS Biopharma Agreement") with ALS Biopharma and FCCDC, pursuant to which ALS Biopharma and FCCDC assigned the Company their worldwide patent rights to a family of over 300 prodrugs of glutamate modulating agents, including troriluzole, as well as other innovative technologies. Under the ALS Biopharma Agreement, the Company is obligated to use commercially reasonable efforts to commercialize and develop markets for the patent products. The Company is obligated to pay $3,000 upon the achievement of specified regulatory milestones with respect to the first licensed product and $1,000 upon the achievement of specified regulatory milestones with respect to subsequently developed products, as well as royalty payments of a low single-digit percentage based on net sales of products licensed under the agreement, payable on a quarterly basis. To date, no milestone or royalty payments have been made under this agreement.

The ALS Biopharma Agreement terminates on a country-by-country basis as the last patent rights expire in each such country. If the Company abandons its development, research, licensing or sale of all products covered by one or more claims of any patent or patent application assigned under the ALS Biopharma Agreement, or if the Company ceases operations, it has agreed to reassign the applicable patent rights back to ALS Biopharma.

For the three and nine months ended September 30, 2020 and 2019, the Company did not record any expense or make any milestone or royalty payments under the ALS Biopharma Agreement.

Catalent Agreements for Rimegepant

In January 2018, the Company entered into an exclusive world-wide license and development agreement with Catalent U.K. Swindon Zydis Limited, a subsidiary of Catalent, Inc. ("Catalent") pursuant to which the Company obtained certain license rights to the Zydis ODT technology for use with NURTEC ODT. Since NURTEC ODT utilizes the Zydis ODT technology, the agreement permits the Company to purchase the commercial product from Catalent at a fixed price, inclusive of a royalty. Under the agreement, Catalent will not develop or manufacture a formulation of any oral CGRP compound using Zydis ODT technology for itself or a third party until 2031, subject to certain minimum commercial revenues.

Under this agreement, the Company is responsible for conducting clinical trials and preparing and filing regulatory submissions. The Company has the right to sublicense its rights under the agreement subject to Catalent’s prior written consent. Catalent has the right to enforce the patents covering the Zydis technology and to defend any allegation that a formulation using Zydis technology, such as NURTEC ODT, infringes a third party’s patent.

This agreement terminates on a country-by-country basis upon the later of (i) 10 years after the launch of the most recently launched product in such country and (ii) the expiration of the last valid claim covering each product in such country, unless earlier voluntarily terminated by the Company or by Catalent. This agreement automatically extends for one-year terms unless

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

16. License and Other Agreements (Continued)

either party gives advance notice of intent to terminate. In addition, Catalent may terminate the agreement either in its entirety or terminate the exclusive nature of the agreement on a country-by-country basis if, among other things, the Company fails to meet specified development timelines, which the Company may extend in certain circumstances.

In connection with the agreement with Catalent, upon FDA approval of NURTEC ODT on February 27, 2020, the Company became obligated to pay Catalent up to $1,500 upon the achievement of specified regulatory and commercial milestones. The Company recorded the $1,500 in milestone payments as an intangible asset in its condensed consolidated balance sheets in the first quarter of 2020, and will amortize the expense to cost of goods sold on its condensed consolidated statement of operations over the patent life. The Company paid $750 of the $1,500 in milestone payments to Catalent in the first quarter of 2020 and paid the remaining $750 in milestone payments in the second quarter of 2020.

Rutgers Agreement

In June 2016, the Company entered into an exclusive license agreement (the "Rutgers Agreement") with Rutgers, The State University of New Jersey ("Rutgers"), licensing several patents and patent applications related to the use of riluzole to treat various cancers. Under the Rutgers Agreement, the Company is required to pay Rutgers annual license maintenance fees until the first commercial sale of a licensed product, at which point the Company will pay Rutgers minimum annual royalties. The Company is also obligated to pay Rutgers up to $825 in the aggregate upon the achievement of specified clinical and regulatory milestones. The Company agreed to pay Rutgers royalties of a low single-digit percentage of net sales of licensed products sold by the Company, its affiliates or its sublicensees, subject to a minimum amount of up to $100 per year. If the Company grants any sublicense rights under the Rutgers Agreement, the Company must pay Rutgers a low double-digit percentage of sublicense income it receives.

Under the Rutgers Agreement, in the event that the Company experiences a change of control or sale of substantially all of its assets prior to the initiation of a Phase 3 clinical trial related to products licensed under the agreement, and such change of control or sale results in a full liquidation of the Company, the Company will be obligated to pay Rutgers a change-of-control fee equal to 0.30% of the total value of the transaction, but not less than $100. The Company determined that the change-of-control payment should be accounted for as a liability. The fair value of the obligation for all periods presented was $0 based on the Company's assessment that the probability of a change-in-control event occurring prior to the initiation of a Phase 3 clinical trial related to products licensed under the agreement was remote.

The Rutgers Agreement also requires the Company to meet certain due diligence requirements based upon specified milestones. The Company can elect to extend the deadline for its compliance with the due diligence requirements by a maximum of one year upon payments to Rutgers of up to $500 in the aggregate. Under the Rutgers Agreement, the Company is required to reimburse Rutgers for any fees that Rutgers incurs related to the filing, prosecution, defending, and maintenance of patent rights licensed under the agreement. The Rutgers Agreement expires upon expiration of the patent rights under the agreement or ten years from the date of first commercial sale of a licensed product, whichever is later, unless terminated by either party.

For the three and nine months ended September 30, 2020 and 2019, the Company did not record any expense or make any milestone or royalty payments under the Rutgers Agreement.

BMS Agreement

In July 2016, the Company entered into an exclusive, worldwide license agreement with BMS (the "BMS Agreement") for the development and commercialization rights to rimegepant and zavegepant, as well as other CGRP-related intellectual property. In exchange for these rights, the Company agreed to pay BMS initial payments, milestone payments and royalties on net sales of licensed products under the agreement.

The Company is obligated to make milestone payments to BMS upon the achievement of specified development and commercialization milestones. The development milestone payments due under the agreement depend on the licensed product being developed. With respect to rimegepant, the Company is obligated to pay up to $127,500 in the aggregate upon the achievement of the development milestones. For any product other than rimegepant, the Company is obligated to pay up to $74,500 in the aggregate upon the achievement of the development milestones. In addition, the Company is obligated to pay up to $150,000 for each licensed product upon the achievement of commercial milestones. If the Company receives revenue from sublicensing any of its rights under the agreement, it is also obligated to pay a portion of that revenue to BMS. The Company is

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

16. License and Other Agreements (Continued)

also obligated to make tiered royalty payments to BMS based on annual worldwide net sales, with percentages in the low to mid-teens.

Under the BMS Agreement, the Company is obligated to use commercially reasonable efforts to develop licensed products and to commercialize at least one licensed product using the patent rights licensed from BMS and is solely responsible for all development, regulatory and commercial activities and costs. The Company is also required to reimburse BMS for any fees that BMS incurs related to the filing, prosecution, defending, and maintenance of patent rights licensed under the BMS Agreement. Under the BMS Agreement, BMS transferred to the Company manufactured licensed products, including certain materials that will be used by the Company to conduct clinical trials.

The BMS Agreement will terminate on a licensed product-by-licensed product and country-by-country basis upon the expiration of the royalty term with respect to each licensed product in each country. BMS has the right to terminate the agreement upon the Company's insolvency or bankruptcy, the Company's uncured material breach of the agreement, including the failure to meet its development and commercialization obligations, or if the Company challenges any of BMS's patent rights. The Company has the right to terminate the BMS Agreement if BMS materially breaches the agreement or if, after the Company provides notice, it chooses not to move forward with development and commercialization in a specific country.

In March 2018, the Company entered into an Amendment to License Agreement with BMS (the “BMS Amendment”), which amends the License Agreement between the Company and BMS from July 2016 (the “Original License Agreement”). Under the BMS Amendment, the Company paid BMS an upfront payment of $50,000 in return for a low single-digit reduction in the royalties payable on net sales of rimegepant and a mid single-digit reduction in the royalties payable on net sales of zavegepant, recorded in Research and Development expense in the Consolidated Statements of Operations. Under the Original License Agreement, the Company was obligated to make tiered royalty payments based on annual worldwide net sales of licensed products upon their approval and commercialization, with percentages in the low- to mid-teens.

The BMS Amendment also removes BMS’s right of first negotiation to regain its intellectual property rights or enter into a license agreement with the Company following the Company’s receipt of topline data from its Phase 3 clinical trials with rimegepant, and clarifies that antibodies targeting CGRP are not prohibited as competitive compounds under the non-competition clause of the Original License Agreement.

In August 2020, the Company entered into an amendment (the “2020 BMS Amendment”) with BMS to the Original License Agreement (as amended by the BMS Amendment and 2020 BMS Amendment, the “BMS License Agreement”). Under the 2020 BMS Amendment, the Company paid BMS an upfront payment of $5,000 in return for a reduction in the royalties payable on net sales of rimegepant and zavegepant in China, with percentages in the low- to mid-single digits. In addition, the Company is obligated to pay up to $22,500 for each licensed product upon the achievement of commercial milestones in China. The 2020 BMS Amendment also amended the Original License Agreement to remove sales in China from the commercial milestone payment obligations.

The BMS License Agreement continues to provide the Company with exclusive global development and commercialization rights to rimegepant, zavegepant and related CGRP molecules, as well as related know-how and intellectual property. The Company’s obligations to make development milestone payments to BMS under the Original License Agreement remain unchanged.

In connection with the BMS Agreement, upon FDA approval of NURTEC ODT on February 27, 2020, the Company became obligated to pay BMS $40,000 in milestone payments. The Company recorded the $40,000 in milestone payments as an intangible asset on its condensed consolidated balance sheets in the first quarter of 2020, and will amortize the expense to cost of goods sold on its condensed consolidated statement of operations and comprehensive loss over the patent life. The Company paid $20,000 of the $40,000 in milestone payments to BMS in the first quarter of 2020 and the remaining $20,000 in milestone payments in the third quarter of 2020.

In connection with the BMS Agreement, the Company is required to pay $2,000 to BMS on commencement of a Phase 1 clinical trial, $4,000 on commencement of a Phase 2 clinical trial, and $6,000 on commencement of a Phase 3 clinical trial, the occurrence of which the Company believes is probable, for certain milestones relating to the development of zavegepant. Accordingly, the Company recognized these liabilities in accrued expenses within the condensed consolidated balance sheets in the fourth quarter of 2018, first quarter of 2019, and fourth quarter of 2019, respectively. Per the BMS Agreement, the $2,000

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

16. License and Other Agreements (Continued)

and $4,000 payment obligations under the agreement were deferred until the earlier of FDA approval of rimegepant or the discontinuation of the rimegepant development program. Upon FDA approval of NURTEC ODT on February 27, 2020, the Company became obligated to pay BMS the $2,000 and $4,000 milestone payments for the commencement of the Phase 1 and Phase 2 clinical trials of zavegepant, respectively, and made the milestone payments in the second quarter of 2020. The Company expects to pay the $6,000 milestone payment following the commencement of the Phase 3 clinical trial of zavegepant.

For the three and nine months ended September 30, 2020, the Company recorded $1,761 and $2,845, respectively, in royalty expense in cost of goods sold on the condensed consolidated statements of operations and comprehensive loss under the BMS agreement. The Company recorded no royalty expense related to the BMS agreement in 2019.

2016 AstraZeneca Agreement

In October 2016, the Company entered into an exclusive license agreement (the "2016 AstraZeneca Agreement") with AstraZeneca, pursuant to which AstraZeneca granted the Company a license to certain patent rights for the commercial development, manufacture, distribution and use of any products or processes resulting from development of those patent rights, including BHV-5000 and BHV-5500. In exchange for these rights, the Company agreed to pay AstraZeneca an upfront payment, milestone payments and royalties on net sales of licensed products under the agreement. The regulatory milestones due under the agreement depend on the indication of the licensed product being developed as well as the territory where regulatory approval is obtained. Development milestones due under the agreement with respect to Rett syndrome total up to $30,000, and, for any indication other than Rett syndrome, total up to $60,000. Commercial milestones are based on net sales of all products licensed under the agreement and total up to $120,000. The Company has also agreed to pay tiered royalties based on net sales of all products licensed under the agreement of mid-single-digit to low double-digit percentages. If the Company receives revenue from sublicensing any of its rights under the 2016 AstraZeneca Agreement, the Company is also obligated to pay a portion of that revenue to AstraZeneca. To date, no payments have been made related to these milestones or royalties.

The Company is also required to reimburse AstraZeneca for any fees that AstraZeneca incurs related to the filing, prosecution, defending, and maintenance of patent rights licensed under the 2016 AstraZeneca Agreement.

The 2016 AstraZeneca Agreement expires upon the expiration of the patent rights under the agreement, unless earlier terminated by either party, or on a country-by-country basis ten years after the first commercial sale.

As part of the consideration under the 2016 AstraZeneca Agreement, the Company agreed to issue to AstraZeneca common shares in the amount of $10,000 if the Company completed a qualifying equity financing resulting in proceeds of at least $30,000 prior to December 29, 2016. Under the terms of the 2016 AstraZeneca Agreement, if the qualifying financing transaction involved the issuance of preferred shares, AstraZeneca would be entitled to receive preferred shares instead of common shares, at its option. The number of shares issued would be determined based on the price per share paid by investors in the qualifying financing transaction. Upon the occurrence of the qualifying financing transaction, 50% of the shares would be issuable upon the closing of the transaction (the "First Tranche") and the other 50% would become issuable upon the earlier of (i) the initiation of a Phase 2b or equivalent clinical trial of a product candidate based on the licensed patent rights or (ii) any liquidity event, including an IPO of the Company, any change of control of the Company or any assignment of the Company's rights and obligations under the 2016 AstraZeneca Agreement (the "Second Tranche"). The number of shares issuable to AstraZeneca in each of the First Tranche and the Second Tranche is determined by dividing $5,000 by the price per share paid by investors in the Company's first Series A closing, or $9.2911. In addition, AstraZeneca had the right to purchase up to 8%, on a fully diluted basis, of shares issued in such qualifying financing transaction, on the same terms and rights as all other investors involved in the financing.

In October 2016, upon completion of the Series A First Closing, the contingency associated with the First Tranche of contingently issuable equity related to the occurrence of a qualified financing was satisfied. As a result, the Company issued to AstraZeneca 538,150 Series A preferred shares with an aggregate fair value of $5,000, or $9.2911 per share. Upon issuance of the 538,150 Series A preferred shares to AstraZeneca, the Company reclassified the contingent equity liability associated with the First Tranche of $5,000 to the carrying value of Series A preferred shares.

The Company determined that the fair value of the contingent equity liability associated with the Second Tranche at each reporting date since the date of issuance, recognizing changes in the fair value of the contingent equity liability as a component

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

16. License and Other Agreements (Continued)

of other income (expense), net in the condensed consolidated statement of operations and comprehensive loss. Changes in the fair value of the contingent equity liability continued to be recognized until the occurrence of a triggering event, which occurred in May 2017 with the completion of the IPO.

In May 2017, in connection with the completion of its IPO, the Company issued 538,150 common shares to AstraZeneca in satisfaction of its obligation to contingently issue the Second Tranche of equity securities pursuant to the license agreement and remeasured the contingent equity liability to fair value. The Company recognized expense of $4,273 during the year ended December 31, 2017 as a result of changes to the fair value of the contingent equity liability prior to its extinguishment in May 2017.

For the three and nine months ended September 30, 2020 and 2019, the Company did not record any expense or make any milestone or royalty payments under the 2016 AstraZeneca Agreement.

Revenue Participation Rights

In June 2018, pursuant to the 2018 RPI Funding Agreement entered into by the Company and RPI (Note 9), the Company granted to RPI the right to receive certain revenue participation payments, subject to certain reductions, based on the future global net sales of the Products, for each calendar quarter during the royalty term contemplated by the 2018 RPI Funding Agreement, in exchange for $100,000 in cash. Specifically, the participation rate commences at 2.1 percent on annual global net sales of up to and equal to $1,500,000, declining to 1.5 percent on annual global net sales exceeding $1,500,000.

In connection with the 2018 RPI Funding Agreement, the Company recorded $11,955 and $31,950 in non-cash interest expense on its liability related to sale of future royalties for the three and nine months ended September 30, 2020, respectively, and $7,312 and $19,284 in non-cash interest expense on its liability related to sale of future royalties for the three and nine months ended September 30, 2019, respectively. The Company paid $227 and $227 under the 2018 RPI Funding Agreement during the three and nine months ended September 30, 2020, respectively, and no payments under the 2018 RPI Funding Agreement in 2019.

In August 2020, pursuant to the 2020 RPI Funding Agreement, the Company sold sales-based participation rights on global net sales of products containing zavegepant and rimegepant to RPI 2019 IFT for aggregate funding of $250,000, payable in two tranches. For further detail on the transaction see Note 9 “Liability Related to Sale of Future Royalties, net.”

2018 License Agreement with AstraZeneca

In September 2018, the Company entered into the 2018 AstraZeneca Agreement. Under the 2018 AstraZeneca Agreement, the Company paid AstraZeneca an upfront cash payment of $3,000 and 109,523 shares valued at $4,080 on the date of settlement, both of which were included in research and development expense, and is obligated to pay milestone payments to AstraZeneca totaling up to $55,000 upon the achievement of specified regulatory and commercial milestones and up to $50,000 upon the achievement of specified sales-based milestones. In addition, we will pay AstraZeneca tiered royalties ranging from high single-digit to low double-digits based on net sales of specified approved products, subject to specified reductions.

AstraZeneca granted Biohaven exclusive worldwide rights to develop and commercialize AZD3241, an oral myeloperoxidase (“MPO”) inhibitor that AstraZeneca progressed through Phase 2 clinical trials. We plan to conduct a Phase 3 clinical trial of this product candidate, which will now be referred to as verdiperstat, for the treatment of multiple system atrophy (“MSA”), a rare, rapidly progressive and fatal neurodegenerative disease with no cure or effective treatments.

The Company is now solely responsible, and has agreed to use commercially reasonable efforts, for all development, regulatory and commercial activities related to verdiperstat. The Company may sublicense its rights under the Agreement and, if it does so, will be obligated to pay a portion of any milestone payments received from the sublicense to AstraZeneca in addition to any milestone payments it would otherwise be obligated to pay. The Company is also now responsible for the prosecution and maintenance of the patents related to verdiperstat and has the first right to prosecute infringement of the patents and defend challenges to the validity or enforceability of the patents.

The Agreement terminates on a country-by-country basis and product-by-product basis upon the expiration of the royalty term for such product in such country. Each royalty term begins on the date of the first commercial sale of the licensed product in the applicable country and ends on the later of 10 years from such first commercial sale or the expiration of the last to expire of the applicable patents in that country. The Agreement may be terminated earlier in specified situations, including termination

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

16. License and Other Agreements (Continued)

for uncured material breach of the Agreement by either party, termination by AstraZeneca in specified circumstances, termination by us on a country-by-country basis with advance notice and termination upon a party’s insolvency or bankruptcy.

For the three and nine months ended September 30, 2020 and 2019, the Company did not record any expense or make any milestone or royalty payments under the 2018 AstraZeneca Agreement.

Fox Chase Chemical Diversity Center Inc. Agreement

In May 2019, Biohaven entered into the FCCDC Agreement in which the Company purchased certain intellectual property relating to the TDP-43 protein from FCCDC. The FCCDC Agreement provides the Company with a plan and goal to identify one or more new chemical entity candidates for preclinical development for eventual clinical evaluation for the treatment of one or more TDP-43 proteinopathies. As consideration, Biohaven issued 100,000 of its common shares to FCCDC valued at $5,646. As of the end of the second quarter of 2019, the payment was recorded in accounts payable and research and development expense as the shares had not settled during the quarter. Upon settlement of the shares in July 2019, the Company transferred the value of the common shares issued to FCCDC from accounts payable to common shares.

In addition, Biohaven is obligated to pay FCCDC milestone payments totaling up to $4,500 with $1,000 for each additional NDA filing. The Company also issued a warrant to FCCDC, granting FCCDC the option to purchase up to 100,000 Biohaven common shares, at a strike price of $56.46 per share, subject to vesting upon achievement of certain milestones in development of TD-43 (see Note 11).

In connection with the FCCDC Agreement, Biohaven and FCCDC have established a TDP-43 Research Plan that provides for certain milestones to be achieved by FCCDC, and milestone payments to be made by the Company up to $1,500 over a period of up to 30 months as success fees for research activities by FCCDC. In addition to the milestone payments, the Company will pay FCCDC an earned royalty equal to zero to ten percent of net sales of any TD-43 patent products with a valid claim as defined in the FCCDC Agreement. The Company may also license the rights developed under the FCCDC Agreement and, if it does so, will be obligated to pay a portion of any payments received from such licensee to FCCDC in addition to any milestones payments it would otherwise be obligated to pay. The Company is also responsible for the prosecution and maintenance of the patents related to the TDP-43 assets.

The FCCDC Agreement can be terminated on a country-by-country basis and product-by-product basis upon expiration of the royalty term for such product in such country. Each royalty term begins on the date of the first commercial sale of the licensed product in the applicable country and ends on the expiration of the last to expire of the applicable patents in that country. The FCCDC Agreement may be terminated earlier in specified situations, including termination for uncured material breach of the FCCDC Agreement by either party, termination by FCCDC in specified circumstances, termination by the Company on a country-by-country basis with advance notice and termination upon a party's insolvency or bankruptcy.

The Company recorded $500 and $1,365 in research and development expense in the condensed consolidated statements of operations related to the Research Plan milestones with FCCDC during the three and nine months ended September 30, 2020, respectively. The Company recorded no expense related to this agreement in 2019.

17. Income Taxes

In August 2020, the Company completed an intra-entity asset transfer of certain of its intellectual property to the Company's Irish subsidiary. As a result of the transfer, the Company recorded a deferred tax asset of $875,000 for the step up in tax basis received pursuant to Irish tax law. Based on its analysis of all available objective evidence, the Company concluded that it was more likely than not that the deferred tax asset from the intra-entity transfer will not be realized due to the lack of net operating income history of its subsidiary. Therefore, the Company established a full valuation allowance against its net deferred tax asset in Ireland.

18. Debt

In August 2020, the Borrowers, entered into the Sixth Street Financing Agreement, pursuant to which the Lenders agreed to extend a senior secured credit facility to the Company providing for term loans in an aggregate principal amount up to

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

18. Debt (Continued)

$500,000 plus any capitalized interest paid in kind. The facility consists of an initial term loan of $275,000, which the Borrowers borrowed at closing, and delayed draw term loans in an aggregate principal amount not exceeding $225,000, available until August 31, 2021, with $100,000 of the delayed draw term loans currently available at the Borrowers' option. The remaining $125,000 in delayed draw term loans becomes available if net sales from NURTEC ODT during the first quarter of 2021 or second quarter of 2021 equal at least $45,000. The facility terminates and the term loans become due and payable in August 2025.

Each term loan drawn under the facility will bear floating interest on the unpaid principal amount at a rate per annum equal to the three-month LIBOR rate, adjusted for applicable reserve requirements, and subject to a floor of 1.00%, plus 9.00%. Interest on amounts borrowed under the facility will be payable quarterly. The contractual interest rate as of September 30, 2020 was 10.00% and the effective interest rate is approximately 11.50%. The interest expense for the three and nine months ended September 30, 2020, was $4,356. For each borrowing under the facility, the Company has the right to elect to pay up to 4.00% per annum of the interest on the term loans comprising such borrowing in the form of payment in kind for the first eight fiscal quarters after the date of such borrowing. The Company elected to pay in kind the maximum amount for its interest payment made in September 2020.

The Company will have the right to prepay borrowings under the facility in whole or in part at any time, subject to a customary prepayment fee on the principal amount being prepaid, which declines over time. In connection with the initial term loan of $275,000, the Company paid customary fees with respect to the initial term loan and delayed draw term loans at closing. The Company also agreed to pay customary fees on the funding of any delayed draw term loans. The net proceeds received from the initial term loan, after fees and expenses, was approximately $260,000.

The Sixth Street Financing Agreement contains mandatory prepayments, restrictions and covenants applicable to the Company and its subsidiaries that are customary for financings of this type. Among other requirements, the Borrowers will be required to maintain a minimum unrestricted cash balance of $50,000, which will increase to $80,000, commencing on the date that any portion of the remaining $225,000 delayed draw term loan is funded. The minimum unrestricted cash balance will be waived for any fiscal quarter in which the Borrowers achieve $400,000 of net sales of the Company’s products in the four consecutive quarterly periods prior to such fiscal quarter. The Sixth Street Financing Agreement also includes representations, warranties, indemnities and events of default that are customary for financings of this type, including an event of default relating to a change of control of the Company. Upon or after an event of default, the administrative agent and the lenders may declare all or a portion of our obligations under the Sixth Street Financing Agreement to be immediately due and payable and exercise other rights and remedies provided for under the Sixth Street Financing Agreement.

The obligations under the Sixth Street Financing Agreement are and will be guaranteed by each of the Company's existing and future direct and indirect subsidiaries, subject to certain exceptions. The obligations of the Company and its subsidiaries under the Sixth Street Financing Agreement are secured, subject to customary permitted liens and other agreed upon exceptions, by a security interest in certain existing and after-acquired assets of the Company and its subsidiaries.

The following table is a summary of the Company’s borrowing as of September 30, 2020:


	September 30, 2020
Long-term debt
Floating rate note due August 2025 (10.00% at September 30, 2020)(1)	$	276,650
Total debt principal	276,650
Unamortized debt discount and issuance costs	(12,515)
Less: current portion	—
Long-term debt	$	264,135

(1) Includes $1,650 of paid in kind interest that was added to the principal during the three months ended September 30, 2020

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

18. Debt (Continued)

The following is a summary of the Company's required repayments of debt principal due during each of the next five years and thereafter, as of September 30, 2020:


2020 (remaining three months)	$	—
2021	—
2022	—
2023	6,916
2024	20,749
Thereafter	248,985
	$	276,650

19. Commitments and Contingencies

Summarized below are the matters previously described in Note 16 of the Notes to the Consolidated Financial Statements in the Company's Form 10-K for the year ended December 31, 2019, updated as applicable.

Lease Agreements

During the second quarter of 2020, the Company took occupancy of the premises associated with its Yardley office lease, which was determined to be an operating lease, and during the second and third quarter of 2020 took delivery of most of its commercial fleet leases, which were determined to be finance leases. The Company had no active leases prior to the second quarter of 2020 other than the short-term lease of the temporary office space. The short-term lease of the temporary space terminated when the Company took occupancy of the premises. See "Real Estate Lease" below for additional details for the office lease. See "Commercial Fleet Leases" below for additional details for the commercial fleet leases.

The following table summarizes our lease assets and liabilities as of September 30, 2020:


	Balance Sheet Location	Financing		Operating
Right-of-use asset	Other assets	$	14,082	$	6,220

Lease liabilities (current)	Accrued expenses and other current liabilities	$	4,757	$	672

Lease liabilities (noncurrent)	Other long-term liabilities	$	9,374	$	3,071

The following table summarizes our lease related costs for the three and nine months ended September 30, 2020:


	Statement of Operations and Comprehensive Loss Location	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	Selling, general and administrative expense	$	950	$	—	$	982	$	—
Interest on lease liabilities	Interest expense	142		—		147		—
Operating lease cost	Selling, general and administrative expense	265		—		409		—
Short-term lease cost	Selling, general and administrative expense	—		—		64		—
Variable lease cost	Selling, general and administrative expense	25		—		57		—

Total lease cost		$	1,382	$	—	$	1,659	$	—

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

19. Commitments and Contingencies (Continued)

The following table summarizes supplemental cash flow information for the nine months ended September 30, 2020:


	Nine Months Ended September 30, 2020
Other information

Cash paid for amounts included in the measurement of lease liabilities:


Financing cash flows from finance leases	$	991
Right-of-use assets obtained in exchange for new finance lease liabilities	$	15,064
Right-of-use assets obtained in exchange for new operating lease liabilities (1)	$	3,681

(1) This figure excludes $2,850 of opening adjustments to the right-of-use operating asset due to leasehold improvements originally classified in other assets and transferred to the right-of-use operating asset at lease commencement.

The Company had no operating cash outflows from finance and operating leases during the nine months ended September 30, 2020.

The following table summarize maturities of lease liabilities as of September 30, 2020:


Year	Financing		Operating		Total
2020 (remaining three months)	$	1,366	$	167	$	1,533
2021	5,332		675		6,007
2022	5,328		689		6,017
2023	3,122		703		3,825
2024	—		717		717
Thereafter	$	—	$	2,046	$	2,046

The following table is the reconciliation of lease liabilities as of September 30, 2020:


	Financing	Operating	Total
Total undiscounted lease liability	15,148	4,997	20,145
Imputed interest	1,017	1,254	2,271
Total discounted lease liability	14,131	3,743	17,874

Weighted-average remaining lease term (years)	2.84	7.00	3.71
Weighted-average discount rate	5.24%	9.07%	6.19%

Real Estate Lease

In August 2019, the Company entered into a lease agreement for office space in Yardley, Pennsylvania to support expansion of the Company's commercial operations in anticipation of the NURTEC ODT commercial launch. The lease was originally expected to commence in the first quarter of 2020 but, due to complications from the COVID-19 pandemic, the lease commenced in the second quarter of 2020. It has a term of 88 months, with the ability to extend to 148 months. The Company continuously reassesses its strategic objectives and resulting capital deployment strategy. Therefore, at lease commencement the Company determined that the extension was not reasonably certain and did not include the extension in the lease term when calculating the right-of-use asset and lease liability. The Company has restricted cash of $1,000, as of September 30, 2020 and December 31, 2019, included in other assets in the condensed consolidated balance sheets, which represents collateral held by a bank for a letter of credit issued in connection with the lease. The restricted cash is deposited in a non-interest bearing account.

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

19. Commitments and Contingencies (Continued)

The lessor provided the Company a temporary space to occupy while leasehold improvements were completed prior to the lease commencement. With the exception of the first month's rent payment made on execution of the lease, the Company is not required to pay rent until five months after lease commencement. The Company determined there were two units of account for the lease, one for use of the temporary space, with a duration from the lease execution date to the lease commencement date and another for the use of the premises, with a duration from the lease commencement date to the lease termination date. The two units of account are being treated as two separate operating leases.

Since the Company expected to occupy the temporary space for less than 12 months, the Company did not record a right-of-use asset and lease liability on its balance sheet for the temporary space. The Company recognized $0 and $64 in rent expense for the temporary space for the three and nine months ended September 30, 2020, respectively. Since there were no cash payments for use of the temporary space, the rent expense recognized for the use of the temporary space is being treated as deferred rent liability in other long-term liabilities in the Company's condensed consolidated balance sheet. As the Company makes lease payments on the premises, a portion of the payment will be used to reduce the deferred rent liability.

During the second quarter of 2020, the Company began occupying the premises after the landlord substantially completed all agreed upon improvements to the office space. The Company determined the lease to be an operating lease and used an estimate of its incremental borrowing rate at lease commencement to discount the future lease commitments.

Commercial Fleet Leases

During the second and third quarters of 2020, the Company took delivery of a majority portion of its commercial car fleet. Each commercial fleet lease has a term of 36 months, and the wholesale value of the vehicle at lease termination is guaranteed by the Company. In addition, the Company can terminate the vehicle leases at any time without a significant penalty. For the discount rate, the Company used its incremental borrowing rate, which it believes approximates the rate implicit in the commercial fleet leases.

Research Commitments

The Company has entered into agreements with several contract research organizations to provide services in connection with its preclinical studies and clinical trials. The Company commits to minimum payments under these arrangements.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with certain executive officers and members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. The Company’s amended and restated memorandum and articles of association also provide for indemnification of directors and officers in specified circumstances. To date, the Company has not incurred any material costs as a result of such indemnification provisions. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of September 30, 2020 or December 31, 2019.

Legal Proceedings

From time to time, in the ordinary course of business, the Company is subject to litigation and regulatory examinations as well as information gathering requests, inquiries and investigations. As of September 30, 2020, there were no matters which would have a material impact on the Company’s financial results.

Table of Contents

BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

20. Related Party Transactions

Guarantor and Co-Guarantor Warrants

The guarantor and co-guarantor of the Credit Agreement with Wells Fargo are each shareholders and members of the board of directors of the Company. The Company issued warrants to the guarantor and co-guarantor in exchange for their respective guarantees (see Note 11 and 12). On January 26, 2017, each of these two directors received a warrant to purchase 107,500 common shares at an exercise price of $9.2911 per share. Both warrants were exercised in March 2019 and common shares settled in the second quarter of 2019.

Form 10-Q Table of Contents

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”). Some of the statements 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, constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II-Item 1A “Risk Factors” and our other filings with the SEC.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

Overview

We are a commercial-stage biopharmaceutical company with a marketed product, NURTEC™ ODT (rimegepant), for the acute treatment of migraine and a portfolio of innovative product candidates targeting neurological diseases, including rare disorders. NURTEC ODT, was approved by the U.S. Food and Drug Administration ("FDA") on February 27, 2020, and became available by prescription in U.S. pharmacies on March 12, 2020. NURTEC ODT is the first and only calcitonin gene-related peptide ("CGRP") receptor antagonist available in a quick-dissolve orally dissolving tablet ("ODT") formulation that is approved by the FDA for the acute treatment of migraine in adults. Our other product candidates are based on multiple mechanisms —CGRP receptor antagonists, glutamate modulators and myeloperoxidase inhibition—which we believe have the potential to significantly alter existing treatment approaches across a diverse set of neurological indications with high unmet need in both large and orphan indications.

Our late-stage programs include the following:


Product	Platform	Indication	Development Stage
NURTEC™ ODT	CGRP	Acute treatment of migraine	Approved by the FDA on February 27, 2020 and commercialization began in March 2020.
Rimegepant	CGRP	Prevention of migraine	Positive results for Phase 3 trial for prevention reported in the first quarter of 2020. FDA accepted supplemental new drug application ("sNDA") with PDUFA goal date set for the second quarter of 2021.
Rimegepant	CGRP	Trigeminal Neuralgia	Phase 2 proof of concept trial ongoing.
Zavegepant	CGRP	Acute treatment of migraine	Phase 3 trial expected to commence fourth quarter 2020.
Troriluzole	Glutamate	Ataxias	Phase 2/3 randomization phase in spinocerebellar ataxia ("SCA") complete; extension trial ongoing. Phase 3 trial ongoing.
Troriluzole	Glutamate	Obsessive Compulsive Disorder (“OCD”)	Phase 2/3 trial complete. Plan to initiate two Phase 3 trials in 2020.
Troriluzole	Glutamate	Alzheimer’s disease ("AD")	Phase 2/3 trial ongoing; passed interim analysis in the fourth quarter of 2019 and topline data expected in first quarter of 2021.
Verdiperstat	MPO	Multiple System Atrophy ("MSA")	Phase 3 trial initiated in third quarter of 2019. Results expected in fourth quarter of 2021.
Verdiperstat	MPO	Amyotrophic Lateral Sclerosis ("ALS")	Phase 3 HEALEY ALS Platform Trial initiated in the third quarter of 2020.

CGRP Platform

In July 2016, we acquired exclusive, worldwide rights to our CGRP receptor antagonist platform, including rimegepant and zavegepant (previously known as BHV-3500 and vazegepant), through a license agreement with Bristol-Myers Squibb Company (“BMS”), which was amended in March 2018.

Rimegepant

The most advanced product candidate from our CGRP receptor antagonist platform is rimegepant, an orally available, potent and selective small molecule human CGRP receptor antagonist that we are developing for the acute and preventive treatment of migraine. During the second quarter of 2019, we submitted NDAs for the acute treatment of migraine to the FDA for the Zydis ODT and tablet formulations of rimegepant. The NDA submission of the Zydis ODT formulation of rimegepant was submitted using an FDA priority review voucher, purchased in March 2019, providing for an expedited 6-month review. NURTEC ODT (rimegepant) was approved by the FDA on February 27, 2020 and was available by prescription in U.S. pharmacies on March 12, 2020. Due to the early success and life-cycle benefits for NURTEC ODT, we determined that there were no significant added benefits to patients for the tablet formulation and that it was in the Company’s best interests not to expend the resources to commercialize the tablet formulation of rimegepant for the acute treatment of migraine. In May 2020, we withdrew the rimegepant tablet NDA that was pending with the FDA. A summary of key rimegepant studies is described below.

The Company remains focused on investing in the long-term success of the launch by driving trial, and ultimately market share, in this rapidly growing oral CGRP market and is beginning to observe a positive return on investment with increasing physician advocacy and attracting a greater pool of patients; the Company expects this momentum to continue throughout year end. We believe that the rapid adoption of NURTEC ODT is evidence of significant unmet need among people with migraine and an associated large acute therapy market opportunity. It is important to note that the injectable anti-CGRP prevention market has not been negatively impacted by the oral anti-CGRP (or gepant) class growth, which signifies two distinct and sizable migraine market segments. The Company continues to expand commercial payer coverage, with NURTEC ODT now covered by insurance providers reflecting 87% of commercial lives.

Study 301/Study 302

In March 2018, we announced positive topline data from our first two pivotal Phase 3 trials (“Study 301 and Study 302”) for the acute treatment of migraine. In each trial, treatment with a single 75 mg dose of rimegepant met the co-primary efficacy endpoints of the trial, which were superior to placebo, at two hours post-dose, on measures of pain freedom and freedom from the patient’s MBS. In addition to achieving both co-primary endpoints in each of the trials, rimegepant also was observed to be generally safe and well-tolerated in the trials, with a safety profile similar to placebo. The co-primary endpoints achieved in the Phase 3 trials were consistent with regulatory guidance from the FDA and provided the basis for the submission of the NDAs to the FDA.

Study 303

A third Phase 3 clinical trial for the acute treatment of migraine with a bioequivalent ODT formulation of rimegepant commenced in February 2018. On December 3, 2018, we announced positive topline data from this randomized, controlled Phase 3 clinical trial (“BHV3000-303” or “Study 303”) evaluating the efficacy and safety of our Zydis ODT formulation of rimegepant for the acute treatment of migraine. Rimegepant differentiated from placebo on the two co-primary endpoints using a single dose, pain freedom and freedom from the MBS at two hours. In total, rimegepant was significantly differentiated from the placebo in the first 21 consecutive primary and secondary outcome measures that were pre-specified. Patients treated with the rimegepant Zydis ODT formulation began to numerically separate from placebo on pain relief as early as 15 minutes, and this difference was statistically significant at 60 minutes. Additionally, a significantly greater percentage of patients treated with rimegepant Zydis ODT returned to normal functioning by 60 minutes and lasting clinical benefit compared to placebo was observed through 48 hours after a single dose of rimegepant on freedom from pain, pain relief, freedom from the MBS, and freedom from functional disability. The safety and tolerability observations of rimegepant in Study 303 were consistent with our previous observations. The overall rates of adverse events were similar to placebo (13.2% with respect to rimegepant compared to 10.5% with placebo). The co-primary endpoints achieved in the Phase 3 trials are consistent with regulatory guidance from the FDA and formed the basis of efficacy data required by the FDA for approval.

Study 305

In November 2018, we initiated a double-blind, placebo-controlled Phase 3 clinical trial examining regularly scheduled dosing of rimegepant 75 mg to evaluate its efficacy and safety as a preventive therapy for migraine (“BHV3000-305” or “Study 305”). In March 2020 Biohaven announced positive topline results from this study. Rimegepant 75 mg, dosed every other day, demonstrated statistically significant superiority, compared to placebo, on the primary endpoint of reduction in the mean number of migraine days per month in both episodic and chronic migraine patients. The safety profile seen in the 370 patients who received rimegepant 75 mg every other day was consistent with prior clinical trial experience. With this trial, rimegepant

has become the only CGRP targeted therapy to demonstrate efficacy in both the acute and preventive treatment of migraine. A sNDA for rimegepant for prevention of migraine was filed by the FDA and accepted for review in the fourth quarter of 2020.

Pediatric Study Plan

In June 2019, the FDA provided agreement for the Pediatric Study Plan for the acute treatment of migraine.

Trigeminal Neuralgia

In the second quarter of 2019, we initiated a Phase 2 proof of concept trial to evaluate the safety and efficacy of rimegepant in patients with treatment refractory trigeminal neuralgia. Trigeminal neuralgia is a chronic facial pain syndrome characterized by paroxysmal, severe, and lancinating episodes of pain in the distribution of one or more branches of the trigeminal nerve. The trigeminal nerve, or fifth cranial nerve, is the largest of the 12 cranial nerves and provides sensory innervation to the head and neck, as well as motor innervation to the muscles of mastication. These episodic bouts of severe facial pain can last seconds to minutes, occur several times per day, and often result in significant disability. Over the long- term course of the disease, symptoms often become refractory to medical therapy and current treatment options remain suboptimal.

International Health Authority Interactions

Scientific advice for rimegepant for acute and prophylaxis migraine treatment was received from the Committee for Medicinal Products for Human Use, a committee of the European Medicines Agency, in June and December 2018, respectively. Based on this feedback, we believe we have several potential pathways to approval, which we are pursuing. We are planning for a filing in Europe in the first quarter of 2021.

With respect to Japan, we are engaging the Pharmaceuticals and Medical Devices Agency ("PMDA") on a path forward.

In January 2019, we and our wholly owned subsidiary, BioShin Consulting Services Company Ltd. (“BioShin”), a Shanghai based limited liability company, jointly announced that the National Medical Products Administration (“NMPA,” formerly, the China FDA) had accepted the investigational new drug (“IND”) application for rimegepant for the treatment of migraine. As previously announced, BioShin was established to develop and potentially commercialize our late-stage migraine and neurology portfolio in China and other Asia-Pacific markets. Following the results of Study 303, we submitted a second IND application to the NMPA for the Zydis ODT formulation of rimegepant for the acute treatment of migraine. The IND application for the Zydis ODT formulation of rimegepant was accepted by the NMPA in the fourth quarter of 2019. In the third quarter of 2020, BioShin Limited, our subsidiary and the parent organization of BioShin, raised $60.0 million in series A funding which will be used to build out BioShin Limited in China and advance the Biohaven clinical portfolio in the Asia-Pacific region, including the expected start of the NURTEC ODT (rimegepant) Phase 3 study for the acute treatment of migraine in China and Korea in the 4th quarter of 2020.

Zavegepant

BHV-3500, formerly "vazegepant", is now referred to as "zavegepant" (za ve’ je pant). The World Health Organization (WHO) International Nonproprietary Names (INN) Expert Committee revised the name to "zavegepant" which was accepted by the United States Adopted Names Council for use in the U.S. and is pending formal adoption by the INN for international use.

Administration of intranasal zavegepant in a Phase 1 clinical trial was initiated in October 2018 and has achieved targeted therapeutic exposures. We advanced zavegepant into a Phase 2/3 trial to evaluate its efficacy for the acute treatment of migraine in the first quarter of 2019. We believe that intranasal zavegepant may provide an ultra-rapid onset of action that could be used in a complimentary fashion with other migraine treatments when the speed of onset is critical to a patient. In December 2019, we announced positive topline results from the Phase 2/3 trial. Zavegepant 10 and 20 mg was statistically superior to placebo on the co-primary endpoints of pain freedom and freedom from the MBS at two hours using a single dose. A Phase 3 study is planned for the fourth quarter of 2020.

In April 2020, Biohaven announced its plan to study intranasal zavegepant in pulmonary complications of COVID-19 disease. The IND was approved by the Division of Pulmonary, Allergy, and Critical Care at FDA in April 2020, and a Phase 2 trial began in April 2020 in collaboration with Thomas Jefferson University and other academic medical institutions. The clinical trial will assess the potential benefits of CGRP receptor-blockade in mitigating an excessive immune response which in some cases can be fatal in COVID-19 patients.

In September 2020, the Company announced that the FDA authorized the initiation of clinical trials for oral zavegepant and that the Company has achieved first in human dosing in a Phase 1 trial designed to assess the safety and pharmacokinetics of oral formulations of zavegepant.

Glutamate Platform

The most advanced product candidate from our glutamate receptor antagonist platform is troriluzole (previously referred to as trigriluzole and BHV-4157), which is in multiple Phase 3 trials. Other product candidates include sublingual riluzole (BHV-0223) and BHV-5500 which is an antagonist of the glutamate N-methyl-D-aspartate (“NMDA”) receptor.

Troriluzole

Ataxias

We are developing troriluzole for the treatment of ataxias; our initial focus has been SCA. We have received both orphan drug designation and fast track designation from the FDA for troriluzole for the treatment of SCA. A Phase 3 trial began enrollment in March 2019 to evaluate the efficacy of troriluzole in SCA. We believe that the non-statistically significant clinical observations from our first Phase 2/3 trial and open-label extension phase in SCA support our decision to advance troriluzole into a Phase 3 trial that could provide the data needed to serve as the basis for an NDA. We expect to complete enrollment in the Phase 3 trial of troriluzole in SCA in the fourth quarter of 2020.

Other Indications

A Phase 2/3 double-blind, randomized, controlled trial to assess the efficacy of troriluzole in OCD commenced in December 2017. Enrollment in this study was completed in the first quarter of 2020. The Phase 2/3 study results were announced in June 2020. Troriluzole 200 mg administered once daily as adjunctive therapy in OCD patients with inadequate response to standard of care treatment showed consistent numerical improvement over placebo on the Yale-Brown Obsessive Compulsive Scale (Y-BOCS) at all study timepoints (weeks 4 to 12) but did not meet the primary outcome measure at week 12 (p = 0.22 at week 12) but was significant at week 8 (p < 0.05). Given the strong signal in the Phase 2/3 proof of concept study and after receiving feedback from the FDA in an End of Phase 2 meeting, we plan to initiate two Phase 3 clinical trials in 2020. Troriluzole was well tolerated with a safety profile consistent with past clinical trial experience.

In addition, a Phase 2/3 double-blind, randomized, controlled trial of troriluzole in the treatment of mild-to-moderate Alzheimer’s disease has advanced with the Alzheimer’s Disease Cooperative Study, a consortium of sites funded by the National Institutes of Health. In the fourth quarter of 2019, we completed enrollment in the study and announced that the study passed the interim futility analysis. In order to pass the interim futility analysis, troriluzole had to demonstrate numerically greater benefit over placebo on at least one of the two pre-specified criteria at 26 weeks: either (i) cognitive function as measured by the Alzheimer’s Disease Assessment Scale-Cognitive Subscale (“ADAS-cog”) or (ii) hippocampal volume as assessed by magnetic resonance imaging. Topline data from the trial is expected in the first quarter of 2021.

In February 2020 we reported negative topline results from our Phase 2/3 clinical trial evaluating troriluzole compared to placebo for the treatment of patients with GAD. This eight-week trial randomized 402 adult patients equally at more than 45 centers in the United States. In this trial, troriluzole monotherapy at 100mg twice daily did not differentiate from placebo on the primary endpoint of the mean change from baseline on the Hamilton Anxiety Rating Scale (HAM-A) after eight weeks of treatment. The efficacy results do not support continued development of troriliuzole as a monotherapy in GAD.

International Development

In the third quarter of 2020, BioShin Limited raised $60.0 million in series A funding which will be used to build out BioShin Limited in China and advance our clinical portfolio in the Asia-Pacific region, including initiating sites in China to participate in the global registrational trial of troriluzole in SCA. BioShin Limited expects the trial to begin recruiting in China in the fourth quarter of 2020.

BHV-0223

BHV-0223 was in development as a sublingual form of riluzole for the treatment of ALS. In January 2018, we announced positive results of a bioequivalence study with BHV-0223 and marketed riluzole, thus providing pivotal data that we believed was sufficient for the filing of an NDA with the FDA, allowing us to pursue the regulatory approval of BHV-0223 for ALS under Section 505(b)(2) of the U.S. Federal Food, Drug, and Cosmetic Act. We submitted an NDA in September 2018, and the PDUFA date was in July 2019. In July 2019, we announced that we received a CRL from the FDA for the 505(b)2 application seeking approval for BHV-0223 (riluzole) for the treatment of ALS. The sole issue identified in the CRL relates to an FDA concern regarding the use of an active pharmaceutical ingredient (“API”) manufactured by Apotex Pharmachem India Private Limited (“Apotex”) and used in the drug product supplies for the bioequivalence study in 2017. In the CRL, the FDA stated that it provided recommendations to Apotex regarding the information needed to qualify previous API batches manufactured at Apotex during the time period in question. We have been subsequently informed by the manufacturer that the manufacturer had an exemption from the FDA to supply riluzole to the U.S. market during that time period. We have been in contact with the FDA’s Chemistry, Manufacturing, and Controls (“CMC”) group and Apotex to resolve the matter and we have already submitted additional information to the FDA regarding this issue. We note that the API for commercial supply of BHV-0223 is currently sourced from another supplier, with whom no CMC issues have been identified. The FDA did not cite any other concerns in their CRL regarding BHV-0223. Interactions with the FDA and the API manufacturer are ongoing.

BHV-5000 and BHV-5500

We are also developing BHV-5500, low-trapping NMDA receptor antagonist, for the treatment of neuropsychiatric diseases. One potential target indication includes Complex Regional Pain Syndrome (“CRPS”). CRPS is a rare, chronic pain

condition typically affecting limbs and triggered by traumatic injury. Accompanying symptoms also include chronic inflammation and reduced mobility in the affected areas. Other disorders of interest include post-herpetic neuralgia and diabetic peripheral neuralgia. We acquired worldwide rights to BHV-5000 and BHV-5500 under an exclusive license agreement with AstraZeneca AB in October 2016. We selected a lead formulation at the end of 2017 and completed single dosing in a Phase 1 clinical trial of BHV-5000 in January 2018 to evaluate its pharmacokinetic properties. Results from nonclinical studies limiting clinical dose of BHV-5000 have led us to focus on BHV-5500 (lanicemine). Current work is focused on formulation development.

MPO Platform

Verdiperstat

We are developing verdiperstat (previously BHV-3241), an oral myeloperoxidase inhibitor for the treatment of neurodegenerative diseases. One target indication is MSA, a rare, rapidly progressive and fatal neurodegenerative disease with no cure or effective treatments. Verdiperstat has received orphan drug designation for the treatment of MSA from both the FDA and the European Medicines Agency. In addition, Fast Track status was granted by the FDA in March 2020 for verdiperstat for the treatment for MSA. A Phase 3 trial began enrollment in July 2019 to evaluate the efficacy of verdiperstat in MSA. The trial completed enrollment in July 2020. Results are expected in the fourth quarter of 2021.

Another potential target indication is ALS. In September 2019, we announced that verdiperstat was selected to be studied in the Phase 3 HEALEY ALS Platform Trial, which is being conducted by the Sean M. Healey & AMG Center for ALS at Massachusetts General Hospital in collaboration with the Northeast ALS Consortium (“NEALS”) clinical trial network. Promising investigational drugs were chosen for the HEALEY ALS Platform Trial through a competitive process, with the Healey Center providing partial financial support to successful applicants. The Phase 3 HEALEY ALS Platform Trial of verdiperstat began enrollment in August 2020.

Verdiperstat was progressed through Phase 2 clinical trials by AstraZeneca. We have entered into an exclusive license agreement with AstraZeneca for the product candidate.

Preclinical

In May 2019, we entered into an agreement with Fox Chase Chemical Diversity Center Inc. (“FCCDC”) for FCCDC’s TDP-43 assets (the “FCCDC Agreement”). The FCCDC Agreement provides the Company with a plan and goal to identify one or more new chemical entity candidates for preclinical development for eventual clinical evaluation for the treatment of one or more TDP-43 proteinopathies. In connection with the FCCDC Agreement, Biohaven and FCCDC have established a TDP-43 Research Plan that provides for certain milestones to be achieved by FCCDC, and milestone payments to be made by us. For further information about our arrangements with FCCDC, see Note 16 of the condensed consolidated financial statements.

Recent Developments

Sixth Street Financing Agreement

In August 2020, we and Biohaven Pharmaceuticals, Inc., our wholly-owned subsidiary (together with us, the "Borrowers"), entered into a financing agreement (the "Sixth Street Financing Agreement") with Sixth Street Specialty Lending, Inc. as administrative agent, various lenders (the "Lenders") and certain of our subsidiaries, as guarantors. Pursuant to the Sixth Street Financing Agreement, the Lenders agreed to extend a senior secured credit facility to the Borrowers providing for term loans in an aggregate principal amount up to $500.0 million plus any capitalized interest paid in kind. The credit facility consists of an initial term loan of $275.0 million, which the Borrowers borrowed at closing, and delayed draw term loans in an aggregate principal amount not exceeding $225.0 million, available until August 31, 2021, with $100.0 million of the delayed draw term loans currently available at the Borrowers' option. The remaining $125.0 million in delayed draw term loans becomes available if net sales from NURTEC ODT during the first quarter of 2021 or second quarter of 2021 equal at least $45.0 million. The facility terminates in August 2025.

We will have the right to prepay borrowings under the facility in whole or in part at any time, subject to a customary prepayment fee on the principal amount being prepaid, which declines over time. In connection with the initial term loan of $275.0 million, we paid customary fees with respect to the initial term loan and delayed draw term loans at closing. We also agreed to pay customary fees on the funding of any delayed draw term loans The net proceeds received from the initial term loan, after fees and expenses, was approximately $260.0 million.

The Sixth Street Financing Agreement contains mandatory prepayments, restrictions and covenants applicable to us and our subsidiaries that are customary for financings of this type. Among other requirements, the Borrowers will be required to maintain a minimum unrestricted cash balance of $50.0 million, which will increase to $80.0 million, commencing on the date that any portion of the remaining $225.0 million delayed draw term loan is funded. The minimum unrestricted cash balance will be waived for any fiscal quarter in which the Borrowers achieve $400.0 million of net sales of our products in the four consecutive quarterly periods prior to such fiscal quarter. The Sixth Street Financing Agreement also includes representations, warranties, indemnities and events of default that are customary for financings of this type, including an event of default relating to a change of control of the company. Upon or after an event of default, the administrative agent and the lenders may declare all or a portion of our obligations under the Sixth Street Financing Agreement to be immediately due and payable and exercise other rights and remedies provided for under the Sixth Street Financing Agreement.

The obligations under the Sixth Street Financing Agreement are and will be guaranteed by each of our existing and future direct and indirect subsidiaries, subject to certain exceptions. Our obligations under the Sixth Street Financing Agreement are secured, subject to customary permitted liens and other agreed upon exceptions, by a security interest in certain of our existing and after-acquired assets.

2020 RPI Funding Agreement

In August 2020, we entered into a funding agreement (the "2020 RPI Funding Agreement") with RPI 2019 Intermediate Finance Trust ("RPI 2019 IFT") providing for up to $250.0 million of funding in exchange for rights to participation payments based on global net sales of products containing zavegepant and NURTEC ODT and certain payments based on regulatory milestones relating to zavegepant. Under the 2020 RPI Funding Agreement, RPI 2019 IFT will be entitled to receive tiered, sales based participation rights up to 3.0% of future global net sales of products containing zavegepant, 0.4% of future global net sales of products containing NURTEC ODT, and payments tied to success-based milestones as described below. We received $150.0 million at closing, and will receive $100.0 million upon achievement of certain development milestones for zavegepant (including the commencement of the oral zavegepant Phase 3 program).

If at any time during the 180 days following the closing of the 2020 RPI Funding Agreement, we enter into a definitive agreement to consummate a Change of Control (as defined in the Company's articles of memorandum of association), we will have the option to repurchase the participation rights and milestone payment rights for a purchase price of 2.0x of the amount received under the agreement at that date, contingent upon the closing of a Change of Control (the "Buy-Back Option").

The success-based milestone payments range from 0.6x to 2.95x of the funded amount depending on the number of regulatory approvals achieved for zavegepant (including 1.9x for the first zavegepant migraine regulatory approval) and would be paid over a ten-year period. If we consummate a Change of Control, and the Buy-Back Option has not previously been exercised, RPI 2019 IFT has the option to accelerate each unpaid milestone payment which has or thereafter occurs.

RPI Series B Preferred Share Purchase Agreement

In August 2020, in connection with the 2020 RPI Funding Agreement, we entered into a preferred share purchase agreement with RPI 2019 IFT in which RPI 2019 IFT agreed to purchase up to 3,992 Series B Preferred Shares, of no par value per share, at a price of $50,100 per preferred share from us (the "Series B Preferred Shares") for a total purchase price of $200.0 million payable in quarterly installments of approximately $17.6 million in 2021, $14.6 million in 2022, and $8.9 million in 2023 and 2024. In return, we will be required to redeem the Series B Preferred Shares in 24 quarterly installments of $14.8 million from 2025 to 2030.

The holders of our outstanding Series B Preferred Shares will have the right to require us to redeem their shares in certain circumstances. If we effect a Change of Control, the holders of the Series B Preferred Shares will have the option to cause us to redeem, in a single payment any outstanding Series B Preferred Shares at a price equal to 1.77x the original issue price per share.

We may redeem any outstanding Series B Preferred Shares at our option at any time for 1.77x the original purchase price, with the redemption price to be paid in a single payment.

In the event that we default on any obligation to redeem Series B Preferred Shares when required, the redemption amount shall accrue interest at the rate of eighteen percent (18%) per annum. If any such default continues for at least one year, the holders of such shares shall be entitled to convert, subject to certain limitations, such Series B Preferred Shares into common shares, with no waiver of their redemption rights.

Under all circumstances, the Series B Preferred Shares are required to be redeemed by December 31, 2030.

BioShin Limited Series A Preferred Share Issuance

In September 2020, our Asia-Pacific Subsidiary, BioShin Limited, issued and sold $60,000 BioShin Series A Preferred Shares to a group of investors led by OrbiMed, with participation from Cormorant Asset Management LLC, HBM Healthcare Investments Ltd, Surveyor Capital (a Citadel Company), and Suvretta Capital Management, LLC (the "BioShin Investors"). The BioShin Series A Preferred Shares contain both a call option by us and a put option held by the BioShin Investors. The call and put options have mirroring features that allow for us to buy, or the BioShin Investors to sell the preferred shares following a change of in our control at the greater of the fair market value of the BioShin preferred shares on execution of the options or a multiple of 2.5x to 3.5x dependent on when the change of control occurs, prior to an initial public offering of BioShin Limited. Due to the contingently redeemable features, the we classified the Bioshin Series A Preferred Shares in mezzanine equity since the redemption is out of our control. In the event that a change of control becomes probable, we will accrete the carrying value of the BioShin Series A Preferred Shares to their redemption value.

In connection with the BioShin Series A Preferred Shares issuance, BioShin Limited executed the 2020 Equity Incentive Plan ("Bioshin 2020 Equity Incentive Plan") and granted options under the Bioshin 2020 Equity Incentive Plan to certain employees. The compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award (generally three years) using the straight-line method. We are accounting for the expense being recognized over the requisite service period as non-controlling interest in shareholder's equity. We recognized $1,439 in non-controlling interest relating to the options for the three and nine months ended September 30, 2020.

COVID-19 Update

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns in affected areas.

Although, as of the date of this Quarterly Report on Form 10-Q, we do not expect any material impact on our long-term activity, the extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others, including government-imposed quarantines, travel restrictions and other public health safety measures.

The COVID-19 pandemic may impair our commercialization of NURTEC ODT. The spread of COVID-19 may reduce demand for NURTEC ODT. In response to regional quarantines, health professionals may reduce staffing and reduce or postpone appointments with patients, or patients may cancel or miss appointments, resulting in less prescriptions of NURTEC ODT than projected, thereby adversely affecting our revenues. In addition, in connection with the recent FDA approval of NURTEC ODT, we have been making presentations to physicians regarding the efficacy of NURTEC ODT but as a result of the COVID-19 pandemic, we have needed to and may continue to need to conduct some or all of these key meetings with medical professionals solely by virtual means instead of in-person, which could reduce the number of medical professionals we are able to present to, and we cannot guarantee that any such virtual meetings will be as successful as in-person meetings. Moreover, restrictions on travel and transport may result in disruptions in NURTEC ODT distribution. Such events may result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.

The continued spread of COVID-19 could also adversely impact our clinical trial operations. For example, we may be unable to enroll or retain an adequate number of patients to commence or complete our clinical trials, data may be missing, the FDA may delay or terminate clinical trials for any of our product candidates, or primary outcome measures may be impacted. As a result, our ability to generate product revenue from sales of any of those product candidates may be delayed or not realized at all.

Business interruptions from the current or future pandemics may also adversely impact the third parties we rely on to sufficiently manufacture NURTEC ODT and to produce our product candidates in quantities we require, which may impair the commercialization of NURTEC ODT and our research and development activities.

The COVID-19 pandemic and responses to its spread have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets. This significant disruption of the global financial markets could reduce our ability to access equity or debt capital on attractive terms if at all, which in turn could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common shares.

We have taken numerous steps, and will continue to take further actions, in our approach to addressing the COVID-19 pandemic. We have implemented internal controls to contemplate a remote work environment and our incident management teams are in place to respond to changes in our work environment quickly and effectively. As a result of the COVID-19

pandemic, we have instructed most of our employees to work from home. In April 2020, we announced a collaboration with Cove in order to facilitate telemedicine evaluation for migraine sufferers while patients are increasingly looking to remote evaluations during this time of unprecedented decreased access to routine office visits.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our business, financial condition or results of operations.

Capital Requirements

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful commercialization of NURTEC ODT, and/or the development and commercialization one or more of our current product candidates and programs. Our net loss attributable to Biohaven Pharmaceutical Holding Company Ltd. was $195.2 million and $106.2 million for the three months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $1,521.4 million. We expect to continue to incur significant expenses for the foreseeable future as we continue the launch of NURTEC ODT, and advance our other product candidates from discovery through preclinical development and clinical trials and seek regulatory approval and pursue commercialization of any approved product candidate. In addition, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution related to NURTEC ODT. In addition, we may incur expenses in connection with the in-license or acquisition of additional product candidates.

As a result, we will need additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the public or private sale of equity, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even though we are generating product sales of NURTEC ODT, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of November 9, 2020, the issuance date of our condensed consolidated financial statements, we expect that our cash, cash equivalents, and marketable securities as of September 30, 2020, and the funds available from the Sixth Street Financing Agreement, and Series B Preferred Shares will be sufficient to fund our current forecast for operating expenses, including commercialization of NURTEC ODT, financial commitments and other cash requirements for more than one year. We may need to raise additional capital until we are profitable. If no additional capital is raised through either public or private equity financings, debt financings, strategic relationships, alliances and licensing agreements, or a combination thereof, we may delay, limit or reduce discretionary spending in areas related to research and development activities and other general and administrative expenses in order to fund our operating costs and working capital needs.

Components of Our Results of Operations

Product Revenues, Net

We began to recognize revenue from product sales, net of rebates, chargebacks, discounts and other adjustments, in March 2020 in conjunction with the launch of our first product, NURTEC ODT. We recently launched NURTEC ODT and will continue to evaluate trends related to revenue momentum for NURTEC ODT, including any discernible impacts of the COVID-19 pandemic. If our development efforts for our other product candidates are successful and result in regulatory approval, or additional license agreements with third parties, we may generate additional revenue in the future from product sales.

Cost of Goods Sold

Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of NURTEC, including third-party manufacturing costs, packaging services, freight-in, third-party royalties payable on our net product revenues and amortization of intangible assets associated with NURTEC ODT.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include:

•expenses incurred under agreements with contract research organizations (“CROs”) or contract manufacturing organizations, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

•manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;

•employee-related expenses, including salaries, benefits, travel and non-cash share-based compensation expense for employees engaged in research and development functions;

•costs related to compliance with regulatory requirements;

•payments made in cash, equity securities or other forms of consideration under third-party licensing agreements prior to FDA approval and product commercialization.

We recognize external development costs based on an evaluation of the progress to completion of specific tasks using estimates of our clinical personnel or information provided to us by our service providers.

Our external direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, contract manufacturing organizations, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. We do not allocate employee costs or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and development as well as for managing our preclinical development, process development, manufacturing and clinical development activities. Many employees work across multiple programs, and we do not track personnel costs by program.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will remain significant over the next several years as we increase personnel costs conduct clinical trials and prepare regulatory filings for our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates.

The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

•the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;

•establishment of an appropriate safety profile with IND-enabling studies;

•successful patient enrollment in, and the initiation and completion of, clinical trials;

•the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;

•establishment of commercial manufacturing capabilities or making arrangements with third-party manufacturers;

•development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;

•acquisition, maintenance, defense and enforcement of patent claims and other intellectual property rights;

•significant and changing government regulation;

•initiation of commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and

•maintenance of a continued acceptable safety profile of the product candidates following approval.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for our executive, commercial, finance, business, commercial, corporate development and other administrative functions; and non-cash share-based compensation expense. Selling, general and administrative expenses also include facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies; professional fees for expenses incurred under agreements with third parties relating to the commercialization of NURTEC ODT; and for public relations, audit, tax and legal services, including legal expenses to pursue patent protection of our intellectual property.

We anticipate that our selling, general and administrative expenses, including payroll and related expenses, will remain significant in the future as we continue to expand our operations and organizational capabilities, continue to support our commercial activities associated with NURTEC ODT, and prepare for potential commercialization of our current or future product candidates, if successfully developed and approved. We also anticipate increased expenses associated with general operations, including costs related to accounting and legal services, director and officer insurance premiums, facilities and other corporate infrastructure and office-related costs, such as information technology costs.

Other Income (Expense)

Change in Fair Value of Derivative Liabilities

The fair value of the derivative liability recognized in connection with contingent payments under the Series A Preferred Share Agreement is determined using the with-and-without valuation method. As inputs into the valuation, we considered the type and probability of occurrence of certain events, the amount of the payments, the expected timing of certain events, and a risk-adjusted discount rate. In accordance with ASC 815, Derivatives and Hedging, the fair value of the derivative is recorded on the condensed consolidated balance sheet as a Series A preferred derivative liability with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

The fair value of the derivative liability recognized in connection with the Series B Preferred Shares Forward Contracts is determined using discounted cash flow and Monte Carlo valuation methods. As inputs into the valuation, we considered the type and probability of occurrence of certain change of control events, the amount of the payments, the expected timing of certain events, and a risk-adjusted discount rate. In accordance with ASC 815, Derivatives and Hedging, the fair value of the derivative is recorded on the condensed consolidated balance sheet as a Series B preferred shares forward contact with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

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

We have accounted for the 2018 RPI Funding Agreement and a unit of accounting of the 2020 RPI Funding Agreement with RPI Trust both as liability financings, primarily because they have significant continuing involvement in generating the future revenue on which the royalties are based. The liabilities related to sale of future royalties and the related non-cash interest expense are measured based on the Company's current estimate of the timing and amount of expected future royalties expected to be paid over the estimated terms of the 2018 RPI Funding Agreement and 2020 RPI Funding Agreement, respectively, using discounted cash flow models. The liabilities are amortized using the effective interest rate method, resulting in recognition of non-cash interest expense over the estimated term of the agreement. Each reporting period, the Company assesses the estimated timing and amount of future expected royalty payments over the estimated terms. If there is a change to one of the estimates, the Company recognizes the impact to the liability’s amortization schedule and the related non-cash interest expense prospectively. The Company’s estimate of the amount of expected future royalties to be paid considers the probability of success of compounds not yet approved for sale, and market penetration rates, compliance rate, and net pricing of both NURTEC ODT and compounds not yet approved for sale. Additionally, the transaction costs associated with the liabilities will be amortized to non-cash interest expense over the estimated term of the 2018 RPI Funding Agreement and 2020 RPI Funding Agreement, respectively.

Loss from Equity Method Investment

From August 2016 through November 2018, we purchased shares of common stock in Kleo Pharmaceuticals, Inc., a privately held Delaware corporation (“Kleo”). As of September 30, 2020 and December 31, 2019, we owned approximately 42% of the outstanding shares of Kleo’s common stock. We account for our investment in Kleo under the equity method of accounting. As a result, our proportionate share of Kleo’s net income or loss each reporting period is included in other income

(expense), net, in our condensed consolidated statement of operations and comprehensive loss and results in a corresponding adjustment to the carrying value of the equity method investment on our condensed consolidated balance sheet.

Provision for Income Taxes

As a company incorporated in the British Virgin Islands (“BVI”), we are principally subject to taxation in the BVI. Under the current laws of the BVI, tax on a company’s income is assessed at a zero percent tax rate. As a result, we have not recorded any income tax benefits from losses incurred in the BVI during each reporting period, and no net operating loss carryforwards will be available to us for those losses. We have historically outsourced all of the research and clinical development for our programs under a master services agreement with our wholly owned subsidiary, Biohaven Pharmaceuticals, Inc., a Delaware corporation (“BPI”). As a result of providing services under this agreement and profit from US commercial sales of NURTEC ODT, BPI was profitable during the nine months ended September 30, 2020 and 2019. We have recorded a provision for U.S. federal and state income taxes which has been reduced in part by available tax credits.

In August 2020, we completed an intra-entity asset transfer of certain of our intellectual property to our Irish subsidiary. As a result of the transfer, we recorded a deferred tax asset of $875,000 for the step up in tax basis received pursuant to Irish tax law. Based on our analysis of all available objective evidence, we concluded that it was more likely than not that the deferred tax asset from the intra-entity transfer will not be realized due to the lack of net operating income history of our subsidiary. Therefore, we established a full valuation allowance against our net deferred tax asset in Ireland.

We continue to maintain a valuation allowance against our US deferred tax assets. We periodically review our position and have determined that a full valuation allowance on these assets was appropriate due to excess research and development (“R&D”) credit carryforwards as of September 30, 2020. We will continue to evaluate the need for a valuation allowance on our deferred tax assets until there is sufficient positive evidence to support the reversal of all or some portion of these allowances. We anticipate the commercialization of rimegepant will result in future earnings and believe sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

The following tables summarize our results of operations for the three months ended September 30, 2020 and 2019:


	Three Months Ended September 30,
	2020		2019		Change
In thousands
Product revenue, net	$	17,664	$	—	$	17,664
Cost of goods sold	4,244		—		4,244
Gross Profit	13,420		—		13,420
Operating expenses:
Research and development	57,044		61,674		(4,630)
Selling, general and administrative	119,533		28,778		90,755
Total operating expenses	176,577		90,452		86,125
Loss from operations	(163,157)		(90,452)		(72,705)
Other income (expense):
Interest expense	(4,608)		—		(4,608)
Non-cash interest expense on mandatorily redeemable preferred shares	(7,310)		(4,378)		(2,932)
Non-cash interest expense on liability related to sale of future royalties	(11,955)		(7,312)		(4,643)

Change in fair value of derivatives	(1,940)		(1,717)		(223)

Loss from equity method investment	(607)		(1,993)		1,386
Other	(3,062)		8		(3,070)
Total other income (expense), net	(29,482)		(15,392)		(14,090)
Loss before provision for income taxes	$	(192,639)	$	(105,844)	$	(86,795)
Provision for income taxes	3,989		323		3,666
Net loss	(196,628)		(106,167)		(90,461)
Less: Net loss attributable to non-controlling interests	(1,439)		—		(1,439)
Net loss attributable to Biohaven Pharmaceutical Holding Company Ltd.	$	(195,189)	$	(106,167)	$	(89,022)

Product revenue, net

We began recording net product revenues in the first quarter of 2020 following the approval of NURTEC ODT by the FDA on February 27, 2020 and its subsequent commercial launch in the U.S. in March 2020. During the three months ended September 30, 2020, we recognized $17.7 million of net product revenues related to sales of NURTEC ODT. Sales allowances and accruals mostly consisted of co-pay card discounts, distribution fees and rebates.

Cost of Goods Sold

Cost of goods sold of $4.2 million for the three months ended September 30, 2020 is related to royalties on net sales payable to BMS under a license agreement (see Note 19 "Commitments and Contingencies" to our condensed consolidated financial statements), labeling and packaging costs incurred after FDA approval, certain distribution costs and amortization of intangible assets related to milestone payments to BMS and Catalent, Inc. ("Catalent"). See Note 16 "License and Other Agreements" to our condensed consolidated financial statements for more information on the BMS and Catalent agreements. Prior to receiving initial FDA approval for NURTEC ODT on February 27, 2020, we manufactured NURTEC ODT inventory to be sold upon commercialization and recorded all costs incurred as research and development expense. As a result, the manufacturing costs related to the NURTEC inventory build-up incurred before FDA approval were already expensed in a prior period and are therefore excluded from the cost of goods sold for the three months ended September 30, 2020. These previously expensed costs were not material for the three months ended September 30, 2020.

Research and Development Expenses


	Three Months Ended September 30,
	2020		2019		Change
In thousands
Direct research and development expenses by program:


Rimegepant	16,940		26,081		(9,141)
Troriluzole	8,049		9,533		(1,484)
Zavegepant	11,470		12,562		(1,092)
Verdiperstat	6,311		3,103		3,208
BHV-5000	2		279		(277)
BHV-0223	84		243		(159)
Unallocated research and development costs:
Personnel related (including non-cash share-based compensation)	11,896		8,969		2,927

Preclinical research programs	205		39		166
Other	2,087		865		1,222
Total research and development expenses	$	57,044	$	61,674	$	(4,630)

R&D expenses, including non-cash share-based compensation costs, were $57.0 million for the three months ended September 30, 2020, compared to $61.7 million for the three months ended September 30, 2019. The decrease of $4.6 million was primarily due to $7.5 million in costs related to pre-FDA approval process validation batches of rimegepant in the three months ended September 30, 2019, partially offset by an increase of $3.2 million in verdiperstat program spending in the three months ended September 30, 2020 as compared to the same period in 2019. Non-cash share-based compensation expense was $5.3 million for the three months ended September 30, 2020, an increase of $1.6 million as compared to the same period in 2019.

Selling, General and Administrative Expenses

SG&A expenses, including non-cash share-based compensation costs, were $119.5 million for the three months ended September 30, 2020, compared to $28.8 million for the three months ended September 30, 2019. The increase of $90.8 million was primarily due to increases in spending to support the commercial launch of NURTEC ODT in 2020. Less than half of the SG&A expense, or approximately $42.0 million, was for commercial organization personnel costs, excluding non-cash share-based compensation expense. Non-cash share-based compensation expense was $9.3 million for the three months ended September 30, 2020, an increase of $3.0 million as compared to the same period in 2019.

Other Income (Expense), Net

Other income (expense), net was a net expense of $29.5 million for the three months ended September 30, 2020, compared to net expense of $15.4 million for the three months ended September 30, 2019. The increase of $14.1 million in net expense was primarily due to the non-cash interest expense on our liability related to the mandatorily redeemable preferred shares resulting from the sale of Series A Preferred Shares to RPI in April 2019, and an increase in the non-cash interest expense recognized on our liability related to the sale of future royalties.

Provision for Income Taxes

We recorded a provision for income taxes of $4.0 million for the three months ended September 30, 2020, compared to a provision for income taxes of $0.3 million for the three months ended September 30, 2019. We recorded a tax provision for the three months ended September 30, 2020, primarily attributable to the Company's profitable operations in the United States during that period.

Comparison of the Nine Months Ended September 30, 2020 and 2019

The following tables summarize our results of operations for the nine months ended September 30, 2020 and 2019:


	Nine Months Ended September 30,
	2020		2019		Change
In thousands
Product revenue, net	$	28,513	$	—	$	28,513
Cost of goods sold	7,726		—		7,726
Gross Profit	20,787		—		20,787
Operating expenses:
Research and development	155,539		278,654		(123,115)
Selling, general and administrative	339,936		65,467		274,469
Total operating expenses	495,475		344,121		151,354
Loss from operations	(474,688)		(344,121)		(130,567)
Other income (expense):
Interest expense	(4,835)		—		(4,835)
Non-cash interest expense on mandatorily redeemable preferred shares	(19,864)		(8,333)		(11,531)
Non-cash interest expense on liability related to sale of future royalties	(31,950)		(19,284)		(12,666)

Change in fair value of derivative liability	(7,071)		(2,980)		(4,091)
Loss from equity method investment	(3,472)		(4,308)		836
Other	(3,278)		(25)		(3,253)
Total other income (expense), net	(70,470)		(34,930)		(35,540)
Loss before provision for income taxes	(545,158)		(379,051)		(166,107)
Provision for income taxes	5,341		490		4,851
Net loss	(550,499)		(379,541)		(170,958)
Less: Net loss attributable to non-controlling interests	(1,439)		—		(1,439)
Net loss attributable to Biohaven Pharmaceutical Holding Company Ltd.	$	(549,060)	$	(379,541)	$	(169,519)

Product revenue, net

We began recording product revenues in the first quarter of 2020 following the approval of NURTEC ODT by the FDA on February 27, 2020 and its subsequent commercial launch in the U.S. in March 2020. During the nine months ended September 30, 2020, we recognized $28.5 million of net product revenues related to sales of NURTEC ODT. Sales allowances and accruals mostly consisted of co-pay card discounts, distribution fees and rebates.

Cost of Goods Sold

Cost of goods sold of $7.7 million for the nine months ended September 30, 2020 is related to royalties on net sales payable to BMS under a license agreement (see Note 19 "Commitments and Contingencies" to our condensed consolidated financial statements), labeling and packaging costs incurred after FDA approval, certain distribution costs and amortization of intangible assets related to milestone payments to BMS and Catalent, Inc. ("Catalent"). See Note 16 "License and Other Agreements" to our condensed consolidated financial statements. Prior to receiving initial FDA approval for NURTEC ODT on February 27, 2020, we manufactured NURTEC ODT inventory to be sold upon commercialization and recorded all costs incurred as research and development expense. As a result, the manufacturing costs related to the NURTEC inventory build-up incurred before FDA approval were already expensed in a prior period and are therefore excluded from the cost of goods sold for the nine months ended September 30, 2020. These previously expensed costs were not material for the nine months ended September 30, 2020.

Research and Development Expenses


	Nine Months Ended September 30,
	2020		2019		Change
In thousands
Direct research and development expenses by program:
Rimegepant:
Priority review voucher purchase	$	—	$	105,000	$	(105,000)
Program expenses	43,050		74,918		(31,868)
Troriluzole	30,326		24,232		6,094
Zavegepant	22,822		28,006		(5,184)
Verdiperstat	16,981		6,217		10,764
BHV-5000	209		714		(505)
BHV-0223	139		678		(539)
Unallocated research and development costs:
Personnel related (including non-cash share-based compensation)	36,401		30,756		5,645

Preclinical research programs	764		5,685		(4,921)
Other	4,848		2,448		2,400
Total research and development expenses	$	155,540	$	278,654	$	(123,114)

R&D expenses, including non-cash share-based compensation costs, were $155.5 million for the nine months ended September 30, 2020, compared to $278.7 million for the nine months ended September 30, 2019. The decrease of $123.1 million was primarily due to the $105.0 million purchase of a priority review voucher to expedite the regulatory review of rimegepant ODT formulation, filing fees of $7.6 million related to our rimegepant NDA submission, accruals of development milestones payable to BMS in the amount of $11.5 million, and $5.6 million non-cash expense related to our agreement with Fox Chase for our TDP-43 assets, all only occurring in 2019. The decrease in R&D expense during the period was partially offset by an increase in program expenses of $6.1 million and $10.8 million for troriluzole and verdiperstat, respectively. Non-cash share-based compensation expense was $17.9 million for the nine months ended September 30, 2020, an increase of $0.3 million as compared to the same period in 2019.

Selling, General and Administrative Expenses

SG&A expenses, including non-cash share-based compensation costs, were $339.9 million for the nine months ended September 30, 2020, compared to $65.5 million for the nine months ended September 30, 2019. The increase of $274.5 million was primarily due to increases in spending to support the commercial launch of NURTEC ODT. Less than half of the SG&A expense, or approximately $144.8 million, was for commercial organization personnel costs, excluding non-cash share-based compensation expense. Non-cash share-based compensation expense was $25.3 million for the nine months ended September 30, 2020, an increase of $8.1 million as compared to the same period in 2019.

Other Income (Expense), Net

Other income (expense), net was a net expense of $70.5 million for the nine months ended September 30, 2020, compared to net expense of $34.9 million for the nine months ended September 30, 2019. The increase of $35.5 million in net expense was primarily due to the non-cash interest expense on our liability related to the mandatorily redeemable preferred shares resulting from the sale of Series A Preferred Shares to RPI in April 2019, and an increase in the non-cash interest expense recognized on our liability related to the sale of future royalties.

Provision for Income Taxes

We recorded a provision for income taxes of $5.3 million for the nine months ended September 30, 2020, compared to a provision for income taxes of $0.5 million for the nine months ended September 30, 2019. We recorded a tax provision for the nine months ended September 30, 2020, primarily attributable to the Company's profitable operations in the United States during that period.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses and negative cash flows from our operations. We have funded our operations primarily with proceeds from sales of equity, and other financing transactions. Subsequent to our initial

public offering ("IPO"), we have raised funds through sales of our equity, as well as through the sale of a revenue participation right related to future royalties.

In May 2017, our registration statement on Form S-1 relating to our IPO was declared effective by the SEC. The IPO closed on May 9, 2017 and we issued and sold 9,900,000 common shares at a public offering price of $17.00 per share, resulting in net proceeds of $152.7 million after deducting underwriting discounts and commissions and other offering expenses. In addition, on May 9, 2017, the underwriters of our IPO fully exercised their option to purchase additional shares, and on May 11, 2017, we issued and sold an additional 1,485,000 common shares, resulting in additional net proceeds to us of $23.5 million, after deducting underwriting discounts and commissions and other offering expenses. The aggregate net proceeds we received from the IPO, after deducting underwriting discounts and commissions and offering expenses, were $176.1 million.

In March 2018, we sold an aggregate of 2,000,000 common shares in a private placement at a price of $27.50 per share, for net proceeds of $52.0 million after deducting underwriting discounts and commissions of $2.8 million and other offering expenses of $0.2 million. Subsequent to the closing of the private placement, we paid BMS the $50.0 million upfront payment under the amendment to our license agreement with BMS (the "BMS Amendment").

In June 2018, we entered into a funding agreement to sell tiered, sales-based royalty rights on global net sales of pharmaceutical products containing the compounds rimegepant or zavegepant to RPI. We issued to RPI the right to receive certain revenue participation payments, subject to certain reductions, based on the future global net sales of the products, for each calendar quarter during the royalty term contemplated by the 2018 RPI Funding Agreement, in exchange for $100.0 million in cash. Specifically, the participation rate commences at 2.10 percent on annual global net sales of up to and equal to $1.5 billion, declining to 1.50 percent on annual global net sales exceeding $1.5 billion.

Concurrently, we entered into a common stock purchase agreement with RPI, pursuant to which we issued and sold 1,111,111 common shares to RPI. RPI paid $45.00 per share, resulting in net proceeds of $49.9 million after deducting offering expenses of $0.1 million.

In December 2018, we closed on an underwritten public offering of 3,859,060 common shares, including the full exercise of the underwriters' option to purchase additional shares, at a price to the public of $37.25 per share. The aggregate net proceeds to us from the offering, after deducting the underwriting discounts and commissions and offering expenses payable, were approximately $134.5 million.

In April 2019, we closed the sale of 2,495 Series A Preferred Shares to RPI at a price of $50,100 per preferred share, resulting in gross proceeds of $125.0 million, before offering expenses. As described above, we used $105.0 million of these proceeds to fund the purchase of the PRV.

In June 2019, we issued and sold 6,976,745 common shares at a public offering price of $43.00 per share for net proceeds of $281.1 million after deducting underwriting discounts and commissions of $18.0 million and other offering expenses of approximately $0.9 million. In addition, in July 2019, the underwriters of the follow-on offering partially exercised their option to purchase additional shares, and we issued and sold 525,000 common shares for net proceeds of $21.2 million after deducting underwriting discounts and commissions of $1.4 million. Thus, the aggregate net proceeds to us from the follow-on offering, after deducting underwriting discounts and commissions and other offering costs, were $302.3 million.

In January 2020, we issued and sold 4,830,917 common shares at a public offering price of $51.75 per share for net proceeds of approximately $245.9 million after deducting underwriting discounts and commissions of approximately $3.6 million and other offering expenses of approximately $0.5 million. In addition, in February 2020, the underwriter of the January follow-on offering exercised its option to purchase additional shares, and we issued and sold 724,637 common shares for net proceeds of approximately $37.0 million after deducting underwriting discounts and commissions of approximately $0.5 million. Thus, our aggregate net proceeds from the follow-on offering, after deducting underwriting discounts and commissions and other offering costs, were approximately $282.8 million.

In August 2020, we entered into a Sixth Street Financing Agreement pursuant to which the Lenders agreed to extend a senior secured credit facility to us providing for term loans in an aggregate principal amount up to $500.0 million. Also in August 2020, we entered into the 2020 RPI Funding Agreement providing for up to $250.0 million of funding in exchange for rights to participation based payments based on global net sales of products containing zavegepant and rimegepant and certain payments based on success-based milestones relating to zavegepant and entered into a share purchase agreement providing for the issuance and sale to RPI 2019 IFT of Series B Preferred Shares for an aggregate purchase price of $200.0 million, payable in quarterly installments between 2021 and 2024. For further detail on these August 2020 transactions, see "—Recent Developments."

As of September 30, 2020, we had cash and cash equivalents of $316.2 million, excluding restricted cash of $5.8 million. Cash in excess of immediate requirements is invested in marketable securities and money market funds with a view to liquidity and capital preservation.

Cash Flows

The following table summarizes our cash flows for each of the periods presented:


	Nine Months Ended September 30,
	2020		2019
In thousands
Net cash used in operating activities	$	(490,641)	$	(276,884)
Net cash used in investing activities	(274,834)		(1,637)
Net cash provided by financing activities	769,457		431,846
Net increase in cash, cash equivalents and restricted cash	$	4,306	$	153,325

Operating Activities

During the nine months ended September 30, 2020, operating activities used $490.6 million of cash, an increase of $213.8 million as compared to the nine months ended September 30, 2019. The increase in cash usage was primarily due to an increase in selling, general and administrative expenses due to increased headcount and advertising costs and other costs to support the commercial launch of NURTEC ODT.

Investing Activities

During the nine months ended September 30, 2020, we used $274.8 million of cash in investing activities, an increase of $273.2 million as compared to the nine months ended September 30, 2019. The increase was primarily due to the $20 million milestone payment to BMS relating to the FDA approval of NURTEC ODT, and the $230.2 million purchase of marketable securities, all during the nine months ended September 30, 2020, as compared to the same period in 2019.

Financing Activities

During the nine months ended September 30, 2020, net cash provided by financing activities was $769.5 million, an increase of $337.6 million compared to the nine months ended September 30, 2019. The increase was primarily due to $264.0 million in proceeds from the Sixth Street Financing Agreement, $147.5 million in proceeds from the 2020 RPI Funding Agreement, and $60.0 million in proceeds from the sale of BioShin Series A Preferred Shares, all in the nine months ended September 30, 2020, offset by $125.0 million in proceeds from the sale of the Series A Preferred Shares to RPI in April 2019.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we advance the preclinical activities, clinical trials and potential commercialization of our product candidates. In addition, we expect to incur significant commercialization expenses for product sales, marketing and outsourced manufacturing with respect to NURTEC ODT. Our costs will also increase as we:

•continue our commercial activities related to NURTEC ODT for the acute treatment of migraine;

•advance and expand the development of our CGRP and glutamate modulation platform product candidates and continue development of our MPO platform;

•prepare for the possible approval by the FDA of our sNDA for rimegepant as a preventive therapy for migraine in the second quarter of 2021 and our ongoing Phase 2 proof of concept trial to evaluate the safety and efficacy of rimegepant in patients with treatment refractory trigeminal neuralgia;

•complete the ongoing extension phase of the Phase 2/3 clinical trial of troriluzole in SCA and our ongoing Phase 2/3 trials of troriluzole in OCD, and Alzheimer’s disease and, complete our ongoing Phase 3 randomized controlled trial to assess the efficacy of troriluzole in SCA;

•conduct support activities for future clinical trials of BHV-5000;

•complete the Phase 3 replicative clinical trial of zavegepant and related support activities, and continue clinical trials of oral zavegepant;

•conduct our planned Phase 3 clinical trial of verdiperstat in MSA;

•continue to initiate and progress other supporting studies required for regulatory approval of our product candidates, including long-term safety studies, drug-drug interaction studies, preclinical toxicology and carcinogenicity studies;

•make required milestone and royalty payments under the license agreements by which we acquired some of the rights to our product candidates;

•initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue;

•continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies;

•continue to develop, maintain, expand and protect our intellectual property portfolio;

•pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials;

•build out our sales, marketing and distribution infrastructure to commercialize any future product candidates for which we may obtain marketing approval;

•hire additional clinical, medical, commercial, and development personnel; and

•incur additional legal, accounting and other expenses in operating as a public company.

As of November 9, 2020, the issuance date of our condensed consolidated financial statements, we expect that our cash, cash equivalents, and marketable securities as of September 30, 2020, and the funds available from the Sixth Street Financing Agreement, and RPI Series B Preferred Shares will be sufficient to fund our current forecast for operating expenses, including commercialization of NURTEC ODT, financial commitments and other cash requirements for more than one year. We may need to raise additional capital until we are profitable. If no additional capital is raised through either public or private equity financings, debt financings, strategic relationships, alliances and licensing agreements, or a combination thereof, we may delay, limit or reduce discretionary spending in areas related to research and development activities and other general and administrative expenses in order to fund our operating costs and working capital needs.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect that we will require additional capital to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for troriluzole, or our other product candidates, we expect to incur additional commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize or whether we commercialize jointly or on our own.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

•the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;

•the costs, timing and outcome of regulatory review of our product candidates;

•the effect of COVID-19 pandemic on our business operations and funding needs;

•the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

•the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

•the costs and timing of hiring new employees to support our continued growth;

•the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

•the extent to which we acquire or in-license other product candidates and technologies;

•the costs of manufacturing commercial-grade product and necessary inventory to support commercial launch;

•the costs associated with payment of milestones and royalties under existing contractual arrangements and/or in-licensing additional products candidates to augment our current pipeline; and

•the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of public and private equity offerings, debt financings, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements. To the extent that we raise additional capital

through the sale of equity or convertible debt securities, the ownership interest of our existing shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we will be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

Revenue Participation Rights and Mandatorily Redeemable Preferred Shares

In addition to the following discussion of our commitments to RPI under the 2018 and 2020 RPI Funding Agreements and Series A and B Preferred Shares, and the Sixth Street Financing Agreement the disclosure of our contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2019. See Notes 16 and 19 to our condensed consolidated financial statements included in Item 1, “Unaudited Condensed Consolidated Financial Statements,” of this Quarterly Report on Form 10-Q for further discussion of commitments and contingencies.

2018 RPI Funding Agreement

Pursuant to our 2018 RPI Funding Agreement with RPI entered in June 2018, we have a commitment for repayments under the revenue participation right due for net sales of products containing the compounds rimegepant or zavegepant and certain derivative compounds thereof (the "Products"). A liability of $106.0 million represents the carrying value established on the date of the transaction. Actual payments to RPI may be significantly different than the carrying value based on future royalties that may become payable from the net sales of the Products.

Series A Preferred Shares

In April 2019, we issued the Series A Preferred Shares for the aggregate original purchase price of $125.0 million. Following the approval by the FDA of NURTEC in February 2020 and starting in the first quarter of 2021, the Company expects to redeem the Series A Preferred Shares for two times (2x) the original purchase price, payable in equal quarterly installments through December 31, 2024.

If a Change of Control occurs after October 5, 2019 and the Series A Preferred Shares have not previously been redeemed, we must redeem the Series A Preferred Shares for two times (2x) the original purchase price of the Series A Preferred Shares payable in a lump sum at the closing of the Change of Control or in equal quarterly installments following the closing of the Change of Control through December 31, 2024.

We may redeem the Series A Preferred Shares at our option at any time for two times (2x) the original purchase price, which redemption price may be paid in a lump sum or in equal quarterly installments through December 31, 2024.

2020 RPI Funding Agreement

In August 2020, we entered into a funding agreement with RPI 2019 IFT providing for up to $250 million of funding in exchange for rights to participation payments based on global net sales of products containing zavegepant and rimegepant and certain payments based on success-based milestones relating to zavegepant (the "2020 RPI Funding Agreement"). Under the 2020 RPI Funding Agreement, RPI 2019 IFT will be entitled to receive tiered, sales based participation rights up to 3.0% of future global net sales of products containing zavegepant, 0.4% of future global net sales of products containing rimegepant, and payments tied to success-based milestones as described below. We received $150 million at closing, and up to $100 million upon achievement of certain development milestones for zavegepant (including the commencement of the oral zavegepant Phase 3 program).

Company will have the option to repurchase the participation rights and milestone payment rights for a purchase price of 2.0x of the amount received under the agreement at that date, contingent upon the closing of a Change of Control (the "Buy-Back Option").

The success-based milestone payments range from 0.6x to 2.95x of the funded amount depending on the number of regulatory approvals achieved for zavegepant (including 1.9x for the first zavegepant migraine regulatory approval) and would be paid over a ten-year period. If we consummate a Change of Control, and the Buy-Back Option has not previously been exercised, RPI 2019 IFT has the option to accelerate each unpaid milestone payment which has or thereafter occurs.

Series B Preferred Shares

In August 2020, we entered into Series B preferred share agreement, whereby RPI will invest in us through the purchase of up to 3,992 Series B preferred shares at a price of $50,100 per share. The gross proceeds from the transaction with RPI will be used for the clinical development of zavegepant and other general corporate purposes. The shares will be issued in quarterly increments from March 31, 2021 to December 31, 2024.

The holders of our outstanding Series B Preferred Shares will have the right to require redemption of the shares in certain circumstances. If a Change of Control occurs, as defined in our memorandum and article of association, and the Series B Preferred Shares have not previously been redeemed, the holders of a majority of outstanding Series B Preferred Shares will have an option to redeem outstanding shares in a single payment at a price equal to 1.77 times the original issuance price of the Series B Preferred Shares.

We may redeem the Series B Preferred Shares at our option at any time in a single payment at a price equal to 1.77 times the original issuance price of the Series B Preferred Shares.

We are required to redeem the Series B Preferred Shares for 1.77 times the original purchase price, payable beginning in the first quarter of 2025 in equal quarterly installments through December 31, 2030. We had no Series B Preferred Shares issued and outstanding as of September 30, 2020 and December 31, 2019.

Any Series B Preferred Shares that are not redeemed on an applicable redemption date described above will accrue interest at 18% per annum, until the shares are redeemed. If Series B Preferred Shares remain unredeemed for a period of one year after the applicable redemption date, the holders of the unredeemed shares will have the right to convert such preferred shares into a number of common shares equal to (a) the redemption price plus any accrued interest, divided by (b) the five day volume-weighted average trading price of our common shares for the five days immediately preceding the conversion date for such unredeemed shares.

Sixth Street Financing Agreement

In August 2020 we entered into the Sixth Street Financing Agreement, pursuant to which the Lenders agreed to extend a senior secured credit facility to us providing for term loans in an aggregate principal amount up to $500,000 plus any capitalized interest paid in kind. The facility consists of an initial term loan of $275,000, which we borrowed at closing, and delayed draw term loans in an aggregate principal amount not exceeding $225,000, available until August 31, 2021, with $100,000 of the delayed draw term loans currently available at our option. The remaining $125,000 in delayed draw term loans becomes available if net sales from NURTEC ODT during the first quarter of 2021 or second quarter of 2021 equal at least $45,000. The facility terminates and the term loans become due and payable in August 2025.

Each term loan drawn under the facility will bear floating interest on the unpaid principal amount at a rate per annum equal to the three-month LIBOR rate, adjusted for applicable reserve requirements, and subject to a floor of 1.00%, plus 9.00%. Interest on amounts borrowed under the facility will be payable quarterly. The interest rate as of September 30, 2020 was 10%. For each borrowing under the facility, we have the right to elect to pay up to 4.00% per annum of the interest on the term loans comprising such borrowing in the form of payment in kind for the first eight fiscal quarters after the date of such borrowing. We elected to pay in kind the maximum amount for its interest payment made in September 2020.

We will have the right to prepay borrowings under the facility in whole or in part at any time, subject to a customary prepayment fee on the principal amount being prepaid, which declines over time. In connection with the initial term loan of $275,000, we paid customary fees with respect to the initial term loan and delayed draw term loans at closing. We also agreed to pay customary fees on the funding of any delayed draw term loans. The net proceeds received from the initial term loan, after fees and expenses, was approximately $260,000.

quarter. The Sixth Street Financing Agreement also includes representations, warranties, indemnities and events of default that are customary for financings of this type, including an event of default relating to a change in our control. Upon or after an event of default, the administrative agent and the lenders may declare all or a portion of our obligations under the Sixth Street Financing Agreement to be immediately due and payable and exercise other rights and remedies provided for under the Sixth Street Financing Agreement.

The obligations under the Sixth Street Financing Agreement are and will be guaranteed by each of our existing and future direct and indirect subsidiaries, subject to certain exceptions. Our obligation and the obligation of our subsidiaries under the Sixth Street Financing Agreement are secured, subject to customary permitted liens and other agreed upon exceptions, by a security interest in certain existing and after-acquired assets of ours and our subsidiaries.

Operating and Financing Lease Liabilities

Operating and financing lease liabilities are recorded at lease commencement based on the present value of fixed, or in substance fixed, lease payments over the expected lease term. Lease right-of-use assets are amortized over the lease term.

As of September 30, 2020, we have $17.9 million of total financing and operating lease liabilities recorded on our condensed consolidated balance sheets. The total undiscounted lease commitments as of September 30, 2020 were $20.1 million, of which, $1.5 million is payable during the remainder of 2020. We do not expect the payments associated with the maturity of lease liabilities to have a significant impact on our liquidity in the near-term. For further information about our lease commitments, see Note 19 of the condensed consolidated financial statements.

Critical Accounting Policies and Significant Judgments and Estimates

We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States ("GAAP"). Our preparation of our condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

Except for the revenue recognition, inventory, cost of goods sold, accounts receivable, intangible assets, impairment of long-live assets and valuation of Series B forward contract derivative policies described below (also in Note 2 Summary of Significant Accounting Policies), there have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed by us with the SEC on February 26, 2020.

Revenue Recognition

Pursuant to Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), we recognize revenue when a customer obtains control of promised goods or services. We record the amount of revenue that reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that we transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon delivery.

Product Revenue, Net

We sell our product principally to pharmacy wholesalers in the United States (collectively, our “Customers”). Our Customers subsequently resell the products to pharmacies and health care providers. In accordance with ASC 606, we recognizes net product revenues from sales when the Customers obtain control of our products, which typically occurs upon delivery to the Customer. Our payment terms are generally between 30 - 65 days.

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Revenues from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from (a) invoice discounts for prompt payment and distribution service fees, (b) government and private payor rebates, chargebacks, discounts and fees, (c) product returns and (d) costs of co-pay assistance programs for patients, as well as other incentives for certain indirect customers. Reserves are established for the estimates of variable consideration based on the amounts earned or to be claimed on the related sales. The reserves are classified as reductions to trade receivable, net if payable to a Customer or accrued expenses if payable to a third-party. Where appropriate, we utilize the expected value method to determine the appropriate amount for estimates of variable consideration based on factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The amount of variable consideration that is included in the transaction price may be constrained and is included in net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

Distribution Service Fees: We engage with wholesalers to distribute our products to end customers. We pay the wholesales a fee for services such as: Data Reporting, Inventory Management, Chargeback Administration and Service Level Commitment. We estimate the amount of distribution services fees to be paid to the Customers and adjust the transaction price with the amount of such estimate at the time of sale to the Customer.

Shelf Stock Adjustments: We provide our Customers with a shelf stock adjustment for all product inventories held by the customer upon any decrease in price. We estimate the Customer’s inventory levels and the probability of pricing adjustments using management forecasts, and adjust the transaction price with the amount of such estimate at the time of sale to the Customer.

Prompt Pay Discounts: We provide our Customers with a percentage discount on their invoice if the Customers pay within the agreed upon timeframe. We estimate the probability of Customers paying promptly and the percentage of discount outlined in the agreement, and deduct the full amount of these discounts from our gross product revenues and accounts receivable at the time such revenues are recognized.

Product Returns: We provide Customers a return credit in the amount of the purchase price paid by Customers for all products returned in accordance with our returned goods policy. In the initial sales period, we estimate our provision for sales returns based on industry data and adjust the transaction price with such estimate at the time of sale to the Customer. Once sufficient history has been collected for product returns, we utilize that history to inform our estimate assumption. Once the product is returned, it is destroyed. We does not record a right-of-return asset.

Chargeback: A chargeback is the difference between the manufacturer's invoice price to the wholesaler and the wholesaler’s customers contract price. The wholesaler tracks these sales and "charges back" the manufacturer for the difference between the negotiated prices paid between the wholesaler's customers and wholesaler's acquisition cost. We estimate the percentage of goods sold that are eligible for chargeback and adjust the transaction price for such discount at the time of sale to the Customer.

Administration Fees: We engage with Pharmacy Benefit Managers ("PBMs") to administer prescription-drug plans for people with third-party insurance through a self-insured employer, health insurance plan, labor union or government plan. We pay PBMs “administrative fees” for their role in providing utilization data, administering rebates, and administering claims payments. We estimate the amount of administration fees to be paid to PBMs and adjust the transaction price with the amount of such estimate at the time of sale to the customer.

Rebates: Rebates apply to:

•Tricare rebate to the TRICARE third party administrator based on the statutory calculation defined in the Agreement with Defense Health Agency; and

We estimate the percentage of goods sold that are eligible for rebates and adjust the transaction price for such discounts at the time of sale to the Customers.

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patient is a member of a Medicare Part D prescription-drug program administered by the Centers for Medicare & Medicaid Services. We estimate the percentage of goods sold under Coverage Gap and adjust the transaction price for such discount at the time of sale to the Customer.

Bridge Program: A Bridge Program helps start a patient on a new therapy, especially in cases where payers may have barriers (e.g. prior authorizations and appeals) in place before agreeing to pay for a new drug. Under a Bridge Program the Customer distributes the product free of cost to eligible individuals for a period of time. We estimate the percentage of Bridge Program product to be provided at each sale to the customer and adjust the transaction price with the amount of such estimate. We do not recognize revenue on Bridge program provided products. The volume of drug to be supplied under the Bridge Program is estimated by us at the time of sale to the Customer.

Stocking Allowance: We offer a stocking allowance for new product launches. Stocking allowances are one-time payments that a manufacturer makes to a wholesaler as a condition of the initial placement of the manufacturer’s products in the wholesaler’s warehouse. We use the agreed upon fees and our forecasts for initial product sales to calculate the stocking allowance and adjust the transaction price with the amount of such estimate at the time of sale to the Customer.

We makes significant estimates and judgments that materially affect our recognition of net product revenue. Claims by third-party payors for rebates, chargebacks and discounts frequently are submitted us significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. We will adjust our estimates based on new information, including information regarding actual rebates, chargebacks and discounts for its products, as it becomes available.

Cost of Goods Sold

Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of NURTEC ODT, including third-party manufacturing costs, packaging services, freight-in, third-party royalties payable on our net product revenues and amortization of intangible assets associated with NURTEC ODT. Cost of goods sold may also include period costs related to certain inventory manufacturing services and inventory adjustment charges. In connection with the FDA approval of NURTEC on February 27, 2020, we subsequently began capitalizing inventory manufactured or purchased after this date. As a result, certain manufacturing costs associated with product shipments of NURTEC ODT were expensed prior to FDA approval and, therefore, are not included in cost of goods sold during the current period.

Trade Receivables, Net

Our trade accounts receivable consist of amounts due from pharmacy distributors in the U.S. related to sales of NURTEC ODT and have standard payment terms. For certain Customers, the trade accounts receivable for the Customer is net of distribution service fees, prompt pay discounts and other adjustments. We monitor the financial performance and creditworthiness of our Customers so that we can properly assess and respond to changes in their credit profile. We reserve against trade accounts receivable for estimated losses that may arise from a Customer’s inability to pay and any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected. The reserve amount for estimated losses was not significant as of September 30, 2020.

Inventory

We value our inventories at the lower-of-cost or net realizable value. We determine the cost of our inventories, which includes costs related to products held for sale in the ordinary course of business, products in process of production for such sale and items to be currently consumed in the production of goods to be available for sale, on a first-in, first-out (FIFO) basis. Due to the nature of our supply chain process, inventory that is owned by us is physically stored at third-party warehouses, logistics providers, contract manufacturers, and distributors. We perform an assessment of the recoverability of capitalized inventory during each reporting period, and write down any excess and obsolete inventories to their net realizable value in the period in which the impairment is first identified. If they occur, such impairment charges are recorded as a component of cost of goods sold in the condensed consolidated statements of operations and comprehensive loss.

We capitalize inventory costs associated with products following regulatory approval when future commercialization is considered probable and the future economic benefit is expected to be realized. Products which may be used in clinical development programs are excluded from inventory and charged to research and development expense as incurred. Prior to the initial date regulatory approval is received, costs related to the production of inventory are recorded as research and development expense on our condensed consolidated statements of operations and comprehensive loss in the period incurred. Following FDA approval of NURTEC ODT on February 27, 2020, we subsequently began capitalizing costs related to inventory manufacturing.

Intangible Assets

We had no intangible assets as of December 31, 2019. We are required to pay milestone payments of $41.5 million related to the FDA approval and launch of NURTEC ODT. These milestone payments were capitalized as an intangible asset and will

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be amortized to cost of goods sold over the remaining expected life of the patents. For the nine months ended September 30, 2020, we recognized $1.7 million of amortization on the asset and recorded the expense to cost of goods sold.

Impairment of Long-lived Assets

We monitor our long-lived assets and finite-lived intangibles for indicators of impairment. If such indicators are present, we assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, we measure the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets. We believe no impairment of long-lived assets existed as of September 30, 2020 or December 31, 2019.

Valuation of Series B Forward Contract Derivative

The fair value of the derivative recognized in connection with the RPI Series B Preferred Share Agreement was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the derivative primarily relates to the difference between the contractual rate of return on the payments due to RPI and the Company's estimated lending rate for an equivalent 10-year duration loan, and the fair value of probability adjusted cash flows from certain scenarios outlined in the agreement that would result in accelerated payments modeled using a Monte Carlo simulation. As inputs into the valuation, the Company considered the type and probability of occurrence of certain change of control events, the amount of the payments, the expected timing of certain acceleration of payments, and a risk-adjusted discount rate. A discounted cash flow valuation method was used to determine the fair value of the forward contract derivative based on the inputs and results of the Monte Carlo simulation noted above. In accordance with ASC 815, Derivatives and Hedging, the fair value of the derivative is recorded on the condensed consolidated balance sheet as a Series B preferred shares forward contact with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations, if applicable, is disclosed in Note 2 to our condensed consolidated financial statements appearing at the beginning of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

Foreign Currency Translation

Our operations include activities in countries outside the U.S. As a result, our financial results are impacted by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets where we operate. Our monetary exposures on our balance sheet are currently immaterial to our financial position.

We do not engage in any hedging activities against changes in foreign currency exchange rates.

Interest Rate Risk

As of September 30, 2020, we invest our excess cash balances in marketable securities of highly rated financial institutions and investment-grade debt instruments. We seek to diversify our investments and limit the amount of investment concentrations for individual institutions, maturities and investment types. Most of our interest-bearing securities are subject to interest rate risk and could decline in value if interest rates fluctuate. Based on the type of securities we hold, we do not believe a change in interest rates would have a material impact on our financial statements. If interest rates were to increase or decrease by 1.00%, the fair value of our investment portfolio would (decrease) increase by approximately $(1.4) million and $0.3 million, respectively.

We had no exposure to interest rate risk related to indebtedness as of September 30, 2020. In August 2020, we became subject to market risk in connection with borrowings under the Sixth Street Financing Agreement. Amounts borrowed under the agreement will accrue interest at the LIBOR Rate, subject to a floor of 1.00%, plus 9.00%. Considering the total outstanding principal balance under the Financing Agreement of approximately $275.0 million at August 10, 2020, which accrues interest at

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the LIBOR Rate a 1.00% change in interest rates would result in an impact to income before income taxes of below $1.0 million per year.

We do not engage in any hedging activities against changes in interest rates.

Credit Risk

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2020, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls over Financial Reporting

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

Form 10-Q Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Except for the updated risk factors set forth immediately below, our risk factors have not changed materially from those described in "Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on February 26, 2020.

The recent COVID-19 pandemic could have a material adverse effect on our business, results of operations and financial performance, including our commercial launch of NURTEC ODT, and operations and sales in general.

In December 2019, an outbreak of COVID-19 began in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The COVID-19 pandemic and responses to its spread have negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets. This significant disruption of the global financial markets could reduce our ability to access equity or debt capital on attractive terms if at all, which in turn could negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common shares. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports, all of which are uncertain and cannot be predicted.

The COVID-19 pandemic may impair our commercialization of NURTEC ODT. The spread of COVID-19 may reduce demand for NURTEC ODT. In response to regional quarantines, health professionals may reduce staffing and reduce or postpone appointments with patients, or patients may cancel or miss appointments, resulting in less prescriptions of NURTEC ODT than projected, thereby adversely affecting our revenues. In addition, in connection with the recent FDA approval of NURTEC ODT, we have been making presentations to physicians regarding the efficacy of NURTEC ODT but as a result of the COVID-19 pandemic, we may need to conduct some or all of these key meetings with medical professionals solely by virtual means instead of in-person, which could reduce the number of medical professionals we are able to present to, and we cannot guarantee that any such virtual meetings will be as successful as in-person meetings. Moreover, restrictions on travel and transport may result in disruptions in NURTEC ODT distribution. Such events may result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.

Some factors from the COVID-19 outbreak that may delay or otherwise adversely affect our business generally, and the third parties which we rely upon, including business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations or mass transit disruptions, any of which could adversely impact our business operations or delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak impacts our business, including our commercial results and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and

other countries to contain and treat the disease. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.

We plan to redeem our outstanding Series A Preferred Shares over the next few years and may have to redeem our Series B Preferred Shares in the future.

In April 2019, we closed the sale of 2,495 Series A Preferred Shares to RPI at a price of $50,100 per Series A Preferred Share, resulting in gross proceeds of $125.0 million before offering expenses. As described herein, we used $105.0 million of these proceeds to fund the purchase price of the PRV. The holders of our outstanding Series A Preferred Shares, will have the right to require us to redeem their shares in certain circumstances. We intend to redeem the Series A Preferred Shares for two times (2x) the original purchase price, payable in equal quarterly installments beginning in the first quarter of 2021 through December 31, 2024.

In the event that we default on our obligation to redeem Series A Preferred Shares when required, the redemption amount will accrue interest at the rate of eighteen percent (18%) per annum. If any such default continues for at least one year, the holders of such shares shall be entitled to convert, subject to certain limitations, such Series A Preferred Shares into common shares, with no waiver of their redemption rights.

In addition, in August 2020, we entered into the Series B preferred share agreement, pursuant to which RPI agreed to purchase up to 3,992 Series B Preferred Shares at a price of $50,100 per share. The shares will be issued in quarterly increments spanning from March 31, 2021 to December 31, 2024.

The holders of outstanding Series B Preferred Shares will have the right to require redemption of the shares in certain circumstances. If a Change of Control occurs, as defined in the our memorandum and article of association, and the Series B Preferred Shares have not previously been redeemed, holders of a majority of Series B Preferred Shares will have an option to redeem outstanding shares in a single payment at a price equal to 1.77 times the Series B original issuance price. We may redeem the Series B Preferred Shares at its option at any time in a single payment at a price equal to 1.77 times the Series B original issuance price. We currently intend to redeem the Series B Preferred Shares for 1.77 times the original purchase price, payable beginning the first quarter of 2025 in equal quarterly installments through December 31, 2030

Our obligation to redeem the Series A Preferred Shares and Series B Preferred Shares requires a substantial amount of cash, the expenditure of which will have a material adverse effect on our liquidity, capital resources and business prospects. The terms of our Series A Preferred Shares, Series B Preferred Shares or any new preferred shares we may issue could also have the effect of delaying, deterring or preventing a change in control.

Our Series A Preferred Shares and Series B Preferred Shares have rights, preferences and privileges that are not held by, and are preferential to, the rights of our common shareholders, which could result in the interests of the holders of our Series A Preferred Shares differing from those of our common shareholders.

In addition to the redemption rights discussed above, the holders of our Series A Preferred Shares have the right to receive a liquidation preference, equal to two times (2x) the original purchase price of such shares, and holders of our Series B Preferred Shares will have a right to receive a liquidation preference equal to 1.77x the original purchase price of such shares, in each case entitling them to be paid out of our assets available for distribution to shareholders before any payment may be made to holders of any common shares. The existence of a liquidation preference may reduce the value of our common shares, make it harder for us to sell common shares in offerings in the future, or prevent or delay a change of control. Additionally, each Series A Preferred Share and Series B Preferred Shares is entitled to vote with the common shares on the basis of 1,000 votes per share. Our amended and restated memorandum and articles of association grant the Series A Preferred Shares and Series B Preferred Shares customary protective provisions which provide that, without the approval of holders of a majority of the Series A Preferred Shares or Series B Preferred Shares, as applicable, we may not adversely affect the rights of the Series A Preferred Shares or Series B Preferred Shares or create, authorize or issue any class or series of equity securities senior to, or pari passu with, the Series A Preferred Shares or Series B Preferred Shares.

The preferential rights of the Series A Preferred Shares and Series B Preferred Shares could result in divergent interests between the holders of the Series A Preferred Shares and Series B Preferred Shares, and the holders of our common shares.

We are subject to significant obligations, including to potentially make significant payments under our funding agreements related to NURTEC ODT and zavegepant.

In June 2018, we entered into a funding agreement with RPI, which requires us to make revenue participation payments, subject to certain reductions, based on the future global net sales of pharmaceutical products containing the compounds rimegepant or zavegepant and certain derivative compounds thereof. The participation rate commences at 2.1 percent on global annual net sales of products up to and equal to $1.5 billion, declining to 1.5 percent on global annual net sales of products

Form 10-Q Table of Contents

exceeding $1.5 billion. If these payments become due under the terms of the 2018 RPI Funding Agreement, they will have a negative impact on our cash flows and on the future profitability of rimegepant and zavegepant.

In addition, under the 2018 RPI Funding Agreement, we are obligated to take certain steps to complete clinical trials and commercialize products containing the compounds rimegepant or zavegepant and certain derivative compounds thereof. These obligations could adversely impact or delay our ability to develop our other product candidates.

In August 2020, we entered into a funding agreement with RPI 2019 IFT which requires us to make participation payments based on global net sales of products containing zavegepant and rimegepant and certain payments based on success-based milestones relating to zavegepant. Under the 2020 RPI Funding Agreement, RPI 2019 IFT will be entitled to receive tiered, sales based participation rights up to 3.0% of future global net sales of products containing zavegepant, 0.4% of future global net sales of products containing rimegepant, and success-based milestones payments ranging from 0.6x to 2.95x of the funded amount depending on the number of regulatory approvals achieved for zavegepant (including 1.9x for the first zavegepant migraine regulatory approval). If these payments become due under the terms of the 2020 RPI Funding Agreement, they will have a negative impact on our cash flows and on the future profitability of NURTEC ODT and zavegepant.

Our level of indebtedness and the terms of the Sixth Street Financing Agreement could adversely affect our operations and limit our ability to plan for or respond to changes in our business. If we are unable to satisfy certain conditions in our Sixth Street Financing Agreement, we will be unable to draw down the remaining the facility and if we are unable to comply with restrictions in the Sixth Street Financing Agreement, the repayment of our existing indebtedness could be accelerated.

Under the Sixth Street Financing Agreement, we have incurred a substantial amount of debt, which could adversely affect our business. In August 2020, we drew down the first tranche of $275 million. The facility includes draw term loans in an aggregate principal amount not exceeding $225 million available until August 31, 2021, with $100 million of the delayed draw term loans currently available at our option. The remaining $125 million in delayed draw term loans becomes available if net sales from NURTEC ODT during the first quarter of 2021 or second quarter of 2021 equal at least $45 million. Accordingly, there is no assurance that we will be eligible to access this remaining $125 million in delayed draw term loans or obtain alternative financing.

Our high level of indebtedness could affect our business in the following ways, among other things: make it more difficult for us to satisfy our contractual and commercial commitments; require us to use a substantial portion of our cash flow from operations to pay interest and principal, which would reduce funds available for working capital, capital expenditures and other general corporate purposes; limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions and other investments or general corporate purposes; heighten our vulnerability to downturns in our business, our industry or in the general economy; place us at a disadvantage compared to those of our competitors that may have proportionately less debt; limit management’s discretion in operating our business; and limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the general economy.

The Sixth Street Financing Agreement requires us to make certain payments of principal and interest over time and contains several other restrictive covenants. Among other requirements of the Sixth Street Financing Agreement, we and our subsidiaries party to the Sixth Street Financing Agreement must maintain a minimum unrestricted cash balance of $50 million, which amount will increase to $80.0 million when we draw down on the delayed term loan, which requirement will be waived for any fiscal quarter in which we achieve at least $400 million in net sales for the prior four consecutive quarters. These and other terms in the Sixth Street Financing Agreement could restrict our ability to grow our business or enter into transactions that we believe would be beneficial to our business.

Our business may not generate cash flow from operations in the future sufficient to service our debt and support our growth strategies. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, including under our current debt obligations.

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

None.

Form 10-Q Table of Contents

Item 6. Exhibits


Exhibit No.*						Description
3.1						Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K (File No. 001-38080) filed with the Securities and Exchange Commission on August 11, 2020).

10.1 #						Funding Agreement by and b etween Biohaven Pharmaceutical Holding Company Ltd. and RPI 2019 Intermediate Finance Trust dated as of August 7, 2020

10.2 #						Amendment No. 1 , dated as of August 7, 2020, to 2018 RPI Funding Agreement by and b etween Biohaven Pharmaceutical Holding Company Ltd. and RPI Finance Trust

10.3 #						Series B Preferred Share Purchase Agreement by and b etween Biohaven Pharmaceutical Holding Company Ltd. and RPI 2019 Intermediate Finance Trust dated as of August 7, 2020

10.4 #						Financing Agreement dated as of August 7, 2020 among Biohaven Pharmaceutical Holding Company Ltd. and Biohaven Pharmaceuticals, Inc., as Borrowers, The Guarantors from Time to Time Party Hereto, as Guarantors, Various Lenders from Time to Time Party Hereto, and Sixth Street Specialty Lending, Inc., as Administrative Agent

31.1						Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act.

31.2						Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act.

32.1‡						Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act.

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)

___________________________________________________

# Portions of this exhibit (indicated by asterisks) have been omitted as such information is (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed.

* The XBRL instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

‡ These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Form 10-Q Table of Contents

SIGNATURES

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


	BIOHAVEN PHARMACEUTICAL HOLDING COMPANY LTD.
Dated: November 9, 2020
	By:	/s/ Vlad Coric, M.D.
		Vlad Coric, M.D.
		Chief Executive Officer
		(On behalf of the Registrant and as the Principal Executive Officer)

	By:	/s/ Jim Engelhart
		Jim Engelhart
		Chief Financial Officer
		(Principal Financial Officer)