Verastem Oncology
Annual Report 2015

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K(Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2015or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to Commission file number 001-35403Verastem, Inc.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization)27-3269467(I.R.S. EmployerIdentification No.)117 Kendrick Street, Suite 500Needham, Massachusetts(Address of principal executive offices)02494(Zip Code)Registrant’s telephone number, including area code: (781) 292-4200Securities registered pursuant to Section 12(b) of the Act:Title of each className of each exchange on which registeredCommon Stock, $0.0001 par valueNASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ NoIndicate 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 of1934 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 filingrequirements for the past 90 days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). ☒ Yes ☐ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☐Accelerated filer ☒Non‑accelerated filer ☐(Do not check if asmaller reporting company)Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ NoAggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2015 was $258,961,368.The number of shares outstanding of the registrant’s common stock as of February 22, 2016 was 36,992,418.DOCUMENTS INCORPORATED BY REFERENCEPortions of our definitive proxy statement to be delivered to stockholders in connection with the 2016 Annual Meeting of Stockholders areincorporated by reference into Part III of this Annual Report on Form 10-K. Table of ContentsTABLE OF CONTENTSPART IItem 1. Business 4 Item 1A. Risk Factors 41 Item 1B. Unresolved Staff Comments 70 Item 2. Properties 70 Item 3. Legal Proceedings 70 Item 4. Mine Safety Disclosures 70 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of EquitySecurities 71 Item 6. Selected Financial Data 73 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 74 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84 Item 8. Consolidated Financial Statements and Supplementary Data 84 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 84 Item 9A. Controls and Procedures 84 Item 9B. Other Information 85 PART III Item 10. Directors, Executive Officers and Corporate Governance 86 Item 11. Executive Compensation 86 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 86 Item 13. Certain Relationships and Related Transactions, and Director Independence 86 Item 14. Principal Accountant Fees and Services 86 PART IV Item 15. Exhibits and Financial Statement Schedules 87 SIGNATURES 88 2 Table of ContentsFORWARD‑LOOKING STATEMENTSThis Annual Report on Form 10‑K contains forward-looking statements that involve substantial risks anduncertainties. All statements, other than statements related to present facts or current conditions or historical facts,contained in this Annual Report on Form 10‑K, including statements regarding our strategy, future operations, futurefinancial position, future revenues, projected costs, prospects, plans and objectives of management, are forward lookingstatements. Such statements relate to, among other things, the development of our product candidates, including VS-6063, VS-4718 and VS-5584, and our FAK, PI3K/mTOR, and diagnostics programs generally, the timeline for clinicaldevelopment and regulatory approval of our product candidates, the expected timing for the reporting of data from on-going trials, the structure of our planned or pending clinical trials, additional planned studies, our rights to develop orcommercialize our product candidates and our ability to finance contemplated development activities and fundoperations for a specified period. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,”“predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions areintended to identify forward-looking statements, although not all forward-looking statements contain these identifyingwords. Forward-looking statements are not guarantees of future performance and our actual results could differmaterially from the results discussed in the forward-looking statements. Factors that could cause actual results to differmaterially from those in the forward-looking statements include, but are not limited to, our ability to raise additionalcapital to support our clinical development program and other operations, our ability to develop products of commercialvalue and to identify, discover and obtain rights to additional product candidates, our ability to protect and maintainour intellectual property and the ability of our licensors to obtain and maintain patent protection for the technology orproducts that we license from them, the fact that the preclinical and clinical testing of our product candidates andpreliminary data from clinical trials may not be predictive of the success of ongoing or later clinical trials, that data maynot be available when we expect it to be, that enrollment of clinical trials may take longer than expected, that ourproduct candidates may cause unexpected safety events, that we will be unable to successfully initiate or complete theclinical development of our product candidates, including VS-6063, VS-4718 and VS-5584, that development of ourproduct candidates will take longer or cost more than planned, our reliance on third-parties, competitive developments,the effect of current and future legislation and regulation and regulatory actions, as well as other risks described in ourAnnual Report on Form 10-K and other filings with the Securities and Exchange Commission (SEC). As a result of these and other factors, we may not actually achieve the plans, intentions or expectationsdisclosed in our forward-looking statements, and you should not place undue reliance on our forward-lookingstatements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers,dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.3 Table of Contents PART I Item 1. BusinessOVERVIEWWe are a biopharmaceutical company focused on discovering and developing drugs to improve outcomes forpatients with cancer. Our product candidates utilize a multi-faceted approach to treat cancer by reducing cancer stemcells, enhancing anti-tumor immunity, and modulating the local tumor microenvironment. Our most advanced productcandidates are VS‑6063, VS‑4718, and VS‑5584. We are currently evaluating these compounds in both preclinical andclinical studies as potential therapies for certain cancers, including lung, ovarian, lymphoma, and pancreatic. Webelieve that these compounds may be especially beneficial as therapeutics when used in combination with immuno-oncology agents, as well as other current and emerging standard of care treatments in aggressive cancers that have apoorer prognosis and lower overall survival rates when compared to other types of cancer.Our most advanced programs target the Focal Adhesion Kinase (FAK), and the PI3K/mTOR signaling pathways.FAK is a non-receptor tyrosine kinase encoded by the PTK-2 gene that is involved in cellular adhesion and, in cancer,metastatic capability. VS-6063, which has been assigned the United States Adopted Name defactinib, and VS-4718 areorally available compounds designed to target cancers through the potent inhibition of FAK. The PI3K/mTOR signalingpathway plays a central role in cancer proliferation and survival. VS-5584 is an orally available compound that hasdemonstrated in preclinical studies potent and highly selective activity against class 1 PI3K enzymes (pan PI3Kinhibition) and dual inhibitory actions against mTORC1 and mTORC2.VS-6063 is currently being evaluated in a Phase 1 study in combination with Merck & Co.’s (Merck) PD-1inhibitor pembrolizumab and gemcitabine in patients with advanced pancreatic cancer, a Phase 1/1b trial incombination with weekly paclitaxel for patients with ovarian cancer, a Phase 2 study in patients with non‑small celllung cancer, a Phase 2 trial preceding surgery in mesothelioma, a combination trial of VS‑6063 and VS‑5584 in patientswith relapsed mesothelioma, and a Phase 1/1b clinical collaboration with Pfizer Inc. (Pfizer) and Merck KGaA toevaluate VS-6063 in combination with avelumab, an anti-PD-L1 antibody, in patients with ovarian cancer. VS-6063 hasreceived orphan drug designation for use in mesothelioma and ovarian cancer in the United States, the European Union,and Australia. In addition to VS‑6063, both our FAK inhibitor VS‑4718 and our dual mTORC1/2 and PI3K inhibitorVS‑5584 are in Phase 1 clinical trials in patients with advanced cancers either as single agents or in combination withother anti-cancer treatments. We believe that the key reasons for the ultimate failure of many current cancer therapies to achieve a durableclinical response are the presence of cancer stem cells (CSCs) within tumors, a limited or absent immune response, anddense stroma encapsulating tumors. Preclinical research has shown that our FAK inhibitors effectively reduce CSCsthereby improving the duration of response, enhance the immune response by decreasing immune-suppressive cells andincreasing cytotoxic T cells, and reduce stromal density which allows both drug and tumor-killing immune cells to enterthe tumor.THE PROBLEMCancer is a group of diseases characterized by uncontrolled growth and spread of abnormal cells. The AmericanCancer Society estimated that in the United States in 2014, approximately 1.7 million new cases of cancer would bediagnosed and nearly 600,000 people would die from the disease. Current treatments for cancer include surgery,radiation therapy, chemotherapy, hormonal therapy, immunotherapy, and targeted therapy. IMS Health estimates that inthe United States in 2014, approximately $37.5 billion was spent on drugs to treat cancer, representing the largest classof drug spending in the United States. The cancer death rate in the United States has only decreased modestly since theearly 1990s. Despite years of intensive research and clinical use, current treatments often fail to cure cancer. Cancerremains one of the world’s most serious health problems and is the second most common cause of death in the UnitedStates after heart disease. The following table sets forth the U.S. annual incidence, based on 2015 estimates from theNational Cancer Institute (NCI), and the prevalence, or the number of people in the United States who have beenpreviously diagnosed with cancer, based on 2012 estimates from the NCI, for select cancers.4 Table of Contents U.S. annual Cancer type incidence U.S. prevalence Lung and bronchus 221,200 408,808 Pancreatic 48,960 45,702 Ovarian 21,290 192,446 For tumors that have not yet metastasized and remain localized to the site of original tumor formation, currenttreatments for cancer can be effective in initially reducing tumor burden. However, for many forms of cancer, currenttreatments lack sufficient efficacy to achieve a durable clinical response. Following initial treatment, the tumor mayrecur at the same site or metastasize and spread to other sites in the body. The vast majority of patients who succumb tocancer are killed by tumors that have metastasized. This is illustrated by the information in the following table, whichshows, according to the NCI’s SEER Cancer Statistics Review, 2005-2011, the reduction in five‑year survival rate forovarian cancer patients based on the stage of the disease at the time at which the disease is diagnosed. The percentage ofpatients diagnosed at each stage of disease, referred to as stage distribution, is included below for comparative purposes. Five-year Stage relative Ovarian cancer stage at diagnosis distribution(1) survival rate Localized (confined to primary site) 15% 92.1%Regional (spread to regional lymph nodes) 19% 73.2%Distant (cancer has metastasized) 60% 28.3%(1)6% of ovarian cancer cases were designated as unknown stage.With the application of new technologies and key discoveries, we believe that we are now entering an era ofcancer research characterized by a more sophisticated understanding of the biology of cancer. We believe that thediscovery of CSCs and the role that they play in cancer development, along with the rapidly advancing field ofimmunotherapy, or using the body’s immune system to fight cancer, are important new insights that present theopportunity to develop more effective cancer treatments.Cancer stem cellsCSCs, which are also sometimes referred to as tumor‑initiating cells, have been identified in many types ofcancer, including lung, ovarian, pancreatic, colon and leukemic cancers. Following many cancer treatments, the tumorcan remain with a high percentage of CSCs and become more aggressive and resistant to further treatment. In addition,patients who relapse often develop metastatic disease in which the cancer spreads to other sites in the body. Tumormetastases to critical organs are the cause of more than 90% of cancer deaths. We believe that it is the drug resistanceand ability of CSCs to spread to other sites in the body that may be the root causes of many cancer treatments failing.Accordingly, our mission is to develop treatments that can contribute to the elimination of all the cells comprising atumor and, thus, create a durable clinical response.We believe that CSCs are responsible for the initiation, metastasis, and recurrence of many cancers. CSCs havethe ability to:·move freely and proliferate without attachment to other cells or surfaces;·initiate a tumor;·self‑renew;·produce other cancer cell types; and·resist many current cancer treatments.5 Table of ContentsCSCs may be more resistant to current cancer treatments than other types of cancer cells. Thus, as illustrated inthe figure below, while current treatments may succeed at initially decreasing tumor burden, they may leave behind apopulation of CSCs that can regenerate tumors. Therefore, the presence of a mixture of CSCs and other types of cancercells within a tumor may necessitate a therapeutic approach combining drugs that can kill both cell populations.FIGURE 1The need to target CSCs may apply across the treatment of a broad range of cancers. CSCs have been isolatedand characterized from many types of cancer, including lung, ovarian, pancreatic, colon and leukemic cancers. TheCSCs isolated from each of these tumor types have been found to confer greater tumor‑forming capability whentransplanted into mice than other types of cancer cells from the same tumor.Several specific signaling pathways have been implicated in CSC biology. FAK is a central signaling node inthe development of CSCs and critical for the establishment of metastases. In 2012, research conducted at the WhiteheadInstitute for Biomedical Research in the laboratory of our scientific co-founder Dr. Robert Weinberg and published inCancer Discovery elucidated the role of FAK in breast cancer disease progression. This work found that increased FAKactivity leads to increases in the metastatic capability of cancer cells following the process of epithelial to mesenchymaltransition, an underlying mechanism in CSC development. Similarly, the role of PI3K/mTOR signaling has also beenlinked to disease progression and the survival of CSCs in multiple types of solid tumors and leukemia.An increase in the proportion of CSCs in response to chemotherapy has been observed in clinical studies. Forexample, at the Baylor College of Medicine, breast cancer biopsies were taken from patients at the time of initialdiagnosis and again following 12 weeks of treatment with docetaxel, a standard cancer chemotherapy widely used totreat breast cancer. The biopsies taken after 12 weeks of treatment showed increased expression of biomarkers for CSCsand an increased number of chemoresistant cells as compared to biopsies taken at the time of initial diagnosis. Thisresult indicates that the CSC component of the tumor was relatively resistant to the chemotherapy. Moreover, it6 Table of Contentssupports our belief that a combination of treatments that can effectively target both CSCs and other types of cancer cellsis critical to create a durable clinical response.Limited Immune ResponseAlthough the adaptive immune system is designed to target foreign tissue or pathogens, cancer evades immuneattack through several important mechanisms. Immune checkpoints, including PD-1 and CTLA-4 signaling, aremechanisms in nature that function to limit an immune response and inhibition of immune checkpoints has been foundto be extremely promising targets to reactivate anti-cancer immune attack for some patients. However, the immunebalance in the tumor microenvironment is critical to enable cytotoxic T cells to effectively attack and eliminatetumors. This process is often limited by insufficient cytotoxic T cells in the tumor, coupled with abundance ofimmunosuppressive cell populations in the tumor microenvironment. Therefore, agents that can increase cytotoxic Tcells and decrease immunosuppressive T cells in tumors have been sought after to increase the proportion of respondingcancer patients and the duration of response to immunotherapy.Stromal DensityIn addition to the balance of immune cells in the tumor microenvironment, another important mechanismwhich tumors use to evade immune attack and attack by chemotherapy is stromal density. Stromal density, which maybe typified by pancreatic cancer, refers to a dense buildup of fibroblasts and extracellular matrix proteins intumors. This stromal density imposes a physical barrier to the entry of cytotoxic T cells and chemotherapeutic drugsinto the tumor microenvironment. Consequently, agents that can decrease stromal density have been sought after toenable immune and cytotoxic anti-cancer therapies.OUR SOLUTIONWe believe that by utilizing a multi-faceted approach to the treatment of cancer we can develop bettertherapeutics to treat patients. To achieve a more durable clinical response, we believe that it may be necessary to focuson combination regimens with our CSC-targeted product candidates and immuno-oncology agents, and/or other currentand emerging standard of care treatments.OUR STRATEGYOur product candidates seek to utilize a multi-faceted approach to treat cancer by reducing cancer stem cells,enhancing anti-tumor immunity, and modulating the local tumor microenvironment. Our goal is to build a leadingbiopharmaceutical company focused on the discovery, development and, ultimately, commercialization of novel drugsthat use a multi-faceted approach to improving outcomes for patients with cancer. Key elements of our strategy toachieve this goal are:·Advance our product candidates through clinical development. We have ongoing clinical trials ofVS‑6063 both as a single agent and in combination with other agents and are conducting additionalclinical trials with VS‑4718 and VS‑5584. We expect to initiate further clinical trials over the next severalyears.oExecute on the recently announced Phase 1/1b clinical collaboration with Pfizer and MerckKGaA to evaluate VS-6063 in combination with avelumab (an immunotherapy) in patients withovarian cancer. oSupport the recently initiated Phase 1 dose-escalation study at Washington University in St.Louis which is evaluating FAK inhibitor VS-6063 in combination with Merck’s PD-1 inhibitorpembrolizumab (an immunotherapy) and gemcitabine (a chemotherapy) in patients withadvanced pancreatic cancer.7 Table of Contents·Expand the indications in which our product candidates may be used. In parallel to the non-small celllung, ovarian, pancreatic and mesothelioma trials that we are currently conducting, we plan to pursueadditional disease indications.·Collaborate selectively to augment and accelerate translational research, development andcommercialization. We may seek third‑party collaborators for the development and eventualcommercialization of our product candidates. In particular, we may enter into third‑party arrangements fortarget oncology indications in which our potential collaborator has particular expertise or for which weneed access to additional research, development, or commercialization resources.·Consider acquiring or in‑licensing rights to additional agents. We may pursue the acquisition or in‑licensefrom third parties of rights to additional agents that may supplement our internal programs and allow us toinitiate clinical development of a diverse pipeline of agents more quickly.·Build and maintain scientific leadership in the areas of immuno-oncology and CSCs. We plan to continueto conduct research in both the immuno-oncology and CSC fields to further our understanding of theunderlying biology of enhancing the body’s immune response to tumors as well as cancer progression andmetastasis. We also plan to continue fostering relationships with top scientific advisors, researchers andphysicians. We believe that exceptional advisors, employees and management are critical to leadership inthe immuno-oncology and CSC fields.OUR PRODUCT CANDIDATESOverviewWe are focused on the discovery and development of small molecules for optimized efficacy and safetyprimarily as orally available drug candidates.We have three product candidates currently in clinical trials including the FAK inhibitors VS‑6063 andVS‑4718, and the pan PI3K and dual mTORC1/2 inhibitor VS‑5584. We are running clinical trials in cancers where thereare limited treatment options, including lung, ovarian, lymphoma, pancreatic, and other advanced cancers.Conventional chemotherapy works by stopping the function of cancer cells through a variety of mechanisms.Chemotherapies are usually not targeted at any specific differences between cancer cells and normal cells. Rather, theykill cancer cells because cancer cells generally grow more rapidly than normal cells and, as a result, are relatively moreaffected by the chemotherapy than normal cells. Because CSCs exhibit mechanisms of resistance, including a slower rateof growth than other cancer cells, they are often not susceptible to conventional chemotherapy. As a result, thetreatments may succeed at initially decreasing tumor burden but ultimately fail to kill the CSCs.Agents that can modulate the tumor microenvironment to increase cytotoxic T cells and decreaseimmunosuppressive T cells in tumors have been sought after to increase the proportion of responding cancer patientsand the duration of response to immunotherapy. Accordingly, to enhance therapeutic benefit, we are using our productcandidates in combination with immuno-oncology agents, as well as other current and emerging standard of caretreatments in an effort to target CSCs and stimulate the body’s immune system against cancer cells. This approach isbeing utilized in the ongoing Phase 1 trial evaluating VS-6063 in combination with Merck’s PD-1 inhibitorpembrolizumab and gemcitabine in patients with advanced pancreatic cancer and will also be tested in the recentlyannounced Phase 1/1b clinical trial evaluating VS-6063 in combination with Pfizer and Merck KGaA’s avelumab inpatients with ovarian cancer.We are developing our product candidates for the treatment of multiple cancer types, including non-small celllung, ovarian, lymphoma, and pancreatic cancer, and expect in the future to initiate clinical trials in other cancers.8 Table of ContentsPANCREATIC CANCEROverviewPancreatic cancer begins in the tissues of the pancreas — an organ in the abdomen that lies horizontally behindthe lower part of the stomach. The pancreas secretes enzymes that aid digestion and hormones that help regulate themetabolism of sugars. Patients present initially with vague symptoms that could be easily be mistaken for other commonabdominal conditions and diseases. It is the 12th most common cancer diagnosed in the United States and the diseaserepresents the 4th leading cause of cancer related death in the country.PrognosisPancreatic cancer often has a poor prognosis, even when diagnosed early. Pancreatic cancer typically spreadsrapidly and is seldom detected in its early stages, which is a major reason why it is a leading cause of cancer death. Signsand symptoms may not appear until pancreatic cancer is quite advanced and complete surgical removal is not possible.An estimated 48,960 Americans will be diagnosed with pancreatic cancer in 2015 and over 40,560 will die from thedisease. Pancreatic cancer is one of the few cancers where survival has not improved significantly during the past 40years. Pancreatic cancer has a very high mortality rate with 92.8% dying within five years of their initial diagnosis andan average life expectancy of 3-6 months if the patient presents with metastatic disease. The median age for diagnosis is71 with the disease affecting males slightly more than females.Current TreatmentTreatment options for pancreatic cancer are limited with surgical resection of the tumor possible in less than20% of patients. Chemotherapy or chemotherapy plus radiation is offered to patients whose tumors are unable to beremoved surgically. Immuno-oncology agents have not demonstrated a significant improvement in treatment outcomefor patients with pancreatic cancer. The limited impact of chemotherapies and immuno-therapies to improve theoutcome may be due to the dense stroma that is prevalent in pancreatic tumors and the presence of CSCs in the tumor. OVARIAN CANCEROverviewOvarian cancer forms in tissues of the ovary, one of a pair of female reproductive glands in which the ova, oreggs, are formed. Most ovarian cancers are either ovarian epithelial carcinoma, cancer that begins in the cells on thesurface of the ovary, or malignant germ cell tumors that begin in egg cells. According to the NCI, epithelial carcinoma ofthe ovary is one of the most common gynecologic malignancies and the fifth most frequent cause of cancer death inwomen, with 50% of all cases occurring in women older than 65 years.The NCI estimated that in January 2009 there were approximately 182,000 women in the United States with ahistory of ovarian cancer and in 2015 approximately 22,000 new cases of ovarian cancer would be diagnosed andapproximately 14,000 women would die from the disease.PrognosisFor patients with ovarian cancer, the most important prognostic factor is stage of the disease. Unfortunately,most patients with ovarian cancer have widespread disease at diagnosis. This may be partly explained by relatively earlyspread to the rest of the abdominal cavity. General symptoms such as abdominal pain and swelling, gastrointestinalsymptoms, and pelvic pain often go unrecognized, leading to delays in diagnosis. This is illustrated by the informationin the following table, which shows, according to the NCI’s SEER Cancer Statistics Review, 2005‑2011, the reduction infive‑year survival rate for ovarian cancer patients based on the stage of the9 Table of Contentsdisease at the time at which the disease is diagnosed. The percentage of patients diagnosed at each stage of disease,referred to as stage distribution, is included below for comparative purposes. 5-year Stage Relative Stage at Diagnosis Distribution Survival Localized (confined to primary site) 15% 92.1% Regional (spread to regional lymph nodes) 19% 73.2% Distant (cancer has metastasized) 60% 28.3% Unknown (unstaged) 6% 22.9% Current TreatmentMost patients are treated with a combination of surgery, chemotherapy, targeted therapy and radiation therapy.Surgery is often comprehensive to remove as much of the tumor as possible and may include removal of the ovaries or atotal hysterectomy where the uterus is also removed.Unfortunately, available therapies are rarely curative in the treatment of ovarian cancer and many tumorsbecome resistant to platinum‑based chemotherapy, which is the primary treatment regimen. Further therapy withconventional chemotherapy is generally palliative, not curative, as the tumor is able to metastasize and spread to othersites in the body. A report by McNeish et al., at the 2013 American Society of Clinical Oncology reported that the use ofpaclitaxel in patients that had previously failed platinum‑based chemotherapy resulted in less than 1% of patientsachieving a complete response and an overall response rate of approximately 12% as defined by Response EvaluationCriteria In Solid Tumors (RECIST) guidelines. The presence of CSCs may contribute to this resistance and eventualdisease progression.NON‑SMALL CELL LUNG CANCEROverviewAccording to the NCI, the most common types of non‑small cell lung cancer (NSCLC) are squamous cellcarcinoma, large cell carcinoma, and adenocarcinoma. Although NSCLCs are associated with cigarette smoke,adenocarcinomas may be found in patients who have never smoked. As a class, NSCLCs are relatively insensitive tochemotherapy and radiation therapy compared with small cell lung cancer (SCLC). The NCI estimates that in 2015 therewere 221,200 new cases of lung cancer (both NSCLC and SCLC) in the United States and 158,040 deaths. Lung canceris the leading cause of cancer‑related mortality in the United States. The 5‑year relative survival rate from 2005 to 2011for patients with lung cancer was 17.4%.Current TreatmentPatients with resectable disease may be cured by surgery or surgery followed by chemotherapy. Local controlcan be achieved with radiation therapy in a large number of patients with unresectable disease, but cure is seen only in asmall number of patients. Patients with locally advanced unresectable disease may achieve long‑term survival withradiation therapy combined with chemotherapy. Patients with advanced metastatic disease may achieve improvedsurvival and palliation of symptoms with chemotherapy, targeted agents, and other supportive measures. The diseasebecomes resistant to therapy and returns in the vast majority of patients. The presence of CSCs may contribute to thisresistance and eventual disease progression.FAK Inhibition ProgramOverviewOur product candidates that inhibit FAK utilize a multi-faceted approach to treat cancer by reducing cancerstem cells, enhancing anti-tumor immunity, and modulating the local tumor microenvironment. These effects of FAKinhibition make our two inhibitors, VS-6063 and VS-4718, good candidates for combination therapy with immuno-oncology agents and other anti-cancer compounds. FAK expression is greater in many tumor types10 Table of Contentscompared to normal tissue, particularly in cancers that have a high invasive and metastatic capability. The contactbetween cancer cells and connective tissue stimulates FAK signaling. However, CSCs acquire the ability to survive inthe absence of contact with connective tissue. We believe that FAK signaling in CSCs may be maintained throughalternative mechanisms, thus providing CSCs the ability to survive in the absence of cell contact. Accordingly, webelieve that FAK signaling may be a central component of CSC biology that allows CSCs to survive after exiting from atumor mass and enable metastatic growth at other sites in the body.In 2012, our scientific co‑founder Dr. Robert Weinberg reported in Cancer Discovery that FAK is a criticalregulator of CSCs and inhibition of this signaling pathway prevented disease progression and initiation of newmetastatic lesions. An additional study by Dr. Weinberg reported in the Proceedings of the National Academy ofSciences (PNAS) in 2009, demonstrated that in a mouse model of breast cancer FAK signaling was required to enablelung metastasis. Non‑CSCs, which lack the ability to increase their FAK signaling activity through alternativemechanisms, remained non‑metastatic in this model and did not survive dissemination to the lungs. Researchers atMcGill University reported in PNAS that in a genetically modified mouse model the specific deletion of FAK from themammary cells prevented primary tumor formation and metastasis. Similarly, researchers at the University of Michigandemonstrated that specific deletion of FAK from mammary tumors prevented tumor initiating capacity in recipient mice.Scientific research suggests that increased FAK expression and activity is associated with metastaticprogression and poor prognosis in multiple cancer types. For example, a 2009 retrospective study published in theJournal of Clinical Investigation identified the amplification, or increase in number, of the gene encoding FAK inbreast cancers. This gene amplification, and resulting high FAK expression, significantly correlated with the progressionof early stage, primary breast cancer to advanced metastatic disease. In an analysis of 295 breast cancer patients that waspart of this study, elevated FAK expression was a marker of poor survival. The correlation of elevated FAK expressionwith poor survival was more significant than, and independent of, other commonly used clinical parameters such ashormone receptor status. A similar finding was described in the Journal of Clinical Investigation in 2010 where it wasreported that in women with ovarian cancer elevated FAK expression is correlated with advanced disease, metastasesand poor prognosis. A comparison of FAK activity in biopsies from patients revealed that high FAK activity correlatedwith a decrease in overall survival, from 3.2 to 1.7 years.FIGURE 2In September 2015, researchers from the University of Edinburgh published a study in the journal Cell thathighlights the potential of FAK inhibition to enable the body’s immune system to fight cancer. The paper discussedresults from preclinical research showing that FAK enables cancer cells to evade attack by the immune system. This11 Table of Contentsresearch showed that genetic knock down of FAK or oral dosing of mice with the FAK inhibitor VS-4718 increasescytotoxic T cells in skin cancer tumors while decreasing immunosuppressive cells called T regulatory cells. This workhas since been expanded into pancreatic cancer and colorectal cancer models in which VS-4718 similarly extendssurvival of tumor-bearing mice through increasing cytotoxic T cells in the tumor and decreasing T regulatorycells. Additionally, VS-4718 was found to decrease other key immunosuppressive cell populations in tumors, known asmyeloid-derived suppressor cells and M2 tumor-associated macrophages. Coincident with this immuno-modulation, VS-4718 was shown to substantially increase survival of mice when combined with an anti-PD-1 immune checkpointantibody. These results have indicated the potential promise of FAK inhibitors in combination with immunecheckpoint inhibitors in the clinic.FIGURE 3In October 2015, preclinical data were presented (DeNardo, et al) demonstrating that FAK inhibition reducesstromal density and increases T cell entry into tumors. In this study, it was discovered that treating mice bearingpancreatic cancer tumors with VS-4718 reduces stromal density. This was measured as a decrease in the number andproliferation of tumor-associated fibroblasts, together with a decrease in collagen and other extracellular matrix proteinsin the tumors. Dr. DeNardo went on to show that this reduction in stromal density by VS-4718 augments theeffectiveness of the chemotherapeutic agent gemcitabine, and also allowed cytotoxic T cells to enter the tumors toinduce more durable survival of tumor-bearing mice. These data provide strong rationale for the clinical evaluation ofFAK inhibitors, including VS-4718 and VS-6063, in combination with a PD-1 or PD-L1 antibody in patients withpancreatic and other cancers. These data were presented at the 2015 AACR-NCI-EORTC International Conference onMolecular Targets and Cancer Therapeutics and Society for Immunotherapy of Cancer (SITC) scientificconferences. Based on this research, we have initiated a Phase 1 clinical trial to assess the combination of VS-4718 withgemcitabine/abraxane treatment in patients with pancreatic cancer.12 Table of ContentsFIGURE 4VS‑6063OverviewVS‑6063, or defactinib, is an orally‑available small molecule kinase inhibitor designed to inhibit FAKsignaling. We are currently evaluating VS‑6063 as a potential therapy for pancreatic cancer, ovarian cancer, NSCLC,and other solid tumors. Clinical trials of VS‑6063 in patients with cancer currently include a Phase 1 study incombination with Merck’s PD-1 inhibitor pembrolizumab and gemcitabine in patients with pancreatic cancer, aPhase 1/1b clinical trial of VS‑6063 in combination with paclitaxel for patients with ovarian cancer, a Phase 2 study ofVS‑6063 in patients with NSCLC, a Phase 2 trial preceding surgery in mesothelioma, a combination trial of VS-6063and VS-5584 in patients with relapsed mesothelioma, and a Phase 1/1b clinical collaboration with Pfizer and MerckKGaA to evaluate VS-6063 in combination with avelumab in patients with ovarian cancer. We have received13 Table of Contentsorphan drug designation for VS‑6063 in ovarian cancer and mesothelioma in the United States, the European Union, andAustralia.Development status of VS‑6063Phase 1 study in combination with immunotherapy in pancreatic cancer. VS‑6063 is in a dose escalationstudy in combination with Merck’s PD-1 inhibitor pembrolizumab and gemcitabine in patients with advancedpancreatic cancer. This Phase 1 clinical trial is anticipated to enroll approximately 50 patients and is being conducted atthe Washington University School of Medicine’s Division of Oncology under the direction of Andrea Wang-Gillam,M.D., Ph.D., Clinical Director of the Gastrointestinal Oncology Program. This trial is primarily designed to evaluate thesafety of the combination regimen and may also provide a greater understanding of how FAK inhibition in combinationwith immunotherapies could improve outcomes for patients with pancreatic cancer. We expect a data readout from thistrial to occur in 2017. This is the first of several combination clinical trials we expect will be initiated during 2016.This clinical study is supported by a growing body of preclinical research suggesting that FAK inhibition,when combined with PD-1 inhibitors, increases the anti-tumor activity of these immunotherapeutic agents. As publishedin the journal Cell (24 Sept 2015), FAK inhibition has been shown to increase cytotoxic (CD8+) T cells in tumors,decrease T cell exhaustion, decrease immunosuppressive cell populations, enhance T cell killing of tumor cells, andcreate a generally more favorable tumor microenvironment, which should allow for enhanced efficacy of immuno-oncology therapeutics.Pancreatic cancer, along with other tumors such as glioblastoma and prostate cancer, are tumor types in whichimmunotherapeutics have achieved limited clinical benefit, possibly due to the dense desmoplastic stroma and theabundance of immunosuppressive cells. Preclinical research has demonstrated that high stromal density prevents anti-cancer agents and T cells from entering pancreatic tumors thereby limiting efficacy. In preclinical research conducted byus and others, FAK inhibition was shown to reduce stromal density and allow cytotoxic T cells to better penetrate thetumor and kill the cancer cells. Collectively, these data provide strong rationale for combining our FAK inhibitors withcheckpoint inhibitors in the clinic for pancreatic cancer.Phase 1/1b study with Pfizer and Merck KGaA in combination with immunotherapy in ovarian cancer. InMarch 2016, we announced a new clinical collaboration with Pfizer and Merck KGaA to evaluate VS-6063 incombination with avelumab in patients with ovarian cancer. Avelumab is a human programmed death ligand 1 (PD-L1),blocking antibody that binds to the PD-L1 ligand expressed on tumor cells. Preclinical research has suggested that thecombination of these two agents holds potential to improve the clinical response in patients with cancer.Phase 1/1b clinical trial of VS‑6063 in combination with paclitaxel in patients with ovarian cancers. Ovariancancer rapidly develops resistance to chemotherapy. Following development of resistance to front‑line platinumtherapy, there is not an approved standard of care although treatment with the chemotherapeutic paclitaxel is often used.A clinical trial to evaluate the safety and efficacy of VS‑6063 administered in combination with paclitaxel in patientswith advanced ovarian cancer has demonstrated that the combination is generally well tolerated and the study iscurrently in long term follow up.This clinical study is comprised of two parts. Part 1 is a dose-escalation of oral VS‑6063 twice daily in additionto the standard dose of weekly paclitaxel. The purpose of part 1 was to assess the safety, evaluate pharmacokineticparameters and determine the recommended Phase 2 dose in combination with paclitaxel. Part 2 includes patientstreated with the recommended Phase 2 dose of VS‑6063 in combination with paclitaxel. The purpose of part 2 is toevaluate the pharmacodynamic effect, the biochemical and physiological effect of VS‑6063 through measurement ofbiomarkers from tumor biopsies pre‑ and post‑treatment and assess the anti‑cancer activity of VS‑6063 whenadministered in combination with paclitaxel according to RECIST guidelines.We believe this approach will allow us to treat both the non‑CSCs and CSCs simultaneously by thecombination of chemotherapy (e.g., paclitaxel) and a CSC‑targeted agent (VS‑6063) to hopefully enable a more durableclinical response.14 Table of ContentsThe addition of VS‑6063, at either the 200mg/BID or 400mg/BID dose level, to the standard dose of weeklypaclitaxel, which is 80mg/m, was generally well tolerated with no worsening of the well‑known side effects ofpaclitaxel. 400mg/BID is the recommended Phase 2 dose of VS‑6063 both as a single agent and in combination withweekly paclitaxel. As of February 23, 2015, 20 serious adverse events (SAEs), were observed in 10 patients (45.5%). Allbut one SAE (Grade 3 dehydration, deemed possibly related) were deemed to be not related or unlikely.As of February 23, 2015, this study has demonstrated that VS-6063 can be safely combined with paclitaxel inovarian cancer. 41% of patients have achieved a best overall response of at least stable disease of greater than or equalto 6 months as per RECIST guidelines in this ongoing study. Biomarker data on biopsies obtained pre‑ andpost‑treatment with VS‑6063 (400mg BID) as a single agent for 10 days shows reductions in FAK activity and decreasesin cancer stem cells. In addition, of the twenty‑two patients treated with the combination of VS‑6063 and paclitaxel,three partial responses and two complete responses have been reported as of and four patients remain on study as ofDecember 21, 2015.FIGURE 5Phase 2 study of VS‑6063 in patients with NSCLC. We are conducting a multi‑center study of single-agent VS‑6063 inpatients with recurrent NSCLC following previous chemotherapy.The Phase 2 study is designed to assess the effect of VS‑6063 on progression free survival, overall response rate,and overall survival. Fifty-three patients were enrolled at 9 sites in the US. Forty-seven patients were evaluable. Themedian number of prior lines of therapy was 3 (range 1-8). The results of this clinical trial, which were reported at the2015 World Conference on Lung Cancer, demonstrated that 16 of 44 evaluable patients (36%) met the 12 weekprogression free survival (PFS) endpoint, with one patient achieving a partial response. Median PFS was 11.7 weeks with6 patients on study for greater than 6 months. Single-agent VS-6063 was generally well tolerated and demonstratedpromising clinical activity in patients with refractory, advanced KRAS-mutated NSCLC. Adverse events considered atleast possibly related to defactinib were experienced by 41 patients (75%) and the majority of these were grade 1 or 2. Thirteen patients (24%) experienced at least possibly related grade 3-5 events. Underlying disease was a confoundingfactor. The most commonly reported treatment emergent adverse events of any grade were fatigue (28%) and nausea (36%). 15 2Table of ContentsFIGURE 6Single-agent VS-6063 achieved comparable activity to docetaxel and other investigational monotherapies,despite greater median prior lines of therapy. One patient remains on study as of December 21, 2015. These data supportfurther development of VS-6063, particularly in combination with an immunotherapy.Phase 2 trial preceding surgery in mesothelioma (Window of Opportunity). VS‑6063 is currently in anopen‑label neoadjuvant study in subjects with malignant pleural mesothelioma who are eligible for surgery.Neoadjuvant refers to the administration of VS‑6063 prior to surgery to remove the mesothelioma tumor. The purpose ofthis study is to assess biomarker responses from tumor tissue. Patients are administered VS-6063 for 12 to 35 days. Thesafety, pharmacokinetics, and tumor response rate to VS‑6063 are also being assessed.In October 2014, results from part one were presented at the International Mesothelioma Interest Group (iMig)meeting. Based upon biopsy results, treatment with VS‑6063 for 12 days reduced FAK activity by an average of 70% inevaluable post-treatment biopsies and decreases in a marker of cancer stem cells were observed in five of sevenevaluable biopsies. In addition, the results of the pre‑ and post‑treatment PET/CT scans, as measured by RECISTmodified for mesothelioma, indicated that no disease progression was observed and that reductions in tumor sizeconsistent with a partial response were observed in two patients. A waterfall plot of the tumor size measurements ispresented in Figure 7. VS-6063 was well tolerated with no apparent negative impact on surgical outcome. Part two ofthe study, where the treatment period is increased from 12 to 35 days, is currently ongoing. We expect to reportpreliminary data on this extended treatment cohort in the first half of 2016.16 Table of ContentsFIGURE 7Phase 1 clinical trial in advanced solid tumors. VS‑6063 demonstrated a good safety profile and initial signsof clinical activity in a Phase 1 trial in 46 patients with advanced solid tumors. Patients were selected on the basis of aconfirmed diagnosis of a non‑hematologic malignancy that was unresponsive to currently available therapies or forwhich no standard therapy existed. VS‑6063 was administered on a twice daily (BID) schedule and dose cohorts initiallyincluded a minimum of 3 patients. Dosing was based on flat milligram increments without adjustment for body size, thestarting dose being 12.5 mg BID in the initial cohort. Safety, activity and pharmacokinetics, the process by which a drugis absorbed, distributed and metabolized in the body, were measured. 16 of the 37 subjects enrolled, or 43%, at dosesgreater than or equal to 100 mg BID (predicted active dose) experienced stable disease as their best response totreatment. Based on safety, pharmacokinetics, and activity of VS-6063 in the Phase 1 trial, the recommended Phase 2dose was determined to be 400 mg/BID.FIGURE 8Phase 1 study of VS‑6063 in Japanese patients. In November 2014, we reported data from a Phase 1 doseescalation study of VS‑6063 as a single agent in Japanese patients. The study results showed that VS‑6063 was17 Table of Contentsgenerally well tolerated and side effects were consistent with previously reported results from our U.S. Phase 1 trial innon-Japanese patientsThe dose levels were 200, 400 or 600mg of VS‑6063 BID. No dose limiting toxicities or SAEs were observed atany dose cohort. All treatment emergent adverse events were generally mild or moderate in nature, or grade 1 or 2 asdetermined in accordance with commonly accepted terminology for adverse events, except for one subject in the 200mgBID cohort who exhibited a Grade 3 increase in serum bilirubin, defined as between 3 and 10 times the value of theupper limit of the normal laboratory range. No associated increase in aspartate transaminase (AST) or alaninetransaminase (ALT) were observed in this subject.Phase 2 study in mesothelioma (COMMAND). On September 28, 2015, we stopped enrollment in our Phase 2randomized, double-blind, placebo-controlled study (COMMAND) evaluating single-agent VS-6063 as switchmaintenance in patients with mesothelioma who had achieved disease stability after at least 4 cycles of chemotherapy.The decision to stop enrollment for futility followed a Data Safety Monitoring Board (DSMB) review of a pre-plannedinterim analysis. The results of the analysis demonstrated that VS-6063 had a generally well tolerated safety profile butthat there was not a sufficient level of efficacy to warrant continuation of the study.VS‑4718OverviewVS‑4718 is an orally‑available small molecule compound designed to inhibit FAK signaling. We areevaluating VS‑4718 as a potential therapy for multiple solid tumors.Development status of VS‑4718We are conducting both a Phase 1, single-agent, dose escalation trial of VS-4718 in patients with advancedcancers and a Phase 1, dose-escalation clinical trial evaluating 28-day cycles of VS‑4718 in combination withgemcitabine (a chemotherapy) and nab-paclitaxel (Abraxane®; a chemotherapy) in patients with advanced solid tumors.We are planning to initiate an expansion cohort during 2016 evaluating the recommended Phase 2 dose in combinationwith gemcitabine/nab-paclitaxel chemotherapy in first line pancreatic cancer. As of December 21, 2015, the MaximumTolerated Dose (MTD) had not been reached in either trial.Preclinical developmentWe are conducting a comprehensive program to study VS‑4718 as a potential treatment for cancers. Key resultsto date from preclinical studies of VS‑4718 are summarized below.Biochemical and cellular tests. In biochemical testing, VS‑4718 inhibited purified FAK and demonstrated invitro selectivity against a panel of 107 different protein kinases. In addition, in various in vitro assessments of drugeffects on CSCs, VS‑4718 exhibited potent activity and a preferential effect, or selectivity, for CSCs as compared toother types of cancer cells.FAK inhibitors produce favorable changes to immune system and decrease tumor burden. In September 2015,researchers from the University of Edinburgh published a study in the journal Cell that highlights the potential of FAKinhibition to enable the body’s immune system to fight cancer. The paper discussed results from preclinical researchshowing that FAK enables cancer cells to evade attack by the immune system. In this study, the researchers discoveredthat FAK inhibition can modulate the balance of immune cells in the tumor enabling an immune response to destroy thecancer cells. The research, which was carried out in mice with squamous cell carcinoma, showed complete T-cellmediated tumor regression when the mice were administered the FAK inhibitor VS-4718. This research is the first todemonstrate that FAK inhibition increases the presence of cytotoxic T cells in the tumor and decreases the presence ofimmunosuppressive T regulatory cells. This groundbreaking research showed that FAK inhibition can induce tumorregression through a T cell-mediated mechanism and support the approach that we are pursuing by combining our FAKinhibitors with immuno-oncology agents with the goal of yielding more durable18 Table of Contentsresponses for patients with cancer. We presented this data at the 2015 NCI/AACR/EORTC and SITC scientificconferences. See figure 3 above.FAK inhibition reduces stromal density, enabling therapies and immune cells to penetrate tumors. In October2015, we presented preclinical data (DeNardo, et al) demonstrating that FAK inhibition reduces stromal density andincreases T cell entry into the tumor. In this study, our FAK inhibitor combined with immunotherapeutic agentinhibiting PD-1/PD-L1 signaling improved long term survival in an aggressive pancreatic cancer model. These datasupport the clinical evaluation of FAK inhibitors in combination with a PD-1 or PD-L1 antibody in patients withpancreatic and other cancers. We presented this data at the 2015 NCI/AACR/EORTC and SITC scientific conferences.See figure 4 above.PI3K/mTOR Inhibition ProgramOverviewThe PI 3-kinase/mTOR pathway plays a central role in cancer cell proliferation and survival. Depending on themode of pathway activation, different PI3K isoforms and mTOR complexes have been shown to play essential roles inoncogenesis and survival of CSCs. There are four Class 1 PI3K enzymes, known as alpha, beta, gamma, and delta, andtwo mTOR complexes known as mTORC1 and mTORC2.Studies published in Nature in 2006 reported that genetic activation of the PI3K/mTOR pathway in adultblood cells led to generation of leukemia CSCs. In addition, multiple studies have shown that PI3K pathway activitycontributes to the maintenance of CSCs in breast, lung, and prostate cancers.VS‑5584OverviewVS‑5584 is an orally available small molecule that potently and selectively inhibits both PI3K and mTORC1/2signaling. A 2013 study published in Science Translational Medicine described findings that the observed resistance toPI3K‑ alpha inhibitors in breast cancer is mediated by signaling through the mTOR complex. We believe that the dualinhibition of mTORC1/2 and PI3K by VS‑5584 may provide a greater clinical benefit for patients.Development status of VS‑5584We are conducting a Phase 1, dose-escalation clinical trial of our dual PI3K/mTORC1/2 inhibitor, VS‑5584, inpatients with advanced non-hematologic malignancies or lymphoma. The dose range of 5-75mg TIW has beenevaluated and reductions in pharmacodynamic markers of PI3K and mTOR activity have been observed at many of thehigher dose levels. Preliminary signs of clinical activity have been observed and disease control of at least six monthshas been observed in some patients. A cohort of this trial is enrolling additional patients to confirm the recommendeddose for a Phase 2 trial. We are planning to initiate two expansion cohorts during 2016 to evaluate the recommendedPhase 2 dose in ovarian/endometrial cancer and non-hodgkins lymphoma (NHL) or chronic lymphocytic leukemia(CLL).A Phase 1 clinical trial of VS‑5584 in combination with VS‑6063 for patients with relapsed mesotheliomawhere the anticipated recommended VS-5584 Phase 2 dose of 55mg was combined with the 400mg BID of VS-6063 isongoing. Preclinical developmentWe are conducting a comprehensive preclinical program to study VS‑5584 as a potential treatment for cancer.Detailed results from this development were published in the January 2015 edition of the journal Cancer Research. Keyresults of this program to date are summarized below.19 Table of ContentsBiochemical testing. In biochemical testing, VS‑5584 was equipotent against all four human Class 1 PI3Kisoforms and mTOR kinase, the enzymatic component of both mTORC1 and mTORC2 (IC50 values displayed below innM). In general, the more potent a drug is, the lower the dose required for a therapeutic effect. An IC50 value measuresthe dose at which the activity of the enzyme is reduced by 50%, a commonly used measure of potency. VS‑5584 hasdemonstrated a selective effect for these kinases versus a panel of over 400 kinases.FIGURE 9In vitro killing of CSCs. In an in vitro test, SUM159 triple negative breast cancer cells were treated withVS‑5584 or paclitaxel for 4 days, and the percentage of Aldefluor‑positive CSCs was assessed. VS‑5584dose‑dependently decreased the percentage of CSCs, while paclitaxel increased the percentage of CSCs.Key results from the 2015 Cancer Research Article. The study results demonstrated that VS-5584 is up to 30-fold more potent in inhibiting the proliferation and survival of CSCs compared to non-CSCs in solid tumor cellpopulations. VS-5584 preferentially diminished CSC levels in multiple mouse xenograft models of humancancer. Similarly, VS-5584 treatment ex vivo preferentially reduced CSCs in surgically resected breast and ovarianpatient tumors. In contrast, chemotherapeutics such as paclitaxel, cisplatin, and etoposide effectively targeted bulktumor cells, but enriched CSCs. Mechanistic investigations revealed that knock down of PI3Kα, PI3Kβ or mTOR alonewas insufficient to decrease CSCs, while knock down of PI3Kα, PI3Kβ and mTOR together effectively reduced CSCsmimicking the effect of VS-5584. Consistent with CSC ablation, VS-5584 delayed tumor regrowth followingchemotherapy in mouse xenograft models of small cell lung cancer. These data help to elucidate the mechanism of VS-5584 targeting CSCs and provide a strong rationale for the clinical development of VS-5584 in combination withchemotherapeutic agents targeting bulk tumor cells to achieve more durable clinical responses in cancer patients.FIGURE 1020 Table of ContentsOUR MANAGEMENT TEAM AND SCIENTIFIC CO‑FOUNDERS AND ADVISORSOur experienced management team includes our President and Chief Executive Officer, Robert Forrester, ourChief Financial Officer, John “Jack” Green, C.P.A, and our Chief Operating Officer, Daniel Paterson.Mr. Forrester has been the chief executive officer, chief operating officer and chief financial officer of bothprivate and public life science companies, including Forma Therapeutics, Inc., CombinatoRx, Inc. and ColeyPharmaceutical Group, Inc., which was acquired by Pfizer Inc. in 2007.Mr. Paterson has over 25 years of experience in management roles at healthcare and biotechnology companies,including as chief executive officer, chief operating officer and chief business officer, and specific expertise in oncologydrug and diagnostic product development, business development, and launch planning. Mr. Paterson was Head ofGlobal Strategy for Specialty Market and Patient‑Level Data at IMS Health after playing a key role in the acquisition ofPharMetrics by IMS Health as VP, Marketing and Corporate Development.Mr. Green serves in a part-time capacity at Verastem. Prior to Verastem, he was the Senior Vice President andChief Financial Officer of GTC Biotherapeutics (formerly Genzyme Transgenics Corporation), which was spun out fromGenzyme Corporation as a stand‑alone public company and then the Vice President, Finance, of On-Q-ity. Mr. Green is aCertified Public Accountant (CPA) with over 30 years of financial experience, including 20 within the biotechnologyindustry.Our scientific co‑founders are recognized leaders in the field of cancer biology. Robert Weinberg, Ph.D.,Founding Member of the Whitehead Institute and Professor of Biology at MIT, has played a key role in identifying thegenetic basis of cancer. Dr. Weinberg discovered the first tumor oncogene, the first tumor suppressor gene, the role of aprotein related to the cell surface receptor HER2 in preclinical studies and the mechanisms underlying the formation ofCSCs. Eric Lander, Ph.D., Founding Director of the Broad Institute, Professor of Biology at MIT and Professor ofSystems Biology at Harvard Medical School, played a central role in the Human Genome Project. Collaborative researchin the labs of Dr. Lander and Dr. Weinberg developed our proprietary technology for use in the identification of drugstargeting CSCs and a genetic expression signature, useful as a biomarker, to monitor the effect of treatment.INTELLECTUAL PROPERTYWe strive to protect the proprietary technology that we believe is important to our business, including seekingand maintaining patents intended to cover our product candidates and compositions, their methods of use and processesfor their manufacture, and any other aspects of inventions that are commercially important to the development of ourbusiness. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do notconsider appropriate for, patent protection.We plan to continue to expand our intellectual property estate by filing patent applications directed tocompositions, methods of treatment and patient selection created or identified from our ongoing development of ourproduct candidates. Our success will depend on our ability to obtain and maintain patent and other proprietaryprotection for commercially important technology, inventions and know‑how related to our business, defend andenforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid andenforceable patents and proprietary rights of third parties. We also rely on know‑how, continuing technologicalinnovation and in‑licensing opportunities to develop and maintain our proprietary position. We seek to obtain domesticand international patent protection, and endeavor to promptly file patent applications for new commercially valuableinventions.The patent positions of biopharmaceutical companies like us are generally uncertain and involve complexlegal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantlyreduced before the patent is issued, and patent scope can be reinterpreted by the courts after issuance. Moreover, manyjurisdictions permit third parties to challenge issued patents in administrative proceedings, which may result in furthernarrowing or even cancellation of patent claims. We cannot predict whether the patent applications we are21 Table of Contentscurrently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents willprovide sufficient protection from competitors.Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for18 months or potentially even longer, and since publication of discoveries in the scientific or patent literature often lagsbehind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications.Moreover, we may have to participate in interference proceedings or derivation proceedings declared by the UnitedStates Patent and Trademark Office to determine priority of invention.PatentsOur patent portfolio includes issued and pending applications worldwide. These patent applications fall intofour categories: (1) FAK inhibitor program; (2) PI3K/mTOR inhibitor program; (3) Wnt inhibitor program; and (4) otherprograms.FAK inhibitor programWe are currently developing the following FAK inhibitors: VS‑6063 and VS‑4718.VS‑6063We have exclusively licensed a portfolio of patent applications owned by Pfizer, which are directed to FAKinhibitor compounds and methods of their use, for example in cancer. One patent family is related generally to VS‑6063.This patent family includes issued patents having claims covering VS‑6063 generically and specifically. For example,US 7,928,109 covers the composition of matter of VS‑6063 specifically and US 8,247,411 covers the composition ofmatter of VS‑6063 generically. Also included are issued and pending patent applications having claims directed tomethods of treatment and methods of making VS‑6063. For example, US 8,440,822 covers methods of making VS‑6063.Any U.S. patents that have issued or will issue in this family will have a statutory expiration date in April of 2028.Related cases are pending worldwide, including for example in Europe, Brazil, Thailand, Hong Kong, and India, andgranted in Australia, Mexico, Canada, China, Korea, Israel, New Zealand, South Africa, Singapore, Taiwan, and Japan.In addition to the issued and pending patent applications exclusively licensed from Pfizer, we own two patentfamilies covering VS‑6063. One family is directed to compositions (e.g., oral dosage forms) of VS‑6063 and certainmethods of use. Any U.S. patents that will issue in this family will have a statutory expiration date in January of 2035.Another family is directed to methods of using a FAK inhibitor, such as VS‑6063 in combination with a MEK inhibitorfor treating a subject. Any U.S. patents that will issue in this family will have a statutory expiration date in February of2035.Our licensed portfolio of patent applications from Pfizer also includes four families of patent applicationsdirected to VS‑6062 and related methods of use. The patent families include issued and pending patent applicationshaving claims directed to VS‑6062, methods of manufacture, and pharmaceutical salts. Patents have issued in thesefamilies in the U.S. that will expire in the December of 2023, April of 2025, and November of 2028, respectively.Related cases have been granted worldwide, including for example in Australia, Canada, China, Japan, and Europe.VS‑4718We have exclusively licensed a family of patent applications owned by the Scripps Research Institute, which isdirected to VS‑4718 and related methods of use. For example, US 8,501,763 covers the composition of matter ofVS‑4718. The statutory expiration of any patent that has issued or will issue pertaining to VS‑4718 has or will have astatutory expiration date in March of 2028. Related cases are pending worldwide, including for example in China andCanada. The patent has also been allowed in Japan and Europe.22 Table of ContentsWe also own two families of patent applications directed to VS‑4718 formulations and methods of manufacture.Any patents that will issue in either of these families will have a statutory expiration date in June of 2031.PI3K/mTOR inhibitor programWe own, through acquisition from S*Bio, a portfolio of patent applications covering VS‑5584 and relatedmethods of use, including two families of patent applications. One family covers VS‑5584 generically and has astatutory expiration date in October of 2028. For example, US 8,247,410 covers the composition of matter of VS‑5584generically and US 8,609,838 covers methods of synthesis of VS‑5584. The other family covers VS‑5584 specifically. Inthe U.S., the composition of matter of VS‑5584 is covered specifically in US 8,754,080 and will expire at the same timeas the first family. Also included are issued and pending patent applications having claims directed to methods oftreatment and methods of making VS‑5584. A related case in Europe has also been allowed and been validated inGermany, Denmark, Spain, Finland, France, the United Kingdom, Ireland, Italy, the Netherlands, and Sweden.In addition, we own one patent family directed to a clinical dosing protocol for VS‑5584. Any patents that willissue in this family will have a statutory expiration date in December of 2035.Wnt inhibitor programWe have exclusively licensed a portfolio of patent applications owned by Broad, Whitehead and Harvard. Thefamily also includes claims covering: methods of identifying compounds that inhibit the growth or survival of CSCs,methods of identifying CSCs and methods of treating cancer, including methods of selecting courses of treatment forcancer therapy, for example, based on the presence of a biomarker. Any U.S. or EU patents that may issue from thisapplication will have a statutory expiration date in April of 2029.OtherWe own or have licenses on five families of patent applications directed to methods of selecting patients andpredicting patient response. We own two of such patent families, both of which have a statutory expiration date inMarch of 2033. We license three of such patent families, which have statutory expirations of March of 2025, June of2026, and August of 2031. We also exclusively license a patent application that includes claims covering: methods ofidentifying CSCs, in vitro methods of creating CSCs, for example through activation of the epithelial to mesenchymaltransition (EMT) process, progenitor cells and uses for those cells, methods of determining the metastatic potential of atumor, and methods of diagnosing, preventing and treating cancer metastasis. Any U.S. patents that may issue from thisapplication would have a statutory expiration date in 2026.Patent TermThe base term of a United States patent is 20 years from the filing date of the earliest‑filed non‑provisionalpatent application from which the patent claims priority. The term of a United States patent can be lengthened by patentterm adjustment, which compensates the owner of the patent for administrative delays at the USPTO. In some cases, theterm of a United States patent is shortened by terminal disclaimer that reduces its term to that of an earlier‑ expiringpatent.The term of a United States patent may be eligible for patent term extension under the Drug Price Competitionand Patent Term Restoration Act of 1984, referred to as the Hatch‑Waxman Act, to account for at least some of the timethe drug is under development and regulatory review after the patent is granted. With regard to a drug for which FDAapproval is the first permitted marketing of the active ingredient, the Hatch‑Waxman Act allows for extension of theterm of one United States patent that includes at least one claim covering the composition of matter of an FDA‑approveddrug, an FDA‑approved method of treatment using the drug, and/or a method of manufacturing the FDA‑ approved drug.The extended patent term cannot exceed the shorter of five years beyond the non‑extended expiration of the patent or14 years from the date of the FDA approval of the drug. Some foreign jurisdictions, including Europe and Japan, haveanalogous patent term extension provisions, which allow for23 Table of Contentsextension of the term of a patent that covers a drug approved by the applicable foreign regulatory agency. In the future,if and when our pharmaceutical products receive FDA approval, we expect to apply for patent term extension on patentscovering those products, their methods of use, and/or methods of manufacture.LICENSESWhitehead Institute for Biomedical ResearchDrug discovery platform license agreementIn October 2010, we entered into an exclusive license agreement with the Whitehead Institute, both on its ownbehalf and as sole and exclusive agent of Harvard and MIT, or the drug discovery platform license agreement, which weamended and restated in January 2012. Under the drug discovery platform license agreement, we acquired an exclusive,royalty‑bearing, worldwide license under patent rights owned by the Whitehead Institute, Harvard and MIT to develop,make, use and sell products covered by the licensed patent rights for use in treating cancer, and to develop and performlicensed processes, in each case, for all human therapeutic, prognostic and diagnostic uses.We are required to use commercially reasonable efforts to develop and commercialize licensed products underthe agreement. In particular, we are required to fulfill specific development and regulatory milestones by particular datesand, during each calendar year, either spend a specified amount for research and development, actively conduct one ormore clinical trials for a licensed product or a product identified using a licensed process that does not constitute alicensed product, which we refer to as an identified product, prepare, file or pursue a filed application for regulatoryapproval of a licensed product or an identified product, or launch or sell a licensed product or identified product.Under the agreement, we paid the Whitehead Institute an upfront license fee and reimbursed patent related feesand costs incurred by the Whitehead Institute, Harvard and MIT totaling $104,000 in the aggregate and issued 166,664shares of our common stock to the Whitehead Institute and entities and individuals affiliated with the WhiteheadInstitute.We also agreed to pay the Whitehead Institute annual license maintenance fees, milestone payments, royaltiesas a percentage of net sales and a percentage of sublicense income that we receive. Annual license maintenance fees arecreditable against royalties, which are described below, earned during the same calendar year. Milestone payments aretriggered upon the achievement of specified development, regulatory and commercialization milestones and are notcreditable against the royalties described below. For each licensed product, we agreed to make milestone payments of upto an aggregate of $1,560,000 plus an additional amount for each subsequent approval of additional indications for amaximum number of licensed products. For each identified product that is not a licensed product, we agreed to makemilestone payments of up to an aggregate of $815,000 plus an additional amount for each subsequent approval ofadditional indications for a maximum number of identified products. Each type of specified milestone payment ispayable only for each of the maximum number of licensed products and the maximum number of identified products, asthe case may be, to achieve the applicable milestone. In addition, a separate milestone payment is due upon the firstcommercial sale of each licensed product or identified product that is a diagnostic or prognostic test. A single additionalmilestone payment is due for the first issuance of licensed patent rights in the United States, the United Kingdom,France, Germany, Spain or Italy. The royalty rate is in the low single digits as a percentage of net sales for licensedproducts that are therapeutics, the mid single digits for licensed products that are diagnostics or prognostics and lessthan one percent for identified products.The Whitehead Institute, Harvard and MIT retain the right to, and may grant licenses to other academic andnon‑profit institutions for the right to, practice the licensed patent rights for research, teaching and educationalpurposes. The Whitehead Institute, Harvard, MIT or any such other institution could seek to license to third parties anyintellectual property rights that it discovers using the licensed patent rights while pursuing these purposes. Under theagreement, we have a right, subject to the Whitehead Institute’s obligations under third party research fundingagreements, to negotiate a license for any compounds identified prior to a specified date in the Whitehead Institute’slaboratory run by Dr. Weinberg that selectively target CSCs generated by induction through the EMT.24 Table of ContentsAfter a specified period of time, if a third party requests to sublicense the patent rights for a product or processthat is not directly competitive with our products or processes, we must enter into good‑faith negotiations to grant asublicense for such proposed product or process. If we do not grant a sublicense within a specified period of time afterreceiving a written request, the Whitehead Institute may grant a license to the third party and our rights in the field ofuse of such sublicense will terminate. Additionally, after a specified period of time, if we are not actively conductinghigh‑throughput screening using the licensed patent rights to identify product candidates, then, except for any rightsdirected to uses that we are actively developing, the Whitehead Institute may convert our license to the licensed patentrights from exclusive to non‑exclusive.We have the right to terminate the agreement for any reason upon at least 90 days’ prior written notice. TheWhitehead Institute has the right to terminate the agreement if we and all of our sublicensees cease to carry on businessrelated to the agreement for a specified period of time, we fail to pay any amounts due and payable under the agreementto the Whitehead Institute, subject to a grace period, we materially breach the agreement and fail to cure such breachwithin a specified grace period or we or a sublicensee challenge the licensed patent rights in a legal or administrativeproceeding. The agreement otherwise terminates upon the expiration or abandonment of all licensed patents and patentapplications.Cancer diagnostic license agreementIn October 2010, we entered into a separate license agreement with the Whitehead Institute, or the cancerdiagnostic license agreement, under which we acquired a non‑exclusive, worldwide license to patent rights owned bythe Whitehead Institute for research purposes. In December 2011, we amended and restated this agreement with theWhitehead Institute. Under the amended and restated cancer diagnostic license agreement, we acquired an exclusive,royalty‑bearing, worldwide license under these patent rights to develop, make, use and sell products covered by thelicensed patent rights and to develop and perform services using a licensed product or the practice of the licensed patentrights for or on behalf of a third party, in each case, for cancer diagnostics and companion clinical uses.Under the agreement, we paid the Whitehead Institute upfront license fees and reimbursed patent related feesand costs incurred by the Whitehead Institute totaling $70,000 in the aggregate. We also agreed to pay the WhiteheadInstitute annual license maintenance fees, milestone payments, royalties as a percentage of net sales and a percentage ofsublicense income that we receive. Annual license maintenance fees are creditable against royalties, which are describedbelow, earned during the same calendar year. Milestone payments of up to an aggregate of $825,000 are triggered uponthe achievement of specified regulatory and commercialization milestones and are not creditable against the royaltiesdescribed below. The royalty rate is in the mid‑single digits as a percentage of net sales.If we are required to pay royalties to a third party in consideration of a license or similar right in order to make,use or sell a licensed product or licensed service, then we may deduct up to 50% of the amounts paid to such third party,subject to specified limitations, from the payments that we owe to the Whitehead Institute for such licensed product orlicensed service.We are required to use commercially reasonable efforts to develop and commercialize licensed products orlicensed services under the agreement. In particular, we are required to fulfill specific development, regulatory andcommercialization milestones by particular dates and to commit a specified number of full time staff equivalents towardthe development of a licensed product or licensed service until the first commercial sale of a licensed product orperformance of a licensed service.The Whitehead Institute retains the right to, and may grant licenses to other academic and non‑profitinstitutions for the right to, practice the licensed patent rights for research, teaching and educational purposes. TheWhitehead Institute or any such other institution could seek to license to third parties any intellectual property rightsthat it discovers using the licensed patent rights while pursuing these purposes.After a specified period of time, if a third party requests to sublicense the patent rights for a product or servicethat is not directly competitive with our products or services, we must enter into good‑faith negotiations to grant asublicense for such proposed product or service. If we do not grant such a sublicense within a specified25 Table of Contentsperiod of time after receiving a written request, the Whitehead Institute may grant a license to the third party and ourrights in the field of use of such sublicense will terminate. Additionally, after a specified period of time, if the market isnot being reasonably served by us, as determined by the Whitehead Institute, and a third party requests to sublicense thepatent rights for a product or service that is directly competitive with our products or services, we must enter intogood‑faith negotiations to grant a sublicense for such proposed product or service. If we do not grant such a sublicensewithin a specified period of time after receiving a written request, we and the Whitehead Institute have agreed tomutually select a qualified independent third party to set commercially reasonable terms and conditions consistent withsimilar technology in the industry under which we would sublicense our rights for such proposed product or service tothe third party. Additionally, after a specified period of time, if we are not actively conducting efforts to validate, use orcommercialize a license product or licensed service, then the Whitehead Institute may convert our license to thelicensed patent rights from exclusive to nonexclusive.We have the right to terminate the agreement for any reason upon at least 90 days’ prior written notice. TheWhitehead Institute has the right to terminate the agreement if we and all of our sublicensees cease to carry on businessrelated to the agreement for a specified period of time, we fail to pay any amounts due and payable under the agreementto the Whitehead Institute, subject to a grace period, we materially breach the agreement and fail to cure such breachwithin a specified grace period or we or a sublicensee challenge the licensed patent rights in a legal or administrativeproceeding. The agreement otherwise terminates upon the expiration or abandonment of all licensed patents and patentapplications.The Scripps Research InstituteIn November 2011, we entered into a license agreement with Poniard Pharmaceuticals, Inc. (Poniard), underwhich we acquired an exclusive, worldwide license under patent rights and know‑how owned or controlled by Poniardto develop, make, use and sell compounds and products covered by the licensed patent rights for the diagnosis,treatment, prevention or control of all human diseases and conditions. These licensed patent rights include patent rightsowned by The Scripps Research Institute (Scripps), and licensed to Poniard. Under the agreement, we paid Poniard anupfront license fee and agreed to pay Poniard milestone payments upon the achievement of specified development andregulatory milestones.On August 2, 2013, patents and other rights which were the subject of our license agreement with Poniard weresold to Encarta, Inc. (Encarta). We purchased these assets from Encarta in an asset purchase agreement datedFebruary 21, 2014 and also entered into a securities issuance agreement. Under the terms of these agreements, we issued97,500 shares of common stock, issued a warrant to purchase 142,857 shares of common stock with an exercise priceequal to $17.16 per share and paid Encarta $25,000. All existing obligations under the license agreement, including anachieved development milestone and an obligation to issue a warrant, were settled as part of this transaction.In connection with the asset purchase agreement, we also assumed the rights and obligations under the licenseagreement by and between Scripps and Poniard, dated May 5, 2008 (the Scripps License Agreement). Pursuant to theScripps License Agreement, we acquired an exclusive, worldwide license under patent rights owned or controlled byScripps to make and have made, to use and have used, to offer to sell, to sell and have sold, and import products coveredby the licensed patent rights for the diagnosis, treatment or prevention of human diseases or conditions. The licensedpatent rights include patents covering our product candidate VS‑4718. Under the Scripps License Agreement, Scrippsretains the right to grant non‑exclusive licenses to nonprofit or academic institutions, without the right to sublicenseand to use any of the licensed patent rights for any noncommercial research or education purposes.Pursuant to the Scripps License Agreement, we are obligated to pay Scripps potential product developmentmilestone payments of up to an aggregate of $3,000,000 upon the achievement of specified development and regulatorymilestones. In addition, we are obligated to pay Scripps low single‑digit royalties as a percentage of net sales of licensedproducts. Our obligation to pay royalties on net sales is on a country by country basis. In the event that we challenge apatent or patent application covered by the Scripps License Agreement, our royalties will increase by fifty percentduring the pendency of the challenge (and increase by one hundred percent in the event the challenge is not successful).We also forfeit the right to recoup any royalties, sublicense payments, milestone26 Table of Contentspayments, patent costs or other payments during the period of any challenge to the patents covered under the ScrippsLicense Agreement.If we license or acquire technology from a third party in order to commercialize a licensed product and to paysuch third party royalties or other amounts, then we may deduct up to 50% of the amount paid to such third party fromthe payments owed to Scripps for such licensed product. This deduction is subject to specified limitations, includingthat in no event will any such deduction reduce a payment that we owe to Scripps to less than 50% of the otherwiseapplicable amount.We are required to use reasonable and diligent efforts to commercialize (directly or through sublicensearrangements) licensed products (including our product candidate VS‑4718) in either the United States, the UnitedKingdom, France, Germany or Japan.The Scripps License Agreement expires upon the last expiration of any of the licensed patent rights. We havethe right to terminate the Scripps License Agreement or any portion of our licensed rights under the Scripps LicenseAgreement for any reason upon at least 90 days prior written notice and payment of a low five‑figure termination fee. Weare not responsible for the termination fee if Scripps defaults in the performance of its material obligations and fails tocure. Scripps can terminate the Scripps License Agreement for certain material breaches by us or defaults in ourperformance of material obligations.Pfizer Inc.On July 11, 2012, we entered into a license agreement with Pfizer under which Pfizer granted us worldwide,exclusive rights to research, develop, manufacture and commercialize products containing certain of Pfizer’s inhibitorsof focal adhesion kinase, including VS‑6063, for all therapeutic, diagnostic and prophylactic uses in humans. We havethe right to grant sublicenses under the foregoing licensed rights, subject to certain restrictions. We are solelyresponsible, at our own expense, for the clinical development of these products, which is to be conducted in accordancewith an agreed‑upon development plan. We are also responsible for all manufacturing and commercialization activitiesat our own expense. Pfizer provided us with an initial quantity of clinical supplies of one of the products for an agreedupon price.Upon entering into the license agreement, we made a one‑time cash payment to Pfizer in the amount of$1.5 million and issued 192,012 shares of our common stock. Pfizer is also eligible to receive up to $2 million indevelopmental milestones and up to an additional $125 million based on the successful attainment of regulatory andcommercial sales milestones. Pfizer is also eligible to receive high single to mid double digit royalties on future netsales of the products. Our royalty obligations with respect to each product in each country begin on the date of firstcommercial sale of the product in that country, and end on the later of 10 years after the date of first commercial sale ofthe product in that country or the date of expiration or abandonment of the last claim contained in any issued patent orpatent application licensed by Pfizer to us that covers the product in that country.The license agreement will remain in effect until the expiration of all of our royalty obligations to Pfizer,determined on a product‑by‑product and country‑by‑country basis. So long as we are not in breach of the licenseagreement, we have the right to terminate the license agreement at will on a product‑by‑product and country‑by‑countrybasis, or in its entirety, upon 90 days written notice to Pfizer. Either party has the right to terminate the licenseagreement in connection with an insolvency event involving the other party or a material breach of the licenseagreement by the other party that remains uncured for a specified period of time. If the license agreement is terminatedby either party for any reason, worldwide rights to the research, development, manufacture and commercialization of theproducts revert back to Pfizer.COMPETITIONThe biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intensecompetition and a strong emphasis on proprietary products. While we believe that our technology, developmentexperience and scientific knowledge provide us with competitive advantages, we face potential competition from manydifferent sources, including major pharmaceutical, specialty pharmaceutical and27 Table of Contentsbiotechnology companies, academic institutions and governmental agencies and public and private researchinstitutions. Any product candidates that we successfully develop and commercialize will compete with existingtherapies and new therapies that may become available in the future.There are other companies working to develop therapies to treat cancer including some who also target CSCs.These companies include divisions of large pharmaceutical companies including Astellas Pharma Inc., Celgene, Inc.,Sanofi‑Aventis U.S. LLC, GlaxoSmithKline plc, Boehringer Ingelheim GmbH, Pfizer Inc. and others. There are alsobiotechnology companies of various sizes that are developing therapies against CSCs, including OncoMedPharmaceuticals, Inc., Boston Biomedical Inc. (a division of Dainippon Sumitomo Corp), Stemline Therapeutics, Inc.and others.Many of our competitors may have significantly greater financial resources and expertise in research anddevelopment, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals andmarketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology anddiagnostic industries may result in even more resources being concentrated among a smaller number of our competitors.These competitors also compete with us in recruiting and retaining qualified scientific and management personnel andestablishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologiescomplementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significantcompetitors, particularly through collaborative arrangements with large and established companies.The key competitive factors affecting the success of all of our product candidates, if approved, are likely to betheir efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement fromgovernment and other third‑party payors.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercializeproducts that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensivethan any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for theirproducts more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strongmarket position before we are able to enter the market. In addition, our ability to compete may be affected in many casesby insurers or other third‑party payors seeking to encourage the use of generic products. There are many genericproducts currently on the market for the indications that we are pursuing, and additional products are expected tobecome available on a generic basis over the coming years. If our therapeutic product candidates are approved, weexpect that they will be priced at a significant premium over competitive generic products.The most common methods of treating patients with cancer are surgery, radiation and drug therapy, includingchemotherapy, hormone therapy and targeted drug therapy. There are a variety of available drug therapies marketed forcancer. In many cases, these drugs are administered in combination to enhance efficacy. While our product candidatesmay compete with many existing drug and other therapies, to the extent they are ultimately used in combination with oras an adjunct to these therapies, our product candidates will not be competitive with them. Some of the currentlyapproved drug therapies are branded and subject to patent protection, and others are available on a generic basis. Manyof these approved drugs are well established therapies and are widely accepted by physicians, patients and third‑partypayors. In general, although there has been considerable progress over the past few decades in the treatment of cancerand the currently marketed therapies provide benefits to many patients, these therapies all are limited to some extent intheir efficacy and frequency of adverse events, and none of them are successful in treating all patients. As a result, thelevel of morbidity and mortality from cancer remains high.In addition to currently marketed therapies, there are also a number of products in late stage clinicaldevelopment to treat cancer. These products in development may provide efficacy, safety, convenience and otherbenefits that are not provided by currently marketed therapies. As a result, they may provide significant competition forany of our product candidates for which we obtain market approval.MANUFACTURINGWe do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currentlyrely, and expect to continue to rely, on third parties for the manufacture of our product candidates and any28 Table of Contentsproducts that we may develop, other than small amounts of compounds that we may synthesize ourselves for preclinicaltesting. To date, we have obtained starting materials for our supply of the bulk drug substance for our productcandidates from third‑party manufacturers. We obtain our supplies from these manufacturers on a purchase order basisand do not have a long‑term supply arrangement in place. We do not currently have arrangements in place for redundantsupply or a second source for bulk drug substance. If our current third‑party manufacturers should become unavailableto us for any reason, we believe that there are several potential replacements, although we might incur some delay inidentifying and qualifying such replacements.All of our drug candidates are organic compounds of low molecular weight, generally called small molecules.We select compounds not only on the basis of their potential efficacy and safety, but also for their ease of synthesis andreasonable cost of their starting materials. We expect to continue to develop drug candidates that can be producedcost‑effectively at third‑party manufacturing facilities.GOVERNMENT REGULATIONGovernment authorities in the United States, at the federal, state and local level, and in other countriesextensively regulate, among other things, the research, development, testing, manufacture, including any manufacturingchanges, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post‑approvalmonitoring and reporting, import and export of pharmaceutical products, such as those we are developing.United States drug approval processIn the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (FDCA), thePublic Health Service Act and implementing regulations. The process of obtaining regulatory approvals and thesubsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires theexpenditure of substantial time and financial resources. Failure to comply with the applicable United Statesrequirements at any time during the product development process, approval process or after approval, may subject anapplicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending applications,withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures,total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution,disgorgement of profits or civil or criminal penalties.The process required by the FDA before a drug may be marketed in the United States generally involves thefollowing:·completion of preclinical laboratory tests, animal studies and formulation studies in compliance with theFDA’s good laboratory practice (GLP) regulations;·submission to the FDA of an investigational new drug (IND) application, which must become effectivebefore human clinical trials may begin;·approval by an independent institutional review board (IRB) at each clinical site before each trial may beinitiated;·performance of adequate and well‑controlled human clinical trials in accordance with good clinicalpractices (GCP) to establish the safety and efficacy of the proposed drug for each indication;·submission to the FDA of a new drug application (NDA);·satisfactory completion of an FDA advisory committee review, if applicable;29 Table of Contents·satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which theproduct is produced to assess compliance with current good manufacturing practices (cGMP) requirementsand to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength,quality and purity; and·FDA review and approval of the NDA.Preclinical studiesPreclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro andanimal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use.The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. An INDsponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, anyavailable clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. Somelong‑term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continueafter the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before thattime the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinicalhold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial canbegin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.Clinical trialsClinical trials involve the administration of the investigational new drug to human subjects under thesupervision of qualified investigators in accordance with GCP requirements, which include, among other things, therequirement that all research subjects provide their informed consent in writing before their participation in any clinicaltrial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of thestudy, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for eachclinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, anIRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before itcommences at that institution, and the IRB must conduct continuing review. The IRB must review and approve, amongother things, the study protocol and informed consent information to be provided to study subjects. An IRB mustoperate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specifictimeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:·Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease orcondition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, ifpossible, to gain an early indication of its effectiveness.·Phase 2: The drug is administered to a limited patient population to identify possible adverse effects andsafety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and todetermine dosage tolerance and optimal dosage.·Phase 3: The drug is administered to an expanded patient population in adequate and well‑controlledclinical trials to generate sufficient data to statistically confirm the efficacy and safety of the product forapproval, to establish the overall risk‑benefit profile of the product and to provide adequate informationfor the labeling of the product.Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA andmore frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completedsuccessfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or30 Table of Contentsterminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposedto an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution ifthe clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associatedwith unexpected serious harm to patients.Marketing approvalAssuming successful completion of the required clinical testing, the results of the preclinical and clinicalstudies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposedlabeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product forone or more indications. Under federal law, the submission of most NDAs is additionally subject to a substantialapplication user fee, currently exceeding $2.3 million, and the sponsor of an approved NDA is also subject to annualproduct and establishment user fees, currently exceeding $110,000 per product and $560,000 per establishment. Thesefees are typically increased annually.The FDA conducts a preliminary review of all NDAs within the first 60 days after submission before acceptingthem for filing to determine whether they are sufficiently complete to permit substantive review. The FDA may requestadditional information rather than accept an NDA for filing. In this event, the application must be resubmitted with theadditional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Oncethe submission is accepted for filing, the FDA begins an in‑depth substantive review. The FDA has agreed to specifiedperformance goals in the review of NDAs. Under these goals, the FDA has committed to review most such applicationsfor non‑priority products within 10 months after accepting the application for filing, and most applications for priorityreview products, that is, drugs that the FDA determines represent a significant improvement over existing therapy,within six months after accepting the application for filing. The review process may be extended by the FDA for threeadditional months to consider certain information or clarification regarding information already provided in thesubmission. The FDA may also refer applications for novel drugs or products that present difficult questions of safety orefficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluationand a recommendation as to whether the application should be approved. The FDA is not bound by therecommendations of an advisory committee, but it considers such recommendations carefully when making decisions.Before approving an NDA, the FDA typically will inspect the facility or facilities where the product ismanufactured. The FDA will not approve an application unless it determines that the manufacturing processes andfacilities are in compliance with cGMP requirements and adequate to assure consistent production of the product withinrequired specifications. In addition, before approving an NDA, the FDA will typically inspect one or more clinical sitesto assure compliance with GCP and integrity of the clinical data submitted.The testing and approval process requires substantial time, effort and financial resources, and each may takemany years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible tovarying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on atimely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to develop our productcandidates and secure necessary governmental approvals, which could delay or preclude us from marketing ourproducts.After the FDA’s evaluation of the NDA and inspection of the manufacturing facilities, the FDA may issue anapproval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug withspecific prescribing information for specific indications. A complete response letter generally outlines the deficienciesin the submission and may require substantial additional testing or information in order for the FDA to reconsider theapplication. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA,the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six monthsdepending on the type of information included. Even with submission of this additional information, the FDAultimately may decide that the application does not satisfy the regulatory criteria for approval and refuse to approve theNDA.Even if the FDA approves a product, it may limit the approved indications for use for the product, require thatcontraindications, warnings or precautions be included in the product labeling, require that post‑approval31 Table of Contentsstudies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing andsurveillance programs to monitor the product after commercialization, or impose other conditions, includingdistribution restrictions or other risk management mechanisms, which can materially affect the potential market andprofitability of the product. The FDA may prevent or limit further marketing of a product based on the results ofpost‑market studies or surveillance programs. After approval, some types of changes to the approved product, such asadding new indications, manufacturing changes and additional labeling claims, are subject to further testingrequirements and FDA review and approval.Fast track designationThe FDA is required to facilitate the development and expedite the review of drugs that are intended for thetreatment of a serious or life‑threatening condition for which there is no effective treatment and which demonstrate thepotential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drugcandidate may request the FDA to designate the product for a specific indication as a fast track product concurrent withor after the filing of the IND for the product candidate. The FDA must determine if the product candidate qualifies forfast track designation within 60 days after receipt of the sponsor’s request.In addition to other benefits, such as the ability to use surrogate endpoints and have greater interactions withthe FDA, the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. Thisrolling review is available if the applicant provides and the FDA approves a schedule for the submission of theremaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing afast track application does not begin until the last section of the NDA is submitted. In addition, the fast trackdesignation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by dataemerging in the clinical trial process.Priority reviewUnder FDA policies, a product candidate may be eligible for priority review, or review within a six‑month timeframe from the time a complete application is accepted for filing. Products regulated by the FDA’s Center for DrugEvaluation and Research (CDER) are eligible for priority review if they provide a significant improvement compared tomarketed products in the treatment, diagnosis or prevention of a disease. A fast track designated product candidatewould ordinarily meet the FDA’s criteria for priority review.Accelerated approvalUnder the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious or life‑threateningillness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogateendpoint that is reasonably likely to predict clinical benefit. In clinical trials, a surrogate endpoint is a measurement oflaboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels,functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. Aproduct candidate approved on this basis is subject to rigorous post‑marketing compliance requirements, including thecompletion of Phase 4 or post‑approval clinical trials to confirm the effect on the clinical endpoint. Failure to conductrequired post‑approval studies, or confirm a clinical benefit during post‑marketing studies, would allow the FDA towithdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved underaccelerated regulations are subject to prior review by the FDA.Orphan drugsUnder the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a raredisease or condition, which is generally defined as a disease or condition that affects fewer than 200,000 individuals inthe United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphandrug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA.Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review andapproval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particulardisease with FDA orphan drug designation is entitled to a seven‑year exclusive marketing period in the32 Table of ContentsUnited States for that product, for that indication. During the seven‑year exclusivity period, the FDA may not approveany other applications to market the same drug for the same orphan indication, except in limited circumstances, such asa showing of clinical superiority to the product with orphan drug exclusivity in that it is shown to be safer, moreeffective or makes a major contribution to patient care. Orphan drug exclusivity does not prevent the FDA fromapproving a different drug for the same disease or condition, or the same drug for a different disease or condition.Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDAapplication user fee.Pediatric informationUnder the Pediatric Research Equity Act of 2003, as amended and reauthorized by the Food and DrugAdministration Amendments Act of 2007 (FDAAA), an NDA or supplement to an NDA must contain data that areadequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatricsubpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safeand effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission ofsome or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatricdata requirements. Unless otherwise required by regulation, the pediatric data requirements do not apply to productswith orphan drug designation.The Hatch‑Waxman actAbbreviated new drug applicationsIn seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent withclaims that cover the applicant’s product or a method of using the product. Upon approval of a drug, each of the patentslisted in the application for the drug is then published in the FDA’s Approved Drug Products with TherapeuticEquivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be citedby potential competitors in support of approval of an abbreviated new drug application (ANDA). Generally, an ANDAprovides for marketing of a drug product that has the same active ingredients in the same strengths, dosage form androute of administration as the listed drug and has been shown to be bioequivalent through in vitro or in vivo testing orotherwise to the listed drug. ANDA applicants are not required to conduct or submit results of preclinical or clinical teststo prove the safety or effectiveness of their drug product, other than the requirement for bioequivalence testing. Drugsapproved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substitutedby pharmacists under prescriptions written for the original listed drug.The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product inthe FDA’s Orange Book, except for patents covering methods of use for which the ANDA applicant is not seekingapproval. Specifically, the applicant must certify with respect to each patent that:·the required patent information has not been filed;·the listed patent has expired;·the listed patent has not expired, but will expire on a particular date and approval is sought after patentexpiration; or·the listed patent is invalid, unenforceable or will not be infringed by the new product.A certification that the new product will not infringe the already approved product’s listed patents or that suchpatents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listedpatents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not beapproved until all the listed patents claiming the referenced product have expired.33 Table of ContentsIf the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also sendnotice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing bythe FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of theParagraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IVcertification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the NDA orpatent holder’s receipt of the Paragraph IV certification, expiration of the patent, settlement of the lawsuit or a decisionin the infringement case that is favorable to the ANDA applicant.The ANDA also will not be approved until any applicable non‑patent exclusivity period, such as exclusivityfor obtaining approval of a new chemical entity, for the referenced product has expired. Federal law provides a period offive years following approval of a drug containing no previously approved active moiety during which ANDAs forgeneric versions of those drugs cannot be submitted unless the submission contains a Paragraph IV challenge to a listedpatent, in which case the submission may be made four years following the original product approval. Federal lawprovides for a period of three years of exclusivity during which the FDA cannot grant effective approval of an ANDA forthe conditions of use covered by the exclusivity, but FDA requires as a condition of approval new clinical trialsconducted by or for the sponsor. This three‑year exclusivity period often protects changes to a previously approved drugproduct, such as a new dosage form, route of administration, combination or indication. Under the Best Pharmaceuticalsfor Children Act, federal law also provides that periods of patent and non‑patent marketing exclusivity listed in theOrange Book for a drug may be extended by six months if the NDA sponsor conducts pediatric studies identified by theFDA in a written request. For written requests issued by the FDA after September 27, 2007, the date of enactment of theFDAAA, the FDA must grant pediatric exclusivity no later than nine months prior to the date of expiration of patent ornon‑patent exclusivity in order for the six‑month pediatric extension to apply to that exclusivity period.Section 505(b)(2) new drug applicationsMost drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is aspecial type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, onthe FDA’s previous approval of a similar product, or published literature, in support of its application.505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new usesof previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the informationrequired for approval comes from studies not conducted by or for the applicant and for which the applicant has notobtained a right of reference. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval isscientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product.The FDA may also require companies to perform additional studies or measurements to support the change from theapproved product. The FDA may then approve the new product candidate for all or some of the label indications forwhich the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2)applicant.To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approvedproduct, the applicant is required to certify to the FDA concerning any patents listed for the approved product in theOrange Book to the same extent that an ANDA applicant would. As a result, approval of a 505(b)(2) NDA can be stalleduntil all the listed patents claiming the referenced product have expired, until any non‑patent exclusivity, such asexclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product hasexpired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2)applicant.Combination productsThe FDA regulates combinations of products that cross FDA centers, such as drug, biologic or medical devicecomponents that are physically, chemically or otherwise combined into a single entity, as a combination product. TheFDA center with primary jurisdiction for the combination product will take the lead in the premarket review of theproduct, with the other center consulting or collaborating with the lead center.34 Table of ContentsThe FDA’s Office of Combination Products (OCP) determines which center will have primary jurisdiction forthe combination product based on the combination product’s “primary mode of action.” A mode of action is the meansby which a product achieves an intended therapeutic effect or action. The primary mode of action is the mode of actionthat provides the most important therapeutic action of the combination product, or the mode of action expected to makethe greatest contribution to the overall intended therapeutic effects of the combination product.Often it is difficult for the OCP to determine with reasonable certainty the most important therapeutic action ofthe combination product. In those difficult cases, the OCP will consider consistency with other combination productsraising similar types of safety and effectiveness questions, or which center has the most expertise to evaluate the mostsignificant safety and effectiveness questions raised by the combination product.A sponsor may use a voluntary formal process, known as a Request for Designation, when the productclassification is unclear or in dispute, to obtain a binding decision as to which center will regulate the combinationproduct. If the sponsor objects to that decision, it may request that the agency reconsider that decision.Overview of FDA regulation of companion diagnosticsWe are developing in vitro companion diagnostics for use in selecting the patients that we believe will respondto our cancer therapeutics.FDA officials have issued guidance that address issues critical to developing in vitro companion diagnostics,such as biomarker qualification, establishing clinical validity, the use of retrospective data, the appropriate patientpopulation and when the FDA will require that the device and the drug be approved simultaneously. The guidanceissued in August 2014 states that if safe and effective use of a therapeutic product depends on an in vitro diagnostic,then the FDA generally will require approval or clearance of the diagnostic at the same time that the FDA approves thetherapeutic product.The FDA previously has required in vitro companion diagnostics intended to select the patients who willrespond to the cancer treatment to obtain Pre‑Market Approval (PMA), simultaneously with approval of the drug. Basedon the draft guidance, and the FDA’s past treatment of companion diagnostics, we believe that the FDA will require oneor more of our in vitro companion diagnostics to obtain PMA for our companion diagnostics to identify patientpopulations suitable for our cancer therapies, such as the in vitro companion diagnostic for our product candidates. Thereview of these in vitro companion diagnostics in conjunction with the review of our cancer treatments involvescoordination of review by CDER and by the FDA’s Center for Devices and Radiological Health Office of In VitroDiagnostics Device Evaluation and Safety.PMA approval pathwayA medical device, including an in vitro diagnostic (IVD) to be commercially distributed in the United Statesmust receive either 510(k) clearance or PMA approval from the FDA prior to marketing. Devices deemed by the FDA topose the greatest risk, such as life‑sustaining, life supporting or implantable devices, or devices deemed notsubstantially equivalent to a previously 510(k) cleared device or a preamendment class III device for which PMAapplications have not been called, are placed in Class III requiring PMA approval. The PMA approval pathway requiresproof of the safety and effectiveness of the device to the FDA’s satisfaction.The PMA approval pathway generally takes from one to three years or even longer from submission of theapplication.A PMA application for an IVD must provide extensive preclinical and clinical trial data. Preclinical data for anIVD includes many different tests, including how reproducible the results are when the same sample is tested multipletimes by multiple users at multiple laboratories. The clinical data need to establish that the test is sufficiently safe,effective and reliable in the intended use population. In addition, the FDA must be convinced that a device has clinicalutility, meaning that an IVD provides information that is clinically meaningful. A biomarker’s clinical significance maybe obvious, or the applicant may be able to rely upon published literature or submit data to show clinical utility.35 Table of ContentsA PMA application also must provide information about the device and its components regarding, among otherthings, device design, manufacturing and labeling. The sponsor must pay an application fee.As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance withQuality System Regulation (QSR) requirements, which impose elaborate testing, control, documentation and otherquality assurance procedures.Upon submission, the FDA determines if the PMA application is sufficiently complete to permit a substantivereview, and, if so, the FDA accepts the application for filing. The FDA then commences an in‑depth review of the PMAapplication. The entire process typically takes one to three years, but may take longer. The review time is oftensignificantly extended as a result of the FDA asking for more information or clarification of information alreadyprovided. The FDA also may respond with a not approvable determination based on deficiencies in the application andrequire additional clinical trials that are often expensive and time‑consuming and can substantially delay approval.During the review period, an FDA advisory committee, typically a panel of clinicians, may be convened toreview the application and recommend to the FDA whether, or upon what conditions, the device should be approved.Although the FDA is not bound by the advisory panel decision, the panel’s recommendation is important to the FDA’soverall decision making process.If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an approvable letterrequiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additionalinformation, such as submission of final labeling, in order to secure final approval of the PMA. If the FDA concludes thatthe applicable criteria have been met, the FDA will issue an approval order, which may be for more limited indicationsthan those originally sought by the manufacturer. The approval order can include post‑approval conditions that the FDAbelieves necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions onlabeling, promotion, sale and distribution. Failure to comply with the conditions of approval can result in materialadverse enforcement action, including the loss or withdrawal of the approval.Even after approval of a PMA, a new PMA or PMA supplement may be required in the event of a modificationto the device, its labeling or its manufacturing process. Supplements to a PMA often require the submission of the sametype of information required for an original PMA, except that the supplement is generally limited to the informationneeded to support the proposed change from the product covered by the original PMA.Clinical trialsA clinical trial is almost always required to support a PMA application. In some cases, one or more smallerInvestigational Device Exemption (IDE) studies may precede a pivotal clinical trial intended to demonstrate the safetyand efficacy of the investigational device.All clinical studies of investigational devices must be conducted in compliance with the FDA’s requirements. Ifan investigational device could pose a significant risk to patients pursuant to FDA regulations, the FDA must approvean IDE application prior to initiation of investigational use. IVD trials usually do not require an IDE, as the FDA doesnot judge them to be a significant risk because the results do not affect the patient’s safety in the study. The FDA hasconfirmed that one of our IVDs does not need an IDE application as it does not pose significant risk at this time. Shouldinterim clinical trial data detect a safety signal between patients who test positive or negative for the specific biomarker,then a IDE would be required.An IDE application must be supported by appropriate data, such as laboratory test results, showing that it is safeto test the device in humans and that the testing protocol is scientifically sound. The FDA typically grants IDE approvalfor a specified number of patients. A nonsignificant risk device does not require FDA approval of an IDE. Bothsignificant risk and nonsignificant risk investigational devices require approval from IRBs at the study centers where thedevice will be used.36 Table of ContentsDuring the trial, the sponsor must comply with the FDA’s IDE requirements for investigator selection, trialmonitoring, reporting and record keeping. The investigators must obtain patient informed consent, rigorously follow theinvestigational plan and study protocol, control the disposition of investigational devices and comply with all reportingand record keeping requirements. Prior to granting PMA approval, the FDA typically inspects the records relating to theconduct of the study and the clinical data supporting the PMA application for compliance with applicable requirements.Although the QSR does not fully apply to investigational devices, the requirement for controls on design anddevelopment does apply. The sponsor also must manufacture the investigational device in conformity with the qualitycontrols described in the IDE application and any conditions of IDE approval that the FDA may impose with respect tomanufacturing.Post‑marketAfter a device is on the market, numerous regulatory requirements apply. These requirements include: the QSR,labeling regulations, the FDA’s general prohibition against promoting products for unapproved or “off label” uses, theMedical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may havecaused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to adeath or serious injury if it were to recur, and regulations requiring manufacturers to report recalls and field actions tothe FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA.The FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it caninstitute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as:fines, injunctions and civil penalties; recall or seizure of products; operating restrictions, partial suspension or totalshutdown of production; refusing requests for PMA approval of new products; withdrawing PMA approvals alreadygranted; and criminal prosecution.Other regulatory requirementsAny drug manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuingregulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting,product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product.After approval, most changes to the approved product, such as adding new indications or other labeling claims aresubject to prior FDA review and approval.The FDA may impose a number of post‑approval requirements as a condition of approval of an NDA. Forexample, the FDA may require post‑marketing testing, including Phase 4 clinical trials, and surveillance to further assessand monitor the product’s safety and effectiveness after commercialization. Regulatory approval of oncology productsoften requires that patients in clinical trials be followed for long periods to determine the overall survival benefit of thedrug.In addition, drug manufacturers and other entities involved in the manufacture and distribution of approveddrugs are required to register their establishments with the FDA and state agencies, and are subject to periodicunannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to themanufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDAregulations also require investigation and correction of any deviations from cGMP and impose reporting anddocumentation requirements upon us and any third‑party manufacturers that we may decide to use. Accordingly,manufacturers must continue to expend time, money and effort in the areas of production and quality control tomaintain cGMP compliance.Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirementsand standards is not maintained or if problems occur after the product reaches the market. Later discovery of previouslyunknown problems with a product, including adverse events of unanticipated severity or frequency, or withmanufacturing processes, or failure to comply with regulatory requirements, may result in37 Table of Contentsrevisions to the approved labeling to add new safety information, imposition of post‑market studies or clinical trials toassess new safety risks or imposition of distribution or other restrictions under a Risk Evaluation and MitigationStrategy program. Other potential consequences include, among other things:·restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from themarket or product recalls;·fines, warning letters or holds on post‑approval clinical trials;·refusal of the FDA to approve pending applications or supplements to approved applications, orsuspension or revocation of product license approvals;·product seizure or detention, or refusal to permit the import or export of products; or·consent decrees, injunctions or the imposition of civil or criminal penalties.The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on themarket. Drugs may be promoted only for the approved indications and in accordance with the provisions of theapproved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of offlabel uses, and a company that is found to have improperly promoted off label uses may be subject to significantliability.Additional provisionsAnti‑kickback and false claims lawsIn addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federallaws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These lawsinclude anti‑kickback statutes and false claims statutes. The federal healthcare program anti‑kickback statute prohibits,among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or inreturn for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or servicereimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has beeninterpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasersand formulary managers on the other. Violations of the anti‑kickback statute are punishable by imprisonment, criminalfines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are anumber of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution orother regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remunerationintended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for anexemption or safe harbor.Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a falseclaim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have afalse claim paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under theselaws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to setMedicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectationthat the customers would bill federal programs for the product. In addition, certain marketing practices, including off‑label promotion, may also violate false claims laws. The majority of states also have statutes or regulations similar to thefederal anti‑kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and otherstate programs, or, in several states, apply regardless of the payor.Physician drug samplesAs part of the sales and marketing process, pharmaceutical companies frequently provide samples of approveddrugs to physicians. The Prescription Drug Marketing Act (PDMA) imposes requirements and limitations upon theprovision of drug samples to physicians, as well as prohibits states from licensing distributors of38 Table of Contentsprescription drugs unless the state licensing program meets certain federal guidelines that include minimum standardsfor storage, handling and record keeping. In addition, the PDMA sets forth civil and criminal penalties for violations.Foreign regulationIn order to market any product outside of the United States, we would need to comply with numerous andvarying regulatory requirements of other countries regarding safety and efficacy and governing, among other things,clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtainFDA approval for a product, we would need to obtain the necessary approvals by the comparable regulatory authoritiesof foreign countries before we can commence clinical trials or marketing of the product in those countries. The approvalprocess varies from country to country and can involve additional product testing and additional administrative reviewperiods. The time required to obtain approval in other countries might differ from and be longer than that required toobtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failureor delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.To date, we have not initiated any discussions with the European Medicines Agency or any other foreignregulatory authorities with respect to seeking regulatory approval for any of our products in Europe or in any othercountry outside the United States.New legislation and regulationsFrom time to time, legislation is drafted, introduced and passed in Congress that could significantly change thestatutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA.For example, the FDAAA discussed above was enacted in 2007. In addition to new legislation, FDA regulations andpolicies are often revised or interpreted by the agency in ways that may significantly affect our business and ourproducts. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations,guidance, policies or interpretations changed or what the effect of such changes, if any, may be.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any drug products for which weobtain regulatory approval. Sales of any of our product candidates, if approved, will depend, in part, on the extent towhich the costs of the products will be covered by third‑party payors, including government health programs such asMedicare and Medicaid, commercial health insurers and managed care organizations. The process for determiningwhether a payor will provide coverage for a drug product may be separate from the process for setting the price orreimbursement rate that the payor will pay for the drug product once coverage is approved. Third‑party payors may limitcoverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugsfor a particular indication.In order to secure coverage and reimbursement for any product that might be approved for sale, we may need toconduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost‑effectiveness ofthe product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Our productcandidates may not be considered medically necessary or cost‑effective. A payor’s decision to provide coverage for adrug product does not imply that an adequate reimbursement rate will be approved. Third‑party reimbursement may notbe sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment inproduct development.The containment of healthcare costs has become a priority of federal, state and foreign governments, and theprices of drugs have been a focus in this effort. Third‑party payors are increasingly challenging the prices charged formedical products and services and examining the medical necessity and cost‑effectiveness of medical products andservices, in addition to their safety and efficacy. If these third‑party payors do not consider our products to becost‑effective compared to other available therapies, they may not cover our products after approval as a benefit undertheir plans or, if they do, the level of payment may not be sufficient to allow us to sell our39 Table of Contentsproducts at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest inimplementing cost containment programs to limit the growth of government‑paid health care costs, including pricecontrols, restrictions on reimbursement and requirements for substitution of generic products for branded prescriptiondrugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existingcontrols and measures, could limit payments for pharmaceuticals such as the drug candidates that we are developing andcould adversely affect our net revenue and results.Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drugproducts may be marketed only after a reimbursement price has been agreed. Some countries may require the completionof additional studies that compare the cost‑effectiveness of a particular product candidate to currently availabletherapies. For example, the European Union provides options for its member states to restrict the range of drug productsfor which their national health insurance systems provide reimbursement and to control the prices of medicinal productsfor human use. European Union member states may approve a specific price for a drug product or may instead adopt asystem of direct or indirect controls on the profitability of the company placing the drug product on the market. Othermember states allow companies to fix their own prices for drug products, but monitor and control company profits. Thedownward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result,increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross‑borderimports from low‑priced markets exert competitive pressure that may reduce pricing within a country. There can be noassurance that any country that has price controls or reimbursement limitations for drug products will allow favorablereimbursement and pricing arrangements for any of our products.The marketability of any products for which we receive regulatory approval for commercial sale may suffer ifthe government and third‑party payors fail to provide adequate coverage and reimbursement. In addition, an increasingemphasis on managed care in the United States has increased and we expect will continue to increase the pressure ondrug pricing. Coverage policies, third‑party reimbursement rates and drug pricing regulation may change at any time. Inparticular, the Patient Protection and Affordable Care Act was enacted in the United States in March 2010 and containprovisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold toMedicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certainMedicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health careprograms. Even if favorable coverage and reimbursement status is attained for one or more products for which we receiveregulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.EMPLOYEESAs of February 22, 2016, we had 22 full‑time equivalent employees, including a total of 4 employees with M.D.or Ph.D. degrees. Of these full‑time employees, 9 employees are engaged in research and development activities. None ofour employees is represented by a labor union or covered by a collective bargaining agreement. We consider ourrelationship with our employees to be good.BUSINESS—EXECUTIVE OFFICERS OF THE REGISTRANTThe following table sets forth the name, age and position of each of our executive officers as of February 22,2016.Name Age Position Robert Forrester 52 President, Chief Executive Officer John Green 61 Chief Financial Officer Daniel Paterson 54 Chief Operating Officer Robert Forrester has served has served as our Chief Executive Officer since July 2013, as our Chief OperatingOfficer from March 2011 until July 2013 and our President since January 2013. Mr. Forrester has previously heldexecutive level positions at both private and public life sciences companies. Prior to joining us, Mr. Forrester served asChief Operating Officer of Forma Therapeutics, Inc. from 2010 until 2011. Previously he40 Table of Contentsserved as Interim President and Chief Executive Officer of CombinatoRx, Inc. from 2009 until 2010 and as its ExecutiveVice President and Chief Financial Officer from 2004 to 2009. Mr. Forrester served as Senior Vice President, Finance andCorporate Development at Coley Pharmaceuticals Group, Inc. from 2000 to 2003. He earned his LL.B. from BristolUniversity in England.John (Jack) Green has served as our Chief Financial Officer since May 2013, presently on a part-time basis.Prior to joining the Company, from March 2011 until November 2012, Mr. Green was Vice President, Finance and a keymember of the senior management team for On‑Q‑ity, a developer of technology to capture and analyze circulatingtumor cells. Previously, from May 2002 until June 2010, Mr. Green was the Senior Vice President and Chief FinancialOfficer of GTC Biotherapeutics (formerly Genzyme Transgenics Corporation) which was spun out from GenzymeCorporation as a stand‑alone public company. Mr. Green is a Certified Public Accountant (CPA) with over 30 years offinancial experience, including 20 within the biotechnology industry. Mr. Green received a Master’s degree in BusinessAdministration from Boston University Graduate School of Management and a Bachelor’s degree from the College ofthe Holy Cross.Daniel Paterson has served as our Chief Operating Officer since December 2014, our Chief Business Officerfrom July 2013 to December 2014 and as our Vice President, Head of Corporate Development and Diagnostics fromMarch 2012 until July 2013. Prior to joining us, Mr. Paterson was a consultant in 2011 until joining us in 2012. From2009 through 2010, Mr. Paterson was the COO of On‑Q‑ity. Mr. Paterson was the President and CEO of The DNA RepairCompany from 2006 until 2009, when it was acquired by On‑Q‑ity. Previously, he held senior level positions at IMSHealth, CareTools, OnCare and Axion.OUR CORPORATE INFORMATIONWe were incorporated under the laws of the State of Delaware in August 2010. Our principal executive officesare located at 117 Kendrick Street, Suite 500, Needham, Massachusetts 02494 and our telephone number is(781) 292‑4200.ADDITIONAL INFORMATIONWe maintain a website at www.verastem.com. We make available, free of charge on our website, our annualreport on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reportsfiled or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the ExchangeAct) as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the Securitiesand Exchange Commission (SEC). We also make available, free of charge on our website, the reports filed with the SECby our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon asreasonably practicable after copies of those filings are provided to us by those persons. The information contained on, orthat can be accessed through, our website is not a part of or incorporated by reference in this annual report onForm 10‑K. ITEM 1A. Risk Factors.RISKS RELATED TO THE DISCOVERY, DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTCANDIDATESPreclinical studies and preliminary and interim data from clinical trials of our product candidates are not necessarilypredictive of the results or success of ongoing or later clinical trials of our product candidates. If we cannot replicatethe results from our preclinical studies and clinical trials of our product candidates, we may be unable to successfullydevelop, obtain regulatory approval for and commercialize our product candidates.Preclinical studies and any positive preliminary and interim data from our clinical trials of our productcandidates may not necessarily be predictive of the results of ongoing or later clinical trials. Even if we are able tocomplete our planned clinical trials of our product candidates according to our current development timeline, thepositive results from clinical trials of our product candidates may not be replicated in subsequent clinical trial results.Also, our later‑stage clinical trials could differ in significant ways from earlier stage clinical trials, which41 Table of Contentscould cause the outcome of the later‑stage trials to differ from our earlier stage clinical trials. For example, thesedifferences may include changes to inclusion and exclusion criteria, efficacy endpoints and statistical design. Manycompanies in the pharmaceutical and biotechnology industries, including us, have suffered significant setbacks inlate‑stage clinical trials after achieving positive results in early‑stage development. For example, in September 2015, westopped enrollment in our Phase 2 registration-directed, double-blind, placebo-controlled study of VS-6063 for patientswith mesothelioma (COMMAND) for futility after a DSMB review of a pre-planned interim analysis demonstrated thatthere was not a sufficient level of efficacy to warrant continuation of COMMAND. We cannot be certain that we will notface similar setbacks in our ongoing clinical studies. We have not completed any late‑stage clinical trials for our productcandidates yet, and if we fail to produce positive results in our planned clinical trials of any of our product candidates,the development timeline and regulatory approval and commercialization prospects for our product candidates, and,correspondingly, our business and financial prospects, would be materially adversely affected.Preclinical testing and clinical trials of our product candidates may not be successful. If we are unable tocommercialize our product candidates or experience significant delays in doing so, our business will be materiallyharmed.We have invested a significant portion of our efforts and financial resources in the research and development ofour product candidates, VS‑6063, VS-5584 and VS-4718, for which we are conducting clinical trials in multipleindications. Our ability to generate product revenues, which we do not expect will occur for several years, if ever, willdepend heavily on the successful development and eventual commercialization of our product candidates. The successof our product candidates will depend on several factors, including the following:·successful completion of these clinical trials;·receipt of marketing approvals from the FDA and other regulatory authorities for our product candidates,including pricing approvals where required;·establishing commercial manufacturing capabilities or making arrangements with third‑partymanufacturers;·obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our productcandidates;·establishing commercial capabilities, including hiring and training a sales force, and launchingcommercial sales of the products, if and when approved, whether alone or in collaboration with others;·acceptance of the products, if and when approved, by patients, the medical community and third‑partypayors;·effectively competing with other therapies; and·a continued acceptable safety profile of the products following approval.If we do not achieve one or more of these factors in a timely manner or at all, we could experience significantdelays or an inability to successfully commercialize our product candidates, which would materially harm ourbusiness. For example, in September 2015, we stopped enrollment in our COMMAND study for futility after a DSMBreview of a pre-planned interim analysis demonstrated that there was not a sufficient level of efficacy to warrantcontinuation of COMMAND. As a result, our expected timeline for commercializing VS-6063 has been delayed and wemay be unable to commercialize VS-6063 at all.42 Table of ContentsIf clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatoryauthorities or do not otherwise produce positive results, we may incur additional costs or experience delays incompleting, or ultimately be unable to complete, the development and commercialization of our product candidates.Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we mustcomplete extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinicaltesting is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and earlyclinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do notnecessarily predict final results. For example, the results of many of our ongoing clinical trials to date, including ourPhase 2 window‑of‑opportunity study of VS‑6063 in mesothelioma, our Phase 1/1b study of VS‑6063 in ovarian cancer,our Phase 2 study of VS-6063 in non-small cell lung cancer, and the Phase 1 studies of VS-6063, VS-4718 and VS-5584,are based on unaudited data provided by our clinical trial investigators. A further review and analysis of this data maychange the conclusions drawn from this unaudited data indicating less promising results than we currently anticipate.In some instances, there can be significant variability in safety and/or efficacy results between different trials ofthe same product candidate due to numerous factors, including changes in trial protocols, differences in size and type ofthe patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout amongclinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trial we may conduct willdemonstrate consistent or adequate efficacy and safety sufficient to obtain regulatory approval to market our productcandidates.In addition, the design of a clinical trial may determine whether its results will support approval of a productand flaws in the design of a clinical trial may not become apparent until the clinical trial is well‑advanced. Moreover,preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies thathave believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonethelessfailed to obtain marketing approval of their products. For example, standard measures of clinical activity with respect tosolid tumors, such as Response Criteria in Solid Tumors (RECIST) measurement guidelines, which are based on grosschanges in the size of tumor lesions, may not be sufficient to detect the targeting of CSCs by our product candidates.A failure of one or more clinical trials could indicate a higher likelihood that subsequent clinical trials of thesame product candidate in the same or other indications or subsequent clinical trials of other related product candidateswill be unsuccessful for the same reasons as the unsuccessful clinical trials. For example, in September 2015, we stoppedenrollment in COMMAND for futility after a DSMB review of a pre-planned interim analysis demonstrated that therewas not a sufficient level of efficacy to warrant continuation of COMMAND. Further review and analysis of the datafrom COMMAND may provide additional information about VS-6063 and our other product candidates that couldindicate a lower likelihood of demonstrating efficacy for VS-6063 in our ongoing clinical studies as well as a lowerlikelihood of demonstrating efficacy for our other product candidates in the clinical trials of such product candidates. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay orprevent our ability to receive marketing approval or commercialize our product candidates, including:·regulators or institutional review boards may not authorize us or our investigators to commence a clinicaltrial or conduct a clinical trial at a prospective trial site;·we may have delays in reaching or fail to reach agreement on clinical trial contracts or clinical trialprotocols with prospective trial sites;·clinical trials of our product candidates may produce negative or inconclusive results, and we may decide,or regulators may require us, to conduct additional clinical trials or abandon product developmentprograms;43 Table of Contents·the number of patients required for clinical trials of our product candidates may be larger than weanticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop outof these clinical trials at a higher rate than we anticipate;·our third‑party contractors may fail to comply with regulatory requirements or meet their contractualobligations to us in a timely manner, or at all;·regulators or institutional review boards may require that we or our investigators suspend or terminateclinical trials for various reasons, including noncompliance with regulatory requirements or a finding thatthe participants are being exposed to unacceptable health risks;·the cost of clinical trials of our product candidates may be greater than we anticipate;·the supply or quality of our product candidates or other materials necessary to conduct clinical trials of ourproduct candidates may be insufficient or inadequate; and·our product candidates may have undesirable side effects or other unexpected characteristics, causing us orour investigators, regulators or institutional review boards to suspend or terminate the trials.If we are required to conduct additional clinical trials or other testing of our product candidates beyond thosethat we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or othertesting, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns,we may:·be delayed in obtaining marketing approval for our product candidates;·not obtain marketing approval at all;·obtain approval for indications or patient populations that are not as broad as intended or desired;·obtain approval with labeling that includes significant use or distribution restrictions or safety warnings,including boxed warnings;·be subject to additional post‑marketing testing requirements; or·have the product removed from the market after obtaining marketing approval.The FDA and foreign regulatory authorities may determine that the results from our ongoing and future trials donot support regulatory approval and may require us to conduct an additional clinical trial or trials. If these agencies takesuch a position, the costs of development of our product candidates could increase materially and their potential marketintroduction could be delayed. The regulatory agencies could also require that we conduct additional clinical,nonclinical or manufacturing validation studies and submit that data before it will consider an NDA application. Ourproduct development costs will also increase if we experience delays in clinical testing or marketing approvals. We donot know whether any clinical trials will begin as planned, will need to be restructured or will be completed onschedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have theexclusive right to commercialize our product candidates or allow our competitors to bring products to market before wedo and impair our ability to successfully commercialize our product candidates and may harm our business and resultsof operations.If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessaryregulatory approvals could be delayed or prevented.We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locateand enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or44 Table of Contentssimilar regulatory authorities outside the United States. In addition, there are a number of ongoing clinical trials beingconducted by other companies for product candidates treating cancer. Patients who would otherwise be eligible for ourclinical trials may instead enroll in clinical trials of our competitors’ product candidates, particularly if they view suchtreatments to be more conventional and established.Patient enrollment is affected by other factors including:·the size and nature of the patient population;·severity of the disease under investigation;·eligibility criteria for the study in question;·perceived risks and benefits of the product candidate under study in relation to other available treatmentsincluding any new treatments that may be approved for the indications we are investigating;·efforts to facilitate timely enrollment in clinical trials;·patient referral practices of physicians;·the ability to monitor patients adequately during and after treatment; and·proximity and availability of clinical trial sites for prospective patients.Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays ormay require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result inincreased development costs for our product candidates, which would cause the value of our company to decline andlimit our ability to obtain additional financing.If serious adverse or unexpected side effects are identified during the development of our product candidates, we mayneed to abandon or limit our development of some of our product candidates.All of our product candidates are in various stages of clinical development and their risk of failure is high. It isimpossible to predict when or if any of our product candidates will prove effective or safe in humans or will receivemarketing approval. If our product candidates are associated with undesirable side effects or have characteristics that areunexpected, we may need to abandon their development or limit development to certain uses or subpopulations inwhich the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from arisk‑benefit perspective. A small percentage of patients in our clinical trials have experienced serious adverse events(SAEs) deemed by us and the clinical investigator to be related to our product candidates. SAEs generally refer toadverse events (AEs) that result in death, are life threatening, require hospitalization or prolonging of hospitalization, orcause a significant and permanent disruption of normal life functions, congenital anomalies or birth defects, or requireintervention to prevent such outcomes.VS-5584 is in our Phase 1 clinical trials and the development program continues to progress. The toxicitiesreported thus far are consistent with other drugs in this class. The most frequent (≥ 20% of subjects) AEs of single agentVS-5584 are nausea, fatigue, diarrhea, decreased appetite, constipation, and vomiting. Toxicities were generally Grade 1or 2 in severity.VS-4718 is in our Phase 1 clinical trials and the development program continues to progress. The toxicitiesreported thus far are consistent with other drugs in this class. The most frequent (≥ 20% of subjects) AEs of single agentVS-4718 are nausea, fatigue, diarrhea, dyspnea, and peripheral edema. Toxicities were generally Grade 1 or 2 in severity.VS-6063 is in our Phase 1 and Phase 2 clinical trials and the development program continues to progress. Thetoxicities reported thus far are consistent with other drugs in this class. The most frequent (≥ 20% of subjects)45 Table of ContentsAEs in the combination study of VS-6063 with paclitaxel are fatigue, anemia, hyperbilirubinemia, diarrhea, nausea,peripheral edema, vomiting, neutropenia, and pyrexia. The most frequent (≥ 20% of subjects) AEs overall in all studiesof single agent VS-6063 are nausea, fatigue, diarrhea, and hyperbilirubinemia. Toxicities were generally Grade 1 or 2 inseverity.As a result of adverse events observed to date, or further safety or toxicity issues that we may experience in ourclinical trials in the future, we may not receive approval to market any product candidates, which could prevent us fromever generating revenue from the sale of products or achieving profitability. Results of our trials could reveal anunacceptably high severity and prevalence of side effects. In such an event, our trials could be suspended or terminatedand the FDA or comparable foreign regulatory authorities could order us to cease further development of or denyapproval of our products candidates for any or all targeted indications. Many compounds that initially showed promisein early stage testing for treating cancer have later been found to cause side effects that prevented further developmentof the compound. In addition, while we and our clinical trial investigators currently determine if serious adverse orunacceptable side effects are drug‑related, the FDA or other non‑U.S. regulatory authorities may disagree with our or ourclinical trial investigators’ interpretation of data from clinical trials and the conclusion that a serious adverse effect orunacceptable side effect was not drug‑related.Our approach to the discovery and development of product candidates that target CSCs is unproven, and we do notknow whether we will be able to develop any products of commercial value.We are discovering and developing product candidates to treat cancer by the targeted killing of cancer stemcells. Research on CSCs is an emerging field and, consequently, there is ongoing debate regarding the existence ofCSCs, whether the appropriate nomenclature to refer to these cells is cancer stem cells, tumor‑initiating cells or anotherterm and the importance of these cells as an underlying cause of tumor recurrence and metastasis.Although there is general consensus that some cancer cells have tumor‑initiating capacity, there also is somedebate in the scientific community regarding the defining characteristics of these cells, which we call CSCs, and theorigin of these cells. Some believe that normal adult stem cells mutate and transform into CSCs. Others believe that allcancer cells have tumor‑initiating capabilities, these capabilities cannot be attributed to a factor intrinsic to a particularcell and, therefore, a definitive CSC cannot be isolated or targeted. We believe that the discovery by our scientificco‑founders of the link between the epithelial‑to‑mesenchymal transition (EMT) and the emergence of cancer stem cellsis one way a cancer cell can transition to a CSC, but this view is not universally accepted. In addition, some believe thattargeting CSCs should be sufficient for a positive clinical outcome, while others believe that, at times or always,targeting CSCs should be coupled with targeting tumor bulk for a positive clinical outcome.Even if our beliefs regarding the existence, characteristics and function of CSCs are correct, any products thatwe develop may not effectively target CSCs. We do not believe that any drugs that target CSCs have been successfullydeveloped to date for the treatment of cancer. While we are currently conducting clinical trials for product candidatesthat we believe target CSCs, we may not ultimately be successful in demonstrating their efficacy, alone or incombination with other treatments.In September 2015, we stopped enrollment in COMMAND for futility after a DSMB review of a pre-plannedinterim analysis demonstrated that there was not a sufficient level of efficacy to warrant continuation of COMMAND.VS-6063 is currently in a Phase 2 study in patients with non-small cell lung cancer, a Phase 2 trial preceding surgery inmesothelioma, a Phase 1/1b trial in combination with weekly paclitaxel for patients with ovarian cancer, andcombination studies of VS-6063 and avelumab or pembrolizumab in multiple solid tumors. Given the futility ofCOMMAND, our ongoing clinical studies of VS-6063 in mesothelioma and other indications may not be successful.Additionally, the futility of COMMAND could indicate that targeting CSCs is not sufficient for a positive clinicaloutcome or that the mechanism used by VS-6063 and our other product candidates is not an effective mechanism to treatcancer and our ongoing clinical studies of VS-6063 and our other product candidates may not be successful.46 Table of ContentsThe approval of our product candidates as part of a combination therapy for the treatment of certain cancers may bemore costly than our prior clinical trials, may take longer to achieve regulatory approval, may be associated with new,more severe or serious and unanticipated adverse events, and may have a smaller market opportunity. Our current business model involves conducting clinical trials to study the effects of combining our productcandidates with other approved and investigational targeted therapies, chemotherapies, and immunotherapies to treatpatients with cancer. Regulatory approval for a combination treatment generally requires clinical trials to evaluate theactivity of each component of the combination treatment. As a result, it may be more difficult and costly to obtainregulatory approval of our product candidate for use as part of a combination treatment than obtaining regulatoryapproval of our product candidates alone. In addition, we also risk losing the supply of any approved or investigationalproduct being combined with our product candidate in these clinical trials. Furthermore, the potential marketopportunity for our product candidates is difficult to estimate precisely. If our product candidates receive regulatoryapproval, they will likely be approved solely for use in combination with the approved or investigational product. Themarket opportunity for our product candidates will be dependent upon the continued use of the approved orinvestigational product. In addition, because physicians, patients and third-party payors may be sensitive to theaddition of the cost of our product candidates to the cost of treatment with the other products, we may experiencedownward pressure on the price that we can charge for our product candidates if they receive regulatoryapproval. Further, we cannot be sure that physicians will view our product candidates, if approved as part of acombination treatment, as sufficiently superior to a treatment regimen consisting of only the approved or investigationalproduct. Additionally, the adverse side effects of our product candidates may be enhanced when combined with otherproducts. If such adverse side effects are experienced, we could be required to conduct additional pre-clinical andclinical studies and if such adverse side effects are severe, we may not be able to continue the clinical trials of thecombination therapy because the risks may outweigh the therapeutic benefit of the combination.We may not be successful in our efforts to identify or discover additional potential product candidates.Part of our strategy involves discovering and developing product candidates, including through our proprietarytechnology, to build a pipeline of novel product candidates. Our research programs may initially show promise inidentifying potential product candidates, yet fail to yield product candidates for clinical development for a number ofreasons, including:·the research methodology used may not be successful in identifying potential product candidates;·potential product candidates may, on further study, be shown to have harmful side effects or othercharacteristics that indicate that they are unlikely to be products that will receive marketing approval andachieve market acceptance; or·potential product candidates may not be effective in treating their targeted diseases.Research programs to identify new product candidates require substantial technical, financial and humanresources. We may choose to focus our efforts and resources on a potential product candidate that ultimately proves tobe unsuccessful.If we are unable to identify suitable compounds for preclinical and clinical development, we will not be able toobtain product revenues in future periods, which likely would result in significant harm to our financial position andadversely impact our stock price.We may not be successful in obtaining necessary rights to compounds and product candidates for our developmentpipeline through acquisitions and in‑licenses.Because we are screening a range of compounds, including compounds with proprietary rights held by thirdparties, for their activity against CSCs, the growth of our business will depend in significant part on our ability toacquire or in‑license rights to these compounds. However, we may be unable to acquire or in‑license any compounds orproduct candidates from third parties that we identify using our proprietary EMT technology or otherwise. The47 Table of Contentslicensing and acquisition of proprietary compounds is a competitive area, and a number of more established companiesare also pursuing strategies to license or acquire compounds and product candidates that we may consider attractive.These established companies may have a competitive advantage over us due to their size, cash resources and greaterclinical development and commercialization capabilities.The Whitehead Institute and affiliated parties have retained the right to use the EMT technology that welicense from it for research, teaching and educational purposes and could seek to license to third parties any intellectualproperty rights that it discovers using the EMT technology while pursuing these purposes. Pursuant to our drugdiscovery platform license agreement with the Whitehead Institute, we will have an opportunity, subject to theWhitehead Institute’s obligations under any third‑party research funding agreements, to negotiate a license to any suchintellectual property under the drug discovery platform license agreement that is developed or conceived on or prior to aspecified date in Robert Weinberg’s laboratory at the Whitehead Institute. Our failure to reach an agreement with eitherthe Broad Institute or the Whitehead Institute for any applicable intellectual property could result in a third partyacquiring the related rights.In addition to the use of our proprietary EMT technology to screen compounds, we may also seek to acquirenew compounds and product candidates from other pharmaceutical and biotechnology companies, academic scientistsand other researchers. The success of this strategy depends partly upon our ability to identify, select, discover andacquire promising pharmaceutical product candidates and products. The process of proposing, negotiating andimplementing a license or acquisition of a product candidate or approved product is lengthy and complex. Othercompanies, including some with substantially greater financial, marketing and sales resources, may compete with us forthe license or acquisition of product candidates and approved products. In addition, companies that perceive us to be acompetitor may be unwilling to assign or license rights to us. We have limited resources to identify and execute theacquisition or in-licensing of third-party products, businesses and technologies and integrate them into our currentinfrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are nevercompleted, or we may fail to realize the anticipated benefits of such efforts. We also may be unable to license or acquirethe relevant compound or product candidate on terms that would allow us to make an appropriate return on ourinvestment. Any product candidate that we acquire may require additional development efforts prior to commercial sale,including manufacturing, pre-clinical testing, extensive clinical testing and approval by the FDA and applicable foreignregulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical productdevelopment.In addition, future product or business acquisitions may entail numerous operational and financial risks,including:·exposure to unknown liabilities;·disruption of our business and diversion of our management’s time and attention to developacquired products, product candidates or technologies;·higher than expected acquisition and integration costs;·increased amortization expenses; and·incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay foracquisitions.Future business acquisitions may also entail certain additional risks, such as:·difficulty in combining the operations and personnel of any acquired businesses with ouroperations and personnel;·impairment of relationships with key suppliers or customers of any acquired businesses due tochanges in management and ownership; and·inability to motivate key employees of any acquired businesses.48 Table of ContentsIf we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market ourproducts in those jurisdictions.We intend to seek regulatory approval for our product candidates in a number of countries outside of theUnited States and expect that these countries will be important markets for our products, if approved. Marketing ourproducts in these countries will require separate regulatory approvals in each market and compliance with numerous andvarying regulatory requirements. The regulations that apply to the conduct of clinical trials and approval proceduresvary from country to country and may require additional testing. Moreover, the time required to obtain approval maydiffer from that required to obtain FDA approval. In addition, in many countries outside the United States, a drug mustbe approved for reimbursement before it can be approved for sale in that country. Approval by the FDA does not ensureapproval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authoritydoes not ensure approval by regulatory authorities in other foreign countries or by the FDA. Failure to obtain regulatoryapproval in one country may have a negative effect on the regulatory approval process in others. The foreign regulatoryapproval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreignregulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receivenecessary approvals to commercialize our products in any foreign market.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize onproduct candidates or indications that may be more profitable or for which there is a greater likelihood of success.Because we have limited financial and managerial resources, we focus on research programs and productcandidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities withother product candidates or for other indications that later prove to have greater commercial potential. Our resourceallocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.Our spending on current and future research and development programs and product candidates for specific indicationsmay not yield any commercially viable products. For example, in September 2015, we stopped enrollment inCOMMAND for futility after a DSMB review of a pre-planned interim analysis demonstrated that there was not asufficient level of efficacy to warrant continuation of COMMAND. In addition, if we do not accurately evaluate thecommercial potential or target market for a particular product candidate, we may relinquish valuable rights to thatproduct candidate through collaboration, licensing or other royalty arrangements in cases in which it would have beenmore advantageous for us to retain sole development and commercialization rights to such product candidate.If we are unable to successfully develop companion diagnostics for our product candidates, or experience significantdelays in doing so, we may not realize the full commercial potential of our product candidates.There has been limited success to date industry wide in developing companion diagnostics. To be successful,we would need to address a number of scientific, technical and logistical challenges. We have limited experience in thedevelopment of diagnostics and may not be successful in developing appropriate diagnostics to pair with our productcandidates. Companion diagnostics are subject to regulation by the FDA and similar regulatory authorities outside theUnited States as medical devices and require separate regulatory approval prior to commercialization. Given our limitedexperience in developing diagnostics, we expect to rely in part on third parties for their design and manufacture. If we orany third parties that we engage to assist us, are unable to successfully develop companion diagnostics for our productcandidates, or experience delays in doing so:·the development of our product candidates may be adversely affected if we are unable to appropriatelyselect patients for enrollment in our clinical trials;·our product candidates may not receive marketing approval if safe and effective use of a product candidatedepends on an in vitro diagnostic; and49 Table of Contents·we may not realize the full commercial potential of any product candidates that receive marketingapproval if, among other reasons, we are unable to appropriately select patients who are likely to benefitfrom therapy with our drugs.As a result, our business would be harmed, possibly materially.Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of marketacceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercialsuccess.If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient marketacceptance by physicians, patients, healthcare payors and others in the medical community. For example, current cancertreatments like chemotherapy and radiation therapy are well established in the medical community, and doctors maycontinue to rely on these treatments instead of trying new therapies, even if the new therapy is in combination with theestablished therapies. If our product candidates do not achieve an adequate level of acceptance, we may not generatesignificant product revenues and we may not become profitable. The degree of market acceptance of our productcandidates, if approved for commercial sale, will depend on a number of factors, including:·efficacy and potential advantages compared to alternative treatments;·the ability to offer our products for sale at competitive prices;·convenience and ease of administration compared to alternative treatments;·the willingness of the target patient population to try new therapies and of physicians to prescribe thesetherapies;·the strength of marketing and distribution support;·sufficient third‑party coverage or reimbursement; and·the prevalence and severity of any side effects.If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third partiesto sell and market our product candidates, we may not be successful in commercializing our product candidates if andwhen they are approved.We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distributionof pharmaceutical products. To achieve commercial success for any approved product, we must either develop a salesand marketing organization or outsource these functions to third parties. In the future, we may choose to build a focusedsales and marketing infrastructure to market or co‑promote some of our product candidates if and when they areapproved.There are risks involved with both establishing our own sales and marketing capabilities and entering intoarrangements with third parties to perform these services. For example, recruiting and training a sales force is expensiveand time consuming and could delay any product launch. If the commercial launch of a product candidate for which werecruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would haveprematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment wouldbe lost if we cannot retain or reposition our sales and marketing personnel.Factors that may inhibit our efforts to commercialize our products on our own include:·our inability to recruit and retain adequate numbers of effective sales and marketing personnel;50 Table of Contents·the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physiciansto prescribe any future products;·the lack of complementary products to be offered by sales personnel, which may put us at a competitivedisadvantage relative to companies with more extensive product lines; and·unforeseen costs and expenses associated with creating an independent sales and marketing organization.If we enter into arrangements with third parties to perform sales, marketing and distribution services, ourproduct revenues or the profitability of these product revenues to us are likely to be lower than if we were to market andsell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements withthird parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. Welikely will have little control over such third parties, and any of them may fail to devote the necessary resources andattention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully,either on our own or in collaboration with third parties, we will not be successful in commercializing our productcandidates.We face substantial competition, which may result in others discovering, developing or commercializing productsbefore or more successfully than we do.The development and commercialization of new drug products is highly competitive. We face competitionwith respect to our current product candidates, and will face competition with respect to any product candidates that wemay seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceuticalcompanies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnologycompanies that currently market and sell products or are pursuing the development of products for the treatment of thedisease indications for which we are developing our product candidates. Some of these competitive products andtherapies are based on scientific approaches that are the same as or similar to our approach, and others are based onentirely different approaches. Potential competitors also include academic institutions, government agencies and otherpublic and private research organizations that conduct research, seek patent protection and establish collaborativearrangements for research, development, manufacturing and commercialization.We are developing our product candidates for the treatment of cancer. There are a variety of available therapiesmarketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. Some of thesedrugs are branded and subject to patent protection, and others are available on a generic basis. Many of these approveddrugs are well established therapies and are widely accepted by physicians, patients and third‑party payors. Insurers andother third‑party payors may also encourage the use of generic products. We expect that if our product candidates areapproved, they will be priced at a significant premium over competitive generic products. This may make it difficult forus to achieve our business strategy of using our product candidates in combination with existing therapies or replacingexisting therapies with our product candidates.There are also a number of products in clinical development by third parties to treat cancer by targeting CSCs.These companies include divisions of large pharmaceutical companies, including Astellas Pharma US, Inc.,Sanofi‑Aventis US LLC, GlaxoSmithKline plc, Boehringer Ingelheim GmbH, Pfizer, Celgene, Inc. and others. There arealso biotechnology companies of various sizes that are developing therapies against CSCs, including OncoMedPharmaceuticals, Inc., Boston Biomedical, Inc. (a division of Dainippon Sumitomo Corp.), Stemline Therapeutics, Inc.and others. Our competitors may develop products that are more effective, safer, more convenient or less costly than anythat we are developing or that would render our product candidates obsolete or non‑competitive. In addition, ourcompetitors may discover biomarkers that more efficiently measure CSCs than our methods, which may give them acompetitive advantage in developing potential products. Our competitors may also obtain marketing approval from theFDA or other regulatory authorities for their products more rapidly than we may obtain approval for ours, which couldresult in our competitors establishing a strong market position before we are able to enter the market.51 Table of ContentsMany of our competitors have significantly greater financial resources and expertise in research anddevelopment, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals andmarketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industriesmay result in even more resources being concentrated among a smaller number of our competitors. Smaller and otherearly stage companies may also prove to be significant competitors, particularly through collaborative arrangementswith large and established companies. These third parties compete with us in recruiting and retaining qualified scientificand management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as inacquiring technologies complementary to, or necessary for, our programs.In addition, to the extent that product or product candidates of our competitors demonstrate serious adverseside effects or are determined to be ineffective in clinical trials, the development of our product candidates could benegatively impacted.Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricingregulations, third‑party reimbursement practices or healthcare reform initiatives, which would harm our business.The regulations that govern marketing approvals, pricing and reimbursement for new drug products varywidely from country to country. In the United States, recently passed legislation may significantly change the purchaseof pharmaceutical products, resulting in lower prices and a reduction in product demand. Some countries requireapproval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins aftermarketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricingremains subject to continuing governmental control even after initial approval is granted. As a result, we might obtainmarketing approval for a product in a particular country, but then be subject to price regulations that delay ourcommercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able togenerate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup ourinvestment in one or more product candidates, even if our product candidates obtain marketing approval.Our ability to commercialize any products successfully also will depend in part on the extent to whichreimbursement for these products and related treatments will be available from government health administrationauthorities, private health insurers and other organizations. Government authorities and third‑party payors, such asprivate health insurers and health maintenance organizations, decide which medications they will pay for and establishreimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Governmentauthorities and third‑party payors have attempted to control costs by limiting coverage and the amount ofreimbursement for particular medications. Increasingly, third‑party payors are requiring that drug companies providethem with predetermined discounts from list prices and are challenging the prices charged for medical products. Wecannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement isavailable, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidatefor which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult becauseof the higher prices often associated with drugs administered under the supervision of a physician. If reimbursement isnot available or is available only to limited levels, we may not be able to successfully commercialize any productcandidate for which we obtain marketing approval.There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may bemore limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside theUnited States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at arate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursementlevels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent.Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be basedon reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for otherservices. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcareprograms or private payors and by any future relaxation of laws that presently restrict imports of drugs from countrieswhere they may be sold at lower prices than in the United States. Third‑party payors often rely upon Medicare coveragepolicy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverageand profitable payment rates from both52 Table of Contentsgovernment‑funded and private payors for any approved products that we develop could have a material adverse effecton our operating results, our ability to raise capital needed to commercialize products and our overall financialcondition.Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization ofany products that we may develop.We face an inherent risk of product liability exposure related to the testing of our product candidates in humanclinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannotsuccessfully defend ourselves against claims that our product candidates or products caused injuries, we will incursubstantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:·decreased demand for any product candidates or products that we may develop;·injury to our reputation and significant negative media attention;·withdrawal of clinical trial participants;·significant costs to defend the related litigation;·substantial monetary awards to trial participants or patients;·loss of revenue; and·the inability to commercialize any products that we may develop.We currently hold $10.0 million in product liability insurance coverage in the aggregate, with a per incidentlimit of $10.0 million, which may not be adequate to cover all liabilities that we may incur. We may need to increase ourinsurance coverage as we initiate additional clinical trials in the United States and around the world or upon thecommercialization of our product candidates, if ever. Insurance coverage is increasingly expensive. We may not be ableto maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines orpenalties or incur costs that could have a material adverse effect on the success of our business.We are subject to numerous environmental, health and safety laws and regulations, including those governinglaboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Ouroperations involve the use of hazardous and flammable materials, including chemicals and biological materials. Ouroperations also produce hazardous waste products. We generally contract with third parties for the disposal of thesematerials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event ofcontamination or injury resulting from our use of hazardous materials, we could be held liable for any resultingdamages, and any liability could exceed our resources. We also could incur significant costs associated with civil orcriminal fines and penalties.Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due toinjuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequatecoverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims thatmay be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.In addition, we may incur substantial costs in order to comply with current or future environmental, health andsafety laws and regulations. These current or future laws and regulations may impair our research, development orproduction efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties orother sanctions.53 Table of ContentsRISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITALWe have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and maynever achieve or maintain profitability.Since inception, we have incurred significant operating losses. As of December 31, 2015, we had anaccumulated deficit of $198.9 million. To date, we have not generated any revenues and have financed our operationsthrough private placements of our preferred stock, public offerings of our common stock and sales of our common stockpursuant to our at‑the‑market equity offering program. We have devoted substantially all of our efforts to research anddevelopment. Our product candidates, VS-6063, VS‑5584 and VS‑4718 are in Phase 1and Phase 2 clinical trials. Weexpect that it will be several years, if ever, before we have a product candidate ready for commercialization. We expectto continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses weincur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially ifand as we:·continue our ongoing clinical trials with VS‑6063, VS‑5584 and VS‑4718;·initiate additional clinical trials for our product candidates;·ultimately establish a sales, marketing and distribution infrastructure to commercialize any products forwhich we may obtain marketing approval;·continue our preclinical research or acquire or in‑license additional product candidates;·maintain, expand and protect our intellectual property portfolio;·hire additional clinical, development and scientific personnel; and·add operational, financial and management information systems and personnel, including personnel tosupport our product development and planned future commercialization efforts.To become and remain profitable, we must develop and eventually commercialize a product or products withsignificant market potential. This will require us to be successful in a range of challenging activities, includingcompleting preclinical testing and clinical trials of our product candidates, obtaining marketing approval for theseproduct candidates and manufacturing, marketing and selling those products for which we may obtain marketingapproval. We may never succeed in these activities and, even if we do, may never generate revenues that are significantor large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increaseprofitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of thecompany and could impair our ability to raise capital, maintain our research and development efforts, expand ourbusiness or continue our operations. A decline in the value of our company could also cause you to lose all or part ofyour investment.We will continue to need substantial additional funding. If we are unable to raise capital when needed, we would beforced to delay, reduce or eliminate our product development programs or commercialization efforts.We expect our expenses to increase in connection with our ongoing activities, particularly as we continue theclinical development of our product candidates. In addition, if we obtain marketing approval for any of our productcandidates, we expect to incur significant commercialization expenses related to product sales, marketing,manufacturing and distribution. Accordingly, we will need to obtain substantial additional funding in connection withour continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced todelay, reduce or eliminate our clinical development programs or any future commercialization efforts.54 Table of ContentsWe expect our existing cash, cash equivalents and investments will enable us to fund our current operatingplan and capital expenditure requirements into 2018. Our future capital requirements will depend on many factors,including:·the scope, progress and, results of our other ongoing clinical trials and potential future clinical trials;·the extent to which we acquire or in‑license other product candidates;·the costs, timing and outcome of regulatory review of our other product candidates (including our effortsto seek approval and fund the preparation and filing of regulatory submissions) and the costs of futurecommercialization activities for such product candidates, for which we receive marketing approval;·revenue, if any, received from commercial sales of our product candidates, should any of our productcandidates receive marketing approval;·the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing ourintellectual property rights and defending intellectual property‑related claims;·whether we realize the full amount of any projected cost savings associated with our organizationalrestructuring; and·our ability to establish collaborations or partnerships on favorable terms, if at all.Conducting clinical trials is a time‑consuming, expensive and uncertain process that takes years to complete,and we may never generate the necessary data or results required to obtain marketing approval and achieve productsales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues,if any, will be derived from sales of products that may not be commercially available for several years, if at all.Accordingly, even if we receive regulatory approval of one of our product candidates, it will take several years toachieve peak sales and we will need to continue to rely on additional financing to further our clinical developmentobjectives. Adequate additional financing may not be available to us on acceptable terms, or at all.Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquishrights to our product candidates.Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needsthrough a combination of equity offerings, debt financings, collaborations, grants and government funding, strategicalliances and licensing arrangements. We do not have any committed external source of funds. To the extent that weraise additional capital through the sale of equity or convertible debt, the ownership interest of our existingstockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adverselyaffect the rights of our existing stockholders. Debt financing, if available, may involve agreements that includecovenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capitalexpenditures or declaring dividends.If we raise additional funds through collaborations, strategic alliances or licensing arrangements with thirdparties, we may have to relinquish future revenue streams or valuable rights to product candidates or to grant licenses onterms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings whenneeded, we may be required to delay, limit, reduce or terminate our product development or future commercializationefforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and marketourselves.55 Table of ContentsRISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIESWe rely in part on third parties to conduct our clinical trials and preclinical testing, and if they do not properly andsuccessfully perform their obligations to us, we may not be able to obtain regulatory approvals for our productcandidates.We rely on third parties, such as contract research organizations (CROs), clinical data managementorganizations, medical institutions and clinical investigators, to conduct, provide monitors for and manage data from allof our clinical trials. We compete with many other companies for the resources of these third parties. Any of these thirdparties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it woulddelay our product development activities and ultimately the commercialization of our product candidates.Our reliance on these third parties for research and development activities will reduce our control over theseactivities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each ofour clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover,the FDA and other regulatory agencies require us to comply with standards, commonly referred to as Good ClinicalPractices (GCP) for conducting, recording and reporting the results of clinical trials to assure that data and reportedresults are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected.Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principalinvestigators and trial sites. If we or any of our CROs fail to comply with applicable GCP requirements, the clinical datagenerated in our clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require us toperform additional clinical trials before approving our marketing applications. We cannot assure you that uponinspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trialscomply with GCP requirements. We also are required to register ongoing clinical trials and post the results of completedclinical trials on government‑sponsored databases, such as ClinicalTrials.gov, within certain timeframes. Failure to do socan result in fines, adverse publicity and civil and criminal sanctions.If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conductour clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, ormay be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayedin our efforts to, successfully commercialize our product candidates.We intend to rely on third parties to conduct investigator‑sponsored clinical trials of our product candidates. Anyfailure by a third party to meet its obligations with respect to the clinical development of our product candidates maydelay or impair our ability to obtain regulatory approval for our product candidates.We intend to rely on academic and private non‑academic institutions to conduct and sponsor clinical trialsrelating to our product candidates. We will not control the design or conduct of the investigator‑sponsored trials, and itis possible that the FDA or non‑U.S. regulatory authorities will not view these investigator‑sponsored trials as providingadequate support for future clinical trials, whether controlled by us or third parties, for any one or more reasons,including elements of the design or execution of the trials or safety concerns or other trial results.Such arrangements will provide us certain information rights with respect to the investigator‑sponsored trials,including access to and the ability to use and reference the data, including for our own regulatory filings, resulting fromthe investigator‑sponsored trials. However, we do not have control over the timing and reporting of the data frominvestigator‑sponsored trials, nor do we own the data from the investigator‑sponsored trials. If we are unable to confirmor replicate the results from the investigator‑sponsored trials or if negative results are obtained, we would likely befurther delayed or prevented from advancing further clinical development of our product candidates. Further, ifinvestigators or institutions breach their obligations with respect to the clinical development of our product candidates,or if the data proves to be inadequate compared to the first‑hand knowledge we might have gained had theinvestigator‑sponsored trials been sponsored and conducted by us, then our ability to design and conduct any futureclinical trials ourselves may be adversely affected.56 Table of ContentsAdditionally, the FDA or non‑U.S. regulatory authorities may disagree with the sufficiency of our right ofreference to the preclinical, manufacturing or clinical data generated by these investigator‑sponsored trials, or ourinterpretation of preclinical, manufacturing or clinical data from these investigator‑sponsored trials. If so, the FDA orother non‑U.S. regulatory authorities may require us to obtain and submit additional preclinical, manufacturing, orclinical data before we may initiate our planned trials and/or may not accept such additional data as adequate to initiateour planned trials.We contract with third parties for the manufacture of our product candidates and for compound formulation research,and these third parties may not perform satisfactorily.We do not have any manufacturing facilities or personnel. We currently obtain all of our supply of our productcandidates for clinical development from third‑party manufacturers or third‑party collaborators, and we expect tocontinue to rely on third parties for the manufacture of clinical and, if necessary, commercial quantities of our productcandidates. In addition, we currently rely on third parties for the development of various formulations of our productcandidates. We obtain our supplies from these manufacturers on a purchase order basis, and we do not have any longterm supply agreements in place. This reliance on third parties increases the risk that we will not have sufficientquantities of our product candidates or such quantities at an acceptable cost or quality, which could delay, prevent orimpair our development or commercialization efforts.Any of these third parties may terminate their engagement with us at any time. We do not currently havearrangements in place for redundant supply or a second source for bulk drug substance. Even if we are able to establishagreements with third‑party manufacturers, reliance on third‑party manufacturers entails additional risks, including:·reliance on the third party for regulatory compliance and quality assurance;·the possible breach of the manufacturing agreement by the third party, including the misappropriation ofour proprietary information, trade secrets and know‑how;·the possible termination or nonrenewal of the agreement by the third party at a time that is costly orinconvenient for us; and·disruptions to the operations of our manufacturers or suppliers caused by conditions unrelated to ourbusiness or operations, including the bankruptcy of the manufacturer or supplier or a catastrophic eventaffecting our manufacturers or suppliers.Third‑party manufacturers may not be able to comply with current good manufacturing practices (cGMP)regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third‑partymanufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines,injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls ofproduct candidates or products, operating restrictions and criminal prosecutions, any of which could significantly andadversely affect supplies of our products and harm our business and results of operations.Any products that we may develop may compete with other product candidates and products for access tomanufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and thatmight be capable of manufacturing for us.If our current contract manufacturers cannot perform as agreed, we may be required to replace that manufacturer.Although we believe that there are several potential alternative manufacturers who could manufacture our productcandidates, we may incur added costs and delays in identifying and qualifying any such replacement, as well asproducing the drug product. In addition, we have to enter into technical transfer agreements and share our know‑howwith the third‑party manufacturers, which can be time‑consuming and may result in delays.57 Table of ContentsOur current and anticipated future dependence upon others for the manufacture of our product candidates orproducts may adversely affect our future profit margins and our ability to commercialize any products that receivemarketing approval on a timely and competitive basis.If we are not able to establish collaborations, we may have to alter our development and commercialization plans.Our drug development programs and the potential commercialization of our product candidates will requiresubstantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate withpharmaceutical and biotechnology companies for the development and potential commercialization of those productcandidates.We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreementfor a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise,the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number offactors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similarregulatory authorities outside the United States, the potential market for the subject product candidate, the costs andcomplexities of manufacturing and delivering such product candidate to patients, the potential of competing products,the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to suchownership without regard to the merits of the challenge and industry and market conditions generally. The collaboratormay also consider alternative product candidates or technologies for similar indications that may be available tocollaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate.Collaborations are complex and time‑consuming to negotiate and document. In addition, there have been a significantnumber of recent business combinations among large pharmaceutical companies that have resulted in a reduced numberof potential future collaborators.We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unableto do so, we may have to curtail the development of certain product candidates, reduce or delay our developmentprograms, delay potential commercialization or reduce the scope of any sales or marketing activities, or increase ourexpenditures and undertake development or commercialization activities at our own expense. If we elect to increase ourexpenditures to fund development or commercialization activities on our own, we may need to obtain additionalcapital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not beable to further develop our product candidates or bring them to market and generate product revenue.We may depend on collaborations with third parties for the development and commercialization of our productcandidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of theseproduct candidates.We may seek third‑party collaborators for the development and commercialization of our product candidates.We anticipate that we may seek to enter into a collaboration for marketing and commercialization of our productcandidates in certain territories worldwide at the appropriate time in the future. Our likely collaborators for anycollaboration arrangements include large and mid‑size pharmaceutical companies, regional and national pharmaceuticalcompanies and biotechnology companies. If we do enter into any such arrangements with any third parties, we willlikely have limited control over the amount and timing of resources that our collaborators dedicate to the developmentor commercialization of our product candidates. Our ability to generate revenues from these arrangements will dependon our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.Collaborations involving our product candidates would pose the following risks to us:·collaborators have significant discretion in determining the efforts and resources that they will apply tothese collaborations;·collaborators may not pursue development and commercialization of our product candidates or may electnot to continue or renew development or commercialization programs based on clinical trial58 Table of Contentsresults, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition thatdiverts resources or creates competing priorities;·collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop aclinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a newformulation of a product candidate for clinical testing;·collaborators could independently develop, or develop with third parties, products that compete directlyor indirectly with our products or product candidates if the collaborators believe that competitive productsare more likely to be successfully developed or can be commercialized under terms that are moreeconomically attractive than ours;·a collaborator with marketing and distribution rights to one or more products may not commit sufficientresources to the marketing and distribution of such product or products;·collaborators may not properly maintain or defend our intellectual property rights or may use ourproprietary information in such a way as to invite litigation that could jeopardize or invalidate ourproprietary information or expose us to potential litigation;·disputes may arise between the collaborators and us that result in the delay or termination of the research,development or commercialization of our products or product candidates or that result in costly litigationor arbitration that diverts management attention and resources; and·collaborations may be terminated and, if terminated, may result in a need for additional capital to pursuefurther development or commercialization of the applicable product candidates.Collaboration agreements may not lead to development or commercialization of product candidates in the mostefficient manner or at all. If a future collaborator of ours were to be involved in a business combination, the continuedpursuit and emphasis on our product development or commercialization program could be delayed, diminished orterminated.RISKS RELATED TO OUR INTELLECTUAL PROPERTYIf we fail to comply with our obligations under our intellectual property licenses with third parties, we could loselicense rights that are important to our business.We are a party to a number of intellectual property license agreements with third parties, including theWhitehead Institute, Scripps and Pfizer, and expect to enter into additional license agreements in the future. Ourexisting license agreements impose, and we expect that future license agreements will impose, various diligence,milestone payment, royalty, insurance and other obligations on us. For example, under our license agreements with theWhitehead Institute, Scripps, and Pfizer, we are required to use commercially reasonable efforts to develop andcommercialize licensed products under the agreement and to satisfy other specified obligations. If we fail to complywith our obligations under these licenses, our licensors may have the right to terminate these license agreements, inwhich event we might not be able to market any product that is covered by these agreements, or to convert the exclusivelicenses to non‑exclusive licenses, which could materially adversely affect the value of the product candidate beingdeveloped under these license agreements. Termination of these license agreements or reduction or elimination of ourlicensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms. If Scripps wereto terminate its license agreement with us for any reason, we would lose our rights to VS‑4718. If Pfizer were to terminateits license agreement with us for any reason, we would lose our rights to VS‑6063.59 Table of ContentsIf we are unable to obtain and maintain patent protection for our technology and products, or if our licensors areunable to obtain and maintain patent protection for the technology or products that we license from them, or if thescope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercializetechnology and products similar or identical to ours, and our ability to successfully commercialize our technology andproducts may be adversely affected.Our success depends in large part on our and our licensors’ ability to obtain and maintain patent protection inthe United States and other countries with respect to our proprietary technology and products. We and our licensors seekto protect our proprietary position by filing patent applications in the United States and abroad related to our noveltechnologies and products that are important to our business. We cannot be certain that any patents will issue withclaims that cover our proprietary technology or product candidates.The patent prosecution process is expensive and time‑consuming, and we may not be able to file and prosecuteall necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we willfail to identify patentable aspects of our research and development output before it is too late to obtain patentprotection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecutionof patent applications, or to maintain the patents, covering technology or products that we license from third parties andare reliant on our licensors. For example, we do not control the prosecution of the patent applications licensed to usunder our agreements with the Whitehead Institute or those patent applications owned by Scripps. Therefore, we cannotbe certain that these patents and applications will be prosecuted and enforced in a manner consistent with the bestinterests of our business. If such licensors fail to maintain such patents, or lose rights to those patents, the rights we havelicensed may be reduced or eliminated.The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involvescomplex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance,scope, validity, enforceability and commercial value of our and our licensors’ patent rights are highly uncertain. Our andour licensors’ pending and future patent applications may not result in patents being issued which protect ourtechnology or products or which effectively prevent others from commercializing competitive technologies andproducts. Changes in either the patent laws or interpretation of the patent laws in the United States and other countriesmay diminish the value of our patents or narrow the scope of our patent protection.The laws of foreign countries may not protect our rights to the same extent as the laws of the United States.Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications inthe United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not atall. Therefore we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned orlicensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection ofsuch inventions.Assuming the other requirements for patentability are met, in the United States, for patents that have aneffective filing date prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, whileoutside the United States, the first to file a patent application is entitled to the patent. In March 2013, the United Statestransitioned to a first inventor to file system in which, assuming the other requirements for patentability are met, the firstinventor to file a patent application will be entitled to the patent. We may be subject to a third party pre-issuancesubmission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation,reexamination, inter parties review or interference proceedings challenging our patent rights or the patent rights ofothers. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, orinvalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly withus, without payment to us, or result in our inability to manufacture or commercialize products without infringingthird‑party patent rights.Even if our owned and licensed patent applications issue as patents, they may not issue in a form that willprovide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us withany competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developingsimilar or alternative technologies or products in a non‑infringing manner.60 Table of ContentsThe issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and ourowned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Suchchallenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or heldunenforceable, which could limit our ability to stop others from using or commercializing similar or identicaltechnology and products, or limit the duration of the patent protection of our technology and products. Given theamount of time required for the development, testing and regulatory review of new product candidates, patentsprotecting such candidates might expire before or shortly after such candidates are commercialized. As a result, ourowned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializingproducts similar or identical to ours.We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming andunsuccessful.Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to fileinfringement claims, which can be expensive and time consuming. In addition, in an infringement proceeding, a courtmay decide that a patent of ours is invalid or unenforceable, or may refuse to stop the other party from using thetechnology at issue on the grounds that our patents do not cover the technology in question. An adverse result in anylitigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation,there is a risk that some of our confidential information could be compromised by disclosure during this type oflitigation. In addition, our licensors may have rights to file and prosecute such claims and we are reliant on them.Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, theoutcome of which would be uncertain and could have a material adverse effect on the success of our business.Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture,market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights ofthird parties. We have yet to conduct comprehensive freedom‑to-operate searches to determine whether our use ofcertain of the patent rights owned by or licensed to us would infringe patents issued to third parties. We may becomeparty to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights withrespect to our products and technology, including interference proceedings before the U.S. Patent and Trademark Office.Third parties may assert infringement claims against us based on existing patents or patents that may be granted in thefuture. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a licensefrom such third party to continue developing and marketing our products and technology. However, we may not be ableto obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, itcould be non‑exclusive, thereby giving our competitors access to the same technologies licensed to us. We could beforced, including by court order, to cease commercializing the infringing technology or product. In addition, we couldbe found liable for monetary damages. A finding of infringement could prevent us from commercializing our productcandidates or force us to cease some of our business operations, which could materially harm our business. Claims thatwe have misappropriated the confidential information or trade secrets of third parties could have a similar negativeimpact on our business.We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their formeremployers.Many of our employees were previously employed at universities or other biotechnology or pharmaceuticalcompanies, including our competitors or potential competitors. Although we try to ensure that our employees do not usethe proprietary information or know‑how of others in their work for us, we may be subject to claims that we or theseemployees have used or disclosed intellectual property, including trade secrets or other proprietary information, of anysuch employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in defendingany such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights orpersonnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and bea distraction to management.61 Table of ContentsIntellectual property litigation could cause us to spend substantial resources and distract our personnel from theirnormal responsibilities.Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims maycause us to incur significant expenses, and could distract our technical and management personnel from their normalresponsibilities. In addition, there could be public announcements of the results of hearings, motions or other interimproceedings or developments and if securities analysts or investors perceive these results to be negative, it could have asubstantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increaseour operating losses and reduce the resources available for development activities or any future sales, marketing ordistribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation orproceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectivelythan we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation ofpatent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would beharmed.In addition to seeking patents for some of our technology and products, we also rely on trade secrets, includingunpatented know‑how, technology and other proprietary information, to maintain our competitive position. We seek toprotect these trade secrets, in part, by entering into non‑disclosure and confidentiality agreements with parties who haveaccess to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers,consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignmentagreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreementsand disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequateremedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret isdifficult, expensive and time‑consuming, and the outcome is unpredictable. In addition, some courts inside and outsidethe United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfullyobtained or independently developed by a competitor, we would have no right to prevent them from using thattechnology or information to compete with us. If any of our trade secrets were to be disclosed to or independentlydeveloped by a competitor, our competitive position would be harmed.RISKS RELATED TO REGULATORY APPROVAL OF OUR PRODUCT CANDIDATES AND OTHER LEGALCOMPLIANCE MATTERSIf we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able tocommercialize our product candidates, and our ability to generate revenue will be materially impaired.Our product candidates and the activities associated with their development and commercialization, includingtheir design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion,sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the UnitedStates and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidatewill prevent us from commercializing the product candidate. We have not received approval to market any of ourproduct candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing andsupporting the applications necessary to gain marketing approvals and expect to rely on third‑party contract researchorganizations to assist us in this process. Securing FDA approval requires the submission of extensive preclinical andclinical data and supporting information to the FDA for each therapeutic indication to establish the product candidate’ssafety and efficacy. Securing FDA approval also requires the submission of information about the productmanufacturing process to, and inspection of manufacturing facilities by, the FDA. Our product candidates may not beeffective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities orother characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may takemany years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upona variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in62 Table of Contentsmarketing approval policies during the development period, changes in or the enactment of additional statutes orregulations, or changes in regulatory review for each submitted product application, may cause delays in the approval orrejection of an application. The FDA has substantial discretion in the approval process and may refuse to accept anyapplication or may decide that our data is insufficient for approval and require additional preclinical, clinical or otherstudies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limitor prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited orsubject to restrictions or post‑approval commitments that render the approved product not commercially viable.If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, thecommercial prospects for our product candidates may be harmed and our ability to generate revenues will be materiallyimpaired.We have received orphan disease status for certain of our product candidates, but there can be no assurance that wewill be able to prevent third parties from developing and commercializing products that are competitive to theseproduct candidates.We received orphan drug designation in the United States, the European Union, and Australia for the use ofVS‑6063 in mesothelioma and ovarian cancer. If VS-6063 obtains marketing authorization, it will receive orphan drugexclusivity. Orphan drug exclusivity grants seven years of marketing exclusivity under the Federal Food, Drug andCosmetic Act (FDCA), up to ten years of marketing exclusivity in Europe, and five years of marketing exclusivity inAustralia. A competitor may receive orphan drug marketing authorization prior to us for the same indication for whichwe are developing VS-6063. Other companies have received orphan drug designations for compounds other thanVS‑6063 for mesothelioma and ovarian cancer in the United States, the European Union, and Australia. While orphandrug exclusivity for VS‑6063 would provide market exclusivity against the same active ingredient for the sameindication, we would not be able to exclude other companies from manufacturing and/or selling drugs using the sameactive ingredient for the same indication beyond that timeframe on the basis of orphan drug exclusivity. Furthermore,the marketing exclusivity in Europe can be reduced from ten years to six years if the initial designation criteria havesignificantly changed since the market authorization of the orphan medicinal product. We cannot guarantee that anothercompany also with orphan drug designation will not receive marketing authorization for the same active ingredient andsame indication before we do. If that were to happen, our applications for that indication may not be approved until thecompeting company’s period of exclusivity has expired. Even if we are the first to obtain marketing authorization for anorphan drug indication, there are circumstances under which the FDA may approve a competing product for the sameindication during the seven‑year period of marketing exclusivity, such as if the later product is the same compound asour product but is shown to be clinically superior to our product, or if the later product is a different drug than ourproduct candidate. Further, the seven‑year marketing exclusivity would not prevent competitors from obtainingapproval of the same compound for other indications or of another compound for the same use as the orphan drug.Any product candidate for which we obtain marketing approval could be subject to restrictions or withdrawal fromthe market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experienceunanticipated problems with our products, when and if any of them are approved.Any product candidate for which we obtain marketing approval, along with the manufacturing processes,post‑approval clinical data, labeling, advertising and promotional activities for such product, will be subject tocontinual requirements of and review by the FDA and other regulatory authorities. These requirements includesubmissions of safety and other post‑marketing information and reports, registration and listing requirements, cGMPrequirements relating to quality control, quality assurance and corresponding maintenance of records and documents,requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of aproduct candidate is granted, the approval may be subject to limitations on the indicated uses for which the product maybe marketed or to the conditions of approval, or contain requirements for costly post‑marketing testing and surveillanceto monitor the safety or efficacy of the product. The FDA closely regulates the post‑approval marketing and promotionof drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of theapproved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off‑label useand if we do not market our products for their approved indications, we may be subject to enforcement action foroff‑label marketing.63 Table of ContentsIn addition, later discovery of previously unknown problems with our products, manufacturers ormanufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:·restrictions on such products, manufacturers or manufacturing processes;·restrictions on the labeling or marketing of a product;·restrictions on product distribution or use;·requirements to conduct post‑marketing clinical trials;·warning or untitled letters;·withdrawal of the products from the market;·refusal to approve pending applications or supplements to approved applications that we submit;·recall of products;·fines, restitution or disgorgement of profits or revenue;·suspension or withdrawal of marketing approvals;·refusal to permit the import or export of our products;·product seizure; or·injunctions or the imposition of civil or criminal penalties.Our relationships with customers and third‑party payors will be subject to applicable anti‑kickback, fraud and abuseand other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractualdamages, reputational harm and diminished profits and future earnings.Healthcare providers, physicians and third‑party payors play a primary role in the recommendation andprescription of any product candidates for which we obtain marketing approval. Our future arrangements withthird‑party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws andregulations that may constrain the business or financial arrangements and relationships through which we market, selland distribute our products for which we obtain marketing approval. Restrictions under applicable federal and statehealthcare laws and regulations, include the following:·the federal healthcare anti‑kickback statute prohibits, among other things, persons from knowingly andwillfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind,to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, anygood or service, for which payment may be made under federal and state healthcare programs such asMedicare and Medicaid;·the federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tamactions, against individuals or entities for knowingly presenting, or causing to be presented, to the federalgovernment, claims for payment that are false or fraudulent or making a false statement to avoid, decreaseor conceal an obligation to pay money to the federal government;·the federal Health Insurance Portability and Accountability Act of 1996, as amended by the HealthInformation Technology for Economic and Clinical Health Act, imposes criminal and civil liability forexecuting a scheme to defraud any healthcare benefit program and also imposes obligations, includingmandatory contractual terms, with respect to safeguarding the privacy, security and transmission ofindividually identifiable health information;64 Table of Contents·the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering upa material fact or making any materially false statement in connection with the delivery of or payment forhealthcare benefits, items or services;·the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs,devices, biologics and medical supplies to report to the Department of Health and Human Servicesinformation related to physician payments and other transfers of value and physician ownership andinvestment interests; and·analogous state laws and regulations, such as state anti‑kickback and false claims laws, may apply to salesor marketing arrangements and claims involving healthcare items or services reimbursed bynon‑governmental third‑party payors, including private insurers, and some state laws requirepharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelinesand the relevant compliance guidance promulgated by the federal government in addition to requiringdrug manufacturers to report information related to payments to physicians and other health care providersor marketing expenditures.Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare lawsand regulations will involve substantial costs. It is possible that governmental authorities will conclude that ourbusiness practices may not comply with current or future statutes, regulations or case law involving applicable fraud andabuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or anyother governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrativepenalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, andthe curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom weexpect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil oradministrative sanctions, including exclusions from government funded healthcare programs.Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage inmisconduct or other improper activities, including non‑compliance with regulatory standards and requirements,which could cause significant liability for us and harm our reputation.We are exposed to the risk that our employees, independent contractors, principal investigators, CROs,consultants and vendors may engage in fraud or other misconduct, including intentional failures to: comply with FDAregulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDAor comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply withfederal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established andenforced by comparable foreign regulatory authorities, report financial information or data accurately or discloseunauthorized activities to us. Such misconduct could also involve the improper use of information obtained in thecourse of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not alwayspossible to identify and deter misconduct by employees and other third parties, and the precautions we take to detectand prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting usfrom governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with suchlaws, standards or regulations. If any such actions are instituted against us, and we are not successful in defendingourselves or asserting our rights, those actions could have a significant impact on our business and results of operations,including the imposition of significant fines or other sanctions.Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval ofand commercialize our product candidates and affect the prices we may obtain.In the United States and some foreign jurisdictions, there have been a number of legislative and regulatorychanges and proposed changes regarding the healthcare system that could prevent or delay marketing approval of ourproduct candidates, restrict or regulate post‑approval activities and affect our ability to profitably sell any productcandidates for which we obtain marketing approval.65 Table of ContentsIn the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MedicareModernization Act) changed the way Medicare covers and pays for pharmaceutical products. The legislation expandedMedicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based onaverage sales prices for physician administered drugs. In addition, this legislation provided authority for limiting thenumber of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of thislegislation could decrease the coverage and price that we receive for any approved products. While the MedicareModernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicarecoverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction inreimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments fromprivate payors.In March 2010, President Obama signed into law the Health Care Reform Law, a sweeping law intended tobroaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies againstfraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxesand fees on the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health CareReform Law revises the definition of “average manufacturer price” for reporting purposes, which could increase theamount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies thatmanufacture or import branded prescription drug products. Substantial new provisions affecting compliance have alsobeen enacted, which may affect our business practices with health care practitioners. We will not know the full effects ofthe Health Care Reform Law until applicable federal and state agencies issue regulations or guidance under the new law.Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continuethe pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatoryburdens and operating costs.Legislative and regulatory proposals have been made to expand post‑approval requirements and restrict salesand promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes willbe enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of suchchanges on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S.Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us tomore stringent product labeling and post‑marketing testing and other requirements.RISKS RELATED TO EMPLOYEE MATTERS AND MANAGING GROWTHOur future success depends on our ability to retain our chief executive officer and other key executives and to attract,retain and motivate qualified personnel.We are highly dependent on Robert Forrester, our President and Chief Executive Officer, and Daniel Paterson,our Chief Operating Officer, as well as the other principal members of our management and scientific teams. Althoughwe have formal employment agreements with Robert Forrester and Daniel Paterson, these agreements do not preventthem from terminating their employment with us at any time. We do not maintain “key person” insurance for any of ourexecutives or other employees. The loss of the services of any of these persons could impede the achievement of ourresearch, development and commercialization objectives.Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel willalso be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given ourrecent workforce reduction, the status of our clinical development programs, and the competition among numerouspharmaceutical and biotechnology companies, universities and research institutions for similar personnel. Theorganizational restructuring we undertook in October 2015, which reduced our workforce by approximately 50%, mayyield unintended consequences, such as attrition beyond our planned reduction in workforce and reduced employeemorale, which may cause our remaining employees to seek alternate employment. Although we have implemented aretention plan for certain key employees, our retention plan may not be successful in incentivizing these employees tocontinue their employment with us. In addition, we rely on consultants and advisors, including scientific and clinicaladvisors, to assist us in formulating our research and development and commercialization strategy. Our consultants andadvisors, including our scientific co‑founders, may be employed by employers other than us and may have commitmentsunder consulting or advisory contracts with other entities that may limit their availability to us.66 Table of ContentsWe may experience difficulties in managing restructurings.In October 2015, we undertook an organizational restructuring that reduced our workforce by approximately50%. Effecting any restructuring places significant strains on management, our employees and our operational,financial and other resources. Furthermore, restructurings take time to fully implement and involve certain additionalcosts, including severance payments to terminated employees, and we may also incur liabilities from early terminationor assignment of contracts, potential litigation or other effects from such restructuring. Such effects from ourrestructuring program could have a material adverse affect on our ability to execute on our business plan. There can beno assurance that we will be successful in implementing our restructuring program.Future growth would impose significant added responsibilities on members of management, including the needto identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability todevelop our product candidates or additional assets will depend, in part, on our ability to effectively manage any futuregrowth or restructuring, as the case may be.We may expand our development, regulatory and future sales and marketing capabilities over time, and as a result, wemay encounter difficulties in managing our growth, which could disrupt our operations.Although we implemented a restructuring in October 2015, we may experience significant growth over time inthe number of our employees and the scope of our operations, particularly in the areas of drug development, regulatoryaffairs and sales and marketing. To manage our anticipated future growth, we may continue to implement and improveour managerial, operational and financial systems, expand our facilities and continue to recruit and train additionalqualified personnel. Due to our limited financial resources and the limited experience of our management team inmanaging a company with such anticipated growth, we may not be able to effectively manage the expansion of ouroperations or recruit and train additional qualified personnel when we expand. The physical expansion of our operationsmay lead to significant costs and may divert our management and business development resources. Any inability tomanage growth could delay the execution of our business plans or disrupt our operations.Our business and operations may be materially adversely affected in the event of computer system failures.Despite the implementation of security measures, our internal computer systems, and those of our contractresearch organizations and other third parties on which we rely, are vulnerable to damage from computer viruses,unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an eventwere to occur and cause interruptions in our operations, it could result in a material disruption of our clinicaldevelopment programs. For example, the loss of clinical trial data from ongoing or planned clinical trials could result indelays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To theextent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriatedisclosure of confidential or proprietary information, we could incur liability and the further development of ourproduct candidates could be delayed.RISKS RELATED TO OUR COMMON STOCKProvisions in our corporate charter documents and under Delaware law could make an acquisition of us, which maybe beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or removeour current management.Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition orother change in control of us that stockholders may consider favorable, including transactions in which you mightotherwise receive a premium for your shares. These provisions could also limit the price that investors might be willingto pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Inaddition, because our board of directors is responsible for appointing the members of our management team, theseprovisions may frustrate or prevent any attempts by our stockholders to replace or remove our current67 Table of Contentsmanagement by making it more difficult for stockholders to replace members of our board of directors. Among otherthings, these provisions:·establish a classified board of directors such that not all members of the board are elected at one time;·allow the authorized number of our directors to be changed only by resolution of our board of directors;·limit the manner in which stockholders can remove directors from the board;·establish advance notice requirements for stockholder proposals that can be acted on at stockholdermeetings and nominations to our board of directors;·require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actionsby our stockholders by written consent;·limit who may call stockholder meetings;·authorize our board of directors to issue preferred stock without stockholder approval, which could be usedto institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer,effectively preventing acquisitions that have not been approved by our board of directors; and·require the approval of the holders of at least 75% of the votes that all our stockholders would be entitledto cast to amend or repeal certain provisions of our charter or bylaws.Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of theDelaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding votingstock from merging or combining with us for a period of three years after the date of the transaction in which the personacquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribedmanner.The market price of our common stock has been, and may continue to be, highly volatile.Our stock price has been volatile. Since January 27, 2012, when we became a public company, the price for oneshare of our common stock has reached a high of $18.82 and a low of $1.05 through March 2, 2016. We cannot predictwhether the price of our common stock will rise or fall. The market price for our common stock may be influenced bymany factors, including:·the success of competitive products or technologies;·results of clinical trials of our product candidates or those of our competitors;·regulatory or legal developments in the United States and other countries;·developments or disputes concerning patent applications, issued patents or other proprietary rights;·the recruitment or departure of key personnel;·the level of expenses related to any of our product candidates or clinical development programs;·the results of our efforts to discover, develop, acquire or in‑ license additional product candidates orproducts;68 Table of Contents·actual or anticipated changes in estimates as to financial results, development timelines orrecommendations by securities analysts;·variations in our financial results or those of companies that are perceived to be similar to us;·changes in the structure of healthcare payment systems;·market conditions in the pharmaceutical and biotechnology sectors;·general economic, industry and market conditions; and·the other factors described in this “Risk Factors” section.In addition, the stock market in general and the market for small pharmaceutical companies and biotechnologycompanies in particular have experienced extreme price and volume fluctuations that have often been unrelated ordisproportionate to the operating performance of particular companies. Broad market and industry factors maynegatively affect the market price of our common stock, regardless of our actual operating performance. In the past,following periods of volatility in the market, securities class‑action litigation has often been instituted againstcompanies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’sattention and resources, which could materially and adversely affect our business and financial condition.Failure to comply with The NASDAQ Global Market continued listing requirements may result in our common stockbeing delisted from The NASDAQ Global Market.If our stock price falls below $1.00 per share, we may not continue to qualify for continued listing on TheNASDAQ Global Market. To maintain listing, we are required, among other things, to maintain a minimum closing bidprice of $1.00 per share. If the closing bid price of our common stock is below $1.00 per share for 30 consecutivebusiness days, we will receive a deficiency notice from NASDAQ advising us that we have a certain period of time,typically 180 days, to regain compliance by maintaining a minimum closing bid price of at least $1.00 for at least tenconsecutive business days, although NASDAQ could require a longer period.The delisting of our common stock would significantly affect the ability of investors to trade our common stockand negatively impact the liquidity and price of our common stock. In addition, the delisting of our common stockcould materially adversely impact our ability to raise capital on acceptable terms or at all. Delisting from The NASDAQGlobal Market could also have other negative results, including the potential loss of confidence by our current orprospective third-party providers and collaboration partners, the loss of institutional investor interest, and fewerlicensing and partnering opportunities. Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capitalappreciation, if any, will be the source of gain for our stockholders. We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of ourfuture earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debtagreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock willbe the sole source of gain for our stockholders for the foreseeable future.We are an “emerging growth company,” and our election to delay adoption of new or revised accounting standardsapplicable to public companies may result in our financial statements not being comparable to those of other publiccompanies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies,our common stock may be less attractive to investors.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (JOBS Act) andmay remain an emerging growth company for up to five years, until December 31, 2017, although if the market value ofour common stock that is held by non‑affiliates exceeds $700 million as of any June 30 before that time or69 Table of Contentsif we trigger other criteria, we would cease to be an emerging growth company as of December 31 of the applicable year.For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certainreporting requirements that are applicable to other public companies that are not emerging growth companies. Theseexemptions include not being required to comply with the auditor attestation requirements of Section 404 of theSarbanes‑Oxley Act of 2002, not being required to comply with any requirement that may be adopted by the PublicCompany Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s reportproviding additional information about the audit and the financial statements, reduced disclosure obligations regardingexecutive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holdinga nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute paymentsnot previously approved.Among other provisions, the JOBS Act provides that an emerging growth company can take advantage of theextended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the Securities Act)for complying with new or revised accounting standards. This allows an emerging growth company to delay theadoption of certain accounting standards until those standards would otherwise apply to private companies. We areelecting to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new orrevised accounting standards on the relevant dates on which adoption of such standards is required for public companiesthat are not emerging growth companies. As a result of such election, our financial statements may not be comparable tothe financial statements of other public companies.We cannot predict whether investors will find our common stock less attractive because we will rely on theseexemptions. If some investors find our common stock less attractive as a result, there may be a less active trading marketfor our common stock and our stock price may be more volatile. Item 1B. Unresolved Staff CommentsNone. Item 2. PropertiesWe occupy approximately 15,197 square feet of office and laboratory space in Needham, Massachusetts undera lease that expires in September 2019. We believe that our facility is sufficient to meet our current needs and thatsuitable additional space will be available as and when needed. Item 3. Legal ProceedingsNone. Item 4. Mine Safety DisclosuresNot applicable.70 Table of ContentsPART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of EquitySecuritiesMARKET INFORMATIONOur common stock is publicly traded on the NASDAQ Global Market under the symbol “VSTM.” Thefollowing table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported onthe NASDAQ Global Market.Year Ended December 31, 2015 High Low First quarter $12.35 $6.78 Second quarter $10.67 $6.84 Third quarter $8.07 $1.50 Fourth quarter $2.43 $1.56 Year Ended December 31, 2014 High Low First quarter $16.60 $10.29 Second quarter $11.47 $7.10 Third quarter $10.06 $7.28 Fourth quarter $10.31 $8.01 HOLDERSAs of February 22, 2016, there were 22 holders of record of our common stock and the closing price of ourcommon stock on the NASDAQ Global Market as of that date was $1.19. The number of holders of record does notinclude beneficial owners whose shares are held by nominees in street name.DIVIDENDSWe have never declared or paid cash dividends on our common stock, and we do not expect to pay any cashdividends on our common stock in the foreseeable future.SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANSThe following table contains information about our equity compensation plans as of December 31, 2015. Number of securities Weighted- to be issued upon average exercise Number of securities exercise of price of remaining available outstanding stock outstanding options, for future issuance options, warrants and warrants and under equity Plan category rights rights compensation plans Equity compensation plans approved by securityholders(1) 5,255,130 $8.74 649,389(3)Equity compensation plans not approved by securityholders(2) 135,000 $7.22 615,000 (1)Includes information regarding our 2010 Equity Incentive Plan and 2012 Incentive Plan.(2)The Board of Directors has authorized and reserved 750,000 shares of common stock that may be issued pursuant tostock options granted or to be granted to new employees in accordance with NASDAQ Listing Rule 5635(c)(4), asan inducement material to such employees entering into employment with the Company. The terms of these stockoptions are consistent with stock options granted under the Company’s 2012 Incentive Plan.(3)Does not include 1,285,714 shares added to the 2012 Incentive Plan under the evergreen provision on January 1,2016.71 Table of ContentsPERFORMANCE GRAPHThe following performance graph and related information shall not be deemed to be “soliciting material” or tobe “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under theSecurities Act, except to the extent that we specifically incorporate it by reference into such filing.The following graph compares the performance of our common stock to the NASDAQ Composite Index and tothe NASDAQ Biotechnology Index from January 27, 2012 (the first date that shares of our common stock were publiclytraded) through December 31, 2015. The comparison assumes $100 was invested after the market closed on January 27,2012 in our common stock and in each of the foregoing indices, and it assumes reinvestment of dividends, if any.COMPARISON OF 4 YEAR CUMULATIVE TOTAL RETURN*Among Verastem, Inc., the NASDAQ Composite Index, and the NASDAQ Biotechnology Index *$100 invested on 1/27/12 in stock or 12/31/11 in index, including reinvestment of dividends. Fiscal year endingDecember 31, 2015.Cumulative Total Return Comparison 1/27/2012 12/31/2012 12/31/2013 12/31/2014 12/31/2015 Verastem, Inc. 100.00 79.26 102.80 82.42 16.77 NASDAQ Composite 100.00 116.30 165.31 187.78 198.90 NASDAQ Biotechnology 100.00 135.15 231.11 305.90 323.95 PURCHASE OF EQUITY SECURITIESWe did not purchase any of our equity securities during the period covered by this Annual Report onForm 10‑K.72 Table of ContentsItem 6. Selected Financial DataYou should read the following selected financial data together with our consolidated financial statements andthe related notes appearing elsewhere in this Annual Report on Form 10‑K and the “management’s discussion andanalysis of financial condition and results of operations” section of this Annual Report on Form 10‑K. The selectedhistorical financial information in this section is not intended to replace our financial statements and the related notestherein. Our historical results for any prior period are not necessarily indicative of results to be expected in any futureperiod. Year Ended December 31, Statement of operations data: 2015 2014 2013 2012 2011 (in thousands, except share and per share amounts) Operating expenses: Research and development $40,565 $35,448 $25,930 $21,712 $9,883 General and administrative 17,634 18,159 15,472 10,518 3,815 Total operating expenses 58,199 53,607 41,402 32,230 13,698 Loss from operations (58,199) (53,607) (41,402) (32,230) (13,698) Interest income 334 242 200 246 15 Net loss (57,865) (53,365) (41,202) (31,984) (13,683) Accretion of preferred stock — — — (6) (32) Net loss applicable to common stockholders $(57,865) $(53,365) $(41,202) $(31,990) $(13,715) Net loss per share applicable to common stockholders—basic and diluted $(1.61) $(2.07) $(1.82) $(1.70) $(10.59) Weighted‑average number of common shares used in netloss per share applicable to common stockholders—basic and diluted 35,932 25,804 22,680 18,765 1,295 As of December 31, Balance sheet data: 2015 2014 2013 2012 2011 (in thousands) Cash, cash equivalents and investments $110,258 $92,675 $123,656 $91,520 $56,805 Working capital 100,734 86,112 94,151 54,683 44,795 Total assets 113,094 98,649 125,261 92,923 59,037 Redeemable convertible preferred stock — — — — 68,141 Accumulated deficit (198,883) (141,018) (87,653) (46,451) (14,467) Total stockholders’ (deficit) equity 102,469 88,766 117,446 90,466 (12,766) 73 Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsYou should read the following discussion and analysis of our financial condition and results of operationstogether with our consolidated financial statements and related notes appearing elsewhere in this Annual Report onForm 10‑K. The following discussion contains forward‑looking statements that involve risks and uncertainties. Ouractual results and the timing of certain events could differ materially from those anticipated in these forward‑lookingstatements as a result of certain factors, including those discussed below and as set forth under “Risk Factors.” Pleasealso refer to the section under heading “Forward‑Looking Statements.”OVERVIEWWe are a biopharmaceutical company focused on discovering and developing drugs to improve outcomes forpatients with cancer. Our product candidates utilize a multi-faceted approach to treat cancer by reducing cancer stemcells, enhancing anti-tumor immunity, and modulating the local tumor microenvironment. Our most advanced productcandidates are VS-6063, VS-4718, and VS-5584. We are currently evaluating these compounds in both preclinical andclinical studies as potential therapies for certain cancers, including lung, ovarian, lymphoma, and pancreatic. Webelieve that these compounds may be especially beneficial as therapeutics when used in combination with immuno-oncology agents, as well as other current and emerging standard of care treatments in aggressive cancers that have apoorer prognosis and lower overall survival rates when compared to other types of cancer.Our most advanced programs target the Focal Adhesion Kinase, or FAK, and the PI3K/mTOR signalingpathways. FAK is a non-receptor tyrosine kinase encoded by the PTK-2 gene that is involved in cellular adhesion and,in cancer, metastatic capability. VS-6063, which has been assigned the United States Adopted Name defactinib, and VS-4718 are orally available compounds designed to target cancers through the potent inhibition of FAK. The PI3K/mTORsignaling pathway plays a central role in cancer proliferation and survival. VS-5584 is an orally available compoundthat has demonstrated in preclinical studies potent and highly selective activity against class 1 PI3K enzymes (pan PI3Kinhibition) and dual inhibitory actions against mTORC1 and mTORC2.VS-6063 is currently being evaluated in a Phase 1 study in combination with Merck & Co.’s PD-1 inhibitorpembrolizumab and gemcitabine in patients with advanced pancreatic cancer, a Phase 1/1b trial in combination withweekly paclitaxel for patients with ovarian cancer, a Phase 2 study in patients with non-small cell lung cancer, a Phase 2trial preceding surgery in mesothelioma, a combination trial of VS-6063 and VS-5584 in patients with relapsedmesothelioma, and a recently announced a new Phase 1/1b clinical collaboration with Pfizer Inc. and Merck KGaA toevaluate VS-6063 in combination with avelumab, an anti-PD-L1 antibody, in patients with ovarian cancer. VS-6063 hasreceived orphan drug designation for use in mesothelioma and ovarian cancer in the United States, the European Unionand Australia. In addition to VS-6063, both our FAK inhibitor VS-4718 and our dual mTORC1/2 and PI3K inhibitorVS-5584 are in Phase 1 clinical trials in patients with advanced cancers either as single agents or in combination withother anti-cancer treatments. Our operations to date have been organizing and staffing our company, business planning, raising capital,acquiring and developing our technology, identifying potential product candidates and undertaking preclinical studiesand clinical trials for our product candidates. To date, we have not generated any revenues and have financed ouroperations with net proceeds from the private placement of our preferred stock, our initial public offering in February2012, our follow‑on offerings in July 2013 and January 2015 and sales of our common stock under our at‑the‑marketequity offering program.As of December 31, 2015, we had an accumulated deficit of $198.9 million. Our net loss was $57.9 million,$53.4 million and $41.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. We expect toincur significant expenses and increasing operating losses for the foreseeable future. We expect our expenses to increasein connection with our ongoing activities, particularly as we continue the research and development and clinical trialsof, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of ourproduct candidates, we expect to incur significant commercialization expenses related to product sales, marketing,manufacturing and distribution. Accordingly, we will need to obtain substantial additional funding in connection withour continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. If weare unable to raise capital when needed or on attractive terms, we would be74 Table of Contentsforced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. Wewill need to generate significant revenues to achieve profitability, and we may never do so.FINANCIAL OPERATIONS OVERVIEWRevenueTo date, we have not generated any revenues. Our ability to generate product revenues, which we do not expectwill occur for several years, if ever, will depend heavily on the successful development and eventual commercializationof our product candidates.Research and development expensesResearch and development expenses consist of costs associated with our research activities, including our drugdiscovery efforts, and the development of our product candidates. Our research and development expenses consist of:·employee‑related expenses, including salaries, benefits, travel and stock‑based compensation expense;·external research and development expenses incurred under arrangements with third parties, such ascontract research organizations (CROs), clinical sites, manufacturing organizations and consultants,including our scientific advisory board;·license fees; and·facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rentand maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory andother supplies.We expense research and development costs to operations as incurred. We account for nonrefundable advancepayments for goods and services that will be used in future research and development activities as expenses when theservice has been performed or when the goods have been received, rather than when the payment is made.We use our employee and infrastructure resources across multiple research and development projects. We donot allocate employee‑related expenses or depreciation to any particular project. In 2014, we began to allocate theexpenses related to external research and development services, such as CROs, clinical sites, manufacturingorganizations and consultants by project. The table below summarizes our external allocation of research anddevelopment expenses to our clinical programs for VS‑6063, VS‑4718 and VS‑5584, for the years ended December 31,2015 and 2014. Prior to 2014, we did not track research and development expenses for specific clinical programs. Ourproject costing methodology does not allocate personnel and other indirect costs to specific clinical programs. Theseunallocated research and development expenses are summarized in the table below and75 Table of Contentsinclude $7.3 million and $5.9 million of personnel costs for the years ended December 31, 2015 and 2014, respectively. Year ended Year ended December 31,2015 December 31,2014 (in thousands) (in thousands) VS-6063 $20,713 $16,186 VS-55842,7392,679VS-4718 2,545 2,921 Unallocated research and development expense 12,158 9,935 Unallocated stock‑based compensation expense 2,410 3,727 Total research and development expense $40,565 $35,448 Due to the uncertainty in drug development and the stage of development of our product candidates, we areunable to predict the requirements, specific timing and estimated costs to complete the development of our productcandidates or the timing of when material cash inflows may commence, if ever.We anticipate that our research and development expenses will increase significantly in future periods as weundertake costlier development activities for our existing and future product candidates, including larger and later‑stageclinical trials.The successful development of our product candidates is highly uncertain. At this time, we cannot reasonablyestimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development ofour product candidates or the period, if any, in which material net cash inflows from our product candidates maycommence. This is due to the numerous risks and uncertainties associated with developing drugs, including theuncertainty of:·clinical trial results;·the scope, rate of progress and expense of our research and development activities, including preclinicalresearch and clinical trials;·the potential benefits of our product candidates over other therapies;·our ability to market, commercialize and achieve market acceptance for any of our product candidates thatwe receive regulatory approval for;·the terms and timing of regulatory approvals; and·the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual propertyrights.A change in the outcome of any of these variables with respect to the development of a product candidatecould mean a significant change in the costs and timing associated with the development of that product candidate. Forexample, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those which wecurrently anticipate will be required for the completion of clinical development of a product candidate or if weexperience significant delays in enrollment in any clinical trials, we could be required to expend significant additionalfinancial resources and time on the completion of clinical development.General and administrative expensesGeneral and administrative expenses consist primarily of salaries and related costs for personnel, includingstock‑based compensation expense, in our executive, finance and business development functions. Other general andadministrative expenses include allocated facility costs and professional fees for legal, patent, investor and publicrelations, consulting, insurance premiums, audit, tax and other public company costs.76 Table of ContentsCRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATESOur management’s discussion and analysis of our financial condition and results of operations is based on ourconsolidated financial statements, which we have prepared in accordance with U.S. generally accepted accountingprinciples. The preparation of these consolidated financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities inour financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related toaccrued expenses and stock‑based compensation described in greater detail below. We base our estimates on our limitedhistorical experience, known trends and events and various other factors that we believe are reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.Our significant accounting policies are described in more detail in the notes to our consolidated financialstatements appearing elsewhere in this Annual Report on Form 10‑K. However, we believe that the following accountingpolicies are the most critical to aid you in fully understanding and evaluating our financial condition and results ofoperations.Accrued research and development expensesAs part of the process of preparing our consolidated financial statements, we are required to estimate ouraccrued expenses. This process involves reviewing quotations and contracts, identifying services that have beenperformed on our behalf and estimating the level of service performed and the associated cost incurred when we havenot yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthlyin arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses asof each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Weperiodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Thesignificant estimates in our accrued research and development expenses include fees paid to CROs in connection withresearch and development activities for which we have not yet been invoiced.We base our expenses related to CROs on our estimates of the services received and efforts expended pursuantto quotes and contracts with CROs that conduct research and development on our behalf. The financial terms of theseagreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Theremay be instances in which payments made to our vendors will exceed the level of services provided and result in aprepayment of the research and development expense. In accruing service fees, we estimate the time period over whichservices will be performed and the level of effort to be expended in each period. If the actual timing of the performanceof services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we donot expect our estimates to be materially different from amounts actually incurred, our understanding of the status andtiming of services performed relative to the actual status and timing of services performed may vary and could result inus reporting amounts that are too high or too low in any particular period. To date, there have been no materialdifferences between our estimates of such expenses and the amounts actually incurred.Stock‑based compensationWe recognize stock‑based compensation expense for stock options issued to employees based on the grant datefair value of the awards on a straight‑line basis over the requisite service period. We record stock‑based compensationexpense for stock options issued to non‑employees based on the estimated fair value of the services received or of theequity instruments issued, whichever is more reliably measured, based on the vesting date fair value of the awards on astraight‑line basis over the vesting period.We estimate the fair value of stock option awards using the Black‑Scholes option‑pricing model. Determiningthe fair value of share‑based awards requires the use of subjective assumptions, including the expected term of the awardand expected stock price volatility. The assumptions used in determining the fair value of share‑based awards representmanagement’s best estimates, which involve inherent uncertainties and the application of management judgment. As aresult, if factors change, and we use different assumptions, our share‑based77 Table of Contentscompensation could be materially different in the future. The risk‑free interest rate used for each grant is based on a U.S.Treasury instrument whose term is consistent with the expected term of the stock option. Because we do not have asufficient history to estimate the expected term, we use the simplified method as described in SAB Topic 14.D.2 forestimating the expected term. The simplified method is based on the average of the vesting tranches and the contractuallife of each grant. Because there was no public market for our common stock prior to our initial public offering, welacked company‑specific historical and implied volatility information. Therefore, we used the historical volatility of arepresentative group of public biotechnology and life sciences companies with similar characteristics to us. In 2012,subsequent to our initial public offering, we began to consider including our own historical volatility, based on futureexpectations. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore,the expected dividend yield is assumed to be zero. We also recognize compensation expense for only the portion ofoptions that are expected to vest. Accordingly, we have estimated expected forfeitures of stock options based on ourhistorical forfeiture rate, adjusted for known trends, and used these rates in developing a future forfeiture rate.We have also granted performance‑based restricted stock units (RSUs) with terms that allow the recipients tovest in a specific number of shares based upon the achievement of performance‑based milestones as specified in thegrants. Share‑based compensation expense associated with these performance‑based RSUs is recognized if theperformance condition is considered probable of achievement using management’s best estimates of the time to vestingfor the achievement of the performance‑based milestones. If the actual achievement of the performance‑based milestonesvaries from our estimates, share‑based compensation expense could be materially different than what is recorded in theperiod. The cumulative effect on current and prior periods of a change in the estimated time to vesting forperformance‑based RSUs will be recognized as compensation cost in the period of the revision, and recorded as a changein estimate.While the assumptions used to calculate and account for share‑based compensation awards representmanagement’s best estimates, these estimates involve inherent uncertainties and the application of management’sjudgment. As a result, if revisions are made to our underlying assumptions and estimates, our share‑based compensationexpense could vary significantly from period to period.As of December 31, 2015, there was approximately $10.0 million and approximately $104,000 of unrecognizedstock‑based compensation, net of estimated forfeitures, related to stock options and restricted stock units, respectively,which are expected to be recognized over weighted‑average periods of 2.1 years and 0.1 years, respectively. There is nounrecognized stock‑based compensation related to restricted stock awards. The total unrecognized share‑basedcompensation cost will be adjusted for future changes in estimated forfeitures. See Notes 2 and 7 to our consolidatedfinancial statements located in this Annual Report on Form 10‑K for further discussion of share‑based compensation.RESULTS OF OPERATIONSIn December 2012, Verastem Securities Company, our wholly owned subsidiary, was incorporated. All financialinformation presented has been consolidated and includes the accounts of our wholly owned subsidiary. Allintercompany balances and transactions have been eliminated in consolidation.Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014Research and development expense. Research and development expense for the year ended December 31, 2015(2015 Period) was $40.6 million compared to $35.4 for the year ended December 31, 2014 (2014 Period). The $5.2million increase from the 2014 Period to the 2015 Period was primarily related to an increase of approximately$5.8. million in external CRO expense for outsourced biology, chemistry, development and clinical services, whichincludes our clinical trial costs, a $1.4 million increase in personnel related costs, primarily due to increased headcountand salaries (before our restructuring) and to restructuring costs associated with the reduction in workforce in October2015, and an increase of approximately $558,000 in consulting expense. These increases were partially offset by adecrease of $1.3 million in stock-based compensation expense, $1.2 million in license fees related to the Encarta assetpurchase in the 2014 Period and $126,000 in lab supplies.General and administrative expense. General and administrative expense for the 2015 Period was78 Table of Contents$17.6 million compared to $18.2 million for the 2014 Period. The approximate $525,000 decrease from the 2014 Periodto the 2015 Period primarily resulted from a decrease of approximately $1.1 million in stock-based compensationexpense and a decrease in professional fees of approximately $446,000, primarily related to lower IP and general legalcosts. These decreases were partially offset by an increase of approximately $856,000 in personnel costs, due toincreased headcount and salaries (before our restructuring) and to restructuring costs associated with the reduction inworkforce in October 2015, and an increase in consulting fees of approximately $189,000.Interest income. Interest income increased to approximately $334,000 for the 2015 Period from approximately$242,000 for the 2014 Period. This increase was primarily due to a higher average investment balance for the 2015Period compared to the 2014 Period.Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013Research and development expense. Research and development expense for the year ended December 31, 2014(2014 Period) was $35.4 million compared to $25.9 million for the year ended December 31, 2013 (2013 Period). The$9.5 million increase from the 2013 Period to the 2014 Period was primarily related to an increase of $7.6 million inCRO expense for outsourced biology, chemistry, development and clinical services, which includes our clinical trialcosts, a $1.4 million increase in personnel costs primarily due to increased headcount, an increase of approximately$528,000 in occupancy and maintenance expenses partially due to the relocation to our new facility, an approximate$412,000 net increase in license fees related to the Encarta asset purchase partially offset by the Poniard and S*Biomilestones incurred in the 2013 Period, an increase of approximately $265,000 in consulting expense and anapproximate $152,000 increase in stock‑based compensation expense due to increased headcount. These increases werepartially offset by a decrease in lab supplies of approximately $774,000 partially due to less activity as the Companytransitioned to the new facility and to the increase in outsourced services.General and administrative expense. General and administrative expense for the 2014 Period was$18.2 million compared to $15.5 million for the 2013 Period. The $2.7 million increase from the 2013 Period to the2014 Period primarily resulted from an increase of $1.6 million in stock‑based compensation expense primarily due toan increase in stock option grants, an increase in consulting fees of $1.0 million primarily related to preparation forpotential commercialization, an increase of approximately $912,000 in personnel costs primarily due to an increase insalaries and headcount, and an increase of approximately $192,000 in occupancy expense partially due to the relocationto our new facility. These increases were partially offset by a net decrease in professional fees and other costs of$1.0 million.Interest income. Interest income increased to approximately $242,000 for the 2014 Period from approximately$200,000 for the 2013 Period. This increase was primarily due to a higher average investment balance for the 2014Period compared to the 2013 Period.LIQUIDITY AND CAPITAL RESOURCESSources of liquidityTo date, we have not generated any revenues. We have financed our operations to date through privateplacements of preferred stock, our initial public offering in February 2012, our follow-on offerings in July 2013 andJanuary 2015 and sales of common stock under our at-the market equity offering program. As of December 31, 2015, wehad received $68.1 million in net proceeds from the issuance of preferred stock and $190.1 million in net proceeds fromour public offerings of common stock. As of December 31, 2015, we had $110.3 million in cash, cash equivalents andinvestments. We primarily invest our cash, cash equivalents and investments in a U.S. Treasury money market fund, U.S.Treasury securities, government-sponsored securities, and corporate bonds and commercial paper of publicly tradedcompanies.79 Table of ContentsCash flowsThe following table sets forth the primary sources and uses of cash for each of the periods set forth below (inthousands): Year Ended December 31, 2015 2014 2013 Net cash provided by (used in) Operating activities $(45,559) $(36,902) $(26,305) Investing activities (27,057) 43,140 (23,393) Financing activities 63,585 8,774 58,491 Net increase (decrease) in cash and cash equivalents $(9,031) $15,012 $8,793 Operating activities. The use of cash in all periods resulted primarily from our net losses adjusted for non-cashcharges and changes in the components of working capital. The $8.7 million and $10.6 million increases in cash used inoperating activities for the 2015 Period compared to the 2014 Period and the 2014 Period compared to the 2013 Period,respectively, are primarily due to an increase in research and development expenses related to our ongoing clinical trialsand development of our lead product candidates.The reduction in headcount in October 2015 is expected to result in annual savings of approximately $5.1million in cash operating expenses on a going forward basis. We estimate aggregate cash payments of $1.1 million forone-time severance and related costs in the fourth quarter of 2015 and the 2016 fiscal year. We expect our cash used inoperating activities to increase over time in connection with increased activity and progress in our ongoing and futureprograms.Investing activities. The cash used for investing activities for the 2015 Period primarily reflects the netpurchases of investments of $26.8 million. The cash provided by investing activities for the 2014 Period reflects netmaturities of investments of $45.7 million, partially offset by $2.4 million of property and equipment purchasesprimarily associated with the buildout of the Needham facility.Financing activities. The cash provided by financing activities for the 2015 Period primarily represents netproceeds of $63.9 million from the sale of shares of our common stock in our January 2015 follow-on offering and ourat-the-market equity offering program, offset in part by approximately $417,000 of cash used to satisfy the taxwithholding obligations on certain restricted stock units that were net settled by employees. The cash provided byfinancing activities in the 2014 Period is primarily related to $9.6 million of net proceeds from our at-the-market equityoffering program offset by approximately $780,000 of cash used to satisfy the tax withholding obligations on certainrestricted stock units that were net settled by employees.In December 2013, we established an at-the-market equity offering program pursuant to which we are able tooffer and sell up to $35.0 million of our common stock at then current market prices from time to time through CantorFitzgerald & Co., as sales agent. In November 2014, we commenced sales under this program. Through December 31,2014, we sold 1,346,676 shares under this program for net proceeds of approximately $11.6 million (after deductingcommissions and other offering expenses) and we sold an additional 1,189,479 shares in the year ended December 31,2015, for net proceeds of approximately $10.9 million (after deducting commissions and other offering expenses). Ofthe cumulative net proceeds, $12.9 million and $9.6 million was received in the years ended December 31, 2015 and2014, respectively. In January 2015, we completed a follow-on offering in which we sold 8,337,500 shares of our common stock tothe public at a price of $6.50 per share, including 1,087,500 shares issued pursuant to the exercise of the underwriters’option to purchase additional shares. The net proceeds from this offering were $50.9 million, after deductingunderwriting discounts and commissions.Reduction in force. In October 2015, we announced a reduction of workforce by approximately 50% to 20 fulltime employees. All affected employees will receive severance pay and outplacement assistance. As a result of thereduction in force and associated costs, we estimate annual savings of approximately $5.1 million in cash operatingexpenses on a going forward basis, with estimated one-time severance and related costs of $1.1 million. 80 Table of ContentsOf these one-time severance and related costs, approximately $349,000 was paid through December 31, 2015 andapproximately $713,000 will be paid in 2016.Funding requirementsWe currently have three product candidates currently in clinical trials. We expect our expenses to increase inconnection with these and future programs. We expect to continue to incur significant expenses and operating losses forthe foreseeable future. We anticipate that our expenses and operating losses will increase substantially if and as we:·continue our ongoing clinical trials with VS-6063, VS-5584 and VS-4718;·initiate additional clinical trials for our product candidates;·maintain, expand and protect our intellectual property portfolio;·acquire or in-license other products and technologies;·hire additional clinical, development and scientific personnel; and·add operational, financial and management information systems and personnel, including personnel tosupport our product development and planned future commercialization efforts.·ultimately establish a sales, marketing and distribution infrastructure to commercialize any products forwhich we may obtain marketing approval;We expect our existing cash, cash equivalents and investments will enable us to fund our current operatingplan and capital expenditure requirements into 2018. We have based this estimate on assumptions that may prove to bewrong and we could use our available capital resources sooner than we currently expect. Because of the numerous risksand uncertainties associated with the development and commercialization of our product candidates, and the extent towhich we may enter into collaborations with third parties for development and commercialization of our productcandidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated withcompleting the development of our current product candidates. Our future capital requirements will depend on manyfactors, including:·the rate and size of enrollment, results and cost of completing our ongoing clinical trials;·the scope, progress and results of our ongoing and potential future clinical trials;·the extent to which we acquire or in-license other products and technologies;·the costs, timing and outcome of regulatory review of our product candidates and the costs of futurecommercialization activities for such product candidates, for which we receive marketing approval;·revenue, if any, received from commercial sales of our product candidates, should any of our productcandidates receive marketing approval;·the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing ourintellectual property rights and defending intellectual property-related claims; and·our ability to establish collaborations on favorable terms, if at all.Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needsthrough a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing81 Table of Contentsarrangements. We do not have any committed external source of funds. To the extent that we raise additional capitalthrough the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will bediluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights ofour existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting orrestricting our ability to take specific actions, such as incurring additional debt, making capital expenditures ordeclaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangementswith third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, researchprograms or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raiseadditional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminateour product development or future commercialization efforts or grant rights to develop and market product candidatesthat we would otherwise prefer to develop and market ourselves.CONTRACTUAL OBLIGATIONS AND COMMITMENTSThe following table summarizes our contractual obligations at December 31, 2015:(in thousands) Total 2016 2017 -2018 2019 -2020 Thereafter Operating lease obligations $1,996 $512 $1,069 $415 $— License agreements(1) — — — — — (1)As discussed in Note 10 to the consolidated financial statements appearing elsewhere in this Annual Report onForm 10‑K, we are party to several agreements to license intellectual property. The license agreements require us topay upfront license fees, ongoing annual license maintenance fees, and minimum royalty payments, totaling$155,000 per year beginning in 2016, as well as reimbursement of certain patent costs incurred by the licensors, asapplicable. We have not included maintenance fees in the table above since the minimum annual payments areperpetual and the agreements are cancelable by us at any time upon prior written notice to the licensor.In July 2012, we entered into a license agreement with Pfizer Inc. (Pfizer) under which Pfizer granted usworldwide, exclusive rights to research, develop, manufacture and commercialize products containing certain of Pfizer’sinhibitors of focal adhesion kinase (the Products), including VS‑6063, for all therapeutic, diagnostic and prophylacticuses in humans. We have the right to grant sublicenses under the foregoing licensed rights, subject to certainrestrictions. We are solely responsible, at our own expense, for the clinical development of the Products, which is to beconducted in accordance with an agreed‑upon development plan. We are also responsible for all manufacturing andcommercialization activities at our own expense. Pfizer was required to provide us with an initial quantity of clinicalsupply of one of the Products for an agreed upon price. We made a one‑time cash payment to Pfizer in the amount of$1.5 million and issued 192,012 shares of our common stock. Pfizer is also eligible to receive up to $2 million indevelopmental milestones and up to an additional $125 million based on the successful attainment of regulatory andcommercial sales milestones. Pfizer is also eligible to receive high single to mid double digit royalties on future netsales of Products. Our royalty obligations with respect to each Product in each country begin on the date of firstcommercial sale of the Product in that country, and end on the later of 10 years after the date of first commercial sale ofthe Product in that country or the date of expiration or abandonment of the last claim contained in any issued patent orpatent application licensed by Pfizer to us that covers the Product in that country.Under our drug discovery platform license agreement, which we amended and restated in January 2012, we alsohave agreed to make milestone payments to the Whitehead Institute upon achieving various development, regulatoryand commercialization milestones. For each licensed product, we agreed to make milestone payments of up to anaggregate of $1,560,000 plus an additional amount for each subsequent approval of additional indications for amaximum number of licensed products. For each identified product that is not a licensed product, we agreed to makemilestone payments of up to an aggregate of $815,000 plus an additional amount for each subsequent approval ofadditional indications for a maximum number of identified products. Each type of specified milestone payment ispayable only for each of the maximum number of licensed products and the maximum number of identified products, asthe case may be, to achieve the applicable milestone. In addition, a separate milestone payment is due upon the firstcommercial sale of each licensed product or identified product that is a diagnostic or prognostic test. A single additionalmilestone payment is due for the first issuance of licensed patent rights in the United States, the United Kingdom,France, Germany, Spain or Italy. In addition, we have agreed to pay the Whitehead Institute82 Table of Contentsroyalties as a percentage of net sales of licensed products. The royalty rate is in the low single digits as a percentage ofnet sales for licensed products that are therapeutics, the mid single digits for licensed products that are diagnostics orprognostics and less than one percent for identified products.Under our license agreement with Poniard that we entered into in November 2011 relating to VS‑4718 andcertain other compounds, we paid an upfront license fee and agreed to pay Poniard milestone payments upon theachievement of specified development and regulatory milestones. In February 2014, we purchased the assets which werethe subject of our license agreement with Poniard from Encarta, Inc. (Encarta), who had previously purchased thoseassets in 2013. In consideration for the assets, we issued 97,500 shares of common stock, a warrant to purchase 142,857shares of common stock with an exercise price equal to $17.16 per share and paid $25,000. All existing obligationsunder the license agreement, including an achieved development milestone and an obligation to issue a warrant, weresettled as part of this transaction. In connection with the asset purchase agreement, we also assumed the rights andobligations under the Scripps License Agreement. Pursuant to the Scripps License Agreement, we are obligated to payScripps potential product development milestone payments of up to an aggregate of $3,000,000 upon the achievementof specified development and regulatory milestones. In addition, we are obligated to pay Scripps low single‑ digitroyalties as a percentage of net sales of licensed products, subject to adjustments in certain circumstances. Ourobligation to pay royalties on net sales is on a country by country basis.Under our separate exclusive license agreement with the Whitehead Institute, or the cancer diagnostic licenseagreement, which we amended and restated in December 2011, we paid an upfront license fee and agreed to makemilestone payments of up to an aggregate of $825,000 to the Whitehead Institute upon achieving specified regulatoryand commercialization milestones. In addition, we have agreed to pay the Whitehead Institute royalties as a percentageof net sales of licensed products. The royalty rate is in the mid‑single digits as a percentage of net sales.OFF‑BALANCE SHEET ARRANGEMENTSWe did not have during the periods presented, and we do not currently have, any off‑balance sheetarrangements, as defined under Securities and Exchange Commission rules.TAX LOSS CARRYFORWARDSAs of December 31, 2015, we had federal and state net operating loss carryforwards of $157.1 million and$155.5 million, respectively, which are available to reduce future taxable income. We also had federal and state taxcredits of $3.2 million and $1.4 million, respectively, which may be used to offset future tax liabilities. The netoperating loss and tax credit carryforwards will expire at various dates through 2035. Net operating loss and tax creditcarryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authoritiesand may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest ofsignificant stockholders over a three‑year period in excess of 50%, as defined under Sections 382 and 383 of the InternalRevenue Code, as well as similar state provisions. This could limit the amount of tax attributes that can be utilizedannually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based onthe value of our company immediately prior to the ownership change. Subsequent ownership changes may further affectthe limitation in future years. At December 31, 2015, we recorded a 100% valuation allowance against our net operatingloss and tax credit carryforwards of $72.6 million, as we believe it is more likely than not that the tax benefits will not befully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwardswill be realized, net income would increase in the period of determination.RECENTLY ADOPTED ACCOUNTING STANDARDSDeferred TaxesIn November 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-17,which simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred incometax assets and liabilities into current and noncurrent amounts in the consolidated balance sheet statement of financialposition. The amendments in the update require that all deferred tax assets and liabilities be classified as83 Table of Contentsnoncurrent in the consolidated balance sheet. The amendments in this update are effective for annual periods beginningafter December 15, 2017, and interim periods therein and may be applied either prospectively or retrospectively to allperiods presented. Early adoption is permitted. We have early adopted this standard in the fourth quarter of 2015 on aprospective basis, and it did not have an effect on our financial position or results of operations. Item 7A. Quantitative and Qualitative Disclosures About Market RiskWe are exposed to market risk related to changes in interest rates. We had cash, cash equivalents andinvestments of $110.3 million and $92.7 million as of December 31, 2015 and 2014, respectively, consisting of cash,United States Treasury money market funds, United States Treasury securities, government‑sponsored enterprisesecurities and corporate bonds and commercial paper of publicly traded companies. Our primary exposure to market riskis interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly becausemost of our investments are interest bearing. Our available for sale securities are subject to interest rate risk and will fallin value if market interest rates increase. Due to the short‑term duration most of our investment portfolio and the low riskprofile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on thefair market value of our portfolio.We contract with CROs and contract manufacturers globally which may be denominated in foreign currencies.We may be subject to fluctuations in foreign currency rates in connection with these agreements. Transactionsdenominated in currencies other than the functional currency are recorded based on exchange rates at the time suchtransactions arise. As of December 31, 2015 and 2014, $2.1 million and 1.6 million of our total liabilities wasdenominated in currencies other than the functional currency, respectively. Item 8. Consolidated Financial Statements and Supplementary DataOur consolidated financial statements, together with the report of our independent registered public accountingfirm, appear on pages F‑1 through F‑27 of this Annual Report on Form 10‑K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosurecontrols and procedures, as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, asamended, or the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, our ChiefExecutive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end ofthe period covered by this report were effective.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over our financialreporting. Internal control over financial reporting is defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Actas the process designed by, or under the supervision of, our Chief Executive Officer and our Chief Financial Officer, andeffected by our board of directors, management and other personnel, to provide reasonable assurance regarding thereliability of our financial reporting and the preparation of our financial statements for external purposes in accordancewith generally accepted accounting principles, and includes those policies and procedures that:(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of assets;84 Table of Contents(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receiptsand expenditures are being made only in accordance with the authorizations of management anddirectors; and(3)provide reasonable assurance regarding the prevention or timely detection of unauthorizedacquisition, use or disposition of assets that could have a material effect on our financial statements.Under the supervision and with the participation of our management, including our Chief Executive Officerand our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financialreporting based on the framework provided in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation, our managementconcluded that our internal control over financial reporting was effective as of December 31, 2015.Changes in Internal Control Over Financial ReportingThere has been no change in our internal control over financial reporting occurred during the fiscal quarterended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting. Item 9B. Other InformationNone85 Table of ContentsPART III Item 10. Directors, Executive Officers, and Corporate GovernanceOther than the information regarding our executive officers provided in Part I of this report under the heading“Business—Executive Officers of the Registrant,” the information required to be furnished pursuant to this item isincorporated herein by reference to our definitive proxy statement for the 2016 Annual Meeting of the Stockholders. Item 11. Executive CompensationThe information required by this Item 11 is incorporated herein by reference from our definitive proxystatement for the 2016 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item 12 is incorporated herein by reference from our definitive proxystatement for the 2016 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item 13 is incorporated herein by reference from our definitive proxystatement for the 2016 Annual Meeting of Stockholders. Item 14. Principal Accountant Fees and ServicesThe information required by this Item 14 is incorporated herein by reference from our definitive proxystatement for the 2016 Annual Meeting of Stockholders.86 Table of ContentsPART IV Item 15. Exhibits and Financial Statement SchedulesConsolidated Financial StatementsSee Part II, Item 8 for the Financial Statements required to be included in this Annual Report on Form 10‑K.Consolidated Financial Statement SchedulesAll financial statement schedules are omitted because they are not applicable or the required information isincluded in the consolidated financial statements or notes thereto.ExhibitsThose exhibits required to be filed by Item 601 of Regulation S‑K are listed in the Exhibit Index immediatelypreceding the exhibits hereto and such listing is incorporated herein by reference.87 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 3 day of March2016. VERASTEM, INC. By:/s/ Robert Forrester Robert Forrester Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by thefollowing persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date/s/ Robert Forrester Chief Executive Officer and Director (Principalexecutive officer) March 3, 2016Robert Forrester /s/ John B. Green, CPA Chief Financial Officer (Principal financial officer andPrincipal accounting officer) March 3, 2016John B. Green, CPA /s/ Timothy Barberich Director March 3, 2016Timothy Barberich /s/ Paul A. Friedman Director March 3, 2016Paul A. Friedman, M.D. /s/ Michael Kauffman, M.D., Ph.D. Director March 3, 2016Michael Kauffman, M.D., Ph.D. /s/ Alison Lawton Director March 3, 2016Alison Lawton /s/ S. Louise Phanstiel Director March 3, 2016S. Louise Phanstiel /s/ Stephen Sherwin, M.D. Director March 3, 2016Stephen Sherwin, M.D. /s/ Henri Termeer Director March 3, 2016Henri Termeer /s/ Christoph Westphal, M.D., Ph.D. Director March 3, 2016Christoph Westphal, M.D., Ph.D. 88 rdTable of ContentsVerastem, Inc.CONSOLIDATED FINANCIAL STATEMENTSCONTENTSReport of Independent Registered Public Accounting Firm F‑2Consolidated Financial Statements Consolidated Balance Sheets F‑3Consolidated Statements of Operations and Comprehensive Loss F‑4Consolidated Statements of Stockholders’ Equity F‑5Consolidated Statements of Cash Flows F‑6Notes to Consolidated Financial Statements F‑7 Table of ContentsVerastem, Inc.Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders ofVerastem, Inc.We have audited the accompanying consolidated balance sheets of Verastem, Inc. as of December 31, 2015 and2014, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cashflows for each of the three years in the period ended December 31, 2015. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financial statementsand schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’sinternal control over financial reporting. Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressingan opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for ouropinion.In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Verastem, Inc. as of December 31, 2015 and 2014, and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S.generally accepted accounting principles./s/ Ernst & YoungBoston, MassachusettsMarch 3, 2016 F-2 Table of ContentsVerastem, Inc.CONSOLIDATED BALANCE SHEETS(in thousands, except per share amounts) December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $24,870 $33,901 Short-term investments 85,388 58,774 Prepaid expenses and other current assets 585 2,641 Total current assets 110,843 95,316 Property and equipment, net 2,048 2,825 Restricted cash 203 203 Other assets — 305 Total assets $113,094 $98,649 Liabilities and stockholders’ equity Current liabilities: Accounts payable $3,942 $3,216 Accrued expenses 6,098 5,519 Liability classified stock-based compensation awards 69 469 Total current liabilities 10,109 9,204 Other liabilities 516 677 Liability for shares subject to repurchase — 2 Stockholders’ equity: Convertible preferred stock, $0.0001 par value; 5,000 shares authorized, no shares issuedand outstanding — — Common stock, $0.0001 par value; 100,000 shares authorized, 36,941 and 27,259 sharesissued and outstanding at December 31, 2015 and 2014, respectively 4 3 Additional paid-in capital 301,305 229,770 Accumulated other comprehensive income 43 11 Accumulated deficit (198,883) (141,018) Total stockholders’ equity 102,469 88,766 Total liabilities and stockholders’ equity $113,094 $98,649 See accompanying notes.F-3 Table of ContentsVerastem, Inc.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(in thousands, except per share amounts) Year Ended December 31, 2015 2014 2013 Operating expenses: Research and development $40,565 $35,448 $25,930 General and administrative 17,634 18,159 15,472 Total operating expenses 58,199 53,607 41,402 Loss from operations (58,199) (53,607) (41,402) Interest income 334 242 200 Net loss $(57,865) $(53,365) $(41,202) Net loss per share—basic and diluted $(1.61) $(2.07) $(1.82) Weighted-average number of common shares used in net loss per share—basic anddiluted 35,932 25,804 22,680 Net loss $(57,865) $(53,365) $(41,202) Unrealized gains (losses) on available-for-sale securities 32 (17) 6 Comprehensive loss $(57,833) $(53,382) $(41,196) See accompanying notes.F-4 Table of ContentsVerastem, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands, except share data) Accumulated other Additional comprehensive Total Common stock paid-in (loss) Accumulated stockholders' Shares Amount capital income deficit equity Balance at December 31, 2012 20,364,210 $2 $136,893 $22 $(46,451) $90,466 Net loss — — — — (41,202) (41,202) Unrealized gain on available-for-sale marketable securities — — — 6 — 6 Issuance of common stock, net of issuance costs of $235 4,255,000 1 59,759 — — 59,760 Vesting of restricted stock 417,718 — 9 — — 9 Issuance of common stock resulting from exerciseof stock options 81,795 — 33 — — 33 Issuance of common stock resulting from vestingof restricted stock units and payment of tax withholdings 209,727 — (1,302) — — (1,302) Stock-based compensation expense — — 9,676 — — 9,676 Balance at December 31, 2013 25,328,450 $3 $205,068 $28 $(87,653) $117,446 Net loss — — — — (53,365) (53,365) Unrealized loss on available-for-sale marketable securities — — — (17) — (17) Issuance of common stock, net of issuance costs of $43 1,346,676 — 11,646 — — 11,646 Vesting of restricted stock 321,287 — 9 — — 9 Issuance of common stock resulting from exerciseof stock options 30,451 — 20 — — 20 Issuance of common stock resulting from vestingof restricted stock units and payment of tax withholdings 135,008 — (780) — — (780) Shares issued for technology rights 97,500 — 1,447 — — 1,447 Stock-based compensation expense — — 12,360 — — 12,360 Balance at December 31, 2014 27,259,372 $3 $229,770 $11 $(141,018) $88,766 Net loss — — — — (57,865) (57,865) Unrealized gain on available-for-sale marketable securities — — — 32 — 32 Issuance of common stock resulting from follow-onoffering 8,337,500 1 50,941 — — 50,942 Issuance of common stock resulting from at-the-markettransactions, net of issuance costs of $53 1,189,479 — 10,911 — — 10,911 Vesting of restricted stock 7,995 — 2 — — 2 Issuance of common stock resulting from exerciseof stock options 33,658 — 13 — — 13 Issuance of common stock resulting from vestingof restricted stock units and payment of tax withholdings 113,257 — (417) — — (417) Stock-based compensation expense — — 10,085 — — 10,085 Balance at December 31, 2015 36,941,261 $4 $301,305 $43 $(198,883) $102,469 See accompanying notes.F-5 Table of ContentsVerastem, Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2015 2014 2013 Operating activities Net loss $(57,865) $(53,365) $(41,202) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 754 427 236 Stock-based compensation expense 10,085 12,360 9,676 Amortization of premiums and discounts on available-for-sale marketablesecurities 264 290 — Non-cash expense related to purchase of technology rights — 1,197 — Loss on disposal of fixed assets 46 4 — Changing in operating assets and liabilities: Prepaid expenses and other current assets 276 27 (382) Accounts payable 863 287 912 Accrued expenses and other liabilities 418 2,119 3,738 Liability classified stock-based compensation awards (400) (248) 717 Net cash used in operating activities (45,559) (36,902) (26,305) Investing activities Purchases of property and equipment (211) (2,429) (56) Purchases of investments (199,851) (39,361) (118,190) Maturities of investments 173,005 85,047 94,853 Increase in restricted cash — (117) — Net cash (used in) provided by investing activities (27,057) 43,140 (23,393) Financing activities Proceeds from the exercise of stock options 13 20 33 Net proceeds from the issuance of common stock and restricted common stock 63,989 9,534 59,760 Cash used to settle restricted stock liability (417) (780) (1,302) Net cash provided by financing activities 63,585 8,774 58,491 (Decrease) increase in cash and cash equivalents (9,031) 15,012 8,793 Cash and cash equivalents at beginning of period 33,901 18,889 10,096 Cash and cash equivalents at end of period $24,870 $33,901 $18,889 Supplemental disclosure of non-cash investing and financing activities Proceeds from the issuance of common stock included in prepaid expenses andother current assets $ — $2,085 $ — Purchases of property and equipment in accounts payable $ — $196 $ — See accompanying notes. F-6 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of businessVerastem, Inc. (the “Company”) is a biopharmaceutical company focused on discovering and developingdrugs to improve outcomes for patients with cancer. The Company’s operations to date have been limited to organizingand staffing the Company, business planning, raising capital, acquiring and developing its technology, identifyingpotential product candidates and undertaking preclinical and clinical studies of its most advanced product candidates.The Company is subject to a number of risks similar to other life science companies, including, but not limitedto, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, inability toobtain marketing approval of product candidates, competitors developing new technological innovations, marketacceptance of the Company’s products and protection of proprietary technology. If the Company does not successfullycommercialize any of its product candidates, it will be unable to generate product revenue or achieve profitability. As ofDecember 31, 2015, the Company had an accumulated deficit of $198.9 million. The Company expects to continue toincur operating losses in future periods. The Company had cash, cash equivalents and investments of $110.3 million asof December 31, 2015. The Company believes that its existing cash, cash equivalents and investments will be sufficientto fund its current operating plan and capital expenditure requirements for at least the next twelve months.2. Significant accounting policiesBasis of consolidationEffective December 2012, Verastem Securities Company was incorporated as a wholly owned subsidiary of theCompany and all financial information presented has been consolidated and includes the accounts of the Company andits wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.Use of estimatesThe preparation of the Company’s financial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On anongoing basis, management evaluates its estimates, including estimates related to accruals and stock‑basedcompensation expense. The Company bases its estimates on historical experience and other market‑specific or otherrelevant assumptions that it believes to be reasonable. Actual results could differ from such estimates.Segment and geographic informationOperating segments are defined as components of an enterprise about which separate discrete information isavailable for evaluation by the chief operating decision maker, or decision‑making group, in deciding how to allocateresources and in assessing performance. The Company views its operations and manages its business in one operatingsegment, which is the business of developing drugs for the treatment of cancer. All material long-lived assets of theCompany reside in the United States.Cash and cash equivalentsThe Company considers all highly liquid investments with an original or remaining maturity of three months orless at the date of purchase to be cash equivalents. Cash equivalents consist of United States Treasury money marketfunds, government‑sponsored enterprise securities and corporate bonds and commercial paper of publicly tradedcompanies. Cash equivalents are reported at fair value.F-7 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair value of financial instrumentsThe Company is required to disclose information on all assets and liabilities reported at fair value that enablesan assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuationinputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs usedin determining the reported fair value of the investments and is not a measure of the investment credit quality. Thehierarchy defines three levels of valuation inputs:Level 1 inputs Quoted prices in active markets for identical assets or liabilities Level 2 inputs Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,either directly or indirectly Level 3 inputs Unobservable inputs that reflect the Company’s own assumptions about the assumptions marketparticipants would use in pricing the asset or liability The following table presents information about the Company’s financial assets and liabilities that have beenmeasured at fair value at December 31, 2015 and indicates the fair value hierarchy of the valuation inputs utilized todetermine fair value (in thousands). Quoted prices Significant other Significant in active observable unobservable markets inputs inputs Description Total (Level 1) (Level 2) (Level 3) Financial assets Cash equivalents $23,036 $11,464 $11,572 $ — Short-term investments 85,388 — 85,388 — Total financial assets $108,424 $11,464 $96,960 $ — Financial liabilities Liability classified stock-based compensation awards $69 $69 $ — $ — Total financial liabilities $69 $69 $ — $ — The following table presents information about the Company’s financial assets and liabilities that have beenmeasured at fair value at December 31, 2014 and indicates the fair value hierarchy of the valuation inputs utilized todetermine such fair value (in thousands). Quoted prices Significant other Significant in active observable unobservable markets inputs inputs Description Total (Level 1) (Level 2) (Level 3) Financial assets Cash equivalents $32,140 $32,140 $ — $ — Short-term investments 58,774 — 58,774 — Total financial assets $90,914 $32,140 $58,774 $ — Financial liabilities Liability classified stock-based compensation awards $469 $469 $ — $ — Total financial liabilities $469 $469 $ — $ — InvestmentsInvestments and cash equivalents consist of investments in United States Treasury money market accounts,United States Treasury securities, government‑sponsored enterprise securities and corporate bonds and commercialpaper of publicly traded companies that are classified as available‑for‑sale pursuant to Accounting StandardsCodification (ASC) 320, Investments—Debt and Equity Securities. The Company classifies investments available toF-8 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) fund current operations as current assets on its consolidated balance sheets. Investments are classified as long‑term assetson the consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of atleast one year and (ii) the contractual maturity date of the investments is greater than one year. Investments are carried atfair value with unrealized gains and losses included as a component of accumulated other comprehensive income (loss),which is a separate component of stockholders’ equity (deficit), until such gains and losses are realized. The fair value ofthese securities is based on quoted prices for identical or similar assets. If a decline in the fair value is consideredother‑than‑temporary, based on available evidence, the unrealized loss is transferred from other comprehensive loss tothe consolidated statements of operations and comprehensive loss. There were no other‑than‑temporary declines in fairvalue of short‑term or long‑term investments for the years ended December 31, 2015, 2014 and 2013. Realized gains andlosses are determined using the specific identification method and are included in interest income in the consolidatedstatements of operations and comprehensive loss. There were no realized gains or losses recognized for the years endedDecember 31, 2015, 2014 and 2013.The Company reviews investments for other‑than‑temporary impairment whenever the fair value of aninvestment is less than the amortized cost and evidence indicates that an investment’s carrying amount is notrecoverable within a reasonable period of time. To determine whether an impairment is other‑than‑temporary, theCompany considers the intent to sell, or whether it is more likely than not that the Company will be required to sell, theinvestment before recovery of the investment’s amortized cost basis. Evidence considered in this assessment includesreasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of theimpairment and changes in value subsequent to year end. As of December 31, 2015 and 2014, there were no investmentswith a fair value that was significantly lower than the amortized cost basis or any investments that had been in anunrealized loss position for a significant period.As of December 31, 2015, cash, cash equivalents and investments included (in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cash and cash equivalents: Cash and money market accounts $13,298 $ — $ — $13,298 Government-sponsored enterprise securities (original maturitieswithin 90 days) 2,000 — — 2,000 Corporate bonds and commercial paper (original maturities within90 days) 9,572 — — 9,572 Total cash and cash equivalents $24,870 $ — $ — $24,870 Investments: Government-sponsored enterprise securities (due within 1 year) $11,932 $5 $ — $11,937 Treasury securities (due within 1 year) 1,005 — — 1,005 Corporate bonds and commercial paper (due within 1 year) 72,408 57 (19) 72,446 Total investments $85,345 $62 $(19) $85,388 Total cash, cash equivalents, and investments $110,215 $62 $(19) $110,258 F-9 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2014, cash, cash equivalents and investments included (in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cash and cash equivalents: Cash and cash equivalents $33,901 $ — $ — $33,901 Total cash and cash equivalents $33,901 $ — $ — $33,901 Investments: Government-sponsored enterprise securities (due within 1 year) $3,700 $ — $ — $3,700 Corporate bonds and commercial paper (due within 1 year) 55,063 18 (7) 55,074 Total investments $58,763 $18 $(7) $58,774 Total cash, cash equivalents, and investments $92,664 $18 $(7) $92,675 Concentrations of credit risk and off‑balance sheet riskCash and cash equivalents and investments are financial instruments that potentially subject the Company toconcentrations of credit risk. As of December 31, 2015, the Company’s cash, cash equivalents and investments weredeposited at two financial institutions. The Company maintains its cash and cash equivalents and investments with highquality, accredited financial institutions and, accordingly, the Company believes it is not exposed to any significantcredit risk on these funds. The Company has no significant off‑balance sheet concentrations of credit risk, such asforeign currency exchange contracts, option contracts or other hedging arrangements.Property and equipmentProperty and equipment consists of laboratory equipment, office furniture, computer equipment and leaseholdimprovements. Expenditures for repairs and maintenance are recorded to expense as incurred, whereas major bettermentsare capitalized as additions to property and equipment. Depreciation and amortization is calculated using thestraight‑line method over the following estimated useful lives of the assets:Laboratory equipment 5 yearsFurniture 5 yearsComputer equipment 3 yearsLeasehold improvements Lesser of useful life or life of leaseUpon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removedfrom the accounts and any resulting gain or loss is recognized.The Company reviews its long‑lived assets for impairment whenever events or changes in businesscircumstances indicate that the carrying value of assets may not be recoverable. Recoverability is measured bycomparison of the asset’s book value to future net undiscounted cash flows that the assets are expected to generate. Ifsuch assets are considered to be impaired, the impairment to be recognized is measured by the amount by which thebook value of the assets exceed their fair value, which is measured based on the projected discounted future net cashflows arising from the assets. No material impairment losses have been recorded through December 31, 2015.Research and development costsThe Company expenses research and development costs to operations as incurred. Research and developmentexpenses consist of costs associated with research activities, including drug discovery efforts and the development ofproduct candidates. The Company accounts for nonrefundable advance payments for goods and services that will beused in future research and development activities as expenses when the service has beenF-10 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) performed or when the goods have been received rather than when the payment is made. Research and developmentexpenses consist of:·employee‑related expenses, including salaries, benefits, travel and stock‑based compensation expense;·external research and development expenses incurred under arrangements with third parties, such ascontract research organizations, or CROs, clinical trial sites, manufacturing organizations and consultants,including the scientific advisory board;·license fees; and·facilities, depreciation and other expenses, which include direct and allocated expenses for rent andmaintenance of facilities, depreciation of equipment, and laboratory supplies.Stock‑based compensationThe Company expenses the fair value of employee stock options over the requisite service period, which is thevesting period. Compensation expense is measured using the fair value of the award at the grant date, net of estimatedforfeitures, and is adjusted annually to reflect actual forfeitures. The grant date fair value of each stock‑based award isestimated using the Black‑Scholes option pricing model and is expensed on a straight‑line basis over the vesting period.Awards subject to performance based vesting requirements are expensed utilizing an accelerated attribution model ifachievement of the performance criteria is determined to be probable.Stock‑based awards issued to nonemployees, including directors for non‑board related services, are accountedfor based on the fair value of such services received or of the equity instruments issued, whichever is more reliablymeasured. Stock option awards are revalued at each reporting date and upon vesting using the Black‑Scholes optionpricing model and are expensed on a straight‑line basis over the vesting period.Stock‑based compensation awards which allow for greater than the minimum statutory tax withholdings areclassified as liabilities. These awards are revalued at each reporting date and are expensed on a straight‑line basis overthe vesting period. Upon settlement, the awards are revalued and the amounts are reclassified to additional paid‑incapital. Shares are withheld to cover the tax withholding and amounts paid to settle the tax liability are recorded as areduction of additional paid‑in capital.Income taxesThe Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilitiesare recognized for the future tax consequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year inwhich the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than notthat a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if currentevidence indicates that it is considered more likely than not that these benefits will not be realized.Net loss per shareBasic and diluted net loss per common share is calculated by dividing net loss applicable to commonstockholders by the weighted‑average number of common shares outstanding during the period, without considerationfor common stock equivalents. The Company’s potentially dilutive shares, which include outstanding stock options,restricted stock units, unvested restricted stock and the warrant issued in 2014 are considered to be common stockequivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. Allpotentially dilutive securities were excluded from the calculation of diluted net loss per share as the securities wereanti‑dilutive for all periods presented.F-11 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following potentially dilutive securities were excluded from the calculation of diluted net loss per sharedue to their anti‑dilutive effect: Year Ended December 31, 2015 2014 2013 Outstanding stock options 5,390,130 4,206,440 2,388,062 Outstanding warrants 142,857 142,857 — Restricted stock units 53,751 293,747 529,850 Unvested restricted stock — 7,995 329,282 5,586,738 4,651,039 3,247,194 Recent Accounting PronouncementsLeasesIn February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update(ASU) 2016-02, Leases (Topic 842). The ASU requires lessees to put most leases on their balance sheets as a liability forthe obligation to make lease payments and as a right-of-use asset, but recognize expenses on the income statements in amanner similar to today’s accounting. The guidance also eliminates the current real estate-specific provisions for allentities. For calendar-year public entities, the guidance becomes effective in 2019 and interim periods within thatyear. Early adoption is permitted for all entities. The Company has not chosen early adoption for this ASU and iscurrently evaluating its effect on the Company’s consolidated financial statements.Income TaxesIn November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of DeferredTaxes (Topic 740). ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separateclassification of deferred income tax assets and liabilities into current and noncurrent amounts in the consolidatedbalance sheet statement of financial position. The amendments in the update require that all deferred tax assets andliabilities be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective forannual periods beginning after December 15, 2017, and interim periods therein and may be applied either prospectivelyor retrospectively to all periods presented. Early adoption is permitted. The Company has early adopted this standard inthe fourth quarter of 2015 on a prospective basis, and it did not have an effect on the Company’s consolidated financialstatements.Going ConcernIn August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern:Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic 205-40). ASU 2014-15requires management to assess an entity’s ability to continue as a going concern every reporting period, and providecertain disclosures if management has substantial doubt about the entity’s ability to operate as a going concern, or anexpress statement if not, by incorporating and expanding upon certain principles that are currently in U.S. auditingstandards. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods andinterim periods thereafter. Early application is permitted. The Company has evaluated the impact of the adoption ofASU 2014-15 on its 2015 consolidated financial statements and determined that there is not substantial doubt about theCompany’s ability to continue as a going concern for at least one year from the issuance of the 2015 consolidatedfinancial statements. Revenue Recognition In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes theF-12 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and creates anew Topic 606, Revenue from Contracts with Customers. This guidance was originally pronounced to become effectivefor fiscal years beginning after December 15, 2016, with early adoption not permitted. On July 9, 2015, the FASBdecided to defer the effective date of the ASU by one year. As a result, the Company will be required to apply the newrevenue standard to annual reporting periods beginning after December 15, 2017, and would be permitted to adopt theASU early, but not before the original public organization effective date (annual periods beginning after December 15,2016). Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certainpractical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized atthe date of initial application. The Company has not yet determined which adoption method it will utilize or the effect,if any, the adoption of this guidance will have on its consolidated financial statements as through December 31, 2015the Company has yet to record revenue from its operations.3. Property and equipment, netProperty and equipment and related accumulated depreciation and amortization are as follows (in thousands): December31, December31, 2015 2014 Leasehold improvements $2,104 $2,096 Laboratory equipment 908 1,040 Furniture and fixtures 325 325 Computer equipment 240 225 3,577 3,686 Less: accumulated depreciation and amortization (1,529) (861) $2,048 $2,825 Approximate total depreciation and amortization expenses amounted to $754,000, $427,000 and $236,000 forthe years ended December 31, 2015, 2014 and 2013, respectively.4. Prepaid expenses and other current assetsPrepaid expenses and other current assets consist of the following (in thousands): December31, December31, 2015 2014 Prepaid contract research organization costs $404 $238 Interest receivable 154 113 Receivable from unsettled at-the-market equity transactions — 2,085 Receivable related to tenant improvement allowance — 150 Prepaid other 27 55 $585 $2,641 F-13 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Accrued expensesAccrued expenses are as follows (in thousands): December31, December31, 2015 2014 Contract research organization costs $3,782 $3,049 Compensation and related benefits 1,802 1,990 Professional fees 260 233 Deferred rent 160 144 Other 94 103 $6,098 $5,519 6. Common stockAs of December 31, 2015 and 2014, the Company had reserved the following shares of common stock for theissuance of common stock for vested restricted stock units, the exercise of stock options, and an outstanding warrant (inthousands): December31, December31, 2015 2014 Shares reserved under equity compensation plans 5,958 5,083 Shares reserved for inducement grants 750 750 Shares reserved for outstanding warrants 143 143 6,851 5,976 Each share of common stock is entitled to one vote. The holders of the common stock are also entitled toreceive dividends whenever funds are legally available and when declared by the board of directors.At-the-market equity offering programIn December 2013, the Company established an at-the-market equity offering program pursuant to which it wasable to offer and sell up to $35.0 million of its common stock at then current market prices from time to time. InNovember 2014, the Company commenced sales under this program. During the years ended December 31, 2015 and2014, the Company sold 1,189,479 and 1,346,676 shares of common stock, respectively, under this program with netproceeds (after deducting commissions and other offering expenses) of $12.9 million and $9.6 million, respectively.WarrantIn February 2014, in connection with the acquisition of intellectual property rights from Encarta, Inc., theCompany issued a warrant to purchase 142,857 shares of common stock exercisable at a price of $17.16 per share thatexpires 3 years from the issuance date.F-14 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Stock‑based compensationStock‑based compensation expense as reflected in the Company’s consolidated statements of operations andcomprehensive loss was as follows (in thousands): Year Ended December 31, 2015 2014 2013 Research and development $2,411 $3,727 $3,575 General and administrative 7,273 8,385 6,818 Total stock-based compensation expense $9,684 $12,112 $10,393 Of the $9.7 million of stock-based compensation expense recorded during the year ended December 31, 2015,$10.1 million was recorded to additional paid-in capital and approximately $400,000 was recorded as a decrease inliability classified awards. Of the $12.1 million of stock-based compensation expense recorded during the year endedDecember 31, 2014, approximately $12.3 million was recorded to additional paid-in capital and approximately$248,000 was recorded as a decrease in liability classified awards. Of the $10.4 million of stock-based compensationexpense recorded during the year ended December 31, 2013, approximately $9.7 million was recorded to additionalpaid-in capital and approximately $717,000 was recorded as an increase in liability classified awards.The Company has awards outstanding under two equity compensation plans, the 2012 Incentive Plan (the“2012 Plan”) and the 2010 Equity Incentive Plan (the “2010 Plan”), as well as the inducement award program. Terms ofstock award agreements, including vesting requirements, are determined by the board of directors, subject to theprovisions of the individual plans. To date, most options granted by the Company vest twenty-five percent (25%) oneyear from vesting start date and six and a quarter percent (6.25%) for each successive three-month period, thereafter(subject to acceleration of vesting in the event of certain change of control transactions) and are exercisable for a periodof ten years from the date of grant.2012 Incentive PlanThe 2012 Plan became effective immediately upon the closing of the Company’s IPO in February 2012. Uponeffectiveness of the 2012 Plan, the Company ceased making awards under the 2010 Plan. The 2012 Plan initially allowsthe Company to grant awards for up to 3,428,571 shares of common stock, plus the number of shares of common stockavailable for grant under the 2010 Plan as of the effectiveness of the 2012 Plan (which was an additional 30,101 shares),plus that number of shares of common stock related to awards outstanding under the 2010 Plan which terminate byexpiration, forfeiture, cancellation or otherwise. The 2012 Plan includes an “evergreen provision” that allows for anannual increase in the number of shares of common stock available for issuance under the 2012 Plan. The annualincrease will be added on the first day of each year beginning in 2013 and each subsequent anniversary until theexpiration of the 2012 Plan, equal to the lowest of 1,285,714 shares of common stock, 4.0% of the number of shares ofcommon stock outstanding and an amount determined by the board of directors. On January 1, 2015 and January 1,2014, the number of shares available for issuance under the 2012 Plan increased by 1,081,045 and 1,026,309, respectively, for shares under this provision. Awards under the 2012 Plan may include the following award types:incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stockunits (RSUs), other stock‑based or cash‑based awards and any combination of the foregoing. As of December 31, 2015,under the 2012 Plan, the Company has granted stock options for 6,331,493 shares of common stock, of which 1,283,968have been forfeited and restricted stock units for 909,918 shares of common stock, of which 150,101 have beenforfeited. The exercise price of each option has been equal to the closing price of a share of our common stock on thegrant date. On January 1, 2016, the number of shares available for issuance under the 2012 Plan increased by 1,285,714.Inducement Award ProgramIn December 2014, the Company established an inducement award program (in accordance with NASDAQF-15 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Listing Rule 5635(c)(4)) under which it may grant non-statutory stock options to purchase up to an aggregateof 750,000 shares of common stock to new or prospective employees as inducement to enter into employment with theCompany. The program is governed by the terms of the 2012 Plan but does not fall under the 2012 Plan. As ofDecember 31, 2015 and 2014, the Company granted 210,000 and 0 shares of common stock under the program, ofwhich 75,000 and 0 have been forfeited, respectively.Restricted Common StockIn connection with the Company’s formation, the founders purchased an aggregate of 2,857,138 shares ofCompany’s common stock at fair value on the date of issuance. The shares were issued subject to restricted stockagreements between the Company and each founder, which allow the Company, at its discretion, to repurchase unvestedshares if the founder’s relationship with the Company is terminated. Under these agreements, twenty-five percent (25%)of the shares vested immediately and the remaining seventy-five percent (75%) of shares vest ratably in quarterlyinstallments over the subsequent four years.The Company records stock‑based compensation expense for the common stock subject to repurchase, orrestricted common stock grants, based on the grant date fair value for employees and the reporting date and uponvesting fair value for non‑employees. The fair value of the award is considered the intrinsic value as of eachmeasurement date. All of the restricted shares were issued at a purchase price equal to the fair value of the common stockon the date of issuance. The Company recorded stock‑based compensation expense associated with restricted commonstock grants of $0, $1.7 million and $3.4 million for the years ended December 31, 2015, 2014 and 2013, respectively.A summary of the Company’s restricted stock activity and related information is as follows: Weighted-average grant date fair value Shares per share Unvested at December 31, 2014 7,995 $0.28 Vested (7,995) $0.28 Unvested at December 31, 2015 — $ — No restricted common stock was granted during the years ended December 31, 2015, 2014 and 2013. The totalfair value of shares vested during the years ended December 31, 2015, 2014 and 2013 was approximately $59,000, $2.2 million and $3.3 million, respectively. As of December 31, 2015, there was no unrecognized stock‑basedcompensation expense as all shares of restricted stock had vested.Restricted Stock UnitsA summary of the Company’s restricted stock units (“RSU”) and related information is as follows: Weighted- average grant date fair value Shares per share Unvested at December 31, 2014 293,747 $10.54 Vested (164,410) $10.70 Forfeited (75,586) $9.85 Unvested at December 31, 2015 53,751 $11.00 No restricted stock units were granted during the years ended December 31, 2015, 2014 and 2013. The total fairvalue of restricted stock units vested during the years ended December 31, 2015, 2014 and 2013 wasF-16 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) $1.6 million, $2.2 million and $3.4 million, respectively. As of December 31, 2015, there was approximately$104,000 of total unrecognized stock‑based compensation expense related to unvested RSUs granted under the 2012Plan. The expense is expected to be recognized over a weighted‑average period of 0.1 years.During 2012, the Company issued a restricted stock unit for 103,306 shares to an employee. The award vests upto 25% per year based on the achievement of stated objectives. The objectives related to 2015 were established onJanuary 8, 2015. In December 2015, the Board of Directors elected not to approve any payment under this award for theyear ended December 31, 2015. The Company did not record any stock-based compensation expense for this awardduring the year ended December 31, 2015. The objectives related to 2014 were established on January 7, 2014 and theobjectives were determined to be met on January 8, 2015. The Company recorded $158,000 of stock-basedcompensation expense for this award during the year ended December 31, 2014 based on the achievement of the statedobjectives. The objectives related to 2013 were established on January 15, 2013 and the objectives were determined tobe met on December 17, 2013. The Company recorded $294,000 of stock‑based compensation expense for this awardduring the year ended December 31, 2013 based on the achievement of the stated objectives.During the first quarter of 2013, the Company amended the terms of certain RSUs related to a total of 697,060shares of common stock to allow for tax withholdings greater than the minimum required statutory withholding amount.As a result of this change in the terms of the awards, the outstanding RSUs are considered to be liability instruments. Asa result of this modification, the Company records a liability for the fair value of the awards as of each reporting datewith the change in fair value recorded through the consolidated statements of operations and comprehensive loss. TheCompany will record stock‑based compensation expense equal to the greater of the original grant date fair value of theawards or the settlement date fair value. During the year ended December 31, 2015, 2014 and 2013, the Companydeposited approximately $417,000, $780,000 and $1.3 million, respectively, with tax authorities to settle the taxliability for awards that settled during the respective periods. The liability related to these awards of approximately$69,000, approximately $469,000 and approximately $717,000 is recorded as liability classified stock‑basedcompensation awards on the consolidated balance sheets as of December 31, 2015, 2014 and 2013, respectively.Stock OptionsA summary of the Company’s stock option activity and related information follows: Weighted-average Weighted-average remaining Aggregate exercise price per contractual term intrinsic value Shares share (years) (in thousands) Outstanding at December 31, 2014 4,206,440 $10.38 8.4 $2,593 Granted 2,424,864 $5.99 Exercised (33,638) $0.38 $249 Forfeited (1,207,536) $9.31 Outstanding at December 31, 2015 5,390,130 $8.71 8.1 $175 Vested at December 31, 2015 2,753,484 $9.95 7.3 $175 Vested and expected to vest at December 31,2015(1) 5,174,667 $8.75 8.1 $175 (1)This represents the number of vested options as of December 31, 2015, plus the number of unvested optionsexpected to vest as of December 31, 2015, based on the unvested options at December 31, 2015, adjusted for theestimated forfeiture rate.F-17 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of each employee stock option was estimated at the date of grant using a Black‑Scholesoption‑pricing model with the following assumptions: Year Ended December 31, 2015 2014 2013 Risk-free interest rate 1.75% 1.99% 1.14%Volatility 73% 81% 75%Dividend yield — — — Expected term (years) 6.0 6.0 6.0 The Company uses the simplified method as prescribed by the Securities and Exchange Commission StaffAccounting Bulletin Topic 14.D.2 to calculate the expected term as it does not have sufficient historical exercise data toprovide a reasonable basis upon which to estimate the expected term for options granted to employees. The expectedterm is applied to the stock option grant group as a whole, as the Company does not expect substantially differentexercise or post‑vesting termination behavior among its employee population. The computation of expected volatilityis based on the historical volatility of a representative group of public biotechnology and life sciences companies withsimilar characteristics to the Company, including early stage of product development and therapeutic focus. TheCompany also considers its own historical volatility. The risk‑free interest rate is based on a treasury instrument whoseterm is consistent with the expected term of the stock options. Management assesses expected forfeitures based on theexperience of the Company coupled with comparison to data from the representative group of companies and recognizescompensation costs only for those equity awards expected to vest.The Company recorded stock‑based compensation expense associated with employee stock options of $7.9million, $7.8 million and $3.6 million for the years ended December 31, 2015, 2014 and 2013, respectively. Theweighted‑average grant date fair value of options granted in the years ended December 31, 2015, 2014 and 2013 was$3.80, $8.61 and $6.55 per share, respectively. The fair value of options that vested during the years ended December31, 2015, 2014 and 2013 was $9.5 million, $6.6 million and $2.9 million, respectively.At December 31, 2015, there was $10.0 million of total unrecognized compensation cost related to unvestedstock options and the Company expects to recognize this cost over a remaining weighted‑average period of 2.1 years.8. Income TaxesAs of December 31, 2015, the Company had federal and state net operating loss carryforwards of approximately$157.5 million and $155.9 million, respectively, which are available to reduce future taxable income. The Companyalso had federal and state tax credits of $3.2 million and $1.4 million, respectively, which may be used to offset futuretax liabilities. The net operating loss (NOL) and tax credit carryforwards will expire at various dates through 2035. Netoperating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal RevenueService and state tax authorities and may become subject to an annual limitation in the event of certain cumulativechanges in the ownership interest of significant stockholders over a three‑year period in excess of 50%, as defined underSections 382 and 383 of the Internal Revenue Code, as well as similar state provisions. This could limit the amount oftax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annuallimitation is determined based on the value of the Company immediately prior to the ownership change. Subsequentownership changes may further affect the limitation in future years.F-18 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operationsfollows: Year Ended December 31, 2015 2014 Income tax benefit using U.S. federal statutory rate 34.00% 34.00%State tax benefit, net of federal benefit 5.91% 4.73%Research and development tax credits 1.49% 1.51%Permanent items (3.02)% (6.25)%Change in the valuation allowance (41.90)% (34.34)%Other 3.52% 0.35% —% —%The principal components of the Company’s deferred tax assets are as follows (in thousands): December 31, 2015 2014 Deferred tax assets: Net operating loss carryforwards $61,606 $42,352 Capitalized research and development 1,984 2,154 Research and development credits 4,087 2,880 Stock-based compensation 4,401 726 Other 478 199 Gross deferred tax assets 72,556 48,311 Valuation allowance (72,556) (48,311) Net deferred tax asset $ — $ — The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2015 and2014 because the Company’s management believes that it is more likely than not that these assets will not be fullyrealized. The increase in the valuation allowance of $24.2 million, $18.3 million and $14.5 million in the years endedDecember 31, 2015, 2014 and 2013, respectively, primarily relates to the net loss incurred by the Company.The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefittaken by the Company in its tax filings or positions is more likely than not to be realized following resolution of anypotential contingencies present related to the tax benefit. From inception and through December 31, 2015, the Companyhad no unrecognized tax benefits or related interest and penalties accrued. The Company has not, as yet, conducted astudy of research and development (R&D) credit carryforwards. This study may result in an adjustment to theCompany’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amountsare being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’sR&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuationallowance. Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustmentwere required. The Company would recognize both accrued interest and penalties related to unrecognized benefits inincome tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination byrelevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject toexamination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward isavailable.9. Commitments and contingenciesIn May 2011, the Company entered into a non‑cancelable operating lease for office and laboratory space,which expired on October 31, 2014. The lease agreement provided for free rent for the first four months of the lease termand included escalating rent payments. Rent expense was recorded on a straight‑line basis over the lease term,F-19 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) accordingly. The Company secured a letter of credit for $86,000 in connection with the lease, which was released uponexpiration of the lease.On April 15, 2014, the Company entered into a lease agreement for approximately 15,197 square feet of officeand laboratory space in Needham, Massachusetts. The lease term commenced on April 15, 2014 and expires onSeptember 30, 2019. The Company began using the leased premises as its corporate headquarters and commenced rentpayments effective September 22, 2014. The Company has agreed to pay an initial annual base rent of approximately$493,000, which base rent increases after every twelve-month period during the lease term to approximately $554,000for the last twelve-month period. The Company is recording rent expense on a straight-line basis, beginning in April2014. The Company also received a tenant improvement allowance of approximately $684,000 in connection with thelease. The Company has accounted for the allowance as a lease incentive, which is being recorded as a reduction to rentexpense over the lease term. Deferred rent and lease incentive obligation are included in accrued expenses (currentportion) and other liabilities (noncurrent portion) in the consolidated balance sheets. The Company has also agreed topay its proportionate share of increases in operating expenses and property taxes for the building in which the leasedspace is located. The Company has provided a security deposit in the form of a letter of credit in the amount ofapproximately $203,000, which may be reduced to approximately $162,000 on April 15, 2016. The amount is includedin long term restricted cash on the consolidated balance sheets.The minimum aggregate future lease commitments are as follows (in thousands):2016 $512 2017 527 2018 542 2019 415 2020 — Thereafter — Total $1,996 The Company recorded rent expense of approximately $352,000, approximately $541,000 and approximately$366,000 for the years ended December 31, 2015, 2014 and 2013, respectively.Pursuant to the terms of various agreements, the Company may be required to pay various development,regulatory and commercial milestones. In addition, if any products related to these agreements are approved for sale, theCompany may be required to pay significant royalties on future sales. The payment of these amounts, however, iscontingent upon the occurrence of various future events, which have a high degree of uncertainty of occurring.10. License agreementsIn October 2010, the Company entered into an exclusive license agreement, which was amended and restated inJanuary 2012, with the Whitehead Institute for Biomedical Research (the Licensor) for certain intellectual property. TheCompany paid the Licensor an upfront license fee and reimbursed patent related fees and costs incurred by the Licensorand affiliates of the Licensor totaling $104,000 in the aggregate and issued 166,664 shares of common stock to theLicensor and entities and individuals affiliated with the Licensor. The fair value of the common stock was determined tobe $0.28 per share, and the fair value was determined to be more readily determinable than the fair value of the license.As a result, the fair value of the shares of approximately $46,000 was recorded as research and development expense.Under the terms of the agreement, the Company also agreed to pay annual license maintenance fees, milestonepayments, royalties as a percentage of net sales and a percentage of sublicense income the Company receives. Annuallicense maintenance fees are creditable against royalties earned during the same calendar year and are not material to thefinancial statements. Milestone payments are triggered upon the achievement of specified development, regulatory andcommercialization milestones and are not creditable against royalties. Actual amounts due under the agreement willvary depending on the number of productsF-20 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) developed, the type and development path of the products, and other related factors. Milestone payments could total upto $1.6 million. The Company may terminate the agreement at any time with 90 days’ prior written notice.On December 16, 2011, the Company amended and restated an existing non‑exclusive license agreement withthe Licensor pursuant to which the Company obtained an exclusive license to certain intellectual property. TheCompany paid the Licensor an upfront license fee and agreed to make milestone payments of up to $825,000 upon theachievement of specified regulatory and commercialization milestones. In addition, the Company agreed to payroyalties as a percentage of net sales of licensed products.Under the license agreement with Poniard that the Company entered into in November 2011 relating toVS‑4718 and certain other compounds, the Company paid an upfront license fee and agreed to pay Poniard milestonepayments upon the achievement of specified development and regulatory milestones. In February 2014, the Companypurchased the assets which were the subject of the license agreement with Poniard from Encarta, Inc. (“Encarta”), whohad previously purchased these assets in 2013. In consideration for these assets, the Company issued 97,500 shares ofcommon stock, a warrant to purchase 142,857 shares of common stock with an exercise price equal to $17.16 per shareand paid $25,000. All existing obligations under the license agreement, including an achieved development milestoneand an obligation to issue a warrant, were settled as part of this transaction. The Company incurred $1.2 million ofresearch and development expense in 2014 as a result of this transaction. In connection with the asset purchaseagreement, the Company also assumed the rights and obligations under the Scripps License Agreement. Pursuant to theScripps License Agreement, the Company is obligated to pay Scripps potential product development milestonepayments of up to an aggregate of $3,000,000 upon the achievement of specified development and regulatorymilestones. In addition, the Company is obligated to pay Scripps low single‑digit royalties as a percentage of net salesof licensed products, subject to adjustments in certain circumstances. The Company’s obligation to pay royalties on netsales is on a country by country basis.On May 11, 2012, the Company acquired from S*Bio Pte Ltd (S*Bio), compounds identified as dual inhibitorsof PI3K and mTOR, including related patent rights. Under the agreement, the Company paid S*Bio an upfront fee of$350,000 and has agreed to pay S*Bio milestone payments of up to an aggregate of approximately $21.0 million uponthe achievement of specified development and regulatory milestones. In addition, the Company agreed to pay to S*Biotiered, low to mid single digit royalties as a percentage of annual net sales of each product containing an acquiredcompound as an ingredient. The obligation to pay royalties continues on a product by product and country by countrybasis until the expiration of all acquired patent rights covering the product in such country. If the Company obtains alicense from a third party in order to commercialize an acquired compound contained in a product in a particularcountry, then the Company may deduct up to 50% of the amount paid to such third party from the royalty payments thatCompany owes to S*Bio for such product. The deduction is subject to specified limitations, including that in no eventwill any such deduction reduce a royalty payment owed to S*Bio by more than 50% as a result of all such deductions inthe aggregate. There were no ongoing clinical trials at the time of the acquisition of the compounds, and the compoundsacquired do not have alternative future uses, nor have they reached a stage of technological feasibility. As no processesor activities were acquired, the Company accounted for the transaction as an asset acquisition by recording the$350,000 payment made to S*Bio to research and development expense for the year ended December 31, 2012.On July 11, 2012, the Company entered into a license agreement with Pfizer Inc. (Pfizer), under which Pfizergranted the Company worldwide, exclusive rights to research, develop, manufacture and commercialize productscontaining certain of Pfizer’s inhibitors of focal adhesion kinase (Products) for all therapeutic, diagnostic andprophylactic uses in humans. The Company is solely responsible, at its expense, for the clinical development of theProducts, which is to be conducted in accordance with an agreed‑upon development plan. The Company is alsoresponsible for all manufacturing and commercialization activities at its own expense. Pfizer is required to provide theCompany with an initial quantity of clinical supply of one of the Products for an agreed upon price. Under theagreement, the Company made a one‑time cash payment to Pfizer in the amount of $1.5 million and issued 192,012shares of its common stock. Pfizer is also eligible to receive up to $2 million in developmental milestones and up to anadditional $125 million based on the successful attainment of regulatory and commercial sales milestones. Pfizer is alsoeligible to receive high single to mid double digit royalties on future net sales of Products. The Company’sF-21 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) royalty obligations with respect to each Product in each country begin on the date of first commercial sale of the Productin that country, and end on the later of 10 years after the date of first commercial sale of the Product in that country orthe date of expiration or abandonment of the last claim contained in any issued patent or patent application licensed byPfizer to the Company that covers the Product in that country. The Company accounted for the license agreement as thelicensing of in‑process research and development with no alternative future use. Accordingly, the Company recordedresearch and development expense for the year ended December 31, 2012 associated with the cash payment of$1.5 million and the fair value of shares of common stock issued to Pfizer of $2.0 million.11. Employee benefit planIn June 2011, the Company adopted a 401(k) retirement and savings plan (the 401(k) Plan) covering allemployees. The 401(k) Plan allows employees to make pre‑tax or post‑tax contributions up to the maximum allowableamount set by the IRS. Under the 401(k) Plan, the Company may make discretionary contributions as approved by theboard of directors. The Company made approximate contributions to the 401(k) Plan of $295,000, $219,000and $160,000 for the years ended December 31, 2015, 2014 and 2013, respectively.12. Reduction in forceIn October 2015, the Company announced a reduction of workforce by approximately 50% to 20 full timeemployees. All affected employees will receive severance pay and outplacement assistance. As a result of the reductionin force and associated costs, the Company estimates one-time severance and related costs of $1.1 million. Of these one-time severance and related costs, approximately $349,000 was paid through December 31, 2015 and approximately$713,000 will be paid in 2016.13. Quarterly financial information (unaudited, in thousands, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter Ended Ended Ended Ended March 31, June 30, September 30, December 31, 2015 2015 2015 2015 Operating expenses: Research and development $10,528 $11,045 $11,304 $7,688 General and administrative 4,714 4,417 4,230 4,273 Total operating expenses 15,242 15,462 15,534 11,961 Loss from operations (15,242) (15,462) (15,534) (11,961) Interest income 62 85 89 98 Net loss $(15,180) $(15,377) $(15,445) $(11,863) Net loss per share —basic and diluted $(0.46) $(0.42) $(0.42) $(0.32) Weighted-average number of common shares usedin net loss per share —basic and diluted 33,323(a)(b) 36,522(b) 36,898(b) 36,935 F-22 Table of ContentsVerastem, Inc.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) First Quarter Second Quarter Third Quarter Fourth Quarter Ended Ended Ended Ended March 31, June 30, September 30, December 31, 2014 2014 2014 2014 Operating expenses: Research and development $8,411 $8,305 $9,047 $9,685 General and administrative 4,723 4,782 4,341 4,313 Total operating expenses 13,134 13,087 13,388 13,998 Loss from operations (13,134) (13,087) (13,388) (13,998) Interest income 72 65 56 49 Net loss $(13,062) $(13,022) $(13,332) $(13,949) Net loss per share —basic and diluted $(0.51) $(0.51) $(0.52) $(0.53) Weighted-average number of common shares usedin net loss per share —basic and diluted 25,478 25,669 25,811 26,248(c)(a)In January 2015, the Company closed a public offering in which it sold 8,337,500 shares of its common stock at aprice of $6.50 per share, including 1,087,500 shares issued pursuant to the exercise of the underwriters’ option topurchase additional shares, which resulted in net proceeds of $50.9 million.(b)In the first, second and third quarters of 2015, the Company sold 470,309, 690,370 and 28,800 shares of itscommon stock under the Company’s at-the-market equity offering program, which resulted in net proceeds of $4.4million, $6.2 million and approximately $250,000, respectively(c)In November and December 2014, the Company sold 1,346,676 shares of common stock under the Company’s at-the-market equity offering program which resulted in net proceeds of $11.6 million. 14. Subsequent eventsThe Company reviews all activity subsequent to year end but prior to the issuance of the consolidated financialstatements for events that could require disclosure or that could impact the carrying value of assets or liabilities as of thebalance sheet date. The Company is not aware of any material subsequent events. F-23 Table of ContentsEXHIBIT INDEXExhibitnumber Description of exhibit3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 toAnnual Report on Form 10‑K (File No. 001‑35403) filed by the Registrant on March 30, 2012) 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 toAmendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by theRegistrant on January 13, 2012) 4.1 Second Amended and Restated Investors’ Rights Agreement, dated November 1, 2011, by and amongthe Registrant and the other parties thereto (incorporated by reference to Exhibit 4.2 to the RegistrationStatement on Form S‑1 (File No. 333‑177677) filed by the Registrant on November 3, 2011) 4.2 Registration Rights Agreement, dated July 11, 2012, by and between the Registrant and Pfizer Inc.(incorporated by reference to Exhibit 4.1 to Current Report on Form 8‑K (File No. 001‑35403) filed bythe Registrant on July 11, 2012) 4.3 Specimen certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 toAmendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by theRegistrant on January 13, 2012) 4.4 Common Stock Warrant Agreement between the Registrant and Encarta, Inc. dated February 21, 2014(incorporated by reference to Exhibit 4.1 of the Quarterly Report on Form 10‑Q (File No. 001‑35403)filed by the Registrant on May 8, 2014) 10.1# 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registration Statement onForm S‑1 (File No. 333‑177677) filed by the Registrant on November 3, 2011) 10.2# 2012 Incentive Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 3 to the RegistrationStatement on Form S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012) 10.3# Form of Incentive Stock Option Agreement under 2012 Incentive Plan (incorporated by reference toExhibit 10.3 to Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677)filed by the Registrant on January 13, 2012) 10.4# Form of Nonqualified Stock Option Agreement under 2012 Incentive Plan (incorporated by reference toExhibit 10.4 to Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677)filed by the Registrant on January 13, 2012) 10.5# Form of Restricted Stock Unit Agreement under 2012 Incentive Plan (incorporated by reference toExhibit 10.16 to Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677)filed by the Registrant on January 13, 2012) 10.6# Amended and Restated Employment Agreement between the Registrant and Robert Forrester(incorporated by reference to Exhibit 10.5 to Amendment No. 3 to the Registration Statement onForm S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012) 10.7# Amended and Restated Employment Agreement between the Registrant and Jonathan Pachter(incorporated by reference to Exhibit 10.6 to Amendment No. 3 to the Registration Statement onForm S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012) 89 Table of Contents10.8# Form of Indemnification Agreement between the Registrant and each director (incorporated by referenceto Exhibit 10.7 to Amendment No. 1 to the Registration Statement on Form S‑1 (File No. 333‑177677)filed by the Registrant on December 7, 2011) 10.9 Lease Agreement, dated April 15, 2014, between the Registrant and Intercontinental Fund III 117Kendrick Street LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8‑K (FileNo. 001‑35403, filed by the Registrant on April 18, 2014) 10.10† Amended and Restated Exclusive Patent License Agreement and Tangible Property Agreement, datedJanuary 11, 2012, by and among the Registrant and the Whitehead Institute for Biomedical Research(incorporated by reference to Exhibit 10.9 to Amendment No. 3 to the Registration Statement onForm S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012) 10.11† Exclusive Patent License Agreement, dated December 16, 2011, by and among the Registrant and theWhitehead Institute for Biomedical Research (incorporated by reference to Exhibit 10.10 to AmendmentNo. 2 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by the Registrant onDecember 22, 2011) 10.12† License Agreement dated May 5, 2008 by and between The Scripps Research Institute and PoniardPharmaceuticals, Inc. (Registrant assumed the rights and obligations of Encarta, Inc., which previouslyassumed the rights and obligations from Poniard Pharmaceuticals, Inc., on February 21, 2014)(incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10‑Q (File No. 001‑35403)filed by the Registrant on May 8, 2014) 10.13† Letter Agreement, dated October 1, 2010, between the Registrant and the Broad Institute (incorporatedby reference to Exhibit 10.11 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed bythe Registrant on November 3, 2011) 10.14# Letter Agreement, dated August 20, 2010, between the Registrant and Eric Lander, Ph.D. (incorporatedby reference to Exhibit 10.13 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed bythe Registrant on November 3, 2011) 10.15# Letter Agreement, dated July 30, 2010, as amended October 18, 2010, between the Registrant andRobert Weinberg, Ph.D. (incorporated by reference to Exhibit 10.14 to the Registration Statement onForm S‑1 (File No. 333‑177677) filed by the Registrant on November 3, 2011) 10.16# Restricted Stock Purchase Agreement, dated August 11, 2010, between the Registrant and ChristophWestphal (incorporated by reference to Exhibit 10.17 to Annual Report on Form 10‑K (FileNo. 001‑35403) filed by the Registrant on March 30, 2012) 10.17# Employment Agreement, dated March 1, 2012, between the Registrant and Daniel Paterson(incorporated by reference to Exhibit 10.18 to Annual Report on Form 10‑K (File No. 001‑35403) filedby the Registrant on March 26, 2013) 10.18† Asset Purchase Agreement, dated May 10, 2012, by and between the Registrant and S*Rio Pte Ltd.(incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10‑Q (File No. 001‑35403) filedby the Registrant on August 13, 2012) 10.19† License Agreement, dated July 11, 2012, by and between the Registrant and Pfizer Inc. (incorporated byreference to Exhibit 10.2 to Quarterly Report on Form 10‑Q (File No. 001‑35403) filed by the Registranton August 13, 2012) 10.20# Offer Letter, dated as of September 18, 2012, by and between the Registrant and Christoph Westphal,M.D., Ph.D. (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10‑Q (FileNo. 001‑35403) filed by the Registrant on November 13, 2012) 90 Table of Contents10.21# Restricted Stock Unit Agreement, dated as of September 18, 2012, by and between the Registrant andChristoph Westphal, M.D., Ph.D. (incorporated by reference to Exhibit 10.2 to Quarterly Report onForm 10‑Q (File No. 001‑35403) filed by the Registrant on November 13, 2012) 10.22# Restricted Stock Unit Agreement, dated as of September 18, 2012, by and between the Registrant andChristoph Westphal, M.D., Ph.D. (incorporated by reference to Exhibit 10.3 to Quarterly Report onForm 10‑Q (File No. 001‑35403) filed by the Registrant on November 13, 2012) 10.23# Employment Agreement, dated as of October 23, 2012, by and between the Registrant and JoannaHorobin (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10‑Q (FileNo. 001‑35403) filed by the Registrant on November 13, 2012) 10.24# Amendment to Form of Restricted Stock Unit Agreement under 2012 Incentive Plan (incorporated byreference to Exhibit 10.25 to Annual Report on Form 10‑K (File No. 001‑35403) filed by the Registranton March 26, 2013) 10.25# Employment Agreement, dated May 10, 2013, by and between the Registrant and John B. Green, CPA(incorporated by reference to Exhibit 99.2 to current report on Form 8‑K (File No. 001‑35403) filed bythe Registrant on May 14, 2013) 10.26# Letter Agreement, dated June 6, 2013, by and between the Registrant and Robert Forrester (incorporatedby reference to Exhibit 10.2 to Quarterly Report on Form 10‑Q (File No. 001‑35403) filed by theRegistrant on August 13, 2013) 10.27† Letter Agreement, dated December 7, 2012, by and between the Registrant and Pfizer Inc. (incorporatedby reference to Exhibit 10.31 to Annual Report on Form 10‑K (File No. 001‑35403) filed by theRegistrant on March 6, 2014) 10.28# Amended and Restated Employment Agreement, dated November 22, 2013, by and between theRegistrant and Robert Forrester (incorporated by reference to Exhibit 10.32 to Annual Report onForm 10‑K (File No. 001‑35403) filed by the Registrant on March 6, 2014) 10.29# Letter Agreement with Robert Forrester, dated June 6, 2013 (incorporated by reference to Exhibit 10.2 toQuarterly Report on Form 10‑Q (File No. 001‑35403) filed by the Registrant on August 13, 2013) 10.30# Employment Agreement between the Registrant and Monica Singh (incorporated by reference toExhibit 10.2 to the Quarterly Report on Form 10‑Q (File No. 001‑35403) filed by the Registrant onMay 8, 2014) 10.31# Consulting Agreement between the Registrant and Joanna Horobin, dated June 10, 2015 and effectiveJuly 10, 2015 (incorporated by reference to Exhibit 10.1 to Current Report Form 8-K (File No. 001-35403) filed by the Registrant on June 10, 2015) 10.32*# Letter Agreement, dated December 1, 2015, by and between the Registrant and John B. Green. 21.1* Subsidiaries of the Registrant 23.1* Consent of Ernst & Young LLP 31.1* Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a‑14(a) 31.2* Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a‑14(a) 32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes‑Oxley Act of 2002.91 Table of Contents 32.2* Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes‑Oxley Act of 2002. 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document*Filed herewith.†Confidential treatment granted as to portions of the exhibit. Confidential materials omitted and filed separately withthe Securities and Exchange Commission.‡Confidential treatment requested under 17 C.F.R. §200.80(b)(4) and Rule 24b‑2. The confidential portions of thisexhibit have been omitted and are marked accordingly. The confidential portions have been provided separately tothe SEC pursuant to the confidential treatment request.#Management contract or compensatory plan, contract or agreement. 92Exhibit 10.32 December 1, 2015 John B. GreenBY HAND DELIVERY RePart-Time Employment Dear Jack: This letter memorializes certain mutual understandings with respect to your employment with Verastem, Inc. (the"Company"). Reference is made to the Employment Agreement between you the Company, dated as of March 10, 2013 (the"Employment Agreement"). This letter supplements (and, to the extent of any conflict, supersedes) the EmploymentAgreement. We anticipate that, effective January 1, 2016, you will be employed on a part-time basis, working three (3) days per week atapproximately sixty percent (60%) of your current full-time schedule. For so long as you continue to be employed by theCompany on this part-time basis, the Company will pay you a base salary at the rate of $202,800, representing sixty percent(60%) of your base salary on the date of this letter (your "Current Base Salary"). You will continue to be employed on suchpart-time basis until otherwise agreed to in writing between you and the Company, or until your employment is terminatedby you or the Company in accordance with Section 4 of the Employment Agreement. Further, it is our shared understanding that in the event your employment with the Company is terminated (i) by theCompany other than for Cause as defined in the Employment Agreement, or (ii) by you with or without Good Reason asdefined in the Employment Agreement, such termination will be treated as a termination by the Company other than forCause for all purposes. In the event of any such termination, for purposes of Section 5(a)(i) of the Employment Agreementyour "then-current annual base salary" shall mean the base salary at the rate of $338,000, being one hundred percent (100%)of your base salary as of the date of this Letter. The Company will reimburse you for your reasonable and actual legal fees incurred in connection with the negotiation ofthis letter following receipt of such substantiation and documentation of these expenses as may be reasonably requested bythe Company. This letter may not be modified or amended, and no breach will be deemed to be waived, except by a written agreement,signed by an authorized officer of the Company and by you. Except as expressly provided herein, your EmploymentAgreement will continue in full force and effect in accordance with its terms. This letter is a Massachusetts contract and willbe governed and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to any conflict of laws principles that would result in the application of the laws of any other jurisdiction. Very truly yours, VERASTEM, INC. /s/ Dan Paterson Dan Paterson Chief Operating Officer Accepted and agreed: /s/ John B. Green John B. Green Date:12/1/2015 Exhibit 21.1List of Registrant’s SubsidiariesVerastem Securities Company, incorporated in Massachusetts, a wholly owned subsidiary. Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S‑3 No. 333‑192968) of Verastem, Inc.,(2)Registration Statement (Form S‑8 No. 333‑180475) pertaining to the 2010 Equity Incentive Plan and the2012 Incentive Plan of Verastem, Inc.,(3)Registration Statement (Form S‑8 No. 333‑190578) pertaining to the 2012 Incentive Plan of Verastem, Inc.,(4)Registration Statement (Form S‑8 No. 333‑201075) pertaining to the 2014 Inducement Award Program ofVerastem, Inc., and(5)Registration Statement (Form S‑8 No. 333‑201076) pertaining to the 2012 Incentive Plan of Verastem, Inc.of our report dated March 3, 2016 with respect to the consolidated financial statements of Verastem, Inc. included in thisAnnual Report (Form 10‑K) of Verastem, Inc. for the year ended December 31, 2015./s/ Ernst & Young LLPBoston, MassachusettsMarch 3, 2016 Exhibit 31.1CERTIFICATIONSI, Robert Forrester certify that:1.I have reviewed this Annual Report on Form 10‑K of Verastem, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report,fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting. /s/ Robert ForresterRobert ForresterChief Executive OfficerDate: March 3, 2016 Exhibit 31.2CERTIFICATIONSI, John B. Green, CPA, certify that:1.I have reviewed this Annual Report on Form 10‑K of Verastem, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report,fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control overfinancial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generallyaccepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board ofdirectors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal controlover financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting. /s/ John B. Green, CPA John B. Green, CPA Chief Financial OfficerDate: March 3, 2016Exhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002In connection with the Annual Report on Form 10‑K of Verastem, Inc. (the “Company”) for the period endedDecember 31, 2015 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), theundersigned, Robert Forrester, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that to my knowledge:(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 as amended; and(2)the information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company. /s/ Robert Forrester Robert Forrester Chief Executive OfficerDate: March 3, 2016A signed original of this written statement required by Section 906 has been provided to the Company and will beretained by the Company and furnished to the SEC or its staff upon request.Exhibit 32.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002In connection with the Annual Report on Form 10‑K of Verastem, Inc. (the “Company”) for the period endedDecember 31, 2015 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), theundersigned, John B. Green, CPA, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that to my knowledge:(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 as amended; and(2)the information contained in the Report fairly presents, in all material respects, the financialcondition and results of operations of the Company. /s/ John B. Green, CPA John B. Green, CPA Chief Financial OfficerDate: March 3, 2016A signed original of this written statement required by Section 906 has been provided to the Company and will beretained by the Company and furnished to the SEC or its staff upon request. 

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