Verastem Oncology
Annual Report 2020

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 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 ☐ Accelerated filer ☐ Non-accelerated filer ⌧ Smaller reporting company☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ 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 30, 2020 was $290,695,420. The number of shares outstanding of the registrant’s common stock as of March 17, 2021 was 171,665,716 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 18, 2021 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, 2020. Table of Contents TABLE OF CONTENTS Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Business Properties Legal Proceedings Mine Safety Disclosures PART I Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Consolidated Financial Statements and Supplementary Data Item 8. 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. Item 12. Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. PART IV Item 15. Item 16. EXHIBIT INDEX SIGNATURES Exhibits and Financial Statement Schedules Form 10-K Summary Principal Accountant Fees and Services Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 2 4 31 60 60 60 60 61 63 64 82 82 82 82 83 84 84 82 84 84 85 85 86 90 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 programs and product candidates, VS- 6766 (rapidly accelerated fibrosarcoma (RAF)/ mitogen-activated protein kinase kinase (MEK) program) and defactinib (focal adhesion kinase (FAK) program), the structure of our planned and pending clinical trials, and the timeline and indications for clinical development, regulatory submissions and commercialization of 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 uncertainties inherent in research and development of VS-6766 and defactinib, such as negative or unexpected results of clinical trials; whether and when any applications for VS-6766 and defactinib 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 VS-6766 and defactinib, 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 VS-6766 or defactinib will be commercially successful in such jurisdictions; our ability to obtain, maintain and enforce patent and other intellectual property protection for VS-6766 and defactinib; 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 VS-6766 and defactinib; 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 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 VS- 6766 or defactinib 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 we face substantial competition, which may result in others developing or commercializing products before or more successfully than we do which could result in reduced market share or market potential for VS-6766 or defactinib; that we will be unable to in-license additional compounds or 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 or Chugai Pharmaceutical, Co. Ltd., will fail to fully perform under the license agreement; that we or Secura Bio, Inc. will fail to fully perform under the asset purchase agreement; 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, that our product candidates will not receive regulatory approval, become commercially successful products, or result in new treatment options being offered to patients; and that the duration and impact of COVID-19 may affect, precipitate or exacerbate one or more of the foregoing risks and uncertainties. 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, 2020, 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. The forward-looking statements contained in this Annual Report on Form 10-K reflect our views as of the date hereof. We do not assume and specifically disclaim 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 development-stage 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, particularly RAF/MEK inhibition and FAK inhibition. Our most advanced product candidates, VS-6766 and defactinib, are being investigated in both preclinical and clinical studies for treatment of various solid tumors, including, low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer (NSCLC), colorectal cancer (CRC), pancreatic cancer, uveal melanoma, and endometrial cancer. We believe that these compounds may be beneficial as therapeutics either as single agents or when used together in combination with other agents, other pathway inhibitors or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies. VS-6766 is an orally available first-in-class unique small molecule RAF/MEK inhibitor. In contrast to other MEK inhibitors commercially available and in development, VS-6766 is a dual RAF/MEK inhibitor that blocks both MEK kinase activity and the ability of RAF to phosphorylate MEK. MEK-only inhibitors (e.g. PD0325901) paradoxically induce MEK phosphorylation (pMEK) by relieving extracellular-signal-regulated-kinase (ERK)-dependent feedback inhibition of RAF which may limit their efficacy. By inhibiting RAF-mediated phosphorylation of MEK, VS-6766 has the advantage of not inducing pMEK. This unique mechanism of VS-6766 enables more effective inhibition of ERK signaling and may confer enhanced therapeutic activity against ERK-dependent, RAS or BRAF mutant tumors. VS-6766 has been shown to inhibit signaling and proliferation of tumor cell lines with a variety of KRAS, HRAS, or BRAF mutations. VS- 6766 has also been shown to synergize with G12C inhibitors in KRAS mutant NSCLC and CRC in preclinical models and enhances the anti-tumor effects of anti-PD-1 in KRAS mutant NSCLC mouse models. VS-6766 has shown compelling synergy with defactinib in preclinical trials. Defactinib, is a targeted inhibitor of 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. Defactinib targets malignant cells both directly and through modulation of the tumor microenvironment. Defactinib has received orphan drug designation in ovarian cancer in the United States, European Union, and Australia. Preclinical research by Verastem Oncology scientists and collaborators at world-renowned research institutions has described the effect of FAK inhibition to enhance immune response by decreasing immuno-suppressive cells, increasing cytotoxic T cells, and reducing stromal density, which allows tumor- killing immune cells to enter the tumor. Defactinib is an oral small molecule inhibitor of FAK and proline-rich tyrosine kinase (PYK2) that is currently being evaluated as a potential combination therapy for various solid tumors. The combination of VS-6766 and defactinib has been found to be clinically active in patients with KRAS mutant tumors. In an ongoing investigator-initiated Phase 1/2 study (The FRAME study), the combination of VS-6766 and defactinib is being evaluated in patients with recurrent LGSOC, KRAS mutant NSCLC and CRC. Updated data from this study presented at the 2nd Annual RAS-Targeted Drug Development Summit in September 2020 demonstrated a 56% overall response rate (ORR) and long duration of therapy among patients with KRAS-G12 mutant LGSOC. In an updated December 2020 data read-out of the FRAME study LGSOC cohort (n=24), the ORR is 52% (11 of 21 response evaluable patients). Among the 21 response evaluable patients, the data demonstrated 70% ORR (7 of 10 response evaluable patients) in KRAS mutant LGSOC, 44% ORR (4 of 9 response evaluable patients) in KRAS wild type LGSOC and 0% ORR (0 of 2 response evaluable patients) in KRAS status undetermined LGSOC. Based on an observation of higher response rates seen in NSCLC patients with KRAS-G12V mutations in the study, we are also exploring the role of VS-6766 and defactinib in KRAS-G12V mutant NSCLC. The FRAME study was expanded in August 2020 to include new cohorts in pancreatic cancer, KRAS mutant endometrial cancer and KRAS-G12V mutant NSCLC. 4 Table of Contents We have met with regulatory authorities in third quarter of 2020, and have commenced registration-directed trials investigating VS-6766 as a monotherapy and in combination with defactinib in the fourth quarter of 2020. The registration-directed trials are called RAF and MEK Program (RAMP) 201 and 202 studies. RAMP 201 is an adaptive two-part multicenter, parallel cohort, randomized, open label trial to evaluate the efficacy and safety of VS-6766 alone and in combination with defactinib in patients with recurrent LGSOC. RAMP 202 study is a Phase 2, adaptive two-part multicenter, parallel cohort, randomized, open-label trial to evaluate the efficacy and safety of VS-6766 alone and in combination with defactinib in patients with KRAS mutant NSCLC, following treatment with a platinum-based regimen and immune checkpoint inhibitor. Both studies are discussed in greater detail below. In addition, defactinib is currently being investigated in combination with immunotherapeutic and other agents through ISTs. 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 2020, more than 1.8 million new cases of cancer were diagnosed and more than 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 2020 estimates from the National Cancer Institute’s Surveillance, Epidemiology, and End Results Program (NCI; SEER), is that during the year there were approximately 228,820 new cases of lung cancer, 147,950 new cases of colorectal cancer and 57,600 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. We leverage our expertise in translational research and deep understanding of cancer treatment pathways as well as strategic partnerships to identify, develop and deliver effective options to address unmet needs. We believe the best way for us to help patients living with cancer is by advancing newly emerging mechanisms of the disease and developing novel therapies that target them. Despite significant advances in the treatment of cancer, unmet needs persist. RAS has long been one of the most elusive cancer-causing proteins. RAS mutant tumors are present in about 30% of all human cancers, have historically presented a difficult treatment challenge and are often associated with significantly worse prognosis. Since its discovery almost four decades ago, researchers have persistently tried, and failed, to develop therapies that effectively block the cancer-promoting effects of RAS mutation, including KRAS, NRAS, BRAF, and HRAS mutations. Challenges associated with identifying new treatment options for these types of cancers include resistance to single agents, identifying tolerable combination regimens with MEK inhibitors and new RAS inhibitors in development addressing only a minority of all RAS mutated cancers. Our focus is targeting cancer cells both directly as well as indirectly by way of the tumor microenvironment. 5 Table of Contents Low Grade Serous Ovarian Cancer (LGSOC) LGSOC is a slow-growing cancer with a high mortality rate that comprise 5-10% of serous ovarian cancers and 6-8% of all ovarian cancers, and has a significant prevalence of KRAS mutations which occur in approximately one third of patients. The remaining KRAS wild-type patients include those with mutations in NRAS or BRAF. There are an estimated 6,000 patients in the United States and 80,000 worldwide living with this disease. Approximately half of those diagnosed are in their 20s-40s. LGSOC has a median survival rate of 10 years, with 85% of patients experiencing recurrence and enduring severe pain and complications as the disease progresses. Despite low response rates to chemotherapy, it continues to be the standard of care for this disease. Currently, VS-6766 is being evaluated (i) in combination with defactinib and as a monotherapy for the treatment of patients with recurrent LGSOC in a Phase 2 registration directed study entitled RAMP 201 and (ii) in combination with defactinib for patients with advanced LGSOC in an investigator sponsored trial (IST) entitled FRAME. Non-Small Cell Lung Cancer According to the NCI, the most common types of 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 54.2 per 100,000 men and women per year based on 2013-2017 cases and that the five-year relative survival rate from 2010 to 2016 for patients with lung cancer was approximately 21%. 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. Recently, immunotherapy has emerged as new treatment option for certain types of lung cancer. While any cancer treatment can cause side effects, immunotherapy is generally well-tolerated. In addition, the introduction of targeted treatment has emerged as lung cancer treatment. Unlike chemotherapy drugs, which cannot tell the difference between normal cells and cancer cells, targeted therapies are designed specifically to attack cancer cells by attaching to or blocking targets that appear on the surfaces of those cells. 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. KRAS mutation occurs in approximately 25% of NSCLC adenocarcinoma patients. Two of the most common sub-types of KRAS mutations are G12V, which are present in approximately 7% of NSCLC and G12C, which occur in approximately 13% of NSCLCs. There are several agents in development for KRAS-G12C mutations, but our study represents the first time that an agent will be studied specifically for KRAS-G12V. Studies suggest that these types of KRAS mutations differ in clinical characteristics and response to traditional treatments such as chemotherapy. Currently, VS- 6766 is being evaluated (i) in combination with everolimus for treatment of patients with NSCLC in an IST, (ii) in combination with defactinib for the treatment of patients with advanced KRAS mutant NSCLC and advanced KRAS-G12V mutant NSCLC in an IST entitled FRAME, and (iii) in combination with defactinib and as a monotherapy for treatment of patients with recurrent KRAS mutant NSCLC in a registration directed study entitled RAMP 202. 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 38.2 per 100,000 men and women per year based on 2013-2017 cases and that the five-year relative survival rate from 2010 to 2016 for patients with CRC was 6 Table of Contents approximately 65%. 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, VS-6766 is being evaluated in combination with defactinib for the treatment of patients with advanced CRC in an IST entitled FRAME. Pancreatic Cancer In 2020, 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 13.1 per 100,000 men and women per year based on 2013-2017 cases. Pancreatic cancer has a very high mortality rate with approximately 90% of patients dying within five years of their initial diagnosis based on the five-year relative survival rate from 2010 to 2016. The median age for diagnosis is 70 with the disease affecting males slightly more than females. KRAS mutant pancreatic cancer represents approximately 98% of pancreatic cancer diagnoses. 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, VS-6766 is being evaluated in combination with defactinib for the treatment of patients with advanced pancreatic cancer in an IST entitled FRAME. Uveal Melanoma Uveal melanoma, also known as ocular melanoma, is the most common primary cancer of the eye in adults. It is a disease in which cancer (malignant) cells are found in part of the eye called the uvea. The uvea includes the iris, the ciliary body, and the choroid layer. The iris opens and closes to change the amount of light entering the eye. The ciliary body changes the shape of the lens inside the eye to allow the eye to focus. The choroid layer is next to the retina, the part of the eye that makes a picture. According to the American Cancer Society, there are approximately 3,400 new cases of eye cancer (mainly melanoma) in the United States each year and the five year survival rate for eye melanoma is approximately 82%. Uveal melanoma has a peak rate of diagnosis around 70 years old. Uveal melanoma may have no early signs or symptoms and it is sometimes found during eye examples. As the tumor grows symptoms may include blurred vision, spots that drift in field of vision or flashes of lights, dark spot on the iris, change in the size or change or pupil or a change in position of the eyeball in eye socket. Uveal melanoma has a high risk of migrating from the eye to other sites in the body and therefore treatment is aggressive to try to prevent its spread. Oncologists may initially try watchful waiting if the tumor shows no sign of growing or if the cancer is in the only eye with useful treatment. When treatment is required, surgery is the most common approach for uveal melanoma. Other treatments include radiation therapy, photocoagulation also known as light coagulation and thermotherapy. Currently, VS-6766 is being evaluated in combination with defactinib for the treatment of patients with metastatic uveal melanoma in an IST. 7 Table of Contents Endometrial Cancer Endometrial cancer, also known as uterine cancer, is a cancer of the endometrium, which is lining of the uterus. The uterus is a hollow, pear- shaped organ in a woman’s pelvis in which a fetus grows after conception. It is the most common type of cancer that affects the female reproductive organs. Endometrial cancer mainly affects women after menopause, with a median age of diagnosis of 63. The NCI estimates that the number of new incidences of uterine cancer was 27.8 per 100,000 women per year based on 2013-2017 cases and that the five-year relative survival rate from 2010 to 2016 for patients with endometrial cancer was approximately 81%. KRAS mutant endometrial cancer represents approximately 21% of endometrial cancer diagnoses. The current treatment of endometrial cancer depends on the stage and the specific pathology type of the disease at the time of diagnosis. Surgery is generally considered for this disease. In early stages, minimal invasive surgery may be the only treatment required. In later stages, more involved and extensive surgeries to remove the disease outside the uterus and cervix may be required, in combination with chemotherapy and radiation therapy. Currently VS-6766 is being evaluated in combination with defactinib for the treatment of patients with KRAS mutant endometrial cancer in an IST entitled FRAME. OUR STRATEGY With VS-6766 and defactinib, we 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 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 develop and explore VS-6766 alone and in combination with defactinib and execute on the registration-directed studies for VS-6766 and defactinib for treatment of LGSOC and KRAS G12V mutant NSCLC. ● Expanding the indications in which VS-6766 and defactinib may be used. In parallel with clinical studies in NSCLC and LGSOC, signal- finding clinical studies are also in progress to assess safety and efficacy of this combination for patients with pancreatic cancer, KRAS/BRAF mutant endometrioid cancer, and metastatic uveal melanoma. Additionally, preclinical studies are in progress to prioritize additional cancer indications and approaches to expand the potential of our product candidates. ● Assessing synergy of VS-6766 with other agents in preclinical models to prioritize for clinical development. It is becoming well established that blockade of multiple nodes in the ERK pathway is necessary for maximal depth and duration of anti-tumor response. We are assessing combinations of VS-6766 with other key agents targeting both the vertical RAS pathway (e.g. KRAS G12C and SHP2 inhibitors), as well as agents targeting parallel pathways (e.g. mTOR inhibitors). These studies may lead to discussions with other companies and clinical investigators with the objective of assessing high priority combinations in the clinic. ● Establishing VS-6766 as the backbone therapy for RAS pathway-driven tumors. ● 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. ● We may seek third-party collaborators for the eventual commercialization of our product candidates both in the U.S and around the world. 8 Table of Contents OUR PRODUCT CANDIDATES AND PIPELINE Our pipeline product candidates currently consist of VS-6766 as a monotherapy and in combination with defactinib and other agents which continue to be evaluated in the clinic for the treatment of a variety of cancer types. The follow table represents the status of our pipeline: * Pre-clinical studies ongoing in multiple KRAS mutant tumors 1 Investigator-sponsored trial 2 NCT03875820 3 NCT04625270 4 NCT04620330 The status of our development programs in the table above represents the ongoing phase of development and does not correspond to the completion of a particular phase. Drug development involves a high degree of risk and investment, and the status, timing and scope of our development programs are subject to change. Important factors that could adversely affect our drug development efforts are discussed in the “Risk Factors” section of this Annual Report on Form 10-K. VS-6766 and defactinib VS-6766 is an orally available first-in-class unique small molecule RAF/MEK inhibitor. In contrast to other MEK inhibitors in development, VS-6766 is a dual RAF/MEK inhibitor that blocks both MEK kinase activity and the ability of RAF to phosphorylate MEK. MEK-only inhibitors (e.g. PD0325901) paradoxically induce pMEK by relieving extracellular-signal-regulated-kinase (ERK)-dependent feedback inhibition of RAF which may limit their efficacy. By inhibiting RAF-mediated phosphorylation of MEK, VS-6766 has the advantage of not inducing pMEK. This unique mechanism of VS-6766 enables more effective inhibition of ERK signaling and may confer enhanced therapeutic activity against ERK-dependent, RAS or BRAF mutant tumors. 9 Table of Contents Defactinib is a targeted inhibitor of FAK. FAK is a non-receptor tyrosine kinase encoded by the PTK-2 gene that is involved in cellular adhesion and, in cancer, metastatic capability. Defactinib targets malignant cells both directly and through modulation of the tumor microenvironment. Defactinib has received orphan drug designation in ovarian cancer in the United States., European Union and Australia. Defactinib is an oral small molecule inhibitor of FAK and proline-rich tyrosine kinase (PYK2) that is currently being evaluated as a potential combination therapy for various solid tumors. Defactinib and VS-6766 have each shown independent clinical activity against RAS mutant cancers. Phase I Study (FRAME) investigating the Combination of VS-6766 and Defactinib in Patients with KRAS Mutant Cancers and Subsequent Analyses The FRAME study is an open-label, investigator-initiated study that is designed to assess safety, dose response and preliminary efficacy of the VS-6766/defactinib combination in patients with KRAS mutant solid tumors, including LGSOC (including wild type), NSCLC and CRC. The FRAME study is being led by Dr. Udai Banerji and is being conducted in the United Kingdom. In this study, VS-6766 was administered using a twice-weekly dose escalation schedule and was administered three out of every four weeks. Defactinib was administered using a twice-daily dose escalation schedule, also three out of every four weeks. Dose levels were assessed in three cohorts: cohort 1 (VS-6766 3.2mg, defactinib 200mg); cohort 2a (VS-6766 4mg, defactinib 200mg); and cohort 2b (VS-6766 3.2mg, defactinib 400mg). The recommended Phase 2 dose was determined to be VS-6766 3.2mg, defactinib 200mg. The FRAME study is has expanded to include new cohorts in pancreatic cancer, KRAS mutant endometrial cancer and KRAS-G12V mutant NSCLC. Initial Results from the FRAME Study Investigating the Combination of VS-6766 and Defactinib in Patients with KRAS Mutant Cancers and Subsequent Analyses The poster presentation at the American Association for Cancer Research (AACR) 2020 Virtual Meeting held in April 2020 described safety and dose response data from the dose-escalation portion and expansion cohorts from an open-label, investigator-initiated Phase 1 study conducted in the United Kingdom assessing the combination of RAF/MEK and FAK inhibitor therapy in patients with LGSOC and KRAS mutant NSCLC. The study evaluated the combination of VS-6766 and defactinib. VS-6766 was administered using a twice-weekly dose escalation schedule and was administered 3 out of every 4 weeks. Defactinib was administered using a twice-daily dose escalation schedule, also 3 out of every 4 weeks. Dose levels were assessed in 3 cohorts: cohort 1 (VS-6766 3.2mg, defactinib 200mg); cohort 2a (VS-6766 4mg, defactinib 200mg); and cohort 2b (VS-6766 3.2mg, defactinib 400mg). In the patients with LGSOC (n=8), the ORR was 50% (n=4). Among the patients with KRAS mutant LGSOC (n=6), the ORR was 67% (n=4). Of the 4 patients who have responded, 3 had a prior MEK inhibitor and as of November 2019 had been on study for a median of 20.5 months (range 7- 23 months). In the patients with NSCLC (n=10), all of which had KRAS mutations, 1 patient achieved a partial response and 1 patient with a 22% tumor reduction still on treatment as of November 2019. Median time on treatment for this cohort was approximately 18 weeks. Based on an observation of higher response rates seen in patients with KRAS G12V mutations in the investigator-initiated Phase 1 combination study, we conducted a combined analysis with data from the combination study and the prior single-agent study that utilized a twice-weekly dosing schedule of VS-6766 to get a more complete picture of activity in KRASG12V mutations. The subsequent, combined analysis (VS-6766 monotherapy and defactinib combination) showed a 57% ORR (4/7 patients); as a single agent (2/5 patients) and in combination with defactinib (2/2 patients) in KRASG12V mutant NSCLC. Similarly, the combined analysis showed a 60% ORR (3/5 patients); as a single agent (1/2 patients) and in combination with defactinib (2/3 patients) in KRASG12V mutant gynecologic cancers. All KRASG12V responses were confirmed responses per RECIST criteria. These additional analyses were conducted to understand the impact that various KRAS variants may have had on response to identify potential signals to pursue in future prospective studies. This additional analysis was not part of the AACR 2020 poster presentation. 10 Table of Contents The most common side effects seen in the Phase 1 study were rash, creatine kinase elevation, nausea, hyperbilirubinemia and diarrhea, most being NCI CTC Grade 1/2 and all were reversible. The recommended Phase 2 dose was determined to be cohort 1 (VS-6766 3.2mg, defactinib 200mg). The preliminary data reported in the study suggest that a novel intermittent dosing schedule of RAF/MEK and FAK inhibitor combination therapy has promising clinical activity in patients with KRAS mutant LGSOC and KRASG12V mutant NSCLC, including patients previously treated with a MEK inhibitor. Expansion cohorts remain ongoing. Updated Phase 1/2 FRAME Study Results in Patients with LGSOC On September 16, 2020, updated Phase 1/2 FRAME study results in patients with LGSOC were presented. Among the patients with LGSOC (n=17), the ORR was 41% (7 of 17 patients), all partial responses (PRs). Among the patients with KRAS-G12 mutant LGSOC (n=9), the ORR was 56% (5 of 9 patients). Among the nine patients who had received one or more prior MEK inhibitors, five had responded. In patients with KRAS mutant LGSOC receiving the recommended Phase 2 dosing (RP2D) regimen, the ORR was 50% (3 of 6 patients). The LGSOC cohort of the FRAME study remains ongoing, with 53% (9 of 17 patients) still on study as of the data cutoff date of August 17, 2020, with three patients on treatment for two years or more. The most common Grade ≥3 treatment-related adverse events (TEAEs) observed for the recommended Phase 2 dosing regimen were rash (4%) and elevated creatine kinase (4%). No patients discontinued from the FRAME study due to TEAEs. In an updated December 2020 read-out of the FRAME study LGSOC cohort (n=24), the overall response rate (ORR) is 52% (11 of 21 response evaluable patients), with KRAS mutant ORR at 70% (7 of 10 response evaluable patients), KRAS wild-type ORR at 44% (4 of 9 response evaluable patients) and KRAS status undetermined ORR at 0% (0 of 2 response evaluable patients). As reported previously, the most common side effects seen in the study were rash, creatine kinase elevation, nausea, hyperbilirubinemia and diarrhea, most being NCI CTC Grade 1/2 and all were reversible. The data from the LGSOC cohort are anticipated to be presented at a major medical meeting during the second half of 2021. The novel, intermittent, combination dosing schedule used in the FRAME study continues to show encouraging clinical activity in patients with KRAS mutant and KRAS wild type LGSOC, including in patients who had previously progressed following treatment with a MEK inhibitor. Phase II study (known as RAMP (RAF and MEK Program) 201 Study) Registration-Directed Trial of VS-6766 and Defactinib in Recurrent Low-Grade Serous Ovarian Cancer (LGSOC) The RAMP 201 Study that was initiated in November 2020 is a registration-directed clinical trial of VS-6766 and defactinib, in patients with recurrent LGSOC. The RAMP 201 Study is an adaptive two-part multicenter, parallel cohort, randomized, open label trial to evaluate the efficacy and safety of VS-6766 alone and in combination with defactinib in patients with recurrent LGSOC. The first part of the study will determine the optimal regimen of either VS-6766 monotherapy or in combination with defactinib in patients with recurrent KRAS mutated and KRAS wild type LGSOC randomized 1:1 in each treatment arm. The determination of which regimen to take forward into the expansion phase of the trial, which will enroll both KRAS mutated and KRAS wild type LGSOC, will be made based on objective response rate data. The expansion phase of the study will examine efficacy and safety parameters of the regimen selected. Trial enrollment is underway in the United States with European sites to follow. Phase II Study (known as RAMP (RAF and MEK Program) 202 Study) Registration-Directed Trial of VS-6766 and Defactinib in Previously Treated KRAS Mutant NSCLC) The RAMP 2020 Study that was initiated in December 2020 is a registration-directed clinical trial of VS-6766 and defactinib, in patients with KRAS mutant NSCLC. 11 Table of Contents The RAMP 202 study is a Phase 2, adaptive two-part multicenter, parallel cohort, randomized, open-label trial to evaluate the efficacy and safety of VS-6766 alone and in combination with defactinib in patients with KRAS mutant NSCLC, following treatment with a platinum-based regimen and immune checkpoint inhibitor. The first part of the study will determine the optimal regimen of either VS-6766 monotherapy or in combination with defactinib in patients with KRAS-G12V mutant NSCLC randomized 1:1 in each treatment arm. An exploratory arm of the initial phase of the study will evaluate other KRAS mutations. The determination of which regimen to take forward into the expansion phase of the trial will be made based on data from KRAS-G12V mutant patients. The second phase of the study will examine efficacy and safety parameters of the most effective regimen. Phase II Study of VS-6766 Combined with Defactinib in Patients with Metastatic Uveal Melanoma The Phase 2 IST was initiated in January 2021 and is an open-label, single arm, investigator-initiated study that is designed to assess potential efficacy, survival benefit and safety profile of the VS-6766/defactinib combination in patients with metastatic uveal melanoma. The Phase 2 study is being led by Dr. Takami Sato and is a single-institution study being conducted at Thomas Jefferson University Hospital. In this study, VS-6766 is being administered at 3.2 mg twice-weekly with defactinib at 200 mg twice daily administered three out of every four weeks. This recommended Phase 2 dose for the combination is based on the FRAME study. COPIKTRA (duvelisib) On August 10, 2020, we and Secura Bio, Inc. (Secura) signed an Asset Purchase Agreement (Secura APA) and on September 30, 2020, the transaction closed. Pursuant to the Secura APA, we sold our exclusive worldwide license for the research, development, commercialization, and manufacture in oncology indications of products containing duvelisib. A detailed description of the terms and conditions of the Secura APA is contained below under the heading Licenses and Commercial Agreements. With the transition of the duvelisib program to Secura, we are focusing our efforts on our lead product candidates, VS-6766 and defactinib. 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 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 12 Table of Contents 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 three categories: (1) RAF/MEK inhibition program; (2) FAK inhibition program; and (3) other programs. RAF/MEK inhibition program We have exclusively licensed a portfolio of four patent families owned by Chugai Pharmaceutical Co., Ltd. (Chugai). The first patent family has claims directed to the composition of matter of VS-6766, and includes granted patents in the United States, Australia, Brazil, Canada, China, Europe, Japan, Korea, Israel, and New Zealand that are expected to expire in February of 2027. The second patent family has claims directed to methods of making VS-6766 and includes granted patents in Europe, Japan, and the United States that are expected to expire in September of 2032. The third patent family has claims directed to a dosing protocol of VS-6766, and includes pending patent applications in the United States, Australia, Brazil, Canada, China, Europe, Japan, Korea, India, Mexico, Singapore, Taiwan, and Russia. Patent applications in this family, if issued, would be expected to expire in May of 2038. The fourth patent family covers a method of using VS-6766 in combination with a FAK inhibitor, such as defactinib, for treating a patient, and is pending in Japan and Taiwan and as an international application. Any U.S. patents that will issue in this family will have a statutory expiration date in September of 2040. In addition to the issued and pending patent applications exclusively licensed from Chugai, we own three patent families covering methods of using a MEK inhibitor for treating a patient. The first patent family covers a method of using a MEK inhibitor in combination with a G12C inhibitor for treating a patient, and is pending as an international application. Any U.S. patents that will issue in this family will have a statutory expiration date in January of 2041. We have two families covering a method of using a MEK inhibitor to treat a patient with certain mutations and a method of using a MEK inhibitor in combination with another therapeutic agent for treating a patient, which are pending as provisional patent applications. Any U.S. patents that will issue in the two families will have a statutory expiration date in April of 2041 and July of 2041. FAK inhibition program 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 and US 10,450,297 cover 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 Thailand, and granted in Australia, Europe, Brazil, Mexico, India, Hong Kong, 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 have issued or will issue in this family will have a statutory expiration date in January of 2035. Patent applications in this family are pending worldwide, including for example in the United States, Thailand, New Zealand, Mexico, Brazil, Korea, Israel, Hong Kong, Canada, Europe, and China, and granted in Australia, Japan, Singapore, and South Africa. The second family is 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. Any U.S. patents that will issue in this family will have a statutory expiration date in February of 2035. Patent applications in this family are pending worldwide, including for example in Japan, and granted in the United States, Hong Kong, and Europe. The third family is directed to methods of using a FAK inhibitor, such as defactinib, in combination with an immunotherapeutic agent. Any U.S. patents that have issued or will issue in 13 Table of Contents this family will have a statutory expiration date in June of 2036. Patent applications in this family are pending worldwide, including for example in Australia, Europe, South Africa, New Zealand, Brazil, Eurasia, Korea, Singapore, Israel, Canada, Mexico, Japan, Hong Kong, and China, and granted in the United States. 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 United States 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. Stanford University has an option to certain United States rights in VS-6062. Other programs We also own one patent family covering a method of treating a patient having a cytokine release syndrome using a PI3K inhibitor, which is pending as a provisional patent application. Any U.S. patents that will issue in this family will have a statutory expiration date in April 2041. 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. LICENSES AND COMMERCIAL AGREEMENTS Secura On August 10, 2020, we and Secura signed the Secura APA and on September 30, 2020, the transaction closed. Pursuant to the Secura APA, we sold to Secura our exclusive worldwide license for the research, development, commercialization, and manufacture in oncology indications of products containing duvelisib. The sale included certain intellectual property related to duvelisib in oncology indications, certain existing duvelisib inventory, claims and rights under certain contracts pertaining to duvelisib. Pursuant to the Secura APA, Secura assumed all operational and financial responsibility for activities that were part of the duvelisib oncology program, including all commercialization efforts related to duvelisib in the United States and Europe, as well as our ongoing duvelisib clinical trials. Further, Secura assumed all obligations with existing collaboration partners developing and commercializing duvelisib, which include Yakult Honsha Co., Ltd. (Yakult), CSPC Pharmaceutical Group Limited (CSPC), and Sanofi. Additionally, Secura assumed all royalty payment obligations due under the amended and restated license agreement with Infinity Pharmaceuticals, Inc. (Infinity). 14 Table of Contents Pursuant to the terms of the Secura APA, Secura has paid us an up-front payment of $70.0 million, and has agreed to pay us (i) regulatory milestone payments up to $45.0 million, consisting of a payment of $35.0 million upon receipt of regulatory approval of COPIKTRA in the United States for the treatment of peripheral T-cell lymphoma (PTCL) and a payment of $10.0 million upon receipt of the first regulatory approval for the commercial sale of COPIKTRA in the European Union for the treatment of PTCL, (ii) sales milestone payments of up to $50.0 million, consisting of $10.0 million when total worldwide net sales of COPIKTRA exceed $100.0 million, $15.0 million when total worldwide net sales of COPIKTRA exceed $200.0 million and $25.0 million when total worldwide net sales of COPIKTRA exceed $300.0 million, (iii) low double-digit royalties on the annual aggregate net sales above $100.0 million in the United States, European Union, and the United Kingdom of Great Britain and Northern Ireland and (iv) 50% of all royalty, milestone and sublicense revenue payments payable to Secura under our existing license agreements with Sanofi, Yakult, and CSPC, and 50% of all royalty, and royalty payments payable to Secura under any license or sublicense agreement entered into by Secura in certain jurisdictions. Secura’s royalty obligations remain in effect on a country-by-country basis upon the last to occur (a) 10 years from the first commercial sale of product containing duvelisib in such country or (b) the expiration of all valid patent claims covering products containing duvelisib in such country. In connection with the Secura APA, we and Secura entered into a transition services agreement (Secura TSA). Under the terms of the Secura TSA, we will provide certain support functions at Secura’s directions for a term of less than one year from the date of execution, unless earlier terminated or extended according to the terms of the Secura TSA. Services performed are paid at a mutually agreed upon rate. 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 VS-6766. Under the terms of the Chugai Agreement, we received an exclusive right to develop and commercialize products containing VS-6766 at our own cost and expense. In February 2020, we paid Chugai a non-refundable payment of $3.0 million. We are further obligated to pay Chugai double-digit royalties on net sales of products containing VS-6766, subject to reduction in certain circumstances. Chugai also obtained opt back rights to develop and commercialize VS-6766 (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 VS-6766 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 VS-6766as 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 VS-6766, 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. 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 15 Table of Contents 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 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. 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 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 16 Table of Contents 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. 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 (Taflinar), a RAF inhibitor, in combination with trametinib (Mekinist), 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 (Braftovi), a RAF inhibitor, in combination with binimetinib (Mektovi), a MEK inhibitor, for treatment of patients with unresectable or metastatic melanoma with a BRAF V600E or V600K mutation. In addition, the FDA has granted approval for encorafenib (Braftovi) in combination with cetuximab (Erbitux), an anti-EGFR antibody for treatment of adult patients with metastatic CRC with a BRAF V600E mutation; ● 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; and ● AstraZeneca and Merck & Co., Inc. has received FDA approval for selumetinib, a MEK inhibitor, for the treatment of pediatric patients two years of age and older with neurofibromatosis type 1 (NF1) who have symptomatic inoperable plexiform neurofibromas. FAK inhibition program There is a company, InxMed, developing a FAK small molecule inhibitor program. We believe InxMed is conducting phase 1 clinical trials of their product candidate IN10018. RAS Pathway Inhibitors 17 Table of Contents There are other companies working to develop therapies to target the RAS pathway. We believe the following companies, among others, have developed or in the clinical stage of development of compounds targeting the RAS pathway: ● Amgen Inc., which we believe is conducting Phase 2 and Phase 3 clinical trials of sotorasib, formerly called AMG 510; ● Mirati Therapeutics, Inc., which we believe is conducting Phase 2 and Phase 3 clinical trials of adagrasib (MTRX-849); ● Revolution Medicines, Inc., which we believe is conducting Phase 2 clinical trial of RMC-4630 in collaboration with Sanofi and a Phase 1 clinical trial of RMC-5552; ● Relay Therapeutics, Inc., which we believe is conducting a Phase 1 clinical trial of RLY-1971; ● Boehringer Ingelheim, which we believe is conducting a Phase 1 clinical trial of BI 1701963; and ● Moderna, Inc., which we believe is conducting a Phase 1 clinical trial of mRNA-5671. Oncology In addition to companies that have inhibitors addressing our targets of interest, our competition also includes hundreds of private and publicly traded companies that operate in the area of oncology but have therapeutics with different mechanisms of action. The oncology market in general is highly competitive, with over 1,000 molecules currently in clinical development. MANUFACTURING We contract with third parties 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 one contract manufacturing organization (CMO) for the manufacture of VS-6766 drug product, one CMO for the production of VS-6766 drug substance, and one CMO for VS-6766 drug packaging/labelling. For defactinib, we currently have one CMO for the manufacture of drug product, one CMO for the production of drug substance, and one CMO for drug packaging /labelling. We have development agreements in place with these CMOs and we obtain drug substance, drug product and packaging/labelling services from these CMOs on a purchase order basis. We may elect to pursue relationships with other CMOs for manufacturing of drug product, drug substance and packaging/labelling for later- stage clinical trials, commercialization or for risk management. 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 CMOs. 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. 18 Table of Contents 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 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. 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 19 Table of Contents 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 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 20 Table of Contents 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 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 21 Table of Contents 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. Breakthrough designation A drug may be designated as a breakthrough therapy if the drug is intended to treat a serious or life-threatening disease and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. The breakthrough therapy designation provides all the benefits of the fast track program, including the eligibility for rolling review. The FDA may take certain administrative actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process, providing timely advice to the product sponsor regarding development and approval, involving more senior staff in the review process, assigning a cross-disciplinary project lead for the review team and taking other steps to aid sponsors in designing the clinical trials. Although breakthrough designation does not affect the regulatory standards for approval, the frequent interactions with the FDA may facilitate a more efficient development program. In addition, the breakthrough designation may be withdrawn by the FDA if the FDA believes that the drug no longer meets the conditions for qualification. 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. 22 Table of Contents 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 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. 23 Table of Contents 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. Combination Therapy Combination therapy is a treatment modality that involves the use of two or more drugs to be used in combination to treat a disease or condition. If those drugs are combined in one dosage form, such as one pill, that is known as a fixed dose combination product and it is reviewed pursuant to FDA’s Combination Rule at 21 CFR 300.50. The Rule provides that two or more drugs may be combined in a single dosage form when each component contributes to the claimed effects and the dosage of each component (amount, frequency, duration) is such that the combination is safe and effective for a significant patient population requiring such concurrent therapy as defined in the labeling for the drug. But not all combination therapy falls under the category of a fixed dose combination. For example, FDA recognizes that two drugs in separate dosage forms and in separate packaging, that otherwise might be administered as monotherapy for an indication, also may be used in combination for the same indication. In 2013, FDA issued guidance to assist sponsors that were developing the range of combination therapies that fall outside the category of fixed dose combinations. That guidance provides recommendations and advice on such topics as: (1) assessment at the outset whether two or more therapies are appropriate for use in combination; (2) guiding principles for nonclinical and clinical development of the combination; (3) options for regulatory pathways to seek marketing approval of the combination; and (4) post-marketing safety monitoring and reporting obligations. Given the wide range of potential combination therapy variations, FDA indicated it intends to assess each potential combination on a case-by case basis and encouraged sponsors to engage in early and regular consultation with the relevant review division at the agency throughout the development process for its proposed combination. 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. 24 Table of Contents 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 extensive 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; ● 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. 25 Table of Contents Additional provisions 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. 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 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. 26 Table of Contents 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 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 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. 27 Table of Contents The marketability of products for which we may 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. New legislation and regulations 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 21st 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 2020, 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. Drug development is a complex endeavor which requires deep expertise and experience across a broad array of disciplines. 28 Table of Contents HUMAN CAPITAL RESOURCES As of December 31, 2020, we had 48 full-time equivalent employees, including a total of 10 employees with M.D. or Ph.D. degrees, and 1 part- time employee. Of the full-time equivalent employees, 30 employees are engaged in research and development activities. We consider the intellectual capital of our employees to be an essential driver of our business and key to our success. Biopharmaceutical companies both large and small compete for a limited number of qualified applicants to fill specialized positions and retain such employees. To attract qualified applicants to Verastem and retain such employees, we offer a total rewards package consisting of base salary and cash target bonus, a comprehensive benefit package and equity compensation for every employee. Bonus opportunity and equity compensation increase as a percentage of total compensation based on level of responsibility. Actual bonus payout is based on our achievement of corporate goals and individual performance. 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. 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 28, 2021. Name Brian Stuglik Daniel Paterson Robert Gagnon Age Position 61 Chief Executive Officer 59 46 Chief Business and Financial Officer President, Chief Operating Officer Brian Stuglik, age 61, 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 59, 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 46, 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. 29 Table of Contents 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. 30 Table of Contents ITEM 1A. Risk Factors Investment in our Common Stock involves a high degree of risk. You should carefully consider the risks that are summarized below and discussed in greater detail in the following pages before making an investment decision. If any of the following risks and uncertainties actually occur, our business, financial condition, and results of operations could be negatively impacted and you could lose all or part of your investment. Summary of Risk Factors ● The approval of our product candidates as single agents or 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. ● 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. ● 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. ● If serious adverse or unexpected side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates. ● 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. ● Our approach to the treatment of cancer through cell death, inhibition of tumor growth and the 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 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 VS-6766. ● Raising additional capital or entering into certain licensing arrangements may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates. ● Preclinical testing and clinical trials of our product candidates may not be successful. If we are unable to obtain 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. ● A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, has and may in the future adversely affect our business. ● We face substantial competition, which may result in others developing or commercializing products before or more successfully than we do. ● 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 obtain regulatory approvals for and commercialize any of 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. ● We contract with third parties for the manufacture of our product candidates and for compound formulation research, and these third parties may not perform satisfactorily. ● We may not be successful in obtaining necessary rights to compounds and product candidates for our development pipeline through acquisitions and in-licenses. ● 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 31 Table of Contents 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. ● We depend on Secura for the achievement and payment of the contingent consideration under the asset purchase agreement between us and Secura pursuant to which we sold the COPIKTRA assets to Secura. If Secura is unsuccessful in developing and commercializing COPIKTRA, we may not receive such payments or otherwise capitalize on the market potential of COPIKTRA. ● We have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability. ● 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. Risk Factors Risks Related to the Development of Our Product Candidates. 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 Pfizer, Inc. (Pfizer) and Chugai Pharmaceutical Co., Ltd (Chugai) to research, develop, commercialize, and manufacture products in oncology indications containing defactinib and VS-6766, 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; 32 Table of Contents ● 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 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 or 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; or 33 Table of Contents ● 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; ● 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; ● proximity and availability of clinical trial sites for prospective patients; and ● constraints on the healthcare system such as COVID-19. 34 Table of Contents 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. 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 cell death, inhibition of tumor growth, 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 developing product candidates to treat cancer by using targeted agents to cause cell death, inhibition of tumor growth, and disruption of the tumor microenvironment and thereby thwart their growth and proliferation of cancer cells. Research on the use of small molecules to cause cell death, inhibition of tumor growth and disruption of the tumor microenvironment is an emerging field and, consequently, there is still uncertainty about whether defactinib and VS-6766 are effective in improving outcomes for patients with cancer. Any products that we develop may not effectively cause cell death, inhibition of tumor growth and disruption of the tumor microenvironment. While we are currently conducting clinical trials for product candidates that we believe will cause cell death, inhibition of tumor growth, and disruption of 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 single agents or 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. 35 Table of Contents 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 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. 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 our current 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 our product candidates, including Novartis AG, Pfizer, Genentech, Inc., AstraZeneca PLC, Mirati Therapeutics, Inc., Amgen, Inc., Revolution Medicines, Inc., Relay Therapeutics, Inc., Boehringer Ingelheim, Moderna, Inc. 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 developing our 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 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 our 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. 36 Table of Contents 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 and the development of our 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 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. 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. Preclinical testing and clinical trials of our product candidates may not be successful. If we are unable to obtain 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. Our ability to generate product revenues will depend heavily on the successful commercialization and development of our 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. 37 Table of Contents If serious adverse or unexpected side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates. Our 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 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. VS-6766 and defactinib are in our Phase 1 and Phase 2 clinical trials and the development program continues to progress. For both VS-6766 and defactinib, 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. 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. 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. In both domestic and foreign markets, 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 38 Table of Contents of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in 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 any 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, any 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 the product candidates for which we may obtain marketing approval. Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop. 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 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 any product candidates or products that we may develop; ● injury to our reputation and significant negative media attention; ● withdrawal of clinical trial participants; ● significant costs to defend the related litigation; ● substantial monetary awards to trial participants or patients; ● loss of revenue; and ● the inability to commercialize any products that we may develop. We currently hold $10.0 million in product liability insurance coverage in the aggregate, with a per 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 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. A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, has and may in the future adversely affect our business. Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities, our financial condition and our results of operations. For example, United States residents and businesses in major urban centers have been hit especially hard by the global spread of COVID-19, which has resulted in certain disruptions to our business and may in the future result in additional disruptions to our business. Examples of both include: ● Reductions in patient visits for clinical trials. Clinical investigators have reduced patient visits for in-process clinical trials and have transitioned to remote patient visits where possible. Further, we had seen a reduction in site initiation, participant recruitment and enrollment, due to the COVID-19 pandemic, which could further pause or delay our clinical trials. In addition, participant dosing, study monitoring and data analysis may be paused or delayed due to changes in hospital or academic institution policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related to the COVID-19 pandemic. ● Accessibility limitations on our contract research organizations (CROs). The ability of principal investigators and site staff to perform their functions, who as healthcare providers, may have heightened exposure to COVID-19, could be disrupted and cause elongation or de- prioritization of our 39 Table of Contents clinical trials, increase the costs related to such development, and materially adversely impact our clinical trial operations. ● Capital markets volatility. Equity and debt markets have experienced significant volatility since the spread of COVID-19 into the United States, which makes it more difficult to raise capital at a reasonable valuation or at all. ● Limitations on third party manufacturers and distributors. We currently utilize third parties to, among other things, supply raw materials, produce drug substance, drug product, and drug packaging. Some of our third party manufacturers and distributors may in the future be limited and, at times, precluded from delivering us raw materials, drug substance, drug product, and drug packaging on a timely basis, for a variety of reasons, including without limitation an evolving understanding of how international, federal, and/or state authorities define “essential business”, their inability to remain open due to lost business in other parts of their portfolios, or because of international, federal, and/or state prioritization orders requiring our manufacturers to produce for and our distributors to distribute to governmental entities, competitors and/or other companies before they produce for us. ● Health risks for our employees. The health and wellbeing of our employees, including the employees of our third parties is at risk– if a significant number of our personnel were to be diagnosed with COVID-19, placed in quarantine due to potential exposure to COVID-19, or need to care for family members diagnosed with COVID-19, it may result in significant business disruption. ● Work-from-home limitations. We have asked most employees to work from home, which could impact our ability to effectively plan, execute, communicate and maintain our corporate culture. The remote working environment could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions. ● Regulatory disruption. There may be interruptions or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval timelines. ● Business interruptions or disruptions. There may be interruptions or disruptions that directly or indirectly adversely affect our or our current or potential collaboration partners’ organizations, which may delay or disrupt our business plans or impact a collaboration partner’s ability to fully perform under our agreements with them. Each of these factors could have a material adverse effect on our business and results of operations. The extent to which COVID-19 impacts our results will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others. Risks Related to Our Commercial Agreements We depend on Secura. for the achievement and payment of the contingent consideration under the asset purchase agreement between us and Secura pursuant to which we sold the COPIKTRA assets to Secura. If Secura is unsuccessful in developing and commercializing COPIKTRA, we may not receive such payments or otherwise capitalize on the market potential of COPIKTRA. On September 30, 2020, we completed the disposition of the Company’s rights, title and interest in and to COPIKTRA to Secura Bio, Inc. (Secura). Under the terms of the asset purchase agreement with Secura, we are entitled to contingent consideration, including milestone payments and royalties, dependent upon the further development and commercial success of COPIKTRA. Accordingly, our ability to receive the contingent consideration will depend on Secura’s ability to successfully develop and commercialize COPIKTRA. Secura’s ability to develop and commercialize COPIKTRA is subject to a number of risks and uncertainties, including the following: ● Secura has significant discretion in determining how to develop further and commercialize COPIKTRA, including through potential collaborators and partners; ● Secura may not commit sufficient resources to development, marketing or distribution of COPIKTRA; 40 Table of Contents ● Even if diligently pursued, Secura’s efforts to develop and commercialize COPIKTRA may not be successful; ● Secura may not properly maintain or defend its intellectual property rights or may use its proprietary information in such a way as to invite litigation that could jeopardize or invalidate the intellectual property of COPIKTRA; ● Secura may fail to maintain compliance with ongoing FDA labeling, packaging, storage, advertising, promotion, recordkeeping, safety and other post-market requirements; ● Secura may not be able to obtain regulatory approval in United States for certain oncology indications or obtain approval in jurisdictions outside of the United States and as a result, will not be able to market COPIKTRA for those indications or in those jurisdictions; and ● disputes may arise between Secura and us that result in the delay of payments or in costly litigation that diverts management attention and resources. If we do not realize the anticipated benefits of our license agreements with Pfizer for the FAK program and Chugai for the dual RAF/MEK candidate program, our business could be adversely affected. Our license agreements with Pfizer for defactinib and Chugai for VS-6766 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 defactinib and VS-6766 on our financial results relating to numerous matters, including: ● the cost of development and commercialization of defactinib and VS-6766; and ● other financial and strategic risks related to the license agreements with Pfizer and Chugai. 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 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 Pfizer for defactinib and Chugai for VS-6766 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, 2020, we had an accumulated deficit of $592.5 million. To date, we have generated minimal product revenues and have financed our operations primarily through public and private 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 (2018 Notes), upfront payments under our license and collaboration agreements with Yakult, CSPC, and Sanofi, and the upfront payment under the Secura APA. 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 clinical trials with our product candidates, including with defactinib and VS-6766; ● initiate additional clinical trials for our product candidates; ● maintain, expand and protect our intellectual property portfolio; ● acquire or in-license other products and technologies; ● hire additional clinical, development and scientific personnel; and ● establish and maintain a sales, marketing and distribution infrastructure to commercialize any products for which we obtain marketing approval. 41 Table of Contents To become and remain profitable, we must develop and eventually commercialize a product or products with significant market potential. 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 VS-6766. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of our product candidates. We expect our existing cash resources at December 31, 2020 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, including for our clinical development programs. Our future capital requirements will depend on many factors, including: ● 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 our product candidates, should any of our product candidates 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 product candidates. Our commercial revenues will be derived from sales of products. It will take several years to achieve 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. Our ability to use our net operating loss carry-forwards may be limited. As of December 31, 2020, we had U.S. federal and state net operating loss (NOL) carryforwards of approximately $348.5 million and $231.9 million, respectively. As of December 31, 2020, we also had federal and state tax credits of $1.6 million and $0.6 million, respectively, which may be used to offset future tax liabilities. The NOL and tax credit carryforwards will expire at various dates through 2037, except for $154.5 million of federal NOL carryforwards which may be carried forward indefinitely. Sections 382 and 383 of the Internal Revenue Code and similar provisions under state law limits the annual use of NOL carry-forwards and tax credit carry-forwards, respectively, following an ownership change pursuant to section 382 of the Internal Revenue Code and similar state provisions. In general, an ownership change occurs for purposes of Section 382 if there is certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%. Based on our analysis under Section 382, we believe that $41.4 million of our federal NOL carryforwards and $168.0 million of our state NOL carryforwards are limited by Section 382 and similar provisions under state law as of December 31, 2020 and have been written off in the year end December 31, 2020. Due to limitations under Section 382 we believe that our research & development and orphan drug credits will be limited as of December 31, 2020. The portion of research and development and orphan drug credits that were determined to be limited by 42 Table of Contents Section 382 have been written off as of December 31, 2020. Future changes in our stock ownership, some of which are outside of our control, could result in ownership changes in the future. We may not be able to use some or all of our NOL and tax credit carryforwards, even if we attain profitability. 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. As of December 31, 2020, we had an aggregate principal of $28.3 million of debt outstanding, consisting of $0.3 million in 2018 Notes and $28.0 million of 2020 issued 5.00% Convertible Senior Notes due 2048 (the 2020 Notes). We may not have cash available in an amount sufficient to enable us to make interest or principal payments on our indebtedness when due. 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 2020 Notes are governed by the terms of an indenture (the 2020 Indenture, and together with the 2018 Indenture, referred to as the Indentures). Failure to satisfy our current and future debt obligations under the Indentures or breaching any covenants under 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 2018 Notes and 2020 Notes (together referred to as 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 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 product candidate development or grant to others the rights to develop and market our product candidates that we would otherwise prefer to develop and market internally. Our business, financial condition and results of operations could be 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. 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 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 43 Table of Contents 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 our 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. 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 and for compound formulation research, and these third parties may not perform satisfactorily. We do not have any manufacturing facilities or personnel. We currently obtain all of our supply of our 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. In addition, we currently rely on third parties for the development of various formulations of our product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of 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: 44 Table of Contents ● 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. 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 COVID-19 pandemic, could result in the cancellation of shipments, loss of product in the manufacturing process or a shortfall in available 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 our product candidates in sufficient quality and quantity required 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 our 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 our 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 our 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 and the continued development of our 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 45 Table of Contents 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 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 development and commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of our product candidates. We may seek third-party collaborators for the development and commercialization of our product candidates. 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; 46 Table of Contents ● 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. 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. 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 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 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 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 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 Chugai were to terminate its license agreement with us for any reason, we could lose our rights to VS-6766. 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. We cannot be certain that any patents will issue with claims that cover our product candidates. 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 47 Table of Contents 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. 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. 48 Table of Contents 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 our 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 our 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 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 activities or any future 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 49 Table of Contents 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 Achieving Regulatory Approval of Our 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 current product candidates from regulatory authorities in any jurisdiction 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 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 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 these product candidates. We received orphan drug designation 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 defactinib for the same indications for which we may have received orphan drug designation in corresponding 50 Table of Contents territories. While orphan drug exclusivity for 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 one or more of our 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. 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 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. Any 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, when and if any of them are approved. Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post approval clinical data, labeling, advertising and promotional activities for such product, will be subject 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. 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; 51 Table of Contents ● refusal to approve pending applications or supplements to approved applications that we submit; ● recall of products; ● fines, restitution or disgorgement of profits or revenue; ● suspension or withdrawal of marketing approvals; ● refusal to permit the import or export of our products; ● product seizure; or ● injunctions or the imposition of civil or criminal penalties. The FDA's and other regulatory authorities' policies may change and additional government regulations may 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 future earnings. Healthcare providers, including physicians, and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future 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 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; 52 Table of Contents ● 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; ● 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 53 Table of Contents 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 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 obtain marketing approval of and commercialize our 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 any of our 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 54 Table of Contents 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 November, the Supreme Court will 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 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 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. From October 2019 to August 2020, we committed to operation plans to reduce overall operating expenses, including the elimination of approximately of 112 positions. The workforce reductions were designed to streamline operations, speed execution of the Company’s clinical development of defactinib and VS-6766. 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 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 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. 55 Table of Contents 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. 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 future 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 our 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 56 Table of Contents 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; ● 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, 2020. 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; ● 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 57 Table of Contents 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. 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. Raising additional capital or entering into certain licensing arrangements may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates. 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, grants and government funding, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt, 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. To the extent that we enter into certain licensing arrangements, the ownership interest of our existing stockholders may be diluted if we elect to make certain payments in shares of our common stock. 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. For example, see our risk factors under the heading “Risks Related to Our Indebtedness.” If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish future revenue streams or valuable rights to product candidates or to 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. 58 Table of Contents 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 Notes are structurally subordinated to any liabilities of our subsidiaries. The 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 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 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 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 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 Notes then outstanding. The Indentures governing the 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. We may still incur substantially more debt or take other actions which would intensify the risks discussed above. 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. 59 Table of Contents Item 1B. Unresolved Staff Comments None. Item 2. Properties We occupy approximately 27,810 square feet of office space in Needham, Massachusetts under a lease that expires in June 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. 60 Table of Contents 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.” PART II HOLDERS As of February 26, 2021 there were 10 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 $2.35. 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, 2015 through December 31, 2020. The comparison assumes $100 was invested after the market closed on December 31, 2015 in our common stock and in each of the foregoing indices, and it assumes reinvestment of dividends, if any. 61 Table of Contents Cumulative Total Return Comparison Verastem, Inc. NASDAQ Composite NASDAQ Biotechnology PURCHASE OF EQUITY SECURITIES 2015 100.00 100.00 100.00 December 31, 2016 60.22 108.87 78.65 2017 165.05 141.13 95.66 2018 180.65 137.12 87.19 2019 72.04 187.44 109.08 2020 114.52 271.64 137.90 We did not purchase any of our equity securities during the period covered by this Annual Report on Form 10-K. 62 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: Revenue: Product revenue, net License and collaboration revenue Sale of COPIKTRA license and related assets Transition services revenue Total revenue Operating expenses: Cost of sales - product Cost of sales - intangible amortization Cost of sales - sale of COPIKTRA license and related assets Research and development Selling, general and administrative Total operating expenses Loss from operations Other (expense)/ income Interest income Interest expense Loss on debt extinguishment Net loss before income taxes Income tax 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 $ $ $ $ $ 2020 15,232 2,912 70,000 372 88,516 1,765 793 31,187 41,376 62,755 137,876 (49,360) (1,313) 515 (15,794) (1,580) (67,532) (194) (67,726) (0.44) (0.44) 153,330 153,330 Year ended December 31, 2018 (in thousands, except share and per share amounts) 2019 2017 $ $ $ $ $ $ $ 12,339 5,117 — — 17,456 1,238 1,569 — 45,778 101,212 149,797 (132,341) (641) 4,381 (20,608) 1,718 25,000 — — 26,718 165 423 — 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) — (149,209) (2.00) (2.00) 74,578 74,578 $ $ $ (72,434) — (72,434) (1.12) (1.37) 64,962 69,321 $ $ $ (67,802) — (67,802) (1.76) (1.76) 38,422 38,422 $ $ $ 2016 — — — — — — — — 19,779 17,223 37,002 (37,002) — 562 — — (36,440) — (36,440) (0.99) (0.99) 36,988 36,988 Balance sheet data: 2020 2019 As of December 31, 2018 (in thousands) 2017 2016 Cash, cash equivalents and investments Working capital Total assets Total debt Accumulated deficit Total stockholders’ equity $ 147,221 $ 127,845 154,349 19,051 (592,511) 115,274 75,506 $ 55,071 145,046 103,623 (524,785) 7,174 249,653 $ 216,182 277,236 120,453 (375,576) 124,299 86,672 $ 70,659 89,791 14,828 (303,142) 57,684 80,897 70,304 83,629 — (235,323) 72,297 63 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 development-stage 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, particularly RAF/MEK inhibition and FAK inhibition. Our most advanced product candidates, VS-6766 and defactinib, are being investigated in both preclinical and clinical studies for treatment of various solid tumors, including, low-grade serous ovarian cancer, non-small cell lung cancer, colorectal cancer, pancreatic cancer, uveal melanoma, and endometrial cancer. We believe that these compounds may be beneficial as therapeutics either as single agents or when used together in combination with other agents, other pathway inhibitors or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies. On August 10, 2020, we and Secura Bio, Inc. (Secura) signed an Asset Purchase Agreement (Secura APA) and on September 30, 2020, the transaction closed. Pursuant to the Secura APA, we sold our exclusive worldwide license for the research, development, commercialization, and manufacture in oncology indications of products containing duvelisib. Refer to Note 16 License, collaboration and commercial agreements for a detailed description of the terms and conditions of the Secura APA. With the transition of the duvelisib program to Secura, we are focusing our efforts on our lead product candidates, VS-6766 and defactinib. 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 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, the upfront payment under the Secura APA, the issuance of the 2018 Notes in October 2018 and the proceeds in connection with the PIPE. After the U.S. commercial launch of COPIKTRA on September 24, 2018 through our ownership period ending in September 2020, we financed a portion of our operations through product revenue. As of December 31, 2020, we had an accumulated deficit of $592.5 million. Our net loss was $67.7 million, $149.2 million, and $72.4 million, for the years ended December 31, 2020, 2019 and 2018, respectively. We expect to incur significant expenses and operating losses for the foreseeable future as a result of the continued research and development of VS-6766 and defactinib. As of December 31, 2020, we had cash, cash equivalents, restricted cash, and investments of $147.5 million. We expect our existing cash resources 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, through future milestones and royalties received through the Secura APA 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. 64 Table of Contents FINANCIAL OPERATIONS OVERVIEW Revenue From our U.S. commercial launch of COPIKTRA on September 24, 2018 through our ownership period ending in September 2020 product revenue, net represented the gross sales of COPIKTRA in the United States less provisions for product sales allowances and accruals. These provisions included trade allowances, rebates, chargebacks and discounts, product returns and other incentives. We sold COPIKTRA to a limited number of specialty pharmacies and specialty distributors. The provisions for product sales and allowances fluctuated 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. Sale of licenses and related assets revenue to date have been generated through our sale of our duvelisib license and related assets to Secura. The sale included intellectual property related to duvelisib in oncology indications, certain existing duvelisib inventory, certain manufacturing equipment and, claims and rights under certain contracts pertaining to duvelisib including net contract prepaid balances. Costs of sales - product Cost of sales - product consisted of costs of COPIKTRA on which product revenue was recognized, royalties owed to Healthcare Royalty Partners (HCR) and Infinity we incurred 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 2020, 2019 and 2018 were expensed prior to the September 2018 FDA marketing approval and, therefore, are not included in cost of sales during this period. Costs of sales - sale of COPIKTRA license and related assets Cost of sales - sale of COPIKTRA license and related assets represent assets delivered to Secura as part of the sale pursuant to the Secura APA. This includes our intangible asset, certain duvelisib inventory, net duvelisib contract prepaid balances and manufacturing equipment. 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; 65 Table of Contents ● facilities, depreciation and other allocated 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 us concluding that regulatory approval is probable and that its net realizable value is recoverable. Costs for certain development activities, such as clinical trial expenses, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, and information provided us by our vendors on their actual costs incurred or level of effort expended. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid expenses and other current assets or accrued expenses. 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 duvelisib 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 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, 2020, 2019 and 2018. 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 $8.9 million, $11.3 million and $9.2 million of personnel costs for the years ended December 31, 2020, 2019 and 2018, respectively. COPIKTRA Defactinib/VS-6766 Unallocated and other research and development expense Unallocated stock-based compensation expense Total research and development expense 2020 (in thousands) Year ended December 31, 2019 (in thousands) 2018 (in thousands) $ $ 13,454 $ 12,073 13,914 1,935 41,376 $ 25,518 $ 1,823 16,936 1,501 45,778 $ 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; 66 Table of Contents ● 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 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 for the year ended December 31, 2020 and December 31, 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. 67 Table of Contents Revenue recognition We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services in accordance with Accounting Standards Codification (ASC) Topic 606 Revenue from Contracts with Customers (ASC 606). To determine revenue recognition for contracts with our customers, we perform the following five step assessment: (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 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, we assess the goods or services promised within each contract, determine which goods and 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 Product Revenue, Net – We sold COPIKTRA to a limited number of specialty pharmacies and specialty distributors in the United States. These customers subsequently resold 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 entered 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 recognized 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 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 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. Our analyses contemplate the application of the constraint in accordance with ASC 606. For the years ended December 31, 2020, 2019, and 2018, 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 provided 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 compensated our specialty distributor customers for sales order management, data, and distribution services. We 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 for the years ended December 31, 2020, 2019, and 2018. 68 Table of Contents Third-Party Payer Chargebacks, Discounts and Fees: We executed contracts with Third-Party Payers which allowed 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 charged us for the difference between what they paid 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 compensated 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 for the years ended December 31, 2020, 2019, and 2018. Government Rebates: We were subject to discount obligations under state Medicaid programs and Medicare. These reserves were 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 offered 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, has specified can be returned for credit. 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. 69 Table of Contents Licenses and sales of intellectual property 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 or sale of our license, (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 on license arrangements, 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 as 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 us 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. 70 Table of Contents Milestone Payments: At the inception of each arrangement that includes milestone payments, we evaluate 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 our control 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, adjusts 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 license 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 yet recognized any royalty revenue resulting from any of our licensing arrangements. For sales of license and intellectual property, that include sale-based royalties, including milestone payments based on a level of sales, we evaluate whether the royalties and sales based milestones are considered probable of being achieved and estimate the amount of royalties to include over the contractual term using the expected value method and estimate the sales-based milestones using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated royalty and milestone value is included in the transaction price. Royalties and sales-based milestones for territories for which there is not regulatory approval are not considered probable until such regulatory approval is achieved. We evaluate factors such as whether consideration is outside of our control, timeline for when the uncertainty will be resolved and historical sales of COPIKTRA if applicable. 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 amount of royalty revenue to be received 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. Collaborative Arrangements: Contracts are considered to be collaborative arrangements when they satisfy the following criteria defined in ASC Topic 808, Collaborative Arrangements (ASC 808): (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. 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 71 Table of Contents 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) 2018-09, 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 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 historical exercise data 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, The computation of expected volatility is based 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. We account for forfeitures as they occur. We issue shares under our 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. 72 Table of Contents As of December 31, 2020, there was approximately $7.1 million of unrecognized stock-based compensation related to stock options, which are expected to be recognized over a weighted-average period of 2.6 years. As of December 31, 2020, there was approximately $3.8 million of unrecognized stock-based compensation related to RSUs, which are expected to be recognized over a weighted-average period of 1.5 years. See Note 2. Significant accounting policies and Note 11. Stock-based compensation to our consolidated financial statements located in this Annual Report on Form 10-K for further discussion of stock-based compensation. 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 Effective January 1, 2019, we adopted 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, 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. 73 Table of Contents 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 Sale of COPIKTRA license and related assets Transition services revenue Total revenue Operating expenses: Cost of sales - product Cost of sales - intangible amortization Cost of sales - sale of COPIKTRA license and related assets Research and development Selling, general and administrative Total operating expenses Loss from operations Other (expense)/ income Interest income Interest expense Loss on debt extinguishment Net loss before income taxes Income tax expense Net loss 2020 Year Ended December 31, 2019 2018 15,232 2,912 70,000 372 88,516 $ 1,765 793 31,187 41,376 62,755 137,876 (49,360) (1,313) 515 (15,794) (1,580) (67,532) (194) (67,726) $ $ 12,339 5,117 — — 17,456 1,238 1,569 — 45,778 101,212 149,797 (132,341) (641) 4,381 (20,608) — (149,209) — (149,209) $ 1,718 25,000 — — 26,718 165 423 — 43,648 77,265 121,501 (94,783) 25,556 2,603 (5,810) — (72,434) — (72,434) $ $ Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019 Product revenue, net. Product revenue net for the year ended December 31, 2020 (2020 Period) was $15.2 million compared to $12.3 million for the year ended December 31, 2019 (2019 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 $2.9 million increase was primarily driven by an increase in product shipments for COPIKTRA as a result of greater market penetration. Pursuant to the Secura APA discussed in greater detail above within section Item 1. Business within heading Licenses and commercial agreements, we have sold our license to sell COPIKTRA to treat patients in oncology indications and therefore will not recognize COPIKTRA product revenue in future periods. License and collaboration revenue. License and collaboration revenue for the 2020 Period of $2.9 million comprised of Sanofi achieving two development milestones during the 2020 Period totaling $2.5 million and $0.4 million of duvelisib shipments to Sanofi, Yakult Honsha Co., Ltd. (Yakult), and CSPC Pharmaceutical Group Limited (CSPC). License and collaboration revenue for the 2019 Period was $5.1 million, comprised of a $5.0 million upfront payment received in connection to our collaboration agreement with Sanofi and $0.1 million related to the shipment of clinical supply of duvelisib to Yakult and CSPC during the 2019 Period. Sale of COPIKTRA license and related assets revenue. Sale of COPIKTRA license and related assets revenue for the 2020 Period was comprised of a $70.0 million upfront payment recognized under the Secura APA discussed in greater detail above within section Item 1. Business within heading Licenses and Commercial Agreements. We had no sale of COPIKTRA license and related assets revenue for the 2019 Period. Transition services revenue. Transition services revenue for the 2020 Period of $0.4 million consisted of us providing certain support functions pursuant to the Secura transition service agreement, which was entered into in 74 Table of Contents connection with the Secura APA. The services were provided at a mutually agreed upon rate. We have no transition services revenue for the 2019 Period. Costs of sales – product. Costs of sales – product for the 2020 Period was $1.8 million compared to $1.2 million for the 2019 Period. The $0.6 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 2020 Period as compared to the 2019 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 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 2020 Period and 2019 Period were expensed prior to the September 2018 FDA marketing approval and, therefore, are not included in cost of sales - product during this period. Cost of Sales – intangible amortization. Cost of sales – intangible amortization for the 2020 Period was approximately $0.8 million compared to $1.6 million for the 2019 Period. In July 2020, our intangible asset met the Held for Sale criteria and we ceased amortization. Cost of sales – intangible amortization was related to the COPIKTRA finite-lived intangible asset which we recognized and began amortizing in September 2018. Cost of sales – sale of COPIKTRA license and related assets. Cost of sales – sale of COPIKTRA license and related assets for the 2020 Period was $31.2 million consisting of certain assets delivered to Secura under the Secura APA. For the 2020 Period, we recognized approximately $19.2 million, $6.0 million, $5.8 million and $0.2 million for the intangible asset, certain duvelisib inventory, net duvelisib contract prepaid balances and manufacturing equipment, respectively which were delivered to Secura as part of the sale. There was no cost of sales – sale of COPIKTRA license and related assets for the 2019 Period. Research and development expense. Research and development expense for the 2020 Period was $41.4 million compared to $45.8 million for the 2019 Period. The $4.4 million decrease from the 2019 Period to the 2020 Period was primarily related to a decrease of $7.7 million in CRO costs, $2.0 million in personnel related costs, including non-cash stock-based compensation as a result of reduced headcount, partially offset by an increase of $3.0 million of license fees due to a non-refundable payment of $3.0 million to Chugai in the 2020 Period for the VS-6766 license described further above within section Item 1. Business within heading Licenses and commercial agreements, increase of $1.7 million in drug substance and drug product costs, and $0.6 million in other costs. In future periods, we expect expenses for VS-6766 and defactinib to increase as we have commenced our registration directed trials and we expect our COPIKTRA expenses to significantly decrease. Selling, general and administrative expense. Selling, general and administrative expense for the 2020 Period was $62.8 million compared to $101.2 million for the 2019 Period. The decrease of $38.4 million from the 2019 Period to the 2020 Period primarily resulted from a decrease of $17.7 million in personnel related costs, including non-cash stock-based compensation, as a result of reduced headcount, $15.9 million in consulting and professional fees, primarily related to the support of commercial launch activities in the 2019 Period, $3.8 million in reduced travel costs, and $1.0 million in other costs. We expect selling, general and administrative expense to decrease in future periods. Other (expense)/ income. Other expense for the 2020 Period and 2019 Period of approximately $1.3 million and $0.6 million, respectively, was for the mark-to-market adjustments related to the bifurcated make-whole interest provision derivative liability related to the 2019 Notes. All 2019 Notes have converted to common stock and the derivative liability will no longer be remeasured. Interest income. Interest income for the 2020 Period was $0.5 million compared to $4.4 million for the 2019 Period. The decrease of $3.9 million from the 2019 Period to the 2020 period was primarily due to lower investment cost basis and lower interest rates on investments. 75 Table of Contents Interest expense. Interest expense for the 2020 Period was $15.8 million compared to $20.6 million for the 2019 Period. The decrease of $4.8 million was primarily due to reduced interest expense as a result of the reduction in aggregate Notes principal balance. There was aggregate principal amount outstanding of Notes of $28.3 million, $85.7 million, and $150.0 million at December 31, 2020, December 31, 2019, and December 31, 2018, respectively. The decrease is partially offset by non-cash interest expense of $8.1 million recorded upon conversion of the 2019 Notes to common stock recognized during the first three months of the 2020 Period. Loss on debt extinguishment. Loss on debt extinguishment for the 2020 Period of $1.6 million represents the loss recognized on early extinguishment of our Hercules term loan facility. On November 9, 2020, we repaid in full all principal, accrued and unpaid interest, fees, and expenses under the Amended Loan Agreement with Hercules in an aggregate amount of $37.4 million (the Payoff Amount). The Payoff Amount, excluding accrued interest, exceeded the carrying amount of the Hercules debt on November 9, 2020 by $1.6 million which was recorded as a loss on debt extinguishment. There was no loss on debt extinguishment in the 2019 Period. Income tax expense. Income tax expense for the 2020 Period of $0.2 million primarily related to state income tax as a result of the sale of COPIKTRA license and related assets. There was no income tax expense in the 2019 Period. Restructuring. On October 28, 2019, we committed to an operational plan to reduce overall operating expenses, including the elimination of approximately 40 positions and other cost-saving measures. We recorded $1.2 million expense in the 2019 Period, for one-time termination benefits to the affected employees, including cash severance payments, healthcare benefits, and outplacement assistance. On February 27, 2020, we committed to an operational plan to reduce overall operating expenses, including the elimination of approximately 31 positions and other cost-saving measures. In August 2020, in connection with the duvelisib sale to Secura pursuant to the Secura APA we committed to a strategic restructuring (August 2020 Restructuring). The August 2020 restructuring included a workforce reduction of approximately 41 positions primarily in our commercial operations department. During the 2020 Period, we recorded an aggregate expense of $4.6 million for restructuring expenses, which is reflected in the consolidated statements of operation and comprehensive loss as selling general, and administrative expense and research and development expense of $4.1 million and $0.5 million, respectively, for one-time termination benefits for employee severance, benefits, and related costs. LIQUIDITY AND CAPITAL RESOURCES Sources of liquidity We have financed our operations to date primarily through public and private 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 Yakult, CSPC, and Sanofi, the upfront payment under the Secura APA, the issuance of 2018 Notes in October 2018, and the proceeds in connection with the PIPE. With the commercial launch of COPIKTRA in the United States in September 2018, we had recently begun financing a portion of our operations through product revenue. As of December 31, 2020, in connection with the Secura APA, we no longer sell COPIKTRA in the United States. We expect to finance a portion of our business through future milestones and royalties received pursuant to the Secura APA. 76 Table of Contents As of December 31, 2020, we had $147.5 million in cash, cash equivalents, restricted cash and investments. We primarily invest our cash, cash equivalents and investments in U.S. Government money market funds, government bonds, corporate bonds and commercial paper of publicly traded companies. 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 (Decrease) increase in cash, cash equivalents and restricted cash 2020 Year ended December 31, 2019 2018 $ $ (33,506) (47,363) 69,630 (11,239) $ $ (138,518) 89,613 (2,441) (51,346) $ $ (74,515) (138,377) 261,162 48,270 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 $105.0 million decrease in cash used in operating activities for the 2020 Period compared to the 2019 Period was primarily due to a decrease in net loss primarily driven by increased revenue, and decreased selling, general and administrative expenses, and a net decrease in components of working capital. Investing activities. The cash used by investing activities for the 2020 Period relates to the net purchases of investments of $47.3 million. The cash provided by investing activities for the 2019 Period relates to the net maturities of investments of $89.6 million. Financing activities. The cash provided by financing activities for the 2020 Period primarily represents $93.8 million in net proceeds from sales of our common stock under the Purchase Agreement described below, $12.2 million in net proceeds received under our at-the-market equity offering program, and $3.0 million of proceeds received related to exercise of stock options and employee stock purchase plan. This is partially offset by $37.4 million for repayment of our Hercules Capital, Inc. (Hercules) term loan facility, $1.8 million of interest-make whole payments on the 2019 Notes and $0.3 million of payments for settlement of restricted stock for tax withholdings. 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 options and employee stock purchase plan. On February 27, 2020, we entered into a Purchase Agreement with certain institutional investors in which we agreed to sell 46,511,628 shares of common stock at a purchase price of $2.15 per share, which represents 12.6% premium to the last reported sale price of our common stock of $1.91 per share on February 27, 2020. On March 3, 2020, the closing occurred. The aggregate proceeds net of underwriting discounts and offering costs, were approximately $93.8 million. In March 2017, we established an at-the-market equity offering program pursuant to which we 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. In August 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 at- the-market equity offering program to $75.0 million. 77 Table of Contents During the year ended December 31, 2020, we sold 6,769,559 shares under the at-the market equity offering program for net proceeds of approximately $12.2 million (after deducting commissions and other offering expenses). Through December 31, 2020, we have sold a total of 18,287,913 shares under this program for net proceeds of approximately $59.6 million (after deducting commissions and other offering expenses). As of December 31, 2020, we can issue an aggregate amount of $14.1 million of common stock under this program. On March 21, 2017, we entered into a term loan facility of up to $25.0 million with Hercules. The term loan facility is governed by a loan and security agreement, dated March 21, 2017 (the Original Loan Agreement). The Original Loan Agreement was amended on January 4, 2018, March 6, 2018, October 11, 2018, April 23, 2019, and November 14, 2019 (the Amended Loan Agreement) to increase the total borrowing limit under the Original Loan Agreement from up to $25.0 million to up to $75.0 million, pursuant to certain conditions of funding. On November 9, 2020, we repaid in full all principal, accrued and unpaid interest, fees, and expenses under the Amended Loan Agreement with Hercules in an aggregate amount of $37.4 million (the Payoff Amount). The Payoff Amount includes the principal balance of $35.0 million, final payment fee of $1.8 million, prepayment penalty fee of $0.5 million, and accrued and unpaid interest of $0.1 million. On November 9, 2020 the Amended Loan Agreement was terminated along with Hercules’ commitment to provide funding under any future term loans. All liens on substantially all of our assets to secure the loans under the Amended Loan Agreement have been terminated and released. 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. 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 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. On November 6, 2020, we entered into a privately negotiated agreement with an investor who is a holder of our 2018 Notes to exchange approximately $28.0 million aggregate principal amount of 2018 Notes for approximately $28.0 million aggregate principal amount of newly issued 5.00% Convertible Senior Notes due 2048 (the 2020 Notes). The issuance of the 2020 Notes closed on November 13, 2020. The 2020 Notes are governed pursuant to the Base Indenture between us and Wilmington dated as of October 17, 2018 as supplemented by the second supplemental indenture thereto dated as of November 13, 2020 (the Supplement Indenture and together with the Base Indenture, the 2020 Indenture). We will have the right, exercisable at our option, to cause all 2020 Notes then outstanding to be converted automatically if the “Daily VWAP” (as defined in the 2020 Indenture) per share of our common stock equals or exceeds 123.08% of the conversion price on each of at least 20 “VWAP Trading Days” (as defined in the 2020 78 Table of Contents Indenture), whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the date we first issued the 2020 Notes. The initial conversion rate for the 2020 Notes is 307.6923 shares of our common stock per $1,000 principal amount of the 2020 Notes, which is equivalent to an initial conversion price of approximately $3.25 per share, representing an approximately 153.9% premium to the sale price of $1.28 per share of our common stock on November 5, 2020, as reported on the Nasdaq Global Market. 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, 2023, we will not have the right to redeem the 2020 Notes. On or after November 1, 2023, we may elect to redeem the 2020 Notes, in whole or in part, at a cash redemption price equal to the principal amount of the 2020 Notes to be redeemed, plus accrued and unpaid interest, if any. Unless we have previously called all outstanding 2020 Notes for redemption, the 2020 Notes will be subject to repurchase by us 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 business day) at a cash repurchase price equal to the principal amount of the 2020 Notes to be repurchased, plus accrued and unpaid interest, if any. Upon conversion of the 2020 Notes, holders will receive a cash payment equal to the accrued and unpaid interest on the converted 2020 Notes. The 2020 Notes are our senior unsecured obligations and will be senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2020 Notes, and equal in right of payment with our existing and future indebtedness that is not so subordinated, and effectively subordinated to our existing and future indebtedness, to the extent of the value of the collateral securing such indebtedness. The 2020 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. As of December 31, 2020, there was $0.3 million and $28.0 million aggregate principal amount outstanding of 2018 Notes and 2020 Notes, respectively, for a total of $28.3 million aggregate principal amount outstanding compared to $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 as of December 31, 2019. 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: ● continue our ongoing clinical trials, including with VS-6766 and defactinib; ● initiate additional clinical trials for our product candidates; ● maintain, expand and protect our intellectual property portfolio; ● acquire or in-license other products and technologies; ● hire additional clinical, development and scientific personnel; ● add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts; and ● establish and maintain a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval. We expect our existing cash resources will be sufficient to fund our obligations for at least the next twelve months from the date of filing of this Quarterly Report on Form 10-Q. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to 79 Table of Contents 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 with completing the development of our current product candidates. Our future capital requirements will depend on many factors, including: ● the costs and timing of commercialization activities for our 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 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; ● our ability to establish collaborations or partnerships on favorable terms, if at all; and ● Receipt of milestone payments and royalties pursuant to the Secura APA including timing of such receipt. 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 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, 2020: (in thousands) Operating lease obligations 2018 Notes 2020 Notes License agreements (1) $ Total 4,745 300 28,000 $ 2021 $ 1,019 — — — 2022 - 2023 2024 - 2025 Thereafter — 300 28,000 — 2,099 — — — 1,627 — — — $ $ — (1) As discussed in Note 16. License, collaboration and commercial agreements 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. 80 Table of Contents 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. TAX LOSS CARRYFORWARDS As of December 31, 2020, we had federal and state net operating loss carryforwards of $348.5 million and $231.9 million, respectively, which are available to reduce future taxable income. We also had federal and state tax credits of $1.6 million and $0.6 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 2037, except for $154.5 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, 2020, we recorded a 100% valuation allowance against our net operating loss and tax credit carryforwards of $88.7 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. Based on our analysis under Section 382 of the Internal Revenue Code and similar provisions under state law, we believe that $41.4 million of our federal net operating loss carryforwards and $168.0 million of our state net operating loss carryforwards are limited by Section 382 and similar provisions under state law as of December 31, 2020 and have been written off in the 2020 Period. Due to limitations under Section 382 we believe that our Research & Development (R&D) and Orphan Drug (OD) credits will be limited as of December 31, 2020. The portion of R&D and OD credits that were determined to be limited by Section 382 have been written off as of December 31, 2020. The remaining unused carryforwards remain available for future periods. Due to our full valuation allowance the write off of net operating loss carryforwards and R&D and OD credits did not have any impact to the statements of operation and comprehensive loss for the 2020 Period. RECENTLY ADOPTED ACCOUNTING STANDARDS In November 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-18, Collaborative Arrangements (ASU 2018-18): Clarifying the Interaction between ASC 808 and ASC 606, which makes targeted improvements for collaborative arrangements to clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account, adds unit of account guidance in ASC 808 to align with guidance in ASC 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. This guidance requires entities to adopt on a retrospective basis to the date we adopted ASC 606. We adopted ASU 2018-18 as of January 1, 2020 on a retrospective basis to January 1, 2018, the date at which we adopted ASC 606, and it did not have a material impact on our consolidated financial statements or disclosures. In August 2018, the FASB issued 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. We adopted this standard effective January 1, 2020 on a prospective basis. The adoption of this ASU did not have an effect on our financial statements or disclosures. 81 Table of Contents 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. We adopted this standard effective January 1, 2020 on a prospective basis. The adoption of this ASU did not have an effect on tour financial statements or disclosures. 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 investments of $147.5 million and $111.3 million as of December 31, 2020 and 2019, respectively, inclusive of 0.2 million and $35.7 million of restricted cash as of December 31, 2020 and 2019, respectively, consisting of cash, U.S. Government money market funds, government bonds, 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, 2020, an immaterial amount of our total liabilities was denominated in currencies other than the functional currency. The 2018 Notes and 2020 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-50 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. 82 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, 2020. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm, as allowed by the SEC. 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, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information None. 83 Table of Contents ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE PART III 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 2021 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 2021 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 2021 Proxy Statement and is incorporated herein by reference. 84 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. 85 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) 3.4 Certificate of Amendment to the Restated Certificate of Incorporation of Verastem, Inc. (incorporated by reference to Exhibit 3.1 to the Form 8- K filed by the Registrant with the Securities and Exchange Commission on May 21, 2020) 4.1 4.2 4.3 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) 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) 4.4 Form of 5.00% Convertible Note due 2048 (2018 Notes) (included in Exhibit 4.3) 4.5* Description of Securities 4.6 Form of Second Supplemental Indenture, by and between the Company and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q filed by Registrant on November 9, 2020) 4.7 Form of 5.00% Convertible Note due 2048 (2020 Notes) (included in Exhibit 4.6) 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) 86 Table of Contents 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) 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 and executive officer (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) 87 Table of Contents 10.20# 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) 10.21 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) 10.22 Purchase Agreement, dated February 27, 2020 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) 10.23 Consulting Agreement, dated June 27, 2019, between Joseph Lobacki and Verastem, Inc. (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K filed by the Registrant on March 11, 2020) 10.24† License Agreement for CKI27, dated January 7, 2020, between Verastem, Inc. and Chugai Pharmaceutical Co., Ltd.. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020) 10.25 Form of Restricted Stock Unit Agreement under the 2012 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020) 10.26 Form of Inducement Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020) 10.27 Form of Incentive Stock Option Agreement under the 2012 Incentive Plan (Form of Restricted Stock Unit Agreement under the 2012 Incentive Plan (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020) 10.28 Form of Nonstatutory Stock Option Agreement under the 2012 Incentive Plan (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020) 10.29 Form of Inducement Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020) 10.30 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 with the Securities and Exchange Commission on May 21, 2020) 10.31† Asset Purchase Agreement by and between Secura Bio, Inc. and Verastem, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on November 9, 2020) 10.32 Exchange Agreement by and between Verastem, Inc. and Highbridge Tactical Credit Master Fund, L.P., dated November 6, 2020 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Registrant on November 9, 2020) 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 88 Table of Contents 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 18, 2021 (furnished herewith) 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104* Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) * Filed herewith. † 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. Confidential materials omitted will be filed separately with the SEC upon request. # Management contract or compensatory plan, contract or agreement. 89 Table of Contents 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 18th day of March 2021. SIGNATURES 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. 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 /s/ MICHAEL KAUFFMAN, M.D.,PH.D. Michael Kauffman, M.D., PH.D. /s/ JOHN JOHNSON John Johnson /s/ ERIC ROWINSKY, M.D. Eric Rowinsky, M.D. /s/ BRUCE WENDEL Bruce Wendel Title Date Chief Executive Officer and Director (Principal executive officer) Chief Business and Financial Officer (Principal financial and accounting officer) Director Director Director Director Director Director 90 March 18, 2021 March 18, 2021 March 18, 2021 March 18, 2021 March 18, 2021 March 18, 2021 March 18, 2021 March 18, 2021 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-1 F-2 F-4 F-5 F-6 F-7 F-8 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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accrued and Prepaid Clinical Trial Expense Description of the Matter As summarized in Note 6 to the consolidated financial statements, the Company’s total accrued expenses were $14.7 million at December 31, 2020, which included the estimated obligation for clinical trial expenses incurred as of December 31, 2020 but not paid as of that date. In addition, the Company’s total prepaid expenses and other current assets were $3.5 million, which included amounts that were paid in advance of services incurred pursuant to clinical trials. As discussed in Note 2 to the consolidated financial statements, the Company records research and F-2 Table of Contents How We Addressed the Matter in Our Audit development expenses as incurred. The Company’s determination of costs incurred to conduct research, such as the discovery and development of the Company’s product candidates as well as the related accrued expenses at each reporting period incorporates judgment and utilizes various assumptions, including an evaluation of the information provided to the Company by third parties on actual cost incurred but not yet billed, estimated time period over which services will be performed, and the level of effort to be expended in each period. Payments for these activities are based on the terms of the individual arrangements, which often differ from the pattern of costs incurred. Auditing the Company’s accrued and prepaid clinical trial expenses was especially challenging due to the large volume of information received from multiple vendors that perform service on the Company’s behalf. While the Company’s estimates of accrued and prepaid clinical trial expenses are primarily based on information received from its vendors for each study, the Company may need to make an estimate for additional costs incurred. Additionally, due to the long duration of clinical trials and the timing of vendor invoices, the actual amounts incurred are not typically known at the time the financial statements are issued. To evaluate the Company’s estimate of services incurred as of period end pursuant to its accrued and prepaid clinical trials expenses, our audit procedures included, among others, testing the accuracy and completeness of the underlying third-party and internally generated data used in determining the accrued and prepaid clinical trial expenses and evaluating the assumptions/estimates used by management to adjust the actual information received. For example, to assess the nature and extent of the services incurred, we corroborated the progress of clinical trials with the Company’s research and development personnel that oversee the clinical trials and confirmed cost incurred to date information directly with vendors. To evaluate the completeness and valuation of the accrual, we also tested subsequent payments and invoices received and inspected the Company’s contracts with vendors and any pending change orders to assess the impact to the accruals. We also performed analytical reviews over fluctuations in accruals by study or other significant work order throughout the period subject to audit. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2011. Boston, Massachusetts March 18, 2021 F-3 Verastem, Inc. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) Table of Contents 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 Long-term investments Other assets Total assets Liabilities and stockholders’ equity Current liabilities: Accounts payable Accrued expenses Lease liability, short-term Derivative liability, short-term 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, 2020 and December 31, 2019, respectively Common stock, $0.0001 par value; 300,000 and 200,000 shares authorized, 170,456 and 80,118 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total stockholders’ equity Total liabilities and stockholders’ equity See accompanying notes to the consolidated financial statements. F-4 December 31, 2020 2019 $ $ $ 67,782 73,444 239 — 3,473 144,938 416 2,726 — 241 5,995 33 154,349 1,875 14,660 558 — 17,093 — 19,051 2,931 — 39,075 43,514 31,992 2,524 3,096 3,835 84,961 947 3,077 20,008 35,241 — 812 145,046 9,655 19,365 420 450 29,890 35,067 68,556 3,489 870 137,872 — — 17 707,715 53 (592,511) 115,274 154,349 $ 8 531,937 14 (524,785) 7,174 145,046 $ $ $ $ Table of Contents Verastem, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share amounts) Revenue: Product revenue, net License and collaboration revenue Sale of COPIKTRA license and related assets Transition services revenue Total revenue Operating expenses: Cost of sales - product Cost of sales - intangible amortization Cost of sales - sale of COPIKTRA license and related assets Research and development Selling, general and administrative Total operating expenses Loss from operations Other (expense)/ income Interest income Interest expense Loss on debt extinguishment Net loss before income taxes Income tax 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 gain (loss) on available-for-sale securities Comprehensive loss 2020 Year Ended December 31, 2019 2018 $ $ $ $ $ $ $ 15,232 2,912 70,000 372 88,516 1,765 793 31,187 41,376 62,755 137,876 (49,360) (1,313) 515 (15,794) (1,580) (67,532) (194) (67,726) (0.44) (0.44) 153,330 153,330 (67,726) 39 (67,687) $ $ $ $ $ $ $ 12,339 5,117 — — 17,456 1,238 1,569 — 45,778 101,212 149,797 (132,341) (641) 4,381 (20,608) — (149,209) — (149,209) (2.00) (2.00) 74,578 74,578 (149,209) (113) (149,322) $ $ $ $ $ $ $ 1,718 25,000 — — 26,718 165 423 — 43,648 77,265 121,501 (94,783) 25,556 2,603 (5,810) — (72,434) — (72,434) (1.12) (1.37) 64,962 69,321 (72,434) 129 (72,305) See accompanying notes to the consolidated financial statements. F-5 Table of Contents Verastem, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share data) Common stock Amount Balance at December 31, 2017 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 Balance at December 31, 2018 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 Balance at December 31, 2019 Net loss Unrealized gain 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 Issuance of common stock resulting from at-the-market transactions, net of issuance costs of $55 Issuance of common stock resulting from private investment in public equity offering, net of issuance costs of $6,171 Stock-based compensation expense Balance at December 31, 2020 $ $ $ Shares 50,800,908 — — 16,111,110 6,481,475 412,851 — — 73,806,344 — — 5,767,872 — 341,701 109,707 91,907 — 80,117,531 — — 34,796,350 — 358,193 421,695 1,481,223 6,769,559 46,511,628 — 170,456,179 $ Additional paid-in capital Accumulated other comprehensive (loss) income 5 — — 1 1 — — — 7 — — 1 — — — — — 8 — — 3 — — — — 1 5 — 17 $ $ $ $ 360,823 — — 81,188 24,275 809 6,671 25,975 499,741 — — 9,516 13,640 439 (68) 130 8,539 531,937 — — 57,411 2,331 407 (1,120) 2,578 12,229 93,824 8,118 707,715 $ $ $ $ (2) — 129 — — — — — 127 — (113) — — — — — — 14 — 39 — — — — — — — — 53 $ $ $ $ $ $ $ Accumulated deficit (303,142) (72,434) — — — — — (375,576) (149,209) — — — — — — — (524,785) (67,726) — — — — — — — — — (592,511) $ Total stockholders' equity 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 (67,726) 39 57,414 2,331 407 (1,120) 2,578 12,230 93,829 8,118 115,274 See accompanying notes to the consolidated financial statements. F-6 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 Loss on debt extinguishment 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 Intangible assets & property, plant and equipment 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 (used in) provided by investing activities Financing activities Proceeds from long-term debt, net of issuance costs Repayment of long-term, debt Proceeds from issuance of convertible senior notes, net of issuance costs Principal payments on the convertible senior notes Interest make-whole payments on the 2019 Notes Proceeds from the exercise of stock options and employee stock purchase program Settlement of restricted stock for tax withholdings Proceeds from the issuance of common stock, net Net cash provided by (used in) 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 Purchases of property and equipment included in accounts payable and accrued expenses Settlement of restricted stock units for tax withholdings included in accrued expenses Change in fair value of conversion option of Notes on exchange Conversion of 2019 Notes into common stock 2020 Year Ended December 31, 2019 2018 $ (67,726) $ (149,209) $ (72,434) 531 793 (69) 8,118 1,580 10,319 1,313 2,285 3,096 634 (7,976) (4,999) (870) 19,465 (33,506) 429 1,569 181 8,539 — 7,131 641 — (2,218) (2,769) (877) (598) (1,707) 370 — (138,518) 996 423 — 6,671 — 1,814 (25,556) (79) (306) (327) (1,167) 1,048 13,902 500 — (74,515) (33) — — (79,380) 32,050 (47,363) (7) — — (94,123) 183,743 89,613 (1,507) 82 (22,000) (125,452) 10,500 (138,377) — (37,366) — — (1,763) 2,985 (285) 106,059 69,630 (11,239) 79,262 68,023 5,126 15 217 835 2,331 57,414 $ $ $ $ $ $ $ 9,670 — — (12,174) (438) 569 (68) — (2,441) (51,346) 130,608 79,262 12,424 $ $ 15 $ — $ — $ $ $ 13,640 9,517 $ $ $ $ $ $ $ 9,900 — 145,297 — — 809 — 105,156 261,162 48,270 82,338 130,608 2,107 15 — — — — See accompanying notes to the consolidated financial statements. F-7 Table of Contents 1. Nature of business Verastem, Inc. (the Company) is a development-stage biopharmaceutical company committed to the development and commercialization of new medicines to improve the lives of patients diagnosed with cancer. The Company’s pipeline is focused on novel small molecule drugs that inhibit critical signaling pathways in cancer that promote cancer cell survival and tumor growth, particularly RAF/MEK inhibition and FAK inhibition. The Company’s most advanced product candidates, VS-6766 and defactinib, are being investigated in both preclinical and clinical studies for treatment of various solid tumors, including, low-grade serous ovarian cancer, non-small cell lung cancer, colorectal cancer, pancreatic cancer, uveal melanoma, and endometrial cancer. The Company believes that these compounds may be beneficial as therapeutics either as single agents or when used together in combination with other agents, other pathway inhibitors or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies. 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. On August 10, 2020, the Company and Secura Bio, Inc. (Secura) entered into an asset purchase agreement (Secura APA). Pursuant to the Secura APA, the Company sold to Secura its exclusive worldwide license, including certain related assets for the research, development, commercialization, and manufacture in oncology indications of products containing COPIKTRA (duvelisib). The transaction closed on September 30, 2020. Refer to Note 16. License, collaboration and commercial agreements for a detailed discussion of the Secura APA. 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, inability to obtain marketing approval of the Company’s product candidates, VS-6766 and defactinib, market acceptance and commercial success of the Company’s product candidates, VS-6766 and defactinib, following receipt of regulatory approval, and, protection of proprietary technology and the continued ability to obtain adequate financing to fund the Company’s future operations. If the Company does not obtain marketing approval and successfully commercialize its product candidates, VS-6766 and defactinib, following regulatory approval, 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. As of December 31, 2020, the Company had cash, cash equivalents, restricted cash, and investments of $147.5 million, and accumulated deficit of $592.5 million. The Company expects its existing cash resources 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, through future milestones and royalties received through the Secura APA 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. F-8 Table of Contents 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 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, accrued and prepaid clinical trial expense and other general 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, 2020 December 31, 2019 $ $ 67,782 241 68,023 $ $ 43,514 35,748 79,262 F-9 Table of Contents Amounts included in restricted cash as of December 31, 2020 represents 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 $0.2 million. Amounts included in restricted cash as of December 31, 2019 represent (i) cash that the Company was contractually obligated to maintain in accordance with the terms of the Amended Term Loan Agreement, (ii) cash received pursuant to a funded research and development agreement with the Leukemia and Lymphoma Society (the LLS Research Funding Agreement) which is restricted for future expenditures for specific R&D studies and (iii) 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 Amended Term Loan Agreement is included in non-current restricted cash on the consolidated balance sheet at December 31, 2019. Restricted cash related to the LLS Research Funding Agreement is included in prepaid expenses and other current assets on the consolidated balance sheet at December 31, 2019. Letters of credit are included in non-current restricted cash on the consolidated balance sheets at December 31, 2020 and December 31, 2019. 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 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 Long-term investments Total financial assets Description Financial assets Cash equivalents Short-term investments Total financial assets Derivative liability Total 65,610 73,444 5,995 145,049 Total 77,176 31,992 109,168 450 $ $ $ $ $ $ $ $ $ $ $ $ $ F-10 December 31, 2020 Level 1 Level 2 Level 3 60,611 $ — $ — $ $ 60,611 4,999 73,444 5,995 84,438 December 31, 2019 Level 1 Level 2 75,678 — 75,678 — $ $ 1,498 31,992 33,490 $ — $ $ $ $ $ $ — — — — — — — 450 Level 3 Table of Contents 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, 2020 and 2019. During the year ended December 31, 2019, a derivative liability was recorded as a result of the issuance of 5.00% Convertible Senior Second Lien Notes due 2048 (2019 Notes) (see Note 12 Convertible Senior Notes). 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 date the 2019 Notes were issued, the risk-adjusted discount rate was determined to be 12.06% and entity specific 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 Fair value adjustment Derivative liability extinguished upon conversion December 31, 2020 $ $ $ — 247 641 (438) 450 1,313 (1,763) — During the year ended December 31, 2020 the derivative liability has been settled upon conversion of all 2019 Notes into shares of common stock (see Note 12. Convertible Senior Notes). Fair Value of Financial Instruments 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, 2020 and 2019, was approximately $0.0 million and $35.1 million, respectively. At December 31, 2020 and 2019, the Company estimates that the fair value of its long-term debt, including the current portion, was approximately $0.0 and $37.0 million, respectively. The fair value of the Company’s long-term debt was determined using Level 3 inputs. The fair value of the 2018 Notes and 2020 Notes (together with the 2019 Notes referred to as the Notes) was approximately $0.3 million and $30.0 million, respectively, as of December 31, 2020 which differs from the aggregate carrying value of the Notes of $19.1 million. 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 aggregate carrying value of the Notes of $68.6 million. The fair value of the Notes is influenced by the Company’s F-11 Table of Contents stock price, stock price volatility, and current market yields. The fair value of the Notes was determined using Level 3 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, 2020, 2019 or 2018 There were one debt security and two debt securities in an unrealized loss position as of December 31, 2020 and December 31, 2019, respectively. None of these investments had been in an unrealized loss position for more than 12 months as of December 31, 2020 or December 31, 2019, respectively. The fair value of these securities as of December 31, 2020 and December 31, 2019 was $6.0 million and $5.8 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, 2020 and December 31, 2019, respectively. Cash, cash equivalents, restricted cash and investments consist of the following (in thousands): Cash, cash equivalents & restricted cash: Cash and money market accounts Corporate bonds, agency bonds and commercial paper (due within 90 days) Total cash, cash equivalents & restricted cash: Investments: Corporate bonds, agency bonds and commercial paper (due within 1 year) Corporate bonds, agency bonds and commercial paper (due between 1 and 5 years) Total investments Total cash, cash equivalents, restricted cash and investments F-12 Amortized Cost $ $ $ $ $ 63,024 4,998 68,022 73,389 5,998 79,387 147,409 $ $ $ $ $ December 31, 2020 Gross Unrealized Gains Gross Unrealized Losses — $ 1 1 $ 55 — 55 56 $ $ $ — $ — — $ — $ (3) (3) (3) $ $ Fair Value 63,024 4,999 68,023 73,444 5,995 79,439 147,462 Table of Contents Cash, cash equivalents & restricted cash: Cash and money market accounts Corporate bonds, agency bonds and commercial paper (due within 90 days) Total cash, cash equivalents & restricted cash: Investments: Corporate bonds and commercial paper (due within 1 year) Total investments Total cash, cash equivalents, restricted cash and investments Concentrations of credit risk and off-balance sheet risk Amortized Cost $ $ $ $ $ 77,764 1,498 79,262 31,979 31,979 111,241 $ $ $ $ $ $ December 31, 2019 Gross Unrealized Gains Gross Unrealized Losses — $ — $ — $ 14 14 14 $ $ $ — $ — $ — $ — $ — $ — $ Fair Value 77,764 1,498 79,262 31,993 31,993 111,255 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, 2020, 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, 2020 and 2019, 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, 2020 and 2019, four customers, individually accounted for greater than 10% of the Company’s total product revenue, net and license and collaboration revenue. 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, 2020. F-13 Table of Contents Other assets Other assets primarily consisted of prepayments made to contract research organizations (CROs). As of December 31, 2020 and 2019, other assets were primarily comprised of approximately $0.0 million and $0.8 million respectively, of prepaid CRO expenses that the Company assumed and paid to Infinity pursuant to the license agreement between the Company and Infinity. As part of the sale of COPIKTRA to Secura, the prepaid balance was transferred to Secura and included in cost of sales - sale of COPIKTRA license and related assets in the statement of operations and comprehensive loss for the year ended December 31, 2020. 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. Costs for certain development activities, such as clinical trial expenses, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, and information provided to the Company by its vendor on their actual costs incurred or level of effort expended. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid expenses and other current assets or accrued expenses. 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 the Company’s 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 Company accounts for forfeitures as they occur. 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 the Company’s shares of common stock; therefore, the F-14 Table of Contents expected dividend yield is assumed to be zero. The computation of expected volatility is based 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 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 model to compute the fair value of the lookback provision plus the purchase discount and is recognized as compensation expense over the offering period. Leases Effective January 1, 2019, the Company adopted 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 Topic 606 Revenue from Contracts with Customers (ASC 606). To determine revenue recognition for contracts with its customers, the Company performs the following five step assessment: (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. 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. F-15 Table of Contents Product Revenue, Net Product Revenue, Net – The Company sold COPIKTRA to a limited number of specialty pharmacies and specialty distributors in the United States. These customers subsequently resold 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 entered 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 recognized 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 years ended December 31, 2020, 2019 and 2018, 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 provided 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 compensated 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 for the years ended December 31, 2020, 2019 and 2018. Third-Party Payer Chargebacks, Discounts and Fees: The Company executed contracts with Third-Party Payers which allowed 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 charged the Company for the difference between what they paid 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 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 compensated 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 for the years ended December 31, 2020, 2019, and 2018. F-16 Table of Contents Government Rebates: The Company was 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 offered 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. 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. Licenses and Sales of Intellectual Property 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 or sale of the Company’s license, (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 the Company enters generally do not include significant financing components. F-17 Table of Contents 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 on license arrangements, 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 as 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 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. F-18 Table of Contents Royalties: For license 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. For sales of license and intellectual property, that include sale-based royalties, including milestone payments based on a level of sales, the Company evaluates whether the royalties and sales based milestones are considered probable of being achieved and estimates the amount of royalties to include over the contractual term using the expected value method and estimates the sales-based milestones using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated royalty and milestone value is included in the transaction price. Royalties and sales-based milestones for territories for which there is not regulatory approval are not considered probable until such regulatory approval is achieved. The Company evaluates factors such as whether consideration is outside of the Company’s control, timeline for when the uncertainty will be resolved and historical sales of COPIKTRA if applicable. 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 amount of royalty revenue to be received 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. Collaborative Arrangements: Contracts are considered to be collaborative arrangements when they satisfy the following criteria defined in ASC Topic 808, Collaborative Arrangements (ASC 808): (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. 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, 2020. 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. F-19 Table of Contents 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. 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. The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not that it will be sustained based solely on its technical merits as of the reporting date and only in an amount more likely than not that it will be sustained upon review by the tax authorities. The Company evaluates uncertain tax positions on a quarterly basis and adjust the liability for changes in facts and circumstances, such as new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, significant amendment to an existing tax law, or resolution of an examination. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determination is made. The resolution of its uncertain income tax positions is dependent on uncontrollable factors such as law changes, new case law, and the willingness of the income tax authorities to settle, including the timing thereof and other factors. Although the Company does not anticipate significant changes to its uncertain income tax positions in the next twelve months, items outside of its control could cause its uncertain income tax positions to change in the future, which would be recorded in its statements of operations. Interest and/or penalties related to income tax matters are recognized as a component of income tax expense. F-20 Table of Contents Net operating loss (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. The Company experienced a greater than 50% change in ownership during the year ended December 31, 2020. For more details please Note 14. income taxes. 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, net loss per share for further details related to the calculation of net loss per share. F-21 Table of Contents Recently Issued Accounting Standards Updates In June 2016, the FASB issued Accounting Standard Update (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 allocations, 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. In August 2020, the FASB issued No. ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40) (ASU 2020-06). ASU 2020-06 simplifies the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its consolidated financial statements and related disclosures. Recently Adopted Accounting Standards Updates In November 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-18, Collaborative Arrangements (ASU 2018-18): Clarifying the Interaction between ASC 808 and ASC 606, which makes targeted improvements for collaborative arrangements to clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account, adds unit of account guidance in ASC 808 to align with guidance in ASC 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. This guidance requires entities to adopt on a retrospective basis to the date the Company adopted ASC 606. The Company adopted ASU 2018-18 as of January 1, 2020 on a retrospective basis to January 1, 2018, the date at which the Company adopted ASC 606, and it did not have a material impact on the Company’s consolidated financial statements or disclosures. In August 2018, the FASB issued 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 adopted this standard effective January 1, 2020 on a prospective basis. The adoption of this ASU did not have an effect on the Company’s financial statements or disclosures. F-22 Table of Contents 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. The Company adopted this standard effective January 1, 2020 on a prospective basis. The adoption of this ASU did not have an effect on the Company’s financial statements or disclosures. 3. Inventory Inventory consists of the following (in thousands): Raw materials Work in process Finished goods Total inventories December 31, 2020 December 31, 2019 $ $ — $ — — — $ 955 2,040 101 3,096 Pursuant to the Secura APA, discussed further in Note 16. License, collaboration and commercial agreements, the Company sold its exclusive worldwide license for the research, development, commercialization, and manufacture in oncology indications of products containing COPIKTRA (duvelisib) and certain existing duvelisib inventory. In connection with the sale to Secura, the Company expensed approximately $6.0 million of existing duvelisib inventory transferred to Secura as cost of sales – sale of COPIKTRA license and related assets for the year ended December 31, 2020. 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, 2020 2019 $ $ 146 1,074 665 1,885 (1,469) 416 $ $ 146 1,074 665 1,885 (938) 947 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 $0.5 million, $0.4 million, and $1.0 million in depreciation expense for the years ended December 31, 2020, 2019 and 2018, respectively. F-23 Table of Contents 5. Intangible assets Intangible assets consisted of a $22.0 million milestone payment which became payable upon the FDA marketing approval for COPIKTRA on September 24, 2018, pursuant to the amended and restated license agreement with Infinity Pharmaceuticals, Inc. (Infinity). The Company made the milestone payment of $22.0 million to Infinity in November 2018. The Company recorded approximately $0.8 million, $1.6 million, and $0.4 million in amortization expense related to finite-lived intangible assets during the year ended December 31, 2020, December 31, 2019, and December 31, 2018, respectively, using the straight-line methodology. On July 2, 2020, the Company’s intangible asset met the Held for Sale criteria and the Company ceased amortization. Pursuant to the Secura APA, discussed further in Note 16. License, collaboration and commercial agreements the Company sold its exclusive worldwide license for the research, development, commercialization, and manufacture in oncology indications of products containing COPIKTRA (duvelisib) to which the Company’s intangible asset related thereto. In connection with the sale the Company expensed the remaining balance of $19.2 million as cost of sales – sale of COPIKTRA license and related assets during the year ended December 31, 2020. 6. Accrued expenses Accrued expenses consist of the following (in thousands): Compensation and related benefits Research and development expenses Commercialization costs Interest Consulting fees Professional fees Other Total accrued expenses 7. Long-term debt December 31, 2020 December 31, 2019 5,930 5,176 330 236 1,091 615 1,282 14,660 $ $ 7,399 5,467 3,028 897 1,610 573 391 19,365 On March 21, 2017, 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). The Original Loan Agreement was amended on January 4, 2018, March 6, 2018, October 11, 2018, April 23, 2019, and November 14, 2019 (the Amended Loan Agreement) to increase the total borrowing limit under the Original Loan Agreement from up to $25.0 million to up to $75.0 million, pursuant to certain conditions of funding. Per the terms of the Amended Loan Agreement, the Company may borrow up to an aggregate of $75.0 million, of which $35.0 million was outstanding immediately as of April 23, 2019 (Fourth Amendment Date) (Amended Term A Loan) as a result of the existing outstanding principal of term loans of $25.0 million being converted into the Amended 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 the Company generating cumulative net product revenues (as defined in the Amended 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 (Amended 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 Amended Loan Agreement (the Amended Term C Loan, and together with the Amended Term A Loan and Amended Term B Loan, the Amended Term Loan). The funding conditions for the Amended Term B Loan have not been met and expired on June 30, 2020. F-24 Table of Contents Per the Amended Loan Agreement, the Company was required to maintain unrestricted and unencumbered cash in accounts subject to control agreements in favor of Hercules of an aggregate amount greater than or equal to 100% of the outstanding debt obligations under the Amended Term Loan Agreement, unless and until the Company receives of Net Product Revenues (as defined in the Amended 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). The Company recorded a total $35.0 million in restricted cash on the consolidated balance sheet as of December 31, 2019. The Amended Term Loan was scheduled to mature on December 1, 2022 (Amended Term Loan Maturity Date). Each advance accrued 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 (as defined in the Amended Loan Agreement) minus (B) 5.50%. The Amended Term Loan provided for interest-only payments until April 1, 2021, which could have been extended to December 1, 2021 subject to the Company 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. The Amended Term Loan was secured by a lien on substantially all of the Company’s 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. The Company assessed all terms and features of the Amended 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 Amended Loan Agreement, including put and call features. The Company determined that all features of the Amended 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 On November 9, 2020, the Company repaid in full all principal, accrued and unpaid interest, fees, and expenses under the Amended Loan Agreement with Hercules in an aggregate amount of $37.4 million (the Payoff Amount). The Payoff Amount includes the principal balance of $35.0 million, final payment fee of $1.8 million, prepayment penalty fee of $0.5 million, and accrued and unpaid interest of $0.1 million. On November 9, 2020 the Amended Loan Agreement was terminated along with Hercules’ commitment to provide funding under any future term loans. All liens on substantially all of the Company’s assets to secure the loans under the Amended Loan Agreement have been terminated and released. The Payoff Amount, excluding accrued interest, exceeded the carrying amount of the Hercules debt on November 9, 2020 by $1.6 million. As a result, the Company recorded a loss on debt extinguishment of $1.6 million included in the statements of operations and comprehensive loss for the year ended December 31, 2020. F-25 Table of Contents 8. Product revenue reserves and allowances As of December 31, 2020, 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, 2020 and December 31, 2019 (in thousands): Trade discounts and allowances Third-Party Payer chargebacks, discounts and fees Government rebates and other incentives Returns Total Beginning Balance at December 31, 2018 Provision related to sales in the current year Adjustments related to prior period sales Credits and payments made Balance at December 31, 2019 Provision related to sales in the current year Adjustments related to prior period sales Credits and payments made Ending balance at December 31, 2020 $ $ $ $ 29 512 — (430) 111 640 — $ (728) 23 $ 88 1,306 — (1,139) 255 1,820 $ $ — (2,075) — $ $ 157 608 (76) (317) 372 609 — $ $ 2 74 — — 76 307 — $ (914) 67 $ (352) 31 $ 276 2,500 (76) (1,886) 814 3,376 — (4,069) 121 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 June 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. As of December 31, 2020 a right-of-use asset of $2.7 million and lease liability of $3.5 million are reflected on the consolidated balance sheets. The elements of lease expense were as follows (dollar amounts in thousands): F-26 Table of Contents 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 2021 2022 2023 2024 2025 Total Less: Present value discount Lease Liability 10. Common stock Year ended December 31, 2020 2019 $ $ $ 885 885 955 $ $ $ 885 885 703 December 31, 2020 4.5 14.6% 1,019 1,039 1,060 1,081 546 4,745 (1,256) 3,489 $ $ As of December 31, 2020 and 2019, 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, employee stock purchase plan and Notes conversions to shares of common stock (in thousands): Shares reserved under equity compensation plans Shares reserved for inducement grants Shares reserved for 2018 Notes Shares reserved for 2019 Notes Shares reserved for 2020 Notes Employee Stock Purchase Plan Total shares reserved December 31, 2020 2019 25,114 4,058 42 — 8,615 1,300 39,129 15,389 6,331 3,950 34,796 — 1,658 62,124 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. Private Investment in Public Equity (PIPE) On February 27, 2020, the Company entered into a Securities Purchase Agreement (Purchase Agreement) with certain institutional investors in which the Company agreed to sell 46,511,628 shares of common stock at a purchase price of $2.15 per share, which represents 12.6% premium to the last reported sale price of the Company’s common stock of $1.91 per share on February 27, 2020. On March 3, 2020, the closing occurred. The aggregate proceeds net of underwriting discounts and offering costs, were approximately $93.8 million. 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 F-27 Table of Contents 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. During the year-ended December 31, 2020, the Company sold 6,769,559 shares under this program for net proceeds of approximately $12.2 million (after deducting commissions and other offering expenses). Through December 31, 2020, the Company has sold a total of 18,287,913 shares under this program for net proceeds of approximately $59.6 million (after deducting commissions and other offering expenses). 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. 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, 2019 2018 2020 $ $ 1,935 6,183 8,118 $ $ 1,501 7,038 8,539 $ $ 2,043 4,628 6,671 All of the $8.1 million, $8.5 million, and $6.7 million, of stock-based compensation expense recorded during the years ended December 31, 2020, 2019 and 2018, 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 Amended 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 F-28 Table of Contents 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. On May 19, 2020, the shareholders of the Company approved the Amended and Restated 2012 Incentive Plan which increased the maximum number of shares available for issuance by 13,000,000 shares. 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, 2020, under the 2012 Plan, the Company has granted stock options for 21,727,798 shares of common stock, of which 8,496,099 have been forfeited and 1,735,524 have been exercised, and granted restricted stock units for 6,371,656 shares of common stock, of which 922,801 have been forfeited and 2,847,038 have vested. The exercise price of each option has been equal to the closing price of a share of the Company’s common stock on the grant date. As of December 31, 2020, 10,947,871 shares remain available for future issuance. 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 of Directors authorized and reserved 1,700,000 and 1,250,000 additional shares of common stock under this program, respectively. In February 2020, the Board of Directors authorized the reduction of 2,033,367 shares available for issuance under this program. 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, 2020, the Company had granted options for 6,392,134 shares of common stock under the program, of which 4,722,689 have been forfeited and 543,446 have been exercised, and granted restricted stock units for 184,700 shares, of which 62,200 have been forfeited and 70,000 have vested. As of December 31, 2020, 2,879,688 shares 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, 2020 is as follows: Outstanding at December 31, 2019 Granted Exercised Forfeited/cancelled Outstanding at December 31, 2020 Vested at December 31, 2020 Shares $ 17,258,524 2,291,815 $ (1,498,355) $ (5,361,239) $ $ 12,690,745 $ 8,053,260 F-29 Weighted-average exercise price per share Weighted-average remaining contractual term (years) Aggregate intrinsic value (in thousands) 185 7.3 $ 4.00 2.11 1.72 4.05 3.90 4.70 6.5 5.2 $ $ 3,390 2,150 Table of Contents The fair value of each stock option was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions: Risk-free interest rate Volatility Dividend yield Expected term (years) Year ended December 31, 2020 0.60 % 96 % — 6.0 2019 1.98 % 87 % — 5.9 2018 2.65 % 81 % — 5.8 The Company recorded stock-based compensation expense associated with employee and non-employee stock options of $4.3 million, $7.1 million, and $5.6 million, for the years ended December 31, 2020, 2019, and 2018, respectively. The weighted-average grant date fair value of options granted in the years ended December 31, 2020, 2019, and 2018 was $1.62, $1.44, and $3.72 per share, respectively. The fair value of options that vested during the years ended December 31, 2020, 2019, and 2018 was $7.4 million, $7.3 million, and $4.7 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, 2020 and 2019 was $1.0 million and $0.1 million, respectively. At December 31, 2020, there was $7.1 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 2.6 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, 2020 is as follows: Outstanding at December 31, 2019 Granted Vested Forfeited/cancelled Outstanding at December 31, 2020 Shares 678,089 4,471,534 (2,020,782) (479,524) 2,649,317 Weighted-average grant date fair value per share $ $ $ $ $ 2.36 1.64 1.60 2.27 1.73 The Company recorded stock-based compensation expense associated with employee and non-employee RSUs of $3.7 million, $1.0 million, and $0.4 million, for the years ended December 31, 2020, 2019, and 2018, respectively. The total fair value of restricted stock units vested during the years ended December 31, 2020, 2019, and 2018 was approximately $3.8 million, $0.3 million, and $0.0 million, respectively. At December 31, 2020, there was $3.8 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 1.5 years. On March 27, 2020, the Company amended all outstanding stock options and RSUs awards held by employees (including executive officers), other than certain performance-based awards, to provide that, in the event of a change of control, such equity awards currently held by employees that are outstanding and unvested immediately prior to a change of control of the Company will become fully vested and, if applicable, exercisable F-30 Table of Contents immediately prior to, and subject to the consummation of, such change of control. The amendment was implemented to provide assurance to the Company’s existing employees and not in response to any change of control offer for the Company. The modification affected 93 employees and will result in incremental stock compensation expense of $0.2 million to be recognized over the remaining requisite service period for each award. The modification resulted in incremental stock compensation expense of $0.1 million recognized in the year ended December 31, 2020. The Company modified all unvested equity awards held by employees included in the August 2020 Restructuring discussed in Note. 17 Restructurings. On September 30, 2020, the Company accelerated all unvested awards held by employees included in the August 2020 Restructuring to be fully vested on September 30, 2020. As a result of the modification, the Company recognized incremental stock compensation cost of approximately $0.5 million during year ended December 31, 2020 within selling, general and administrative expense in the consolidated statements of operations and comprehensive loss. 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 the Company’s board of directors. The Company has 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 weighted-average assumptions: Risk-free interest rate Volatility Dividend yield Expected term (years) Year ended December 31, 2020 1.04 % 109 % — 0.5 2019 2.26 % 88 % — 0.5 The Company has recognized $0.1 million and $0.4 million of stock-based compensation expense under the Amended and Restated 2018 ESPP, for the years ended December 31, 2020 and December 31, 2019 respectively. During the year ended December 31, 2020 and December 31, 2019, the Company issued 358,193 shares and 341,701 shares, respectively, of common stock for proceeds of $0.4 million in each year under the Amended and Restated 2018 ESPP. 12. Convertible Senior Notes 2018 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, (Wilmington) 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, F-31 Table of Contents 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 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 F-32 Table of Contents 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. The Company determined that all other features of the 2018 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, 2020. 2019 Notes On November 14, 2019 and December 23, 2019, the Company 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 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 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 2019 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 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 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 the Company’s common stock of $1.08 per share on November 11, 2019. The Company will have the right, exercisable at the Company’s 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 the Company’s 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 the Company first issued the 2019 Notes. (Company’s Mandatory Conversion Option). F-33 Table of Contents 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. The Company 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, the Company 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, the Company 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, 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 payments. As of December 31, 2019, the Company 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. During the first three months of the year ended December 31, 2020, 2019 Note holders converted $57.4 million aggregate principal of 2019 Notes in exchange for 34,796,350 shares of common stock and $1.8 million of cash for the 2019 Note Interest Make-Whole Provision. The Company recorded $1.3 million for the year ended December 31, 2020, as other expense for the change in fair value of the 2019 Notes Interest Make-Whole Provision in the consolidated statements of operations and comprehensive loss. The Company determined that all other features of the 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. As of December 31, 2020, all 2019 Notes have converted into shares of common stock.. 2020 Notes On November 6, 2020, the Company entered into a privately negotiated agreement with an investor who is a holder of the Company’s 2018 Notes to exchange approximately $28.0 million aggregate principal amount of 2018 Notes for approximately $28.0 million aggregate principal amount of newly issued 5.00% Convertible Senior Notes due 2048 (the 2020 Notes). The issuance of the 2020 Notes closed on November 13, 2020. The 2020 Notes are governed pursuant to the Base Indenture between the Company and Wilmington dated as of October 17, 2018 as supplemented by the second supplemental indenture thereto dated as of November 13, 2020 (the Supplemental Indenture and together with the Base Indenture, the 2020 Indenture). The Company will have the right, exercisable at its option, to cause all 2020 Notes then outstanding to be converted automatically if the “Daily VWAP” (as defined in the 2020 Indenture) per share of the Company’s common stock equals or exceeds 123.08% of the conversion price on each of at least 20 “VWAP Trading Days” (as defined in the 2020 Indenture), whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the date the Company first issued the 2020 Notes. F-34 Table of Contents The initial conversion rate for the 2020 Notes is 307.6923 shares of the Company’s common stock per $1,000 principal amount of the 2020 Notes, which is equivalent to an initial conversion price of approximately $3.25 per share, representing an approximately 153.9% premium to the sale price of $1.28 per share of the Company’s common stock on November 5, 2020, as reported on the Nasdaq Global Market. 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, 2023, the Company will not have the right to redeem the 2020 Notes. On or after November 1, 2023, the Company may elect to redeem the 2020 Notes, in whole or in part, at a cash redemption price equal to the principal amount of the 2020 Notes to be redeemed, plus accrued and unpaid interest, if any. Unless the Company has previously called all outstanding 2020 Notes for redemption, the 2020 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 business day) at a cash repurchase price equal to the principal amount of the 2020 Notes to be repurchased, plus accrued and unpaid interest, if any. If a Fundamental Change (as defined in the 2020 Indenture) occurs at any time, subject to certain conditions, holders may require the Company to purchase all or any portion of their 2020 Notes at a purchase price equal to 100% of the principal amount of the 2020 Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the “Fundamental Change Repurchase Date” (as defined in the 2020 Indenture). If a “Make- Whole Fundamental Change” (as defined in the 2020 Indenture) occurs on or before November 1, 2022 and a holder elects to convert its 2020 Notes in connection with such Make-Whole Fundamental Change, such holder may be entitled to an increase in the conversion rate in certain circumstances as set forth in the 2020 Indenture. Upon conversion of the 2020 Notes, holders will receive a cash payment equal to the accrued and unpaid interest on the converted 2020 Notes. The 2020 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 2020 Notes, and 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 indebtedness, to the extent of the value of the collateral securing such indebtedness. The 2020 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 Company determined the 2020 Notes exchange met the definition of a debt modification under ASC 470-50, Modifications and Extinguishments. The Company reduced the carrying value of the 2020 Notes by 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 $2.3 million. The Company determined that all features of the 2020 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, 2020. All Notes The Company determined that the expected life of the 2018 Notes and 2020 was equal to the period through November 1, 2023 as this represents the point at which the 2018 Notes and 2020 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 and change in fair value of conversion option upon exchange is being amortized using the effective interest method through November 1, 2023. For the year F-35 Table of Contents ended December 31, 2020, the Company recognized an aggregate of $12.1 million of interest expense related to the 2018 Notes, 2019 Notes and 2020 Notes. 13. Net Loss per Share ASC Topic 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, 2020 and 2019 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 2018 Notes issued by the Company is reflected in diluted EPS using the if-converted method. The computation of basic and diluted net loss per share attributable to common stockholders consists of the following: Numerator Net loss Less: Other income Add: Interest expense Adjusted diluted net loss Denominator Weighted average shares outstanding - basic Effect of dilutive securities: 2018 Notes Weighted average shares outstanding - diluted Net loss per share - basic Net loss per share - diluted F-36 Year Ended December 31, 2019 2020 2018 (67,726) (149,209) — — — — (67,726) (149,209) (72,434) (25,556) 3,071 (94,919) 153,330 74,578 64,962 — 153,330 (0.44) (0.44) — 74,578 (2.00) (2.00) 4,359 69,321 (1.12) (1.37) Table of Contents For the year ended December 31, 2018, in calculating the effect of the 2018 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 2018 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 2018 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 2018 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 2020 Notes Employee Stock Purchase Plan Total potentially dilutive securities 14. Income Taxes 2020 Year Ended December 31, 2019 12,690,745 2,649,317 41,873 — 8,615,384 53,372 24,050,691 17,258,524 678,089 3,950,032 34,796,363 — 227,141 56,910,149 2018 12,522,867 306,750 — — — — 12,829,617 As of December 31, 2020, the Company had federal and state NOL carryforwards of approximately $348.5 million and $231.9 million, respectively, which are available to reduce future taxable income. The Company also had federal and state tax credits of $1.6 million and $0.6 million, respectively, which may be used to offset future tax liabilities. The NOL and tax credit carryforwards will expire at various dates through 2037, except for $154.5 million of federal NOL carryforwards which may be carried forward indefinitely. During the year ended December 31, 2020, the Company recorded income tax expense of $0.2 million, which primarily related to state income tax as a result of the sale of COPIKTRA license and related assets to Secura. Refer to Note 16. License, collaboration and commercial agreements for further discussion of the sale to Secura. For the years ended December 31, 2020, 2019, and 2018 income tax expense consisted of the following (in thousands): Current tax expense: Federal State Current income tax expense Deferred Federal State Deferred income tax expense Total income tax expense 2020 Year ended December 31, 2019 2018 $ $ — 194 194 — — — 194 $ $ — — — — — — — $ $ — — — — — — — F-37 Table of Contents 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 NOL and tax credit expiration under Section 382 Other The principal components of the Company’s deferred tax assets and liabilities are as follows (in thousands): Deferred tax assets: Net operating loss carryforwards Capitalized research and development Research and development credits Stock-based compensation Installment sale 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, 2020 21.00 % (8.55)% 2.84 % — % (0.60)% 35.09 % (52.67)% 2.60 % (0.29)% 2019 21.00 % 4.26 % 1.67 % (4.76)% (1.41)% (20.33)% — % (0.43)% — % December 31, 2020 2019 $ $ 86,665 1,565 2,043 4,041 9,981 888 105,183 (2,245) (2,245) 102,938 (102,938) $ — $ 101,039 2,230 22,944 4,445 — 1,451 132,109 (3,702) (3,702) 128,407 (128,407) — The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2020 and 2019 because the Company’s management believes that it is more likely than not that these assets will not be fully realized. The decrease in the valuation allowance of approximately $25.5 million in the year ended December 31, 2020 primarily relates to the loss of NOL carryforwards and research and development credits due to Section 382 of the Internal Revenue Code and similar provisions under state law discussed in the next paragraph Section 382 of the Internal Revenue Code and similar provisions under state law limit the utilization of U.S. and state NOL carryforwards following certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%. Based on the Company’s analysis under Section 382, the Company believes that $41.4 million of its federal NOL carryforwards and $168.0 million of its state NOL carryforwards are limited by Section 382 and similar provisions under state law as of December 31, 2020 and have been written off in the year ended December 31, 2020. Due to limitations under Section 382 the Company believes that its Research & Development (R&D) and Orphan Drug (OD) Credits will be limited as of December 31, 2020. The portion of R&D and OD credits that were determined to be limited by Section 382 have been written off as of December 31, 2020. The remaining unused carryforwards and credits remain available for future periods. Due the Company’s full valuation allowance the write off of NOL carryforwards and R&D and OD credits did not have any impact to the statements of operation and comprehensive loss. 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, 2020, the F-38 Table of Contents Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not conducted a study of 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. Leases 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, 2020 and December 31, 2019. The amount is included in non-current restricted cash on the consolidated balance sheets as of December 31, 2020. 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, collaboration and commercial agreements Secura Bio, Inc. (Secura) On August 10, 2020, the Company and Secura signed the Secura APA and on September 30, 2020, the transaction closed. Pursuant to the Secura APA, the Company sold to Secura its exclusive worldwide license, including related assets, for the research, development, commercialization, and manufacture in oncology indications of products containing duvelisib. The sale included certain intellectual property related to duvelisib in oncology indications, certain existing duvelisib inventory, claims and rights under certain contracts pertaining to duvelisib. Pursuant to the Secura APA, Secura assumed all operational and financial responsibility for activities that were part of the Company’s duvelisib oncology program, including all commercialization efforts related to duvelisib in the United States and Europe, as well as the Company’s ongoing duvelisib clinical trials. Further, Secura assumed all obligations with existing collaboration partners developing and commercializing duvelisib, which include Yakult Honsha Co., Ltd. (Yakult), CSPC Pharmaceutical Group Limited (CSPC), and Sanofi. Additionally, Secura assumed all royalty payment obligations due under the amended and restated license agreement with Infinity (Infinity License Agreement). Pursuant to the terms of the Secura APA, Secura has paid the Company an up-front payment of $70.0 million in September 2020 and has agreed to pay the Company (i) regulatory milestone payments up to $45.0 million, consisting of a payment of $35.0 million upon receipt of regulatory approval of COPIKTRA in the United States for the treatment of peripheral T-cell lymphoma and a payment of $10.0 million upon receipt of the first regulatory approval for the commercial sale of COPIKTRA in the European Union for the treatment of peripheral T-cell lymphoma, (ii) sales milestone payments of up to $50.0 million, consisting of $10.0 million when total worldwide net sales of COPIKTRA exceed $100.0 million, $15.0 million when total worldwide net sales of COPIKTRA exceed $200.0 million and $25.0 million when total worldwide net sales of COPIKTRA exceed $300.0 million, (iii) low double-digit royalties on the annual aggregate net sales above $100.0 million in the United States, European Union, and the United Kingdom of Great Britain and Northern Ireland and (iv) 50% of all royalty, milestone and sublicense revenue payments payable to Secura under the Company’s existing license agreements F-39 Table of Contents with Sanofi, Yakult, and CSPC, and 50% of all royalty and milestone payments payable to Secura under any license or sublicense agreement entered into by Secura in certain jurisdictions. In connection with the Secura APA, the Company and Secura entered into a transition services agreement (Secura TSA). Under the terms of the Secura TSA, the Company will provide certain support functions at Secura’s direction for a term of less than one year from the date of execution, unless earlier terminated or extended according to the terms of the Secura TSA (Secura TSA Services). Secura may cancel the Secura TSA at sole discretion for any or no reason with five days' notice. Services performed are paid at a mutually agreed upon rate. The Company evaluated the Secura APA and Secura TSA in accordance with ASC 606 as the Company concluded that the counterparty, Secura, is a customer. The Company identified the following performance obligations under the Secura APA and Secura TSA: ● a bundled performance obligation consisting of delivery of the duvelisib global license and intellectual property, certain existing duvelisib inventory, certain duvelisib contracts and clinical trials, certain regulatory approvals, and certain regulatory documentation and books and records (the Bundled Secura Performance Obligation); and ● Secura TSA Services. The Company concluded that the duvelisib global license and intellectual property were not distinct within the context of the contract (i.e. separately identifiable) because the other assets including certain existing duvelisib inventory, certain duvelisib contracts and clinical trials, certain regulatory approval, and certain regulatory documentation and books and records do not have stand-alone value from other duvelisib global license and intellectual property and Secura could not benefit from them without the duvelisib global license and intellectual property. Consistent with the guidance under ASC 606-10-25-16A, the Company disregarded immaterial promised goods and services when determining performance obligations. The Company has determined that the upfront payment of $70.0 million, future potential milestone payments and royalties including from Secura’s sublicensees should be allocated to the delivery of the Bundled Secura Performance Obligation. The Company has the right to consideration for TSA services in an amount that corresponds directly with the value to Secura of the Company’s performance to date. Consideration allocated to the Secura TSA Services will be recognized as such services are provided over the performance period using an output method based on the amount to which the Company has a right to invoice. Future potential milestones and royalties were excluded from the transaction price, as all milestone amounts and royalties were fully constrained under the guidance. As part of the Company’s evaluation of the constraint, the Company considered a number of factors in determining whether there is significant uncertainty associated with the future events that would result in the milestone payments and royalties. Those factors include: the amount of variable consideration is highly susceptible to factors outside of the Company’s influence, the uncertainty about the consideration is not expected to be resolved for a long period of time, with respect to future global royalties the Company considered that there is no history of selling COPIKTRA outside of the United States to be able to forecast results reliably. Future potential milestone payments and royalties were fully constrained as the risk of significant revenue reversal related to these amounts has not yet been resolved. During the year ended December 31, 2020, the Company recognized $70.0 million as sale of COPIKTRA license and related assets revenue related to delivery of the Bundled Secura Performance Obligation and $0.4 million in transition services revenue within the statements of operations and comprehensive loss. The Company recognized approximately $31.2 million of cost of sales – sale of COPIKTRA license and related assets within the statements of operations and comprehensive income (loss) which consisted of $19.2 million, $6.0 million, $5.8 million and $0.2 million for the intangible asset, certain duvelisib inventory, net duvelisib contract prepaid balances and manufacturing equipment, respectively, which were delivered to Secura as part of the sale. F-40 Table of Contents Chugai Pharmaceutical Co., Ltd (Chugai) On January 7, 2020, the Company entered into a license agreement with Chugai (the Chugai Agreement) whereby Chugai granted the Company an exclusive worldwide license for the development, commercialization and manufacture of products containing VS-6766, a dual RAF/MEK inhibitor. Under the terms of the Chugai Agreement, the Company received an exclusive right to develop and commercialize products containing VS- 6766 at the Company’s own cost and expense. 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 VS-6766, subject to reduction in certain circumstances. Chugai also obtained opt back rights to develop and commercialize VS-6766 (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 VS-6766 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 VS-6766 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. Chugai and the Company 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 the Company’s royalty obligations to Chugai for the sale of any products containing the VS-6766, 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. The Company may terminate the Chugai Agreement upon 180 days’ written notice. Subject to certain limitations, Chugai may terminate the Chugai Agreement upon written notice if the Company challenges any patent licensed by Chugai to the Company 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. The Company evaluated the license agreement with Chugai under ASC Topic 805, Business Combinations (ASC 805) and concluded that as 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. The Company recorded the up-front payment of $3.0 million as research and development expense within the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020. 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 F-41 Table of Contents 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. Infinity Pharmaceuticals, Inc. (Infinity) In November 2016, the Company entered into the Infinity License Agreement with Infinity under which the Company 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 was obligated to use diligent efforts to develop and commercialize a product in an oncology indication containing duvelisib. During the term of the Infinity 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 Infinity 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 was recorded as an intangible asset in the consolidated balance sheets. The Company was 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 was 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, the Company paid royalties previously due to Infinity to HCR. The royalties due to MICL and Purdue described above are still paid to Infinity. F-42 Table of Contents The Company evaluated the license agreement with Infinity under ASC 805 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 under the license agreement is contingent in nature and will be recognized when the respective contingency is resolved. During the year ended December 31, 2020, 2019, and 2018, the Company recorded royalty expense of $1.3 million, $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 and comprehensive loss. As discussed above under heading Secura Bio, Inc. (Secura) as of September 30, 2020, Secura has assumed from the Company all responsibilities and obligations under the Infinity License Agreement. All royalties due pursuant to the Infinity License Agreement are the sole responsible of Secura. 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. 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 F-43 Table of Contents 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. For the year ended December 31, 2020, the Company recognized $2.5 million of license revenue upon achievement of two development milestones which were paid in the year ended December 31, 2020. As discussed above under heading Secura Bio, Inc. (Secura as of September 30, 2020, Secura has assumed from the Company all responsibilities and obligations under the Sanofi Agreement. After September 30, 2020, the Company is entitled to 50% of future milestone payments and royalties pursuant to the Secura APA discussed under heading Secura Bio, Inc. (Secura) above. Future milestone and royalty payments pursuant to the Sanofi Agreement will be paid by Sanofi to Secura. The Company’s portion of such milestone and royalty payments will be subsequently remitted to the Company by Secura. 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 F-44 Table of Contents 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) 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. 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, F-45 Table of Contents 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, 2020 and 2019 there have been no additional milestones achieved under the Yakult Agreement. The Company satisfied the performance obligation upon delivery of the license and initial technology transfer and recognized the upfront payment of $10.0 million as license revenue during year ended December 31, 2018. As discussed above under heading Secura Bio, Inc. (Secura) as of September 30, 2020, Secura has assumed from the Company all responsibilities and obligations under the Yakult Agreement. After September 30, 2020, the Company is entitled to 50% of future milestone payments and royalties pursuant to the Secura APA discussed under heading Secura Bio, Inc. (Secura) above. Payments pursuant to the Yakult Agreement will be paid by Yakult to Secura. The Company’s portion of such milestone and royalty payments will be subsequently remitted to the Company by Secura. 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. F-46 Table of Contents 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. 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, 2020 and 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. As discussed above under heading Secura Bio, Inc. (Secura), as of September 30, 2020 Secura has assumed from the Company all responsibilities and obligations under the CSPC Agreement. After September 30, 2020, the Company is entitled to 50% of future milestone payments and royalties pursuant to the Secura APA discussed under heading Secura Bio, Inc. (Secura) above. Payments pursuant to the CSPC Agreement will be paid by CSPC to Secura. The Company’s portion of such milestone and royalty payments will be subsequently remitted to the Company by Secura. F-47 Table of Contents 17. Restructurings On October 28, 2019, the Company committed to an operational plan to reduce overall operating expenses, including the elimination of approximately 40 positions across the Company and other cost-saving measures (the October 2019 Restructuring). The October 2019 Restructuring was designed to streamline operations, speed execution, and reflect the focused, account-based approach in the field. The Company recorded $1.2 million of expense for the year ended December 31, 2019 for one-time termination benefits to the affected employees, including cash severance payments, healthcare benefits, and outplacement assistance. On February 27, 2020, following further analysis of the Company’s strategy, 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 February 2020 Restructuring). The February 2020 Restructuring is designed to streamline operations, speed execution of the Company’s clinical development of VS- 6766 and defactinib, and reflect a focused, account-based approach in the field. In August 2020, in connection with the duvelisib sale to Secura pursuant to the Secura APA, the Company committed to a strategic restructuring (the August 2020 Restructuring). The restructuring included a workforce reduction of approximately 41 positions primarily in the Company’s commercial operations department. During the year-ended December 31, 2020, the Company recorded an aggregate expense of $4.6 million for the February 2020 Restructuring and August 2020 Restructuring for one-time termination benefits for employee severance, benefits, and related costs. This expense is reflected in the consolidated statements of operation and comprehensive loss as selling general, and administrative expense for $4.1 million, and research and development expense for $0.5 million. The following table summarizes the accrued liabilities activity recorded in connection with the restructurings for the year ended December 31, 2020 (in thousands): Employee severance, benefits and related costs October 2019 Restructuring February 2020 Restructuring August 2020 Restructuring Total $ 18. Employee benefit plan Amounts accrued at December 31, 2019 Charges Amount Paid Adjustments Amounts accrued at December 31, 2020 631 — — 631 $ — 1,788 2,993 4,781 $ (626) (1,812) (1,797) (4,235) $ (5) 24 (169) (150) $ — — 1,027 1,027 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 $0.9 million, $1.3 million, and $0.8 million for the years ended December 31, 2020, 2019, and 2018, respectively. F-48 Table of Contents 19. Quarterly financial information (unaudited, in thousands, except per share data) Revenue: Product revenue, net License and collaboration revenue Sale of COPIKTRA license and related assets Transition services revenue Total revenue Operating expenses: Cost of sales - product Cost of sales - intangible amortization Cost of sales - sale of COPIKTRA license and related assets Research and development Selling, general and administrative Total operating expenses (Loss) income from operations Other income/(expense) Interest income Interest expense Loss on debt extinguishment Net (loss) income before income taxes Income tax expense Net (loss) income Net (loss) income per share —basic Net (loss) income per share —diluted Weighted-average number of common shares used in net loss per share — basic and diluted Net (loss) income per share —basic Net (loss) income per share —diluted First Quarter Ended March 31, 2020 Second Quarter Ended June 30, 2020 Third Quarter Fourth Quarter Ended September 30, 2020 Ended December 31, 2020 $ $ $ $ $ $ 5,034 22 — — 5,056 $ 495 392 — 10,924 19,604 31,415 (26,359) (1,313) 356 (10,674) — (37,990) — (37,990) $ (0.35) $ (0.35) $ $ 4,235 72 — — 4,307 $ 392 393 — 9,344 15,442 25,571 (21,264) — 122 (1,868) — (23,010) — (23,010) $ (0.14) $ (0.14) $ 5,829 2,818 70,000 — 78,647 866 8 31,187 10,955 20,614 63,630 15,017 — 19 (1,898) — 13,138 — 13,138 0.08 0.08 $ $ $ $ $ 134 — — 372 506 12 — — 10,153 7,095 17,260 (16,754) — 18 (1,354) (1,580) (19,670) (194) (19,864) (0.12) (0.12) 108,153 108,153 165,395 165,395 169,510 169,760 169,902 169,902 F-49 Table of Contents 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 Net loss per share —basic Net loss per share —diluted 20. Subsequent events First Quarter Ended March 31, 2019 Second Quarter Ended June 30, 2019 Third Quarter Fourth Quarter Ended September 30, 2019 Ended December 31, 2019 $ $ $ $ $ 1,671 $ — 1,671 $ 158 392 9,758 26,033 36,341 (34,670) — 1,497 (4,929) (38,102) $ (0.52) $ (0.52) $ $ 3,019 117 3,136 $ 377 392 11,346 29,298 41,413 (38,277) — 1,268 (5,185) (42,194) $ (0.57) $ (0.57) $ $ 4,032 5,000 9,032 $ 371 392 12,219 22,153 35,135 (26,103) — 1,005 (5,041) (30,139) $ (0.41) $ (0.41) $ 73,854 73,854 73,877 73,877 74,228 74,228 3,617 — 3,617 332 393 12,455 23,728 36,908 (33,291) (641) 611 (5,453) (38,774) (0.51) (0.51) 76,331 76,331 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. F-50 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 300,000,000 shares of common stock, par value $0.0001 per share. As of February 26, 2021, 171,665,716 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 Exhibit 4.5 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 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.” Verastem Securities Company, incorporated in Massachusetts, a wholly owned subsidiary. Verastem Europe GmbH, incorporated in Germany, a wholly owned subsidiary. List of Registrant’s Subsidiaries 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., (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., (12) Registration Statement (Form S-8 No. 333-238877) pertaining to the 2012 Amended and Restated 2012 Incentive Plan of Verastem, Inc. and, (13) Registration Statement (Form S-3 No. 333-237332) of Verastem, Inc. of our report dated March 18, 2021, with respect to the consolidated financial statements of Verastem, Inc., included in this Annual Report (Form 10-K) of Verastem, Inc. for the year ended December 31, 2020. /s/Ernst & Young LLP Boston, Massachusetts March 18, 2021 Exhibit 31.1 I, Brian M. Stuglik certify that: 1. I have reviewed this Annual Report on Form 10-K of Verastem, Inc.; CERTIFICATIONS 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; c) 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 d) 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): a) 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 b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 18, 2021 /s/ BRIAN M. STUGLIK Brian M. Stuglik Chief Executive Officer Exhibit 31.2 I, Robert Gagnon, certify that: 1. I have reviewed this Annual Report on Form 10-K of Verastem, Inc.; CERTIFICATIONS 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; c) 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 d) 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): a) 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 b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 18, 2021 /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, 2020 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: (1) (2) the Company. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Date: March 18, 2021 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. /s/ BRIAN M. STUGLIK Brian M. Stuglik Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.2 In connection with the Annual Report on Form 10-K of Verastem, Inc. (the “Company”) for the period ended December 31, 2020 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: (1) (2) the Company. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Date: March 18, 2021 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. /s/ ROBERT GAGNON Robert Gagnon Chief Business and Financial Officer Verastem Oncology Reports Fourth Quarter and Full Year 2020 Financial Results, Clinical Updates and Guidance for Key Milestones in 2021 and 1H 2022 Two Phase 2, Registration-Directed Trials Underway in High Unmet Need Indications with Multiple Key Catalysts Expected in 1H 2022 RAMP 201 Low-Grade Serous Ovarian Cancer Trial Expanded to Now Include Patients with KRAS Wild-Type Tumors in Selection Phase Based on New Clinical Data Strong Balance Sheet with Cash, Cash Equivalents and Investments Totaling $147.2 Million, Expected to Have Cash Runway Until at Least 2024 BOSTON, MA – March 18, 2021 – Verastem, Inc. (Nasdaq: VSTM) (also known as Verastem Oncology), a biopharmaceutical company committed to advancing new medicines for patients battling cancer, today reported financial results for the three months and full year ending December 31, 2020, and highlighted its key corporate objectives for 2021 and early 2022. “We are encouraged as we continue to gain greater understanding of the profile of our RAF/MEK inhibitor VS-6766 and its role in blocking multiple nodes in the RAS pathway without the resistance and tolerability issues that have historically been challenges. Based on its unique profile, we believe that VS-6766 could play a significant role in combination therapy across multiple tumor types and where patients need better options,” said Brian Stuglik, Chief Executive Officer of Verastem Oncology. “We have a strong balance sheet to execute on our corporate objectives and report across multiple key catalysts. Our annual spend is projected to be approximately $50 million for 2021, and we still anticipate being comfortably funded until at least 2024.” In Q4 2020, the Company advanced VS-6766 into two Phase 2 registration-directed clinical studies: RAMP 201 in patients with recurrent low-grade serous ovarian cancer (LGSOC) and RAMP 202 in patients with KRAS-G12V mutant non-small cell lung cancer (NSCLC). Both are evaluating VS-6766 with the Company’s FAK inhibitor, defactinib. The combination of VS-6766 and defactinib had been found to be clinically active in patients with KRAS mutant tumors through an ongoing investigator-initiated Phase 1/2 FRAME study. The FRAME study is evaluating the combination in patients with recurrent LGSOC, KRAS mutant NSCLC, KRAS-G12V mutant NSCLC, pancreatic cancer and KRAS mutant endometrioid cancer. “In the FRAME study, additional patients with recurrent LGSOC have now responded to treatment with clinically meaningful results for patients with KRAS wild-type tumors, which represents approximately 70% of all LGSOC patients. The results add to the robust and durable responses that have been demonstrated for patients with KRAS mutations,” said Jonathan Pachter, Chief Scientific Officer of Verastem Oncology. “The majority of LGSOC cases are RAS pathway-driven, and these new data support the premise that VS-6766 could be a treatment for all LGSOC patients. Therefore, we are expanding the selection phase of our company- sponsored RAMP 201 study to now include both patient populations (KRAS mutant and KRAS wild-type) to determine the optimal go-forward regimen for both.” 93831604_1 1 In an updated December 2020 read-out of the FRAME study LGSOC cohort (n=24), the overall response rate (ORR) is 52% (11 of 21 response evaluable patients), with KRAS mutant ORR at 70% (7 of 10 response evaluable patients), KRAS wild-type ORR at 44% (4 of 9 response evaluable patients) and KRAS status undetermined ORR at 0% (0 of 2 response evaluable patients). As reported previously, the most common side effects seen in the study were rash, creatine kinase elevation, nausea, hyperbilirubinemia and diarrhea, most being NCI CTC Grade 1/2 and all were reversible. The data from the LGSOC cohort are anticipated to be presented at a major medical meeting during the second half of 2021. Recent Corporate Highlights ● Phase 2 registration-directed (RAMP 201) study underway investigating VS-6766 alone and in combination with defactinib for the treatment of patients with recurrent LGSOC. o Supportive updated data from LGSOC cohort of the investigator-sponsored Phase 1/2 FRAME study continues to show encouraging clinical activity, durability and a favorable safety profile in both the overall patient population and in the subgroup of patients with KRAS mutant LGSOC, including patients who had previously progressed following treatment with a MEK inhibitor. o Ongoing data from the FRAME study are demonstrating clinically meaningful results in patients with KRAS wild-type LGSOC in addition to those with KRAS mutation as more patients have had an opportunity to respond to treatment. ● Phase 2 registration-directed (RAMP 202) study underway investigating VS-6766 alone and in combination with defactinib for the treatment of patients with recurrent KRAS-G12V mutant NSCLC. ● Closed COPIKTRA sale to Secura Bio, Inc. (Secura) in a deal valued at up to $311 million, plus royalties. ● Ended 2020 with $147.2 million in cash, cash equivalents and investments. Upcoming Milestones and Key Priorities for 2021-2022 LGSOC ● Amend RAMP 201 protocol to add enrollment of patients with KRAS wild-type LGSOC in selection phase. ● Report top-line results from the selection phase of RAMP 201 and commence expansion phase during the first half of 2022. ● Report updated data from Phase 1/2 FRAME study LGSOC cohort, including the KRAS wild-type population, during the second half of 2021. NSCLC ● Report top-line results from the selection phase of RAMP 202 and commence expansion phase during the first half of 2022. ● Updated data from the Phase 1/2 FRAME study NSCLC cohort will be presented by the investigator at the 2021 American Association for Cancer Research (AACR) Annual Meeting. The presentation will include an update on all variants of mutant KRAS, including further updates on the KRAS G12V NSCLC patients who had been previously highlighted. As no new KRAS G12V patients were enrolled in the original FRAME study, a KRAS G12V-specific NSCLC cohort of FRAME has been opened in addition to the Company-sponsored RAMP 202 registration-directed trial. Corporate and Financial ● Expect 2021 annual operating expenses of approximately $50 million. Fourth Quarter 2020 Financial Results Total revenue for the three months ended December 31, 2020 (2020 Quarter) was $0.5 million, compared to $3.6 million for the three months ended December 31, 2019 (2019 Quarter). Total research and development (R&D) and selling, general and administrative (SG&A) expenses for the 2020 Quarter were $17.2 million, compared to $36.2 million for the 2019 Quarter. R&D expense for the 2020 Quarter was $10.1 million, compared to $12.5 million for the 2019 Quarter. The decrease of $2.4 million, or 18.5%, was primarily related to a reduction in contract research organization costs partially offset by an increase in drug substance and drug product manufacturing costs. SG&A expense for the 2020 Quarter was $7.1 million, compared to $23.7 million for the 2019 Quarter. The decrease of $16.6 million, or 70.1%, primarily resulted from the Company’s shift in strategic direction and COPIKTRA sale to Secura which led to lower employee related expenses and consulting and professional fees. Net loss for the 2020 Quarter was $(19.9) million, or $(0.12) per share (basic and diluted), compared to $(38.8) million, or $(0.51) per share (basic and diluted), for the 2019 Quarter. For the 2020 Quarter, non-GAAP adjusted net loss was $(14.8) million, or $(0.09) per share (diluted), compared to non-GAAP adjusted net loss of $(30.3) million, or $(0.40) per share (diluted), for the 2019 Quarter. Please refer to the GAAP to Non-GAAP Reconciliation attached to this press release. Full-Year 2020 Financial Results Verastem Oncology ended 2020 with cash, cash equivalents and investments of $147.2 million. During the year ended December 31, 2020 (2020 Period), Verastem Oncology repaid in full all principal, accrued and unpaid interest, fees, and expenses under the Amended Loan Agreement with Hercules in an aggregate amount of $37.4 million and the Amended Loan Agreement was terminated along with Hercules’ commitment to provide funding under any future term loans. All liens on substantially all of the Company’s assets to secure the loans under the Amended Loan Agreement have been terminated and released. Total revenue for the 2020 Period was $88.5 million, compared to $17.5 million for the year ended December 31, 2019 (2019 Period). Sale of COPIKTRA license and related assets revenue for the 2020 Period was $70.0 million, compared to $0.0 million for the 2019 Period. The 2020 Period was comprised of a $70.0 million upfront payment received as part of the COPIKTRA sale to Secura. Net product revenue for the 2020 Period was $15.2 million, compared to $12.3 million for the 2019 Period. License and collaboration revenue for the 2020 Period was $2.9 million, compared to $5.1 million for the 2019 Period. Total R&D and SG&A expenses for the 2020 Period were $104.1 million, compared to $147.0 million for the 2019 Period. R&D expense for the 2020 Period was $41.4 million, compared to $45.8 million for the 2019 Period. The decrease of $4.4 million, or 9.6%, was primarily related to a reduction in contract research organization costs and employee related expense, partially offset by the $3.0 million up-front non-refundable payment made to Chugai Pharmaceuticals, Co. Ltd. for the VS-6766 license in the first quarter of 2020. SG&A expense for the 2020 Period was $62.7 million, compared to $101.2 million for the 2019 Period. The decrease of $38.5 million, or 38.0%, was primarily due to the Company’s shift in strategic direction and sale of COPIKTRA business which led to lower employee related expense and consulting and professional fees. Net loss for the 2020 Period was $(67.7) million, or $(0.44) per share (basic and diluted), compared to $(149.2) million, or $(2.00) per share (basic and diluted), for the 2019 Period. For the 2020 Period, non-GAAP adjusted net loss was $(37.8) million, or $(0.25) per share (diluted), compared to non-GAAP adjusted net loss of $(126.0) million, or $(1.69) per share (diluted), for the 2019 Period. Please refer to the GAAP to Non-GAAP Reconciliation attached to this press release. Financial Guidance and Outlook With the proceeds from the sale of COPIKTRA, Verastem Oncology expects that it will have a cash runway until at least 2024 to deliver on the current programs for VS-6766 and defactinib, including clinical and regulatory milestones and development in LGSOC and KRAS mutant NSCLC. Verastem Oncology expects its 2021 annual operating expenses to be approximately $50 million. 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 months and year ended December 31, 2020 and 2019 are included in the tables accompanying this press release after the unaudited condensed consolidated financial statements. About VS-6766 VS-6766 (formerly known as CH5126766 and RO5126766) is a unique inhibitor of the RAF/MEK signaling pathway. In contrast to other MEK inhibitors in development, VS-6766 blocks both MEK kinase activity and the ability of RAF to phosphorylate MEK. This unique mechanism allows VS-6766 to block MEK signaling without the compensatory activation of MEK that appears to limit the efficacy of other inhibitors. About Defactinib Defactinib (VS-6063) is an oral small molecule inhibitor of FAK and PYK2 that is currently being evaluated as a potential combination therapy for various solid tumors. The Company has received Orphan Drug designation for defactinib in ovarian cancer and mesothelioma in the US, EU and Australia. Preclinical research by Verastem Oncology scientists and collaborators at world- renowned research institutions has described the effect of FAK inhibition to enhance immune response by decreasing immuno- suppressive cells, increasing cytotoxic T cells, and reducing stromal density, which allows tumor-killing immune cells to enter the tumor.1,2 About the VS-6766/Defactinib Combination RAS mutant tumors are present in ~30% of all human cancers, have historically presented a difficult treatment challenge and are often associated with significantly worse prognosis. Challenges associated with identifying new treatment options for these types of cancers include resistance to single agents, identifying tolerable combination regimens with MEK inhibitors and new RAS inhibitors in development addressing only a minority of all RAS mutated cancers. The combination of VS-6766 and defactinib has been found to be clinically active in patients with KRAS mt tumors. In an ongoing investigator-initiated Phase 1/2 FRAME study, the combination of VS-6766 and defactinib is being evaluated in patients with LGSOC, KRAS mt NSCLC and colorectal cancer (CRC). The FRAME study was expanded to include new cohorts in pancreatic cancer, KRASmt endometrioid cancer and KRAS-G12V NSCLC. Verastem Oncology is also supporting an investigator-initiated Phase 2 trial evaluating VS-6766 with defactinib in patients with metastatic uveal melanoma. Verastem Oncology has initiated Phase 2 registration-directed trials of VS-6766 with defactinib in patients with recurrent LGSOC and in patients with recurrent KRAS-G12V NSCLC as part of its RAMP (Raf And Mek Program). About Verastem Oncology Verastem Oncology (Nasdaq: VSTM) is a development-stage 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 RAF/MEK inhibition and focal adhesion kinase (FAK) inhibition. 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 potential clinical value of the RAF/MEK/FAK combination and the timing of commencing registration- directed trials for the RAF/MEK/FAK combination. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," “can,” “promising” 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. 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 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 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 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, 2020 as filed with the Securities and Exchange Commission (SEC) on March 18, 2021 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. References 1 Gerber D. et al. Phase 2 study of the focal adhesion kinase inhibitor defactinib (VS-6063) in previously treated advanced KRAS mutant non-small cell lung cancer. Lung Cancer 2020: 139:60-67. 2 Chénard-Poirier, M. et al. Results from the biomarker-driven basket trial of RO5126766 (CH5127566), a potent RAF/MEK inhibitor, in RAS- or RAF-mutated malignancies including multiple myeloma. Journal of Clinical Oncology 2017: 35. 10.1200/JCO.2017.35.15_suppl.2506. Verastem Oncology Contacts: Investors: Ajay Munshi Vice President, Corporate Development +1 781-469-1579 amunshi@verastem.com Sherri Spear Argot Partners +1 212 600 1902 sherri@argotpartners.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 Restricted cash, 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, 2020 December 31, 2019 $ $ $ $ 147,221 239 — 3,473 416 — 2,726 274 154,349 17,093 — 19,051 2,931 — 115,274 154,349 $ $ $ $ 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 Verastem, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Revenue: Product revenue, net License and collaboration revenue Sale of Copiktra license and related assets revenue Transition services revenue Total revenue Operating expenses: Cost of sales - product Cost of sales - intangible amortization Cost of sales – sale of Copiktra license and related assets Research and development Selling, general and administrative Total operating expenses Loss from operations Other expense Interest income Interest expense Loss on debt extinguishment Net loss before income taxes Income tax expense Net loss Net loss per share—basic and diluted Weighted average common shares outstanding used in computing: Net loss per share – basic and diluted $ $ $ Three months ended December 31, Year ended December 31, 2020 2019 2020 2019 134 — — 372 506 12 — — 10,153 7,095 17,260 (16,754) — 18 (1,354) (1,580) (19,670) 194 (19,864) (0.12) $ $ $ 3,617 — — — 3,617 332 393 — 12,455 23,728 36,908 (33,291) (641) 611 (5,453) — (38,774) — (38,774) (0.51) $ 15,232 2,912 $ 70,000 372 88,516 1,765 793 31,187 41,376 62,755 137,876 (49,360) (1,313) 515 (15,794) (1,580) (67,532) 194 (67,726) (0.44) $ $ $ $ 12,339 5,117 — — 17,456 1,238 1,569 — 45,778 101,212 149,797 (132,341) (641) 4,381 (20,608) — (149,209) — (149,209) (2.00) 169,902 76,331 153,330 74,578 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 Change in fair value of derivative Chugai license payment Loss on debt extinguishment Notes third party exchange costs 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 Change in fair value of derivative Chugai license payment Loss on debt extinguishment Notes third party exchange costs 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, 2020 2019 Year ended December 31, 2019 2020 $ (19,864) $ (38,774) $ (67,726) $ (149,209) — 2,933 554 (160) — — 1,580 171 $ (14,786) $ 393 1,311 2,705 1,232 641 — — 2,168 (30,324) $ 793 8,118 10,319 4,621 1,313 3,000 1,580 171 (37,811) (0.12) $ (0.51) $ (0.44) — — 0.02 — — — — 0.01 — 0.02 0.03 0.02 0.01 — — 0.03 — 0.05 0.07 0.03 0.01 0.02 0.01 — (0.09) $ (0.40) $ (0.25) $ (1.69) 169,902 76,331 153,330 74,578 $ $ 1,569 8,539 7,131 3,200 641 — 2,168 (125,961) (2.00) 0.02 0.11 0.10 0.04 0.01 — — 0.03 

Continue reading text version or see original annual report in PDF format above