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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number: 001-35403

Verastem, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

27-3269467
(I.R.S. Employer
Identification Number)

117 Kendrick Street, Suite 500
Needham, MA
(Address of principal executive offices)

02494
(Zip Code)

(781) 292-4200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

VSTM

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of July 30, 2021 there were 180,758,269 shares of Common Stock outstanding.

Table of Contents

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

37

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

EXHIBIT INDEX

39

SIGNATURES

40

2

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements related to present facts or current conditions or historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. Such statements relate to, among other things, the development and activity of our programs and product candidates, VS-6766 (rapidly accelerated fibrosarcoma (RAF)/ mitogen-activated protein kinase kinase (MEK) program) and defactinib (focal adhesion kinase (FAK) program), the structure of our planned and pending clinical trials, and the timeline and indications for clinical development, regulatory submissions and commercialization of activities. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements we make. Applicable risks and uncertainties include the risks and uncertainties, among other things, regarding: the uncertainties inherent in research and development of VS-6766 and defactinib, such as negative or unexpected results of clinical trials; whether and when any applications for VS-6766 and defactinib may be filed with regulatory authorities in any other jurisdictions; whether and when regulatory authorities in any other jurisdictions may approve any such other applications that may be filed for VS-6766 and defactinib, which will depend on the assessment by such regulatory authorities of the benefit-risk profile suggested by the totality of the efficacy and safety information submitted and, if approved, whether VS-6766 or defactinib will be commercially successful in such jurisdictions; our ability to obtain, maintain and enforce patent and other intellectual property protection for VS-6766 and defactinib; the scope, timing, and outcome of any legal proceedings; decisions by regulatory authorities regarding labeling and other matters that could affect the availability or commercial potential of VS-6766 and defactinib; whether preclinical testing of our product candidates and preliminary or interim data from clinical trials will be predictive of the results or success of ongoing or later clinical trials; that the timing, scope and rate of reimbursement for our product candidates is uncertain; that there may be competitive developments affecting our product candidates; that data may not be available when expected; that enrollment of clinical trials may take longer than expected; that VS-6766 or defactinib will cause unexpected safety events, experience manufacturing or supply interruptions or failures, or result in unmanageable safety profiles as compared to their levels of efficacy; that we face substantial competition, which may result in others developing or commercializing products before or more successfully than we do which could result in reduced market share or market potential for VS-6766 or defactinib; that we will be unable to in-license additional compounds or successfully initiate or complete the clinical development and eventual commercialization of our product candidates; that the development and commercialization of our product candidates will take longer or cost more than planned; that we may not have sufficient cash to fund our contemplated operations; that we may not realize the operational efficiencies and cost savings from restructuring, that we or Chugai Pharmaceutical, Co. Ltd., will fail to fully perform under the license agreement; that our target market for our products might be smaller than we are presently estimating; that we or Secura Bio, Inc. will fail to fully perform under the asset purchase agreement; that we may be unable to obtain adequate financing in the future through product licensing, co-promotional arrangements, public or private equity, debt financing or otherwise; that we will not pursue or submit regulatory filings for our product candidates, that our product candidates will not receive regulatory approval, become commercially successful products, or result in new treatment options being offered to patients; and that the duration and impact of COVID-19 may affect, precipitate or exacerbate one or more of the foregoing risks and uncertainties. Other risks and uncertainties include those identified in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with Securities and Exchange Commission (SEC) on March 18, 2021, and in any subsequent filings with the SEC.

As a result of these and other factors, we may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. The forward-looking statements contained in this Quarterly Report on Form 10-Q reflect our views as of the date hereof. We do not assume and specifically disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited).

Verastem, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

June 30,

December 31,

    

2021

    

2020

 

Assets

Current assets:

Cash and cash equivalents

$

24,972

$

67,782

Short-term investments

 

83,163

 

73,444

Accounts receivable, net

476

239

Prepaid expenses and other current assets

 

6,149

 

3,473

Total current assets

 

114,760

 

144,938

Property and equipment, net

 

270

 

416

Right-of-use asset, net

2,524

2,726

Restricted cash

241

241

Long-term investments

5,992

5,995

Other assets

 

103

 

33

Total assets

$

123,890

$

154,349

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

1,395

$

1,875

Accrued expenses

 

10,739

 

14,660

Lease liability, short-term

 

610

 

558

Total current liabilities

 

12,744

 

17,093

Non-current liabilities:

 

 

Convertible senior notes

20,326

19,051

Lease liability, long-term

2,615

2,931

Total liabilities

 

35,685

 

39,075

Stockholders’ equity:

Preferred stock, $0.0001 par value; 5,000 shares authorized, no shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

 

Common stock, $0.0001 par value; 300,000 shares authorized, 172,077 and 170,456 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

17

 

17

Additional paid-in capital

 

712,593

 

707,715

Accumulated other comprehensive income

 

39

 

53

Accumulated deficit

(624,444)

(592,511)

Total stockholders’ equity

 

88,205

 

115,274

Total liabilities and stockholders’ equity

$

123,890

$

154,349

See accompanying notes to the condensed consolidated financial statements.

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Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share amounts)

Three months ended June 30,

Six months ended June 30,

    

2021

    

2020

    

2021

    

2020

 

Revenue:

Product revenue, net

$

$

4,235

$

$

9,269

License and collaboration revenue

72

94

Sale of COPIKTRA license and related assets

52

902

Transition services revenue

448

604

Total revenue

 

500

 

4,307

 

1,506

 

9,363

Operating expenses:

Cost of sales - product

392

887

Cost of sales - intangible amortization

393

785

Research and development

9,730

9,344

18,626

20,268

Selling, general and administrative

 

6,714

 

15,442

 

12,932

 

35,046

Total operating expenses

 

16,444

 

25,571

 

31,558

 

56,986

Loss from operations

 

(15,944)

 

(21,264)

 

(30,052)

 

(47,623)

Other expense

(1,313)

Interest income

 

49

 

122

 

101

 

478

Interest expense

 

(1,007)

 

(1,868)

 

(1,982)

 

(12,542)

Net loss

$

(16,902)

$

(23,010)

$

(31,933)

$

(61,000)

Net loss per share—basic and diluted

$

(0.10)

$

(0.14)

$

(0.19)

$

(0.45)

Weighted average common shares outstanding used in computing net loss per share - basic and diluted

171,985

165,395

171,811

136,775

Net loss

$

(16,902)

$

(23,010)

$

(31,933)

$

(61,000)

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

 

5

 

(9)

 

(14)

 

(14)

Comprehensive loss

$

(16,897)

$

(23,019)

$

(31,947)

$

(61,014)

See accompanying notes to the condensed consolidated financial statements.

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Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share data)

 

Accumulated

 

Additional

other

Total

 

Common stock

paid-in

comprehensive

Accumulated

stockholders'

 

    

Shares

    

Amount

    

capital

    

income

    

deficit

    

equity

 

Balance at December 31, 2020

 

170,456,179

$

17

$

707,715

$

53

$

(592,511)

$

115,274

Net loss

(15,031)

 

(15,031)

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

(19)

 

(19)

Issuance of common stock resulting from exercise of stock options

173,890

381

 

381

Issuance of common stock resulting from vesting of restricted stock units

1,047,271

(52)

(52)

Stock-based compensation expense

1,980

 

1,980

Issuance of common stock under Employee Stock Purchase Plan

53,372

76

76

Balance at March 31, 2021

 

171,730,712

$

17

$

710,100

$

34

$

(607,542)

$

102,609

Net loss

 

 

 

 

(16,902)

 

(16,902)

Unrealized gain on available-for-sale marketable securities

 

 

 

5

 

 

5

Issuance of common stock resulting from exercise of stock options

330,758

361

361

Issuance of common stock resulting from vesting of restricted stock units

15,896

(38)

(38)

Stock-based compensation expense

2,170

 

 

 

2,170

Balance at June 30, 2021

 

172,077,366

$

17

$

712,593

$

39

$

(624,444)

$

88,205

Balance at December 31, 2019

 

80,117,531

$

8

$

531,937

$

14

$

(524,785)

$

7,174

Net loss

 

 

 

 

(37,990)

 

(37,990)

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

 

 

 

(5)

 

 

(5)

Issuance of common stock resulting from exercise of stock options

645,628

 

 

983

 

 

 

983

Issuance of common stock resulting from vesting of restricted stock units

58,166

(51)

(51)

Stock-based compensation expense

 

 

1,370

 

 

 

1,370

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

Issuance of common stock under Employee Stock Purchase Plan

227,141

259

259

Conversion of 2019 Notes into common stock

34,796,350

3

57,411

57,414

Balance at March 31, 2020

 

162,356,444

$

16

$

685,733

$

9

$

(562,775)

$

122,983

Net loss

(23,010)

 

(23,010)

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

(9)

 

(9)

Issuance of common stock resulting from exercise of stock options

179,266

551

 

551

Issuance of common stock resulting from vesting of restricted stock units

32,650

(31)

 

(31)

Stock-based compensation expense

 

 

1,659

 

 

 

1,659

Issuance of common stock resulting from at-the-market transactions, net of issuance costs of $55

6,769,559

 

1

 

12,229

 

12,230

Balance at June 30, 2020

 

169,337,919

$

17

$

700,141

$

$

(585,785)

$

114,373

See accompanying notes to the condensed consolidated financial statements.

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Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Six months ended June 30,

    

2021

    

2020

Operating activities

Net loss

$

(31,933)

$

(61,000)

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

Depreciation

 

146

189

Amortization of acquired intangible asset

 

 

785

Amortization of right-of-use asset and lease liability

(62)

(8)

Stock-based compensation expense

 

4,150

 

3,029

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

1,328

9,259

Change in fair value of interest make whole provision for 2019 Notes

1,313

Changes in operating assets and liabilities:

Accounts receivable, net

(237)

1,024

Inventory

(3,220)

Prepaid expenses, other current assets and other assets

 

(2,746)

 

(2,819)

Accounts payable

 

(284)

 

(7,414)

Accrued expenses and other liabilities

 

(3,104)

 

2,312

Net cash used in operating activities

 

(32,742)

 

(56,550)

Investing activities

Purchases of property and equipment

 

(196)

(27)

Purchases of investments

 

(53,258)

 

Maturities of investments

 

43,475

 

32,050

Net cash (used in) provided by investing activities

 

(9,979)

 

32,023

Financing activities

Proceeds from the exercise of stock options and employee stock purchase program

818

1,793

Interest make-whole payments on the 2019 Notes

(1,763)

Settlement of restricted stock for tax withholdings

(907)

Proceeds from the issuance of common stock, net

106,069

Net cash (used in) provided by financing activities

 

(89)

 

106,099

(Decrease) increase in cash, cash equivalents and restricted cash

 

(42,810)

 

81,572

Cash, cash equivalents and restricted cash at beginning of period

 

68,023

 

79,262

Cash, cash equivalents and restricted cash at end of period

$

25,213

$

160,834

Supplemental disclosure of non-cash investing and financing activities

Common stock issuance costs included in accounts payable and accrued expenses

$

15

$

25

Conversion of 2019 Notes into common stock

$

$

57,414

Purchases of property and equipment included in accounts payable and accrued expenses

$

$

6

Settlement of restricted stock units for tax withholdings included in accrued expenses

$

18

$

82

See accompanying notes to the condensed consolidated financial statements.

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Verastem, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of business

Verastem, Inc. (the Company) is a biopharmaceutical company committed to advancing new medicines for patients battling cancer. The Company’s pipeline is focused on novel anticancer agents 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 VS-6766 may be beneficial as therapeutics as a single agent or these compounds may be beneficial as therapeutics 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 13. License, collaboration, and commercial agreements for a detailed discussion of the Secura APA.

The condensed 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 June 30, 2021 the Company had cash, cash equivalents, and investments of $114.1 million, and accumulated deficit of $624.4 million. The Company expects its existing cash resources will be sufficient to fund its planned operations through at least 12 months from the date of issuance of these condensed consolidated financial statements.

The Company expects to finance the future development costs of its clinical product portfolio with its existing cash, cash equivalents, and 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

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Company fails to obtain additional future capital, it may be unable to complete its planned preclinical studies and clinical trials and obtain approval of certain investigational product candidates from the FDA or foreign regulatory authorities.

2. Summary of significant accounting policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01 under the assumption that the Company will continue as a going concern for the next twelve months. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, or any adjustments that might result from the uncertainty related to the Company’s ability to continue as a going concern. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2021. For further information, refer to the financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (SEC) on March 18, 2021.

Significant Accounting Policies

The significant accounting policies are described in Note 2Significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. During the six months ended June 30, 2021, the Company did not adopt any additional significant accounting policies except as outlined within “Recently Adopted Accounting Standards Updates” section immediately below.

Recently Adopted Accounting Standards Updates

In December 2019, the FASB issued Accounting Standard Update (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. In the first quarter of 2021, the Company adopted ASU 2019-12.  The provisions related to intraperiod tax allocation and interim recognition of enactment of tax laws are being adopted on a prospective basis. The adoption of ASU 2019-12 did not have an effect on the Company’s condensed financial statements or disclosures.

Recently Issued Accounting Standards Updates

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 will replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives (Topic 815), and Leases (Topic 842). This ASU delayed the required adoption for SEC filers that are smaller reporting companies as of their determination on November 15, 2019, until annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company has determined that as of November 15, 2019, it is a smaller reporting company and has not elected to early adopt this standard. The Company is currently evaluating the impact the adoption of the standard will have on its condensed 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

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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 condensed consolidated financial statements and related disclosures.

Concentrations of credit risk and off-balance sheet risk

Cash, 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 June 30, 2021 the Company’s cash, cash equivalents and investments were deposited at three financial institutions and it has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

As of June 30, 2021 there was one customer, Secura, that made up more than 60% of the Company’s accounts receivable balance. The Company assesses the creditworthiness of all its customers and sets and reassesses customer credit limits to ensure collectability of any accounts receivable balances are assured.

For the three and six months ended June 30, 2021, there was one customer, Secura, who individually accounted for all of the Company’s revenue. Refer to Note 13. License, collaboration, and commercial agreements for a detailed discussion of the Secura APA.

3. Cash, cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):

    

June 30, 2021

    

December 31, 2020

Cash and cash equivalents

$

24,972

$

67,782

Restricted cash

 

241

 

241

Total cash, cash equivalents and restricted cash

$

25,213

$

68,023

Amounts included in restricted cash as of June 30, 2021 and December 31, 2020 represent 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 $0.2 million. The letters of credit are included in non-current restricted cash on the condensed consolidated balance sheets at June 30, 2021 and December 31, 2020.

4. Fair value of financial instruments

The Company determines the fair value of its financial instruments based upon the fair value hierarchy, which prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

Level 1 inputs

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.

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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.

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):

a

    

    

    

    

 

 

June 30, 2021

 

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets

Cash equivalents

$

23,029

$

19,029

$

4,000

$

Short-term investments

83,163

83,163

Long-term investments

5,992

5,992

Total financial assets

$

112,184

$

19,029

$

93,155

$

    

    

 

 

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

$

The Company’s cash equivalents and short-term investments consist of U.S. Government money market funds, corporate bonds, agency bonds and commercial paper of publicly traded companies. 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 June 30, 2021 and December 31, 2020.

Fair Value of Financial Instruments

The fair value of the Company’s 2018 issued 5.00% Convertible Senior Notes due 2048 (the 2018 Notes) and 2020 issued 5.00% Convertible Senior Notes due 2048 (the 2020 Notes, together with the 2018 Notes referred to as the Notes) was approximately $0.3 million and $36.8 million, respectively, as of June 30, 2021, which differs from the aggregate carrying value of the Notes of $20.3 million as of June 30, 2021. The fair value of the 2018 Notes and 2020 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 as of December 31, 2020. The fair value of the Notes is influenced by the Company’s stock price, stock price volatility, and current market yields and was determined using Level 3 inputs.

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5. Investments

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

    

June 30, 2021

 

    

    

Gross

    

Gross

    

 

Amortized

Unrealized

Unrealized

Fair

 

    

Cost

    

Gains

    

Losses

    

Value

 

Cash, cash equivalents & restricted cash:

Cash and money market accounts

$

21,213

$

$

$

21,213

Corporate bonds, agency bonds and commercial paper (due within 90 days)

3,999

1

4,000

Total cash, cash equivalents & restricted cash:

$

25,212

$

1

$

$

25,213

Investments:

Corporate bonds, agency bonds and commercial paper (due within 1 year)

$

83,118

$

47

$

(2)

$

83,163

Corporate bonds, agency bonds and commercial paper (due between 1 and 5 years)

5,999

(7)

5,992

Total investments

$

89,117

$

47

$

(9)

$

89,155

Total cash, cash equivalents, restricted cash and investments

$

114,329

$

48

$

(9)

$

114,368

    

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 and commercial paper (due within 1 year)

$

73,389

$

55

$

$

73,444

Corporate 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

There were no realized gains or losses on investments for the three and six months ended June 30, 2021 or 2020. There were two investments and one investment in an unrealized loss position as of June 30, 2021 and December 31, 2020, respectively. None of these investments had been in an unrealized loss position for more than 12 months. The fair value of these securities as of June 30, 2021 and December 31, 2020 was $11.0 million and $6.0 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 June 30, 2021 and December 31, 2020, respectively.

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Table of Contents

6. Accrued expenses

Accrued expenses consist of the following (in thousands):

    

June 30, 2021

    

December 31, 2020

 

Research and development expenses

$

5,880

$

5,176

Compensation and related benefits

 

2,274

 

5,930

Professional fees

 

707

 

615

Consulting fees

 

551

 

1,091

Interest

236

236

Commercialization costs

 

28

 

330

Other

 

1,063

 

1,282

Total accrued expenses

$

10,739

$

14,660

7. Product revenue reserves and allowances

From September 24, 2018 (the date of the Company’s U.S. commercial launch of COPIKTRA) through September 30, 2020 (the date the Company sold COPIKTRA to Secura), the Company’s sole source of product revenue was from the gross sales of COPIKTRA in the United States less provisions for product sales allowances and accruals. The following table summarizes activity in each of the product revenue allowance and reserve categories for the six months ended June 30, 2021 (in thousands):

Trade

Government

discounts

rebates and

and

other

    

allowances

    

incentives

    

Returns

    

Total

Balance at December 31, 2020

$

23

$

67

$

31

$

121

Provision related to sales in the current year

 

 

Adjustments related to prior period sales

 

 

Credits and payments made

 

(23)

(67)

(31)

 

(121)

Ending balance at June 30, 2021

$

$

$

$

Trade discounts are recorded as a reduction to accounts receivable, net on the condensed consolidated balance sheets. Trade allowances, government rebates, other incentives and returns are recorded as a component of accrued expenses on the condensed consolidated balance sheets.

8. 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. 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 $0.7 million, 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 condensed 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.

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