Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FORM 10-K
For the fiscal year ended December 31, 2019
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 001-35403
Verastem, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
117 Kendrick Street, Suite 500
Needham, Massachusetts
(Address of principal executive offices)
27-3269467
(I.R.S. Employer
Identification No.)
02494
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (781) 292-4200
Title of each class
Common Stock, $0.0001 par value
Trading Symbol(s)
VSTM
Name of each exchange on which registered
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
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
Smaller reporting company☒
Non‑accelerated filer ☐
Accelerated filer ☒
any new 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 ☒ No
Aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 28, 2019 was
$110,799,682.
The number of shares outstanding of the registrant’s common stock as of March 11, 2020 was 148,410,387.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the Registrant’s Annual
General Meeting of Shareholders, to be held on May 19, 2020 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 the registrant’s fiscal year ended December 31, 2019.
Table of Contents
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
EXHIBIT INDEX
SIGNATURES
4
39
71
72
72
72
72
74
75
95
95
95
95
98
99
99
99
99
99
100
100
101
105
2
Table of Contents
FORWARD‑LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and
uncertainties. 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, future
financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking
statements. Such statements relate to, among other things, the development and activity of our lead product, COPIKTRA
and our phosphoinositide 3-kinase (PI3K), focal adhesion kinase (FAK) and rapidly accelerated fibrosarcoma (RAF)/
mitogen-activated protein kinase (MEK) programs generally, the potential commercial success of COPIKTRA, the
anticipated adoption of COPIKTRA by patients and physicians, the structure of our planned and pending clinical trials,
and the timeline and indications for clinical development, regulatory submissions and commercialization activities. The
words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,”
“will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these identifying words.
Forward-looking statements are not guarantees of future performance and our actual results could differ
materially from the results discussed in the forward-looking statements we make. Applicable risks and uncertainties
include the risks and uncertainties, among other things, regarding: the commercial success of COPIKTRA in the United
States; 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 clinical
trials; whether and when any applications for COPIKTRA may be filed with regulatory authorities in any other
jurisdictions; whether and when regulatory authorities in any other jurisdictions may approve any such other applications
that may be filed for COPIKTRA, which will depend on the assessment by such regulatory authorities of the benefit-risk
profile suggested by the totality of the efficacy and safety information submitted and, if approved, whether COPIKTRA
will be commercially successful in such jurisdictions; our ability to obtain, maintain and enforce patent and other
intellectual property protection for COPIKTRA and our other product candidates; the scope, timing, and outcome of any
legal proceedings; decisions by regulatory authorities regarding labeling and other matters that could affect the
availability 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 interim
data 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 government
agencies) may not reimburse for COPIKTRA; that there may be competitive developments affecting our product
candidates; that data may not be available when expected; that enrollment of clinical trials may take longer than
expected; that COPIKTRA or our other product candidates will cause unexpected safety events, experience
manufacturing or supply interruptions or failures, or result in unmanageable safety profiles as compared to their levels of
efficacy; that COPIKTRA will be ineffective at treating patients with lymphoid malignancies; that we will be unable to
successfully 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; that we
may not have sufficient cash to fund our contemplated operations; that we may not realize the operational efficiencies
and cost savings from restructuring; that we, Sanofi, CSPC Pharmaceutical Group Limited, Yakult Honsha Co.
Ltd., Chugai Pharmaceutical Co., Ltd, or Infinity Pharmaceuticals, Inc. will fail to fully perform under the license
agreements; that we may be unable to make additional draws under our debt facility or obtain adequate financing in the
future 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 with
chronic 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 new treatment options being offered to patients. Other risks and uncertainties include
those identified under the heading “Risk Factors” in this Annual Report on Form 10-K for the year ended December 31,
2019, 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 our
forward-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 or
investments we may make. We do not assume any obligation to update any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by law.
3
Table of Contents
Item 1. Business
OVERVIEW
PART I
We are a biopharmaceutical company focused on developing and commercializing medicines to improve the
survival and quality of life of cancer patients. Our marketed product, COPIKTRA® (duvelisib) capsules, and most
advanced product candidates, defactinib and CH5126766 also referred to as VS-6766, utilize a multi-faceted approach
designed to treat cancers originating either in the blood or major organ systems. We are currently developing duvelisib
and our product candidates in both preclinical and clinical studies as potential therapies for certain cancers, including
leukemia, lymphoma, lung cancer, mesothelioma, ovarian cancer, head and neck cancer, colorectal cancer and pancreatic
cancer. We believe that these compounds may be beneficial as therapeutics either as single agents or when used in
combination with immuno-oncology agents, other pathway inhibitors or other current and emerging standard of care
treatments in aggressive cancers that do not adequately respond to currently available therapies.
COPIKTRA is an oral inhibitor of phosphoinositide 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 and T-
cells. PI3K signaling may lead to the proliferation of malignant B-cells and T-cells and is thought to play a role in the
formation and maintenance of the supportive tumor microenvironment. COPIKTRA was approved by the U.S. Food &
Drug Administration (FDA) on September 24, 2018 and is now indicated for the treatment of adult patients with relapsed
or refractory chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) after at least two prior therapies
and relapsed or refractory follicular lymphoma (FL) after at least two prior systemic therapies. The indication in FL is
approved under accelerated approval based on overall response rate. Continued approval for this FL indication may be
contingent 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 is
for treatment of patients with peripheral T-cell lymphoma (PTCL). The development of duvelisib in PTCL has been
awarded Fast Track and Orphan Drug status by the FDA and a registration study is underway. During 2020, we plan to
continue to further develop duvelisib through our registration-directed Phase 2 PTCL study and other sponsored trials.
We also expect that interim data for several ongoing investigator sponsored studies (ISTs) will be reported.
Defactinib, is a targeted inhibitor of Focal Adhesion Kinase (FAK). FAK is a non-receptor tyrosine kinase
encoded by the Protein Tyrosine Kinase-2 (PTK-2) gene that is involved in cellular adhesion and, in cancer, metastatic
capability. CH5126766, is a first-in-class small molecule RAF/MEK inhibitor. Defactinib in combination with
CH5126766 is being studied in an ongoing Phase 1 IST in patients with KRAS mutant advanced solid tumors, including
ovarian cancer, non-small cell lung cancer (NSCLC) and colorectal cancer. Similar to COPIKTRA, both defactinib and
CH5126766 are delivered orally and designed to be a potential therapy for patients to take at home under the advice of
their physician. During 2020, we expect the results from the defactinib/CH5126766 IST to be reported.
In addition, defactinib is currently being investigated in combination with immunotherapeutic and other agents
through ISTs. In 2020, it is planned to report results from certain ongoing dose escalation combination studies involving
defactinib.
4
Table of Contents
OUR FOCUS
We are focused on the development and commercialization of small molecules kinase inhibitors for optimized
efficacy and safety – 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
American Cancer Society estimated that in the United States in 2019, approximately 1.8 million new cases of cancer
were diagnosed and over 600,000 people died from the disease. Current treatments for cancer include surgery, radiation
therapy, chemotherapy, hormonal therapy, immunotherapy, cell therapy, and targeted therapy. Notwithstanding years of
intensive research and clinical use, these current treatments often fail to cure cancer. For example, conventional
chemotherapy works by stopping tumor growth by disrupting the cell cycle leading to cell death. Chemotherapies are
effective at killing cancer cells because cancer cells generally grow more rapidly than normal cells. However,
chemotherapies also target fast-growing normal cells of the body, such as blood cells, hair follicles, and the cells lining
the mouth, stomach, and intestines. As a result, they have a range of side effects and although the treatments may
succeed at initially decreasing tumor burden, they ultimately fail to kill all the cancer cells and/or to effectively disrupt
the tumor microenvironment (TME), potentially resulting in eventual disease progression.
Accordingly, cancer remains one of the world’s most serious health problems and is the second most common
cause of death in the United States after heart disease. For example, the U.S. annual incidence, based on 2019 estimates
from the National Cancer Institute’s Surveillance, Epidemiology, and End Results Program (NCI; SEER), is that during
the year there were approximately 74,200 new cases of indolent non-Hodgkin lymphoma (iNHL), 228,150 new cases of
lung cancer and 56,770 new cases of pancreatic cancer.
With the application of new technologies and key discoveries, we believe that we are now entering an era of
cancer research characterized by a more sophisticated understanding of the biology of cancer. We believe that the
potential of oral, targeted therapies, along with the rapidly advancing field of immunotherapy, or using the body’s
immune system to fight cancer, present the opportunity to develop more effective cancer treatments. Our goal is to
develop targeted agents that both specifically kill cancer cells and disrupt the TME to enhance the efficacy of cancer
treatment. Agents that can modulate the TME to increase cytotoxic T-cell access to the tumor cells and decrease
immunosuppressive T-cells in tumors have been sought after to increase the proportion of responding cancer patients and
the duration of response (DOR) to cancer treatment.
Our commercial product, COPIKTRA is currently used to treat cancer patients with relapsed and refractory
CLL/SLL and FL. COPIKTRA, and our product candidates, defactinib and CH5126766, are being further evaluated for
the treatment of certain types of hematologic and solid cancers, CLL/SLL, iNHL, T-cell lymphoma, lung cancer, head
and neck cancer, ovarian cancer, colorectal cancer, pancreatic cancer, mesothelioma, and other advanced cancers.
Chronic Lymphocytic Leukemia/Small Lymphocytic Lymphoma, Non-Hodgkin Lymphoma
Hematologic malignancies are cancers in the cells of blood forming tissue (bone marrow) or in the cells of the
immune system. CLL/SLL, a form of non-Hodgkin lymphoma (NHL) occurs in a type of white blood cells called
lymphocytes, specifically B-cells. When most of the cancer cells are located in the bloodstream and the bone marrow,
the disease is referred to as CLL. When the cancer cells are located mostly in the lymph nodes, the disease is called SLL.
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 4.9 per 100,000 men and women per year based on 2012-2016 cases and that the five-year
relative survival rate from 2009 to 2015 for patients with CLL/SLL was approximately 85%.
Treatment of CLL/SLL has evolved over time from the initial use of monotherapy with alkylating agents
(chlorambucil, bendamustine) and purine analogs (fludarabine) to immunotherapy (anti-CD52 monoclonal antibody
alemtuzumab and anti-CD20 monoclonal antibody ofatumumab) and chemoimmunotherapy combinations (rituximab,
ofatumumab and obinutuzumab in combination with purine and alkylating agents). Since 2014, novel targeted agents
have been approved in the relapsed setting and include the Bruton’s tyrosine kinase (BTK) inhibitor ibrutinib, the PI3K
inhibitor idelalisib, in combination with rituximab, and the BCL-2 inhibitor venetoclax. While available therapies have
been shown to be effective, the majority of CLL/SLL will eventually relapse or become refractory to treatment. In the
relapsed or refractory population, other available therapies may not be appropriate for
5
Table of Contents
some patients due to the patient’s age, comorbidities, response to prior therapies, and underlying disease. In addition,
some other available therapies have limitations due to route of administration (e.g., intravenous infusion) and the
requirement for close monitoring within a hospital setting, which may prohibit their use in patients who have limited
access to hospitals or clinics. In consideration of eventual relapse, and the potential for treatment-associated toxicities or
treatment-resistance, as well as patient convenience and accessibility, additional options are needed to treat patients with
relapsed or refractory CLL/SLL.
The potential of additional oral agents, particularly as a monotherapy that can be used in the general community
physician’s armamentarium, may hold significant value in the treatment of patients with CLL/SLL. Currently,
COPIKTRA is also being evaluated in combination with chemotherapy, or venetoclax for the treatment of patients with
CLL/SLL.
Follicular Lymphoma
FL is typically a slow growing or indolent form of NHL that arises from B-lymphocytes. FL accounts for
approximately 20% of case of NHL. Common symptoms of FL include enlargement of the lymph nodes in the neck,
underarms, abdomen, or groin, as well as fatigue. Typically, patients with FL have no obvious symptoms of the disease
at diagnosis and present only with an enlarged lymph node on exam or found incidentally on the imaging study. The NCI
estimates that the number of new incidences of FL was 2.7 per 100,000 men and women per year based on 2012-2016
cases and that the five-year relative survival rate from 2009 to 2015 for patients with FL was approximately 88%.
Despite recent improvements in survival, FL remains an incurable disease.
There are various treatment options for FL based on the severity of associated symptoms and the rate of cancer
growth. If patients show no or very few symptoms, physicians may recommend not to treat the disease immediately, an
approach referred to as “active surveillance” (also known as “watchful waiting”). Active treatment is often started if the
patient begins to develop lymphoma-related symptoms or there are signs that the disease is progressing based on testing
during follow-up visits.
FL is generally responsive to radiation and chemotherapy upon initial diagnosis and treatment. The standard
first line therapies for FL are rituximab, cyclophosphamide, doxorubicin, vincristine and prednisone (R-CHOP);
rituximab, cyclophosphamide, vincristine, and prednisone (R-CVP) and rituximab and bendamustine. In most patients,
these rituximab-containing regimens achieve remissions lasting 4-7 years. Rituximab is used alone as a first-line
treatment for patients whose frailty or comorbidities prelude cytotoxic therapy. Single-agent rituximab also may be
beneficial as maintenance therapy for patients who experience partial remission with first-line regimen. Second-line
treatments for follicular lymphoma include re-exposure to common first-line regimens, the radiopharmaceutical yttrium
Y 90–ibritumomab tiuxetan, and the recently approved combination of bendamustine and obinutuzumab, a second-
generation anti-CD20 antibody. Patients with FL often undergo multiple courses of chemoimmunotherapy, increasing
the risk of serious cardiac toxicity, immunosuppression, and myelosuppression, which is particularly problematic in
elderly patients. The choice of third-line treatment for relapsed/refractory follicular lymphoma depends largely on a
patient’s age, how long the most recent remission lasted, and how aggressive the disease is.
There have been only incremental advances in treatment options for FL beyond chemotherapy or
immunotherapies like the antibodies against CD20, such as rituximab and obinutuzumab, and the overall clinical outlook
for patients still remains poor. The use of an oral agent like COPIKTRA, particularly as a monotherapy that can be used
in the general community physician’s armamentarium, may hold significant value for the treatment of patients with FL.
Currently, COPIKTRA is also being evaluated in combination with Nivolumab, and in an intermittent dosing regimen
for the treatment of patients with FL.
Peripheral T-Cell Lymphoma
Peripheral T-cell lymphomas constitute approximately 4% of all NHLs diagnosed in the United States. The
incidence of peripheral T-cell lymphoma increases with age, with the median age at diagnosis at 60 years. The disease
course is very aggressive and is associated with poor prognosis. Current treatment strategies are largely unsatisfactory in
both first-line and refractory/relapsed. Without treatment, PTCL survival is measured in months. Most patients will
relapse with first-line treatment and will not achieve remission of their disease. The approach to
6
Table of Contents
treat PTCL has traditionally been similar to that for diffuse large B-cell lymphoma. However, outcomes are poor when
PTCL is treated according to strategies established for aggressive B-cell lymphomas, with early relapse, progression free
survival of less than 1 year, and overall survival of less than 2 years. Even with current standard anthracycline-based
chemotherapy, the 5 year survival rate is low, which presents the need for new therapies.
PTCLs are sub-classified into various subtypes, each of which are typically considered to be separate diseases
based on their distinct clinical differences. Most of these subtypes are very rare; the four most common subtypes of
PTCL – peripheral T-cell lymphoma not otherwise specified (PTCL-NOS), anaplastic large-cell lymphoma (ALCL), and
angioimmunoblastic T-cell lymphoma (AITL), and cutaneous T-cell lymphoma (CTCL) – account for approximately
88% of all PTCLs in the United States.
For most subtypes of PTCL, the frontline treatment regimen is typically a combination chemotherapy, such as
CHOP (cyclophosphamide, doxorubicin, vincristine, and prednisone), CHOEP (cyclophosphamide, doxorubicin,
vincristine, etoposide, and prednisone), or other multi-drug regimens. Because most patients with PTCL will relapse,
some oncologists recommend giving high-dose chemotherapy followed by an autologous stem cell transplant (during
which patients 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 than not
undergoing a transplant.
Historically, patients with relapsed disease have had a dismal prognosis, with a median survival of less than 6
months. Patients with relapsed disease are usually treated with combination chemotherapy such as ICE (ifosfamide,
carboplatin and etoposide) or other combination regimens, followed by stem cell transplantation. However, some
regimens might not be suited for everyone because of their high toxicity levels.
The potential of additional oral agents, either as a monotherapy or in combination with other anti-cancer agents,
that can be used in the general community physician’s armamentarium, may hold significant value in the treatment of
patients with PTCL. Currently, COPIKTRA is being evaluated as monotherapy or in combination with romidepsin or
bortezomib for the treatment of patients with PTCL.
Head and Neck Cancer
Cancers that are known collectively as head and neck cancers usually begin in the squamous cells that line the
moist, mucosal surfaces inside the head and neck (for example, inside the mouth, the nose, and the throat). These
squamous cell cancers are often referred to as head and neck squamous cell carcinoma (HNSCC). Head and neck cancers
can also begin in the salivary glands, but salivary gland cancers are relatively uncommon. Salivary glands contain many
different types of cells that can become cancerous, so there are many different types of salivary gland cancer. In the U.S,
there are approximately 50,000 new cases of HNSCC and more than 10,000 deaths per year.
HNSCC represents over 90% of head and neck malignancies. Although the majority of patients present with
locoregionally advanced disease, the clinical course is characterized by a high recurrence rate approaching 50%, as well
as the development of distal metastases. The current standard of care for locally recurrent disease (without surgical or
radiation treatment options) and/or metastatic disease in the first-line setting has been platinum-based doublet
chemotherapy with cetuximab. In 2016, the FDA approved two immunotherapeutic agents, nivolumab and
pembrolizumab, for the treatment of patients with R/M HNSCC refractory to platinum-based therapy. In 2019, the FDA
approved pembrolizumab for the first-line treatment of patients with unresectable recurrent/metastatic (R/M) HNSCC.
For frontline therapy, pembrolizumab was approved for use in combination with platinum and fluorouracil for all
patients with R/M HNSCC and as a single agent for patients whose tumors express PD-L1 with a combined positive
score (CPS) ≥1 as determined by an FDA-approved test.
Despite the recent approval of pembrolizumab and nivolumab, only a small subset of patients appears to derive
benefit from these anti-PD-1 therapies. Although the efficacy may vary by PD-L1 expression or human papillomavirus
(HPV) status as well as the number of prior therapies, typically the ORR is approximately 15% in the second-line or
greater setting and somewhat higher in the first-line setting. The majority of responses in either setting are partial
responses (PRs). Thus, there remains a large unmet medical need for better therapy options in patients with
R/M HNSCC. Currently, duvelisib is being evaluated in patients who are eligible for pembrolizumab monotherapy based
on the current pembrolizumab prescribing information.
7
Table of Contents
Ovarian Cancer
Ovarian cancer forms in tissues of the ovary, one of a pair of female reproductive glands in which the ova, or
eggs, are formed. Most ovarian cancers are either ovarian epithelial carcinoma, cancer that begins in the cells on the
surface of the ovary, or malignant germ cell tumors that begin in egg cells. According to the NCI, epithelial carcinoma
of the ovary is one of the most common gynecologic malignancies, with 50% of all cases occurring in women older than
65 years. The NCI estimates that the number of new incidences of ovarian cancer was 11.4 per 100,000 women per year
based on 2012-2016 cases and that the five-year relative survival rate from 2009 to 2015 for patients with ovarian cancer
was approximately 48%.
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 the
ovaries or a total hysterectomy where the uterus is also removed. Unfortunately, available therapies are rarely curative in
the treatment of ovarian cancer and many tumors become resistant to platinum-based chemotherapy, which is the
primary treatment regimen. Further treatment with conventional chemotherapy is generally palliative, not curative, as
the tumor is able to metastasize and spread to other sites in the body. Currently, defactinib is being evaluated in
combination with CH5126766 for the treatment of low grade serous ovarian cancer (LGSOC), and in combination with
platinum and taxane for the treatment of patients with high grade serous ovarian cancer (HGSOC).
Colorectal Cancer
Colorectal cancer (CRC), also known as bowel cancer, colon cancer, or rectal cancer, is the development
of cancer from the colon or rectum (parts of the large intestine). One in twenty people will be diagnosed with colorectal
cancer and colorectal cancer is the second leading cause of cancer death among men and women combined in the United
States. The NCI estimates that the number of new incidences of CRC was 38.6 per 100,000 men and women per year
based on 2012-2016 cases and that the five-year relative survival rate from 2009 to 2015 for patients with CRC was
approximately 64%. The individual likelihood of survival depends on how advanced the cancer is, whether or not all the
cancer can be removed with surgery and the person's overall health.
Treatments used for colorectal cancer may include some combination of surgery, radiation
therapy, chemotherapy and targeted therapy. Cancers that are confined within the wall of the colon may be curable with
surgery, while cancer that has spread widely is usually not curable, with management being directed towards
improving quality of life and symptoms. Currently, defactinib is being evaluated in combination with CH5126766 for the
treatment of patients with RAS mutant colorectal cancer.
Non-Small Cell Lung Cancer
According to the NCI, the most common types of non-small cell lung cancer (NSCLC) are squamous cell
carcinoma, 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 to
chemotherapy and radiation therapy compared with small cell lung cancer (SCLC). Lung cancer is the leading cause of
cancer-related mortality in the United States. The NCI estimates that the number of new incidences of lung cancer was
54.9 per 100,000 men and women per year based on 2012-2016 cases and that the five-year relative survival rate from
2009 to 2015 for patients with lung cancer was approximately 19%.
Patients with resectable disease may be cured by surgery or surgery followed by chemotherapy. Local control
can be achieved with radiation therapy in a large number of patients with unresectable disease, but a cure is seen only in
a small number of patients. Patients with locally advanced unresectable disease may achieve long term survival with
radiation therapy combined with chemotherapy. Patients with advanced metastatic disease may achieve improved
survival and palliation of symptoms with chemotherapy, targeted agents, and other supportive measures. The disease
becomes resistant to therapy and returns in the majority of patients. Currently, defactinib is being evaluated in
combination with pembrolizumab or in combination with CH5126766 for the treatment of patients with NSCLC cancer.
8
Table of Contents
Pancreatic Cancer
In 2019, the NCI estimated that pancreatic cancer was the eleventh most common cancer diagnosed in the
United 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 spreads rapidly and is seldom
detected in its early stages, which is a major reason why it is a leading cause of cancer death. Signs and symptoms may
not appear until pancreatic cancer is so advanced that complete surgical removal is not possible. Pancreatic cancer is one
of the few cancers where survival has not improved significantly during the past 40 years. The NCI estimates that the
number of new incidences of pancreatic cancer was 12.9 per 100,000 men and women per year based on 2012-2016
cases. Pancreatic cancer has a very high mortality rate with approximately 91% of patients dying within five years of
their initial diagnosis based on the five-year relative survival rate from 2009 to 2015. The median age for diagnosis is 70
with the disease affecting males slightly more than females.
The prognosis for pancreatic cancer is extremely poor as shown by the survival rate, which indicates the need
for new treatments. Chemotherapy or chemotherapy plus radiation is offered to patients whose tumors are unable to be
removed surgically. Immuno-oncology agents have not demonstrated a significant improvement in treatment outcome
for patients with pancreatic cancer. The limited impact of chemotherapies and immunotherapies to improve the outcome
may be due to the dense stroma that is prevalent in pancreatic tumors and the TME. Currently, defactinib is being
evaluated in combination with pembrolizumab for the treatment of patients with pancreatic cancer.
Mesothelioma
Mesothelioma is a form of cancer that is most often caused by asbestos and affects the smooth lining of the
chest, lungs, heart, and abdomen. The average life expectancy for mesothelioma patients is approximately 12 to 22
months. Mesothelioma most often forms in the pleural cavity of the chest or into the abdomen as a solid tumor that
begins as a result of insult to the tissues caused by asbestos particles, which penetrate into the pleural cavity of the chest.
There are four types of mesothelioma, with pleural mesothelioma accounting for approximately 75% of all mesothelioma
cases.
Pleural mesothelioma accounts for approximately 2,500 - 3,000 cases a year in the United States. This disease
affects the pleura, which is the thin balloon shaped lining of the lungs. In its early stages, mesothelioma is difficult to
detect as it may start with a thickening of the pleural rind, or fluid, which can be associated with many other
conditions. This rind is normally thin and smooth in the non-diseased state. In time, it begins to demonstrate
progression, forming a more pronounced irregular rind and nodules, which coalesce into a crust that compresses and
invades into adjacent structures compromising lung and cardiac function.
The symptoms of mesothelioma gradually become more noticeable, prompting the patient to
seek a medical consultation. By this time, the progression of the disease may already be too
advanced, as the tumor may have spread to the lymph nodes and/or begun to metastasize to remote
organs of the body like the brain, spleen, liver or kidneys. Although significant progress has been
made in the treatment of many malignancies, mesothelioma remains a therapeutic challenge, with
disappointing results even when the most aggressive therapies are used. Given the lack of effective
treatments, a substantial unmet need exists for improved first-line regimens and efficacious second-
line treatments. Currently, defactinib is being evaluated in combination with pembrolizumab for the
treatment of patients with mesothelioma.
OUR STRATEGY
COPIKTRA, defactinib, and CH5126766 seek to utilize a multi-faceted approach to treat cancer by directly
targeting the cancer cells, enhancing anti-tumor immunity, and modulating the local tumor microenvironment. Our
9
Table of Contents
goal is to build a leading biopharmaceutical company focused on the development and commercialization of novel drugs
that use a multi-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 marketing
of COPIKTRA in approved and indicated hematologic malignancies as an oral monotherapy for
patients needing additional lines of therapy following previous treatment.
Continuing to develop and explore combination of defactinib and CH5126766 and further define the
initial registration-directed study for defactinib and CH5126766 in combination.
Expanding the indications in which COPIKTRA, defactinib and CH5126766 may be used. In parallel
with the CLL/SLL, iNHL, PTCL, NSCLC, HNSCC, ovarian cancer, pancreatic cancer, and
mesothelioma trials and studies that are currently being conducted, we plan to pursue additional
disease indications to expand the potential of our product and product candidates.
Supporting our third party collaborators outside of the United States to successfully continue on their
pathway to development milestones and regulatory approval for duvelisib in their respective
territories.
Advancing our product candidates through clinical development. In addition to ongoing clinical trials
evaluating duvelisib and CH5126766 as single agents, clinical studies are currently ongoing to
evaluate duvelisib, defactinib and CH5126766 in combinations with other agents in several
hematologic and solid tumor indications.
Collaborating selectively to augment and accelerate translational research, development and
commercialization. We may seek third‑party collaborators for the development and eventual
commercialization of our product candidates. In particular, we may enter into third‑party
arrangements for target oncology indications in which our potential collaborator has particular
expertise or for which we need access to additional research, development, or commercialization
resources. Additionally, we may continue to seek third-party collaborations outside of the United
States to continue 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 the
acquisition or in-license of rights to additional agents from third parties that may supplement our
internal programs and allow us to initiate clinical development of a diverse pipeline of agents more
quickly.
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 the
hematological and immuno-oncology fields to further our understanding of the underlying biology of
enhancing the body’s immune response to tumors as well as cancer progression and metastasis. We
also 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 of
new therapies for the treatment of cancer.
OUR PRODUCT AND PRODUCT CANDIDATE
Our pipeline product and product candidates currently consist of COPIKTRA, which is now commercially
available in the United States, having been approved by the FDA for the treatment of certain hematologic malignancies
in September 2018, defactinib and CH5126766, which continue to be evaluated in the clinic for the treatment of a variety
of cancer types.
10
Table of Contents
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 with
relapsed or refractory CLL/SLL after at least two prior therapies and relapsed or refractory FL, after at least two prior
systemic therapies. The indication in FL is approved under accelerated approval based on overall response rate and
continued approval for this indication may 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 an
informational Risk Evaluation and Mitigation Strategy (REMS), as requested by the FDA, to support physicians
in managing dosing and adverse reactions in their patients on COPIKTRA. In addition to the boxed warning, use of
COPIKTRA is also associated with adverse reactions, which may require dose reduction, treatment delay or
discontinuation of COPIKTRA. Warnings and precautions are provided in the package insert for infections, diarrhea or
colitis, cutaneous reactions, pneumonitis, hepatotoxicity, neutropenia, and embryo-fetal toxicity. The most common
adverse 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 trial
designed to evaluate the efficacy and safety of duvelisib at 25 mg BID compared to ofatumumab, a monoclonal antibody
treatment, administered to patients who have been diagnosed with CLL/SLL and whose disease is relapsed or
refractory. A total of 319 patients were included in the study, of which 160 patients were treated with COPIKTRA and
159 patients were treated with ofatumumab. Patients in DUO that continue to derive benefit remain on treatment. DUO
enrollment criteria included patients with CLL/SLL, whose disease had progressed during or relapsed after at least one
previous CLL/SLL therapy. The primary endpoint of the study was Progression-Free Survival (PFS). The FDA and
European Medicines Agency (EMA) granted orphan drug designation to duvelisib for the treatment of CLL/SLL.
The DYNAMO study is a Phase 2, open-label, single-arm monotherapy study evaluating the safety and efficacy
of duvelisib dosed at 25 mg BID in 129 patients with iNHL. Patients in DYNAMO that continue to derive a benefit
remain on treatment. DYNAMO enrollment criteria included patients with FL, the most common subtype of iNHL,
marginal zone lymphoma (MZL) and SLL, whose disease is double-refractory to rituximab, an anti-CD20 monoclonal
antibody, and to either chemotherapy or radioimmunotherapy and who must have progressed within six months of
receiving their final dose of a previous therapy. The primary endpoint of the study was an overall response rate (ORR)
as assessed by an independent review committee (IRC) and according to the revised International Working Group (IWG)
Criteria, which includes a change in target nodal lesions in combination with other measurements to determine response
to treatment. The FDA and EMA granted orphan drug designation to duvelisib for the treatment of FL.
THE COPIKTRA LABEL
The CLL/SLL indication for COPIKTRA is based on data from a subset of patients in the DUO trial who had
received two or more prior lines of therapy. These 196 patients were the majority of patients enrolled in DUO. The
sub-analysis data included in the COPIKTRA label resulted in a median PFS by central review in this population of 16.4
months for COPIKTRA vs. 9.1 months for ofatumumab with a Standard Error of 2.1 and 0.5 months, respectively. This
equates to a hazard ratio of 0.4, with a Standard Error of 0.2; or a 60% reduction in the risk of progression or
death. Additionally, COPIKTRA achieved a 78% ORR, compared to 39% for ofatumumab – a 39% difference, with a
Standard Error of 6.4%.
Efficacy in CLL/SLL After at Least Two Prior Therapies (DUO)
11
Table of Contents
Outcome per IRC
PFS
Number of events, n (%)
Progressive disease
Death
Median PFS (SE), months
Hazard Ratio (SE), COPIKTRA/ofatumumab
Response Rate
ORR n (%)
CR
PR
Difference in ORR, % (SE)
b
a
c
COPIKTRA
N = 95
Ofatumumab
N=101
55 (58%)
44
11
16.4 (2.1)
0.40 (0.2)
74 (78%)
0 (0%)
74 (78%)
39% (6.4)
70 (69%)
62
8
9.1 (0.5)
39 (39%)
0 (0%)
39 (39%)
a
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
c
b
Kaplan-Meier Curve of PFS per IRC In Patients with at Least 2 Prior Therapies (DUO)
12
Table of Contents
Overall 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
from updated results for the subset of follicular lymphoma patients in the DYNAMO study. This subset of data was
comprised of 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% and 54%, 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.
patients with relapsed or refractory FL after at least two prior systemic therapies.
Efficacy in Patients with Relapsed or Refractory FL (DYNAMO)
13
Table of Contents
Endpoint
a
ORR. N (%)
95% CI
CR, n (%)
PR, n (%)
Duration of response
Range, months
Patients maintaining response at 6 months, n/N (%)
Patients maintaining response at 12 months, n/N (%)
FL
N = 83
35 (42%)
(31, 54)
1 (1%)
34 (41%)
+
+
0.0 to 41.9
15/35 (43%)
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
+
a
The safety data in support of the COPIKTRA label comes from a pooled safety analysis conducted in 442
patients treated with COPIKTRA at the recommended starting dose of 25 mg BID. The results of this analysis include
all patients from the DUO and DYNAMO studies.
Most Common Adverse Reactions (≥ 10% Grade ≥ 3 or ≥ 20% Any Grade) in Patients with B-cell Malignancies
Receiving COPIKTRA
Adverse Reactions
a
c
b
Neutropenia †
Diarrhea or colitis †
Pneumonia †
Anemia †
Rash †
Fatigue †
Pyrexia
Musculoskeletal pain †
Nausea †
Cough †
Upper respiratory tract infection †
COPIKTRA 25 mg BID (N = 442)
Grade ≥ 3
n (%)
132 (30%)
101 (23%)
67 (15%)
48 (11%)
41 (9%)
22 (5%)
7 (2%)
6 (1%)
4 (<1%)
2 (<1%)
2 (<1%)
Any Grade
n (%)
151 (34%)
222 (50%)
91 (21%)
90 (20%)
136 (31%)
126 (29%)
115 (26%)
90 (20%)
104 (24%)
111 (25%)
94 (21%)
† Grouped term for reactions with multiple preferred terms
a
Diarrhea or colitis includes the preferred terms: colitis, enterocolitis, colitis microscopic, colitis ulcerative, diarrhea, diarrhea hemorrhagic
b
Pneumonia includes the preferred terms: All preferred terms containing "pneumonia" except for "pneumonia aspiration"; bronchopneumonia,
bronchopulmonary aspergillosis
c
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 skin eruption, 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 that
occurred were infection (31%), diarrhea or colitis (18%), pneumonia (17%), rash (5%) and pneumonitis (5%).
Based largely on the clinical results of the DUO and DYNAMO studies, the National Comprehensive Cancer
Network (NCCN) added COPIKTRA to the Clinical Practice Guidelines in Oncology (NCCN Guidelines), the standard
physician resource for determining the appropriate course of treatment for patients, for CLL/SLL, FL and MZL. We
believe these updated guidelines will increase awareness for COPIKTRA and help health care providers make informed
decisions for patients battling these difficult to treat advanced cancers.
14
Table of Contents
Phase 1/2 Study Investigating Duvelisib and Venetoclax in Patients with Relapsed or Refractory CLL/SLL
The Phase 1/2 Investigator-sponsored study, with Matthew S. Davids, MD, Associate Director, Center for
Chronic Lymphocytic Leukemia at Dana-Farber Cancer Institute, as Principal Investigator for the trial, is exploring
duvelisib in combination with venetoclax in relapsed or refractory CLL/SLL. In the study, 12 patients were enrolled and
received oral duvelisib and oral venetoclax. The primary endpoints of the study are dose limiting toxicities, maximum
tolerated dose and identification of the recommended Phase 2 dose. Secondary endpoints include pharmacokinetics and
preliminary efficacy. Duvelisib plus venetoclax demonstrated promising clinical activity, and a manageable tolerability
profile, and a recommended Phase 2 dose of 400 mg of venetoclax was determined for this regimen.
Among the 12 evaluable patients, 11 achieved a response for an ORR of 92%, including four (33%) complete
responses and seven (58%) partial responses. Four patients had undetectable minimum residual disease in the peripheral
blood and bone marrow, including two patients with a complete response. The most common Grade 1 and 2 adverse
events were fatigue (92%), hyperglycemia (83%), anemia (67%), and thrombocytopenia (67%). The most common
Grade ≥3 adverse events were neutropenia (84%), hypocalcemia (50%), and hypophosphatemia (25%). No dose limiting
toxicities were observed, and the recommended phase 2 dose of venetoclax was identified as 400mg once daily when
given with standard dose duvelisib 25mg twice daily. This study is now in a Phase 2 portion in CLL/SLL and Richter’s
Syndrome and is currently accruing new patients.
DUVELISIB TREATMENT IN T-CELL LYMPHOMA
In a Phase 1 study published in Blood in February 2018, the ORR in patients with PTCL treated with duvelisib
monotherapy (n=16) was 50%, including three complete responses and five partial responses. Responses were seen
across the spectrum of PTCL subtypes, including compete responses and partial responses in patients with enteropathy-
associated T-cell lymphoma (EATL), AITL, subcutaneous panniculitis-like T-cell lymphoma (SPTCL), and anaplastic
large-cell lymphoma (ALCL), among others. DOR in the PTCL population ranged from 1.8 to 17.3 months with median
PFS of 8.3 months and median overall survival of 8.4 months. In cutaneous T-cell lymphoma (CTCL) (n=19), the ORR
was 32%, with six partial responses. DOR ranged from 0.7 to 10.1 months and median PFS was 4.5 months. Median
overall survival was not reached; however, the estimated probability of survival was determined to be 90% at 6 months,
79% at 12 and 18 months, and 73% at 24 months. Duvelisib monotherapy demonstrated a manageable safety profile,
with results from this study consistent with the well-characterized safety profile of duvelisib monotherapy in patients
with hematologic malignancies in other studies. These clinical results were supported by preclinical findings showing
that duvelisib exhibited cell-killing activity in vivo and promoted beneficial changes within the tumor
microenvironment. During the first quarter of 2018, an open-label, multicenter, Phase 2 clinical trial (PRIMO) evaluating
the efficacy and safety of duvelisib in patients with relapsed or refractory PTCL was initiated.
PRIMO STUDY
The PRIMO study is a multi-center, open-label, registration-directed Phase 2 study evaluating duvelisib in
patients with relapsed or refractory PTCL that is expected to enroll approximately 120 patients. In the dose optimization
portion of the study, patients were randomized to receive duvelisib 25mg twice daily with an option for dose escalation
(cohort 1) or duvelisib 75mg twice daily continuously (cohort 2) until disease progression or unacceptable toxicity. The
primary endpoint of the study was investigator-assessed overall response rate (ORR), and secondary endpoints included
DOR and safety.
Preliminary results from the Dose Optimization portion the PRIMO study were presented at the 2019 Annual
Meeting of the American Society for Hematology conference (ASH 2019). A total of 33 patients (cohort 1, n=20; cohort
2, n=13) were treated in the dose optimization/dose selection phase. Investigator-assessed ORRs were 35% in cohort 1
and 54% in cohort 2, with a complete response rate of 25% and 31% in cohort 1 and cohort 2, respectively. ORR, as
assessed by blinded independent central review was 40% in cohort 1 and 62% in cohort 2. Thirteen of 20 patients in
cohort 1 and all patients in cohort 2 were able to complete one cycle of therapy. Seven patients in cohort 1 discontinued
therapy early due to disease progression and/or toxicity. Most responses were
15
Table of Contents
observed at the end of cycle 1 (cycle=28 days). At a median follow-up of 21.4 weeks, the majority of responders were
still in response at the time of their last assessment. The most common (≥ 4 patients) Grade ≥3 adverse events in all
patients receiving duvelisib were neutropenia, thrombocytopenia, diarrhea, rash/maculopapular, lymphocytopenia,
pneumonia and sepsis. Serious adverse events occurring in ≥ 2 patients were colitis, diarrhea, abdominal pain, pyrexia,
sepsis, pneumonia, hyponatremia, rash/maculopapular, dyspnea, and respiratory failure.
Based on these efficacy and safety data, the investigators have elected to investigate duvelisib starting at 75mg
twice daily for two cycles, followed by 25mg twice daily, during the dose expansion portion of the study which is
currently ongoing. The expansion portion of the study is being conducted in the United States, Europe, and Japan.
During 2017, the FDA granted Fast Track designation for the treatment of patients with PTCL, who have
received at least one prior therapy. In addition, the FDA granted duvelisib orphan drug designation for the treatment of
T-cell lymphoma.
DEFACTINIB and CH5126766
Defactinib is an orally available small molecule kinase inhibitor designed to inhibit FAK signaling. Defactinib
is being evaluated as a potential therapy for ovarian cancer, pancreatic cancer, mesothelioma, NSCLC, colorectal cancer,
and other solid tumors. Defactinib has orphan drug designation in ovarian cancer and mesothelioma in the United States,
European Union, and Australia.
CH5126766 is an orally available unique small molecule RAF/MEK inhibitor. Standard MEK inhibitors (e.g.
trametinib) paradoxically induce MEK phosphorylation (pMEK) by relieving ERK-dependent feedback inhibition of
RAF which may limit their efficacy. By inhibiting RAF phosphorylation of MEK, CH5126766 has the advantage of not
inducing pMEK. This unique mechanism of CH5126766 enables more effective inhibition of ERK signaling and may
confer enhanced therapeutic activity against ERK-dependent, RAS or BRAF mutant tumors. CH5126766 has been
studied in over 150 patients and has shown a manageable safety profile to date. Initial signs of activity have been
observed in clinical studies as a monotherapy in KRAS mutant, NSCLC, endometrial and ovarian cancers, in BRAF
mutant ovarian cancer, and in RAS mutant multiple myeloma.
Defactinib and CH5126766 have each shown independent clinical activity against RAS mutant cancers.
Phase I study (FRAME) of defactinib in combination with a dual RAF/MEK inhibitor (CH5126766) in patients with
advanced solid tumors.
Defactinib has shown a high level of synergy in combination with CH5126766 in preclinical models.
A dose escalation/dose expansion study is underway to evaluate the combination of defactinib and CH5126766
in patients with advanced solid tumors, including ovarian cancer, NSCLC, and colorectal cancer. The study was initiated
in 2017 and has a planned enrollment of approximately 80 patients. This is a multi-center study sponsored by The
Institute of Cancer Research (UK) under the direction of the chief investigator Professor Udai Banerji. There are two
parts to this study: the dose escalation phase and the expansion phase. During the dose escalation phase, the
recommended Phase 2 dose has been determined and expansion cohorts are underway. Defactinib is generally well
tolerated, and has a non-overlapping safety profile relative to CH5126766 and a manageable all-oral combination
regimen has been defined. Initial clinical data with the combination are promising for both objective response rate and
durability. We intend to explore the breadth of this combination against KRAS mutant cancers and we expect the clinical
results will be reported in 2020.
FAK inhibition effects on the tumor microenvironment
The effects of FAK inhibition on the tumor microenvironment make defactinib a good candidate for
combination therapy with immuno-oncology agents and other anti-cancer compounds. FAK expression is greater in
many tumor types compared to normal tissue, particularly in cancers that have a high invasive and metastatic capability.
The contact between cancer cells and connective tissue stimulates FAK signaling.
16
Table of Contents
The clinical evaluation of defactinib is supported by a growing body of preclinical research suggesting that
FAK inhibition, when combined with PD-1 inhibitors, increases the anti-tumor activity of these immunotherapeutic
agents. As 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-cell
killing of tumor cells, and create a generally more favorable tumor microenvironment, which may allow for enhanced
efficacy of immuno-oncology therapeutics.
Pancreatic cancer, along with other tumors such as ovarian cancer and prostate cancer, are tumor types in which
immunotherapeutics have achieved limited clinical benefit, possibly due to the dense desmoplastic stroma and the
abundance of immunosuppressive cells. Preclinical research has demonstrated that high stromal density prevents anti-
cancer agents and T-cells from entering pancreatic tumors thereby limiting efficacy. In preclinical research conducted by
us and others, FAK inhibition was shown to reduce stromal density and allow cytotoxic T-cells to better penetrate the
tumor and kill the cancer cells. Collectively, these data provide strong rationale for combining our FAK inhibitor with
checkpoint inhibitors in the clinic for pancreatic and other solid tumors.
Phase 1/2 study with Cancer Research United Kingdom (CRUK) and Merck & Co. to evaluate combination therapy with
pembrolizumab.
In September 2016, we announced a clinical collaboration with CRUK and Merck & Co. to evaluate defactinib
in combination with pembrolizumab, a PD-1 inhibitor, in patients with NSCLC, mesothelioma, or pancreatic cancer.
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 and
gemcitabine in patients with advanced pancreatic cancer. This Phase 1 clinical trial is anticipated to enroll
approximately 50 patients and is being conducted at the Washington University School of Medicine’s Division of
Oncology under the direction of Andrea Wang-Gillam, M.D., Ph.D., Clinical Director of the Gastrointestinal Oncology
Program. This trial is primarily designed to evaluate the safety of the combination regimen and may also provide a
greater understanding of how FAK inhibition in combination with immunotherapies could improve outcomes for patients
with pancreatic cancer.
INTELLECTUAL PROPERTY
We strive to protect the proprietary technology that we believe is important to our business, including seeking
and maintaining patents intended to cover our product candidates and compositions, their methods of use and processes
for their manufacture, and any other aspects of inventions that are commercially important to the development of our
business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not
consider appropriate for, patent protection.
We plan to continue to expand our intellectual property estate by filing patent applications directed to
compositions, methods of treatment and patient selection created or identified from our ongoing development of our
product candidates. Our success will depend on our ability to obtain and maintain patent and other proprietary
protection for commercially important technology, inventions and know‑how related to our business, defend and enforce
our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable
patents and proprietary rights of third parties. We also rely on know‑how, continuing technological innovation and
in‑licensing opportunities to develop and maintain our proprietary position. We seek to obtain domestic and
international patent protection, and endeavor to promptly file patent applications for new commercially valuable
inventions.
The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal,
scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced
before the patent is issued, and patent scope can be reinterpreted by the courts after issuance. Moreover, many
jurisdictions permit third parties to challenge issued patents in administrative proceedings, which may result in further
narrowing or even cancellation of patent claims. We cannot predict whether the patent applications we are
17
Table of Contents
currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will
provide sufficient protection from competitors.
Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for
18 months or potentially even longer, and since publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent
applications. Moreover, we may have to participate in interference proceedings or derivation proceedings declared by
the U.S. Patent and Trademark Office to determine priority of invention.
Patents
Our patent portfolio includes issued and pending applications worldwide. These patent applications fall into
four categories: (1) PI3K inhibition program; (2) FAK inhibition program; (3) RAF/MEK inhibition program and
(4) other programs.
PI3K inhibition program
As 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 Infinity
Pharmaceuticals, 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 claims
covering duvelisib generically and specifically. Also included are issued patents covering certain polymorphs of
duvelisib. 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. patents
have 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 pending worldwide
patents and patent 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 certain methods of
use and combination therapies, if issued, would expire between 2029 and 2036.
FAK inhibition program
We are also currently developing the FAK inhibitor defactinib.
We have exclusively licensed a portfolio of patent applications owned by Pfizer, Inc. (Pfizer), which are
directed to FAK inhibitor compounds and methods of their use, for example in cancer. One patent family is related
generally to defactinib. This patent family includes issued patents having claims covering defactinib generically and
specifically. For example, US 7,928,109 covers the composition of matter of defactinib specifically and US 8,247,411
covers the composition of matter of defactinib generically. Also included are issued and pending patent applications
having claims directed to methods of treatment and methods of making defactinib. For example, US 8,440,822 covers
methods of making defactinib. Any U.S. patents that have issued or will issue in this family will have a statutory
expiration date in April of 2028. Related cases are pending worldwide, including for example in Europe, Brazil,
Thailand, Hong Kong, and India, and granted in Australia, Mexico, Canada, China, Korea, Israel, New Zealand, South
Africa, Singapore, Taiwan, and Japan.
In addition to the issued and pending patent applications exclusively licensed from Pfizer, we own three patent
families covering defactinib. One family is directed to compositions (e.g., oral dosage forms) of defactinib and certain
methods of use. Any U.S. patents that will issue in this family will have a statutory expiration date in January of
2035. The other two families are directed to methods of using a FAK inhibitor in combination with another agent, such
as defactinib in combination with a MEK inhibitor for treating a patient or defactinib in combination with an
immunotherapeutic agent. Any U.S. patents that will issue in these families will have a statutory expiration date in
February of 2035 and June of 2036
18
Table of Contents
Our licensed portfolio of patent applications from Pfizer also includes four families of patent applications
directed to VS‑6062 and related methods of use. The patent families include issued and pending patent applications
having claims directed to VS‑6062, methods of manufacture, and pharmaceutical salts. Patents have issued in these
families in the U.S. that will expire in December of 2023, April of 2025, and November of 2028, respectively. Related
cases have been granted worldwide, including for example in Australia, Canada, China, Japan, and Europe.
RAF/MEK inhibition program
We have exclusively licensed a portfolio of three patent families owned by Chugai Pharmaceutical Co., Ltd.
(Chugai). The first patent family has claims directed to the composition of matter of CH5126766, and includes granted
patents in the United States, Australia, Canada, China, Europe and Japan, that are expected to expire in February
2027. The second patent family has one pending international application with claims directed to a dosing protocol of
CH5126766. Any patent application claiming priority to or the benefit of this international patent application, if issued,
would be expected to expire in May 2038. The third patent family has claims directed to method of making CH5126766
and includes granted patents in Europe, Japan, and the United States that are expected to expire in September 2032.
Patent Term
The base term of a U.S. patent is 20 years from the filing date of the earliest‑filed non‑provisional patent
application from which the patent claims priority. The term of a U.S. patent can be lengthened by patent term
adjustment, which compensates the owner of the patent for administrative delays at the U.S. Patent and Trademark
Office. In some cases, the term of a U.S. patent is shortened by terminal disclaimer that reduces its term to that of an
earlier‑expiring patent.
The term of a United States patent may be eligible for patent term extension under the Drug Price Competition
and Patent Term Restoration Act of 1984, referred to as the Hatch‑Waxman Act, to account for at least some of the time
the drug is under development and regulatory review after the patent is granted. With regard to a drug for which FDA
approval is the first permitted marketing of the active ingredient, the Hatch‑Waxman Act allows for extension of the term
of one United States patent that includes at least one claim covering the composition of matter of an FDA‑approved
drug, an FDA‑approved method of treatment using the drug, and/or a method of manufacturing the FDA‑approved
drug. The extended patent term cannot exceed the shorter of five years beyond the non‑extended expiration of the patent
or 14 years from the date of the FDA approval of the drug. Some foreign jurisdictions, including Europe and Japan,
have analogous patent term extension provisions, which allow for extension of the term of a patent that covers a drug
approved by the applicable foreign regulatory agency. As stated above, 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.
LICENSES
Infinity Pharmaceuticals, Inc.
In November 2016, we entered into an amended and restated license agreement with Infinity, under which we
acquired an exclusive worldwide license for the research, development, commercialization, and manufacture of products
in oncology indications containing duvelisib. In connection with the license agreement, we assumed operational and
financial responsibility for certain activities that were part of Infinity’s duvelisib program, including the DUO study for
patients with relapsed/refractory CLL/SLL, and Infinity maintained a portion of the financial responsibility for the
shutdown of certain other clinical studies. We are obligated to use diligent efforts to develop and commercialize a
product in an oncology indication containing duvelisib. As previously discussed, COPIKTRA was approved by the
FDA on September 24, 2018 and is now indicated for the treatment of adult patients with relapsed or refractory
CLL/SLL after at least two prior therapies and relapsed or refractory 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 humans or animals.
19
Table of Contents
Pursuant to the terms of the license agreement, we are required to make the following payments to Infinity in
cash or, at our election, in whole or in part, in shares of our common stock: (i) $6.0 million upon the completion of the
DUO study if the results of the study meet certain pre-specified criteria, which was paid in cash by us to Infinity in
October 2017, and (ii) $22.0 million upon the approval of a New Drug Application (NDA) in the United States or an
application for marketing authorization with a regulatory authority outside of the United States for a product in an
oncology indication containing duvelisib, which was paid in cash by us to Infinity in November 2018.
Pursuant to the license agreement, we are obligated to pay Infinity royalties on worldwide net sales of any
products in an oncology indication containing duvelisib ranging from the mid-single digits to the high single digits. The
royalties will expire on a product-by-product and country-by-country basis until the latest to occur of (i) the last-to-
expire patent right covering the applicable product in the applicable country, (ii) the last-to-expire patent right covering
the manufacture of the applicable product in the country of manufacture of such product, (iii) the expiration of non-
patent regulatory exclusivity in such country and (iv) ten years following the first commercial sale of a product in a
country, provided that if royalties on net sales for a product in the United States are payable solely on the basis of non-
patent regulatory exclusivity, the applicable royalty on net sales for such product in the United States will be reduced by
50%. The royalties are also subject to reduction by 50% of certain third-party royalty payments or patent litigation
damages or settlements 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 net sales
of any products in an oncology indication containing duvelisib to cover the reimbursement of research and development
costs owed by Infinity to Mundipharma International Corporation Limited (MICL) and Purdue Pharmaceutical Products
L.P. (Purdue). Once Infinity has fully reimbursed MICL and Purdue, the royalty obligations will be reduced to 1% of net
sales in the United States. These trailing MICL royalties are payable until the later to occur of the last-to-expire of
specified patent rights and the expiration of non-patent regulatory exclusivities in a country. Each of the above royalty
rates is reduced by 50% on a product-by-product and country-by-country basis if the applicable royalty is payable solely
on the basis of non-patent regulatory exclusivity. In addition, the trailing MICL royalties are subject to reduction by
50% of certain third-party royalty payments or patent litigation damages or settlements 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.
On March 5, 2019, Infinity and Healthcare Royalty Partners III, L.P. (HCR) entered into a purchase and sale
agreement, in which HCR paid Infinity a $30.0 million upfront payment and is entitled to receive up to $20.0 million in
potential milestone payments from Infinity. In exchange HCR has received the right to receive the royalties due to
Infinity from us under the license agreement. As a result, we now pay royalties previously due to Infinity to HCR. We
will continue to pay Infinity for the royalties due to MICL and Purdue described above.
20
Table of Contents
Yakult Honsha Co., Ltd.
On June 5, 2018, we entered into a license and collaboration agreement (the Yakult Agreement) with Yakult
Honsha Co., Ltd. (Yakult), under which we granted exclusive rights to Yakult to develop and commercialize products
containing duvelisib in Japan for the treatment, prevention, palliation or diagnosis of all oncology indications in humans
or animals.
Under the terms of the Yakult Agreement, Yakult received an exclusive right to develop and commercialize
products containing duvelisib in Japan under mutually agreed development and commercialization plans at its own cost
and expense. Yakult also received certain limited manufacturing rights in the event that we are unable to manufacture or
supply sufficient quantities of duvelisib or products containing duvelisib to Yakult during the term of the Yakult
Agreement. 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 to
receive aggregate payments of up to $90.0 million if certain development, regulatory and commercial milestones are
successfully achieved. Yakult is obligated to pay us a double-digit royalty on net sales of products containing duvelisib
in Japan, subject to reduction in certain circumstances, and to fund certain global development costs related to
worldwide clinical trials conducted by us in which Yakult has opted to participate (Global Clinical Trials) on a pro-rata
basis.
Unless earlier terminated by either party, the Yakult Agreement will expire upon the fulfillment of Yakult’s
royalty obligations to us for the sale of any products containing duvelisib in Japan, which royalty obligations expire, on a
product-by-product basis, upon the last to occur of (a) expiration of valid claims covering such product, (b) expiration of
regulatory exclusivity for such product or (c) 10 years from first commercial sale of such product. Yakult may terminate
the Yakult Agreement in its entirety at any time with 180 days’ written notice. Either party may terminate the Yakult
Agreement in its entirety with 60 days’ written notice for the other party’s material breach if such party fails to cure the
breach. We may terminate the Yakult Agreement if (i) Yakult fails to use commercially reasonable efforts to develop and
commercialize products containing duvelisib in Japan or (ii) Yakult challenges any patent licensed by us to Yakult under
the Yakult Agreement. Either party may terminate the Yakult Agreement in its entirety upon certain insolvency 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 CSPC
Agreement), under which we granted exclusive rights to CSPC to develop and commercialize products containing
duvelisib 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 commercialize
products containing duvelisib in the CSPC Territory under mutually agreed upon development and commercialization
plans at its own cost and expense. CSPC also received certain limited manufacturing rights in the event that we are
unable to manufacture or supply sufficient quantities of duvelisib or products containing duvelisib to CSPC during the
term 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 had
already been paid by CSPC as a non-refundable exclusivity fee. We are also entitled to receive aggregate payments of
up to $160.0 million if certain development, regulatory and commercial milestones are successfully achieved. CSPC is
obligated to pay us a double-digit royalty on net sales of products containing duvelisib in the CSPC Territory, subject to
reduction in certain circumstances, and to fund certain global development costs related to worldwide clinical trials
conducted by us in which CSPC has opted to participate (Global Clinical Trials) on a pro-rata basis.
21
Table of Contents
Unless earlier terminated by either party, the CSPC Agreement will expire upon the fulfillment of CSPC’s
royalty obligations to us for the sale of any products containing duvelisib in the CSPC Territory, which royalty
obligations expire, on a product-by-product basis, upon the last to occur of (a) expiration of valid claims covering such
product, (b) expiration of regulatory exclusivity for such product or (c) 10 years from first commercial sale of 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 material breach
if such party fails to cure the breach. We may terminate the CSPC Agreement if (i) CSPC fails to use commercially
reasonable efforts to develop and commercialize products containing duvelisib in the CSPC Territory or (ii) CSPC
challenges any patent licensed by us to CSPC under the CSPC Agreement. Either party may terminate the CSPC
Agreement in its entirety upon certain insolvency events involving the other party.
Sanofi
On July 25, 2019, we entered into a license and collaboration agreement with Sanofi (the Sanofi Agreement),
under which we granted exclusive rights to Sanofi to develop and commercialize products containing duvelisib in
Russia, the Commonwealth of Independent States (CIS), Turkey, the Middle East and Africa (collectively the “Sanofi
Territory”) for the treatment, prevention, palliation or diagnosis of any oncology indication in humans or animals.
Under the terms of the Sanofi Agreement, Sanofi received the exclusive right to develop and commercialize
products containing duvelisib in the Sanofi Territory under mutually agreed upon development and commercialization
plans at Sanofi’s own cost and expense. In addition, Sanofi received certain limited manufacturing rights in the event the
Company is unable to manufacture or supply sufficient quantities of duvelisib or products containing duvelisib to Sanofi
during the term of the Sanofi Agreement. We retained all rights to duvelisib outside the Sanofi Territory, except for those
territories previously and exclusively licensed to other parties.
Sanofi paid us an upfront, non-refundable payment of $5.0 million in August 2019. We are also entitled to
receive aggregate payments of up to $42.0 million if certain regulatory and commercial milestones are successfully
achieved. Sanofi is obligated to pay us double-digit royalties on net sales of products containing duvelisib in the Sanofi
Territory, subject to reduction in certain circumstances. Sanofi and we have made customary representations and
warranties and have agreed to certain customary covenants, including confidentiality and indemnification.
Unless earlier terminated by either party, the Sanofi Agreement will expire upon the fulfillment of Sanofi’s
royalty obligations to us for the sale of any products containing duvelisib in the Sanofi Territory, which royalty
obligations expire, on a product-by-product and country-by-country basis, upon the last to occur, in each specific
country, of (a) expiration of valid patent claims covering such product, (b) expiration of regulatory exclusivity for such
product or (c) 10 years from the first commercial sale of such product in such country. Sanofi may terminate the Sanofi
Agreement on a product-by-product basis or on a country-by country basis at any time with 180 days’ written notice.
Either party may terminate the Sanofi Agreement in its entirety with 60 days’ written notice for the other party’s material
breach if such party fails to cure the breach. Subject to certain limitations, we may terminate the Sanofi Agreement
immediately if Sanofi challenges any patent covering a product or compound licensed by the Company to Sanofi under
the Sanofi Agreement. We also have the right to terminate Sanofi’s rights to products containing duvelisib in any specific
country if Sanofi fails to use certain efforts to develop and commercialize products containing duvelisib in such country.
Either party may terminate the Sanofi Agreement in its entirety upon certain insolvency events involving the other party.
Pfizer Inc.
On July 11, 2012, we entered into a license agreement (the Pfizer Agreement) with Pfizer under which Pfizer
granted us worldwide, exclusive rights to research, develop, manufacture and commercialize products containing certain
of Pfizer’s inhibitors of FAK, including defactinib, for all therapeutic, diagnostic and prophylactic uses in humans. We
have the right to grant sublicenses under the foregoing licensed rights, subject to certain restrictions. We are solely
responsible, at our own expense, for the clinical development of these products, which is to be conducted in accordance
with an agreed‑upon development plan. We are also responsible for all
22
Table of Contents
manufacturing and commercialization activities at our own expense. Pfizer provided us with an initial quantity of
clinical supplies of one of the products for an agreed upon price.
Upon entering into the Pfizer 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 in
developmental milestones and up to an additional $125.0 million based on the successful attainment of regulatory and
commercial sales milestones. Pfizer is also eligible to receive high single to mid-double-digit royalties on future net sales
of the products. Our royalty obligations with respect to each product in each country begin on the date of first
commercial sale of the product in that country, and end on the later of 10 years after the date of first commercial sale of
the product in that country or the date of expiration or abandonment of the last claim contained in any issued patent or
patent application licensed by Pfizer to us that covers the product in that country.
The Pfizer 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 Pfizer
Agreement, we have the right to terminate the license agreement at will on a product‑by‑product and country‑by‑country
basis, or in its entirety, upon 90 days written notice to Pfizer. Either party has the right to terminate the Pfizer Agreement
in connection with an insolvency event involving the other party or a material breach of the Pfizer Agreement by the
other party that remains uncured for a specified period of time. If the Pfizer Agreement is terminated by either party for
any reason, worldwide rights to the research, development, manufacture and commercialization of the products revert
back to Pfizer.
Chugai Pharmaceutical Co., Ltd. (Chugai)
On January 7, 2020, we entered into a license agreement with Chugai (the Chugai Agreement) ) whereby
Chugai granted us an exclusive worldwide license for the development, commercialization and manufacture of products
containing CH5126766, a dual RAF/MEK inhibitor.
Under the terms of the Chugai Agreement, we received an exclusive right to develop and commercialize
products containing CH5126766 at our own cost and expense. We are required to pay Chugai a non-refundable payment
of $3.0 million which was paid in February 2020. We are further obligated to pay Chugai double-digit royalties on net
sales of products containing CH5126766, subject to reduction in certain circumstances. Chugai also obtained opt back
rights to develop and commercialize CH5126766 (a) in the European Union, which option may be exercised through the
date we submit a NDA to the FDA for a product which contains CH5126766 as the sole active pharmaceutical ingredient
and (b) in Japan and Taiwan, which option may be exercised through the date we receive marketing authorization from
the FDA for a product which contains CH5126766 as the sole active pharmaceutical ingredient. As consideration for
executing either option, Chugai would have to make a payment to us calculated on the Company’s development costs to
date. Chugai and we have made customary representations and warranties and have agreed to certain customary
covenants, including confidentiality and indemnification.
Unless earlier terminated, the Chugai Agreement will expire upon the fulfillment of our royalty obligations to
Chugai for the sale of any products containing the CH5126766, which royalty obligations expire on a product-by-
product and country-by-country basis, upon the last to occur, in each specific country, of (a) expiration of valid patent
claims covering such product or (b) 12 years from the first commercial sale of such product in such country.
We may terminate the Chugai Agreement upon 180 days’ written notice. Subject to certain limitations, Chugai
may terminate the Chugai Agreement upon written notice if we challenge any patent licensed by Chugai to us under the
Chugai Agreement. Either party may terminate the license agreement in its entirety with 120 days’ written notice for the
other party’s material breach if such party fails to cure the breach. Either party may also terminate the Chugai Agreement
in its entirety upon certain insolvency events involving the other party.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products. While we believe that our technology, development
experience and scientific knowledge provide us with competitive advantages, we face potential
23
Table of Contents
competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology
companies, academic institutions and governmental agencies and public and private research institutions. Any product
candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that
may become available in the future.
Many of our competitors may have significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing
approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries
may result in even more resources being concentrated among a smaller number of our competitors. These competitors
also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary
for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies.
The key competitive factors affecting the success of all our product candidates, if approved, are likely to be
their efficacy, safety, side effects, convenience, price, the level of generic competition and the availability of
reimbursement from government and other third‑party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize
products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive
than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their
products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong
market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases
by insurers or other third‑party payors seeking to encourage the use of generic products. There are many generic
products currently on the market for the indications that we are pursuing, and additional products are expected to become
available on a generic basis over the coming years. If our therapeutic product candidates are approved, we expect 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, including
chemotherapy, hormone therapy, immunotherapy, and targeted drug therapy. There are a variety of available drug
therapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. To the
extent our product candidates are ultimately used in combination with or as an adjunct to existing drug or other therapies,
our product candidates will not be competitive with them. Some of the currently approved drug therapies are branded
and subject to patent protection, and others are available on a generic 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 in the treatment of cancer and the currently marketed therapies
provide benefits to many patients, these therapies all are limited to some extent in their efficacy and frequency of adverse
events, and none of them are successful in treating all patients. 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 clinical
development to treat cancer. These products in development may provide efficacy, safety, convenience and other
benefits that are not provided by currently marketed therapies. As a result, they may provide significant competition for
any of our product candidates for which we obtain market approval.
Our competitors may commence and complete clinical testing of their product candidates, obtain regulatory
approvals and begin commercialization of their products sooner than we may for our own product candidates. These
competitive products may have superior safety or efficacy, or be manufactured less expensively, than our product
candidates. If we are unable to compete effectively against these companies on the basis of safety, efficacy or cost, then
we may not be able to commercialize our product candidates or achieve a competitive position in the market. This
would adversely affect our business.
24
Table of Contents
PI3K inhibition program
We believe that the following companies, among others, have developed or are in the clinical stage of
development of compounds targeting the PI3K signaling pathway:
·
·
·
·
·
Gilead Sciences, Inc., which has received approval from the FDA of idelalisib for the treatment of patients with
CLL, SLL, or FL;
Bayer AG, which has received approval from the FDA of copanlisib for the treatment of patients with relapsed
FL and which we believe has ongoing Phase 1/2 and Phase 3 trials of copanlisib;
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 umbralisib;
Incyte Corporation, which we believe is conducting a Phase 1 and 2 clinical trials of parsaclisib;
· MEI Pharma, which we believe is conducting Phase 1b and Phase 2 clinical trials of ME-401;
·
·
·
Rhizen Pharmaceuticals, which we believe is conducting Phase 1 and Phase 2 clinical trials for tenalisib;
Hutchison MediPharma, which we believe is conducting Phase 1 and Phase 2 clinical trials for HMPL-689; and
Shanghai Yingli Pharmaceutical Co., which we believe is conducting Phase 1 and Phase 2 clinical trials for
linperlisib.
In addition, many companies are developing product candidates directed to disease targets such as Bruton’s
Tyrosine Kinase (BTK), B-cell lymphoma 2 (BCL-2), B-lymphocyte antigen CD-19, programmed death 1/ligand 1 (PD-
1/PD-L1), Enhancer of Zeste Homolog 2 (EZH2), Cluster of Differentiation 79B antibody-drug conjugate (CD79B
ADC), anti-CD-47, CD20xCD3 bi-specific antibodies, Janus Kinase (JAK), and pleiotropic pathways in the fields of
hematology-oncology, including in the specific diseases for which we are currently developing duvelisib, or for which
we may develop duvelisib or other drug candidates in the future. Such companies 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 with
mantle cell lymphoma (MCL), CLL, MZL, SLL, and Waldenström’s macroglobulinemia, and is conducting
multiple 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, a
BCL-2 inhibitor, for the treatment of patients with CLL, and is conducting multiple late stage clinical studies of
venetoclax in additional hematologic malignancies;
Celgene Corporation (a BMS company), which has received FDA approval of lenalidomide, an
immunomodulator, for the treatment of patients with multiple myeloma, MCL, and myelodyplastic syndromes,
and is conducting late stage clinical studies of lenalidomide in additional hematologic malignancies; we also
believe that Celgene is conducting 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 BTK
inhibitor, in patients with CLL;
Beigene, which we believe is conducting Phase 3 trials of zanubrutinib, a BTK inhibitor, in patients with CLL;
25
Table of Contents
·
·
Epizyme, which has submitted a NDA for tazemetostat (EZH2i) for the treatment of patients with FL; and
Bristol Myers Squibb, which we believe is conducting Phase 1 and Phase 2 trials of liso-cel (CD-19 CAR T).
FAK and RAF/MEK inhibition programs
FAK inhibition program
There are other companies working to develop therapies to treat cancer including some who also target the
tumor microenvironment. These companies include divisions of large pharmaceutical companies including Astellas
Pharma Inc., Celgene Corporation, Sanofi‑Aventis U.S. LLC, GlaxoSmithKline plc, Boehringer Ingelheim GmbH,
Pfizer Inc. and others.
RAF/MEK inhibition program
There are other companies with approved RAF and/or MEK inhibitors with FDA approval in the market. Such
companies include:
·
·
·
Novartis AG, which has received FDA approval for dabrafenib, a RAF inhibitor, in combination with
trametinib, a MEK inhibitor, for treatment of patients with unresectable or metastatic melanoma with BRAF
V600E or V600K mutations, adjuvant treatment for melanoma with BRAF V600E or V600K mutations and
involvement of lymph nodes following complete resection, metastatic NSCLC with BRAF V600E or V600K
mutations and locally advanced or metastatic anaplastic thyroid cancer with BRAF V600E mutation;
Pfizer, through its acquisition of Array BioPharma, Inc, has received FDA approval for encorafenib, a RAF
inhibitor, in combination with binimetinib, a MEK inhibitor, for treatment of patients with unresectable or
metastatic melanoma with a BRAF V600E or V600K mutation; and
Genentech, Inc. a member of the Roche Company, which has received FDA approval for vemurafenib, a RAF
inhibitor, in combination with cobimetinib, a MEK inhibitor, to treat patients with unresectable or metastatic
melanoma with a BRAF V600E or V600K mutation.
FAK and RAF/MEK Combination
There are other companies working to develop therapies against KRAS-mutant cancers. We believe the
following companies have ongoing phase 2 trials for treatment of patients with KRAS-mutant cancers: Amgen, Inc.
(AMG-510) Mirati Therapeutics, Inc. (MTRX-849), Eli Lily and Company (LY-3499446), and Silenseed LTD (siG12D
LODER).
26
Table of Contents
MANUFACTURING
We contract with third parties for the manufacture of COPIKTRA for commercial and clinical use and for the
manufacture of our product candidates for preclinical studies and clinical trials, and we intend to continue to do so in the
future. We currently work with two contract manufacturing organizations (CMO) for the production of duvelisib raw
materials, one CMO for the production of duvelisib drug substance, one CMO for the production of duvelisib drug
product, and one CMO for the final commercial and clinical packaging. We have long-term supply agreements in place
with each of these CMOs. We are currently evaluating a second source supplier program for the production of duvelisib
drug substance and drug product. For defactinib, we have one CMO for the manufacture of drug product, one CMO for
the production of drug substance, and one CMO for drug packaging. We obtain drug substance, drug product and
packaging services from these manufacturers on a purchase order basis. We may elect to pursue relationships with other
CMOs for manufacturing clinical supplies for later-stage clinical trials and for commercialization. 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 the relationships with our CMOs.
All of our drug candidates are organic compounds of low molecular weight, generally called small
molecules. We select compounds not only on the basis of their potential efficacy and safety, but also for their ease of
synthesis and the reasonable cost of their starting materials. We expect to continue to develop drug candidates that can
be produced cost‑effectively at third‑party manufacturing facilities.
COMMERCIAL STRATEGY
We intend to develop and commercialize our drugs in the U.S., Canada and the European Union alone
or with partners, and expect to rely on partners to develop and commercialize our drugs in other territories throughout
the world. On September 24, 2018, our first commercial product, COPIKTRA, was approved by the FDA for the
treatment of patients with hematologic cancers including relapsed and refractory CLL/SLL and FL. We sell COPIKTRA
to a limited number of specialty pharmacies and specialty distributors in the United States. These customers
subsequently resell COPIKTRA either directly to patients, or to community hospitals or oncology clinics with in-office
dispensaries who in turn distribute COPIKTRA to patients. In the U.S., our sales team promotes our commercial
product for its approved indications 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 the
United States. As set forth above, we have entered into agreements with third-party partners for the development and
commercialization of duvelisib in territories outside of the United States and have agreed to manufacture or supply
quantities of our product candidate in conjunction with these efforts. We continue to evaluate opportunities and potential
partnerships to develop and commercialize duvelisib in territories outside the United States. In executing these
arrangements, our goal is to retain significant worldwide oversight over the development process and commercialization
of our products by playing an active role in their commercialization or finding partners who share our vision, values,
culture and processes.
APPLICABLE LAWS AND GOVERNMENT REGULATION
Government authorities in the United States, at the federal, state and local level, and in other countries
extensively regulate, among other things, the research, development, testing, manufacture, including any manufacturing
changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post‑approval
monitoring and reporting, import and export of pharmaceutical products, such as those we are developing.
United States drug approval process
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (FDCA) and
implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with
appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and
27
Table of Contents
financial resources. Failure to comply with the applicable United States requirements at any time during the product
development process, approval process or after approval, may subject an applicant to a variety of administrative or
judicial sanctions, such as the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition of a
clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or
distribution injunctions, fines, refusals of government contracts, restitution, disgorgement of profits or civil or criminal
penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the
following:
·
·
·
·
·
·
·
·
completion of preclinical laboratory tests, animal studies and formulation studies in compliance with
the FDA’s good laboratory practice (GLP) regulations;
submission to the FDA of an investigational new drug (IND) application, which must become
effective before human clinical trials may begin;
approval by an independent institutional review board (IRB) at each clinical site before each trial may
be initiated;
performance of adequate and well‑controlled human clinical trials in accordance with good clinical
practices (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 the
product 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’s
identity, strength, quality and purity; and
FDA review and approval of the NDA.
Preclinical studies
Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and
animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic
use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP
regulations. An 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 as
part of an IND. Some long‑term preclinical testing, such as animal tests of reproductive adverse events and
carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt
by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials
and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns
before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to
commence.
Clinical trials
Clinical trials involve the administration of the investigational new drug to human subjects under the
supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the
requirement that all research subjects provide their informed consent in writing before their participation in any clinical
trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the
study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A
28
Table of Contents
protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the
IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any
clinical trial before it commences at that institution, and the IRB must conduct continuing review. The IRB must review
and approve, among other things, the study protocol and informed consent information to be provided to study
subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be
submitted within specific timeframes to the National Institutes of Health for public dissemination on their
ClinicalTrials.gov website.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
·
·
·
Phase 1: The drug is initially introduced into healthy human subjects or patients with the target
disease 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 effects
and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and
to determine dosage tolerance and optimal dosage.
Phase 3: The drug is administered to an expanded patient population in adequate and well‑controlled
clinical trials to generate sufficient data to statistically confirm the efficacy and safety of the product
for approval, to establish the overall risk‑benefit profile of the product and to provide adequate
information for the labeling of the product.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and
more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a
clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an
unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the
clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with
unexpected serious harm to patients.
Marketing approval
Assuming successful completion of the required clinical testing, the results of the preclinical and clinical
studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed
labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for
one or more indications. Under federal law, the submission of most NDAs is additionally subject to a substantial
application user fee, currently scheduled to exceed $2.9 million, and the sponsor of an approved NDA is also subject to
annual program fees, based on the number of approved products. These fees are typically adjusted annually. User fee
statutory authority expires every five years. The Prescription Drug User Fee Act was re-authorized for an additional five
years in 2017 until 2022. Fee waivers are available in certain circumstances, including a waiver of the application fee
for an orphan drug application.
The FDA conducts a preliminary review of all NDAs within the first 60 days after submission before accepting
them for filing to determine whether they are sufficiently complete to permit substantive review. The FDA may request
additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the
additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once
the submission is accepted for filing, the FDA begins an in‑depth substantive review. The FDA has agreed to specified
performance goals in the review of NDAs. Under these goals, the FDA has committed to review most such applications
for non‑priority products within 10 months after accepting the application for filing, and most applications for priority
review 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 three
additional months to consider certain information or clarification regarding information already provided in the
submission. The FDA may also refer applications for
29
Table of Contents
novel drugs or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel
that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application
should be approved. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is
manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within
required specifications. In addition, before approving an NDA, the FDA will typically inspect one or more clinical sites
to 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 take
many years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to
varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a
timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to develop our product
candidates and secure necessary governmental approvals, which could delay or preclude us from marketing our products.
After the FDA’s evaluation of the NDA and inspection of the manufacturing facilities, the FDA may issue an
approval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug with
specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in
the submission and may require substantial additional testing or information in order for the FDA to reconsider the
application. 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 months
depending on the type of information included. Even with submission of this additional information, the FDA ultimately
may decide that the application does not satisfy the regulatory criteria for approval and refuse to approve the NDA.
Even if the FDA approves a product, it may limit the approved indications for use for the product, require that
contraindications, 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 and
surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution
restrictions or other risk management mechanisms, which can materially affect the potential market and profitability of
the product. The FDA may prevent or limit further marketing of a product based on the results of post‑market studies or
surveillance programs. After approval, some types of changes to the approved product, such as adding new indications,
manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and
approval.
Fast track designation
The FDA is required to facilitate the development and expedite the review of drugs that are intended for the
treatment of a serious or life‑threatening condition for which there is no effective treatment, and which demonstrate the
potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drug
candidate may request the FDA to designate the product for a specific indication as a fast track product concurrent with
or after the filing of the IND for the product candidate. The FDA must determine if the product candidate qualifies for
fast 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 with the
FDA, the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This
rolling review is available if the applicant provides and the FDA approves a schedule for the submission of the
remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing a
fast track application does not begin until the last section of the NDA is submitted. In addition, the fast track designation
may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the
clinical trial process.
30
Table of Contents
Priority review
Under FDA policies, a product candidate may be eligible for priority review, or review within a six‑month time
frame from the time a complete application is accepted for filing. Products regulated by the FDA’s Center for Drug
Evaluation and Research (CDER) are eligible for priority review if they provide a significant improvement compared to
marketed products in the treatment, diagnosis or prevention of a disease.
Accelerated approval
Under the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious or life‑threatening
illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint
that is reasonably likely to predict clinical benefit. In clinical trials, a surrogate endpoint is a measurement of laboratory
or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or
survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. 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 clinical endpoint. 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 drug candidates
approved under accelerated regulations are subject to prior review by the FDA.
Orphan drugs
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare
disease or condition, which is generally defined as a disease or condition that affects fewer than 200,000 individuals in
the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan
drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan
drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval
process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease
with FDA orphan drug designation is entitled to a seven‑year exclusive marketing period in the United States for that
product, for that indication. During the seven‑year exclusivity period, the FDA may not approve any other applications
to market the same drug for the same orphan indication, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan drug exclusivity in that it is shown to be safer, more effective or makes a major
contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the
same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan
drug designation are tax credits for certain research and a waiver of the NDA application user fee.
Pediatric information
Under the Pediatric Research Equity Act of 2003, as amended and reauthorized by the Food and Drug
Administration Amendments Act of 2007 (FDAAA), an NDA or supplement to an NDA must contain data that are
adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric
subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe
and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of
some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric
data requirements. Unless otherwise required by regulation, the pediatric data requirements do not apply to products
with orphan drug designation.
The Hatch‑Waxman act
Abbreviated New Drug Applications
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with
claims that cover the applicant’s product or a method of using the product. Upon approval of a drug, each of
31
Table of Contents
the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in
turn, 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
same strengths, dosage form and route of administration as the listed drug and has been shown to be bioequivalent
through in vitro or in vivo testing or otherwise to the listed drug. ANDA applicants are not required to conduct or submit
results of preclinical or clinical tests to prove the safety or effectiveness of their drug product, other than the requirement
for bioequivalence testing. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed
drug and 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 in
the FDA’s Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking
approval. 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 patent
expiration; 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 such
patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed
patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be
approved 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 send
notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by
the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the
Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV
certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the NDA or
patent holder’s receipt of the Paragraph IV certification, expiration of the patent, settlement of the lawsuit or a decision
in 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 exclusivity for
obtaining approval of a new chemical entity, for the referenced product has expired. Federal law provides a period of
five years following approval of a drug containing no previously approved active moiety during which ANDAs for
generic versions of those drugs cannot be submitted unless the submission contains a Paragraph IV challenge to a listed
patent, in which case the submission may be made four years following the original product approval. Federal law
provides for a period of three years of exclusivity during which the FDA cannot grant effective approval of an ANDA
for the conditions of use covered by the exclusivity, but FDA requires as a condition of approval new clinical trials
conducted by or for the sponsor. This three‑year exclusivity period often protects changes to a previously approved drug
product, such as a new dosage form, route of administration, combination or indication. Under the Best Pharmaceuticals
for Children Act, federal law also provides that periods of patent and non‑patent marketing exclusivity listed in the
Orange Book for a drug may be extended by six months if the NDA sponsor conducts pediatric studies identified by the
FDA in a written request. For written requests issued by the FDA after September 27, 2007, the date of enactment of the
FDAAA, the FDA must grant pediatric exclusivity no later than nine months prior to the date of expiration of patent or
non‑patent exclusivity in order for the six‑month pediatric extension to apply to that exclusivity period.
32
Table of Contents
Combination products
The FDA regulates combinations of products that cross FDA centers, such as drug, biologic or medical device
components that are physically, chemically or otherwise combined into a single entity, as a combination product. The
FDA center with primary jurisdiction for the combination product will take the lead in the premarket review of the
product, 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 for
the combination product based on the combination product’s “primary mode of action.” A mode of action is the means
by which a product achieves an intended therapeutic effect or action. The primary mode of action is the mode of action
that provides the most important therapeutic action of the combination product, or the mode of action expected to make
the 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 of
the combination product. In those difficult cases, the OCP will consider consistency with other combination products
raising similar types of safety and effectiveness questions, or which center has the most expertise to evaluate the most
significant 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 product
classification is unclear or in dispute, to obtain a binding decision as to which center will regulate the combination
product. If the sponsor objects to that decision, it may request that the agency reconsider that decision.
Other regulatory requirements
Any drug manufactured or distributed by us pursuant to FDA approvals would be subject to pervasive and
continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic
reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the
product. After approval, most changes to the approved product, such as adding new indications or other labeling claims
are 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. For
example, the FDA may require post‑marketing testing, including Phase 4 clinical trials, and surveillance to further assess
and monitor the product’s safety and effectiveness after commercialization. Regulatory approval of oncology products
often requires that patients in clinical trials be followed for long periods to determine the overall survival benefit of the
drug.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved
drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic
unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the
manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA
regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation 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 to maintain
cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements
and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including adverse events of unanticipated severity or frequency, or with
manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved
labeling to add new safety information, imposition of post‑market studies or clinical trials to assess new safety risks or
imposition of distribution or other restrictions under a Risk Evaluation and Mitigation Strategy program. Other potential
consequences include, among other things:
·
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product
from the market or product recalls;
33
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, or
suspension 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 the
market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved
label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses,
and a company that is found to have improperly promoted off label uses may be subject to significant liability.
Additional provisions
Anti‑kickback and false claims laws
We 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 generally
prohibit a pharmaceutical manufacturer from soliciting, offering, receiving, or paying any remuneration to generate
business, including the purchase, prescription or use of a particular drug. Although the specific provisions of these laws
vary, their scope is generally broad and there may not be regulations, guidance or court decisions that apply the laws to
particular 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) that
are false or fraudulent.
Laws and regulations have been enacted by the federal government and various states to regulate the sales and
marketing practices of pharmaceutical manufacturers with marketed products. The laws and regulations generally limit
financial interactions between manufacturers and healthcare providers; and require manufacturers to adopt compliance
programs that incorporate certain standards and/or require disclosure to the government and public of such
interactions. Many of these laws and regulations contain ambiguous requirements or require administrative guidance for
implementation. Given the lack of clarity in laws and their implementation, any future activities 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 that
apply 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 federal
healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or
restructuring of our operations.
Physician drug samples
As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved
drugs to physicians. The Prescription Drug Marketing Act (PDMA) imposes requirements and limitations upon the
provision of drug samples to physicians, as well as prohibits states from licensing distributors of prescription drugs
unless the state licensing program meets certain federal guidelines that include minimum standards for storage, handling
and record keeping. In addition, the PDMA sets forth civil and criminal penalties for violations.
34
Table of Contents
Foreign regulation
In order to market any product outside of the United States, we would need to comply with numerous and
varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things,
clinical trials, marketing authorization, commercial sales and distribution of our products. Regardless of our current
FDA approval or any future FDA approvals we may obtain for a product, we would need to obtain the necessary
approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or
marketing of the product in those countries. The approval process varies from country to country and can involve
additional product testing and additional administrative review periods. The time required to obtain approval in other
countries might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one
country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one
country may negatively impact the regulatory process in others.
Pharmaceutical coverage, pricing and reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of new drug products. Sales of
COPIKTRA or any other product candidates, if approved, will depend, in part, on the extent to which the costs of the
products 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 provide
coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor
will pay for the drug product once coverage is approved. Third‑party payors may limit coverage to specific drug
products 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 to
conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost‑effectiveness of the
product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. We may also need to
provide discounts to purchasers, private health plans or government healthcare programs. Our product candidates may
not be considered medically necessary or cost‑effective. A payor’s decision to provide coverage for a drug product does
not imply that an adequate reimbursement rate will be approved. Third‑party reimbursement may not be sufficient to
enable us to maintain price levels high enough to realize an appropriate return on our investment in product
development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor.
One third-party payor’s decision to cover a particular drug product or service does not ensure that other payors will also
provide coverage for the drug product, or will provide coverage at an adequate reimbursement rate.
Within the United States, FDA-approved drugs could potentially be covered by various government health
benefit programs as well as purchased by government agencies. The participation in such programs or the sale of
products to such agencies is subject to regulation. The marketability of any of our approved products may suffer if the
government 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 disabled
beneficiaries. Under the Medicaid Drug Rebate Program, participating manufacturers are required to pay a rebate for
each unit of product reimbursed by the state Medicaid programs. The amount of the rebate for each product is set by law
and 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 65 and
over as well as those with certain disabilities. Oral drugs may be covered under Medicare Part D. Medicare Part D
provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that do not need to be injected or
otherwise administered by a physician). Medicare Part D is administered by private prescription drug plans approved by
the U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage
and pricing, which the drug plan may modify from time-to-time. The prescription drug plans negotiate pricing with
manufacturers and may condition formulary placement on the availability of manufacturer discounts. Since 2011, under
the Medicare Coverage Gap Discount Program, manufacturers with marketed brand name drugs have been required to
provide a 50% discount the negotiated price for on brand name
35
Table of Contents
prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries reach the coverage gap 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 Supply
Schedule (FSS). FSS participation is required for a drug product to be covered and reimbursed by certain federal
agencies and for coverage under Medicaid, Medicare Part B and the Public Health Service (PHS) pharmaceutical pricing
program. FSS pricing is negotiated periodically with the Department of Veterans Affairs. FSS pricing is intended not to
exceed the price that a manufacturer charges its most-favored non-federal customer for its product. In addition, prices for
drugs purchased by the Veterans Administration, Department of Defense (including drugs purchased by military
personnel and dependents through the TRICARE retail pharmacy program), Coast Guard, and PHS are subject to a cap
on pricing (known as the “federal ceiling price”) and may be subject to an additional discount if pricing increases more
than the rate of inflation.
To maintain coverage of drugs under the Medicaid Drug Rebate Program, manufacturers are required to extend
discounts to certain purchasers under the PHS pharmaceutical pricing program. Purchasers eligible for discounts include
hospitals that serve a disproportionate share of financially needy patients, community health clinics and other entities
that receive health services grants from the PHS.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the
prices of drugs have been a focus in this effort. Third‑party payors are increasingly challenging the prices charged for
medical products and services and examining the medical necessity and cost‑effectiveness of medical products and
services, in addition to their safety and efficacy. If these third‑party payors do not consider our products to be
cost‑effective compared to other available therapies, they may not cover our products after approval as a benefit under
their 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 cost
containment programs to limit the growth of government‑paid healthcare costs, including price controls, restrictions on
reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such
controls and measures, and tightening of existing controls and measures, could limit payments for pharmaceuticals such
as COPIKTRA and the drug candidates that we are developing and could adversely affect our net revenue and results.
Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug
products may be marketed only after a reimbursement price has been agreed. Some countries may require the
completion of additional studies that compare the cost‑effectiveness of a particular product candidate to currently
available therapies. For example, the European Union provides options for its member states to restrict the range of drug
products for which their national health insurance systems provide reimbursement and to control the prices of medicinal
products for human use. European Union member states may approve a specific price for a drug product or may instead
adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the
market. Other member states allow companies to fix their own prices for drug products, but monitor and control
company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become
very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some
countries, cross‑border imports from low‑priced markets exert competitive pressure that may reduce pricing within a
country. There can be no assurance that any country that has price controls or reimbursement limitations for drug
products 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 approval
for commercial sale may suffer if the government and third‑party payors fail to provide adequate coverage and
reimbursement. In addition, there is an increasing emphasis on managed care in the United States and we expect will
continue to increase the pressure on drug pricing. Coverage policies, third‑party reimbursement rates and drug pricing
regulation may change at any time. Even if favorable coverage and reimbursement status is attained for a product, less
favorable coverage policies and reimbursement rates may be implemented in the future.
36
Table of Contents
New legislation and regulations
st
From time to time, legislation is drafted, introduced and passed in the United States Congress that could
significantly 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 the
21 Century Cures Act that amends a number of sections of the FDCA. In addition to new legislation, FDA regulations
and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our
products. 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.
In the United States, federal and state governments continue to propose and pass legislation designed to reform
delivery of, or payment for, healthcare, which include initiatives to reduce the cost of healthcare. For example, in March
2010, the United States Congress enacted the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act, or the Healthcare Reform Act, which expanded healthcare coverage through Medicaid
expansion and the implementation of the individual mandate for health insurance coverage and which included changes
to the coverage and reimbursement of drug products under government healthcare programs as well as the imposition of
annual fees on manufacturers of branded pharmaceuticals. Under the Trump administration, there have been ongoing
efforts to modify or repeal all or certain provisions of the Healthcare Reform Act. For example, tax reform legislation
was enacted at the end of 2017 that eliminated the tax penalty for individuals who do not maintain mandated health
insurance coverage beginning in 2019.
The Healthcare Reform Act has also been subject to judicial challenge. In December 2018, a federal district
court, in a challenge brought by a number of state attorneys general, found the Healthcare Reform Act unconstitutional
in its entirety because, once Congress repealed the individual mandate provision, there was no longer a basis to rely on
Congressional taxing authority to support enactment of the law. Pending resolution of the litigation, which could take
some time, the Healthcare Reform Act is still operational in all respects. In December 2019, a federal appeals court
agreed that the individual mandate provision was unconstitutional but remanded the case back to the district court to
assess more carefully whether any provisions of the Healthcare Reform Act were severable and could survive. In March,
the Supreme Court agreed to hear the case. There have also been efforts by government officials or legislators to
implement measures to regulate drug pricing or payment for pharmaceutical products, including legislation on drug
importation. Recently, there has been considerable public and government scrutiny of pharmaceutical pricing and
proposals to address the perceived high cost of pharmaceuticals. There have also been recent state legislative efforts to
address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices.
Specifically, at the federal level, for example, 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 related drug pricing measures proposed since the blueprint, could cause significant
operational and reimbursement changes for the pharmaceutical industry. As another example, legislation passed in 2019
revised how certain prices reported by manufacturers under the Medicaid Drug Rebate Program are calculated, a revision
that is reported to potentially increase rebates paid by manufacturers by approximately $3 billion over the next ten years.
Adoption of new legislation at the federal or state level could affect demand for, or pricing of, our product
candidates if approved for sale. We cannot predict the ultimate content, timing or effect of any changes to the Health
Care Reform Act or other federal and state reform efforts. There is no assurance that federal or state healthcare reform
will not adversely affect our future business and financial results.
EMPLOYEES
As of December 31, 2019, we had 135 full‑time equivalent employees, including a total of 13 employees with
M.D. or Ph.D. degrees, and 6 part-time employees. Of the full‑time employees, 36 employees are engaged in research
and development activities. None of our employees are represented by a labor union or covered by a collective
bargaining agreement. We consider our relationship with our employees to be good.
37
Table of Contents
BUSINESS—EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of our executive officers as of February 29,
2020.
Name
Brian Stuglik
Daniel Paterson
Robert Gagnon
Age
Position
60 Chief Executive Officer
58 President, Chief Operating Officer
45 Chief Business and Financial Officer
Brian Stuglik, age 60, has served as our Chief Executive Officer since July 2019 and as a member of our Board
of Directors since September 2017. Mr. Stuglik founded Proventus Health Solutions in January 2016 and has over three
decades of experience in U.S. and international pharmaceutical development, product strategy, and commercialization.
Prior to founding Proventus Health Solutions, Mr. Stuglik served as the Vice President and Chief Marketing Officer for
the oncology division of Eli Lilly and Company, from 2009 to December 2015. Mr. Stuglik received a Bachelor of
Science in Pharmacy from Purdue University and holds memberships in the American Society of Clinical Oncology, the
American Association of Cancer Research, and the International Association for the Study of Lung Cancer.
Daniel Paterson, age 58, has served as our President since June 2019 in addition to serving as our Chief
Operating Officer since December 2014, our Chief Business Officer from July 2013 to December 2014 and as our Vice
President, Head of Corporate Development and Diagnostics from March 2012 until July 2013. Prior to joining us in
March 2012, Mr. Paterson was a consultant in 2011. From 2009 through 2010, Mr. Paterson was the Chief Operating
Officer of On-Q-ity. Mr. Paterson was the President and Chief Executive Officer of The DNA Repair Company from
2006 until 2009, when it was acquired by On-Q-ity. Previously, he held senior level positions at IMS Health, CareTools,
OnCare, and Axion. Mr. Paterson holds a B.A. in Biology from Boston University, and attended the Northeastern
University Graduate Pharmacology program.
Robert Gagnon, age 45, joined Verastem as Chief Financial Officer in August 2018. Prior to joining us, Mr.
Gagnon served as the Chief Financial Officer for Harvard Bioscience, Inc. from November 2013 to August 2018. From
2012 through 2013, Mr. Gagnon served as the Executive Vice President, Chief Financial Officer and Treasurer at Clean
Harbors, Inc. Mr. Gagnon’s prior experience includes serving as Chief Accounting Officer and Controller at Biogen
Idec, Inc., as well as a variety of senior positions at Deloitte & Touche, LLP, and PriceWaterhouseCoopers, LLP. Mr.
Gagnon holds an M.B.A from the MIT Sloan School of Management and a Bachelor of Arts degree in accounting from
Bentley College.
OUR CORPORATE INFORMATION
We were incorporated under the laws of the State of Delaware in August 2010. Our principal executive offices
are located at 117 Kendrick Street, Suite 500, Needham, Massachusetts 02494 and our telephone number is
(781) 292‑4200.
ADDITIONAL INFORMATION
We maintain a website at www.verastem.com. We make available, free of charge on our website, our annual reports on
Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) as
soon as reasonably practicable after we electronically file those reports with, or furnish them to, the SEC. We also make
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 those
filings are provided to us by those persons. The information contained on, or that can be accessed through, our website is
not a part of or incorporated by reference in this Annual Report on Form 10‑K.
38
Table of Contents
ITEM 1A. Risk Factors.
Risks Related to the Development of Our Product Candidates and Commercialization of COPIKTRA.
We may not be successful in obtaining necessary rights to compounds and product candidates for our development
pipeline through acquisitions and in-licenses.
We may seek to acquire new compounds and product candidates from other pharmaceutical and biotechnology
companies, academic scientists and other researchers, such as our exclusive in-license from Infinity Pharmaceuticals,
Inc. (Infinity), Pfizer, Inc. (Pfizer) and Chugai Pharmaceutical Co., Ltd (Chugai) to research, develop, commercialize,
and manufacture products in oncology indications containing duvelisib, defactinib, and CH5126766, respectively. The
success of this strategy depends partly upon our ability to identify, select, discover and acquire promising pharmaceutical
product candidates and products. The process of proposing, negotiating and implementing a license or acquisition of a
product candidate or approved product is lengthy and complex. Other companies, including some with substantially
greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates
and approved products. In addition, companies that perceive us to be a competitor may be unwilling to assign or license
rights to us. We have limited resources to identify and execute the acquisition or in-licensing of third-party products,
businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to
potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated
benefits of such efforts. We also may be unable to license or acquire the relevant compound or product candidate on
terms that would allow us to make an appropriate return on our investment. Any product candidate that we acquire may
require additional development efforts prior to commercial sale, including manufacturing, pre-clinical testing, extensive
clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone
to risks of failure typical of pharmaceutical product development.
In addition, future product or business acquisitions may entail numerous operational and financial risks,
including:
·
·
·
·
·
exposure to unknown liabilities;
disruption of our business and diversion of our management's time and attention to develop acquired
products, product candidates or technologies;
higher than expected acquisition and integration costs;
increased amortization expenses; and
incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay 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 and
personnel;
impairment of relationships with key suppliers or customers of any acquired businesses due to changes in
management and ownership; and
inability to motivate key employees of any acquired businesses.
If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory
authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in
completing, 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 must
complete extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical
testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as
39
Table of Contents
to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing
and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do
not necessarily predict final results. For example, a further review and analysis of this data may change the conclusions
drawn from this unaudited data indicating less promising results than we currently anticipate.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of
the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of
the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical
trial participants. There also may be significant variability in the safety results obtained through the long-term follow-up
of patients from ongoing studies. We do not know whether any clinical trial we may conduct or follow-up data we
collect will demonstrate consistent or adequate efficacy and/or safety sufficient to obtain regulatory approval to market
our product candidates.
In addition, the design of a clinical trial may determine whether its results will support approval of a product
and 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 that have
believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed
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 the
same product candidate in the same or other indications or subsequent clinical trials of other related product candidates
will 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 or
prevent 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 clinical
trial 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 trial
protocols 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 development
programs;
the number of patients required for clinical trials of our product candidates may be larger than we
anticipate, enrollment in these clinical trials may be slower than we anticipate our participants may drop
out 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 contractual
obligations to us in a timely manner, or at all;
regulators or institutional review boards may require that we or our investigators suspend or terminate
clinical trials for various reasons, including noncompliance with regulatory requirements or a finding that
the participants are being exposed to unacceptable health risks;
the cost of clinical trials of our product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our
product candidates may be insufficient or inadequate; and
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or
our 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 those
that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other
testing, 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;
40
Table of Contents
·
·
·
·
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 imposition
of 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 do
not support regulatory approval and may require us to conduct an additional clinical trial or trials. If these agencies take
such a position, the costs of development of our product candidates could increase materially and their potential market
introduction 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 product development costs
will also increase if we experience delays in clinical testing or marketing approvals. We do not know whether 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 to commercialize our
product candidates or allow our competitors to bring products to market before we do and impair our ability 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 necessary
regulatory 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 locate
and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar
regulatory authorities outside the United States. In addition, there are a number of ongoing clinical trials being conducted
by other companies for product candidates treating cancer. Patients who would otherwise be eligible for our clinical trials
may instead enroll in clinical trials of our competitors' product candidates, particularly if they view such treatments 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 treatments
including 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.
Furthermore, enrolled patients may drop out of a clinical trial, which could impair the validity or statistical
significance of the clinical trial. A number of factors can influence the patient discontinuation rate, including, but not
limited 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 levels
being 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 competing
product candidates, that may induce patients to discontinue their participation in the trial.
41
Table of Contents
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or
may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in
increased development costs for our product candidates, which would cause the value of our company to decline and
limit our ability to obtain additional financing.
Preclinical studies and preliminary and interim data from clinical trials of our product candidates are not necessarily
predictive of the results or success of ongoing or later clinical trials of our product candidates. If we cannot replicate
the results from our preclinical studies and clinical trials of our product candidates, we may be unable to successfully
develop, obtain regulatory approval for and commercialize our product candidates.
Preclinical studies and any positive preliminary and interim data from our clinical trials of our product
candidates may not necessarily be predictive of the results of ongoing or later clinical trials. Even if we are able to
complete our planned clinical trials of our product candidates according to our current development timeline, the positive
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 the outcome
of the later stage trials to differ from our earlier stage clinical trials. For example, these differences may include changes
to inclusion and exclusion criteria, efficacy endpoints and statistical design. Many companies in the pharmaceutical and
biotechnology industries, including us, have suffered significant setbacks in late stage clinical trials after achieving
positive results in an earlier stage of development. If we fail to produce positive results in our planned clinical trials of
any of our product candidates, the development timeline and regulatory approval and commercialization prospects for
our product candidates, and, correspondingly, our business and financial prospects, would be materially adversely
affected.
Our approach to the treatment of cancer through the killing of cancer cells and disruption of the tumor
microenvironment is relatively unproven, and we do not know whether we will be able to develop any products of
significant commercial value.
We are commercializing COPIKTRA and developing duvelisib in other indications and other product
candidates to treat cancer by using targeted agents to kill cancer cells or disrupt the tumor microenvironment and thereby
thwart their growth and proliferation of cancer cells.
Research on the use of small molecules to inhibit PI3K, FAK and RAF/MEK signaling pathways and disrupt
the tumor microenvironment is an emerging field and, consequently, there is still uncertainty about whether COPIKTRA,
defactinib and CH5126766 are effective in improving outcomes for patients with cancer.
Any products that we develop may not effectively target cancer cells, enhance anti-tumor immunity, or
modulate the local tumor microenvironment. While we are currently commercializing COPIKTRA and conducting
clinical trials for other product candidates that we believe will attack cancer cells through the inhibition of the PI3K,
FAK or RAF/MEK signaling pathways and potentially disrupt the tumor microenvironment, we may not ultimately be
successful in demonstrating 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 be
more 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 our
product candidates with other approved and investigational targeted therapies, chemotherapies, and immunotherapies to
treat patients with cancer. Regulatory approval for a combination treatment generally requires clinical trials to evaluate
the activity of each component of the combination treatment. As a result, it may be more difficult and costly to obtain
regulatory approval of our product candidates for use as part of a combination treatment than obtaining regulatory
approval of our product candidates alone. In addition, we also risk losing the supply of any approved or investigational
product being combined with our product candidate in these clinical trials. Furthermore, the potential market opportunity
for our product candidates is difficult to estimate precisely. For instance, if one of our product candidates receives
regulatory approval from a combination study, it may be
42
Table of Contents
approved solely for use in combination with the approved or investigational product in a particular indication and the
market opportunity our product candidate would be dependent upon the continued use and availability of the approved or
investigational product. In addition, because physicians, patients and third-party payors may be sensitive to the addition
of the cost of our product candidates to the cost of treatment with the other products, we may experience downward
pressure on the price that we can charge for our product candidates if they receive regulatory approval. Further, we
cannot be sure that physicians will view our product candidates, if approved as part of a combination treatment, as
sufficiently superior to a treatment regimen consisting of only the approved or investigational product. Additionally, the
adverse side effects of our product candidates may be enhanced when combined with other products. If such adverse side
effects are experienced, we could be required to conduct additional pre-clinical and clinical studies and if such adverse
side effects are severe, we may not be able to continue the clinical trials of the combination therapy because the risks
may outweigh the therapeutic benefit of the combination.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or
penalties 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 governing
laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our
operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our
operations also produce hazardous waste products. We generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of
contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages,
and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines
and penalties.
Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to
injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate
coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that
may 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 and
safety laws and regulations. These current or future laws and regulations may impair our research, development or
production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or
other sanctions.
We face substantial competition, which may result in others developing or commercializing products before or more
successfully than we do.
The development and commercialization of new drug products is highly competitive. We face competition with
respect to COPIKTRA and our other product candidates and will face competition with respect to any product candidates
that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty
pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and
biotechnology companies that currently market and sell products or are pursuing the development of products for the
treatment of the disease indications for which we are developing COPIKTRA and our product candidates, including
Gilead Sciences, Inc., Abbvie, Pharmacyclics LLC, Celgene Corporation, Astellas Pharma Inc., GlaxoSmithKline plc,
Boehringer Ingelheim GmbH and others. Some of these competitive products and therapies are based on scientific
approaches 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 research
organizations 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 in
43
Table of Contents
combination to enhance efficacy. Some of these drugs are branded and subject to patent protection, and others are
available on a generic basis. Many of these approved drugs are well established therapies and are widely accepted by
physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic
products. We expect that COPIKTRA and our other product candidates, if approved, will be priced at a significant
premium over competitive generic products.
Many of our competitors have significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing
approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result
in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. These third parties compete with us in recruiting and retaining qualified scientific and
management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our programs.
In addition, to the extent that products or product candidates of our competitors demonstrate serious adverse
side effects or are determined to be ineffective in clinical trials, the commercialization of COPIKTRA and the
development of our other product candidates could be negatively impacted.
If we fail to obtain regulatory approval in jurisdictions outside the United States, we will not be able to market our
products in those jurisdictions.
We are seeking regulatory approval for COPIKTRA and intend to seek regulatory approval for our product
candidates in countries outside of the United States and expect that these countries will be important markets for our
products, if approved. In November 2019, we submitted a marketing authorization application to the European
Medicines Agency for COPIKTRA. Marketing our products in these countries will require separate regulatory approvals
in each market and compliance with numerous and varying regulatory requirements. The regulations that apply to the
conduct of clinical trials and approval procedures vary from country to country and may require additional testing.
Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in
many countries outside the 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, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in
other foreign countries or by the FDA. Failure to obtain regulatory approval in one country may have a negative effect
on the regulatory approval process in others. The foreign regulatory approval process may include all of the risks
associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We
may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products
in any foreign market.
Although we have invested a significant amount of time, resources and effort on the commercialization of
COPIKTRA, we may not be successful in the commercialization of COPIKTRA.
A majority of our time, resources and effort are focused on the commercialization of COPIKTRA in the United States.
While we expect to continue to expend significant time, resources and effort on the development of our other product
candidates, they are in earlier stages of development and subject to the risks of failure inherent in developing drug
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 commercial
sales of COPIKTRA;
44
Table of Contents
·
·
secure widespread acceptance of our product from physicians, health care payors, patients and the medical
community;
properly price and obtain coverage and adequate reimbursement of COPIKTRA by governmental
authorities, 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 in
countries outside the United States, and such collaborators’ ability to obtain regulatory and reimbursement
approvals in such countries.
There are no guarantees that we will be successful in completing these tasks. In addition, we continue to invest
substantial financial and management resources to build out our commercial infrastructure and to recruit and train
sufficient additional qualified marketing, sales and other personnel in support of our sales of COPIKTRA.
Sales of COPIKTRA may be slow or limited for a variety of reasons including competing therapies or safety issues. If
COPIKTRA 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 increase
physician awareness of the benefits and cost-effectiveness of COPIKTRA relative to competing therapies. The degree of
market acceptance of COPIKTRA among physicians, patients, health care payors and the medical community will
depend 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;
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, including
conducting and completing a confirmatory clinical trial in patients with relapsed or refractory follicular
lymphoma 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 newly
discovered or developed safety issues will not arise. With the use of any marketed drug by a wide patient population,
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 market COPIKTRA,
subject us to substantial liabilities and adversely affect our revenues and financial condition. In the event of a withdrawal
of COPIKTRA from the market, our revenues would decline significantly and our business would be seriously harmed
and could fail. We additionally may experience significant fluctuations in sales of COPIKTRA from period to period
and, ultimately, we may never generate sufficient revenues from COPIKTRA to reach or maintain profitability or sustain
our anticipated operations.
Preclinical testing and clinical trials of our product candidates may not be successful. In the near term, we are
dependent on the success of our PI3K inhibitor program, including COPIKTRA. If we are unable to obtain
45
Table of Contents
marketing approval for or successfully commercialize any of our product candidates, or if we experience significant
delays in 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 of
our product candidates, including COPIKTRA, for which we are conducting clinical trials in multiple indications. We
received FDA approval for COPIKTRA for the treatment of adult patients with relapsed or refractory chronic
lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL) after at least two prior therapies and were granted
accelerated 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 the
successful commercialization of COPIKTRA and development of our other product candidates. The success of our
product 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 product
candidates, 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 product
candidates;
establishing and maintaining commercial capabilities, including hiring and training a sales force, and
launching commercial sales of the products, if and when approved, whether alone or in collaboration with
others;
acceptance of the products, if and when approved, by patients, the medical community and third-party
payors;
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 submission
process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any
collaborator. If we do not achieve one or more of these factors in a timely manner or at all, we could experience
significant delays or an inability to successfully commercialize our product candidates, which would materially harm our
business.
If serious adverse or unexpected side effects are identified during the commercialization of COPIKTRA or
development of our product candidates, we may need to abandon or limit the commercialization of COPIKTRA and
abandon or limit our development of some of our product candidates.
The FDA approved COPIKTRA with labeling that includes a boxed warning for four fatal and/or serious
toxicities: infections, diarrhea or colitis, cutaneous reactions, and pneumonitis. As a requirement of the FDA's approval,
we have implemented an informational REMS to provide appropriate dosing and safety information to better support
physicians in managing their patients on COPIKTRA. In addition to the boxed warning, use of COPIKTRA is also
associated 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% of
patients) 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 is
impossible to predict when or if our other product candidates will prove effective or safe in humans or will receive
marketing approval. If our product candidates are associated with undesirable side effects or have characteristics that are
unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which
the undesirable side effects or other characteristics are less prevalent, less severe or more
46
Table of Contents
acceptable from a risk benefit perspective. Patients in our clinical trials have experienced serious adverse events, deemed
by us and the clinical investigator to be related to our product candidates. Serious adverse events generally refer to
adverse events, that result in death, are life threatening, require hospitalization or prolonging of hospitalization, or cause
a significant and permanent disruption of normal life functions, congenital anomalies or birth defects, or require
intervention to prevent such outcomes.
Defactinib is in our Phase 1 and Phase 2 clinical trials and the development program continues to progress.
CH5126766 is in a Phase 1 clinical trial. For both defactinib and CH5126766, the toxicities reported to date have been
predictable and manageable.
As a result of adverse events observed to date, or further safety or toxicity issues that we may experience in our
clinical trials in the future, we may not receive approval to market any product candidates, which could prevent us from
ever generating revenue from the sale of products or achieving profitability. Results of our trials could reveal an
unacceptably high severity and prevalence of side effects. In such an event, our trials could be suspended or terminated
and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny
approval of our products candidates for any or all targeted indications. Many compounds that initially showed promise in
early stage testing for treating cancer have later been found to cause side effects that prevented further development of
the compound. In addition, while we and our clinical trial investigators currently determine if serious adverse or
unacceptable side effects are drug related, the FDA or other non-U.S. regulatory authorities may disagree with our or our
clinical trial investigators’ interpretation of data from clinical trials and the conclusion that 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 more
frequent 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, pharmacists
and 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
our ability to successfully commercialize COPIKTRA. Furthermore, as COPIKTRA is commercially available, it may be
used in a wider population and in a less rigorously controlled environment than in clinical studies. As a result, regulatory
authorities, healthcare practitioners, third-party payors or patients may perceive or conclude that the use of COPIKTRA
is associated with previously unknown serious adverse effects, undermining our commercialization efforts.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on
product 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 product
candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with
other product candidates or for other indications that later prove to have greater commercial potential. Our resource
allocation 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 indications
may not yield any commercially viable products.
COPIKTRA and any future product candidates that we commercialize may become subject to unfavorable pricing
regulations or third-party coverage and reimbursement policies, which would harm our business.
47
Table of Contents
In both domestic and foreign markets, sales of COPIKTRA and any product candidates that may receive
marketing approval in the future will depend, in part, on favorable pricing as well as the availability of coverage and
amount of reimbursement by third party payors, including governments and private health plans. Substantial uncertainty
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 be
marketed. In many such countries, the pricing review period begins after marketing or product licensing approval is
granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental
control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a
particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for
lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that
country. Adverse pricing limitations may hinder our ability to recoup our investment in COPIKTRA and other product
candidates, 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 to
control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party
payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging
the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for
COPIKTRA or any other product that we commercialize and, if reimbursement is available, the level of reimbursement.
Coverage and reimbursement may impact the demand for, or the price of, COPIKTRA or any other product candidate for
which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available
only to limited levels, we may not be able to successfully commercialize COPIKTRA or any other 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 other
governmental 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 of
operations and growth prospects.
With the approval of COPIKTRA, we now participate in the Medicaid Drug Rebate Program, Medicare
Coverage Gap Discount Program and a number of other federal and state government pricing programs in the U.S. in
order to obtain coverage for the product by certain government healthcare programs. These programs generally require
us to pay rebates or provide discounts to certain private purchasers or government payors in connection with our
products when dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug Rebate
Program, the rebates are based on pricing and rebate calculations that we report on a monthly and quarterly basis to the
government agencies that administer the programs. The terms, scope and complexity of these government pricing
programs change frequently. We may also have reimbursement obligations or be subject to penalties if we fail to provide
timely 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 or
offer 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 of
any 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 human
clinical trials and will face an even greater risk from any sales of COPIKTRA or if we commercially sell any other
products we may develop. If we cannot successfully defend ourselves against claims that our product candidates or
products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims
may result in:
·
decreased demand for COPIKTRA or any other product candidates or products that we may develop;
48
Table of Contents
·
·
·
·
·
·
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 incident
limit of $10.0 million, which may not be adequate to cover all liabilities that we may incur. We may need to increase our
insurance coverage as we commercialize COPIKTRA and any future product candidates or if we initiate additional
clinical trials in the United States and around the world. Insurance coverage is increasingly expensive. We may not be
able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Business or economic disruptions or global health concerns could seriously harm sales of COPIKTRA, our
development efforts and increase our costs and expenses.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and
development activities and sales of COPIKTRA. For example, in December 2019 an outbreak of a novel strain of
coronavirus originated in Wuhan, China, and has since spread to a number of other countries, including the United
States. To date, this outbreak has already resulted in extended shutdowns of certain businesses in the Wuhan region and
has had ripple effects to businesses around the world. Global health concerns, such as coronavirus, could also result in
social, economic, and labor instability in the countries in which we or the third parties with whom we engage operate.
We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any
of the third parties with whom we engage, including the suppliers, clinical trial sites, regulators and other third parties
with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our
business in the manner and on the timelines presently planned could be materially and negatively impacted. We further
cannot presently predict the impact, if any, global health concerns, such as coronavirus, will have on sales of
COPIKTRA. It is also possible that global health concerns such as this one could disproportionately impact the hospitals
and clinical sites in which we conduct any of our clinical trials, which could have a material adverse effect on our
business and our results of operation and financial condition.
Risks Related to Our License Agreements with Infinity, Pfizer and Chugai
If we do not realize the anticipated benefits of our license agreements with Infinity for the COPIKTRA program,
Pfizer for the FAK program and Chugai for the dual RAF/MEK candidate program, our business could be adversely
affected.
Our license agreements with Infinity for COPIKTRA, Pfizer for defactinib, and Chugai for CH5126766 may
fail to further our business strategy as anticipated or to achieve anticipated benefits and success. We may make or have
made assumptions relating to the impact of the acquisition of COPIKTRA, defactinib and CH5126766 on our financial
results relating to numerous matters, including:
·
·
the cost of development and commercialization of COPIKTRA, defactinib and CH5126766; and
other financial and strategic risks related to the license agreements with Infinity, Pfizer and Chugai.
49
Table of Contents
Further, we may incur higher than expected operating and transaction costs, and we may encounter general economic
and business conditions that adversely affect us relating to our license agreements with Infinity, Pfizer and Chugai. If one
or more of these assumptions are incorrect, it could have an adverse effect on our business and operating results, and the
benefits from our license agreements with Infinity for COPIKTRA, Pfizer for defactinib, and Chugai for CH5126766
may not be realized or be of the magnitude expected.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may
never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. As of December 31, 2019, we had an
accumulated deficit of $524.8 million. To date, we have generated minimal product revenues and have financed our
operations 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, as amended, with Hercules Capital Inc. (Hercules),
the issuance of our 5.00% Convertible Senior Notes due 2048 (the 2018 Notes) and the issuance of our 5.00%
Convertible Senior Second Lien Notes due 2048 in exchange for a portion of the 2018 Notes (the 2019 Notes). As of
December 31, 2019, there was $40.0 million available to borrow under the amended term loan facility with Hercules,
subject to certain milestones and conditions of funding. We have devoted substantially all of our efforts to research and
development. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable
future. The net losses we incur may fluctuate significantly from quarter to quarter. We anticipate that our expenses will
increase substantially if and as we:
·
·
·
continue our ongoing commercialization of COPIKTRA;
continue our ongoing clinical trials with our product candidates, including with COPIKTRA, defactinib,
and CH5126766’;
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 to
support our product development and commercialization efforts; and
establish and maintain a sales, marketing and distribution infrastructure to commercialize COPIKTRA or
any products for which we obtain marketing approval.
To become and remain profitable, we must develop and eventually commercialize a product or products with
significant market potential, such as COPIKTRA. This will require us to be successful in a range of challenging
activities, including completing preclinical testing and clinical trials of our product candidates, obtaining marketing
approval for these product candidates and manufacturing, marketing and selling those products for which we may obtain
marketing approval. We may never succeed in these activities and, even if we do, may never generate revenues that are
significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the
value 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 all or
part of your investment.
We will continue to need substantial additional funding. If we are unable to raise capital when needed, we would be
forced to delay, reduce or eliminate our product development programs or commercialization efforts, including for
COPIKTRA and CH5126766.
We expect our existing cash resources at December 31, 2019, the proceeds from the sale of Common Stock in
March 2020, and revenue we expect to generate from COPIKTRA will be sufficient to fund our current operating plan
and capital expenditure requirements beyond the next twelve months from the issuance date of these financial
statements. We will need to obtain substantial additional funding in connection with our continuing operations,
50
Table of Contents
including for our clinical development programs and any commercialization efforts for COPIKTRA. Our future capital
requirements will depend on many factors, including:
·
·
·
·
·
·
·
the costs and timing of commercialization activities for COPIKTRA and the product candidates for which
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 product candidates and technologies;
the costs, timing and outcome of regulatory review of our product candidates (including our efforts to seek
approval and fund the preparation and filing of regulatory submissions);
revenue received from commercial sales of COPIKTRA and our product candidates, should any of our
other product candidates also receive marketing approval;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual
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 other
product candidates. Even though the FDA approved COPIKTRA, it may not achieve commercial success. Our
commercial revenues will be derived from sales of products, such as COPIKTRA. Accordingly, even though we received
regulatory approval for COPIKTRA, it will take several years to achieve peak sales, and we will need to continue to rely
on additional financing to further our clinical development objectives. Adequate additional financing may not be
available to us on acceptable terms, or at all.
Risks Related to Non-Cash Impairment
If our intangible asset becomes impaired, we may need to record significant non-cash impairment charges.
We have recorded a $22.0 million milestone payment, which became payable upon the FDA marketing
approval on September 24, 2018 related to COPIKTRA pursuant to the amended and restated license agreement with
Infinity as an intangible asset on our consolidated balance sheet. We assess our finite-lived intangible assets for
impairment if indicators are present or changes in circumstance suggest that impairment may exist in accordance with
Accounting Standards Codification 350 (ASC 350), Intangibles – Goodwill and other.
One potential indicator of impairment is whether there is a significant change in the manner in which we
continue to commercialize COPIKTRA. On February 28, 2020, we announced a new strategic direction to accelerate the
advancement of certain clinical development programs. We announced our primary focus will be on the development of
CH5126766 in combination with defactinib, while we will also continue to advance the development of COPIKTRA for
treatment of relapsed or refractory PTCL.
Based on our new strategic direction, we believe it is reasonably possible that we could record an impairment
charge in the near term. Any such impairment charges, if significant, could adversely affect our financial position and
results of operations.
Risks Related to Our Indebtedness
Our level of indebtedness and debt service obligations could adversely affect our financial condition and may make it
more difficult for us to fund our operations.
In March 2017, we entered into a loan and security agreement with Hercules (the Original Loan Agreement),
which was subsequently amended in January 2018, March 2018, October 2018, April 2019 and November 2019 (the
2019 Term Loan Agreement). Under the 2019 Term Loan Agreement, Hercules will provide access to term loans with an
aggregate principal amount of up to $75.0 million. As of December 31, 2019, there was $40.0M available to borrow in
multiple tranches comprised of (i) a term loan in an amount of up to $15.0 million upon the Company generating
cumulative net product revenues (as defined the 2019 Term Loan Agreement) of
51
Table of Contents
either (a) $37.5 million on or before April 30, 2020 or (b) $50.0 million on or before June 30, 2020 and (ii) a term loan
in an amount of up to $25.0 million available through December 31, 2021, subject to Hercules’ approval and the
satisfaction of certain other conditions. All obligations under the 2019 Term Loan Agreement are secured by
substantially all of our 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 of
the 2018 Notes. The 2018 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 Base Indenture, the 2018 Indenture). The 2018 Notes are senior unsecured obligations of the Company and bear
interest at a rate 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 2018 Notes will mature on November 1, 2048, unless earlier repurchased, redeemed or
converted in accordance with their terms.
In November and December 2019, we entered into privately negotiated agreements with a limited number of
investors who are accredited investors (within the meaning of Rule 501 promulgated under the Securities Act of 1933, as
amended (Securities Act)) and/or qualified institutional buyers (as defined in Rule 144A under the Securities Act to
exchange approximately $121.7 million aggregate principal amount of the 2018 Notes for (i) approximately $66.9
million aggregate principal amount of the 2019 Notes and (b) an aggregate of approximately $12.1 million in cash. The
2019 Notes are governed by the terms of an indenture (the 2019 Indenture, and together with the 2018 Indenture,
referred to as the Indentures). The 2019 Notes are senior secured obligations of the Company and bear interest at 5.00%
per annum, payable semi-annually in arrears on May 1 and November 1 of each year. The 2019 Notes will mature on
November 1, 2048, unless earlier repurchased, redeemed or converted in accordance with the terms. Collectively, the
2018 Notes and 2019 Notes are referred to as the Notes.
This indebtedness may create additional financing risk for us, particularly if our business or prevailing financial
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 reduce
the amount of money available to finance our operations, our research and development efforts and other
general corporate activities; and
our failure to comply with the restrictive covenants in the 2019 Term Loan Agreement could result in an
event of default that, if not cured or waived, would accelerate our obligation to repay this indebtedness.
Such acceleration could also create an event of default under the Indentures whereupon both Hercules and
the holders of the 2019 Notes could seek to enforce their respective security interests 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 our
indebtedness when due.
Failure to satisfy our current and future debt obligations under the 2019 Term Loan Agreement, or the
Indentures or breaching any covenants under the 2019 Term Loan Agreement, or the Indentures subject to specified cure
periods with respect 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 the Indentures prior to maturity in 2048. In the event of an acceleration of amounts due under the 2019 Term
Loan Agreement, or the Indentures, we may not have enough available cash or be able to raise additional funds through
equity or debt financings 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 others the rights to develop and market COPIKTRA and our other product candidates that we would otherwise
prefer to develop and market internally. Hercules and the holders of the 2019 Notes could also exercise their rights to
take possession and dispose of the collateral securing the term loans on a first priority basis and the 2019 Notes on a
second priority basis, which collateral includes substantially all of our property other than our intellectual property. Our
business, financial condition and results of operations could be
52
Table of Contents
materially adversely affected as a result of any of these events. We are subject to certain restrictive covenants which, if
breached, could have a material adverse effect on our business and prospects.
The 2019 Term Loan Agreement and the Indentures impose operating and other restrictions on us. Such
restrictions 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 Parties
We rely in part on third parties to conduct our clinical trials and preclinical testing, and if they do not properly and
successfully perform their obligations to us, we may not be able to commercialize COPIKTRA or obtain regulatory
approvals for and commercialize any of our other product candidates.
We rely on third parties, such as CROs, clinical data management organizations, medical institutions and
clinical investigators, to conduct, provide monitors for and manage data from all of our clinical trials. We compete with
many 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 into
alternative arrangements, it would delay our product development activities and ultimately the commercialization of our
product candidates.
Our reliance on these third parties for research and development activities will reduce our control over these
activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of
our 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 Clinical
Practices (GCP) for conducting, recording and reporting the results of clinical trials to assure that data and reported
results 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, principal
investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP requirements, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require us to
perform additional clinical trials before approving our marketing applications. We cannot assure you that upon
inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply
with GCP requirements. We also are required to register ongoing clinical trials and post the results of completed clinical
trials on government-sponsored databases, such as ClinicalTrials.gov, within certain timeframes. Failure to do so can
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 conduct
our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or
may be delayed in obtaining, marketing approvals for some of our product candidates and will not be able to, or may be
delayed in our efforts to, successfully commercialize COPIKTRA and our other product candidates.
We intend to rely on third parties to conduct investigator sponsored clinical trials of our product candidates. Any
failure by a third party to meet its obligations with respect to the clinical development of our product candidates may
delay or impair our ability to obtain regulatory approval for our product candidates.
53
Table of Contents
We intend to rely on academic and private non-academic institutions to conduct and sponsor clinical trials
relating to our product candidates. We will not control the design or conduct of the investigator sponsored trials, and it is
possible that the FDA or non-U.S. regulatory authorities will not view these investigator-sponsored trials as providing
adequate 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 from
the investigator sponsored trials. However, we do not have control over the timing and reporting of the data from
investigator sponsored trials, nor do we own the data from the investigator sponsored trials. If we are unable to confirm
or replicate the results from the investigator sponsored trials or if negative results are obtained, we would likely be
further delayed or prevented from advancing further clinical development of our product candidates. Further, if
investigators 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 investigator
sponsored trials been sponsored and conducted by us, then our ability to design and conduct any future clinical trials
ourselves may be adversely affected.
Additionally, the FDA or non-U.S. regulatory authorities may disagree with the sufficiency of our right of
reference to the preclinical, manufacturing or clinical data generated by these investigator-sponsored trials, or our
interpretation of preclinical, manufacturing or clinical data from these investigator-sponsored trials. If so, the FDA or
other non-U.S. regulatory authorities may require us to obtain and submit additional preclinical, manufacturing, or
clinical data before we may initiate our planned trials and/or may not accept such additional data as adequate to initiate
our planned trials.
We contract with third parties for the manufacture of our product candidates, including COPIKTRA, and for
compound formulation research, and these third parties may not perform satisfactorily.
We do not have any manufacturing facilities or personnel. We currently obtain all of our supply of COPIKTRA
and 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 candidates and
commercial quantities of COPIKTRA. In addition, we currently rely on third parties for the development of various
formulations of COPIKTRA and our other product candidates. This reliance on third parties increases the risk that we
will not have sufficient quantities of COPIKTRA or our product candidates or such quantities at an acceptable cost or
quality, 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 drug
substance or drug product. Even though we have supply agreements in place with our third-party manufacturers, reliance
on third-party manufacturers entails additional risks, including:
·
·
·
·
reliance on the third party for regulatory compliance and quality assurance;
the possible breach of the manufacturing agreement by the third party, including the misappropriation of
our 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 or
inconvenient for us; and
disruptions to the operations of our manufacturers or suppliers caused by conditions unrelated to our
business or operations, including the bankruptcy of the manufacturer or supplier or a catastrophic event
affecting our manufacturers or suppliers.
Third-party manufacturers may not be able to comply with current good manufacturing practices (cGMP)
regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party
manufacturers, 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 of
product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and
adversely affect supplies of our products and harm our business and results of operations.
54
Table of Contents
Any products that we may develop may compete with other product candidates and products for access to
manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that
might be capable of manufacturing for us. Any interruption of the development or operation of the manufacturing
facilities 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 supply
chains and expected timelines for product availability, production yield issues, shortages of qualified personnel,
discontinuation of a facility or business, failure or damage to a facility by natural disasters or public health crises, such as
the recent coronavirus outbreak originating in Wuhan, China, could result in the cancellation of shipments, loss of
product in the manufacturing process or a shortfall in available COPIKTRA, other product candidates or materials.
If our current contract manufacturers cannot perform as agreed or these parties cease to provide quality
manufacturing and related services to us, we may be required to replace that manufacturer. If we are not able to engage
appropriate replacements in a timely manner, our ability to manufacture COPIKTRA or our other product candidates in
sufficient 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 believe
that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur
added costs and delays in identifying and qualifying any such replacement, as well as producing the drug product and
obtaining regulatory approvals for the new manufacturer. In addition, we have to enter into technical transfer agreements
and share our know-how with the third-party manufacturers, which can be time consuming and may result in delays. In
light of the lead time needed to manufacture COPIKTRA and our other product candidates, and the availability of
underlying materials, we may not be able to, in a timely manner or at all, establish or maintain sufficient commercial
manufacturing arrangements on commercially reasonable terms necessary to provide adequate supply of COPIKTRA to
meet demands that exceed our commercial assumptions or to provide adequate supply of our other product candidates to
meet demands that exceed our clinical assumptions. Furthermore, we may not be able to obtain the significant financial
capital that may be required in connection with such arrangements. Even after successfully engaging third parties to
execute the manufacturing process for COPIKTRA and our other product candidates, such parties may not comply with
the terms and timelines they have agreed to for various reasons, some of which may be out of their or our control, which
could impact our ability to execute our business plans on expected or required timelines in connection with the
commercialization of COPIKTRA and the continued development of our other product candidates. We may also be
required to enter into long-term manufacturing agreements that contain exclusivity provisions and/or substantial
termination 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 candidates
or products may adversely affect our future profit margins and our ability to commercialize any products that receive
marketing 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 require
substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with
pharmaceutical and biotechnology companies for the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement
for 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 of factors.
Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA 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 of competing products,
the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such
ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator
may also consider alternative product candidates or technologies for similar indications that may be available to
collaborate on and whether such a collaboration could be more attractive than
55
Table of Contents
the one with us for our product candidate. Collaborations are complex and time consuming to negotiate and document. In
addition, there have been a significant number of recent business combinations among large pharmaceutical companies
that have resulted 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 unable
to do so, we may have to curtail the development of certain product candidates, reduce or delay our development
programs, delay potential commercialization or reduce the scope of any sales or marketing activities, or increase our
expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our
expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital,
which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able 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 development
and commercialization of our other product candidates. If those collaborations are not successful, we may not be able
to 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, in Japan with Yakult Honsha Co., Ltd., and
in Russia, the Commonwealth of Independent States, Turkey, the Middle East and Africa with Sanofi. We anticipate that
we may seek to enter into a collaboration for marketing and commercialization of our product candidates in certain
territories worldwide at the appropriate time in the future. Our likely collaborators for any collaboration arrangements
include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and
biotechnology companies. If we do enter into any such arrangements with any third parties, we will likely have limited
control over the amount and timing of resources that our collaborators dedicate to the development or commercialization
of our product candidates. Our ability to generate revenues from these arrangements will depend on 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 to
these collaborations;
collaborators may not pursue development and commercialization of our product candidates or may elect
not 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 acquisition
that diverts resources or creates competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a
clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new
formulation of a product candidate for clinical testing; collaborators could independently develop, or
develop with third parties, products that compete directly or indirectly with our products or product
candidates if the collaborators believe that competitive products are more likely to be successfully
developed 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 sufficient
resources to the marketing and distribution of such product or products;
collaborators may not properly maintain or defend our intellectual property rights or may use our
proprietary information in such a way as to invite litigation that could jeopardize or invalidate our
proprietary information or expose us to potential litigation;
disputes may arise between the collaborators and us that result in the delay or termination of the research,
development or commercialization of our products or product candidates or that result in costly litigation
or arbitration that diverts management attention and resources; and
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue
further development or commercialization of the applicable product candidates.
56
Table of Contents
Collaboration agreements may not lead to development or commercialization of product candidates in the most
efficient manner or at all. If a future collaborator of ours were to be involved in a business combination, the continued
pursuit and emphasis on our product development or commercialization program could be delayed, diminished or
terminated.
If we are unable to maintain our agreements with third parties to distribute COPIKTRA to patients, our results of
operations and business could be adversely affected.
We will continue to rely on third parties to commercially distribute COPIKTRA to patients. We have contracted
with a third-party logistics company to warehouse COPIKTRA and to process and ship customer orders, and with
specialty pharmacies and specialty distributors to sell and distribute COPIKTRA. The specialty pharmacies sell
COPIKTRA directly to patients and provide patient education and ongoing management. The specialty distributors sell
COPIKTRA to community oncologists with in-office dispensaries, hospital-owned practices, local offices with onsite
pharmacies, retail pharmacies, and other institutional customers. We have also contracted with a third-party patient
services hub to help us with some or all of the following: reimbursement adjudication, patient financial support, patient
assistance programs and ongoing compliance support. This distribution network will require significant coordination
with our sales and marketing and finance organizations. In addition, failure to coordinate financial systems could
negatively impact our ability to accurately report product revenue from COPIKTRA. If we are unable to effectively
manage the distribution process, the sales of COPIKTRA, as well as the commercial launch and sales of any future
products we may commercialize, 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 who
are using COPIKTRA or serious adverse reactions, events and/or product complaints regarding
COPIKTRA;
not effectively sell or support COPIKTRA, or communicate publicly concerning COPIKTRA in a manner
that 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 our
results of operations and business. Furthermore, arrangements between manufacturers and specialty pharmacies and
distributors as well as the provision of patient support services by or on behalf of manufacturers have been subject to
government scrutiny under fraud and abuse laws. Like other manufacturers, we must ensure such arrangements are
structured appropriately to mitigate the risk of challenge.
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose
license rights that are important to our business.
We are a party to a number of intellectual property license agreements with third parties, including Infinity,
Pfizer, and Chugai, and expect to enter into additional license agreements in the future. Our existing license agreements
impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty,
insurance and other obligations on us. For example, under our license agreements with Infinity, Pfizer, and Chugai, we
are required to use diligent or commercially reasonable efforts to develop and commercialize licensed products under the
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
57
Table of Contents
might not be able to market any product that is covered by these agreements, or to convert the exclusive licenses to non-
exclusive licenses, which could materially adversely affect the value of COPIKTRA or the product candidate being
developed under these license agreements. Termination of these license agreements or reduction or elimination of our
licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms, which may not
be possible. If Pfizer were to terminate its license agreement with us for any reason, we would lose our rights to
defactinib. If Infinity were to terminate its license agreement with us for any reason, we would lose our rights to
COPIKTRA. If Chugai were to terminate its license agreement with us for any reason, we could lose our rights to
CH5126766.
If we are unable to obtain and maintain patent protection for our products, or if our licensors are unable to obtain
and maintain patent protection for the products that we license from them, or if the scope of the patent protection
obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to
ours, 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 in
the United States and other countries with respect to our products. We and our licensors seek to protect our proprietary
position by filing patent applications in the United States and abroad related to our products that are important to our
business.
The patent prosecution process is expensive and time consuming, and we may not be able to file and prosecute
all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will
fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent
applications, or to maintain the patents, covering products that we license from third parties and are reliant on our
licensors. Therefore, we cannot be certain that these patents and applications will be prosecuted and enforced in a
manner consistent with the best interests of our business. If such licensors fail to maintain such patents, or lose rights to
those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves
complex 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 and
our licensors' pending and future patent applications may not result in patents being issued which protect our products or
which effectively prevent others from commercializing competitive products. Changes in either the patent laws or
interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow
the scope of our patent protection.
The laws of foreign countries may not protect our rights to the same extent as the laws of the United States.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in
the 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 or
licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of
such inventions.
Assuming the other requirements for patentability are met, in the United States, for patents that have an
effective filing date prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while
outside the United States, the first to file a patent application is entitled to the patent. In March 2013, the United States
transitioned to a first inventor to file system in which, assuming the other requirements for patentability are met, the first
inventor to file a patent application will be entitled to the patent. We may be subject to a third-party pre-issuance
submission 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 of
others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or
invalidate, our patent rights, allow third parties to commercialize our products and compete directly with us, without
payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent
rights.
58
Table of Contents
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will
provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with
any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing
similar 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 our owned
and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges
may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held
unenforceable, 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 or
shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide
us 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 and
unsuccessful.
Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file
infringement claims, which can be expensive and time consuming. In addition, in an infringement proceeding, a court
may decide that a patent of ours is invalid or unenforceable, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any
litigation 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 of
litigation. 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, the
outcome 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 proprietary
rights of third parties. We have yet to conduct comprehensive freedom to operate searches to determine whether our use
of certain of the patent rights owned by or licensed to us would infringe patents issued to third parties. We may become
party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect
to our products, including interference proceedings before the U.S. Patent and Trademark Office. Third parties may
assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are
found to infringe a third party's intellectual property rights, we could be required to obtain a license from such third party
to continue developing and marketing our products. However, we may not be able to obtain any required license on
commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby
giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to
cease commercializing the infringing product. In addition, we could be found liable for monetary damages. A finding of
infringement could prevent us from commercializing COPIKTRA and our other product candidates or force us to cease
some of our business operations, which could materially harm our business. Claims that we have misappropriated the
confidential information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their
former employers.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical
companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use
the proprietary information or know how of others in their work for us, we may be subject to claims that we or
59
Table of Contents
these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of
any such employee's former employer. Litigation may be necessary to defend against these claims. If we fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or
personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a
distraction to management.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their
normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may
cause us to incur significant expenses, and could distract our technical and management personnel from their normal
responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a
substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase
our operating losses and reduce the resources available for development, sales, marketing or distribution activities. We
may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our
competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of
their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other
proceedings could have a material adverse effect on our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be
harmed.
In addition to seeking patents for some of our products, we also rely on trade secrets, including unpatented
know how, technology and other proprietary information, to maintain our competitive position. We seek to protect these
trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to
them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers,
consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment
agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements
and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate
remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is
difficult, expensive and time consuming, and the outcome is unpredictable. In addition, some courts inside and outside
the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully
obtained or independently developed by a competitor, we would have no right to prevent them from using that
technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently
developed by a competitor, our competitive position would be harmed.
Risks Related to Maintaining and Expanding COPIKTRA's Regulatory Approval, Achieving Regulatory
Approval of Our Other Product Candidates and Other Legal Compliance Matters
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product
candidates, we will not be able to commercialize such candidates, and our ability to generate revenue will be
materially impaired.
Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. The activities associated with
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 to comprehensive
regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other
countries. Failure to obtain marketing approval for product candidates will prevent us from commercializing such
product candidates. We have not received approval to market any of our product candidates from regulatory authorities
in any jurisdiction, except for COPIKTRA in the United States. We have only limited experience in filing and supporting
the applications necessary to gain marketing approvals and expect to rely on third-party contract research organizations
to assist us in this process. Securing FDA approval requires the
60
Table of Contents
submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic
indication to establish the product candidate's safety and efficacy. Securing FDA approval also requires the submission
of information about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA. A
product candidate may not be effective, may be only moderately effective or may prove to have undesirable or
unintended side effects, toxicities or other 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 take
many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a
variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing
approval policies during the development period, changes in or the enactment of additional statutes or regulations, or
changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an
application. The FDA has substantial discretion in the approval process and may refuse to accept any application or may
decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition,
varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing
approval of a product candidate. Any marketing approval we ultimately obtain may be subject to more limited
indications than those we propose or subject to restrictions or post approval commitments that render the approved
product not commercially viable.
If we experience delays in obtaining approval or if we fail to obtain approval of a product candidate, its
commercial 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 no
assurance that we will be able to prevent third parties from developing and commercializing products that are
competitive to COPIKTRA or these product candidates.
We received orphan drug designation in the United States and the European Union for the use of COPIKTRA in
CLL/SLL and FL, in the United States for use of COPIKTRA in T-Cell Lymphoma, in the United States and European
Union for the use of defactinib in ovarian cancer, and in the United States, the European Union, and Australia for the use
of defactinib in mesothelioma. Orphan drug exclusivity grants seven years of marketing exclusivity under the Federal
Food, Drug and Cosmetic Act (FDCA), up to ten years of marketing exclusivity in Europe, and five years of marketing
exclusivity in Australia. Other companies have received orphan drug designations for compounds other than
COPIKTRA or defactinib for the same indications for which we may have received orphan drug designation in
corresponding territories. While orphan drug exclusivity for COPIKTRA or defactinib provides market exclusivity
against the same active ingredient for the same indication, we would not be able to exclude other companies from
manufacturing and/or selling drugs using the same active ingredient for the same indication beyond that timeframe on
the basis of orphan drug exclusivity. Furthermore, the marketing exclusivity in Europe can be reduced from ten years to
six years if the orphan designation criteria are no longer met or if the drug is sufficiently profitable so that market
exclusivity is no longer justified. Even if we are the first to obtain marketing authorization for an orphan drug indication,
there are circumstances under which the FDA may approve a competing product for the same indication during the
seven-year period of marketing exclusivity, such as if the later product is the same compound as our product but is
shown to be clinically superior to our product, or if the later product is a different drug than our product candidate.
Further, the seven-year marketing exclusivity would not prevent competitors from obtaining approval of the same
compound for other indications or of another compound for the same use as the orphan drug.
We may seek fast track designation for COPIKTRA in additional indications, or for one or more of our other product
candidates, but we might not receive such designation, and even if we do, such designation may not actually lead to a
faster development or regulatory review or approval process, and it does not ensure that we will receive marketing
approval.
The FDA has granted fast track designation for COPIKTRA for the treatment of patients with peripheral T-cell
lymphoma who have received at least one prior therapy. Any sponsor may seek fast track designation for a drug if it is
intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address
unmet medical need for this condition, a drug sponsor may apply for FDA fast track designation. If we seek
61
Table of Contents
fast track designation for a product candidate, we may not receive it from the FDA. However, even if we receive fast
track designation, fast track designation does not ensure that we will receive marketing approval or that approval will be
granted within any particular timeframe. We may not experience a faster development or regulatory review or approval
process with fast track designation compared to conventional FDA procedures. In addition, the FDA may withdraw fast
track designation if it believes that the designation is no longer supported by data from our clinical development
program. 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 restrictions
or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements
or if we experience unanticipated problems with our products.
COPIKTRA and any other product candidate for which we obtain marketing approval, along with the
manufacturing processes, post approval clinical data, labeling, advertising and promotional activities for such product,
will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements
include 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 and
documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing
approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the
product may be marketed or to the conditions of approval, or contain requirements for costly post marketing testing and
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 on
overall response rate observed in clinical trials. Continued approval for this indication may be contingent upon
verification and description of clinical benefit in confirmatory trials. The FDA is requiring that we conduct a clinical trial
in patients with relapsed or refractory FL that verifies and isolates the benefits of COPIKTRA. Additionally, as a
requirement of the FDA's approval, we are implementing an informational REMS that entails a communication plan to
provide appropriate dosing and safety information to better support physicians in managing their patients on
COPIKTRA.
The FDA closely regulates the post approval marketing and promotion of drugs to ensure drugs are marketed
only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes
stringent restrictions on manufacturers' communications regarding off label use and if we do not market our products for
their 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 or
manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
·
·
·
·
·
·
·
·
·
·
·
·
·
restrictions on such products, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post marketing clinical trials;
warning or untitled letters;
withdrawal of the products from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenue;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
62
Table of Contents
The FDA's and other regulatory authorities' policies may change and additional government regulations may be
enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to
adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to
maintain regulatory compliance, we may fail to obtain any marketing approvals, lose any marketing approval that we
may 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 abuse
and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and earnings.
Healthcare providers, including physicians, and third-party payors play a primary role in the recommendation
and prescription of COPIKTRA and any other product candidates for which we obtain marketing approval. Our
arrangements with healthcare providers, third-party payors and other parties within the healthcare industry may expose
us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market, sell and distribute COPIKTRA and any products for
which we obtain marketing approval. Restrictions under applicable federal and state healthcare and regulatory laws and
regulations within the United States include the following:
·
·
·
·
·
·
·
the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and
willfully 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,
any good or service, for which payment may be made under federal and state healthcare programs such as
Medicare and Medicaid. A person or entity does not need to have actual knowledge of the anti-kickback
statute 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 entities
for knowingly presenting, or causing to be presented, to the federal government, claims for payment that
are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money
to the federal government and actions under the FCA may be brought by private whistleblowers as well as
the government. In addition, the government may assert that a claim including items and services resulting
from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of
the FCA;
the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or
transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or
should know it is likely to influence the beneficiary's selection of a particular provider, practitioner, or
supplier 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 and
civil liability for executing a scheme to defraud any healthcare benefit program and HIPAA, as amended by
the Health Information Technology for Economic and Clinical Health Act, also establishes requirements
related to the privacy, security and transmission of individually identifiable health information which apply
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 up
a material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services;
the federal anti-kickback prohibition known as Eliminating Kickbacks in Recovery Act or EKRA, enacted
in 2018 prohibits certain payments related to referrals of patients to certain providers (recovery homes,
clinical treatment facilities and laboratories) and applies to services reimbursed by private health plans 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 of
samples;
63
Table of Contents
·
·
·
·
federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the
government or provide certain discounts or rebates to government authorities or private entities, often as a
condition of reimbursement under governmental healthcare programs;
federal and state consumer protection and unfair competition laws, which broadly regulate marketplace
activities 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 information
related to payments and other transfers of value to physicians and teaching hospital and, beginning with
transfers of value occurring in 2021, other healthcare practitioners, as well as ownership and investment
interests 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 sales
or marketing arrangements and claims involving healthcare items or services reimbursed by non-
governmental third-party payors, including private insurers, and some state laws regulate interactions
between pharmaceutical companies and healthcare providers and require pharmaceutical companies to
comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance
guidance promulgated by the federal government in addition to requiring drug manufacturers to report
information related to payments to physicians and other healthcare providers or marketing expenditures
and pricing information. State laws also govern the privacy and security of health information in some
circumstances, many of which differ from each other in significant ways and often are not preempted by
HIPAA, thus complicating compliance efforts.
Similar healthcare and data privacy laws and regulations exist in the European Union and other foreign
jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws
governing the privacy and security of certain protected information. For example, in May 2018, a new privacy regime,
the General Data Protection Regulation (GDPR), took effect enhancing our obligations with respect to operations in the
European Economic Area, or the EEA, and increasing the scrutiny applied to transfers of personal data from the EEA
(including health data from our clinical sites in the EEA) to countries that are considered by the European Commission
to lack an adequate level of data protection, such as the United States. The compliance obligations imposed by the
GDPR have required us to revise our operations and increased our cost of doing business. In addition, the GDPR
imposes substantial fines for breaches of data protection requirements, and it confers a private right of action on data
subjects for breaches of data protection requirements.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws
and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business
practices, including arrangements we may have with physicians and other healthcare providers, or patient assistance
programs, may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse
or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid,
additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other
agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our
operations. If any of the physicians or other providers or entities with whom we expect to do business is found to be not
in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including
exclusions 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 defending
against any such actions that may be brought against us, our business may be impaired.
Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in
misconduct 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 FDA
regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to
64
Table of Contents
the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established,
comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations
established and enforced by comparable foreign regulatory authorities, report financial information or data accurately or
disclose unauthorized activities to us. Such misconduct could also involve the improper use of information obtained in
the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always
possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from
governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws,
standards or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves 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, a
number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among
other things, prevent or delay marketing approval of our product candidates, restrict or regulate post approval activities
and affect our ability to profitably sell COPIKTRA and any other product candidates for which we obtain marketing
approval.
The U.S. healthcare industry generally and U.S. government healthcare programs in particular are highly
regulated and subject to frequent and substantial changes. The U.S. government and individual states have been
aggressively pursuing healthcare reform. For example, in March 2010, President Obama signed into law the Health Care
Reform Act, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health
insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The
law, for example, increased drug rebates under state Medicaid programs for brand name prescription drugs and extended
those rebates to Medicaid managed care and assessed a fee on manufacturers and importers of brand name prescription
drugs reimbursed under certain government programs, including Medicare and Medicaid.
The provisions of the Healthcare Reform Act have been subject to judicial and Congressional challenges, as
well as efforts by the Trump administration to modify certain requirements of the Healthcare Reform Act by executive
branch order. For example, on January 20, 2017, President Trump signed an Executive Order directing federal agencies
with authorities and responsibilities under the Healthcare Reform Act to waive, defer, grant exemptions from, or delay
the implementation of any provision of the Healthcare Reform Act that would impose a fiscal or regulatory burden on
states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In
Congress, there have been a number of legislative initiatives to modify, repeal and/or replace portions of the Healthcare
Reform Act. Tax reform legislation enacted at the end of 2017 eliminated the tax penalty for individuals who do not
maintain sufficient health insurance coverage beginning in 2019. The Bipartisan Budget Act of 2018 contained various
provisions that affect coverage and reimbursement of drugs, including an increase in the discount that manufacturers of
Medicare Part D brand name drugs must provide to Medicare Part D beneficiaries during the coverage gap from 50% to
70% starting in 2019. Congress may consider other legislation to modify, repeal and/or replace certain elements of the
Healthcare Reform Act. In December 2018, a federal district court judge, in a challenge brought by a number of state
attorneys general, found the Healthcare Reform Act unconstitutional in its entirety because, once Congress repealed the
individual mandate provision, there was no longer a basis to rely on Congressional taxing authority to support enactment
of the law. In December 2019, a federal appeals court agreed that the individual mandate provision was unconstitutional
but remanded the case back to the district court to assess more carefully whether any provisions of the Healthcare
Reform Act were severable and could survive. In March, the Supreme Court agreed to hear the case. Pending resolution
of the litigation, which could take some time, the Healthcare Reform Act is still operational in all respects. We continue
to evaluate the effect that the Healthcare Reform Act and its possible repeal, replacement or
65
Table of Contents
modification may have on our business. Such legislation and other healthcare reform measures that may be adopted in
the future could have a material adverse effect on our industry generally and on our ability to successfully commercialize
our products and product candidates.
In addition, other broader legislative changes have been adopted that could have an adverse effect upon, and
could prevent, our products’ commercial success. The Budget Control Act of 2011, as amended, or the Budget Control
Act, includes provisions intended to reduce the federal deficit, including reductions in Medicare payments to providers
through 2029. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized
health programs, or any significant taxes or fees imposed as part of any broader deficit reduction effort or legislative
replacement 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 and
implementing regulations designed to control pharmaceutical product pricing, including price constraints, restrictions on
copayment assistance by pharmaceutical manufacturers, marketing cost disclosure and transparency measures, and, in
some 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, guidance
or interpretations will be changed, or what the impact of such changes on COPIKTRA or the marketing approvals of our
product candidates may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may
significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post
marketing testing and other requirements.
Risks Related to Employee Matters and Managing Growth
We may experience difficulties in managing restructurings and restructuring activities may not be as effective as
anticipated
On October 28, 2019, we committed to an operation plan to reduce overall operating expenses, including the
elimination of approximately 40 positions. In addition on February 27, 2020, the Company committed to an operational
plan to reduce overall operating expenses, including the elimination of approximately 31 positions.
The workforce reduction is designed to streamline operations, speed execution of the Company’s clinical
development of defactinib and CH5126766, and reflect a focused, account-based approach in the field. We may not
realize, in full or in part, the anticipated benefits, savings and improvements in our cost structure from our restructuring
efforts due to unforeseen difficulties, delays or unexpected costs. Furthermore, our restructuring plan may be disruptive
to our operations. If we are unable to realize the expected operational efficiencies and cost savings from the
restructuring, our operating results, which include net product revenue, and financial condition would be adversely
affected. There can be no assurance that we will be successful in implementing our restructuring program. Future growth
would impose significant added responsibilities on members of management, including the need to identify, recruit,
maintain and integrate additional employees. Our future financial performance and our ability to commercialize
COPIKTRA and develop our product candidates or additional assets will depend, in part, on our ability to effectively
manage any future growth or restructuring, as the case may be.
Our 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 Brian Stuglik, Chief Executive Officer, Daniel Paterson, our President and Chief
Operating Officer, and Robert Gagnon, our Chief Business and Financial Officer. Although we have formal employment
agreements with Brian Stuglik, Daniel Paterson, and Robert Gagnon, these agreements do not prevent them from
terminating their employment with us at any time. We do not maintain “key person” insurance for any of our executives
or other employees. The loss of the services of any of these persons could impede the achievement of our research,
development and commercialization objectives.
66
Table of Contents
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also
be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the
competition among numerous pharmaceutical and biotechnology companies, universities and research institutions for
similar personnel. Although we have implemented a retention plan for certain key employees, our retention plan may not
be successful in incentivizing these employees to continue their employment with us. In addition, we rely on consultants
and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and
commercialization strategy. Our consultants and advisors, including our scientific co-founders, may be employed by
employers other than us and may have commitments under consulting or advisory contracts with other entities 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 may
encounter 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 our
operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our
anticipated future growth, we may continue to implement and improve our managerial, operational and financial
systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited
financial resources and the limited experience of our management team in managing a company with such anticipated
growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional
qualified personnel when we expand. The physical expansion of our operations may lead to significant costs and may
divert our management and business development resources. Any inability to manage growth could delay the execution
of our business plans or disrupt our operations.
Our business and operations may be materially adversely affected in the event of computer system breaches or
failures.
Despite the implementation of security measures, our internal computer systems, and those of our contract
research 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 event
were to occur and cause interruptions in our operations, it could result in a material disruption of our key business
processes and clinical development programs. For example, the loss of clinical trial data from ongoing or planned
clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or
applications, 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 the further
development and commercialization of COPIKTRA and our other product candidates.
Risks Related to Our Common Stock
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may
be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove
our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or
other change in control of us that stockholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing
to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In
addition, because our board of directors is responsible for appointing the members of our management team, these
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors. Among other things, these
provisions:
·
establish a classified board of directors such that not all members of the board are elected at one time;
67
Table of Contents
·
·
·
·
·
·
·
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from the board;
establish advance notice requirements for stockholder proposals that can be acted on at stockholder
meetings and nominations to our board of directors;
require that stockholder actions must be affected at a duly called stockholder meeting and prohibit actions
by 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 used
to 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 entitled to
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 the
Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting
stock from merging or combining with us for a period of three years after the date of the transaction in which the person
acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed
manner.
The market price of our common stock has been, and may continue to be, highly volatile.
Our stock price has been volatile. Since January 27, 2012, when we became a public company, the price
for one share of our common stock has reached a high of $18.82 and a low of $0.83 through December 31, 2019. We
cannot predict whether the price of our common stock will rise or fall. The market price for our common stock may be
influenced 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 of commercializing 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 or
products;
actual or anticipated changes in estimates as to financial results, development timelines or
recommendations 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 biotechnology
companies in particular have experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of particular companies. Broad market and industry factors may
negatively 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 against companies.
Such litigation, if instituted against us, could result in substantial costs and diversion of management's attention and
resources, which could materially and adversely affect our business and financial condition.
68
Table of Contents
Failure to comply with The Nasdaq Global Market continued listing requirements may result in our common stock
being delisted from The Nasdaq Global Market.
If our stock price falls below $1.00 per share, we may not continue to qualify for continued listing on The Nasdaq
Global Market (Nasdaq). To maintain listing, we are required, among other things, to maintain a minimum closing bid
price of $1.00 per share. If the closing bid price of our common stock is below $1.00 per share for 30 consecutive
business days, we will receive a deficiency notice from Nasdaq advising us that we have a certain period of time,
typically 180 days, to regain compliance by maintaining a minimum closing bid price of at least $1.00 for at least ten
consecutive business days, although Nasdaq could require a longer period.
The delisting of our common stock would significantly affect the ability of investors to trade our common stock
and negatively impact the liquidity and price of our common stock. In addition, the delisting of our common stock could
materially adversely impact our ability to raise capital on acceptable terms or at all. Delisting from Nasdaq could also
have other negative results, including the potential loss of confidence by our current or prospective third-party providers
and collaboration partners, the loss of institutional investor interest, and fewer licensing and partnering opportunities.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital
appreciation, 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 our
future earnings to finance the growth and development of our business. In addition, the terms of any current or future
debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock
will 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 successfully
maintain and further develop internal commercialization capabilities, establish sales and marketing capabilities or
enter into agreements with third parties to sell and market our product candidates, sales of COPIKTRA may be
negatively impacted and we may not be successful in commercializing our other product candidates if and when they
are approved.
We have limited experience in the sale, marketing or distribution of pharmaceutical products. To achieve
commercial success for any approved product, we must either develop a sales and marketing organization or outsource
these functions to third parties.
We have hired a commercial team and implemented the organizational infrastructure we believe we need
for a successful commercial launch of COPIKTRA. We will need to commit significant time and financial and
managerial resources to maintain and further develop our marketing and sales force to ensure they have the technical
expertise required to address any challenges we may face with the commercialization of COPIKTRA. Factors that may
inhibit 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,
to deliver a consistent message regarding COPIKTRA and be effective in persuading physicians to
prescribe COPIKTRA;
an inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to
prescribe COPIKTRA or any other product candidates;
an inability of third-parties to manufacture COPIKTRA consistently in commercial quantities, at
acceptable costs and on expected timelines;
a lack of complementary products to be offered by sales personnel, which may put us at a competitive
disadvantage relative to companies with more extensive product lines;
an inability to equip sales personnel with effective materials, including medical and sales literature to help
them educate physicians and other healthcare providers regarding COPIKTRA; and
69
Table of Contents
·
unforeseen costs and expenses associated with maintaining and further developing an independent sales
and marketing organization.
If we are not successful in establishing and maintaining an effective sales and marketing infrastructure, we will
have 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, our
product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and
sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with
third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We
likely will have little control over such third parties, and any of them may fail to devote the necessary resources and
attention 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 product
candidates.
Risks Related to the Notes
Servicing our debt, including the Notes, requires a significant amount of cash, and we may not have sufficient
cash 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 is
subject to regulatory, economic, financial, competitive and other factors beyond our control. We are a clinical stage
biopharmaceutical company and we have not yet generated any profit from product sales. We expect to continue to incur
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 product development efforts
and operations. Accordingly, our business may not generate cash flow from operations in the future sufficient to service
our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to
adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms
that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and
our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities
on desirable terms, which could result in a default on our debt obligations.
The 2018 Notes are effectively subordinated to our secured indebtedness and structurally subordinated to any
liabilities of our subsidiaries.
The 2018 Notes are our senior, unsecured obligations and are senior in right of payment to our future
indebtedness that is expressly subordinated in right of payment to the 2018 Notes; equal in right of payment with our
existing and future indebtedness 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 2018 Notes are
structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the
extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. In the event of our bankruptcy,
liquidation, reorganization or other winding up, our assets that secure debt will be available to pay obligations on the
2018 Notes only after the secured debt has been repaid in full from these assets, and the assets of our subsidiaries will be
available to pay obligations on the 2018 Notes only after all claims of such subsidiaries’ creditors, including trade
creditors and preferred equity holders have been repaid in full. There may not be sufficient assets remaining to pay
amounts due on any or all of the 2018 Notes then outstanding. The 2018 Indenture governing the 2018 Notes does not
prohibit us from incurring additional 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 intensify
the risks discussed above.
70
Table of Contents
Despite our current consolidated debt levels, we and our subsidiaries may be able to incur substantial additional
debt in the future, subject to the restrictions contained in our debt agreements, including the Indentures, some of which
may be secured debt. The 2019 Term Loan Agreement also restricts our ability and the ability of our subsidiaries to issue
or incur additional indebtedness, including secured indebtedness, though if our loans under the 2019 Term Loan
Agreement, mature or are repaid, we may not be subject to such restrictions under the terms of any subsequent
indebtedness.
We may not have the ability to raise the funds necessary to repurchase the Notes upon a fundamental change, and
our 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
fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Notes,
respectively to be repurchased, plus accrued and unpaid interest, if any. However, we may not have enough available
cash or be able to obtain financing at the time we are required to make repurchases of the Notes surrendered therefor. In
addition, our ability to repurchase the Notes may be limited by law, by regulatory authority or by agreements governing
our indebtedness that exist at the time of the repurchase. The 2019 Term Loan Agreement currently limits our ability to
repurchase the Notes. Our failure to repurchase the Notes at a time when the repurchase is required by the Indentures
governing the Notes would constitute a default under the Indentures. A default under the Indentures or the fundamental
change itself could also lead to a default under the 2019 Term Loan Agreement, and/or agreements governing our future
indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace
periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes.
In addition, our borrowings under the 2019 Term Loan Agreement are, and are expected to continue to be, at
variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the
variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income
would decrease.
The 2019 Term Loan Agreement limits our ability to pay any cash amount upon repurchase of the Notes.
The 2019 Term Loan Agreement prohibits us from making any cash payments to repurchase the Notes upon a
fundamental change. Any new credit facility that we may enter into may have similar restrictions.
Our failure to repurchase the Notes as required under the terms of the Notes would constitute a default under
the Indentures governing the Notes and would permit holders of the Notes to accelerate our obligations under the Notes.
A default under the Indentures or the fundamental change itself could also lead to a default under the 2019 Term Loan
Agreement, or agreements governing our future indebtedness. If the repayment of the related indebtedness were to be
accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and
repurchase the Notes.
Future sales of our common stock or equity-linked securities in the public market could lower the market
price for our common stock.
In the future, we may sell additional shares of our common stock or equity-linked securities to raise capital. In
addition, a substantial number of shares of our common stock are reserved for issuance upon the exercise of stock
options and upon conversion of the Notes. We cannot predict the size of future issuances or the effect, if any, that they
may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock or
equity-linked securities, or the perception that such issuances and sales may occur, could adversely affect the market
price of our common stock and impair our ability to raise capital through the sale of additional equity or equity-linked
securities.
Item 1B. Unresolved Staff Comments
None.
71
Table of Contents
Item 2. Properties
We occupy approximately 27,810 square feet of office space in Needham, Massachusetts under a lease that
expires in May 2025. We believe that our facility is sufficient to meet our current needs and that suitable additional space
will be available as and when needed.
Item 3. Legal Proceedings
From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of
our business activities. We do not believe we are currently party to any pending legal action, the outcome of which, if
determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse
effect on our business or operating results.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity
Securities
MARKET INFORMATION
Our common stock is publicly traded on The Nasdaq Global Market under the symbol “VSTM.”
HOLDERS
As of February 28, 2020 there were 11 holders of record of our common stock and the closing price of our
common stock on The Nasdaq Global Market as of that date was $2.79. The number of holders of record does not
include beneficial owners whose shares are held by nominees in street name.
DIVIDENDS
We have never declared or paid cash dividends on our common stock, and we do not expect to pay any cash
dividends on our common stock in the foreseeable future.
PERFORMANCE GRAPH
The following performance graph and related information shall not be deemed to be “soliciting material” or to
be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the
Securities 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 the
Nasdaq Biotechnology Index from December 31, 2014 through December 31, 2019. The comparison assumes $100 was
invested after the market closed on December 31, 2014 in our common stock and in each of the foregoing indices, and it
assumes reinvestment of dividends, if any.
72
Table of Contents
*
$100 invested on 12/31/14 in stock or index, including reinvestment of dividends. Fiscal year ending December 31,
2019.
Cumulative Total Return Comparison
Verastem, Inc.
NASDAQ Composite
NASDAQ Biotechnology
PURCHASE OF EQUITY SECURITIES
December 31,
2014 2015 2016 2017 2018 2019
14.66
100.00
100.00 105.73 113.66 145.76 140.10 189.45
95.79 119.17
100.00 111.42
87.26 105.64
20.35
36.76
12.25
33.59
We did not purchase any of our equity securities during the period covered by this Annual Report on
Form 10‑K.
73
Table of Contents
Item 6. Selected Financial Data
You should read the following selected financial data together with our consolidated financial statements and
the related notes appearing elsewhere in this Annual Report on Form 10‑K and the “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” section of this Annual Report on Form 10‑K. The selected
historical financial information in this section is not intended to replace our financial statements and the related notes
therein. Our historical results for any prior period are not necessarily indicative of results to be expected in any future
period.
Statement of operations data:
2019
Year ended December 31,
2017
(in thousands, except share and per share amounts)
2018
2016
2015
Revenue:
Product revenue, net
License and collaboration revenue
Total revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible amortization
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other (expense)/ income
Interest income
Interest expense
Net loss
Net loss per share—basic
Net loss per share—diluted
Weighted average common shares outstanding used
in computing:
Net loss per share—basic
Net loss per share—diluted
$ 12,339 $
1,718 $
5,117 25,000
17,456
26,718
— $
—
—
— $
—
—
—
—
—
$
165 $
423
43,648
77,265
121,501
(94,783)
25,556
2,603
(5,810)
1,238 $
1,569
45,778
101,212
149,797
(132,341)
(641)
4,381
(20,608)
—
—
40,565
17,634
58,199
(58,199)
—
334
—
$ (149,209) $ (72,434) $ (67,802) $ (36,440) $ (57,865)
(1.61)
$
(1.61)
$
— $
—
46,423
21,381
67,804
(67,804)
—
561
(559)
— $
—
19,779
17,223
37,002
(37,002)
—
562
—
(1.76) $
(1.76) $
(2.00) $
(2.00) $
(0.99) $
(0.99) $
(1.12) $
(1.37) $
74,578
74,578
64,962
69,321
38,422
38,422
36,988
36,988
35,932
35,932
Balance sheet data:
Cash, cash equivalents and investments
Working capital
Total assets
Total debt
Accumulated deficit
Total stockholders’ equity
2019
2018
2016
As of December 31,
2017
(in thousands)
$ 75,506 $ 249,653 $ 86,672 $ 80,897 $ 110,258
100,734
113,094
—
(198,883)
102,469
55,071
145,046
103,623
(524,785)
7,174
70,659
89,791
14,828
(303,142)
57,684
216,182
277,236
120,453
(375,576)
124,299
70,304
83,629
—
(235,323)
72,297
2015
74
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations
together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on
Form 10‑K. The following discussion contains forward‑looking statements that involve risks and uncertainties. Our
actual results and the timing of certain events could differ materially from those anticipated in these forward‑looking
statements as a result of certain factors, including those discussed below and as set forth under “Risk Factors.” Please
also refer to the section under the heading “Forward‑Looking Statements.”
OVERVIEW
We are a biopharmaceutical company focused on developing and commercializing medicines to improve the
survival and quality of life of cancer patients. Our marketed product, COPIKTRA® (duvelisib) capsules, and most
advanced product candidates, defactinib and CH5126766 also referred to as VS-6766, utilize a multi-faceted approach to
treat cancers originating either in the blood or major organ systems. We are currently developing duvelisib and our
product candidates in both preclinical and clinical studies as potential therapies for certain cancers, including leukemia,
lymphoma, head and neck cancer, ovarian cancer, colorectal cancer, lung cancer, pancreatic cancer, and mesothelioma.
We believe that these compounds may be beneficial as therapeutics either as single agents or when used in combination
with immuno-oncology agents, other pathway inhibitors or other current and emerging standard of care treatments in
aggressive cancers that do not adequately respond to currently available therapies.
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 duvelisib
and our product candidates and initiating U.S. commercial operations following the approval of COPIKTRA. We have
financed our operations to date primarily through public offerings of our common stock, sales of common stock under
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 with
Sanofi, Yakult and CSPC, and the issuance of $150.0 million aggregate principal amount of 2018 Notes in October 2018.
With our U.S. commercial launch of COPIKTRA on September 24, 2018, we have recently begun financing a portion of
our operations through product revenue.
As of December 31, 2019, we had an accumulated deficit of $524.8 million. Our net loss was $149.2 million,
$72.4 million, and $67.8 million the years ended December 31, 2019, 2018 and 2017 respectively. We expect to incur
significant expenses and operating losses for the foreseeable future as a result of our commercialization of COPIKTRA
and the continued research and development of all of our product candidates. We will need to generate significant
revenues to achieve profitability, and we may never do so. As of December 31, 2019, we had cash, cash equivalents,
restricted cash and short-term investments of $111.3 million, inclusive of $35.7 million of restricted cash. On March 3,
2020, we received gross proceeds of $100.0 million from the sale of 46,511,628 shares of Common Stock. We expect our
existing cash resources including proceeds from the sale of Common Stock in March 2020, along with revenue we
expect to generate from sales of COPIKTRA, will be sufficient to fund our planned operations through 12 months from
the date of issuance of these consolidated financial statements.
We expect to finance the future development costs of our clinical product portfolio with our existing cash, cash
equivalents and short-term investments, or through strategic financing opportunities that could include, but are not
limited to collaboration agreements, future offerings of our equity, or the incurrence of debt. However, there is no
guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and
some could be dilutive to existing stockholders. If we fail to obtain additional future capital, we may be unable to
complete our planned preclinical studies and clinical trials and obtain approval of certain investigational product
candidates from the FDA or foreign regulatory authorities.
75
Table of Contents
FINANCIAL OPERATIONS OVERVIEW
Revenue
Product revenue, net represents the gross sales of COPIKTRA in the United States less provisions for product
sales allowances and accruals. These provisions include trade allowances, rebates, chargebacks and discounts, product
returns 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 may
fluctuate based on the mix of sales to either specialty pharmacy or specialty distributor customers. See “Critical
Accounting Policies and Significant Judgements and Estimates” below for more information on the components of net
U.S. product sales of COPIKTRA.
License and collaboration revenue to date has been generated through our license and collaboration agreements
for the development and commercialization of duvelisib with Sanofi in the Sanofi Territory, CSPC in China and Yakult
in Japan. The terms of these agreements 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 a partner, 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 or development materials, (iv) payments based upon the achievement of certain
milestones, and (v) royalties on product sales. Duvelisib has not received regulatory approval for commercial sale in the
Sanofi Territory, China or Japan.
Costs of sales - product
Cost of sales - product consist of costs of COPIKTRA on which product revenue was recognized, royalties
owed to Healthcare Royalty Partners (HCR) and Infinity we incur as a result of such sales of COPIKTRA, and certain
period costs. We expensed the manufacturing costs of COPIKTRA as operating expenses in the periods prior to July 1,
2018. In the third quarter of 2018, we began capitalizing inventory costs for COPIKTRA manufactured in preparation
for our launch in the United States based on our evaluation of, among other factors, the status of the COPIKTRA New
Drug Application (NDA) in the United States and the ability of our third-party suppliers to successfully manufacture
commercial quantities of COPIKTRA. Certain of the costs of COPIKTRA units recognized as revenue during 2019 were
expensed prior to the September 2018 FDA marketing approval and, therefore, are not included in cost of sales during
this period. We expect cost of sales - product to increase in relation to product revenues as we deplete these inventories.
Research and development expenses
Research and development expenses consist of costs associated with our research activities, including the
development of our product candidates. Our research and development expenses consist of:
·
·
·
·
·
employee‑related expenses, including salaries, benefits, travel and stock‑based compensation expense;
external research and development expenses incurred under arrangements with third parties, such as
contract 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 for
rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and
laboratory and other supplies; and
costs associated with COPIKTRA prior to us concluding that regulatory approval is probable and that
its net realizable value is recoverable.
We expense research and development costs to operations as incurred. We account for nonrefundable advance
payments for goods and services that will be used in future research and development activities as expenses when the
service has been performed or when the goods have been received, rather than when the payment is made.
76
Table of Contents
On September 24, 2018, COPIKTRA was approved by the FDA and is now indicated for the treatment of adult
patients with relapsed or refractory CLL/SLL after at least two prior therapies and relapsed or refractory FL after at least
two prior systemic therapies. Due to long-lead time requirements for manufacturing our product, manufacturing
constraints and the desire to have COPIKTRA commercially available as soon as possible following regulatory approval,
we contracted with our third-party supplier to manufacture commercial quantities of COPIKTRA drug substance prior to
final approval by regulators.
We expensed all pre-validation and validation manufacturing costs of drug product as research and development
expenses in the periods prior to July 1, 2018. Total costs of manufacturing COPIKTRA drug product expensed as
research and development through June 30, 2018 was approximately $1.8 million. Beginning July 1, 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, we have 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 research
and development expenses to our clinical programs, including COPIKTRA and defactinib, for the years ended December
31, 2019, 2018 and 2017. We use our employee and infrastructure resources across multiple research and development
projects. Our project costing methodology does not allocate personnel and other indirect costs to specific clinical
programs. These unallocated research and development expenses are summarized in the table below and include $11.3
million, $9.2 million and $5.8 million of personnel costs for the years ended December 31, 2019, 2018 and 2017,
respectively.
COPIKTRA
Defactinib
Unallocated and other research and development expense
Unallocated stock-based compensation expense
Total research and development expense
Year ended December 31,
2018
(in thousands)
2019
(in thousands)
$
25,518 $
1,823
16,936
1,501
45,778 $
$
2017
(in thousands)
30,409
2,894
11,739
1,381
46,423
24,771 $
2,230
14,604
2,043
43,648 $
Our research and development expenses may increase significantly in future periods as we undertake costlier
development activities for our existing and future product candidates, including larger and later‑stage clinical trials.
The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably
estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of
our product candidates or the period, if any, in which material net cash inflows from our product candidates may
commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the
uncertainty of:
·
·
·
·
·
·
clinical trial results;
the scope, rate of progress and expense of our research and development activities, including
preclinical 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
other product 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 intellectual
property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could
mean a significant change in the costs and timing associated with the development of that product candidate. For
example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those
77
Table of Contents
which we currently anticipate will be required for the completion of clinical development of a product candidate or if we
experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional
financial resources and time on the completion of clinical development.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of salaries and related costs for personnel,
including stock‑based compensation expense, in our executive, finance, legal, information technology,
commercial, communication, human resources, and business development functions. Other selling, general and
administrative expenses include allocated facility costs, commercial costs, professional fees for legal, patent, investor
and public relations, consulting, insurance premiums, audit, tax and other public company costs.
Other, interest income and interest expense
Other expense in 2019 consists entirely of the mark-to-market adjustment of the bifurcated make-whole interest
provision derivative liability related to the 2019 Notes. Other income in 2018 consists entirely of the mark-to-market
adjustment of the bifurcated conversion option derivative liability related to the 2018 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 the
Notes, as well as non-cash interest related to the amortization of debt discount and issuance costs.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES
Our management’s discussion and analysis of our financial condition and results of operations is based on our
consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting
principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of certain assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and
judgments, including those related to accrued expenses, stock‑based compensation, revenue recognition, collaborative
agreements, accounts receivable, inventory and intangible assets described in greater detail below. We base our estimates
on our limited historical experience, known trends and events and various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Our significant accounting policies are described in more detail in the notes to our consolidated financial
statements appearing elsewhere in this Annual Report on Form 10‑K. However, we believe that the following accounting
policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of
operations.
78
Table of Contents
Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an
amount that reflects the consideration which the Company expects to receive in exchange for those goods or services in
accordance with ASC 606 Revenue from Contracts with Customers. To determine revenue recognition for arrangements
that an entity determines are within the scope of ASC 606, the entity performs the following 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 model to contracts when it is probable that we
will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At
contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services
promised within each contract and determine which goods or services are performance obligations, and assess whether
each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Product Revenue, Net – We sell COPIKTRA to a limited number of specialty pharmacies and specialty
distributors in the United States. These customers subsequently resell COPIKTRA either directly to patients, or to
community hospitals or oncology clinics with in-office dispensaries who in turn distribute COPIKTRA to patients. In
addition to distribution agreements with customers, we also enter into arrangements with (1) certain government
agencies and various private organizations (Third-Party Payers), which may provide for chargebacks or discounts with
respect to the purchase of COPIKTRA, and (2) Medicare and Medicaid, which may provide for certain rebates with
respect to the purchase of COPIKTRA.
We recognize 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 acquisition costs, net of
applicable reserves for variable consideration. Components of variable consideration include trade discounts and
allowances, 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 the
amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable or a current
liability. 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, these
reserves 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 is
included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the
cumulative revenue recognized under contracts will not occur in a future period. Our analyses contemplate the
application of the constraint in accordance with ASC 606. For the year ended December 31, 2019, we determined 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 differ from our
estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net
product revenue and earnings in the period such variances become known.
Trade Discounts and Allowances: We generally provide customers with invoice discounts on sales of
COPIKTRA for prompt payment, which are explicitly stated in our contracts and are recorded as a reduction of revenue
in the period the related product revenue is recognized. In addition, we compensate our specialty distributor customers
for sales order management, data, and distribution services. We have determined such services are not distinct from our
sale of COPIKTRA to the specialty distributor customers and, therefore, these payments have also been recorded as a
reduction of revenue within the consolidated statements of operations and comprehensive loss through December 31,
2019.
79
Table of Contents
Third-Party Payer Chargebacks, Discounts and Fees: We execute contracts with Third-Party Payers which allow
for eligible purchases of COPIKTRA at prices lower than the wholesale acquisition cost charged to customers who
directly purchase the product from us. In some cases, customers charge us for the difference between what they pay for
COPIKTRA and the ultimate selling price to the Third-Party Payers. These reserves are established in the same period
that 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, and
we 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 channel
inventories at the end of each reporting period that we expect will be sold to Third-Party Payers, and chargebacks that
customers have claimed, but for which we have not yet issued a credit. In addition, we compensate certain Third-Party
Payers for administrative services, such as account management and data reporting. These administrative service fees
have also been recorded as a reduction of product revenue within the consolidated statements of operations and
comprehensive loss through December 31, 2019.
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 product
revenue and the establishment of a current liability which is included in accrued expenses on the consolidated balance
sheets. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will
owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of invoices
received 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 been
recognized 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 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 and the cost per
claim that we expect to receive for product that has been recognized as revenue, but remains in the distribution channel
inventories at the end of each reporting period. The adjustments are recorded in the same period the related revenue is
recognized, resulting in a reduction of product revenue and the establishment of a current liability which is included as a
component of accrued expenses on the consolidated balance sheets.
Product Returns: Consistent with industry practice, we generally offer customers a limited right of return for
product that has been purchased from us. We estimate the amount of our product sales that may be returned by our
customers and record this estimate as a reduction of revenue in the period the related product revenue is recognized. We
estimate product return liabilities using available industry data and our own sales information, including our visibility
into the inventory remaining in the distribution channel.
Subject to certain limitations, our 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’s
expiration 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.
As of December 31, 2019, we have not received any returns.
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 the
expected amortization period of the asset that we would have recognized is one year or less. However, no such costs
were incurred during the year ended December 31, 2019.
80
Table of Contents
Exclusive Licenses of Intellectual Property - We may enter into collaboration and licensing arrangements for
research and development, manufacturing, and commercialization activities with collaboration partners for the
development 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 to
obtain licenses, to our intellectual property, (ii) research and development activities performed for the collaboration
partner, (iii) participation on joint steering committees, and (iv) the manufacturing of commercial, clinical or preclinical
material. Payments pursuant to these arrangements typically include non-refundable, upfront payments, milestone
payments upon the achievement of significant development events, research and development reimbursements, sales
milestones, and royalties on product sales. The amount of variable consideration is constrained until it is probable that
the revenue is not at a significant risk of reversal in a future period. The contracts into which we enter generally do not
include significant financing components.
In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of
our collaboration and license agreements, we perform the following steps: (i) identification of the promised goods or
services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or services are
performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the
transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the
performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of
the accounting for these arrangements, we must use significant judgment to determine: a) the number of performance
obligations 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 in step
(iv) above; and d) the measure of progress in step (v) above. We use judgment to determine whether milestones or other
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 performance
obligations identified in the arrangement, we recognize revenue from non-refundable, upfront fees allocated to the
license when the license is transferred to the customer and the customer is able to use and benefit from the license. In
assessing whether a promise or performance obligation is distinct from the other elements, we consider factors such as
the research, development, manufacturing and commercialization capabilities of the collaboration partner and the
availability of its associated expertise in the general marketplace. In addition, we consider whether the collaboration
partner can benefit from a promise for its intended purpose without the receipt of the remaining elements, whether the
value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the
remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined
with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine
whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate
method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress as of each
reporting period and, if necessary, adjust the measure of performance and related revenue recognition. The measure of
progress, and thereby periods over which revenue should be recognized, is subject to estimates by management and may
change over the course of the arrangement. Such a change could have a material impact on the amount of revenue we
record in future periods.
Customer Options: If an arrangement is determined to contain customer options that allow the customer to
acquire additional goods or services such as research and development services or manufacturing services, the goods and
services underlying the customer options are not considered to be performance obligations at the inception of the
arrangement; rather, such goods and services are contingent on exercise of the option, and the associated option fees are
not included in the transaction price. We evaluate customer options for material rights or options to acquire additional
goods or services for free or at a discount. If a customer option is determined to represent a material right, the material
right is recognized as a separate performance obligation at the outset of the arrangement. We allocate the transaction
price to material rights based on the relative standalone selling price, which is determined based on the identified
discount and the estimated probability that the customer will exercise the option. Amounts allocated 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, we evaluate
whether the milestones are considered probable of being achieved and estimate the amount to be included in the
transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not
81
Table of Contents
occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the
control of us or the licensee, such as regulatory approvals, are not considered probable of being achieved until those
approvals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that
must be overcome to achieve the respective milestone in making this assessment. There is considerable judgment
involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each
subsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, if
necessary, 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 level
of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the
later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has
been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting
from any of our licensing arrangements.
Collaborative Arrangements: Contracts are considered to be collaborative arrangements when they satisfy the
following criteria defined in ASC 808, Collaborative Arrangements: (i) the parties to the contract must actively
participate in the joint operating activity and (ii) the joint operating activity must expose the parties to the possibility of
significant risks and rewards, based on whether or not the activity is successful. Payments received from or made to a
partner 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 expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our
accrued expenses. This process involves reviewing contracts, identifying services that have been performed on our
behalf and estimating the level of service performed and the associated cost incurred when we have not yet been
invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for
services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each
balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically
confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant
estimates in our accrued research and development expenses include fees paid to CROs in connection with research 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 pursuant
to quotes and contracts with CROs that conduct research and development on our behalf. The financial terms of these
agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There
may be instances in which payments made to our vendors will exceed the level of services provided and result in a
prepayment of the research and development expense. In accruing service fees, we estimate the time period over which
services will be performed and the level of effort to be expended in each period. If the actual timing of the performance
of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do
not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and
timing of services performed relative to the actual status and timing of services performed may vary and could result in
us reporting amounts that are too high or too low in any particular period. To date, there have been no material
differences between our estimates of such expenses and the amounts actually incurred.
Stock‑based compensation
We recognize stock‑based compensation expense for stock options, and restricted stock units (RSUs) issued to
employees and directors based on the grant date fair value of the awards on a straight‑line basis over the requisite service
period. Historically, we recorded stock‑based compensation expense for stock options and RSUs issued to
non‑employees based on the estimated fair value of the services received or of the equity instruments issued, whichever
is more reliably measured, based on the vesting date fair value of the awards on a straight‑line basis over the vesting
period. Effective January 1, 2019, we adopted Accounting Standard Updated (ASU) 2018-
82
Table of Contents
09, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods
and services to be used or consumed in its own operations by issuing share-based payment awards. Upon adoption, we
recognize stock-based compensation expense for stock options and RSUs issued to non-employees based on the grant
date fair value of the awards on the straight-line basis over the requisite service period.
We estimate the fair value of stock option awards using the Black‑Scholes option‑pricing model. Determining
the fair value of stock options requires the use of subjective assumptions, including the expected term of the award and
expected stock price volatility. The assumptions used in determining the fair value of stock options represent
management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a
result, if factors change, and we use different assumptions, our stock‑based compensation could be materially different in
the future. The risk‑free interest rate used for each grant is based on a U.S. Treasury instrument whose term is consistent
with the expected term of the stock option. Because we do not have a sufficient history to estimate the expected term, we
use the simplified method as described in Securities and Exchange Commission Staff Accounting Bulletin Topic 14.D.2
for estimating the expected term. The simplified method is based on the average of the vesting tranches and the
contractual life of each grant. Because there was no public market for our common stock prior to our initial public
offering, 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 a
representative group of public biotechnology and life sciences companies with similar characteristics to us. The
computation 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 similar
characteristics to us, including similar stage of product development and therapeutic focus. As of the first quarter of
2018, there was sufficient company-specific historical and implied volatility information. As such, for the annual period
ending December 31, 2019, the computation of expected volatility is based only on the historical volatility of our
common 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-based compensation net of
estimated forfeitures over the vesting period of the respective grant. Effective January 1, 2017, we adopted Accounting
Standard Updated (ASU) 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting, which simplified the accounting for stock-based compensation arrangements, including the
accounting for forfeitures. Upon adoption, we elected to begin accounting for forfeitures as they occur, rather than
estimating a forfeiture rate, and recorded an immaterial cumulative-effect adjustment to opening accumulated deficit.
We issue shares under the Company’s employee stock purchase plan (ESPP) to employees. Stock-based
compensation expense for discounted purchases under the ESPP is measured using the Black-Scholes model to compute
the fair value of the lookback provision plus the purchase discount and is recognized as compensation expense over the
offering period.
We have also granted performance‑based restricted stock units (RSUs) and stock options with terms that allow
the recipients to vest in a specific number of shares based upon the achievement of performance‑based milestones as
specified in the grants. Stock‑based compensation expense associated with these performance‑based RSUs and stock
options is recognized if the performance condition is considered probable of achievement using management’s best
estimates of the time to vesting for the achievement of the performance‑based milestones. If the actual achievement of
the performance‑based milestones varies from our estimates, stock-based compensation expense could be materially
different than what is recorded in the period. The cumulative effect on current and prior periods of a change in the
estimated time to vesting for performance‑based RSUs and stock options will be recognized as compensation cost in the
period of the revision, and recorded as a change in estimate.
While the assumptions used to calculate and account for stock-based compensation awards represent
management’s best estimates, these estimates involve inherent uncertainties and the application of management’s
judgment. As a result, if revisions are made to our underlying assumptions and estimates, our stock‑based compensation
expense could vary significantly from period to period.
As of December 31, 2019, there was approximately $14.0 million of unrecognized stock‑based compensation
related to stock options, which are expected to be recognized over a weighted‑average period of 2.8 years. As of
December 31, 2019, there was approximately $1.2 million of unrecognized stock-based compensation
83
Table of Contents
related to RSUs, which are expected to be recognized over a weighted-average period of 2.6 years. See Notes 2 and 11 to
our consolidated financial statements located in this Annual Report on Form 10‑K for further discussion of stock‑based
compensation.
Accounts Receivable, Net
Accounts receivable, net relates to amounts due from customers, net of applicable revenue reserves. Accounts
receivable are typically due within 31 days. We analyze accounts that are past due for collectability and provide an
allowance for receivables when collection becomes doubtful. Given the nature and limited history of collectability of our
accounts receivable, an allowance for doubtful accounts is not deemed necessary at December 31, 2019.
Inventory
We capitalize inventories manufactured in preparation for initiating sales of a product candidate when the
related product candidate is considered to have a high likelihood of regulatory approval and the related costs are
expected 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 of
regulatory submissions and communications with regulatory authorities and the outlook for commercial sales, including
the existence of current or anticipated competitive drugs and the availability of reimbursement. In addition, we evaluate
risks associated with manufacturing the product candidate, including the ability of our third-party suppliers to complete
the validation batches, and the remaining shelf life of the inventories. Costs associated with manufacturing product
candidates prior to satisfying the inventory capitalization criteria are charged to research and development expense as
incurred.
We value our inventories at the lower of cost or estimated net realizable value. We determine the cost of our
inventories, which includes amounts related to materials and manufacturing overhead, on a first-in, first-out basis. We
perform an assessment of the recoverability of capitalized inventory during each reporting period, and we write down
any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first
identified. Such impairment charges, should they occur, are recorded within costs of sales-product. The determination of
whether inventory costs will be realizable requires estimates by management. If actual market conditions are less
favorable than projected by management, additional write-downs of inventory may be required which would be recorded
as a cost of sales - product in the consolidated statements of operations and comprehensive loss.
Shipping and handling costs for product shipments are recorded as incurred in costs of sales - product along
with costs 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 the
shorter 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 circumstance
suggest that impairment may exist. Events that could result in an impairment include the receipt of additional clinical or
nonclinical data regarding one of our drug candidates or a potentially competitive drug candidate, changes in the clinical
development program for a drug candidate, or new information regarding potential sales for the drug. If impairment
indicators are present or changes in circumstance suggest that impairment may exist, we perform a recoverability test by
comparing the sum of the estimated undiscounted cash flows of each finite-lived intangible asset or asset group to its
carrying value on the consolidated balance sheets. If the undiscounted cash flows used in the recoverability test are less
than the carrying value, we 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 exceeds its fair value.
Leases
84
Table of Contents
Effective January 1, 2019, we adopted ASC 842. This standard requires lessees to recognize in the statement of
financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying
asset for the lease term for both finance and operating leases.
At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the
unique facts and circumstances within the arrangement. A lease is identified where an arrangement conveys the right to
control the use of identified property, plant, and equipment for a period of time in exchange for consideration. Leases
which are identified within the scope of ASC 842 and which have a term greater than one year are recognized on our
consolidated balance sheets as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. We have
elected not to recognize leases with terms of one year or less on our consolidated balance sheets. Operating lease
liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the
expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as
initial direct costs paid or incentives received. The interest rate implicit in lease contracts is typically not readily
determinable. As a result, we utilize our incremental borrowing rates to calculate the present value of lease
payments. Incremental borrowing rates are the rates we incur to borrow on a collateralized basis over a similar term an
amount equal to the lease payments in a similar economic environment.
In accordance with ASC 842, components of a lease are split into three categories: lease components (e.g. land,
building, etc.), non-lease components (e.g. common area maintenance, maintenance, consumables, etc.), and non-
components (e.g. property taxes, insurance, etc.). The fixed and in-substance fixed contract consideration (including any
related to non-components) must be allocated based on fair values to the lease components and non-lease components.
Although separation of lease and non-lease components is required, certain practical expedients are available. Entities
may elect the practical expedient to not separate lease and non-lease components. Rather, they would account for each
lease component and the related non-lease component together as a single component. We have elected to account for the
lease and non-lease components of each of our operating leases as a single lease component and allocate all of the
contract consideration to the lease component only. The lease component results in an operating right-of-use asset being
recorded on the consolidated balance sheets and amortized on a straight-line basis as lease expense.
RESULTS OF OPERATIONS
All financial information presented has been consolidated and includes the accounts of our wholly-owned
subsidiaries, Verastem Securities Company and Verastem Europe GmbH. All intercompany balances and transactions
have been eliminated in consolidation.
Revenue:
Product revenue, net
License and collaboration revenue
Total revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible amortization
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other (expense)/ income
Interest income
Interest expense
Net loss
85
Year Ended December 31,
2018
2019
2017
12,339
5,117
17,456
1,718
25,000
26,718
—
—
—
$
1,238 $
1,569
45,778
101,212
149,797
(132,341)
(641)
4,381
(20,608)
—
—
46,423
21,381
67,804
(67,804)
—
561
(559)
$ (149,209) $ (72,434) $ (67,802)
165 $
423
43,648
77,265
121,501
(94,783)
25,556
2,603
(5,810)
Table of Contents
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Product revenue, net. Product revenue net for the year ended December 31, 2019 (2019 Period) was $12.3
million compared to $1.7 million for the year ended December 31, 2018 (2018 Period). Product revenue, net consisted of
net product sales of COPIKTRA in the United States. We began commercial sales of COPIKTRA within the United
States in September 2018 following receipt of FDA marketing approval. The $10.6 million increase was driven primarily
by an increase in product shipments for COPIKTRA as a result of greater market penetration.
License and collaboration revenue. License and collaboration revenue for the 2019 Period was $5.1 million
compared to $25.0 million for the 2018 Period. The $19.9 million decrease was related to a $10.0 million upfront
payment received in connection to our license and collaboration agreement with Yakult and a $15.0 million upfront
payment received in connection to our license and collaboration agreement with CSPC in the 2018 period, partially
offset by a $5.0 million upfront payment received in connection to our collaboration agreement with Sanofi and
collaboration revenue of $0.1 million related to the shipment of clinical supply of COPIKTRA to Yakult and CSPC
during the 2019 Period.
Costs of sales – product. Costs of sales – product for the 2019 Period was $1.2 million compared to $0.2 million
for the 2018 period. The $1.0 million increase was primarily driven by an increase in the volume of COPIKTRA sold
and corresponding increases in royalties, manufacturing and other costs during the 2019 Period as compared to the 2018
Period. Cost of sales - product consisted of costs associated with the manufacturing of COPIKTRA, royalties owed to
HCR and Infinity on such sales, and certain period costs. We expensed the manufacturing costs of COPIKTRA as
operating expenses in the periods prior to July 1, 2018. In the third quarter of 2018, we began capitalizing inventory
costs for COPIKTRA manufactured in preparation for our launch in the United States based on our evaluation of, among
other factors, the status of the COPIKTRA New Drug Application (NDA) in the United States and the ability of our
third-party suppliers to successfully manufacture commercial quantities of COPIKTRA. Certain of the costs of
COPIKTRA units recognized as revenue during the 2019 Period were expensed prior to the September 2018 FDA
marketing approval and, therefore, are not included in cost of sales during this period. We expect cost of sales - product
to increase in relation to product revenues as we deplete these inventories. Our inventory balance as of December 31,
2019 has increased compared to December 31, 2018 due to manufacturing of COPIKTRA in 2019.
Research and development expense. Research and development expense for the 2019 Period was $45.8 million
compared to $43.6 million for the 2018 Period. The $2.2 million increase from the 2018 Period to the 2019 Period was
primarily related to an increase of $3.7 million of contract research organization (CRO) costs for our Phase 2
Intermittent Dosing study entitled TEMPO, increase of $1.3 million for CRO costs related to our Phase 2 study for the
treatment of PTCL – entitled PRIMO, an increase of $1.6 million in personnel related costs, including non-cash stock-
based compensation and $0.5 million of other costs. This increase is partially offset by a decrease of $2.4 million in
consulting fees as a result of activities to file an NDA in the 2018 Period and a decrease of $2.5 million in CRO costs as
a result of site closures in our Phase 3 DUO and Phase 2 DYNAMO studies throughout 2018 and 2019 as patients
continue to complete treatment.
Selling, general and administrative expense. Selling, general and administrative expense for the 2019 Period
was $101.2 million compared to $77.3 million for the 2018 Period. The increase of $23.9 million from the 2018 Period
to the 2019 Period primarily resulted from an increase in personnel related costs, including non-cash stock-based
compensation, of $14.2 million, primarily related to the hiring and staffing of our sales and commercial teams, an
increase in consulting and professional fees of $6.7 million, primarily related to the support of the commercial launch
activities, and an increase in travel and other costs of $3.0 million.
Cost of Sales – intangible amortization. Cost of sales – intangible amortization for the 2019 Period was
approximately $1.6 million compared to $0.4 million for the 2018 Period. Cost of sales – intangible amortization was
related to the COPIKTRA finite-lived intangible asset which we recognized and began amortizing in September 2018.
86
Table of Contents
Other (expense)/ income. Other expense for the 2019 Period of approximately $0.6 million was for the mark-
to-market adjustment related to the bifurcated make-whole interest provision derivative liability related to the 2019
Notes. 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 2018 Notes.
Interest income. Interest income for the 2019 Period was $4.4 million compared to $2.6 million for the 2018
Period. The increase of $1.8 million from the 2018 Period to the 2019 period is primarily due to higher investment cost
basis and higher interest rates on investments.
Interest expense. Interest expense for the 2019 Period was $20.6 million compared to $5.8 million for the 2018
Period. The increase of $14.8 million was due to the issuance of the 2018 Notes in October 2018, a higher principal
balance and higher interest rates on our loan and security agreement with Hercules and the acceleration of an end of term
fee related to the Hercules loan and security agreement refinancing recorded as interest expense.
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31, 2017
Product 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 2018 Period we recorded approximately
$1.7 million of net product revenue. We had no product revenue during the year ended December 31, 2017 (2017
Period).
License and collaboration revenue. License and collaboration revenue for the 2018 Period was $25.0 million
and was related to upfront payments pursuant to the license and collaboration agreements with Yakult and CSPC. We
had no license and collaboration revenue during the 2017 Period.
Costs of sales – product. Costs of sales - product 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 certain period
costs. We had no cost of sales - product during the 2017 Period.
Research and development expense. Research and development expense for the 2018 Period was $43.6 million
compared to $46.4 million for the 2017 Period. The $2.8 million decrease from the 2017 Period to the 2018 Period was
primarily related to a decrease of $6.0 million in license fees related to a one-time milestone payment pursuant to the
Infinity license agreement that was recognized in the 2017 Period and a decrease of approximately $3.2 million in
consulting fees, partially offset by increases of $4.0 million in personnel related costs, including non-cash stock-based
compensation, and $1.9 million in CRO expense for outsourced biology, development and clinical services, which
includes our clinical trial costs, and approximately $0.5 million of other costs.
Selling, general and administrative expense. Selling, general and administrative expense for the 2018 Period
was $77.3 million compared to $21.4 million for the 2017 Period. The increase of $55.9 million from the 2017 Period to
the 2018 Period primarily resulted from an increase in personnel related costs, including non-cash stock-based
compensation, of $26.9 million, primarily related to the hiring and staffing of our sales and commercial teams, an
increase in consulting and professional fees of $24.4 million, primarily related to the support of the commercial launch
preparation activities, and an increase in travel and other costs of $4.6 million.
Cost of Sales – intangible amortization. Cost of sales – intangible amortization for the 2018 Period of
approximately $0.4 million was related to the COPIKTRA finite-lived intangible asset which we recognized and began
amortizing in September 2018. There was no cost of sales – intangible amortization in the 2017 Period.
Other income/(expense) 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 2017
Period. The increase of $2.0 million from the 2017 Period to the 2018 period is primarily due to higher investment cost
basis and higher interest rates on investments.
87
Table of Contents
Interest expense. Interest expense for the 2018 Period was $5.8 million compared to $0.6 million for the 2017
Period. The increase of $5.2 million was due to a higher principal balance and higher interest rates on our loan and
security agreement with Hercules, an increase in the number of days the loan with Hercules was outstanding in the 2018
Period compared to the 2017 Period, and the issuance of the Notes in October 2018.
LIQUIDITY AND CAPITAL RESOURCES
Sources of liquidity
We have financed our operations to date primarily through public offerings of our common stock, sales of
common stock under our at-the market equity offering programs, our loan and security agreement executed with
Hercules in March 2017, as amended, the upfront payments under our license and collaboration agreements with Sanofi,
Yakult and CSPC and the issuance in October 2018 of $150.0 million aggregate principal amount of 5.00% Convertible
Senior Notes due 2048. With the commercial launch of COPIKTRA in the United States in September 2018, we have
recently begun financing a portion of our operations through product revenue.
As of December 31, 2019, we had $111.3 million in cash, cash equivalents, restricted cash and short-term
investments inclusive of $35.7 million in restricted cash. We primarily invest our cash, cash equivalents and investments
in U.S. Government money market funds and corporate bonds and commercial paper of publicly traded companies.
COPIKTRA is our only approved product and our business currently depends heavily on its successful
commercialization. Successful commercialization of an approved product is an expensive and uncertain process. Risks
and uncertainties include those identified under Item 1A. Risk Factors, in this Annual Report on Form 10-K.
Cash flows
The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in
thousands):
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Year ended December 31,
2019
2018
2017
$ (138,518)
89,613
(2,441)
(51,346)
$
$ (74,515)
(138,377)
261,162
$ 48,270
$ (57,310)
43,953
63,184
$ 49,827
Operating activities. The use of cash in operating activities for all periods resulted primarily from our net
losses adjusted for non-cash charges and changes in the components of working capital. The $64.0 million increase in
cash used in operating activities for the 2019 Period compared to the 2018 Period was primarily due to an increase in
selling, general, and administrative expenses related to the post-launch commercial operations supporting COPIKTRA,
and due to a $10.0 million license payment from Yakult and $15.0 million license payment received from CSPC during
the 2018 Period, partially offset by a $5.0 million license payment received from Sanofi during the 2019 Period. The
$17.2 million increase in cash used in operating activities for the 2018 Period compared to the 2017 Period primarily due
to an increase in selling, general, and administrative expenses related to the hiring and staffing of our sales and
commercial teams as well as an increase in consulting and professional fees primarily related to the support of the
commercial launch preparation activities.
Investing activities. The cash provided by investing activities for the 2019 Period relates to the net maturities of
investments of $89.6 million. The cash used in investing activities for the 2018 Period relates to the net purchases of
investments of $115.0 million, the acquisition of the COPIKTRA finite-lived intangible asset of $22.0 million and net
purchases of property and equipment of approximately $1.4 million.
88
Table of Contents
Financing activities. The cash used by financing activities for the 2019 Period represents $12.2 million
principal payments on the 2018 Notes, $0.4 million of interest-make whole payments on the 2019 Notes and $0.1 million
of payments for settlement of restricted stock for tax withholdings. This is partially offset by $9.7 million of net
proceeds as a result of the Amendment to the loan and security agreement with Hercules and $0.6 million of proceeds
received related to exercise of stock option and employee stock purchase plan. The cash provided by financing activities
for the 2018 Period primarily represents $145.3 million in net proceeds received from the issuance of 2018 Notes, $81.2
million in net proceeds from the sales of our common stock under the Underwriting Agreement and Purchase Agreement
described below, $24.3 million in net proceeds received under our at-the-market equity offering program (ATM), $9.9
million in net proceeds received from our loan and security agreement executed with Hercules, and approximately $0.8
million related to stock option exercises, offset by the payment of approximately $0.3 million of issuance costs related to
a sale of our common stock during December 2017.
On March 21, 2017 (Closing Date), we entered into a term loan facility of up to $25.0 million with Hercules, a
Maryland corporation. The term loan facility is governed by a loan and security agreement, dated March 21, 2017 (the
Original Loan Agreement), which originally provided for up to four separate advances, of which an aggregate of $15.0
million were drawn down during the year ended December 31, 2017. The Original Loan Agreement was amended on
January 4, 2018, March 6, 2018, and October 11, 2018 (the Amended Loan Agreement) to increase the total borrowing
limit under the Original Loan Agreement from $25.0 million up to $50.0 million (the Amended Term Loan), pursuant to
certain conditions of funding.
On April 23, 2019 (the Fourth Amendment Date) and November 14, 2019 (the Fifth Amendment Date), we
entered into the Fourth Amendment and Fifth Amendment (together the Amendments) to the Original Loan Agreement
with Hercules. The Amendments further amend the Amended Loan Agreement (together, with the Amendments, the
2019 Term Loan Agreement).
Per the terms of the 2019 Term Loan Agreement, we may borrow up to an aggregate of $75.0 million, of which
$35.0 million was outstanding immediately as of the Fourth Amendment Date (2019 Term A Loan) as a result of the
existing outstanding principal of term loans of $25.0 million under the Amended Loan Agreement being converted into
the 2019 Term A Loan, and an additional $10.0 million being drawn on the Fourth Amendment Date. The remaining
$40.0 million of borrowing capacity may be drawn in multiple tranches comprised of (i) a term loan in an amount of up
to $15.0 million upon us generating cumulative net product revenues (as defined in the 2019 Term Loan Agreement) of
either (a) $37.5 million on or before April 30, 2020 or (b) $50.0 million on or before June 30, 2020 (2019 Term B Loan),
and (ii) a term loan in an amount of up to $25.0 million available through December 31, 2021, subject to Hercules’
approval and certain other conditions specified in the 2019 Term Loan Agreement (the 2019 Term C Loan, and together
with the 2019 Term A Loan and 2019 Term B Loan, the 2019 Term Loan). As of December 31, 2019, we have borrowed
a total of $35.0 million in term loans.
The 2019 Term Loan will mature on December 1, 2022 (2019 Term Loan Maturity Date). Each advance accrues
interest at a floating per annum rate equal to the greater of (a) 9.75% or (b) the lesser of (i) 12.00% and (ii) the sum of
(x) 9.75% plus (y) (A) the prime rate minus (B) 5.50%. The 2019 Term Loan provides for interest-only payments until
April 1, 2021, which may be extended to December 1, 2021 pursuant to us generating $40.0 million in net product
revenue on a trailing six-month basis on or prior to December 31, 2020 provided that no event of default has
occurred. Thereafter, amortization payments will be payable monthly in equal installments of principal and interest
(subject to recalculation upon a change in prime rates).
The 2019 Term Loan is secured by a lien on substantially all of our assets, other than intellectual property and
contains customary covenants and representations, including a liquidity covenant, minimum net revenue covenant,
financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers,
mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
On the Fourth Amendment Date, we were required to pay any outstanding accrued interest as well as the final
payment fee equal to 4.5% on the outstanding principal balance of the Amended Term Loan, or $1.1 million. No
prepayment charges were due as a result of executing the Amendment or conversion of the existing term loans into 2019
Term A Loans.
89
Table of Contents
The events of default under the 2019 Term Loan Agreement include, without limitation, and subject to
customary grace periods, (i) any failure by us to make any payments of principal or interest under the 2019 Term Loan
Agreement, promissory notes or other loan documents, (ii) any breach or default in the performance of any covenant
under the 2019 Term Loan Agreement, (iii) any making of false or misleading representations or warranties in any
material 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 enforcement
action, including acceleration of amounts due under the 2019 Term Loan Agreement.
The 2019 Term Loan Agreement also contains other customary provisions, such as expense reimbursement and
confidentiality. Hercules has indemnification rights and the right to assign the 2019 Term Loan.
On March 30, 2017, we established an at-the-market equity offering program (ATM) pursuant to which were
able to offer and sell up to $35.0 million of our common stock at then-current market prices from time to time through
Cantor Fitzgerald & Co. (Cantor), as sales agent. On August 28, 2017, we amended our sales agreement with Cantor to
increase the maximum aggregate offering price of shares of common stock that can be sold under the ATM to $75.0
million. Through December 31, 2018, we sold 11,518,354 shares under the ATM for net proceeds of approximately
$47.3 million (after deducting commissions and other offering expenses). During the 2019 Period, there were no sales
under the ATM. As of December 31, 2019, we can issue an addition $26.6 million of gross proceeds under this program.
On May 16, 2018, we entered into an underwriting agreement with Cantor relating to the underwritten offering
of 7,777,778 shares of our common stock (the Underwriting Agreement). Cantor agreed to purchase the shares of our
common stock pursuant to the Underwriting Agreement at a price of $4.31 per share. In addition, we granted Cantor an
option to purchase, at the public offering price less any underwriting discounts and commissions, an additional 1,166,666
shares of our common stock, exercisable for 30 days from the date of the prospectus supplement. The option was
exercised by Cantor on May 23, 2018. The aggregate proceeds from Cantor, net of underwriting discounts and offering
costs, were approximately $38.3 million.
On June 14, 2018, we entered into a purchase agreement with Consonance Capital Master Account L.P. and P
Consonance Opportunities Ltd. (collectively, Consonance) relating to the registered offering of 7,166,666 shares of our
common stock at a price of $6.00 per share (the Purchase Agreement). The aggregate proceeds from Consonance, net of
offering costs, were approximately $42.9 million.
On October 17, 2018, we closed a registered direct public offering of $150.0 million aggregate principal amount
of our 5.00% Convertible Senior Notes due 2048 (the 2018 Notes) , for net proceeds of approximately $145.3
million. The 2018 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 Base
Indenture, the 2018 Indenture), each dated October 17, 2018, by and between us and Wilmington Trust, National
Association, as trustee. The 2018 Notes are senior unsecured obligations of us and bear interest at a rate 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 2018
Notes will mature on November 1, 2048, unless earlier repurchased, redeemed or converted in accordance with their
terms.
The 2018 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
$1,000 principal amount of the 2018 Notes, which corresponds to an initial conversion price of approximately $7.16 per
share of common stock and represents a conversion premium of approximately 15.0% above the last reported sale price
of our common stock of $6.23 per share on October 11, 2018. Upon conversion, converting noteholders will be entitled
to receive accrued interest on their converted Notes. To the extent we have insufficient authorized but unissued shares to
settle 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 2018 Notes then outstanding to be converted
automatically if the “Daily VWAP” (as defined in the 2018 Indenture) per share of our common stock equals or
90
Table of Contents
exceeds 130% of the conversion price, which equates to approximately $9.31 per share, on each of at least 20 VWAP
Trading Days, whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or
after the date we first issued the 2018 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 any
accrued and unpaid interest.
We assessed all terms and features of the 2018 Notes in order to identify any potential embedded features that
would require bifurcation. As part of this analysis, we assessed the economic characteristics and risks of the 2018 Notes,
including the conversion, put and call features. Per the terms of the 2018 Indenture, upon conversion of the 2018 Notes,
a portion of the principal may be settled in cash until the date upon which our stockholders approve an increase in the
number of authorized shares of common stock, or the Authorized Share Effective Date. In consideration of this
provision, we concluded the conversion feature required bifurcation as a derivative. The fair value of the conversion
feature derivative was determined based on the difference between the fair value of the 2018 Notes with the conversion
option and the fair value of the 2018 Notes without the conversion option. We determined that the fair value of the
derivative upon issuance of the 2018 Notes was $51.5 million and recorded this amount as a derivative liability and the
offsetting 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 an
increase in the number of authorized shares of common stock. Following this approval, no portion of the 2018 Notes are
settleable in cash upon conversion. As such, we determined that the conversion feature no longer met the definition of a
derivative following the increase in the number of authorized shares of common stock. As of December 18, 2018, we
determined the fair value of the conversion feature was $25.9 million. We recorded 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 of December 18, 2018, the fair value of the
conversion option was reclassified to additional paid-in capital on the consolidated balance sheets as it qualified for a
scope exception from derivative accounting. Accordingly, the conversion feature will no longer be measured at fair value
on our financial statements.
On November 14, 2019 and December 23, 2019, we entered into privately negotiated agreements to exchange
approximately $114.3 million and $7.4 million, respectively, aggregate principal amount of the 2018 Notes for (i)
approximately $62.9 million and $4.0 million, respectively, aggregate principal amount of 5.00% Convertible Senior
Second Lien Notes due 2048 (the 2019 Notes) (ii) an aggregate of approximately $11.4 million and $0.7 million in 2018
Notes principal repayment and (iii) accrued interest on the 2018 Notes through November 14, 2019 and December 23,
2019, respectively. The 2019 Notes are governed by the terms of an indenture (the 2019 Indenture). The 2019 Notes are
senior secured obligations of the Company and bear interest at 5.00% per annum, payable semi-annually in arrears on
May 1 and November 1 of each year. The 2019 Notes will mature on November 1, 2048, unless earlier repurchased,
redeemed or converted in accordance with the terms.
The 2019 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 606.0606 shares of common stock per
$1,000 principal amount of the 2019 Notes, which corresponds to an initial conversion price of approximately $1.65 per
share of common stock and represents a conversion premium of approximately 52.8% above the last reported sale price
of our common stock of $1.08 per share on November 11, 2019.
We will have the right, exercisable at our option, to cause all 2019 Notes then outstanding to be converted
automatically if the “Daily VWAP” (as defined in the 2019 Indenture) per share of our common stock equals or exceeds
121% of the conversion price, which equates to approximately $2.00 per share, on each of at least 20 VWAP Trading
Days, whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the
date we first issued the 2019 Notes. (Company’s Mandatory Conversion Option)
Upon conversion, converting noteholders will be entitled to receive accrued interest on their converted 2019
Notes. In addition, if the 2019 Notes are converted with a conversion date that is on or prior to November 1, 2020, other
than in connection with the Company’s exercise of the Company’s Mandatory Conversion Option then
91
Table of Contents
the consideration due upon any such conversion will also include a cash interest make-whole payment for all future
scheduled interest payments on the converted 2019 Notes through November 1, 2020 (2019 Notes Interest Make-Whole
Provision).
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 any
accrued and unpaid interest.
We assessed all terms and features of the 2019 Notes in order to identify any potential embedded features that
would require bifurcation. As part of this analysis, we assessed the economic characteristics and risks of the 2019 Notes,
including the conversion, put and call features. In consideration of the 2019 Notes Interest Make-Whole Provision, we
concluded the provision required bifurcation as a derivative. The fair value of the 2019 Interest Make-Whole Provision
was determined using a Monte Carlo model. It was determined that the fair value of the derivative upon the November
14, 2019 and December 23, 2019 issuance of the 2019 Notes was an aggregate of $0.2 million, and we recorded this
amount as a derivative liability and the offsetting amount as a debt discount as a reduction to the carrying value of the
2019 Notes on the closing dates. During the period November 14, 2019 to December 31, 2019, we paid out
approximately $0.4 million in 2019 Interest Make-Whole payments which was recorded as a reduction of the derivative
liability. As of December 31, 2019, we determined the fair value of the 2019 Interest Make-Whole Provision was $0.5
million. We recorded the change in the fair value of the 2019 Interest Make-Whole Provision for the period from
November 14, 2019 to December 31, 2019 of $0.6 million as other expense on the consolidated statements of operations
and comprehensive loss.
As of December 31, 2019, there was $28.3 million and $57.4 million aggregate principal amount outstanding of
the 2018 Notes and 2019 Notes, respectively, for a total of $85.7 million aggregate principal amount outstanding
compared to $150.0 million aggregate principal amount outstanding of 2018 Notes as of December 31, 2018. During the
2019 Period, 2019 Note holders converted $9.5 million aggregate principal of 2019 Notes in exchange for 5,767,872
shares of common stock and $0.4 million of cash for 2019 Interest Make-Whole Provision.
Funding requirements
We expect to continue to incur significant expenses and operating losses. We anticipate that our expenses and
operating losses will continue as we:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
commercialize COPIKTRA;
continue our ongoing clinical trials, including with COPIKTRA, defactinib and CH5126766;
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 to
support our product development and commercialization efforts; and
establish and maintain a sales, marketing and distribution infrastructure to commercialize
COPIKTRA or any products for which we may obtain marketing approval.
We expect our existing cash resources, including proceeds from the sale of Common Stock in March 2020
along with the revenue we expect to generate from COPIKTRA will be sufficient to fund our obligations for at least the
next twelve months from the date of filing of this Annual Report on Form 10-K. Because of the numerous risks and
uncertainties associated with the development and commercialization of our product candidates, and the extent to which
we may enter into collaborations with third parties for development and commercialization of our product candidates, we
are unable to estimate the amounts of increased capital outlays and operating expenses associated
92
Table of Contents
with completing the development of our current product candidates. Our future capital requirements will depend on
many factors, including:
(cid:0)
the costs and timing of commercialization activities for COPIKTRA and the product candidates for
which we expect to receive marketing approval;
the scope, progress and results of our ongoing and potential future clinical trials;
(cid:0)
(cid:0) the extent to which we acquire or in-license other products and technologies;
(cid:0)
the costs, timing and outcome of regulatory review of our product candidates (including our efforts to
seek approval and fund the preparation and filing of regulatory submissions);
revenue received from commercial sales of COPIKTRA and our product candidates, should any of
our other product candidates also receive marketing approval;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our
intellectual property rights and defending intellectual property-related claims; and
(cid:0) our ability to establish collaborations or partnerships on favorable terms, if at all.
(cid:0)
(cid:0)
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs
through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing
arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the
ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation
or other preferences that adversely affect the rights of our existing stockholders. Debt financing, if available, may
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations,
strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights
to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes our contractual obligations at December 31, 2019:
(in thousands)
Operating lease obligations
2019 Term Loan Agreement
2018 Notes
2019 Notes
License agreements (1)
Total
$ 5,700 $
35,000
28,300
57,414
—
2020
2021 -
2022
2023 -
2024
955 $ 2,058 $ 2,141 $
—
—
—
—
35,000
—
—
—
—
—
—
—
Thereafter
546
—
28,300
57,414
—
(1) As discussed in Note 16 to the consolidated financial statements appearing elsewhere in this Annual Report on
Form 10-K, we are party to several agreements to license intellectual property. The license agreements may require
us to pay upfront license fees, ongoing annual license maintenance fees, milestone payments, minimum royalty
payments, as well as reimbursement of certain patent costs incurred by the licensors, as applicable. We have not
included 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 future
periods; and patent cost reimbursement costs are perpetual and the agreements are cancelable by us at any time upon
prior written notice to the licensor.
OFF‑BALANCE SHEET ARRANGEMENTS
We did not have any off-balance sheet arrangements during the periods presented, and we do not currently have
any off‑balance sheet arrangements, as defined under Securities and Exchange Commission rules.
93
Table of Contents
TAX LOSS CARRYFORWARDS
As of December 31, 2019, we had federal and state net operating loss carryforwards of $371.7 million and
$392.3 million, respectively, which are available to reduce future taxable income. We also had federal and state tax
credits of $20.6 million and $3.0 million, respectively, which may be used to offset future tax liabilities. The net
operating loss and tax credit carryforwards will expire at various dates through 2039, except for $136.3 million of federal
net operating loss carryforwards which may be carried forward indefinitely. Net operating loss and tax credit
carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities and
may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of
significant stockholders over a three‑year period in excess of 50%, as defined under Sections 382 and 383 of the Internal
Revenue Code, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized
annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the
value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the
limitation in future years. At December 31, 2019, we recorded a 100% valuation allowance against our net operating loss
and tax credit carryforwards of $128.4 million, as we believe it is more likely than not that the tax benefits will not be
fully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwards
will be realized, net income would increase in the period of determination.
RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include all share-based
payment 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 to
effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to
customers as part of a contract and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all
share-based payment transactions accounted for under ASC 606. ASU 2018-07 was effective for annual and interim
periods beginning after December 15, 2018, with early adoption permitted, but no earlier than the date on which ASC
606 is adopted. The Company adopted this standard prospectively effective January 1, 2019. The adoption of this ASU
did not have an effect on the Company’s consolidated financial statements or related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the guidance under
FASB Accounting Standards Codification (ASC) Topic 840, Leases, resulting in the creation of FASB ASC Topic
842, Leases (ASC 842). ASU 2016-02 requires lessees to recognize in the statement of financial position a liability to
make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both
finance and operating 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 the costs 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 when transitioning to ASC 842
(optional transition method) and lessors may elect not to separate lease and non-lease components when certain
conditions are met (lessor relief practical expedient). The optional transition method applies to entities that have not yet
adopted ASU 2016-02, which is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2018, with early adoption permitted.
The Company adopted this standard using the optional transition method effective January 1, 2019. Upon
adoption of this standard, the Company recognized a lease liability and a corresponding right-of use asset of $4.0 million
and $3.4 million, respectively, and derecognized a deferred rent liability and a corresponding lease incentive obligation
of $0.4 million and $0.2 million, respectively. The Company did not record any cumulative effect adjustment to
accumulated deficit as a result of adopting this standard. The Company also elected to adopt the practical expedients
upon transition, which permit companies to not reassess lease identification, classification, and initial direct costs under
ASU 2016-02 for leases that commenced prior to the effective date.
94
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents, restricted cash
and short-term investments of $111.3 million and $250.4 million as of December 31, 2019 and 2018, respectively,
inclusive of 35.7 million and $0.7 million of restricted cash as of December 31, 2019 and 2018, respectively, consisting
of cash, U.S. Government money market funds, corporate bonds and commercial paper of publicly traded
companies. Our primary 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 are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short‑term
duration most of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point
change in interest rates 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. Transactions
denominated in currencies other than the functional currency are recorded based on exchange rates at the time such
transactions arise. As of December 31, 2019, an immaterial amount of our total liabilities was denominated in currencies
other than the functional currency.
As of December 31, 2019, we have borrowed $35.0 million under the 2019 Term Loan Agreement. The 2019 Term
Loan Agreement bears interest per annum equal to the greater of either (a) 9.75% or (b) the lesser of (i) 12.00% and (ii) the
sum of (x) 9.75% plus (y) (A) the prime rate minus (B) 5.50%. Changes in interest rates can cause interest charges to
fluctuate under the 2019 Term Loan Agreement. A 10% increase in current interest rates would have resulted in an
immaterial increase in the amount of cash interest expense for the year ended December 31, 2019.
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 credit
rating improves or other circumstances change.
Item 8. Consolidated Financial Statements and Supplementary Data
Our consolidated financial statements, together with the report of our independent registered public accounting
firm, 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 Disclosure
None.
Item 9A. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures and internal control over financial reporting,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that
management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their
costs.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Business and Financial Officer evaluated the effectiveness of our
disclosure controls and procedures, as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act, as of the end
of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Business and
Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report
were effective.
95
Table of Contents
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial
reporting. Internal control over financial reporting is defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act as
the process designed by, or under the supervision of, our Chief Executive Officer and our Chief Business and Financial
Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in
accordance with 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 the
transactions and dispositions of assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures are being made only
in accordance with the authorizations of management and directors; and
(3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition,
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 Officer and
our Chief Business and Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework provided in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation, our
management concluded that our internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the fiscal quarter ended
December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal
control over financial reporting.
96
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Verastem, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Verastem, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway 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, 2019, based on
the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of Verastem, Inc. as of December 31, 2019 and 2018, the related
consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2019, and the related notes of the Company and our report dated March 11, 2020
expressed unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the 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 and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
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 become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 11, 2020
97
Table of Contents
Item 9B. Other Information
None.
98
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information regarding our directors, including the audit committee and audit committee financial experts, and
executive officers and compliance with Section 16(a) of the Exchange Act will be included in our 2020 Proxy Statement
and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees as
required by Nasdaq governance rules and as defined by applicable SEC rules. Stockholders may locate a copy of our
Code of Business Conduct and Ethics on our website at www.verastem.com or request a copy without charge from:
Verastem, Inc.
Attention: Investor Relations
117 Kendrick St., Suite 500
Needham, MA 02494
We will post to our website any amendments to the Code of Business Conduct and Ethics and any waivers that
are required to be disclosed by the rules of either the SEC or Nasdaq.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 of Form 10-K regarding executive compensation will be included in
our 2020 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 of Form 10-K regarding security ownership of certain beneficial owners
and management will be included in our 2020 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 transactions
and director independence will be included in our 2020 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of Form 10-K regarding principal accountant fees and services will be
included in our 2020 Proxy Statement and is incorporated herein by reference.
99
Table of Contents
Item 15. Exhibits and Financial Statement Schedules
Consolidated Financial Statements
PART IV
See Part II, Item 8 for the Financial Statements required to be included in this Annual Report on Form 10‑K.
Consolidated Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is
included in the consolidated financial statements or notes thereto.
Exhibits
Those exhibits required to be filed by Item 601 of Regulation S‑K are listed in the Exhibit Index immediately
preceding the exhibits hereto and such listing is incorporated herein by reference.
Item 16. Form 10-K Summary
None.
100
Table of Contents
Exhibit
number
EXHIBIT INDEX
Description of exhibit
3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Annual
Report on Form 10-K filed by the Registrant on March 12, 2019)
3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.2 to the Annual Report on Form 10-K filed by the Registrant on March 12, 2019)
3.3 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 3
to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012)
4.1 Specimen certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to
Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by the Registrant on
January 13, 2012)
4.2
4.3
4.4
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 on October 17, 2018)
First Supplemental Indenture, dated as of October 17, 2018, by and between the Registrant and Wilmington
Trust, National Association (incorporated by reference to Exhibit 4.2 to Form 8-K filed by the Registrant on
October 17, 2018)
Indenture, dated as of November 14, 2019, between Verastem, Inc. and Wilmington Trust, National
Association(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by the Registrant
on November 20, 2019)
4.5 Description of Securities
10.1#
2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registration Statement on 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 the Registrant’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 to
Exhibit 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 the Registrant on March 13,
2018)
10.5# Form of Nonstatutory Stock Option Agreement under 2012 Incentive Plan (incorporated by reference to
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 the Registrant on March
13, 2018)
101
Table of Contents
10.7# Form of Restricted Stock Unit Agreement under 2012 Incentive Plan (incorporated by reference to Exhibit 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 by reference
to Exhibit 10.25 to the Annual Report on Form 10‑K filed by the Registrant on March 26, 2013)
10.9# 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 the Registrant on March 13,
2018)
10.10# Form of Inducement Award Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 4.4 to
the Registration Statement on Form S-8 filed by the Registrant with the Securities and Exchange Commission on
December 19, 2014)
10.11# Form of Inducement Award Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 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 4.3 of the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed by the 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’s Current
Report on Form 8-K filed by the Registrant on December 20, 2018)
10.14# Form of Indemnification Agreement between the Registrant and each director (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on August 8, 2017)
10.15 Lease Agreement, dated April 15, 2014, between the Registrant and Intercontinental Fund III 117 Kendrick
Street LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8‑K filed by the Registrant
on April 18, 2014)
10.16 First Amendment of Lease Agreement, dated February 15, 2018, between the Registrant and 117 Kendrick 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 the Registrant on May 3, 2018)
10.17# 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 Registrant on March 26, 2013)
10.18† License Agreement, dated July 11, 2012, by and between the Registrant and Pfizer Inc. (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10‑Q filed by the Registrant on August 13, 2012)
10.19† 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 Registrant on March 6, 2014)
10.20# Amended and Restated Employment Agreement, dated November 22, 2013, by and between the Registrant and
Robert Forrester (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10‑K filed by the
Registrant on March 6, 2014)
10.21#
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 Registrant on August 29, 2018)
102
Table of Contents
10.22† Amended and Restated License Agreement, dated November 1, 2016, by and between the Registrant and
Infinity Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K
filed by the Registrant on March 23, 2017)
10.23 Loan and Security Agreement, dated March 21, 2017, by and between the Registrant, the Lender (as defined
therein) and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.26 to the Annual Report on Form
10-K filed by the Registrant on March 23, 2017)
10.24 First Amendment to Loan and Security Agreement, dated January 4, 2018, by and between the Registrant, the
Lender (as defined therein) and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed by the Registrant on January 4, 2018)
10.25 Second Amendment to Loan and Security Agreement, dated March 6, 2018, by and between the Registrant, the
Lender (as defined therein) and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.28 to the Annual
Report on Form 10-K filed by the Registrant on March 13, 2018)
10.26 Third Amendment to Loan and Security Agreement, as amended, with Hercules Capital, Inc., as administrative
agent, and the Lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to Form 8-K
filed by the Registrant on October 11, 2018)
10.27# 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 by the Registrant on March 13,
2018)
10.28† License and Collaboration Agreement, dated September 25, 2018, between Verastem, Inc. and CSPC
Pharmaceutical Group Limited (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
filed by the Registrant on November 7, 2018)
10.29† License and Collaboration Agreement, dated June 5, 2018, between Verastem, Inc. and Yakult Honsha Co., Ltd.
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on
August 8, 2018)
10.30 Employment Agreement between the Registrant and Brian Stuglik, dated July 29, 2019 (incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K filed by the Registrant on August 1, 2019)
10.31 Fourth Amendment to the Loan and Security Agreement, as amended, with Hercules Capital Inc., as
administrative agent, and the Lenders from time to time party thereto (incorporated by reference to Exhibit 10.1
to Current Report on Form 8-K filed by the Registrant on April 23, 2019)
10.32 Fifth Amendment to the Loan and Security Agreement, as amended, with Hercules Capital Inc., as
administrative agent, and the Lenders from time to time party thereto (incorporated by reference to Exhibit 10.1
to Current Report on Form 8-K filed by the Registrant on November 20, 2019)
10.33* Consulting Agreement, dated June 21, 2019, between Robert Forrester and Verastem, Inc.
10.34* Separation Agreement, dated June 25, 2019, between Robert Forrester and Verastem, Inc.
10.35‡ License and Collaboration Agreement, dated July 25, 2019, between Verastem, Inc. and Sanofi (incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed by the Registrant on October 30, 2019)
10.36 Purchase Agreement, dated February 27, among Verastem, Inc. and each purchaser party thereto (incorporated
by reference to Exhibit 10.1 to Current Report on Form 8-K filed by the Registrant on February 28, 2020)
103
Table of Contents
10.37* Consulting Agreement, dated June 27, 2019, between Joseph Lobacki and Verastem, Inc.
21.1* Subsidiaries of the Registrant
23.1* Consent of Ernst & Young LLP
31.1* Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a‑14(a)
31.2* Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a‑14(a)
32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 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 to
Section 906 of the Sarbanes‑Oxley Act of 2002
99.1* Press Release issued by Verastem, Inc. on March 11, 2020 (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 with
the SEC.
‡ Certain confidential information contained in this exhibit has been omitted because it (i) is not material and (ii)
would be competitively harmful if publicly disclosed.
# Management contract or compensatory plan, contract or agreement.
104
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 11 day of March
2020.
th
VERASTEM, INC.
By:
/s/ Brian M. stuglik
Brian M. Stuglik
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates indicated.
Title
Date
Chief Executive Officer and Director
(Principal executive officer)
March 11, 2020
Chief Business and Financial Officer
(Principal financial and accounting officer)
March 11, 2020
Signature
/s/ Brian M. Stuglik R.Ph
Brian M. Stuglik
/s/ Robert Gagnon
Robert Gagnon
/s/ Timothy Barberich
Timothy Barberich
/s/ Gina Consylman
Gina Consylman
Director
Director
/s/ Michael Kauffman, M.D.,Ph.D.
Michael Kauffman, M.D., Ph.D.
Director
/s/ Alison Lawton
Alison Lawton
/s/ Eric Rowinsky, M.D.
Eric Rowinsky, M.D.
/s/ Bruce Wendel
Bruce Wendel
Director
Director
Director
105
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
March 11, 2020
Table of Contents
Verastem, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F‑2
F‑3
F‑4
F‑5
F‑6
F‑7
Table of Contents
Verastem, Inc.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Verastem, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Verastem, Inc. (the Company) as of December 31,
2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at December 31, 2019 and 2018, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), and our report dated March 11, 2020 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws 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 and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2011.
Boston, Massachusetts
March 11, 2020
F-2
Table of Contents
Verastem, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Right-of-use asset, net
Intangible assets, net
Restricted Cash
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses
Lease liability, short-term
Derivative liability, short-term
Current portion of long-term debt
Total current liabilities
Non-current liabilities:
Long-term debt
Convertible senior notes
Lease liability, long-term
Other non-current liabilities
Total liabilities
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000 shares authorized, no shares issued
and outstanding at December 31, 2019 and December 31, 2018, respectively
Common stock, $0.0001 par value; 200,000 shares authorized, 80,118 and 73,806 shares
issued and outstanding at December 31, 2019 and December 31, 2018, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2019
2018
$
43,514 $ 129,867
119,786
31,992
306
2,524
327
3,096
2,973
3,835
253,259
84,961
1,369
947
—
3,077
21,577
20,008
241
35,241
790
812
$ 145,046 $ 277,236
$
9,655 $
19,365
420
450
—
29,890
35,067
68,556
3,489
870
137,872
10,253
21,108
—
—
5,716
37,077
19,506
95,231
—
1,123
152,937
—
—
8
531,937
14
(524,785)
7,174
7
499,741
127
(375,576)
124,299
$ 145,046 $ 277,236
See accompanying notes to the consolidated financial statements.
F-3
Table of Contents
Verastem, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
Year Ended December 31,
2018
2019
2017
Revenue:
Product revenue, net
License and collaboration revenue
Total revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible amortization
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other (expense)/ income
Interest income
Interest expense
Net loss
Net loss per share—basic
Net loss per share—diluted
Weighted average common shares outstanding used in computing:
Net loss per share—basic
Net loss per share—diluted
Net loss
Unrealized (loss) gain on available-for-sale securities
Comprehensive loss
$
1,718 $
12,339 $
5,117
17,456
25,000
26,718
—
—
—
$
1,238 $
1,569
45,778
101,212
149,797
(132,341)
(641)
4,381
(20,608)
165 $
423
43,648
77,265
121,501
(94,783)
25,556
2,603
(5,810)
—
—
46,423
21,381
67,804
(67,804)
—
561
(559)
$ (149,209) $ (72,434) $ (67,802)
(1.76)
$
(1.76)
$
(2.00) $
(2.00) $
(1.12) $
(1.37) $
74,578
74,578
64,962
69,321
38,422
38,422
$ (149,209) $ (72,434) $ (67,802)
(31)
$ (149,322) $ (72,305) $ (67,833)
(113)
129
See accompanying notes to the consolidated financial statements.
F-4
Table of Contents
Verastem, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Accumulated
other
Additional comprehensive
Balance at December 31, 2016
36,992,418 $
Common stock
Shares
Amount
paid-in
capital
4 $ 307,587 $
Net loss
Unrealized (loss) on available-for-sale marketable securities
Issuance of common stock resulting from follow-on offering,
net of issuance costs of $324
Issuance of common stock resulting from at-the-market
transactions, net of issuance costs of $112
Issuance of common stock resulting from exercise
of stock options
Stock-based compensation expense
—
—
—
—
—
—
8,422,877
1
24,691
5,036,879
348,734
—
—
—
—
23,053
442
5,050
Balance at December 31, 2017
50,800,908 $
5 $ 360,823 $
Net loss
Unrealized gain on available-for-sale marketable securities
Issuance of common stock resulting from follow-on offering,
net of issuance costs of $361
Issuance of common stock resulting from at-the-market
transactions, net of issuance costs of $0
Issuance of common stock resulting from exercise
of stock options
Stock-based compensation expense
Reclassification of derivative liability to equity
—
—
16,111,110
6,481,475
412,851
—
—
—
—
1
1
—
—
—
—
—
81,188
24,275
809
6,671
25,975
Balance at December 31, 2018
73,806,344 $
7 $ 499,741 $
Net loss
Unrealized loss on available-for-sale marketable securities
Conversion of Notes into common stock
Change in fair value of conversion option of Notes on
exchange
Issuance of common stock under Employee Stock Purchase
Plan
Issuance of common stock resulting from vesting of restricted
stock units
Issuance of common stock resulting from exercise
of stock options
Stock-based compensation expense
—
—
5,767,872
—
341,701
109,707
91,907
—
Balance at December 31, 2019
80,117,531 $
—
—
1
—
—
—
—
—
9,516
13,640
439
(68)
(loss)
income
Accumulated
deficit
Total
stockholders'
equity
29 $
—
(31)
(235,323) $
(67,802)
—
—
—
—
—
(2) $
—
129
—
—
—
—
—
127 $
—
(113)
—
—
—
—
—
—
—
(17)
(303,142) $
(72,434)
—
—
—
—
—
(375,576) $
(149,209)
—
—
—
—
—
72,297
(67,802)
(31)
24,692
23,053
442
5,033
57,684
(72,434)
129
81,189
24,276
809
6,671
25,975
124,299
(149,209)
(113)
9,517
13,640
439
(68)
130
8,539
7,174
—
—
8 $ 531,937 $
130
8,539
—
—
14 $
—
—
(524,785) $
See accompanying notes to the consolidated financial statements.
F-5
Table of Contents
Verastem, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Amortization of acquired intangible asset
Amortization of right-of-use asset and lease liability
Stock-based compensation expense
Amortization of deferred financing costs, debt discounts and premiums and
discounts on available-for-sale marketable securities
Change in fair value of interest make whole provision and conversion option
for Notes
Gain on sale of fixed assets
Changes in operating assets and liabilities:
Accounts receivable, net
Inventory
Prepaid expenses, other current assets and other assets
Accounts payable
Accrued expenses and other liabilities
Other long-term liabilities
Net cash used in operating activities
Investing activities
Purchases of property and equipment
Sales of property and equipment
Acquisition of intangible asset
Purchases of investments
Maturities of investments
Net cash provided by (used in) investing activities
Financing activities
Proceeds from long-term debt, net of issuance costs
Deferred debt financing costs
Proceeds from issuance of convertible senior notes, net of issuance costs
Proceeds from the exercise of stock options and employee stock purchase
program
Principal payments on the convertible senior notes
Interest make-whole payments on the 2019 Notes
Settlement of restricted stock for tax withholdings
Proceeds from the issuance of common stock, net
Net cash (used in) provided by financing activities
(Decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure
Cash paid for interest
Supplemental disclosure of non-cash investing and financing activities
Common stock issuance costs included in accounts payable and accrued
expenses
Change in fair value of conversion option of Notes on exchange
Conversion of Notes into common stock
Year Ended December 31,
2018
2019
2017
$ (149,209) $
(72,434) $ (67,802)
429
1,569
181
8,539
996
423
—
6,671
7,131
1,814
641
—
(2,218)
(2,769)
(877)
(598)
(1,707)
370
(138,518)
(7)
—
—
(94,123)
183,743
89,613
(25,556)
(79)
(306)
(327)
(1,167)
1,048
13,902
500
(74,515)
(1,507)
82
(22,000)
(125,452)
10,500
(138,377)
556
—
—
5,033
223
—
—
—
—
(943)
5,046
577
—
(57,310)
—
—
—
(7,957)
51,910
43,953
9,670
—
—
9,900
—
145,297
14,811
(138)
—
569
(12,174)
(438)
(68)
—
(2,441)
(51,346)
130,608
79,262 $
809
—
—
—
105,156
261,162
48,270
82,338
130,608 $
442
—
—
—
48,069
63,184
49,827
32,511
82,338
12,424 $
2,107 $
295
15 $
13,640 $
9,517 $
15 $
— $
— $
324
—
—
$
$
$
$
$
See accompanying notes to the consolidated financial statements.
F-6
Table of Contents
1. Nature of business
Verastem, Inc. (the Company) is a biopharmaceutical company focused on developing and commercializing
medicines to improve the survival and quality of life of cancer patients. On September 24, 2018, the Company’s first
commercial product, COPIKTRA® (duvelisib), was approved by the U.S. Food and Drug Administration (the FDA) for
the treatment of adult patients with certain hematologic cancers including relapsed or refractory chronic lymphocytic
leukemia/ small lymphocytic lymphoma (CLL/SLL) after at least two prior therapies and relapsed or refractory follicular
lymphoma (FL) after at least two prior systemic therapies. Its marketed product, COPIKTRA, and most advanced
product candidates, defactinib and CH5126766, utilize a multi-faceted approach designed to treat cancers originating
either in the blood or major organ systems. The Company is currently developing its product candidates in both
preclinical and clinical studies as potential therapies for certain cancers, including leukemia, lymphoma, lung cancer,
head and neck cancer, ovarian cancer, colorectal cancer, lung cancer, pancreatic cancer, and mesothelioma. The
Company believes that these compounds may be beneficial as therapeutics either as single agents or when used in
combination with immuno-oncology agents, other pathway inhibitors or other current and emerging standard of care
treatments in aggressive cancers that do not adequately respond to currently available therapies.
The consolidated financial statements include the accounts of Verastem Securities Company and Verastem
Europe GmbH, wholly-owned subsidiaries of the Company. All financial information presented has been consolidated
and includes the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
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, market
acceptance and the commercial success of COPIKTRA, or any of the Company’s investigational product candidates
following receipt of regulatory approval, protection of proprietary technology and the continued ability to obtain
adequate financing to fund the Company’s future operations. If the Company does not successfully commercialize
COPIKTRA or any of its other product candidates, it will be unable to generate product revenue 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 as it
continues the research and development of its product candidates and commercialization of COPIKTRA. As of
December 31, 2019, the Company had cash, cash equivalents, restricted cash and short-term investments of $111.3
million, inclusive of $35.7 million of restricted cash, and accumulated deficit of $524.8 million. On March 3, 2020, the
Company received gross proceeds of approximately $100.0 million from the sale of 46,511,628 shares of Common Stock
(see Note 19). The Company expects its existing cash resources, including the proceeds from the sale of Common Stock
in March 2020, along with revenue the Company expects to generate from sales of COPIKTRA, will be sufficient to
fund its planned operations through 12 months from the date of issuance of these consolidated financial statements.
The Company expects to finance the future development costs of its clinical product portfolio with its existing
cash, cash equivalents and short-term investments, or through strategic financing opportunities that could include, but are
not limited to collaboration agreements, future offerings of its equity, or the incurrence of debt. However, there is no
guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and
some could be dilutive to existing stockholders. If the Company fails to obtain additional future capital, it may be unable
to complete its planned preclinical studies and clinical trials and obtain approval of certain investigational product
candidates from the FDA or foreign regulatory authorities.
2. Significant accounting policies
Basis of presentation
The accompanying financial statements of the Company have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP) under the assumption that the Company will continue as a going
F-7
Table of Contents
concern for the next twelve months. Accordingly, they do not include any adjustments that might result from the
uncertainty related to the Company’s ability to continue as a going concern.
Use of estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an
ongoing basis, management evaluates its estimates, including estimates related to revenue recognition, including returns,
rebates, and other pricing adjustments, accruals and stock‑based compensation expense. The Company bases its
estimates on historical experience and other market‑specific or other relevant assumptions that it believes to be
reasonable. Actual results could differ from such estimates.
Segment and geographic information
Operating segments are defined as components of an enterprise about which separate discrete information is
available and regularly reviewed by the chief operating decision maker, or decision‑making group, in deciding how to
allocate resources and in assessing performance. The Company views its operations and manages its business in one
operating segment, which is the business of developing and commercializing drugs for the treatment of cancer. All
material long-lived assets of the Company reside in the United States.
Cash, cash equivalents and restricted cash
The Company considers all highly liquid investments with an original or remaining maturity of three months or
less at the date of purchase to be cash equivalents. Cash equivalents consist of a U.S. Government money market funds
and 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 the
consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash
flows (in thousands):
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
December 31,
2018
December 31,
2019
43,514 $ 129,867
741
35,748
79,262 $ 130,608
$
$
Amounts included in restricted cash as of December 31, 2019 represent cash that the Company is contractually
obligated to maintain in accordance with the terms of the 2019 Term Loan Agreement, cash received pursuant to a
funded research and development agreement with the Leukemia and Lymphoma Society (LLS) (the “LLS Research
Funding Agreement”) restricted for future expenditures for specific R&D studies and cash held to collateralize
outstanding letters of credit provided as a security deposit for the Company’s office space located in Needham,
Massachusetts in the amount of approximately $35.0 million, $0.5 million, and $0.2 million respectively. Restricted
cash related to 2019 Term Loan Agreement and letters of credit are included in non-current restricted cash on the
consolidated balance sheet, while cash related to LLS Research Funding Agreement is included in prepaid and other
current assets on the consolidated balance sheet. Amounts included in restricted cash as of December 31, 2018 represent
cash received pursuant to the LLS Research Funding Agreement of $0.5 million, which is included in prepaid and other
currents on the consolidated balance sheet and cash held to collateralize outstanding letters of credit provided as a
security deposit for the Company’s office space located in Needham of $0.2 million, which is included in non-current
restricted cash on the consolidated balance sheet.
Fair value of financial instruments
The Company determines the fair value of its financial instruments based upon the fair value hierarchy, which
prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies
F-8
Table of Contents
only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the
investment credit quality. The hierarchy defines three levels of valuation inputs:
Level 1 inputs
Level 2 inputs
Level 3 inputs
Quoted prices in active markets for identical assets or liabilities that the Company can access at the
measurement date.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly.
Unobservable inputs that reflect the Company’s own assumptions about the assumptions market
participants would use in pricing the asset or liability.
Items Measured at Fair Value on a Recurring Basis
The following table presents information about the Company’s financial instruments that are measured at fair
value on a recurring basis (in thousands):
Description
Financial assets
Cash equivalents
Short-term investments
Total financial assets
Derivative liability
Description
Financial assets
Cash equivalents
Short-term investments
Total financial assets
Total
Level 1
Level 2
Level 3
December 31, 2019
77,176
31,992
109,168
450
$
$
75,678
—
75,678
—
$
$
1,498 $
31,992
33,490 $
— $
—
—
—
450
Total
Level 1
Level 2
Level 3
December 31, 2018
127,689
119,786
247,475
$
$
60,092
—
60,092
67,597 $
$
119,786
$ 187,383 $
—
—
—
$
$
$
$
$
The investments and cash equivalents have been initially valued at the transaction price and subsequently
valued, at the end of each reporting period, utilizing third party pricing services or other market observable data. The
pricing services utilize industry standard valuation models, including both income and market-based approaches and
observable market inputs to determine value. These observable market inputs include reportable trades, benchmark
yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The
Company 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 the
relevant markets are active. After completing its validation procedures, the Company did not adjust or override any fair
value measurements provided by the pricing services as of December 31, 2019 and 2018.
During 2019, a derivative liability was recorded as a result of the issuance of the 2019 Notes. (see note 12). The
Company initially determined fair value of the liability upon issuance, and then again at the balance sheet date. The fair
value measurement of the derivative liability is classified as Level 3 under the fair value hierarchy and it has been valued
using unobservable inputs. These inputs include: (1) a simulated share price at the time of conversion of the 2019 Notes,
(2) assumed timing of conversion of the 2019 Notes, (3) risk-adjusted discount rate to present value the probability-
weighted cash flows, and (4) entity specific cost of equity. Significant increases or decreases in any of those inputs in
isolation could result in a significantly lower or higher fair value measurement.
The fair value of the derivative liability was determined using a Monte-Carlo simulation by calculating fair
value of the 2019 Interest Make-Whole Payment to 2019 Note holders based on assumed timing of conversion of the
2019 Notes. At November 14, 2019 the risk-adjusted discount rate was determined to be 12.06% and entity specific
F-9
Table of Contents
cost of equity was determined to be 17.05%. At December 31, 2019, the risk-adjusted discount rate was determined to be
13.08% and entity specific cost of equity was determined to be 16.54%.
The following table represents a reconciliation of the derivative liability recorded in connection with the
issuance of the 2019 Notes (in thousands):
January 1, 2019
Fair value recognized upon issuance of 2019 Notes
Fair value adjustment
Derivative liability extinguished upon conversion
December 31, 2019
$
$
—
247
641
(438)
450
During 2018, a derivative liability was initially recorded as a result of the issuance of the 2018 Notes. (see note
12). The Company initially determined fair value of the liability upon issuance, and then again upon the determination
that the derivative instrument met the criteria to be reclassified into equity. The fair value measurement of the derivative
liability is classified as Level 3 under the fair value hierarchy as it has been valued using unobservable inputs. These
inputs include: (1) a simulated share price at the time of conversion of the Notes, (2) assumed timing of conversion of
the Notes, and (3) the risk-adjusted discount rate used to present value the probability-weighted cash flows. Significant
increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value
measurement.
The fair value of the derivative liability was determined using a binomial lattice model by calculating the fair
value 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 fair value of the
Notes with the conversion feature at issuance was assumed to equal the issuance par value of $150.0 million with an
implied discount rate of 12.1% which was determined by discounting the cash flows generated by the binomial lattice
model back to the issuance par value. The fair value of the Notes without the conversion feature was calculated based on
cash payment for the full par value of the Notes and was discounted by the implied discount rate of 12.1%. The fair
value of the Notes with and without the conversion feature upon the Company’s shareholders increasing the number of
authorized shares of common stock was determined using a similar approach with an implied discount rate of 16.2%,
which was determined be evaluating the increase in credit spreads of publicly traded debt over a similar time period.
The following table represents a reconciliation of the derivative liability recorded in connection with the
issuance of the 2018 Notes (in thousands):
January 1, 2018
Fair value recognized upon issuance of 2018 Notes
Fair value adjustment
Reclassification to equity
December 31, 2018
Fair Value of Financial Instruments
$
$
—
51,531
(25,556)
(25,975)
—
The fair value of the Company’s long-term debt is determined using a discounted cash flow analysis with
current applicable rates for similar instruments as of the consolidated balance sheet dates. The carrying value of the
Company’s long-term debt, including the current portion, at December 31, 2019 and 2018, was approximately $35.1
million and $25.2 million, respectively. At December 31, 2019 and 2018, the Company estimates that the fair value of
its long-term debt, including the current portion, was approximately $37.0 and $26.9 million, respectively. The fair value
of the Company’s long-term debt was determined using Level 3 inputs.
F-10
Table of Contents
The fair value of the 2018 Notes and 2019 Notes was approximately $12.5 million and $50.5 million,
respectively, as of December 31, 2019, which differs from the carrying value of the Notes. The fair value of the Notes is
influenced by our stock price and stock price volatility. The fair value of the 2018 Notes and 2019 Notes was
determined using Level 2 inputs.
Investments
Investments and cash equivalents consist of investments in a U.S. Government money market funds, overnight
repurchase agreements collateralized by government agency securities or U.S. Treasury securities, corporate bonds and
commercial paper of publicly traded companies that are classified as available‑for‑sale pursuant to Accounting Standards
Codification (ASC) Topic 320, Investments—Debt and Equity Securities. The Company classifies investments available
to fund current operations as current assets on its consolidated balance sheets. Investments are carried at fair value 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 these securities is
based on quoted prices for identical or similar assets. If a decline in the fair value is considered other‑than‑temporary,
based on available evidence, the unrealized loss is transferred from other comprehensive loss to the consolidated
statements of operations and comprehensive loss.
The Company reviews investments for other‑than‑temporary impairment whenever the fair value of an
investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable
within a reasonable period of time. To determine whether an impairment is other‑than‑temporary, the Company
considers the intent to sell, or whether it is more likely than not that the Company will be required to sell, the investment
before recovery of the investment’s amortized cost basis. Evidence considered in this assessment includes reasons for the
impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and
changes in value subsequent to year end. Realized gains and losses are determined using the specific identification
method and are included in interest income in the consolidated statements of operations and comprehensive loss.
There were no realized gains or losses on investments for the years ended December 31, 2019, 2018 or 2017.
There were two debt securities and fourteen debt securities in an unrealized loss position as of December 31, 2019 and
December 31, 2018, respectively. None of these investments had been in an unrealized loss position for more than
12 months as of December 31, 2019 or December 31, 2018, respectively. The fair value of these securities as of
December 31, 2019 and December 31, 2018 was $5.8 million and $46.9 million, respectively, and the aggregate
unrealized loss was immaterial. The Company considered the decline in the market value for these securities to be
primarily attributable to current economic conditions. As it was not more likely than not that the Company would be
required to sell these securities before the recovery of their amortized cost basis, which may be at maturity, the Company
did not consider these investments to be other-than-temporarily impaired as of December 31, 2019 and December 31,
2018, respectively.
Cash, cash equivalents and investments consist of the following (in thousands):
December 31, 2019
Gross
Gross
Amortized Unrealized Unrealized
Cost
Losses
Gains
Fair
Value
Cash, cash equivalents & restricted cash:
Cash and money market accounts
Corporate bonds and commercial paper (due within 90 days)
Total cash and cash equivalents
Investments:
Corporate bonds and commercial paper (due within 1 year)
Total investments
Total cash, cash equivalents and investments
$
$
77,764 $
1,498
79,262 $
31,979 $
$
31,979 $
$
$ 111,241 $
— $
—
— $
14 $
14 $
14 $
— $
—
— $
77,764
1,498
79,262
31,993
— $
31,993
— $
— $ 111,255
F-11
Table of Contents
December 31, 2018
Gross
Gross
Amortized Unrealized Unrealized
Cost
Losses
Gains
Fair
Value
Cash and cash equivalents:
Cash and money market accounts
Corporate bonds and commercial paper (due within 90 days)
Total cash and cash equivalents
Investments:
Corporate bonds and commercial paper (due within 1 year)
Total investments
Total cash, cash equivalents and investments
$
62,270 $
67,590 $
$ 129,860 $
$ 119,666 $
$ 119,666 $
$ 249,526 $
— $
8 $
8 $
132 $
132 $
140 $
62,270
— $
67,597
(1) $
(1) $ 129,867
(12) $ 119,786
(12) $ 119,786
(13) $ 249,653
Concentrations of credit risk and off‑balance sheet risk
Cash and cash equivalents, investments, and trade accounts receivable are financial instruments that potentially
subject the Company to concentrations of credit risk. The Company mitigates this risk by maintaining its cash and cash
equivalents and investments with high quality, accredited financial institutions. The management of the Company’s
investments is not discretionary on the part of these financial institutions. As of December 31, 2019, the Company’s
cash, cash equivalents and investments were deposited at three financial institutions and it has no significant off-balance
sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging
arrangements.
As of December 31, 2019 and 2018, there were two customers that cumulatively made up more than 50% of the
Company’s trade accounts receivable balance. The Company assesses the creditworthiness of all its customers and sets
and reassesses customer credit limits to ensure collectability of any trade accounts receivable balances are assured.
For the year ended December 31, 2019 and 2018, four customers and two customers, respectively, individually
accounted for greater than 10% of the Company’s total revenues.
Property and equipment
Property and equipment consist of laboratory equipment, office furniture, computer equipment and leasehold
improvements. Expenditures for repairs and maintenance are recorded to expense as incurred, whereas major betterments
are capitalized as additions to property and equipment. Depreciation and amortization are calculated using the
straight‑line method over the following estimated useful lives of the assets:
Laboratory equipment
Furniture
Computer equipment
Leasehold improvements
5 years
5 years
3 years
Lesser of useful life or life of lease
Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is recognized.
The Company reviews its long‑lived assets for impairment whenever events or changes in business
circumstances indicate that the carrying value of assets may not be recoverable. Recoverability is measured by
comparison of the asset’s book value to future net undiscounted cash flows that the assets are expected to generate. If
such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
book value of the assets exceed their fair value, which is measured based on the projected discounted future net cash
flows arising from the assets. No impairment losses have been recorded through December 31, 2019.
F-12
Table of Contents
Other assets
Other assets primarily consist of prepayments made to contract research organizations (CROs). As of
December 31, 2019 and 2018, other assets were primarily comprised of approximately $755,000 of prepaid CRO
expenses that the Company assumed and paid to Infinity pursuant to the license agreement between the Company and
Infinity.
Research and development costs
The Company expenses research and development costs to operations as incurred. 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 as
CROs, clinical trial sites, manufacturing organizations and consultants, including the scientific
advisory board;
license fees;
facilities, depreciation and other expenses, which include direct and allocated expenses for rent and
maintenance of facilities, depreciation of equipment, and laboratory supplies; and
costs associated with COPIKTRA prior to the Company concluding that regulatory approval is
probable and that its net realizable value is recoverable.
The Company accounts for nonrefundable advance payments for goods and services that will be used in future
research and development activities as expenses when the services have been performed or when the goods have been
received rather than when the payment is made.
Stock‑based compensation
The Company recognizes stock‑based compensation expense for stock options, and restricted stock units
(RSUs) issued to employees and directors based on the grant date fair value of the awards on a straight‑line basis over
the requisite service period, which typically is the vest period. The Company recognized stock-based compensation for
shares issued to employees under our employee stock purchase plan (ESPP) plan Historically, the Company recorded
stock‑based compensation expense for stock options and RSUs issued to non‑employees based on the estimated fair
value of the services received or of the equity instruments issued, whichever is more reliably measured, based on the
vesting date fair value of the awards on a straight‑line basis over the vesting period. Effective January 1, 2019, the
Company recognizes stock-based compensation expense for stock options and RSUs issued to non-employees based on
the grant date fair value of the awards on the straight-line basis over the requisite service period. Awards subject to
performance-based vesting requirements are expensed utilizing an accelerated attribution model if achievement of the
performance criteria is determined to be probable.
The grant date fair value of stock options is estimated using the Black‑Scholes option pricing model that takes
into account the fair value of its common stock, the exercise price, the expected life of the option, the expected volatility
of its common stock, expected dividends on its common stock, and the risk-free interest rate over the expected life of the
option. The Company applies the simplified method described in the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) Topic 14.D.2 to calculate the expected term as it does not have sufficient historical exercise
data to provide a reasonable basis upon which to estimate the expected term for options granted to employees. The
expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially
different exercise or post‑vesting termination behavior among its population. The Company has 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.
The Company issues shares under the Company’s employee stock purchase plan (ESPP) to employees. Stock-
based compensation expense for discounted purchases under the ESPP is measured using the Black-Scholes
F-13
Table of Contents
model to compute the fair value of the lookback provision plus the purchase discount and is recognized as compensation
expense over the offering period.
For annual periods ending on or before December 31, 2017, the computation of expected volatility is based on
the historical volatility of five companies, including the Company and a representative group of four public
biotechnology and life sciences companies with similar characteristics to the Company, including similar stage of
product 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, the
computation of expected volatility is based only on the historical volatility of the Company’s common stock. The
risk‑free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock
options.
The Company accounts for forfeitures as they occur. Stock‑based awards issued to non-employees, including
directors for non‑board related services, are accounted for based on the fair value of such services received or of the
equity instruments issued, whichever is more reliably measured. Stock option awards to non-employees are revalued at
each reporting date and upon vesting using the Black‑Scholes option pricing model and are expensed on a straight‑line
basis over the vesting period.
Leases
Effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases (ASC 842). This standard
requires lessees to recognize in the statement of financial position a liability to make lease payments and a right-of-use
asset representing its right to use the underlying asset for the lease term for both finance and operating leases.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease
based on the unique facts and circumstances within the arrangement. A lease is identified where an arrangement
conveys the right to control the use of identified property, plant, and equipment for a period of time in exchange for
consideration. Leases which are identified within the scope of ASC 842 and which have a term greater than one year are
recognized on the Company’s consolidated balance sheets as right-of-use assets, lease liabilities and, if applicable, long-
term lease liabilities. The Company has elected not to recognize leases with terms of one year or less on its consolidated
balance sheets. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present
value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset
may be required for items such as initial direct costs paid or incentives received. The interest rate implicit in lease
contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates to
calculate the present value of lease payments. Incremental borrowing rates are the rates the Company incurs to borrow
on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
In accordance with ASC 842, components of a lease are split into three categories: lease components (e.g., land,
building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-
components (e.g., property taxes, insurance, etc.). The fixed and in-substance fixed contract consideration (including any
related to non-components) must be allocated based on fair values to the lease components and non-lease components.
Although separation of lease and non-lease components is required, certain practical expedients are available. Entities
may elect the practical expedient to not separate lease and non-lease components. Rather, they would account for each
lease component and the related non-lease component together as a single component. The Company has elected to
account for the lease and non-lease components of each of its operating leases as a single lease component and allocate
all of the contract consideration to the lease component only. The lease component results in an operating right-of-use
asset being recorded on the consolidated balance sheets and amortized on a straight-line basis as lease expense.
Revenue Recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an
amount that reflects the consideration which the Company expects to receive in exchange for those goods or services, in
accordance with ASC 606 Revenue from Contracts with Customers. To determine revenue recognition contracts with its
customers, the Company performs the following five step assessment: (i) identify the contract(s)
F-14
Table of Contents
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. The Company only applies the five-step model to contracts when it is probable
that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the
customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company
assesses the goods or services promised within each contract, determines which goods and services are performance
obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue
the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied.
Product Revenue, Net – The Company sells COPIKTRA to a limited number of specialty pharmacies and
specialty distributors in the United States. These customers subsequently resell COPIKTRA either directly to patients, or
to community hospitals or oncology clinics with in-office dispensaries who in turn distribute COPIKTRA to patients. In
addition to distribution agreements with customers, the Company also enters into arrangements with (1) certain
government agencies and various private organizations (Third-Party Payers), which may provide for chargebacks or
discounts with respect to the purchase of COPIKTRA, and (2) Medicare and Medicaid, which may provide for certain
rebates 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 acquisition
costs, net of applicable reserves for variable consideration. Components of variable consideration include trade
discounts and allowances, 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 the
Company and customers, payors, and other indirect customers relating to the Company’s sale of COPIKTRA. These
reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are classified as
reductions of accounts receivable or a current liability. 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, these reserves reflect the Company’s best estimates of the amount of
consideration 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 is
included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the
cumulative revenue recognized under contracts will not occur in a future period. The Company’s analyses contemplate
the application of the constraint in accordance with ASC 606. For the year ended December 31, 2019, the Company
determined 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 differ
from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will
adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.
Trade Discounts and Allowances: The Company generally provides customers with invoice discounts on sales
of COPIKTRA for prompt payment, which are explicitly stated in the Company’s contracts and are recorded as a
reduction of revenue in the period the related product revenue is recognized. In addition, the Company compensates its
specialty distributor customers for sales order management, data, and distribution services. The Company has
determined such services are not distinct from the Company’s sale of COPIKTRA to the specialty distributor customers
and, therefore, these payments have also been recorded as a reduction of revenue within the consolidated statements of
operations and comprehensive loss through December 31, 2019.
Third-Party Payer Chargebacks, Discounts and Fees: The Company executes contracts with Third-Party Payers
which allow for eligible purchases of COPIKTRA at prices lower than the wholesale acquisition cost charged to
customers who directly purchase the product from the Company. In some cases, customers charge the Company for the
difference between what they pay for COPIKTRA and the ultimate selling price to the Third-Party Payers. These
reserves are established in the same period that 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
F-15
Table of Contents
the qualified Third-Party Payer by customers, and the Company generally issues credits for such amounts within a few
weeks of the customer’s notification to the Company of the resale. Reserves for chargebacks consist of credits that the
Company expects to issue for units that remain in the distribution channel inventories at the end of each reporting period
that the Company expects will be sold to Third-Party Payers, and chargebacks that customers have claimed, but for
which the Company has 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 a reduction of product revenue within the consolidated statements of operations and comprehensive
loss through December 31, 2019.
Government Rebates: The Company is 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
product revenue and the establishment of a current liability which is included in accrued expenses on the consolidated
balance sheets. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap
for whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for
these rebates consists of invoices received 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 been recognized as revenue, but which remains in the distribution channel inventories at the end of each
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 and
the cost per claim that the Company expects to receive for product that has been recognized as revenue, but remains in
the distribution channel inventories at the end of each reporting period. The adjustments are recorded in the same period
the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability
which 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 of
return for product that has been purchased from the Company. The Company estimates the amount of its product sales
that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product
revenue is recognized. The Company estimates product return liabilities using available industry data and its own sales
information, including its visibility into the inventory remaining in the distribution channel.
Subject to certain limitations, the Company’s 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 the Company;
Expired product that is returned during the period beginning three months prior to the product’s
expiration and ending six months after the expiration date;
Product subject to a recall; and
Product that the Company, at its sole discretion, has specified can be returned for credit.
As of December 31, 2019, the Company has not received any returns.
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 when
incurred, 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, 2019.
Exclusive Licenses of Intellectual Property - The Company may enter into collaboration and licensing
arrangements for research and development, manufacturing, and commercialization activities with collaboration partners
for the development and commercialization of its 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 to
obtain licenses, to the Company's intellectual property, (ii) research and development
F-16
Table of Contents
activities performed for the collaboration partner, (iii) participation on joint steering committees, and (iv) the
manufacturing of commercial, clinical or preclinical material. Payments pursuant to these arrangements typically include
non-refundable, upfront payments, milestone payments upon the achievement of significant development events,
research and development reimbursements, sales milestones, and royalties on product sales. The amount of variable
consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.
The contracts into 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 its
collaboration and license agreements, the Company performs the following steps: (i) identification of the promised
goods or services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or
services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement
of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the
performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance
obligation. 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 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 in step (iv) above; and d) the measure of progress in step (v) above. The Company uses
judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the
transaction price as described further below.
If a license to the Company’s intellectual property is determined to be distinct from the other promises or
performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront
fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit
from the license. In assessing whether a promise or performance obligation is distinct from the other elements, the
Company considers factors such as the research, development, manufacturing and commercialization capabilities of the
collaboration partner and the availability of its associated expertise in the general marketplace. In addition, the Company
considers whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the
remaining elements, whether the value of the promise is dependent on the unsatisfied promise, whether there are other
vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise.
For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined
performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in
time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company
evaluates the measure of progress of each reporting period and, if necessary, adjusts the measure of performance and
related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, is
subject to estimates by management and may change over the course of the arrangement. Such a change could have a
material impact on the amount of revenue the Company records in future periods.
Customer Options: If an arrangement is determined to contain customer options that allow the customer to
acquire additional goods or services such as research and development services or manufacturing services, the goods and
services underlying the customer options are not considered to be performance obligations at the inception of the
arrangement; rather, such goods and services are contingent on exercise of the option, and the associated option fees are
not included in the transaction price. The Company evaluates customer options for material rights or options to acquire
additional goods or services for free or at a discount. If a customer option is determined to represent a material right, the
material right is recognized as a separate performance obligation at the outset of the arrangement. The Company
allocates the transaction price to material rights based on the relative standalone selling price, which is determined based
on the identified discount and the estimated probability that the customer will exercise the option. Amounts allocated 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 Company
evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in
the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not
occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the
control of the Company or the licensee, such as regulatory approvals, are not considered probable of
F-17
Table of Contents
being achieved until 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. There is considerable judgment involved in determining whether it is probable that a significant revenue
reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of
achievement of all milestones subject to constraint and, if necessary, adjusts its 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 level
of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes
revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of
the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any
royalty revenue resulting from any of its licensing arrangements.
Collaborative Arrangements: Contracts are considered to be collaborative arrangements when they satisfy the
following criteria defined in ASC 808, Collaborative Arrangements: (i) the parties to the contract must actively
participate in the joint operating activity and (ii) the joint operating activity must expose the parties to the possibility of
significant risk and rewards, based on whether or not the activity is successful. Payments received from or made to a
partner 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 Note
16, License and collaboration agreements.
Accounts Receivable, Net
Accounts receivable, net consists of amounts due from customers, net of applicable revenue reserves. Accounts
receivable have standard payments that generally require payment within 30 to 90 days. The Company analyzes accounts
that are past due for collectability and provides an allowance for receivables when collection becomes doubtful. Given
the nature and limited history of collectability of the Company’s accounts receivable, an allowance for doubtful accounts
is not deemed necessary at December 31, 2019.
Inventory
The Company capitalizes inventories manufactured in preparation for initiating sales of a product candidate
when the related product candidate is considered to have a high likelihood of regulatory approval and the related costs
are expected to be recoverable through sales of the inventories. In determining whether or not to capitalize such
inventories, the Company evaluates, among other factors, information regarding the product candidate’s safety and
efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for
commercial sales, including the existence of current or anticipated competitive drugs and the availability of
reimbursement. 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 shelf life of the
inventories. Costs associated with manufacturing product candidates prior to satisfying the inventory capitalization
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 Company
determines the cost of its inventories, which includes amounts related to materials and manufacturing overhead, on a
first-in, first-out basis. The Company performs an assessment of the recoverability of capitalized inventory during each
reporting period, and it writes down any excess and obsolete inventories to their estimated realizable value in the period
in which the impairment is first identified. Such impairment charges, should they occur, are recorded within cost of sales
- product. The determination of whether inventory costs will be realizable requires estimates by management. If actual
market conditions are less favorable than projected by management, additional write-downs of inventory may be
required which would be recorded as a cost of sales - product in the consolidated statements of operations and
comprehensive loss.
F-18
Table of Contents
Shipping and handling costs for product shipments are recorded as incurred in cost of sales - product along with
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 to
commercial products at their fair value. These assets are amortized on a straight-line basis over their remaining useful
lives, which are estimated based on the shorter of the remaining underlying patent life or the estimated useful life of the
underlying product.
The Company assesses its finite-lived intangible assets for impairment if indicators are present or changes in
circumstance suggest that impairment may exist. Events that could result in an impairment include the receipt of
additional clinical or nonclinical data regarding one of the Company’s drug candidates or a potentially competitive drug
candidate, changes in the clinical development program for a drug candidate, or new information regarding potential
sales for the drug. If impairment indicators are present or changes in circumstance suggest that impairment may exist, the
Company performs a recoverability test by comparing the sum of the estimated undiscounted cash flows of each finite-
lived intangible asset to its carrying value on the consolidated balance sheets. If the undiscounted cash flows used 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 exceeds its fair
value.
Income taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in
which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not
that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current
evidence indicates that it is considered more likely than not that these benefits will not be realized.
Net loss per share
Basic net loss per common share is calculated by dividing net loss applicable to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted net loss per common share is
calculated by increasing the denominator by the weighted-average number of additional shares that could have been
outstanding 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 share
is antidilutive. The effect of computing diluted net loss per common share was antidilutive for any potentially issuable
shares of common stock from the conversion of stock options, restricted stock units and warrants and, as such, have been
excluded from the calculation. However, under the “if-converted” method, convertible instruments 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 be added back to the numerator of
the diluted net loss per share calculation. Refer to Note 13 for further details related to the calculation of net loss per
share.
F-19
Table of Contents
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 Topic 606,
which makes targeted improvements for collaborative arrangements to clarify that certain transactions between
collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative
arrangement participant is a customer in the context of a unit of account, adds unit of account guidance in Topic 808 to
align with guidance in Topic 606, and clarifies presentation of certain revenues with a collaborative arrangement
participant which are not directly related to a third party. ASU 2018-18 is effective for annual and interim periods
beginning after December 15, 2019, with early adoption permitted. The Company has not elected to early adopt this
standard and is currently evaluating the impact the adoption of the standard will have on its consolidated financial
statements 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 Costs
Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for annual and
interim periods beginning after December 15, 2019, with early adoption permitted. The Company has not elected to early
adopt this standard and is currently evaluating the impact the adoption of the standard will have on its consolidated
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 disclosure
requirements for fair value measurements for all entities, requires public entities to disclose certain new information and
modifies some disclosure requirements. ASU 2018-13 is effective for all entities for annual and interim periods
beginning after December 15, 2019. An entity is permitted to early adopt either the entire standard or only the provisions
that eliminate or modify requirements. The Company has not elected to early adopt this standard and is currently
evaluating the impact the adoption of the standard will have on its consolidated financial statements and related
disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial
Instruments (“ASU 2016-13”). ASU 2016-13 will replace the incurred loss impairment methodology under current
GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of
reasonable and supportable information to inform credit loss estimates. In November 2019, the FASB issued ASU 2019-
10, Financial Instruments – Credit Losses (Topic 326), Derivatives (Topic 815), and Leases (Topic 842). This ASU
delayed the required adoption for SEC filers that are smaller reporting companies as of their determination on November
15, 2019, until annual and interim periods beginning after December 15, 2022, with early adoption permitted. The
Company has determined that as of November 15, 2019, it is a smaller reporting company and has not elected to early
adopt this standard. The Company is currently evaluating the impact the adoption of the standard will have on its
consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No 2019-12, Simplifying Accounting for Income Taxes (ASU 2019-
12). ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod
allocation, calculating income taxes in interim periods and adds certain guidance to remove complexity in certain areas.
ASU 2019-12 is effective for all entities for annual and interim periods beginning after December 15, 2020. An entity is
permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. The
Company has not elected to early adopt this standard and is currently evaluating the impact the adoption of the standard
will have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Standards Updates
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include all share-based
payment 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
F-20
Table of Contents
payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods
or services to customers as part of a contract and services from nonemployees. ASU 2018-07 specifies that Topic 718
applies to all share-based payment transactions accounted for under ASC 606. ASU 2018-07 was effective for annual
and interim periods beginning after December 15, 2018, with early adoption permitted, but no earlier than the date on
which ASC 606 is adopted. The Company adopted this standard prospectively effective January 1, 2019. The adoption
of this ASU did not have an effect on the Company’s consolidated financial statements or related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the guidance under
FASB Accounting Standards Codification (ASC) Topic 840, Leases, resulting in the creation of FASB ASC Topic
842, Leases (ASC 842). ASU 2016-02 requires lessees to recognize in the statement of financial position a liability to
make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both
finance and operating 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 the costs 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 when transitioning to ASC 842
(optional transition method) and lessors may elect not to separate lease and non-lease components when certain
conditions are met (lessor relief practical expedient). The optional transition method applies to entities that have not yet
adopted ASU 2016-02, which is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2018, with early adoption permitted.
The Company adopted this standard using the optional transition method effective January 1, 2019. Upon
adoption of this standard, the Company recognized a lease liability and a corresponding right-of use asset of $4.0 million
and $3.4 million, respectively, and derecognized a deferred rent liability and a corresponding lease incentive obligation
of $0.4 million and $0.2 million, respectively. The Company did not record any cumulative effect adjustment to
accumulated deficit as a result of adopting this standard. The Company also elected to adopt the practical expedients
upon transition, which permit companies to not reassess lease identification, classification, and initial direct costs under
ASU 2016-02 for leases that commenced prior to the effective date.
3. Inventory
During the third quarter of 2018, the Company began capitalizing inventory costs for COPIKTRA
manufactured in preparation for its launch in the United States based on its evaluation of, among other factors, the status
of the COPIKTRA NDA in the United States and the ability of its third-party suppliers to successfully manufacture
commercial quantities of COPIKTRA, which provided the Company with reasonable assurance that the net realizable
value of the inventory would be recoverable.
Inventory consists of the following (in thousands):
Raw materials
Work in process
Finished goods
Total inventories
December 31,
2019
December 31,
2018
$
$
955 $
2,040
101
3,096 $
—
63
264
327
F-21
Table of Contents
Costs incurred prior to the quarter-ended September 30, 2018 to manufacture COPIKTRA were expensed as
operating expenses as incurred.
4. Property and equipment, net
Property and equipment and related accumulated depreciation are as follows (in thousands):
Leasehold improvements
Furniture and fixtures
Computer equipment
Less: accumulated depreciation
Total property and equipment, net
December 31, December 31,
2019
2018
$
$
146 $
1,074
665
1,885
(938)
947 $
146
1,074
658
1,878
(509)
1,369
During the year ended December 31, 2018, an amendment to the Company’s existing office space lease was
executed whereby the Company relocated from its previous 15,197 rentable square foot location to an adjacent 27,810
rentable square foot location within the same building. As a result of this amendment, the Company shortened the useful
life of the leasehold improvements related to the original location and depreciated this balance through the date which it
vacated the original space. Upon vacating the original 15,197 rentable office space, the Company disposed of the
leasehold improvements related to this location. No gain or loss from the disposal of leasehold improvements was
recognized during the year ended December 31, 2018.
The Company recorded approximately $0.4 million, $1.0 million, and $0.6 million in depreciation expense for
the years ended December 31, 2019, 2018 and 2017, respectively.
5. Intangible assets
The Company’s intangible assets consist of the following (in thousands):
Acquired and in-licensed rights
Less: accumulated amortization
Total intangible assets, net
Estimated
useful life
14 years
December 31,
2019
22,000
(1,992)
20,008
$
$
Acquired and in-licensed rights as of December 31, 2019, consist of a $22.0 million milestone payment which
became payable upon the FDA marketing approval on September 24, 2018 pursuant to the amended and restated license
agreement with Infinity. The Company made a milestone payment of $22.0 million to Infinity in November 2018.
The Company recorded approximately $1.6 million and $0.4 million in amortization expense related to finite-
lived intangible assets during the year ended December 31, 2019 and December 31, 2018, respectively, using straight-
line methodology. Estimated future amortization expense for finite-lived intangible assets as of December 31, 2019 is
approximately $1.6 million per year thereafter.
F-22
Table of Contents
6. Accrued expenses
Accrued expenses consist of the following (in thousands):
Compensation and related benefits
Contract research organization costs
Commercialization costs
Interest
Consulting fees
Professional fees
Other
Total accrued expenses
7. Long-term debt
December 31,
2019
December 31,
2018
7,399
5,467
3,028
897
1,610
573
391
19,365 $
8,749
6,682
1,979
1,786
494
482
936
21,108
$
On March 21, 2017 (Closing Date), the Company entered into a term loan facility of up to $25.0 million with
Hercules Capital, Inc. (Hercules). The term loan facility is governed by a loan and security agreement, dated March 21,
2017 (the Original Loan Agreement), which originally provided for up to four separate advances, of which an aggregate
of $15.0 million were drawn down during the year ended December 31, 2017. The Original Loan Agreement was
amended on January 4, 2018, March 6, 2018, and October 11, 2018, (the Amended Loan Agreement) to increase the total
borrowing limit under the Original Loan Agreement from $25.0 million up to $50.0 million (the Amended Term Loan),
pursuant to certain conditions of funding.
On April 23, 2019 (the Fourth Amendment Date) and November 14, 2019 (the Fifth Amendment Date), the
Company entered into the Fourth Amendment and Fifth Amendment (together the Amendments) to the Original Loan
Agreement with Hercules. The Amendments amend the Amended Loan Agreement (together, with the Amendments, the
2019 Term Loan Agreement).
Per the terms of the 2019 Term Loan Agreement, the Company may borrow up to an aggregate of $75.0
million, of which $35.0 million was outstanding immediately as of the Fourth Amendment Date (2019 Term A Loan) as
a result of the existing outstanding principal of term loans of $25.0 million under the Amended Loan Agreement being
converted into the 2019 Term A Loan, and an additional $10.0 million being drawn on the Fourth Amendment Date. The
remaining $40.0 million of borrowing capacity may be drawn in multiple tranches comprised of (i) a term loan in an
amount of up to $15.0 million upon us generating cumulative net product revenues (as defined in the 2019 Term Loan
Agreement) of either (a) $37.5 million on or before April 30, 2020 or (b) $50.0 million on or before June 30, 2020 (2019
Term B Loan), and (ii) a term loan in an amount of up to $25.0 million available through December 31, 2021, subject to
Hercules’ approval and certain other conditions specified in the 2019 Term Loan Agreement (the 2019 Term C Loan, and
together with the 2019 Term A Loan and 2019 Term B Loan, the 2019 Term Loan). As of December 31, 2019, The
Company has borrowed a total of $35.0 million in term loans.
The Fifth Amendment modified the financial covenants and collateral requirements. As of the Fifth
Amendment Date, the Company must maintain cash in an aggregate amount greater than or equal to 100% of the
outstanding term loans as collateral, until the Company’s receipt of Net Product Revenues (as defined in the 2019 Term
Loan Agreement) of at least $20 million on or before December 31, 2020, measured on a trailing six month basis (Initial
Net Product Revenue Threshold). As of December 31, 2019 the Company has not met the Initial Net Product Revenue
Threshold and has recorded $35.0 million as non-current restricted cash on the consolidated balance sheet.
The 2019 Term Loan will mature on December 1, 2022 (2019 Term Loan Maturity Date). Each advance accrues
interest at a floating per annum rate equal to the greater of (a) 9.75% or (b) the lesser of (i) 12.00% and (ii) the sum of
(x) 9.75% plus (y) (A) the prime rate minus (B) 5.50%. The 2019 Term Loan provides for interest-only payments until
April 1, 2021, which may be extended to December 1, 2021 pursuant to us generating $40.0 million
F-23
Table of Contents
in net product revenue on a trailing six-month basis on or prior to December 31, 2020 provided that no event of default
has occurred. Thereafter, amortization payments will be payable monthly in equal installments of principal and interest
(subject to recalculation upon a change in prime rates).
The 2019 Term Loan is secured by a lien on substantially all of our assets, other than intellectual property and
contains customary covenants and representations, including a liquidity covenant, minimum net revenue covenant,
financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers,
mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
On the Fourth Amendment Date, the Company was required to pay any outstanding accrued interest as well as
the final payment fee equal to 4.5% on the outstanding principal balance of the Amended Term Loan, or $1.1
million. No prepayment charges were due as a result of executing the Amendment or conversion of the existing term
loans into 2019 Term A Loans.
The events of default under the 2019 Term Loan Agreement include, without limitation, and subject to
customary grace periods, (i) any failure by us to make any payments of principal or interest under 2019 Term Loan
Agreement, promissory notes or other loan documents, (ii) any breach or default in the performance of any covenant
under the 2019 Term Loan Agreement, (iii) any making of false or misleading representations or warranties in any
material 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 enforcement
action, including acceleration of amounts due under the 2019 Term Loan Agreement.
The 2019 Term Loan Agreement also contains other customary provisions, such as expense reimbursement and
confidentiality. Hercules has indemnification rights and the right to assign the 2019 Term Loan.
The Company assessed all terms and features of the 2019 Term Loan Agreement in order to identify any
potential embedded features that would require bifurcation or any beneficial conversion features. As part of this analysis,
the Company assessed the economic characteristics and risks of the 2019 Term Loan Agreement, including put and call
features. The Company determined that all features of the 2019 Term Loan Agreement were clearly and closely
associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was
immaterial to the Company's consolidated financial statements. The Company reassesses the features on a quarterly basis
to determine if they require separate accounting. There have been no changes to the Company’s original assessment
through December 31, 2019.
The future principal payments under the 2019 Term Loan Agreement are as follows as of December 31, 2019
(in thousands):
2021
2022
Total principal payments
$
$
14,234
20,766
35,000
F-24
Table of Contents
8. Product revenue reserves and allowances
As of December 31, 2019, the Company’s sole source of product revenue has been from sales of COPIKTRA in
the United States, which it began shipping to customers on September 25, 2018. The following table summarizes
activity in each of the product revenue allowance and reserve categories for the year ended December 31, 2019 (in
thousands):
Beginning Balance at December 31, 2017
Provision related to sales in the current year
Adjustments related to prior period sales
Credits and payments made
Balance at December 31, 2018
$
Provision related to sales in the current year
Adjustments related to prior period sales
Credits and payments made
Ending balance at December 31, 2019
$
Trade
discounts
and
allowances
$
Third-Party
Payer
chargebacks,
discounts
and fees
Government
rebates and
other
incentives
Returns
Total
— $
120
—
(32)
88 $
1,306
—
(1,139)
255 $
— $
157
—
—
157 $
608
(76)
(317)
372 $
— $
2
—
—
2 $
74
—
—
76 $
—
348
—
(72)
276
2,500
(76)
(1,886)
814
— $
69
—
(40)
29 $
512
—
(430)
111 $
Trade discounts and Third-Party Payer chargebacks and discounts are recorded as a reduction to accounts
receivable, 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. Leases
On April 15, 2014, the Company entered into a lease agreement for approximately 15,197 square feet of office
and laboratory space in Needham, Massachusetts. The lease term commenced on April 15, 2014 and was scheduled to
expire on September 30, 2019. Effective February 15, 2018, the Company amended its lease agreement to relocate
within the facility to another location consisting of 27,810 square feet of office space (the Amended Lease
Agreement). The Amended Lease Agreement extends the expiration date of the lease from September 2019 through
May 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 Company has accounted for its Needham, Massachusetts office space as an operating lease. The
Company’s lease contains an option to renew and extend the lease terms and an option to terminate the lease prior to the
expiration date. The Company has not included the lease extension or the termination options within the right-of-use
asset and lease liability on the consolidated balance sheets as neither option is reasonably certain to be exercised. The
Company’s lease includes variable non-lease components (e.g., common area maintenance, maintenance, consumables,
etc.) that are not included in the right-of-use asset and lease liability and are reflected as an expense in the period
incurred. The Company does not have any other operating or finance leases.
In calculating the present value of future lease payments, the Company has elected to utilize its incremental
borrowing rate based on the remaining lease term at the date of adoption of ASC 842. The Company has elected to
account for lease components and associated non-lease components as a single lease component and has allocated all of
the contract consideration to the lease components only. This will potentially result in the initial and subsequent
measurement of the balances of the right-of-use asset and lease liability for leases being greater than if the policy
election was not applied.
F-25
Table of Contents
As of December 31, 2019 a right-of-use asset of $3.1 million and lease liability of $3.9 million are reflected on
the consolidated balance sheets. The elements of lease expense were as follows (dollar amounts in thousands):
Lease Expense
Operating lease expense
Total Lease Expense
Other Information - Operating Leases
Operating cash flows paid for amounts included in measurement of lease
liabilities
Other Balance Sheet Information - Operating Leases
Weighted average remaining lease term (in years)
Weighted average discount rate
Maturity Analysis
2020
2021
2022
2023
2024
Thereafter
Total
Less: Present value discount
Lease Liability
Year ended
December 31, 2019
885
885
703
December 31, 2019
5.5
14.60%
955
1,019
1,039
1,060
1,081
546
5,700
(1,791)
3,909
$
$
$
$
$
$
The Company adopted ASU 2016-02 effective January 1, 2019 using the optional transition method permitted
under ASU 2018-11. Accordingly, periods presented prior to January 1, 2019 were not restated to reflect the accounting
principles adopted under ASU 2016-02. Prior to adoption, the Company recorded rent expense from its Needham office
on a straight-line basis over the term of the lease with the deferred rent obligation included in accrued expenses (current
portion) and other liabilities (noncurrent portion) in the consolidated balance sheet as of December 31, 2018. The
Company amortized any leasehold improvements over the lesser of the useful life of those improvements or the life of
the lease. For the year ended December 31, 2018, the Company recorded rent expense of $0.8 million.
At December 31, 2018, future minimum lease payments under non-cancelable leases under ASC 840 were as
follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
$
$
716
971
1,020
1,041
1,062
1,538
6,348
F-26
Table of Contents
10. Common stock
As of December 31, 2019 and 2018, the Company had reserved the following shares of common stock for the
issuance of common stock for vested restricted stock units, the exercise of stock options, and an outstanding warrant (in
thousands):
Shares reserved under equity compensation plans
Shares reserved for inducement grants
Shares reserved for 2018 Notes
Shares reserved for 2019 Notes
Total shares reserved
December 31,
2019
15,389
6,331
3,950
34,796
60,466
2018
15,572
6,381
20,937
—
42,890
Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to
receive dividends whenever funds are legally available and when declared by the board of directors.
At-the-market equity offering programs
On March 30, 2017, the Company established an at-the-market equity offering program (ATM) pursuant to
which it was able to offer and sell up to $35.0 million of its common stock at then-current market prices from time to
time through Cantor, as sales agent. On August 28, 2017, the Company amended its sales agreement with Cantor to
increase the maximum aggregate offering price of shares of common stock that can be sold under the ATM to $75.0
million. Through December 31, 2018, the Company sold 11,518,354 shares under the ATM for net proceeds of
approximately $47.3 million (after deducting commissions and other offering expenses). During the year ended
December 31, 2019, there were no sales under the ATM. As of December 31, 2019 we can issue an additional $26.6
million of gross proceeds under this program.
Equity offering
On May 16, 2018, the Company entered into an underwriting agreement with Cantor relating to the
underwritten offering of 7,777,778 shares (the Shares) of the Company’s common stock (the Underwriting
Agreement). 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 underwriting
discounts and commissions, an additional 1,166,666 shares of the Company’s common stock, exercisable for 30 days
from the date of the prospectus supplement. The option was exercised by Cantor in full on May 23, 2018. The aggregate
proceeds 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 Account
L.P. and P Consonance Opportunities Ltd. (collectively, Consonance) relating to the registered offering of 7,166,666
shares 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 the
underwritten offering of 8,422,877 shares of its common stock at a price of $2.97 per share, for aggregate proceeds, net
of underwriting discounts and offering costs, of approximately $24.7 million.
F-27
Table of Contents
11. Stock‑based compensation
Stock‑based compensation expense as reflected in the Company’s consolidated statements of operations and
comprehensive loss was as follows (in thousands):
Research and development
Selling, general and administrative
Total stock-based compensation expense
$
$
Year ended December 31,
2018
2,043 $
4,628
6,671 $
2019
1,501 $
7,038
8,539 $
2017
1,381
3,652
5,033
All of the $8.5 million, $6.7 million, and $5.0 million of stock-based compensation expense recorded during the
years ended December 31, 2019, 2018 and 2017, respectively, was recorded to additional paid-in capital.
The Company has awards outstanding under two equity compensation plans, the Amended and Restated 2012
Incentive Plan (the 2012 Plan) and the 2010 Equity Incentive Plan (the 2010 Plan), as well as the inducement award
program. 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-five percent
(25%) one year from vesting start date and six and a quarter percent (6.25%) for each successive three-month period,
thereafter (subject to acceleration of vesting in the event of certain change of control transactions) and are exercisable for
a period of ten years from the date of grant.
2012 Incentive Plan
The 2012 Plan became effective immediately upon the closing of the Company’s IPO in February 2012. Upon
effectiveness of the 2012 Plan, the Company ceased making awards under the 2010 Plan. The 2012 Plan initially allowed
the Company to grant awards for up to 3,428,571 shares of common stock, plus the number of shares of common stock
available for grant under the 2010 Plan as of the effectiveness of the 2012 Plan (which was an additional 30,101 shares),
plus that number of shares of common stock related to awards outstanding under the 2010 Plan which terminate by
expiration, forfeiture, cancellation or otherwise. The 2012 Plan included an “evergreen provision” that allowed for an
annual increase in the number of shares of common stock available for issuance under the 2012 Plan. The annual
increase was added on the first day of each year from 2013 through 2018 and was equal to the lesser of 1,285,714 shares
of common stock and 4.0% of the number of shares of common stock 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 1,285,714 under this provision. On December 18, 2018, the shareholders
of the Company approved the Amended and Restated 2012 Incentive Plan which increased the maximum number of
shares available for issuance under the 2012 Plan to 16,628,425 and eliminated the evergreen provision.
Awards under the 2012 Plan may include the following award types: incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock awards, restricted stock units (RSUs), other stock‑based or cash‑based
awards and any combination of the foregoing. As of December 31, 2019, under the 2012 Plan, the Company has granted
stock options for 19,733,446 shares of common stock, of which 5,644,811 have been forfeited and 456,865 have been
exercised, and granted restricted stock units for 1,922,622 shares of common stock, of which 443,277 have been
forfeited and 851,256 have vested. The exercise price of each option has been equal to the closing price of a share of our
common stock on the grant date.
Inducement Award Program
In December 2014, the Company established an inducement award program (in accordance with Nasdaq Listing
Rule 5635(c)(4)) under which it may grant non-statutory stock options to purchase, and RSUs in respect of up to an
aggregate of 750,000 shares of common stock to new or prospective employees as inducement to enter into employment
with the Company. In December 2016, the Board of Directors authorized and reserved 580,000 additional shares of
common stock under this program. In December 2017, the Board of Directors authorized and reserved 2,500,000
additional shares of common stock under this program. In June and December 2018, the Board
F-28
Table of Contents
of Directors authorized 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 under the 2012 Plan. As of December 31, 2019, the Company had granted options for 6,094,671 shares of
common stock under the program, of which 2,212,738 have been forfeited and 323,750 have been exercised, and granted
restricted stock units for 162,200 shares, of which 62,200 have been forfeited and 50,000 have vested. As of December
31, 2019, 3,608,183 remain available for future issuance.
Stock Options
A summary of the Company’s stock option activity and related information for the year ended December 31,
2019 is as follows:
Weighted-average
remaining
Weighted-average
exercise price per contractual term intrinsic value
(in thousands)
6,909
Aggregate
7.8 $
(years)
share
Outstanding at December 31, 2018
Granted
Exercised
Forfeited/cancelled
Outstanding at December 31, 2019
Vested at December 31, 2019
Vested and expected to vest at December 31, 2019(1)
Shares
12,522,867 $
8,280,682 $
(91,907) $
(3,453,118) $
17,258,524 $
7,641,065 $
16,728,024 $
5.42
2.09
1.41
4.67
4.00
5.45
4.00
7.3 $
5.3 $
7.3 $
185
121
185
(1) This represents the number of vested options as of December 31, 2019, plus the number of unvested options
expected to vest as of December 31, 2019.
The fair value of each stock option was estimated using a Black‑Scholes option‑pricing model with the
following assumptions:
Risk-free interest rate
Volatility
Dividend yield
Expected term (years)
Year ended December 31,
2018
2.65 %
81 %
—
5.8
2019
1.98 %
87 %
—
5.9
2017
2.02 %
78 %
—
5.8
The Company recorded stock‑based compensation expense associated with employee stock options of $7.1
million, $5.6 million, and $4.5 million for the years ended December 31, 2019, 2018, and 2017, respectively. The
weighted‑average grant date fair value of options granted in the years ended December 31, 2019, 2018, and 2017 was
$1.44, $3.72, and $1.83 per share, respectively. The fair value of options that vested during the years ended December
31, 2019, 2018, and 2017 was $7.3 million, $4.7 million, and $4.8 million, respectively. The aggregate intrinsic value of
options exercised (i.e., the difference between the market price at exercise and the price paid by employees to exercise
the option) during the years ended December 31, 2019 and 2018 was $0.1 million and $1.8 million, respectively.
During the first quarter of 2018, the Company granted stock options to purchase a total of 582,500 shares of
common stock to certain executives that vest only upon the achievement of specified performance conditions. The
Company determined that two of the performance conditions had been achieved as of December 31, 2018. The Company
has recognized approximately $0.1 million and $0.7 million of stock-based compensation expense during the year ended
December 31, 2019 and 2018, respectively, related to awards that vest upon the achievement of performance conditions.
As December 31, 2019, a total of 260,000 performance-based options remain unvested which are expected to vest, which
have a weighted average exercise price of $1.52 per share, weighted average remaining contractual term of 9.6 years and
$0 aggregate intrinsic value.
F-29
Table of Contents
In June 2016, the Company granted stock options to purchase a total of 500,000 shares of common stock to
certain employees that vest only upon the achievement of specified performance conditions. The Company determined
that 50% of performance conditions had been achieved during the year ended December 31, 2016. As a result, 250,000
shares vested in October 2016 and the Company recognized stock-based compensation expense related to these awards
of approximately $0.2 million for the year ended December 31, 2016. In September 2017, the Company determined that
the remaining performance conditions had been achieved and as a result the remaining 250,000 shares vested and the
Company recognized stock-based compensation expense of approximately $0.4 million during the year ended December
31, 2017. The increase in stock-based compensation expense recognized for the awards which vested during the 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, 2019, there was $14.0 million of total unrecognized compensation cost related to unvested
stock options and the Company expects to recognize this cost over a remaining weighted-average period of 2.8 years.
Restricted Stock Units (RSUs)
The Company awards RSUs to employees under its 2012 Incentive Plan and Inducement Award Program. Each
RSU entitles the holder to receive one share of the Company’s common stock when the RSU vests. The RSUs generally
vest in either (i) four substantially equal installments on each of the first four anniversaries of the vesting commencement
date, or (ii) 100 percent on the first anniversary of the vesting commencement date, subject to the employee’s continued
employment with, or service to, the Company on such vesting date. Compensation expense is recognized on a straight-
line basis.
A summary of RSU activity during the year ended December 31, 2019 is as follows:
Outstanding at December 31, 2018
Granted
Vested
Forfeited/cancelled
Outstanding at December 31, 2019
Weighted-
average grant
date fair value
per share
5.24
2.57
6.93
3.86
2.36
Shares
306,750 $
798,904 $
(141,439) $
(286,126) $
678,089 $
The Company recorded stock‑based compensation expense associated with employee RSUs of $1.0 million,
$0.4 million, and less than $0.1 million for the years ended December 31, 2019, 2018, and 2017, respectively. No RSUs
were granted during the years ended December 31, 2017. The total fair value of restricted stock units vested during the
years ended December 31, 2019, 2018, and 2017 was approximately $0.3 million, $0.0 million, and $0.0 million,
respectively.
At December 31, 2019, there was $1.2 million of total unrecognized compensation cost related to unvested
RSUs and the Company expects to recognize this cost over a remaining weighted-average period of 2.6 years.
Employee stock purchase plan
At the Special Meeting of Stockholders, held on December 18, 2018, the stockholders approved the 2018
Employee Stock Purchase Plan (2018 ESPP). On June 21, 2019, the board of directors of the Company amended and
restated the 2018 ESPP, to account for certain non-material changes to the plan’s administration (the Amended and
Restated 2018 ESPP). The Amended and Restated 2018 ESPP provides eligible employees with the opportunity, through
regular payroll deductions, to purchase shares of the Company’s common stock at 85% of the lesser of the fair market
value of the common stock (a) on the date the option is granted, which is the first day of the purchase period, and (b) on
the exercise date, which is the last business day of the purchase period. The Amended and Restated 2018 ESPP generally
allows for two six-month purchase periods per year beginning in January and July, or such other periods as determined
by the compensation committee of our board of directors. The Company has
F-30
Table of Contents
reserved 2,000,000 shares of common stock for the administration of the Amended and Restated 2018 ESPP. The fair
value of shares expected to be purchased under the Amended and Restated 2018 ESPP was calculated using the Black-
Scholes model with the following assumptions:
Risk-free interest rate
Volatility
Dividend yield
Expected term (years)
Six Months ended June 30,
2019
Six Months ended December 31,
2019
2.46 %
79 %
—
0.4
2.10 %
95 %
—
0.5
For the year ended December 31, 2019, the Company has recognized $0.4 million of stock-based compensation expense
under the Amended and Restated 2018 ESPP. During the year ended December 31, 2019, the Company issued 341,701
shares of common stock for proceeds of $0.4 million under the Amended and Restated 2018 ESPP.
12. Convertible Senior Notes
On October 17, 2018, the Company closed a registered direct public offering of $150.0 million aggregate
principal amount of the Company’s 5.00% Convertible Senior Notes due 2048 (the 2018 Notes), for net proceeds of
approximately $145.3 million. The 2018 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 2018 Base Indenture, the 2018 Indenture), each dated October 17, 2018, by and between the Company
and Wilmington Trust, National Association, as trustee. The 2018 Notes are senior unsecured obligations of the
Company and bear interest at a rate 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 2018 Notes will mature on November 1, 2048, unless earlier repurchased,
redeemed or converted in accordance with their terms.
The 2018 Notes are convertible into shares of the Company’s 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 $1,000 principal amount of the Notes, which corresponds to an initial conversion price of
approximately $7.16 per share of common stock and represents a conversion premium of approximately 15.0% above
the last reported sale price of the common stock of $6.23 per share on October 11, 2018. Upon conversion, converting
noteholders will be entitled to receive accrued interest on their converted 2018 Notes. To the extent the Company has
insufficient authorized but unissued shares 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 converted
automatically if the “Daily VWAP” (as defined in the 2018 Indenture) per share of the Company’s common stock equals
or exceeds 130% of the conversion price on each of at least 20 VWAP Trading Days (as defined in the 2018 Indenture),
whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the date the
Company first issued the 2018 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 any
accrued and unpaid interest.
Prior to November 1, 2022, the Company will not have the right to redeem the 2018 Notes. On or after
November 1, 2022, the Company may elect to redeem the 2018 Notes, in whole or in part, at a cash redemption price
equal to the principal amount of the 2018 Notes to be redeemed, plus accrued and unpaid interest, if any.
Unless the Company has previously called all outstanding 2018 Notes for redemption, the 2018 Notes will be
subject to repurchase by the Company at the holders’ option on each of November 1, 2023, November 1, 2028,
November 1, 2033, November 1, 2038 and November 1, 2043 (or, if any such date is not a business day, on the next
F-31
Table of Contents
business day) at a cash repurchase price equal to the principal amount of the 2018 Notes to be repurchased, plus accrued
and unpaid interest, if any.
If a “Fundamental Change” (as defined in the 2018 Indenture) occurs at any time, subject to certain conditions,
holders may require the Company to purchase all or any portion of their 2018 Notes at a purchase price equal to 100% of
the principal amount of the 2018 Notes to be purchased, plus accrued and unpaid interest. If a “Fundamental Change”
occurs on or before November 1, 2022 and a holder elects to convert its Notes in connection with such change, such
holder may be entitled to an increase in the conversion rate in certain circumstances as set forth in the Indenture.
The 2018 Notes are the Company’s senior, unsecured obligations and will be senior in right of payment to the
Company’s future indebtedness that is expressly subordinated in right of payment to the 2018 Notes; equal in right of
payment with the Company’s existing and future indebtedness that is not so subordinated, and effectively subordinated
to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing such
indebtedness. The 2018 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 the
Company’s subsidiaries.
The 2018 Indenture includes customary covenants and set forth certain events of default after which the 2018 Notes
may be declared immediately due and payable and set forth certain types of bankruptcy or insolvency events of default
involving the Company or certain of its subsidiaries after which the 2018 Notes become automatically due and payable
The Company assessed all terms and features of the 2018 Notes in order to identify any potential embedded
features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and
risks of the 2018 Notes, including the conversion, put and call features. Per the terms of the 2018 Indenture, upon
conversion of the 2018 Notes, a portion of the principal may be settled in cash until the date upon which the Company’s
stockholders approve an increase in the number of authorized shares of common stock, or the Authorized Share Effective
Date, as defined. In consideration of this provision, the Company concluded the conversion feature required bifurcation
as a derivative. The fair value of the conversion feature derivative was determined based on the difference between the
fair value of the 2018 Notes with the conversion option and the fair value of the 2018 Notes without the conversion
option. The Company determined that the fair value of the derivative upon issuance of the 2018 Notes was $51.5 million
and recorded this amount as a derivative liability and the offsetting amount as a debt discount as a reduction to the
carrying value of the 2018 Notes on the closing date, or October 17, 2018.
On December 18, 2018, the Authorized Share Effective Date was achieved as the Company’s stockholders
approved an increase in the number of authorized shares of Common Stock. Following this approval, no portion of the
2018 Notes are settleable in cash upon conversion. As such, the Company determined that the conversion feature no
longer met the definition of a derivative following the increase in the number of authorized shares of common stock. As
of December 18, 2018, the Company determined the fair value of the conversion feature was $25.9 million. The
Company recorded 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 of December 18, 2018, the fair value of the conversion option was reclassified to additional paid-in capital on
the consolidated balance sheets as it qualified for a scope exception from derivative accounting. Accordingly, the
conversion feature will no longer be measured at fair value on the Company’s financial statements.
On November 14, 2019 and December 23, 2019, we entered into privately negotiated agreements to exchange
approximately $114.3 million and $7.4 million, respectively, aggregate principal amount of the 2018 Notes for (i)
approximately $62.9 million and $4.0 million, respectively, aggregate principal amount of 5.00% Convertible Senior
Second Lien Notes due 2048 (the 2019 Notes) (ii) an aggregate of approximately $11.4 million and $0.7 million in 2018
Notes principal repayment and (iii) accrued interest on the 2018 Notes through November 14, 2019 and December 23,
2019, respectively. The 2019 Notes are governed by the terms of an indenture (the 2019 Indenture). The 2019 Notes are
senior secured obligations of the Company and bear interest at 5.00% per annum,
F-32
Table of Contents
payable semi-annually in arrears on May 1 and November 1 of each year. The 2019 Notes will mature on November 1,
2048, unless earlier repurchased, redeemed or converted in accordance with the terms.
The Company determined 2019 Notes exchange met the definition of a troubled debt restructuring under ASC 470-
60, Troubled Debt Restructurings by Debtors, as the Company was experiencing financial difficulties and the lenders
granted a concession. The future undiscounted cash flows of the 2019 Notes after the exchange exceeded the carrying
value of the converted 2018 Notes prior to the exchange. As such no gain was recognized as a result of the exchange.
The Company reduced the carrying value of the Notes by the cash given and the change in fair value of the conversion
option driven by the reduction in conversion price. The change in fair value of the conversion option was determined to
be $13.6 million.
The 2019 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 606.0606 shares of common stock per
$1,000 principal amount of the 2019 Notes, which corresponds to an initial conversion price of approximately $1.65 per
share of common stock and represents a conversion premium of approximately 52.8% above the last reported sale price
of our common stock of $1.08 per share on November 11, 2019.
We will have the right, exercisable at our option, to cause all 2019 Notes then outstanding to be converted
automatically if the “Daily VWAP” (as defined in the 2019 Indenture) per share of our common stock equals or exceeds
121% of the conversion price on each of at least 20 VWAP Trading Days, whether or not consecutive, during any 30
consecutive VWAP Trading Day period commencing on or after the date we first issued the 2019 Notes. (Company’s
Mandatory Conversion Option)
Upon conversion, converting noteholders will be entitled to receive accrued interest on their converted 2019
Notes. In addition, if the 2019 Notes are converted with a conversion date that is on or prior to November 1, 2020, other
than in connection with the Company’s exercise of the Company’s Mandatory Conversion Option then the consideration
due upon any such conversion will also include a cash interest make-whole payment for all future scheduled interest
payments on the converted 2019 Notes through November 1, 2020 (2019 Notes Interest Make-Whole Provision).
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 any
accrued and unpaid interest.
We assessed all terms and features of the 2019 Notes in order to identify any potential embedded features that
would require bifurcation. As part of this analysis, we assessed the economic characteristics and risks of the 2019 Notes,
including the conversion, put and call features. In consideration of the 2019 Notes Interest Make-Whole Provision, we
concluded the provision required bifurcation as a derivative. The fair value of the 2019 Interest Make-Whole Provision
was determined using a Monte Carlo model. It was determined that the fair value of the derivative upon the November
14, 2019 and December 23, 2019 issuance of the 2019 Notes was $0.2 million in aggregate; and recorded this amount as
a derivative liability and the offsetting amount as a debt discount as a reduction to the carrying value of the 2019 Notes
on the closing dates. During the period November 14, 2019 to December 31, 2019, the Company paid out approximately
$0.4 million in 2019 Interest Make-Whole payments which was recorded as a reduction of the derivative liability. As of
December 31, 2019, we determined the fair value of the 2019 Interest Make-Whole Provision was $0.5 million. The
Company recorded the change in the fair value of the 2019 Interest Make-Whole Provision for the period from
November 14, 2019 to December 31, 2019 of $0.6 million as other expense on the consolidated statements of operations
and comprehensive loss.
The Company determined that all other features of the 2018 Notes and 2019 Notes were clearly and closely
associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was
immaterial to the Company's consolidated financial statements. The Company reassesses the features on a quarterly basis
to determine if they require separate accounting. There have been no changes to the Company’s original assessment
through December 31, 2019.
F-33
Table of Contents
The Company determined that the expected life of the 2018 Notes and 2019 Notes was equal to the period
through November 1, 2023 as this represents the point at which the 2018 Notes and 2019 Notes are initially subject to
repurchase by the Company at the option of the holders. Accordingly, the total debt discount, inclusive of the fair value
of the embedded conversion feature derivative at issuance, is being amortized using the effective interest method through
November 1, 2023. For the year ended December 31, 2019, the Company recognized an aggregate of $16.0 million of
interest expense related to the 2018 and 2019 Notes. For the year ended December 31, 2019, 2019 Note holders
converted $9.5 million aggregate principal of 2019 Notes in exchange for 5,767,872 shares of common stock and $0.4
million of cash for 2019 Interest Make-Whole Provision.
13. Net Loss per Share
ASC 260 “Earnings Per Share” requires the Company to calculate its net loss per share based on basic and
diluted net loss per share, as defined. Basic EPS excludes dilution and is computed by dividing net loss by the weighted
average number of shares outstanding for the period. For the years ended December 31, 2019 and 2017 net loss, basic
and diluted EPS are the same as the assumed exercise of stock options, restricted stock units, and the Notes are anti-
dilutive. For the year ended December 31, 2018, the dilutive effect of the outstanding Notes issued by the Company is
reflected in diluted EPS using the if-converted method.
The computation of basic and diluted net income (loss) per share attributable to common stockholders consists
of the following:
Net loss
Less: Other income
Add: Interest expense
Adjusted diluted net loss
Weighted average shares outstanding
Add: Dilutive effect of the Notes
Weighted average diluted shares outstanding
Net loss per share - basic
Net loss per share - diluted
Year Ended December 31,
2018
(72,434)
(25,556)
3,071
(94,919)
2019
(149,209)
—
—
(149,209)
2017
(67,802)
—
—
(67,802)
74,578
—
74,578
64,962
4,359
69,321
38,422
—
38,422
(2.00)
(2.00)
(1.12)
(1.37)
(1.76)
(1.76)
F-34
Table of Contents
For the year ended December 31, 2018, in calculating the effect of the Notes on diluted net loss per share, the
change in fair value of the bifurcated derivative 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 issue 20,936,548 shares. Under the “if-converted” method, convertible instruments are assumed to
have been converted as of the beginning of the period or when issued, if later. Accordingly, the weighted average
number of potentially issuable shares upon conversion of the Notes was determined by weighting the number of shares
potentially issuable as of December 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 share due
to their anti-dilutive effect:
Outstanding stock options
Outstanding restricted stock units
2018 Notes
2019 Notes
Total potentially dilutive securities
14. Income Taxes
2019
2017
Year Ended December 31,
2018
17,258,524 12,522,867 8,719,978
678,089
—
3,950,032
—
—
34,796,363
56,683,008 12,829,617 8,719,978
306,750
—
—
As of December 31, 2019, the Company had federal and state net operating loss carryforwards of approximately
$371.7 million and $392.3 million, respectively, which are available to reduce future taxable income. The Company also
had federal and state tax credits of $20.6 million and $3.0 million, respectively, which may be used to offset future tax
liabilities. The net operating loss (NOL) and tax credit carryforwards will expire at various dates through 2039, except
for $136.3 million of federal net operating loss carryforwards which may be carried forward indefinitely. NOL and tax
credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax
authorities and may become subject to an annual limitation in the event of certain cumulative changes in the ownership
interest of significant stockholders over a three‑year period in excess of 50%, as defined under Sections 382 and 383 of
the Internal Revenue Code, as well as similar state provisions. This could limit the amount of tax attributes that can be
utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined
based on the value of the Company immediately prior to the ownership change. Subsequent ownership 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 operations
follows:
Income tax benefit using U.S. federal statutory rate
State tax benefit, net of federal benefit
Research and development tax credits
Cancellation of debt
Permanent items
Change in the valuation allowance
Other
December 31,
2019
21.00 %
4.26 %
1.67 %
(4.76)%
(1.41)%
(20.33)%
(0.43)%
— %
2018
21.00 %
6.38 %
5.61 %
— %
(0.65)%
(31.82)%
(0.52)%
— %
The principal components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
F-35
Table of Contents
Deferred tax assets:
Net operating loss carryforwards
Capitalized research and development
Research and development credits
Stock-based compensation
Other
Total deferred tax assets
Deferred tax liabilities:
Debt discount
Total deferred tax liabilities
Net deferred tax asset prior to valuation allowance
Valuation allowance
Net deferred tax asset
December 31,
2019
2018
$ 101,039 $
2,230
22,944
4,445
1,451
132,109
(3,702)
(3,702)
128,407
(128,407)
88,829
2,545
19,725
3,756
543
115,398
(13,617)
(13,617)
101,781
(101,781)
—
$
— $
The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2019 and 2018
because the Company’s management believes that it is more likely than not that these assets will not be fully realized.
The increase in the valuation allowance of approximately $26.6 million in the year ended December 31, 2019 primarily
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 benefit
taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any
potential contingencies present related to the tax benefit. From inception and through December 31, 2019, the Company
had no unrecognized tax benefits or related interest and penalties accrued. The Company has not conducted a study of
research and development (R&D) credit carryforwards. This study may result in an adjustment to the Company’s R&D
credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented
as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, if an
adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would
be no impact to the consolidated balance sheet or statement of operations if an adjustment were required. The Company
would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The
Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities.
Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S.
federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
15. Commitments and contingencies
The Company has entered into a lease agreement for approximately 27,810 square feet of office space in
Needham, Massachusetts. Please refer to Note 9 for further details regarding the minimum aggregate future lease
commitments as of December 31, 2019. In conjunction with the execution of the Amended Lease Agreement, the
Company has provided a security deposit in the form of a letter of credit in the amount of $0.2 million as of December
31, 2019 and December 31, 2018. The amount is included in non-current restricted cash on the consolidated balance
sheets as of December 31, 2019.
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, the
Company may be required to pay significant royalties on future sales. The payment of these amounts, however, is
contingent upon the occurrence of various future events, which have a high degree of uncertainty of occurring.
16. License and collaboration agreements
Infinity Pharmaceuticals, Inc. (Infinity)
F-36
Table of Contents
In November 2016, the Company entered into an amended and restated license agreement with Infinity under
which it acquired an exclusive worldwide license for the research, development, commercialization, and manufacture of
products in oncology indications containing duvelisib. In connection with the license agreement, the Company assumed
operational and financial responsibility for certain activities that were part of Infinity’s duvelisib program, including the
DUO study for patients with relapsed/refractory CLL, and Infinity maintained a portion of the financial responsibility for
the shutdown of certain other clinical studies. The Company is obligated to use diligent efforts to develop and
commercialize a product in an oncology indication containing duvelisib. During the term of the license agreement,
Infinity has agreed not to research, develop, manufacture or commercialize duvelisib in any other indication in humans
or animals.
Pursuant to the terms of the license agreement, the Company was required to make the following payments to
Infinity in cash or, at the Company’s election, in whole or in part, in shares of the Company’s common stock: (i) $6.0
million upon the completion of the DUO study if the results of the DUO study met certain pre-specified criteria, which
was paid in cash by the Company to Infinity in October 2017 and recorded as research and development expense in the
consolidated statements of operations and comprehensive loss, and (ii) $22.0 million upon the approval of a NDA in the
United States or an application for marketing authorization with a regulatory authority outside of the United States for a
product in an oncology indication containing duvelisib, which was paid in cash by the Company to Infinity 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 oncology
indication containing duvelisib ranging from the mid-single digits to the high single-digits. The royalties will expire on a
product-by-product and country-by-country basis until the latest to occur of (i) the last-to-expire patent right covering the
applicable product in the applicable country, (ii) the last-to-expire patent right covering the manufacture of the
applicable product in the country of manufacture of such product, (iii) the expiration of non-patent regulatory exclusivity
in such country and (iv) ten years following the first commercial sale of a product in a country, provided that if royalties
on net sales for a product in the United States are payable solely on the basis of non-patent regulatory exclusivity, the
applicable royalty on net sales for such product in the United States will be reduced by 50%. The royalties are also
subject to reduction by 50% of certain third-party royalty payments or patent litigation damages or settlements which
might be required to be paid by the Company 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, the Company is obligated to pay Infinity an additional royalty of 4% on worldwide
net sales of any products in an oncology indication containing duvelisib to cover the reimbursement of research and
development costs owed by Infinity to Mundipharma International Corporation Limited (MICL) and Purdue
Pharmaceutical Products L.P. (Purdue). Once Infinity has fully reimbursed MICL and Purdue, the royalty obligations
will be reduced to 1% of net sales in the United States. These trailing MICL royalties are payable until the later to occur
of the last-to-expire of specified patent rights and the expiration of non-patent regulatory exclusivities in a country. Each
of the above royalty rates is reduced by 50% on a product-by-product and country-by-country basis if the applicable
royalty is payable solely on the basis of non-patent regulatory exclusivity. In addition, the trailing MICL royalties are
subject to reduction by 50% of certain third-party royalty payments or patent litigation damages or settlements which
might be required to be paid by the Company if litigation were to arise, with any such reductions capped at 50% of the
amounts otherwise payable during the applicable royalty payment period.
On March 5, 2019, Infinity and Healthcare Royalty Partners III, L.P. (HCR) entered into a purchase and sale
agreement, in which HCR paid Infinity a $30.0 million upfront payment and is entitled to receive up to $20.0 million in
potential milestone payments from Infinity. In exchange HCR has received the right to receive the royalties due to
Infinity from us under the license agreement. As a result, we now pay royalties previously due to Infinity to HCR. We
will continue to pay Infinity for the royalties due to MICL and Purdue described above.
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 in a
single identifiable asset or group of similar assets, the transaction did not meet the requirements to be accounted for as a
business combination and therefore was accounted for as an asset acquisition. All consideration to be paid
F-37
Table of Contents
under the license agreement is contingent in nature and will be recognized when the respective contingency is resolved.
During the year ended December 31, 2019 and 2018, the Company recorded royalty expense of $1.0 million,
and $0.1 million, respectively related to the HCR, Infinity, MICL, and Purdue royalty payments, which are included in
costs of sales - product within the consolidated statements of operation. There were no royalties paid to Infinity or HCR
during the year ended December 31, 2017.
Pfizer Inc. (Pfizer)
On July 11, 2012, the Company entered into a license agreement with Pfizer Inc. (Pfizer), under which Pfizer
granted the Company worldwide, exclusive rights to research, develop, manufacture and commercialize products
containing certain of Pfizer’s inhibitors of focal adhesion kinase (the FAK Products) for all therapeutic, diagnostic and
prophylactic uses in humans. The Company is solely responsible, at its expense, for the clinical development of the FAK
Products, which is to be conducted in accordance with an agreed upon development plan. The Company is also
responsible for all manufacturing and commercialization activities at its own expense. Pfizer is required to provide the
Company with an initial quantity of clinical supply of one of the FAK Products for an agreed upon price. Under the
agreement, the Company made a one-time cash payment to Pfizer in the amount of $1.5 million and issued 192,012
shares of its common stock. Pfizer is also eligible to receive up to $2.0 million in developmental milestones and up to an
additional $125.0 million based on the successful attainment of regulatory and commercial sales milestones. Pfizer is
also eligible to receive high single to mid-double-digit royalties on future net sales of the FAK Products. The Company’s
royalty obligations with respect to each FAK Product in each country begin on the date of first commercial sale of the
FAK Product in that country, and end on the later of 10 years after the date of first commercial sale of the FAK Product
in that country or the date of expiration or abandonment of the last claim contained in any issued patent or patent
application licensed by Pfizer to the Company that covers the FAK Product in that country. The Company accounted for
the license agreement as the licensing of in process research and development with 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) with
Yakult, under which the Company granted exclusive rights to Yakult to develop and commercialize products containing
duvelisib in Japan for the treatment, prevention, palliation or diagnosis of all oncology indications in humans or animals.
Under the terms of the Yakult Agreement, Yakult received an exclusive right to develop and commercialize
products containing duvelisib in Japan under mutually agreed upon development and commercialization plans at its own
cost and expense. Yakult also received certain limited manufacturing rights in the event that the Company is unable to
manufacture or supply sufficient quantities of duvelisib or products containing duvelisib to Yakult during the term 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 is
also entitled to receive aggregate payments of up to $90.0 million if certain development, regulatory and commercial
milestones are successfully achieved. Yakult is obligated to pay the Company a double-digit royalty on net sales of
products containing duvelisib in Japan, subject to reduction in certain circumstances, and to fund certain global
development costs related to worldwide clinical trials conducted by the Company in which Yakult has opted to
participate (Global Clinical Trials) on a pro-rata basis.
Unless earlier terminated by either party, the Yakult Agreement will expire upon the fulfillment of Yakult’s
royalty obligations to the Company for the sale of any products containing duvelisib in Japan, which royalty obligations
expire, on a product-by-product basis, upon the last to occur of (a) expiration of valid claims covering such product, (b)
expiration of regulatory exclusivity for such product or (c) 10 years from first commercial sale of such product. Yakult
may terminate the Yakult Agreement in its entirety at any time with 180 days’ written notice. Either party may terminate
the Yakult Agreement in its entirety with 60 days’ written notice for the other party’s material breach if such party fails
to cure the breach. The Company may terminate the Yakult Agreement if (i)
F-38
Table of Contents
Yakult fails to use commercially reasonable efforts to develop and commercialize products containing duvelisib in Japan
or (ii) Yakult challenges any patent licensed by the Company to Yakult under the Yakult Agreement. Either party may
terminate the Yakult Agreement in its entirety upon certain insolvency events involving the other party.
Subsequently, on February 28, 2019, the Company entered into a supply agreement with Yakult (the Yakult
Supply Agreement), under which the Company agreed to provide Yakult with drug product for clinical and commercial
use in accordance with the Yakult Agreement. Under the terms of the Yakult Supply Agreement, the Company also
granted to Yakult a limited manufacturing license to fill, finish, package, and label the drug product solely for clinical
and commercial purposes in Japan.
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 of
the parties pursuant to the Yakult Agreement. The Company accounts for collaborative arrangements (or elements within
the contract that are deemed part of a collaborative arrangement), which represent a collaborative relationship and not a
customer relationship, outside the scope of ASC 606. For a component of the Yakult Agreement, the Company
concluded that both the Company and Yakult are exposed to significant risks while developing duvelisib and ultimately
would share in the reward upon successful commercialization of duvelisib. The Company then considered each
remaining component in the Yakult Agreement to determine if ASC 606 should be applied to those components.
Generally, the components in the Yakult 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 and
development activities and payments related to such activities are not within the scope of ASC 606 as Yakult is not a
customer of the Company with regards to these activities in the context of the Yakult Agreement. As such, costs incurred
to execute the Global Clinical Trials will be recorded as research and development expense and payments received from
Yakult 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 this
component in the context of the Yakult Agreement. As such, the Territory-specific component and all related payments
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 the
license has limited value without the initial technology. Therefore, the exclusive license and initial technology transfer
are combined as a single performance obligation. The Company evaluated the option rights for manufacturing and
supply services to determine whether they represent material rights to Yakult and concluded that the options were not
issued at a significant and incremental discount and therefore do not represent material rights. As such, they are not
performance obligations at the outset of the arrangement. Based on this assessment, the Company concluded one
performance obligation exists at the outset of the Yakult Agreement: the exclusive license combined with the initial
technology transfer.
The Company determined that the upfront payment of $10.0 million constitutes the transaction price as of the
outset of the Yakult Agreement. Future potential milestone payments were fully constrained as the risk of significant
revenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestones
is not within the Company’s control and is subject to certain research and development success or regulatory approvals
and therefore carry significant uncertainty. The Company will reevaluate the likelihood of achieving future milestones at
the end of each reporting period. As all performance obligations have been satisfied, if the risk of significant revenue
reversal is resolved, any future milestone revenue from the arrangement will be added to the transaction price (and
thereby recognized as revenue) in the period the risk is relieved.
The Company has recognized $0.1 million of collaboration revenue under the Yakult Supply Agreement for the year
ended December 31, 2019. The Company satisfied the performance obligation upon delivery of the license and
F-39
Table of Contents
initial technology transfer and 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 the
exclusive right to negotiate a licensing agreement with the Company for duvelisib in China. CSPC paid the Company a
non-refundable exclusivity fee of $5.0 million in August 2018 (Exclusivity Fee) which was creditable against any
payments 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 with
CSPC (the CSPC Agreement), under which the Company granted exclusive rights to CSPC to develop and
commercialize products containing duvelisib 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 commercialize
products containing duvelisib in the CSPC Territory under mutually agreed upon development and commercialization
plans at its own cost and expense. CSPC also received certain limited manufacturing rights in the event that the
Company is unable to manufacture or supply sufficient quantities of duvelisib or products containing duvelisib to CSPC
during the term of the CSPC Agreement. The Company retained all rights to duvelisib outside of the CSPC Territory.
CSPC paid the Company an aggregate upfront, non-refundable payment of $15.0 million, less the previously
paid $5.0 million Exclusivity Fee. The Company is also entitled to receive aggregate payments of up to $160.0 million if
certain development, regulatory and commercial milestones are successfully achieved. CSPC is obligated to pay the
Company a double-digit royalty on net sales of products containing duvelisib in the CSPC Territory, subject to reduction
in certain circumstances, and to fund certain global development costs related to worldwide clinical trials conducted 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’s
royalty obligations to the Company for the sale of any products containing duvelisib in the CSPC Territory, which
royalty obligations expire, on a product-by-product basis, upon the last to occur of (a) expiration of valid claims covering
such product, (b) expiration of regulatory exclusivity for such product or (c) 10 years from first commercial sale of 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 material breach if
such party fails to cure the breach. The Company may terminate the CSPC Agreement if (i) CSPC fails to use
commercially 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 may
terminate 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 of
the parties pursuant to the CSPC Agreement. The Company accounts for collaborative arrangements (or elements within
the contract that are deemed part of a collaborative arrangement), which represent a collaborative relationship and not a
customer relationship, outside the scope of ASC 606. For a component of the CSPC Agreement, the Company concluded
that both the Company and CSPC are exposed to significant risks while developing duvelisib and ultimately would share
in the reward upon successful commercialization of duvelisib. The Company then considered each remaining component
in the CSPC Agreement to determine if ASC 606 should be applied to those components. Generally, the components 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.
F-40
Table of Contents
For the parties’ participation in the Global Clinical Trials, the Company concluded that the research and
development activities and payments related to such activities are not within the scope of ASC 606 as CSPC is not a
customer of the Company with regards to these activities in the context of the CSPC Agreement. As such, costs incurred
to execute the Global Clinical Trials will be recorded as research and development expense and payments received from
CSPC 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 this
component in the context of the CSPC Agreement. As such, the CSPC Territory-specific component and all related
payments 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 the
license has limited value without the initial technology. Therefore, the exclusive license and initial technology transfer
are combined as a single performance obligation. The Company evaluated the option rights for manufacturing and
supply services to determine whether they represent material rights to CSPC and concluded that the options were not
issued at a significant and incremental discount and therefore do not represent material rights. As such, they are not
performance obligations at the outset of the arrangement. Based on this assessment, the Company concluded one
performance obligation exists at the outset of the CSPC Agreement: the exclusive license combined with the initial
technology transfer.
The Company determined that the upfront payment of $15.0 million constitutes the transaction price as of the
outset of the CSPC Agreement. Future potential milestone payments were fully constrained as the risk of significant
revenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestones
is not within the Company’s control and is subject to certain research and development success or regulatory approvals
and therefore carry significant uncertainty. The Company will reevaluate the likelihood of achieving future milestones at
the end of each reporting period. As all performance obligations have been satisfied, if the risk of significant revenue
reversal is resolved, any future milestone revenue from the arrangement will be added to the transaction price (and
thereby recognized as revenue) in the period the risk is relieved.
For the year ended December 31, 2019 there have been no additional milestones achieved under the CSPC
Agreement. The Company satisfied the performance obligation upon delivery of the license and initial technology
transfer and recognized the upfront payment of $15.0 million as license revenue during the year ended December 31,
2018.
Sanofi
On July 25, 2019, the Company entered into a license and collaboration agreement with Sanofi (the Sanofi
Agreement), under which the Company granted exclusive rights to Sanofi to develop and commercialize products
containing duvelisib in Russia, the Commonwealth of Independent States (CIS), Turkey, the Middle East and Africa
(collectively the “Sanofi Territory”) for the treatment, prevention, palliation or diagnosis of any oncology indication in
humans or animals.
Under the terms of the Sanofi Agreement, Sanofi received the exclusive right to develop and commercialize
products containing duvelisib in the Sanofi Territory under mutually agreed upon development and commercialization
plans at Sanofi’s own cost and expense. In addition, Sanofi received certain limited manufacturing rights in the event the
Company is unable to manufacture or supply sufficient quantities of duvelisib or products containing duvelisib to Sanofi
during the term of the Sanofi Agreement. The Company retained all rights to duvelisib outside the Sanofi Territory,
except for those territories previously and exclusively licensed to other partners.
Sanofi paid the Company an upfront, non-refundable payment of $5.0 million in August 2019. The Company is
also entitled to receive aggregate payments of up to $42.0 million if certain regulatory and commercial milestones are
successfully achieved. Sanofi is obligated to pay the Company double-digit royalties on net sales of products containing
duvelisib in the Sanofi Territory, subject to reduction in certain circumstances.
F-41
Table of Contents
Unless earlier terminated by either party, the Sanofi Agreement will expire upon the fulfillment of Sanofi’s
royalty obligations to the Company for the sale of any products containing duvelisib in the Sanofi Territory, which
royalty obligations expire, on a product-by-product and country-by-country basis, upon the last to occur, in each specific
country, of (a) expiration of valid patent claims covering such product, (b) expiration of regulatory exclusivity for such
product or (c) 10 years from the first commercial sale of such product in such country. Sanofi may terminate the Sanofi
Agreement on a product-by-product basis or on a country-by country basis at any time with 180 days’ written notice.
Either party may terminate the Sanofi Agreement in its entirety with 60 days’ written notice for the other party’s material
breach if such party fails to cure the breach. Subject to certain limitations, the Company may terminate the Sanofi
Agreement immediately if Sanofi challenges any patent covering a product or compound licensed by the Company to
Sanofi under the Sanofi Agreement. The Company also has the right to terminate Sanofi’s rights to products containing
duvelisib in any specific country if Sanofi fails to use certain efforts to develop and commercialize products containing
duvelisib in such country. Either party may terminate the Sanofi Agreement in its entirety upon certain insolvency events
involving the other party.
The Company first assessed the Sanofi Agreement under ASC 808 to determine whether the Sanofi Agreement
(or part of the Sanofi Agreement) represents a collaborative arrangement based on the respective risks, rewards and
activities of the parties. The Company accounts for collaborative arrangements (or elements within the contract that are
deemed part of a collaborative arrangement), which represent a collaborative relationship and not a customer
relationship, outside the scope of ASC 606. The Company concluded that the Sanofi Agreement (or part of the Sanofi
Agreement) does not represent a collaborative arrangement under ASC 808. The Company then considered each
component in the Sanofi Agreement to determine if ASC 606 should be applied to those components. Generally, the
component in the Sanofi Agreement that falls under potential research and development activities is the development of
duvelisib specifically in the Sanofi Territory.
For development of duvelisib specifically in the Sanofi Territory, the Company has concluded that Sanofi is a
customer with regard to this component in the context of the Sanofi Agreement. As such, the Sanofi Territory
component and all related payments are within the scope of ASC 606.
The Company determined that there were two material promises associated with the Sanofi territory-specific
activities: (i) an exclusive license to develop and commercialize duvelisib in the Sanofi Territory and (ii) the initial
technology transfer. The Company determined that the exclusive license and initial technology transfer were not distinct
from one another, as the license has limited value without the initial technology transfer. Therefore, the exclusive license
and initial technology transfer are combined as a single performance obligation. The Company evaluated the option
rights for manufacturing and supply services to determine whether they represent material rights to Sanofi and concluded
that the options were not issued at a significant and incremental discount and therefore do not represent material rights.
As such, they are not performance obligations at the outset of the arrangement. Based on this assessment, the Company
concluded that one performance obligation exists at the outset of the Sanofi Agreement, which is the exclusive license
combined with the initial technology transfer.
The Company has determined that the upfront payment of $5.0 million constituted the transaction price at the
outset of the Sanofi Agreement. Future potential milestone payments were fully constrained as the risk of significant
revenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestones
is not within the Company’s control and is subject to certain regulatory approvals and therefore carry significant
uncertainty. The Company will reevaluate the likelihood of achieving future milestones at the end of each reporting
period. As all performance obligations have been satisfied, if the risk of significant revenue reversal is resolved, any
future milestone revenue from the arrangement will be added to the transaction price (and thereby recognized as
revenue) in the period the risk is relieved.
The Company satisfied the performance obligation upon delivery of the license and initial technology transfer
and recognized the upfront payment of $5.0 million as license and collaboration revenue during the year ended
December 31, 2019.
F-42
Table of Contents
17. Employee benefit plan
In June 2011, the Company adopted a 401(k) retirement and savings plan (the 401(k) Plan) covering all
employees. The 401(k) Plan allows employees to make pre‑tax or post‑tax contributions up to the maximum allowable
amount set by the Internal Revenue Service. Under the 401(k) Plan, the Company may make discretionary contributions
as approved by the board of directors. The Company made contributions to the 401(k) Plan of approximately $1.3, $0.8
million, and $0.3 million for the years ended December 31, 2019, 2018, and 2017, respectively.
F-43
Table of Contents
18. Quarterly financial information (unaudited, in thousands, except per share data)
First Quarter Second Quarter Third Quarter Fourth Quarter
Ended
March 31,
2019
Ended
June 30,
2019
Ended
September 30,
2019
Ended
December 31,
2019
Revenue:
Product revenue, net
License and collaboration revenue
Total revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible amortization
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other income/(expense)
Interest income
Interest expense
Net loss
Net loss per share —basic
Net loss per share —diluted
Weighted-average number of common shares used in net
loss per share —basic and diluted
Net loss per share —basic
Net loss per share —diluted
$
$
1,671 $
—
1,671
3,019 $
117
3,136
4,032 $
5,000
9,032
3,617
—
3,617
158 $
392
9,758
26,033
36,341
(34,670)
—
1,497
(4,929)
$ (38,102) $
(0.52) $
$
(0.52) $
$
377 $
392
11,346
29,298
41,413
(38,277)
—
1,268
(5,185)
(42,194) $
(0.57) $
(0.57) $
371 $
392
12,219
22,153
35,135
(26,103)
—
1,005
(5,041)
(30,139) $
(0.41) $
(0.41) $
332
393
12,455
23,728
36,908
(33,291)
(641)
611
(5,453)
(38,774)
(0.51)
(0.51)
73,854
73,854
73,877
73,877
74,228
74,228
76,331
76,331
Revenue:
Product revenue, net
License and collaboration revenue
Total revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible amortization
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Other income
Interest income
Interest expense
Net loss
Net loss per share —basic
Net loss per share —diluted
Weighted-average number of common shares used
in net loss per share —basic and diluted
First Quarter Second Quarter
Third Quarter Fourth Quarter
Ended
March 31,
2018
Ended
June 30,
2018
Ended
September 30,
2018
Ended
December 31,
2018
$
$
— $
—
—
— $
—
10,934
9,827
20,761
(20,761)
—
191
(480)
$ (21,050) $
(0.41) $
$
(0.41) $
$
—
10,000
10,000
—
—
12,381
15,813
28,194
(18,194)
—
343
(516)
(18,367)
(0.30)
(0.30)
$
$
$
$
$
508 $
1,210
15,000
15,508
—
1,210
49 $
31
11,571
25,426
37,077
(21,569)
—
763
(862)
(21,668) $
(0.29) $
(0.29) $
116
392
8,762
26,199
35,469
(34,259)
25,556
1,306
(3,952)
(11,349)
(0.15)
(0.37)
Net loss per share —basic
Net loss per share —diluted
50,835 (a)
50,835 (a)
61,256 (a)(b)
61,256 (a)(b)
73,644
73,644
73,766
91,061 (c)
F-44
Table of Contents
(a)
In the first and second quarters of 2018, the Company sold 167,065 and 6,314,410 shares of its common stock under
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 and
7,166,666 shares of its common stock at a price of $4.31 per share and $6.00 per share, respectively, for aggregate
proceeds, 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 been
converted as of the issuance date. Accordingly, the weighted average number of potentially issuable shares upon
conversion of the Notes was determined by weighting the number of shares issuable upon conversion at December
31, 2018, or 20,936,548, over the total days outstanding, 76 days, to calculate an additional 17,295,409 shares to be
added to the weighted-average number of shares.
19. Subsequent events
The Company reviews all activity subsequent to year end but prior to the issuance of the consolidated financial
statements for events that could require disclosure or that could impact the carrying value of assets or liabilities as of the
consolidated balance sheet date. The Company is not aware of any material subsequent events other than the following:
Chugai Pharmaceutical Co., Ltd. (Chugai) Agreement
On January 7, 2020, the Company entered into a license agreement (the Chugai Agreement) with Chugai
Pharmaceutical Co., Ltd. (Chugai) whereby Chugai granted the Company an exclusive worldwide license for the
development, commercialization and manufacture of products containing CH5126766, a dual RAF/MEK inhibitor.
Under the terms of the Chugai Agreement, the Company received an exclusive right to develop and
commercialize products containing CH5126766 at the Company’s cost and expense. Upon execution of the Chugai
Agreement, the Company is required to pay Chugai a non-refundable payment of $3.0 million which was paid in
February 2020. The Company is further obligated to pay Chugai double-digit royalties on net sales of products
containing CH5126766, subject to reduction in certain circumstances. Chugai also obtained opt back rights to develop
and commercialize CH5126766 (a) in the European Union, which option may be exercised through the date the
Company submits a NDA to the FDA for a product which contains CH5126766 as the sole active pharmaceutical
ingredient and (b) in Japan and Taiwan, which option may be exercised through the date the Company receives
marketing authorization from the FDA for a product which contains CH5126766 as the sole active pharmaceutical
ingredient. As consideration for executing either option, Chugai would have to make a payment to the Company
calculated on the Company’s development costs to date.
Restructuring
On February 27, 2020, the Company committed to an operational plan to reduce overall operating expenses,
including the elimination of approximately 31 positions across the Company and other cost-saving measures (the
“Restructuring”). The Restructuring is designed to streamline operations, speed execution of the Company’s clinical
development of defactinib and CH5126766, and reflect a focused, account-based approach in the field. The Company
expects to substantially complete the workforce reduction by the end of the first quarter of 2020.
The Company expects the Restructuring to reduce annualized operating expenses to a range of approximately
$70 million to $85 million beginning in the first quarter of 2020.
The Company expects to record a charge of approximately $1.9 million in the first quarter of 2020 as a result of
the Restructuring, consisting of one-time termination benefits for employee severance, benefits, and related
F-45
Table of Contents
costs, all of which are expected to result in cash expenditures and substantially all of which will be paid out over the next
three months.
Issuance of Common Stock
On March 3, 2020, the Company sold 46,511,628 shares of Common Stock at a purchase price of $2.15 per
share for aggregate gross proceeds of approximately $100.0 million, before deducting fees to the placement agents and
other offering expenses payable by the Company pursuant to a securities purchase agreement.
2019 Notes Conversion
From January 1, 2020 through the date of issuance of these consolidated financial statements, the aggregate
principal amount of $51.2 million of the Company’s 2019 Notes have been converted into 31,044,835 shares of common
stock. As a result, as of the date the issuance of these consolidated financials the Company has $6.2 million aggregate
principal amount outstanding of 2019 Notes. On March 9, 2020, the Company exercised the Company’s Mandatory
Conversion Option for the remaining $6.2 million of 2019 Notes outstanding which will require the remaining 2019
Notes to be converted into approximately 3.8 million shares of common stock in March 2020.
F-46
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.5
DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of information concerning the capital stock of Verastem, Inc. (“Verastem” or “the
Company”) that has been registered under the Securities Exchange Act of 1934. The summaries and descriptions below
do not purport to be complete and are subject to and qualified in their entirety by reference to the Delaware General
Corporation Law, the Company’s Amended and Certificate of Incorporation (the “Certificate of Incorporation”) and
Amended and Restated Bylaws (the “Bylaws”) each of which are incorporated by reference as an exhibit to the Annual
Report on Form 10-K of which this exhibit is a part. Common Stock
Under the Certificate of Incorporation, Verastem has authority to issue up to 200,000,000 shares of common stock, par
value $0.0001 per share. As of February 29, 2020, 91,402,823 shares of common stock were issued and outstanding.
Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. An election of directors by the Company’s stockholders shall be determined by
a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to
receive proportionately any dividends as may be declared by the Company’s board of directors, subject to any
preferential dividend rights of outstanding preferred stock.
In the event of the Company’s liquidation or dissolution, the holders of common stock are entitled to receive
proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are
subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that the
Company may designate and issue in the future.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Delaware law
Verastem is subject to Section 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203
prevents a publicly-traded Delaware corporation from engaging in a “business combination” with any “interested
stockholder” for three years following the date that the person became an interested stockholder, unless either the
interested stockholder attained such status with the approval of a corporation’s board of directors, the business
combination is approved by a corporation’s board of directors and stockholders in a prescribed manner or the interested
stockholder acquired at least 85% of the outstanding voting stock of the corporation in the transaction in which it became
an interested stockholder. A “business combination” includes, among other things, a merger or consolidation involving
the Company and an “interested stockholder” and the sale of more than 10% of the Company’s assets. In general, an
“interested stockholder” is any entity or person beneficially owning 15% or more of the Company’s outstanding voting
stock and any entity or person affiliated with or controlling or controlled by such entity or person.
Staggered board
Verastem’s certificate of incorporation and bylaws divide its board of directors into three classes with staggered three-
year terms. In addition, the certificate of incorporation and bylaws provide that directors may be removed only for cause
and only by the affirmative vote of the holders of 75% of the shares of capital stock present in person or by proxy and
entitled to vote. Under the certificate of incorporation and bylaws, any vacancy on the Company’s board
Exhibit 4.5
of directors, including a vacancy resulting from an enlargement of the board of directors, may be filled only by vote of a
majority of the directors then in office. Furthermore, the certificate of incorporation provides that the authorized number
of directors may be changed only by the resolution of the board of directors. The classification of the board of directors
and the limitations on the ability of the Company’s stockholders to remove directors, change the authorized number of
directors and fill vacancies could make it more difficult for a third party to acquire, or discourage a third party from
seeking to acquire, control of the Company.
Stockholder action; special meeting of stockholders; advance notice requirements for stockholder proposals and
director nominations
Verastem’s certificate of incorporation and bylaws provide that any action required or permitted to be taken by its
stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before
such meeting and may not be taken by written action in lieu of a meeting. The certificate of incorporation and bylaws
also provide that, except as otherwise required by law, special meetings of the stockholders can be called only by the
Company’s chairman of the board, president or chief executive officer or the board of directors. In addition, the
Company’s bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual
meeting of stockholders, including proposed nominations of candidates for election to the board of directors.
Stockholders at an annual meeting may consider only proposals or nominations specified in the notice of meeting or
brought before the meeting by or at the direction of the board of directors, or by a stockholder of record on the record
date for the meeting who is entitled to vote at the meeting and who has delivered timely written notice in proper form to
the Company’s secretary of the stockholder’s intention to bring such business before the meeting. These provisions could
have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a
majority of the Company’s outstanding voting securities. These provisions also could discourage a third party from
making a tender offer for the Company’s common stock, because even if it acquired a majority of the outstanding voting
stock, it would be able to take action as a stockholder, such as electing new directors or approving a merger, only at a
duly called stockholders meeting and not by written consent.
Super-majority voting
The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled
to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s
certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Verastem’s bylaws may be
amended or repealed by a majority vote of the Company’s board of directors or the affirmative vote of the holders of at
least 75% of the votes that the Company’s stockholders would be entitled to cast in any annual election of directors. In
addition, the affirmative vote of the holders of at least 75% of the votes that the Company’s stockholders would be
entitled to cast in any election of directors is required to amend or repeal or to adopt any provisions inconsistent with any
of the provisions of Verastem’s certificate of incorporation described above.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Computershare Trust Company, N.A.
Listing
The Company’s common stock is listed on The Nasdaq Global Market under the symbol “VSTM.”
CONSULTANT:
VERASTEM, INC. CONTACT:
EFFECTIVE DATE:
■ Robert Forrester
■ Dan Paterson
■ June 21, 2019
Exhibit 10.33
CONSULTING AGREEMENT
This Consulting Agreement (together with its attachments, this “Agreement”) made as of the date
written above (the “Effective Date”) is between Verastem, Inc. a Delaware corporation having an address at
117 Kendrick Street, Suite 500, Needham, MA 02494 (the “Company”), and Robert Forrester, residing at 346
Gay Street, Westwood, MA 02142, (“Consultant”). The Company desires to have the benefit of Consultant's
knowledge and experience, and Consultant desires to provide Consulting Services (defined below) to the
Company, all as provided in this Agreement. All capitalized terms not herein defined shall have the
definitions ascribed to them in the Separation Agreement signed between Consultant and the Company on
June 25, 2019 (the “Separation Agreement”).
1.
Consulting Services. The Company hereby retains Consultant in an advisory capacity to be
available for advice to the Company from time to time as may be mutually agreed upon and reasonable in
light of any other professional obligations the Consultant may undertake. In providing services under this
Agreement, Consultant agrees not to use or disclose any trade secrets or other confidential information of any
other person, firm, corporation, institution or other entity in connection with any of the Consulting Services
without such third party’s express written consent. Consultant will comply with all rules, procedures and
standards promulgated from time to time by the Company with regard to Consultant’s access to and use of the
Company’s property, information, equipment and facilities. Except as provided in Section 7.2 below, this is a
non-cancellable term consulting agreement.
2.
Term and Compensation. The term of this Consulting Agreement shall be thirty-seven (37)
months, from June 22, 2019 through July 21, 2022. As compensation for the Consulting Services rendered
during the Term, the Company will pay Consultant at an hourly rate of $600.00. In further consideration for
the Consulting Services rendered by Consultant to the Company, the Company agrees the time within which
Consultant shall be allowed to exercise all stock options granted to him pursuant to the terms of the Award
Agreements shall be extended until the earlier of July 21, 2022, or the original expiration date of such stock
option. Payments will be made by the Company within thirty (30) days from the Company’s receipt of
Consultant’s invoice. Invoices will contain such detail as the Company may reasonably require, and will be
payable in U.S. Dollars in accordance with the terms and provisions of the Business Terms. The Company
will reimburse Consultant for reasonable and pre-approved business expenses incurred by Consultant in the
performance of the Consulting Services as specified in the Business Terms.
3.
Inventions.
3.1
Definition. “Inventions” means all inventions, discoveries, improvements, ideas, designs,
processes, products, computer programs, works of authorship, databases, gene sequences,
cell lines, samples, chemical compounds, assays, biological materials, mask works, trade
3.2
3.3
3.4
secrets, know-how, research and creations (whether or not patentable or subject to copyright
or trade secret protection) that Consultant makes, conceives or reduces to practice, either
alone or jointly with others, and that (a) result from the performance of the Consulting
Services, and/or (b) result from use of facilities, equipment, supplies, Research Materials
(defined below), or Confidential Information (defined below) of the Company.
Ownership. Consultant will promptly disclose all Inventions in confidence to the Company.
Consultant agrees to irrevocably transfer and assign and hereby does irrevocably transfer and
assign to the Company or its successors or designees the entire right, title and interest now
existing or that may exist in the future in and to all right, title and interest in and to all
Inventions and any and all related patents, patent applications, copyrights, copyright
applications, trademarks, trade names, trade secrets and other proprietary and moral rights in
the United States and throughout the world developed as a result of and solely as a result of
this consulting agreement (“Work Product”). All Work Product will be the exclusive
property of the Company. For purposes of the copyright laws of the United States, all Work
Product will constitute “works made for hire”, except to the extent such Inventions cannot by
law be “works made for hire”. Consultant agrees to execute, at the Company’s request and
expense, all documents and other instruments necessary or desirable to confirm such
assignment. In the event that Consultant does not, for any reason, execute such documents
within a reasonable time of the Company’s request, Consultant hereby irrevocably appoints
the Company as Consultant’s attorney-in-fact for the purpose of executing such documents
on Consultant’s behalf, which appointment is coupled with an interest. Consultant shall not
attempt to register any works created by Consultant pursuant to this Agreement at the U.S.
Copyright Office, the U.S. Patent & Trademark Office, or any foreign copyright, patent, or
trademark registry. Consultant retains no rights in the Work Product and agrees not to
challenge the Company’s ownership of the rights embodied in the Work Product. Consultant
further agrees to assist the Company in every proper way to enforce the Company’s rights
relating to the Work Product in any and all countries, including, but not limited to, executing,
verifying and delivering such documents and performing such other acts (including appearing
as a witness) as the Company may reasonably request for use in obtaining, perfecting,
evidencing, sustaining and enforcing the Company’s rights relating to the Work Product.
Moral Rights. If Consultant has any rights, including without limitation “artist’s rights” or
“moral rights” in the Work Product which cannot be assigned (the “Non-Assignable Rights”),
Consultant agrees to waive enforcement worldwide of such rights against the Company. In
the event that Consultant has any such rights that cannot be assigned or waived, Consultant
hereby grants to the Company a royalty-free, paid-up, exclusive, worldwide, irrevocable,
perpetual license under the Non-Assignable Rights to (i) use, make, sell, offer to sell, have
made, commercialize, and further sublicense the Work Product, and (ii) reproduce, distribute,
create derivative works of, publicly perform and publicly display the Work Product in any
medium or format, whether now known or later developed.
Research Materials.
For Consulting Services which involve laboratory work or
experiments, “Research Materials” means all materials (a) furnished by the Company,
(b) developed by Consultant in connection with the Consulting Services, or (c) the cost of
which are reimbursed to Consultant by the Company. Research Materials include, in the case
of biological materials, all progeny and unmodified derivatives of those materials, and in the
case of chemical materials, all analogs, formulations, mixtures and compositions of those
materials. Research Materials are the sole property of the Company. Consultant
3.5
3.6
3.7
agrees not to use or evaluate Research Materials for any purpose other than as directed by the
Company, and not to transfer the Research Materials to any third party without the prior
written consent of the Company. Consultant will use the Research Materials in strict
compliance with all laws and regulations.
Records. Consultant shall make and maintain adequate and current written records of all
Work Product, which records shall be available to and remain the property of the Company at
all times.
Agreement with Institution. This Agreement is made subject to the understanding that
Consultant, if affiliated with an Institution, may be required to fulfill certain obligations,
including teaching, directing laboratory operations, conducting research, and publishing
work. It is further understood that Consultant may have signed an agreement concerning
inventions with Institution, under which Consultant may be obligated to assign to Institution
certain inventions which arise out of or otherwise relate to Consultant’s work at or for
Institution or from Consultant’s use of certain of its facilities or intellectual property. In
performing the Consulting Services, Consultant agrees not to utilize Institution facilities or
intellectual property if the result of such use is that any Inventions will not be assignable
solely to the Company. Use of Institution's telephone, fax machines or computers for
communication purposes, however, will not constitute use of Institution's facilities under this
Agreement.
Work at Third Party Facilities. Consultant agrees not to make use of any funds, space,
personnel, facilities, equipment or other resources of a third party in performing the
Consulting Services, and further agrees not to take any other action that would result in a
third party owning or having a right in any Inventions, unless agreed upon in writing in
advance by the Company.
4.
Confidential Information.
4.1
4.2
and
information of
Definition. “Confidential Information” means information with respect to the facilities and
methods of the Company, Research Materials, trade secrets, Inventions, systems, patents and
patent applications, procedures, manuals, confidential reports, financial or legal information,
business plans, prospects, or opportunities, personnel information, lists of customers and
to
suppliers,
Consultant. Confidential Information does not include information which (i) is in the public
domain or which becomes part of the public domain through no wrongful act on Consultant’s
part but only after it becomes so publicly known, (ii) is already in Consultant’s possession at
the time of disclosure by the Company, other than by previous disclosure by the Company, as
evidenced by written or electronic records, or (iii) that becomes known to Consultant through
disclosure by a third party having the right to disclose the information, as evidenced by
written or electronic records.
third parties provided by
the Company
Obligations of Confidentiality. Consultant will not directly or indirectly publish,
disseminate or otherwise disclose, use for Consultant’s own benefit or for the benefit of a
third party, deliver or make available to any third party, any Confidential Information, other
than in furtherance of the purposes of this Agreement, and only then with the prior written
consent of the Company, and it is agreed and understood that all Confidential Information
shall remain the sole property of the Company. Without the Company’s prior written
approval, Consultant will not directly or indirectly disclose to anyone the existence or terms
of this Agreement or the fact that Consultant has this arrangement with the Company. If
required, Consultant may disclose the Confidential Information to a governmental
to
is given
such compulsory disclosure
authority or by order of a court of competent jurisdiction, provided that such disclosure is
subject to all applicable governmental or judicial protection available for like material and
the
reasonable advance notice of
Company. Consultant will exercise all reasonable precautions to protect the physical
integrity and confidentiality of the Confidential Information, and will not remove any
Confidential Information or copies or derivations thereof from the Company’s premises
except to the extent necessary to fulfill the Consulting Services, and then only with the
Company’s prior consent. Consultant may disseminate or permit access to Confidential
Information only to Consultant Personnel who have a need to know such Confidential
Information in the course of the performance of their duties under this Agreement and who
are bound to protect the confidentiality of the Confidential Information consistent with the
terms of this Agreement. Consultant agrees to be responsible for any breach of this
Agreement by any of the Consultant Personnel. The Company will be entitled to injunctive
relief as a remedy for any breach of the terms of this Section 4. Nothing in this Agreement
limits, restricts or in any other way affects Consultant’s communicating with any
governmental agency or entity, or communicating with any official or staff person of a
governmental agency or entity, concerning matters relevant to the governmental agency or
entity, or requires Consultant to furnish prior notice to the Company of the same. Consultant
cannot be held criminally or civilly liable under any federal or state trade secret law for
disclosing a trade secret (i) in confidence to a federal, state, or local government official,
either directly or indirectly, or to an attorney, solely for the purpose of reporting or
investigating a suspected violation of law, or (ii) in a complaint or other document filed under
seal in a lawsuit or other proceeding. Notwithstanding this immunity from liability,
Consultant may be held liable if he unlawfully accesses trade secrets by unauthorized means.
4.3
Third Party Confidential Information. Consultant recognizes that the Company has
received and in the future will receive from third parties confidential and proprietary
information (“Third Party Information”) subject to a duty on the Company’s part to maintain
the confidentiality of such
limited
purposes. Consultant agrees that Consultant owes the Company and such third parties,
during the term of this Agreement and thereafter, a duty to hold Third Party Information in
the strictest confidence in accordance with the Company’s obligations to such third party, and
agrees not to disclose it to any person, firm or corporation or use it except in carrying out the
Consulting Services for the Company consistent with the Company’s agreement with such
third party.
it only for certain
information and
to use
5.
Restrictions.
5.1
(i)
While Consultant is engaged by the Company, Consultant will not, within the
United States or any other geographic region in which the Company conducts its business,
and in any capacity, whether individually or as an employee, consultant, director, officer,
agent, advisor or otherwise, for or on behalf of any entity (a “Competing Organization”),
engage in any business activities that are competitive with any of the material business
activities of the Company, including without limitation the research, development, sale or
marketing of any competitive product of the Company, unless Consultant’s duties at such
Competing Organization do not include duties relating to any product, process, service or
business activity that competes or is reasonably expected to compete with a material product,
process, service or business activity in existence or being conducted, provided or developed
by the Company, and provided that Consultant has delivered to the Company a
written statement, confirmed by Consultant’s prospective employer or consulting client, as
the case may be, describing Consultant’s duties and stating that such duties are consistent
with Consultant’s obligations under this Agreement; and
(ii)
While Consultant is engaged by the Company, and for a period of twelve (12)
months after the termination or cessation of such engagement for any reason, Consultant will
not, whether directly or indirectly, solicit, attempt to solicit or in any manner assist any other
party to solicit any employee, independent contractor, or consultant of the Company to
terminate or diminish his, her or its relationship with the Company in order to become an
employee, consultant, or independent contractor to or for any other person or entity.
5.2
As used in this Section 5, “competitive” activities means discovering, developing or
commercializing drugs that selectively target cancer stem cells, “competitive” products
means drugs that selectively target cancer stem cells, and an “employee,” “independent
contractor” or “consultant” of the Company is any person who holds or at any time during
the six-month period prior to the termination of Consultant’s engagement by Company held
such status with Company.
6.
Representations and Warranties.
6.1
6.2
6.3
No Conflicts. Consultant is under no contractual or other obligation or restriction which is
inconsistent with Consultant’s execution of this Agreement or the performance of the
Consulting Services. The Company agrees that nothing in this Agreement prohibits or
interferes with the Consultant's ability pursue other professional opportunities, except as
limited by Sections 3, 4 and 5 above.
Absence of Debarment. Consultant represents that (a) neither Consultant nor any
Consultant Personnel has been debarred, and to the best of Consultant’s knowledge is not
under consideration to be debarred, by the U.S. Food and Drug Administration (“FDA”) from
working in or providing consulting services to any pharmaceutical or biotechnology company
under Section 306(a) or 306(b) of the federal Food, Drug and Cosmetic Act (codified at 21
U.S.C. §§ 335a(a) and 335a(b)); (b) no debarred person will in the future be employed by
Consultant to perform any services hereunder in connection with any application for approval
of a drug by the FDA; and (c) neither Consultant nor any Consultant Personnel has a
conviction on their record for which a person can be debarred as decribed in Sections 306(a)
or 306(b) of the federal Food, Drug and Cosmetic Act. Consultant further represents and
warrants that should Consultant or any Consultant Personnel be convicted in the future of any
act for which a person can be debarred as described in Sections 306(a) or 306(b) of the
federal Food, Drug and Cosmetic Act, Consultant shall immediately notify Company of such
conviction in writing.
Assignment of Ownership in Work Product. Consultant represents and warrants that (i)
Consultant has the right and unrestricted ability to assign the Work Product to the Company
as set forth in Section 3 (including without limitation the right to assign any Work Product
created by Consultant’s employees or contractors); (ii) the Work Product has not heretofore
been published in whole or in part; and (iii) the Work Product will not infringe upon any
copyright, patent, trademark, right of publicity or privacy, or any other proprietary or
intellectual property right of any person, whether contractual, statutory or common law.
6.4
Compliance with Law. Consultant covenants that the services to be provided hereunder
shall be in compliance with all applicable laws, rules and regulations. Consultant
acknowledges that Consultant is subject to the Company’s insider trading policy, a copy of
which can be found on the Company’s website at www.verastem.com.
6.5
No Conflicting Agreements. Consultant represents that Consultant’s performance of all the
terms of this Agreement and as a provider of services to the Company does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or data
acquired by Consultant in confidence or in trust prior to or during this Agreement, and
Consultant has not and will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous employers or
other third parties. When performing the Consulting Services, Consultant agrees to use only
such materials and information of any kind that Consultant has rightfully obtained and that
are not considered proprietary or confidential by any third party unless agreed to otherwise
by the Company in writing.
7.
Term and Termination.
7.1
7.2
7.3
7.4
Term. This Agreement will commence on the Effective Date and continue for period of
three years, that is, until July 21, 2022 ("the Term"). This Agreement is not subject to
cancelation by the Company absent cause unless sooner terminated pursuant to the express
terms of this Section 7. The Company may, however, during the Term and in its sole
discretion, reduce or eliminate the Consulting Services and/or revoke the Consultant’s access
to Company premises, equipment, property, or systems.
Termination for Cause. If, during the Term, the Consultant (i) materially breaches a
material provision of this Agreement which is not remedied within (30) days of written
notice thereof, (ii) is convicted of or enters a plea of nolo contendere to any felony charge, or
(iii) commits acts of fraud, embezzlement or moral turpitude involving the Company, the
Company may terminate the Agreement for Cause. In addition, the Company may terminate
this Agreement immediately at any time upon written notice to Consultant in the event
Consultant revokes his acceptance of the Separation Agreement (as defined below).
Termination by Consultant. Consultant may terminate this Agreement at any time without
cause upon not less than thirty (30) days’ prior written notice to the Company.
Effect of Expiration/Termination. Upon expiration or termination of this Agreement,
neither the Company nor Consultant will have any further obligations under this Agreement,
except (a) for liabilities accrued through the date of termination, and (b) the obligations under
Sections 3, 4, 5, 6, 7 and 8 hereof will survive. Upon expiration or termination, and in any
case upon the Company’s request, Consultant will return immediately to the Company all
tangible Confidential Information and all tangible Third Party Information, including all
copies, reproductions and derivations thereof, and all of the Company’s property, equipment,
and documents. Consultant will not copy, delete, or alter any information contained on any
Company property, equipment, or documents before returning such to the Company. In
addition, if Consultant has used any personal computer, server, electronic device, or e-mail
system to receive, store, review, prepare or transmit any Confidential Information or Third
Party Information, Consultant will provide the Company with a computer-useable copy of all
such Confidential Information and Third Party Information and then will delete any such
Confidential Information or Third Party Information from Consultant’s computer storage or
any other media (including, but not limited to, online and off-line libraries). Consultant
agrees to provide the Company access to its system as reasonably requested to verify that the
necessary copying and/or deletion has been completed. Consultant further agrees that any
property situated on Company
premises and owned by the Company will be subject to inspection by the Company’s
personnel at any time with or without notice. Consultant will, promptly upon expiration or
termination, certify in writing that it has complied with the requirements of this section ;
provided, however, that Consultants obligations under this Agreement will continue even if
Consultants fails or declines to provide such written certification.
8.
Miscellaneous.
8.1
8.2
joint venture
relationship between
Independent Contractor. All Consulting Services will be rendered by Consultant as an
independent contractor, and this Agreement does not create an employer-employee,
partnership, agency or
the Company and
Consultant. Except as set forth in his Separation Agreement, Consultant will have no rights
to receive any employee benefits, such as health and accident insurance, sick leave or
vacation which are accorded to regular Company employees, except as may be required by
COBRA. Consultant will not in any way represent himself to be an employee, partner, joint
venturer, or agent of the Company. Consultant is not authorized to make any representation,
contract, or commitment on behalf of the Company or incur any liabilities or obligations of
any kind in the name of or on behalf of the Company. Consultant shall work independently,
without day-to-day direction from the Company, and may adopt such arrangements as
Consultant desires with regard to the details of the Consulting Services performed under this
Agreement, the hours during which the Consulting Services will be provided, and the place
or places where the Consulting Services are to be furnished; provided that: (a) such
arrangements, details, hours and location of services shall be consistent with the proper
accomplishment of the agreed objectives of the Company; and (b) such services by
Consultant shall be performed in a manner calculated to obtain the most satisfactory results
for the Company.
Taxes. Consultant and the Company agree that the Company will treat Consultant as an
independent contractor for purposes of all tax laws (local, state and federal) and file income
reporting and other forms consistent with such status. Consultant agrees that, as an
independent contractor, neither Consultant nor Consultant’s employees are entitled to
unemployment benefits in the event this Agreement terminates, or to workers’ compensation
benefits in the event that Consultant, or any employee of Consultant, is injured in any manner
while performing obligations under this Agreement. Consultant will be solely responsible to
pay any and all local, state, and/or federal income, social security and unemployment taxes
for Consultant and Consultant’s employees. The Company will not withhold any taxes or
prepare W-2 Forms for Consultant, but will provide Consultant with a Form 1099 if and to
the extent required by law. Consultant is solely responsible for, and will timely file, all tax
returns and payments required to be filed with, or made to, any federal, state or local tax
authority with respect to the performance of services and receipt of fees under this
Agreement. Consultant is solely responsible for, and must maintain adequate records of,
expenses incurred in the course of performing services under this Agreement, except as
provided herein. The Company will regularly report amounts paid to Consultant with the
appropriate taxing authorities, as required by law. Consultant will provide the Company with
Consultant’s taxpayer identification number or social security number, as applicable.
8.3
Use of Name. Consultant consents to the use by the Company of Consultant’s name and
likeness in written materials and oral presentations to current or prospective customers,
partners, investors or others, provided that such materials or presentations accurately describe
the nature of Consultant’s relationship with and contributions to the Company.
8.4
8.5
8.6
8.7
8.8
8.9
8.10
Assignability and Binding Effect. The Consulting Services to be rendered by Consultant
are personal in nature. Consultant may not assign or transfer this Agreement or any of
Consultant’s rights or obligations hereunder except to a corporation of which Consultant is
the sole stockholder. In no event will Consultant assign or delegate responsibility for actual
performance of the Consulting Services to any other natural person except to Consultant
Personnel as provided for under this Agreement. This Agreement will be binding upon and
inure to the benefit of the parties and their respective legal representatives, heirs, successors
and permitted assigns. The Company may assign this Agreement to any other corporation or
entity which acquires (whether by purchase, merger, consolidation or otherwise) all or
substantially all of the business and/or assets of the Company.
Headings. The section headings are included solely for convenience of reference and will
not control or affect the meaning or interpretation of any of the provisions of this Agreement.
Notices. Any notices or other communications from one party to the other will be in writing
and will be given by addressing the same to the other at the address or facsimile number set
forth in this Agreement. Notices to the Company will be marked “Attention: General
Counsel”. Notice will be deemed to have been duly given when (a) deposited in the United
States mail with proper postage for first class Registered or Certified Mail prepaid, return
receipt requested, (b) sent by any reputable commercial courier, delivery confirmation
requested, (c) delivered personally, or (d) if promptly confirmed by mail or commercial
courier as provided above, when dispatched by facsimile.
Amendment. This Agreement may be amended or modified only by a writing signed by
authorized representatives of both parties.
No Waiver. No waiver of any term or condition of this Agreement shall be valid or binding
on either party unless the same shall be been mutually assented to in writing by both
parties. The failure of either party to enforce at any time any of the provisions of this
Agreement, or the failure to require at any time performance by the other party of any of the
provisions of this Agreement, shall in no way be construed to be a present or future waiver of
such provisions, nor in any way affect the right of either party to enforce each and every such
provision thereafter. The express waiver by either party of any provision, condition or
requirement of this Agreement shall not constitute a waiver of any future obligation to
comply with such provision, condition or requirement.
Severability. In the event that any one or more of the provisions contained in this Agreement
is, for any reason, held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability will not affect any other provisions of this Agreement, and all
other provisions will remain in full force and effect. If any provision of this Agreement is
held to be excessively broad, it will be reformed and construed by limiting and reducing it so
as to be enforceable to the maximum extent permitted by law.
Entire Agreement. This Agreement, together with the Separation Agreement between the
parties dated June 25, 2019 (the “Separation Agreement”) and the surviving documents
referenced therein, constitutes the entire agreement of the parties with regard to their subject
matter, and supersede all previous written or oral representations, agreements and
understandings between the parties.
8.11
8.12
Governing Law/Jurisdiction. All disputes related to or arising out of this Agreement shall
be resolved in the state or federal courts of the Commonwealth of Massachusetts, to whose
exclusive jurisdiction each party hereby consents. This Agreement will be governed by,
construed and enforced in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts made and to be performed therein, without giving effect to the
principles thereof relating to the conflict of laws.
Remedies. The Parties agree that Consultant’s obligations under this Agreement are of a
unique character that gives them particular value; breach of any of the provisions of Sections
3, 4 or 5 will result in irreparable and continuing damage to the Company for which there
will be no adequate remedy at law; and, in the event of such breach or threatened breach, the
Company will be entitled to injunctive relief and/or a decree for specific performance, an
award of its attorney’s fees incurred, and such other and further relief as may be proper.
Consultant and the Company further agree that no bond or other security shall be required in
obtaining such equitable relief.
8.13
Counterparts. This Agreement may be executed in any number of counterparts, each of
which will be deemed an original, but all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under seal as of the
Effective Date.
VERASTEM, INC.
CONSULTANT
By: /s/ Michael Kauffman MD
Name: Michael Kauffman
Title: Lead Director, VSTM BoD
duly authorized
By: /s/ Robert Forrester
Name: Robert Forrester
Title:
duly authorized
_________________________________
INSTITUTION ACKNOWLEDGEMENT
AND CONSENT FORM
Verastem, Inc. (the “Company”) is prepared to enter into the foregoing Agreement with the consultant
named on the preceding signature page (“Consultant”). The Company recognizes that as a member of the
institution named below (“Institution”), Consultant is responsible for ensuring that any consulting agreement
Consultant enters into with a for-profit entity is not in conflict with the patent, consulting or other policies of
Institution. The proposed Agreement requires Consultant, if required by Institution policies, to disclose the
proposed Agreement to Institution and/or to obtain Institution’s consent to enter into the proposed Agreement.
Institution hereby acknowledges and consents to Consultant entering into the foregoing Agreement.
INSTITUTION:
By_______________________________________
Print Name
Title______________________________________
duly authorized
Date______________________________________
Exhibit 10.34
June 25, 2019
Robert Forrester
346 Gay Street
Westwood, MA 02142
Dear Robert:
As we have agreed, you have resigned your employment with Verastem, Inc. (the
“Company”) and your position on the Verastem Board of Directors, and the Company has accepted
that resignation, effective June 21, 2019 (the “Separation Date”). Any capitalized term that is not
defined herein shall have the same meaning as defined in the Amended and Restated Employment
Agreement between you and the Company dated as of November 22, 2013 (the “Employment
Agreement”). The purpose of this letter (the “Agreement”) is to confirm the terms concerning your
separation from employment, as follows:
Final Salary and Vacation Pay. In signing this Agreement, you acknowledge that you have
1.
received pay for all work you have performed for the Company through the Separation Date, to the
extent not previously paid. Since, in accordance with Company policy, you have no accrued
vacation days as of the Separation Date, you will not receive any pay for such vacation time. You
will receive the payments described in this Section 1 regardless of whether or not you elect to sign
this Agreement.
2.
Severance Benefits. In consideration of your acceptance of this Agreement and subject to
your meeting in full your obligations hereunder and under the Confidentiality Agreement (as defined
below), and in full satisfaction of any rights that you have under the Employment Agreement, the
Company will provide you with the following severance benefits:
a.
The Company will pay you your salary, at your final base rate of pay, for a period of
thirteen (13) months following the Separation Date. Payments will be made in the form of salary
continuation, and will begin on the Payment Commencement Date. The first payment will be
retroactive to the day immediately following the Separation Date.
b.
If you are enrolled in the Company’s group medical and/or dental plans on the
Separation Date, you may elect to continue your participation and that of your eligible dependents in
those plans for a period of time under the federal law known as “COBRA,” or similar applicable
state law (together, “COBRA”). You may make such an election whether or not you accept this
Agreement. However, if you accept this Agreement and you timely elect to continue your
participation and that of your eligible dependents in the plans, the Company will pay or, at its
option, reimburse you for the full premium cost of that participation until the earlier of the
conclusion of thirteen (13) months following the Separation Date or the date that you
76614182_6
become eligible to enroll in the health (or, if applicable, dental) plan of a new employer. Payments
will begin on the Payment Commencement Date. The first payment will be retroactive to the day
immediately following the Separation Date. If the Company’s contributions end before your
entitlement to coverage under COBRA concludes, you may continue such coverage by paying the
full premium cost yourself. Notwithstanding the foregoing, in the event that the Company’s
payment of the COBRA premium amounts, as described under this Section 2(b), would subject the
Company to any tax or penalty under the Patient Protection and Affordable Care Act (as amended
from time to time, the “ACA”) or Section 105(h) of the Internal Revenue Code of 1986, as amended
(“Section 105(h)”), or applicable regulations or guidance issued under the ACA or Section 105(h),
or any other applicable law, in each case, it shall gross up the such payments' tax consequences, if
any, to you. Notwithstanding the foregoing, if the payment or reimbursement by the Company of
the premium costs, including payment of any gross up for any tax consequences, described in the
preceding sentence, will subject or expose the Company to taxes or penalties, you and the Company
agree to work together in good faith efforts to renegotiate the provisions of this section and to enter
into a substitute arrangement pursuant to which the Company may not be subjected or exposed to
taxes or penalties but which will not adversely affect the full economic value to you of the benefits
promised by this provision. For avoidance of any doubt, nothing in this provision will require you
to accept any renegotiated agreement that would disadvantage you economically or required that
you accept a lesser quality of health care coverage for yourself or your family.
3.
Acknowledgement of Full Payment and Withholding.
a.
You acknowledge and agree that the payments provided under Section 1 of this
Agreement are in complete satisfaction of any and all compensation and benefits due to you from
the Company, whether for services provided to the Company or otherwise, through the Separation
Date, except as expressed provided herein and that, except as expressly provided under this
Agreement, no further compensation or benefits are owed or will be paid or provided to you.
b.
All payments made by the Company under this Agreement shall be reduced by any
tax or other amounts required to be withheld by the Company under applicable law and all other
lawful deductions authorized by you.
4.
Status of Employee Benefits, Paid Time Off, Expenses and Equity.
a.
Except as otherwise provided in Section 2 or required by applicable law, your
participation in all employee benefit plans of the Company will end as of the Separation Date, in
accordance with the terms of those plans. You will not continue to earn vacation, paid time off or
other similar benefits after the Separation Date or be reimbursed for any expenses incurred after the
Separation Date that have not otherwise been approved in writing by the Company. You will receive
information about your COBRA continuation rights under separate cover.
b.
You agree that, within four (4) weeks immediately following the Effective Date (as
defined below), you will submit your final expense reimbursement statement reflecting all business
expenses you incurred through the Separation Date, if any, for which you seek reimbursement, and,
in accordance with Company policy, reasonable substantiation and documentation for the
-2-
same. The Company will reimburse you for your authorized and documented expenses pursuant to
its regular business practice.
c.
All unvested stock options granted by the Company to you prior to the Separation
Date which as of the Separation Date are outstanding and, by their terms, vest only based on the
passage of time and which would have vested during the twenty-five (25) month period immediately
following the Separation Date, shall, notwithstanding the terms of the stock or equity compensation
plans and award agreements to which such stock options are subject, automatically become fully
vested as of the Effective Date, on the condition that you have timely executed this Agreement and it
remains effective on the Effective Date. In addition, all other unvested stock options granted by the
Company to you prior to the Separation Date, the vesting of which are based on individual or
Company performance and that are outstanding as of the Separation Date shall, notwithstanding the
terms of the stock or equity compensation plans and award agreements to which such stock options
are subject, for the twenty-five (25) month period immediately following the Separation Date,
remain outstanding and eligible to vest based on the achievement of the individual or Company
performance metrics to which such awards are subject, in each case subject to the condition that you
have timely executed this Agreement and it remains effective on the Effective Date. For the
avoidance of doubt, all stock options held by you that have not vested as of or on July 21, 2021 shall
automatically terminate and be forfeited without further action on the part of the Company. All stock
options that have vested as of or on July 21, 2021 shall, notwithstanding the terms of the stock or
equity compensation plans and any applicable award agreements to which such stock options are
subject, remain exercisable through July 21, 2022, and shall automatically terminate and be forfeited
without further action on the part of the Company if such stock options have not been exercised on
or before July 21, 2022.
d.
In the event of any conflict between the vesting provisions applicable to the equity-
based awards set forth in this Section and the terms of the sock or equity compensation plans and
any applicable award agreements, the provisions of this Section shall govern.
e.
Within ten (10) business days of the complete execution of this Agreement, the
Company shall reimburse you for reasonable legal expenses incurred or paid by you in connection
with providing advice to you concerning the conclusion of your employment with the Company,
including but not limited to the drafting and execution of this Agreement and any other
Agreement(s) concerning your continued provision of services to the Company following the
Separation Date, up to a maximum of twelve thousand dollars ($12,000).
f.
You and the Company are contemporaneously entering into a separate consulting
agreement, setting forth the terms of your continued service to the Company as an independent
contractor immediately following the Separation Date (the “Consulting Agreement”). Except as
expressly provided herein or in the Consulting Agreement, and notwithstanding anything to the
contrary set forth in the Company’s Amended and Restated 2012 Incentive Plan or any award
agreement between you and the Company thereunder, all stock options granted to you will cease to
vest as of the Separation Date, and any unvested stock options shall be forfeited.
-3-
5.
Confidentiality, Non-Disparagement, and Continuing Obligations.
a.
You acknowledge and agree that you will continue to comply with your obligations
under the Employee Non-Solicitation, Non-Competition, Confidential Information and Inventions
Assignment Agreement between you and the Company dated as of October 7, 2014 (the
“Confidentiality Agreement”) that survive the termination of your employment by necessary
implication or the terms thereof.
b.
Subject to Section 7(b) of this Agreement and except as may be required by
applicable law or legal process, you agree that you will not disparage or criticize the Company, its
Affiliates, their business, their management or their products or services, and that you will not
otherwise do or say anything that could reasonably be expected to disrupt the good morale of
employees of the Company. The Company agrees that, by and through its Board of Directors and
officers, it shall not disparage or criticize you nor will it do or say anything that could reasonably be
expected to damage your personal or professional reputation or interests. Additionally, for the
avoidance of all doubt, nothing in this Section prohibits the Parties from responding candidly as
required by law.
Return of Company Documents and Other Property. Except as may be agreed is
6.
necessary given your ongoing consulting relationship, in signing this Agreement you represent and
warrant that you have returned to the Company any and all documents, materials and information
(whether in hardcopy, on electronic media or otherwise) that is proprietary and related to the
business of the Company and its Affiliates (whether present or otherwise), and all keys, access
cards, credit cards, computer hardware and software, telephones and telephone-related equipment
and all other property of the Company or any of its Affiliates in your possession or control. The
Company agrees that, notwithstanding the foregoing, you may retain your computer, and to the
extent the Company may have assisted in the purchase of your cell phones, your cell phone(s);
provided that, you represent that you have already deleted or shall promptly delete from the
computer’s and cell phone’s hard drive or files any Company proprietary information. Further, you
represent and warrant that you have not retained any copy or derivation of any documents, materials
or information (whether in hardcopy, on electronic media or otherwise) of the Company or any of its
Affiliates. You also agree that if you should later discover any document or other property of the
Company or any of its Affiliates in your possession, you will immediately return it to the Company
and delete it from your possession. You agree that you will not, following the Separation Date, for
any purpose, attempt to access or use any computer or computer network or system of the Company
or any of its Affiliates, including without limitation the electronic mail system. Further, you
acknowledge that you have disclosed to the Company all passwords necessary or desirable to obtain
access to, or that would assist in obtaining access to, all information which you have password-
protected on any computer equipment, network or system of the Company or any of its Affiliates. It
is, however, understood and agreed that you may retain possession of and access to certain Company
property, equipment, and documents as expressly directed by the Company in order to fulfill your
obligations under the Consulting Agreement.
7.
General Release and Waiver of Claims.
a.
In exchange for and in consideration of the special severance pay and other benefits
provided to you under this Agreement, which are conditioned on your signing of this Agreement,
-4-
to which you would not otherwise be entitled, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, on your own behalf and that of your heirs,
executors, and beneficiaries, and all others claiming through you, you agree that this Agreement
shall be in complete and final settlement of any and all causes of action, rights and claims, whether
known or unknown, that you have had in the past, now have, or might now have, in any way related
to, connected with or arising out of your employment or your other association with the Company or
any of its Affiliates or the termination of the same or pursuant to Title VII of the Civil Rights Act,
the Americans with Disabilities Act, the Age Discrimination in Employment Act, as amended by the
Older Workers Benefit Protection Act, the Employee Retirement Income Security Act, the wage and
hour, wage payment and/or fair employment practices laws and statutes of the state or states in
which you have provided services to the Company or any of its Affiliates (each as amended from
time to time), and/or any other federal, state or local law, regulation or other requirement, and you
hereby release and forever discharge the Company, its subsidiaries and other Affiliates and all of
their respective past, present and future directors, shareholders, officers, members, managers,
investors, joint venturers, general and limited partners, employees, employee benefit plans,
administrators, trustees, agents, representatives, predecessors, successors and assigns, and all others
connected with any of them, both individually and in their official capacities, to the extent that each
and any individual has an affiliation with the Company that is known to you, from any and all such
causes of action, rights and claims.
b.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
construed to prohibit you from filing a charge with or participating in any investigation or
proceeding conducted by the federal Equal Employment Opportunity Commission or a comparable
state or local agency, except that you hereby agree to waive your right to recover monetary damages
or other individual relief in any such charge, investigation or proceeding, or any related complaint or
lawsuit filed by you or anyone else on your behalf. Further, nothing contained in this Agreement or
the Confidentiality Agreement limits, restricts or in any other way affects your communicating with
any governmental agency or entity, or communicating with any official or staff person of a
governmental agency or entity, concerning matters relevant to the governmental agency or
entity. Additionally, nothing in this Release shall limit or otherwise restrict your rights as follows:
(i) to bring claims for indemnification in your capacity as an officer or director of the Company
under the Company's Certificate of Incorporation, Bylaws or agreement, if any, providing for
director or officer indemnification; (ii) to receive insurance payments under any policy maintained
by the Company that would otherwise apply to you; (iii) to receive retirement benefits that are
accrued and fully vested as of your Separation Date under such plans protected by
ERISA. Additionally, this release shall not prevent you from defending yourself against a released
party in the event that any such released party initiates legal action against you pertaining to events
or circumstances arising prior to the effective date of this release (other than a legal action that
solely alleges claims involving or arising out of a violation of law that would constitute a felony or
other crime involving moral turpitude by you that amounts to criminal misconduct on your part). In
such a circumstance, this release shall be null and void as against the party initiating litigation alone,
and you may bring any counter-claim you may have against that party.
c.
In signing this Agreement, you acknowledge your understanding that you may
consider the terms of this Agreement for up to twenty-one (21) days from the date you receive
it. You also acknowledge that you are hereby advised by the Company to seek the advice of an
-5-
attorney prior to signing this Agreement; that you have had sufficient time to consider this
Agreement and to consult with an attorney, if you wished to do so, or to consult with any other
person of your choosing before signing; and that you are signing this Agreement voluntarily and
with a full understanding of its terms.
d.
You further acknowledge that, in signing this Agreement, you have not relied on any
promises or representations, express or implied, that are not set forth expressly in this
Agreement. You understand that you may revoke this Agreement at any time within seven (7) days
of the date of your signing by written notice to the Lead Director of the Company’s Board of
Directors and that this Agreement will take effect only upon the expiration of such seven-day
revocation period and only if you have not timely revoked it (the “Effective Date”).
8.
Miscellaneous.
a.
This Agreement, together with the Consulting Agreement, constitutes the entire
agreement between you and the Company and its Affiliates and supersedes all prior and
contemporaneous communications, agreements and understandings, whether written or oral, with
respect to your employment, its termination and all related matters, excluding only the
Confidentiality Agreement, which shall remain in full force and effect in accordance with its terms,
and your rights and obligations with respect to your vested options.
b.
This Agreement may not be modified or amended, and no breach shall be deemed to
be waived, unless agreed to in writing by you and an authorized representative of the Company. The
captions and headings in this Agreement are for convenience only, and in no way define or describe
the scope or content of any provision of this Agreement.
c.
The obligation of the Company to make payments to you or on your behalf under this
Agreement, and your right to retain the same, is expressly conditioned upon your continued full
performance of your obligations under this Agreement and the Confidentiality Agreement.
d.
This is a Massachusetts contract and shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts, without regard to any conflict of laws
principles that would result in the application of the laws of another jurisdiction. You agree to
submit to the exclusive jurisdiction of the courts of and in the Commonwealth of Massachusetts in
connection with any dispute arising out of this Agreement.
[Remainder of Page Intentionally Left Blank]
-6-
If the terms of this Agreement are acceptable to you, please sign, date and return it to
Cathy Carew within twenty-one (21) days of the date you receive it. You may revoke this
Agreement at any time during the seven-day period immediately following the date of your
signing by notifying the Lead Director of the Company’s Board of Directors in writing of your
revocation within that period. If you do not revoke this Agreement, then, on the eighth day
following the date that you signed it, this Agreement shall take effect as a legally binding
agreement between you and the Company on the basis set forth above. You agree that if there
have been any changes to a prior version of this Agreement (material or immaterial), the 21 day
consideration period will not be reset. The enclosed copy of this letter, which you should also
sign and date, is for your records.
Sincerely,
Verastem, Inc.
By: /s/ Dr. Michael Kauffman
Dr. Michael Kauffman
Lead Director
Accepted and agreed:
Signature: /s/ Robert Forrester
Robert Forrester
Date: June 25, 2019
76614182_6
CONSULTING AGREEMENT
This Consulting Agreement dated as of June 27, 2019 (this “Agreement”) defines the terms upon
which Verastem, Inc. (hereinafter referred to as “Verastem”) has agreed to engage the consulting services of
Joseph Lobacki (“Consultant”).
1. Consulting Services. Consultant shall provide consulting services to Verastem in the field all as
more particularly described on Exhibit A (the “Engagement”). Robert Gagnon, of Verastem (the
“Verastem Contact”), shall coordinate all consulting activities to be performed under this Agreement.
Please send all reports and other communications to the Verastem Contact.
Verastem may designate a different Verastem Contact by written notice to Consultant.
a. Time Commitment. Consulting services will be provided to Verastem from time to time upon
Verastem’s request. Consultant is expected to be available to Verastem personnel by phone, email
or facsimile.
1.
Term. This consulting engagement shall commence on June 29, 2019 and shall continue until
January 15, 2020, unless extended by mutual written consent or sooner terminated as provided
below (the “Consultation Period”). Either party to this Agreement may terminate this consulting
engagement upon 30 days prior written notice to the other party, for any reason and without
prejudice to any right or remedy Consultant may have due to any failure of the other party to
perform Consultant’s obligations under this Agreement. In the event of such termination, Consultant
shall be entitled to payment for services performed and expenses paid or incurred prior to the
effective date of termination. All obligations under this Agreement, which by their nature are
intended to continue beyond the termination of the Consultation Period, shall survive a termination
by either or both parties of the Consultation Period.
2.
Compensation.
a. Consulting Fees. Verastem shall pay Consultant $350.00 per hour for each hour spent, up to a
maximum of $220,000 over the term of the Agreement, by the Consultant in the performance of
consulting, advisory or related services for Verastem, payable within 45 days of the end of each
month upon presentation of a Verastem approved invoice by Consultant fully detailing the time
spent and tasks performed by Consultant. Invoices should reference this Agreement and should be
submitted to: Accounts Payable, Verastem, Inc., 117 Kendrick Street, Suite 500, Needham, MA
02494 or via email at ap@verastem.com.
b. Reimbursement of Expenses. Verastem will pay for any reasonable travel, meals and lodging
expenses associated with the performance of consulting services hereunder upon receipt of
appropriate and complete documentation on Verastem approved invoice forms. Verastem may also
provide or directly pay vendors to provide you with reasonable travel, lodging, and meals when
you are providing services hereunder.
3.
Confidential Information; Inventions and Patent Filings.
a. Confidential Information. Consultant acknowledges that Consultant’s relationship with Verastem
is one of high trust and confidence and that in the course of Consultant’s service to Verastem
Consultant will have access to and contact with Confidential Information (as defined below).
Consultant will not, during the Consultation Period or at any time within two years thereafter,
disclose to others (including other third parties already under an obligation of
1
confidentiality to Verastem), or use for Consultant’s benefit or the benefit of others, any
Confidential Information or Invention (as defined below). Without limiting the foregoing, you
agree that you shall not trade any securities of Verastem based upon any confidential information
learned pursuant hereto.
I.
II.
III.
For purposes of this Agreement, Confidential Information shall mean all information
(whether or not patentable or copyrightable) owned, possessed or used by Verastem,
including, without limitation, any Invention, formula, trade secret, process, prototype,
device, equipment, research, report, technical data, know-how, technology and
marketing or business plan, that is communicated to, learned of, developed or otherwise
acquired by Consultant in the course of performing consulting services for Verastem
hereunder.
Consultant’s obligations under this Section shall not apply to any information that
Consultant demonstrates (i) is or becomes known to the general public under
circumstances involving no breach by Consultant or others of the terms of this Section,
or (ii) is in the Consultant’s possession at the time of disclosure otherwise than as a
result of a prior disclosure by Verastem to Consultant or by a third party to Consultant
where that third party is or was under an obligation of confidentiality with respect
thereto. In addition, Consultant will not be liable to Verastem for trade secret
misappropriation if Consultant discloses a trade secret (a) in confidence to a federal,
state, or local government official, or to an attorney, solely for the purpose of reporting
or investigating a suspected violation of law and (b) in any document filed under seal in
a lawsuit or other proceeding.
Consultant represents that Consultant’s engagement as a consultant with Verastem and
performance under this Agreement does not, and shall not, breach any agreement that
obligates Consultant to keep in confidence any trade secrets or confidential or
proprietary information of Consultant or of any other party or to refrain from
competing, directly or indirectly, with the business of any other party. Consultant shall
not disclose to Verastem any trade secrets or confidential or proprietary information of
any other party.
b.
Inventions. All inventions, discoveries, data, technology, designs, innovations and improvements
related to the Engagement or business of Verastem (including without limitation all inventions and
improvements relating to Verastem prototypes or products) which are made, conceived or reduced
to practice by Consultant, solely or jointly with others, during the Consultation Period shall be the
sole property of Verastem. In addition, all inventions, discoveries, data, technology, designs,
innovations and improvements which are made, conceived or reduced to practice by Consultant,
solely or jointly with others, during the Consultation Period or thereafter, shall be the sole property
of Verastem, if resulting or derived from Confidential Information (the inventions referenced in
the first two sentences being hereinafter referred to as "Inventions"). Consultant hereby assigns to
Verastem all rights Consultant has in Inventions and any and all related patents, copyrights,
trademarks, trade names, and other industrial and intellectual property rights and applications
therefor, in the United States and elsewhere and appoints any officer of Verastem as Consultant’s
duly authorized attorney to execute, file, prosecute and protect the same before any government
agency, court or authority. Upon the request of Verastem and at Verastem's expense, Consultant
shall execute such further assignments, documents and other instruments as may be necessary or
desirable to fully and completely assign all Inventions to Verastem and to assist Verastem in
applying for, obtaining and enforcing patents or copyrights or other rights in the United States and
in any foreign country with respect to any Invention. Consultant shall promptly disclose all
relevant Inventions to Verastem in writing.
2
c. Patent Filings. In order to preserve Verastem’s rights under this Agreement, during the
Consultation Period and for two (2) years thereafter, Consultant shall submit to Verastem for
review, on a confidential basis, any relevant patent applications naming Consultant or its agents,
employees or representatives as an inventor, either alone or with others, which Consultant or any
third party intends to file with any U.S. or international patent offices. Such applications must be
submitted to Verastem at least 30 days in advance of any filing with a U.S. or international patent
office. If Verastem determines in good faith, within this 30-day period, that the filing of such an
application would be contrary to its intellectual property rights under this agreement, Consultant
will amend the proposed patent application to remove any language that is determined by
Verastem to be contrary to its intellectual property rights.
d. Third Party Information. Consultant understands that Verastem has received and in the future
will receive from third parties confidential or proprietary information (“Third Party Information”)
subject to a duty on Verastem’s part to maintain the confidentiality of such information and to use
it only for certain limited purposes. During Consultation Period and thereafter, Consultant will
hold Third Party Information in the strictest confidence and will not disclose to anyone (other than
Verastem personnel who need to know such information in connection with their work for
Verastem) or use, except in connection with Consultant’s work for Verastem, Third Party
Information unless expressly authorized by an officer of Verastem in writing.
e. No Improper Use of Information of Prior Employers and Others. During the Consultation
Period, Consultant will not improperly use or disclose any confidential information or trade
secrets, if any, of any former employer or any other person or entity to whom Consultant has an
obligation of confidentiality, and Consultant will not bring onto the premises of Verastem any
unpublished documents or any property belonging to any former employer or any other person or
entity to whom Consultant has an obligation of confidentiality unless consented to in writing by
that former employer or person. Consultant will use, in the performance of Consultant’s duties
only, information which is generally known and used by persons with training and experience
comparable to Consultant’s own, which is common knowledge in the industry or otherwise legally
in the public domain, or which is otherwise provided or developed by Verastem.
4.
Company Property. All materials and property provided to Consultant (including all samples,
equipment, prototypes, devices, reports, communications, drawings, notes, and analyses), or produced
by Consultant, in connection with the performance of services under this Agreement shall be the
exclusive property of Verastem. Consultant will keep in Consultant’s custody and control any such
materials or property that Consultant receives or develops, and will return the same to Verastem upon
the termination of the Consultation Period or at Verastem’s request. Consultant agrees to treat such
materials and property with at least the same degree of confidentiality and care that it keeps
Consultant’s own materials and property. No materials containing proprietary information may be
thrown in the trash unless the same are shredded.
5.
Use of Name. Verastem may identify Consultant to third parties and in written literature as a
consultant to Verastem.
3
6.
7.
8.
9.
10.
Independent Contractor Status. Consultant shall perform all services under this Agreement as an
“independent contractor” and not as an employee or agent of Verastem. Consultant is not authorized to
assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of,
Verastem or to bind Verastem in any manner.
Representations and Warranties. Consultant represents and warrants that Consultant has no duty or
obligation to any third party with respect to the Engagement. Consultant further represents and
warrants that the services covered by this Agreement are not in violation of any other agreement or
obligation by which Consultant is bound.
Release and Indemnification. In no event shall Consultant be liable to the Company or any other
party, whether a claim be in tort, contract or otherwise, for any consequential, indirect, lost profit or
similar damages relating the services provided under this Agreement.
Notice. All notices required or permitted under this Agreement shall be in writing and shall be deemed
effective upon personal delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed:
If to Verastem:
Verastem, Inc.
117 Kendrick Street, Suite 500
Needham, MA 02494
Attn: Verastem Contact,
With a copy to Verastem General Counsel
If to Consultant:
Joseph Lobacki
55 Commercial Wharf, Unit 8
Boston, MA 02110
Miscellaneous. This Agreement constitutes the entire agreement between the parties and supersedes
all prior agreements and understandings, whether written or oral, relating to the subject matter of this
Agreement. This Agreement may be amended or modified only by a written instrument executed by
both Verastem and the Consultant. This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the Commonwealth of Massachusetts. This Agreement shall be binding
upon, and inure to the benefit of, both parties and their respective successors and assigns, including
any corporation with which, or into which, Verastem may be merged or which may succeed to its
assets or business, provided, however, that the obligations of the Consultant are personal and shall not
be assigned by Consultant. If any of the provisions of this Agreement is found to be unenforceable or
prohibited by any applicable law, such provision shall be ineffective only to the extent of such
unenforceability or prohibition without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
***Rest of page left blank intentionally***
4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
set forth above.
VERASTEM, INC.
CONSULTANT
By: /s/ Peter Pellegrino
Name: Peter Pellegrino
Title: Vice President, Corporate Controller &
Treasurer
duly authorized
By: /s/ Joseph Lobacki
Name: Joseph Lobacki
Title:
duly authorized
5
Exhibit A
Consultant will provide ad hoc projects related to the commercialization of COPIKTRA, as may be requested
from time to time by the Company and under the direction of the Company’s management.
6
List of Registrant’s Subsidiaries
Verastem Securities Company, incorporated in Massachusetts, a wholly owned subsidiary.
Verastem Europe GmbH, incorporated in Germany, a wholly owned subsidiary.
Exhibit 21.1
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
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 2012
Incentive 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, 2012
Amended and Restated Incentive Plan, and 2014 Inducement Award Program of Verastem, Inc.
of our reports dated March 11, 2020, with respect to the consolidated financial statements of Verastem, Inc. and the
effectiveness of internal control over financial reporting of Verastem, Inc., included in this Annual Report (Form 10-K) of
Verastem, Inc. for the year ended December 31, 2019.
/s/Ernst & Young LLP
Boston, Massachusetts
March 11, 2020
I, Brian M. Stuglik certify that:
1.
I have reviewed this Annual Report on Form 10‑K of Verastem, Inc.;
CERTIFICATIONS
Exhibit 31.1
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, 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, and
for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial
reporting (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 and
procedures 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 the
period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
significant role in the registrant’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a
c)
d)
a)
b)
Date: March 11, 2020
/s/ BRIAN M. STUGLIK
Brian M. Stuglik
Chief Executive Officer
I, Robert Gagnon, certify that:
1.
I have reviewed this Annual Report on Form 10‑K of Verastem, Inc.;
CERTIFICATIONS
Exhibit 31.2
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, 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, and
for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financial
reporting (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 and
procedures 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 the
period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
significant role in the registrant’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a
c)
d)
a)
b)
Date: March 11, 2020
/s/ ROBERT GAGNON
Robert Gagnon
Chief Business and Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10‑K of Verastem, Inc. (the “Company”) for the period ended
December 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), the
undersigned, Brian M. Stuglik, 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:
Exchange Act of 1934 as amended; and
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
condition and results of operations of the Company.
the information contained in the Report fairly presents, in all material respects, the financial
(1)
(2)
/s/ BRIAN M. STUGLIK
Brian M. Stuglik
Chief Executive Officer
Date: March 11, 2020
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the SEC or its staff upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10‑K of Verastem, Inc. (the “Company”) for the period ended
December 31, 2019 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), the
undersigned, Robert Gagnon, Chief Business and Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that to my knowledge:
Exchange Act of 1934 as amended; and
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
condition and results of operations of the Company.
the information contained in the Report fairly presents, in all material respects, the financial
(1)
(2)
/s/ ROBERT GAGNON
Robert Gagnon
Chief Business and Financial Officer
Date: March 11, 2020
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the SEC or its staff upon request.
Exhibit 99.1
2
Verastem Oncology Reports Fourth Quarter and Full-Year 2019 Financial Results
BOSTON, MA – March 11, 2020 – Verastem, Inc. (Nasdaq:VSTM) (also known as Verastem Oncology), a
biopharmaceutical company committed to developing and commercializing new medicines for patients battling
cancer, today reported financial results for the three months and full-year ended December 31, 2019, and provided
an overview of recent corporate highlights.
Brian Stuglik, Chief Executive Officer of Verastem Oncology, commented, “We are very excited to be executing
on our new strategic direction. Our newly expanded development pipeline and priorities, combined with our
recently strengthened balance sheet, leave us well positioned to deliver on our key corporate objectives in 2020
and beyond.”
New Strategic Direction
CH5126766 (VS-6766) in Combination with Defactinib
·
Accelerating Development for KRAS Mutant Solid Tumors. In early 2020, Verastem Oncology licensed
exclusive global development and commercialization rights to CH5126766 (VS-6766), a unique and
promising inhibitor of the RAF/MEK signaling pathway. The combination of CH5126766 (VS-6766) and
defactinib is currently being investigated in a Phase 1 clinical study and expansion cohorts in patients with
KRAS mutant advanced solid tumors, including low grade serous ovarian cancer, non-small cell lung cancer
and colorectal cancer. Verastem Oncology plans to initiate discussions with regulatory authorities during the
first half of 2020, with the goal of commencing a registration-directed trial as soon as possible.
Data from the Phase 1 combination study were submitted for presentation to the American Association for
Cancer Research (AACR) 2020 Annual Meeting. The AACR recently announced that it was terminating the
April 2020 meeting due to the COVID-19 outbreak and is planning to reschedule the meeting for later this
year. Verastem Oncology is actively working with the appropriate organizations and institutions to determine
next steps.
Duvelisib (COPIKTRA®)
·
·
Prioritizing the Advancement of Duvelisib in Relapsed/Refractory PTCL. At the American Society of
Hematology 2019 Annual Meeting, Verastem Oncology presented positive data from the dose optimization
portion of the Phase 2 PRIMO study evaluating duvelisib in patients with relapsed or refractory PTCL, an
aggressive disease with a lack of effective therapeutic options. This initial phase of the trial demonstrated
promising clinical activity including complete and durable responses, as assessed by independent central
review, with a manageable safety profile. The expansion phase of this registration-directed study continues to
accrue patients and Verastem Oncology expects to complete enrollment in 2020 and report top-line results
from the expansion cohorts in early 2021. Verastem Oncology intends to build on the existing Fast Track and
Orphan Drug Designations and submit a regulatory package to the U.S. Food and Drug Administration to
expand the approved indications for COPIKTRA to include relapsed or refractory PTCL.
Focusing COPIKTRA Commercial Activities. Verastem Oncology will be reducing the resources directed to
the promotion and sale of COPIKTRA in its current indications, including reducing the size of its
salesforce and non-core clinical research. The Company plans to shift its COPIKTRA promotional resources
toward large, community-based practices and academic institutions, which represent the majority of the
appropriate third-line patients with chronic lymphocytic leukemia/small lymphocytic lymphoma and
follicular lymphoma. The Company expects to reduce its overall headcount number to approximately 90
employees.
Corporate and Financial
·
Strengthened the Balance Sheet Through a Private Placement with Premier Life Science Investors. On
March 3, 2020, Verastem Oncology completed a private placement offering of approximately 46.5 million
shares of its common stock to certain institutional investors, including RA Capital Management, Vivo
Capital, Venrock Healthcare Capital Partners, Farallon Capital Management, Acuta Capital, EcoR1 Capital
LLC, Avidity Partners and Logos Capital at a price of $2.15 per share, a 12.6% premium to the February 27,
2020 closing price. The gross proceeds to Verastem Oncology were $100 million. After deducting the
underwriting discounts and commissions and other estimated offering expenses, net proceeds to the Company
were approximately $92.0 million.
Fourth Quarter 2019 Financial Results
Net product revenue for the three months ended December 31, 2019 (2019 Quarter) was $3.6 million, compared
to $1.2 million for the three months ended December 31, 2018 (2018 Quarter), following the FDA’s approval of
COPIKTRA on September 24, 2018. COPIKTRA demand units for the 2019 Quarter increased 20% compared to
the third quarter of 2019. There was no license and collaboration revenue for the 2019 or 2018 Quarter.
Total operating expenses for the 2019 Quarter were $36.9 million, compared to $35.5 million for the 2018
Quarter. Excluding non-recurring charges of $2.2 million related to the Convertible Notes Exchange, the total
operating expenses for the 2019 Quarter were $34.7 million.
Research and development (R&D) expense for the 2019 Quarter was $12.5 million, compared to $8.8 million for
the 2018 Quarter. The increase of $3.7 million, or 42.0%, was primarily related to higher contract research
organization costs to support the development of the Phase 2 TEMPO study for Intermittent Dosing, pre-clinical
collaborations, and personnel costs related to the October 2019 rightsizing of the organization. This is partially
offset by a decrease in investigator fees and CMC costs related to the FDA Approval of COPIKTRA in 2018.
Selling, general and administrative expense for the 2019 Quarter was $23.7 million, compared to $26.2 million for
the 2018 Quarter. The decrease of $2.5 million, or 9.5%, was primarily due to lower personnel and external
consulting costs.
Net loss for the 2019 Quarter was $38.8 million, or $0.51 per share (diluted), compared to $11.3 million, or $0.37
per share (diluted), for the 2018 Quarter. The 2019 Quarter includes $1.3M of non-cash interest expense related to
conversions of Convertible Senior Notes into shares of common stock.
For the 2019 Quarter, non-GAAP adjusted net loss was $30.3 million, or $0.40 per share (diluted), compared to
non-GAAP adjusted net loss of $33.1 million, or $0.36 per share (diluted), for the 2018 Quarter. Please refer to
the GAAP to Non-GAAP Reconciliation attached to this press release.
Full-Year 2019 Financial Results
Total revenue for the year ended December 31, 2019 (2019 Period) was $17.5 million. Net product revenue for
the 2019 Period was $12.3 million, compared to $1.7 million for the year ended December 31, 2018
(2018 Period), following the FDA’s approval of COPIKTRA on September 24, 2018. License and collaboration
revenue for the 2019 Period was $5.1 million, compared to $25.0 million for the 2018 Period.
Total operating expenses for the 2019 Period were $149.8 million compared to $121.5 million for the 2018
Period.
R&D expense for the 2019 Period was $45.8 million, compared to $43.6 million for the 2018 Period. The
increase of $2.2 million, or 5.0%, was primarily related to higher contract research organization and personnel
costs to support the development of the Phase 2 TEMPO study for Intermittent Dosing and the Phase 2 PRIMO
study for the treatment of PTCL.
Selling, general and administrative expense for the 2019 Period was $101.2 million, compared to $77.3 million
for the 2018 Period. The increase of $23.9 million, or 30.9%, was primarily due to the hiring and staffing of the
sales and commercial teams to support the launch of COPIKTRA.
Net loss for the 2019 Period was $149.2 million, or $2.00 per share (diluted), compared to $72.4 million, or $1.37
per share (diluted), for the 2018 Period.
For the 2019 Period, non-GAAP adjusted net loss was $126.0 million, or $1.69 per share (diluted), compared to
non-GAAP adjusted net loss of $88.4 million, or $1.27 per share (diluted), for the 2018 Period. Please refer to the
GAAP to Non-GAAP Reconciliation attached to this press release.
Verastem Oncology ended 2019 with cash, cash equivalents and short-term investments of $111.3 million.
Financial Guidance for Fiscal 2020
As a result of its new strategic direction, Verastem Oncology expects to reduce its operating expenses by
approximately 40% for 2020 compared to 2019. Based on its current operating plans, Verastem Oncology expects
its R&D and SG&A expenses for the full year 2020 to be in the range of $70 million to $85 million. In light of all
these changes, the company is guiding that 2020 COPIKTRA revenues may be in the range of $12 million to $16
million. Verastem Oncology expects that its existing cash and cash equivalents, along with the revenue it expects
to generate from COPIKTRA, will be sufficient to fund its planned operations into the fourth quarter of 2021.
Use of Non-GAAP Financial Measures
To supplement Verastem Oncology’s condensed consolidated financial statements, which are prepared and
presented in accordance with generally accepted accounting principles in the United States (GAAP), the Company
uses the following non-GAAP financial measures in this press release: non-GAAP adjusted net loss and non-
GAAP net loss per share. These non-GAAP financial measures exclude certain amounts or expenses from the
corresponding financial measures determined in accordance with GAAP. Management believes this non-GAAP
information is useful for investors, taken in conjunction with the Company’s GAAP financial statements, because
it provides greater transparency and period-over-period comparability with respect to the Company’s operating
performance and can enhance investors’ ability to identify operating trends in the Company’s business.
Management uses these measures, among other factors, to assess and analyze operational results and trends and to
make financial and operational decisions. Non-GAAP information is not
prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding
of the Company’s operating results as reported under GAAP, not in isolation or as a substitute for, or superior to,
financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP financial
measures are unlikely to be comparable with non-GAAP information provided by other companies. The
determination of the amounts that are excluded from non-GAAP financial measures is a matter of management
judgment and depends upon, among other factors, the nature of the underlying expense or income amounts.
Reconciliations between these non-GAAP financial measures and the most comparable GAAP financial measures
for the three and twelve months ended December 31, 2019 and 2018 are included in the tables accompanying this
press release after the unaudited condensed consolidated financial statements.
About Verastem Oncology
Verastem Oncology (Nasdaq: VSTM) is a commercial biopharmaceutical company committed to the development
and commercialization of new medicines to improve the lives of patients diagnosed with cancer. Our pipeline is
focused on novel small molecule drugs that inhibit critical signaling pathways in cancer that promote cancer cell
survival and tumor growth, including phosphoinositide 3-kinase (PI3K), focal adhesion kinase (FAK) and
RAF/MEK inhibition.
Our first FDA approved product is available for the treatment of patients with certain types of indolent non-
Hodgkin’s lymphoma (iNHL).
For more information, please visit www.verastem.com.
Forward looking statements notice
This press release includes forward-looking statements about Verastem Oncology’s strategy, future plans and
prospects, including statements related to the opportunity to rapidly advance the development of clinical programs
through Verastem Oncology’s expanded development pipeline and strengthened balance sheet, the timing of top-
line results for clinical trials, anticipated reductions in operating expenses from Verastem Oncology’s strategic
realignment, the timing of commencing a registration-directed trial for CH5126766 (VS-6766) and financial
guidance estimates. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict,"
"project," "target," "potential," "will," "would," "could," "should," "continue," and similar expressions are
intended to identify forward-looking statements, although not all forward-looking statements contain these
identifying words. Each forward-looking statement is subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied in such statement.
Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ
materially from those expressed or implied in such statement. Applicable risks and uncertainties include the risks
and uncertainties, among other things, regarding: the success in the development and potential commercialization
of our product candidates, including defactinib in combination with CH5126766 (VS-6766); the occurrence of
adverse safety events and/or unexpected concerns that may arise from additional data or analysis or result in
unmanageable safety profiles as compared to their levels of efficacy; our ability to obtain, maintain and enforce
patent and other intellectual property protection for our product candidates; the scope, timing, and outcome of any
legal proceedings; decisions by regulatory authorities regarding labeling and other matters that could affect the
availability or commercial potential of our product candidates; whether preclinical testing of our product
candidates and preliminary or interim data 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 government
agencies) may not reimburse; that there may be competitive developments affecting our product candidates; that
data may not be available when expected; that enrollment of clinical trials may take longer than expected; that our
product candidates will experience manufacturing or supply interruptions or failures; that we will be unable to
successfully 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; that we or Chugai Pharmaceutical Co., Ltd. will fail to fully perform under the CH5126766 (VS-
6766) license agreement; that we may not have sufficient cash to fund our contemplated operations; that we may
be unable to make additional draws under our debt facility or obtain adequate financing in the future through
product licensing, co-promotional arrangements, public or private equity, debt financing or otherwise; that we will
be unable to execute on our partnering strategies for defactinib in combination with CH5126766 (VS-6766); that
we will not pursue or submit regulatory filings for our product candidates, and that our product candidates will not
receive regulatory approval, become commercially successful products, or result in new treatment options being
offered to patients.
Other risks and uncertainties include those identified under the heading “Risk Factors” in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange
Commission (SEC) on March 11, 2020 and in any subsequent filings with the SEC. The forward-looking
statements contained in this press release reflect Verastem Oncology’s views as of the date hereof, and the
Company does not assume and specifically disclaims any obligation to update any forward-looking statements
whether as a result of new information, future events or otherwise, except as required by law.
Verastem Oncology Contacts:
Investors:
John Doyle
Vice President, Investor Relations & Finance
+1 781-469-1546
jdoyle@verastem.com
Media:
Lisa Buffington
Corporate Communications
+1 781-292-4205
lbuffington@verastem.com
Verastem, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
Cash, cash equivalents, & investments
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Property and equipment, net
Intangible assets, net
Right-of-use asset, net
Restricted cash and other assets
Total assets
Current Liabilities
Long-term debt
Convertible senior notes
Lease Liability, long-term
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
December 31,
2019
2018
$
$
$
$
75,506 $
2,524
3,096
3,835
947
20,008
3,077
36,053
145,046 $
29,890 $
35,067
68,556
3,489
870
7,174
145,046 $
249,653
306
327
2,973
1,369
21,577
—
1,031
277,236
37,077
19,506
95,231
—
1,123
124,299
277,236
Verastem, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three months ended December 31,
2019
2018
Year ended December 31,
2019
2018
$
3,617
$
1,210 $
12,339 $
1,718
Revenue:
Product revenue, net
License and collaboration
revenue
Total revenue
Operating expenses:
Cost of sales - product
Cost of sales - intangible
amortization
Research and development
Selling, general and
administrative
Total operating expenses
Loss from operations
Other (expense)/income
Interest income
Interest expense
Net Loss
Net loss per share—basic
Net loss per share—diluted
Weighted average common shares
outstanding used in computing net
loss per share—basic
Weighted average common shares
outstanding used in computing net
loss per share—diluted
$
$
$
—
3,617
332
393
12,455
23,728
36,908
(33,291)
(641)
611
(5,453)
(38,774)
(0.51)
(0.51)
—
1,210
116
392
8,762
5,117
17,456
1,238
1,569
45,778
26,199
35,469
(34,259)
25,556
1,306
(3,952)
(11,349)
$
(0.15) $
(0.37) $
101,212
149,797
(132,341)
(641)
4,381
(20,608)
(149,209) $
(2.00) $
(2.00) $
$
$
$
25,000
26,718
165
423
43,648
77,265
121,501
(94,783)
25,556
2,603
(5,810)
(72,434)
(1.12)
(1.37)
76,331
73,766
74,578
64,962
76,331
91,061
74,578
69,321
Verastem, Inc.
Reconciliation of GAAP to Non-GAAP Financial Information
(in thousands, except per share amounts)
(unaudited)
Net Loss Reconciliation
Net Loss (GAAP basis)
Adjust:
Amortization of acquired
intangible asset
Stock-based compensation
expense
Non-cash interest, net
Severance and Other
Notes third party exchange
costs
Change in fair value of interest
make whole provision and
conversion option for Notes
Adjusted Net Loss (non-
GAAP basis)
Reconciliation of Net Loss
Per Share
Net Loss per share – diluted
(GAAP Basis)
Adjust per diluted share
Amortization of acquired
intangible asset
Stock-based compensation
expense
Non-cash interest, net
Severance and Other
Notes third party exchange
costs
Change in fair value of interest
make whole provision and
conversion option for Notes
Adjusted Net Loss per share
– diluted
(non-GAAP Basis)
Weighted average common
shares outstanding used in
computing net loss per share—
diluted
Three months ended December 31,
2019
2018
Year ended December 31,
2019
2018
$
(38,774)
$
(11,349) $
(149,209) $
(72,434)
393
1,311
2,705
1,232
2,168
641
392
1,763
1,479
218
—
1,569
8,539
7,131
3,200
2,168
423
6,671
1,814
710
—
(25,556)
641
(25,556)
$
(30,324)
$
(33,053) $
(125,961) $
(88,372)
(0.51)
0.01
0.02
0.04
0.01
0.02
0.01
(0.37)
(2.00)
(1.37)
0.00
0.02
0.02
0.00
—
(0.03)
0.02
0.11
0.10
0.04
0.03
0.01
0.01
0.09
0.03
0.01
—
(0.04)
$
(0.40)
$
(0.36) $
(1.69) $
(1.27)
76,331
91,061
74,578
69,321