Verastem Oncology
Annual Report 2018

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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, 2018or☐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 every Interactive Data File required to be submitted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). ☒ Yes ☐ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company oran emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the ExchangeAct.Large accelerated filer ☐Accelerated filer ☒Non‑accelerated filer ☐Smaller reporting company☒Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ NoAggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2018 was $503,007,333.The number of shares outstanding of the registrant’s common stock as of March 7, 2019 was 73,865,036.DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to theRegistrant’s Annual General Meeting of Shareholders, to be held on May 14, 2019, will be incorporated by reference in this Form 10-K in response to Items 10,11, 12, 13 and 14 of Part III. The definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after theregistrant’s fiscal year ended December 31, 2018. Table of ContentsTABLE OF CONTENTSPART IItem 1. Business 4Item 1A. Risk Factors 41Item 1B. Unresolved Staff Comments 72Item 2. Properties 73Item 3. Legal Proceedings 73Item 4. Mine Safety Disclosures 73PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases ofEquity Securities 73Item 6. Selected Financial Data 75Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 76Item 7A. Quantitative and Qualitative Disclosures About Market Risk 94Item 8. Consolidated Financial Statements and Supplementary Data 94Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 94Item 9A. Controls and Procedures 94Item 9B. Other Information 97PART III Item 10. Directors, Executive Officers and Corporate Governance 98Item 11. Executive Compensation 98Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 98Item 13. Certain Relationships and Related Transactions, and Director Independence 98Item 14. Principal Accountant Fees and Services 98PART IV Item 15. Exhibits and Financial Statement Schedules 99Item 16. Form 10-K Summary 99EXHIBIT INDEX 100SIGNATURES 104 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 and activity of our lead product, COPIKTRAand our Phosphoinositide 3-kinase (PI3K) and Focal Adhesion Kinase (FAK) programs generally, the potentialcommercial success of COPIKTRA, the anticipated adoption of COPIKTRA by patients and physicians, the structure ofour planned and pending clinical trials, and the timeline and indications for clinical development, regulatorysubmissions and commercialization activities. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,”“plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similarexpressions are intended to identify forward-looking statements, although not all forward-looking statements containthese identifying words. Forward-looking statements are not guarantees of future performance and our actual results could differmaterially from the results discussed in the forward-looking statements we make. Applicable risks and uncertaintiesinclude the risks and uncertainties, among other things, regarding: the commercial success of COPIKTRA in the UnitedStates; physician and patient adoption of COPIKTRA, including those related to the safety and efficacy of COPIKTRA;the uncertainties inherent in research and development of COPIKTRA, such as negative or unexpected results of clinicaltrials; whether and when any applications for COPIKTRA may be filed with regulatory authorities in any otherjurisdictions; whether and when regulatory authorities in any other jurisdictions may approve any such otherapplications that may be filed for COPIKTRA, which will depend on the assessment by such regulatory authorities of thebenefit-risk profile suggested by the totality of the efficacy and safety information submitted and, if approved, whetherCOPIKTRA will be commercially successful in such jurisdictions; our ability to obtain, maintain and enforce patent andother intellectual property protection for COPIKTRA and our other product candidates; the scope, timing, and outcomeof any legal proceedings; decisions by regulatory authorities regarding labeling and other matters that could affect theavailability or commercial potential of COPIKTRA; the fact that regulatory authorities in the U.S. or other jurisdictions,if approved, could withdraw approval; whether preclinical testing of our product candidates and preliminary or interimdata from clinical trials will be predictive of the results or success of ongoing or later clinical trials; that the timing,scope and rate of reimbursement for our product candidates is uncertain; that third-party payors (including governmentagencies) may not reimburse for COPIKTRA; that there may be competitive developments affecting our productcandidates; that data may not be available when expected; that enrollment of clinical trials may take longer thanexpected; that COPIKTRA or our other product candidates will cause unexpected safety events, experiencemanufacturing or supply interruptions or failures, or result in unmanageable safety profiles as compared to their levels ofefficacy; that COPIKTRA will be ineffective at treating patients with lymphoid malignancies; that we will be unable tosuccessfully initiate or complete the clinical development and eventual commercialization of our product candidates;that the development and commercialization of our product candidates will take longer or cost more than planned; thatwe may not have sufficient cash to fund our contemplated operations; that we, CSPC Pharmaceutical Group Limited,Yakult Honsha Co. Ltd., or Infinity Pharmaceuticals, Inc. will fail to fully perform under the duvelisib licenseagreements; that we may be unable to make additional draws under our debt facility or obtain adequate financing in thefuture through product licensing, co-promotional arrangements, public or private equity, debt financing or otherwise;that we will not pursue or submit regulatory filings for our product candidates, including for duvelisib in patients withchronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) or indolent non-Hodgkin lymphoma (iNHL) inother jurisdictions; and that our product candidates will not receive regulatory approval, become commerciallysuccessful products, or result in new treatment options being offered to patients. Other risks and uncertainties includethose identified under the heading “Risk Factors” in this Annual Report on Form 10-K for the year ended December 31,2018, and in any subsequent filings with the Securities and Exchange Commission (SEC). As a result of these and other factors, we may not achieve the plans, intentions or expectations disclosed in ourforward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures orinvestments we may make. We do not assume any obligation to update any forward-looking statements, whether as aresult 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 developing and commercializing medicines to improve thesurvival and quality of life of cancer patients. Both our marketed product, COPIKTRA™ (duvelisib) capsules, and mostadvanced product candidate, defactinib, utilize a multi-faceted approach designed to treat cancers originating either inthe blood or major organ systems. We are currently developing our product candidates in both preclinical and clinicalstudies as potential therapies for certain cancers, including leukemia, lymphoma, lung cancer, mesothelioma, ovariancancer and pancreatic cancer. We believe that these compounds may be beneficial as therapeutics either as single agentsor when used in combination with immuno-oncology agents or other current and emerging standard of care treatments inaggressive cancers that are poorly served by currently available therapies.COPIKTRA is an oral inhibitor of phosphoinositide 3-kinase (PI3K), and the first approved dual inhibitor ofPI3K-delta and PI3K-gamma, two enzymes known to help support the growth and survival of malignant B-cells. PI3Ksignaling may lead to the proliferation of malignant B-cells and is thought to play a role in the formation andmaintenance of the supportive tumor microenvironment. COPIKTRA was approved by the U.S. Food & DrugAdministration (FDA) on September 24, 2018 and is now indicated for the treatment of adult patients with relapsed orrefractory chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) after at least two prior therapies andrelapsed or refractory follicular lymphoma (FL) after at least two prior systemic therapies. The indication in FL isapproved under accelerated approval based on overall response rate. Continued approval for this FL indication may becontingent upon verification and description of clinical benefits in confirmatory trials.We are also developing duvelisib for the treatment of multiple types of cancer, the most advanced of which isdesigned to treat patients with peripheral T-cell lymphoma (PTCL). The development of duvelisib in PTCL has beenawarded Fast Track status by the FDA and a registration study is underway. During 2019, we plan to continue to furtherdevelop duvelisib through the initiation of a confirmatory study of patients with FL and other sponsored trials. We alsoplan to report interim data for several ongoing investigator sponsored studies (ISTs).Our second product candidate, defactinib, is a targeted inhibitor of the Focal Adhesion Kinase (FAK) signalingpathway. FAK is a non-receptor tyrosine kinase encoded by the Protein Tyrosine Kinase-2 (PTK-2) gene that is involvedin cellular adhesion and, in cancer, metastatic capability. Similar to COPIKTRA, defactinib is delivered orally anddesigned to be a potential therapy for patients to take at home under the advice of their physician. Defactinib iscurrently being investigated in combination with immunotherapeutic and other agents through ISTs. During 2019, weplan to report results from certain ongoing dose escalation combination studies involving this product.4 Table of ContentsOUR FOCUSWe are focused on the development and commercialization of small molecules for optimized efficacy andsafety – primarily as orally available drugs and drug candidates that are designed to treat various forms of cancer. Cancer is a group of diseases characterized by the uncontrolled growth and spread of abnormal cells. The AmericanCancer Society estimated that in the United States in 2018, approximately 1.7 million new cases of cancer werediagnosed and over 600,000 people died from the disease. Current treatments for cancer include surgery, radiationtherapy, chemotherapy, hormonal therapy, immunotherapy, and targeted therapy. Notwithstanding years of intensiveresearch and clinical use, these current treatments often fail to cure cancer. For example, conventional chemotherapyworks by stopping the function of cancer cells through a variety of mechanisms. Chemotherapies are usually nottargeted at any specific differences between cancer cells and normal cells. Rather, they kill cancer cells because cancercells generally grow more rapidly than normal cells and, as a result, are relatively more affected by the chemotherapythan normal cells. As a result, the treatments may succeed at initially decreasing tumor burden, but ultimately fail to killall the cancer cells or effectively disrupt the tumor microenvironment, potentially resulting in eventual diseaseprogression.Accordingly, cancer remains one of the world’s most serious health problems and is the second most commoncause of death in the United States after heart disease. The U.S. annual incidence, based on 2018 estimates from theNational Cancer Institute’s Surveillance, Epidemiology, and End Results Program (NCI; SEER), is that during the yearthere were approximately 75,000 new cases of indolent non-Hodgkin lymphoma (iNHL), 234,000 new cases of lungcancer and 55,000 cases of pancreatic cancer. 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 thepotential of oral, targeted therapies, along with the rapidly advancing field of immunotherapy, or using the body’simmune system to fight cancer, are important new insights that present the opportunity to develop more effective cancertreatments. Our goal is to develop targeted agents that both specifically kill cancer cells and disrupt the tumormicroenvironment to enhance the efficacy of cancer treatment. Agents that can modulate the tumor microenvironmentto increase cytotoxic T-cell access to the tumor cells and decrease immunosuppressive T-cells in tumors have beensought after to increase the proportion of responding cancer patients and the duration of response (DOR) to cancertreatment.Our commercial product, COPIKTRA, and product candidate, defactinib, are currently used to treat, and arebeing evaluated for the treatment of, certain types of hematologic and solid cancers, including CLL/SLL, iNHL, T-celllymphoma, lung cancer, mesothelioma, ovarian cancer, pancreatic cancer, and other advanced cancers.Chronic Lymphocytic Leukemia/Small Lymphocytic Lymphoma, Non-Hodgkin LymphomaHematologic malignancies are cancers of the blood or bone marrow such as CLL/SLL and non-Hodgkinlymphoma (NHL). In general, NHLs are a disease that occurs in patients over the age of 65.The NCI estimates that the number of new incidences of CLL/SLL was 4.3 per 100,000 men and women peryear based on 2011-2015 cases and that the five-year relative survival rate from 2008 to 2014 for patients with CLL/SLLwas approximately 83%. As CLL/SLL is generally a slow-growing disease, the advent of new oral anti-cancer therapiessince 2013 has resulted in a significant advancement of treatment options beyond chemotherapy or anti-B-lymphocyteantigen CD20 (CD20) immunotherapies, including ofatumumab. For example, the Bruton’s Tyrosine Kinase (BTK) andB-cell lymphoma 2 (BCL-2) inhibitors have demonstrable activity in the treatment of CLL/SLL. However, evidencecoming from studies on real-world use of these agents is revealing that a significant number of patients either relapsefollowing treatment, become refractory to current agents, or are unable to tolerate treatment due to unmanageable sideeffects resulting from treatment, representing a significant medical need. The five-year relative survival rate from 2008 to 2014 for patients with NHL was approximately 71%. Thetype and stage of the lymphoma can often provide useful information about a person’s prognosis, but for some types oflymphomas the stage is less informative on its own. In these cases, other factors can give doctors a better idea about aperson’s prognosis. These factors are included in the International Prognostic Index and other metrics,5 Table of Contentswhich take into account the patient’s age, stage of disease, presence of metastases, performance status and blood levelsof lactate dehydrogenase.The potential of additional oral agents, particularly as a monotherapy that can be used in the generalcommunity physician’s armamentarium, may hold significant value in the treatment of patients with CLL/SLL. Follicular LymphomaFL comprises 20% of all NHL and as much as 70% of the indolent lymphomas reported in American andEuropean clinical trials. Most patients with FL are age 50 years and older and present with widespread disease atdiagnosis. Nodal involvement is most common and is often accompanied by splenic and bone marrow disease.Despite the advanced stage, median survival for patients ranges from 8 to 15 years, leading to the designationof being indolent. Patients with advanced-stage FL are not cured with current therapeutic options. The rate of relapse isfairly consistent over time, even in patients who have achieved complete responses to treatment.There are various treatment options for FL based on the severity of associated symptoms and the rate of cancergrowth. If patients show no or very few symptoms, physicians may recommend not to treat the disease immediately, anapproach referred to as “active surveillance” (also known as “watchful waiting”). Active treatment is often started if thepatient begins to develop lymphoma-related symptoms or there are signs that the disease is progressing based on testingduring follow-up visits.FL is generally responsive to radiation and chemotherapy upon initial diagnosis and treatment. In moreadvanced stages, physicians may use one or more chemotherapy drugs or the monoclonal antibody rituximab (Rituxan),alone or in combination with other agents, generally with decreasing responsiveness upon each additional relapse.There have been only incremental advances in treatment options for FL beyond chemotherapy orimmunotherapies like the antibodies against CD20, such as rituximab and obinutuzumab, and the overall clinicaloutlook for patients still remains poor. In advanced disease, there are now several targeted therapies available includingCOPIKTRA, Aliqopa and Zydelig, which have similar mechanisms of action. The use of an oral agent like COPIKTRA,particularly as a monotherapy that can be used in the general community physician’s armamentarium, may holdsignificant value for the treatment of patients with FL. Peripheral T-Cell LymphomaPTCL consists of a group of rare and usually aggressive (fast-growing) NHLs that develop from mature T-cells. Most T-cell lymphomas are PTCLs, which collectively account for about 10% to 15% of all NHL cases in theUnited States.PTCLs are sub-classified into various subtypes, each of which are typically considered to be separate diseasesbased on their distinct clinical differences. Most of these subtypes are very rare; the three most common subtypes ofPTCL – peripheral T-cell lymphoma not otherwise specified (PTCL-NOS), anaplastic large-cell lymphoma (ALCL), andangioimmunoblastic T-cell lymphoma (AITL) – account for approximately 60% of all PTCLs in the United States.For most subtypes of PTCL, the frontline treatment regimen is typically a combination chemotherapy, such asCHOP (cyclophosphamide, doxorubicin, vincristine, prednisone), EPOCH (etoposide, vincristine, doxorubicin,cyclophosphamide, prednisone), or other multi-drug regimens. Because most patients with PTCL will relapse, someoncologists recommend giving high-dose chemotherapy followed by an autologous stem cell transplant (during whichpatients receive their own stem cells) to some patients who had a positive response to their initial chemotherapy.Although promising, there is no firm clinical data to support that undergoing a transplant in this setting is better thannot undergoing a transplant.6 Table of ContentsThe potential of additional oral agents, either as a monotherapy or in combination with other anti-canceragents, that can be used in the general community physician’s armamentarium, may hold significant value in thetreatment of patients with PTCL.Ovarian CancerOvarian 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 carcinomaof the ovary is one of the most common gynecologic malignancies, with 50% of all cases occurring in women older than65 years. The American Cancer Society estimates that in 2019 there will be approximately 22,530 new cases of ovariancancer diagnosed and approximately 13,980 ovarian cancer-related deaths.Most patients are treated with a combination of surgery, chemotherapy, targeted therapy and radiation therapy. Surgery is often comprehensive, seeking to remove as much of the tumor as possible and may include removal of theovaries or a total hysterectomy where the uterus is also removed. Unfortunately, available therapies are rarely curativein the treatment of ovarian cancer and many tumors become resistant to platinum-based chemotherapy, which is theprimary treatment regimen. Further treatment with conventional chemotherapy is generally palliative, not curative, asthe tumor is able to metastasize and spread to other sites in the body.Pancreatic CancerIn 2018, the NCI estimated that pancreatic cancer was the eleventh most common cancer diagnosed in theUnited States and that the disease represented the third leading cause of cancer-related death in the country.Pancreatic 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 cancerdeath. Signs and symptoms may not appear until pancreatic cancer is so advanced that complete surgical removal is notpossible. 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 approximately 91% of patients dying within five years oftheir initial diagnosis based on the five-year relative survival rate from 2008 to 2014. The median age for diagnosis is70 with the disease affecting males slightly more than females.Treatment 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 immunotherapies to improve theoutcome may be due to the dense stroma that is prevalent in pancreatic tumors and the tumor microenvironment. Non-Small Cell Lung CancerAccording 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). Lung cancer is the leading cause ofcancer-related mortality in the United States. The five-year relative survival rate from 2008 to 2014 for patients withNSCLC was approximately 19%.Patients 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 a cure is seen only ina small 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 majority of patients.7 Table of ContentsMesotheliomaMesothelioma is a form of cancer that is most often caused by asbestos and affects the smooth lining of thechest, lungs, heart, and abdomen. Mesothelioma most often forms in the pleural cavity of the chest or into the abdomenas a solid tumor that begins as a result of insult to the tissues caused by asbestos particles, which penetrate into thepleural cavity of the chest.Pleural mesothelioma accounts for approximately 2,500 - 3,000 cases a year in the United States. This diseaseaffects the pleura, which is the thin balloon shaped lining of the lungs. In its early stages, mesothelioma is difficult todetect as it may start with a thickening of the pleural rind, or fluid, which can be associated with many otherconditions. This rind is normally thin and smooth in the non-diseased state. In time, it begins to demonstrateprogression, forming a more pronounced irregular rind and nodules, which coalesce into a crust that compresses andinvades into adjacent structures compromising lung and cardiac function.The symptoms of mesothelioma gradually become more noticeable, prompting the patient to seek a medicalconsultation. By this time, the progression of the disease may already be too advanced, as the tumor may have spread tothe lymph nodes and/or begun to metastasize to remote organs of the body like the brain, spleen, liver or kidneys.OUR STRATEGYCOPIKTRA and defactinib seek to utilize a multi-faceted approach to treat cancer by directly targeting thecancer cells, enhancing anti-tumor immunity, and modulating the local tumor microenvironment. Our goal is to build aleading biopharmaceutical company focused on the development and commercialization of novel drugs that use amulti-faceted approach to improving outcomes for patients with cancer.Key elements of our strategy to achieve this goal are:·Continuing to support and maintain a commercial infrastructure in the United States for the marketingof COPIKTRA in approved and indicated hematologic malignancies as an oral monotherapy forpatients needing additional lines of therapy following previous treatment.·Expanding the indications in which COPIKTRA and defactinib may be used. In parallel with theCLL/SLL, iNHL, PTCL, NSCLC, ovarian cancer, pancreatic cancer and mesothelioma trials and studiesthat we are currently conducting, we plan to pursue additional disease indications to expand thepotential of our product and product candidate.·Advancing our product candidates through clinical development. We have ongoing clinical trials andstudies of duvelisib and defactinib both as single agents and in combination with other agents inseveral hematologic and solid tumor indications.8 Table of Contents·Collaborating 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 arrangementsfor target oncology indications in which our potential collaborator has particular expertise or forwhich we need access to additional research, development, or commercializationresources. Additionally, we may seek third-party collaborations outside of the United States tocontinue to maximize the benefits of our product and product candidate to patients around the world.·Considering the acquisition or in‑licensing of rights to additional agents. We may pursue theacquisition or in‑license of rights to additional agents from third parties that may supplement ourinternal programs and allow us to initiate clinical development of a diverse pipeline of agents morequickly.·Building and maintaining scientific leadership in the areas of lymphoid malignancies, immuno-oncology, and the tumor microenvironment. We plan to continue to conduct research in thehematological and immuno-oncology fields to further our understanding of the underlying biology ofenhancing the body’s immune response to tumors as well as cancer progression and metastasis. Wealso plan to continue fostering relationships with top scientific advisors, researchers and physicians. We believe that exceptional advisors, employees and management are critical to the development ofnew therapies for the treatment of cancer.OUR PRODUCT AND PRODUCT CANDIDATEOur pipeline product and product candidate currently consist of COPIKTRA, which is now commerciallyavailable in the United States, having been approved by the FDA for the treatment of certain hematologic malignanciesin September 2018, and defactinib, which continues to be evaluated in the clinic for the treatment of a variety of cancertypes. COPIKTRA (duvelisib)Our lead product, COPIKTRA (duvelisib), is the first approved oral, dual inhibitor of PI3K-delta and PI3K-gamma. COPIKTRA received approval from the FDA on September 24, 2018 for the treatment of adult patients withrelapsed or refractory chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) after at least two priortherapies and relapsed or refractory follicular lymphoma (FL), after at least two prior systemic therapies. The indicationin FL is approved under accelerated approval based on overall response rate and continued approval for this indicationmay be contingent upon verification and description of clinical benefits in confirmatory trials.The FDA approved labeling for COPIKTRA includes a boxed warning for four fatal and/or serious toxicities:infections, diarrhea or colitis, cutaneous reactions, and pneumonitis. Additionally, we have implemented aninformational Risk Evaluation and Mitigation Strategy (REMS), as requested by the FDA, to support physiciansin managing dosing and adverse reactions in their patients on COPIKTRA. In addition to the boxed warning, use ofCOPIKTRA is also associated with adverse reactions, which may require dose reduction, treatment delay ordiscontinuation of COPIKTRA. Warnings and precautions are provided in the package insert for infections, diarrhea orcolitis, cutaneous reactions, pneumonitis, hepatotoxicity, neutropenia, and embryo-fetal toxicity. The most commonadverse reactions (reported in ≥20% of patients) were diarrhea or colitis, neutropenia, rash, fatigue, pyrexia, cough,nausea, upper respiratory infection, pneumonia, musculoskeletal pain, and anemia.The approval of COPIKTRA by the FDA was based on results obtained from two FDA clinical studies – DUO™and DYNAMO™. The DUO study is a Phase 3, monotherapy, open-label, two-arm, randomized, superiority trialdesigned to evaluate the efficacy and safety of duvelisib at 25 mg BID compared to ofatumumab, a monoclonalantibody treatment, administered to patients who have been diagnosed with CLL/SLL and whose disease is relapsed orrefractory. A total of 319 patients were included in the study, of which 160 patients were treated with COPIKTRA and159 patients were treated with ofatumumab. Patients in DUO that continue to derive benefit remain on treatment. DUOenrollment criteria included patients with CLL/SLL, whose disease had progressed during or relapsed after at least oneprevious CLL/SLL therapy. The primary endpoint of the study was9 Table of ContentsProgression-Free Survival (PFS). The FDA and European Medicines Agency (EMA) granted orphan drug designation toduvelisib for the treatment of CLL/SLL.The DYNAMO study is a Phase 2, open-label, single-arm monotherapy study evaluating the safety and efficacyof duvelisib dosed at 25 mg BID in 129 patients with iNHL. Patients in DYNAMO that continue to derive a benefitremain on treatment. DYNAMO enrollment criteria included patients with FL, the most common subtype of iNHL, MZLand SLL, whose disease is double-refractory to rituximab, an anti-CD20 monoclonal antibody, and to eitherchemotherapy or radioimmunotherapy and who must have progressed within six months of receiving their final dose ofa previous therapy. The primary endpoint of the study was an overall response rate (ORR) as assessed by anindependent review committee (IRC) and according to the revised International Working Group (IWG) Criteria, whichincludes a change in target nodal lesions in combination with other measurements to determine response totreatment. The FDA and EMA granted orphan drug designation to duvelisib for the treatment of FL.THE COPIKTRA LABELThe CLL/SLL indication for COPIKTRA is based on data from a subset of patients in the DUO trial who hadreceived two or more prior lines of therapy. These 196 patients were the majority of patients enrolled in DUO. Thesub-analysis data included in the COPIKTRA label resulted in a median PFS by central review in this population of 16.4months for COPIKTRA vs. 9.1 months for ofatumumab with a Standard Error of 2.1 and 0.5 months, respectively. Thisequates to a hazard ratio of 0.4, with a Standard Error of 0.2; or a 60% reduction in the risk of progression ordeath. Additionally, COPIKTRA achieved a 78% ORR, compared to 39% for ofatumumab – a 39% difference, with aStandard Error of 6.4%.Efficacy in CLL/SLL After at Least Two Prior Therapies (DUO)Outcome per IRC COPIKTRAN = 95 OfatumumabN=101 PFS Number of events, n (%) 55 (58%) 70 (69%) Progressive disease 44 62 Death 11 8 Median PFS (SE), months 16.4 (2.1) 9.1 (0.5) Hazard Ratio (SE), COPIKTRA/ofatumumab 0.40 (0.2) Response Rate ORR n (%) 74 (78%) 39 (39%) CR 0 (0%) 0 (0%) PR 74 (78%) 39 (39%) Difference in ORR, % (SE) 39% (6.4) Abbreviations: CI = confidence interval; CR = complete response; IRC = Independent Review Committee; PFS = progression-free survival;PR = partial response; SE = standard error Kaplan-Meier estimate Standard Error of ln(hazard ratio) = 0.2 IWCLL or revised IWG response criteria, with modification for treatment-related lymphocytosis 10 abcabc Table of Contents Kaplan-Meier Curve of PFS per IRC In Patients with at Least 2 Prior Therapies (DUO) 11 Table of ContentsOverall Response Rate (ORR) per IRC (DUO) Lymph Node Response Rate (LNRR) per IRC (DUO) The primary data in support of the accelerated approval in FL by the FDA in the United States was derived fromupdated results for the subset of follicular lymphoma patients in the DYNAMO study. This subset of data was comprisedof a pre-treated double refractory patient population with a median of 3 prior lines of therapy. In this patient population,treatment with COPIKTRA resulted in a 42% overall response rate, with a 95% confidence interval between 31% and54%, and a maximum duration of response up to nearly 3 and a half years as of the last data cut-off. Based on this data,and an unmet need for additional therapy options in FL, COPIKTRA is now indicated for the treatment of U.S. patientswith relapsed or refractory follicular lymphoma after at least two prior systemic therapies. 12 Table of ContentsEfficacy in Patients with Relapsed or Refractory FL (DYNAMO) Endpoint FLN = 83 ORR. N (%) 35 (42%) 95% CI (31, 54) CR, n (%) 1 (1%) PR, n (%) 34 (41%) Duration of response Range, months 0.0 to 41.9 Patients maintaining response at 6 months, n/N (%) 15/35 (43%) Patients maintaining response at 12 months, n/N (%) 6/35 (17%) Abbreviations: CI = confidence interval; CR = complete response; IRC = Independent Review Committee; ORR = overall response rate; PR= partial response Per IRC according to Revised International Working Group criteria Denotes censored observation The primary safety data in support of the COPIKTRA label comes from a pooled safety analysis conducted in442 patients treated with COPIKTRA at the recommended starting dose of 25 mg BID. The results of this analysis areconsistent with the data seen in the full DYNAMO and DUO studies. Most Common Adverse Reactions (≥ 10% Grade ≥ 3 or ≥ 20% Any Grade) in Patients with B-cell MalignanciesReceiving COPIKTRA Adverse Reactions COPIKTRA 25 mg BID (N = 442) Grade ≥ 3n (%) Any Graden (%) Neutropenia † 132 (30%) 151 (34%) Diarrhea or colitis † 101 (23%) 222 (50%) Pneumonia † 67 (15%) 91 (21%) Anemia † 48 (11%) 90 (20%) Rash † 41 (9%) 136 (31%) Fatigue † 22 (5%) 126 (29%) Pyrexia 7 (2%) 115 (26%) Musculoskeletal pain † 6 (1%) 90 (20%) Nausea † 4 (<1%) 104 (24%) Cough † 2 (<1%) 111 (25%) Upper respiratory tract infection † 2 (<1%) 94 (21%) † Grouped term for reactions with multiple preferred terms Diarrhea or colitis includes the preferred terms: colitis, enterocolitis, colitis microscopic, colitis ulcerative, diarrhea, diarrhea hemorrhagic Pneumonia includes the preferred terms: All preferred terms containing "pneumonia" except for "pneumonia aspiration";bronchopneumonia, bronchopulmonary aspergillosis Rash includes the preferred terms: dermatitis (including allergic, exfoliative, perivascular), erythema (including multiforme), rash(including exfoliative, erythematous, follicular, generalized, macular & papular, pruritic, pustular), toxic epidermal necrolysis and toxic skineruption, drug reaction with eosinophilia and systemic symptoms, drug eruption, Stevens-Johnson syndrome Serious adverse reactions were reported in 289 patients (65%). The most frequent serious adverse reactions thatoccurred were infection (31%), diarrhea or colitis (18%), pneumonia (17%), rash (5%) and pneumonitis (5%). 13 a++a+abcabc Table of ContentsTHE DUO AND DYNAMO STUDIESAs discussed above, COPIKTRA’s indicated label for the treatment of CLL/SLL and FL patients was derivedfrom subsets of the complete datasets from DUO and DYNAMO, respectively. Those complete results have subsequentlybeen published in the public domain, as discussed below.THE DUO STUDYThe results from the DUO study were presented at the 2017 Annual Meeting of the American Society forHematology conference (ASH 2017) and published in the journal Blood in December 2018 (volume 132). The DUOstudy met its primary endpoint with oral duvelisib monotherapy achieving a statistically significant improvement inPFS compared to ofatumumab in patients with relapsed or refractory CLL/SLL per a blinded IRC using modifiedinternational workshop on CLL (iwCLL) or revised IWG Response Criteria (median PFS=13.3 months versus 9.9months, respectively; HR=0.52, p<0.0001), representing a 48% reduction in the risk of progression or death.Median PFS per IRC*Flinn et al., ASH 2017Similar efficacy results for duvelisib were observed regardless of whether patients had 17p deletion(del[17p]). The primary outcome of median PFS via IRC review in the del[17p] subpopulation significantly favoredduvelisib over ofatumumab (median PFS=12.7 months versus 9.0 months, respectively; HR=0.41, p=0.0011),representing a 59% reduction in the risk of progression or death. Per investigator assessment, duvelisib demonstrated amedian PFS of 17.6 months, compared to 9.7 months for ofatumumab (HR=0.40, p<0.0001). Duvelisib maintained a PFSadvantage in all patient subgroups analyzed as a subset of pre-specified sensitivity analyses.14 Table of ContentsMedian PFS per IRC for del[17p] Subpopulation*Flinn et al., ASH 2017Median PFS per Investigator Assessment*Flinn et al., ASH 2017 15 Table of ContentsMedian PFS by Subgroup*Flinn et al., ASH 2017The secondary efficacy outcome of ORR via IRC assessment according to modified iwCLL/IWG criteria,significantly favored duvelisib over ofatumumab, 74% versus 45%, respectively (p<0.0001), and reduced lymph nodeburden by more than 50% in most patients compared to ofatumumab, 85% versus 16%, respectively. In the del[17p]subpopulation of patients, ORR was also significantly higher for duvelisib compared to ofatumumab, 70% versus 43%,respectively (p=0.0182).*Flinn et al., ASH 201716 Table of ContentsPatients who progressed in the DUO study were given the option to enroll in a crossover study to receive theopposite treatment. In the optional crossover study, 89 patients who were previously treated with ofatumumab in DUOand experienced confirmed disease progression were subsequently treated with duvelisib as a monotherapy. As in theparent DUO study, duvelisib demonstrated robust clinical activity in this crossover study with an ORR of 73%, a medianDOR of 12.7 months and a median PFS of 15 months, by investigator assessments.Following prolonged exposure in DUO, duvelisib monotherapy demonstrated a manageable safety profile, withresults from this study consistent with the well-characterized safety profile of duvelisib monotherapy in patients withadvanced hematologic malignancies in previous studies. For duvelisib-treated patients, the median time on treatmentwas 50.3 weeks (range, 0.9 - 160.0) compared to 23.1 weeks (range, 0.1 - 26.1) for ofatumumab. The most commonGrade ≥3 treatment-emergent hematologic adverse events (occurring in more than 10% of patients) were neutropenia(30%) and anemia (13%). The most common Grade ≥3 non-hematologic treatment-emergent adverse events (occurringin more than 10% of patients) were diarrhea (15%), pneumonia (14%) and colitis (12%). The rate of severe opportunisticinfections was 6%, including two patients (1%) with Pneumocystis jirovecii pneumonia (PJP), neither of whom was onprophylaxis for PJP at the time of the event. Adverse events led to discontinuation of treatment in 35% ofpatients. Approximately 40% of patients treated with duvelisib remained on treatment for over 18 months, with amedian total follow-up of nearly two years.Adverse events of special interest infrequently led to discontinuation of duvelisib treatment (e.g., diarrhea(5%), colitis (5%), pneumonitis (2%), neutropenia (1%), pneumonia (1%), transaminase elevations (1%), and rash(1%). Duvelisib treatment-related adverse events leading to death (n=4) include general physical health deterioration(n=1), pneumonia staphylococcal (n=2) and sepsis (n=1)).*Flinn et al., ASH 2017THE DYNAMO STUDYSimilarly, results from the DYNAMO study were presented at the 2016 Annual Meeting of the AmericanSociety for Hematology conference (ASH 2016). DYNAMO achieved the primary endpoint in a heavily pre-treated,double-refractory patient population with an ORR of 46% (p=0.0001) in the ITT population, as assessed by an IRC witha median DOR of 10 months. The breakdown of ORR in the three subtypes of iNHL for the overall study population was41% in FL (n=83), 68% in SLL (n=28) and 33% in MZL (n=18). Eighty-three percent of patients had a reduction oftarget nodal lesions in lymph nodes.17 Table of Contents *Adapted from Flinn et al., ASH 2016 *Flinn et al., ASH 2016 Duvelisib demonstrated a consistent and manageable safety profile with appropriate risk mitigation in theDYNAMO study. The majority of adverse events were Grade 1 or 2 in severity, reversible and/or clinically manageable. The most common (greater than 5%) Grade 3 adverse effects were an increase in diarrhea (14%), anemia (10%), andneutropenia (9%). Grade 3 or 4 adverse effects of special interest included neutropenia (28%), infection (18%), diarrhea(15%), thrombocytopenia (13%), anemia (12%), pneumonia (9%), hepatotoxicity (8%), rash (7%), colitis (5%), andpneumonitis (2%). Serious opportunistic infections were less than 5% with none being fatal. Four treatment-relatedadverse events had the outcome of death (one septic shock; one viral infection; one drug reaction/eosinophilia/systemicsymptoms; and one toxic epidermal necrolysis/sepsis syndrome).18 Table of ContentsBased largely on the clinical results of the DUO and DYNAMO studies, the National Comprehensive CancerNetwork (NCCN) added COPIKTRA to the Clinical Practice Guidelines in Oncology (NCCN Guidelines), the standardphysician resource for determining the appropriate course of treatment for patients, for CLL/SLL, FL and MZL. Webelieve these updated guidelines will increase awareness for COPIKTRA and help health care providers make informeddecisions for patients battling these difficult to treat advanced cancers.In addition, duvelisib is being evaluated as an investigational compound in clinical trials, both as amonotherapy and in combination with other anti-cancer agents, in hematologic or solid tumor malignancies. The safetyand efficacy of these investigational uses of duvelisib have not yet been evaluated by the FDA or any other healthauthority for marketing authorization.T-cell Lymphoma, Aggressive NHL and Other Lymphomas In a Phase 1 study published in Blood in February 2018, the ORR in patients with PTCL treated with duvelisibmonotherapy (n=16) was 50%, including three complete responses (CRs) and five partial responses (PRs). Responseswere seen across the spectrum of PTCL subtypes, including CRs and PRs in patients with enteropathy-associated T-celllymphoma (EATL), AITL, subcutaneous panniculitis-like T-cell lymphoma (SPTCL), and anaplastic large-celllymphoma (ALCL), among others. DOR in the PTCL population ranged from 1.8 to 17.3 months with median PFS of 8.3months and median overall survival of 8.4 months. In cutaneous T-cell lymphoma (CTCL) (n=19), the ORR was 32%,with six PRs. DOR ranged from 0.7 to 10.1 months and median PFS was 4.5 months. Median overall survival was notreached; however, the estimated probability of survival was determined to be 90% at 6 months, 79% at 12 and 18months, and 73% at 24 months. Duvelisib monotherapy demonstrated a manageable safety profile, with results from thisstudy consistent with the well-characterized safety profile of duvelisib monotherapy in patients with hematologicmalignancies in other studies. These clinical results were supported by preclinical findings showing that duvelisibexhibited cell-killing activity in vivo and promoted beneficial changes within the tumor microenvironment. During 2017, the FDA granted Fast Track designation for the treatment of patients with PTCL, who havereceived at least one prior therapy. During the first quarter of 2018, we initiated an open-label, multicenter, Phase 2clinical trial (PRIMO) evaluating the efficacy and safety of duvelisib in patients with relapsed or refractory PTCL. Thisstudy is currently being conducted in the United States and we expect to expand the study to the European Union, Japanand potentially other territories.DEFACTINIBDefactinib is an orally available small molecule kinase inhibitor designed to inhibit FAK signaling. We arecurrently evaluating defactinib as a potential therapy for ovarian cancer, pancreatic cancer, mesothelioma, NSCLC, andother solid tumors. Defactinib has orphan drug designation in ovarian cancer in the United States and the EuropeanUnion and in mesothelioma in the United States, the European Union, and Australia.The effects of FAK inhibition on the tumor microenvironment make defactinib a good candidate forcombination therapy with immuno-oncology agents and other anti-cancer compounds. FAK expression is greater inmany tumor types compared to normal tissue, particularly in cancers that have a high invasive and metastaticcapability. The contact between cancer cells and connective tissue stimulates FAK signaling.The clinical evaluation of defactinib is supported by a growing body of preclinical research suggesting thatFAK inhibition, when combined with PD-1 inhibitors, increases the anti-tumor activity of these immunotherapeuticagents. As published in the journals Cell and Nature Medicine, FAK inhibition has been shown to increase cytotoxic(CD8+) T-cells in tumors, decrease T-cell exhaustion, decrease immunosuppressive cell populations, enhance T-cellkilling of tumor cells, and create a generally more favorable tumor microenvironment, which may allow for enhancedefficacy of immuno-oncology therapeutics.Pancreatic cancer, along with other tumors such as ovarian cancer 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 prevents19 Table of Contentsanti-cancer agents and T-cells from entering pancreatic tumors thereby limiting efficacy. In preclinical researchconducted by us and others, FAK inhibition was shown to reduce stromal density and allow cytotoxic T-cells to betterpenetrate the tumor and kill the cancer cells. Collectively, these data provide strong rationale for combining our FAKinhibitors with checkpoint inhibitors in the clinic for pancreatic and other solid tumors.Phase 1/2 study with Cancer Research United Kingdom (CRUK) in combination with pembrolizumab. In September 2016, we announced a new clinical collaboration with CRUK and Merck & Co. to evaluatedefactinib in combination with pembrolizumab, a PD-1 inhibitor, in patients with NSCLC, mesothelioma, or pancreaticcancer.Phase 1/1b study in combination with immunotherapy in pancreatic cancer. Defactinib is in a dose escalation study in combination with Merck & Co.’s PD-1 inhibitor pembrolizumab andgemcitabine in patients with advanced pancreatic cancer. This Phase 1 clinical trial is anticipated to enrollapproximately 50 patients and is being conducted at the Washington University School of Medicine’s Division ofOncology under the direction of Andrea Wang-Gillam, M.D., Ph.D., Clinical Director of the Gastrointestinal OncologyProgram. This trial is primarily designed to evaluate the safety of the combination regimen and may also provide agreater understanding of how FAK inhibition in combination with immunotherapies could improve outcomes forpatients with pancreatic cancer.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 obtaindomestic and international patent protection, and endeavor to promptly file patent applications for new commerciallyvaluable inventions.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 are currentlypursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will providesufficient 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 patentapplications. Moreover, we may have to participate in interference proceedings or derivation proceedings declared bythe U.S. Patent and Trademark Office to determine priority of invention.20 Table of ContentsPatentsOur patent portfolio includes issued and pending applications worldwide. These patent applications fall intothree categories: (1) PI3K inhibition program; (2) FAK inhibition program; and (3) other programs.PI3K inhibition programAs previously discussed, we are currently marketing and continuing to develop the PI3K inhibitor COPIKTRA(duvelisib).We have exclusively licensed a portfolio of patent applications owned by Intellikine LLC and InfinityPharmaceuticals, Inc. (Infinity), which are directed to PI3K inhibitor compounds and methods of their use, for example,in cancer. Certain patent families are related to duvelisib. These patent families include issued patents having claimscovering duvelisib generically and specifically. Also included are issued patents covering certain polymorphs ofduvelisib. Exemplary patents covering duvelisib, pharmaceutical compositions comprising duvelisib, methods of use,polymorphs, and methods of manufacture include US 8,193,182; US 8,785,456, and US 9,216,982. These U.S. patentshave issued and will expire between 2029 and 2032. We have applied for patent term extension for US 8,193,182,which, if granted, will extend the term of the portion covering duvelisib to 2033. Related issued and pendingworldwide patents and applications with claims to duvelisib, pharmaceutical compounds, methods of use, polymorphs,and methods of manufacture are pending in about 40 countries. Additional patent applications related to certainmethods of use and combination therapies, as issued, would expire between 2029 and 2036.FAK inhibition programWe are also currently developing the FAK inhibitor defactinib.We have exclusively licensed a portfolio of patent applications owned by Pfizer, Inc. (Pfizer), which aredirected to FAK inhibitor compounds and methods of their use, for example in cancer. One patent family is relatedgenerally to defactinib. This patent family includes issued patents having claims covering defactinib generically andspecifically. For example, US 7,928,109 covers the composition of matter of defactinib specifically and US 8,247,411covers the composition of matter of defactinib generically. Also included are issued and pending patent applicationshaving claims directed to methods of treatment and methods of making defactinib. For example, US 8,440,822 coversmethods of making defactinib. Any U.S. patents that have issued or will issue in this family will have a statutoryexpiration date in April of 2028. Related cases are pending worldwide, including for example in Europe, Brazil,Thailand, Hong Kong, and India, and granted in Australia, Mexico, Canada, China, Korea, Israel, New Zealand, SouthAfrica, Singapore, Taiwan, and Japan.In addition to the issued and pending patent applications exclusively licensed from Pfizer, we own three patentfamilies covering defactinib. One family is directed to compositions (e.g., oral dosage forms) of defactinib and certainmethods of use. Any U.S. patents that will issue in this family will have a statutory expiration date in January of2035. The other two families are directed to methods of using a FAK inhibitor in combination with another agent, suchas defactinib in combination with a mitogen-activated protein kinase enzymes (MEK) inhibitor for treating a patient ordefactinib in combination with an immunotherapeutic agent. Any U.S. patents that will issue in these families will havea statutory expiration date in February of 2035 and June of 2036.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 December of 2023, April of 2025, and November of 2028, respectively. Relatedcases have been granted worldwide, including for example in Australia, Canada, China, Japan, and Europe.Patent TermThe base term of a U.S. patent is 20 years from the filing date of the earliest‑filed non‑provisional patentapplication from which the patent claims priority. The term of a U.S. patent can be lengthened by patent term21 Table of Contentsadjustment, which compensates the owner of the patent for administrative delays at the U.S. Patent and TrademarkOffice. In some cases, the term of a U.S. patent is shortened by terminal disclaimer that reduces its term to that of anearlier‑expiring patent.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‑approveddrug. The extended patent term cannot exceed the shorter of five years beyond the non‑extended expiration of thepatent or 14 years from the date of the FDA approval of the drug. Some foreign jurisdictions, including Europe andJapan, have analogous patent term extension provisions, which allow for extension of the term of a patent that covers adrug approved by the applicable foreign regulatory agency. As stated above, we have applied for patent term extensionfor US 8,193,182, which, if granted, will extend the term of the portion covering duvelisib to 2033. LICENSESInfinity Pharmaceuticals, Inc.In November 2016, we entered into an amended and restated license agreement with Infinity, under which weacquired an exclusive worldwide license for the research, development, commercialization, and manufacture of productsin oncology indications containing duvelisib. In connection with the license agreement, we assumed operational andfinancial responsibility for certain activities that were part of Infinity’s duvelisib program, including the DUO study forpatients with relapsed/refractory CLL/SLL, and Infinity maintained a portion of the financial responsibility for theshutdown of certain other clinical studies. We are obligated to use diligent efforts to develop and commercialize aproduct in an oncology indication containing duvelisib. As previously discussed, COPIKTRA was approved by theFDA on September 24, 2018 and is now indicated for the treatment of adult patients with relapsed or refractory chroniclymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) after at least two prior therapies and relapsed orrefractory follicular lymphoma (FL) after at least two prior systemic therapies. During the term of the license agreement,Infinity has agreed not to research, develop, manufacture or commercialize duvelisib in any other indication in humansor animals. Pursuant to the terms of the license agreement, we are required to make the following payments to Infinity incash or, at our election, in whole or in part, in shares of our common stock: (i) $6.0 million upon the completion of theDUO study if the results of the study meet certain pre-specified criteria, which was paid in cash by us to Infinity inOctober 2017, and (ii) $22.0 million upon the approval of a New Drug Application (NDA) in the United States or anapplication for marketing authorization with a regulatory authority outside of the United States for a product in anoncology indication containing duvelisib, which was paid in cash by us to Infinity in November 2018. We are also obligated to pay Infinity royalties on worldwide net sales of any products in an oncologyindication containing duvelisib ranging from the mid-single digits to the high single digits. The royalties will expire ona product-by-product and country-by-country basis until the latest to occur of (i) the last-to-expire patent right coveringthe applicable product in the applicable country, (ii) the last-to-expire patent right covering the manufacture of theapplicable product in the country of manufacture of such product, (iii) the expiration of non-patent regulatoryexclusivity in such country and (iv) ten years following the first commercial sale of a product in a country, provided thatif royalties on net sales for a product in the United States are payable solely on the basis of non-patent regulatoryexclusivity, the applicable royalty on net sales for such product in the United States will be reduced by 50%. Theroyalties are also subject to reduction by 50% of certain third-party royalty payments or patent litigation damages orsettlements which might be required to be paid by us if litigation were to arise, with any such reductions capped at 50%of the amounts otherwise payable during the applicable royalty payment period. In addition to the foregoing, we are obligated to pay Infinity an additional royalty of 4% on worldwide netsales of any products in an oncology indication containing duvelisib to cover the reimbursement of research anddevelopment costs owed by Infinity to Mundipharma International Corporation Limited (MICL) and Purdue22 Table of ContentsPharmaceutical Products L.P. (Purdue). Once Infinity has fully reimbursed MICL and Purdue, the royalty obligationswill be reduced to 1% of net sales in the United States. These trailing MICL royalties are payable until the later to occurof the last-to-expire of specified patent rights and the expiration of non-patent regulatory exclusivities in acountry. Each of the above royalty rates is reduced by 50% on a product-by-product and country-by-country basis if theapplicable royalty is payable solely on the basis of non-patent regulatory exclusivity. In addition, the trailing MICLroyalties are subject to reduction by 50% of certain third-party royalty payments or patent litigation damages orsettlements which might be required to be paid by us if litigation were to arise, with any such reductions capped at 50%of the amounts otherwise payable during the applicable royalty payment period.23 Table of ContentsYakult Honsha Co., Ltd.On June 5, 2018, we entered into a license and collaboration agreement (the Yakult Agreement) with YakultHonsha Co., Ltd. (Yakult), under which we granted exclusive rights to Yakult to develop and commercialize productscontaining duvelisib in Japan for the treatment, prevention, palliation or diagnosis of all oncology indications inhumans or animals.Under the terms of the Yakult Agreement, Yakult received an exclusive right to develop and commercializeproducts containing duvelisib in Japan under mutually agreed development and commercialization plans at its own costand expense. Yakult also received certain limited manufacturing rights in the event that we are unable to manufactureor supply sufficient quantities of duvelisib or products containing duvelisib to Yakult during the term of the YakultAgreement. We retained all rights to duvelisib outside of Japan.Yakult paid us an upfront, non-refundable payment of $10.0 million in June 2018. We are also entitled toreceive aggregate payments of up to $90.0 million if certain development, regulatory and commercial milestones aresuccessfully achieved. Yakult is obligated to pay us a double-digit royalty on net sales of products containing duvelisibin Japan, subject to reduction in certain circumstances, and to fund certain global development costs related toworldwide clinical trials conducted by us in which Yakult has opted to participate (Global Clinical Trials) on a pro-ratabasis.Unless earlier terminated by either party, the Yakult Agreement will expire upon the fulfillment of Yakult’sroyalty obligations to us for the sale of any products containing duvelisib in Japan, which royalty obligations expire, ona product-by-product basis, upon the last to occur of (a) expiration of valid claims covering such product, (b) expirationof regulatory exclusivity for such product or (c) 10 years from first commercial sale of such product. Yakult mayterminate the Yakult Agreement in its entirety at any time with 180 days’ written notice. Either party may terminate theYakult Agreement in its entirety with 60 days’ written notice for the other party’s material breach if such party fails tocure the breach. We may terminate the Yakult Agreement if (i) Yakult fails to use commercially reasonable efforts todevelop and commercialize products containing duvelisib in Japan or (ii) Yakult challenges any patent licensed by usto Yakult under the Yakult Agreement. Either party may terminate the Yakult Agreement in its entirety upon certaininsolvency events involving the other party.CSPC Pharmaceutical Group Limited (CSPC)On September 25, 2018, we entered into a license and collaboration agreement with CSPC (the CSPCAgreement), under which we granted exclusive rights to CSPC to develop and commercialize products containingduvelisib in the People’s Republic of China (China), Hong Kong, Macau and Taiwan (collectively, the CSPC Territory)for the treatment, prevention, palliation or diagnosis of all oncology indications in humans.Under the terms of the CSPC Agreement, CSPC received an exclusive right to develop and commercializeproducts containing duvelisib in the CSPC Territory under mutually agreed upon development and commercializationplans at its own cost and expense. CSPC also received certain limited manufacturing rights in the event that we areunable to manufacture or supply sufficient quantities of duvelisib or products containing duvelisib to CSPC during theterm of the CSPC Agreement. We retained all rights to duvelisib outside of the CSPC Territory.CSPC paid us an aggregate upfront, non-refundable payment of $15.0 million, $5.0 million of which hadalready been paid by CSPC as a non-refundable exclusivity fee. We are also entitled to receive aggregate payments ofup to $160.0 million if certain development, regulatory and commercial milestones are successfully achieved. CSPC isobligated to pay us a double-digit royalty on net sales of products containing duvelisib in the CSPC Territory, subjectto reduction in certain circumstances, and to fund certain global development costs related to worldwide clinical trialsconducted by us in which CSPC has opted to participate (Global Clinical Trials) on a pro-rata basis.24 Table of ContentsUnless earlier terminated by either party, the CSPC Agreement will expire upon the fulfillment of CSPC’sroyalty obligations to us for the sale of any products containing duvelisib in the CSPC Territory, which royaltyobligations expire, on a product-by-product basis, upon the last to occur of (a) expiration of valid claims covering suchproduct, (b) expiration of regulatory exclusivity for such product or (c) 10 years from first commercial sale of suchproduct. CSPC may terminate the CSPC Agreement in its entirety at any time with 180 days’ written notice. Eitherparty may terminate the CSPC Agreement in its entirety with 60 days’ written notice for the other party’s material breachif such party fails to cure the breach. We may terminate the CSPC Agreement if (i) CSPC fails to use commerciallyreasonable efforts to develop and commercialize products containing duvelisib in the CSPC Territory or (ii) CSPCchallenges any patent licensed by us to CSPC under the CSPC Agreement. Either party may terminate the CSPCAgreement in its entirety upon certain insolvency events involving the other party.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 FAK, including defactinib, for all therapeutic, diagnostic and prophylactic uses in humans. We have the right togrant sublicenses under the foregoing licensed rights, subject to certain restrictions. We are solely responsible, at ourown expense, for the clinical development of these products, which is to be conducted in accordance with anagreed‑upon development plan. We are also responsible for all manufacturing and commercialization activities at ourown expense. Pfizer provided us with an initial quantity of clinical supplies of one of the products for an agreed uponprice.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 $2.0 million indevelopmental milestones and up to an additional $125.0 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 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 and biotechnology companies, academicinstitutions and governmental agencies and public and private research institutions. Any product candidates that wesuccessfully develop and commercialize will compete with existing therapies and new therapies that may becomeavailable in the future.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 ourcompetitors. These competitors also compete with us in recruiting and retaining qualified scientific and managementpersonnel and establishing clinical trial sites and patient registration for clinical trials, as well as in25 Table of Contentsacquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may alsoprove to be significant competitors, particularly through collaborative arrangements with large and establishedcompanies.The key competitive factors affecting the success of all 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, immunotherapy, and targeted drug therapy. There are a variety of available drugtherapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. Whileour product candidates may compete with many existing drug and other therapies, to the extent they are ultimately usedin combination with or as an adjunct to these therapies, our product candidates will not be competitive with them. Someof the currently approved drug therapies are branded and subject to patent protection, and others are available on ageneric basis. Many of these approved drugs are well established therapies and are widely accepted by physicians,patients and third‑party payors. In general, although there has been considerable progress over the past few decades inthe treatment of cancer and the currently marketed therapies provide benefits to many patients, these therapies all arelimited to some extent in their efficacy and frequency of adverse events, and none of them are successful in treating allpatients. As a result, the level 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.Our competitors may commence and complete clinical testing of their product candidates, obtain regulatoryapprovals and begin commercialization of their products sooner than we may for our own product candidates. Thesecompetitive products may have superior safety or efficacy, or be manufactured less expensively, than our productcandidates. If we are unable to compete effectively against these companies on the basis of safety, efficacy or cost, thenwe may not be able to commercialize our product candidates or achieve a competitive position in the market. Thiswould adversely affect our business. PI3K inhibition program We believe that the following companies, among others, have developed or are in the clinical stage ofdevelopment of compounds targeting the PI3K signaling pathway: ·Gilead Sciences, Inc., which has received approval from the FDA of idelalisib for the treatment of patients withCLL, SLL, or FL, and which we believe has completed a Phase 1b clinical trial of acalisib (GS-9820);·Bayer AG, which has received approval from the FDA of copanlisib for the treatment of patients with relapsedFL;26 Table of Contents·Adlai Noryte, which we believe has completed a Phase 2 clinical trial of buparlisib;·AstraZeneca, which we believe is conducting Phase 1 and Phase 2 clinical trials of ACP-319;·TG Therapeutics, Inc., which we believe is conducting multiple clinical trials of TGR-1202;·Incyte Corporation, which we believe is conducting a Phase 2 clinical trial of INCB050465;·MEI Pharma, which we believe is conducting Phase 1b and Phase 2 clinical trials of ME-401; and·Rhizen Pharmaceuticals, which we believe is conducting Phase 2 clinical trials for tenalisib.In addition, many companies are developing product candidates directed to disease targets such as Bruton’sTyrosine Kinase (BTK), B-cell lymphoma 2 (BCL-2), Janus Kinase (JAK), B-lymphocyte antigen CD-19, andprogrammed death 1/ligand 1 (PD-1/PD-L1), Cluster of Differentiation 79B antibody-drug conjugate (CD79B ADC),and pleiotropic pathways in the fields of hematology-oncology, including in the specific diseases for which we arecurrently developing duvelisib, or for which we may develop duvelisib or other drug candidates in the future. Suchcompanies include: ·Pharmacyclics LLC, a wholly-owned subsidiary of AbbVie, through its collaboration with Janssen Biotech,which has received approval from the FDA of ibrutinib, a BTK inhibitor, for the treatment of patients withmantle cell lymphoma (MCL), CLL, MZL, SLL, or Waldenström’s macroglobulinemia, and is conductingmultiple late stage clinical studies of ibrutinib in additional hematologic malignancies;·AbbVie, through its collaboration with Roche, which has received approval from the FDA of venetoclax, aBCL-2 inhibitor, for the treatment of patients with CLL, and is conducting multiple late stage clinical studies ofvenetoclax in additional hematologic malignancies;·Celgene Corporation, which has received FDA approval of lenalidomide, an immunomodulator, for thetreatment of patients with multiple myeloma, MCL, and myelodyplastic syndromes, and is conducting latestage clinical studies of lenalidomide in additional hematologic malignancies; we also believe that Celgene isconducting a Phase 1 clinical trial of CC-292, a BTK inhibitor, in patients with CLL;·AstraZeneca, which we believe is conducting a Phase 3 clinical trial of acalabrutinib (ACP-196), a BTKinhibitor, in patients with CLL; and·Incyte Corporation, which has received FDA approval of ruxolitinib, a JAK inhibitor, in patients withintermediate or high-risk myelofibrosis, and which we believe is conducting Phase 2 clinical trials in CLL.FAK inhibition program There are other companies working to develop therapies to treat cancer including some who also target thetumor microenvironment. These companies include divisions of large pharmaceutical companies including AstellasPharma Inc., Celgene, Inc., Sanofi‑Aventis U.S. LLC, GlaxoSmithKline plc, Boehringer Ingelheim GmbH, Pfizer Inc. andothers.27 Table of ContentsMANUFACTURINGWe contract with third parties for the manufacture of COPIKTRA for commercial and clinical use and for themanufacture of our product candidates for preclinical studies and clinical trials, and we intend to continue to do so inthe future. We currently work with one contract manufacturing organization (CMO) for the production of duvelisib drugsubstance, one CMO for the production of oral drug product, and one CMO for the final commercial and clinicalpackaging. We have long-term supply agreements in place with each of these CMOs. We are currently evaluating asecond source supplier program for the manufacture and packaging of duvelisib. For defactinib, we have one CMO forthe manufacture of drug product, one CMO for the production of drug substance, and one CMO for drug packaging. Weobtain drug product or substance from these manufacturers on a purchase order basis. We may elect to pursuerelationships with other CMOs for manufacturing clinical supplies for later-stage clinical trials and forcommercialization. We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We have personnel with pharmaceutical development and manufacturing experience who are responsible for therelationships with our CMOs.All of our drug candidates are organic compounds of low molecular weight, generally called smallmolecules. We select compounds not only on the basis of their potential efficacy and safety, but also for their ease ofsynthesis and the reasonable cost of their starting materials. We expect to continue to develop drug candidates that canbe produced cost‑effectively at third‑party manufacturing facilities.COMMERCIAL STRATEGYWe intend to develop and commercialize our drugs in the U.S., Canada and the European Union aloneor with partners, and expect to rely on partners to develop and commercialize our drugs in other territories throughoutthe world. On September 24, 2018, our first commercial product, COPIKTRA, was approved by the FDA for thetreatment of patients with hematologic cancers including CLL/SLL and FL. We sell COPIKTRA to a limited number ofspecialty pharmacies and specialty distributors in the United States. These customers subsequently resell COPIKTRAeither directly to patients, or to community hospitals or oncology clinics with in-office dispensaries who in turndistribute COPIKTRA to patients. In the U.S., our sales team promotes our commercial product for its approvedindications through direct field contact with physicians, hospitals, clinics and other healthcare providers. None of our product candidates have received regulatory approval for commercial sale in territories outside of theUnited States. As set forth above, we have entered into agreements with third-party partners for the development andcommercialization of duvelisib in territories outside of the United States and have agreed to manufacture or supplyquantities of our product candidate in conjunction with these efforts. We continue to evaluate opportunities andpotential partnerships to develop and commercialize duvelisib in territories outside the United States. In executingthese arrangements, our goal is to retain significant worldwide oversight over the development process andcommercialization of our products by playing an active role in their commercialization or finding partners who shareour vision, values, culture and processes. APPLICABLE LAWS AND 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) andimplementing regulations. The process of obtaining regulatory approvals and the subsequent compliance withappropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time andfinancial resources. Failure to comply with the applicable United States requirements at any time during the productdevelopment process, approval process or after approval, may subject an applicant to a variety of administrative or28 Table of Contentsjudicial sanctions, such as the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition ofa clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production ordistribution injunctions, fines, refusals of government contracts, restitution, disgorgement of profits or civil or criminalpenalties.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 withthe FDA’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 maybe initiated;·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 an NDA;·satisfactory completion of an FDA advisory committee review, if applicable;·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)requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’sidentity, 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 therapeuticuse. The conduct of preclinical studies is subject to federal regulations and requirements, including GLPregulations. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information,analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA aspart of an IND. Some long‑term preclinical testing, such as animal tests of reproductive adverse events andcarcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receiptby the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trialsand places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concernsbefore the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials tocommence.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 for29 Table of Contentsany clinical trial before it commences at that institution, and the IRB must conduct continuing review. The IRB mustreview and approve, among other things, the study protocol and informed consent information to be provided to studysubjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must besubmitted within specific timeframes to the National Institutes of Health for public dissemination on theirClinicalTrials.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 targetdisease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution,excretion and, if possible, to gain an early indication of its effectiveness.·Phase 2: The drug is administered to a limited patient population to identify possible adverse effectsand safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases andto determine 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 productfor approval, to establish the overall risk‑benefit profile of the product and to provide adequateinformation for 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 or terminate aclinical trial at any time on various grounds, including a finding that the research subjects are being exposed to anunacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if theclinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated withunexpected 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 scheduled to exceed $2.4 million, and the sponsor of an approved NDA is also subject toannual program fees, based on the number of approved products. These fees are typically adjusted annually. User feestatutory authority expires every five years. The Prescription Drug User Fee Act was re-authorized for an additional fiveyears in 2017 until 2022. Fee waivers are available in certain circumstances, including a waiver of the application feefor an orphan drug application.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 the30 Table of Contentsapplication should be approved. The FDA is not bound by the recommendations of an advisory committee, but itconsiders 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‑approval studies,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.31 Table of ContentsPriority 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.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 clinicalendpoints. A product candidate approved on this basis is subject to rigorous post‑marketing compliance requirements,including the completion of one or more Phase 4 or post‑approval clinical trials to confirm the effect on the clinicalendpoint. Failure to conduct required post‑approval studies or confirm a clinical benefit during post‑marketing studies,would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drugcandidates approved under accelerated 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 theFDA. 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 the United States forthat product, for that indication. During the seven‑year exclusivity period, the FDA may not approve any otherapplications to market the same drug for the same orphan indication, except in limited circumstances, such as a showingof clinical superiority to the product with orphan drug exclusivity in that it is shown to be safer, more effective or makesa major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drugfor the same disease or condition, or the same drug for a different disease or condition. Among the other benefits oforphan drug designation are tax credits for certain research and a waiver of the NDA application 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 of32 Table of Contentsthe patents listed in the application for the drug is then published in the FDA’s Approved Drug Products withTherapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, inturn, be cited by potential competitors in support of approval of an abbreviated New Drug Application(ANDA). Generally, an ANDA provides for marketing of a drug product that has the same active ingredients in the samestrengths, dosage form and route of administration as the listed drug and has been shown to be bioequivalent through invitro or in vivo testing or otherwise to the listed drug. ANDA applicants are not required to conduct or submit results ofpreclinical or clinical tests to prove the safety or effectiveness of their drug product, other than the requirement forbioequivalence testing. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drugand can often be substituted by 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.If 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 approveddrug product, such as a new dosage form, route of administration, combination or indication. Under the BestPharmaceuticals for Children Act, federal law also provides that periods of patent and non‑patent marketing exclusivitylisted in the Orange Book for a drug may be extended by six months if the NDA sponsor conducts pediatric studiesidentified by the FDA in a written request. For written requests issued by the FDA after September 27, 2007, the date ofenactment of the FDAAA, the FDA must grant pediatric exclusivity no later than nine months prior to the date ofexpiration of patent or non‑patent exclusivity in order for the six‑month pediatric extension to apply to that exclusivityperiod.33 Table of ContentsCombination 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.The 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.Other regulatory requirementsAny drug manufactured or distributed by us pursuant to FDA approvals would be subject to pervasive andcontinuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodicreporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with theproduct. After approval, most changes to the approved product, such as adding new indications or other labeling claimsare subject 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 in revisions to the approvedlabeling to add new safety information, imposition of post‑market studies or clinical trials to assess new safety risks orimposition of distribution or other restrictions under a Risk Evaluation and Mitigation Strategy program. Otherpotential consequences include, among other things:·restrictions on the marketing or manufacturing of the product, complete withdrawal of the productfrom the market or product recalls;34 Table of Contents·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 lawsWe are subject to various federal and state laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws, for activities related to sales of any of our products. Anti-kickback laws generallyprohibit a pharmaceutical manufacturer from soliciting, offering, receiving, or paying any remuneration to generatebusiness, including the purchase, prescription or use of a particular drug. Although the specific provisions of these lawsvary, their scope is generally broad and there may not be regulations, guidance or court decisions that apply the laws toparticular industry practices. There is therefore a possibility that our practices might be challenged under such anti-kickback laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented,any claims for payment for reimbursed drugs or services to third party payors (including Medicare and Medicaid) thatare false or fraudulent. Laws and regulations have been enacted by the federal government and various states to regulate the sales andmarketing practices of pharmaceutical manufacturers with marketed products. The laws and regulations generally limitfinancial interactions between manufacturers and healthcare providers and/or require disclosure to the government andpublic of such interactions. Many of these laws and regulations contain ambiguous requirements or requireadministrative guidance for implementation. Given the lack of clarity in laws and their implementation, any futureactivities could be subject to challenge.If our operations are found to be in violation of the fraud and abuse laws described above, or any other laws thatapply to us, we may be subject to penalties, including, without limitation, civil, criminal, and administrative penalties,damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federalhealthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment orrestructuring of our operations.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 of prescription drugsunless the state licensing program meets certain federal guidelines that include minimum standards for storage, handlingand 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,35 Table of Contentsclinical trials, marketing authorization, commercial sales and distribution of our products. Regardless of our currentFDA approval or any future FDA approvals we may obtain for a product, we would need to obtain the necessaryapprovals by the comparable regulatory authorities of foreign countries before we can commence clinical trials ormarketing of the product in those countries. The approval process varies from country to country and can involveadditional product testing and additional administrative review periods. The time required to obtain approval in othercountries might differ from and be longer than that required to obtain FDA approval. Regulatory approval in onecountry does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in onecountry may negatively impact the regulatory process in others.Pharmaceutical coverage, pricing and reimbursementSignificant uncertainty exists as to the coverage and reimbursement status of new drug products. Sales ofCOPIKTRA or any other product candidates, if approved, will depend, in part, on the extent to which the costs of theproducts will be covered by third‑party payors, including government health programs such as Medicare and Medicaid,commercial health insurers and managed care organizations. The process for determining whether a payor will providecoverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payorwill pay for the drug product once coverage is approved. Third‑party payors may limit coverage to specific drugproducts on an approved list, or formulary, which might not include all of the approved drugs for 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. We may alsoneed to provide discounts to purchasers, private health plans or government healthcare programs. 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.Within the United States, FDA-approved drugs could potentially be covered by various government healthbenefit programs as well as purchased by government agencies. The participation in such programs or the sale ofproducts to such agencies is subject to regulation. The marketability of any of our approved products may suffer if thegovernment and third-party payors fail to provide adequate coverage and reimbursement.Medicaid is a joint federal and state program that is administered by the states for low income and disabledbeneficiaries. Under the Medicaid Drug Rebate Program, participating manufacturers are required to pay a rebate foreach unit of product reimbursed by the state Medicaid programs. The amount of the rebate for each product is set by lawand may be subject to an additional discount if certain pricing increases more than inflation.Medicare is a federal program that is administered by the federal government that covers individuals age 65and over as well as those with certain disabilities. Oral drugs may be covered under Medicare Part D. Medicare Part Dprovides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that do not need to be injected orotherwise administered by a physician). Medicare Part D is administered by private prescription drug plans approved bythe U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverageand pricing, which the drug plan may modify from time-to-time. The prescription drug plans negotiate pricing withmanufacturers and may condition formulary placement on the availability of manufacturer discounts. Since 2011,manufacturers with marketed brand name drugs have been required to provide a 50% discount the negotiated price foron brand name prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries reach the coveragegap in their drug benefits, and, beginning in 2019, that discount increased to 70%.Drug products are subject to discounted pricing when purchased by federal agencies via the Federal SupplySchedule (FSS). FSS participation is required for a drug product to be covered and reimbursed by certain federalagencies and for coverage under Medicaid, Medicare Part B and the Public Health Service (PHS) pharmaceutical pricingprogram. FSS pricing is negotiated periodically with the Department of Veterans Affairs. FSS pricing is intended not toexceed the price that a manufacturer charges its most-favored non-federal customer for its product.36 Table of ContentsIn addition, prices for drugs purchased by the Veterans Administration, Department of Defense (including drugspurchased by military personnel and dependents through the TRICARE retail pharmacy program), Coast Guard, andPHS are subject to a cap on pricing (known as the “federal ceiling price”) and may be subject to an additional discount ifpricing increases more than the rate of inflation.To maintain coverage of drugs under the Medicaid Drug Rebate Program, manufacturers are required to extenddiscounts to certain purchasers under the PHS pharmaceutical pricing program. Purchasers eligible for discounts includehospitals that serve a disproportionate share of financially needy patients, community health clinics and other entitiesthat receive health services grants from the PHS.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 our products at a profit. The U.S.government, state legislatures and foreign governments have shown significant interest in implementing costcontainment programs to limit the growth of government‑paid healthcare costs, including price controls, restrictions onreimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of suchcontrols and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, couldlimit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely affect ournet 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 thecompletion of additional studies that compare the cost‑effectiveness of a particular product candidate to currentlyavailable therapies. For example, the European Union provides options for its member states to restrict the range of drugproducts for which their national health insurance systems provide reimbursement and to control the prices of medicinalproducts for human use. European Union member states may approve a specific price for a drug product or may insteadadopt a system of direct or indirect controls on the profitability of the company placing the drug product on themarket. Other member states allow companies to fix their own prices for drug products, but monitor and controlcompany profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has becomevery intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in somecountries, cross‑border imports from low‑priced markets exert competitive pressure that may reduce pricing within acountry. There can be no assurance that any country that has price controls or reimbursement limitations for drugproducts will allow favorable reimbursement and pricing arrangements for any of our products.The marketability of COPIKTRA or any other products for which we have or will receive regulatory approvalfor commercial sale may suffer if the government and third‑party payors fail to provide adequate coverage andreimbursement. In addition, there is an increasing emphasis on managed care in the United States and we expect willcontinue to increase the pressure on drug pricing. Coverage policies, third‑party reimbursement rates and drug pricingregulation may change at any time. Even if favorable coverage and reimbursement status is attained for a product, lessfavorable coverage policies and reimbursement rates may be implemented in the future.New legislation and regulationsFrom time to time, legislation is drafted, introduced and passed in the United States Congress that couldsignificantly change the statutory provisions governing the testing, approval, manufacturing and marketing of pharmaceutical products. For example, in December 2016, Congress enacted and President Obama signed into law the21 Century Cures Act, that amends a number of sections of the FDCA. In addition to new legislation, FDA regulationsand policies 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. 37 st Table of ContentsIn the United States, federal and state governments continue to propose and pass legislation designed to reformdelivery of, or payment for, healthcare, which include initiatives to reduce the cost of healthcare. For example, in March2010, the United States Congress enacted the Patient Protection and Affordable Care Act and the Health Care andEducation Reconciliation Act, or the Healthcare Reform Act, which expanded healthcare coverage through Medicaidexpansion and the implementation of the individual mandate for health insurance coverage and which included changesto the coverage and reimbursement of drug products under government healthcare programs as well as the imposition ofannual fees on manufacturers of branded pharmaceuticals. Under the Trump administration, there have been ongoingefforts to modify or repeal all or certain provisions of the Healthcare Reform Act. For example, tax reform legislationwas enacted at the end of 2017 that eliminates the tax penalty for individuals who do not maintain mandated healthinsurance coverage beginning in 2019. In a May 2018 report, the Congressional Budget Office estimated that,compared to 2018, the number of uninsured will increase by 3 million in 2019 and 6 million in 2028, in part due to theelimination of the individual mandate. The Healthcare Reform Act has also been subject to judicial challenge. In December 2018, a federal districtcourt, in a challenge brought by a number of state attorneys general, found the Healthcare Reform Act unconstitutionalin its entirety because, once Congress repealed the individual mandate provision, there was no longer a basis to rely onCongressional taxing authority to support enactment of the law. Pending appeals, which could take some time, theHealthcare Reform Act is still operational in all respects.There have also been efforts by government officials or legislators to implement measures to regulate drugpricing or payment for pharmaceutical products, including legislation on drug importation. Recently, there has beenconsiderable public and government scrutiny of pharmaceutical pricing and proposals to address the perceived highcost of pharmaceuticals. There have also been recent state legislative efforts to address drug costs, which generally havefocused on increasing transparency around drug costs or limiting drug prices. Specifically, at the federal level, forexample, in May 2018, President Trump and the Secretary of the Department of Health and Human Services released a“blueprint” to lower prescription drug prices and out-of-pocket costs. Certain proposals in the blueprint, and relateddrug pricing measures proposed since the blueprint, could cause significant operational and reimbursement changes forthe pharmaceutical industry. In October 2018, the Centers for Medicare & Medicaid Services, or CMS, solicited publiccomments on potential changes to payment for certain Medicare Part B drugs, including reducing the Medicare paymentamount for selected Medicare Part B drugs to more closely align with international drug prices. As another example, inNovember of 2018, CMS issued an advance notice of proposed rulemaking that proposed revisions to Medicare Part Dto support health plans’ negotiation of lower drug prices with manufacturers and reduce health plan members’ out-of-pocket costs. The HHS Office of Inspector General also issued a proposed rule in February of 2019 that would revise thefederal anti-kickback statute to limit protection for discounts offered by pharmaceutical manufacturers to pharmacybenefit managers (“PBMs”), Medicare Part D plans, and Medicaid managed care plans that are not reflected in the pricecharged to the patient at the pharmacy counter and to provide protection only for certain types of service fees paid bypharmaceutical manufacturers to PBMs.Adoption of new legislation at the federal or state level could affect demand for, or pricing of, our productcandidates if approved for sale. We cannot predict the ultimate content, timing or effect of any changes to the HealthCare Reform Act or other federal and state reform efforts. There is no assurance that federal or state healthcare reform willnot adversely affect our future business and financial results. EMPLOYEESAs of December 31, 2018, we had 169 full‑time equivalent employees, including a total of 17 employees withM.D. or Ph.D. degrees, and 3 part-time employees. Of the full‑time employees, 33 employees are engaged in research anddevelopment activities. None of our employees is represented by a labor union or covered by a collective bargainingagreement. We consider our relationship with our employees to be good.38 Table of ContentsBUSINESS—EXECUTIVE OFFICERS OF THE REGISTRANTThe following table sets forth the name, age and position of each of our executive officers as of February 28,2019.Name Age Position Robert Forrester 55 President, Chief Executive Officer Daniel Paterson 57 Chief Operating Officer Robert Gagnon 44 Chief Financial Officer Joseph Lobacki 60 Chief Commercial Officer Steven Bloom 58 Chief Strategy Officer Robert Forrester, age 55, 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 he served as Interim President andChief Executive Officer of CombinatoRx, Inc. from 2009 until 2010 and as its Executive Vice President and ChiefFinancial Officer from 2004 to 2009. Mr. Forrester served as Senior Vice President, Finance and Corporate Developmentat Coley Pharmaceutical Group, Inc. from 2000 to 2003. He earned his LL.B. from Bristol University in England.Daniel Paterson, age 57, has served as our Chief Operating Officer since December 2014, our Chief BusinessOfficer from July 2013 to December 2014 and as our Vice President, Head of Corporate Development and Diagnosticsfrom March 2012 until July 2013. Prior to joining us in March 2012, Mr. Paterson was a consultant in 2011. From 2009through 2010, Mr. Paterson was the Chief Operating Officer of On-Q-ity. Mr. Paterson was the President and ChiefExecutive Officer of The DNA Repair Company from 2006 until 2009, when it was acquired by On-Q-ity. Previously, heheld senior level positions at IMS Health, CareTools, OnCare, and Axion.Robert Gagnon, age 44, has served as our Chief Financial Officer since August 2018. Prior to joining us, Mr.Gagnon served as the Chief Financial Officer for Harvard Bioscience, Inc. from November 2013 to August 2018. From2012 through 2013, Mr. Gagnon served as the Executive Vice President, Chief Financial Officer and Treasurer at CleanHarbors, Inc. Mr. Gagnon’s prior experience includes serving as Chief Accounting Officer and Controller at BiogenIdec, Inc., as well as a variety of senior positions at Deloitte & Touche, LLP, and PriceWaterhouseCoopers, LLP. Joseph Lobacki, age 60, has served as our Chief Commercial Officer since January 2018. Prior to joining us, Mr.Lobacki served as the Chief Operating Officer of Finch Therapeutics Group from November 2016 to December 2017, theChief Commercial Officer and Executive Council Member of Medivation, Inc. from December 2014 to October 2016,and as the General Manager of Oncology at Idera Pharmaceuticals from April 2014 to December 2014. Prior to that Mr.Lobacki served as a commercial and business operations consultant for biotechnology companies from June 2012 toApril 2014 and as the Senior Vice President and Chief Commercial Officer of Micromet Inc., where he oversawcommercial activities including medical affairs and strategic marketing.Steven Bloom, age 58, has served as our Chief Strategy Officer since December 2017, our Senior Vice Presidentof Corporate Development from January 2017 to November 2017 and as our Vice President of Commercial Planning andExternal Affairs from January 2015 until January 2017. Prior to joining us in March 2014, Mr. Bloom served as SeniorVice President at Ziopharm Oncology from March 2008 to March 2014. Before joining Ziopharm, Mr. Bloom was VicePresident for the health informatics company Pharmetrics and spent the first 19 years of his career at Eli Lilly andCompany in leadership roles in marketing, sales and corporate affairs.39 Table of ContentsOUR 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 annualreports 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 SEC. We alsomake available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10%stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of thosefilings are provided to us by those persons. The information contained on, or that can be accessed through, our websiteis not a part of or incorporated by reference in this Annual Report on Form 10‑K.40 Table of Contents ITEM 1A. Risk Factors. Risks Related to the Commercialization of COPIKTRA and Development of Our Product CandidatesWe are dependent on the commercial success of COPIKTRA.A majority of our time, resources and effort are focused on the commercialization of COPIKTRA in the UnitedStates. While we expect to continue to expend significant time, resources and effort on the development of our otherproduct candidates, they are in earlier stages of development and subject to the risks of failure inherent in developingdrug products.Our ability to successfully commercialize COPIKTRA will depend on, among other things, our ability to:·maintain commercial manufacturing arrangements with CMOs; ·produce, through a validated process, sufficient quantities and inventory of COPIKTRA to meet demand;·build and maintain internal sales, distribution and marketing capabilities sufficient to generate commercialsales of COPIKTRA; ·secure widespread acceptance of our product from physicians, health care payors, patients and the medicalcommunity; ·properly price and obtain coverage and adequate reimbursement of COPIKTRA by governmentalauthorities, private health insurers, managed care organizations and other third-party payors; ·maintain compliance with ongoing FDA labeling, packaging, storage, advertising, promotion,recordkeeping, safety and other post-market requirements; ·manage our growth and spending as costs and expenses increase due to commercialization; and ·establish and maintain collaborations with third parties for the commercialization of COPIKTRA incountries outside the United States, and such collaborators’ ability to obtain regulatory and reimbursementapprovals in such countries.There are no guarantees that we will be successful in completing these tasks. In addition, we have begun, andwill need to continue investing substantial financial and management resources to build out our commercialinfrastructure and to recruit and train sufficient additional qualified marketing, sales and other personnel in support ofour sales of COPIKTRA.Sales of COPIKTRA may be slow or limited for a variety of reasons including competing therapies or safety issues. IfCOPIKTRA is not successful in gaining broad commercial acceptance, our business would be harmed.Any sales of COPIKTRA will be dependent on several factors including our ability to educate and increasephysician awareness of the benefits and cost-effectiveness of COPIKTRA relative to competing therapies. The degree ofmarket acceptance of COPIKTRA among physicians, patients, health care payors and the medical community willdepend on a number of factors, including:·acceptable evidence of safety and efficacy; ·relative convenience and ease of administration; ·prevalence and severity of any adverse side effects; ·availability of alternative treatments; ·pricing and cost effectiveness; ·effectiveness of our sales and marketing capability and strategies; ·ability to obtain sufficient third-party coverage and reimbursement; ·changes in the standard of care for the targeted indications for COPIKTRA; ·warnings and limitations, including the boxed warning related to the risks of infections, diarrhea or colitis,cutaneous reactions, and pneumonitis, contained in the approved labeling for COPIKTRA; ·safety concerns with similar products marketed by others; 41 Table of Contents·the prevalence and severity of any side effects as a result of treatment with COPIKTRA; ·our ability to comply with FDA post-marketing requirements imposed upon COPIKTRA, includingconducting and completing a confirmatory clinical trial in patients with relapsed or refractory follicularlymphoma that verifies and isolates the benefits of COPIKTRA; and ·the actual market-size for COPIKTRA, which may be larger or smaller than expected.In addition, COPIKTRA will be subject to continual review by the FDA, and we cannot assure you that newlydiscovered or developed safety issues will not arise. With the use of any newly marketed drug by a wider patientpopulation, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself.Any safety issues could cause us to suspend or cease marketing COPIKTRA, cause us to modify how we marketCOPIKTRA, subject us to substantial liabilities and adversely affect our revenues and financial condition. In the eventof a withdrawal of COPIKTRA from the market, our revenues would decline significantly and our business would beseriously harmed and could fail. We additionally may experience significant fluctuations in sales of COPIKTRA fromperiod to period and, ultimately, we may never generate sufficient revenues from COPIKTRA to reach or maintainprofitability or sustain our anticipated operations.Preclinical testing and clinical trials of our product candidates may not be successful. In the near term, we aredependent on the success of our PI3K inhibitor program, including COPIKTRA. If we are unable to obtain marketingapproval for or successfully commercialize any of our other product candidates, or if we experience significant delaysin doing so, our business will be materially harmed.We have invested a significant portion of our efforts and financial resources in the research and development ofour product candidates, including COPIKTRA, for which we are conducting clinical trials in multiple indications. Wereceived FDA approval for COPIKTRA for the treatment of adult patients with relapsed or refractory chroniclymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) after at least two prior therapies and were grantedaccelerated approval of COPIKTRA for the treatment of adult patients with relapsed or refractory follicular lymphoma(FL) after at least two prior systemic therapies. Our ability to generate product revenues will depend heavily on thesuccessful commercialization of COPIKTRA and development of our other product candidates. The success of ourproduct candidates will depend on several factors, including the following:·initiation and successful enrollment and completion of our clinical trials; ·receipt of marketing approvals from the FDA and other regulatory authorities for our future productcandidates, including pricing approvals where required; ·establishing and maintaining commercial manufacturing capabilities or making arrangements with third-party manufacturers; ·obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our productcandidates; ·establishing and maintaining commercial capabilities, including hiring and training a sales force, andlaunching commercial sales of the products, if and when approved, whether alone or in collaboration withothers; ·acceptance of the products, if and when approved, by patients, the medical community and third-partypayors; ·securing and maintaining coverage and adequate reimbursement for our products from third party payors; ·effectively competing with other therapies; and ·a continued acceptable safety and efficacy profile of the products following approval.Many of these factors are beyond our control, including clinical development, the regulatory submissionprocess, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of anycollaborator. If we do not achieve one or more of these factors in a timely manner or at all, we could experiencesignificant delays or an inability to successfully commercialize our product candidates, which would materially harmour business. 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, a further review and analysis of this data may change the conclusionsdrawn 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. There also may be significant variability in the safety results obtained through the long-termfollow-up of patients from ongoing studies. We do not know whether any clinical trial we may conduct or follow-updata we collect will demonstrate consistent or adequate efficacy and/or safety sufficient to obtain regulatory approval tomarket our product candidates.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.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.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; ·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 our participants may dropout of 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; 43 Table of Contents·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 or not obtain marketing approval for our product candidates; ·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 including impositionof a Risk Evaluation and Mitigation Strategy (REMS), 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. Our productdevelopment costs will also increase if we experience delays in clinical testing or marketing approvals. We do not knowwhether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all.Significant clinical trial delays also could shorten any periods during which we may have the exclusive right tocommercialize our product candidates or allow our competitors to bring products to market before we do and impair ourability to successfully commercialize our product candidates and may harm our business and results of 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 or similarregulatory 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.44 Table of ContentsFurthermore, enrolled patients may drop out of a clinical trial, which could impair the validity or statisticalsignificance of the clinical trial. A number of factors can influence the patient discontinuation rate, including, but notlimited to:·the inclusion of a placebo arm in a trial;·possible inactivity or low activity of the product candidate being tested at one or more of the dose levelsbeing tested; ·the occurrence of adverse side effects, whether or not related to the product candidate; and ·the availability of numerous alternative treatment options, including clinical trials evaluating competingproduct candidates, that may induce patients to discontinue their participation in the trial.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 commercialization of COPIKTRA ordevelopment of our other product candidates, we may need to abandon or limit the commercialization of COPIKTRAand abandon or limit our development of some of our other product candidates.The FDA approved COPIKTRA with labeling that includes a boxed warning for four fatal and/or serioustoxicities: infections, diarrhea or colitis, cutaneous reactions, and pneumonitis. As a requirement of the FDA's approval,we are implementing an informational REMS to provide appropriate dosing and safety information to better supportphysicians in managing their patients on COPIKTRA. In addition to the boxed warning, use of COPIKTRA is alsoassociated with adverse reactions, which may require dose reduction, treatment delay or discontinuation of COPIKTRA.Warnings and precautions are provided for infections, diarrhea or colitis, cutaneous reactions, pneumonitis,hepatotoxicity, neutropenia, and embryo-fetal toxicity. The most common adverse reactions (reported in ≥20% ofpatients) were diarrhea or colitis, neutropenia, rash, fatigue, pyrexia, cough, nausea, upper respiratory infection,pneumonia, musculoskeletal pain, and anemia.Our other product candidates are in various stages of clinical development and their risk of failure is high. It isimpossible to predict when or if our other 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 a riskbenefit perspective. Patients in our clinical trials have experienced serious adverse events, deemed by us and the clinicalinvestigator to be related to our product candidates. Serious adverse events generally refer to adverse events, that resultin death, are life threatening, require hospitalization or prolonging of hospitalization, or cause a significant andpermanent disruption of normal life functions, congenital anomalies or birth defects, or require intervention to preventsuch outcomes.Defactinib 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.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 conclusion45 Table of Contentsthat a serious adverse effect or unacceptable side effect was not drug related.For COPIKTRA, if we or others identify previously unknown side effects or if known side effects are morefrequent or severe than in the past, then:·sales of COPIKTRA may be adversely affected; ·regulatory approvals for COPIKTRA may be restricted or withdrawn; ·we may decide to, or be required to, send product warning letters or field alerts to physicians, pharmacistsand hospitals; ·additional non-clinical or clinical studies, changes in labeling or changes to manufacturing processes,specifications and/or facilities may be required; and ·government investigations or lawsuits, including class action suits, may be brought against us.Any of the above occurrences would harm or prevent sales of COPIKTRA, increase our expenses and impair ourability to successfully commercialize COPIKTRA. Furthermore, as COPIKTRA is commercially available, it may be usedin a wider population and in a less rigorously controlled environment than in clinical studies. As a result, regulatoryauthorities, healthcare practitioners, third-party payors or patients may perceive or conclude that the use of COPIKTRAis associated with previously unknown serious adverse effects, undermining our commercialization efforts.Preclinical 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, which could cause theoutcome of the later stage trials to differ from our earlier stage clinical trials. For example, these differences may includechanges to inclusion and exclusion criteria, efficacy endpoints and statistical design. Many companies in thepharmaceutical and biotechnology industries, including us, have suffered significant setbacks in late stage clinical trialsafter achieving positive results in an earlier stage of development. If we fail to produce positive results in our plannedclinical trials of any of our product candidates, the development timeline and regulatory approval andcommercialization prospects for our product candidates, and, correspondingly, our business and financial prospects,would be materially adversely affected.Our approach to the treatment of cancer through the killing of cancer cells and disruption of the tumormicroenvironment is relatively unproven, and we do not know whether we will be able to develop any products ofsignificant commercial value.We are commercializing COPIKTRA and developing duvelisib in other indications and other productcandidates to treat cancer by using targeted agents to kill cancer cells or disrupt the tumor microenvironment andthereby thwart their growth and proliferation of cancer cells.Research on the use of small molecules to inhibit PI3K and FAK signaling pathways and disrupt the tumormicroenvironment is an emerging field and, consequently, there is still uncertainty about whether COPIKTRA anddefactinib are effective in improving outcomes for patients with cancer. With respect to our FAK inhibition program,there is some debate in the scientific community regarding cancer stem cells (CSCs), the existence of these cells, thedefining characteristics of these cells, as well as whether targeting such cells is an effective approach to treating cancer.Some believe that targeting CSCs as part of our multi-faceted approach should be sufficient for a positive clinicaloutcome, while others believe that, at times or always, the use of FAK inhibitors that reduce CSCs should be coupledwith conventional chemotherapies for a positive clinical outcome.46 Table of ContentsAny products that we develop may not effectively target cancer cells, enhance anti-tumor immunity, ormodulate the local tumor microenvironment. While we are currently commercializing COPIKTRA and conductingclinical trials for other product candidates that we believe will attack cancer cells through the inhibition of the PI3K orFAK signaling pathways and potentially disrupt the tumor microenvironment, we may not ultimately be successful indemonstrating their efficacy, alone or in combination with other treatments.The 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.Part of our current business model involves conducting clinical trials to study the effects of combining ourproduct candidates with other approved and investigational targeted therapies, chemotherapies, and immunotherapies totreat patients with cancer. Regulatory approval for a combination treatment generally requires clinical trials to evaluatethe activity of each component of the combination treatment. As a result, it may be more difficult and costly to obtainregulatory approval of our product candidates 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. For instance, if one of our product candidatesreceives regulatory approval from a combination study, it may be approved solely for use in combination with theapproved or investigational product in a particular indication and the market opportunity our product candidate wouldbe dependent upon the continued use and availability of the approved or investigational product. In addition, becausephysicians, patients and third-party payors may be sensitive to the addition of the cost of our product candidates to thecost of treatment with the other products, we may experience downward pressure on the price that we can charge for ourproduct candidates if they receive regulatory approval. Further, we cannot be sure that physicians will view our productcandidates, if approved as part of a combination treatment, as sufficiently superior to a treatment regimen consisting ofonly the approved or investigational product. Additionally, the adverse side effects of our product candidates may beenhanced when combined with other products. If such adverse side effects are experienced, we could be required toconduct additional pre-clinical and clinical studies and if such adverse side effects are severe, we may not be able tocontinue the clinical trials of the combination therapy because the risks may outweigh the therapeutic benefit of thecombination.We may not be successful in obtaining necessary rights to compounds and product candidates for our developmentpipeline through acquisitions and in-licenses.We may seek to acquire new compounds and product candidates from other pharmaceutical and biotechnologycompanies, academic scientists and other researchers, such as our exclusive in-license from Infinity Pharmaceuticals, Inc.(Infinity), to research, develop, commercialize, and manufacture products in oncology indications containing duvelisib.The success of this strategy depends partly upon our ability to identify, select, discover and acquire promisingpharmaceutical product candidates and products. The process of proposing, negotiating and implementing a license oracquisition of a product candidate or approved product is lengthy and complex. Other companies, including some withsubstantially greater financial, marketing and sales resources, may compete with us for the license or acquisition ofproduct candidates and approved products. In addition, companies that perceive us to be a competitor may be unwillingto assign or license rights to us. We have limited resources to identify and execute the acquisition or in-licensing ofthird-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we maydevote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail torealize the anticipated benefits of such efforts. We also may be unable to license or acquire the relevant compound orproduct candidate on terms that would allow us to make an appropriate return on our investment. Any product candidatethat 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 foreign regulatory authorities. Allproduct candidates are prone to risks of failure typical of pharmaceutical product development. 47 Table of ContentsIn 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 develop acquiredproducts, 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 for acquisitions.Future business acquisitions may also entail certain additional risks, such as:·difficulty in combining the operations and personnel of any acquired businesses with our operations andpersonnel; ·impairment of relationships with key suppliers or customers of any acquired businesses due to changes inmanagement and ownership; and ·inability to motivate key employees of any acquired businesses.If 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, including COPIKTRA, in a number ofcountries outside of the United States and expect that these countries will be important markets for our products, ifapproved. Marketing our products in these countries will require separate regulatory approvals in each market andcompliance with numerous and varying regulatory requirements. The regulations that apply to the conduct of clinicaltrials and approval procedures vary from country to country and may require additional testing. Moreover, the timerequired to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outsidethe United States, a drug must be approved for reimbursement before it can be approved for sale in that country.Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, andapproval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreigncountries or by the FDA. Failure to obtain regulatory approval in one country may have a negative effect on theregulatory approval process in others. The foreign regulatory approval process may include all of the risks associatedwith obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not beable to file for regulatory approvals and may not receive necessary approvals to commercialize our products in anyforeign 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.We face substantial competition, which may result in others developing or commercializing products before or moresuccessfully than we do.The development and commercialization of new drug products is highly competitive. We face competitionwith respect to COPIKTRA and our other product candidates and will face competition with respect to any product48 Table of Contentscandidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialtypharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical andbiotechnology companies that currently market and sell products or are pursuing the development of products for thetreatment of the disease indications for which we are developing COPIKTRA and our product candidates, includingGilead Sciences, Inc., Abbvie, Pharmacyclics LLC, Roche, Celgene Corporation, AstraZeneca, Incyte Corporation, TGTherapeutics, Inc., Novartis and others. Some of these competitive products and therapies are based on scientificapproaches that are the same as or similar to our approach, and others are based on entirely different approaches.Potential competitors also include academic institutions, government agencies and other public and private researchorganizations that conduct research, seek patent protection and establish collaborative arrangements for research,development, manufacturing and commercialization.We are commercializing COPIKTRA and developing our other product candidates for the treatment of cancer.There are a variety of available therapies marketed for cancer. In many cases, these drugs are administered incombination to enhance efficacy. Some of these drugs are branded and subject to patent protection, and others areavailable on a generic basis. Many of these approved drugs are well established therapies and are widely accepted byphysicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of genericproducts. We expect that COPIKTRA and our other product candidates, if approved, will be priced at a significantpremium over competitive generic products.Many 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 products or product candidates of our competitors demonstrate serious adverseside effects or are determined to be ineffective in clinical trials, the commercialization of COPIKTRA and thedevelopment of our other product candidates could be negatively impacted.COPIKTRA and any future product candidates that we commercialize may become subject to unfavorable pricingregulations or third-party coverage and reimbursement policies, which would harm our business.In both domestic and foreign markets, sales of COPIKTRA and any product candidates that may receivemarketing approval in the future will depend, in part, on favorable pricing as well as the availability of coverage andamount of reimbursement by third party payors, including governments and private health plans. Substantialuncertainty exists regarding coverage and reimbursement by third party payors of newly approved health care products.Outside the United States, some countries require approval of the sale price of a drug before the product can bemarketed. In many such countries, the pricing review period begins after marketing or product licensing approval isgranted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmentalcontrol even after initial approval is granted. As a result, we might obtain marketing approval for a product in aparticular country, but then be subject to price regulations that delay our commercial launch of the product, possibly forlengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in thatcountry. Adverse pricing limitations may hinder our ability to recoup our investment in COPIKTRA and other productcandidates, even if those product candidates obtain marketing approval.Cost containment is a key trend in the United States and elsewhere. Third-party payors have attempted tocontrol costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-partypayors are requiring that drug companies provide them with predetermined discounts from list prices and arechallenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be49 Table of Contentsavailable for COPIKTRA or any other product that we commercialize and, if reimbursement is available, the level ofreimbursement. Coverage and reimbursement may impact the demand for, or the price of, COPIKTRA or any otherproduct candidate for which we obtain marketing approval. If coverage and reimbursement are not available orreimbursement is available only to limited levels, we may not be able to successfully commercialize COPIKTRA or anyother product candidate for which we may obtain marketing approval.If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or othergovernmental pricing programs in the U.S., we could be subject to additional reimbursement requirements, penalties,sanctions and fines which could have a material adverse effect on our business, financial condition, results ofoperations and growth prospects.With the approval of COPIKTRA, we now participate in the Medicaid Drug Rebate Program, MedicareCoverage Gap Discount Program and a number of other federal and state government pricing programs in the U.S. inorder to obtain coverage for the product by certain government healthcare programs. These programs generally requireus to pay rebates or provide discounts to certain private purchasers or government payors in connection with ourproducts when dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug RebateProgram, the rebates are based on pricing and rebate calculations that we report on a monthly and quarterly basis to thegovernment agencies that administer the programs. The terms, scope and complexity of these government pricingprograms change frequently. We may also have reimbursement obligations or be subject to penalties if we fail to providetimely and accurate information to the government, pay the correct rebates or offer the correct discounted pricing.Changes to the price reporting or rebate requirements of these programs would affect our obligations to pay rebates oroffer discounts. Responding to current and future changes may increase our costs and the complexity of compliance,will be time-consuming, and could have a material adverse effect on our results of operations.Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization ofany products that we may develop, including COPIKTRA.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 from any sales of COPIKTRA or if we commercially sell any otherproducts we may develop. If we cannot successfully defend ourselves against claims that our product candidates orproducts caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claimsmay result in:·decreased demand for COPIKTRA or any other 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 commercialize COPIKTRA and any future product candidates or if we initiate additionalclinical trials in the United States and around the world. Insurance coverage is increasingly expensive. We may not beable to 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 and50 Table of Contentswastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biologicalmaterials. Our operations also produce hazardous waste products. We generally contract with third parties for thedisposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. Inthe event of contamination or injury resulting from our use of hazardous materials, we could be held liable for anyresulting damages, and any liability could exceed our resources. We also could incur significant costs associated withcivil or criminal 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.Risks Related to Our License Agreement with InfinityIf we do not realize the anticipated benefits of our license agreement with Infinity for the COPIKTRA program, ourbusiness could be adversely affected.Our license agreement with Infinity for COPIKTRA may fail to further our business strategy as anticipated or toachieve anticipated benefits and success. We may make or have made assumptions relating to the impact of theacquisition of COPIKTRA on our financial results relating to numerous matters, including:·the cost of development and commercialization of COPIKTRA; and ·other financial and strategic risks related to the license agreement with Infinity.Further, we may incur higher than expected operating and transaction costs, and we may encounter general economicand business conditions that adversely affect us relating to our license agreement with Infinity. If one or more of theseassumptions are incorrect, it could have an adverse effect on our business and operating results, and the benefits fromour license agreement with Infinity for COPIKTRA may not be realized or be of the magnitude expected.Risks 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, 2018, we had anaccumulated deficit of $375.6 million. To date, we have generated minimal product revenues and have financed ouroperations primarily through public offerings of our common stock, sales of our common stock pursuant to our at-the-market equity offering programs, our loan and security agreement with Hercules Capital Inc. (Hercules), and the issuanceof our 5.00% Convertible Senior Notes due 2048 (the Notes). As of December 31, 2018, there was $25.0 millionavailable to borrow under the amended term loan facility with Hercules, subject to certain conditions of funding. Wehave devoted substantially all of our efforts to research and development. We expect to continue to incur significantexpenses and increasing operating losses for the foreseeable future. The net losses we incur may fluctuate significantlyfrom quarter to quarter. We anticipate that our expenses will increase substantially if and as we:·commercialize COPIKTRA; 51 Table of Contents·continue our ongoing clinical trials with our product candidates, including with COPIKTRA anddefactinib; ·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; ·add operational, financial and management information systems and personnel, including personnel tosupport our product development and commercialization efforts; and ·establish and maintain a sales, marketing and distribution infrastructure to commercialize COPIKTRA orany products for which we obtain marketing approval.To become and remain profitable, we must develop and eventually commercialize a product or products withsignificant market potential, such as COPIKTRA. This will require us to be successful in a range of challengingactivities, including completing preclinical testing and clinical trials of our product candidates, obtaining marketingapproval for these product candidates and manufacturing, marketing and selling those products for which we may obtainmarketing approval. We may never succeed in these activities and, even if we do, may never generate revenues that aresignificant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain orincrease profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease thevalue of the company and could impair our ability to raise capital, maintain our research and development efforts,expand our business or continue our operations. A decline in the value of our company could also cause you to lose allor part of your 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, including forCOPIKTRA.We expect our expenses to increase in connection with our ongoing activities, particularly as we commercializeCOPIKTRA and continue the clinical development of our other product candidates. We expect to incur significantcommercialization expenses related to product sales, marketing, manufacturing and distribution of COPIKTRA.Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations,including for our clinical development programs and any commercialization efforts for COPIKTRA.We expect our cash, cash equivalents and investments at December 31, 2018 will be sufficient to fund ourcurrent operating plan and capital expenditure requirements beyond the next twelve months. Our future capitalrequirements will depend on many factors, including:·the costs and timing of commercialization activities for COPIKTRA and the product candidates for whichwe expect to receive marketing approval; ·the scope, progress and results of our ongoing and potential future clinical trials; ·the extent to which we acquire or in-license other product candidates and technologies; ·the costs, timing and outcome of regulatory review of our product candidates (including our efforts to seekapproval and fund the preparation and filing of regulatory submissions); ·revenue received from commercial sales of COPIKTRA and our product candidates, should any of our otherproduct candidates also 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 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 of any of our otherproduct candidates. Even though the FDA approved COPIKTRA, it may not achieve commercial success. Ourcommercial revenues will be derived from sales of products, such as COPIKTRA. Accordingly, even though we receivedregulatory approval for COPIKTRA, it will take several years to achieve peak sales, and we will need to continue to relyon additional financing to further our clinical development objectives. Adequate additional financing may not beavailable to us on acceptable terms, or at all.52 Table of ContentsRisks Related to Our IndebtednessOur level of indebtedness and debt service obligations could adversely affect our financial condition and may make itmore difficult for us to fund our operations.In March 2017, we entered into a Loan and Security Agreement with Hercules, which was subsequentlyamended in January, March and October 2018. Under the Loan and Security Agreement, as amended (the AmendedLoan Agreement), Hercules will provide access to term loans with an aggregate principal amount of up to $50.0 million.As of December 31, 2018, there was $25.0 million available to borrow under the Amended Loan Agreement, subject tocertain conditions of financing. All obligations under the Amended Loan Agreement are secured by substantially all ofour existing property and assets, excluding our intellectual property.In October 2018, we closed a registered direct public offering of $150.0 million aggregate principal amount ofthe Notes. The Notes are governed by the terms of a base indenture for senior debt securities (the Base Indenture),as supplemented by the first supplemental indenture thereto (the Supplemental Indenture and together with the BaseIndenture, the Indenture). The Notes are senior unsecured obligations of the Company and bear interest at a rate of5.00% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1,2019. The Notes will mature on November 1, 2048, unless earlier repurchased, redeemed or converted in accordancewith their terms.This indebtedness may create additional financing risk for us, particularly if our business or prevailingfinancial market conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity.This indebtedness could also have important negative consequences, including:·we will need to repay our indebtedness by making payments of interest and principal, which will reducethe amount of money available to finance our operations, our research and development efforts and othergeneral corporate activities; and ·our failure to comply with the restrictive covenants in the Amended Loan Agreement could result in anevent of default that, if not cured or waived, would accelerate our obligation to repay this indebtedness,and Hercules could seek to enforce their security interest in the assets securing such indebtedness.To the extent additional debt is added to our current debt levels, the risks described above could increase.We may not have cash available in an amount sufficient to enable us to make interest or principal payments on ourindebtedness when due.Failure to satisfy our current and future debt obligations under the Amended Loan Agreement or the Indenture,or breaching any covenants under the Amended Loan Agreement or the Indenture, subject to specified cure periods withrespect to certain breaches, could result in an event of default and, as a result, could accelerate all of the amounts due.Further, the Notes are subject to repurchase by us, at the option of the holders, at certain dates as specified within theIndenture prior to maturity in 2048. In the event of an acceleration of amounts due under the Amended Loan Agreementor the Indenture, we may not have enough available cash or be able to raise additional funds through equity or debtfinancings to repay such indebtedness at the time of such acceleration. In that case, we may be required to delay, limit,reduce or terminate our COPIKTRA commercialization efforts, other product candidate development or grant to othersthe rights to develop and market COPIKTRA and our other product candidates that we would otherwise prefer todevelop and market internally. Hercules could also exercise its rights as collateral agent to take possession and disposeof the collateral securing the term loans for its benefit, which collateral includes substantially all of our property otherthan our intellectual property. Our business, financial condition and results of operations could be materially adverselyaffected as a result of any of these events. We are subject to certain restrictive covenants which, if breached, could have amaterial adverse effect on our business and prospects.53 Table of ContentsThe Amended Loan Agreement and the Indenture impose operating and other restrictions on us. Suchrestrictions will affect, and in many respects limit or prohibit, our ability and the ability of any future subsidiary to,among other things:·dispose of certain assets; ·change our lines of business; ·engage in mergers, acquisitions or consolidations; ·incur additional indebtedness; ·create liens on assets; ·pay dividends and make distributions or repurchase our capital stock; and ·engage in certain transactions with affiliates. Risks 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 commercialize COPIKTRA or obtain regulatoryapprovals for and commercialize any of our other product candidates.We rely on third parties, such as CROs, clinical data management organizations, medical institutions andclinical investigators, to conduct, provide monitors for and manage data from all of our clinical trials. We compete withmany other companies for the resources of these third parties.Any of these third parties may terminate their engagements with us at any time. If we need to enter intoalternative arrangements, it would delay our product development activities and ultimately the commercialization ofour 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 some of our product candidates and will not be able to, or may bedelayed in our efforts to, successfully commercialize COPIKTRA and our other product candidates. 54 Table of ContentsWe 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 firsthand knowledge we might have gained had the investigatorsponsored trials been sponsored and conducted by us, then our ability to design and conduct any future clinical trialsourselves may be adversely affected.Additionally, 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, including COPIKTRA, and forcompound 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 COPIKTRAand our other product candidates for clinical development from third-party manufacturers or third-party collaborators,and we expect to continue to rely on third parties for the manufacture of clinical quantities of our product candidatesand commercial quantities of COPIKTRA. In addition, we currently rely on third parties for the development of variousformulations of COPIKTRA and our other product candidates. This reliance on third parties increases the risk that wewill not have sufficient quantities of COPIKTRA or our product candidates or such quantities at an acceptable cost orquality, which could delay, prevent or impair our development or commercialization efforts.We do not currently have arrangements in place for redundant supply or a second source for bulk drugsubstance or drug product. Even though we have supply agreements in place with our third-party manufacturers, relianceon 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.55 Table of ContentsThird-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. Any interruption of the development or operation of the manufacturingfacilities due to, among other reasons, events such as order delays for equipment or materials, equipment malfunction,quality control and quality assurance issues, regulatory delays and possible negative effects of such delays on supplychains and expected timelines for product availability, production yield issues, shortages of qualified personnel,discontinuation of a facility or business or failure or damage to a facility by natural disasters, could result in thecancellation of shipments, loss of product in the manufacturing process or a shortfall in available COPIKTRA, otherproduct candidates or materials.If our current contract manufacturers cannot perform as agreed or these parties cease to provide qualitymanufacturing and related services to us, we may be required to replace that manufacturer. If we are not able to engageappropriate replacements in a timely manner, our ability to manufacture COPIKTRA or our other product candidates insufficient quality and quantity required for commercial use of COPIKTRA and/or for planned pre-clinical testing,clinical trials and potential commercial use of our product candidates would be adversely affected. Although we believethat there are several potential alternative manufacturers who could manufacture our product candidates, we may incuradded costs and delays in identifying and qualifying any such replacement, as well as producing the drug product andobtaining regulatory approvals for the new manufacturer. In addition, we have to enter into technical transfer agreementsand share our know-how with the third-party manufacturers, which can be time consuming and may result in delays. Inlight of the lead time needed to manufacture COPIKTRA and our other product candidates, and the availability ofunderlying materials, we may not be able to, in a timely manner or at all, establish or maintain sufficient commercialmanufacturing arrangements on commercially reasonable terms necessary to provide adequate supply of COPIKTRA tomeet demands that exceed our commercial assumptions or to provide adequate supply of our other product candidates tomeet demands that exceed our clinical assumptions. Furthermore, we may not be able to obtain the significant financialcapital that may be required in connection with such arrangements. Even after successfully engaging third parties toexecute the manufacturing process for COPIKTRA and our other product candidates, such parties may not comply withthe terms and timelines they have agreed to for various reasons, some of which may be out of their or our control, whichcould impact our ability to execute our business plans on expected or required timelines in connection with thecommercialization of COPIKTRA and the continued development of our other product candidates. We may also berequired to enter into long-term manufacturing agreements that contain exclusivity provisions and/or substantialtermination penalties, which could have a material adverse effect on our business prior to and after commercialization.Our current and anticipated future dependence upon others for the manufacture of our other product candidatesor products 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 the56 Table of ContentsFDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate,the costs and complexities of manufacturing and delivering such product candidate to patients, the potential ofcompeting products, the existence of uncertainty with respect to our ownership of technology, which can exist if there isa challenge to such ownership without regard to the merits of the challenge and industry and market conditionsgenerally. The collaborator may also consider alternative product candidates or technologies for similar indications thatmay be available to collaborate on and whether such a collaboration could be more attractive than the one with us forour product candidate. Collaborations are complex and time consuming to negotiate and document. In addition, therehave been a significant number of recent business combinations among large pharmaceutical companies that haveresulted in a reduced number of 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 commercialization of COPIKTRA and the developmentand commercialization of our other product candidates. If those collaborations are not successful, we may not be ableto capitalize on the market potential of COPIKTRA or any other product candidates.We may seek third-party collaborators for the development and commercialization of our product candidates.For instance, we have entered into agreements for the development and commercialization of COPIKTRA in China,Hong Kong, Macau and Taiwan with CSPC Pharmaceutical Group Limited and in Japan with Yakult Honsha Co., Ltd.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 trial results,changes in the collaborator's strategic focus or available funding or external factors such as an acquisitionthat diverts 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, ordevelop with third parties, products that compete directly or indirectly with our products or productcandidates if the collaborators believe that competitive products are more likely to be successfullydeveloped or can be commercialized under terms that are more economically 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; 57 Table of Contents·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.If we are unable to maintain our agreements with third parties to distribute COPIKTRA to patients, our results ofoperations and business could be adversely affected.We will continue to rely on third parties to commercially distribute COPIKTRA to patients. We have contractedwith a third-party logistics company to warehouse COPIKTRA and to process and ship customer orders, and withspecialty pharmacies and specialty distributors to sell and distribute COPIKTRA. The specialty pharmacies sellCOPIKTRA directly to patients and provide patient education and ongoing management. The specialty distributors sellCOPIKTRA to community oncologists with in-office dispensaries, hospital-owned practices, local offices with onsitepharmacies, retail pharmacies, and other institutional customers. We have also contracted with a third-party patientservices hub to help us with some or all of the following: reimbursement adjudication, patient financial support, patientassistance programs and ongoing compliance support. This distribution network will require significant coordinationwith our sales and marketing and finance organizations. In addition, failure to coordinate financial systems couldnegatively impact our ability to accurately report product revenue from COPIKTRA. If we are unable to effectivelymanage the distribution process, the commercial launch and sales of COPIKTRA, as well as any future products we maycommercialize, sales could be delayed or severely compromised and our results of operations may be harmed.In addition, the use of specialty pharmacies, specialty distributors and a call center involve certain risks,including, but not limited to, risks that these organizations will:·not provide us with accurate or timely information regarding their inventories, the number of patients whoare using COPIKTRA or serious adverse reactions, events and/or product complaints regardingCOPIKTRA; ·not effectively sell or support COPIKTRA, or communicate publicly concerning COPIKTRA in a mannerthat is contrary to FDA rules and regulations; ·reduce or discontinue their efforts to sell or support COPIKTRA; ·not devote the resources necessary to sell COPIKTRA in the volumes and within the time frame we expect;·be unable to satisfy financial obligations to us or others; or ·cease operations.Any such events may result in decreased product sales and lower product revenue, which would harm ourresults of operations and business.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 Infinity andPfizer Inc., or Pfizer, and expect to enter into additional license agreements in the future. Our existing license agreementsimpose, 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 Infinity and Pfizer,58 Table of Contentswe are required to use diligent or commercially reasonable efforts to develop and commercialize licensed products underthe agreement and to satisfy other specified obligations. If we fail to comply with our obligations under these licenses,our licensors may have the right to terminate these license agreements, in which event we might not be able to marketany product that is covered by these agreements, or to convert the exclusive licenses to non-exclusive licenses, whichcould materially adversely affect the value of COPIKTRA or the product candidate being developed under these licenseagreements. Termination of these license agreements or reduction or elimination of our licensed rights may result in ourhaving to negotiate new or reinstated licenses with less favorable terms, which may not be possible. If Pfizer were toterminate its license agreement with us for any reason, we would lose our rights to defactinib. If Infinity were toterminate its license agreement with us for any reason, we would lose our rights to COPIKTRA.If we are unable to obtain and maintain patent protection for our products, or if our licensors are unable to obtainand maintain patent protection for the products that we license from them, or if the scope of the patent protectionobtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical toours, and our ability to successfully commercialize our products 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 products. We and our licensors seek to protect our proprietaryposition by filing patent applications in the United States and abroad related to our products that are important to ourbusiness.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 products that we license from third parties and are reliant onour licensors. Therefore, we cannot be certain that these patents and applications will be prosecuted and enforced in amanner consistent with the best interests of our business. If such licensors fail to maintain such patents, or lose rights tothose patents, the rights we have licensed 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 our productsor which effectively prevent others from commercializing competitive products. Changes in either the patent laws orinterpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrowthe 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, at all.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 products and compete directly with us,59 Table of Contentswithout payment to us, or result in our inability to manufacture or commercialize products without infringing third-partypatent 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.The 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 identical products,or limit the duration of the patent protection of our products. Given the amount of time required for the development,testing and regulatory review of new product candidates, patents protecting such candidates might expire before orshortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provideus with sufficient rights to exclude others from commercializing products 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 commercialize,develop, manufacture, market and sell COPIKTRA and our other product candidates without infringing the proprietaryrights of third parties. We have yet to conduct comprehensive freedom to operate searches to determine whether our useof certain 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, including interference proceedings before the U.S. Patent and Trademark Office. Third partiesmay assert infringement claims against us based on existing patents or patents that may be granted in the future. If we arefound to infringe a third party's intellectual property rights, we could be required to obtain a license from such thirdparty to continue developing and marketing our products. However, we may not be able to obtain any required licenseon commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, therebygiving our competitors access to the same technologies licensed to us. We could be forced, including by court order, tocease commercializing the infringing product. In addition, we could be found liable for monetary damages. A finding ofinfringement could prevent us from commercializing COPIKTRA and our other product candidates or force us to ceasesome of our business operations, which could materially harm our business. Claims that we have misappropriated theconfidential information or trade secrets of third parties could have a similar negative impact on our business. 60 Table of ContentsWe 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.Intellectual 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, sales, marketing or distribution activities. Wemay not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of ourcompetitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because oftheir greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or otherproceedings 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 products, we also rely on trade secrets, including unpatentedknow how, technology and other proprietary information, to maintain our competitive position. We seek to protect thesetrade secrets, in part, by entering into non- disclosure and confidentiality agreements with parties who have access tothem, 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 Maintaining and Expanding COPIKTRA's Regulatory Approval, Achieving Regulatory Approvalof Our Other Product Candidates and Other Legal Compliance MattersIf we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our productcandidates, we will not be able to commercialize such candidates, and our ability to generate revenue will bematerially impaired.Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. The activities associatedwith a product candidate's development and commercialization, including its design, testing, manufacture, safety,efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution are subject to61 Table of Contentscomprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authoritiesin other countries. Failure to obtain marketing approval for product candidates will prevent us from commercializingsuch product candidates. We have not received approval to market any of our product candidates from regulatoryauthorities in any jurisdiction, except for COPIKTRA in the United States. We have only limited experience in filingand supporting the applications necessary to gain marketing approvals and expect to rely on third-party contractresearch organizations to assist us in this process. Securing FDA approval requires the submission of extensivepreclinical and clinical data and supporting information to the FDA for each therapeutic indication to establish theproduct candidate's safety and efficacy. Securing FDA approval also requires the submission of information about theproduct manufacturing process to, and inspection of manufacturing facilities by, the FDA. A product candidate may notbe effective, 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 inmarketing 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 subject tomore limited indications than those we propose or subject to restrictions or post approval commitments that render theapproved product not commercially viable.If we experience delays in obtaining approval or if we fail to obtain approval of a product candidate, itscommercial prospects may be harmed and our ability to generate revenues will be materially impaired.We have received orphan drug designation for COPIKTRA and certain of our product candidates, but there can be noassurance that we will be able to prevent third parties from developing and commercializing products that arecompetitive to COPIKTRA or these product candidates.We received orphan drug designation in the United States and the European Union for the use of COPIKTRA inCLL/SLL and FL, in the United States and European Union for the use of defactinib in ovarian cancer, and in the UnitedStates, the European Union, and Australia for the use of defactinib in mesothelioma. Orphan drug exclusivity grantsseven years of marketing exclusivity under the Federal Food, Drug and Cosmetic Act (FDCA), up to ten years ofmarketing exclusivity in Europe, and five years of marketing exclusivity in Australia. Other companies have receivedorphan drug designations for compounds other than COPIKTRA or defactinib for the same indications for which we mayhave received orphan drug designation in corresponding territories. While orphan drug exclusivity for COPIKTRA ordefactinib provides market exclusivity against the same active ingredient for the same indication, we would not be ableto exclude other companies from manufacturing and/or selling drugs using the same active ingredient for the sameindication beyond that timeframe on the basis of orphan drug exclusivity. Furthermore, the marketing exclusivity inEurope can be reduced from ten years to six years if the orphan designation criteria are no longer met or if the drug issufficiently profitable so that market exclusivity is no longer justified. Even if we are the first to obtain marketingauthorization for an orphan drug indication, there are circumstances under which the FDA may approve a competingproduct for the same indication during the seven-year period of marketing exclusivity, such as if the later product is thesame compound as our product but is shown to be clinically superior to our product, or if the later product is a differentdrug than our product candidate. Further, the seven-year marketing exclusivity would not prevent competitors fromobtaining approval of the same compound for other indications or of another compound for the same use as the orphandrug. 62 Table of ContentsWe may seek fast track designation for COPIKTRA in additional indications, or for one or more of our other productcandidates, but we might not receive such designation, and even if we do, such designation may not actually lead to afaster development or regulatory review or approval process, and it does not ensure that we will receive marketingapproval.The FDA has granted fast track designation for COPIKTRA for the treatment of patients with peripheral T-celllymphoma who have received at least one prior therapy. Any sponsor may seek fast track designation for a drug if it isintended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to addressunmet medical need for this condition, a drug sponsor may apply for FDA fast track designation. If we seek fast trackdesignation for a product candidate, we may not receive it from the FDA. However, even if we receive fast trackdesignation, fast track designation does not ensure that we will receive marketing approval or that approval will begranted within any particular timeframe. We may not experience a faster development or regulatory review or approvalprocess with fast track designation compared to conventional FDA procedures. In addition, the FDA may withdraw fasttrack designation if it believes that the designation is no longer supported by data from our clinical developmentprogram. Fast track designation alone does not guarantee qualification for the FDA's priority review procedures.COPIKTRA and any other product candidate for which we obtain marketing approval could be subject to restrictionsor withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements orif we experience unanticipated problems with our products.COPIKTRA and any other product candidate for which we obtain marketing approval, along with themanufacturing processes, post approval clinical data, labeling, advertising and promotional activities for such product,will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirementsinclude submissions of safety and other post marketing information and reports, registration and listing requirements,cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records anddocuments, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketingapproval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for whichthe product may be marketed or to the conditions of approval, or contain requirements for costly post marketing testingand surveillance to monitor the safety or efficacy of the product, including the imposition of a REMS.With respect to COPIKTRA, the indication in FL is approved by the FDA under accelerated approval based onoverall response rate observed in clinical trials. Continued approval for this indication may be contingent uponverification and description of clinical benefit in confirmatory trials. The FDA is requiring that we conduct a clinicaltrial in patients with relapsed or refractory FL that verifies and isolates the benefits of COPIKTRA. Additionally, as arequirement of the FDA's approval, we are implementing an informational REMS that entails a communication plan toprovide appropriate dosing and safety information to better support physicians in managing their patients onCOPIKTRA.The FDA closely regulates the post approval marketing and promotion of drugs to ensure drugs are marketedonly for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposesstringent restrictions on manufacturers' communications regarding off label use and if we do not market our products fortheir approved indications, we may be subject to enforcement action for off label marketing.In 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; 63 Table of Contents·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.The FDA's and other regulatory authorities' policies may change and additional government regulations may beenacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable toadapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able tomaintain regulatory compliance, we may fail to obtain any marketing approvals, lose any marketing approval that wemay have obtained and we may not achieve or sustain profitability.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 earnings.Healthcare providers, including physicians, and third-party payors play a primary role in the recommendationand prescription of COPIKTRA and any other product candidates for which we obtain marketing approval. Ourarrangements with healthcare providers, third-party payors and other parties within the healthcare industry may exposeus to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business orfinancial arrangements and relationships through which we market, sell and distribute COPIKTRA and any products forwhich we obtain marketing approval. Restrictions under applicable federal and state healthcare and regulatory laws andregulations within the United States 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. A person or entity does not need to have actual knowledge of the anti-kickbackstatute or specific intent to violate it in order to have committed a violation; ·the federal False Claims Act (FCA), which imposes criminal and civil penalties on individuals or entitiesfor knowingly presenting, or causing to be presented, to the federal government, claims for payment thatare false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay moneyto the federal government and actions under the FCA may be brought by private whistleblowers as well asthe government. In addition, the government may assert that a claim including items and services resultingfrom a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes ofthe FCA; ·the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering ortransfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows orshould know it is likely to influence the beneficiary's selection of a particular provider, practitioner, orsupplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies; ·the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) imposes criminal andcivil liability for executing a scheme to defraud any healthcare benefit program and HIPAA, as amended bythe Health Information Technology for Economic and Clinical Health Act, also establishes requirementsrelated to the privacy, security and transmission of individually identifiable health information whichapply to many healthcare providers, physicians and third-party payors with whom we interact; ·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; 64 Table of Contents·the federal anti-kickback prohibition known as Eliminating Kickbacks in Recovery Act or EKRA, enactedin 2018, which prohibits certain payments related to referrals of patients to certain providers (recoveryhomes, clinical treatment facilities and laboratories) and applies to services reimbursed by private healthplans as well as government health care programs;·the FDCA, which among other things, strictly regulates drug product and medical device marketing,prohibits manufacturers from marketing such products for off-label use and regulates the distribution ofsamples; ·federal laws that require pharmaceutical manufacturers to report certain calculated product prices to thegovernment or provide certain discounts or rebates to government authorities or private entities, often as acondition of reimbursement under governmental healthcare programs; ·federal and state consumer protection and unfair competition laws, which broadly regulate marketplaceactivities and activities that potentially harm consumers;·the so-called federal "sunshine law" or Open Payments that requires manufacturers of drugs, devices,biologics and medical supplies to report to the Department of Health and Human Services informationrelated to payments and other transfers of value to physicians and teaching hospital and, beginning withtransfers of value occurring in 2021, other healthcare practitioners, as well as ownership and investmentinterests held by physicians and their immediate family members; 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 by non-governmental third-party payors, including private insurers, and some state laws regulate interactionsbetween pharmaceutical companies and healthcare providers and require pharmaceutical companies tocomply with the pharmaceutical industry's voluntary compliance guidelines and the relevant complianceguidance promulgated by the federal government in addition to requiring drug manufacturers to reportinformation related to payments to physicians and other healthcare providers or marketing expendituresand pricing information. State laws also govern the privacy and security of health information in somecircumstances, many of which differ from each other in significant ways and often are not preempted byHIPAA, thus complicating compliance efforts.Similar healthcare laws and regulations exist in the European Union and other foreign jurisdictions, includingreporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacyand security of certain protected information. For example, in May 2018, a new privacy regime, the General DataProtection Regulation (GDPR), took effect enhancing our obligations with respect to operations in the EuropeanEconomic Area, or the EEA, and increasing the scrutiny applied to transfers of personal data from the EEA (includinghealth data from our clinical sites in the EEA) to countries that are considered by the European Commission to lack anadequate level of data protection, such as the United States. The compliance obligations imposed by the GDPR haverequired us to revise our operations and increased our cost of doing business. In addition, the GDPR imposessubstantial fines for breaches of data protection requirements, and it confers a private right of action on data subjects forbreaches of data protection requirements.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, including arrangements we may have with physicians and other healthcare providers, or patientassistance programs, may not comply with current or future statutes, regulations or case law involving applicable fraudand abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws orany other governmental regulations that may apply to us, we may be subject to significant civil, criminal andadministrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare andMedicaid, additional reporting obligations and oversight if we become subject to a corporate integrity agreement orother agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of ouroperations. If any of the physicians or other providers or entities with whom we expect to do business is found to be notin compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, includingexclusions from government funded healthcare programs. Further, defending against any such actions can be costly,time-consuming and may require significant personnel resources. Therefore, even if we are successful in defendingagainst any such actions that may be brought against us, our business may be impaired.65 Table of ContentsOur 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 commercialize COPIKTRA,obtain marketing approval of and commercialize our other product candidates and affect the prices we may obtain.In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, anumber of legislative and regulatory changes and proposed changes regarding the healthcare system that could, amongother things, prevent or delay marketing approval of our product candidates, restrict or regulate post approval activitiesand affect our ability to profitably sell COPIKTRA and any other product candidates for which we obtain marketingapproval.The U.S. healthcare industry generally and U.S. government healthcare programs in particular are highlyregulated and subject to frequent and substantial changes. The U.S. government and individual states have beenaggressively pursuing healthcare reform. For example, in March 2010, President Obama signed into law the Health CareReform Act, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcarespending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and healthinsurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Thelaw, for example, increased drug rebates under state Medicaid programs for brand name prescription drugs and extendedthose rebates to Medicaid managed care and assessed a fee on manufacturers and importers of brand name prescriptiondrugs reimbursed under certain government programs, including Medicare and Medicaid.The provisions of the Healthcare Reform Act have been subject to judicial and Congressional challenges, aswell as efforts by the Trump administration to modify certain requirements of the Healthcare Reform Act by executivebranch order. For example, on January 20, 2017, President Trump signed an Executive Order directing federal agencieswith authorities and responsibilities under the Healthcare Reform Act to waive, defer, grant exemptions from, or delaythe implementation of any provision of the Healthcare Reform Act that would impose a fiscal or regulatory burden onstates, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. OnOctober 12, 2017, President Trump signed another Executive Order directing certain federal agencies to proposeregulations or guidelines to provide small businesses with greater opportunities to form association health plans, expandthe availability of short-term, limited duration insurance, and allow employees to make use of certain employer-paidhealth benefits, called health reimbursement arrangements, to pay for health insurance that does not meet all HealthcareReform Act requirements. In addition, citing legal guidance from the U.S. Department of Justice, the U.S. Department ofHealth and Human Services, or HHS, concluded that cost-sharing reduction, or CSR, payments to insurance companiesrequired under the Healthcare Reform Act had not received necessary appropriations from Congress. President Trumpsubsequently discontinued66 Table of Contentsthese payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualifiedhealth plans under the Healthcare Reform Act. Certain administrative actions have been subject to judicialchallenge. In Congress, there have been a number of legislative initiatives to modify, repeal and/or replace portions ofthe Healthcare Reform Act. Tax reform legislation enacted at the end of 2017 eliminated the tax penalty for individualswho do not maintain sufficient health insurance coverage beginning in 2019. The Bipartisan Budget Act of 2018contained various provisions that affect coverage and reimbursement of drugs, including an increase in the discount thatmanufacturers of Medicare Part D brand name drugs must provide to Medicare Part D beneficiaries during the coveragegap from 50% to 70% starting in 2019. Congress may consider other legislation to modify, repeal and/or replace certainelements of the Healthcare Reform Act. In December 2018, a federal district court judge, in a challenge brought by anumber of state attorneys general, found the Healthcare Reform Act unconstitutional in its entirety because, onceCongress repealed the individual mandate provision, there was no longer a basis to rely on Congressional taxingauthority to support enactment of the law. Pending appeals, which could take some time, the Healthcare Reform Act isstill operational in all respects. We continue to evaluate the effect that the Healthcare Reform Act and its possiblerepeal, replacement or modification may have on our business. Such legislation and other healthcare reform measuresthat may be adopted in the future could have a material adverse effect on our industry generally and on our ability tosuccessfully commercialize our products and product candidates.In addition, other broader legislative changes have been adopted that could have an adverse effect upon, andcould prevent, our products’ commercial success. The Budget Control Act of 2011, as amended, or the Budget ControlAct, includes provisions intended to reduce the federal deficit, including reductions in Medicare payments to providersthrough 2027. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidizedhealth programs, or any significant taxes or fees imposed as part of any broader deficit reduction effort or legislativereplacement to the Budget Control Act, or otherwise, could have an adverse impact on our anticipated product revenues.Individual states in the United States have also become increasingly active in passing legislation andimplementing regulations designed to control pharmaceutical product pricing, including price constraints, restrictionson copayment assistance by pharmaceutical manufacturers, marketing cost disclosure and transparency measures, and, insome cases, measures designed to encourage importation from other countries and bulk purchasing.We cannot be sure whether additional legislative changes will be enacted, or whether the regulations, guidanceor interpretations will be changed, or what the impact of such changes on COPIKTRA or the marketing approvals of ourproduct candidates may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process maysignificantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and postmarketing 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, Daniel Paterson, ourChief Operating Officer, Robert Gagnon, our Chief Financial Officer, and Joseph Lobacki, our Chief Commercial Officer,as well as the other principal members of our management and scientific teams. Although we have formal employmentagreements with Robert Forrester, Daniel Paterson, Robert Gagnon and Joseph Lobacki, 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 thecompetition among numerous pharmaceutical and biotechnology companies, universities and research institutions67 Table of Contentsfor similar personnel. Although we have implemented a retention plan for certain key employees, our retention plan maynot be successful in incentivizing these employees to continue their employment with us. In addition, we rely onconsultants and advisors, including scientific and clinical advisors, to assist us in formulating our research anddevelopment and commercialization strategy. Our consultants and advisors, including our scientific co-founders, maybe employed by employers other than us and may have commitments under consulting or advisory contracts with otherentities that may limit their availability to us.We may expand our development, regulatory and sales and marketing capabilities over time, and as a result, we mayencounter difficulties in managing our growth, which could disrupt our operations.We may experience significant growth over time in the number of our employees and the scope of ouroperations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage ouranticipated future growth, we may continue to implement and improve our managerial, operational and financialsystems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limitedfinancial resources and the limited experience of our management team in managing a company with such anticipatedgrowth, we may not be able to effectively manage the expansion of our operations or recruit and train additionalqualified personnel when we expand. The physical expansion of our operations may lead to significant costs and maydivert our management and business development resources. Any inability to manage growth could delay the executionof our business plans or disrupt our operations.Our business and operations may be materially adversely affected in the event of computer system breaches or 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 key businessprocesses and clinical development programs. For example, the loss of clinical trial data from ongoing or plannedclinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover orreproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data orapplications, or inappropriate disclosure of confidential or proprietary information, we could be exposed to liability,which could have a material adverse effect on our operating results and financial condition and possibly delay thefurther development and commercialization of COPIKTRA and our other product candidates.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 current management bymaking it more difficult for stockholders to replace members of our board of directors. Among other things, theseprovisions:·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; 68 Table of Contents·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 affected 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 forone share of our common stock has reached a high of $18.82 and a low of $1.05 through December 31, 2018. We cannotpredict whether the price of our common stock will rise or fall. The market price for our common stock may beinfluenced by many factors, including:·the success of competitive products or technologies; ·results of clinical trials of our product candidates or those of our competitors; the success ofcommercializing COPIKTRA; ·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; ·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. 69 Table of ContentsBecause 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 to finance the growth and development of our business. In addition, the terms of any current or futuredebt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stockwill be the sole source of gain for our stockholders for the foreseeable future.We have limited experience in marketing and commercializing product candidates. If we are unable to successfullymaintain and further develop internal commercialization capabilities, establish sales and marketing capabilities orenter into agreements with third parties to sell and market our product candidates, sales of COPIKTRA may benegatively impacted and we may not be successful in commercializing our other product candidates if and when theyare approved. We have limited experience in the sale, marketing or distribution of pharmaceutical products. To achievecommercial success for any approved product, we must either develop a sales and marketing organization or outsourcethese functions to third parties. We have hired a commercial team and implemented the organizational infrastructure we believe we needfor a successful commercial launch of COPIKTRA. We will need to commit significant time and financial andmanagerial resources to maintain and further develop our marketing and sales force to ensure they have the technicalexpertise required to address any challenges we may face with the commercialization of COPIKTRA. Factors that mayinhibit our efforts to maintain and develop our commercialization capabilities include:·an inability to retain an adequate number of effective commercial personnel; ·an inability to train sales personnel, who may have limited experience with our company or COPIKTRA, todeliver a consistent message regarding COPIKTRA and be effective in persuading physicians to prescribeCOPIKTRA; ·an inability of sales personnel to obtain access to physicians or persuade adequate numbers of physiciansto prescribe COPIKTRA or any other product candidates; ·an inability of third-parties to manufacture COPIKTRA consistently in commercial quantities, atacceptable costs and on expected timelines; ·a 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; ·an inability to equip sales personnel with effective materials, including medical and sales literature to helpthem educate physicians and other healthcare providers regarding COPIKTRA; and ·unforeseen costs and expenses associated with maintaining and further developing an independent salesand marketing organization.If we are not successful in establishing and maintaining an effective sales and marketing infrastructure, we willhave difficulty commercializing COPIKTRA, which would adversely affect our business and financial condition.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. 70 Table of ContentsRisks Related to the NotesServicing our debt, including the Notes, requires a significant amount of cash, and we may not have sufficientcash flow from our business to pay our substantial debt.Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness,including the Notes, depends on the timing of regulatory reviews and approvals and our future performance, which issubject to regulatory, economic, financial, competitive and other factors beyond our control. We are a clinical stagebiopharmaceutical company and we have not yet generated any profit from product sales. We expect to continue toincur losses as we continue our clinical development of, and seek regulatory approvals for, our product candidates,prepare to commercialize any approved products and add infrastructure and personnel to support our productdevelopment efforts and operations. Accordingly, our business may not generate cash flow from operations in the futuresufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, wemay be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additionalequity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend onthe capital markets and our financial condition at such time. We may not be able to engage in any of these activities orengage in these activities on desirable terms, which could result in a default on our debt obligations. The Notes are effectively subordinated to our secured indebtedness and structurally subordinated to anyliabilities of our subsidiaries.The Notes are our senior, unsecured obligations and are senior in right of payment to our future indebtednessthat is expressly subordinated in right of payment to the Notes; equal in right of payment with our existing and futureindebtedness that is not so subordinated, and effectively subordinated to our existing and future secured indebtedness,to the extent of the value of the collateral securing such indebtedness. The Notes are structurally subordinated to allexisting and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holderthereof) preferred equity, if any, of our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or otherwinding up, our assets that secure debt will be available to pay obligations on the Notes only after the secured debt hasbeen repaid in full from these assets, and the assets of our subsidiaries will be available to pay obligations on the Notesonly after all claims of such subsidiaries’ creditors, including trade creditors and preferred equity holders have beenrepaid in full. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes thenoutstanding. The indenture and supplemental indenture governing the Notes do not prohibit us from incurringadditional senior debt or secured debt, nor do they prohibit any of our subsidiaries from incurring additional liabilities. Despite our current debt levels, we may still incur substantially more debt or take other actions which would intensifythe risks discussed above.Despite our current consolidated debt levels, we and our subsidiaries may be able to incur substantialadditional debt in the future, subject to the restrictions contained in our debt agreements, some of which may be secureddebt. We are not restricted under the terms of the indenture or the supplemental indenture governing the Notes fromincurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actionsthat are not limited by the terms of the indenture or the supplemental indenture governing the Notes that could have theeffect of diminishing our ability to make payments on the Notes when due. While the Amended Loan Agreement, asamended by the Third Amendment, restricts our ability and the ability of our subsidiaries to issue or incur additionalindebtedness, including secured indebtedness, if our loans under the Amended Loan Agreement, as amended by theThird Amendment, mature or are repaid, we may not be subject to such restrictions under the terms of any subsequentindebtedness. 71 Table of ContentsWe may not have the ability to raise the funds necessary to repurchase the Notes upon a fundamental change, andour existing or future debt may contain limitations on our ability to repurchase the Notes.Holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamentalchange at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to berepurchased, plus accrued and unpaid interest, if any. However, we may not have enough available cash or be able toobtain financing at the time we are required to make repurchases of Notes surrendered therefor. In addition, our ability torepurchase the Notes may be limited by law, by regulatory authority or by agreements governing our indebtedness thatexist at the time of the repurchase. The Amended Loan Agreement, as amended by the Third Amendment, currentlylimits our ability to repurchase the Notes. Our failure to repurchase Notes at a time when the repurchase is required bythe indenture and supplemental indenture governing the Notes would constitute a default under the indenture andsupplemental indenture. A default under the indenture or the supplemental indenture or the fundamental change itselfcould also lead to a default under the Amended Loan Agreement, as amended by the Third Amendment, and/oragreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated afterany applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase theNotes.In addition, our borrowings under the Amended Loan Agreement, as amended by the Third Amendment, are,and are expected to continue to be, at variable rates of interest and expose us to interest rate risk. If interest ratesincrease, our debt service obligations on the variable rate indebtedness would increase even though the amountborrowed remained the same, and our net income would decrease.The Amended Loan Agreement, as amended by the Third Amendment, limits our ability to pay any cash amount uponrepurchase of the Notes.The Amended Loan Agreement, as amended by the Third Amendment, prohibits us from making any cashpayments to repurchase the Notes upon a fundamental change. Any new credit facility that we may enter into may havesimilar restrictions.Our failure to repurchase the Notes as required under the terms of the Notes would constitute a default under theindenture and the supplemental indenture governing the Notes and would permit holders of the Notes to accelerate ourobligations under the Notes. A default under the indenture or the supplemental indenture or the fundamental changeitself could also lead to a default under the Amended Loan Agreement, as amended by the Third Amendment, oragreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated afterany applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase theNotes.Future sales of our common stock or equity-linked securities in the public market could lower the marketprice for our common stock.In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. Inaddition, a substantial number of shares of our common stock are reserved for issuance upon the exercise of stockoptions and upon conversion of the Notes. We cannot predict the size of future issuances or the effect, if any, that theymay have on the market price for our common stock. The issuance and sale of substantial amounts of common stock orequity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the marketprice of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linkedsecurities. Item 1B. Unresolved Staff CommentsNone.72 Table of Contents Item 2. PropertiesWe occupy approximately 27,810 square feet of office space in Needham, Massachusetts under a lease thatexpires in May 2025. We believe that our facility is sufficient to meet our current needs and that suitable additionalspace will be available as and when needed. Item 3. Legal ProceedingsFrom time to time, we are subject to various legal proceedings and claims that arise in the ordinary course ofour business activities. We do not believe we are currently party to any pending legal action, the outcome of which, ifdetermined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverseeffect on our business or operating results. Item 4. Mine Safety DisclosuresNot applicable. PART 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.”HOLDERSAs of February 28, 2019, there were 15 holders of record of our common stock and the closing price of ourcommon stock on The Nasdaq Global Market as of that date was $3.01. 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.PERFORMANCE 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 of 1933, as amended, 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 to theNasdaq Biotechnology Index from December 31, 2013 through December 31, 2018. The comparison assumes $100 wasinvested after the market closed on December 31, 2013 in our common stock and in each of the foregoing indices, and itassumes reinvestment of dividends, if any.73 Table of ContentsCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Verastem, Inc., the Nasdaq Composite Index, and the Nasdaq Biotechnology Index*$100 invested on 12/31/13 in stock or index, including reinvestment of dividends. Fiscal year ending December 31,2018.Cumulative Total Return Comparison December 31, 2013 2014 2015 2016 2017 2018 Verastem, Inc. 100.00 80.18 16.32 9.82 26.93 29.47 NASDAQ Composite 100.00 114.62 122.81 133.19 172.11 165.84 NASDAQ Biotechnology 100.00 131.71 140.56 112.25 133.67 121.24 PURCHASE OF EQUITY SECURITIESWe did not purchase any of our equity securities during the period covered by this Annual Report onForm 10‑K.74 Table of Contents Item 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: 2018 2017 2016 2015 2014 (in thousands, except share and per share amounts) Revenue: Product revenue, net $1,718 — — — — License revenue 25,000 — — — — Total revenue 26,718 — — — — Operating expenses: Costs of revenues, excluding amortization of acquiredintangible assets $165 $ — $ — $ — $ — Research and development 43,648 46,423 19,779 40,565 35,448 Selling, general and administrative 77,265 21,381 17,223 17,634 18,159 Amortization of acquired intangible assets 423 — — — — Total operating expenses 121,501 67,804 37,002 58,199 53,607 Loss from operations (94,783) (67,804) (37,002) (58,199) (53,607) Other income 25,556 — — — — Interest income 2,603 561 562 334 242 Interest expense (5,810) (559) — — — Net loss applicable to common stockholders $(72,434) $(67,802) $(36,440) $(57,865) $(53,365) Net loss per share applicable to common stockholders—basic $(1.12) $(1.76) $(0.99) $(1.61) $(2.07) Net loss per share applicable to common stockholders—diluted $(1.37) $(1.76) $(0.99) $(1.61) $(2.07) Weighted average common shares outstanding used incomputing: Net loss per share applicable to common stockholders—basic 64,962 38,422 36,988 35,932 25,804 Net loss per share applicable to common stockholders—diluted 69,321 38,422 36,988 35,932 25,804 As of December 31, Balance sheet data: 2018 2017 2016 2015 2014 (in thousands) Cash, cash equivalents and investments $249,653 $86,672 $80,897 $110,258 $92,675 Working capital 216,182 70,659 70,304 100,734 86,112 Total assets 277,236 89,791 83,629 113,094 98,649 Accumulated deficit (375,576) (303,142) (235,323) (198,883) (141,018) Total stockholders’ equity 124,299 57,684 72,297 102,469 88,766 75 Table of Contents Item 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 the heading “Forward‑Looking Statements.”OVERVIEWWe are a biopharmaceutical company focused on developing and commercializing medicines to improve thesurvival and quality of life of cancer patients. Both our marketed product, COPIKTRA™ (duvelisib) capsules, and mostadvanced product candidate, defactinib, utilize a multi-faceted approach to treat cancers originating either in the bloodor major organ systems. We are currently developing our product candidates in both preclinical and clinical studies aspotential therapies for certain cancers, including leukemia, lymphoma, lung cancer, ovarian cancer, mesothelioma, andpancreatic cancer.Our operations to date have been organizing and staffing our company, business planning, raising capital,identifying and acquiring potential product candidates, undertaking preclinical studies and clinical trials for ourproduct candidates and scaling up U.S. commercial operations in anticipation for our first approved drug candidate. Wehave financed our operations to date primarily through public offerings of our common stock, sales of common stockunder our at-the-market equity offering programs, our loan and security agreement executed with Hercules Capital, Inc.(Hercules) in March 2017, as amended, the upfront payments under our license and collaboration agreements withYakult and CSPC, and the issuance in October 2018 of $150.0 million aggregate principal amount of Notes. With ourU.S. commercial launch of COPIKTRA on September 24, 2018, we have recently begun financing a portion of ouroperations through product revenue. As of December 31, 2018, we had an accumulated deficit of $375.6 million. Our net loss was $72.4 million,$67.8 million and $36.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. We expect toincur significant expenses and increasing operating losses for the foreseeable future as a result of our commercializationof COPIKTRA and the continued research and development of all of our product candidates. We will need to generatesignificant revenues to achieve profitability, and we may never do so. As of December 31, 2018, we had cash, cashequivalents and short-term investments of $249.7 million. We expect, prior to the consideration of any revenue fromfuture potential sales of COPIKTRA, that our cash, cash equivalents and short-term investments will be sufficient to fundour U.S. commercial scale-up, development plans and other operational activities for at least twelve months from thedate of issuance of our consolidated financial statements.We expect to finance the future development costs of our clinical product portfolio with our existing cash, cashequivalents and short-term investments, or through strategic financing opportunities that could include, but are notlimited to collaboration agreements, future offerings of our equity, or the incurrence of debt. However, there is noguarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, andsome could be dilutive to existing stockholders. If we fail to obtain additional future capital, we may be unable tocomplete our planned preclinical studies and clinical trials and obtain approval of certain investigational productcandidates from the FDA or foreign regulatory authorities.FINANCIAL OPERATIONS OVERVIEWRevenueProduct revenue, net represents the gross sales of COPIKTRA in the United States less provisions for productsales allowances and accruals. These provisions include trade allowances, rebates, chargebacks and discounts, productreturns and other incentives. We sell COPIKTRA to a limited number of specialty pharmacies and specialty distributors.Although we expect net product revenues to increase over time, the provisions for product sales and allowances mayfluctuate based on the mix of sales to either specialty pharmacy or specialty76 Table of Contentsdistributor customers. See “Critical Accounting Policies and Significant Judgements and Estimates” below for moreinformation on the components of net U.S. product sales of COPIKTRA.License revenue to date has been generated through our license and collaboration agreements for thedevelopment and commercialization of duvelisib with CSPC in China and Yakult in Japan. The terms of theseagreements contain multiple deliverables which may include (i) licenses, (ii) research and development activities, and(iii) the manufacture of finished drug product, active pharmaceutical ingredient (API), or development materials for apartner, which are reimbursed at a contractually determined rate. Payments to us may include (i) up‑front license fees,(ii) payments for research and development activities, (iii) payments for the manufacture of finished drug product, API ordevelopment materials, (iv) payments based upon the achievement of certain milestones, and (v) royalties on productsales. Duvelisib has not received regulatory approval for commercial sale in either China or Japan.Costs of revenues, excluding amortization of acquired intangiblesCosts of revenues, excluding amortization of acquired intangibles consists of the costs of COPIKTRA on whichproduct revenue was recognized and royalties we incur as a result of sales of COPIKTRA. Our costs of revenue initiallyconsists of capsule production, packaging, and product shipment. During the third quarter of 2018, we begancapitalizing inventory costs of COPIKTRA based on our evaluation of the ability of our third-party suppliers tosuccessfully manufacture commercial quantities of COPIKTRA and the likelihood of approval of the New DrugApplication (NDA) in the United States. Any production costs for COPIKTRA prior to this time, which included thecosts to manufacture drug product, in addition to the costs noted above, were included in research and developmentcosts. To date, any API and raw starting materials used in the manufacturing of COPIKTRA was inherited pursuant tothe license agreement executed with Infinity and, as such, the Company has not recorded any inventory or expensesrelated to API or raw starting materials. We expect costs of revenue to increase as net product revenues increase and as aresult of increased capitalized costs, which will include the cost of API and drug substance, associated with theproduction of COPIKTRA in future periods.Research and development expensesResearch and development expenses consist of costs associated with our research activities, including thedevelopment 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;·facilities, depreciation and other allocated expenses, which include direct and allocated expenses forrent and maintenance of facilities, depreciation of leasehold improvements and equipment, andlaboratory and other supplies; and·costs associated with COPIKTRA prior to us concluding that regulatory approval is probable and thatits net realizable value is recoverable. 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.77 Table of ContentsOn September 24, 2018, COPIKTRA was approved by the FDA and is now indicated for the treatment of adultpatients with relapsed or refractory CLL/SLL after at least two prior therapies and relapsed or refractory FL after at leasttwo prior systemic therapies. Due to long-lead time requirements for manufacturing our product, manufacturingconstraints and the desire to have COPIKTRA commercially available as soon as possible following regulatoryapproval, we contracted with our third-party supplier to manufacture commercial quantities of COPIKTRA drugsubstance prior to final approval by regulators.To date, any API and raw starting materials used in the manufacturing of COPIKTRA was inherited pursuant tothe license agreement executed with Infinity and, as such, we have not recorded any inventory or expenses related toAPI or raw starting materials. We expensed all pre-validation and validation manufacturing costs of drug product asresearch and development expenses in the periods prior to July 1, 2018. Total costs of manufacturing COPIKTRA drugproduct expensed as research and development through June 30, 2018 was approximately $1.8 million. Beginning July1, 2018, we began capitalizing COPIKTRA related drug product costs for validation and post-validation (i.e.commercial) lots as regulatory approval became probable. For the periods beginning on July 1, 2018 and beyond, wehave capitalized any COPIKTRA drug product costs incurred for commercial use as inventory.We allocate the expenses related to external research and development services, such as CROs, clinical sites,manufacturing organizations and consultants by project. The table below summarizes our external allocation of researchand development expenses to our clinical programs, including COPIKTRA and defactinib, for the years ended December31, 2018, 2017 and 2016. We use our employee and infrastructure resources across multiple research and developmentprojects. Our project costing methodology does not allocate personnel and other indirect costs to specific clinicalprograms. These unallocated research and development expenses are summarized in the table below and include $9.2million, $5.8 million and $3.9 million of personnel costs for the years ended December 31, 2018, 2017 and 2016,respectively. Year ended December 31, 2018 2017 2016 (in thousands) (in thousands) (in thousands) COPIKTRA $24,771 $30,409 $3,326 Defactinib 2,230 2,894 3,934 Unallocated and other research and development expense 14,604 11,739 11,445 Unallocated stock-based compensation expense 2,043 1,381 1,074 Total research and development expense $43,648 $46,423 $19,779 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, includingpreclinical research and clinical trials;·the potential benefits of our product candidates over other therapies;·our ability to market, commercialize and achieve market acceptance for COPIKTRA or any of our otherproduct candidates that we receive regulatory approval for;·the terms and timing of regulatory approvals; and·the expense of filing, prosecuting, defending and enforcing patent claims and other intellectualproperty rights.78 Table of ContentsA 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.Selling, general and administrative expensesSelling, general and administrative expenses consist primarily of salaries and related costs for personnel,including stock‑based compensation expense, in our executive, finance, commercial and business developmentfunctions. Other selling, general and administrative expenses include allocated facility costs, commercial supply costsnot capitalized as inventory, professional fees for legal, patent, investor and public relations, consulting, insurancepremiums, audit, tax and other public company costs.Other, interest income and interest expenseOther income consists entirely of the mark-to-market adjustment of the bifurcated conversion option derivativeliability related to the Notes.Interest income reflects interest earned on our cash, cash equivalents and available-for-sale securities.Interest expense reflects interest expense due under both our term loan facility executed with Hercules and theNotes, as well as non-cash interest related to the amortization of debt discount and issuance costs. CRITICAL 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 (GAAP). The preparation of these consolidated financial statements requires us to make estimates andjudgments that affect the reported amounts of certain assets, liabilities, revenues and expenses and the disclosure ofcontingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates andjudgments, including those related to accrued expenses, stock‑based compensation, revenue recognition, collaborativeagreements, accounts receivable, inventory and intangible assets described in greater detail below. We base ourestimates on our limited historical experience, known trends and events and various other factors that we believe arereasonable under the circumstances, the results of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimatesunder different assumptions 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.79 Table of ContentsRevenue Recognition Effective January 1, 2018, we adopted Accounting Standards Codification (ASC) 606 Revenue from Contractswith Customers. This standard applies to all contracts with customers, except for contracts that are within the scope ofother standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, anentity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects theconsideration which the entity expects to receive in exchange for those goods or services. To determine revenuerecognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs thefollowing five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step modelto contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods orservices we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC606, we assess the goods or services promised within each contract and determine which goods or services areperformance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue theamount of the transaction price that is allocated to the respective performance obligation when (or as) the performanceobligation is satisfied.Product Revenue, Net – We sell COPIKTRA to a limited number of specialty pharmacies and specialtydistributors in the United States. These customers subsequently resell COPIKTRA either directly to patients, or tocommunity hospitals or oncology clinics with in-office dispensaries who in turn distribute COPIKTRA to patients. Inaddition to distribution agreements with customers, we also enter into arrangements with (1) certain governmentagencies and various private organizations (Third-Party Payers), which may provide for chargebacks or discounts withrespect to the purchase of COPIKTRA, and (2) Medicare and Medicaid, which may provide for certain rebates withrespect to the purchase of COPIKTRA.We recognize revenue on sales of COPIKTRA when a customer obtains control of the product, which occurs ata point in time (typically upon delivery). Product revenues are recorded at the wholesale acquisition costs, net ofapplicable reserves for variable consideration. Components of variable consideration include trade discounts andallowances, Third-Party Payer chargebacks and discounts, government rebates, other incentives, such as voluntary co-pay assistance, product returns, and other allowances that are offered within contracts between us and customers, payors,and other indirect customers relating to our sale of COPIKTRA. These reserves, as detailed below, are based on theamounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable or a currentliability. These estimates take into consideration a range of possible outcomes based upon relevant factors such as,customer contract terms, information received from third-parties regarding the anticipated payor mix for COPIKTRA,known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, thesereserves reflect our best estimates of the amount of consideration to which we are entitled with respect to sale made.The amount of variable consideration which is included in the transaction price may be constrained and isincluded in the net sales price only to the extent that it is probable that a significant reversal in the amount of thecumulative revenue recognized under contracts will not occur in a future period. Our analyses contemplate theapplication of the constraint in accordance with ASC 606. For the year ended December 31, 2018, we determined amaterial reversal of revenue would not occur in a future period for the estimates detailed below and, therefore, thetransaction price was not reduced further. Actual amounts of consideration ultimately received may differ from ourestimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect netproduct revenue and earnings in the period such variances become known.Trade Discounts and Allowances: We generally provide customers with invoice discounts on sales ofCOPIKTRA for prompt payment, which are explicitly stated in our contracts and are recorded as a reduction of revenuein the period the related product revenue is recognized. In addition, we compensate our specialty distributor customersfor sales order management, data, and distribution services. We have determined such services are not distinct from oursale of COPIKTRA to the specialty distributor customers and, therefore, these payments have also been recorded as areduction of revenue within the consolidated statements of operations and comprehensive loss through December 31,2018.80 Table of ContentsThird-Party Payer Chargebacks, Discounts and Fees: We execute contracts with Third-Party Payers which allowfor eligible purchases of COPIKTRA at prices lower than the wholesale acquisition cost charged to customers whodirectly purchase the product from us. In some cases, customers charge us for the difference between what they pay forCOPIKTRA and the ultimate selling price to the Third-Party Payers. These reserves are established in the same periodthat the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable, net.Chargeback amounts are generally determined at the time of resale to the qualified Third-Party Payer by customers, andwe generally issue credits for such amounts within a few weeks of the customer’s notification to us of the resale.Reserves for chargebacks consist of credits that we expect to issue for units that remain in the distribution channelinventories at the end of each reporting period that we expect will be sold to Third-Party Payers, and chargebacks thatcustomers have claimed, but for which we have not yet issued a credit. In addition, we compensate certain Third-PartyPayers for administrative services, such as account management and data reporting. These administrative service feeshave also been recorded as a reduction of product revenue within the consolidated statements of operations andcomprehensive loss through December 31, 2018.Government Rebates: We are subject to discount obligations under state Medicaid programs and Medicare.These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of productrevenue and the establishment of a current liability which is included in accrued expenses on the consolidated balancesheets. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we willowe an additional liability under the Medicare Part D program. Our liability for these rebates consists of invoicesreceived for claims from prior quarters that have not been paid or for which an invoice has not yet been received,estimates of claims for the current quarter, and estimated future claims that will be made for product that has beenrecognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period.Other Incentives: Other incentives which we offer include voluntary co-pay assistance programs, which areintended to provide financial assistance to qualified commercially-insured patients with prescription drug co-paymentsrequired by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost perclaim that we expect to receive for product that has been recognized as revenue, but remains in the distribution channelinventories at the end of each reporting period. The adjustments are recorded in the same period the related revenue isrecognized, resulting in a reduction of product revenue and the establishment of a current liability which is included asa component of accrued expenses on the consolidated balance sheets.Product Returns: Consistent with industry practice, we generally offer customers a limited right of return forproduct that has been purchased from us. We estimate the amount of our product sales that may be returned by ourcustomers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. Weestimate product return liabilities using available industry data and our own sales information, including our visibilityinto the inventory remaining in the distribution channel.Our limited return policy allows for eligible returns of COPIKTRA for credit under the following circumstances:·Receipt of damaged product;·Shipment errors that were a result of an error by us;·Expired product that is returned during the period beginning three months prior to the product’sexpiration and ending six months after the expiration date;·Product subject to a recall; and·Product that we, at our sole discretion, have specified can be returned for credit. We have not received any returns to date and believe that returns of our product will be minimal.If taxes should be collected from customers relating to product sales and remitted to governmental authorities,they will be excluded from product revenue. We expense incremental costs of obtaining a contract when incurred, if theexpected amortization period of the asset that we would have recognized is one year or less. However, no such costswere incurred during the year ended December 31, 2018.81 Table of ContentsExclusive Licenses of Intellectual Property - We may enter into collaboration and licensing arrangements forresearch and development, manufacturing, and commercialization activities with collaboration partners for thedevelopment and commercialization of our product candidates, which have components within the scope of ASC 606.The arrangements generally contain multiple elements or deliverables, which may include (i) licenses, or options toobtain licenses, to our intellectual property, (ii) research and development activities performed for the collaborationpartner, (iii) participation on joint steering committees, and (iv) the manufacturing of commercial, clinical or preclinicalmaterial. Payments pursuant to these arrangements typically include non-refundable, upfront payments, milestonepayments upon the achievement of significant development events, research and development reimbursements, salesmilestones, and royalties on future product sales. The amount of variable consideration is constrained until it is probablethat the revenue is not at a significant risk of reversal in a future period. The contracts into which we enter generally donot include significant financing components. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each ofour collaboration and license agreements, we perform the following steps: (i) identification of the promised goods orservices in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or services areperformance obligations including whether they are distinct in the context of the contract; (iii) measurement of thetransaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to theperformance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part ofthe accounting for these arrangements, we must use significant judgment to determine: a) the number of performanceobligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price instep (iv) above; and d) the measure of progress in step (v) above. We use judgment to determine whether milestones orother variable consideration, except for royalties, should be included in the transaction price as described further below. If a license to our intellectual property is determined to be distinct from the other promises or performanceobligations identified in the arrangement, we recognize revenue from non-refundable, upfront fees allocated to thelicense when the license is transferred to the customer and the customer is able to use and benefit from the license. Inassessing whether a promise or performance obligation is distinct from the other elements, we consider factors such asthe research, development, manufacturing and commercialization capabilities of the collaboration partner and theavailability of its associated expertise in the general marketplace. In addition, we consider whether the collaborationpartner can benefit from a promise for its intended purpose without the receipt of the remaining elements, whether thevalue of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide theremaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combinedwith other promises, we utilize judgment to assess the nature of the combined performance obligation to determinewhether the combined performance obligation is satisfied over time or at a point in time and, if over time, theappropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress asof each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Themeasure of progress, and thereby periods over which revenue should be recognized, is subject to estimates bymanagement and may change over the course of the arrangement. Such a change could have a material impact on theamount of revenue we record in future periods. Customer Options: If an arrangement is determined to contain customer options that allow the customer toacquire additional goods or services such as research and development services or manufacturing services, the goodsand services underlying the customer options are not considered to be performance obligations at the inception of thearrangement; rather, such goods and services are contingent on exercise of the option, and the associated option fees arenot included in the transaction price. We evaluate customer options for material rights or options to acquire additionalgoods or services for free or at a discount. If a customer option is determined to represent a material right, the materialright is recognized as a separate performance obligation at the outset of the arrangement. We allocate the transactionprice to material rights based on the relative standalone selling price, which is determined based on the identifieddiscount and the estimated probability that the customer will exercise the option. Amounts allocated to a material rightare not recognized as revenue until, at the earliest, the option is exercised. Milestone Payments: At the inception of each arrangement that includes milestone payments, we evaluatewhether the milestones are considered probable of being achieved and estimate the amount to be included in thetransaction price using the most likely amount method. If it is probable that a significant revenue reversal would not82 Table of Contentsoccur, the associated milestone value is included in the transaction price. Milestone payments that are not within thecontrol of us or the licensee, such as regulatory approvals, are not considered probable of being achieved until thoseapprovals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks thatmust be overcome to achieve the respective milestone in making this assessment. There is considerable judgmentinvolved in determining whether it is probable that a significant revenue reversal would not occur. At the end of eachsubsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, ifnecessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Royalties: For arrangements that include sales-based royalties, including milestone payments based on a levelof sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at thelater of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty hasbeen allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resultingfrom any of our licensing arrangements. Collaborative Arrangements: Contracts are considered to be collaborative arrangements when they satisfy thefollowing criteria defined in ASC 808, Collaborative Arrangements: (i) the parties to the contract must activelyparticipate in the joint operating activity and (ii) the joint operating activity must expose the parties to the possibility ofsignificant risks and rewards, based on whether or not the activity is successful. Payments received from or made to apartner that are the result of a collaborative relationship with a partner, instead of a customer relationship, such as co-development activities, are recorded as a reduction or increase to research and development expense, respectively.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 contracts, identifying services that have been performed on ourbehalf and estimating the level of service performed and the associated cost incurred when we have not yet beeninvoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears forservices performed or when contractual milestones are met. We make estimates of our accrued expenses as of eachbalance 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.83 Table of ContentsStock‑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‑based compensation could be materially different inthe future. The risk‑free interest rate used for each grant is based on a U.S. Treasury instrument whose term is consistentwith the expected term of the stock option. Because we do not have a sufficient history to estimate the expected term, weuse the simplified method as described in Securities and Exchange Commission Staff Accounting Bulletin Topic 14.D.2for estimating the expected term. The simplified method is based on the average of the vesting tranches and thecontractual life of each grant. Because there was no public market for our common stock prior to our initial publicoffering, we lacked company‑specific historical and implied volatility information prior to December 31, 2017.Therefore, for annual periods ending on or before December 31, 2017, we used the historical volatility of arepresentative group of public biotechnology and life sciences companies with similar characteristics to us. Thecomputation of expected volatility for these annual periods is based on the historical volatility of five companies,including our own and a representative group of four public biotechnology and life sciences companies with similarcharacteristics to us, including similar stage of product development and therapeutic focus. As of the first quarter of2018, there was sufficient company-specific historical and implied volatility information. As such, for the annual periodending December 31, 2018, the computation of expected volatility is based only on the historical volatility of ourcommon stock. 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. Historically, we have recognized stock-basedcompensation net of estimated forfeitures over the vesting period of the respective grant. Effective January 1, 2017, weadopted Accounting Standard Updated (ASU) 2016-09, Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which simplified the accounting for stock-basedcompensation arrangements, including the accounting for forfeitures. Upon adoption, we elected to begin accountingfor forfeitures as they occur, rather than estimating a forfeiture rate, and recorded an immaterial cumulative-effectadjustment to opening accumulated deficit. We have also granted performance‑based restricted stock units (RSUs) and stock options with terms that allowthe recipients to vest in a specific number of shares based upon the achievement of performance‑based milestones asspecified in the grants. Share‑based compensation expense associated with these performance‑based RSUs and stockoptions is recognized if the performance condition is considered probable of achievement using management’s bestestimates of the time to vesting for the achievement of the performance‑based milestones. If the actual achievement ofthe performance‑based milestones varies from our estimates, share‑based compensation expense could be materiallydifferent than what is recorded in the period. The cumulative effect on current and prior periods of a change in theestimated time to vesting for performance‑based RSUs and stock options will be recognized as compensation cost in theperiod of the revision, and recorded as a change in 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, 2018, there was approximately $17.5 million of unrecognized stock‑based compensationrelated to stock options, which are expected to be recognized over a weighted‑average period of 3.7 years. As ofDecember 31, 2018, there was approximately $1.2 million of unrecognized stock-based compensation related to RSUs,which are expected to be recognized over a weighted-average period of 1.87 years. See Notes 2 and84 Table of Contents10 to our consolidated financial statements located in this Annual Report on Form 10‑K for further discussion ofshare‑based compensation.Accounts Receivable, NetAccounts receivable, net relates to amounts due from customers, net of applicable revenue reserves. Accountsreceivable are typically due within 31 days. We analyze accounts that are past due for collectability and provide anallowance for receivables when collection becomes doubtful. Given the nature and limited history of collectability ofour accounts receivable, an allowance for doubtful accounts is not deemed necessary at December 31, 2018.Inventory We capitalize inventories manufactured in preparation for initiating sales of a product candidate when therelated product candidate is considered to have a high likelihood of regulatory approval and the related costs areexpected to be recoverable through sales of the inventories. In determining whether or not to capitalize such inventories,we evaluate, among other factors, information regarding the product candidate’s safety and efficacy, the status ofregulatory submissions and communications with regulatory authorities and the outlook for commercial sales, includingthe existence of current or anticipated competitive drugs and the availability of reimbursement. In addition, we evaluaterisks associated with manufacturing the product candidate, including the ability of our third-party suppliers to completethe validation batches, and the remaining shelf life of the inventories. Costs associated with manufacturing productcandidates prior to satisfying the inventory capitalization criteria are charged to research and development expense asincurred. We value our inventories at the lower of cost or estimated net realizable value. We determine the cost of ourinventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. Weperform an assessment of the recoverability of capitalized inventory during each reporting period, and we write downany excess and obsolete inventories to their estimated realizable value in the period in which the impairment is firstidentified. Such impairment charges, should they occur, are recorded within costs of revenues. The determination ofwhether inventory costs will be realizable requires estimates by management. If actual market conditions are lessfavorable than projected by management, additional write-downs of inventory may be required which would berecorded as a cost of revenues in the consolidated statements of operations and comprehensive loss. Shipping and handling costs for product shipments are recorded as incurred in costs of revenues along withcosts associated with manufacturing the product, and any inventory write-downs. Intangible Assets We record finite-lived intangible assets related to certain capitalized milestone payments at their fair value.These assets are amortized on a straight-line basis over their remaining useful lives, which are estimated based on theshorter of the remaining underlying patent life or the estimated useful life of the underlying product. We assess our finite-lived intangible assets for impairment if indicators are present or changes in circumstancesuggest that impairment may exist. Events that could result in an impairment include the receipt of additional clinical ornonclinical data regarding one of our drug candidates or a potentially competitive drug candidate, changes in theclinical development program for a drug candidate, or new information regarding potential sales for the drug. Ifimpairment indicators are present or changes in circumstance suggest that impairment may exist, we perform arecoverability test by comparing the sum of the estimated undiscounted cash flows of each finite-lived intangible assetto its carrying value on the consolidated balance sheets. If the undiscounted cash flows used in the recoverability testare less than the carrying value, we would determine the fair value of the finite-lived intangible asset and recognize animpairment loss if the carrying value of the finite-lived intangible asset exceeds its fair value.85 Table of ContentsRESULTS OF OPERATIONSAll financial information presented has been consolidated and includes the accounts of our wholly-ownedsubsidiary, Verastem Securities Company. All intercompany balances and transactions have been eliminated inconsolidation. Year Ended December 31, 2018 2017 2016Revenue: Product revenue, net 1,718 — —License revenue 25,000 — —Total revenue 26,718 — —Operating expenses: Costs of revenues, excluding amortization of acquired intangible assets $165 $ — $ —Research and development 43,648 46,423 19,779Selling, general and administrative 77,265 21,381 17,223Amortization of acquired intangible assets 423 — —Total operating expenses 121,501 67,804 37,002Loss from operations (94,783) (67,804) (37,002)Other income 25,556 — —Interest income 2,603 561 562Interest expense (5,810) (559) —Net loss $(72,434) $(67,802) $(36,440) Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017Product revenue, net. We began commercial sales of COPIKTRA within the United States in September 2018,following receipt of FDA marketing approval on September 24, 2018. For the year ended December 31, 2018 (2018Period) we recorded approximately $1.7 million of net product revenue. We had no product revenue during the yearended December 31, 2017 (2017 Period).License revenue. Revenue for the 2018 Period was $25.0 million and was related to upfront payments pursuantto the license and collaboration agreements with Yakult and CSPC. We had no license revenue during the 2017 Period. Costs of revenues, excluding amortization of acquired intangible assets. Costs of revenues, excludingamortization of acquired intangible assets (cost of revenues) of approximately $0.2 million for the 2018 Period,consisted of costs associated with the manufacturing of COPIKTRA, royalties owed to Infinity on such sales, and certainperiod costs. We expensed the manufacturing costs of COPIKTRA as research and development expenses in the periodsprior to July 1, 2018. In the third quarter of 2018, we began capitalizing inventory costs for COPIKTRA manufactured inpreparation for our launch in the United States based on our evaluation of, among other factors, the status of theCOPIKTRA NDA in the United States and the ability of our third-party suppliers to successfully manufacturecommercial quantities of COPIKTRA. Certain of the costs of COPIKTRA units recognized as revenue during the 2018Period were expensed prior to the September 2018 FDA marketing approval and, therefore, are not included in cost ofsales during this period. We had no cost of revenues during the 2017 Period. Research and development expense. Research and development expense for the 2018 Period was $43.6 millioncompared to $46.4 million for the 2017 Period. The $2.8 million decrease from the 2017 Period to the 2018 Period wasprimarily related to a decrease of $6.0 million in license fees related to a one-time milestone payment pursuant to theInfinity license agreement that was recognized in the 2017 Period and a decrease of approximately $3.2 million inconsulting fees, partially offset by increases of $4.0 million in personnel related costs, including non-cash stock-basedcompensation, and $1.9 million in CRO expense for outsourced biology, development and clinical services, whichincludes our clinical trial costs, and approximately $0.5 million of other costs.86 Table of ContentsSelling, general and administrative expense. Selling, general and administrative expense for the 2018 Periodwas $77.3 million compared to $21.4 million for the 2017 Period. The increase of $55.9 million from the 2017 Period tothe 2018 Period primarily resulted from an increase in personnel related costs, including non-cash stock-basedcompensation, of $26.9 million, primarily related to the hiring and staffing of our sales and commercial teams, anincrease in consulting and professional fees of $24.4 million, primarily related to the support of the commercial launchpreparation activities, and an increase in travel and other costs of $4.6 million.Amortization of acquired intangible assets. Amortization of acquired intangible assets for the 2018 Period ofapproximately $0.4 million was related to the COPIKTRA finite-lived intangible asset which we recognized and beganamortizing in September 2018. There was no amortization of acquired intangible assets in the 2017 Period. Other income. Other income for the 2018 Period of approximately $25.6 million was related to the mark-to-market adjustment of the bifurcated conversion option derivative liability related to the Notes. There was no mark-to-market adjustment or any other income in the 2017 Period.Interest income. Interest income for the 2018 Period was $2.6 million compared to $0.6 million for the 2017Period. The increase of $2.0 million from the 2017 Period to the 2018 period is primarily due to higher investment costbasis and higher interest rates on investments.Interest expense. Interest expense for the 2018 Period was $5.8 million compared to $0.6 million for the 2017Period. The increase of $5.2 million was due to a higher principal balance and higher interest rates on our loan andsecurity agreement with Hercules, an increase in the number of days the loan with Hercules was outstanding in the 2018Period compared to the 2017 Period, and the issuance of the Notes in October 2018.Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016Research and development expense. Research and development expense for the 2017 Period was $46.4 millioncompared to $19.8 million for the year ended December 31, 2016 (2016 Period). The $26.6 million increase from the2016 Period to the 2017 Period was primarily related to an increase of $13.4 million in external CRO expense foroutsourced biology, chemistry, development and clinical services, which includes our clinical trial costs, theachievement of a $6.0 million milestone pursuant to our license agreement with Infinity, an increase of $5.1 million inconsulting fees, an increase in personnel related costs of $1.9 million, and a net increase of approximately $0.2 millionin stock-based compensation and other expenses.Selling, general and administrative expense. Selling, general and administrative expense for the 2017 Periodwas $21.4 million compared to $17.2 million for the 2016 Period. The increase of $4.2 million from the 2016 Period tothe 2017 Period primarily resulted from increases in consulting and professional fees of $4.4 million, including $2.5million related to commercial launch preparation, an increase in personnel costs of $1.0 million and an increase infacilities and other expenses of approximately $0.2 million. These increases were partially offset by a decrease in stock-based compensation expense of $1.5 million.Interest income. Interest income remained flat from the 2016 Period to the 2017 Period primarily as a result ofhigher interest rates on investments in the 2017 Period, offset by a lower investment cost basis.Interest expense. Interest expense for the 2017 Period was approximately $0.6 million and related to our loanand security agreement executed with Hercules in March 2017, as amended. We did not incur any interest expense inthe 2016 Period.LIQUIDITY AND CAPITAL RESOURCESSources of liquidityWe have financed our operations to date primarily through public offerings of our common stock, sales ofcommon stock under our at-the market equity offering programs, our loan and security agreement executed withHercules in March 2017, as amended, the upfront payments under our license and collaboration agreements with87 Table of ContentsYakult and CSPC and the issuance in October 2018 of $150.0 million aggregate principal amount of 5.00% ConvertibleSenior Notes due 2048. With the commercial launch of COPIKTRA in the United States in September 2018, we haverecently begun financing a portion of our operations through product revenue.As of December 31, 2018, we had $249.7 million in cash, cash equivalents and short-term investments. Weprimarily invest our cash, cash equivalents and investments in U.S. Government money market funds and corporatebonds and commercial paper of publicly traded companies.COPIKTRA is our only approved product and our business currently depends heavily on its successfulcommercialization. Successful commercialization of an approved product is an expensive and uncertain process. Risksand uncertainties include those identified under Item 1A. Risk Factors, in this Annual Report on Form 10-K.Cash 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, 2018 2017 2016 Net cash (used in) provided by: Operating activities $(74,515) $(57,310) $(29,484) Investing activities (138,377) 43,953 36,927 Financing activities 261,162 63,184 (5) Increase in cash, cash equivalents and restricted cash $48,270 $49,827 $7,438 Operating activities. The use of cash in operating activities for all periods resulted primarily from our netlosses adjusted for non-cash charges and changes in the components of working capital. The $17.2 million increase incash used in operating activities for the 2018 Period compared to the 2017 Period was primarily due to an increase inselling, general, and administrative expenses related to the hiring and staffing of our sales and commercial teams as wellas an increase in consulting and professional fees primarily related to the support of the commercial launch preparationactivities. The $27.8 million increase in cash used in operating activities for the 2017 Period compared to the 2016Period was primarily due to an increase in research and development expenses related to our license agreement withInfinity, including our ongoing clinical trials and the achievement of a $6.0 million milestone in the 2017 Period.Investing activities. The cash used in investing activities for the 2018 Period relates to the net purchases ofinvestments of $115.0 million, the acquisition of the COPIKTRA finite-lived intangible asset of $22.0 million and netpurchases of property and equipment of approximately $1.4 million. The cash provided by investing activities for the2017 Period reflects net maturities of investments of $44.0 million. The cash provided by investing activities for the2016 Period reflects net maturities of investments of $37.0 million.Financing activities. The cash provided by financing activities for the 2018 Period primarily represents$145.3 million in net proceeds received from the issuance of our 5.00% Convertible Senior Notes due 2048, $81.2million in net proceeds from the sales of our common stock under the Underwriting Agreement and Purchase Agreementdescribed below, $24.3 million in net proceeds received under our at-the-market equity offering program (ATM), $9.9million in net proceeds received from our loan and security agreement executed with Hercules, and approximately $0.8million related to stock option exercises, offset by the payment of approximately $0.3 million of issuance costs relatedto a sale of our common stock during December 2017. The cash provided by financing activities for the 2017 Periodprimarily represents $24.7 million in net proceeds received from an underwritten offering with BTIG, LLC, $23.1million in net proceeds received under our at-the-market equity program, $14.8 million in net proceeds received from aloan and security agreement executed with Hercules, and approximately $0.4 million received from the exercise of stockoptions, offset by approximately $0.1 million of deferred financing costs.On March 21, 2017 (Closing Date), we entered into a term loan facility of up to $25.0 million with Hercules, aMaryland corporation, the proceeds of which will be used for ongoing research and development88 Table of Contentsprograms and for general corporate purposes. The term loan facility is governed by a loan and security agreement, datedMarch 21, 2017 (the Original Loan Agreement), which originally provided for up to four separate advances, of which thefirst tranche of $2.5 million was drawn on the Closing Date. The second and third tranches of $2.5 million and $5.0million, respectively, were both drawn on October 12, 2017 after announcing favorable data from our Phase III clinicalstudy evaluating the safety and efficacy of duvelisib in patients with relapsed/refractory CLL/SLL. A total of $6.0million of the proceeds received from the second and third tranches were used to make a milestone payment pursuant toour license agreement with Infinity. The fourth tranche consisted of $15.0 million that could be drawn, at our option andat the sole discretion of Hercules, on or prior to June 30, 2018. On December 20, 2017, we drew an advance under thefourth tranche of $5.0 million. On January 4, 2018, we entered into the First Amendment to the Original Loan Agreement (the FirstAmendment), on March 6, 2018, we entered into the Second Amendment to the Original Loan Agreement (the SecondAmendment) and on October 11, 2018, we entered into the Third Amendment to the Original Loan Agreement (the ThirdAmendment, and the Original Loan Agreement as amended by the First Amendment, the Second Amendment and ThirdAmendment, the Amended Loan Agreement). The First Amendment increased the total borrowing limit under theOriginal Loan Agreement from up to $25.0 million to up to $50.0 million (the Term Loan). As $15.0 million in termloans had already been drawn prior to entering into the First Amendment, there was $35.0 million of borrowing capacityremaining under the Amended Loan Agreement. The remaining $35.0 million of borrowing capacity may be drawn inminimum increments of $5.0 million in multiple tranches comprised of (i) term loans (each a Term E Loan Advance) inan aggregate principal amount of up to $10.0 million and (ii) subject to Hercules’ sole discretion, term loans (each aTerm F Loan Advance) in an aggregate principal amount of up to $25.0 million. The Amended Loan Agreement permitsus to draw Term E Loan Advances subject to (i) the FDA accepting on or prior to September 30, 2018 our NDA forduvelisib and (ii) delivery of our financial and business projections to Hercules in form and substance reasonablyacceptable to Hercules. In addition, the Amended Loan Agreement allows us to draw Term F Loan Advances subject tothe prior drawing of all other tranches and Hercules’ sole discretion. In June 2018, we borrowed an additional $10.0million as a Term E Loan Advance. The Term Loan will mature on December 1, 2020 (Loan Maturity Date). Each advance accrues interest at afloating per annum rate equal to the greater of either (a) 10.5% or (b) the lesser of (i) 12.75% and (ii) the sum of (x)10.5% plus (y) (A) the prime rate minus (B) 4.5%. The Term Loan provided for interest-only payments until November1, 2018, which was extended to May 1, 2019 pursuant to the Amended Loan Agreement upon our receipt of a minimumof $20.0 million cash proceeds from a sale of equity securities in December 2017. Thereafter, amortization payments willbe payable monthly in twenty installments of principal and interest (subject to recalculation upon a change in primerates). Any advance may be prepaid in whole or in part upon seven business days’ prior written notice to Hercules,subject to a prepayment charge of 3.0%, if such advance is prepaid in any of the first twelve (12) months following theClosing Date, 2.0%, if such advance is prepaid after twelve (12) months following the Closing Date but on or prior totwenty-four (24) months following the Closing Date, and 1.0% thereafter. In addition, a final payment equal to 4.5% ofthe greater of (a) $5.0 million and (b) the total principal amount of the Term Loan extended by Hercules which is due onthe Loan Maturity Date, or such earlier date specified in the Amended Loan Agreement. Amounts outstanding during anevent of default shall be payable on demand and shall accrue interest at an additional rate of 5.0% per annum of the pastdue amount outstanding. The Term Loan is secured by a lien on substantially all of the assets of Verastem, Inc., other than intellectualproperty, and contains customary covenants and representations, including a liquidity covenant, financial reportingcovenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers oracquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. The events of default under the Amended Loan Agreement include, without limitation, and subject tocustomary grace periods, (i) any failure by us to make any payments of principal or interest under the Amended LoanAgreement, promissory notes or other loan documents, (ii) any breach or default in the performance of any covenantunder the Amended Loan Agreement, (iii) any making of false or misleading representations or warranties in anymaterial respect, (iv) our insolvency or bankruptcy, (v) certain attachments or judgments on the assets of Verastem, Inc.,or (vi) the occurrence of any material default under certain agreements or obligations of ours involving indebtedness, or(vii) the occurrence of a material adverse effect. If an event of default occurs, Hercules is entitled to take enforcementaction, including acceleration of amounts due under the Amended Loan Agreement. 89 Table of ContentsThe Amended Loan Agreement also contains other customary provisions, such as expense reimbursement andconfidentiality. Hercules has indemnification rights and the right to assign the Term Loan.On March 30, 2017, we established an at-the-market equity offering program pursuant to which were able tooffer and sell up to $35.0 million of our common stock at then-current market prices from time to time through Cantor,as sales agent (the 2017 ATM Program). On August 28, 2017, we amended our sales agreement with Cantor to increasethe maximum aggregate offering price of shares of common stock that can be sold under the 2017 ATM Program to$75.0 million. Through December 31, 2018, we sold 11,518,354 shares under the 2017 ATM Program for net proceedsof approximately $47.3 million (after deducting commissions and other offering expenses).On May 16, 2018, we entered into an underwriting agreement with Cantor relating to the underwritten offeringof 7,777,778 shares of our common stock (the Underwriting Agreement). Cantor agreed to purchase the shares of ourcommon stock pursuant to the Underwriting Agreement at a price of $4.31 per share. In addition, we granted Cantor anoption to purchase, at the public offering price less any underwriting discounts and commissions, an additional1,166,666 shares of our common stock, exercisable for 30 days from the date of the prospectus supplement. The optionwas exercised by Cantor on May 23, 2018. The aggregate proceeds from Cantor, net of underwriting discounts andoffering costs, were approximately $38.3 million.On June 14, 2018, we entered into a purchase agreement with Consonance Capital Master Account L.P. and PConsonance Opportunities Ltd. (collectively, Consonance) relating to the registered offering of 7,166,666 shares of ourcommon stock at a price of $6.00 per share (the Purchase Agreement). The aggregate proceeds from Consonance, net ofoffering costs, were approximately $42.9 million.On October 17, 2018, we closed a registered direct public offering of $150.0 million aggregate principalamount of our 5.00% Convertible Senior Notes due 2048 (the Notes), for net proceeds of $145.3 million. The Notes aregoverned by the terms of a base indenture for senior debt securities (the Base Indenture), as supplemented by the firstsupplemental indenture thereto (the Supplemental Indenture and together with the Base Indenture, the Indenture), eachdated October 17, 2018, by and between us and Wilmington Trust, National Association, as trustee. The Notes are seniorunsecured obligations of us and bear interest at a rate of 5.00% per annum, payable semi-annually in arrears on May 1and November 1 of each year, beginning on May 1, 2019. The Notes will mature on November 1, 2048, unless earlierrepurchased, redeemed or converted in accordance with their terms. The Notes are convertible into shares of our common stock, par value $0.0001 per share, together, if applicable,with cash in lieu of any fractional share, at an initial conversion rate of 139.5771 shares of common stock per $1,000principal amount of the Notes, which corresponds to an initial conversion price of approximately $7.16 per share ofcommon stock and represents a conversion premium of approximately 15.0% above the last reported sale price of ourcommon stock of $6.23 per share on October 11, 2018. Upon conversion, converting noteholders will be entitled toreceive accrued interest on their converted Notes. To the extent we have insufficient authorized but unissued shares tosettle conversions in shares of common stock, we would be required to settle the deficiency in cash. We will have the right, exercisable at our option, to cause all Notes then outstanding to be convertedautomatically if the “Daily VWAP” (as defined in the Indenture) per share of our common stock equals or exceeds 130%of the conversion price on each of at least 20 VWAP Trading Days, whether or not consecutive, during any 30consecutive VWAP Trading Day period commencing on or after the date we first issued the Notes. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including,but not limited to, the issuance of stock dividends and payment of cash dividends, but will not be adjusted for anyaccrued and unpaid interest.We assessed all terms and features of the Notes in order to identify any potential embedded features that wouldrequire bifurcation. As part of this analysis, we assessed the economic characteristics and risks of the Notes, includingthe conversion, put and call features. Per the terms of the Indenture, upon conversion of the Notes, a portion of theprincipal may be settled in cash until the date upon which our stockholders approve an increase in the number ofauthorized shares of common stock, or the Authorized Share Effective Date. In consideration of this provision, weconcluded the conversion feature required bifurcation as a derivative. The fair value of the90 Table of Contentsconversion feature derivative was determined based on the difference between the fair value of the Notes with theconversion option and the fair value of the Notes without the conversion option. We determined that the fair value ofthe derivative upon issuance of the Notes was $51.5 million and recorded this amount as a derivative liability and theoffsetting amount as a debt discount as a reduction to the carrying value of the Notes on the closing date, or October 17,2018.On December 18, 2018, the Authorized Share Effective Date was achieved as our stockholders approved anincrease in the number of authorized shares of common stock. Following this approval, no portion of the Notes aresettleable in cash upon conversion. As such, we determined that the conversion feature no longer met the definition of aderivative following the increase in the number of authorized shares of common stock. As of December 18, 2018, wedetermined the fair value of the conversion feature was $25.9 million. We recorded the change in the fair value of theconversion feature for the period from October 17, 2018 to December 18, 2018 of $25.6 million as other income on theconsolidated statements of operations and comprehensive loss. As of December 18, 2018, the fair value of theconversion option was reclassified to additional paid-in capital on the consolidated balance sheets as it qualified for ascope exception from derivative accounting. Funding requirementsWe expect to continue to incur significant expenses and operating losses for the foreseeable future. Weanticipate that our expenses and operating losses will increase substantially if and as we: · commercialize COPIKTRA; · continue our ongoing clinical trials, including with COPIKTRA and defactinib; · 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; · add operational, financial and management information systems and personnel, including personnelto support our product development and commercialization efforts; and · establish and maintain a sales, marketing and distribution infrastructure to commercialize COPIKTRAor any products for which we may obtain marketing approval.We expect our existing cash, cash equivalents and short-term investments will be sufficient to fund ourobligations for at least the next twelve months from the date of filing of this Annual Report on Form 10-K. We havebased this estimate on assumptions that may prove to be wrong and we could use our available capital resources soonerthan we currently expect. Because of the numerous risks and uncertainties associated with the development andcommercialization of our product candidates, and the extent to which we may enter into collaborations with third partiesfor development and commercialization of our product candidates, we are unable to estimate the amounts of increasedcapital outlays and operating expenses associated with completing the development of our current product candidates.Our future capital requirements will depend on many factors, including: · the costs and timing of commercialization activities for COPIKTRA and the product candidates forwhich we expect to receive marketing approval; · 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 (including our efforts toseek approval and fund the preparation and filing of regulatory submissions); · revenue received from commercial sales of COPIKTRA and our product candidates, should any of ourother product candidates also 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 or partnerships on favorable terms, if at all.91 Table of ContentsUntil 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 licensingarrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, theownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidationor other preferences that adversely affect the rights of our existing stockholders. Debt financing, if available, mayinvolve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurringadditional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations,strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to ourtechnologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not befavorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may berequired to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rightsto develop and market product candidates that we would otherwise prefer to develop and market ourselves.CONTRACTUAL OBLIGATIONS AND COMMITMENTSThe following table summarizes our contractual obligations at December 31, 2018:(in thousands) Total 2019 2020 -2021 2022 -2023 Thereafter Operating lease obligations $6,348 $716 $1,991 $2,103 $1,538 Amended Loan Agreement 25,000 5,930 19,070 — — 5.00% Convertible Senior Notes 150,000 — — — 150,000 License agreements (1) — — — — — (1)As discussed in Note 15 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 may requireus to pay upfront license fees, ongoing annual license maintenance fees, milestone payments, minimum royaltypayments, as well as reimbursement of certain patent costs incurred by the licensors, as applicable. We have notincluded these payments in the table above because: there were no upfront license fees payable in future periods;no annual license maintenance fees; we cannot estimate if milestone and/or royalty payments will occur in futureperiods; and patent cost reimbursement costs are perpetual and the agreements are cancelable by us at any timeupon prior written notice to the licensor.OFF‑BALANCE SHEET ARRANGEMENTSWe did not have any off-balance sheet arrangements during the periods presented, and we do not currently haveany off‑balance sheet arrangements, as defined under Securities and Exchange Commission rules.TAX LOSS CARRYFORWARDSAs of December 31, 2018, we had federal and state net operating loss carryforwards of $322.4 million and$322.2 million, respectively, which are available to reduce future taxable income. We also had federal and state taxcredits of $16.7 million and $2.0 million, respectively, which may be used to offset future tax liabilities. The netoperating loss and tax credit carryforwards will expire at various dates through 2037. 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, 2018, we recorded a 100% valuation allowance against our net operatingloss and tax credit carryforwards of $98.3 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.92 Table of ContentsRECENTLY ADOPTED ACCOUNTING STANDARDSIn May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU)2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 providesguidance about which changes to the terms or conditions of a share-based award require an entity to apply modificationaccounting under Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vestingconditions and classification of the awards are the same immediately before and after a modification. ASU 2017-09 waseffective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. We adoptedthis standard prospectively effective January 1, 2018. The adoption of this ASU did not have an effect on ourconsolidated financial statements or related disclosures.In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): RestrictedCash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash,cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generallydescribed as restricted cash and restricted cash equivalents should be included with cash and cash equivalents whenreconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 was effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. Weadopted this standard effective January 1, 2018. Upon adoption of ASU 2016-18, we applied the retrospective transitionmethod for each period presented and included approximately $162,000 of restricted cash in the beginning-of-periodand end-of-period cash, cash equivalents and restricted cash balance reflected in the consolidated statements of cashflows for the year ended December 31, 2017. A reconciliation of cash, cash equivalents and restricted cash for eachperiod presented is provided in Note 2 to the consolidated financial statements.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification ofCertain Cash Receipts and Cash Payments. ASU 2016-15 adds or clarifies guidance on the classification of certain cashreceipts and payments in the statement of cash flows. The standard was effective for annual and interim periodsbeginning after December 15, 2017, with early adoption permitted. We adopted this standard effective January 1,2018. The adoption of this ASU did not have an effect on our consolidated financial statements or related disclosures.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) whichamends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenuerecognition requirements in ASC Topic 605, Revenue Recognition. In 2015 and 2016, the FASB issued additional ASUsrelated to ASC 606 that delayed the effective date of the guidance and clarified various aspects of the new revenueguidance, including principal versus agent considerations, identifying performance obligations, and licensing, and theyinclude other improvements and practical expedients. We adopted this new standard on January 1, 2018 using the fullretrospective method. There was no change to our consolidated financial statements as a result of the adoption.In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) andInvestments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to StaffAnnouncements at the September 22, 2016 and November 17, 2016 EITF Meetings. ASU 2017-03 clarifies the SECstaff’s expectations about the extent of disclosures that a registrant is expected to provide regarding the impact that theadoption of ASUs 2014-09 (Revenue from Contracts with Customers), 2016-02 (Leases) and 2016-13 (Measurement ofCredit Losses on Financial Instruments) will have on its financial statements. It also conforms SEC guidance onaccounting for tax benefits resulting from investments in affordable housing projects to the guidance in ASU 2014-01,Investments -Equity Method and Joint Ventures (Topic 323). The guidance under this ASU was effective upon issuanceand did not have a material impact on our disclosures. In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through RelatedParties That Are under Common Control. ASU 2016-17 updates ASU 2015-02. Under the amendments, a single decisionmaker is not required to consider indirect interests held through related parties that are under common control with thesingle decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is requiredto include those interests on a proportionate basis consistent with indirect interests held through other related parties.ASU 2016-17 was effective for annual and interim periods beginning after December 15, 2016. We adopted this standardeffective January 1, 2017. The adoption of this ASU did not have an effect on our consolidated financial statements ordisclosures.93 Table of Contents In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies the accounting for share-basedcompensation arrangements, including the accounting for forfeitures, income tax consequences, classification of awardsas either equity or liabilities and classification on the statement of cash flows. The standard was effective for annual andinterim periods beginning after December 15, 2016, with early adoption permitted. We adopted ASU 2016-09 effectiveJanuary 1, 2017. Upon adoption, we elected to begin accounting for forfeitures as they occur, rather than estimating aforfeiture rate, and recorded an immaterial cumulative-effect adjustment to opening accumulated deficit. Also, uponadoption, we recognized all previously unrecognized tax benefits, which would have resulted in the recognition of animmaterial cumulative-effect adjustment to opening accumulated deficit; however, these unrecognized tax benefits wererecorded as a deferred tax asset, which was fully offset by a valuation allowance. Therefore, the recognition of thesebenefits had no net cumulative-effect on opening accumulated deficit upon adoption. 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 and short-terminvestments of $249.7 million and $86.7 million as of December 31, 2018 and 2017, respectively, consisting of cash,U.S. Government money market funds, corporate bonds and commercial paper of publicly traded companies. Ourprimary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S.interest rates, particularly because most of our investments are interest bearing. Our available for sale securities aresubject to interest rate risk and will fall in value if market interest rates increase. Due to the short‑term duration most ofour investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interestrates would not have a material effect on the fair 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, 2018, an immaterial amount of our total liabilities was denominated in currenciesother than the functional currency.As of December 31, 2018, we have borrowed $25.0 million under the Amended Loan Agreement. The AmendedLoan Agreement bears interest per annum equal to the greater of either (a) 10.5% or (b) the lesser of (i) 12.75% and (ii) thesum of (x) 10.5% plus (y) (A) the prime rate minus (B) 4.5%. Changes in interest rates can cause interest charges to fluctuateunder the Amended Loan Agreement. A 10% increase in current interest rates would have resulted in an immaterial increasein the amount of cash interest expense for the year ended December 31, 2018.The Notes bear interest at a fixed rate and therefore have minimal exposure to changes in interest rates; however,because these interest rates are fixed, we may be paying a higher interest rate, relative to market, in the future if our creditrating improves or other circumstances change. 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‑39 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 ProceduresLimitations on Effectiveness of Controls and ProceduresIn designing and evaluating our disclosure controls and procedures and internal control over financialreporting, management recognizes that any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosurecontrols and procedures and internal control over financial reporting must reflect the fact that there are resource94 Table of Contentsconstraints and that management is required to apply judgment in evaluating the benefits of possible controls andprocedures relative to their costs.Evaluation 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 Exchange Act, as of the end of theperiod covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officerconcluded that our disclosure controls and procedures as of the end of the 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 U.S. generally accepted accounting principles (GAAP), 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;(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with GAAP, and that receipts and expenditures are being madeonly in accordance with the authorizations of management and directors; 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, 2018.The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited byErnst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.Changes in Internal Control Over Financial ReportingThere has been no change in our internal control over financial reporting during the fiscal quarter endedDecember 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.95 Table of ContentsReport of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Verastem, Inc.Opinion on Internal Control over Financial ReportingWe have audited Verastem, Inc.’s internal control over financial reporting as of December 31, 2018, based on criteriaestablished in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (2013 framework), (the COSO criteria). In our opinion, Verastem, Inc. (the Company) maintained,in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSOcriteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates) (PCAOB), the consolidated balance sheets of Verastem, Inc. as of December 31, 2018 and 2017, and the relatedconsolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the threeyears in the period ended December 31, 2018, and the related notes of the Company and our report dated March 12,2019 expressed unqualified opinion thereon. Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sReport on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’sinternal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOBand are required to be independent with respect to the Company in accordance with the U.S. federal securities laws andthe applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that amaterial weakness exists, testing and evaluating the design and operating effectiveness of internal control based on theassessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe thatour audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policiesand procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect onthe financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may becomeinadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. /s/ Ernst & Young LLPBoston, MassachusettsMarch 12, 2019 96 Table of Contents Item 9B. Other InformationNone.97 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCEInformation regarding our directors, including the audit committee and audit committee financial experts, andexecutive officers and compliance with Section 16(a) of the Exchange Act will be included in our 2019 Proxy Statementand is incorporated herein by reference.We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees asrequired by Nasdaq governance rules and as defined by applicable SEC rules. Stockholders may locate a copy of ourCode of Business Conduct and Ethics on our website at www.verastem.com or request a copy without charge from:Verastem, Inc.Attention: Investor Relations117 Kendrick St., Suite 500Needham, MA 02494We will post to our website any amendments to the Code of Business Conduct and Ethics and any waivers thatare required to be disclosed by the rules of either the SEC or Nasdaq. ITEM 11. EXECUTIVE COMPENSATIONThe information required by this Item 11 of Form 10-K regarding executive compensation will be included inour 2019 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS The information required by this Item 12 of Form 10-K regarding security ownership of certain beneficial ownersand management will be included in our 2019 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this Item 13 of Form 10-K regarding certain relationships and related transactionsand director independence will be included in our 2019 Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this Item 14 of Form 10-K regarding principal accountant fees and services will beincluded in our 2019 Proxy Statement and is incorporated herein by reference.98 Table of Contents PART 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.Item 16. Form 10-K SummaryNone. 99 Table of ContentsEXHIBIT INDEXExhibitnumber Description of exhibit3.1* Restated Certificate of Incorporation of the Registrant 3.2* Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant 3.3 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 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) 4.2 Indenture, dated as of October 17, 2018, by and between the Registrant and Wilmington Trust,National Association (incorporated by reference to Exhibit 4.1 to Form 8-K filed by the Registrant onOctober 17, 2018) 4.3 First Supplemental Indenture, dated as of October 17, 2018, by and between the Registrant andWilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to Form 8-K filed bythe Registrant on October 17, 2018) 10.1# 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registration Statementon Form S‑1 (File No. 333‑177677) filed by the Registrant on November 3, 2011) 10.2# Amended and Restated 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 of theRegistrant’s Current Report on Form 8-K filed by the Registrant on December 20, 2018) 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 Incentive Stock Option Agreement under Amended and Restated 2012 Incentive Plan(incorporated by reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K filed by theRegistrant on March 13, 2018) 10.5# Form of Nonstatutory Stock Option Agreement under 2012 Incentive Plan (incorporated by referenceto Exhibit 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) 10.6# Form of Nonstatutory Stock Option Agreement under Amended and Restated 2012 Incentive Plan(incorporated by reference to Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K filed by theRegistrant on March 13, 2018) 10.7# 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) 10.8# Amendment to Form of Restricted Stock Unit Agreement under 2012 Incentive Plan (incorporated byreference to Exhibit 10.25 to the Annual Report on Form 10‑K filed by the Registrant on March 26,2013) 100 Table of Contents10.9# Form of Restricted Stock Unit Agreement under Amended and Restated 2012 Incentive Plan(incorporated by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K filed by theRegistrant on March 13, 2018) 10.10# Form of Inducement Award Nonstatutory Stock Option Agreement (incorporated by reference toExhibit 4.4 to the Registration Statement on Form S-8 filed by the Registrant with the Securities andExchange Commission on December 19, 2014) 10.11# Form of Inducement Award Nonstatutory Stock Option Agreement (incorporated by reference toExhibit 10.11 of the Registrant’s Annual Report on Form 10-K filed by the Registrant on March 13,2018) 10.12# Form of Inducement Award Restricted Stock Unit Agreement (incorporated by reference to Exhibit 4.3of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed bythe Registrant with the Securities and Exchange Commission on November 7, 2018) 10.13# 2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 of the Registrant’sCurrent Report on Form 8-K filed by the Registrant on December 20, 2018) 10.14# Amended and Restated Employment Agreement between the Registrant and Jonathan Pachter, datedJanuary 13, 2012 (incorporated by reference to Exhibit 10.6 to Amendment No. 3 to the RegistrationStatement on Form S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012) 10.15# Form of Indemnification Agreement between the Registrant and each director (incorporated byreference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on August 8,2017) 10.16 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‑Kfiled by the Registrant on April 18, 2014) 10.17 First Amendment of Lease Agreement, dated February 15, 2018, between the Registrant and 117Kendrick DE, LLC, as successor-in-interest to Intercontinental Fund III 117 Kendrick Street, LLC(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by theRegistrant on May 3, 2018) 10.18# Employment Agreement, dated March 1, 2012, between the Registrant and Daniel Paterson(incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10‑K filed by the Registranton March 26, 2013) 10.19† License Agreement, dated July 11, 2012, by and between the Registrant and Pfizer Inc. (incorporatedby reference to Exhibit 10.2 to the Quarterly Report on Form 10‑Q filed by the Registrant onAugust 13, 2012) 10.20# Letter Agreement, dated June 6, 2013, by and between the Registrant and Robert Forrester(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10‑Q filed by theRegistrant on August 13, 2013) 10.21† Letter Agreement, dated December 7, 2012, by and between the Registrant and Pfizer Inc.(incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10‑K filed by the Registranton March 6, 2014) 10.22# Amended and Restated Employment Agreement, dated November 22, 2013, by and between theRegistrant and Robert Forrester (incorporated by reference to Exhibit 10.32 to the Annual Report onForm 10‑K filed by the Registrant on March 6, 2014)101 Table of Contents 10.23# Employment Agreement between the Registrant and Julie B. Feder, dated July 10, 2017 (incorporatedby reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on July 11,2017) 10.24# Employment Agreement between the Registrant and NgocDiep T. Le, dated October 9, 2017(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10‑Q filed by theRegistrant on November 7, 2017) 10.25# Employment Agreement between the Registrant and Robert Gagnon, effective August 28, 2018(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registranton August 29, 2018) 10.26# Consulting Agreement between the Registrant and Gregory Berk, effective January 20, 2017(incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K filed by the Registranton March 23, 2017) 10.27† Amended and Restated License Agreement, dated November 1, 2016, by and between the Registrantand Infinity Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.25 to the Annual Report onForm 10-K filed by the Registrant on March 23, 2017) 10.28 Loan and Security Agreement, dated March 21, 2017, by and between the Registrant, the Lender (asdefined therein) and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.26 to the AnnualReport on Form 10-K filed by the Registrant on March 23, 2017) 10.29 First Amendment to Loan and Security Agreement, dated January 4, 2018, by and between theRegistrant, the Lender (as defined therein) and Hercules Capital, Inc. (incorporated by reference toExhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on January 4, 2018) 10.30 Second Amendment to Loan and Security Agreement, dated March 6, 2018, by and between theRegistrant, the Lender (as defined therein) and Hercules Capital, Inc. (incorporated by reference toExhibit 10.28 to the Annual Report on Form 10-K filed by the Registrant on March 13, 2018) 10.31 Third Amendment to Loan and Security Agreement, as amended, with Hercules Capital, Inc., asadministrative agent, and the Lenders from time to time party thereto (incorporated by reference toExhibit 10.1 to Form 8-K filed by the Registrant on October 11, 2018) 10.32# Employment Agreement between the Registrant and Joseph Lobacki, dated January 3, 2018(incorporated by reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K filed bythe Registrant on March 13, 2018) 10.33† License and Collaboration Agreement, dated September 25, 2018, between Verastem, Inc. and CSPCPharmaceutical Group Limited (incorporated by reference to Exhibit 10.1 to the Quarterly Report onForm 10-Q filed by the Registrant on November 7, 2018) 10.34† License and Collaboration Agreement, dated June 5, 2018, between Verastem, Inc. and Yakult HonshaCo., Ltd. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by theRegistrant on August 8, 2018) 10.35 Consulting Agreement, dated October 3, 2018, between Verastem, Inc. and Louise Phanstiel.(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by theRegistrant on November 7, 2018) 21.1* Subsidiaries of the Registrant 102 Table of Contents23.1* 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 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 99.1* Press Release issued by Verastem, Inc. on March 12, 2019 (furnished herewith) 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 SEC.‡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. 103 Table of Contents SIGNATURESPursuant 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 12 day ofMarch 2019. 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 Robert Forrester Chief Executive Officer and Director (Principal executive officer) March 12, 2019 /s/ Robert Gagnon Robert Gagnon Chief Financial Officer (Principal financial and accounting officer) March 12, 2019 /s/ Timothy Barberich Timothy Barberich Director March 12, 2019/s/ Gina Consylman Gina Consylman Director March 12, 2019 /s/ Michael Kauffman, M.D.,Ph.D. Michael Kauffman, M.D., Ph.D. Director March 12, 2019 /s/ Alison Lawton Alison Lawton Director March 12, 2019 /s/ Eric Rowinsky, M.D. Eric Rowinsky, M.D. Director March 12, 2019 /s/ Brian Stuglik, R.Ph, Brian Stuglik, R.Ph. Director March 12, 2019 /s/ Bruce Wendel Bruce Wendel Director March 12, 2019 104 th 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 FirmTo the Stockholders and the Board of Directors of Verastem, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Verastem, Inc. (the Company) as of December 31,2018 and 2017, and the related consolidated statements of operations and comprehensive loss, stockholders' equity andcash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referredto as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in allmaterial respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the results ofits operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity withU.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteriaestablished in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (2013 framework), and our report dated March 12, 2019 expressed an unqualified opinionthereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with thePCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of materialmisstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to thoserisks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in thefinancial statements. Our audits also included evaluating the accounting principles used and significant estimates madeby management, as well as evaluating the overall presentation of the financial statements. We believe that our auditsprovide a reasonable basis for our opinion. /s/ Ernst & Young LLPWe have served as the Company’s auditor since 2011. Boston, MassachusettsMarch 12, 2019 F-2 Table of ContentsVerastem, Inc.CONSOLIDATED BALANCE SHEETS(in thousands, except per share amounts) December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $129,867 $82,176 Short-term investments 119,786 4,496 Accounts receivable, net 306 — Inventory 327 — Prepaid expenses and other current assets 2,973 1,115 Total current assets 253,259 87,787 Property and equipment, net 1,369 861 Intangible assets, net 21,577 — Other assets 1,031 1,143 Total assets $277,236 $89,791 Liabilities and stockholders’ equity Current liabilities: Accounts payable $10,253 $9,186 Accrued expenses 21,108 7,942 Current portion of long-term debt 5,716 — Total current liabilities 37,077 17,128 Non-current liabilities: Long-term debt 19,506 14,828 Convertible senior notes 95,231 — Other non-current liabilities 1,123 151 Total liabilities 152,937 32,107 Stockholders’ equity: Preferred stock, $0.0001 par value; 5,000 shares authorized, no shares issuedand outstanding at December 31, 2018 and December 31, 2017, respectively — — Common stock, $0.0001 par value; 200,000 and 100,000 shares authorized, 73,806 and50,801 shares issued and outstanding at December 31, 2018 and December 31, 2017,respectively 7 5 Additional paid-in capital 499,741 360,823 Accumulated other comprehensive income (loss) 127 (2) Accumulated deficit (375,576) (303,142) Total stockholders’ equity 124,299 57,684 Total liabilities and stockholders’ equity $277,236 $89,791 See accompanying notes to the consolidated financial statements.F-3 Table of ContentsVerastem, Inc.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(in thousands, except per share amounts) Year Ended December 31, 2018 2017 2016 Revenue: Product revenue, net $1,718 $ — $ — License revenue 25,000 — — Total revenue 26,718 — — Operating expenses: Costs of revenues, excluding amortization of acquired intangible assets $165 $ — $ — Research and development 43,648 46,423 19,779 Selling, general and administrative 77,265 21,381 17,223 Amortization of acquired intangible assets 423 — — Total operating expenses 121,501 67,804 37,002 Loss from operations (94,783) (67,804) (37,002) Other income 25,556 — — Interest income 2,603 561 562 Interest expense (5,810) (559) — Net loss $(72,434) $(67,802) $(36,440) Net loss per share—basic $(1.12) $(1.76) $(0.99) Net loss per share—diluted $(1.37) $(1.76) $(0.99) Weighted average common shares outstanding used in computing: Net loss per share—basic 64,962 38,422 36,988 Net loss per share—diluted 69,321 38,422 36,988 Net loss $(72,434) $(67,802) $(36,440) Unrealized gain (loss) on available-for-sale securities 129 (31) (14) Comprehensive loss $(72,305) $(67,833) $(36,454) See accompanying notes to the consolidated financial statements.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, 2015 36,941,261 $ 4 $301,305 $43 $(198,883) $102,469 Net loss — — — — (36,440) (36,440) Unrealized (loss) on available-for-sale marketable securities — — — (14) — (14) Issuance of common stock resulting from exerciseof stock options 1,605 — — — — — Issuance of common stock resulting from vesting of restrictedstock units and payment of tax withholdings 49,552 — (5) — — (5) Stock-based compensation expense — — 6,287 — — 6,287 Balance at December 31, 2016 36,992,418 $ 4 $307,587 $29 $(235,323) $72,297 Net loss — — — — (67,802) (67,802) Unrealized (loss) on available-for-sale marketable securities — — — (31) — (31) Issuance of common stock resulting from follow-on offering,net of issuance costs of $324 8,422,877 1 24,691 — — 24,692 Issuance of common stock resulting from at-the-markettransactions, net of issuance costs of $112 5,036,879 — 23,053 — — 23,053 Issuance of common stock resulting from exerciseof stock options 348,734 — 442 — — 442 Stock-based compensation expense — — 5,050 — (17) 5,033 Balance at December 31, 2017 50,800,908 $ 5 $360,823 $(2) $(303,142) $57,684 Net loss — — — — (72,434) (72,434) Unrealized gain on available-for-sale marketable securities — — — 129 — 129 Issuance of common stock resulting from follow-on offering,net of issuance costs of $361 16,111,110 1 81,188 — — 81,189 Issuance of common stock resulting from at-the-markettransactions, net of issuance costs of $0 6,481,475 1 24,275 — — 24,276 Issuance of common stock resulting from exerciseof stock options 412,851 — 809 — — 809 Stock-based compensation expense — — 6,671 — — 6,671 Reclassification of derivative liability to equity — — 25,975 — — 25,975 Balance at December 31, 2018 73,806,344 $ 7 $499,741 $127 $(375,576) $124,299 See accompanying notes to the consolidated financial statements.F-5 Table of ContentsVerastem, Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2018 2017 2016 Operating activities Net loss $(72,434) $(67,802) $(36,440) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 996 556 670 Amortization of acquired intangible asset 423 — — Stock-based compensation expense 6,671 5,033 6,287 Amortization of deferred financing costs, debt discounts and premiums anddiscounts on available-for-sale marketable securities 1,814 223 (140) Change in fair value of conversion option for convertible senior notes (25,556) — — Gain on sale of fixed assets (79) — — Changes in operating assets and liabilities: Accounts receivable, net (306) — — Inventory (327) — — Prepaid expenses, other current assets and other assets (1,167) (943) (568) Accounts payable 1,048 5,046 153 Accrued expenses and other liabilities 13,902 577 554 Other long-term liabilities 500 — — Net cash used in operating activities (74,515) (57,310) (29,484) Investing activities Purchases of property and equipment (1,507) — (39) Sales of property and equipment 82 — — Acquisition of intangible asset (22,000) — — Purchases of investments (125,452) (7,957) (82,101) Maturities of investments 10,500 51,910 119,067 Net cash (used in) provided by investing activities (138,377) 43,953 36,927 Financing activities Proceeds from long-term debt, net of issuance costs 9,900 14,811 — Deferred debt financing costs — (138) — Proceeds from issuance of convertible senior notes, net of issuance costs 145,297 — — Proceeds from the exercise of stock options 809 442 — Cash used to settle restricted stock liability — — (5) Proceeds from the issuance of common stock, net 105,156 48,069 — Net cash provided by (used in) financing activities 261,162 63,184 (5) Increase in cash, cash equivalents and restricted cash 48,270 49,827 7,438 Cash, cash equivalents and restricted cash at beginning of period 82,338 32,511 25,073 Cash, cash equivalents and restricted cash at end of period $130,608 $82,338 $32,511 Supplemental disclosure Cash paid for interest $2,107 $295 $ — Supplemental disclosure of non-cash financing activities Common stock issuance costs included in accounts payable and accruedexpenses $15 $324 $ — See accompanying notes to the consolidated financial statements. F-6 Table of Contents1. Nature of businessVerastem, Inc. (the Company) is a biopharmaceutical company focused on developing and commercializingmedicines to improve the survival and quality of life of cancer patients. On September 24, 2018, the Company’s firstcommercial product, COPIKTRA™ (duvelisib), was approved by the U.S. Food and Drug Administration (the FDA) forthe treatment of patients with hematologic cancers including chronic lymphocytic leukemia (CLL) and smalllymphocytic lymphoma (SLL) and follicular lymphoma (FL). Both its marketed product, COPIKTRA, and mostadvanced product candidate, defactinib, utilize a multi-faceted approach designed to treat cancers originating either inthe blood or major organ systems. The Company is currently developing its product candidates in both preclinical andclinical studies as potential therapies for certain cancers, including leukemia, lymphoma, lung cancer, ovarian cancer,mesothelioma, and pancreatic cancer. The Company believes that these compounds may be beneficial as therapeuticseither as single agents or when used in combination with immuno-oncology agents or other current and emergingstandard of care treatments in aggressive cancers that are poorly served by currently available therapies. The Company is subject to the risks associated with other life science companies, including, but not limited to,possible failure of preclinical testing or clinical trials, competitors developing new technological innovations, marketacceptance and the successful commercialization of COPIKTRA, or any of the Company’s investigational productcandidates following receipt of regulatory approval and protection of proprietary technology. If the Company does notsuccessfully commercialize COPIKTRA or any of its other product candidates, it will be unable to generate productrevenue or achieve profitability and may need to raise additional capital.The Company has historical losses from operations and anticipates that it will continue to incur losses for theforeseeable future as it continues the commercialization of COPIKTRA and the research and development of its productcandidates. As of December 31, 2018, the Company had cash, cash equivalents and short-term investments of $249.7million. The Company expects, prior to the consideration of any revenue from future potential sales of COPIKTRA, thatits cash, cash equivalents and short-term investments will be sufficient to fund its development plans, U.S. commercialscale-up and other operational activities for at least twelve months from the date of issuance of these consolidatedfinancial statements. The Company expects to finance the future development costs of its clinical product portfolio with its existingcash, cash equivalents and short-term investments, or through strategic financing opportunities that could include, butare not limited to collaboration agreements, future offerings of its equity, or the incurrence of debt. However, there is noguarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, andsome could be dilutive to existing stockholders. If the Company fails to obtain additional future capital, it may beunable to complete its planned preclinical studies and clinical trials and obtain approval of certain investigationalproduct candidates from the FDA or foreign regulatory authorities.2. Significant accounting policiesBasis of presentationThe accompanying financial statements of the Company have been prepared in accordance with U.S. generallyaccepted accounting principles (GAAP) under the assumption that the Company will continue as a going concern for thenext twelve months. Accordingly, they do not include any adjustments that might result from the uncertainty related tothe Company’s ability to continue as a going concern.The consolidated financial statements include the accounts of Verastem Securities Company, a wholly-ownedsubsidiary of the Company. All financial information presented has been consolidated and includes the accounts of theCompany and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated inconsolidation. F-7 Table of ContentsUse 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 revenue recognition, includingreturns, rebates, and other pricing adjustments, accruals and stock‑based compensation expense. The Company bases itsestimates on historical experience and other market‑specific or other relevant assumptions that it believes to bereasonable. 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 and regularly reviewed by the chief operating decision maker, or decision‑making group, in deciding how toallocate resources and in assessing performance. The Company views its operations and manages its business in oneoperating segment, which is the business of developing and commercializing drugs for the treatment of cancer. Allmaterial long-lived assets of the Company reside in the United States. Cash, cash equivalents and restricted cashThe 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 a U.S. Government money market fundsand corporate bonds and commercial paper of publicly traded companies. Cash equivalents are reported at fair value.The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within theconsolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cashflows (in thousands): December 31,2018 December31, 2017Cash and cash equivalents $129,867 $82,176Restricted cash 741 162Total cash, cash equivalents and restricted cash $130,608 $82,338Amounts included in restricted cash as of December 31, 2018 represent cash received pursuant to a fundedresearch and development agreement with the Leukemia and Lymphoma Society (LLS) restricted for future expendituresfor specific R&D studies and cash held to collateralize outstanding letters of credit provided as a security deposit for theCompany’s office space located in Needham, Massachusetts in the amount of approximately $500,000 and $241,000,respectively. Restricted cash related to LLS funded research and development agreement is included in prepaid andother current assets, while restricted cash for letters of credit are included in other assets on the consolidated balancesheets. Amounts included in restricted cash as of December 31, 2017 represent cash held to collateralize outstandingletters of credit in the amount of $162,000 provided as a security deposit for the Company’s office space located inNeedham, Massachusetts and included in other assets on the consolidated balance sheets. Fair value of financial instrumentsThe Company determines the fair value of its financial instruments based upon the fair value hierarchy, whichprioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy appliesF-8 Table of Contentsonly to the valuation inputs used in determining the reported fair value of the investments and is not a measure of theinvestment credit quality. The hierarchy defines three levels of valuation inputs:Level 1 inputs Quoted prices in active markets for identical assets or liabilities that the Company can access at themeasurement date. 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. Items Measured at Fair Value on a Recurring BasisThe following table presents information about the Company’s financial instruments that are measured at fairvalue on a recurring basis (in thousands): December 31, 2018 Description Total Level 1 Level 2 Level 3 Financial assets Cash equivalents $127,689 $60,092 $67,597 $ — Short-term investments 119,786 — 119,786 — Total financial assets $247,475 $60,092 $187,383 $ — December 31, 2017 Description Total Level 1 Level 2 Level 3 Financial assets Cash equivalents $80,894 $75,478 $5,416 $ — Short-term investments 4,496 — 4,496 — Total financial assets $85,390 $75,478 $9,912 $ — The investments and cash equivalents have been initially valued at the transaction price and subsequentlyvalued, at the end of each reporting period, utilizing third party pricing services or other market observable data. Thepricing services utilize industry standard valuation models, including both income and market-based approaches andobservable market inputs to determine value. These observable market inputs include reportable trades, benchmarkyields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. TheCompany validates the prices provided by third party pricing services by reviewing their pricing methods and matrices,obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that therelevant markets are active. After completing its validation procedures, the Company did not adjust or override any fairvalue measurements provided by the pricing services as of December 31, 2018 and 2017.During 2018, a derivative liability was initially recorded as a result of the issuance of the 5.00% ConvertibleSenior Notes due 2048 (the Notes) (see note 11). The Company initially determined fair value of the liability uponissuance, and then again upon the determination that the derivative instrument met the criteria to be reclassified intoequity. The fair value measurement of the derivative liability is classified as Level 3 under the fair value hierarchy as ithas been valued using unobservable inputs. These inputs include: (1) a simulated share price at the time of conversionof the Notes, (2) assumed timing of conversion of the Notes, and (3) the risk-adjusted discount rate used to present valuethe probability-weighted cash flows. Significant increases or decreases in any of those inputs in isolation could result ina significantly lower or higher fair value measurement.The fair value of the derivative liability was determined using a binomial lattice model by calculating the fairvalue of the Notes with the conversion feature as compared to the fair value of the Notes without the conversion feature,with the difference representing the value of the conversion feature, or the derivative liability. The fairF-9 Table of Contentsvalue of the Notes with the conversion feature at issuance was assumed to equal the issuance par value of $150.0 millionwith an implied discount rate of 12.1% which was determined by discounting the cash flows generated by the binomiallattice model back to the issuance par value. The fair value of the Notes without the conversion feature was calculatedbased on cash payment for the full par value of the Notes and was discounted by the implied discount rate of12.1%. The fair value of the Notes with and without the conversion feature upon the Company’s shareholdersincreasing the number of authorized shares of common stock was determined using a similar approach with an implieddiscount rate of 16.2%, which was determined be evaluating the increase in credit spreads of publicly traded debt over asimilar time period.The following table represents a reconciliation of the derivative liability recorded in connection with theissuance of the Notes: January 1, 2018 $ —Fair value recognized upon issuance of Convertible Senior Notes 51,531Fair value adjustment (25,556)Reclassification to equity (25,975)December 31, 2018 $ — Fair Value of Financial Instruments The fair value of the Company’s long-term debt is determined using a discounted cash flow analysis withcurrent applicable rates for similar instruments as of the consolidated balance sheet dates. The carrying value of theCompany’s long-term debt, including the current portion, at December 31, 2018 and 2017, was approximately $25.2million and $14.8 million, respectively. At December 31, 2018 and 2017, the Company estimates that the fair value ofits long-term debt, including the current portion, was approximately $26.9 million and $14.8 million, respectively. Thefair value of the Company’s long-term debt was determined using Level 3 inputs. The fair value of the Notes was approximately $108.1 million as of December 18, 2018, which differs from thecarrying value of the Notes. The fair value of the Notes is influenced by our stock price and stock price volatility. Thefair value of the Notes was determined using Level 3 inputs. InvestmentsInvestments and cash equivalents consist of investments in a U.S. Government money market funds, overnightrepurchase agreements collateralized by government agency securities or U.S. Treasury securities, corporate bonds andcommercial paper of publicly traded companies that are classified as available‑for‑sale pursuant to AccountingStandards Codification (ASC) Topic 320, Investments—Debt and Equity Securities. The Company classifies investmentsavailable to fund current operations as current assets on its consolidated balance sheets. Investments are carried at fairvalue with unrealized gains and losses included as a component of accumulated other comprehensive income (loss),which is a separate component of stockholders’ equity, until such gains and losses are realized. The fair value of thesesecurities 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.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. Realized gains and losses are determined using the specificidentification method and are included in interest income in the consolidated statements of operations andcomprehensive loss.F-10 Table of Contents There were no realized gains or losses on investments for the years ended December 31, 2018, 2017 or 2016. There were fourteen debt securities and five debt securities in an unrealized loss position as of December 31, 2018 andDecember 31, 2017, respectively. None of these investments had been in an unrealized loss position for more than12 months as of December 31, 2018 or December 31, 2017, respectively. The fair value of these securities as ofDecember 31, 2018 and December 31, 2017 was $46.9 million and $9.9 million, respectively, and the aggregateunrealized loss was immaterial. The Company considered the decline in the market value for these securities to beprimarily attributable to current economic conditions. As it was not more likely than not that the Company would berequired to sell these securities before the recovery of their amortized cost basis, which may be at maturity, the Companydid not consider these investments to be other-than-temporarily impaired as of December 31, 2018 and December 31,2017, respectively.Cash, cash equivalents and investments consist of the following (in thousands): December 31, 2018 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cash and cash equivalents: Cash and money market accounts $62,270 $ — $ — $62,270 Corporate bonds and commercial paper (due within 90 days) 67,590 8 (1) 67,597 Total cash and cash equivalents $129,860 $ 8 $(1) $129,867 Investments: Corporate bonds and commercial paper (due within 1 year) $119,666 $132 $(12) $119,786 Total investments $119,666 $132 $(12) $119,786 Total cash, cash equivalents and investments $249,526 $140 $(13) $249,653F-11 Table of Contents December 31, 2017 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Cash and cash equivalents: Cash and money market accounts $76,760 $ — $ — $76,760 Corporate bonds and commercial paper (due within 90days) 5,418 $ — $(2) $5,416 Total cash and cash equivalents $82,178 $ — $(2) $82,176 Investments: Corporate bonds and commercial paper (due within 1 year) $4,496 $ — $ — $4,496 Total investments $4,496 $ — $ — $4,496 Total cash, cash equivalents and investments $86,674 $ — $(2) $86,672 Concentrations of credit risk and off‑balance sheet riskCash and cash equivalents, investments, and trade accounts receivable are financial instruments thatpotentially subject the Company to concentrations of credit risk. The Company mitigates this risk by maintaining itscash and cash equivalents and investments with high quality, accredited financial institutions. The management of theCompany’s investments is not discretionary on the part of these financial institutions. As of December 31, 2018, theCompany’s cash, cash equivalents and investments were deposited at two financial institutions and it has no significantoff‑balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or otherhedging arrangements. As of December 31, 2018, there were two customers that cumulatively made up more than 50% of theCompany’s trade accounts receivable balance. The Company assesses the creditworthiness of all its customers and setsand reassesses customer credit limits to ensure collectability of any trade accounts receivable balances are assured. For the year ended December 31, 2018, two customers, Yakult and CSPC, individually accounted for greaterthan 10% of the Company’s total revenues. Property and equipmentProperty and equipment consist 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 are calculated using thestraight‑line method over the following estimated useful lives of the assets:Laboratory equipment 5 years Furniture 5 years Computer equipment 3 years Leasehold improvements Lesser of useful life or life of lease Upon 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, 2018. F-12 Table of ContentsOther assetsOther assets primarily consist of prepayments made to contract research organizations (CROs). As of December31, 2018 and 2017, other assets were primarily comprised of approximately $755,000 of prepaid CRO expenses that theCompany assumed and paid to Infinity Pharmaceuticals, Inc. (Infinity) pursuant to the license agreement between theCompany and Infinity. Research and development costsThe Company expenses research and development costs to operations as incurred. 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 asCROs, clinical trial sites, manufacturing organizations and consultants, including the scientificadvisory board;·license fees;·facilities, depreciation and other expenses, which include direct and allocated expenses for rent andmaintenance of facilities, depreciation of equipment, and laboratory supplies; and·costs associated with COPIKTRA prior to the Company concluding that regulatory approval isprobable and that its net realizable value is recoverable. The Company accounts for nonrefundable advance payments for goods and services that will be used in futureresearch and development activities as expenses when the services have been performed or when the goods have beenreceived rather than when the payment is made. Stock‑based compensationThe Company expenses the fair value of employee stock-based awards on a straight-line basis over the requisiteservice period, which typically is the vesting period. Compensation expense is measured using the fair value of theaward at the grant date and is adjusted to reflect actual forfeitures as they occur. Awards subject to performance-basedvesting requirements are expensed utilizing an accelerated attribution model if achievement of the performance criteriais determined to be probable.The grant date fair value of employee stock options is estimated using the Black‑Scholes option pricing modelthat takes into account the fair value of its common stock, the exercise price, the expected life of the option, theexpected volatility of its common stock, expected dividends on its common stock, and the risk-free interest rate over theexpected life of the option. The Company applies the simplified method described in the Securities and ExchangeCommission (SEC) Staff Accounting Bulletin (SAB) Topic 14.D.2 to calculate the expected term as it does not havesufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for optionsgranted to employees. The expected term is applied to the stock option grant group as a whole, as the Company does notexpect substantially different exercise or post‑vesting termination behavior among its employee population.For annual periods ending on or before December 31, 2017, the computation of expected volatility is based onthe historical volatility of five companies, including the Company and a representative group of four publicbiotechnology and life sciences companies with similar characteristics to the Company, including similar stage ofproduct development and therapeutic focus. As of the first quarter of 2018, the Company had sufficient company-specific historical and implied volatility information. As such, for the annual period ending December 31, 2018, thecomputation of expected volatility is based only on the historical volatility of the Company’s common stock. Therisk‑free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stockoptions.F-13 Table of ContentsThe Company accounts for forfeitures as they occur. Stock‑based awards issued to non-employees, includingdirectors for non‑board related services, are accounted for based on the fair value of such services received or of theequity instruments issued, whichever is more reliably measured. Stock option awards to non-employees are revalued ateach reporting date and upon vesting using the Black‑Scholes option pricing model and are expensed on a straight‑linebasis over the vesting period.Revenue Recognition Effective January 1, 2018, the Company adopted Accounting Standards Codification (ASC) 606 Revenue fromContracts with Customers. This standard applies to all contracts with customers, except for contracts that are within thescope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount thatreflects the consideration which the entity expects to receive in exchange for those goods or services. To determinerevenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs thefollowing five step assessment: (i) identify the contract(s) with a customer; (ii) identify the performance obligations inthe contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in thecontract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company onlyapplies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled toin exchange for the goods or services it transfers to the customer. At contract inception and once the contract isdetermined to be within the scope of ASC 606, the Company assesses the goods or services promised within eachcontract, determines which goods and services are performance obligations, and assesses whether each promised good orservice is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to therespective performance obligation when (or as) the performance obligation is satisfied.Product Revenue, Net – The Company sells COPIKTRA to a limited number of specialty pharmacies andspecialty distributors in the United States. These customers subsequently resell COPIKTRA either directly to patients, orto community hospitals or oncology clinics with in-office dispensaries who in turn distribute COPIKTRA to patients. Inaddition to distribution agreements with customers, the Company also enters into arrangements with (1) certaingovernment agencies and various private organizations (Third-Party Payers), which may provide for chargebacks ordiscounts with respect to the purchase of COPIKTRA, and (2) Medicare and Medicaid, which may provide for certainrebates with respect to the purchase of COPIKTRA.The Company recognizes revenue on sales of COPIKTRA when a customer obtains control of the product,which occurs at a point in time (typically upon delivery). Product revenues are recorded at the wholesale acquisitioncosts, net of applicable reserves for variable consideration. Components of variable consideration include tradediscounts and allowances, Third-Party Payer chargebacks and discounts, government rebates, other incentives, such asvoluntary co-pay assistance, product returns, and other allowances that are offered within contracts between theCompany and customers, payors, and other indirect customers relating to the Company’s sale of COPIKTRA. Thesereserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified asreductions of accounts receivable or a current liability. These estimates take into consideration a range of possibleoutcomes based upon relevant factors such as, customer contract terms, information received from third parties regardingthe anticipated payor mix for COPIKTRA, known market events and trends, industry data, and forecasted customerbuying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount ofconsideration to which it is entitled with respect to sales made.The amount of variable consideration which is included in the transaction price may be constrained and isincluded in the net sales price only to the extent that it is probable that a significant reversal in the amount of thecumulative revenue recognized under contracts will not occur in a future period. The Company’s analyses contemplatethe application of the constraint in accordance with ASC 606. For the year ended December 31, 2018, the Companydetermined a material reversal of revenue would not occur in a future period for the estimates detailed below and,therefore, the transaction price was not reduced further. Actual amounts of consideration ultimately received may differfrom the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company willadjust these estimates, which would affect net product revenue and earnings in the period such variances becomeknown.F-14 Table of ContentsTrade Discounts and Allowances: The Company generally provides customers with invoice discounts on salesof COPIKTRA for prompt payment, which are explicitly stated in the Company’s contracts and are recorded as areduction of revenue in the period the related product revenue is recognized. In addition, the Company compensates itsspecialty distributor customers for sales order management, data, and distribution services. The Company hasdetermined such services are not distinct from the Company’s sale of COPIKTRA to the specialty distributor customersand, therefore, these payments have also been recorded as a reduction of revenue within the consolidated statements ofoperations and comprehensive loss through December 31, 2018.Third-Party Payer Chargebacks, Discounts and Fees: The Company executes contracts with Third-Party Payerswhich allow for eligible purchases of COPIKTRA at prices lower than the wholesale acquisition cost charged tocustomers who directly purchase the product from the Company. In some cases, customers charge the Company for thedifference between what they pay for COPIKTRA and the ultimate selling price to the Third-Party Payers. These reservesare established in the same period that the related revenue is recognized, resulting in a reduction of product revenue andaccounts receivable, net. Chargeback amounts are generally determined at the time of resale to the qualified Third-PartyPayer by customers, and the Company generally issues credits for such amounts within a few weeks of the customer’snotification to the Company of the resale. Reserves for chargebacks consist of credits that the Company expects to issuefor units that remain in the distribution channel inventories at the end of each reporting period that the Companyexpects will be sold to Third-Party Payers, and chargebacks that customers have claimed, but for which the Companyhas not yet issued a credit. In addition, the Company compensates certain Third-Party Payers for administrative services,such as account management and data reporting. These administrative service fees have also been recorded as areduction of product revenue within the consolidated statements of operations and comprehensive loss throughDecember 31, 2018.Government Rebates: The Company is subject to discount obligations under state Medicaid programs andMedicare. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction ofproduct revenue and the establishment of a current liability which is included in accrued expenses on the consolidatedbalance sheets. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gapfor whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability forthese rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoicehas not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made forproduct that has been recognized as revenue, but which remains in the distribution channel inventories at the end ofeach reporting period.Other Incentives: Other incentives which the Company offers include voluntary co-pay assistance programs,which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors. The calculation of the accrual for co-pay assistance is based on an estimate of claims andthe cost per claim that the Company expects to receive for product that has been recognized as revenue, but remains inthe distribution channel inventories at the end of each reporting period. The adjustments are recorded in the same periodthe related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liabilitywhich is included as a component of accrued expenses on the consolidated balance sheets.Product Returns: Consistent with industry practice, the Company generally offers customers a limited right ofreturn for product that has been purchased from the Company. The Company estimates the amount of its product salesthat may be returned by its customers and records this estimate as a reduction of revenue in the period the relatedproduct revenue is recognized. The Company estimates product return liabilities using available industry data and itsown sales information, including its visibility into the inventory remaining in the distribution channel.The Company’s limited return policy allows for eligible returns of COPIKTRA for credit under the followingcircumstances:·Receipt of damaged product;·Shipment errors that were a result of an error by the Company;·Expired product that is returned during the period beginning three months prior to the product’sexpiration and ending six months after the expiration date; F-15 Table of Contents·Product subject to a recall; and·Product that the Company, at its sole discretion, has specified can be returned for credit. The Company has not received any returns to date and believes that returns of its products will be minimal.If taxes should be collected from customers relating to product sales and remitted to governmental authorities,they will be excluded from product revenue. The Company expenses incremental costs of obtaining a contract whenincurred, if the expected amortization period of the asset that the Company would have recognized is one year or less.However, no such costs were incurred during the year ended December 31, 2018.Exclusive Licenses of Intellectual Property - The Company may enter into collaboration and licensingarrangements for research and development, manufacturing, and commercialization activities with collaborationpartners for the development and commercialization of its product candidates, which have components within the scopeof ASC 606. The arrangements generally contain multiple elements or deliverables, which may include (1) licenses, oroptions to obtain licenses, to the Company's intellectual property, (2) research and development activities performed forthe collaboration partner, (3) participation on joint steering committees, and (4) the manufacturing of commercial,clinical or preclinical material. Payments pursuant to these arrangements typically include non-refundable, upfrontpayments, milestone payments upon the achievement of significant development events, research and developmentreimbursements, sales milestones, and royalties on future product sales. The amount of variable consideration isconstrained until it is probable that the revenue is not at a significant risk of reversal in a future period. The contractsinto which the Company enters generally do not include significant financing components. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of itscollaboration and license agreements, the Company performs the following steps: (i) identification of the promisedgoods or services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods orservices are performance obligations including whether they are distinct in the context of the contract; (iii) measurementof the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to theperformance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performanceobligation. As part of the accounting for these arrangements, the Company must use significant judgment to determine:a) the number of performance obligations based on the determination under step (ii) above; b) the transaction priceunder step (iii) above; c) the stand-alone selling price for each performance obligation identified in the contract for theallocation of transaction price in step (iv) above; and d) the measure of progress in step (v) above. The Company usesjudgment to determine whether milestones or other variable consideration, except for royalties, should be included inthe transaction price as described further below. If a license to the Company’s intellectual property is determined to be distinct from the other promises orperformance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfrontfees allocated to the license when the license is transferred to the customer and the customer is able to use and benefitfrom the license. In assessing whether a promise or performance obligation is distinct from the other elements, theCompany considers factors such as the research, development, manufacturing and commercialization capabilities of thecollaboration partner and the availability of its associated expertise in the general marketplace. In addition, theCompany considers whether the collaboration partner can benefit from a promise for its intended purpose without thereceipt of the remaining elements, whether the value of the promise is dependent on the unsatisfied promise, whetherthere are other vendors that could provide the remaining promise, and whether it is separately identifiable from theremaining promise. For licenses that are combined with other promises, the Company utilizes judgment to assess thenature of the combined performance obligation to determine whether the combined performance obligation is satisfiedover time or at a point in time and, if over time, the appropriate method of measuring progress for purposes ofrecognizing revenue. The Company evaluates the measure of progress of each reporting period and, if necessary, adjuststhe measure of performance and related revenue recognition. The measure of progress, and thereby periods over whichrevenue should be recognized, is subject to estimates by management and may change over the course of thearrangement. Such a change could have a material impact on the amount of revenue the Company records in futureperiods. Customer Options: If an arrangement is determined to contain customer options that allow the customer toacquire additional goods or services such as research and development services or manufacturing services, the goodsF-16 Table of Contentsand services underlying the customer options are not considered to be performance obligations at the inception of thearrangement; rather, such goods and services are contingent on exercise of the option, and the associated option fees arenot included in the transaction price. The Company evaluates customer options for material rights or options to acquireadditional goods or services for free or at a discount. If a customer option is determined to represent a material right, thematerial right is recognized as a separate performance obligation at the outset of the arrangement. The Companyallocates the transaction price to material rights based on the relative standalone selling price, which is determinedbased on the identified discount and the estimated probability that the customer will exercise the option. Amountsallocated to a material right are not recognized as revenue until, at the earliest, the option is exercised. Milestone Payments: At the inception of each arrangement that includes milestone payments, the Companyevaluates whether the milestones are considered probable of being achieved and estimates the amount to be included inthe transaction price using the most likely amount method. If it is probable that a significant revenue reversal would notoccur, the associated milestone value is included in the transaction price. Milestone payments that are not within thecontrol of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieveduntil those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory,commercial, and other risks that must be overcome to achieve the respective milestone in making this assessment. Thereis considerable judgment involved in determining whether it is probable that a significant revenue reversal would notoccur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of allmilestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any suchadjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period ofadjustment. Royalties: For arrangements that include sales-based royalties, including milestone payments based on a levelof sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizesrevenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of theroyalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized anyroyalty revenue resulting from any of its licensing arrangements. Collaborative Arrangements: Contracts are considered to be collaborative arrangements when they satisfy thefollowing criteria defined in ASC 808, Collaborative Arrangements: (i) the parties to the contract must activelyparticipate in the joint operating activity and (ii) the joint operating activity must expose the parties to the possibility ofsignificant risk and rewards, based on whether or not the activity is successful. Payments received from or made to apartner that are the result of a collaborative relationship with a partner, instead of a customer relationship, such as co-development activities, are recorded as a reduction or increase to research and development expense, respectively. For a complete discussion of the Company’s accounting for its license and collaboration agreements, see Note15, License and collaboration agreements.Accounts Receivable, NetAccounts receivable, net consists of amounts due from customers, net of applicable revenue reserves. Accountsreceivable are typically due within 31 days. The Company analyzes accounts that are past due for collectability andprovides an allowance for receivables when collection becomes doubtful. Given the nature and limited history ofcollectability of the Company’s accounts receivable, an allowance for doubtful accounts is not deemed necessary atDecember 31, 2018.Inventory The Company capitalizes inventories manufactured in preparation for initiating sales of a product candidatewhen the related product candidate is considered to have a high likelihood of regulatory approval and the related costsare expected to be recoverable through sales of the inventories. In determining whether or not to capitalize suchinventories, the Company evaluates, among other factors, information regarding the product candidate’s safety andefficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook forcommercial sales, including the existence of current or anticipated competitive drugs and the availability ofF-17 Table of Contentsreimbursement. In addition, the Company evaluates risks associated with manufacturing the product candidate,including the ability of the Company’s third-party suppliers to complete the validation batches and the remaining shelflife of the inventories. Costs associated with manufacturing product candidates prior to satisfying the inventorycapitalization criteria are charged to research and development expense as incurred. The Company values its inventories at the lower of cost or estimated net realizable value. The Companydetermines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on afirst-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during eachreporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the periodin which the impairment is first identified. Such impairment charges, should they occur, are recorded within cost ofproduct revenues. The determination of whether inventory costs will be realizable requires estimates by management. Ifactual market conditions are less favorable than projected by management, additional write-downs of inventory may berequired which would be recorded as a cost of product revenues in the consolidated statements of operations andcomprehensive loss. Shipping and handling costs for product shipments are recorded as incurred in cost of product revenues alongwith costs associated with manufacturing the product, and any inventory write-downs. Intangible Assets The Company records finite-lived intangible assets related to certain capitalized milestone payments related tocommercial products at their fair value. These assets are amortized on a straight-line basis over their remaining usefullives, which are estimated based on the shorter of the remaining underlying patent life or the estimated useful life of theunderlying product. The Company assesses its finite-lived intangible assets for impairment if indicators are present or changes incircumstance suggest that impairment may exist. Events that could result in an impairment include the receipt ofadditional clinical or nonclinical data regarding one of the Company’s drug candidates or a potentially competitivedrug candidate, changes in the clinical development program for a drug candidate, or new information regardingpotential sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment mayexist, the Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows ofeach finite-lived intangible asset to its carrying value on the consolidated balance sheets. If the undiscounted cash flowsused in the recoverability test are less than the carrying value, the Company would determine the fair value of the finite-lived intangible asset and recognize an impairment loss if the carrying value of the finite-lived intangible asset exceedsits fair value.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 net loss per common share is calculated by dividing net loss applicable to common stockholders by theweighted-average number of common shares outstanding during the period. Diluted net loss per common share iscalculated by increasing the denominator by the weighted-average number of additional shares that could have beenoutstanding from securities convertible into common stock, such as stock options, restricted stock units and warrants(using the “treasury stock” method) and Notes (using the “if-converted” method), unless their effect on net loss per shareis antidilutive. The effect of computing diluted net loss per common share was antidilutive for any potentially issuableshares of common stock from the conversion of stock options, restricted stock units and warrants and, as such, have beenexcluded from the calculation. However, under the “if-converted” method, convertibleF-18 Table of Contentsinstruments that are-in-the-money, are assumed to have been converted as of the beginning of the period or when issued,if later. Additionally, the effects of any interest expense and changes in fair value of bifurcated derivatives shall beadded back to the numerator of the diluted net loss per share calculation. Refer to Note 12 for further details related tothe calculation of net loss per share.Recently Issued Accounting Standards Updates In November 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update(ASU) 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic606, which makes targeted improvements for collaborative arrangements to clarify that certain transactions betweencollaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborativearrangement participant is a customer in the context of a unit of account, adds unit of account guidance in Topic 808 toalign with guidance in Topic 606, and clarifies presentation of certain revenues with a collaborative arrangementparticipant which are not directly related to a third party. ASU 2018-18 is effective for annual and interim periodsbeginning after December 15, 2019, with early adoption permitted. The Company has not elected to early adopt thisstandard and is currently evaluating the impact the adoption of the standard will have on its consolidated financialstatements and related disclosures. In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU)2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation CostsIncurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizingimplementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizingimplementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual andinterim periods beginning after December 15, 2019, with early adoption permitted. The Company has not elected toearly adopt this standard and is currently evaluating the impact the adoption of the standard will have on itsconsolidated financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosurerequirements for fair value measurements for all entities, requires public entities to disclose certain new information andmodifies some disclosure requirements. ASU 2018-13 is effective for all entities for annual and interim periodsbeginning after December 15, 2019. An entity is permitted to early adopt either the entire standard or only theprovisions that eliminate or modify requirements. The Company has not elected to early adopt this standard and iscurrently evaluating the impact the adoption of the standard will have on its consolidated financial statements andrelated disclosures. In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvementsto Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include all share-basedpayment transactions for acquiring goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used toeffectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services tocustomers as part of a contract and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to allshare-based payment transactions accounted for under ASC 606. ASU 2018-07 is effective for annual and interimperiods beginning after December 15, 2018, with early adoption permitted, but no earlier than the date on which ASC606 is adopted. The Company has not elected to early adopt this standard and is currently evaluating the impact theadoption of the standard will have on its consolidated financial statements and related disclosures.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the guidance underFASB Accounting Standards Codification (ASC) Topic 840, Leases, resulting in the creation of FASB ASC Topic 842,Leases. ASU 2016-02 requires lessees to recognize in the statement of financial position a liability to make leasepayments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance andoperating leases. The guidance also eliminates the current real estate-specific provisions for all entities. In July 2018,the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities with relief from thecosts of implementing certain aspects of the new leasing standard, ASU 2016-02. Under the amendments in ASU 2018-11, entities may elect not to restate the comparative periods presented whenF-19 Table of Contentstransitioning to ASC 842 (optional transition method) and lessors may elect not to separate lease and non-leasecomponents when certain conditions are met (lessor relief practical expedient). The optional transition method appliesto entities that have not yet adopted ASU 2016-02, which is effective for fiscal years, and interim periods within thoseyears, beginning after December 15, 2018, with early adoption permitted.The Company has not elected to early adopt this standard and is currently evaluating the impact the adoptionof the standard will have on its consolidated financial statements and related disclosures. The Company’s analysisincludes, but is not limited to, reviewing existing leases, reviewing other service agreements for embedded leases,establishing policies and procedures, assessing potential disclosures and evaluating the impact of adoption on theCompany’s consolidated financial statements. The Company expects to recognize a lease liability and related right-of-use asset on its consolidated balance sheets upon adoption of this standard and expects the impact to its consolidatedstatements of operations and comprehensive loss will not be material.Recently Adopted Accounting Standards Updates In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope ofModification Accounting. ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based award require an entity to apply modification accounting under Topic 718. Specifically, an entity would notapply modification accounting if the fair value, vesting conditions and classification of the awards are the sameimmediately before and after a modification. ASU 2017-09 was effective for annual and interim periods beginning afterDecember 15, 2017, with early adoption permitted. The Company adopted this standard prospectively effective January1, 2018. The adoption of this ASU did not have an effect on the Company’s consolidated financial statements or relateddisclosures. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): RestrictedCash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash,cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generallydescribed as restricted cash and restricted cash equivalents should be included with cash and cash equivalents whenreconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 was effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. TheCompany adopted this standard effective January 1, 2018. Upon adoption of ASU 2016-18, the Company applied theretrospective transition method for each period presented and included approximately $162,000 of restricted cash in thebeginning-of-period and end-of-period cash, cash equivalents and restricted cash balance reflected in the consolidatedstatements of cash flows for the year ended December 31, 2017. A reconciliation of cash, cash equivalents and restrictedcash for each period presented is provided in Note 2 to the consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification ofCertain Cash Receipts and Cash Payments. ASU 2016-15 adds or clarifies guidance on the classification of certain cashreceipts and payments in the statement of cash flows. The standard was effective for annual and interim periodsbeginning after December 15, 2017, with early adoption permitted. The Company adopted this standard effectiveJanuary 1, 2018. The adoption of this ASU did not have an effect on the Company’s consolidated financial statementsor related disclosures. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) whichamends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenuerecognition requirements in ASC Topic 605, Revenue Recognition. In 2015 and 2016, the FASB issued additional ASUsrelated to ASC 606 that delayed the effective date of the guidance and clarified various aspects of the new revenueguidance, including principal versus agent considerations, identifying performance obligations, and licensing, and theyinclude other improvements and practical expedients. The Company adopted this new standard on January 1, 2018using the full retrospective method. There was no change to the Company’s consolidated financial statements as a resultof the adoption. F-20 Table of Contents 3. Inventory During the third quarter of 2018, the Company began capitalizing inventory costs for COPIKTRAmanufactured in preparation for its launch in the United States based on its evaluation of, among other factors, the statusof the COPIKTRA New Drug Application (NDA) in the United States and the ability of its third-party suppliers tosuccessfully manufacture commercial quantities of COPIKTRA, which provided the Company with reasonable assurancethat the net realizable value of the inventory would be recoverable. Inventory consists of the following (in thousands): December31, 2018 December 31,2017 Raw materials $ — $ — Work in process 63 — Finished goods 264 — Total inventories $327 $ — Costs incurred prior to the quarter-ended September 30, 2018 to manufacture COPIKTRA were expensed asoperating expenses as incurred.4. Property and equipment, netProperty and equipment and related accumulated depreciation are as follows (in thousands): December31, December31, 2018 2017 Leasehold improvements $146 $2,104 Laboratory equipment — 908 Furniture and fixtures 1,074 325 Computer equipment 658 279 1,878 3,616 Less: accumulated depreciation (509) (2,755) Total property and equipment, net $1,369 $861 During the year ended December 31, 2018, an amendment to the Company’s existing office space lease wasexecuted whereby the Company relocated from its previous 15,197 rentable square foot location to an adjacent 27,810rentable square foot location within the same building. As a result of this amendment, the Company shortened theuseful life of the leasehold improvements related to the original location and depreciated this balance through the datewhich it vacated the original space. Upon vacating the original 15,197 rentable office space, the Company disposed ofthe leasehold improvements related to this location. No gain or loss from the disposal of leasehold improvements wasrecognized during the year ended December 31, 2018.The Company recorded approximately $1.0 million, $0.6 million, and $0.7 million in depreciation expense forthe years ended December 31, 2018, 2017 and 2016, respectively. F-21 Table of Contents5. Intangible assetsThe Company’s intangible assets consist of the following (in thousands): December31, 2018 Estimateduseful life Acquired and in-licensed rights $22,000 14 years Less: accumulated amortization (423) Total intangible assets, net $21,577 Acquired and in-licensed rights as of December 31, 2018, consist of a $22.0 million milestone payment whichbecame payable upon the FDA marketing approval on September 24, 2018 pursuant to the amended and restated licenseagreement with Infinity. The Company made a milestone payment of $22.0 million to Infinity in November 2018.The Company recorded approximately $0.4 million in amortization expense related to finite-lived intangibleassets during the year ended December 31, 2018 using the straight-line methodology. Estimated future amortizationexpense for finite-lived intangible assets as of December 31, 2018 is approximately $1.6 million per year thereafter.6. Accrued expensesAccrued expenses consist of the following (in thousands): December 31,2018 December31, 2017 Compensation and related benefits 8,749 2,622 Contract research organization costs 6,682 3,774 Commercialization costs 1,979 131 Interest 1,786 108 Consulting fees 494 448 Professional fees 482 617 Other 936 242 Total accrued expenses $21,108 $7,942 7. Long-term debt On March 21, 2017 (Closing Date), Verastem, Inc. (the Borrower) entered into a term loan facility of up to $25.0million with Hercules Capital, Inc. (Hercules). The term loan facility is governed by a loan and security agreement, datedMarch 21, 2017 (the Original Loan Agreement), which originally provided for up to four separate advances, of which anaggregate of $15.0 million were drawn down during the year ended December 31, 2017. A total of $6.0 million of theproceeds received from the second and third tranches were used to make a milestone payment pursuant to theCompany’s license agreement with Infinity, while the remaining proceeds were used for ongoing research anddevelopment programs and for general corporate purposes. The Company executed several amendments to the Original Loan Agreement prior to March 6, 2018 whichincreased the borrowing limit under the Original Loan Agreement from up to $25.0 million to up to $50.0 million (theTerm Loan), resulting in $35.0 million of borrowing capacity remaining under the Amended Loan Agreement. TheCompany drew down an additional $10.0 million in June 2018. The remaining $25.0 million of borrowing capacitymay be drawn in minimum increments of $5.0 million in multiple tranches comprised of (i) term loans (each a Term ELoan Advance) in an aggregate principal amount of up to $10.0 million and (ii) subject to Hercules’ sole discretion,term loans (each a Term F Loan Advance) in an aggregate principal amount of up to $25.0 million. The Amended LoanAgreement permits the Borrower to draw Term E Loan Advances subject to (i) the U.S. Food and Drug Administrationaccepting on or prior to September 30, 2018 the Company’s New DrugF-22 Table of ContentsApplication for duvelisib and (ii) delivery of the Company’s financial and business projections to Hercules in form andsubstance reasonably acceptable to Hercules. In addition, the Amended Loan Agreement allows the Borrower to drawTerm F Loan Advances subject to the prior drawing of all other tranches and Hercules’ sole discretion. The Term Loan will mature on December 1, 2020 (Loan Maturity Date). Each advance accrues interest at afloating per annum rate equal to the greater of either (a) 10.5% or (b) the lesser of (i) 12.75% and (ii) the sum of (x)10.5% plus (y) (A) the prime rate minus (B) 4.5%. The Term Loan provided for interest-only payments until November1, 2018, which was extended to May 1, 2019 pursuant to the Amended Loan Agreement upon the Borrower’s receipt of aminimum of $20.0 million cash proceeds from a sale of equity securities in December 2017. Thereafter, amortizationpayments will be payable monthly in twenty installments of principal and interest (subject to recalculation upon achange in prime rates). Any advance may be prepaid in whole or in part upon seven business days’ prior written noticeto Hercules, subject to a prepayment charge of 3.0%, if such advance is prepaid in any of the first twelve (12) monthsfollowing the Closing Date, 2.0%, if such advance is prepaid after twelve (12) months following the Closing Date but onor prior to twenty-four (24) months following the Closing Date, and 1.0% thereafter. In addition, a final payment equalto 4.5% of the greater of (a) $5.0 million and (b) the total principal amount of the Term Loan extended by Herculeswhich is due on the Loan Maturity Date, or such earlier date specified in the Amended Loan Agreement. Amountsoutstanding during an event of default shall be payable on demand and shall accrue interest at an additional rate of5.0% per annum of the past due amount outstanding. The Term Loan is secured by a lien on substantially all of the assets of the Borrower, other than intellectualproperty and contains customary covenants and representations, including a liquidity covenant, financial reportingcovenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers oracquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. The events of default under the Amended Loan Agreement include, without limitation, and subject tocustomary grace periods, (1) the Borrower’s failure to make any payments of principal or interest under the AmendedLoan Agreement, promissory notes or other loan documents, (2) the Borrower’s breach or default in the performance ofany covenant under the Amended Loan Agreement, (3) the Borrower making a false or misleading representation orwarranty in any material respect, (4) the Borrower’s insolvency or bankruptcy, (5) certain attachments or judgments onthe Borrower’s assets, or (6) the occurrence of any material default under certain agreements or obligations of theBorrower involving indebtedness, or (7) the occurrence of a material adverse effect. If an event of default occurs,Hercules is entitled to take enforcement action, including acceleration of amounts due under the Amended LoanAgreement.The Company assessed all terms and features of the Amended Loan Agreement in order to identify anypotential embedded features that would require bifurcation or any beneficial conversion features. As part of thisanalysis, the Company assessed the economic characteristics and risks of the Amended Loan Agreement, including putand call features. The Company determined that all features of the Amended Loan Agreement were clearly and closelyassociated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature wasimmaterial to the Company's consolidated financial statements. The Company reassesses the features on a quarterlybasis to determine if they require separate accounting. There have been no changes to the Company’s originalassessment through December 31, 2018.The future principal payments under the Amended Loan Agreement are as follows as of December 31, 2018 (inthousands):2019 $5,9302020 19,070Total principal payments $25,000F-23 Table of Contents 8. Product revenue reserves and allowancesAs of December 31, 2018, the Company’s sole source of product revenue has been from sales of COPIKTRA inthe United States, which it began shipping to customers on September 25, 2018. The following table summarizesactivity in each of the product revenue allowance and reserve categories for the year ended December 31, 2018 (inthousands): Tradediscountsandallowances Third-PartyPayerchargebacks,discounts andfees Governmentrebates andotherincentives Returns Total Beginning balance at December 31, 2017 $ — $ — $ — $ — $ — Provision related to sales in the current year 69 120 157 2 348 Adjustments related to prior period sales — — — — — Credits and payments made (40) (32) — — (72) Ending balance at December 31, 2018 $29 $88 $157 $ 2 $276 Trade discounts and Third-Party Payer chargebacks and discounts are recorded as a reduction to accountsreceivable, net on the consolidated balance sheets. Trade allowances and Third-Party Payer fees, government rebates,other incentives and returns are recorded as a component of accrued expenses on the consolidated balance sheets.9. Common stockAs of December 31, 2018 and 2017, 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): December 31, 2018 2017 Shares reserved under equity compensation plans 15,572 8,264 Shares reserved for inducement grants 6,381 3,616 Shares reserved for Convertible Senior Notes 20,937 — Total shares reserved 42,890 11,880 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 programsOn March 30, 2017, the Company established an at-the-market equity offering program pursuant to which itwas able to offer and sell up to $35.0 million of its common stock at then-current market prices from time to timethrough Cantor, as sales agent (the 2017 ATM Program). On August 28, 2017, the Company amended its salesagreement with Cantor to increase the maximum aggregate offering price of shares of common stock that can be soldunder the 2017 ATM Program to $75.0 million. Through December 31, 2018, the Company sold 11,518,354 sharesunder the 2017 ATM Program for net proceeds of approximately $47.3 million (after deducting commissions and otheroffering expenses).F-24 Table of ContentsEquity offeringOn May 16, 2018, the Company entered into an underwriting agreement with Cantor relating to theunderwritten offering of 7,777,778 shares (the Shares) of the Company’s common stock (the UnderwritingAgreement). Cantor agreed to purchase the Shares pursuant to the Underwriting Agreement at a price of $4.31 per share.In addition, the Company granted Cantor an option to purchase, at the public offering price less any underwritingdiscounts and commissions, an additional 1,166,666 shares of the Company’s common stock, exercisable for 30 daysfrom the date of the prospectus supplement. The option was exercised by Cantor in full on May 23, 2018. The aggregateproceeds from Cantor, net of underwriting discounts and offering costs, were approximately $38.3 million.On June 14, 2018, the Company entered into a purchase agreement with Consonance Capital Master AccountL.P. and P Consonance Opportunities Ltd. (collectively, Consonance) relating to the registered offering of 7,166,666shares of its common stock at a price of $6.00 per share. The aggregate proceeds from Consonance, net of offering costs,were approximately $42.9 million.On December 14, 2017, the Company entered into an underwriting agreement with BTIG, LLC relating to theunderwritten offering of 8,422,877 shares of its common stock at a price of $2.97 per share, for aggregate proceeds, netof underwriting discounts and offering costs, of approximately $24.7 million.10. 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, 2018 2017 2016 Research and development $2,043 $1,381 $1,073 Selling, general and administrative 4,628 3,652 5,145 Total stock-based compensation expense $6,671 $5,033 $6,218 All of the $6.7 million and $5.0 million of stock-based compensation expense recorded during the years endedDecember 31, 2018 and 2017, respectively, was recorded to additional paid-in capital. Of the $6.2 million of stock-based compensation expense recorded during the year ended December 31, 2016, $6.3 million was recorded toadditional paid-in capital and approximately $69,000 was recorded as a decrease in liability classified awards.The Company has awards outstanding under two equity compensation plans, the Amended and Restated 2012Incentive Plan (the 2012 Plan) and the 2010 Equity Incentive Plan (the 2010 Plan), as well as the inducement awardprogram. Terms of stock award agreements, including vesting requirements, are determined by the board of directors,subject to the provisions of the individual plans. To date, most options granted by the Company vest twenty-fivepercent (25%) one year from vesting start date and six and a quarter percent (6.25%) for each successive three-monthperiod, thereafter (subject to acceleration of vesting in the event of certain change of control transactions) and areexercisable for a period of 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 initiallyallowed the Company to grant awards for up to 3,428,571 shares of common stock, plus the number of shares of commonstock available for grant under the 2010 Plan as of the effectiveness of the 2012 Plan (which was an additional 30,101shares), plus that number of shares of common stock related to awards outstanding under the 2010 Plan which terminateby expiration, forfeiture, cancellation or otherwise. The 2012 Plan included an “evergreen provision” that allowed for anannual increase in the number of shares of common stock available for issuance under the 2012 Plan. The annualincrease was added on the first day of each year from 2013 through 2018 and was equal to the lesser of 1,285,714 sharesof common stock and 4.0% of the number of shares of commonF-25 Table of Contentsstock outstanding, or a lesser amount as determined by the board of directors. On each of January 1, 2018, January 1,2017 and January 1, 2016, the number of shares available for issuance under the 2012 Plan increased by 1,285,714under this provision. On December 18, 2018, the shareholders of the Company approved the Amended and Restated2012 Incentive Plan which increased the maximum number of shares available for issuance under the 2012 Plan to16,628,425 and eliminated the evergreen provision. Awards under the 2012 Plan may include the following award types: incentive stock options, nonqualifiedstock options, stock appreciation rights, restricted stock awards, restricted stock units (RSUs), other stock‑based orcash‑based awards and any combination of the foregoing. As of December 31, 2018, under the 2012 Plan, the Companyhas granted stock options for 12,099,594 shares of common stock, of which 3,683,349 have been forfeited and 364,958have been exercised, and restricted stock units for 1,195,918 shares of common stock, of which 219,351 have beenforfeited and 759,817 have vested. The exercise price of each option has been equal to the closing price of a share of ourcommon stock on the grant date. Inducement Award ProgramIn December 2014, the Company established an inducement award program (in accordance with Nasdaq ListingRule 5635(c)(4)) under which it may grant non-statutory stock options to purchase, and RSUs in respect of up to anaggregate of 750,000 shares of common stock to new or prospective employees as inducement to enter intoemployment with the Company. In December 2016, the Board of Directors authorized and reserved 580,000 additionalshares of common stock under this program. In December 2017, the Board of Directors authorized and reserved2,500,000 additional shares of common stock under this program. In June and December 2018, the Board of Directorsauthorized and reserved 1,700,000 and 1,250,000 additional shares of common stock under this program, respectively. The program is governed by the terms of the 2012 Plan but shares issued pursuant to the program are not issued underthe 2012 Plan. As of December 31, 2018, the Company had granted options for 5,447,841 shares of common stock underthe program, of which 721,082 have been forfeited and 323,750 have been exercised, and restricted stock units for90,000 shares, of which none have been forfeited nor vested. As of December 31, 2018, 1,888,241 remain available forfuture issuance. Stock Options A summary of the Company’s stock option activity and related information for the year ended December 31,2018 is as follows: Weighted-average Weighted-average remaining Aggregate exercise price per contractual term intrinsic value Shares share (years) (in thousands) Outstanding at December 31, 2017 8,719,978 $5.19 7.9 $6,150 Granted 5,539,232 $5.33 Exercised (412,851) $1.96 Forfeited/cancelled (1,323,492) $4.55 Outstanding at December 31, 2018 12,522,867 $5.42 7.8 $6,909 Vested at December 31, 2018 6,107,429 $6.05 6.5 $4,469 Vested and expected to vest at December 31, 2018(1) 12,084,867 $5.46 7.8 $6,811 (1)This represents the number of vested options as of December 31, 2018, plus the number of unvested optionsexpected to vest as of December 31, 2018.F-26 Table of ContentsThe fair value of each stock option was estimated using a Black‑Scholes option‑pricing model with thefollowing assumptions: Year ended December 31, 2018 2017 2016Risk-free interest rate 2.65% 2.02% 1.48%Volatility 81% 78% 75%Dividend yield — — — Expected term (years) 5.8 5.8 5.9 The Company recorded stock‑based compensation expense associated with employee stock options of $5.6million, $4.5 million, and $6.1 million, for the years ended December 31, 2018, 2017, and 2016, respectively. Theweighted‑average grant date fair value of options granted in the years ended December 31, 2018, 2017, and 2016was $3.72, $1.83, and $0.99 per share, respectively. The fair value of options that vested during the years endedDecember 31, 2018, 2017, and 2016 was $4.7 million, $4.8 million, and $6.9 million, respectively. The aggregateintrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid byemployees to exercise the option) during the years ended December 31, 2018 and 2017 was $1.8 million and $1.1million, respectively.During the first quarter of 2018, the Company granted stock options to purchase a total of 582,500 shares ofcommon stock to certain executives that vest only upon the achievement of specified performance conditions. TheCompany determined that two of the performance conditions had been achieved as of December 31, 2018. TheCompany has recognized approximately $0.7 million of stock-based compensation expense during the year endedDecember 31, 2018 related to awards that vest upon the achievement of performance conditions. As of December 31,2018, a total of 438,000 options remain unvested which are related to the future achievement of performance conditions.In June 2016, the Company granted stock options to purchase a total of 500,000 shares of common stock tocertain employees that vest only upon the achievement of specified performance conditions. The Company determinedthat 50% of performance conditions had been achieved during the year ended December 31, 2016. As a result, 250,000shares vested in October 2016 and the Company recognized stock-based compensation expense related to these awardsof approximately $0.2 million for the year ended December 31, 2016. In September 2017, the Company determined thatthe remaining performance conditions had been achieved and as a result the remaining 250,000 shares vested and theCompany recognized stock-based compensation expense of approximately $0.4 million during the year endedDecember 31, 2017. The increase in stock-based compensation expense recognized for the awards which vested duringthe year ended December 31, 2017, as compared to the awards which vested during the year ended December 31, 2016,is a result of the revaluation of an award held by a non-employee to fair value on the vesting date. At December 31, 2018, there was $17.5 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 3.7 years.Restricted Stock UnitsThe Company awards RSUs to employees under its 2012 Incentive Plan and Inducement Award Program. EachRSU entitles the holder to receive one share of the Company’s common stock when the RSU vests. The RSUs generallyvest in either (i) four substantially equal installments on each of the first four anniversaries of the vestingcommencement date, or (ii) 100 percent on the first anniversary of the vesting commencement date, subject to theemployee’s continued employment with, or service to, the Company on such vesting date. Compensation expense isrecognized on a straight-line basis. F-27 Table of ContentsA summary of RSU activity during the year ended December 31, 2018 is as follows: Shares Weighted-average grantdate fairvalueper share Outstanding at December 31, 2017 — $ — Granted 376,000 $5.28 Vested — $ — Forfeited (69,250) $5.45 Outstanding at December 31, 2018 306,750 $5.24 The Company recorded stock‑based compensation expense associated with employee RSUs of $0.4million, less than $0.1 million, and $0.1 million, for the years ended December 31, 2018, 2017, and 2016, respectively.No RSUs were granted during the years ended December 31, 2017 and 2016. The total fair value of restricted stock unitsvested during the years ended December 31, 2018, 2017, and 2016 was insignificant. At December 31, 2018, there was $1.2 million of total unrecognized compensation cost related to unvestedRSUs and the Company expects to recognize this cost over a remaining weighted-average period of 1.87 years.11. Convertible Senior NotesOn October 17, 2018, the Company closed a registered direct public offering of $150.0 million aggregateprincipal amount of the Company’s 5.00% Convertible Senior Notes due 2048 (the Notes), for net proceeds ofapproximately $145.3 million. The Notes are governed by the terms of a base indenture for senior debt securities (theBase Indenture), as supplemented by the first supplemental indenture thereto (the Supplemental Indenture and togetherwith the Base Indenture, the Indenture), each dated October 17, 2018, by and between the Company and WilmingtonTrust, National Association, as trustee. The Notes are senior unsecured obligations of the Company and bear interest at arate of 5.00% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1,2019. The Notes will mature on November 1, 2048, unless earlier repurchased, redeemed or converted in accordancewith their terms. The Notes are convertible into shares of the Company’s common stock, par value $0.0001 per share, together, ifapplicable, with cash in lieu of any fractional share, at an initial conversion rate of 139.5771 shares of common stock per$1,000 principal amount of the Notes, which corresponds to an initial conversion price of approximately $7.16 per shareof common stock and represents a conversion premium of approximately 15.0% above the last reported sale price of thecommon stock of $6.23 per share on October 11, 2018. Upon conversion, converting noteholders will be entitled toreceive accrued interest on their converted Notes. To the extent the Company has insufficient authorized but unissuedshares to settle conversions in shares of common stock, the Company would be required to settle the deficiency in cash. The Company will have the right, exercisable at its option, to cause all Notes then outstanding to be convertedautomatically if the “Daily VWAP” (as defined in the Indenture) per share of the Company’s common stock equals orexceeds 130% of the conversion price on each of at least 20 VWAP Trading Days (as defined in the Indenture), whetheror not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the date theCompany first issued the Notes. The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including,but not limited to, the issuance of stock dividends and payment of cash dividends, but will not be adjusted for anyaccrued and unpaid interest. Prior to November 1, 2022, the Company will not have the right to redeem the Notes. On or after November 1,2022, the Company may elect to redeem the Notes, in whole or in part, at a cash redemption price equal to the principalamount of the Notes to be redeemed, plus accrued and unpaid interest, if any. Unless the Company has previously called all outstanding Notes for redemption, the Notes will be subject torepurchase by the Company at the holders’ option on each of November 1, 2023, November 1, 2028,F-28 Table of ContentsNovember 1, 2033, November 1, 2038 and November 1, 2043 (or, if any such date is not a business day, on the nextbusiness day) at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued andunpaid interest, if any. If a “Fundamental Change” (as defined in the Indenture) occurs at any time, subject to certain conditions,holders may require the Company to purchase all or any portion of their Notes at a purchase price equal to 100% of theprincipal amount of the Notes to be purchased, plus accrued and unpaid interest. If a “Fundamental Change” occurs onor before November 1, 2022 and a holder elects to convert its Notes in connection with such change, such holder may beentitled to an increase in the conversion rate in certain circumstances as set forth in the Indenture. The Notes are the Company’s senior, unsecured obligations and will be senior in right of payment to theCompany’s future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right ofpayment with the Company’s existing and future indebtedness that is not so subordinated, and effectively subordinatedto the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing suchindebtedness. The Notes are structurally subordinated to all existing and future indebtedness and other liabilities,including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of theCompany’s subsidiaries. The Indenture includes customary covenants and set forth certain events of default after which the Notes may bedeclared immediately due and payable and set forth certain types of bankruptcy or insolvency events of defaultinvolving the Company or certain of its subsidiaries after which the Notes become automatically due and payableThe Company assessed all terms and features of the Notes in order to identify any potential embedded featuresthat would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks ofthe Notes, including the conversion, put and call features. Per the terms of the Indenture, upon conversion of the Notes, aportion of the principal may be settled in cash until the date upon which the Company’s stockholders approve anincrease in the number of authorized shares of common stock, or the Authorized Share Effective Date, as defined. Inconsideration of this provision, the Company concluded the conversion feature required bifurcation as aderivative. The fair value of the conversion feature derivative was determined based on the difference between the fairvalue of the Notes with the conversion option and the fair value of the Notes without the conversion option. TheCompany determined that the fair value of the derivative upon issuance of the Notes was $51.5 million and recordedthis amount as a derivative liability and the offsetting amount as a debt discount as a reduction to the carrying value ofthe Notes on the closing date, or October 17, 2018. On December 18, 2018, the Authorized Share Effective Date was achieved as the Company’s stockholdersapproved an increase in the number of authorized shares of Common Stock. Following this approval, no portion of theNotes are settleable in cash upon conversion. As such, the Company determined that the conversion feature no longermet the definition of a derivative following the increase in the number of authorized shares of common stock. As ofDecember 18, 2018, the Company determined the fair value of the conversion feature was $25.9 million. The Companyrecorded the change in the fair value of the conversion feature for the period from October 17, 2018 to December 18,2018 of $25.6 million as other income on the consolidated statements of operations and comprehensive loss. As ofDecember 18, 2018, the fair value of the conversion option was reclassified to additional paid-in capital on theconsolidated balance sheets as it qualified for a scope exception from derivative accounting. Accordingly, theconversion feature will no longer be measured at fair value on the Company’s financial statements. The Company determined that all other features of the Notes were clearly and closely associated with a debthost and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to theCompany's consolidated financial statements. The Company reassesses the features on a quarterly basis to determine ifthey require separate accounting. There have been no changes to the Company’s original assessment through December31, 2018. The Company determined that the expected life of the Notes was equal to the period through November 1,2023 as this represents the point at which the Notes are initially subject to repurchase by the Company at the option ofthe holders. Accordingly, the total debt discount of $56.3 million, inclusive of the fair value of the embeddedconversion feature derivative at issuance, is being amortized using the effective interest method through NovemberF-29 Table of Contents1, 2023. For the year ended December 31, 2018, the Company recognized $3.1 million of interest expense related tothe Notes. 12. Net Loss per ShareASC 260 “Earnings Per Share” requires the Company to calculate its net loss per share based on basic anddiluted net loss per share, as defined. Basic EPS excludes dilution and is computed by dividing net loss by the weightedaverage number of shares outstanding for the period. For the year ended December 31, 2018, the dilutive effect of theoutstanding Notes issued by the Company is reflected in diluted EPS using the if-converted method. For the years endedDecember 31, 2017 and 2016 periods of net loss, basic and diluted EPS are the same as the assumed exercise of stockoptions, warrants and restricted stock units are anti-dilutive.The computation of basic and diluted net income (loss) per share attributable to common stockholders consistsof the following: Year Ended December 31, 2018 2017 2016Net loss (72,434) (67,802) (36,440)Less: Other income (25,556) — —Add: Interest expense 3,071 — —Adjusted diluted net loss (94,919) (67,802) (36,440) Weighted average shares outstanding 64,962 38,422 36,988Add: Dilutive effect of the Notes 4,359 — —Weighted average diluted shares outstanding 69,321 38,422 36,988 Net loss per share - basic (1.12) (1.76) (0.99)Net loss per share - diluted (1.37) (1.76) (0.99) In calculating the effect of the Notes on diluted net loss per share, the change in fair value of the bifurcatedderivative of $25.6 million is subtracted while the interest expense of $3.1 million is added to the Company’s net loss. As of December 31, 2018, upon conversion of all outstanding Notes, the Company would be required to issue20,936,548 shares. Under the “if-converted” method, convertible instruments are assumed to have been converted as ofthe beginning of the period or when issued, if later. Accordingly, the weighted average number of potentially issuableshares upon conversion of the Notes was determined by weighting the number of shares potentially issuable as ofDecember 31, 2018, 20,936,548 shares, over the total number of days the Notes were outstanding for the period, 76 days,to calculate an additional 4,359,391 shares to be added to the denominator.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, 2018 2017 2016 Outstanding stock options 12,522,867 8,719,978 5,848,470 Outstanding warrants — — 142,857 Outstanding restricted stock units 306,750 — — Total potentially dilutive securities 12,829,617 8,719,978 5,991,327 13. Income TaxesAs of December 31, 2018, the Company had federal and state net operating loss carryforwards of approximately$325.2 million and $325.0 million, respectively, which are available to reduce future taxable income. The Companyalso had federal and state tax credits of $18.1 million and $2.0 million, respectively, which may beF-30 Table of Contentsused to offset future tax liabilities. The net operating loss (NOL) and tax credit carryforwards will expire at various datesthrough 2037. NOL 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.A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operationsfollows: December 31, 2018 2017 Income tax benefit using U.S. federal statutory rate 21.00% 34.00%State tax benefit, net of federal benefit 6.38% 5.00%Research and development tax credits 5.61% 7.04%Permanent items (0.65)% (1.24)%Effect of U.S. Tax Cuts and Jobs Act —% (45.19)%Change in the valuation allowance (31.82)% 0.19%Other (0.52)% 0.20% —% —%The principal components of the Company’s deferred tax assets and liabilities are as follows (in thousands): December 31, 2018 2017 Deferred tax assets: Net operating loss carryforwards $88,829 $64,677 Capitalized research and development 2,545 2,780 Research and development credits 19,725 15,406 Stock-based compensation 3,756 2,560 Other 543 379 Total deferred tax assets 115,398 85,802 Deferred tax liabilities: Derivative liability (13,617) — Total deferred tax liabilities (13,617) — Net deferred tax asset 101,781 85,802 Valuation allowance (101,781) (85,802) Net deferred tax asset $ — $ — The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2018 and2017 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 approximately $16.0 million in the year ended December 31, 2018primarily relates to the generation of net operating losses and research and development credits.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, 2018, the Companyhad no unrecognized tax benefits or related interest and penalties accrued. The Company has not conducted a study ofresearch and development (R&D) credit carryforwards. This study may result in an adjustment to the Company’s R&Dcredit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presentedas an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, ifan adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, therewould be no impact to the consolidated balance sheet or statement of operations ifF-31 Table of Contentsan adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognizedbenefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject toexamination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generallysubject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a losscarryforward is available.During 2017, the Company recorded tax charges for the impact of the Tax Act effects using the currentavailable information and technical guidance on the interpretations of the Tax Act. As permitted by SEC StaffAccounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company recordedprovisional estimates and have subsequently finalized our accounting analysis based on the guidance, interpretations,and data available as of December 31, 2018. Adjustments made in the fourth quarter of 2018 upon finalization of ouraccounting analysis were not material to our consolidated financial statements.14. Commitments and contingenciesOn 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 was scheduled toexpire on September 30, 2019. Effective February 15, 2018, the Company amended its lease agreement to relocatewithin the facility to another location consisting of 27,810 square feet of office space (the Amended LeaseAgreement). The Amended Lease Agreement extends the expiration date of the lease from September 2019 throughMay 2025. Pursuant to the Amended Lease Agreement, the initial annual base rent amount is approximately $660,000,which increases during the lease term to $1.1 million for the last twelve-month period. The deferred rent obligation isincluded in accrued expenses (current portion) and other liabilities (noncurrent portion) in the consolidated balancesheets. The Company has also agreed to pay its proportionate share of increases in operating expenses and propertytaxes for the building in which the leased space is located. In conjunction with the execution of the Amended LeaseAgreement, the Company increased its security deposit by increasing its existing letter of credit to approximately$403,000, which was reduced to $241,000 in October 2018. The amount is included in restricted cash on theconsolidated balance sheets as of December 31, 2018.The minimum aggregate future lease commitments as of December 31, 2018 are as follows (in thousands):2019 $716 2020 971 2021 1,020 2022 1,041 2023 1,062 Thereafter 1,538 Total $6,348 The Company recorded rent expense of approximately $0.8 million, $0.4 million and $0.4 million for the yearsended December 31, 2018, 2017 and 2016, 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.15. License and collaboration agreementsInfinity In November 2016, the Company entered into an amended and restated license agreement with Infinity, underwhich it acquired an exclusive worldwide license for the research, development, commercialization, and manufacture ofproducts in oncology indications containing duvelisib. In connection with the license agreement, theF-32 Table of ContentsCompany assumed operational and financial responsibility for certain activities that were part of Infinity’s duvelisibprogram, including the DUO study for patients with relapsed/refractory CLL, and Infinity maintained a portion of thefinancial responsibility for the shutdown of certain other clinical studies. The Company is obligated to use diligentefforts to develop and commercialize a product in an oncology indication containing duvelisib. During the term of thelicense agreement, Infinity has agreed not to research, develop, manufacture or commercialize duvelisib in any otherindication in humans or animals. Pursuant to the terms of the license agreement, the Company was required to make the following payments toInfinity in cash or, at the Company’s election, in whole or in part, in shares of the Company’s common stock: (i) $6.0million upon the completion of the DUO study if the results of the DUO study met certain pre-specified criteria, whichwas paid in cash by the Company to Infinity in October 2017 and recorded as research and development expense in theconsolidated statements of operations and comprehensive loss, and (ii) $22.0 million upon the approval of a New DrugApplication in the United States or an application for marketing authorization with a regulatory authority outside of theUnited States for a product in an oncology indication containing duvelisib, which was paid in cash by the Company toInfinity in November 2018 and recorded as an intangible asset in the consolidated balance sheets.The Company is also obligated to pay Infinity royalties on worldwide net sales of any products in an oncologyindication containing duvelisib ranging from the mid-single digits to the high single-digits. The royalties will expire ona product-by-product and country-by-country basis until the latest to occur of (i) the last-to-expire patent right coveringthe applicable product in the applicable country, (ii) the last-to-expire patent right covering the manufacture of theapplicable product in the country of manufacture of such product, (iii) the expiration of non-patent regulatoryexclusivity in such country and (iv) ten years following the first commercial sale of a product in a country, provided thatif royalties on net sales for a product in the United States are payable solely on the basis of non-patent regulatoryexclusivity, the applicable royalty on net sales for such product in the United States will be reduced by 50%. Theroyalties are also subject to reduction by 50% of certain third-party royalty payments or patent litigation damages orsettlements which might be required to be paid by the Company if litigation were to arise, with any such reductionscapped at 50% of the amounts otherwise payable during the applicable royalty payment period.In addition to the foregoing, the Company is obligated to pay Infinity an additional royalty of 4% onworldwide net sales of any products in an oncology indication containing duvelisib to cover the reimbursement ofresearch and development costs owed by Infinity to Mundipharma International Corporation Limited (MICL) andPurdue Pharmaceutical Products L.P. (Purdue). Once Infinity has fully reimbursed MICL and Purdue, the royaltyobligations will be reduced to 1% of net sales in the United States. These trailing MICL royalties are payable until thelater to occur of the last-to-expire of specified patent rights and the expiration of non-patent regulatory exclusivities in acountry. Each of the above royalty rates is reduced by 50% on a product-by-product and country-by-country basis if theapplicable royalty is payable solely on the basis of non-patent regulatory exclusivity. In addition, the trailing MICLroyalties are subject to reduction by 50% of certain third-party royalty payments or patent litigation damages orsettlements which might be required to be paid by the Company if litigation were to arise, with any such reductionscapped at 50% of the amounts otherwise payable during the applicable royalty payment period.The Company evaluated the license agreement with Infinity under ASC Topic 805, Business Combinations,and ASU 2017-01 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated ina single identifiable asset or group of similar assets, the transaction did not meet the requirements to be accounted for asa business combination and therefore was accounted for as an asset acquisition. All consideration to be paid under thelicense agreement is contingent in nature and will be recognized when the respective contingency is resolved.During the year ended December 31, 2018, the Company paid Infinity $0.1 million related to the Infinity,MICL, and Purdue royalty payments, which are included in costs of revenue within the consolidated statements ofoperation. There were no royalties paid to Infinity during the years ended December 31, 2017 and 2016.Pfizer Inc. (Pfizer)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 (the FAK Products) for all therapeutic,F-33 Table of Contentsdiagnostic and prophylactic uses in humans. The Company is solely responsible, at its expense, for the clinicaldevelopment of the FAK Products, which is to be conducted in accordance with an agreed upon development plan. TheCompany is also responsible for all manufacturing and commercialization activities at its own expense. Pfizer isrequired to provide the Company with an initial quantity of clinical supply of one of the FAK Products for an agreedupon price. Under the agreement, the Company made a one-time cash payment to Pfizer in the amount of $1.5 millionand issued 192,012 shares of its common stock. Pfizer is also eligible to receive up to $2.0 million in developmentalmilestones and up to an additional $125.0 million based on the successful attainment of regulatory and commercialsales milestones. Pfizer is also eligible to receive high single to mid-double-digit royalties on future net sales of the FAKProducts. The Company’s royalty obligations with respect to each FAK Product in each country begin on the date offirst commercial sale of the FAK Product in that country, and end on the later of 10 years after the date of firstcommercial sale of the FAK Product in that country or the date of expiration or abandonment of the last claim containedin any issued patent or patent application licensed by Pfizer to the Company that covers the FAK Product in thatcountry. The Company accounted for the license agreement as the licensing of in process research and developmentwith no alternative future use.Yakult Honsha Co., Ltd. (Yakult)On June 5, 2018, the Company entered into a license and collaboration agreement (the Yakult Agreement) withYakult, under which the Company granted exclusive rights to Yakult to develop and commercialize productscontaining duvelisib in Japan for the treatment, prevention, palliation or diagnosis of all oncology indications inhumans or animals.Under the terms of the Yakult Agreement, Yakult received an exclusive right to develop and commercializeproducts containing duvelisib in Japan under mutually agreed upon development and commercialization plans at itsown cost and expense. Yakult also received certain limited manufacturing rights in the event that the Company isunable to manufacture or supply sufficient quantities of duvelisib or products containing duvelisib to Yakult during theterm of the Yakult Agreement. The Company retained all rights to duvelisib outside of Japan.Yakult paid the Company an upfront, non-refundable payment of $10.0 million in June 2018. The Company isalso entitled to receive aggregate payments of up to $90.0 million if certain development, regulatory and commercialmilestones are successfully achieved. Yakult is obligated to pay the Company a double-digit royalty on net sales ofproducts containing duvelisib in Japan, subject to reduction in certain circumstances, and to fund certain globaldevelopment costs related to worldwide clinical trials conducted by the Company in which Yakult has opted toparticipate (Global Clinical Trials) on a pro-rata basis.Unless earlier terminated by either party, the Yakult Agreement will expire upon the fulfillment of Yakult’sroyalty obligations to the Company for the sale of any products containing duvelisib in Japan, which royaltyobligations expire, on a product-by-product basis, upon the last to occur of (a) expiration of valid claims covering suchproduct, (b) expiration of regulatory exclusivity for such product or (c) 10 years from first commercial sale of suchproduct. Yakult may terminate the Yakult Agreement in its entirety at any time with 180 days’ written notice. Eitherparty may terminate the Yakult Agreement in its entirety with 60 days’ written notice for the other party’s materialbreach if such party fails to cure the breach. The Company may terminate the Yakult Agreement if (i) Yakult fails to usecommercially reasonable efforts to develop and commercialize products containing duvelisib in Japan or (ii) Yakultchallenges any patent licensed by the Company to Yakult under the Yakult Agreement. Either party may terminate theYakult Agreement in its entirety upon certain insolvency events involving the other party.The Company first assessed the Yakult Agreement under ASC 808 to determine whether the Yakult Agreement(or part of the Yakult Agreement) represents a collaborative arrangement based on the risks and rewards and activities ofthe parties pursuant to the Yakult Agreement. The Company accounts for collaborative arrangements (or elementswithin the contract that are deemed part of a collaborative arrangement), which represent a collaborative relationshipand not a customer relationship, outside the scope of ASC 606. For a component of the Yakult Agreement, the Companyconcluded that both the Company and Yakult are exposed to significant risks while developing duvelisib andultimately would share in the reward upon successful commercialization of duvelisib. The Company then consideredeach remaining component in the Yakult Agreement to determine if ASC 606 should beF-34 Table of Contentsapplied to those components. Generally, the components in the Yakult Agreement fall under one of two potentialresearch and development activities: (i) the parties’ joint participation in Global Clinical Trials and (ii) the territory-specific development of duvelisib. For the parties’ participation in the Global Clinical Trials, the Company concluded that the research anddevelopment activities and payments related to such activities are not within the scope of ASC 606 as Yakult is not acustomer of the Company with regards to these activities in the context of the Yakult Agreement. As such, costs incurredto execute the Global Clinical Trials will be recorded as research and development expense and payments received fromYakult related to such will be recorded as a reduction of research and development expense.For Territory-specific activities, the Company concluded that Yakult is a customer with regard to thiscomponent in the context of the Yakult Agreement. As such, the Territory-specific component and all related paymentsare within the scope of ASC 606. The Company determined that there were two material promises associated with the territory-specific activities:(i) an exclusive license to develop and commercialize duvelisib in the territory and (ii) the initial technology transfer.The Company determined that the exclusive license and initial technology transfer were not distinct from another, as thelicense has limited value without the initial technology. Therefore, the exclusive license and initial technology transferare combined as a single performance obligation. The Company evaluated the option rights for manufacturing andsupply services to determine whether they represent material rights to Yakult and concluded that the options were notissued at a significant and incremental discount and therefore do not represent material rights. As such, they are notperformance obligations at the outset of the arrangement. Based on this assessment, the Company concluded oneperformance obligation exists at the outset of the Yakult Agreement: the exclusive license combined with the initialtechnology transfer. The Company determined that the upfront payment of $10.0 million constitutes the transaction price as of theoutset of the Yakult Agreement. Future potential milestone payments were fully constrained as the risk of significantrevenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestonesis not within the Company’s control and is subject to certain research and development success or regulatory approvalsand therefore carry significant uncertainty. The Company will reevaluate the likelihood of achieving future milestonesat the end of each reporting period. As all performance obligations have been satisfied, if the risk of significant revenuereversal is resolved, any future milestone revenue from the arrangement will be added to the transaction price (andthereby recognized as revenue) in the period the risk is relieved.The Company satisfied the performance obligation upon delivery of the license and initial technology transferand recognized the upfront payment of $10.0 million as license revenue during year ended December 31, 2018. CSPC Pharmaceutical Group Limited (CSPC)On July 26, 2018, the Company and CSPC entered into an Exclusivity Agreement which granted CSPC theexclusive right to negotiate a licensing agreement with the Company for duvelisib in China. CSPC paid the Company anon-refundable exclusivity fee of $5.0 million in August 2018 (Exclusivity Fee) which was creditable against anypayments agreed to under the terms of a potential definitive license agreement.Subsequently, on September 25, 2018, the Company entered into a license and collaboration agreement withCSPC (the CSPC Agreement), under which the Company granted exclusive rights to CSPC to develop andcommercialize products containing duvelisib in the People’s Republic of China (China), Hong Kong, Macau andTaiwan (collectively, the CSPC Territory) for the treatment, prevention, palliation or diagnosis of all oncologyindications in humans.Under the terms of the CSPC Agreement, CSPC received an exclusive right to develop and commercializeproducts containing duvelisib in the CSPC Territory under mutually agreed upon development and commercializationplans at its own cost and expense. CSPC also received certain limited manufacturing rights in theF-35 Table of Contentsevent that the Company is unable to manufacture or supply sufficient quantities of duvelisib or products containingduvelisib to CSPC during the term of the CSPC Agreement. The Company retained all rights to duvelisib outside of theCSPC Territory.CSPC paid the Company an aggregate upfront, non-refundable payment of $15.0 million, less the previouslypaid $5.0 million Exclusivity Fee. The Company is also entitled to receive aggregate payments of up to $160.0 millionif certain development, regulatory and commercial milestones are successfully achieved. CSPC is obligated to pay theCompany a double-digit royalty on net sales of products containing duvelisib in the CSPC Territory, subject toreduction in certain circumstances, and to fund certain global development costs related to worldwide clinical trialsconducted by the Company in which CSPC has opted to participate (Global Clinical Trials) on a pro-rata basis.Unless earlier terminated by either party, the CSPC Agreement will expire upon the fulfillment of CSPC’sroyalty obligations to the Company for the sale of any products containing duvelisib in the CSPC Territory, whichroyalty obligations expire, on a product-by-product basis, upon the last to occur of (a) expiration of valid claimscovering such product, (b) expiration of regulatory exclusivity for such product or (c) 10 years from first commercial saleof such product. CSPC may terminate the CSPC Agreement in its entirety at any time with 180 days’ written notice.Either party may terminate the CSPC Agreement in its entirety with 60 days’ written notice for the other party’s materialbreach if such party fails to cure the breach. The Company may terminate the CSPC Agreement if (i) CSPC fails to usecommercially reasonable efforts to develop and commercialize products containing duvelisib in the CSPC Territory or(ii) CSPC challenges any patent licensed by the Company to CSPC under the CSPC Agreement. Either party mayterminate the CSPC Agreement in its entirety upon certain insolvency events involving the other party.The Company first assessed the CSPC Agreement under ASC 808 to determine whether the CSPC Agreement(or part of the CSPC Agreement) represents a collaborative arrangement based on the risks and rewards and activities ofthe parties pursuant to the CSPC Agreement. The Company accounts for collaborative arrangements (or elements withinthe contract that are deemed part of a collaborative arrangement), which represent a collaborative relationship and not acustomer relationship, outside the scope of ASC 606. For a component of the CSPC Agreement, the Company concludedthat both the Company and CSPC are exposed to significant risks while developing duvelisib and ultimately wouldshare in the reward upon successful commercialization of duvelisib. The Company then considered each remainingcomponent in the CSPC Agreement to determine if ASC 606 should be applied to those components. Generally, thecomponents in the CSPC Agreement fall under one of two potential research and development activities: (i) the parties’joint participation in Global Clinical Trials and (ii) the territory-specific development of duvelisib. For the parties’ participation in the Global Clinical Trials, the Company concluded that the research anddevelopment activities and payments related to such activities are not within the scope of ASC 606 as CSPC is not acustomer of the Company with regards to these activities in the context of the CSPC Agreement. As such, costs incurredto execute the Global Clinical Trials will be recorded as research and development expense and payments received fromCSPC related to such will be recorded as a reduction of research and development expense.For CSPC Territory-specific activities, the Company concluded that CSPC is a customer with regard to thiscomponent in the context of the CSPC Agreement. As such, the CSPC Territory-specific component and all relatedpayments are within the scope of ASC 606. The Company determined that there were two material promises associated with the territory-specific activities:(i) an exclusive license to develop and commercialize duvelisib in the territory and (ii) the initial technology transfer.The Company determined that the exclusive license and initial technology transfer were not distinct from another, as thelicense has limited value without the initial technology. Therefore, the exclusive license and initial technology transferare combined as a single performance obligation. The Company evaluated the option rights for manufacturing andsupply services to determine whether they represent material rights to CSPC and concluded that the options were notissued at a significant and incremental discount and therefore do not represent material rights. As such, they are notperformance obligations at the outset of the arrangement. Based on thisF-36 Table of Contentsassessment, the Company concluded one performance obligation exists at the outset of the CSPC Agreement: theexclusive license combined with the initial technology transfer. The Company determined that the upfront payment of $15.0 million constitutes the transaction price as of theoutset of the CSPC Agreement. Future potential milestone payments were fully constrained as the risk of significantrevenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestonesis not within the Company’s control and is subject to certain research and development success or regulatory approvalsand therefore carry significant uncertainty. The Company will reevaluate the likelihood of achieving future milestonesat the end of each reporting period. As all performance obligations have been satisfied, if the risk of significant revenuereversal is resolved, any future milestone revenue from the arrangement will be added to the transaction price (andthereby recognized as revenue) in the period the risk is relieved.The Company satisfied the performance obligation upon delivery of the license and initial technology transferand recognized the upfront payment of $15.0 million as license revenue during the year ended December 31, 2018.16. 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 Internal Revenue Service. Under the 401(k) Plan, the Company may make discretionary contributionsas approved by the board of directors. The Company made contributions to the 401(k) Plan of approximately $0.8million, $0.3 million, and $0.2 million for the years ended December 31, 2018, 2017, and 2016, respectively. F-37 Table of Contents17. 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, 2018 2018 2018 2018 Revenue: Product revenue, net $ — $ — $508 $1,210 License revenue — 10,000 15,000 — Total revenue — 10,000 15,508 1,210 Operating expenses: Costs of revenues, excluding amortization ofacquired intangible assets $ — $ — $49 $116 Research and development 10,934 12,381 11,571 8,762 Selling, general and administrative 9,827 15,813 25,426 26,199 Amortization of acquired intangible assets — — 31 392 Total operating expenses 20,761 28,194 37,077 35,469 Loss from operations (20,761) (18,194) (21,569) (34,259) Other income — — — 25,556 Interest income 191 343 763 1,306 Interest expense (480) (516) (862) (3,952) Net loss $(21,050) $(18,367) $(21,668) $(11,349) Net loss per share —basic $(0.41) $(0.30) $(0.29) $(0.15) Net loss per share —diluted $(0.41) $(0.30) $(0.29) $(0.37) Weighted-average number of common sharesused in net loss per share —basic and diluted Net loss per share —basic 50,835(a) 61,256(a)(b) 73,644 73,766 Net loss per share —diluted 50,835(a) 61,256(a)(b) 73,644 91,061(c) (a)In the first and second quarters of 2018, the Company sold 167,065 and 6,314,410 shares of its common stockunder the Company’s at-the-market equity offering program, which resulted in net proceeds of $0.6 million and$23.7 million, respectively.(b)In the second quarter of 2018, the Company closed underwritten offerings in which it sold 8,944,444 shares and7,166,666 shares of its common stock at a price of $4.31 per share and $6.00 per share, respectively, for aggregateproceeds, net of underwriting discounts and offering costs, of $38.3 million and $42.9 million, respectively(c)In the fourth quarter of 2018, utilizing the “if-converted” method, the Company’s Notes are assumed to have beenconverted as of the issuance date. Accordingly, the weighted average number of potentially issuable shares uponconversion of the Notes was determined by weighting the number of shares issuable upon conversion at December31, 2018, or 20,936,548, over the total days outstanding, 76 days, to calculate an additional 17,295,409 shares tobe added to the weighted-average number of shares.F-38 Table of Contents First Quarter Second Quarter Third Quarter Fourth Quarter Ended Ended Ended Ended March 31, June 30, September 30, December 31, 2017 2017 2017 2017 Operating expenses: Research and development $8,385 $9,042 $17,743 $11,253 Selling, general and administrative 4,763 4,425 5,394 6,799 Total operating expenses 13,148 13,467 23,137 18,052 Loss from operations (13,148) (13,467) (23,137) (18,052) Interest income 155 140 121 145 Interest expense (12) (109) (110) (328) Net loss $(13,005) $(13,436) $(23,126) $(18,235) Net loss per share —basic and diluted $(0.35) $(0.36) $(0.61) $(0.43) Weighted-average number of common sharesused in net loss per share —basic and diluted 36,992 36,992 37,630(d) 42,027(d)(e)(d)In the third and fourth quarters of 2017, the Company sold 2,853,753 and 2,183,126 shares of its common stockunder the Company’s at-the-market equity offering program, which resulted in net proceeds of $14.1 million and$9.0 million, respectively.(e)In December 2017, the Company closed an underwritten offering in which it sold 8,422,877 shares of its commonstock at a price of $2.97 per share, for aggregate proceeds, net of underwriting discounts and offering costs, of $24.7million. 18. 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 theconsolidated balance sheets date. The Company is not aware of any material subsequent events. F-39 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF VERASTEM, INC. Verastem, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the provisions of the GeneralCorporation Law of the State of Delaware, does hereby certify as follows: The current name of the Corporation is Verastem, Inc. The original Certificate of Incorporation was filed with the Secretary ofState of the State of Delaware on August 4, 2010. The Certificate of Incorporation was amended and restated on November 1,2011 and was amended on November 15, 2011 and January 10, 2012. A resolution was duly adopted by the Board of Directors of the Corporation pursuant to Sections 242 and 245 of the GeneralCorporation Law of the State of Delaware setting forth this Restated Certificate of Incorporation and declaring such RestatedCertificate of Incorporation advisable. The stockholders of the Corporation duly approved and adopted this Restated Certificateof Incorporation by written consent in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State ofDelaware. Accordingly, the Certificate of Incorporation of this Corporation, as previously amended and restated, is hereby further amendedand restated in its entirety to read as follows: FIRST: The name of the Corporation is Verastem, Inc. SECOND: The address of the Corporation’s registered office in the State of Delaware is United Corporate Services, Inc., 874Walker Road, Suite C, in the City of Dover, County of Kent, Delaware 19904. The name of its registered agent at that address isUnited Corporate Services, Inc. THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act oractivity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 105,000,000shares, consisting of (i) 100,000,000 shares of Common Stock, $.0001 par value per share (“Common Stock”), and (ii) 5,000,000shares of Preferred Stock, $.0001 par value per share (“Preferred Stock”). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations orrestrictions thereof in respect of each class of capital stock of the Corporation. A.COMMON STOCK. 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualifiedby the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuanceof the Preferred Stock of any series. 2. Voting. The holders of the Common Stock shall have voting rights at all meetings of stockholders, each such holderbeing entitled to one vote for each share thereof held by such holder; provided, however, that, except as otherwise required bylaw, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (which, as usedherein, shall mean the certificate of incorporation of the Corporation, as amended from time to time, including the terms of anycertificate of designations of any series of Preferred Stock) that relates solely to the terms of one or more outstanding series ofPreferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one ormore other such series, to vote thereon pursuant to this Certificate of Incorporation. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares1 thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote,irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware. 3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as andwhen determined by the Board of Directors and subject to any preferential dividend or other rights of any then outstandingPreferred Stock. 4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders ofCommon Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject toany preferential or other rights of any then outstanding Preferred Stock. B.PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated orexpressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors ofthe Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by theCorporation may be reissued except as otherwise provided by law. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or moreseries, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance ofthe shares thereof and by filing a certificate of designations relating thereto in accordance with the General Corporation Law ofthe State of Delaware, to determine and fix the number of shares of such series and such voting powers, full or limited, or novoting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications,limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privilegesand liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permittedby the General Corporation Law of the State of Delaware. Without limiting the generality of the foregoing, the resolutionsproviding for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be juniorto any other series of Preferred Stock to the extent permitted by law. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thenoutstanding) by the affirmative vote of the holders of a majority of the voting power of the capital stock of the Corporationentitled to vote thereon, voting as a single class, irrespective of the provisions of Section 242(b)(2) of the General CorporationLaw of the State of Delaware. FIFTH: Except as otherwise provided herein, the Corporation reserves the right to amend, alter, change or repeal anyprovision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificateof Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. SIXTH: In furtherance and not in limitation of the powers conferred upon it by the General Corporation Law of the State ofDelaware, and subject to the terms of any series of Preferred Stock, the Board of Directors shall have the power to adopt, amend,alter or repeal the Bylaws of the Corporation by the affirmative vote of a majority of the directors present at any regular or specialmeeting of the Board of Directors at which a quorum is present. The stockholders may not adopt, amend, alter or repeal theBylaws of the Corporation, or adopt any provision inconsistent therewith, unless such action is approved, in addition to any othervote required by this Certificate of Incorporation, by the affirmative vote of the holders of at least seventy-five percent (75%) ofthe votes that all the stockholders would be entitled to cast in any annual election of directors or class ofdirectors. Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws of the Corporation, andnotwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class ofdirectors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article SIXTH. SEVENTH: Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination orlimitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to theCorporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding anyprovision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on theliability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such directoroccurring prior to such amendment or repeal. If the General Corporation Law of the State of Delaware is amended to permit2 further elimination or limitation of the personal liability of directors, then the liability of a director of the Corporation shall beeliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware as so amended. EIGHTH: The Corporation shall provide indemnification as follows: 1. Actions, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify eachperson who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding,whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of thefact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed toserve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, anothercorporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons beingreferred to hereafter as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity,against all expenses (including attorneys’ fees), liabilities, losses, judgments, fines (including excise taxes and penalties arisingunder the Employee Retirement Income Security Act of 1974), and amounts paid in settlement actually and reasonably incurredby or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted ingood faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of theCorporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct wasunlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolocontendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a mannerwhich Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to anycriminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. 2. Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any Indemnitee who was or is aparty to or threatened to be made a party to any threatened, pending or completed action or suit by or in the right of theCorporation to procure a judgment in its favor by reason of the fact that Indemnitee is or was, or has agreed to become, a directoror officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer,partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or otherenterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in suchcapacity, against all expenses (including attorneys’ fees) and, to the extent permitted by law, amounts paid in settlement actuallyand reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appealtherefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to,the best interests of the Corporation, except that no indemnification shall be made under this Section 2 in respect of any claim,issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent,that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon applicationthat, despite the adjudication of such liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonablyentitled to indemnity for such expenses (including attorneys’ fees) which the Court of Chancery of Delaware or such other courtshall deem proper. 3. Indemnification for Expenses of Successful Party. Notwithstanding any other provisions of this Article EIGHTH, to theextent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred toin Sections 1 and 2 of this Article EIGHTH, or in defense of any claim, issue or matter therein, or on appeal from any such action,suit or proceeding, Indemnitee shall be indemnified against all expenses (including attorneys’ fees) actually and reasonablyincurred by or on behalf of Indemnitee in connection therewith. Without limiting the foregoing, if any action, suit or proceedingis disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse toIndemnitee, (ii) an adjudication that Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere byIndemnitee, (iv) an adjudication that Indemnitee did not act in good faith and in a manner he or she reasonably believed to be inor not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication thatIndemnitee had reasonable cause to believe his or her conduct was unlawful, Indemnitee shall be considered for the purposeshereof to have been wholly successful with respect thereto. 4. Notification and Defense of Claim. As a condition precedent to an Indemnitee’s right to be indemnified, suchIndemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigationinvolving such Indemnitee for which indemnity will or could be sought. With respect to any action, suit, proceeding orinvestigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expenseand/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to Indemnitee. After noticefrom the Corporation to Indemnitee of its election so to assume such defense, the Corporation shall not be liable to3 Indemnitee for any legal or other expenses subsequently incurred by Indemnitee in connection with such action, suit, proceedingor investigation, other than as provided below in this Section 4. Indemnitee shall have the right to employ his or her own counselin connection with such action, suit, proceeding or investigation, but the fees and expenses of such counsel incurred after noticefrom the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment ofcounsel by Indemnitee has been authorized by the Corporation, (ii) counsel to Indemnitee shall have reasonably concluded thatthere may be a conflict of interest or position on any significant issue between the Corporation and Indemnitee in the conduct ofthe defense of such action, suit, proceeding or investigation or (iii) the Corporation shall not in fact have employed counsel toassume the defense of such action, suit, proceeding or investigation, in each of which cases the fees and expenses of counsel forIndemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article EIGHTH. TheCorporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in theright of the Corporation or as to which counsel for Indemnitee shall have reasonably made the conclusion provided for in clause(ii) above. The Corporation shall not be required to indemnify Indemnitee under this Article EIGHTH for any amounts paid insettlement of any action, suit, proceeding or investigation effected without its written consent. The Corporation shall not settleany action, suit, proceeding or investigation in any manner which would impose any penalty or limitation on Indemnitee withoutIndemnitee’s written consent. Neither the Corporation nor Indemnitee will unreasonably withhold or delay its consent to anyproposed settlement. 5. Advance of Expenses. Subject to the provisions of Section 6 of this Article EIGHTH, in the event of any threatened orpending action, suit, proceeding or investigation of which the Corporation receives notice under this Article EIGHTH, anyexpenses (including attorneys’ fees) incurred by or on behalf of Indemnitee in defending an action, suit, proceeding orinvestigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter;provided, however, that the payment of such expenses incurred by or on behalf of Indemnitee in advance of the final dispositionof such matter shall be made only upon receipt of an undertaking by or on behalf of Indemnitee to repay all amounts so advancedin the event that it shall ultimately be determined by final judicial decision from which there is no further right to appeal thatIndemnitee is not entitled to be indemnified by the Corporation as authorized in this Article EIGHTH; and provided further thatno such advancement of expenses shall be made under this Article EIGHTH if it is determined (in the manner described in Section6) that (i) Indemnitee did not act in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the bestinterests of the Corporation, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believehis or her conduct was unlawful. Such undertaking shall be accepted without reference to the financial ability of Indemnitee tomake such repayment. 6. Procedure for Indemnification and Advancement of Expenses. In order to obtain indemnification or advancement ofexpenses pursuant to Section 1, 2, 3 or 5 of this Article EIGHTH, an Indemnitee shall submit to the Corporation a writtenrequest. Any such advancement of expenses shall be made promptly, and in any event within 60 days after receipt by theCorporation of the written request of Indemnitee, unless (i) the Corporation has assumed the defense pursuant to Section 4 of thisArticle EIGHTH (and none of the circumstances described in Section 4 of this Article EIGHTH that would nonetheless entitle theIndemnitee to indemnification for the fees and expenses of separate counsel have occurred) or (ii) the Corporation determineswithin such 60-day period that Indemnitee did not meet the applicable standard of conduct set forth in Section 1, 2 or 5 of thisArticle EIGHTH, as the case may be. Any such indemnification, unless ordered by a court, shall be made with respect to requestsunder Section 1 or 2 only as authorized in the specific case upon a determination by the Corporation that the indemnification ofIndemnitee is proper because Indemnitee has met the applicable standard of conduct set forth in Section 1 or 2, as the case maybe. Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation consisting ofpersons who are not at that time parties to the action, suit or proceeding in question (“disinterested directors”), whether or not aquorum, (b) by a committee of disinterested directors designated by majority vote of disinterested directors, whether or not aquorum, (c) if there are no disinterested directors, or if the disinterested directors so direct, by independent legal counsel (whomay, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion, or (d) by the stockholdersof the Corporation. 7. Remedies. The right to indemnification or advancement of expenses as granted by this Article EIGHTH shall beenforceable by Indemnitee in any court of competent jurisdiction. Neither the failure of the Corporation to have made adetermination prior to the commencement of such action that indemnification is proper in the circumstances because Indemniteehas met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 of this ArticleEIGHTH that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumptionthat Indemnitee has not met the applicable standard of conduct. In any suit brought by Indemnitee to enforce a right toindemnification, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking,the Corporation shall have the burden of proving that Indemnitee is not entitled to be indemnified, or to such advancement ofexpenses, under this Article EIGHTH. Indemnitee’s expenses (including attorneys’ fees) reasonably4 incurred in connection with successfully establishing Indemnitee’s right to indemnification, in whole or in part, in any suchproceeding shall also be indemnified by the Corporation. Notwithstanding the foregoing, in any suit brought by Indemnitee toenforce a right to indemnification hereunder it shall be a defense that the Indemnitee has not met any applicable standard forindemnification set forth in the General Corporation Law of the State of Delaware. 8. Limitations. Notwithstanding anything to the contrary in this Article EIGHTH, except as set forth in Section 7 of thisArticle EIGHTH, the Corporation shall not indemnify an Indemnitee pursuant to this Article EIGHTH in connection with aproceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board of Directors ofthe Corporation. Notwithstanding anything to the contrary in this Article EIGHTH, the Corporation shall not indemnify anIndemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makesany indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance,such Indemnitee shall promptly refund indemnification payments to the Corporation to the extent of such insurancereimbursement. 9. Subsequent Amendment. No amendment, termination or repeal of this Article EIGHTH or of the relevant provisions ofthe General Corporation Law of the State of Delaware or any other applicable laws shall adversely affect or diminish in any waythe rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding orinvestigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of suchamendment, termination or repeal. 10. Other Rights. The indemnification and advancement of expenses provided by this Article EIGHTH shall not be deemedexclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled underany law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action inIndemnitee’s official capacity and as to action in any other capacity while holding office for the Corporation, and shall continueas to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors andadministrators of Indemnitee. Nothing contained in this Article EIGHTH shall be deemed to prohibit, and the Corporation isspecifically authorized to enter into, agreements with officers and directors providing indemnification rights and proceduresdifferent from those set forth in this Article EIGHTH. In addition, the Corporation may, to the extent authorized from time to timeby its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons servingthe Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article EIGHTH. 11. Partial Indemnification. If an Indemnitee is entitled under any provision of this Article EIGHTH to indemnification bythe Corporation for some or a portion of the expenses (including attorneys’ fees), liabilities, losses, judgments, fines (includingexcise taxes and penalties arising under the Employee Retirement Income Security Act of 1974) or amounts paid in settlementactually and reasonably incurred by or on behalf of Indemnitee in connection with any action, suit, proceeding or investigationand any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemniteefor the portion of such expenses (including attorneys’ fees), liabilities, losses, judgments, fines (including excise taxes andpenalties arising under the Employee Retirement Income Security Act of 1974) or amounts paid in settlement to whichIndemnitee is entitled. 12. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director,officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise(including any employee benefit plan) against any expense, liability or loss incurred by him or her in any such capacity, orarising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person againstsuch expense, liability or loss under the General Corporation Law of the State of Delaware. 13. Savings Clause. If this Article EIGHTH or any portion hereof shall be invalidated on any ground by any court ofcompetent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (includingattorneys’ fees), liabilities, losses, judgments, fines (including excise taxes and penalties arising under the Employee RetirementIncome Security Act of 1974) and amounts paid in settlement in connection with any action, suit, proceeding or investigation,whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permittedby any applicable portion of this Article EIGHTH that shall not have been invalidated and to the fullest extent permitted byapplicable law. 14. Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of theState of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i).5 NINTH: This Article NINTH is inserted for the management of the business and for the conduct of the affairs of theCorporation. 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board ofDirectors. 2. Number of Directors; Election of Directors. Subject to the rights of holders of any series of Preferred Stock to electdirectors, the number of directors of the Corporation shall be established by the Board of Directors. Election of directors need notbe by written ballot, except as and to the extent provided in the Bylaws of the Corporation. 3. Classes of Directors. Subject to the rights of holders of any series of Preferred Stock to elect directors, the Board ofDirectors shall be and is divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly asmay be possible, of one-third of the total number of directors constituting the entire Board of Directors. The Board of Directors isauthorized to assign members of the Board of Directors already in office to Class I, Class II or Class III at the time suchclassification becomes effective. 4. Terms of Office. Subject to the rights of holders of any series of Preferred Stock to elect directors, each director shallserve for a term ending on the date of the third annual meeting of stockholders following the annual meeting of stockholders atwhich such director was elected; provided that each director initially assigned to Class I shall serve for a term expiring at theCorporation’s first annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation; each directorinitially assigned to Class II shall serve for a term expiring at the Corporation’s second annual meeting of stockholders held afterthe effectiveness of this Certificate of Incorporation; and each director initially assigned to Class III shall serve for a term expiringat the Corporation’s third annual meeting of stockholders held after the effectiveness of this Certificate of Incorporation;provided further, that the term of each director shall continue until the election and qualification of his or her successor and besubject to his or her earlier death, resignation or removal. 5. Quorum. The greater of (a) a majority of the directors at any time in office and (b) one-third of the number of directorsfixed pursuant to Section 2 of this Article NINTH shall constitute a quorum of the Board of Directors. If at any meeting of theBoard of Directors there shall be less than such a quorum, a majority of the directors present may adjourn the meeting from timeto time without further notice other than announcement at the meeting, until a quorum shall be present. 6. Action at Meeting. Every act or decision done or made by a majority of the directors present at a meeting duly held atwhich a quorum is present shall be regarded as the act of the Board of Directors unless a greater number is required by law or bythis Certificate of Incorporation. 7. Removal. Subject to the rights of holders of any series of Preferred Stock, directors of the Corporation may be removedonly for cause and only by the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all thestockholders would be entitled to cast in any annual election of directors or class of directors. 8. Vacancies. Subject to the rights of holders of any series of Preferred Stock, any vacancy or newly created directorship inthe Board of Directors, however occurring, shall be filled only by vote of a majority of the directors then in office, although lessthan a quorum, or by a sole remaining director and shall not be filled by the stockholders. A director elected to fill a vacancyshall hold office until the next election of the class for which such director shall have been chosen, subject to the election andqualification of a successor and to such director’s earlier death, resignation or removal. 9. Stockholder Nominations and Introduction of Business, Etc. Advance notice of stockholder nominations for election ofdirectors and other business to be brought by stockholders before a meeting of stockholders shall be given in the mannerprovided by the Bylaws of the Corporation. 10. Amendments to Article. Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws ofthe Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holdersof at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election ofdirectors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this ArticleNINTH. 6 TENTH: Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstandingany other provisions of law, this Certificate of Incorporation or the Bylaws of the Corporation, and notwithstanding the fact that alesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the voteswhich all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required toamend or repeal, or to adopt any provision inconsistent with, this Article TENTH. ELEVENTH: Special meetings of stockholders for any purpose or purposes may be called at any time by only the Board ofDirectors, the Chairman of the Board or the Chief Executive Officer, and may not be called by any other person orpersons. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposesstated in the notice of meeting. Notwithstanding any other provisions of law, this Certificate of Incorporation or the Bylaws ofthe Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holdersof at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election ofdirectors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this ArticleELEVENTH. IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates, integrates and amends the certificate ofincorporation of the Corporation, and which has been duly adopted in accordance with Sections 228, 242 and 245 of the GeneralCorporation Law of the State of Delaware, has been executed by its duly authorized officer this 1st day of February, 2012. VERASTEM, INC. By:Name:Title:/s/ RobertForresterRobertForresterChiefOperatingOfficer 7 Exhibit 3.2 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF VERASTEM, INC. December 19, 2018 Verastem, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the provisions of the GeneralCorporation Law of the State of Delaware (the “DGCL”), DOES HEREBY CERTIFY: FIRST: The name of the Corporation is Verastem, Inc. The original Certificate of Incorporation was filed with the Secretary ofState of the State of Delaware on August 4, 2010. The Certificate of Incorporation was amended and restated on November 1,2011, was amended on November 15, 2011 and January 10, 2012, and was amended and restated on February 1, 2012. SECOND: The Certificate of Incorporation, as amended and restated, is hereby further amended by deleting the first sentence ofArticle FOURTH and replacing it as follows: “The total number of shares of all classes of stock which the Corporation shall have authority to issue is 205,000,000 shares,consisting of (i) 200,000,000 shares of Common Stock, $.0001 par value per share (“Common Stock”), and (ii) 5,000,000 sharesof Preferred Stock, $.0001 par value per share (“Preferred Stock”).” THIRD: That, pursuant to resolution of the Corporation’s board of directors, a special meeting of the stockholders of theCorporation was duly called and held upon notice in accordance with Section 222 of the DGCL, at which meeting the necessarynumber of shares as required by statute were voted in favor of this Certificate of Amendment. FOURTH: This Certificate of Amendment was duly adopted by the directors and stockholders of the Corporation in accordancewith the provisions of Section 242 of the DGCL. [Signature Page Immediately Follows]1 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Certificate of Incorporation to besigned by the authorized officer below as of the date hereof. Chief Executive Officer By:Name:Title:/s/ Robert ForresterRobert ForresterPresident and Chief Executive Officer [Verastem, Inc. — Amendment to Certificate of Incorporation] 2 Exhibit 21.1List of Registrant’s SubsidiariesVerastem Securities Company, incorporated in Massachusetts, a wholly owned subsidiary. Exhibit 23.1Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-180475) pertaining to the 2010 Equity Incentive Plan and the 2012Incentive Plan of Verastem, Inc.,(2)Registration Statement (Form S-8 No. 333-190578) pertaining to the 2012 Incentive Plan of Verastem, Inc., (3)Registration Statement (Form S-8 No. 333-201075) pertaining to the 2014 Inducement Award Program of Verastem,Inc.,(4)Registration Statement (Form S-8 No. 333-201076) pertaining to the 2012 Incentive Plan of Verastem, Inc.,(5)Registration Statement (Form S-8 No. 333-211235) pertaining to the 2012 Incentive Plan of Verastem, Inc.,(6)Registration Statement (Form S-8 No. 333-218768) pertaining to the 2014 Inducement Award Program of Verastem,Inc.,(7)Registration Statement (Form S-8 No. 333-218769) pertaining to the 2012 Incentive Plan of Verastem, Inc.;(8)Registration Statement (Form S-8 No.333-223616) pertaining to the 2014 Inducement Award Program of Verastem,Inc.,(9)Registration Statement (Form S-3 No. 333-226322) of Verastem, Inc.,(10)Registration Statement (Form S-8 No.333-228309) pertaining to the 2014 Inducement Award Program of Verastem,Inc. and,(11)Registration Statement (Form S-8 No.333-229430) pertaining to the 2018 Employee Stock Purchase Plan, 2012Amended and Restated Incentive Plan, and 2014 Inducement Award Program Amended of Verastem, Inc. of our reports dated March 12, 2019, with respect to the consolidated financial statements of Verastem, Inc. and theeffectiveness of internal control over financial reporting of Verastem, Inc., included in this Annual Report (Form 10-K) ofVerastem, Inc. for the year ended December 31, 2018./s/Ernst & Young LLPBoston, MassachusettsMarch 12, 2019 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.Chief Executive Officer /s/ Robert ForresterRobert ForresterChief Executive Officer Date: March 12, 2019 Exhibit 31.2CERTIFICATIONSI, Robert Gagnon, 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 GAGNON Robert Gagnon Chief Financial OfficerDate: March 12, 2019 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, 2018 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 12, 2019A 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, 2018 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), theundersigned, Robert Gagnon, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, asadopted 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 GAGNON Robert Gagnon Chief Financial OfficerDate: March 12, 2019A 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 99.1 Verastem Oncology Announces Fourth Quarter and Full-Year 2018 FinancialResults and Corporate Developments U.S. Commercial Launch of COPIKTRA™ Underway $1.7 Million in 2018 Net Product Revenues from COPIKTRA Cash, Cash Equivalents and Short-Term Investments of $249.7 million as December 31, 2018 BOSTON, MA – March 12, 2019 – Verastem, Inc. (Nasdaq: VSTM), opera(cid:25)ng as Verastem Oncology, (or “theCompany”), focused on developing and commercializing medicines to improve the survival and quality of life ofcancer pa(cid:25)ents, today reported financial results for the three and twelve months ended December 31, 2018,including revenue from its first commercial product, COPIKTRA™ (duvelisib), which was approved by the U.S.Food and Drug Administration (FDA) on September 24, 2018. “Upon the early FDA approval we received, our commercial team was mobilized the same day and beganeduca(cid:25)ng physicians, pa(cid:25)ents and payors on the clinical benefits and appropriate use of COPIKTRA and to secureaccess to therapy,” said Robert Forrester, President and Chief Execu(cid:25)ve Officer of Verastem Oncology. “Thisyear is poised to be an exci(cid:25)ng one as we con(cid:25)nue to drive awareness of COPIKTRA and work to expand uponthe poten(cid:25)al of PI3K inhibi(cid:25)on through the inves(cid:25)ga(cid:25)on of duvelisib, ini(cid:25)ally as a monotherapy, and throughnovel combinations, in additional hematologic malignancies like peripheral T-cell lymphoma (PTCL).” “Following FDA approval, COPIKTRA was quickly added to the Na(cid:25)onal Comprehensive Cancer Network®(NCCN) guidelines, and as of December 31, 2018, we had secured formulary lis(cid:25)ng and reimbursement forapproximately 75% of targeted health plans. As of March 11, 2019, that number increased to 90%,underscoring our efforts to provide access to treatment for appropriate pa(cid:25)ents,” said Joseph Lobacki, Execu(cid:25)veVice President and Chief Commercial Officer of Verastem Oncology. “Looking ahead to 2019, we are focused onfurther iden(cid:25)fying appropriate pa(cid:25)ents for treatment with COPIKTRA, and we intend to con(cid:25)nue to work withthe leukemia and lymphoma community to increase awareness and help ensure physicians and pa(cid:25)ents are ableto get the support they need.” Key 2018 Accomplishments:·Launched COPIKTRA in the United States – Verastem Oncology launched COPIKTRA, an oral inhibitor of phosphoinosi(cid:25)de3-kinase (PI3K), and the first approved dual inhibitor of PI3K-delta and PI3K-gamma, in the United States following FDAapproval for the treatment of adult pa(cid:25)ents with relapsed or refractory chronic lymphocy(cid:25)c leukemia/small lymphocy(cid:25)clymphoma (CLL/SLL) a(cid:70)er at least two prior therapies. COPIKTRA also received accelerated approval for the treatment ofadult pa(cid:25)ents with relapsed or refractory follicular lymphoma (FL) a(cid:70)er at least two prior systemic therapies. Acceleratedapproval in FL was based on overall response rate and con(cid:25)nued approval may be con(cid:25)ngent upon verifica(cid:25)on anddescription of clinical benefit in confirmatory trials, the first of which is expected to start in 2019. Use of COPIKTRA is associated with a BOXED WARNING for four fatal and/or serious toxici(cid:25)es: infec(cid:25)ons, diarrhea orcoli(cid:25)s, cutaneous reac(cid:25)ons, and pneumoni(cid:25)s. Verastem Oncology has implemented a Risk Evalua(cid:25)on and Mi(cid:25)ga(cid:25)onStrategy to provide appropriate dosing and safety informa(cid:25)on to be(cid:75)er support physicians in managing their pa(cid:25)ents onCOPIKTRA. Addi(cid:25)onally, use of COPIKTRA is associated with addi(cid:25)onal adverse reac(cid:25)ons which may also require dose reduc(cid:25)on,treatment delay or discontinuation of COPIKTRA. Please see www.COPIKTRAHCP.com/prescribinginforma(cid:25)on for full Prescribing Informa(cid:25)on including BOXED WARNINGand Medication Guide in addition to the Important Safety Information provided below. ·COPIKTRA Added to NCCN Guidelines for CLL/SLL, FL and Marginal Zone Lymphoma (MZL) – The NCCN added COPIKTRAto the Clinical Prac(cid:25)ce Guidelines in Oncology (NCCN Guidelines), the standard physician resource for determining theappropriate course of treatment for pa(cid:25)ents. The Company believes these updated guidelines will increase awareness forCOPIKTRA and help health care providers make informed decisions for pa(cid:25)ents ba(cid:75)ling these difficult to treat advancedcancers. COPIKTRA is not approved for use in MZL. ·Presented COPIKTRA Data at the 23 Annual Interna(cid:43)onal Congress on Hematologic Malignancies (ICHM) – TheCompany presented four COPIKTRA abstracts at ICHM 2019, including an abstract highligh(cid:25)ng Phase 3 DUO data inpa(cid:25)ents with relapsed or refractory CLL/SLL who have progressed following two prior lines of the therapy. This is the sameindica(cid:25)on for which COPIKTRA received approval from the FDA in September 2018. In this analysis, COPIKTRAdemonstrated progression-free survival (PFS) of 16.4 months and an ORR of 78%, with a manageable safety profile. Theremaining three abstracts featured data from a long-term (>2 years) efficacy and safety analysis, the Phase 3 DUO crossoverextension study, and prognos(cid:25)c and immune-related factors associated with response to duvelisib from the Phase 2DYNAMO™ study in indolent non-Hodgkin’s lymphoma (iNHL). Collec(cid:25)vely, the data presented at ICHM 2019 con(cid:25)nue tosupport the use of COPIKTRA in its approved indica(cid:25)ons of relapsed or refractory CLL/SLL a(cid:70)er at least two prior therapiesand FL a(cid:70)er at least two prior systemic therapies. PDF copies of all of the ICHM 2019 poster presenta(cid:25)ons are availablehere. ·Presented Updated Duvelisib Combina(cid:43)on Data in PTCL at the American Society of Hematology 2018 Annual Mee(cid:43)ng(ASH 2018) – The oral presenta(cid:25)on highlighted updated data from an inves(cid:25)gator-sponsored Phase 1 study evalua(cid:25)ngduvelisib in combina(cid:25)on with romidepsin in relapsed or refractory T-cell lymphomas, including PTCL and cutaneous T-celllymphoma (CTCL). Of the 27 pa(cid:25)ents with PTCL evaluable for efficacy, 16 responded (9 complete responses (CRs) and 7par(cid:25)al responses (PRs)) for an overall response rate (ORR) of 59%. Importantly, of the 27 pa(cid:25)ents with PTCL treated withthe rd combina(cid:25)on of duvelisib and romidepsin, 6 (22%) responded deeply enough to allow them to bridge to poten(cid:25)ally cura(cid:25)vestem cell transplant (SCT). Median progression-free survival (PFS) for pa(cid:25)ents with PTCL was 6.72 months, which wasconfounded by 6 subjects that proceeded to SCT. Among the 31 pa(cid:25)ents at the maximum tolerated dose who wereevaluable for safety, the most common Grade ≥3 adverse events occurring in ≥10% of pa(cid:25)ents were neutropenia (32%),diarrhea (19%), increased transaminase (23%; alanine aminotransferase 16% and aspartate aminotransferase 6%),hyponatremia (13%) and platelet count decrease (10%). ·Presented Frontline Duvelisib Combina(cid:43)on Data in Younger CLL Pa(cid:43)ents at European Hematology Associa(cid:43)on 2018Annual Meeting (EHA 2018) – Dr. Ma(cid:75)hew Davids, M.D., MMSc, Assistant Professor of Medicine, Harvard Medical School,and Associate Director, Center for Chronic Lymphocy(cid:25)c Leukemia at the Dana-Farber Cancer Ins(cid:25)tute, presented Phase1b/2 clinical data from 31 pa(cid:25)ents who received duvelisib in combina(cid:25)on with fludarabine (F), cyclophosphamide (C), andrituximab (R) (dFCR) as frontline therapy. The ORR was 94%, with 26% (n=8) of pa(cid:25)ents achieving a CR or CRi, and 68%achieving a PR. The best rate of minimum residual disease (MRD) nega(cid:25)vity in the bone marrow (BM) in pa(cid:25)ents with atleast one evalua(cid:25)on was 76% (22 of 29 pa(cid:25)ents). The two-year progression-free survival and overall survival rates forpa(cid:25)ents in the study were both 97%. The recommended Phase 2 dose for duvelisib in combina(cid:25)on with FCR wasestablished as 25mg twice daily. The most common all grade non-hematologic adverse events (AEs) were nausea (72%, allGrade 1/2), fa(cid:25)gue (69%, 3% Grade 3), fever (53%, all Grade 1/2), diarrhea (47%, 3% Grade 3), transamini(cid:25)s (34%, 28%Grade 3/4), anorexia (34%, all Grade 1/2), vomi(cid:25)ng (28%, all Grade 1/2), pruritus (16%, 3% Grade 3), arthri(cid:25)s (9%, allGrade 2) and Cytomegalovirus (CMV) reac(cid:25)va(cid:25)on (6%, both Grade 2). The most common all grade hematologic adverseevents were thrombocytopenia (65%; 34% Grade 3/4), neutropenia (59%; 50% Grade 3/4), and anemia (38%, 16% Grade3/4). Serious AEs included febrile neutropenia (n=6, all Grade 3) and pneumonia (n=6, including 3 cases of PJP despiteplanned prophylaxis). ·Inves(cid:43)gator-Sponsored Study Ini(cid:43)ated Evalua(cid:43)ng COPIKTRA in Combina(cid:43)on with Venetoclax – In earlySeptember 2018, the first pa(cid:25)ent was dosed in a mul(cid:25)center Phase 1/2 clinical trial inves(cid:25)ga(cid:25)ng COPIKTRAin combina(cid:25)on with venetoclax, an oral selec(cid:25)ve inhibitor of BCL-2, in pa(cid:25)ents with relapsed or refractoryCLL/SLL. Preclinical data support this combina(cid:25)on, as COPIKTRA has been shown to upregulate BCL-2transcript and protein expression levels and poten(cid:25)ally enhance the ability of venetoclax to induce apoptosisin ex vivo human CLL cells. The primary objec(cid:25)ves of the Phase 1 por(cid:25)on of the trial are to determine themaximum tolerated dose and the recommended Phase 2 dose of venetoclax for this combina(cid:25)onregimen. The trial is being led by Dr. Matthew Davids.•Signed Exclusive License Agreements in China and Japan – Verastem Oncology entered into exclusive license agreementswith CSPC Pharmaceu(cid:25)cal Group Limited (CSPC) to develop and commercialize COPIKTRA in China, Hong Kong, Macau andTaiwan (collec(cid:25)vely, the CSPC Territory), and Yakult Honsha Co., Ltd. (Yakult) to develop and commercialize COPIKTRA inJapan. Both agreements are for the treatment, prevention or diagnosis of all oncology indications.oUnder the terms of the agreement with CSPC, Verastem Oncology received an upfront payment of $15.0 millionand is en(cid:25)tled to receive aggregate payments of up to $160.0 million if certain development, regulatory andcommercial milestones are successfully achieved, plus double-digit royal(cid:25)es on net sales of products containing duvelisib in the CSPC Territory. CSPC is a leading pharmaceu(cid:25)calgroup in China.oThe transac(cid:25)on with Yakult carries a total deal value of up to $100.0 million, includes a one-(cid:25)me upfront paymentof $10.0 million and up to an addi(cid:25)onal $90.0 million if certain development, regulatory and commercialmilestones are successfully achieved by Yakult. In addi(cid:25)on, Verastem Oncology is also eligible to receive double-digit royal(cid:25)es based on future net sales of products containing duvelisib in Japan. Yakult has a strong presence indevelopment and commercializa(cid:25)on of therapeu(cid:25)c products in the field of oncology and markets several brandedanti-cancer therapies, including Elplat® and Campto®.·Collabora(cid:43)on with The Leukemia & Lymphoma Society for Development of Duvelisib in PTCL – Duvelisib was selected forThe Leukemia & Lymphoma Society’s (LLS) Therapy Accelera(cid:25)on Program® (TAP) which provides addi(cid:25)onal resources tosupport the development of therapies for pa(cid:25)ents with blood cancers. The Company plans to use the TAP funds to conductcertain transla(cid:25)onal and clinical ac(cid:25)vi(cid:25)es rela(cid:25)ng to the development of duvelisib for the treatment of PTCL. LLS andVerastem Oncology will share the cost of the PTCL development program, por(cid:25)ons of which will be conducted incollabora(cid:25)on with Memorial Sloan Ke(cid:75)ering Cancer Center, The Dana-Farber Cancer Ins(cid:25)tute, The Washington Universityin St. Louis and Stanford University.·Phase 3 DUO Study Results Published in the Journal BLOOD – The results of the randomized, mul(cid:25)center,open-label Phase 3 DUO™ study (NCT02004522), which evaluated COPIKTRA versus ofatumumab inpa(cid:25)ents with relapsed or refractory CLL/SLL, were published in the peer-reviewed journal Blood (Flinn etal). The publica(cid:25)on was accompanied by a review ar(cid:25)cle by Jennifer R. Brown, M.D., Ph.D., Director of theCenter for Chronic Lymphocy(cid:25)c Leukemia at the Dana-Farber Cancer Ins(cid:25)tute, discussing the role of PI3Kinhibitors and duvelisib in current CLL therapy. The full manuscript (cid:25)tled “The phase 3 DUO trial: duvelisibversus ofatumumab in relapsed and refractory CLL/SLL,” is available at www.bloodjournal.org.·Entering 2019 with Cash, Cash Equivalents and Short-Term Investments of $249.7 Million – During 2018, VerastemOncology successfully completed mul(cid:25)ple fundraising transac(cid:25)ons, including an underwri(cid:75)en registered offering in May2018, a registered offering in June 2018, and a registered direct offering of 5.00% Conver(cid:25)ble Senior Notes in October2018 (Conver(cid:25)ble Senior Notes). The Company also raised funds through the sale of shares of common stock under its at-the-market equity offering program. These fundraising transac(cid:25)ons helped to provide the Company with a strong cash,cash equivalents and short-term investments balance of $249.7 million as of December 31, 2018.·Key Commercial, Clinical and Investor Rela(cid:43)ons Team Addi(cid:43)ons – In February 2019, the Company expanded itscommercial and clinical teams through the appointment of several new employees, including Amy Cavers as Senior VicePresident, Strategic Engagement and Alignment, Robert Morgan as Senior Vice President, Development Opera(cid:25)ons, andErin Cox, Senior Director, Investor Relations and Corporate Communications.Selected posters and presentations are available within the “Media” section of the Company’s website at www.verastem.com. Fourth Quarter 2018 Financial Results Net loss for the three months ended December 31, 2018 (2018 Quarter) was $11.3 million, or $0.15 per share (basic), ascompared to $18.2 million, or $0.43 per share (basic), for the three months ended December 31, 2017 (2017 Quarter). Net lossfor the 2018 Quarter includes a non-cash gain of $25.6 million, or $0.35 per share (basic), rela(cid:25)ng to the accoun(cid:25)ng impact ofa financial deriva(cid:25)ve related to our Conver(cid:25)ble Senior Notes. In addi(cid:25)on, net loss includes non-cash stock-based compensa(cid:25)onexpense of $1.8 million and $1.0 million for the 2018 and 2017 Quarters, respectively. Net product revenue for the 2018 Quarter was $1.2 million which reflects the first full quarter of recorded sales forCOPIKTRA. The Company did not have any product revenue for the 2017 Quarter as the FDA approved COPIKTRA onSeptember 24, 2018. Research and development expense for the 2018 Quarter was $8.8 million compared to $11.3 million for the 2017 Quarter, adecrease of $2.5 million or 22%, primarily related to lower R&D costs associated with the development of COPIKTRA. Selling, general and administra(cid:25)ve expense for the 2018 Quarter was $26.2 million compared to $6.8 million for the 2017Quarter. The increase of $19.4 million, or 285%, from the 2017 Quarter to the 2018 Quarter was due to higher personnel andrelated costs, as well as promotional and consulting costs in support of the commercial launch of COPIKTRA. Other income of $25.6 million for the 2018 Quarter relates en(cid:25)rely to a non-cash gain for the accoun(cid:25)ng impact of a financialderivative related to our Convertible Senior Notes. Full-Year 2018 Financial Results Net loss for the year ended December 31, 2018 (2018 Period) was $72.4 million, or $1.12 per share (basic), as compared to$67.8 million, or $1.76 per share (basic), for the year ended December 31, 2017 (2017 Period). Net loss for the 2018 Periodincludes a non-cash gain of $25.6 million, or $0.39 per share (basic), rela(cid:25)ng to the accoun(cid:25)ng impact of a financial deriva(cid:25)verelated to our Conver(cid:25)ble Senior Notes. In addi(cid:25)on, net loss includes non-cash stock-based compensa(cid:25)on expense of $6.7million and $5.0 million for the 2018 and 2017 Periods, respectively.Total revenue for the 2018 Period was $26.7 million which reflects net product revenue of $1.7 million for salesof COPIKTRA and license revenue of $25.0 million rela(cid:25)ng to our license agreements with Yakult and CSPC. TheCompany did not have any product revenue for the 2017 Period as the FDA approved COPIKTRA on September24, 2018. The Company did not have any license revenue for the 2017 Period.Research and development expense for the 2018 Period was $43.6 million compared to $46.4 million for the2017 Period. The decrease of $2.8 million, or 6%, from the 2017 Period to the 2018 Period was primarily relatedto a decrease of $6.0 million in license fees related to a one-(cid:25)me milestone earned pursuant to our Infinitylicense agreement which was recognized in the 2017 Period, offset, in part, by a net increase of $3.2 million inpersonnel related costs, including non-cash stock-based compensa(cid:25)on, clinical trial costs and consul(cid:25)ng fees forCOPIKTRA.Selling, general and administra(cid:25)ve expense for the 2018 Period was $77.3 million compared to $21.4 million forthe 2017 Period. The increase of $55.9 million, or 261%, from the 2017 Period to the 2018 Period primarily resulted from higher personnel and related costs, promo(cid:25)onal and consul(cid:25)ng costs in support of the commerciallaunch of COPIKTRA.Other income of $25.6 million for the 2018 Period relates en(cid:25)rely to a non-cash gain for the accoun(cid:25)ng impactof a financial derivative related to our Convertible Senior Notes.In October 2018, the Company completed an offering of 5.00% Conver(cid:25)ble Senior Notes due 2048 through aregistered direct offering. The Company received net proceeds of $145.3 million, a(cid:70)er transac(cid:25)on fees andexpenses. Verastem Oncology ended 2018 with cash, cash equivalents and short-term investments of $249.7million.For more information about Verastem Oncology, including its leadership, product and pipeline, please visitverastem.com Important Safety InformationWARNING: FATAL AND SERIOUS TOXICITIES: INFECTIONS, DIARRHEA OR COLITIS, CUTANEOUS REACTIONS,and PNEUMONITIS· Fatal and/or serious infections occurred in 31% of COPIKTRA-treated patients. Monitor for signs andsymptoms of infection. Withhold COPIKTRA if infection is suspected.· Fatal and/or serious diarrhea or colitis occurred in 18% of COPIKTRA-treated patients. Monitor for thedevelopment of severe diarrhea or colitis. Withhold COPIKTRA.· Fatal and/or serious cutaneous reactions occurred in 5% of COPIKTRA-treated patients. WithholdCOPIKTRA.· Fatal and/or serious pneumonitis occurred in 5% of COPIKTRA-treated patients. Monitor for pulmonarysymptoms and interstitial infiltrates. Withhold COPIKTRA.WARNINGS AND PRECAUTIONSInfections: Serious, including fatal (18/442; 4%), infections occurred in 31% of patients receiving COPIKTRA 25mg BID (N=442). The most common serious infections were pneumonia, sepsis, and lower respiratory infections.Median time to onset of any grade infection was 3 months (range: 1 day to 32 months), with 75% of casesoccurring within 6 months. Treat infections prior to initiation of COPIKTRA. Advise patients to report new orworsening signs and symptoms of infection. For grade 3 or higher infection, withhold COPIKTRA until infectionhas resolved. Resume COPIKTRA at the same or reduced dose.Serious, including fatal, Pneumocystis jirovecii pneumonia (PJP) occurred in 1% of patients taking COPIKTRA.Provide prophylaxis for PJP during treatment with COPIKTRA and following completion of treatment withCOPIKTRA until the absolute CD4+ T cell count is greater than 200 cells/μL. Withhold COPIKTRA in patients withsuspected PJP of any grade, and permanently discontinue if PJP is confirmed.Cytomegalovirus (CMV) reactivation/infection occurred in 1% of patients taking COPIKTRA. Considerprophylactic antivirals during COPIKTRA treatment to prevent CMV infection including CMV reactivation. Forclinical CMV infection or viremia, withhold COPIKTRA until infection or viremia resolves. If COPIKTRA is resumed, administer the same or reduced dose and monitor patients for CMV reactivation by PCR or antigen testat least monthly.Diarrhea or Colitis: Serious, including fatal (1/442; <1%), diarrhea or colitis occurred in 18% of patients receivingCOPIKTRA 25 mg BID (N=442). Median time to onset of any grade diarrhea or colitis was 4 months (range: 1 dayto 33 months), with 75% of cases occurring by 8 months. The median event duration was 0.5 months (range: 1day to 29 months; 75th percentile: 1 month).Advise patients to report any new or worsening diarrhea. For patients presenting with mild or moderate diarrhea(Grade 1-2) (i.e., up to 6 stools per day over baseline) or asymptomatic (Grade 1) colitis, initiate supportive carewith antidiarrheal agents, continue COPIKTRA at the current dose, and monitor the patient at least weekly untilthe event resolves. If the diarrhea is unresponsive to antidiarrheal therapy, withhold COPIKTRA and initiatesupportive therapy with enteric acting steroids (e.g., budesonide). Monitor the patient at least weekly. Uponresolution of the diarrhea, consider restarting COPIKTRA at a reduced dose.For patients presenting with abdominal pain, stool with mucus or blood, change in bowel habits, peritonealsigns, or with severe diarrhea (Grade 3) (i.e., > 6 stools per day over baseline), withhold COPIKTRA and initiatesupportive therapy with enteric acting steroids (e.g., budesonide) or systemic steroids. A diagnostic work-up todetermine etiology, including colonoscopy, should be performed. Monitor at least weekly. Upon resolution ofthe diarrhea or colitis, restart COPIKTRA at a reduced dose. For recurrent Grade 3 diarrhea or recurrent colitis ofany grade, discontinue COPIKTRA. Discontinue COPIKTRA for life-threatening diarrhea or colitis.Cutaneous Reactions: Serious, including fatal (2/442; <1%), cutaneous reactions occurred in 5% of patientsreceiving COPIKTRA 25 mg BID (N=442). Fatal cases included drug reaction with eosinophilia and systemicsymptoms (DRESS) and toxic epidermal necrolysis (TEN). Median time to onset of any grade cutaneous reactionwas 3 months (range: 1 day to 29 months, 75th percentile: 6 months) with a median event duration of 1 month(range: 1 day to 37 months, 75th percentile: 2 months).Presenting features for the serious events were primarily described as pruritic, erythematous, or maculo-papular.Less common presenting features include exanthem, desquamation, erythroderma, skin exfoliation,keratinocyte necrosis, and papular rash. Advise patients to report new or worsening cutaneous reactions. Reviewall concomitant medications and discontinue any medications potentially contributing to the event. For patientspresenting with mild or moderate (Grade 1-2) cutaneous reactions, continue COPIKTRA at the current dose,initiate supportive care with emollients, antihistamines (for pruritus), or topical steroids, and monitor the patientclosely. Withhold COPIKTRA for severe (Grade 3) cutaneous reaction until resolution. Initiate supportive carewith steroids (topical or systemic) or antihistamines (for pruritus). Monitor at least weekly until resolved. Uponresolution of the event, restart COPIKTRA at a reduced dose. Discontinue COPIKTRA if severe cutaneous reactiondoes not improve, worsens, or recurs. For life-threatening cutaneous reactions, discontinue COPIKTRA. Inpatients with SJS, TEN, or DRESS of any grade, discontinue COPIKTRA.Pneumonitis: Serious, including fatal (1/442; <1%), pneumonitis without an apparent infectious cause occurredin 5% of patients receiving COPIKTRA 25 mg BID (N=442). Median time to onset of any grade pneumonitis was 4months (range: 9 days to 27 months), with 75% of cases occurring within 9 months. The median event durationwas 1 month, with 75% of cases resolving by 2 months. Withhold COPIKTRA in patients with new or progressive pulmonary signs and symptoms such as cough,dyspnea, hypoxia, interstitial infiltrates on a radiologic exam, or a decline by more than 5% in oxygen saturation,and evaluate for etiology. If the pneumonitis is infectious, patients may be restarted on COPIKTRA at theprevious dose once the infection, pulmonary signs and symptoms resolve. For moderate non-infectiouspneumonitis (Grade 2), treat with systemic corticosteroids and resume COPIKTRA at a reduced dose uponresolution. If non-infectious pneumonitis recurs or does not respond to steroid therapy, discontinue COPIKTRA.For severe or life-threatening non-infectious pneumonitis, discontinue COPIKTRA and treat with systemicsteroids.Hepatotoxicity: Grade 3 and 4 ALT and/or AST elevation developed in 8% and 2%, respectively, of patientsreceiving COPIKTRA 25 mg BID (N=442). Two percent of patients had both an ALT or AST > 3 X ULN and totalbilirubin > 2 X ULN. Median time to onset of any grade transaminase elevation was 2 months (range: 3 days to26 months), with a median event duration of 1 month (range: 1 day to 16 months).Monitor hepatic function during treatment with COPIKTRA. For Grade 2 ALT/AST elevation (> 3 to 5 X ULN),maintain COPIKTRA dose and monitor at least weekly until return to < 3 X ULN. For Grade 3 ALT/AST elevation (>5 to 20 X ULN), withhold COPIKTRA and monitor at least weekly until return to < 3 X ULN. Resume COPIKTRA atthe same dose (first occurrence) or at a reduced dose for subsequent occurrences. For grade 4 ALT/AST elevation(> 20 X ULN), discontinue COPIKTRA.Neutropenia: Grade 3 or 4 neutropenia occurred in 42% of patients receiving COPIKTRA 25 mg BID (N=442),with Grade 4 neutropenia occurring in 24% of all patients. Median time to onset of grade ≥3 neutropenia was 2months (range: 3 days to 31 months), with 75% of cases occurring within 4 months.Monitor neutrophil counts at least every 2 weeks for the first 2 months of COPIKTRA therapy, and at leastweekly in patients with neutrophil counts < 1.0 Gi/L (Grade 3-4). Withhold COPIKTRA in patients presenting withneutrophil counts < 0.5 Gi/L (Grade 4). Monitor until ANC is > 0.5 Gi/L, then resume COPIKTRA at same dose forthe first occurrence or at a reduced dose for subsequent occurrences.Embryo-Fetal Toxicity: Based on findings in animals and its mechanism of action, COPIKTRA can cause fetalharm when administered to a pregnant woman. Advise pregnant women of the potential risk to a fetus. Conductpregnancy testing before initiating COPIKTRA treatment. Advise females of reproductive potential and maleswith female partners of reproductive potential to use effective contraception during treatment and for at least 1month after the last dose.ADVERSE REACTIONSB-cell Malignancies SummaryFatal adverse reactions within 30 days of the last dose occurred in 8% (36/442) of patients treated withCOPIKTRA 25 mg BID. Serious adverse reactions were reported in 289 patients (65%). The most frequent seriousadverse reactions that occurred were infection (31%), diarrhea or colitis (18%), pneumonia (17%), rash (5%),and pneumonitis (5%).Adverse reactions resulted in treatment discontinuation in 156 patients (35%) most often due to diarrhea orcolitis, infection, and rash. COPIKTRA was dose reduced in 104 patients (24%) due to adverse reactions, most often due to diarrhea or colitis and transaminase elevation. The most common adverse reactions (reported in ≥20% of patients) were diarrhea or colitis, neutropenia, rash, fatigue, pyrexia, cough, nausea, upper respiratoryinfection, pneumonia, musculoskeletal pain and anemia.CLL/SLL: Fatal adverse reactions within 30 days of the last dose occurred in 12% (19/158) of patients treatedwith COPIKTRA and in 4% (7/155) of patients treated with ofatumumab. Serious adverse reactions werereported in 73% (115/158) of patients treated with COPIKTRA and most often involved infection (38%; 60/158)and diarrhea or colitis (23%; 36/158). COPIKTRA was discontinued in 57 patients (36%), most often due todiarrhea or colitis, infection, and rash. COPIKTRA was dose reduced in 46 patients (29%) due to adversereactions, most often due to diarrhea or colitis and rash. The most common adverse reactions with COPIKTRA(reported in ≥20% of patients) were diarrhea or colitis, neutropenia, pyrexia, upper respiratory tract infection,pneumonia, rash, fatigue, nausea, anemia and cough.FL: Serious adverse reactions were reported in 58% of patients and most often involved diarrhea or colitis,pneumonia, renal insufficiency, rash, and sepsis. The most common adverse reactions (≥20% of patients) werediarrhea or colitis, nausea, fatigue, musculoskeletal pain, rash, neutropenia, cough, anemia, pyrexia, headache,mucositis, abdominal pain, vomiting, transaminase elevation, and thrombocytopenia. Adverse reactions resultedin COPIKTRA discontinuation in 29% of patients, most often due to diarrhea or colitis and rash. COPIKTRA wasdose reduced in 23% due to adverse reactions, most often due to transaminase elevation, diarrhea or colitis,lipase increased and infection.DRUG INTERACTIONS·CYP3A Inducers: Coadministration with a strong CYP3A inducer may reduce COPIKTRA efficacy. Avoidcoadministration with strong CYP3A4 inducers.·CYP3A Inhibitors: Coadministration with a strong CYP3A inhibitor may increase the risk of COPIKTRAtoxicities. Reduce COPIKTRA dose to 15 mg BID when coadministered with a strong CYP3A4 inhibitor.·CYP3A Substrates: Coadministration of COPIKTRA with sensitive CYP3A4 substrates may increase therisk of toxicities of these drugs. Consider reducing the dose of the sensitive CYP3A4 substrate andmonitor for signs of toxicities of the coadministered sensitive CYP3A substrate.See full Prescribing Information, including Boxed Warning, at www.COPIKTRA.com About Chronic Lymphocytic Leukemia/Small Lymphocytic LymphomaChronic lymphocy(cid:25)c leukemia (CLL) and small lymphocy(cid:25)c lymphoma (SLL) are cancers that affect lymphocytesand are essen(cid:25)ally the same disease, with the only difference being the loca(cid:25)on where the cancer primarilyoccurs. When most of the cancer cells are located in the bloodstream and the bone marrow, the disease isreferred to as CLL, although the lymph nodes and spleen are o(cid:70)en involved. When the cancer cells are locatedmostly in the lymph nodes, the disease is called SLL. The symptoms of CLL/SLL include a tender, swollenabdomen and feeling full even a(cid:70)er ea(cid:25)ng only a small amount. Other symptoms can include fa(cid:25)gue, shortnessof breath, anemia, bruising easily, night sweats, weight loss, and frequent infec(cid:25)ons. However, many pa(cid:25)entswith CLL/SLL will live for years without symptoms. In 2018, there were approximately 200,000 pa(cid:25)ents in theUnited States affected by CLL/SLL with nearly 20,000 new diagnoses. While there are therapies currentlyavailable, real-world data reveals that a significant number of patients either relapse following treatment, become refractory to current agents, or are unable to tolerate treatment, represen(cid:25)ng asignificant medical need. The poten(cid:25)al of addi(cid:25)onal oral agents, par(cid:25)cularly as a monotherapy that can be usedin the general community physician’s armamentarium, may hold significant value in the treatment of pa(cid:25)entswith CLL/SLL. About Follicular LymphomaFollicular lymphoma (FL) is typically a slow-growing or indolent form of non-Hodgkin lymphoma (NHL) thatarises from B-lymphocytes, making it a B-cell lymphoma. In 2018, this lymphoma subtype accounted for 20 to30 percent of all NHL cases, with more than 140,000 people in the United States with FL and more than 13,000newly diagnosed pa(cid:25)ents. Common symptoms of FL include enlargement of the lymph nodes in the neck,underarms, abdomen, or groin, as well as fa(cid:25)gue, shortness of breath, night sweats, and weight loss. O(cid:70)en,pa(cid:25)ents with FL have no obvious symptoms of the disease at diagnosis. Follicular lymphoma is usually notconsidered to be curable, but more of a chronic disease, with pa(cid:25)ents living for many years with this form oflymphoma. The poten(cid:25)al of addi(cid:25)onal oral agents, par(cid:25)cularly as a monotherapy that can be used in the generalcommunity physician’s armamentarium, may hold significant value in the treatment of patients with FL.About Peripheral T-Cell LymphomaPeripheral T-cell lymphoma (PTCL) is a rare, aggressive type of non-Hodgkin lymphoma (NHL) that develops inmature white blood cells called “T cells” and “natural killer (NK) cells” which circulate with the lympha(cid:25)c system.PTCL accounts for between 10-15% of all non-Hodgkin lymphomas (NHLs) and generally affects people aged 60years and older. Although there are many different subtypes of peripheral T-cell lymphoma, they o(cid:70)en presentin a similar way, with widespread, enlarged, painless lymph nodes in the neck, armpit or groin. There is currentlyno established standard of care for patients with relapsed or refractory disease.About COPIKTRA™ (duvelisib)COPIKTRA is an oral inhibitor of phosphoinosi(cid:25)de 3-kinase (PI3K), and the first approved dual inhibitor of PI3K-delta and PI3K-gamma, two enzymes known to help support the growth and survival of malignant B-cells. PI3Ksignaling may lead to the prolifera(cid:25)on of malignant B-cells and is thought to play a role in the forma(cid:25)on andmaintenance of the suppor(cid:25)ve tumor microenvironment. COPIKTRA is indicated for the treatment of adultpa(cid:25)ents with relapsed or refractory chronic lymphocy(cid:25)c leukemia/small lymphocy(cid:25)c lymphoma (CLL/SLL) a(cid:70)erat least two prior therapies and relapsed or refractory follicular lymphoma (FL) a(cid:70)er at least two prior systemictherapies. COPIKTRA is also being developed by Verastem Oncology for the treatment of peripheral T-celllymphoma (PTCL), for which it has received Fast Track status, and is being inves(cid:25)gated in combina(cid:25)on with otheragents through inves(cid:25)gator-sponsored studies. For more informa(cid:25)on on COPIKTRA, please visitwww.COPIKTRA.com. Information about duvelisib clinical trials can be found on www.clinicaltrials.gov.About Verastem OncologyVerastem Oncology (Nasdaq: VSTM) is a commercial biopharmaceu(cid:25)cal company commi(cid:75)ed to thedevelopment and commercializa(cid:25)on of medicines to improve the lives of pa(cid:25)ents diagnosed with cancer. We aredriven by the strength, tenacity and courage of those ba(cid:75)ling cancer – single-minded in our resolve to delivernew therapies that not only keep cancer at bay, but improve the lives of pa(cid:25)ents diagnosed with cancer. Becausefor us, it’s personal. 121213,4,56 Our first FDA approved product is now available for the treatment of pa(cid:25)ents with certain types of indolent non-Hodgkin’s lymphoma (iNHL). Our pipeline comprises product candidates that seek to treat cancer by modula(cid:25)ngthe local tumor microenvironment. For more information, please visit www.verastem.com.Forward looking statements noticeThis press release includes forward-looking statements about Verastem Oncology’s strategy, future plans andprospects, including statements regarding the development and ac(cid:25)vity of Verastem Oncology’s lead productCOPIKTRA, and Verastem Oncology’s PI3K program generally, its commercializa(cid:25)on of COPIKTRA, the poten(cid:25)alcommercial success of COPIKTRA, the an(cid:25)cipated adop(cid:25)on of COPIKTRA by pa(cid:25)ents and physicians, thestructure of its planned and pending clinical trials and the (cid:25)meline and indica(cid:25)ons for clinical development,regulatory submissions and commercializa(cid:25)on ac(cid:25)vi(cid:25)es. The words "an(cid:25)cipate," "believe," "es(cid:25)mate," "expect,""intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue,"and similar expressions are intended to iden(cid:25)fy forward-looking statements, although not all forward-lookingstatements contain these iden(cid:25)fying words. Each forward-looking statement is subject to risks and uncertain(cid:25)esthat could cause actual results to differ materially from those expressed or implied in such statement.Applicable risks and uncertain(cid:25)es include the risks and uncertain(cid:25)es, among other things, regarding: thecommercial success of COPIKTRA in the United States; physician and pa(cid:25)ent adop(cid:25)on of COPIKTRA, includingthose related to the safety and efficacy of COPIKTRA; the uncertain(cid:25)es inherent in research and development ofCOPIKTRA, such as nega(cid:25)ve or unexpected results of clinical trials; whether and when any applica(cid:25)ons forCOPIKTRA may be filed with regulatory authori(cid:25)es in any other jurisdic(cid:25)ons; whether and when regulatoryauthori(cid:25)es in any other jurisdic(cid:25)ons may approve any such other applica(cid:25)ons that may be filed for COPIKTRA,which will depend on the assessment by such regulatory authori(cid:25)es of the benefit-risk profile suggested by thetotality of the efficacy and safety informa(cid:25)on submi(cid:75)ed and, if approved, whether COPIKTRA will becommercially successful in such jurisdic(cid:25)ons; our ability to obtain, maintain and enforce patent and otherintellectual property protec(cid:25)on for COPIKTRA and our other product candidates; the scope, (cid:25)ming, and outcomeof any legal proceedings; decisions by regulatory authori(cid:25)es regarding labeling and other ma(cid:75)ers that couldaffect the availability or commercial poten(cid:25)al of COPIKTRA; the fact that regulatory authori(cid:25)es in the U.S. orother jurisdic(cid:25)ons, if approved, could withdraw approval; whether preclinical tes(cid:25)ng of our product candidatesand preliminary or interim data from clinical trials will be predic(cid:25)ve of the results or success of ongoing or laterclinical trials; that the (cid:25)ming, scope and rate of reimbursement for our product candidates is uncertain; thatthird-party payors (including government agencies) may not reimburse for COPIKTRA; that there may becompe(cid:25)(cid:25)ve developments affec(cid:25)ng our product candidates; that data may not be available when expected; thatenrollment of clinical trials may take longer than expected; that COPIKTRA or our other product candidates willcause unexpected safety events, experience manufacturing or supply interrup(cid:25)ons or failures, or result inunmanageable safety profiles as compared to their levels of efficacy; that COPIKTRA will be ineffec(cid:25)ve at trea(cid:25)ngpa(cid:25)ents with lymphoid malignancies; that we will be unable to successfully ini(cid:25)ate or complete the clinicaldevelopment and eventual commercializa(cid:25)on of our product candidates; that the development andcommercializa(cid:25)on of our product candidates will take longer or cost more than planned; that we may not havesufficient cash to fund our contemplated opera(cid:25)ons; that we, CSPC Pharmaceu(cid:25)cal Group, Yakult Honsha Co.,Ltd. or Infinity Pharmaceu(cid:25)cals, Inc. will fail to fully perform under the duvelisib license agreements; that we maybe unable to make addi(cid:25)onal draws under our debt facility or obtain adequate financing in the future throughproduct licensing, co-promo(cid:25)onal arrangements, public or private equity, debt financing or otherwise; that wewill not pursue or submit regulatory filings for our product candidates, including for duvelisib in pa(cid:25)ents withchronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) or indolent non-Hodgkin lymphoma (iNHL)in other jurisdictions; and that our product candidates will not receive regulatory approval, become commercially successful products, or result in newtreatment options being offered to patients.Other risks and uncertain(cid:25)es include those iden(cid:25)fied under the heading "Risk Factors" in the Company’s itsAnnual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on March 12, 2019and in any subsequent filings with the SEC. The forward-looking statements contained in this press release reflectVerastem Oncology’s views as of the date hereof, and the Company does not assume and specifically disclaimsany obliga(cid:25)on to update any forward-looking statements whether as a result of new informa(cid:25)on, future eventsor otherwise, except as required by law.References The Leukemia & Lymphoma Society. Peripheral T-Cell Lymphoma Facts. July 2014.Leukemia Founda(cid:25)on. h(cid:75)p://www.leukaemia.org.au/blood-cancers/lymphomas/non-hodgkin-lymphoma-nhl/peripheral-t-cell-lymphoma Winkler D.G., Faia K.L., DiNi(cid:75)o J.P. et al. PI3K-delta and PI3K-gamma inhibi(cid:25)on by IPI-145 abrogates immuneresponses and suppresses activity in autoimmune and inflammatory disease models. Chem Biol 2013; 20:1-11. Reif K et al. Cu(cid:95)ng Edge: Differen(cid:25)al Roles for Phosphoinosi(cid:25)de 3 kinases, p110-gamma and p110-delta, inlymphocyte chemotaxis and homing. J Immunol 2004:173:2236-2240. Schmid M et al. Receptor Tyrosine Kinases and TLR/IL1Rs Unexpectedly ac(cid:25)vate myeloid cell PI3K, a singleconvergent point promoting tumor inflammation and progression. Cancer Cell 2011;19:715-727. www.clinicaltrials.gov, NCT03372057 ContactsVerastem Oncology:Erin S. CoxSenior Director, Investor Relations & Corporate Communications+1 781-469-1553ecox@verastem.com Investors:Joseph RayneArgot Partners+1 617-340-6075joseph@argotpartners.com 12 3456 Verastem, Inc.Consolidated Balance Sheets(in thousands) December 31, December 31, 2018 2017 Cash, cash equivalents and investments $249,653 $86,672 Accounts receivable, net 306 — Inventory 327 — Prepaid expenses and other current assets 2,973 1,115 Property and equipment, net 1,369 861 Intangible assets, net 21,577 — Other assets 1,031 1,143 Total assets $277,236 $89,791 Accounts payable, accrued expenses and other current liabilities $37,077 $17,128 Long-term debt 19,506 14,828 Convertible senior notes 95,231 — Other liabilities 1,123 151 Stockholders’ equity 124,299 57,684 Total liabilities and stockholders’ equity $277,236 $89,791 Verastem, Inc.Consolidated Statements of Operations(in thousands, except per share amounts) Three months ended December 31, Year ended December 31, 2018 2017 2018 2017Revenue: Product revenue, net $1,210 $ — $1,718 $ —License revenue — — 25,000 —Total revenue 1,210 — 26,718 —Operating expenses: Costs of revenues, excluding amortizationof acquired intangible assets 116 — 165 —Research and development 8,761 11,253 43,648 46,423Selling, general and administrative 26,199 6,798 77,265 21,381Amortization of acquired intangibleassets 393 — 423 —Total operating expenses 35,469 18,051 121,501 67,804Loss from operations (34,259) (18,051) (94,783) (67,804)Other income 25,556 — 25,556 —Interest income 1,306 145 2,603 561Interest expense (3,952) (329) (5,810) (559)Net loss $(11,349) $(18,235) $(72,434) $(67,802)Net loss per share—basic $(0.15) $(0.43) $(1.12) $(1.76)Net loss per share—diluted $(0.37) $(0.43) $(1.37) $(1.76)Weighted average common sharesoutstanding used in computing: Net loss per share—basic 73,766 42,027 64,962 38,422Net loss per share—diluted 91,061 42,027 69,321 38,422

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