On February 28, 2019, the Company entered into a development funding agreement, which we refer to as the SFJ Agreement, with SFJ Pharmaceuticals Group or SFJ, under which SFJ agreed to provide funding to the Company to support the development of pegcetacoplan for the treatment of patients with PNH. Pursuant to the agreement, SFJ paid the Company $60.0 million following the signing of the agreement, and agreed to pay the Company up to an additional $60.0 million in the aggregate in three equal installments upon the achievement of specified development milestones with respect to the Company’s Phase 3 program for pegcetacoplan in PNH and subject to the Company having cash resources at the time sufficient to fund at least 10 months of the Company’s operations. In addition, upon the mutual agreement of the Company and SFJ, at any time after the earlier of the date that the Company has reviewed the primary endpoint data from its PEGASUS Phase 3 trial of pegcetacoplan in patients with PNH and March 31, 2020, SFJ may fund an additional $50.0 million of the Company’s development costs which we refer to as the Additional SFJ Funding.

On June 7, 2019, the Company and SFJ amended the development funding agreement, which we refer to as the SFJ Amendment. Under the SFJ Amendment, SFJ agreed to make an additional $20.0 million funding payment to the Company to support the development of pegcetacoplan for the treatment of patients with PNH. This additional $20.0 million payment is in addition to and not part of the Additional SFJ Funding.

On June 27, 2019, the Company received $40.0 million from SFJ, consisting of $20.0 million as the first installment of the additional $60.0 million upon the achievement of a milestone and the $20.0 million payable under the SFJ Amendment.

On September 23, 2019, the Company received $20.0 million from SFJ as the second installment of the additional $60.0 million upon the achievement of a milestone.

The Company met the remaining development milestone under the SFJ Agreement upon the Company’s announcement of the primary endpoint data from its PEGASUS Phase 3 trial on January 7, 2020 and the final installment of $20.0 million of the additional $60.0 million was paid on January 29, 2020.

Under the SFJ Agreement following regulatory approval by the FDA or EMA for the use of pegcetacoplan as a treatment for PNH the Company will be obligated to pay SFJ an initial payment of up to $5.0 million (or a total of $10.0 million if regulatory approval is granted by the FDA and the EMA) and then up to an additional $226.0 million in the aggregate (or up to $452.0 million if regulatory approval is granted by the FDA and the EMA) in six additional annual payments with the majority of the payments being made from the third anniversary to the sixth anniversary of regulatory approval. Such payments will be proportionately adjusted in the event that the actual funding from SFJ is greater than $120.0 million (including as a result of the payment of the Additional SFJ Funding but excluding the $20.0 million funding payment made under the SFJ Amendment). Additionally, the Company granted a security interest in all of its assets, excluding intellectual property and license agreements to which it is a party. In connection with the grant of the security interest, the Company agreed to certain affirmative and negative covenants, including restrictions on its ability to pay dividends, incur additional debt or enter into licensing transactions with respect to its intellectual property, other than specified types of licenses.

The SFJ Agreement is presented as a derivative liability on the balance sheet. The liability was initially recorded at the value of the $60.0 million aggregate cash received pursuant to the contractual terms, which was determined to have been fair value, and subsequently remeasured at March 31, 2019 as a level 3 derivative, with the change in fair value of $0.7 million recorded for the three months ended March 31, 2019 in loss from remeasurement of development derivative liability on the statement of operations. During 2019, the Company received an additional $60.0 million under the SFJ Agreement and the Company met additional milestones in the agreement. The remeasurement of the development derivative liability at December 31, 2019 resulted in a remeasured fair value of

$134.8 million on the consolidated balance sheet at December 31, 2019. The Company received an additional $20.0 million in January 2020 and the derivative liability under the SFJ Agreement (as amended), was subsequently remeasured at March 31, 2020 as a level 3 derivative, with the change in fair value of $68.4 million recorded for the three months ended March 31, 2020 in the loss from remeasurement of development derivative liability on the income statement, with a remeasured fair value of $223.2 million on the consolidated balance sheet at March 31, 2020.

The following table presents a rollforward of the development derivative liability:

	Three Months Ended March 31,
	2020		2019
Balance at fair market value, January 1,	$	134,839	$	—
Amounts received under the SFJ agreement and SFJ amendment		20,000		60,000
Loss recorded in loss from remeasurement of development derivative liability		68,406		736
Balance at fair market value, March 31,	$	223,245	$	60,736

The derivative is valued using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The analysis is calibrated such that the value of the derivative as of the date of the SFJ Agreement was consistent with an arm’s-length transaction. Key inputs to the level 3 fair value model include (i) the probability and timing of achieving stated development milestones to receive the next tranches of funding, (ii) the probability and timing of achieving FDA and EMA approval, (iii) SFJ’s cost of borrowing (8.0%), and (iv) the Company’s cost of borrowing (13.47%).

SFJ’s implied cost of borrowing was 8.0% and the Company’s implied cost of borrowing was 13.47% as of the reporting date. These implied costs of borrowing were determined assuming the SFJ Agreement was initially executed with arm’s-length terms. If the SFJ Agreement was instead not determined to be an arm’s-length transaction, then implied discount rates could differ.