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:

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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice (GLP) regulations;

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submission to the FDA of an investigational new drug (IND) application, which must become effective before human clinical trials may begin;

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approval by an independent institutional review board (IRB) at each clinical site before each trial may be initiated;

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performance of adequate and ~~well‑controlled~~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;

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submission to the FDA of an NDA;

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satisfactory completion of an FDA advisory committee review, if applicable;

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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

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FDA review and approval of the NDA.

Preclinical studies

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and ~~requirements, including GLP regulations.~~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~~long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity,

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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

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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:

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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.

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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.

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Phase 3: The drug is administered to an expanded patient population in adequate and ~~well‑controlled~~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~~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 ~~$2.4~~$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

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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~~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~~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

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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~~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~~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‑~~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

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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

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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‑~~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‑~~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~~post-marketing compliance requirements, including the completion of one or more Phase 4 or ~~post‑approval~~post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required ~~post‑approval~~post-approval studies or confirm a clinical benefit during ~~post‑marketing~~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~~seven-year exclusive marketing period in the United States for that product, for that indication. During the ~~seven‑year~~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.

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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

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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~~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:

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the required patent information has not been filed;

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the listed patent has expired;

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the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or

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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.

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The ANDA also will not be approved until any applicable ~~non‑~~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

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as a condition of approval new clinical trials conducted by or for the sponsor. This ~~three‑year~~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~~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~~non-patent exclusivity in order for the ~~six‑month~~six-month pediatric extension to apply to that exclusivity period.

Combination Therapy

Combination ~~products~~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.

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A sponsor may use a voluntary formal process, known as a Request for Designation, when the product classification is unclear or in dispute, to obtain a binding decision as to which center will regulate the combination product. If the sponsor objects to that decision, it may request that the agency reconsider that decision.

Other regulatory requirements

Any drug manufactured or distributed by us pursuant to FDA approvals would be subject to ~~pervasive~~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‑~~post-approval requirements as a condition of approval of an NDA. For example, the FDA may require ~~post‑marketing~~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~~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.

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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~~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:

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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

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fines, warning letters or holds on ~~post‑approval~~post-approval clinical trials;

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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

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product seizure or detention, or refusal to permit the import or export of products; or

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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.

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~~Anti‑kickback and false claims laws~~

Although we currently have no products approved for commercial sale, we may be subject to various federal and state laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws, for activities related to future sales of any of our product candidates that may in the future receive regulatory and marketing approval. Anti-kickback laws generally prohibit a pharmaceutical manufacturer from soliciting, offering, receiving, or paying any remuneration to generate business, including the purchase, prescription or use of a particular drug. Although the specific provisions of these laws vary, their scope is generally broad and there may not be regulations, guidance or court decisions that apply the laws to particular industry practices. There is therefore a possibility that our practices might be challenged under such anti-kickback laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented, any claims for payment for reimbursed drugs or services to third party payors (including Medicare and Medicaid) that are false or fraudulent.

Laws and regulations have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceutical manufacturers with marketed products. The laws and regulations generally limit financial interactions between manufacturers and healthcare providers and/or require disclosure to the government and public of such interactions. Many of these laws and regulations contain ambiguous requirements or require administrative guidance for implementation. Given the lack of clarity in laws and their implementation, any future activities (if we obtain approval and/or reimbursement from federal healthcare programs for our product candidates) could be subject to challenge.

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Additional provisions

If our operations are found to be in violation of the fraud and abuse laws described above, or any other laws that apply to us, we may be subject to penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations.

Physician drug samples

As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. The Prescription Drug Marketing Act (PDMA) imposes requirements and limitations upon the provision of drug samples to physicians, as well as prohibits states from licensing distributors of prescription drugs unless the state licensing program meets certain federal guidelines that include minimum standards for storage, handling and record keeping. In addition, the PDMA sets forth civil and criminal penalties for violations.

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. ~~Whether~~Regardless of our current FDA approval or ~~not~~any future FDA approvals we may obtain ~~FDA approval~~ 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 ~~any~~new drug ~~products for which we obtain regulatory approval.~~products. Sales of ~~any of our~~ product candidates, if approved, will depend, in part, on the extent to which the costs of the products will be covered by ~~third‑party~~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~~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~~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‑~~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~~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.

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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~~Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and ~~cost‑effectiveness~~cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these ~~third‑party~~third-party payors do not consider our products to be ~~cost‑effective~~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~~government-paid healthcare costs, including price

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controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of ~~restrictive policies in jurisdictions with~~ 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~~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~~cross-border imports from ~~low‑priced~~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.

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The marketability of ~~any~~ products for which we may receive regulatory approval for commercial sale may suffer if the government and ~~third‑~~third-party payors fail to provide adequate coverage and reimbursement. In addition, there is an increasing emphasis on managed care in the United States ~~has increased~~ and we expect will continue to increase the pressure on drug pricing. Coverage policies, ~~third‑party~~third-party reimbursement rates and drug pricing regulation may change at any time. Even if favorable coverage and reimbursement status is attained for ~~one or more products for which we receive regulatory approval,~~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 21^st Century Cures Act that amends a number of sections of the ~~FDCA, including provisions related to medical device approval.~~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 ~~Health Care~~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 ~~Health Care~~Healthcare Reform Act. ~~The Trump administration may also take executive action in the absence of legislative action.~~ For example, in October 2017, the President announced that his administration will withhold the cost-sharing subsidies paid to health insurance exchange plans serving low-income enrollees. Actions by the administration are widely expected to lead to fewer Americans having more comprehensive health insurance compliant with the Health Care Reform Act, even in the absence of a legislative repeal. Taxtax reform legislation was ~~also~~ enacted at the end of 2017 that ~~includes provisions that will affect healthcare insurance coverage and payment, such as the elimination of~~eliminated the tax penalty for individuals who do not maintain ~~sufficient~~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, ~~(the so-called “individual mandate”). In~~ a ~~November 2017 report, the Congressional Budget Office estimates~~federal appeals court agreed that the ~~elimination will increase~~individual mandate provision was unconstitutional but remanded the ~~number~~case back to the district court to assess more carefully whether any provisions of ~~uninsured by 4 million in 2019~~the Healthcare Reform Act were severable and ~~13 million in 2027.~~

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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 ~~prices~~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.

~~EMPLOYEES~~Table of Contents

HUMAN CAPITAL RESOURCES

As of ~~February 28, 2018,~~December 31, 2020, we had ~~69 full‑time~~48 full-time equivalent employees, including a total of 1210 employees with M.D. or Ph.D. ~~degrees.~~degrees, and 1 part-time employee. Of ~~these full‑time~~the full-time equivalent employees, 3130 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 isare 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, ~~2018.~~2021.


Name	Age	Position
~~Name~~Brian Stuglik	~~Age~~61	~~Position~~
~~Robert Forrester~~	54	~~President,~~ Chief Executive Officer
~~Steven Bloom~~	57	~~Chief Strategy Officer~~
~~Julie B. Feder~~	47	~~Chief Financial Officer~~
~~Diep Le, M.D., Ph.D.~~	50	~~Chief Medical Officer~~
~~Joseph Lobacki~~	59	~~Chief Commercial Officer~~
Daniel Paterson	57 59	President, Chief Operating Officer
Robert Gagnon	46	Chief Business and Financial Officer

~~Robert Forrester~~ ~~has served~~Brian Stuglik, age 61, has served as our Chief Executive Officer since July ~~2013,~~2019 and as a member of our ~~Chief Operating Officer from March 2011 until July 2013~~Board of Directors since September 2017. Mr. Stuglik founded Proventus Health Solutions in January 2016 and ~~our President since January 2013. Mr. Forrester~~ has ~~previously held executive level positions at both private~~over three decades of experience in U.S. and ~~public life sciences companies.~~international pharmaceutical development, product strategy, and commercialization. Prior to ~~joining us,~~founding Proventus Health Solutions, Mr. Forrester served as Chief Operating Officer of Forma Therapeutics, Inc. from 2010 until 2011. Previously he served as Interim President and Chief Executive Officer of CombinatoRx, Inc. from 2009 until 2010 and as its Executive Vice President and Chief Financial Officer from 2004 to 2009. Mr. Forrester served as Senior Vice President, Finance and Corporate Development at Coley Pharmaceuticals Group, Inc. from 2000 to 2003. He earned his LL.B. from Bristol University in England.

~~Steven Bloom~~has served as our Chief Strategy Officer since December 2017, our Senior Vice President of Corporate Development from January 2017 to November 2017 and as our Vice President of Commercial Planning and External Affairs from January 2015 until January 2017. Prior to joining us in March 2014, Mr. Bloom served as Senior Vice President at Ziopharm Oncology from March 2008 to March 2014. Before joining Ziopharm, Mr. Bloom was Vice President for the health informatics company Pharmetrics and spent the first 19 years of his career at Eli Lilly and Company in leadership roles in marketing, sales and corporate affairs.

~~Julie B. Feder~~has served as our Chief Financial Officer since July 2017. Prior to joining us, Ms. Feder served as the Chief Financial Officer for the Clinton Health Access Initiative (CHAI) from September 2011 to July 2017. Prior to joining CHAI, Ms. Feder spent three years at Genzyme Corporation, first as Vice President of Internal Audit and also as Finance Integration Leader. In these roles, she managed the day-to-day operations of Genzyme’s global internal audit function, while leading the Genzyme Global Finance integration into Sanofi’s organization following Sanofi’s acquisition of Genzyme.

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~~Diep Le, M.D., Ph.D.~~ ~~has served as our Chief Medical Officer since October 2017. Prior to joining us, Dr. Le~~Stuglik served as the Vice President ~~Immuno-Oncology Innovative Medicines at MedImmune (a subsidiary~~and Chief Marketing Officer for the oncology division of ~~AstraZeneca)~~Eli Lilly and Company, from October 2015 to June 2017 and led the product development teams for multiple high-priority immuno-oncology assets. Prior to that, Dr. Le served as the Executive Director and Global Clinical Program Lead at Novartis Oncology from October 2013 to October 2015, and various roles of increasing responsibility at GlaxoSmithKline from June 2009 to ~~October 2013, where she led~~December 2015. Mr. Stuglik received a Bachelor of Science in Pharmacy from Purdue University and holds memberships in the ~~MEK inhibitor, trametinib (Mekinist™), from~~American Society of Clinical Oncology, the ~~first-in-human studies to FDA approval.~~American Association of Cancer Research, and the International Association for the Study of Lung Cancer.

~~Joseph Lobacki~~Daniel Paterson,age 59, has served as our ~~Chief Commercial Officer~~President since ~~January 2018. Prior~~June 2019 in addition to joining us, Mr. Lobacki served as the Chief Operating Officer of Finch Therapeutics Group from November 2016 to December 2017, the Chief Commercial Officer and Executive Council Member of Medivation, Inc. from December 2014 to October 2016, and as the General Manager of Oncology at Idera Pharmaceuticals from April 2014 to December 2014. Prior to that Mr. Lobacki served as a commercial and business operations consultant for biotechnology companies from June 2012 to April 2014 and as the Senior Vice President and Chief Commercial Officer of Micromet Inc., where he oversaw commercial activities including medical affairs and strategic marketing.

~~Daniel Paterson~~ ~~has served~~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.~~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.~~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.

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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.~~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,~~10-K, quarterly reports on Form ~~10‑Q,~~10-Q, current reports on Form ~~8‑K~~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.~~10-K.

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ITEM 1A. Risk ~~Factors.~~ Factors

~~RISKS RELATED TO THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCT CANDIDATES~~

~~Preclinical testing~~Investment in our Common Stock involves a high degree of risk. You should carefully consider the risks that are summarized below and ~~clinical trials of our product candidates may not be successful.~~Indiscussed in greater detail in the ~~near term, we are dependent on the success of our PI3K inhibitor program.~~following pages before making an investment decision. If ~~our New Drug Application (NDA) for duvelisib is not accepted by the U.S. Food and Drug Administration (FDA), we are unable toobtain marketing approval for or successfully commercialize duvelisib, or~~ any of ~~our other product candidates, or if we experience significant delays in doing so,~~the following risks and uncertainties actually occur, our business, ~~will~~financial condition, and results of operations could be ~~materially harmed.~~negatively impacted and you could lose all or part of your investment.

~~We have invested a significant portion~~Summary of our efforts and financial resources in the research and development of our product candidates, including duvelisib, for which we are conducting clinical trials in multiple indications and submitted an NDA to the FDA requesting approval in February 2018. Our ability to generate product revenues will depend heavily on the successful development and potential commercialization of our product candidates. The success of our product candidates will depend on several factors, including the following:Risk Factors

●

~~initiation and successful enrollment and completion~~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;~~

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.

●

~~receipt of marketing~~If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals ~~from the FDA and other regulatory authorities~~ for our product candidates, ~~including pricing approvals where required, as well as securing acceptance~~we will not be able to commercialize such candidates, and ~~approval of the NDA we submitted for duvelisib;~~

our ability to generate revenue will be materially impaired.

●

~~establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;~~

~~obtaining and maintaining patent and trade secret protection and regulatory exclusivity for~~If clinical trials of our product ~~candidates;~~

~~establishing 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~~candidates fail to demonstrate safety and efficacy ~~profile~~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 ~~following approval.~~

of significant commercial value.

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.

~~Even if duvelisib, or any of our~~ ~~other product candidates, receives marketing approval,~~ ~~it may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.~~

~~If duvelisib, or any of our~~ ~~other product candidates, receives marketing approval,~~ it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. If duvelisib does not achieve an adequate level of acceptance, or if we are unable to increase market acceptance of duvelisib as compared to existing or competitive products, we may not generate significant product revenues and we may not become profitable. In addition, clinical studies of duvelisib showed side effects that may need to be managed to be profitable. The degree of market acceptance of duvelisib, if approved for commercial sale, will depend on a number of factors, including:

●

~~efficacy and potential advantages compared~~We will continue to ~~alternative treatments;~~

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.

●

~~convenience and ease of administration compared~~Raising additional capital or entering into certain licensing arrangements may cause dilution to ~~alternative treatments;~~

our stockholders, restrict our operations or require us to relinquish rights to our product candidates.

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●

~~the ability to offer duvelisib for sale at competitive prices;~~

~~the willingness of the target patient population to try new therapies and of physicians to prescribe duvelisib;~~

~~the line of therapy duvelisib is designated under physician treatment guidelines;~~

~~changes in the standard of care for the targeted indications for duvelisib;~~

~~limitations or warnings, including distribution or use restrictions, contained in the approved labeling for duvelisib;~~

~~the strength of marketing and distribution support;~~

~~sufficient third-party coverage and reimbursement;~~

~~the ability of the medical community to appropriately recognize and manage side effects;~~

~~safety concerns with similar products marketed by others; and~~

~~the prevalence and severity of any side effects as a result of treatment with duvelisib~~.

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 preclinicalPreclinical 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. The FDA or other regulatory authorities may require additional testing to substantiate our claims from our Phase 3 DUO, Phase 2 DYNAMO and other studies, which could delay or prevent marketing approval for duvelisib.

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~~not be successful. If we are unable to obtain marketing approval for or ~~inconclusive results,~~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 ~~decide,~~

not be able to obtain regulatory approvals for and commercialize any of our other product candidates.

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~~or regulators may require us,~~

●

We intend to rely on third parties to conduct ~~additional clinical trials or abandon product development programs;~~

~~the number of patients required for~~investigator sponsored clinical trials of our product ~~candidates may be larger than we anticipate, enrollment in these~~candidates. Any failure by a third party to meet its obligations with respect to the clinical ~~trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;~~

~~our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;~~

regulators or institutional review boards may require that we or our investigators suspend or terminate clinical trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

~~the cost of clinical trials~~development of our product candidates may ~~be greater than we anticipate;~~

delay or impair our ability to obtain regulatory approval for our product candidates.

●

We contract with third parties for the ~~supply or quality~~manufacture of our product candidates ~~or other materials~~and for compound formulation research, and these third parties may not perform satisfactorily.

●

We may not be successful in obtaining necessary rights to ~~conduct clinical trials of our~~compounds and product candidates ~~may be insufficient~~for our development pipeline through acquisitions and in-licenses.

●

If we are unable to obtain and maintain patent protection for our products, or ~~inadequate;~~if our licensors are unable to obtain and

maintain patent protection for the products that we license from them, or if the scope of

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~~Table 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:Contents

~~be delayed in obtaining marketing approval for our product candidates;~~

the patent protection obtained is not ~~obtain marketing approval at all;~~

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.

●

~~obtain approval~~We depend on Secura for ~~indications~~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 ~~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~~otherwise capitalize on the market ~~after obtaining marketing approval.~~

potential of COPIKTRA.

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;~~

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~~eligibility criteria~~We have incurred significant losses since our inception. We expect to incur losses for the ~~study in question;~~

foreseeable future and may never achieve or maintain profitability.

●

~~perceived risks and benefits of the product candidate under study in relation to other available treatments including~~Because we do not anticipate paying any ~~new treatments that may be approved for the indications we are investigating;~~

~~efforts to facilitate timely enrollment in clinical trials;~~

~~patient referral practices of physicians;~~

~~the ability to monitor patients adequately during and after treatment; and~~

~~proximity and availability of clinical trial sites for prospective patients.~~

Furthermore, enrolled patients may drop out of a clinical trial, which could impair the validity or statistical significance of the clinical trial. A number of factors can influence the patient discontinuation rate, including, but not limited to:

~~the inclusion of a placebo arm in a trial;~~

~~possible inactivity or low activity of the product candidate being tested at one or more of the dose levels being tested;~~

~~the occurrence of adverse side effects, whether or not related to the product~~ ~~candidate; and~~

~~the availability of numerous alternative treatment options, including clinical trials evaluating competing product candidates, that may induce patients to discontinue their participation~~cash dividends on our capital stock in the ~~trial.~~

foreseeable future, capital appreciation, if any, will be the source of gain for our stockholders.

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.Risk Factors

~~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.~~

All of 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 any of our 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.

~~Defactinib is in our Phase 1 and Phase 2 clinical trials and the development program continues to progress. The toxicities reported thus far are consistent with other drugs in this class.~~

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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.

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~~Risks Related to the ~~treatment~~Development of ~~cancer through the killing of cancer cells and disruption of the tumor microenvironment is unproven, and we do not know whether we will be able to develop any products of commercial value.~~Our Product Candidates.

We are developing and commercializing product candidates to treat cancer by using targeted agents to kill cancer cells or disrupt the tumor microenvironment and thereby thwart their growth and proliferation of cancer cells. Research on the use of small molecules to inhibit PI3K and FAK signaling pathways and disrupt the tumor microenvironment is an emerging field and, consequently, there is uncertainty about whether duvelisib and defactinib are effective in improving outcomes for patients with cancer. With respect to our FAK inhibition program, there is some debate in the scientific community regarding cancer stem cells (CSCs), the existence of these cells, the defining characteristics of these cells, as well as whether targeting such cells is an effective approach to treating cancer. Some believe that targeting CSCs as part of our multi-faceted approach should be sufficient for a positive clinical outcome, while others believe that, at times or always, the use of FAK inhibitors that reduce CSCs should be coupled with conventional chemotherapies for a positive clinical outcome.

Any products that we develop may not effectively target cancer cells, enhance anti-tumor immunity, or modulate the local tumor microenvironment. While we are currently conducting clinical trials for product candidates that we believe will attack cancer cells through the inhibition of the PI3K or FAK signaling pathways and potentially disrupt the tumor microenvironment, we may not ultimately be successful in demonstrating their efficacy, alone or in combination with other treatments.

The approval of our product candidates as part of a combination therapy for the treatment of certain cancers may be more costly than our prior clinical trials, may take longer to achieve regulatory approval, may be associated with new, more severe or serious and unanticipated adverse events, and may have a smaller market opportunity.

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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 may not be successful in obtaining necessary rights to compounds and product candidates for our development pipeline through acquisitions and in-licenses.

We may seek to acquire new compounds and product candidates from other pharmaceutical and biotechnology companies, academic scientists and other researchers, such as our exclusive in-license from ~~Infinity Pharmaceuticals,~~Pfizer, Inc. ~~(Infinity)~~(Pfizer) and Chugai Pharmaceutical Co., Ltd (Chugai) to research, develop, commercialize, and manufacture products in oncology indications containing ~~duvelisib.~~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:

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exposure to unknown ~~liabilities;~~

liabilities;

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disruption of our business and diversion of our ~~management’s~~management's time and attention to develop acquired products, product candidates or ~~technologies;~~

technologies;

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higher than expected acquisition and integration ~~costs;~~

costs;

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increased amortization ~~expenses;~~expenses; and

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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:

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~~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;~~

personnel;

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impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ~~ownership;~~ownership; and

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inability to motivate key employees of any acquired businesses.

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.

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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;

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we may have delays in reaching or fail to reach agreement on clinical trial contracts or clinical trial protocols with prospective trial sites;

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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;

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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;

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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;

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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:

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be delayed in obtaining or not obtain marketing approval for our product candidates;

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obtain approval for indications or patient populations that are not as broad as intended or desired;

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be subject to additional post marketing testing requirements; or

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have the product removed from the market after obtaining marketing approval.

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:

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the size and nature of the patient population;

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severity of the disease under investigation;

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eligibility criteria for the study in question;

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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;

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efforts to facilitate timely enrollment in clinical trials;

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patient referral practices of physicians;

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the ability to monitor patients adequately during and after treatment;

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proximity and availability of clinical trial sites for prospective patients; and

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constraints on the healthcare system such as COVID-19.

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the inclusion of a placebo arm in a trial;

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possible inactivity or low activity of the product candidate being tested at one or more of the dose levels being tested;

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the occurrence of adverse side effects, whether or not related to the product candidate; and

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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 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.

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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.

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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 ~~a number of~~ countries outside of the United States and expect that these countries will be important markets for our products, if approved. Marketing our

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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:

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initiation and successful enrollment and completion of our clinical trials;

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receipt of marketing approvals from the FDA and other regulatory authorities for our future product candidates, including pricing approvals where required;

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establishing and maintaining commercial manufacturing capabilities or making arrangements with third-party manufacturers;

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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

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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;

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acceptance of the products, if and when approved, by patients, the medical community and third-party payors;

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securing and maintaining coverage and adequate reimbursement for our products from third party payors;

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effectively competing with other therapies; and

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a continued acceptable safety and efficacy profile of the products following approval.

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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.

~~We have limited experience in marketing and commercializing product candidates. If, in the~~Any future we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.

We do not have a sales or marketing infrastructure and have limited experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales and marketing infrastructure to market or co-promote some of our product candidates if and when they are approved.

There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, we will face significant increased costs as we undertake commercialization activities for any of our product candidates, including duvelisib, and recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

~~Factors that may inhibit our efforts to commercialize our products on our own include:~~

~~our inability to recruit and retain adequate numbers of effective sales and marketing personnel;~~

~~the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products;~~

~~the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and~~

~~unforeseen costs and expenses associated with creating an independent sales and marketing organization and building out a commercialization operation generally.~~

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to

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us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

~~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 Gilead Sciences, Inc., Abbvie, Pharmacyclics LLC, Roche, Celgene Corporation, AstraZeneca, Incyte Corporation, TG Therapeutics, Inc., Novartis 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 if any of our product candidates are approved, they will be priced at a significant premium over competitive generic products.

In addition, to the extent that product or product candidates of our competitors demonstrate serious adverse side effects or are determined to be ineffective in clinical trials, the development of our product candidates could be negatively impacted.

~~Even if we are able to commercialize any product candidates, the products~~ may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.

~~The regulations~~In both domestic and foreign markets, any product candidates that ~~govern~~may receive marketing ~~approvals,~~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 ~~for new drug products vary widely from country to country. Some~~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 itthe 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

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of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in ~~one or more~~ product candidates, even if ~~our~~those product candidates obtain marketing approval.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they

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~~will cover and establish reimbursement levels. A primary~~Cost containment is a key trend in the ~~U.S. healthcare industry~~United States and ~~elsewhere is cost containment. Government authorities and third-party~~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. ~~Obtaining coverage and reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician.~~ If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize ~~any~~the product ~~candidate~~candidates for which we may obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

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 ~~that~~ 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:

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decreased demand for any product candidates or products that we may ~~develop;~~

develop;

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injury to our reputation and significant negative media ~~attention;~~

attention;

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withdrawal of clinical trial ~~participants;~~

participants;

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significant costs to defend the related ~~litigation;~~

litigation;

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substantial monetary awards to trial participants or ~~patients;~~

patients;

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loss of ~~revenue;~~revenue; and

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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 or upon the commercialization of our product candidates, if ever.~~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.

~~If we fail~~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 ~~comply with environmental, health~~our business and ~~safety laws and regulations, we could become subject~~may in the future result in additional disruptions to ~~fines or penalties or incur~~our business. Examples of both include:

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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.

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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

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clinical trials, increase the costs related to such development, and materially adversely impact our clinical trial operations.

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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.

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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.

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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.

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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.

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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.

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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 ~~business.~~ability to receive the contingent consideration will depend on Secura’s ability to successfully develop and commercialize COPIKTRA.

~~We are~~Secura’s ability to develop and commercialize COPIKTRA is subject to ~~numerous environmental, health~~a number of risks and ~~safety laws and regulations,~~uncertainties, including ~~those governing laboratory procedures and~~ the ~~handling, use, storage, treatment and disposal of hazardous materials and~~following:

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Secura has significant discretion in determining how to develop further and commercialize COPIKTRA, including through potential collaborators and partners;

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Secura may not commit sufficient resources to development, marketing or distribution of COPIKTRA;

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Even if diligently pursued, Secura’s efforts to develop and commercialize COPIKTRA may not be successful;

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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;

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Secura may fail to maintain compliance with ongoing FDA labeling, packaging, storage, advertising, promotion, recordkeeping, safety and other post-market requirements;

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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

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disputes may arise between Secura and us that result in the delay of payments or in costly litigation that diverts management attention and resources.

wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

~~RISKS RELATED TO OUR LICENSE AGREEMENT WITH INFINITY~~

If we do not realize the anticipated benefits of our license ~~agreement~~agreements with ~~Infinity~~Pfizer for the ~~duvelisib~~FAK program and Chugai for the dual RAF/MEK candidate program, our business could be adversely affected.

Our license ~~agreement~~agreements with ~~Infinity~~Pfizer for ~~the duvelisib program~~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 ~~the duvelisib program~~defactinib and VS-6766 on our financial results relating to numerous matters, including:

●

~~transaction and integration costs;~~

the cost of development and commercialization of ~~duvelisib products;~~defactinib and

VS-6766; and

●

other financial and strategic risks related to the license ~~agreement~~agreements with ~~Infinity.~~

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 ~~agreement~~agreements with ~~Infinity.~~Pfizer and Chugai. If one or more of these assumptions are incorrect, it could have an adverse effect on our business and operating results, and the benefits from our license ~~agreement~~agreements with ~~Infinity~~Pfizer for ~~the duvelisib program~~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~~Risks Related to Our Financial Position and Need for Additional Capital

~~We require additional financing to execute our operating plan and continue to operate as a going concern.~~

Our audited consolidated financial statements for the year ended December 31, 2017 have been prepared assuming we will continue to operate as a going concern, but we believe that our cash, cash equivalents and investments at December 31, 2017 of $86.7 million combined with our continuing operating losses raise substantial doubt about our ability to continue as such. Because we continue to experience net operating losses, our ability to continue as a going concern is subject to our ability to obtain necessary capital from outside sources, including obtaining additional capital from the sale of our securities or assets, obtaining loans from financial institutions or entering into partnership arrangements. Our continued net operating losses increase the difficulty in obtaining such capital, and there can be no assurances that we will be able to obtain such capital on favorable terms or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate ~~our clinical development programs or commercialization efforts, and/or ultimately cease operations.~~

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, ~~2017,~~2020, we had an accumulated deficit of ~~$303.1~~$592.5 million. To date, we have ~~not~~ generated ~~any~~minimal product revenues and have financed our operations primarily through public and private ~~placements of our preferred stock, public~~ offerings of our common stock, sales of our

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common stock pursuant to our at-the-market equity offering programs, ~~and~~ our loan and security agreement, as amended, with Hercules Capital Inc. (Hercules)~~. The proceeds~~, the issuance of our ~~term loan facility~~5.00% Convertible Senior Notes due 2048 (2018 Notes), upfront payments under our license and collaboration agreements with ~~Hercules, which we entered into in March 2017~~Yakult, CSPC, and ~~amended in January~~Sanofi, and ~~March 2018, will be used for our ongoing research and development programs and for general corporate purposes. As of December 31, 2017, there was $35.0 million available to borrow~~the upfront payment under the ~~amended term loan facility with Hercules, subject to certain conditions of funding.~~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:

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~~prepare for the anticipated commercialization of duvelisib;~~

continue our ongoing clinical trials with our product candidates, including with ~~our most advanced product candidates duvelisib~~defactinib and ~~defactinib;~~

VS-6766;

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initiate additional clinical trials for our product candidates;

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maintain, expand and protect our intellectual property portfolio;

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acquire or in-license other products and technologies;

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hire additional clinical, development and scientific personnel;

and

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~~add operational, financial~~establish and ~~management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and~~

~~establish~~maintain a sales, marketing and distribution infrastructure to commercialize any products for which we obtain marketing approval.

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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 ~~duvelisib.~~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~~candidates. We expect our existing cash resources at December 31, 2020 will be sufficient to fund our current operating plan and ~~as we seek marketing approval for duvelisib. If we receive such approval, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution~~capital expenditure requirements beyond the next twelve months from the issuance date of ~~duvelisib. Accordingly, we~~these financial statements. We will need to obtain substantial additional funding in connection with our continuing operations,, including for our clinical development ~~programs and any commercialization efforts~~ ~~for duvelisib.~~

~~We expect our existing cash, cash equivalents and investments will enable us to fund our current operating plan and capital expenditure requirements into the second half of 2018.~~programs. Our future capital requirements will depend on many factors, including:

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the scope, progress and results of our ongoing and potential future clinical trials;

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the extent to which we acquire or ~~in‑license~~in-license other product candidates and technologies;

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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);

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~~the costs and timing of commercialization activities for the product candidates for which we~~ ~~expect to receive marketing approval;~~

revenue ~~if any,~~ received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property related claims; and

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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,~~ ~~including duvelisib. Though we submitted an NDA for duvelisib in February 2018, the NDA may not be accepted or approved by the FDA, and even if approved, duvelisib may not achieve commercial success.~~candidates. Our commercial revenues ~~if any,~~ will be derived from sales of ~~products, such as duvelisib, that may not be commercially available for several years, if at all. Accordingly, even if we receive regulatory approval of one of our product candidates, such as duvelisib, it~~products. It will take several years to achieve ~~peak~~ sales,, and we will need to continue to rely on additional financing to further our clinical development objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

Our ability to use our net operating loss carry-forwards may be limited.

~~Raising additional capital or entering into~~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 ~~licensing arrangements may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.~~

Based on our ~~existing stockholders~~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 ~~diluted,~~limited as of December 31, 2020. The portion of research and ~~the terms~~development and orphan drug credits that were determined to be limited by

Table of ~~these securities may include liquidation or other preferences that adversely affect the rights~~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 ~~existing stockholders. To~~control, could result in ownership changes in the ~~extent that we enter into certain licensing arrangements, the ownership interest~~future. We may not be able to use some or all of our ~~existing stockholders may be diluted~~NOL and tax credit carryforwards, even if we elect to make certain payments in shares of our common stock. For example, pursuant to the terms of our license agreement with Infinity, we may elect to make certain milestone payments in shares of common stock in lieu of cash, according to a formula set forth in the license agreement. 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 “Risksattain profitability.

Risks Related to Our ~~Indebtedness.”~~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.

~~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~~.operations.

~~In March 2017,~~As of December 31, 2020, we entered into a Loan and Security Agreement with Hercules, which was subsequently amended in January and March 2018. Under the Loan and Security Agreement, as amended (the Amended Loan Agreement), Hercules will provide access to term loans withhad an aggregate principal ~~amount~~ of ~~up to $50.0 million. Under the Amended Loan Agreement, we borrowed an initial tranche~~$28.3 million of ~~$2.5~~debt outstanding, consisting of $0.3 million in ~~March 2017, we drew an additional $7.5~~2018 Notes and $28.0 million ~~in October 2017, and in December 2017 we drew an additional $5.0 million.~~ of 2020 issued 5.00% Convertible Senior Notes due 2048 (the 2020 Notes).

All obligations under the Amended Loan Agreement are secured by substantially all of our existing property and assets, excluding our intellectual property. This indebtedness may create additional financing risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity. This indebtedness could also have important negative consequences, ~~including:~~

we will need to repay our indebtedness by making payments of interest and principal, which will reduce the amount of money available to finance our operations, our research and development efforts and other general corporate activities; and

~~our failure to comply with the restrictive covenants in the Amended Loan Agreement could result in an~~

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event of default that, if not cured or waived, would accelerate our obligation to repay this indebtedness, and Hercules could seek to enforce their security interest in the assets securing such indebtedness.

~~To the extent additional debt is added to our current debt levels, the risks described above could increase.~~

We may not have cash available in an amount sufficient to enable us to make interest or principal payments on 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 ~~Amended Loan Agreement,~~Indentures or breaching any covenants under the ~~Amended Loan Agreement,~~Indentures subject to specified cure periods with respect to certain breaches, could result in an event of default and, as a result, ~~Hercules~~ 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 ~~Amended Loan Agreement as a result of an event of default,~~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 ~~commercialization efforts or~~ grant to others the rights to develop and market our product candidates that we would otherwise prefer to develop and market internally. Hercules could also exercise its rights as collateral agent to take possession and dispose of the collateral securing the term loans for its benefit, which collateral includes substantially all of our property other than our intellectual property. 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.

~~The Amended Loan Agreement imposes~~ ~~operating and other restrictions~~Risks Related to Our Dependence on ~~us.~~ ~~Such restrictions will affect, and in many respects limit or prohibit, our ability and the ability of any future subsidiary to, among other things~~:Third Parties

~~dispose of certain assets;~~

~~change our lines of business;~~

~~engage in mergers, acquisitions or consolidations;~~

~~incur additional indebtedness;~~

~~create liens on assets;~~

~~pay dividends and make distributions or repurchase our capital stock; and~~

~~engage in certain transactions with affiliates.~~

~~RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIES~~

We rely in part on third parties to conduct our clinical trials and preclinical testing, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for and commercialize any of our other product candidates.

We rely on third parties, such as ~~contract research organizations (CROs),~~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

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requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other

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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~~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 ~~and, if necessary, commercial~~ quantities of our product candidates. In addition, we currently rely on third parties for the development of various formulations of our product candidates. ~~We obtain our supplies from these manufacturers on a purchase order basis, and we do not have any long term supply agreements in place.~~ 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.

~~Any of these third parties may terminate their engagement with us at any time.~~ We do not currently have arrangements in place for redundant supply or a second source for bulk drug ~~substance.~~substance or drug product. Even ifthough we ~~are able to establish~~have supply agreements in place with our third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

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reliance on the third party for regulatory compliance and quality assurance;

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the possible breach of the manufacturing agreement by the third party, including the misappropriation of

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our proprietary information, trade secrets and know how;

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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.~~product and obtaining regulatory approvals for the new manufacturer. In addition, we have to enter into technical transfer agreements and share our ~~know how~~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

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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~~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.

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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 ~~these~~our product candidates.

We may seek third-party collaborators for the development and commercialization of our product candidates. ~~We anticipate that we may seek to enter into a collaboration for marketing and commercialization of our product candidates in certain territories worldwide at the appropriate time in the future.~~ Our likely collaborators for any collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. If we do enter into any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our ~~collaborators’~~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:

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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

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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~~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;

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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;

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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;

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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

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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.

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Risks Related to Our Intellectual Property

~~RISKS RELATED TO OUR INTELLECTUAL PROPERTY~~

If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are a party to a number of intellectual property license agreements with third parties, including ~~Infinity~~Pfizer and ~~Pfizer,~~Chugai, and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. For example, under our license agreements with ~~Infinity~~Pfizer and ~~Pfizer,~~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 ~~Infinity~~Chugai were to terminate its license agreement with us for any reason, we ~~would~~could lose our rights to ~~duvelisib.~~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’~~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

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issuance, scope, validity, enforceability and commercial value of our and our ~~licensors’~~licensors' patent rights are highly uncertain. Our and our ~~licensors’~~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, ~~not~~ 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~~

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~~issuance~~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.

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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~~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

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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~~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

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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.

~~Table~~Risks Related to Achieving Regulatory Approval of ~~Contents~~

Our Product Candidates and Other Legal Compliance Matters

~~RISKS RELATED TO 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 ~~duvelisib, or any of~~ our product candidates, we will not be able to commercialize ~~duvelisib, or any~~ such ~~other~~ candidates, and our ability to generate revenue will be materially impaired.

~~Though we submitted an NDA for duvelisib in February 2018, the NDA may not be accepted or approved by the FDA.~~ Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. ~~Duvelisib and the~~The activities associated with ~~its~~a product candidate's development and commercialization, including its design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution ~~as with our other product candidates,~~ 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 ~~duvelisib~~product candidates will prevent us from commercializing ~~duvelisib.~~such product candidates. We have not received approval to market any of our current product candidates from regulatory authorities in any ~~jurisdiction.~~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~~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. ~~Duvelisib~~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 ~~duvelisib,~~a product candidate, its commercial prospects may be harmed and our ability to generate revenues will be materially impaired.

We have received orphan ~~disease status~~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 the European Union for the use of duvelisib in CLL/SLL and FL,~~ 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. ~~If duvelisib or defactinib obtains marketing authorization, it will receive orphan drug exclusivity.~~ 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. ~~A competitor may receive orphan drug marketing authorization prior to us for the same indication for which we are developing duvelisib or defactinib.~~ Other companies have received orphan drug designations for compounds other than ~~duvelisib or~~ defactinib for the same indications for which we may have received orphan drug designation in corresponding

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territories. While orphan drug exclusivity for ~~duvelisib or~~ defactinib ~~would provide~~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 ~~initial~~orphan designation criteria ~~have significantly changed since~~are no longer met or if the drug is sufficiently profitable so that market authorization of the orphan medicinal product. We cannot guarantee that another company also with orphan drug designation will not receive marketing authorization for the same active ingredient and same indication before we do. If that were to

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~~happen, our applications for that indication may not be approved until the competing company’s period of~~ exclusivity ~~has expired.~~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.

~~Though we have received~~We may seek fast track designation ~~by the FDA~~ for ~~duvelisib in certain indications, that~~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.

~~The FDA has granted~~Any sponsor may seek fast track designation ~~to the investigation of duvelisib~~ for ~~the treatment of patients with FL who have received at least two prior therapies and for the potential treatment of patients with CLL who have received at least one prior therapy. Any~~a drug ~~sponsor may apply for such designation~~ if ~~its product candidate~~it is intended for the treatment of a serious ~~or life-threatening disease or~~ condition and ~~the product candidate demonstrates~~nonclinical or clinical data demonstrate the potential to address an unmet medical ~~need. The~~need for this condition, a drug sponsor may apply for FDA ~~has broad discretion whether or not to grant~~ fast track designation. ~~Although duvelisib has received such~~If we seek fast track designation ~~this~~for a product candidate, we may not ~~actually result in~~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 ~~process,~~or regulatory review or approval process with fast track designation compared to ~~standard~~conventional FDA procedures. ~~The~~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~~program. Fast track designation alone does not ~~continue to meet~~guarantee qualification for the ~~criteria for fast track designation.~~ 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, ~~for example, if we obtain marketing approval for duvelisib,~~ 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’~~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:

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restrictions on such products, manufacturers or manufacturing processes;

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restrictions on the labeling or marketing of a product;

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restrictions on product distribution or use;

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requirements to conduct post marketing clinical trials;

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warning or untitled letters;

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withdrawal of the products from the market;

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refusal to approve pending applications or supplements to approved applications that we submit;

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recall of products;

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fines, restitution or disgorgement of profits or revenue;

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suspension or withdrawal of marketing approvals;

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refusal to permit the import or export of our products;

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product seizure; or

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injunctions or the imposition of civil or criminal penalties.

The ~~FDA’s~~FDA's and other regulatory ~~authorities’~~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 ~~customers~~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 ~~our~~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:

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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;

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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;

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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;

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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;

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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;

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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;

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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;

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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;

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federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

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the so-called federal ~~“sunshine law”~~"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 ~~hospitals,~~hospital and, beginning with transfers of value occurring in 2021, other healthcare practitioners, as well as ~~physician~~ ownership and investment ~~interests;~~interests held by physicians and

their immediate family members; and

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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-

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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~~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 ~~are~~is found to be not in compliance with applicable laws, they may be subject to criminal, civil or

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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 ~~extending~~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.

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~~Since its enactment,~~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 ~~ongoing judicial,~~a number of legislative ~~and administrative efforts~~initiatives to modify, repeal and/or ~~prevent implementation of various provisions~~replace portions of the ~~Health Care~~Healthcare Reform ~~Act. See “GOVERNMENT REGULATION – New Legislation and Regulations.” We cannot predict the ultimate content, timing or effect of any federal or state healthcare~~Act. Tax reform legislation orenacted at the ~~impact~~end of ~~potential legislation on us.~~

In addition, other legislative changes have been proposed and adopted in the U.S. since the Health Care Reform Act was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to the Bipartisan Budget Act of 2015, will remain in effect through 2025 unless additional action is taken by Congress. Recent tax reform legislation eliminates2017 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

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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, ~~(the so-called “individual mandate”).~~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 ~~or patient reimbursement~~ constraints, ~~discounts,~~ restrictions on ~~certain product access and~~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. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs.

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 ~~if any,~~ may be. In addition, increased scrutiny by the U.S. Congress of the ~~FDA’s~~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~~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.

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We are highly dependent on ~~Robert Forrester, our President and~~Brian Stuglik, Chief Executive Officer, Daniel Paterson, our President and Chief Operating Officer, and ~~Joseph Lobacki,~~Robert Gagnon, our Chief ~~Commercial Officer, as well as the other principal members of our management~~Business and ~~scientific teams.~~Financial Officer. Although we have formal employment agreements with ~~Robert Forrester,~~Brian Stuglik, Daniel Paterson, and ~~Joseph Lobacki,~~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.

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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~~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

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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 ~~effected~~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”~~"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.

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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 ~~$1.05~~$0.83 through ~~February 28, 2018.~~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”~~"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

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companies. Such litigation, if instituted against us, could result in substantial costs and diversion of ~~management’s~~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.~~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 ~~The~~ Nasdaq ~~Global Market~~ 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.

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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 ~~if any,~~ 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.”

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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.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We occupy approximately ~~15,197~~27,810 square feet of office ~~and laboratory~~ space in Needham, Massachusetts under a lease that expires in ~~September 2019.~~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.

~~None.~~

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities

MARKET INFORMATION

Our common stock is publicly traded on The Nasdaq Global Market under the symbol “VSTM.” ~~The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on The Nasdaq Global Market.~~

Year ended December 31, 2017

High

Low

First quarter

$
2.25

$
1.11

Second quarter

$
2.54

$
1.61

Third quarter

$
5.71

$
2.11

Fourth quarter

$
4.92

$
2.95

Year ended December 31, 2016

High

Low

First quarter

$
1.89

$
1.05

Second quarter

$
1.93

$
1.19

Third quarter

$
1.66

$
1.27

Fourth quarter

$
1.55

$
1.05

HOLDERS

As of February ~~28, 2018,~~26, 2021 there were 1610 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 ~~$3.06.~~$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.

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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, ~~2012~~2015 through December 31, ~~2017.~~2020. The comparison assumes $100 was invested after the market closed on December 31, ~~2012~~2015 in our common stock and in each of the foregoing indices, and it assumes reinvestment of dividends, if any.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*61

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~~Among Verastem, Inc., the Nasdaq Composite Index, and the Nasdaq Biotechnology Index~~

*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends. Fiscal year ending December 31, 2017.

Cumulative Total Return Comparison

December 31,


2012

2013

2014

2015

2016

2017

Verastem, Inc.

100.00

129.69

103.98

21.16

12.74

34.93

Nasdaq Composite

100.00

141.63

162.09

173.33

187.19

242.29

Nasdaq Biotechnology

100.00

174.05

230.33

244.29

194.95

228.29


	December 31,
	2015	2016	2017	2018	2019	2020
Verastem, Inc.	100.00	60.22	165.05	180.65	72.04	114.52
NASDAQ Composite	100.00	108.87	141.13	137.12	187.44	271.64
NASDAQ Biotechnology	100.00	78.65	95.66	87.19	109.08	137.90

PURCHASE OF EQUITY SECURITIES

We did not purchase any of our equity securities during the period covered by this Annual Report on Form ~~10‑K.~~10-K.

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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~~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.~~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.



	Year ended December 31,


											Year ended December 31,
Statement of operations data:	2017		2016		2015		2014		2013		2020		2019		2018		2017		2016
	(in thousands, except share and per share amounts)
											(in thousands, except share and per share amounts)
Revenue:
Product revenue, net											$	15,232	$	12,339	$	1,718	$	—	$	—
License and collaboration revenue												2,912		5,117		25,000		—		—
Sale of COPIKTRA license and related assets												70,000		—		—		—		—
Transition services revenue												372		—		—		—		—
Total revenue												88,516		17,456		26,718		—		—
Operating expenses:
Cost of sales - product											$	1,765	$	1,238	$	165	$	—	$	—
Cost of sales - intangible amortization												793		1,569		423		—		—
Cost of sales - sale of COPIKTRA license and related assets												31,187		—		—		—		—
Research and development	$	46,423	$	19,779	$	40,565	$	35,448	$	25,930		41,376		45,778		43,648		46,423		19,779
General and administrative		21,381		17,223		17,634		18,159		15,472
Selling, general and administrative												62,755		101,212		77,265		21,381		17,223
Total operating expenses		67,804		37,002		58,199		53,607		41,402		137,876		149,797		121,501		67,804		37,002
Loss from operations		(67,804)		(37,002)		(58,199)		(53,607)		(41,402)		(49,360)		(132,341)		(94,783)		(67,804)		(37,002)
Other (expense)/ income												(1,313)		(641)		25,556		—		—
Interest income		561		562		334		242		200		515		4,381		2,603		561		562
Interest expense		(559)		—		—		—		—		(15,794)		(20,608)		(5,810)		(559)		—
Net loss applicable to common stockholders	$	(67,802)	$	(36,440)	$	(57,865)	$	(53,365)	$	(41,202)
Net loss per share applicable to common stockholders—basic and diluted	$	(1.76)	$	(0.99)	$	(1.61)	$	(2.07)	$	(1.82)
Weighted‑average number of common shares used in net loss per share applicable to common stockholders—basic and diluted		38,422		36,988		35,932		25,804		22,680
Loss on debt extinguishment												(1,580)		—		—		—		—
Net loss before income taxes												(67,532)		(149,209)		(72,434)		(67,802)		(36,440)
Income tax expense												(194)		—		—		—		—
Net loss											$	(67,726)	$	(149,209)	$	(72,434)	$	(67,802)	$	(36,440)
Net loss per share—basic											$	(0.44)	$	(2.00)	$	(1.12)	$	(1.76)	$	(0.99)
Net loss per share—diluted											$	(0.44)	$	(2.00)	$	(1.37)	$	(1.76)	$	(0.99)
Weighted average common shares outstanding used in computing:
Net loss per share—basic												153,330		74,578		64,962		38,422		36,988
Net loss per share—diluted												153,330		74,578		69,321		38,422		36,988


	As of December 31,

											As of December 31,
Balance sheet data:	2017		2016		2015		2014		2013		2020		2019		2018		2017		2016
	(in thousands)
											(in thousands)
Cash, cash equivalents and investments	$	86,672	$	80,897	$	110,258	$	92,675	$	123,656	$	147,221	$	75,506	$	249,653	$	86,672	$	80,897
Working capital		70,659		70,304		100,734		86,112		94,151		127,845		55,071		216,182		70,659		70,304
Total assets		89,791		83,629		113,094		98,649		125,261		154,349		145,046		277,236		89,791		83,629
Total debt												19,051		103,623		120,453		14,828		—
Accumulated deficit		(303,142)		(235,323)		(198,883)		(141,018)		(87,653)		(592,511)		(524,785)		(375,576)		(303,142)		(235,323)
Total stockholders’ equity		57,684		72,297		102,469		88,766		117,446		115,274		7,174		124,299		57,684		72,297

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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.~~10-K. The following discussion contains ~~forward‑looking~~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~~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~~“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 ~~developing and commercializing~~novel small molecule drugs ~~to improve with the~~that inhibit critical signaling pathways in cancer that promote cancer cell survival and ~~quality of life of cancer~~ ~~patients.~~ tumor growth, particularly RAF/MEK inhibition and FAK inhibition.

Our most advanced product candidates, ~~duvelisib~~VS-6766 and defactinib, ~~utilize a multi-faceted approach to treat cancers originating either in the blood or major organ systems. We~~ are ~~currently evaluating these compounds~~being investigated in both preclinical and clinical studies ~~as potential therapies~~ for ~~certain cancers,~~treatment of various solid tumors, including, ~~leukemia, lymphoma,~~low-grade serous ovarian cancer, non-small cell lung cancer, ~~ovarian~~colorectal cancer, ~~mesothelioma,~~pancreatic cancer, uveal melanoma, and ~~pancreatic~~endometrial cancer. We believe that these compounds may be beneficial as therapeutics either as single agents or when used together in combination with ~~immuno-oncology~~other agents, other pathway inhibitors or other current and emerging standard of care treatments in ~~aggressive~~ cancers that ~~are poorly served by~~do not adequately respond to currently available therapies.

~~Duvelisib targets~~On August 10, 2020, we and Secura Bio, Inc. (Secura) signed an Asset Purchase Agreement (Secura APA) and on September 30, 2020, the ~~Phosphoinositide 3-kinase (PI3K)~~ ~~signaling pathway. The PI3K signaling pathway plays a central role in cancer proliferation and survival. Duvelisib is an investigational oral therapy designed~~transaction closed. Pursuant to ~~attack both malignant B- and T-cells and disrupt~~ the ~~tumor microenvironment~~ ~~to help thwart their growth and proliferation through the dual inhibition of PI3K delta and gamma. Duvelisib is being developed~~Secura APA, we sold our exclusive worldwide license for the ~~treatment~~research, development, commercialization, and manufacture in oncology indications of ~~patients with hematologic cancers including chronic lymphocytic leukemia~~products containing duvelisib. Refer to Note 16 License, collaboration and ~~small lymphocytic lymphoma (CLL/SLL) and indolent~~ non-Hodgkin lymphoma (iNHL), which includes follicular lymphoma (FL), and other subtypes of lymphoma, including peripheral T-cell lymphoma (PTCL). Duvelisib has U.S. Food and Drug Administration (FDA) Fast Track Designationcommercial agreements for patients with CLL or PTCL who have received at least one prior therapy and for patients with FL who have received at least two prior therapies. In addition, duvelisib has orphan drug designation for patients with CLL/SLL and FL in the United States and European Union.

~~Duvelisib was evaluated in late- and mid-stage clinical trials, including DUO™,~~ a ~~randomized, Phase 3 monotherapy study in patients with relapsed or refractory CLL/SLL, and DYNAMO™, a single-arm, Phase 2 monotherapy study in patients with double-refractory iNHL~~, including FL, SLL, and marginal zone lymphoma (MZL). Both DUO and DYNAMO achieved their primary endpoints upon top-line analysis of efficacy data. We submitted a New Drug Application (NDA) to the FDA requesting the full approval of duvelisib for the treatment of patients with ~~relapsed or refractory CLL/SLL and accelerated approval for the treatment of patients with relapsed or refractory FL in~~ ~~February 2018.~~

~~Defactinib is a targeted inhibitor~~detailed description of the ~~Focal Adhesion Kinase (FAK) signaling pathway. FAK is a non-receptor tyrosine kinase encoded by~~terms and conditions of the ~~PTK-2 gene that is involved in cellular adhesion~~Secura APA. With the transition of the duvelisib program to Secura, we are focusing our efforts on our lead product candidates, VS-6766 and ~~in cancer, metastatic capability. Similar to duvelisib, defactinib is also orally available and designed to be a potential therapy for patients to take at home under the advice of their physician.Defactinib has orphan drug designation in ovarian cancer in the United States and the European Union, and in mesothelioma in the United States, the European Union, and Australia.~~defactinib.

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Defactinib is currently being evaluated in a Phase 1b study in combination with Merck & Co.’s PD-1 inhibitor pembrolizumab and gemcitabine in patients with advanced pancreatic cancer, a Phase 1/2 clinical collaboration with Pfizer Inc. (Pfizer) and Merck KGaA to evaluate defactinib in combination with avelumab, an anti-PD-L1 antibody, in patients with ovarian cancer, and a Phase 1/2 study in collaboration with Cancer Research UK and Merck & Co. for the combination of defactinib with pembrolizumab in patients with non-small cell lung cancer (NSCLC), mesothelioma or pancreatic cancer.

Our operations to date have been organizing and staffing our company, business planning, raising capital, identifying and acquiring potential product candidates, ~~and~~ undertaking preclinical studies and clinical trials for our product ~~candidates. To date, we have not generated any revenues.~~candidates and initiating U.S. commercial operations following the approval of COPIKTRA. We have financed our operations to date primarily through ~~private placements of preferred stock,~~ public offerings of our common stock, sales of common stock under our at-the-market equity offering programs, ~~and~~ our loan and security agreement executed with Hercules Capital, Inc. (Hercules) in March 2017, as ~~amended.~~ 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, ~~2017,~~2020, we had an accumulated deficit of ~~$303.1~~$592.5 million. Our net loss was ~~$67.8~~$67.7 million, ~~$36.4~~$149.2 million, and ~~$57.9~~$72.4 million, for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively. We expect to incur significant expenses and ~~increasing~~ operating losses for the foreseeable ~~future.~~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 ~~expenses~~existing cash resources will be sufficient to ~~increase in connection~~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 ~~ongoing activities, particularly as~~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 ~~seek marketing~~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.

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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 ~~lead product candidate,~~license and collaboration agreements for the development and commercialization of duvelisib with Sanofi in the Sanofi Territory, CSPC in China and ~~continue the~~Yakult in Japan. The terms of these agreements contain multiple deliverables which may include (i) licenses, (ii) research and development activities, and ~~clinical trials~~(iii) the manufacture of ~~all of our~~finished drug product, ~~candidates. In addition, if we obtain marketing approval~~active pharmaceutical ingredient (API), or development materials for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be availablea partner, which are reimbursed at a contractually determined rate. Payments to us ~~on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our~~may include (i) up‑front license fees, (ii) payments for research and development ~~programs~~activities, (iii) payments for the manufacture of finished drug product, API or ~~any future commercialization efforts. We will need~~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 ~~generate significant revenues to achieve profitability, and we may never do so.~~

~~FINANCIAL OPERATIONS OVERVIEW~~

~~Revenue~~

To date we have ~~not~~been generated ~~any revenues. Our ability to generate product revenues will depend heavily on the successful development and potential commercialization~~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 ~~candidates.~~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:

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~~employee‑related~~employee-related expenses, including salaries, benefits, travel and ~~stock‑based~~stock-based compensation expense;

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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;

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license fees;

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~~license fees; and~~

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facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of ~~leasehold improvements and~~ equipment, and laboratory supplies; and ~~other supplies.~~

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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 ~~expense~~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 ~~to operations~~of manufacturing COPIKTRA drug product expensed as ~~incurred. We account for nonrefundable advance payments for goods and services that will be used in future~~ research and development ~~activities~~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 ~~expenses when~~regulatory approval became probable. For the ~~service has been performed or when the goods have been received, rather than when the payment is made.~~

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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 ~~duvelisib~~COPIKTRA and defactinib, for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015.~~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 ~~$5.8~~$8.9 million, ~~$3.9~~$11.3 million and ~~$7.3~~$9.2 million of personnel costs for the years ended December 31, ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.


	Year ended December 31,
	2017		2016		2015
	(in thousands)		(in thousands)		(in thousands)
Duvelisib	$	30,409	$	3,326	$	—
Defactinib		2,894		3,934		20,713

							Year ended December 31,
							2020		2019		2018
							(in thousands)		(in thousands)		(in thousands)
COPIKTRA							$	13,454	$	25,518	$	24,771
Defactinib/VS-6766								12,073		1,823		2,230
Unallocated and other research and development expense		11,739		11,445		17,442		13,914		16,936		14,604
Unallocated stock-based compensation expense		1,381		1,074		2,410		1,935		1,501		2,043
Total research and development expense	$	46,423	$	19,779	$	40,565	$	41,376	$	45,778	$	43,648

~~We anticipate that our~~Our research and development expenses ~~will~~may increase significantly in future periods as we undertake costlier development activities for our existing and future product candidates, including larger and ~~later‑stage~~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:

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clinical trial results;

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the scope, rate of progress and expense of our research and development activities, including preclinical research and clinical trials;

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the potential benefits of our product candidates over other therapies;

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our ability to market, commercialize and achieve market acceptance for COPIKTRA or any of our other product candidates that we receive regulatory approval for;

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the terms and timing of regulatory approvals; and

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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.

~~General~~Selling, general and administrative expenses

~~General~~Selling, general and administrative expenses consist primarily of salaries and related costs for personnel, including ~~stock‑~~stock-based compensation expense, in our executive, finance, legal, information technology, commercial, communication, human resources, and business development functions. Other selling, general and

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administrative expenses include allocated facility costs, ~~and~~commercial costs, professional fees for legal, patent, investor and public relations, consulting, insurance premiums, audit, tax and other public company costs.

~~Interest~~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~~. 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 ~~stock‑based compensation~~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.~~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.

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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.

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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:

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Receipt of damaged product;

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Shipment errors that were a result of an error by us;

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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;

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Product subject to a recall; and

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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.

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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.

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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

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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.

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~~Stock‑based~~Stock-based compensation

We recognize ~~stock‑based~~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~~straight-line basis over the requisite service period. ~~We record~~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~~Black-Scholes option-pricing model. Determining the fair value of ~~share‑based awards~~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 ~~share‑based awards~~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 ~~share‑based~~stock-based compensation could be materially different in the future. The ~~risk‑free~~risk-free interest rate used for each grant is based on a U.S. Treasury instrument whose term is consistent with the expected term of the stock option. Because we do not have a sufficient ~~history~~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. Because there was no public market for our common stock prior to our initial public offering, we lacked company‑specific historical and implied volatility information. Therefore, we used the historical volatility of a representative group of public biotechnology and life sciences companies with similar characteristics to us. Our currentgrant, The computation of expected volatility is based on the historical volatility of ~~five companies, including~~ our ~~own and a representative group of four public biotechnology and life sciences companies with similar characteristics to us, including similar stage of product development and therapeutic focus.~~common stock. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. ~~Historically, we have recognized stock-based compensation net of estimated forfeitures over the vesting period of the respective grant.~~ ~~Effective January 1, 2017, we adopted Accounting Standard Updated (ASU) 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified the accounting for stock-based compensation arrangements, including the accounting for forfeitures. Upon adoption, we elected to begin accounting~~We account for forfeitures as they ~~occur, rather than estimating a forfeiture rate,~~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 ~~recorded an immaterial cumulative-effect adjustment to opening accumulated deficit.~~ is recognized as compensation expense over the offering period.

We have also granted ~~performance‑based~~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~~performance-based milestones as specified in the grants. ~~Share‑based~~Stock-based compensation expense associated with these ~~performance‑based~~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~~performance-based milestones. If the actual achievement of the ~~performance‑based~~performance-based milestones varies from our estimates, ~~share‑based~~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~~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 ~~share‑based~~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 ~~share‑based~~stock-based compensation expense could vary significantly from period to period.

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As of December 31, ~~2017,~~2020, there was approximately ~~$6.8~~$7.1 million of unrecognized ~~stock‑based~~stock-based compensation related to stock options, which are expected to be recognized over a ~~weighted‑average~~weighted-average period of ~~2.9~~2.6 years. ~~There is no~~As of December 31, 2020, there was approximately $3.8 million of unrecognized ~~stock‑based~~stock-based compensation related to RSUs, ~~or restricted common stock.~~which are expected to be recognized over a weighted-average period of 1.5 years. See ~~Notes~~Note 2. Significant accounting policies and 7Note 11. Stock-based compensation to our consolidated financial statements located in this Annual Report on Form ~~10‑K~~10-K for further discussion of ~~share‑based~~stock-based compensation.

Intangible Assets

70We 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.

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RESULTS OF OPERATIONS

All financial information presented has been consolidated and includes the accounts of our wholly-owned ~~subsidiary,~~subsidiaries, Verastem Securities ~~Company.~~Company and Verastem Europe GmbH. All intercompany balances and transactions have been eliminated in consolidation.


	Year Ended December 31,
	2020		2019		2018
Revenue:
Product revenue, net		15,232		12,339		1,718
License and collaboration revenue		2,912		5,117		25,000
Sale of COPIKTRA license and related assets		70,000		—		—
Transition services revenue		372		—		—
Total revenue		88,516		17,456		26,718
Operating expenses:
Cost of sales - product	$	1,765	$	1,238	$	165
Cost of sales - intangible amortization		793		1,569		423
Cost of sales - sale of COPIKTRA license and related assets		31,187		—		—
Research and development		41,376		45,778		43,648
Selling, general and administrative		62,755		101,212		77,265
Total operating expenses		137,876		149,797		121,501
Loss from operations		(49,360)		(132,341)		(94,783)
Other (expense)/ income		(1,313)		(641)		25,556
Interest income		515		4,381		2,603
Interest expense		(15,794)		(20,608)		(5,810)
Loss on debt extinguishment		(1,580)		—		—
Net loss before income taxes		(67,532)		(149,209)		(72,434)
Income tax expense		(194)		—		—
Net loss	$	(67,726)	$	(149,209)	$	(72,434)

Comparison of the Year Ended December 31, ~~2017~~2020 to the Year Ended December 31, ~~2016~~2019

~~Research and development expense.~~ ~~Research and development expense~~Product revenue, net. Product revenue net for the year ended December 31, ~~2017 (2017~~2020 (2020 Period) was ~~$46.4~~$15.2 million compared to ~~$19.8~~$12.3 million for the year ended December 31, ~~2016 (2016~~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 ~~$26.6~~$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 CSPCduring 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

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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 ~~2016~~2019 Period to the ~~2017~~2020 Period was primarily related to ~~an increase~~a decrease of ~~$13.4~~$7.7 million in ~~external~~ CRO ~~expense for outsourced biology, chemistry, development and clinical services, which includes our clinical trial~~ costs, ~~the achievement of a $6.0~~$2.0 million ~~milestone pursuant to our license agreement with Infinity, an increase of $5.1 million in consulting fees, an increase~~ in personnel related costs, including non-cash stock-based compensation as a result of ~~$1.9 million, and a net~~reduced headcount, partially offset by an increase of ~~approximately $243,000~~$3.0 million of license fees due to a non-refundable payment of $3.0 million to Chugai in ~~stock-based compensation~~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 ~~expenses.~~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.

~~General~~Selling, general and administrative expense. ~~General~~ Selling, general and administrative expense for the ~~2017~~2020 Period was ~~$21.4~~$62.8 million compared to ~~$17.2~~$101.2 million for the ~~2016~~2019 Period. The ~~increase~~decrease of ~~$4.2~~$38.4 million from the ~~2016~~2019 Period to the ~~2017~~2020 Period primarily resulted from ~~increases~~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 ~~including $2.5~~for the 2019 Period. The decrease of $3.9 million related to commercial launch preparation, an increase in personnel costs of $1.0 million and an increase in facilities and other expenses of approximately $200,000. These increases were partially offset by a decrease in stock-based compensation expense of $1.5 million.

~~Interest income.~~ ~~Interest income remained flat~~ from the ~~2016~~2019 Period to the ~~2017~~2020 period was primarily due to lower investment cost basis and lower interest rates on investments.

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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 ~~higher~~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 ~~rates~~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 ~~investments~~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 ~~2017 Period, offset by a lower investment cost basis.~~2019 Period.

~~Interest~~Income tax expense. ~~Interest~~Income tax expense for the ~~2017~~2020 Period ~~was approximately $559,000~~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. We did not incur any interest expense~~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 ~~2016 Period.~~

~~Comparison~~United States in September 2018, we had recently begun financing a portion of ~~the Year Ended December 31, 2016 to the Year Ended December 31, 2015~~

~~Research and development expense.~~ Research and development expense for the 2016 Period was $19.8 million compared to $40.6 million for the year ended December 31, 2015 (2015 Period). The $20.8 million decrease from the 2015 Period to the 2016 Period was primarily related to a decrease of $15.6 million in external CRO expense for outsourced biology, chemistry, development and clinical services, which includes our clinical trial costs, a $3.4 million decrease in personnel related costs, primarily due to the reduction in workforce in October 2015, a decrease of $1.3 million in stock-based compensation expense and a decrease of $1.5 million in lab supplies, travel and other research and development expense. These decreases were partially offset by an increase of approximately $947,000 in consulting and professional fees.

~~General and administrative expense.~~ General and administrative expense for the 2016 Period was $17.2 million compared to $17.6 million for the 2015 Period. The approximate $411,000 decrease from the 2015 Period to the 2016 Period primarily resulted from a decrease of $2.1 million in stock-based compensation expense. This decrease was partially offset by increases of $1.1 million in consulting and professional fees, approximately $280,000 in personnel costs, and a net increase of approximately $306,000 of other general and administrative costs.

~~Interest income.~~ Interest income increased to approximately $562,000 for the 2016 Period from approximately $334,000 for the 2015 Period. This increase was primarily due to higher interest rates on investments in the 2016 Period compared to the 2015 Period.

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~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Sources of liquidity~~

~~To date, we have not generated any revenues. We have financed~~ our operations ~~to date~~ through private placements of preferred stock, public offerings of our common stock, sales of common stock under our at-the market equity offering programs, and our loan and security agreement executed with Hercules in March 2017, as amended.

product revenue. As of December 31, ~~2017,~~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.

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As of December 31, 2020, we had ~~$86.7~~$147.5 million in cash, cash equivalents, restricted cash and investments. We primarily invest our cash, cash equivalents and investments in a U.S. Government money market ~~fund and~~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):


	Year ended December 31,
	2017		2016		2015

							Year ended December 31,
							2020		2019		2018
Net cash (used in) provided by:
Operating activities	$	(57,310)	$	(29,484)	$	(45,559)	$	(33,506)	$	(138,518)	$	(74,515)
Investing activities		43,953		36,968		(27,057)		(47,363)		89,613		(138,377)
Financing activities		63,184		(5)		63,585		69,630		(2,441)		261,162
Increase in cash and cash equivalents	$	49,827	$	7,479	$	(9,031)
(Decrease) increase in cash, cash equivalents and restricted cash							$	(11,239)	$	(51,346)	$	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 $27.8 million increase in cash used in operating activities for the 2017 Period compared to the 2016 Period was primarily due to an increase in research and development expenses related to our license agreement with Infinity, including our ongoing clinical trials and the achievement of a $6.0 million milestone in the 2017 Period. The $16.1$105.0 million decrease in cash used in operating activities for the ~~2016~~2020 Period compared to the ~~2015~~2019 Period was primarily due to a decrease in ~~research~~net loss primarily driven by increased revenue, and ~~development~~decreased selling, general and administrative expenses, ~~related to our ongoing clinical trials, including the closeout~~and a net decrease in components of ~~our COMMAND trial, and development of our lead product candidates.~~working capital.

Investing activities. The cash ~~provided~~used by investing activities for the ~~2017~~2020 Period ~~reflects~~relates to the net ~~maturities~~purchases of investments of ~~$44.0~~$47.3 million. The cash provided by investing activities for the ~~2016~~2019 Period ~~reflects~~relates to the net maturities of investments of ~~$37.0~~$89.6 million. ~~The cash used for investing activities for the 2015 Period primarily reflects the net purchases of investments of $26.8 million.~~

Financing activities. The cash provided by financing activities for the ~~2017~~2020 Period primarily represents ~~$24.7~~$93.8 million in net proceeds ~~received~~ from ~~an underwritten offering of 8,422,877 shares~~sales of our common stock ~~at a price of $2.97 per share with BTIG, LLC, $23.1~~under the Purchase Agreement described below, $12.2 million in net proceeds received under our at-the-market equity offering program, ~~$14.8~~and $3.0 million ~~in net~~of proceeds received ~~from a loan and security agreement executed with Hercules, and approximately $442,000 received from the~~related to exercise of stock options and employee stock purchase plan. This is partially offset by ~~approximately $138,000~~$37.4 million for repayment of ~~deferred financing costs. The~~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 in financing activities for the 2016 Period primarily represents approximately $5,000 used to satisfy the tax withholding obligations on certain RSUs that were net settled by employees. The cash provided by financing activities for the ~~2015~~2019 Period ~~primarily~~ 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 ~~$63.9~~the Amendment to the loan and security agreement with Hercules and $0.6 million ~~from~~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 ~~of shares~~price of our common stock ~~in our January 2015 follow-on offering and our at-the-market equity offering program, offset in part by approximately $417,000~~ of ~~cash used to satisfy the tax withholding obligations~~$1.91 per share on ~~certain RSUs that were net settled by employees.~~

February 27, 2020. On March ~~21, 2017 (Closing Date), we entered into a term loan facility~~3, 2020, the closing occurred. The aggregate proceeds net of ~~up to $25.0 million with Hercules, a Maryland corporation, the proceeds of which will be used for its ongoing research~~underwriting discounts and development programs and for general corporate purposes. The term loan facility is governed by a loan and security agreement, dated March 21, 2017 (the Original Loan Agreement), which originally provided for up to four separate advances, of which the first tranche of $2.5 million was drawn on the Closing Date. The second and third tranches of $2.5

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~~million and $5.0 million,~~offering costs, were both drawn on October 12, 2017 after announcing favorable data from our Phase III clinical study evaluating the safety and efficacy of duvelisib in patients with relapsed/refractory CLL/SLL. A total of $6.0 million of the proceeds received from the second and third tranches were used to make a milestone payment pursuant to our license agreement with Infinity. The fourth tranche consisted of $15.0 million that could be drawn, at our option and at the sole discretion of Hercules, on or prior to June 30, 2018. On December 20, 2017, we drew an advance under the fourth tranche of $5.0approximately $93.8 million.

~~On January 4, 2018, we entered into the First Amendment to the Original Loan Agreement (the First Amendment) and on~~In March 6, 2018, we entered into the Second Amendment to the Original Loan Agreement (the Second Amendment, and the Original Loan Agreement as amended by the First Amendment and the Second Amendment, the Amended Loan Agreement). The First Amendment increased the total borrowing limit under the Original Loan Agreement from up to $25.0 million to up to $50.0 million (the Term Loan). As $15.0 million in term loans had already been drawn prior to entering into the First Amendment, there is $35.0 million of borrowing capacity remaining under the Amended Loan Agreement. The remaining $35.0 million of borrowing capacity may be drawn in minimum increments of $5.0 million in multiple tranches comprised of (i) term loans (each a Term E Loan Advance) in an aggregate principal amount of up to $10.0 million and (ii) subject to Hercules’ sole discretion, term loans (each a Term F Loan Advance) in an aggregate principal amount of up to $25.0 million. The Amended Loan Agreement permits us to draw Term E Loan Advances subject to (i) the FDA accepting on or prior to September 30, 2018 our NDA for duvelisib and (ii) delivery of our financial and business projections to Hercules in form and substance reasonably acceptable to Hercules. In addition, the Amended Loan Agreement allows us to draw Term F Loan Advances subject to the prior drawing of all other tranches and Hercules’ sole discretion.

The Term Loan will mature on December 1, 2020 (Loan Maturity Date). Each advance accrues interest at a floating per annum rate equal to the greater of either (a) 10.5% or (b) the lesser of (i) 12.75% and (ii) the sum of (x) 10.5% plus (y) (A) the prime rate minus (B) 4.5%. The Term Loan provided for interest-only payments until November 1, 2018, which was extended to May 1, 2019 pursuant to the Amended Loan Agreement upon our receipt of a minimum of $20.0 million cash proceeds from a sale of equity securities in December 2017. Thereafter, amortization payments will be payable monthly in twenty installments of principal and interest (subject to recalculation upon a change in prime rates). Any advance may be prepaid in whole or in part upon seven business days’ prior written notice to Hercules, subject to a prepayment charge of 3.0%, if such advance is prepaid in any of the first twelve (12) months following the Closing Date, 2.0%, if such advance is prepaid after twelve (12) months following the Closing Date but on or prior to twenty-four (24) months following the Closing Date, and 1.0% thereafter. In addition, a final payment equal to 4.5% of the greater of (a) $5.0 million and (b) the total principal amount of the Term Loan extended by Hercules which is due on the Loan Maturity Date, or such earlier date specified in the Amended Loan Agreement. ~~Amounts outstanding during an event of default shall be payable on demand and shall accrue interest at an additional rate of 5.0% per annum of the past due amount outstanding.~~

The Term Loan is secured by a lien on substantially all of the assets of Verastem, Inc., other than intellectual property and contains customary covenants and representations, including a liquidity covenant, financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.

~~The events of default under the Amended Loan Agreement include, without limitation, and subject to customary grace periods, (1) any failure~~ ~~by us to make any payments of principal or interest under the Amended Loan Agreement, promissory notes or other loan documents, (2)~~ ~~any breach or default in the performance of any covenant under the Amended Loan Agreement, (3) any making of false or misleading~~ representations or warranties in any material respect, (4) our insolvency or bankruptcy, (5) certain attachments or judgments on the assets of Verastem, Inc., or (6) the occurrence of any material default under certain agreements or obligations of ours involving indebtedness, or (7) the occurrence of a material adverse effect. If an event of default occurs, Hercules is entitled to take enforcement action, including acceleration of amounts due under the Amended Loan Agreement.

~~The Amended Loan Agreement also contains other customary provisions, such as expense reimbursement and confidentiality. Hercules has indemnification rights and the right to assign the Term Loan.~~

~~In December 2013,~~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~~

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through Cantor Fitzgerald & Co. (Cantor), as sales agent (the 2013 ATM Program). In November 2014, we commenced sales under the 2013 ATM Program. During the year ended December 31, 2015, we sold 1,189,479 shares of common stock under the 2013 ATM Program with net proceeds (after deducting commissions and other offering expenses) of $12.9 million. No proceeds were received and no additional sales of our common stock were made under the 2013 ATM Program during the years ended December 31, 2017 and 2016.

On March 30, 2017, we terminated the 2013 ATM Program and established a new at-the-market equity offering program pursuant to which were able to offer and sell up to $35.0 million of our common stock at then-currentthen current market prices from time to time through Cantor Fitzgerald & Co. (Cantor) as sales ~~agent (the 2017 ATM Program). On~~agent. In August ~~28,~~ 2017, we amended our sales agreement with Cantor to increase the maximum aggregate offering price of shares of common stock that can be sold under the ~~2017 ATM Program~~at-the-market equity offering program to $75.0 million. ~~Through~~

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During the year ended December 31, ~~2017,~~2020, we sold ~~5,036,879~~6,769,559 shares under the ~~2017 ATM Program~~at-the market equity offering program for net proceeds of approximately ~~$23.1~~$12.2 million (after deducting commissions and other offering expenses).

As Through December 31, 2020, we have sold a total of ~~March 13, 2018, we sold an additional 97,078~~18,287,913 shares ~~of common stock~~ under ~~the at-the-market equity offering~~this program ~~with~~for net proceeds of approximately ~~$342,000~~$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.

InOn 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 ~~2015,~~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 ~~completed~~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 ~~follow-on~~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 ~~which we sold 8,337,500~~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 ~~the public at a~~an initial conversion price of ~~$6.50~~approximately $7.16 per share ~~including 1,087,500 shares~~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 ~~exercise~~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 ~~underwriters’~~conversion price on each of at least 20 “VWAP Trading Days” (as defined in the 2020

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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 ~~purchase additional shares.~~ 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 ~~net proceeds from this offering were $50.9~~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 ~~after deducting underwriting discounts~~ and ~~commissions.~~$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 for the foreseeable future.~~losses. We anticipate that our expenses and operating losses will ~~increase substantially if and~~continue as we:

	●
			~~prepare for the anticipated commercialization of duvelisib;~~
			continue our ongoing clinical trials, including with ~~our most advanced product candidates duvelisib~~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 ~~planned future~~ commercialization efforts; and



●

establish and maintain a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval.

~~Without additional funding, we do not believe that we have~~We expect our existing cash resources will be sufficient ~~funds~~ to ~~meet~~fund our obligations ~~within~~for at least the next twelve months from the date of ~~issuance~~filing of ~~these consolidated financial statements. These factors raise substantial doubt about our ability to continue as a going concern.~~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

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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 ~~products~~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);
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

●

~~the costs and timing of commercialization activities for our product candidates, for which we receive marketing approval;~~



revenue ~~if any,~~ received from commercial sales of 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~~property related claims; ~~and~~



●

our ability to establish collaborations or partnerships on favorable terms, if at ~~all.~~

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 ~~future~~ commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table summarizes our contractual obligations at December 31, ~~2017:~~2020:


(in thousands)	Total		2021		2022 - 2023		2024 - 2025		Thereafter
Operating lease obligations	$	4,745	$	1,019	$	2,099	$	1,627	$	—
2018 Notes		300		—		—		—		300
2020 Notes		28,000		—		—		—		28,000
License agreements (1)		—		—		—		—		—

(in thousands)

Total

2018

2019 - 2020

2021 - 2022

Thereafter

Operating lease obligations

$
957

$
542

$
415

$
—

$
—

Amended Loan Agreement

15,000

—

15,000

—

—

License agreements (1)

—

—

—

—

—

(1)

~~(1)~~

As discussed in ~~Note 10~~ Note 16. License, collaboration and commercial agreements to the consolidated financial statements appearing elsewhere in this Annual Report on Form ~~10 K,~~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.

In November 2016, we entered into an amended and restated license agreement with Infinity, under which we acquired an exclusive worldwide license for the research, development, commercialization, and manufacture of products in oncology indications containing duvelisib. In connection with the license agreement, we assumed operational and financial responsibility for certain activities that were part of Infinity’s duvelisib program, including the DUO study for patients with relapsed/refractory CLL/SLL, and Infinity assumed financial responsibility for the shutdown of certain other clinical studies up to a maximum of $4.5 million. We are obligated to use diligent efforts to develop and commercialize a product in an oncology indication containing duvelisib. During the term of the license agreement, Infinity has agreed not to research, develop, manufacture or commercialize duvelisib in any other indication in humans or animals.

Pursuant to the terms of the license agreement, we are required to make the following payments to Infinity in cash or, at our election, in whole or in part, in shares of our common stock: (i) $6.0 million upon the completion of the DUO study if the results of the DUO study meet certain pre-specified criteria, which milestone was paid in

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cash by us to Infinity in October 2017, and (ii) $22.0 million upon the approval of an 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. For any portion of any of the foregoing payments that we elect to issue in shares of our common stock in lieu of cash, the number of shares of common stock to be issued will be determined by multiplying (1) 1.025 by (2) the number of shares of common stock equal to (a) the amount of the payment to be paid in shares of common stock divided by (b) the average closing price of a share of common stock as quoted on Nasdaq for a twenty day period following the public announcement of the applicable milestone event. The shares of common stock will be issued as unregistered securities, and we will have an obligation to promptly file a registration statement with the SEC to register such shares for resale. Any issuance of shares will be subject to the satisfaction of closing conditions, including that all material authorizations, consents, approvals and the like necessary for such issuance shall have been obtained.

We are 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 us if litigation were to arise, with any such reductions capped at 50% of the amounts otherwise payable during the applicable royalty payment period.

In addition to the foregoing, we are obligated to pay Infinity an additional royalty of 4% on worldwide net sales of any products in an oncology indication containing duvelisib to cover the reimbursement of research and development costs owed by Infinity to Mundipharma International Corporation Limited (MICL) and Purdue Pharmaceutical Products L.P. (Purdue). Once Infinity has fully reimbursed MICL and Purdue, the royalty obligations will be reduced to 1% of net sales in the United States. These trailing MICL royalties are payable until the later to occur of the last-to-expire of specified patent rights and the expiration of non-patent regulatory exclusivities in a country. Each of the above royalty rates is reduced by 50% on a product-by-product and country-by-country basis if the applicable royalty is payable solely on the basis of non-patent regulatory exclusivity. In addition, the trailing MICL royalties are subject to reduction by 50% of certain third-party royalty payments or patent litigation damages or settlements which might be required to be paid by the us if litigation were to arise, with any such reductions capped at 50% of the amounts otherwise payable during the applicable royalty payment period.

In July 2012, we entered into a license agreement with Pfizer under which Pfizer granted us worldwide, exclusive rights to research, develop, manufacture and commercialize products containing certain of Pfizer’s inhibitors of FAK (the FAK Products), 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 the FAK 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 was required to provide us with an initial quantity of clinical supply of one of the FAK Products for an agreed upon price. We made a one‑time cash payment to Pfizer in the amount of $1.5 million and issued 192,012 shares of our common stock. Pfizer is also eligible to receive up to $2.0 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. Our royalty obligations with respect to each of the FAK Products in each country begin on the date of first commercial sale of the FAK Products in that country, and end on the later of 10 years after the date of first commercial sale of the FAK Products 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.

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~~OFF‑BALANCE~~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~~off-balance sheet arrangements, as defined under Securities and Exchange Commission rules.

TAX LOSS CARRYFORWARDS

As of December 31, ~~2017,~~2020, we had federal and state net operating loss carryforwards of ~~$237.0~~$348.5 million and ~~$235.9~~$231.9 million, respectively, which are available to reduce future taxable income. We also had federal and state tax credits of ~~$14.1~~$1.6 million and ~~$1.7~~$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.~~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~~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, ~~2017,~~2020, we recorded a 100% valuation allowance against our net operating loss and tax credit carryforwards of ~~$85.8~~$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 ~~January 2017,~~November 2018, the Financial Accounting Standards Board (FASB) issued ~~Accounting Standard Update (ASU) 2017-03,~~ ~~Accounting Changes~~ASU 2018-18, Collaborative Arrangements (ASU 2018-18): Clarifying the Interaction between ASC 808 and ~~Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments~~ASC 606, which makes targeted improvements for collaborative arrangements to ~~SEC Paragraphs Pursuant to Staff Announcements at~~clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the ~~September 22, 2016 and November 17, 2016 EITF Meetings.~~ ~~ASU 2017-03 clarifies~~collaborative arrangement participant is a customer in the ~~SEC staff’s expectations about the extent~~context of ~~disclosures that~~ a ~~registrant is expected to provide regarding the impact that the adoption~~unit of ~~ASUs 2014-09 (Revenue from Contracts with Customers), 2016-02 (Leases) and 2016-13 (Measurement~~account, adds unit of Credit Losses on Financial Instruments) will have on its financial statements. It also conforms SEC guidance on accounting for tax benefits resulting from investments in affordable housing projects to theaccount 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 ~~2014-01,~~ ~~Investments -Equity Method and Joint Ventures (Topic 323). The guidance under this ASU was effective upon issuance and did not have a material impact on our disclosures.~~

~~In October 2016, the FASB issued ASU 2016-17,~~ ~~Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. ASU 2016-17 updates ASU 2015-02. Under the amendments, a single decision maker~~2018-18 is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. ASU 2016-17 was effective for annual and interim periods beginning after December 15, ~~2016.~~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, ~~2017.~~2020 on a prospective basis. The adoption of this ASU did not have an effect on our ~~consolidated~~ financial statements or disclosures.

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In ~~March 2016,~~August 2018, the FASB issued ASU ~~2016-09,~~ ~~Compensation – Stock Compensation~~2018-13, Fair Value Measurement (Topic ~~718)~~820): ~~Improvements~~Disclosure Framework—Changes to ~~Employee Share-Based Payment Accounting~~.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 ~~2016-09 simplifies the accounting~~2018-13 is effective for share-based compensation arrangements, including the accounting for forfeitures, income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard was effectiveall entities for annual and interim periods beginning after December 15, ~~2016, with early adoption permitted.~~2019. We adopted ~~ASU 2016-09~~this standard effective January 1, ~~2017. Upon~~2020 on a prospective basis. The adoption ~~we elected to begin accounting for forfeitures as they occur, rather than estimating a forfeiture rate, and recorded~~of this ASU did not have an ~~immaterial cumulative-effect adjustment to opening accumulated deficit. Also u~~pon adoption, we recognized all previously unrecognized tax benefits, which would have resulted in the recognition of an immaterial cumulative-effect adjustment to opening accumulated deficit; however, these unrecognized tax benefits were recorded as a deferred tax asset, which was fully offset by a

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~~valuation allowance. Therefore, the recognition of these benefits had no net cumulative-effect~~effect on ~~opening accumulated deficit upon adoption.~~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 ~~$86.7~~ $147.5 million and ~~$80.9~~$111.3 million as of December 31, ~~2017~~2020 and ~~2016,~~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, ~~overnight repurchase agreements collateralized by~~ government ~~agency securities or U.S. Treasury securities,~~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~~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, ~~2017,~~2020, an immaterial amount of our total liabilities was denominated in currencies other than the functional currency.

~~As of December 31, 2017, we~~The 2018 Notes and 2020 Notes bear interest at a fixed rate and therefore have ~~borrowed $15.0 million under the Amended Loan Agreement. The Amended Loan Agreement bears interest per annum equal~~minimal exposure to ~~the greater of either (a) 10.5% or (b) the lesser of (i) 12.75% and (ii) the sum of (x) 10.5% plus (y) (A) the prime rate minus (B) 4.5%. Changes~~changes in interest ~~rates can cause interest charges to fluctuate under the Amended Loan Agreement. A 10% increase in current~~rates; however, because these interest rates ~~would have resulted in an immaterial increase~~are fixed, we may be paying a higher interest rate, relative to market, in the ~~amount of cash interest expense for the year ended December 31, 2017.~~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~~F-1 through ~~F‑26~~F-50 of this Annual Report on Form ~~10‑K.~~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)~~13a-15(e) and ~~15d‑15(e)~~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.

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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)~~13a-15(f) and ~~15d‑15(f)~~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, ~~2017.~~2020.

~~The effectiveness~~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 as of December 31, 2017 has been audited~~reporting. Management’s report was not subject to attestation by ~~Ernst & Young LLP, an~~the Company’s independent registered public accounting firm, as ~~stated in their report which is included herein.~~allowed by the SEC.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting ~~occurred~~ during the fiscal quarter ended December 31, ~~2017~~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.

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~~Report of Independent Registered Public Accounting Firm~~

~~To the Stockholders and the Board of Directors of Verastem, Inc.~~

~~Opinion on Internal Control over Financial Reporting~~

We have audited Verastem, Inc.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the COSO criteria). In our opinion, Verastem, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2017 consolidated financial statements of the Company and our report dated March 13, 2018 expressed an unqualified opinion thereon that included an explanatory paragraph regarding the Company’s ability to continue as a going concern.

~~Basis for Opinion~~

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws~~and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.~~

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

~~Definition and Limitations of Internal Control Over Financial Reporting~~

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~/s/ Ernst & Young LLP~~

~~Boston, Massachusetts~~

~~March 13, 2018~~

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~~Item 9B. Other Information~~

~~None.~~

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

~~DIRECTORS AND EXECUTIVE OFFICERS~~

~~The following table sets forth the name, age and position of each of~~Information regarding our directors, including the audit committee and audit committee financial experts, and executive officers ~~as of February 28, 2018.~~

~~Name~~	~~Age~~	~~Position~~
~~Robert Forrester~~	54	~~President, Chief Executive Officer and Director~~
~~Michael Kauffman, M.D., Ph.D.~~	54	~~Lead Director~~
~~Timothy Barberich~~	70	~~Director~~
~~Alison Lawton~~	56	~~Director~~
~~S. Louise Phanstiel~~	59	~~Director~~
~~Eric Rowinsky, M.D.~~	61	~~Director~~
~~Brian Stuglik, R.Ph.~~	58	~~Director~~
~~Bruce Wendel~~	64	~~Director~~
~~Steven Bloom~~	57	~~Chief Strategy Officer~~
~~Julie B. Feder~~	47	~~Chief Financial Officer~~
~~Diep Le, M.D., Ph.D.~~	50	~~Chief Medical Officer~~
~~Joseph Lobacki~~	59	~~Chief Commercial Officer~~
~~Daniel Paterson~~	57	~~Chief Operating Officer~~

~~Robert Forrester~~, age 54, is a Class III director who has served as a member of our Board of Directors since July 2013. Mr. Forrester has served as our Chief Executive Officer since July 2013, as our Chief Operating Officer from March 2011 until July 2013 and as our President since January 2013. Mr. Forrester has previously held executive level positions at both private and public life sciences companies. Prior to joining us, Mr. Forrester served as Chief Operating Officer of Forma Therapeutics, Inc. from 2010 until 2011. Previously, he served as Interim President and Chief Executive Officer of CombinatoRx, Inc. from 2009 until 2010 and as its Executive Vice President and Chief Financial Officer from 2004 to 2009. Mr. Forrester served as Senior Vice President, Finance and Corporate Development at Coley Pharmaceuticals Group, Inc. from 2000 to 2003. Prior to his operating roles, Mr. Forrester was a managing director of the Proprietary Investment Group at MeesPierson, part of the Fortis Group, investing in life science companies. Prior to MeesPierson, Mr. Forrester worked for the investment banks, BZW (now Barclays Capital) and UBS, in the corporate finance groups undertaking mergers and acquisitions and public and private financing transactions. Mr. Forrester started his career as a lawyercompliance with Clifford Chance in London and Singapore. He earned his LL.B. from Bristol University in England. The Board of Directors believes that Mr. Forrester’s qualifications to sit on the Board include his previous experience serving in leadership positions within the biopharmaceutical industry and his position as our President and Chief Executive Officer.

~~Michael Kauffman M.D~~., age 54, is a Class I director who has served as a member of our Board of Directors since November 2012. Dr. Kauffman has been the President and Chief Executive Officer of Karyopharm Therapeutics Inc., a publicly traded biotechnology company, since January 2011 and was a Science Advisor to Bessemer Venture Partners from 2008 to 2011. Dr. Kauffman was the Chief Medical Officer of Onyx Pharmaceuticals, Inc., a publicly traded biotechnology company, from November 2009 until December 2010. Dr. Kauffman was the Chief Medical Officer of Proteolix, Inc., a privately held pharmaceutical company, from April 2009 until November 2009, when it was acquired by Onyx. From September 2002 until July 2008, Dr. Kauffman was the President and Chief Executive Officer of EPIX Pharmaceuticals, Inc., a publicly traded biotechnology company that underwent liquidation proceedings in 2009. Dr. Kauffman joined Predix Pharmaceuticals, Inc., the predecessor to EPIX, in September 2002, as President and Chief Executive Officer. From 1997 to 2002, he held a number of senior medical and program leadership positions at Millennium Pharmaceuticals, Inc., then a publicly traded biotechnology company, including Vice President, Medicine and VELCADE Program Leader as well as co-founder and Vice President of Medicine at Millennium Predictive Medicine, a wholly-owned subsidiary of Millennium. Dr. Kauffman also served as Medical Director at Biogen Corporation (now Biogen Inc., a publicly traded biotechnology company). Dr. Kauffman has served on the board of directors of Zalicus, Inc., on the board of directors of Karyopharm since January 2011, on the board of directors or Infinity Pharmaceuticals, Inc., and on the

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board of directors of Kezar Life Sciences Inc. Dr. Kauffman received an M.D. and Ph.D. in molecular biology and biochemistry from Johns Hopkins University and holds a B.A. in biochemistry from Amherst College. Dr. Kauffman trained in Internal Medicine at Beth Israel Deaconess and Massachusetts General Hospitals. He is board certified in internal medicine. The Board of Directors believes that Dr. Kauffman’s qualifications to sit on the Board include the combination of his significant business, clinical development and leadership experience at public life sciences companies and his medical and scientific background.

~~Timothy Barberich~~, age 70, is a Class II director who has served as a member of our Board of Directors since March 2014. Mr. Barberich is founder and former Chairman and Chief Executive Officer of Sepracor Inc., a publicly traded, research-based, pharmaceutical company based in Marlborough, Massachusetts, which was acquired by Dainippon Sumitomo Pharma Co., Ltd. in 2009. He founded Sepracor in 1984 and served as Chief Executive Officer from 1984 to May 2007 and as Chairman of the Board from 1990 to 2009. Mr. Barberich has been Chairman of BioNevia Pharmaceuticals since June 2008 and Chief Executive Officer since 2014. He currently serves on the board of directors of publicly traded GI Dynamics, and on the board of directors of the privately held company, Frequency Therapeutics, Inc. He has also served on the boards of directors of Neurovance Inc. until it was acquired by Otsuka Pharmaceutical Co., Ltd. in 2017, Inotek Pharmaceuticals, Inc., HeartWare, International, Inc., Tokai Pharmaceuticals, BioSphere Medical, Inc. and GeminX Pharmaceuticals. Mr. Barberich has also served on the board of trustees of Boston Medical Center and the board of the Pharmaceutical Research and Manufacturers’ Association (PhRMA). Prior to founding Sepracor, Mr. Barberich spent 10 years as a senior executive at Bedford, Massachusetts-based Millipore Corporation. Mr. Barberich is a graduate of Kings College and holds a Bachelor’s of Science degree in Chemistry. The Board of Directors believes that Mr. Barberich’s qualifications to sit on the Board include his significant experience in the development and commercialization of pharmaceutical products, his leadership experience at other pharmaceutical companies and his service on other boards of directors.

~~Alison Lawton~~, age 56, is a Class II director who has served as a member of our Board of Directors since November 2012. Ms. Lawton has been the President and Chief Operating Officer at Kaleidon Biosciences, Inc. since December 2017. Prior to this, Ms. Lawton served as the Chief Operating Officer at Aura Biosciences January 2015 to December 2017, and was Chief Operating Officer of OvaScience, Inc., a publicly traded life sciences company, from January 2013 until December 2013. From 1991 to 2012, Ms. Lawton worked at various positions of increasing responsibility at Genzyme Corporation (Genzyme) and subsequently at Sanofi-Aventis, following its 2011 acquisition of Genzyme, each a global biopharmaceutical company. Ms. Lawton served as head of Genzyme Biosurgery, where she was responsible for Genzyme’s global orthopedics, surgical and cell therapy and regenerative medicine businesses. Prior to that, Ms. Lawton oversaw Global Market Access at Genzyme, which included Global Regulatory Affairs, Global Health Outcomes and Strategic Pricing, Global Public Policy, and Global Product Safety & Risk Management. Before joining Genzyme, Ms. Lawton worked for seven years in the United Kingdom at Parke-Davis, a pharmaceutical company. Ms. Lawton serves on the board of directors of ProQR Therapeutics a publicly traded biopharmaceutical companies. She also served on the boards of directors of CoLucid Pharmaceuticals, Inc., until its acquisition by Eli Lilly in 2017, and Cubist Pharmaceuticals for three years until its acquisition by Merck & Co., Inc. in 2015. Ms. Lawton also serves on the Scientific Advisory Board of the private biotechnology company X4 Pharmaceuticals. She is a former President and Chair of the Board of Regulatory Affairs Professional Society and former FDA Advisory Committee member for Cell and Gene Therapy Committee. The Board of Directors believes that Ms. Lawton’s qualifications to sit on the Board include significant operational, international, regulatory and senior management experience within the pharmaceutical and biotechnology industries and her experience serving on boards of directors within the industry.

~~S. Louise Phanstiel~~, age 59, is a Class I director who has served as a member of our Board of Directors since September 2012. Ms. Phanstiel held several important positions at WellPoint, Inc. from 1996 to 2007, including President, Specialty Products (2003 to 2007), Senior Vice President, Chief of Staff and Corporate Planning in the Office of the Chairman (2000 to 2003), and Senior Vice President, Chief Accounting Officer, Controller, and Chief Financial Officer for all WellPoint, Inc. subsidiaries, including Blue Cross of California (1996 to 2000). Previously, Ms. Phanstiel was a partner at the international services firm of Coopers & Lybrand, where she served clients in life and property/casualty insurance, high technology, and higher education. Ms. Phanstiel has served on the board of directors of Myriad Genetics since September 2009, and formerly served on the boards of directors of Inveresk Research Group, Inc. and Charles River Laboratories, Inc. Ms. Phanstiel received a B.A. degree in Accounting from Golden Gate University and is a Certified Public Accountant. The Board of Directors

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believes that Ms. Phanstiel’s qualifications to sit on the Board include her significant financial, investment, and management expertise, and her experience managing and serving as a director of publicly traded companies.

~~Eric Rowinsky,~~ age 61, is a Class I director who has served as a member of our Board of Directors since May 2017. Dr. Rowinsky has been the Executive Director and President of RGenix, Inc., since June 2016. He also has served as the Chief Scientific Officer of Clearpath Development Co. since June 2016. Prior to this, Dr. Rowinsky served as the Head of Research and Development, Chief Medical Officer and Executive Vice President of Stemline Therapeutics, Inc. from February 2011 to January 2016. In 2010, Dr. Rowinsky co-founded Primrose Therapeutics and became its Chief Executive Officer until it was acquired in 2011. From 2005 to 2010, he served as the Chief Medical Officer and Executive Vice President of Clinical Development and Regulatory Affairs of ImClone Systems Incorporated, a life sciences company focused on monoclonal antibodies, which was acquired by Eli Lilly. Previous to that, Dr. Rowinsky held several positions at the Cancer Therapy and Research Center's Institute of Drug Development, including Director of the Institute and SBC Endowed Chair for Early Drug Development. Prior to that, he served as Clinical Professor of Medicine in the Division of Medical Oncology at the University of Texas Health Science Center at San Antonio and as Associate Professor of Oncology at the Johns Hopkins University School of Medicine. Dr. Rowinsky has served on the boards of directors of Biogen Idec, Inc., Navidea, and Fortress Biosciences, Inc., all public life sciences companies since 2010, and formerly served on the board of directors of BIND Therapeutics, a life-science company acquired by Pfizer. Dr. Rowinsky received a B.A. degree in Liberal Arts from New York University and earned his M.D. from Vanderbilt University. The Board of Directors believes that Dr. Rowinsky’s qualifications to sit on the Board include his extensive research and drug development experience, oncology expertise, corporate strategy, and broad scientific and medical knowledge.

~~Brian Stuglik R.Ph.,~~ age 58, is a Class II director who has served 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. The Board of Directors believes that Mr. Stuglik’s qualifications to sit on the Board include his extensive experience in pharmaceutical development, product strategy and commercialization.

~~Bruce Wendel~~, age 64, is a Class III director who has served as a member of our Board of Directors since June 2016. Mr. Wendel has been Chief Strategic Officer of Hepalink USA, the U.S. subsidiary of Shenzhen Hepalink Pharmaceutical Company, since June 2012. Prior to this, Mr. Wendel served as Vice Chairman and Chief Executive Officer of Abraxis BioScience, LLC, from January2010 to December 2010, where he oversaw the development and commercialization of Abraxane®. He also led the negotiations that culminated in the acquisition of Abraxis by Celgene in a deal valued at over $2.9 billion. Prior to Abraxis, Mr. Wendel served in business and corporate development roles of increasing responsibility at American Pharmaceutical Partners, IVAX Corporation and Bristol-Myers Squibb. Mr. Wendel currently serves on the board of directors of ProMetic Life Sciences, Inc., a publicly traded biopharmaceutical company. Mr. Wendel earned a juris doctorate degree from Georgetown University Law School, and a B.S. from Cornell University. The Board of Directors believes that Mr. Wendel's qualifications to sit on the Board include his experience building companies and bringing oncology drugs to the market, his oversight of the development and commercialization of Abraxane®, and his life sciences industry experience and knowledge.

~~Steven Bloom, age~~ ~~57,~~ has served as our Chief Strategy Officer since December 2017, our Senior Vice President of Corporate Development from January 2017 to November 2017 and as our Vice President of Commercial Planning and External Affairs from January 2015 until January 2017. Prior to joining us in March 2014, Mr. Bloom served as Senior Vice President at Ziopharm Oncology from March 2008 to March 2014. Before joining Ziopharm, Mr. Bloom was Vice President for the health informatics company Pharmetrics and spent the first 19 years of his career at Eli Lilly and Company in leadership roles in marketing, sales and corporate affairs.

~~Julie B. Feder, age~~ ~~47,~~ has served as our Chief Financial Officer since July 2017. Prior to joining us, Ms. Feder served as the Chief Financial Officer for the Clinton Health Access Initiative (CHAI) from September 2011 to July 2017. Prior to joining CHAI, Ms. Feder spent three years at Genzyme Corporation, first as Vice President of

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Internal Audit and also as Finance Integration Leader. In these roles, she managed the day-to-day operations of Genzyme’s global internal audit function, while leading the Genzyme Global Finance integration into Sanofi’s organization following Sanofi’s acquisition of Genzyme.

~~Diep Le, M.D., Ph.D.,~~ age 50, has served as our Chief Medical Officer since October 2017. Prior to joining us, Dr. Le served as the Vice President, Immuno-Oncology Innovative Medicines at MedImmune (a subsidiary of AstraZeneca) from October 2015 to June 2017 and led the product development teams for multiple high-priority immuno-oncology assets. Prior to that, Dr. Le served as the Executive Director and Global Clinical Program Lead at Novartis Oncology from October 2013 to October 2015, and various roles of increasing responsibility at GlaxoSmithKline from June 2009 to October 2013, where she led the MEK inhibitor, trametinib (Mekinist™), from the first-in-human studies to FDA approval.

~~Joseph Lobacki,~~ age 59, has served as our Chief Commercial Officer since January 2018. Prior to joining us, Mr. Lobacki served as the Chief Operating Officer of Finch Therapeutics Group from November 2016 to December 2017, the Chief Commercial Officer and Executive Council Member of Medivation, Inc. from December 2014 to October 2016, and as the General Manager of Oncology at Idera Pharmaceuticals from April 2014 to December 2014. Prior to that Mr. Lobacki served as a commercial and business operations consultant for biotechnology companies from June 2012 to April 2014 and as the Senior Vice President and Chief Commercial Officer of Micromet Inc., where he oversaw commercial activities including medical affairs and strategic marketing.

~~Daniel Paterson, age~~ ~~57,~~ has served 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.

Se~~ction 16(a) Beneficial Ownership Reporting Compliance~~

~~Our directors, executive officers and beneficial owners of more than 10% of our common stock are required under~~ Section 16(a) of the ~~Securities~~ Exchange Act ~~of 1934, as amended, to file reports of ownership~~will be included in our 2020 Proxy Statement and ~~changes in ownership of our securities with the Securities and Exchange Commission (SEC).~~ is incorporated herein by reference.

We believe that, during the year ended December 31, 2017, our directors, executive officers and beneficial owners of more than 10% of the Company’s common stock complied with all Section 16(a) filing requirements.

have adopted a Code of Business Conduct and Ethics

~~We have adopted a written code~~ for all of ~~business conduct and ethics that applies to~~ our directors, officers and employees ~~including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current~~as required by Nasdaq governance rules and as defined by applicable SEC rules. Stockholders may locate a copy of ~~the code is posted on the “Investors — Corporate Governance” section~~our Code of ~~our website, which is located at www.verastem.com. In addition, we intend to post~~Business Conduct and Ethics on our website ~~all disclosures~~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 ~~law,~~ the rules of either the SEC or ~~Nasdaq stock market listing standards concerning any amendments to, or waivers from, any provision of the code.~~Nasdaq.

~~Board Committees~~

Our board of directors has established an audit committee, a nominating and corporate governance committee, and a compensation committee, each of which operates under a charter that has been approved by our board. Our board of directors has determined that all of the members of the audit committee, the compensation committee and the nominating and corporate governance committee are independent as defined under Nasdaq Marketplace Rules, including, in the case of all the members of our audit committee, the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934. No changes have been made to the procedures by which our stockholders may recommend nominees to our board of directors.

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~~Audit committee~~

~~The members of our audit committee are Louise Phanstiel, Timothy Barberich, and Michael Kauffman~~. ~~Our board of directors has determined that Louise Phanstiel is an “audit committee financial expert” as defined in the applicable SEC rules.~~

~~Nominating and corporate governance committee~~

~~The members of our nominating and corporate governance committee are Timothy Barberich, Eric Rowinsky and Bruce Wendel.~~

~~Compensation committee~~

~~The members of our compensation committee are Alison Lawton,Michael Kauffman, and Brian Stuglik~~.

ITEM 11. EXECUTIVE COMPENSATION

~~NAMED EXECUTIVE OFFICER COMPENSATION,~~

~~COMPENSATION DISCUSSION AND ANALYSIS~~

~~Our named executive officers for the fiscal year ended December 31, 2017 were:~~

~~Robert Forrester, our President and Chief Executive Officer;~~

~~Julie B. Feder, our Chief Financial Officer; and~~

~~Diep Le, M.D., Ph.D., our Chief Medical Officer.~~

~~Summary Compensation Table~~

The ~~following table provides~~ information required by this Item 11 of Form 10-K regarding ~~the total~~executive compensation ~~for services rendered~~will be included in ~~all capacities that was earned during the fiscal year indicated~~our 2021 Proxy Statement and is incorporated herein by ~~our named executive officers.~~reference.

Option

Non-Equity

All Other


Awards

Incentive

Compensation

Name and Principal Position

Year

Salary ($)

Bonus ($)

($)(1)

Plans ($)(2)

($)(3)

Total ($)
Robert Forrester

2017

535,000

—

294,804

321,000

15,014

1,165,818
Chief Executive Officer

2016

525,000

—

245,844

321,000

12,690

1,104,534
Julie B. Feder (4)

2017

150,385

—

878,024

60,000

6,708

1,095,117
Chief Financial Officer

Diep Le, M.D. Ph.D. (5)

2017

76,923

95,000
(6)
1,125,863

40,000

3,365

1,341,151
Chief Medical Officer

~~(1)~~

The amounts reflect the aggregate grant date fair value of option awards granted during the year computed in accordance with the provisions of Financial Accounting Standards Board Accounting Standard Codification Topic 718 (FASB ASC Topic 718). For information regarding assumptions underlying the value of stock awards, see Note 7 to our financial statements and the discussion under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Stock-Based Compensation,” of this Annual Report on Form 10-K for the year ended December 31, 2017.

~~(2)~~

The amounts shown for non-equity incentive plan compensation represent amounts earned for the fiscal years ended December 31, 2017 and 2016. Amounts earned for 2017 were paid in 2018, and amounts earned in 2016 were paid in 2017.

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~~(3)~~

The amounts shown represent the sum of 401(k) contributions, Health Savings Account contributions, and the dollar value of life insurance premiums paid by the Company for the applicable named executive officer.

~~(4)~~

~~Ms. Feder has served as our Chief Financial Officer since July 10, 2017.~~

~~(5)~~

~~Dr. Le has served as our Chief Medical Officer since October 9, 2017.~~

~~(6)~~

~~The amount reflects a one-time sign-on bonus of $95,000 paid to Dr. Le.~~

~~Narrative Discussion of Summary Compensation Table~~

~~Employment Agreements~~

We have entered into an employment agreement with each of our named executive officers. Each of the employment agreements provides that employment will continue for an indefinite period until either the Company or the employee provides written notice of termination in accordance with the terms of the agreement.

~~Robert Forrester~~

Pursuant to his amended and restated employment agreement, as of July 1, 2013, Mr. Forrester was entitled to an initial base salary of $490,000, subject to increase from time to time by the Board of Directors. As of January 1, 2018, Mr. Forrester’s annual base salary is $555,000. Mr. Forrester is eligible to receive a bonus of 60% of his current annual base salary. Subject to Mr. Forrester’s execution of an effective release of claims, Mr. Forrester would be entitled to the severance payments described below if we terminate his employment without cause, as defined in his employment agreement, or if Mr. Forrester terminates his employment for good reason, as defined in his employment agreement.

If Mr. Forrester’s employment is terminated by us without cause or by Mr. Forrester for good reason, absent a change in control, as defined in his employment agreement, we would be obligated, (1) to pay Mr. Forrester his base salary for a period of 12 months following the termination of his employment, (2) to accelerate the vesting of the portion of any equity awards granted prior to the date of his amended and restated employment agreement that, by their terms, vest only based on the passage of time and that would have vested during the 12-month period following the termination of his employment , (3) to pay Mr. Forrester any bonus which has been awarded, but not yet paid on the date of termination and (4) if Mr. Forrester exercises his right to continue participation in our health and dental ~~plans under the federal law known as COBRA, to pay Mr. Forrester a monthly cash amount equal to the full premium cost of that participation for 12 months following such termination~~ ~~of employment (or, if earlier, until the time when Mr. Forrester becomes eligible to enroll in the health or dental plan of a new employer).~~

If Mr. Forrester’s employment is terminated by us without cause or by Mr. Forrester for good reason, in each case within 90 days prior to, or within one year following, a change in control, we would be obligated (1) to pay Mr. Forrester a lump sum amount equal to two times the sum of his then-current annual base salary plus an amount equal to his target bonus, (2) to accelerate the vesting of all outstanding equity awards that, by their terms, vest only based on the passage of time, (3) to pay Mr. Forrester any bonus which has been awarded, but not yet paid on the date of termination and (4) if Mr. Forrester exercises his right to continue participation in our health and dental plans under the federal law known as COBRA, to pay Mr. Forrester a monthly cash amount equal to the full premium cost of that participation for 24 months following such termination ~~of employment (or, if earlier, until the time when provided that such benefits shall end when Mr. Forrester becomes eligible to enroll in the health or dental plan of a new employer).~~

To the extent that any severance or compensation payable to Mr. Forrester pursuant to his employment agreement or otherwise in connection with a change in control of the Company would be subject to the excise tax imposed under Section 4999 of the Internal Revenue Code, Mr. Forrester would be entitled to an additional cash payment equal to an amount calculated by multiplying the grossed-up amount of such payments (i.e., an amount such that net amount retained by Mr. Forrester after payment of all applicable taxes, interest and penalties thereon is equal to the total payments payable to him) by a fraction, the numerator of which is the portion of such payments

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related to equity awards granted prior to the execution of his employment agreement and the denominator of which is the portion of such payments related to all equity awards granted to him. However, if it would result in a greater amount payable to Mr. Forrester, Mr. Forrester would instead be entitled to either the full amount of the total payments payable in connection with a change in control or a reduced amount of the total payments payable in connection with a change in control, whichever results in the greater economic benefit for Mr. Forrester.

~~Julie B. Feder~~

Pursuant to her employment agreement, Ms. Feder was entitled to an initial base salary of $340,000, subject to increase from time to time by the Board of Directors. As of January 1, 2018, Ms. Feder’s annual base salary is $355,000. Ms. Feder is also eligible to receive a bonus of 35% of her current annual base salary. Subject to Ms. Feder’s execution of an effective release of claims, Ms. Feder would be entitled to the severance payments described below if we terminate her employment without cause, as defined in her employment agreement, or if Ms. Feder terminates her employment for good reason, as defined in her employment agreement.

If Ms. Feder’s employment is terminated by us without cause or by Ms. Feder for good reason, absent a change in control, as defined in her employment agreement, we would be obligated (1) to pay Ms. Feder her base salary for a period of nine months following such termination of employment, (2) to pay Ms. Feder any bonus which has been awarded, but not yet paid on the date of termination and (3) ~~if Ms. Feder exercises her right to continue participation in our health and dental~~ plans under the federal law known as COBRA, to pay Ms. Feder a monthly cash amount equal to the full premium cost of that participation for nine months following such termination of employment (or, if earlier, until the time when Ms. Feder becomes eligible to enroll in the health or dental plan of a new employer).

If Ms. Feder’s employment is terminated by us without cause or by Ms. Feder for good reason, in each case within 90 days prior to, or within 18 months following, a change in control, we would be obligated (1) to pay Ms. Feder a lump sum amount equal to 12 months of her then-current annual base salary, (2) to accelerate the vesting of all outstanding equity awards that, by their terms, vest only based on the passage of time, (3) if Ms. Feder exercises her right to continue participation in our health and dental plans under the federal law known as COBRA, to pay Ms. Feder a monthly cash amount equal to the full premium cost of that participation for 12 months following such termination of employment (or, if earlier, until the time when Ms. Feder becomes eligible to enroll in the health or dental plan of a new employer) and (4) to pay any bonus which has been awarded, but not yet paid on the date of termination.

~~Diep Le, M.D., Ph.D.~~

Pursuant to her employment agreement, Dr. Le was entitled to an initial base salary of $400,000, subject to increase from time to time by the Board of Directors, and a one-time sign-on bonus of $95,000 that will be earned on the second anniversary of her hire date, but was paid during 2017. If Dr. Le resigns before the second anniversary of her hire date, she must repay the sign-on bonus in full. Dr. Le is also entitled to payment or reimbursement of moving expenses up to $50,000 associated with relocating to the Boston area, and for reasonable and customary commuting expenses prior to such relocation. As of January 1, 2018, Dr. Le’s annual base salary is $400,000. Dr. Le is also eligible to receive a bonus of 40% of her current annual base salary. Subject to Dr. Le’s execution of an effective release of claims, Dr. Le would be entitled to the severance payments described below if we terminate her employment without cause, as defined in her employment agreement, or if Dr. Le terminates her employment for good reason, as defined in her employment agreement.

If Dr. Le’s employment is terminated by us without cause or by Dr. Le for good reason, absent a change in control, as defined in her employment agreement, we would be obligated (1) to pay Dr. Le her base salary for a period of nine months following such termination of employment, or if the termination occurs prior to Dr. Le’s relocation to Massachusetts, her then-current annual base salary for a period of one month for each full month that has elapsed between the effective date of her employment agreement and the termination date, up to a maximum of nine months, (2) payment of bonus which has been awarded, but not yet paid on the date of termination and (3) if Dr. Le exercises her right to continue participation in our health and dental plans under the federal law known as COBRA, to pay Dr. Le a monthly cash amount equal to the full premium cost of that participation fora period commensurate with the period over which Dr. Le is entitled to receive salary payments following such termination

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~~(or, if earlier, until the time when Dr. Le becomes eligible to enroll in the health or dental plan of a new employer).~~

If Dr. Le’s employment is terminated by us without cause or by Dr. Le for good reason, in each case within 90 days prior to, or within 18 months following, a change in control, we would be obligated (1) to pay Dr. Le a lump sum amount equal to 12 months of her then-current annual base salary, (2) to accelerate the vesting of all outstanding equity awards that, by their terms, vest only based on the passage of time, (3) if Dr. Le exercises her right to continue participation in our health and dental plans under the federal law known as COBRA, to pay Dr. Le a monthly cash amount equal to the full premium cost of that participation for 12 months following such termination of employment (or, if earlier, until the time when Dr. Le becomes eligible to enroll in the health or dental plan of a new employer) and (4) to pay any bonus which has been awarded, but not yet paid on the date of termination.

~~Pension Benefits and Deferred Compensation~~

We maintain a defined contribution employee retirement plan for our employees. Our 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(a) of the Internal Revenue Code. Employee contributions may be made on a pre-tax basis or after-tax (Roth) basis. The 401(k) plan provides for employer matching contributions equal to (1) 100% of employee deferral contributions up to a deferral rate of 3% of eligible compensation plus (2) 50% of employee deferral contributions up to a deferral rate of an additional 2% of eligible compensation.

~~Outstanding Equity Awards at Fiscal Year-End~~

~~The following table provides information regarding equity awards held by each of our named executive officers that were outstanding as of December 31, 2017.~~

Option Awards


Number of

Number of




Securities

Securities

Underlying

Underlying

Unexercised

Unexercised

Option

Option

Options

Options

Exercise

Expiration
Name

Exercisable (#)

Unexercisable (#)

Price ($)

Date
Robert Forrester

250,000

—
(1)
9.85

1/15/2023

50,000

—
(2)
14.18

9/17/2023

250,000

—
(3)
13.59

1/7/2024

250,000

—
(4)
13.59

1/7/2024

185,963

84,525
(5)
9.19

1/8/2025

268,000

—
(6)
2.13

11/8/2025

132,000

—
(7)
1.86

1/1/2026

100,000

—
(8)
1.37

6/14/2026

—

360,000
(9)
1.20

1/9/2027
Julie B. Feder

—

370,000
(10)
3.45

7/10/2027
Diep Le, M.D.

—

300,000
(11)
4.63

10/9/2027

—

70,000
(12)
4.63

10/9/2027

~~(1)~~

This option was granted on January 15, 2013. The option vested as to 25% of the shares underlying the option on the first anniversary of the grant date and, thereafter, as to 6.25% of the shares underlying the option at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date.

~~(2)~~

This option was granted on September 17, 2013. The option vested as to 6.25% of the shares underlying the option on October 1, 2013 and, thereafter, as to 6.25% of the shares underlying the option at the end of each successive three-month period until July 1, 2017.

~~(3)~~

~~This option was granted on January 7, 2014. The option vested as to 25% of the shares underlying the option on~~

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~~July 1, 2014 and, thereafter, as to 6.25% of the shares underlying the option on the last day of each calendar quarter after such date, through June 30, 2017.~~

~~(4)~~

This option was granted on January 7, 2014. The option vested as to 25% of the shares underlying the option on the first anniversary of the grant date and, thereafter, as to 6.25% of the shares underlying the option on the last day of each calendar quarter after such date, through December 31, 2017.

~~(5)~~

This option was granted on January 8, 2015. The option vests as to 25% of the shares underlying the option on the first anniversary of the grant date and, thereafter, as to 6.25% of the shares underlying the option at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date.

~~(6)~~

This option was granted on November 9, 2015. The option vested as to 50% of the shares underlying the option on the first anniversary of the grant date and, thereafter, as to the remaining 50% of the shares underlying the option on the second anniversary of the grant date.

~~(7)~~

This option was granted on January 1, 2016. The option vested as to 50% of the shares underlying the option on November 9, 2016 and, thereafter, as to the remaining 50% of the shares underlying the option on November 9, 2017.

~~(8)~~

This option was granted on June 14, 2016. The option vested as to 50% of the shares underlying the option upon satisfaction of a certain performance milestone by June 2017, and as to the remaining 50% of the shares underlying the option upon satisfaction of a certain performance milestone in September 2017.

~~(9)~~

This option was granted on January 9, 2017. The option vests as to 25% of the shares underlying the option on the first anniversary of the grant date and, thereafter, as to 6.25% of the shares underlying the option at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date.

~~(10)~~

This option was granted on July 10, 2017. The option vests as to 25% of the shares underlying the option on the first anniversary of the grant date and, thereafter, as to 6.25% of the shares underlying the option at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date.

~~(11)~~

This option was granted on October 9, 2017. The option vests as to 25% of the shares underlying the option on the first anniversary of the grant date and, thereafter, as to 6.25% of the shares underlying the option at the end of each successive three-month period following the first anniversary of the grant date until the fourth anniversary of the grant date.

~~(12)~~

~~This option was granted on October 9, 2017. The option vests as to 100% of the shares underlying the option upon satisfaction of a certain performance milestone.~~

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~~DIRECTOR COMPENSATION~~

~~Director Compensation~~

~~The following table summarizes the compensation paid to or earned by our directors during the year ended December 31, 2017:~~

Fees Earned

Option


or Paid in

Awards

Name

Cash ($)

($)(1)(2)

Total ($)
Timothy Barberich

53,000

35,742

88,742
Paul Friedman, M.D. (3)

16,125

—

16,125
Michael Kauffman, M.D., Ph.D.

79,000

35,742

114,742
Alison Lawton

55,000

35,742

90,742
S. Louise Phanstiel

60,000

35,742

95,742
Eric Rowinsky, M.D.

33,125

71,483

104,608
Brian Stuglik, R.Ph.

14,831

168,776

183,607
Bruce Wendel

49,320

35,742

85,062

~~(1)~~

Amounts shown represent the aggregate grant date fair value of stock option awards granted to the director and calculated in accordance with FASB ASC Topic 718. For information regarding assumptions underlying the value of stock awards, see Note 7 to our financial statements and the discussion under Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Stock-Based Compensation,” of this Annual Report on Form 10-K for the year ended December 31, 2017.

~~(2)~~

The number of stock options awarded to any non-employee director who received a grant during 2017 was 25,000, with the exception of Dr. Rowinsky and Mr. Stuglik who each received 50,000 stock options as a result of their new appointments to our Board of Directors

~~(3)~~

~~Dr. Friedman resigned from our Board of Directors effective April 27, 2017.~~

~~The following table sets forth, as of December 31, 2017, the aggregate number of exercisable and unexercisable stock option awards held by our directors:~~

Option Awards




Name

Exercisable (#)

Unexercisable (#)

Total (#)
Timothy Barberich

110,099

12,498

122,597
Michael Kauffman, M.D., Ph.D.

124,478

12,498

136,976
Alison Lawton

124,478

12,498

136,976
S. Louise Phanstiel

126,841

12,498

139,339
Eric Rowinsky, M.D.

25,002

24,998

50,000
Brian Stuglik, R.Ph.

12,501

37,499

50,000
Bruce Wendel

62,502

12,498

75,000

~~Non-Employee Director Compensation~~

Under our non-employee director compensation policy, each non-employee director receives an annual base retainer of $40,000. In addition, our non-employee directors receive the following cash compensation for Board services, as applicable:

~~the non-executive Lead Director of the Board of Directors receives an additional annual retainer of $25,000;~~

~~each chairperson of our Audit, Compensation and Nominating and Corporate Governance Committees receives an additional annual retainer of $20,000, $15,000 and $10,000, respectively; and~~

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~~each member of our Audit, Compensation and Nominating and Corporate Governance Committees receives an additional retainer of $8,000, $6,000 and $5,000, respectively.~~

~~All amounts are paid in quarterly installments.~~

In addition, our non-employee directors receive stock options as compensation for their service on our Board of Directors. Newly appointed non-employee directors receive a one-time initial award of options to purchase 50,000 shares of our common stock, which vest monthly over a one-year period subject to the director’s continued service on the Board of Directors. Thereafter, each non-employee director who was serving on the Board of Directors as of the prior year’s annual meeting of the Company’s shareholders, receives an annual award of options to purchase shares of our common stock, which vest monthly over a one-year period, subject to the director’s continued service on the Board of Directors (Annual Grant). Additionally, each non-employee director who has served 12 months on the Board of Directors as of the date of the annual meeting of the Company’s shareholders, but has not yet received an Annual Grant also receives a pro-rated grant (based on the Annual Grant for such year) to reflect the time such director has served on the Board of Directors since the 12-month anniversary of the commencement of such director’s service, which vests monthly over a one-year period, subject to the director’s continued service on the Board of Directors. In 2017, the Annual Grant consisted of options to purchase 25,000 shares of our common stock.

Mr. Forrester, our President and Chief Executive Officer, does not receive compensation for his service as a director. Mr. Forrester’s compensation is described under the heading “Executive Compensation.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

~~Equity Compensation Plan Information~~

The ~~following table contains~~ information ~~about our equity compensation plans as~~required by this Item 12 of ~~December 31, 2017.~~

Number of securities

Weighted-


to be issued upon

average exercise

Number of securities

exercise of

price of

remaining available

outstanding stock

outstanding options,

for future issuance

options, warrants and

warrants and

under equity

Plan category

rights

rights

compensation plans

Equity compensation plans approved by security holders(1)

7,609,728

$
5.40

654,630
(3)
Equity compensation plans not approved by security holders(2)

1,110,250

$
3.75

2,506,000

~~(1)~~

~~Includes information regarding our 2010 Equity Incentive Plan and 2012 Incentive Plan.~~

~~(2)~~

In December 2014, the Board of Directors has authorized and reserved 750,000 shares of common stock that may be issued pursuant to stock options granted or to be granted to new employees in accordance with Nasdaq Listing Rule 5635(c)(4), as an inducement material to such employees entering into employment with the Company. The terms of these stock options are consistent with stock options granted under the Company’s 2012 Incentive Plan. As of December 31, 2017, 1,324,000 shares had been granted, 138,750 shares had been exercised and 75,000 shares had been cancelled under this program. In December 2017, the Board of Directors authorized and reserved 2,500,000 additional shares of common stock that may be issued pursuant to stock options granted or to be granted to new employees in accordance with Nasdaq Listing Rule 5635(c)(4), as an inducement material to such employees entering into employment with the Company.

~~(3)~~

~~Does not include 1,285,714 shares added to the 2012 Incentive Plan under the evergreen provision on January 1, 2018.~~

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~~SECURITY OWNERSHIP OF~~

~~CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT~~

~~The following table sets forth certain information as of February 28, 2018 (unless otherwise specified), with respect to the beneficial~~Form 10-K regarding security ownership of certain beneficial owners and management will be included in our ~~common stock~~2020 Proxy Statement and is incorporated herein by each person who is known to own beneficially more than 5% of the outstanding shares of common stock, each person currently serving as a director, each nominee for director, each named executive officer (as set forth in the Summary Compensation Table above), and all directors and executive officers as a group.reference.

Shares of common stock subject to options, RSUs or other rights to purchase which are now exercisable or are exercisable within 60 days after February 28, 2018 are to be considered outstanding for purposes of computing the percentage ownership of the persons holding these options or other rights but are not to be considered outstanding for the purpose of computing the percentage ownership of any other person. As of February 28, 2018, there were 50,800,908 shares of common stock outstanding.

Number of shares

Percentage of shares

Name and address of beneficial owner

beneficially owned

beneficially owned

5% stockholders:

BVF, Inc. (1)

2,737,000

5.39
%
1 Sansome Street, 30th Floor

San Francisco, CA  94104

Directors and Executive Officers

Robert Forrester (2)

1,851,007

3.53
%
Julie B. Feder

—

—

Diep Le, M.D.

—

—

Timothy Barberich (3)

248,431

*

Michael Kauffman, M.D., Ph.D. (4)

132,810

*

Alison Lawton (5)

135,310

*

S. Louise Phanstiel (6)

161,673

*

Eric Rowinsky, M.D. (7)

41,668

*

Brian Stuglik, R. Ph. (8)

29,169

*

Bruce Wendel (9)

70,834

*

All executive officers and directors as a group (Thirteen persons) (10)

3,822,398

7.06
%

*Represents beneficial ownership of less than one percent of our outstanding common stock.

~~(1)~~

Information is based on a Schedule 13G filed with the SEC on January 26, 2018 by Biotechnology Value Fund, L.P. (BVF), Biotechnology Fund II, L.P (BVF2), Biotechnology Value Trading Fund OS LP (Trading Fund OS), BVF Partners OS Ltd. (Partners OS), BVF Partners LP (Partners), BVF Inc. and Mark N. Lampert (Mr. Lampert), reporting as of January 16, 2018. According to the Schedule 13G, (i) BVF beneficially owns 1,293,127 shares of common stock, (ii) BVF2 beneficially owns 863,522 shares of common stock, and (iii) Trading Fund OS beneficially owns 221,646 shares of common stock. Partner OS, as general partner of Trading Fund OF, may be deemed to beneficially own the 221,646 shares owned by Trading Fund OS. Partners, as the general partner of BVF, BVF2, the investment manager of Trading Fund OS, and the sole member of Partner OS, may be deemed to beneficially own the 2,737,000 shares of common stock owned by aggregate by BVF, BVF2, Trading Fund OS, and certain Partners management account, including 358,705 shares of common stock owned. BVF Inc., as the general partner of Partners, and Mr. Lampert as a director and officer of BVF Inc. may be deemed to beneficially own the 2,737,000 shares of common stock owned by Partners. The address for these entities is listed in the Schedule 13G as 1 Sansome Street, 30th ~~Floor, San Francisco, CA 94104.~~

~~(2)~~

Consists of 9,000 shares of common stock held by the Claudia Forrester 2001 Trust, 9,000 shares of common stock held by the Iona Forrester 2001 Trust and 200,734 shares of common stock held by Mr. Forrester and 1,632,273 shares of common stock issuable upon the exercise of stock options within 60 days of February 28,

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~~2018.~~

~~(3)~~

~~Consists of 130,000 shares of common stock held by Mr. Barberich and 118,431 shares of common stock issuable upon the exercise of stock options within 60 days of February 28, 2018.~~

~~(4)~~

~~Consists of 132,810 shares of common stock issuable upon the exercise of stock options within 60 days of February 28, 2018.~~

~~(5)~~

~~Consists of 2,500 shares of common stock held by Ms. Lawton and 132,810 shares of common stock issuable upon the exercise of stock options within 60 days of February 28, 2018.~~

~~(6)~~

~~Consists of 26,500 shares of common stock held by The Phanstiel Trust and 135,173 shares of common stock issuable upon the exercise of stock options within 60 days of February 28, 2018.~~

~~(7)~~

~~Consists of 41,668 shares of common stock issuable upon the exercise of stock options within 60 days of February 28, 2018.~~

~~(8)~~

~~Consists of 29,169 shares of common stock issuable upon the exercise of stock options within 60 days of February 28, 2018.~~

~~(9)~~

~~Consists of 70,834 shares of common stock issuable upon the exercise of stock options within 60 days of February 28, 2018.~~

~~(10)~~

~~Includes shares of common stock issuable upon exercise of stock options within 60 days of February 28, 2018.~~

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

~~Policies~~The information required by this Item 13 of Form 10-K regarding certain relationships and ~~Procedures for Related Person Transactions~~

~~Our Board of Directors has adopted written policies~~related transactions and ~~procedures for the review of any transaction, arrangement or relationship in which the Company is a participant, the amount involved exceeds $120,000 and one of our executive officers, directors,~~ director ~~nominees or 5% stockholders, or their immediate family members, each of whom we refer to as a “related person,” has a direct or indirect material interest.~~

~~Transactions with related persons~~

If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our principal financial officer. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our Audit Committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction. If advance review and approval is not practicable, the Audit Committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the Audit Committee to review and, if deemed appropriate, approve proposed related person transactions that arise between Audit Committee meetings, subject to ratification by the Audit Committee at its next meeting. Any related person transactions that are ongoing in natureindependence will be ~~reviewed annually.~~

A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the Audit Committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the Audit Committee will review and consider:

~~the related person’s interest in the related person transaction;~~

~~the approximate dollar value of the amount involved in the related person transaction;~~

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~~the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;~~

~~whether the transaction was undertaken in the ordinary course of our business;~~

~~whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party;~~

~~the purpose of, and the potential benefits to us of, the transaction; and~~

any other information regarding the related person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction.

~~The Audit Committee may approve or ratify the transaction only if the Audit Committee determines that, under all of the circumstances, the transaction is~~included in our ~~best interests. The Audit Committee may impose any conditions on the related person transaction that it deems appropriate.~~

~~In addition to the transactions that are excluded~~2021 Proxy Statement and is incorporated herein by the instructions to the SEC’s related person transaction disclosure rule, our Board of Directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:reference.

interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of such entity) that is a participant in the transaction, where (a) the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, (b) the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction and (c) the amount involved in the transaction is less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; and

~~a transaction that is specifically contemplated by provisions of our charter or bylaws.~~

~~The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the Compensation Committee in the manner specified in its charter.~~

~~Director Independence~~

As required by the listing standards of The Nasdaq Global Market (Nasdaq), the Board of Directors has affirmatively determined, upon the recommendation of the Nominating and Corporate Governance Committee, that each of our directors and nominees for director other than Robert Forrester, our President and Chief Executive Officer, is independent. To make this determination, our Board of Directors reviews all relevant transactions or relationships between each director and Verastem, its senior management and its independent registered public accounting firm. During this review, the Board considers whether there are any transactions or relationships between directors or any member of their immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder) and members of our senior management or their affiliates. The Board consults with Verastem’s outside corporate counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent Nasdaq listing standards, as in effect from time to time.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

~~Principal Accountant Fees and Services~~

~~We regularly review the services and~~The information required by this Item 14 of Form 10-K regarding principal accountant fees of our independent accountants. These services and fees are also reviewed by the Audit Committee on an annual basis. The aggregate fees billed and accrued for the fiscal years ended December 31, 2017 and 2016 for each of the following categories of services are as follows:

Fee Category

2017 ($)

2016 ($)
Audit Fees

1,086,000

417,500
Audit-Related Fees

—

—
Tax Fees

—

—
All Other Fees

—

—
Total Fees

1,086,000

417,500

~~Audit Fees. Consist of fees billed and accrued for professional services rendered for the audit of our annual financial statements, the review of interim financial statements~~ and services ~~provided~~will be included in ~~connection with~~ our ~~registration statements.~~2021 Proxy Statement and is incorporated herein by reference.

~~Audit-Related Fees~~. Consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”

~~Tax Fees. Consist of fees billed for tax compliance, tax advice and tax planning and includes fees for tax return preparation.~~

~~All Other Fees. Consist of fees billed for products and services, other than those described above under Audit Fees, Audit-Related Fees and Tax Fees.~~

9684

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PART IV

Item 15. Exhibits and Financial Statement Schedules

Consolidated Financial Statements

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.

Table of Contents

EXHIBIT INDEX


Exhibit number		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		Specimen certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177677) filed by the Registrant on January 13, 2012)

4.2		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)
4.3		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)

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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)

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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

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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.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 18^th day of March 2021.


	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	Title	Date
/s/ Brian M. Stuglik R.Ph
Brian M. Stuglik	Chief Executive Officer and Director (Principal executive officer)	March 18, 2021

/s/ Robert Gagnon
Robert Gagnon	Chief Business and Financial Officer (Principal financial and accounting officer)	March 18, 2021

/s/ Timothy Barberich
Timothy Barberich	Director	March 18, 2021

/s/ Gina Consylman
Gina Consylman	Director	March 18, 2021

/s/ Michael Kauffman, M.D.,Ph.D.
Michael Kauffman, M.D., Ph.D.	Director	March 18, 2021

/s/ JOHN JOHNSON
John Johnson	Director	March 18, 2021

/s/ Eric Rowinsky, M.D.
Eric Rowinsky, M.D.	Director	March 18, 2021

/s/ Bruce Wendel
Bruce Wendel	Director	March 18, 2021

Table of Contents

Verastem, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS


Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements	~~See Part II, Item 8 for the Financial~~
Consolidated Balance Sheets	F-4
Consolidated Statements ~~required~~of Operations and Comprehensive Loss	F-5
Consolidated Statements of Stockholders’ Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to ~~be included in this Annual Report on Form 10‑K.~~ Consolidated Financial ~~Statement Schedules~~Statements	~~All financial statement schedules are omitted because they are not~~F-8

F-1

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 ~~required information is included~~Matter

As summarized in Note 6 to 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~~Company’s total accrued expenses were $14.7 million at December 31, 2020, which included the ~~exhibits hereto and such listing is incorporated herein by reference.~~

~~Item 16. Form 10-K Summary~~

~~None.~~

~~Table of Contents~~

~~EXHIBIT INDEX~~


Exhibit number		~~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 30, 2012)~~

~~3.2~~		Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012)

~~4.1~~		Specimen certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012)

~~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~~

~~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~~

~~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~~

~~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~~

~~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~~

~~10.12#~~		Amended and Restated Employment Agreement between the Registrant and Robert Forrester, dated January 13, 2012 (incorporated by reference to Exhibit 10.5 to Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012)

~~Table of Contents~~

~~10.13#~~		Amended and Restated Employment Agreement between the Registrant and Jonathan Pachter, dated January 13, 2012 (incorporated by reference to Exhibit 10.6 to Amendment No. 3 to the Registration Statement on Form S‑1 (File No. 333‑177677) filed by the Registrant on January 13, 2012)

~~10.13#~~		~~Form of Indemnification Agreement between the Registrant and each director (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on August 8, 2017)~~

~~10.14~~		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)

~~10.15#~~		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)

~~10.16†~~		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)

~~10.17#~~		Letter Agreement, dated June 6, 2013, by and between the Registrant and Robert Forrester (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10‑Q filed by the Registrant on August 13, 2013)

~~10.18†~~		Letter Agreement, dated December 7, 2012, by and between the Registrant and Pfizer Inc. (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10‑K filed by the Registrant on March 6, 2014)

~~10.19#~~		Amended and Restated Employment Agreement, dated November 22, 2013, by and between the Registrant and Robert Forrester (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10‑K filed by the Registrant on March 6, 2014)

~~10.20#~~		Employment Agreement between the Registrant and Gregory Berk, dated April 15, 2016 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10‑Q filed by the Registrant on May 9, 2016)

~~10.21#~~		Employment Agreement between the Registrant and Julie B. Feder, dated July 10, 2017 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on July 11, 2017)

~~10.22#~~		Employment Agreement between the Registrant and NgocDiep T. Le, dated October 9, 2017 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10‑Q filed by the Registrant on November 7, 2017)

~~10.23#~~		Separation Agreement between the Registrant and Gregory Berk, effective January 19, 2017 (incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K filed by the Registrant on March 23, 2017)

~~10.24#~~		Consulting Agreement between the Registrant and Gregory Berk, effective January 20, 2017 (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K filed by the Registrant on March 23, 2017)

~~Table of Contents~~

~~10.25‡~~		Amended and Restated License Agreement, dated November 1, 2016, by and between the Registrant and Infinity Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K filed by the Registrant on March 23, 2017)

~~10.26~~		Loan and Security Agreement, dated March 21, 2017, by and between the Registrant, the Lender (as defined therein) and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K filed by the Registrant on March 23, 2017)

~~10.27~~		First Amendment to Loan and Security Agreement, dated January 4, 2018, by and between the Registrant, the Lender (as defined therein) and Hercules Capital, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on January 4, 2018)

10.28*		~~Second Amendment to Loan and Security Agreement, dated March 6, 2018, by and between the Registrant, the Lender (as defined therein) and Hercules Capital, Inc.~~

~~10.29*#~~		~~Employment Agreement between the Registrant and Joseph Lobacki, dated January 3, 2018~~

21.1*		~~Subsidiaries of the Registrant~~

23.1*		~~Consent of Ernst & Young LLP~~

31.1*		~~Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a‑14(a)~~

31.2*		~~Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a‑14(a)~~

32.1*		~~Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002~~

32.2*		~~Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002~~

99.1*		~~Press Release issued by Verastem, Inc. on March 13, 2018 (furnished herewith)~~

101.INS*		~~XBRL Instance Document~~

101.SCH*		~~XBRL Taxonomy Extension Schema Document~~

101.CAL*		~~XBRL Taxonomy Extension Calculation Linkbase Document~~

101.DEF*		~~XBRL Taxonomy Extension Definition Linkbase Document~~

101.LAB*		~~XBRL Taxonomy Extension Label Linkbase Document~~

101.PRE*		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

*Filed herewith.

~~†Confidential treatment granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.~~

‡Confidential treatment requested under 17 C.F.R. §200.80(b)(4) and Rule 24b‑2. The confidential portions of this exhibit have been omitted and are marked accordingly. The confidential portions have been provided separately to the SEC pursuant to the confidential treatment request.

~~#Management contract or compensatory plan, contract or agreement.~~

~~100~~

~~Table of Contents~~

~~SIGNATURES~~


	~~VERASTEM, INC.~~
	~~By:~~	~~/s/ Robert Forrester~~

		~~Robert Forrester~~
		~~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~~	~~Title~~	~~Date~~
~~/s/ Robert Forrester~~
~~Robert Forrester~~	Chief Executive Officer and Director (Principal executive officer)	~~March 13, 2018~~

~~/s/ Julie B. Feder~~
~~Julie B. Feder~~	Chief Financial Officer (Principal financial and accounting officer)	~~March 13, 2018~~

~~/s/ Timothy Barberich~~
~~Timothy Barberich~~	~~Director~~	~~March 13, 2018~~

~~/s/ Michael Kauffman, M.D.,Ph.D.~~
~~Michael Kauffman, M.D., Ph.D.~~	~~Director~~	~~March 13, 2018~~

~~/s/ Alison Lawton~~
~~Alison Lawton~~	~~Director~~	~~March 13, 2018~~

~~/s/ S. Louise Phanstiel~~
~~S. Louise Phanstiel~~	~~Director~~	~~March 13, 2018~~

~~/s/ Eric Rowinsky, M.D.~~
~~Eric Rowinsky, M.D.~~	~~Director~~	~~March 13, 2018~~

~~/s/ Brian Stuglik, R.Ph,~~
~~Brian Stuglik, R.Ph.~~	~~Director~~	~~March 13, 2018~~

~~/s/ Bruce Wendel~~
~~Bruce Wendel~~	~~Director~~	~~March 13, 2018~~

~~101~~

~~Table of Contents~~

~~Verastem, Inc.~~

~~CONSOLIDATED FINANCIAL STATEMENTS~~

~~CONTENTS~~


~~Report of Independent Registered Public Accounting Firm~~	~~F‑2~~
~~Consolidated Financial Statements~~
~~Consolidated Balance Sheets~~	~~F‑3~~
~~Consolidated Statements of Operations and Comprehensive Loss~~	~~F‑4~~
~~Consolidated Statements of Stockholders’ Equity~~	~~F‑5~~
~~Consolidated Statements of Cash Flows~~	~~F‑6~~
~~Notes to Consolidated Financial Statements~~	~~F‑7~~

~~Table of Contents~~

~~Verastem, Inc.~~

~~Report of Independent Registered Public Accounting Firm~~

~~To the Stockholders and the Board of Directors of Verastem, Inc.~~

~~Opinion on the Financial Statements~~

~~We have audited the accompanying consolidated balance sheets of Verastem, Inc. (the Company)~~estimated obligation for clinical trial expenses incurred as of December 31, ~~2017~~2020 but not paid as of that date. In addition, the Company’s total prepaid expenses and ~~2016, the related consolidated statements~~other current assets were $3.5 million, which included amounts that were paid in advance of ~~operations and comprehensive loss, stockholders' equity and cash flows for each of the three years~~services incurred pursuant to clinical trials. As discussed in ~~the period ended December 31, 2017, and the related notes (collectively referred~~Note 2 to ~~as the “consolidated financial statements”). In our opinion,~~ the consolidated financial statements, ~~present fairly, in all material respects,~~ the ~~financial position~~Company records research and

F-2

Table of Contents

development expenses as incurred. The Company’s determination of costs incurred to conduct research, such as the discovery and development of the ~~Company~~Company’s product candidates as well as the related accrued expenses at ~~December 31, 2017~~each reporting period incorporates judgment and ~~2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.~~

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 13, 2018 expressedutilizes various assumptions, including an ~~unqualified opinion thereon.~~

~~The Company's Ability to Continue as a Going Concern~~

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the ~~events~~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 ~~conditions and management’s plans regarding~~the level of effort to be expended in each period. Payments for these ~~matters~~activities are ~~also described in Note 1. The consolidated financial statements do not include any adjustments that might result~~based on the terms of the individual arrangements, which often differ from the ~~outcome~~pattern of ~~this uncertainty.~~ costs incurred.

~~Basis for Opinion~~

~~These financial statements are~~Auditing the ~~responsibility~~Company’s accrued and prepaid clinical trial expenses was especially challenging due to the large volume of ~~the Company's management. Our responsibility is to express an opinion~~information received from multiple vendors that perform service on the Company’s ~~financial statements~~behalf. While the Company’s estimates of accrued and prepaid clinical trial expenses are primarily based on ~~our audits. We are a public accounting firm registered with~~information received from its vendors for each study, the ~~PCAOB and are required~~Company may need to ~~be independent with respect~~make an estimate for additional costs incurred. Additionally, due to the ~~Company in accordance with the U.S. federal securities laws~~long duration of clinical trials and the ~~applicable rules and regulations~~timing of vendor invoices, the ~~Securities and Exchange Commission and~~actual amounts incurred are not typically known at 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~~time the financial statements are ~~free~~issued.

How We Addressed the Matter in Our Audit

To evaluate the Company’s estimate of ~~material misstatement, whether due~~services incurred as of period end pursuant to ~~error or fraud. Our audits~~its accrued and prepaid clinical trials expenses, our audit procedures included, ~~performing procedures~~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 ~~risks of material misstatement~~nature and extent 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~~services incurred, we corroborated 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 presentationprogress of ~~the financial statements. We believe that our audits provide a reasonable basis for our opinion.~~

~~/s/ Ernst & Young LLP~~

~~We have served as the Company’s auditor since 2011.~~

~~Boston, Massachusetts~~

~~March 13, 2018~~

~~F-2~~

~~Table of Contents~~

~~Verastem, Inc.~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(in thousands, except per share amounts)~~

December 31,

2017

2016

Assets

Current assets:

Cash and cash equivalents

$
82,176

$
32,349

Short-term investments

4,496

48,548

Prepaid expenses and other current assets

1,115

398

Total current assets

87,787

81,295

Property and equipment, net

861

1,417

Restricted cash

162

162

Other assets

981

755

Total assets

$
89,791

$
83,629

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$
9,186

$
4,095

Accrued expenses

7,942

6,896

Total current liabilities

17,128

10,991

Non-current liabilities:

Long-term debt

14,828

—

Other non-current liabilities

151

341

Total liabilities

32,107

11,332

Stockholders’ equity:

Preferred stock, $0.0001 par value; 5,000 shares authorized, no shares issued and outstanding at December 31, 2017 and 2016, respectively

—

—

Common stock, $0.0001 par value; 100,000 shares authorized, 50,801 and 36,992 shares issued and outstanding at December 31, 2017 and 2016, respectively

5

4

Additional paid-in capital

360,823

307,587

Accumulated other comprehensive (loss) income

(2)

29

Accumulated deficit

(303,142)

(235,323)

Total stockholders’ equity

57,684

72,297

Total liabilities and stockholders’ equity

$
89,791

$
83,629

~~See accompanying notes to the consolidated financial statements.~~

~~F-3~~

~~Table of Contents~~

~~Verastem, Inc.~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS~~

~~(in thousands, except per share amounts)~~

Year Ended December 31,

2017

2016

2015

Operating expenses:

Research and development

$
46,423

$
19,779

$
40,565

General and administrative

21,381

17,223

17,634

Total operating expenses

67,804

37,002

58,199

Loss from operations

(67,804)

(37,002)

(58,199)

Interest income

561

562

334

Interest expense

(559)

—

—

Net loss

$
(67,802)

$
(36,440)

$
(57,865)

Net loss per share—basic and diluted

$
(1.76)

$
(0.99)

$
(1.61)

Weighted-average number of common shares used in net loss per share—basic and diluted

38,422

36,988

35,932

Net loss

$
(67,802)

$
(36,440)

$
(57,865)

Unrealized (loss) gain on available-for-sale securities

(31)

(14)

32

Comprehensive loss

$
(67,833)

$
(36,454)

$
(57,833)

~~See accompanying notes to the consolidated financial statements.~~

~~F-4~~

~~Table of Contents~~

~~Verastem, Inc.~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(in thousands, except share data)~~

Accumulated

other

Additional

comprehensive

Total

Common stock

paid-in

(loss)

Accumulated

stockholders'


Shares

Amount

capital

income

deficit

equity

Balance at December 31, 2014

27,259,372

$
3

$
229,770

$
11

$
(141,018)

$
88,766

Net loss

—

—

—

—

(57,865)

(57,865)

Unrealized gain on available-for-sale marketable securities

—

—

—

32

—

32

Issuance of common stock resulting from follow-on offering

8,337,500

1

50,941

—

—

50,942

Issuance of common stock resulting from at-the-market transactions, net of issuance costs of $53

1,189,479

—

10,911

—

—

10,911

Vesting of restricted stock

7,995

—

2

—

—

2

Issuance of common stock resulting from exercise of stock options

33,658

—

13

—

—

13

Issuance of common stock resulting from vesting of restricted stock units and payment of tax withholdings

113,257

—

(417)

—

—

(417)

Stock-based compensation expense

—

—

10,085

—

—

10,085

Balance at December 31, 2015

36,941,261

$
4

$
301,305

$
43

$
(198,883)

$
102,469

Net loss

—

—

—

—

(36,440)

(36,440)

Unrealized loss on available-for-sale marketable securities

—

—

—

(14)

—

(14)

Issuance of common stock resulting from exercise of stock options

1,605

—

—

—

—

—

Issuance of common stock resulting from vesting of restricted stock units and payment of tax withholdings

49,552

—

(5)

—

—

(5)

Stock-based compensation expense

—

—

6,287

—

—

6,287

Balance at December 31, 2016

36,992,418

$
4

$
307,587

$
29

$
(235,323)

$
72,297

Net loss

—

—

—

—

(67,802)

(67,802)

Unrealized loss on available-for-sale marketable securities

—

—

—

(31)

—

(31)

Issuance of common stock resulting from follow-on offering, net of issuance costs of $324

8,422,877

1

24,691

—

—

24,692

Issuance of common stock resulting from at-the-market transactions, net of issuance costs of $112

5,036,879

—

23,053

—

—

23,053

Issuance of common stock resulting from exercise of stock options

348,734

—

442

—

—

442

Stock-based compensation expense

—

—

5,050

—

(17)

5,033

Balance at December 31, 2017

50,800,908

$
5

$
360,823

$
(2)

$
(303,142)

$
57,684

~~See accompanying notes to the consolidated financial statements.~~

~~F-5~~

~~Table of Contents~~

~~Verastem, Inc.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

Year ended December 31,

2017

2016

2015

Operating activities

Net loss

$
(67,802)

$
(36,440)

$
(57,865)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

556

670

754

Stock-based compensation expense

5,033

6,287

10,085

Amortization of deferred financing costs, debt discounts and premiums and discounts on available-for-sale marketable securities

223

(140)

264

Loss on disposal of fixed assets

—

—

46

Changes in operating assets and liabilities:

Prepaid expenses, other current assets and other assets

(943)

(568)

276

Accounts payable

5,046

153

863

Accrued expenses and other liabilities

577

623

418

Liability classified stock-based compensation awards

—

(69)

(400)

Net cash used in operating activities

(57,310)

(29,484)

(45,559)

Investing activities

Purchases of property and equipment

—

(39)

(211)

Purchases of investments

(7,957)

(82,101)

(199,851)

Maturities of investments

51,910

119,067

173,005

Decrease in restricted cash

—

41

—

Net cash provided by (used in) investing activities

43,953

36,968

(27,057)

Financing activities

Proceeds from long-term debt, net

14,811

—

—

Deferred debt financing costs

(138)

—

—

Proceeds from the exercise of stock options

442

—

13

Proceeds from the issuance of common stock, net

48,069

—

63,989

Cash used to settle restricted stock liability

—

(5)

(417)

Net cash provided by (used in) financing activities

63,184

(5)

63,585

Increase (decrease) in cash and cash equivalents

49,827

7,479

(9,031)

Cash and cash equivalents at beginning of period

32,349

24,870

33,901

Cash and cash equivalents at end of period

$
82,176

$
32,349

$
24,870

Supplemental disclosures

Cash paid for interest

$
295

$
—

$
—

Supplemental disclosure non-cash financing activities

Common stock issuance costs included in accounts payable and accrued expenses

$
324

$
—

$
—

~~See accompanying notes to the consolidated financial statements.~~

~~F-6~~

~~Table of Contents~~

~~1. Nature of business~~

Verastem, Inc. (the Company) is a biopharmaceutical company focused on developing and commercializing drugs to improve outcomes for patients with cancer. The Company’s operations to date have been limited to organizing and staffing the Company, business planning, raising capital, acquiring and developing its technology, identifying potential product candidates and undertaking preclinical and clinical studies of its product candidates.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials ~~inability to obtain marketing approval of product candidates, competitors developing new technological innovations, market acceptance of~~with the Company’s products and protection of proprietary technology. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate product revenue or achieve profitability.

As of December 31, 2017, the Company had cash, cash equivalents and investments of $86.7 million and accumulated deficit of $303.1 million. The Company has historical losses from operations and anticipates that it will continue to incur losses for the foreseeable future as it continues the research and development ~~and~~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 seeks marketing approval for, its lead product candidates. Without additional funding, the Company believes that it will not have sufficient funds to meet its obligations within the next twelve months from the date of issuance of these consolidated financial statements. These factors raise substantial doubt aboutinvoices received and inspected the Company’s ~~ability~~contracts with vendors and any pending change orders to ~~continue as a going concern.~~

~~The Company plans~~assess the impact to continue to fund its operations through proceeds from sales of its common stock under its at-the-market equity offering program, public or private equity offerings, its loan and security agreement with Hercules Capital, Inc. (Hercules),the accruals. We also performed analytical reviews over fluctuations in accruals by study or other ~~strategic transactions. However, adequate additional financing may not be available~~significant work order throughout the period subject to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on attractive terms, it may be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts.audit.

~~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.

The consolidated financial statements include the accounts of Verastem Securities Company, a wholly-owned subsidiary of the Company. All financial information presented has been consolidated and includes the accounts of the Company and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

~~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 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.

~~F-7~~

~~Table of Contents~~

~~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 drugs for the treatment of cancer. All material long-lived assets of the Company reside in the United States.

~~Cash and cash equivalents~~

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 fund, overnight repurchase agreements collateralized by government agency securities or U.S. Treasury securities, corporate bonds and commercial paper of publicly traded companies. Cash equivalents are reported at fair value.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2011.

Boston, Massachusetts

March 18, 2021

F-3

Table of Contents

Verastem, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)



	December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	67,782	$	43,514
Short-term investments		73,444		31,992
Accounts receivable, net		239		2,524
Inventory		—		3,096
Prepaid expenses and other current assets		3,473		3,835
Total current assets		144,938		84,961
Property and equipment, net		416		947
Right-of-use asset, net		2,726		3,077
Intangible assets, net		—		20,008
Restricted cash		241		35,241
Long-term investments		5,995		—
Other assets		33		812
Total assets	$	154,349	$	145,046
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,875	$	9,655
Accrued expenses		14,660		19,365
Lease liability, short-term		558		420
Derivative liability, short-term		—		450
Total current liabilities		17,093		29,890
Non-current liabilities:
Long-term debt		—		35,067
Convertible senior notes		19,051		68,556
Lease liability, long-term		2,931		3,489
Other non-current liabilities		—		870
Total liabilities		39,075		137,872
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000 shares authorized, 0 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		17		8
Additional paid-in capital		707,715		531,937
Accumulated other comprehensive income		53		14
Accumulated deficit		(592,511)		(524,785)
Total stockholders’ equity		115,274		7,174
Total liabilities and stockholders’ equity	$	154,349	$	145,046

See accompanying notes to the consolidated financial statements.

F-4

Table of Contents

Verastem, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)


	Year Ended December 31,
	2020		2019		2018
Revenue:
Product revenue, net	$	15,232	$	12,339	$	1,718
License and collaboration revenue		2,912		5,117		25,000
Sale of COPIKTRA license and related assets		70,000		—		—
Transition services revenue		372		—		—
Total revenue		88,516		17,456		26,718
Operating expenses:
Cost of sales - product	$	1,765	$	1,238	$	165
Cost of sales - intangible amortization		793		1,569		423
Cost of sales - sale of COPIKTRA license and related assets		31,187		—		—
Research and development		41,376		45,778		43,648
Selling, general and administrative		62,755		101,212		77,265
Total operating expenses		137,876		149,797		121,501
Loss from operations		(49,360)		(132,341)		(94,783)
Other (expense)/ income		(1,313)		(641)		25,556
Interest income		515		4,381		2,603
Interest expense		(15,794)		(20,608)		(5,810)
Loss on debt extinguishment		(1,580)		—		—
Net loss before income taxes		(67,532)		(149,209)		(72,434)
Income tax expense		(194)		—		—
Net loss	$	(67,726)	$	(149,209)	$	(72,434)
Net loss per share—basic	$	(0.44)	$	(2.00)	$	(1.12)
Net loss per share—diluted	$	(0.44)	$	(2.00)	$	(1.37)
Weighted average common shares outstanding used in computing:
Net loss per share—basic		153,330		74,578		64,962
Net loss per share—diluted		153,330		74,578		69,321

Net loss	$	(67,726)	$	(149,209)	$	(72,434)
Unrealized gain (loss) on available-for-sale securities		39		(113)		129
Comprehensive loss	$	(67,687)	$	(149,322)	$	(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)


						Accumulated
						other
				Additional		comprehensive				Total
	Common stock			paid-in		(loss)		Accumulated		stockholders'
	Shares	Amount		capital		income		deficit		equity
Balance at December 31, 2017	50,800,908	$	5	$	360,823	$	(2)	$	(303,142)	$	57,684
Net loss	—		—		—		—		(72,434)		(72,434)
Unrealized gain on available-for-sale marketable securities	—		—		—		129		—		129
Issuance of common stock resulting from follow-on offering, net of issuance costs of $361	16,111,110		1		81,188		—		—		81,189
Issuance of common stock resulting from at-the-market transactions, net of issuance costs of $0	6,481,475		1		24,275		—		—		24,276
Issuance of common stock resulting from exercise of stock options	412,851		—		809		—		—		809
Stock-based compensation expense	—		—		6,671		—		—		6,671
Reclassification of derivative liability to equity	—		—		25,975		—				25,975
Balance at December 31, 2018	73,806,344	$	7	$	499,741	$	127	$	(375,576)	$	124,299
Net loss	—		—		—		—		(149,209)		(149,209)
Unrealized loss on available-for-sale marketable securities	—		—		—		(113)		—		(113)
Conversion of Notes into common stock	5,767,872		1		9,516		—		—		9,517
Change in fair value of conversion option of Notes on exchange	—		—		13,640		—		—		13,640
Issuance of common stock under Employee Stock Purchase Plan	341,701		—		439		—		—		439
Issuance of common stock resulting from vesting of restricted stock units	109,707		—		(68)		—		—		(68)
Issuance of common stock resulting from exercise of stock options	91,907		—		130		—		—		130
Stock-based compensation expense	—		—		8,539		—		—		8,539
Balance at December 31, 2019	80,117,531	$	8	$	531,937	$	14	$	(524,785)	$	7,174
Net loss	—		—		—		—		(67,726)		(67,726)
Unrealized gain on available-for-sale marketable securities	—		—		—		39		—		39
Conversion of Notes into common stock	34,796,350		3		57,411		—		—		57,414
Change in fair value of conversion option of Notes on exchange	—		—		2,331		—		—		2,331
Issuance of common stock under Employee Stock Purchase Plan	358,193		—		407		—		—		407
Issuance of common stock resulting from vesting of restricted stock units	421,695		—		(1,120)		—		—		(1,120)
Issuance of common stock resulting from exercise of stock options	1,481,223		—		2,578		—		—		2,578
Issuance of common stock resulting from at-the-market transactions, net of issuance costs of $55	6,769,559		1		12,229		—		—		12,230
Issuance of common stock resulting from private investment in public equity offering, net of issuance costs of $6,171	46,511,628		5		93,824		—		—		93,829
Stock-based compensation expense	—		—		8,118		—		—		8,118
Balance at December 31, 2020	170,456,179	$	17	$	707,715	$	53	$	(592,511)	$	115,274

See accompanying notes to the consolidated financial statements.

F-6

Table of Contents

Verastem, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended December 31,
	2020		2019		2018
Operating activities
Net loss	$	(67,726)	$	(149,209)	$	(72,434)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		531		429		996
Amortization of acquired intangible asset		793		1,569		423
Amortization of right-of-use asset and lease liability		(69)		181		—
Stock-based compensation expense		8,118		8,539		6,671
Loss on debt extinguishment		1,580		—		—
Amortization of deferred financing costs, debt discounts and premiums and discounts on available-for-sale marketable securities		10,319		7,131		1,814
Change in fair value of interest make whole provision and conversion option for Notes		1,313		641		(25,556)
Gain on sale of fixed assets				—		(79)
Changes in operating assets and liabilities:
Accounts receivable, net		2,285		(2,218)		(306)
Inventory		3,096		(2,769)		(327)
Prepaid expenses, other current assets and other assets		634		(877)		(1,167)
Accounts payable		(7,976)		(598)		1,048
Accrued expenses and other liabilities		(4,999)		(1,707)		13,902
Other long-term liabilities		(870)		370		500
Intangible assets & property, plant and equipment		19,465		—		—
Net cash used in operating activities		(33,506)		(138,518)		(74,515)
Investing activities
Purchases of property and equipment		(33)		(7)		(1,507)
Sales of property and equipment		—		—		82
Acquisition of intangible asset		—		—		(22,000)
Purchases of investments		(79,380)		(94,123)		(125,452)
Maturities of investments		32,050		183,743		10,500
Net cash (used in) provided by investing activities		(47,363)		89,613		(138,377)
Financing activities
Proceeds from long-term debt, net of issuance costs	��	—		9,670		9,900
Repayment of long-term, debt		(37,366)		—		—
Proceeds from issuance of convertible senior notes, net of issuance costs		—		—		145,297
Principal payments on the convertible senior notes		—		(12,174)		—
Interest make-whole payments on the 2019 Notes		(1,763)		(438)		—
Proceeds from the exercise of stock options and employee stock purchase program		2,985		569		809
Settlement of restricted stock for tax withholdings		(285)		(68)		—
Proceeds from the issuance of common stock, net		106,059		—		105,156
Net cash provided by (used in) financing activities		69,630		(2,441)		261,162
(Decrease) increase in cash, cash equivalents and restricted cash		(11,239)		(51,346)		48,270
Cash, cash equivalents and restricted cash at beginning of period		79,262		130,608		82,338
Cash, cash equivalents and restricted cash at end of period	$	68,023	$	79,262	$	130,608
Supplemental disclosure
Cash paid for interest	$	5,126	$	12,424	$	2,107
Supplemental disclosure of non-cash investing and financing activities
Common stock issuance costs included in accounts payable and accrued expenses	$	15	$	15	$	15
Purchases of property and equipment included in accounts payable and accrued expenses	$	217	$	—	$	—
Settlement of restricted stock units for tax withholdings included in accrued expenses	$	835	$	—	$	—
Change in fair value of conversion option of Notes on exchange	$	2,331	$	13,640	$	—
Conversion of 2019 Notes into common stock	$	57,414	$	9,517	$	—

See accompanying notes to the consolidated financial statements.

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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.

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2. Significant accounting policies

Basis of presentation

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 1 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):


	December 31, 2020		December 31, 2019
Cash and cash equivalents	$	67,782	$	43,514
Restricted cash		241		35,748
Total cash, cash equivalents and restricted cash	$	68,023	$	79,262

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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 2 inputs

~~Items Measured at Fair Value on a Recurring Basis~~

~~The following table presents information~~Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs

Unobservable inputs that reflect the Company’s own assumptions about the ~~Company’s financial instruments that are measured at fair value on a recurring basis (in thousands):~~

December 31, 2017

Description

Total

Level 1

Level 2

Level 3

Financial assets

Cash equivalents

$
80,894

$
75,478

$
5,416

$
—

Short-term investments

4,496

—

4,496

—

Total financial assets

$
85,390

$
75,478

$
9,912

$
—

December 31, 2016

Description

Total

Level 1

Level 2

Level 3

Financial assets

Cash equivalents

$
30,540

$
20,540

$
10,000

$
—

Short-term investments

48,548

—

48,548

—

Total financial assets

$
79,088

$
20,540

$
58,548

$
—

~~These investments and cash equivalents have been initially valued at~~assumptions market participants would use in pricing the ~~transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services~~asset or ~~other market observable data. The~~liability.

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~~Table of Contents~~

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, 2017 and 2016.

~~Fair Value of Financial Instruments~~

~~The fair value of the Company’s long-term debt is~~ determined using current applicable rates for similar instruments as of the balance sheet dates and an assessment of the credit rating of the Company. The carrying value of the Company’s debt at December 31, 2017 approximates fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments. ~~The fair value of the Company’s long-term debt was determined using Level 3 inputs.~~

~~Investments~~

Investments and cash equivalents consist of investments in a U.S. Government money market fund, 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 classified as long‑term assets on the consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. 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 (deficit), 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, 2017, 2016 or 2015. There were~~ no investments that had been in an unrealized loss position for more than 12 months as of December 31, 2017 or December 31, 2016. There were 5 debt securities in an unrealized loss position for less than 12 months at December 31, 2017 and there were 14 debt securities that had been in an unrealized loss position for less than 12 months at December 31, 2016. The aggregate unrealized loss on these securities as of December 31, 2017 and December 31, 2016 was approximately $2,000 and $24,000, respectively, and the fair value was $9.9 million and $23.6 million, respectively. 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, 2017.

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~~Cash, cash equivalents and investments consist of the following (in thousands):~~

December 31, 2017




Gross

Gross


Amortized

Unrealized

Unrealized

Fair


Cost

Gains

Losses

Value

Cash and cash equivalents:

Cash and money market accounts

$
76,760

$
—

$
—

$
76,760

Corporate bonds and commercial paper

$
5,418

$
—

$
(2)

$
5,416

Total cash and cash equivalents

$
82,178

$
—

$
(2)

$
82,176

Investments:

Corporate bonds and commercial paper (due within 1 year)

$
4,496

$
—

$
—

$
4,496

Total investments

$
4,496

$
—

$
—

$
4,496

Total cash, cash equivalents, and investments

$
86,674

$
—

$
(2)

$
86,672

December 31, 2016




Gross

Gross


Amortized

Unrealized

Unrealized

Fair


Cost

Gains

Losses

Value

Cash and cash equivalents:

Cash and money market accounts

$
22,349

$
—

$
—

$
22,349

Overnight repurchase agreements

10,000

—

—

10,000

Total cash and cash equivalents

$
32,349

$
—

$
—

$
32,349

Investments:

Corporate bonds and commercial paper (due within 1 year)

$
48,519

$
53

$
(24)

$
48,548

Total investments

$
48,519

$
53

$
(24)

$
48,548

Total cash, cash equivalents, and investments

$
80,868

$
53

$
(24)

$
80,897

~~Concentrations of credit risk and off‑balance sheet risk~~

Cash and cash equivalents and investments 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, 2017, the Company’s cash, cash equivalents and investments were deposited at two 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.

~~Property and equipment~~

Property and equipment consists 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 is calculated using the straight‑line method over the following estimated useful lives of the assets:


~~Laboratory equipment~~	5	~~years~~
~~Furniture~~	5	~~years~~
~~Computer equipment~~	3	~~years~~
~~Leasehold improvements~~		~~Lesser of useful life or life of lease~~

~~Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are 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

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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 material impairment losses have been recorded through December 31, 2017.

~~Other assets~~

Other assets primarily consists of prepayments made to contract research organizations (CROs). As of December 31, 2017 and 2016, other assets was primarily comprised of approximately $755,000 of prepaid CRO expenses that the Company assumed and paid to Infinity Pharmaceuticals, Inc. (Infinity) pursuant to the license agreement between the Company and Infinity.

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):





	December 31, 2020
Description	Total		Level 1		Level 2		Level 3
Financial assets
Cash equivalents	$	65,610	$	60,611	$	4,999	$	—
Short-term investments	$	73,444	$	—	$	73,444	$	—
Long-term investments	$	5,995	$	—	$	5,995	$	—
Total financial assets	$	145,049	$	60,611	$	84,438	$	—



	December 31, 2019
Description	Total		Level 1		Level 2		Level 3
Financial assets
Cash equivalents	$	77,176	$	75,678	$	1,498	$	—
Short-term investments		31,992		—		31,992		—
Total financial assets	$	109,168	$	75,678	$	33,490	$	—
Derivative liability	$	450		—		—	$	450

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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	$	0
Fair value recognized upon issuance of 2019 Notes		247
Fair value adjustment		641
Derivative liability extinguished upon conversion		(438)
December 31, 2019	$	450
Fair value adjustment		1,313
Derivative liability extinguished upon conversion		(1,763)
December 31, 2020	$	0

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

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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 0 realized gains or losses on investments for the years ended December 31, 2020, 2019 or 2018 There were 1 debt security and 2 debt securities in an unrealized loss position as of December 31, 2020 and December 31, 2019, respectively. NaN 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):


	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash, cash equivalents & restricted cash:
Cash and money market accounts	$	63,024	$	—	$	—	$	63,024
Corporate bonds, agency bonds and commercial paper (due within 90 days)		4,998		1		—		4,999
Total cash, cash equivalents & restricted cash:	$	68,022	$	1	$	—	$	68,023
Investments:
Corporate bonds, agency bonds and commercial paper (due within 1 year)	$	73,389	$	55	$	—	$	73,444
Corporate bonds, agency bonds and commercial paper (due between 1 and 5 years)		5,998		—		(3)		5,995
Total investments	$	79,387	$	55	$	(3)	$	79,439
Total cash, cash equivalents, restricted cash and investments	$	147,409	$	56	$	(3)	$	147,462

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Table of Contents


	December 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Cash, cash equivalents & restricted cash:
Cash and money market accounts	$	77,764	$	—	$	—	$	77,764
Corporate bonds, agency bonds and commercial paper (due within 90 days)		1,498	$	—	$	—	$	1,498
Total cash, cash equivalents & restricted cash:	$	79,262	$	—	$	—	$	79,262
Investments:
Corporate bonds and commercial paper (due within 1 year)	$	31,979	$	14	$	—	$	31,993
Total investments	$	31,979	$	14	$	—	$	31,993
Total cash, cash equivalents, restricted cash and investments	$	111,241	$	14	$	—	$	111,255

Concentrations of credit risk and off-balance sheet risk

Cash and cash equivalents, investments, and trade accounts receivable are financial instruments that potentially subject the Company to concentrations of credit risk. The Company mitigates this risk by maintaining its cash and cash equivalents and investments with high quality, accredited financial institutions. The management of the Company’s investments is not discretionary on the part of these financial institutions. As of December 31, 2020, the Company’s cash, cash equivalents and investments were deposited at 3 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 2 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, 4 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		5 years
Furniture		5 years
Computer equipment		3 years
Leasehold improvements		Lesser of useful life or life of lease

Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are 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. NaN impairment losses have been recorded through December 31, 2020.

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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;~~

●

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; and~~

~~facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of equipment, and laboratory supplies.~~

~~The Company accounts for nonrefundable advance payments for goods and services that will be used in future~~ research and development ~~activities~~expenses incurred under arrangements with third parties, such as ~~expenses when the services have been performed or when the goods have been received rather than when the payment is made.~~

~~Stock‑based compensation~~

The Company expenses the fair value of employee stock-based awards on a straight-line basis over the requisite service period, which typically is the vesting period. Compensation expense is measured using the fair value of the award at the grant date, net of estimated forfeitures,CROs, clinical trial sites, manufacturing organizations and is adjusted to reflect actual forfeitures as they occur. Awards subject to performance based vesting requirements are expensed utilizing an accelerated attribution model if achievement of the performance criteria is determined to be probable.

~~The grant date fair value of employee 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 uses the simplified method described in the Securities and Exchange Commission Staff Accounting Bulletin 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 employee population. The computation of expected volatility is based on the historical volatility of five companies,consultants, including the ~~Company~~scientific advisory board;

●

license fees;

●

facilities, depreciation and ~~a representative group~~other expenses, which include direct and allocated expenses for rent and maintenance of ~~four public biotechnology~~facilities, depreciation of equipment, and ~~life sciences companies~~laboratory supplies; and

●

costs associated with ~~similar characteristics~~COPIKTRA prior to the Company ~~including similar stage~~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

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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.

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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.

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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 ~~product development and therapeutic focus. The risk‑free interest rate is based on~~damaged product;

●

Shipment errors that were a ~~treasury instrument whose term is consistent with the expected term~~result of ~~the stock options.~~ ~~Historically, the Company has recognized stock-based compensation net of estimated forfeitures over the vesting period of the respective grant.~~ ~~Effective January 1, 2017, the Company adopted Accounting Standard Updated (ASU) 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified the accounting for share-based compensation arrangements, including the accounting~~

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~~for forfeitures. Upon adoption, the Company elected to begin accounting for forfeitures as they occur, rather than estimating a forfeiture rate, and recorded~~ an ~~immaterial cumulative-effect adjustment to opening accumulated deficit.~~

Stock‑based awards issued to nonemployees, including directors for non‑board related services, are accounted for based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measured. Stock option awards to non-employees are revalued at each reporting date and upon vesting using the Black‑Scholes option pricing model and are expensed on a straight‑line basis over the vesting period.

Stock‑based compensation awards which allowed for greater than the minimum statutory tax withholdings were classified as liabilities. These awards were revalued at each reporting date and were expensed on a straight‑line basis over the vesting period. Upon settlement, the awards were revalued and the amounts were reclassified to additional paid‑in capital. Shares were withheld to cover the tax withholding and amounts paid to settle the tax liability were recorded as a reduction of additional paid‑in capital.

~~Income taxes~~

The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized.

~~Net loss per share~~

~~Basic and diluted net loss per common share is calculated by dividing net loss applicable to common stockholders~~error by the ~~weighted‑average number of common shares outstanding~~Company;

●

Expired product that is returned during the period without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include outstanding stock options, restricted stock units, unvested restricted stock and the warrant issued in 2014 are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. All potentially dilutive securities were excluded from the calculation of diluted net loss per share as the securities were anti‑dilutive for all periods presented.

~~The following potentially dilutive securities were excluded from the calculation of diluted net loss per share due to their anti‑dilutive effect:~~

Year ended December 31,

2017

2016

2015

Outstanding stock options

8,719,978

5,848,470

5,390,130

Outstanding warrants

—

142,857

142,857

Unvested restricted stock units

—

—

53,751

Total potentially dilutive securities

8,719,978

5,991,327

5,586,738

~~Recently Issued Accounting Standards Updates~~

~~In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-09,~~ ~~Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes~~beginning three months prior to the ~~terms or conditions of~~product’s expiration and ending six months after the expiration date;

●

Product subject to a ~~share-based award require an entity to apply modification accounting under Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions~~recall; and classification of the awards are the same immediately before and after a modification. ASU 2017-09 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company has not elected to early adopt this standard and does not expect the adoption to have a material impact on its consolidated financial statements and related disclosures.

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~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company has not elected to early adopt this standard and does not expect the adoption to have a material impact on its consolidated financial statements and related disclosures.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.~~ ASU 2016-15 adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. The standard is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company has not elected to early adopt this standard and does not expect the adoption to have a material impact on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the guidance under FASB Accounting Standards Codification (ASC) Topic 840, Leases, resulting in the creation of FASB ASC Topic 842, Leases. ASU 2016-02 requires lessees to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases. The guidance also eliminates the current real estate-specific provisions for all entities. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The Company has not elected to early adopt this standard and is currently evaluating the impact the adoption of the standard will have on its consolidated financial statements and related disclosures.

~~Recently Adopted Accounting Standards Updates~~

~~In January 2017, the FASB issued ASU 2017-03,~~ Accounting Changes and Error Corrections (Topic 250) and Investments – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings. ~~ASU 2017-03 clarifies the SEC staff’s expectations about the extent of disclosures that a registrant is expected to provide regarding the impact~~

●

Product that the ~~adoption of ASUs 2014-09 (Revenue from Contracts with Customers), 2016-02 (Leases) and 2016-13 (Measurement of Credit Losses on Financial Instruments) will have on~~Company, at its ~~financial statements. It also conforms SEC guidance on accounting for tax benefits resulting from investments in affordable housing projects to the guidance in ASU 2014-01,~~ ~~Investments -Equity Method and Joint Ventures (Topic 323). The guidance under this ASU was effective upon issuance and did not have a material impact on the Company’s disclosures.~~

~~In October 2016, the FASB issued ASU 2016-17,~~ ~~Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control~~. ASU 2016-17 updates ASU 2015-02. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. ASU 2016-17 is effective for annual and interim periods beginning after December 15, 2016. The Company adopted this standard effective January 1, 2017. The adoption of this ASU did not have an effect on the Company’s financial statements or disclosures.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. ASU 2016-09 simplifies the accounting for share-based compensation arrangements, including the accounting for forfeitures, income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The standard was effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. The Company adopted ASU 2016-09 effective January 1, 2017. Upon adoption, the Company elected to begin accounting for forfeitures as they occur, rather than estimating a forfeiture rate, and recorded an immaterial cumulative-effect adjustment to opening accumulated deficit. Also u~~pon adoption, the Company recognized all previously~~

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unrecognized tax benefits, which would have resulted in the recognition of an immaterial cumulative-effect adjustment to opening accumulated deficit; however, these unrecognized tax benefits were recorded as a deferred tax asset, which was fully offset by a valuation allowance. Therefore, the recognition of these benefits had no net cumulative-effect on opening accumulated deficit upon adoption.

~~3. Property and equipment, net~~

~~Property and equipment and related accumulated depreciation are as follows (in thousands):~~

December 31,

December 31,

2017

2016

Leasehold improvements

$
2,104

$
2,104

Laboratory equipment

908

908

Furniture and fixtures

325

325

Computer equipment

279

279

3,616

3,616

Less: accumulated depreciation

(2,755)

(2,199)

Total property, plant and equipment, net

$
861

$
1,417

~~Approximate total depreciation and amortization expenses amounted to $556,000, $670,000, and $754,000 for the years ended December 31, 2017, 2016, and 2015, respectively.~~

~~4. Accrued expenses~~

~~Accrued expenses consist of the following (in thousands):~~

December 31,
2017

December 31,
2016

Contract research organization costs

$
3,774

$
3,258

Compensation and related benefits

2,622

2,505

Professional fees

617

403

Consulting fees

579

527

Deferred rent

190

175

Other

160

28

Total accrued expenses

$
7,942

$
6,896

~~5. Long-term debt~~

On March 21, 2017 (Closing Date), Verastem, Inc. (the Borrower) entered into a term loan facility of up to $25.0 million with Hercules, a Maryland corporation, the proceeds of which will be used for its ongoing research and development programs and for general corporate purposes. The term loan facility is governed by a loan and security agreement, dated March 21, 2017 (the Original Loan Agreement), which originally provided for up to four separate advances, of which the first tranche of $2.5 million was drawn on the Closing Date. The second and third tranches of $2.5 million and $5.0 million, respectively were drawn on October 12, 2017 after announcing favorable data from the Company’s Phase III clinical study evaluating the safety and efficacy of duvelisib in patients with relapsed/refractory chronic lymphocytic leukemia or small lymphocytic lymphoma. A total of $6.0 million of the proceeds received from the second and third tranches were used to make a milestone payment pursuant to the Company’s license agreement with Infinity. The fourth tranche of $15.0 million could be drawn, at the Borrower’s option and at the sole discretion, ~~of Hercules, on or prior to June 30, 2018. On December 20, 2017, the Borrower drew an additional advance on the fourth tranche of $5.0 million.~~

On January 4, 2018, the Borrower entered into the First Amendment to the Original Loan Agreement (the First Amendment) and on March 6, 2018, the Borrower entered into the Second Amendment to the Original Loan Agreement (the Second Amendment, and the Original Loan Agreement as amended by the First Amendment and the Second Amendment, the Amended Loan Agreement). The First Amendment increased the borrowing limit under the Original Loan Agreement from up to $25.0 million to up to $50.0 million (the Term Loan). As $15.0 million in

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term loans had already been drawn prior to entering into the First Amendment, there is $35.0 million of borrowing capacity remaining under the Amended Loan Agreement. The remaining $35.0 million of borrowing capacity mayhas specified can be drawn in minimum increments of $5.0 million in multiple tranches comprised of (i) term loans (each a Term E Loan Advance) in an aggregate principal amount of up to $10.0 million and (ii) subject to Hercules’ sole discretion, term loans (each a Term F Loan Advance) in an aggregate principal amount of up to $25.0 million. The Amended Loan Agreement permits the Borrower to draw Term E Loan Advances subject to (i) the U.S. Food and Drug Administration accepting on or prior to September 30, 2018 our New Drug Applicationreturned for ~~duvelisib~~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.

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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.

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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.

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.

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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 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.

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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.

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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.

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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):



	December 31, 2020		December 31, 2019
Raw materials	$	—	$	955
Work in process		—		2,040
Finished goods		—		101
Total inventories	$	—	$	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):


	December 31,		December 31,
	2020		2019
Leasehold improvements	$	146	$	146
Furniture and fixtures		1,074		1,074
Computer equipment		665		665
		1,885		1,885
Less: accumulated depreciation		(1,469)		(938)
Total property and equipment, net	$	416	$	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. NaN 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.

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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):


	December 31, 2020		December 31, 2019
Compensation and related benefits		5,930		7,399
Research and development expenses		5,176		5,467
Commercialization costs		330		3,028
Interest		236		897
Consulting fees		1,091		1,610
Professional fees		615		573
Other		1,282		391
Total accrued expenses	$	14,660	$	19,365

7. Long-term debt

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.

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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.

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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):


			Third-Party
	Trade		Payer		Government
	discounts		chargebacks,		rebates and
	and		discounts		other
	allowances		and fees		incentives		Returns		Total
Beginning Balance at December 31, 2018	$	29	$	88	$	157	$	2	$	276
Provision related to sales in the current year		512		1,306		608		74		2,500
Adjustments related to prior period sales		—		—		(76)		—		(76)
Credits and payments made		(430)		(1,139)		(317)		—		(1,886)
Balance at December 31, 2019	$	111	$	255	$	372	$	76	$	814
Provision related to sales in the current year		640		1,820		609		307		3,376
Adjustments related to prior period sales		—		—		—		—		—
Credits and payments made		(728)		(2,075)		(914)		(352)		(4,069)
Ending balance at December 31, 2020	$	23	$	—	$	67	$	31	$	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):

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	Year ended December 31,
	2020		2019
Lease Expense
Operating lease expense	$	885	$	885
Total Lease Expense	$	885	$	885
Other Information - Operating Leases
Operating cash flows paid for amounts included in measurement of lease liabilities	$	955	$	703


		December 31, 2020
Other Balance Sheet Information - Operating Leases
Weighted average remaining lease term (in years)		4.5
Weighted average discount rate		14.6%
Maturity Analysis
2021		1,019
2022		1,039
2023		1,060
2024		1,081
2025		546
Total	$	4,745
Less: Present value discount		(1,256)
Lease Liability	$	3,489

10. Common stock

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):


	December 31,
	2020	2019
Shares reserved under equity compensation plans	25,114	15,389
Shares reserved for inducement grants	4,058	6,331
Shares reserved for 2018 Notes	42	3,950
Shares reserved for 2019 Notes	—	34,796
Shares reserved for 2020 Notes	8,615	—
Employee Stock Purchase Plan	1,300	1,658
Total shares reserved	39,129	62,124

Each share of common stock is entitled to 1 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

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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):


	Year ended December 31,
	2020		2019		2018
Research and development	$	1,935	$	1,501	$	2,043
Selling, general and administrative		6,183		7,038		4,628
Total stock-based compensation expense	$	8,118	$	8,539	$	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 2 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

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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 of750,000 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:


				Weighted-average
		Weighted-average		remaining	Aggregate
		exercise price per		contractual term	intrinsic value
	Shares	share		(years)	(in thousands)
Outstanding at December 31, 2019	17,258,524	$	4.00	7.3	$	185
Granted	2,291,815	$	2.11
Exercised	(1,498,355)	$	1.72
Forfeited/cancelled	(5,361,239)	$	4.05
Outstanding at December 31, 2020	12,690,745	$	3.90	6.5	$	3,390
Vested at December 31, 2020	8,053,260	$	4.70	5.2	$	2,150

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The fair value of each stock option was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:


	Year ended December 31,
	2020		2019		2018
Risk-free interest rate	0.60	%	1.98	%	2.65	%
Volatility	96	%	87	%	81	%
Dividend yield	0		0		0
Expected term (years)	6.0		5.9		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 1 share of the Company’s common stock when the RSU vests. The RSUs generally vest in either (i) 4 substantially equal installments on each of the first 4 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:


	Shares	Weighted-average grant date fair value per share
Outstanding at December 31, 2019	678,089	$	2.36
Granted	4,471,534	$	1.64
Vested	(2,020,782)	$	1.60
Forfeited/cancelled	(479,524)	$	2.27
Outstanding at December 31, 2020	2,649,317	$	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

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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 2 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:


	Year ended December 31,
	2020		2019
Risk-free interest rate	1.04	%	2.26	%
Volatility	109	%	88	%
Dividend yield	—		—
Expected term (years)	0.5		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,

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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

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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 0 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).

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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 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.

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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

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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:


	Year Ended December 31,
	2020	2019	2018
Numerator
Net loss	(67,726)	(149,209)	(72,434)
Less: Other income	—	—	(25,556)
Add: Interest expense	—	—	3,071
Adjusted diluted net loss	(67,726)	(149,209)	(94,919)

Denominator
Weighted average shares outstanding - basic	153,330	74,578	64,962
Effect of dilutive securities:
2018 Notes	—	—	4,359
Weighted average shares outstanding - diluted	153,330	74,578	69,321

Net loss per share - basic	(0.44)	(2.00)	(1.12)
Net loss per share - diluted	(0.44)	(2.00)	(1.37)

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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:


	Year Ended December 31,
	2020	2019	2018
Outstanding stock options	12,690,745	17,258,524	12,522,867
Outstanding restricted stock units	2,649,317	678,089	306,750
2018 Notes	41,873	3,950,032	—
2019 Notes	—	34,796,363	—
2020 Notes	8,615,384	—	—
Employee Stock Purchase Plan	53,372	227,141	—
Total potentially dilutive securities	24,050,691	56,910,149	12,829,617

14. Income Taxes

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):


	Year ended December 31,
	2020		2019		2018
Current tax expense:
Federal	$	0	$	0	$	0
State		194		0		0
Current income tax expense		194		0		0
Deferred
Federal		0		0		0
State		0		0		0
Deferred income tax expense		0		0		0
Total income tax expense	$	194	$	0	$	0

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A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows:



	December 31,
	2020		2019
Income tax benefit using U.S. federal statutory rate	21.00	%	21.00	%
State tax benefit, net of federal benefit	(8.55)	%	4.26	%
Research and development tax credits	2.84	%	1.67	%
Cancellation of debt	—	%	(4.76)	%
Permanent items	(0.60)	%	(1.41)	%
Change in the valuation allowance	35.09	%	(20.33)	%
NOL and tax credit expiration under Section 382	(52.67)	%	—	%
Other	2.60	%	(0.43)	%
	(0.29)	%	—	%

The principal components of the Company’s deferred tax assets and liabilities are as follows (in thousands):


	December 31,
	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	86,665	$	101,039
Capitalized research and development		1,565		2,230
Research and development credits		2,043		22,944
Stock-based compensation		4,041		4,445
Installment sale		9,981		—
Other		888		1,451
Total deferred tax assets		105,183		132,109
Deferred tax liabilities:
Debt discount		(2,245)		(3,702)
Total deferred tax liabilities		(2,245)		(3,702)
Net deferred tax asset prior to valuation allowance		102,938		128,407
Valuation allowance		(102,938)		(128,407)
Net deferred tax asset	$	—	$	—

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.

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Company had 0 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, 0 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 ~~Company’s financial~~duvelisib global license and business projections to Hercules in form and substance reasonably acceptable to Hercules. In addition, the Amended Loan Agreement allows the Borrower to draw Term F Loan Advances subject to the prior drawing of all other tranches and Hercules’ sole discretion.

The Term Loan will mature on December 1, 2020 (Loan Maturity Date). Each advance accrues interest at a floating per annum rate equal to the greater of either (a) 10.5% or (b) the lesser of (i) 12.75% and (ii) the sum of (x) 10.5% plus (y) (A) the prime rate minus (B) 4.5%. The Term Loan provided for interest-only payments until November 1, 2018, which was extended to May 1, 2019 pursuant to the Amended Loan Agreement upon the Borrower’s receipt of a minimum of $20.0 million cash proceeds from a sale of equity securities in December 2017. Thereafter, amortization payments will be payable monthly in twenty installments of principal and interest (subject to recalculation upon a change in prime rates). Any advance may be prepaid in whole or in part upon seven business days’ prior written notice to Hercules, subject to a prepayment charge of 3.0%, if such advance is prepaid in any of the first twelve (12) months following the Closing Date, 2.0%, if such advance is prepaid after twelve (12) months following the Closing Date but on or prior to twenty-four (24) months following the Closing Date, and 1.0% thereafter. In addition, a final payment equal to 4.5% of the greater of (a) $5.0 million and (b) the total principal amount of the Term Loan extended by Hercules which is due on the Loan Maturity Date, or such earlier date specified in the Amended Loan Agreement. ~~Amounts outstanding during an event of default shall be payable on demand and shall accrue interest at an additional rate of 5.0% per annum of the past due amount outstanding.~~

~~The Term Loan is secured by a lien on substantially all of the assets of the Borrower, other than~~ intellectual property, certain existing duvelisib inventory, certain duvelisib contracts and contains customary covenants and representations, including a liquidity covenant, financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.

The events of default under the Amended Loan Agreement include, without limitation, and subject to customary grace periods, (1) the Borrower’s failure to make any payments of principal or interest under the Amended Loan Agreement, promissory notes or other loan documents, (2) the Borrower’s breach or default in the performance of any covenant under the Amended Loan Agreement, (3) the Borrower making a false or misleading representation or warranty in any material respect, (4) the Borrower’s insolvency or bankruptcy, (5)clinical trials, certain attachments or judgments on the Borrower’s assets, or (6) the occurrence of any material default under certain agreements or obligations of the Borrower involving indebtedness, or (7) the occurrence of a material adverse effect. If an event of default occurs, Hercules is entitled to take enforcement action, including acceleration of amounts due under the Amended Loan Agreement.

The Company assessed all terms and features of the Original 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 Original Loan Agreement, including put and call features. The Company determined that all features of the Original 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 financial statements. The Company reassesses the features on a quarterly basis to determine if they require separate accounting.

~~The future principal payments under the Amended Loan Agreement are as follows as of December 31, 2017 (in thousands):~~

2018

$
—
2019

3,609
2020

11,391

~~F-15~~

~~Table of Contents~~

~~Total principal payments~~

~~15,000~~

~~6. Common stock~~

As of December 31, 2017 and 2016, the Company had reserved the following shares of common stock for the issuance of common stock for vested restricted stock units, the exercise of stock options, and an outstanding warrant (in thousands):

December 31,

December 31,

2017

2016

Shares reserved under equity compensation plans

8,264

7,189

Shares reserved for inducement grants

3,616

1,255

Shares reserved for outstanding warrants

—

143

Total shares reserved

11,880

8,587

Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors.

~~At-the-market equity offering programs~~

In December 2013, the Company established an at-the-market equity offering program pursuant to which it was able to offer and sell up to $35.0 million of its common stock at then-current market prices from time to time through Cantor Fitzgerald & Co. (Cantor), as sales agent (the 2013 ATM Program). In November 2014, the Company commenced sales under the 2013 ATM Program. During the year ended December 31, 2015, the Company sold 1,189,479 shares of common stock under the 2013 ATM Program with net proceeds (after deducting commissions and other offering expenses) of $12.9 million. No proceeds were received and no additional sales of the Company’s common stock were made under the 2013 ATM Program and no proceeds were received during the years ended December 31, 2017 and 2016.

On March 30, 2017, the Company terminated the 2013 ATM Program and established a new at-the-market equity offering program pursuant to which it was able to offer and sell up to $35.0 million of its common stock at then-current market prices from time to time through Cantor, as sales agent (the 2017 ATM Program). 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 2017 ATM Program to $75.0 million. Through December 31, 2017, the Company sold 5,036,879 shares under the 2017 ATM Program for net proceeds of approximately $23.1 million (after deducting commissions and other offering expenses).

As of March 13, 2018, the Company sold an additional 97,078 shares of common stock under the at-the-market equity offering program with net proceeds of approximately $342,000 (after deducting commissions and other offering expenses).

~~Equity offering~~

On December 14, 2017, the Company entered into an Underwriting Agreement with BTIG, LLC relating to the underwritten offering of 8,422,877 shares of its common stock at a price of $2.97 per share, for aggregate proceeds, net of underwriting discounts and offering costs, of approximately $24.7 million.

~~F-16~~

~~Table of Contents~~

~~7. 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):~~

Year ended December 31,


2017

2016

2015

Research and development

$
1,381

$
1,073

$
2,411

General and administrative

3,652

5,145

7,273

Total stock-based compensation expense

$
5,033

$
6,218

$
9,684

All of the $5.0 million of stock-based compensation expense recorded during the year ended December 31, 2017 was recorded to additional paid-in capital. Of the $6.2 million of stock-based compensation expense recorded during the year ended December 31, 2016, $6.3 million was recorded to additional paid-in capital and approximately $69,000 was recorded as a decrease in liability classified awards. Of the $9.7 million of stock-based compensation expense recorded during the year ended December 31, 2015, $10.1 million was recorded to additional paid-in capital and approximately $400,000 was recorded as a decrease in liability classified awards.

The Company has awards outstanding under two equity compensation plans, the 2012 Incentive Plan (the 2012 Plan) and the 2010 Equity Incentive Plan (the 2010 Plan), as well as the inducement award program. Terms 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 includes an “evergreen provision” that allows for an annual increase in the number of shares of common stock available for issuance under the 2012 Plan. The annual increase is added on the first day of each year beginning in 2013 and each subsequent anniversary until the expiration of the 2012 Plan, and is equal to the lower of 1,285,714 shares of common stock, 4.0% of the number of shares of common stock outstanding and an amount determined by the board of directors. On January 1, 2017 and 2016, the number of shares available for issuance under the 2012 Plan increased by 1,285,714 under this provision. Subsequently, on January 1, 2018, the number of shares available for issuance under the 2012 Plan increased by 1,285,714 under this provision.

Awards under the 2012 Plan may include the following award types: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (RSUs), other stock‑based or cash‑based awards and any combination of the foregoing. As of December 31, 2017, under the 2012 Plan, the Company has granted stock options for 10,684,203 shares of common stock, of which 3,005,939 have been forfeited and 137,127 have been exercised, and restricted stock units for 909,918 shares of common stock, of which 150,101 have been forfeited. The exercise price of each option has been equal to the closing price of a share of our common stock on the grant date.

~~Inducement Award Program~~

~~F-17~~

~~Table of Contents~~

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. The program is governed by the terms of the 2012 Plan but does not fall under the 2012 Plan. As of December 31, 2017, the Company had granted options for 1,324,000 shares of common stock under the program, of which 75,000 have been forfeited and 138,750 have been exercised. As of December 31, 2017, 2,506,000 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, 2017 is as follows:~~

Weighted-average


Weighted-average

remaining

Aggregate

exercise price per

contractual term

intrinsic value


Shares

share

(years)

(in thousands)

Outstanding at December 31, 2016

5,848,470

$
6.35

8.0

$
62

Granted

3,553,430

$
2.60

Exercised

(348,734)

$
1.27

Forfeited/cancelled

(333,188)

$
2.04

Outstanding at December 31, 2017

8,719,978

$
5.19

7.9

$
6,150

Vested at December 31, 2017

4,795,186

$
7.04

6.9

$
2,562

Vested and expected to vest at December 31, 2017(1)

8,649,978

$
5.20

7.9

$
6,150

~~(1)~~

~~This represents the number of vested options as of December 31, 2017, plus the number of unvested options expected to vest as of December 31, 2017.~~

~~The fair value of each stock option was estimated using a Black‑Scholes option‑pricing model with the following assumptions:~~

Year ended December 31,

2017

2016

2015
Risk-free interest rate

2.02
%

1.48
%

1.75
%
Volatility

78
%

75
%

73
%
Dividend yield

—

—

—

Expected term (years)

5.8

5.9

6.0

The Company recorded stock‑based compensation expense associated with employee stock options of $4.5 million, $6.1 million, and $7.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. The weighted‑average grant date fair value of options granted in the years ended December 31, 2017, 2016 and 2015 was $1.83, $0.99, and $3.80 per share, respectively. The fair value of options that vested during the years ended December 31, 2017, 2016 and 2015 was $4.8 million, $6.9 million, and $9.5 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, 2017 and 2016 was $1.1 million and $0, respectively.

~~F-18~~

~~Table of Contents~~

In June 2016, the Company granted stock options to purchase a total of 500,000 shares of common stock to certain employees that vest only upon the achievement of specified performance conditions. The Company determined that 50% of performance conditions had been achieved during the year ended December 31, 2016. As a result, 250,000 shares vested in October 2016 and the Company recognized stock-based compensation expense related to these awards of approximately $222,000 for the year ended December 31, 2016. In September 2017, the Company determined that the remaining performance conditions had been achieved and as a result the remaining 250,000 shares vested and the Company recognized stock-based compensation expense of approximately $379,000 during the year ended December 31, 2017. The increase in stock-based compensation expense recognized for the awards which vested during the year ended December 31, 2017, as compared to the awards which vested during the year ended December 31, 2016, is a result of the revaluation of an award held by a non-employee to fair value on the vesting date.

At December 31, 2017, there was $6.8 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 2.9 years.

~~Restricted Stock Units~~

No restricted stock units were granted during the years ended December 31, 2017, 2016 and 2015. The total fair value of restricted stock units vested during the years ended December 31, 2017, 2016 and 2015 was approximately $0, $65,000 and $1.6 million, respectively. As of December 31, 2016, all RSUs granted under the 2012 plan had vested.

During the first quarter of 2013, the Company amended the terms of certain RSUs related to a total of 697,060 shares of common stock to allow for tax withholdings greater than the minimum required statutory withholding amount. As a result of this change in the terms of the awards, the outstanding RSUs were considered to be liability instruments until vested. As a result of this modification, the Company recorded a liability for the fair value of the awards as of each reporting date with the change in fair value recorded through the consolidated statements of operations and comprehensive loss. The Company recorded stock‑based compensation expense equal to the greater of the original grant date fair value of the awards or the settlement date fair value. All RSUs were fully vested as of February 1, 2016. During the year ended December 31, 2017, 2016 and 2015, the Company deposited approximately $0, $5,000, and $417,000, respectively, with tax authorities to settle the tax liability for awards that settled during the respective periods. There was no liability related to these awards as of December 31, 2017 and 2016.

~~8. Income Taxes~~

As of December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $237.0 million and $235.9 million, respectively, which are available to reduce future taxable income. The Company also had federal and state tax credits of $14.1 million and $1.7 million, respectively, which may be used to offset future tax liabilities. The net operating loss (NOL) and tax credit carryforwards will expire at various dates through 2037. 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.

~~F-19~~

~~Table of Contents~~

~~A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows:~~

December 31,


2017

2016

Income tax benefit using U.S. federal statutory rate

34.00
%
34.00
%
State tax benefit, net of federal benefit

5.00
%
3.43
%
Research and development tax credits

7.04
%
4.42
%
Permanent items

(1.24)
%
(3.88)
%
Effect of U.S. Tax Cuts and Jobs Act

(45.19)
%
—
%
Change in the valuation allowance

0.19
%
(36.71)
%
Other

0.20
%
(1.26)
%

—
%
—
%

~~The principal components of the Company’s deferred tax assets are as follows (in thousands):~~

December 31,

2017

2016

Deferred tax assets:

Net operating loss carryforwards

$
64,677

$
72,285

Capitalized research and development

2,780

1,836

Research and development credits

15,406

8,298

Stock-based compensation

2,560

3,083

Other

379

429

Gross deferred tax assets

85,802

85,931

Valuation allowance

(85,802)

(85,931)

Net deferred tax asset

$
—

$
—

The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2017 and 2016 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 $129,000 in the year ended December 31, 2017 primarily relates to the reduction in the federal rate for corporations under the Tax Cuts and Jobs Act of 2017.

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, 2017, the Company had no unrecognized tax benefits or related interest and penalties accrued. The Company has not conducted a study of research and development (R&D) credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted. This law substantially amended the Internal Revenue Code and among other things, effective January 1, 2018, permanently reduced the U.S. corporate income tax rate from 35% to 21% and repealed the performance exception permitting certain executive officer compensation greater than $1.0 million to be deducted. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows the recording of provisional amounts during a measurement period not to extend beyond one year of the enactment date. In accordance with SAB 118, the Company has determined that its deferred tax asset value and

~~F-20~~

~~Table of Contents~~

associated valuation allowance reduction of $30.6 million is a provisional amount and a reasonable estimate at December 31, 2017. The final impact may differ from this provisional amount due to, among other things, changes in interpretations and assumptions the Company has made thus far and the issuance of additional regulatory ~~or other guidance. The Company expects to determine the final impact within the measurement period.~~

~~9. Commitments and contingencies~~

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 expires on September 30, 2019. The Company began using the leased premises as its corporate headquarters and commenced rent payments effective September 22, 2014. The Company agreed to pay an initial annual base rent of approximately $493,000, which base rent increases after every twelve-month period during the lease term to approximately $554,000 for the last twelve-month period. The Company is recording rent expense on a straight-line basis, beginning in April 2014. The Company also received a tenant improvement allowance of approximately $684,000 in connection with the lease. The Company has accounted for the allowance as a lease incentive, which is being recorded as a reduction to rent expense over the lease term. Deferred rent and the lease incentive obligation are included in accrued expenses (current portion) and other liabilities (noncurrent portion) in the consolidated balance sheets. The Company has also agreed to pay its proportionate share of increases in operating expenses and property taxes for the building in which the leased space is located. The Company has provided a security deposit in the form of a letter of credit in the amount of approximately $203,000, which was reduced to approximately $162,000 on April 15, 2016. The amount is included in long term restricted cash on the consolidated balance sheets as of December 31, 2017 and 2016.

~~The minimum aggregate future lease commitments as of December 31, 2017 are as follows (in thousands):~~

2018

$
542

2019

415

2020

—

2021

—

2022

—

Thereafter

—

Total

$
957

~~The Company recorded rent expense of approximately $352,000, $352,000 and $352,000 for the years ended December 31, 2017, 2016 and 2015, respectively.~~

~~10. License agreements~~

In November 2016, the Company entered into an amended and restated license agreement with Infinity, under which it acquired an exclusive worldwide license for the research, development, commercialization, and manufacture of products in oncology indications containing duvelisib. In connection with the license agreement, the Company assumed operational and financial responsibility for certain activities that were part of Infinity’s duvelisib program, including the DUO study for patients with relapsed/refractory CLL, and Infinity assumed financial responsibility for the shutdown of certain other clinical studies up to a maximum of $4.5 million. The Company is obligated to use diligent efforts to develop and commercialize a product in an oncology indication containing duvelisib. During the term of the license agreement, Infinity has agreed not to research, develop, manufacture or commercialize duvelisib in any other indication in humans or animals.

~~Pursuant to the terms of the license agreement, the Company is required to make the following payments to~~

~~F-21~~

~~Table of Contents~~

Infinity in cash or, at our election, in whole or in part, in shares of our common stock: (i) $6.0 million upon the completion of the DUO study if the results of the DUO study meet certain pre-specified criteria, which milestone was paid in cash by the Company to Infinity in October 2017 and recorded as research and development expense in the consolidated statement of operations, and (ii) $22.0 million upon the approval of a New Drug Application 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. For any portion of any of the foregoing payments that it elects to issue in shares of our common stock in lieu of cash, the number of shares of common stock to be issued will be determined by multiplying (1) 1.025 by (2) the number of shares of common stock equal to (a) the amount of the payment to be paid in shares of common stock divided by (b) the average closing price of a share of common stock as quoted on Nasdaq for a twenty day period following the public announcement of the applicable milestone event. The shares of common stock will be issued as unregistered securities, and the Company will have an obligation to promptly file a registration statement with the SEC to register such shares for resale. Any issuance of shares will be subject to the satisfaction of closing conditions, including that all material authorizations, consents, approvals, and ~~the like necessary for such issuance shall have been obtained.~~

The Company is also obligated to pay Infinity royalties on worldwide net sales of any products in an oncology indication containing duvelisib ranging from the mid-single digits to the high single-digits. The royalties will expire on a product-by-productcertain regulatory documentation 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 countrybooks and (iv) ten years following the first commercial sale of a product in a country, provided that if royalties on net sales for a product in the United States are payable solely on the basis of non-patent regulatory exclusivity, the applicable royalty on net sales for such product in the United States will be reduced by 50%. The royalties are also subject to reduction by 50% of certain third-party royalty payments or patent litigation damages or settlements which might be required to be paid by us if litigation were to arise, with any such reductions capped at 50% of the amounts otherwise payable during the applicable royalty payment period.

In addition to the foregoing, the Company is obligated to pay Infinity an additional royalty of 4% on worldwide net sales of any products in an oncology indication containing duvelisib to cover the reimbursement of researchrecords (the Bundled Secura Performance Obligation); 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 us if litigation were to arise, with any such reductions capped at 50% of the amounts otherwise payable during the applicable royalty payment period.

~~The Company evaluated the license agreement with Infinity under ASC Topic 805, Business Combinations,~~ ~~and ASU 2017-01 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated 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.

~~F-22~~

~~Table of Contents~~

and commercial sales milestones. Pfizer is also eligible to receive high single to mid-double digit royalties on future net sales of the FAK Products. The Company’s royalty obligations with respect to each FAK Product in each country begin on the date of first commercial sale of the FAK Product in that country, and end on the later of 10 years after the date of first commercial sale of the FAK Product in that country or the date of expiration or abandonment of the last claim contained in any issued patent or patent application licensed by Pfizer to the Company that covers the FAK Product in that country. The Company accounted for the license agreement as the licensing of in process research and development with no alternative future use.

~~11. Employee benefit plan~~

In June 2011, the Company adopted a 401(k) retirement and savings plan (the 401(k) Plan) covering all employees. The 401(k) Plan allows employees to make pre‑tax or post‑tax contributions up to the maximum allowable amount set by the Internal Revenue Service. Under the 401(k) Plan, the Company may make discretionary contributions as approved by the board of directors. The Company made approximate contributions to the 401(k) Plan of $273,000, $162,000, and $295,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

~~12. Reduction in force~~

In October 2015, the Company announced a reduction of workforce by approximately 50% to 20 full time employees. All affected employees received severance pay and outplacement assistance. As a result of the reduction in force and associated costs, the Company paid one-time severance and related costs of $1.1 million. Of these one-time severance and related costs, approximately $713,000 and approximately $349,000 was paid during the years ended December 31, 2016 and 2015, respectively.

~~13. Quarterly financial information (unaudited, in thousands, except per share data)~~

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Ended

Ended

Ended

Ended

March 31,

June 30,

September 30,

December 31,

2017

2017

2017

2017

Operating expenses:

Research and development

$
8,385

$
9,042

$
17,743

$
11,253

General and administrative

4,763

4,425

5,394

6,799

Total operating expenses

13,148

13,467

23,137

18,052

Loss from operations

(13,148)

(13,467)

(23,137)

(18,052)

Interest income

155

140

121

145

Interest expense

(12)

(109)

(110)

(328)

Net loss

$
(13,005)

$
(13,436)

$
(23,126)

$
(18,235)

Net loss per share —basic and diluted

$
(0.35)

$
(0.36)

$
(0.61)

$
(0.43)

Weighted-average number of common shares used in net loss per share —basic and diluted

36,992

36,992

37,630
(a)

42,027
(a)(b)

~~F-23~~

~~Table of Contents~~

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Ended

Ended

Ended

Ended

March 31,

June 30,

September 30,

December 31,

2016

2016

2016

2016

Operating expenses:

Research and development

$
4,179

$
4,492

$
4,216

$
6,892

General and administrative

4,255

4,217

3,843

4,908

Total operating expenses

8,434

8,709

8,059

11,800

Loss from operations

(8,434)

(8,709)

(8,059)

(11,800)

Interest income

140

140

137

145

Net loss

$
(8,294)

$
(8,569)

$
(7,922)

$
(11,655)

Net loss per share —basic and diluted

$
(0.22)

$
(0.23)

$
(0.21)

$
(0.32)

Weighted-average number of common shares used in net loss per share —basic and diluted

36,975

36,992

36,992

36,992

~~(a)~~

In the third and fourth quarters of 2017, the Company sold 2,853,753 and 2,183,126 shares of its common stock under the Company’s at-the-market equity offering program, which resulted in net proceeds of $14.1 million and $9.0 million, respectively.

●

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.

~~(b)~~

In December 2017, the Company closed an underwritten offering in which it sold 8,422,877 shares of its common stock at a price of $2.97 per share, for aggregate proceeds, net of underwriting discounts and offering costs of $24.7 million.

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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 1 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

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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.

InfinityPharmaceuticals, 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.

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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

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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 2 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 1 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 2 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

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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 2 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 2 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 1 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,

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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 0 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.

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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 2 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 2 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 1 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 0 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, 2020Secura 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	Amounts accrued at December 31, 2019		Charges		Amount Paid		Adjustments		Amounts accrued at December 31, 2020
October 2019 Restructuring		631		0		(626)		(5)		0
February 2020 Restructuring		0		1,788		(1,812)		24		0
August 2020 Restructuring		0		2,993		(1,797)		(169)		1,027
Total	$	631	$	4,781	$	(4,235)	$	(150)	$	1,027

18. Employee benefit plan

In June 2011, the Company adopted a 401(k) retirement and savings plan (the 401(k) Plan) covering all employees. The 401(k) Plan allows employees to make pre-tax or post-tax contributions up to the maximum allowable amount set by the Internal Revenue Service. Under the 401(k) Plan, the Company may make discretionary contributions as approved by the board of directors. The Company made contributions to the 401(k) Plan of approximately $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)


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	Ended		Ended		Ended		Ended
	March 31,		June 30,		September 30,		December 31,
	2020		2020		2020		2020
Revenue:
Product revenue, net	$	5,034	$	4,235	$	5,829	$	134
License and collaboration revenue		22		72		2,818		—
Sale of COPIKTRA license and related assets		—		—		70,000		—
Transition services revenue		—		—		—		372
Total revenue		5,056		4,307		78,647		506
Operating expenses:
Cost of sales - product	$	495	$	392	$	866	$	12
Cost of sales - intangible amortization		392		393		8		—
Cost of sales - sale of COPIKTRA license and related assets		—		—		31,187		—
Research and development		10,924		9,344		10,955		10,153
Selling, general and administrative		19,604		15,442		20,614		7,095
Total operating expenses		31,415		25,571		63,630		17,260
(Loss) income from operations		(26,359)		(21,264)		15,017		(16,754)
Other income/(expense)		(1,313)		—		—		—
Interest income		356		122		19		18
Interest expense		(10,674)		(1,868)		(1,898)		(1,354)
Loss on debt extinguishment		—		—		—		(1,580)
Net (loss) income before income taxes		(37,990)		(23,010)		13,138		(19,670)
Income tax expense		—		—		—		(194)
Net (loss) income	$	(37,990)	$	(23,010)	$	13,138	$	(19,864)
Net (loss) income per share —basic	$	(0.35)	$	(0.14)	$	0.08	$	(0.12)
Net (loss) income per share —diluted	$	(0.35)	$	(0.14)	$	0.08	$	(0.12)
Weighted-average number of common shares used in net loss per share —basic and diluted
Net (loss) income per share —basic		108,153		165,395		169,510		169,902
Net (loss) income per share —diluted		108,153		165,395		169,760		169,902

F-49

Table of Contents


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	Ended		Ended		Ended		Ended
	March 31,		June 30,		September 30,		December 31,
	2019		2019		2019		2019
Revenue:
Product revenue, net	$	1,671	$	3,019	$	4,032	$	3,617
License and collaboration revenue		—		117		5,000		—
Total revenue		1,671		3,136		9,032		3,617
Operating expenses:
Cost of sales - product	$	158	$	377	$	371	$	332
Cost of sales - intangible amortization		392		392		392		393
Research and development		9,758		11,346		12,219		12,455
Selling, general and administrative		26,033		29,298		22,153		23,728
Total operating expenses		36,341		41,413		35,135		36,908
Loss from operations		(34,670)		(38,277)		(26,103)		(33,291)
Other income		—		—		—		(641)
Interest income		1,497		1,268		1,005		611
Interest expense		(4,929)		(5,185)		(5,041)		(5,453)
Net loss	$	(38,102)	$	(42,194)	$	(30,139)	$	(38,774)
Net loss per share —basic	$	(0.52)	$	(0.57)	$	(0.41)	$	(0.51)
Net loss per share —diluted	$	(0.52)	$	(0.57)	$	(0.41)	$	(0.51)
Weighted-average number of common shares used in net loss per share —basic and diluted
Net loss per share —basic		73,854		73,877		74,228		76,331
Net loss per share —diluted		73,854		73,877		74,228		76,331

20. Subsequent events

The Company reviews all activity subsequent to year end but prior to the issuance of the consolidated financial statements for events that could require disclosure or that could impact the carrying value of assets or liabilities as of the consolidated balance sheet date. The Company is not aware of any material subsequent events.

F-50

~~14. Subsequent events~~

The Company reviews all activity subsequent to year end but prior to the issuance of the consolidated financial statements for events that could require disclosure or that could impact the carrying value of assets or liabilities as of the consolidated balance sheets date. The Company is not aware of any material subsequent events other than those disclosed above.

~~F-24~~

(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, ~~2017~~2020
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Delaware (State or other jurisdiction of incorporation or organization)	27-3269467 (I.R.S. Employer Identification No.)
117 Kendrick Street, Suite 500 Needham, Massachusetts (Address of principal executive offices)	02494 (Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	VSTM	Nasdaq Global Market

PART I
Item 1.	Business	4
~~Item 1A.~~	~~Risk Factors~~	37
~~Item 1B.~~	~~Unresolved Staff Comments~~	63
~~Item 2.~~	~~Properties~~	63
~~Item 3.~~	~~Legal Proceedings~~	63
~~Item 4.~~	~~Mine Safety Disclosures~~	63
~~PART II~~
Item 5.1A.	Risk Factors	31
Item 1B.	Unresolved Staff Comments	60
Item 2.	Properties	60
Item 3.	Legal Proceedings	60
Item 4.	Mine Safety Disclosures	60
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities	63 61
Item 6.	Selected Financial Data	65 63
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	66 64
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	78 82
Item 8.	Consolidated Financial Statements and Supplementary Data	78 82
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	78
~~Item 9A.~~	~~Controls and Procedures~~	78
~~Item 9B.~~	~~Other Information~~	81
~~PART III~~		82
Item ~~10.~~9A.	Controls and Procedures	82
Item 9B.	Other Information	83
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	82 84
Item 11.	Executive Compensation	86 84
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	92 82
Item 13.	Certain Relationships and Related Transactions, and Director Independence	94 84
Item 14.	Principal Accountant Fees and Services	96
~~PART IV~~		84
PART IV
Item 15.	Exhibits and Financial Statement Schedules	97 85
Item 16.	Form 10-K Summary	97 85
EXHIBIT INDEX		98 86
SIGNATURES		~~101~~ 90


~~Cancer type~~		~~U.S. annual~~
		~~incidence~~
~~Lymphoma~~
~~Non-Hodgkin lymphoma~~		~~72,240~~
~~Chronic lymphocytic leukemia/small lymphocytic leukemia~~		~~20,110~~
~~Follicular lymphoma~~		~~14,448~~
~~Solid tumor~~
~~Lung and bronchus cancer~~		~~222,500~~
~~Pancreatic cancer~~		~~53,670~~
~~Ovarian cancer~~		~~22,440~~


Year ended December 31, 2017	High		Low
First quarter	$	2.25	$	1.11
Second quarter	$	2.54	$	1.61
Third quarter	$	5.71	$	2.11
Fourth quarter	$	4.92	$	2.95


Year ended December 31, 2016	High		Low
First quarter	$	1.89	$	1.05
Second quarter	$	1.93	$	1.19
Third quarter	$	1.66	$	1.27
Fourth quarter	$	1.55	$	1.05


	December 31,
	2012	2013	2014	2015	2016	2017
Verastem, Inc.	100.00	129.69	103.98	21.16	12.74	34.93
Nasdaq Composite	100.00	141.63	162.09	173.33	187.19	242.29
Nasdaq Biotechnology	100.00	174.05	230.33	244.29	194.95	228.29


(in thousands)	Total		2018		2019 - 2020		2021 - 2022		Thereafter
Operating lease obligations	$	957	$	542	$	415	$	—	$	—
Amended Loan Agreement		15,000		—		15,000		—		—
License agreements (1)		—		—		—		—		—


					Option	Non-Equity	All Other
					Awards	Incentive	Compensation
Name and Principal Position	Year	Salary ($)	Bonus ($)		($)(1)	Plans ($)(2)	($)(3)	Total ($)
Robert Forrester	2017	535,000	—		294,804	321,000	15,014	1,165,818
Chief Executive Officer	2016	525,000	—		245,844	321,000	12,690	1,104,534
Julie B. Feder (4)	2017	150,385	—		878,024	60,000	6,708	1,095,117
Chief Financial Officer
Diep Le, M.D. Ph.D. (5)	2017	76,923	95,000	(6)	1,125,863	40,000	3,365	1,341,151
Chief Medical Officer


	Option Awards
	Number of	Number of
	Securities	Securities
	Underlying	Underlying
	Unexercised	Unexercised		Option	Option
	Options	Options		Exercise	Expiration
Name	Exercisable (#)	Unexercisable (#)		Price ($)	Date
Robert Forrester
	250,000	—	(1)	9.85	1/15/2023
	50,000	—	(2)	14.18	9/17/2023
	250,000	—	(3)	13.59	1/7/2024
	250,000	—	(4)	13.59	1/7/2024
	185,963	84,525	(5)	9.19	1/8/2025
	268,000	—	(6)	2.13	11/8/2025
	132,000	—	(7)	1.86	1/1/2026
	100,000	—	(8)	1.37	6/14/2026
	—	360,000	(9)	1.20	1/9/2027
Julie B. Feder
	—	370,000	(10)	3.45	7/10/2027
Diep Le, M.D.
	—	300,000	(11)	4.63	10/9/2027
	—	70,000	(12)	4.63	10/9/2027


	Fees Earned	Option
	or Paid in	Awards
Name	Cash ($)	($)(1)(2)	Total ($)
Timothy Barberich	53,000	35,742	88,742
Paul Friedman, M.D. (3)	16,125	—	16,125
Michael Kauffman, M.D., Ph.D.	79,000	35,742	114,742
Alison Lawton	55,000	35,742	90,742
S. Louise Phanstiel	60,000	35,742	95,742
Eric Rowinsky, M.D.	33,125	71,483	104,608
Brian Stuglik, R.Ph.	14,831	168,776	183,607
Bruce Wendel	49,320	35,742	85,062


	Number of securities	Weighted-
	to be issued upon	average exercise		Number of securities
	exercise of	price of		remaining available
	outstanding stock	outstanding options,		for future issuance
	options, warrants and	warrants and		under equity
Plan category	rights	rights		compensation plans
Equity compensation plans approved by security holders(1)	7,609,728	$	5.40	654,630	(3)
Equity compensation plans not approved by security holders(2)	1,110,250	$	3.75	2,506,000


	Number of shares	Percentage of shares
Name and address of beneficial owner	beneficially owned	beneficially owned
5% stockholders:
BVF, Inc. (1)	2,737,000	5.39	%
1 Sansome Street, 30th Floor
San Francisco, CA 94104
Directors and Executive Officers
Robert Forrester (2)	1,851,007	3.53	%
Julie B. Feder	—	—
Diep Le, M.D.	—	—
Timothy Barberich (3)	248,431	*
Michael Kauffman, M.D., Ph.D. (4)	132,810	*
Alison Lawton (5)	135,310	*
S. Louise Phanstiel (6)	161,673	*
Eric Rowinsky, M.D. (7)	41,668	*
Brian Stuglik, R. Ph. (8)	29,169	*
Bruce Wendel (9)	70,834	*
All executive officers and directors as a group (Thirteen persons) (10)	3,822,398	7.06	%


Fee Category	2017 ($)	2016 ($)
Audit Fees	1,086,000	417,500
Audit-Related Fees	—	—
Tax Fees	—	—
All Other Fees	—	—
Total Fees	1,086,000	417,500

Level 1 inputs

Quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

~~Level 2 inputs~~

~~Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.~~

~~Level 3 inputs~~

~~Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.~~