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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 September 30, 2023

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 Capital 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 November 7, 2023 there were 25,267,436 shares of Common Stock outstanding.

Table of Contents

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

5

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

42

EXHIBIT INDEX

43

SIGNATURES

44

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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, avutometinib (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 success in the development and potential commercialization of our product candidates, including avutometinib in combination with other compounds, including defactinib, LUMAKRAS® and others; the uncertainties inherent in research and development, such as negative or unexpected results of clinical trials, the occurrence or timing of applications for our product candidates that may be filed with regulatory authorities in any jurisdictions; whether and when regulatory authorities in any jurisdictions may approve any such applications that may be filed for our product candidates, and, if approved, whether our product candidates will be commercially successful in such jurisdictions; our ability to obtain, maintain and enforce patent and other intellectual property protection for our product candidates; the scope, timing, and outcome of any legal proceedings; decisions by regulatory authorities regarding labeling and other matters that could affect the availability or commercial potential of our product candidates; whether preclinical testing of our product candidates and preliminary or interim data from clinical trials will be predictive of the results or success of ongoing or later clinical trials; that the timing, scope and rate of reimbursement for our product candidates is uncertain; that third- party payors (including government agencies) may not reimburse; that there may be competitive developments affecting our product candidates; that data may not be available when expected; that enrollment of clinical trials may take longer than expected; that our product candidates will cause adverse safety events and/or unexpected concerns may arise from additional data or analysis, or result in unmanageable safety profiles as compared to their levels of efficacy; that our product candidates may experience manufacturing or supply interruptions or failures; that any of our third party contract research organizations, contract manufacturing organizations, clinical sites, or contractors, among others, who we rely on fail to fully perform; 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 our product candidates; that we will be unable to successfully initiate or complete the clinical development and eventual commercialization of our product candidates; that the development and commercialization of our product candidates will take longer or cost more than planned, including as a result of conducting additional studies; that we may not have sufficient cash to fund our contemplated operations; that we may not attract and retain high quality personnel; that we or Chugai Pharmaceutical, Co. Ltd. will fail to fully perform under the avutometinib license agreement; that our target market for our product candidates might be smaller than we are presently estimating; that Secura Bio, Inc. will fail to fully perform under the asset purchase agreement with Secura Bio, Inc., including in relation to milestone payments; that we will not see a return on investment on the payments we have and may continue to make pursuant to the collaboration and option agreement with Genfleet Therapeutics (Shanghai), Inc. (“Genfleet”) or that Genfleet will fail to fully perform under the 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; and that our product candidates will not receive regulatory approval, become commercially successful products, or result in new treatment options being offered to patients. Other risks and uncertainties include those identified in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 14, 2023, and in any subsequent filings with the SEC.

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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)

September 30,

December 31,

    

2023

    

2022

 

Assets

Current assets:

Cash and cash equivalents

$

94,986

$

74,933

Short-term investments

 

70,677

 

12,961

Accounts receivable, net

31

Prepaid expenses and other current assets

 

8,822

 

4,945

Total current assets

 

174,485

 

92,870

Property and equipment, net

 

35

 

92

Right-of-use asset, net

1,336

1,789

Restricted cash

241

241

Other assets

 

56

 

58

Total assets

$

176,153

$

95,050

Liabilities, convertible preferred stock and stockholders’ equity

Current liabilities:

Accounts payable

$

5,118

$

4,901

Accrued expenses

16,314

 

14,983

Note Payable

146

Deferred liabilities

1,035

710

Lease liability, short-term

 

902

 

794

Convertible senior notes

297

275

Total current liabilities

 

23,812

 

21,663

Non-current liabilities:

 

 

Long-term debt

39,911

24,526

Lease liability, long-term

780

1,470

Other long-term liabilities

51

Preferred stock tranche liability

7,260

Total liabilities

 

71,814

 

47,659

Convertible preferred stock:

Series B Convertible Preferred Stock, $0.0001 par value; 2,144 and 0 shares designated at September 30, 2023 and December 31, 2022, respectively; 1,200 and 0 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

21,159

Stockholders’ equity:

Preferred Stock, $0.0001 par value; 5,000 shares authorized:

 

Series A Convertible Preferred Stock, $0.0001 par value; 1,000 shares designated, 1,000 shares issued and outstanding at September 30, 2023 and December 31, 2022

Common stock, $0.0001 par value; 300,000 shares authorized, 25,265 and 16,712 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 

3

 

2

Additional paid-in capital

 

880,650

 

784,912

Accumulated other comprehensive income

 

49

 

Accumulated deficit

(797,522)

(737,523)

Total stockholders’ equity

 

83,180

 

47,391

Total liabilities, convertible preferred stock and stockholders’ equity

$

176,153

$

95,050

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 September 30,

Nine months ended September 30,

    

2023

    

2022

    

2023

    

2022

 

Revenue:

Sale of COPIKTRA license and related assets

$

$

$

$

2,596

Total revenue

 

 

 

 

2,596

Operating expenses:

Research and development

13,946

11,288

38,854

39,818

Selling, general and administrative

 

7,363

 

6,421

 

22,091

 

18,869

Total operating expenses

 

21,309

 

17,709

 

60,945

 

58,687

Loss from operations

 

(21,309)

 

(17,709)

 

(60,945)

 

(56,091)

Other income (expense)

(13)

20

(60)

54

Interest income

 

2,247

 

316

 

4,345

 

446

Interest expense

 

(1,129)

 

(717)

 

(3,019)

 

(1,413)

Change in fair value of preferred stock tranche liability

200

(320)

Net loss

$

(20,004)

$

(18,090)

$

(59,999)

$

(57,004)

Net loss per share—basic and diluted

$

(0.75)

$

(1.10)

$

(2.93)

$

(3.60)

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

26,790

16,430

20,452

15,834

Net loss

$

(20,004)

$

(18,090)

$

(59,999)

$

(57,004)

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

 

48

 

91

 

49

 

(73)

Comprehensive loss

$

(19,956)

$

(17,999)

$

(59,950)

$

(57,077)

See accompanying notes to the condensed consolidated financial statements.

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Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share data)

Accumulated

 

Additional

other

Total

 

Series B Convertible Preferred Stock

Series A Convertible Preferred Stock

Common stock

paid-in

comprehensive

Accumulated

stockholders'

 

    

Shares

   

Amount

  

  

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

income

   

deficit

   

equity

 

Balance at December 31, 2022

$

 

1,000,000

$

16,711,761

$

2

$

784,912

$

$

(737,523)

$

47,391

Net loss

(15,714)

 

(15,714)

Unrealized gain on available-for-sale marketable securities

6

 

6

Issuance of common stock resulting from vesting of restricted stock units

17,658

Stock-based compensation expense

1,313

 

1,313

Issuance of common stock under Employee Stock Purchase Plan

6,874

29

29

Issuance of Series B Convertible Preferred Stock, net of issuance costs of $1,901 and preferred stock tranche liability of $6,940

1,200,000

21,159

Balance at March 31, 2023

1,200,000

$

21,159

 

1,000,000

$

16,736,293

$

2

$

786,254

$

6

$

(753,237)

$

33,025

Net loss

(24,281)

 

(24,281)

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

(5)

 

(5)

Issuance of common stock resulting from vesting of restricted stock units

16,176

Stock-based compensation expense

1,432

1,432

Issuance of common stock, and pre-funded warrants, net of issuance cost of $6,351

8,489,409

1

91,419

91,420

Balance at June 30, 2023

1,200,000

$

21,159

 

1,000,000

$

25,241,878

$

3

$

879,105

$

1

$

(777,518)

$

101,591

Net loss

(20,004)

 

(20,004)

Unrealized gain on available-for-sale marketable securities

48

 

48

Issuance of common stock resulting from vesting of restricted stock units

15,489

 

Stock-based compensation expense

1,517

 

1,517

Issuance of common stock under Employee Stock Purchase Plan

7,396

28

 

28

Balance at September 30, 2023

1,200,000

$

21,159

 

1,000,000

$

25,264,763

$

3

$

880,650

$

49

$

(797,522)

$

83,180

Accumulated

 

other

 

Additional

comprehensive

Total

 

Common stock

    

paid-in

    

(loss)

    

Accumulated

    

stockholders'

 

    

Shares

   

Amount

   

capital

   

income

   

deficit

   

equity

 

Balance at December 31, 2021

15,440,830

$

2

$

751,234

$

34

$

(663,711)

$

87,559

Net loss

(16,962)

 

(16,962)

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

(147)

 

(147)

Issuance of common stock resulting from at-the-market transactions, net

23,824

575

 

575

Issuance of common stock resulting from vesting of restricted stock units

58,043

Stock-based compensation expense

1,646

 

1,646

Issuance of common stock under Employee Stock Purchase Plan

4,803

100

100

Balance at March 31, 2022

15,527,500

$

2

$

753,555

$

(113)

$

(680,673)

$

72,771

Net loss

 

 

 

 

(21,952)

 

(21,952)

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

 

 

 

(17)

 

 

(17)

Issuance of common stock resulting from at-the-market transactions, net

83,870

1,240

1,240

Issuance of common stock resulting from exercise of stock options

6,378

92

92

Issuance of common stock resulting from vesting of restricted stock units

16,734

Stock-based compensation expense

1,758

 

 

 

1,758

Balance at June 30, 2022

15,634,482

$

2

$

756,645

$

(130)

$

(702,625)

$

53,892

Net loss

 

 

 

 

(18,090)

 

(18,090)

Unrealized gain on available-for-sale marketable securities

91

 

 

91

Issuance of common stock resulting from at-the-market transactions, net

1,856,754

25,534

25,534

Issuance of common stock resulting from vesting of restricted stock units

8,587

 

 

Issuance of common stock resulting from exercise of stock options

1,803

26

 

 

26

Stock-based compensation expense

1,356

 

 

1,356

Issuance of common stock under Employee Stock Purchase Plan

5,391

64

 

 

64

Balance at September 30, 2022

17,507,017

$

2

$

783,625

$

(39)

$

(720,715)

$

62,873

See accompanying notes to the condensed consolidated financial statements.

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Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Nine months ended September 30,

    

2023

    

2022

Operating activities

Net loss

$

(59,999)

$

(57,004)

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

Depreciation

 

57

89

Amortization of right-of-use asset and lease liability

(129)

(113)

Stock-based compensation expense

 

4,262

 

4,760

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

(295)

231

Change in fair value of preferred stock tranche liability

320

Changes in operating assets and liabilities:

Accounts receivable, net

31

442

Prepaid expenses, other current assets and other assets

 

(2,950)

 

1,349

Accounts payable

 

217

 

3,057

Accrued expenses and other liabilities

 

1,331

 

(833)

Deferred liabilities

 

325

 

965

Other long-term liabilities

51

Net cash used in operating activities

 

(56,779)

 

(47,057)

Investing activities

Purchases of investments

 

(83,883)

 

(15,340)

Maturities of investments

 

27,000

 

68,500

Net cash provided by (used in) investing activities

 

(56,883)

 

53,160

Financing activities

Proceeds from issuance of Series B Convertible Preferred Stock, net

28,099

Proceeds from long-term debt, net

14,918

24,148

Proceeds from insurance premium financing

1,430

Payments on insurance premium financing

(1,284)

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

57

282

Proceeds from the issuance of common stock and pre-funded warrants, net

 

91,420

 

27,354

Net cash provided by financing activities

 

134,640

 

51,784

Increase in cash, cash equivalents and restricted cash

 

20,978

 

57,887

Cash, cash equivalents and restricted cash at beginning of period

 

75,789

 

21,493

Cash, cash equivalents and restricted cash at end of period

$

96,767

$

79,380

Supplemental disclosure of non-cash investing and financing activities

Issuance of preferred stock tranche liability

$

6,940

$

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 late-stage development biopharmaceutical company, with an ongoing registration directed trial, 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, avutometinib and defactinib, are being investigated in both preclinical and clinical studies for the treatment of various solid tumors, including, but not limited to low-grade serous ovarian cancer (“LGSOC”), non-small cell lung cancer (“NSCLC”), colorectal cancer (“CRC”), pancreatic cancer, and melanoma. The Company believes that avutometinib may be beneficial as a therapeutic as a single agent or when used together in combination with defactinib, 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 after at least two prior therapies and relapsed or refractory follicular lymphoma 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 14. 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, avutometinib and defactinib, market acceptance and commercial success of the Company’s product candidates, avutometinib 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, avutometinib 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 may continue to incur operating losses as it continues the research and development of its product candidates. As of September 30, 2023, the Company had cash, cash equivalents, and investments of $165.7 million, and an accumulated deficit of $797.5 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 potential future milestones and royalties received pursuant to the Secura APA, through the loan and security agreement with Oxford Finance LLC (“Oxford”), or through other 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

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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.

Reverse Stock Split

On May 30, 2023, the Company filed a Certificate of Amendment to the Company’s Restated Certificate of Incorporation, as amended to date, with the Secretary of State of the State of Delaware to effect a reverse stock split of the Company’s issued and outstanding common stock, par value $0.0001 at a ratio of 1-for-12 (the “Reverse Stock Split”), as authorized at the Company’s 2023 annual meeting of stockholders held on May 15, 2023. The Company effected the Reverse Stock Split on May 31, 2023. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise were entitled to a fractional share of common stock were entitled to receive a price equal to the closing price of the common stock on the Nasdaq Capital Market on the date immediately preceding the Reverse Stock Split, as adjusted by the ratio of one share of common stock for every 12 shares of common stock, multiplied by the applicable fraction of a share. The number of shares of common stock that the Company is authorized to issue remains at 300,000,000 shares and the par value of its common stock remains unchanged at $0.0001 per share.

The Company has retroactively restated the share and per share amounts in the unaudited condensed consolidated financial statements as of December 31, 2022 and the nine months ended September 30, 2023 and 2022, and three months ended September 30, 2022, to give retroactive effect to the Reverse Stock Split. Proportionate adjustments were made to the per share exercise price and number of shares of common stock issuable under all outstanding stock options, convertible notes and preferred stock. In addition, proportionate adjustments have been made to the number of shares of common stock issuable upon vesting of the restricted stock units and the number of shares of common stock reserved for the Company’s equity incentive compensation plans. The condensed consolidated statements of convertible preferred stock and stockholders’ equity and balance sheets reflect the impact of the Reverse Stock Split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split.

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 nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2023. 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, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 14, 2023.

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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, 2022, except as outlined within “Recently Adopted Accounting Standards Updates” section immediately below.

Recently Adopted Accounting Standards Updates

In June 2016, the Financial Accounting Standards Board (“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. Effective January 1, 2023, the Company adopted the provisions of ASU 2016-13. The adoption did not have a material impact on the Company's condensed consolidated financial statements or related financial statement 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 calculation in certain areas. The Company elected to adopt this standard on January 1, 2023 under the modified retrospective transition method. The adoption did not have a material impact on the Company's condensed consolidated financial statements or related financial statement disclosures.

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). ASU 2022-04 requires the buyer in a supplier finance program to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. This guidance is effective for fiscal years beginning after December 15, 2022. We adopted this guidance as of January 1, 2023, on a prospective basis. The adoption of the standard only resulted in new disclosures for amounts presented within Notes Payable and did not affect the Company’s recognition, measurement, or financial statement presentation of supplier finance program obligations on the condensed consolidated financial statements. For additional information on the new disclosures, see Note 9. Notes Payable.

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 September 30, 2023, the Company’s cash, cash equivalents and investments were deposited at four 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. For the three and nine months ended September 30, 2023, the Company did not record any revenue.

Proceeds from Grants

In May 2022, the Company was awarded the “Therapeutic Accelerator Award” grant from Pancreatic Cancer Network (“PanCAN”) for up to $3.8 million (the “PanCAN Grant”). In August 2022, PanCAN agreed to provide the Company with an additional $0.5 million for the collection and analysis of patient samples. The grant is expected to support a Phase 1b/2 clinical trial of GEMZAR (gemcitabine) and ABRAXANE (Nab-paclitaxel) in combination with avutometinib and defactinib entitled RAMP 205. The RAMP 205 trial will evaluate whether combining avutometinib (to target mutant Kirsten rat sarcoma viral oncogene homolog (“KRAS”), which is found in more than 90% of pancreatic adenocarcinomas) and defactinib (to reduce stromal density and adaptive resistance to avutometinib) to the standard GEMZAR/ABRAXANE regimen improves outcomes for patients with such pancreatic cancers. Through September 30,

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2023, the Company has received $2.7 million of cash proceeds which was initially recorded as deferred liabilities on the balance sheet. The Company recognizes grants as contra research and development expense in the consolidated statement of operations and comprehensive loss on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended to compensate. The Company recorded $0.5 million and $1.3 million of the proceeds as a reduction of research and development expense during the three and nine months ended September 30, 2023, respectively. The Company recorded less than $0.1 million of the proceeds as a reduction of research and development expense during the three and nine months ended September 30, 2022. As of September 30, 2023 and December 31, 2022, the Company recorded $1.0 million and $0.7 million, respectively, as deferred liabilities related to the PanCAN Grant in the consolidated balance sheets.

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):

    

September 30, 2023

    

December 31, 2022

Cash and cash equivalents

$

94,986

$

74,933

Restricted cash

 

1,781

 

856

Total cash, cash equivalents and restricted cash

$

96,767

$

75,789

Amounts included in restricted cash as of September 30, 2023, and December 31, 2022 represent (i) cash received pursuant to the PanCAN Grant restricted for future expenditures for specific research and development activities of $1.5 million and $0.6 million, respectively, and (ii) 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. Cash received pursuant to the PanCAN Grant is included in prepaid expenses and other current assets on the condensed consolidated balance sheets as of September 30, 2023, and December 31, 2022. The letters of credit are included in non-current restricted cash on the condensed consolidated balance sheets as of September 30, 2023, and December 31, 2022.

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.

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.

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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):

September 30, 2023

 

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets

Cash equivalents

$

93,777

$

76,842

$

16,935

$

Short-term investments

70,677

11,876

58,801

Total financial assets

$

164,454

$

88,718

$

75,736

$

Preferred stock tranche liability

$

7,260

$

$

$

7,260

December 31, 2022

 

Description

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets

Cash equivalents

$

73,613

$

72,617

$

996

$

Short-term investments

 

12,961

 

12,961

 

Total financial assets

$

86,574

$

72,617

$

13,957

$

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 September 30, 2023 or December 31, 2022.

A preferred stock tranche liability was recorded as a result of the entry into the Securities Purchase Agreement (defined herein) (see Note 11. Capital Stock). The fair value measurement of the preferred stock tranche liability is classified as Level 3 under the fair value hierarchy. The fair value of the preferred stock tranche liability was determined using a Monte-Carlo simulation. The inputs to the Monte-Carlo include the risk-free rate, stock price volatility, expected dividends and remaining term. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

Below are the inputs used to value the preferred stock tranche liability at January 24, 2023 and September 30, 2023:

September 30, 2023

January 24, 2023

Risk-free interest rate

 

5.46-5.61

%  

4.41-4.84

%  

Volatility

 

100

%  

90

%  

Dividend yield

 

Remaining term (years)

 

0.8

1.5

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The following table represents a reconciliation of the preferred stock right liability recorded in connection with the entry into the Securities Purchase Agreement (in thousands):

January 1, 2023

$

Fair value recognized upon entering into Securities Purchase Agreement

6,940

Fair value adjustment

320

September 30, 2023

$

7,260

Fair Value of Financial Instruments

The fair value of the Company’s 2018 issued 5.00% Convertible Senior Notes due 2048 (the “2018 Notes”) was approximately $0.3 million as of September 30, 2023, and December 31, 2022, which equals the carrying value of the 2018 Notes on each respective date. The fair value of the 2018 Notes is influenced by the Company’s stock price, stock price volatility, and current market yields and was determined using Level 3 inputs.

The fair value of the Company’s long-term debt was determined using a discounted cash flow analysis with current applicable rates for similar instruments as of the condensed consolidated balance sheet dates. The Company estimates that the fair value of its long-term debt was approximately $39.4 million as of September 30, 2023, which differs from the carrying value of $39.9 million. The Company estimates that the fair value of its long-term debt was approximately $24.9 million as of December 31, 2022, which differs from the carrying value of $24.5 million. The fair value of the Company’s long-term debt was determined using Level 3 inputs.

5. Investments

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