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, 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 juri ...

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 jurisdict ...

[General Information](index=1&type=section&id=General%20Information) This section provides the company's filing status, shares outstanding, and a disclaimer regarding forward-looking statements [Filing Information](index=1&type=section&id=Filing%20Information) This section details the company's filing status, identification, and securities information for the quarterly period ended March 31, 2021 - Verastem, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2021[2](index=2&type=chunk) Company Identification and Filing Status | Detail | Value | | :--- | :--- | | Registrant Name | Verastem, Inc. | | State of Incorporation | Delaware | | Commission File Number | 001-35403 | | Trading Symbol | VSTM | | Exchange | The Nasdaq Global Market | | Filer Status | Non-accelerated filer, Smaller reporting company | - The registrant has filed all required reports under the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. All Interactive Data Files required by Rule 405 of Regulation S-T have been submitted electronically[3](index=3&type=chunk) [Shares Outstanding](index=2&type=section&id=Shares%20Outstanding) As of May 10, 2021, Verastem, Inc. reported 171,919,345 shares of Common Stock outstanding Common Stock Outstanding | Date | Shares Outstanding | | :--- | :--- | | May 10, 2021 | 171,919,345 | [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines the forward-looking nature of statements within the report, emphasizing substantial risks and uncertainties related to product candidates VS-6766 and defactinib - The report contains forward-looking statements regarding strategy, future operations, financial position, revenues, costs, prospects, plans, and management objectives[11](index=11&type=chunk) - Key product candidates mentioned in forward-looking statements are VS-6766 (RAF/MEK program) and defactinib (FAK program), with focus on clinical development, regulatory submissions, and commercialization[11](index=11&type=chunk) - Significant risks and uncertainties include negative clinical trial results, delays in regulatory approvals, challenges in obtaining and enforcing intellectual property, competitive developments, and the ability to secure adequate future financing[12](index=12&type=chunk) - The duration and impact of the COVID-19 pandemic are also identified as factors that may affect or exacerbate these risks and uncertainties[12](index=12&type=chunk) [PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents Verastem, Inc.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2021, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a summary of the company's financial position as of March 31, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $35,514 | $67,782 | | Short-term investments | $85,583 | $73,444 | | Total current assets | $127,678 | $144,938 | | Total assets | $136,901 | $154,349 | | **Liabilities** | | | | Total current liabilities | $11,844 | $17,093 | | Convertible senior notes | $19,672 | $19,051 | | Total liabilities | $34,292 | $39,075 | | **Stockholders' Equity** | | | | Total stockholders' equity | $102,609 | $115,274 | | Accumulated deficit | $(607,542) | $(592,511) | - Total assets decreased from **$154.3 million** at December 31, 2020, to **$136.9 million** at March 31, 2021, primarily due to a decrease in cash and cash equivalents[15](index=15&type=chunk) - Total liabilities decreased from **$39.1 million** to **$34.3 million**, mainly driven by a reduction in accrued expenses[15](index=15&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section presents the company's financial performance for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Total revenue | $1,006 | $5,056 | | Total operating expenses | $15,114 | $31,415 | | Loss from operations | $(14,108) | $(26,359) | | Net loss | $(15,031) | $(37,990) | | Net loss per share—basic and diluted | $(0.09) | $(0.35) | | Comprehensive loss | $(15,050) | $(37,995) | - Total revenue decreased by **80%** from **$5.1 million** in Q1 2020 to **$1.0 million** in Q1 2021, primarily due to the sale of the COPIKTRA license[17](index=17&type=chunk) - Net loss significantly improved by **60%** from **$(38.0) million** in Q1 2020 to **$(15.0) million** in Q1 2021, driven by reduced operating expenses[17](index=17&type=chunk) - Net loss per share decreased from **$(0.35)** in Q1 2020 to **$(0.09)** in Q1 2021[17](index=17&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's stockholders' equity for the three months ended March 31, 2021 Changes in Stockholders' Equity (in thousands, except share data) | Item | Balance at Dec 31, 2020 | Net Loss | Unrealized Loss on Securities | Stock Options Exercise | RSU Vesting | Stock-based Comp. | ESPP Issuance | Balance at Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock (Shares) | 170,456,179 | — | — | 173,890 | 1,047,271 | — | 53,372 | 171,730,712 | | Common Stock (Amount) | $17 | — | — | — | — | — | — | $17 | | Additional Paid-in Capital | $707,715 | — | — | $381 | $(52) | $1,980 | $76 | $710,100 | | Accumulated Other Comprehensive Income | $53 | — | $(19) | — | — | — | — | $34 | | Accumulated Deficit | $(592,511) | $(15,031) | — | — | — | — | — | $(607,542) | | Total Stockholders' Equity | $115,274 | $(15,031) | $(19) | $381 | $(52) | $1,980 | $76 | $102,609 | - Total stockholders' equity decreased from **$115.3 million** at December 31, 2020, to **$102.6 million** at March 31, 2021, primarily due to the net loss incurred during the period[19](index=19&type=chunk) - Common stock shares outstanding increased due to exercises of stock options, vesting of restricted stock units, and issuances under the Employee Stock Purchase Plan[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the company's cash inflows and outflows for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(19,318) | $(34,003) | | Net cash (used in) provided by investing activities | $(12,372) | $32,050 | | Net cash (used in) provided by financing activities | $(578) | $93,421 | | (Decrease) increase in cash, cash equivalents and restricted cash | $(32,268) | $91,468 | | Cash, cash equivalents and restricted cash at end of period | $35,755 | $170,730 | - Net cash used in operating activities decreased by **$14.7 million**, from **$(34.0) million** in Q1 2020 to **$(19.3) million** in Q1 2021, primarily due to a decreased net loss[21](index=21&type=chunk) - Investing activities shifted from providing **$32.1 million** in Q1 2020 to using **$(12.4) million** in Q1 2021, mainly due to net purchases of investments[21](index=21&type=chunk) - Financing activities used **$(0.6) million** in Q1 2021, a significant decrease from providing **$93.4 million** in Q1 2020, which included proceeds from a common stock issuance[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of significant accounting policies and financial statement items [1. Nature of business](index=10&type=section&id=1.%20Nature%20of%20business) Verastem, Inc. is a development-stage biopharmaceutical company focused on novel anticancer agents, specifically RAF/MEK inhibition (VS-6766) and FAK inhibition (defactinib) for various solid tumors - Verastem, Inc. is a development-stage biopharmaceutical company focused on novel anticancer agents, particularly VS-6766 (RAF/MEK program) and defactinib (FAK program), for various solid tumors[22](index=22&type=chunk)[23](index=23&type=chunk) - The company sold its exclusive worldwide license for COPIKTRA (duvelisib) to Secura Bio, Inc. on September 30, 2020[24](index=24&type=chunk) Key Financial Position (in millions) | Item | March 31, 2021 | | :--- | :--- | | Cash, cash equivalents, and investments | $127.1 | | Accumulated deficit | $607.5 | - The company expects existing cash resources to fund planned operations for at least **12 months** from the issuance date of the financial statements[27](index=27&type=chunk) - Future development costs are expected to be financed through existing cash, future milestones/royalties from the Secura APA, or strategic financing opportunities (collaboration agreements, equity offerings, debt)[28](index=28&type=chunk) [2. Summary of significant accounting policies](index=12&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies) The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim reporting, assuming the company continues as a going concern - Financial statements are prepared under GAAP for interim reporting, assuming a going concern for the next twelve months[31](index=31&type=chunk) - The company adopted ASU 2019-12 (Simplifying Accounting for Income Taxes) in Q1 2021, which had no effect on its financial statements or disclosures[33](index=33&type=chunk) - The company is evaluating the impact of ASU 2016-13 (Measurement of Credit Losses on Financial Instruments), effective after December 15, 2022, and ASU 2020-06 (Debt with Conversion and Other Options), effective after December 15, 2023, for smaller reporting companies[34](index=34&type=chunk)[37](index=37&type=chunk) - Credit risk is mitigated by maintaining cash, cash equivalents, and investments with high-quality financial institutions. As of March 31, 2021, Secura accounted for over **60%** of accounts receivable and all revenue for the three months ended March 31, 2021[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) [3. Cash, cash equivalents and restricted cash](index=14&type=section&id=3.%20Cash,%20cash%20equivalents%20and%20restricted%20cash) The company's total cash, cash equivalents, and restricted cash decreased from $68.0 million at December 31, 2020, to $35.8 million at March 31, 2021 Cash, Cash Equivalents and Restricted Cash (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $35,514 | $67,782 | | Restricted cash | $241 | $241 | | Total cash, cash equivalents and restricted cash | $35,755 | $68,023 | - Restricted cash of approximately **$0.2 million** is held to collateralize outstanding letters of credit for the company's office space in Needham, Massachusetts[41](index=41&type=chunk) [4. Fair value of financial instruments](index=14&type=section&id=4.%20Fair%20value%20of%20financial%20instruments) The company categorizes its financial instruments into a three-level fair value hierarchy, with total financial assets measured at fair value of $125.4 million as of March 31, 2021 - The fair value hierarchy prioritizes valuation inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[42](index=42&type=chunk)[44](index=44&type=chunk) Financial Assets Measured at Fair Value (in thousands) | Description | March 31, 2021 Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $33,820 | $33,820 | $— | $— | | Short-term investments | $85,583 | $— | $85,583 | $— | | Long-term investments | $5,998 | $— | $5,998 | $— | | **Total financial assets** | **$125,401** | **$33,820** | **$91,581** | **$—** | Convertible Senior Notes Fair Value vs. Carrying Value (in thousands) | Item | March 31, 2021 Fair Value | March 31, 2021 Carrying Value | | :--- | :--- | :--- | | 2018 Notes | $0.3 | Included in $19.7 | | 2020 Notes | $31.4 | Included in $19.7 | | **Aggregate Notes** | **$31.7** | **$19.7** | - The fair value of the 2018 and 2020 Convertible Senior Notes was determined using Level 3 inputs, influenced by the company's stock price, volatility, and market yields[45](index=45&type=chunk) [5. Investments](index=17&type=section&id=5.%20Investments) As of March 31, 2021, total cash, cash equivalents, restricted cash, and investments amounted to $127.3 million (fair value), with an aggregate unrealized loss of $17 thousand Cash, Cash Equivalents, Restricted Cash and Investments (in thousands) | Item | Amortized Cost (Mar 31, 2021) | Gross Unrealized Gains (Mar 31, 2021) | Gross Unrealized Losses (Mar 31, 2021) | Fair Value (Mar 31, 2021) | | :--- | :--- | :--- | :--- | :--- | | Cash, cash equivalents & restricted cash | $35,755 | $— | $— | $35,755 | | Investments (due within 1 year) | $85,550 | $50 | $(17) | $85,583 | | Investments (due between 1 and 5 years) | $5,998 | $— | $— | $5,998 | | **Total** | **$127,303** | **$50** | **$(17)** | **$127,336** | - The company had three investments in an unrealized loss position as of March 31, 2021, with an immaterial aggregate unrealized loss, and none were considered other-than-temporarily impaired[46](index=46&type=chunk) [6. Accrued expenses](index=18&type=section&id=6.%20Accrued%20expenses) Total accrued expenses decreased from $14.7 million at December 31, 2020, to $8.8 million at March 31, 2021, primarily due to reductions in compensation and consulting fees Accrued Expenses (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Research and development expenses | $4,554 | $5,176 | | Compensation and related benefits | $1,310 | $5,930 | | Interest | $589 | $236 | | Consulting fees | $543 | $1,091 | | Professional fees | $503 | $615 | | Commercialization costs | $87 | $330 | | Other | $1,222 | $1,282 | | **Total accrued expenses** | **$8,808** | **$14,660** | - The decrease in accrued expenses was primarily driven by a reduction in compensation and related benefits, and consulting fees[47](index=47&type=chunk) [7. Product revenue reserves and allowances](index=18&type=section&id=7.%20Product%20revenue%20reserves%20and%20allowances) Following the sale of COPIKTRA in September 2020, product revenue reserves and allowances significantly decreased to $32 thousand at March 31, 2021 - The company's sole source of product revenue from COPIKTRA ended on September 30, 2020, after its sale to Secura[48](index=48&type=chunk) Product Revenue Allowance and Reserve Categories (in thousands) | Category | Balance at Dec 31, 2020 | Credits and Payments Made | Ending Balance at Mar 31, 2021 | | :--- | :--- | :--- | :--- | | Trade discounts and allowances | $23 | $(19) | $4 | | Government rebates and other incentives | $67 | $(67) | $— | | Returns | $31 | $(3) | $28 | | **Total** | **$121** | **$(89)** | **$32** | [8. Leases](index=18&type=section&id=8.%20Leases) The company has an operating lease for its Needham, Massachusetts office space, extending through June 2025, with consistent operating lease expense - The company's operating lease for office space in Needham, Massachusetts, extends through June 2025[49](index=49&type=chunk) Lease Information (in thousands, except years and rate) | Item | March 31, 2021 | | :--- | :--- | | Right-of-use asset, net | $2,628 | | Lease liability | $3,359 | | Operating lease expense (Q1 2021) | $221 | | Operating lease expense (Q1 2020) | $221 | | Weighted average remaining lease term | 4.3 years | | Weighted average discount rate | 14.6% | | Total Lease Maturity Analysis | $4,493 | | Less: Present value discount | $(1,134) | | Lease Liability | $3,359 | [9. Convertible Senior Notes](index=19&type=section&id=9.%20Convertible%20Senior%20Notes) The company has 2018 and 2020 Convertible Senior Notes outstanding, bearing 5.00% interest and maturing in 2048, with the 2019 Notes fully converted by March 31, 2020 [2018 Notes](index=19&type=section&id=2018%20Notes) The 2018 Notes, with an aggregate principal amount of $150.0 million, bear 5.00% interest and mature on November 1, 2048, convertible at an initial price of $7.16 per share - The 2018 Notes have an aggregate principal amount of **$150.0 million**, bear **5.00%** interest, and mature on November 1, 2048[52](index=52&type=chunk) - Initial conversion rate is **139.5771 shares** of common stock per **$1,000** principal amount, equivalent to an initial conversion price of approximately **$7.16 per share**[53](index=53&type=chunk) - The company can automatically convert outstanding 2018 Notes if the Daily VWAP of its common stock equals or exceeds **130%** of the conversion price for at least **20 trading days** within a **30-day period**[54](index=54&type=chunk)[56](index=56&type=chunk) [2019 Notes](index=21&type=section&id=2019%20Notes) The 2019 Notes, issued in exchange for 2018 Notes, were fully converted into common stock by March 31, 2020, including a cash make-whole provision - The 2019 Notes were issued in exchange for 2018 Notes, bearing **5.00%** interest and maturing on November 1, 2048[59](index=59&type=chunk) - By March 31, 2020, all 2019 Notes were converted into **34,796,350 shares** of common stock and **$1.8 million** in cash for the interest make-whole provision[59](index=59&type=chunk) - The 2019 Notes Interest Make-Whole Provision was bifurcated as a derivative liability, with a fair value of **$0.2 million** at issuance[65](index=65&type=chunk) [2020 Notes](index=23&type=section&id=2020%20Notes) The 2020 Notes, issued in exchange for $28.0 million of 2018 Notes, are senior unsecured obligations with a 5.00% interest rate and a November 1, 2048 maturity - The 2020 Notes were issued in exchange for **$28.0 million** of 2018 Notes, are senior unsecured, bear **5.00%** interest, and mature on November 1, 2048[66](index=66&type=chunk)[74](index=74&type=chunk) - Initial conversion rate is **307.6923 shares** of common stock per **$1,000** principal amount, corresponding to an initial conversion price of approximately **$3.25 per share**[68](index=68&type=chunk) - The company has the right to redeem the 2020 Notes on or after November 1, 2023, and holders have repurchase options on November 1, 2023, and subsequent dates[69](index=69&type=chunk)[70](index=70&type=chunk) - The 2020 Notes exchange was treated as a debt modification, reducing the carrying value by **$2.3 million** due to the change in the fair value of the conversion option[75](index=75&type=chunk) [10. Common stock](index=25&type=section&id=10.%20Common%20stock) On March 3, 2020, the company completed a PIPE offering, selling 46,511,628 shares of common stock at $2.15 per share, generating approximately $93.8 million in net proceeds - On March 3, 2020, the company completed a PIPE offering, selling **46,511,628 shares** of common stock at **$2.15 per share**[77](index=77&type=chunk) PIPE Offering Details (March 2020) | Item | Value | | :--- | :--- | | Shares Sold | 46,511,628 | | Purchase Price per Share | $2.15 | | Net Proceeds | ~$93.8 million | [11. Stock-based compensation](index=25&type=section&id=11.%20Stock-based%20compensation) The company grants stock options, restricted stock units (RSUs), and offers an Employee Stock Purchase Plan (ESPP) as forms of stock-based compensation [Stock options](index=25&type=section&id=Stock%20options) As of March 31, 2021, 12.5 million stock options were outstanding with a weighted-average exercise price of $3.85 and an aggregate intrinsic value of $5.7 million Stock Option Activity (Three months ended March 31, 2021) | Item | Shares | Weighted-average exercise price per share | | :--- | :--- | :--- | | Outstanding at December 31, 2020 | 12,690,745 | $3.90 | | Granted | 801,659 | $2.21 | | Exercised | (246,758) | $1.54 | | Forfeited/cancelled | (725,888) | $3.76 | | Outstanding at March 31, 2021 | 12,519,758 | $3.85 | | Vested at March 31, 2021 | 8,007,568 | $4.61 | Black-Scholes Assumptions for Stock Options | Assumption | March 31, 2021 | March 31, 2020 | | :--- | :--- | :--- | | Risk-free interest rate | 0.55 % | 1.58 % | | Volatility | 97 % | 88 % | | Dividend yield | — | — | | Expected term (years) | 6.1 | 6.1 | [Restricted stock units (RSUs)](index=26&type=section&id=Restricted%20stock%20units%20(RSUs)) As of March 31, 2021, 2,850,955 RSUs were outstanding, with a weighted average grant date fair value of $1.78 per share, generally vesting over four years RSU Activity (Three months ended March 31, 2021) | Item | Shares | Weighted average grant date fair value per share | | :--- | :--- | :--- | | Outstanding at December 31, 2020 | 2,649,317 | $1.73 | | Granted | 497,590 | $2.26 | | Vested | (72,390) | $2.45 | | Forfeited/cancelled | (223,562) | $2.01 | | Outstanding at March 31, 2021 | 2,850,955 | $1.78 | - RSUs generally vest in four substantially equal installments over **four years**, or other specified periods, contingent on continued employment[80](index=80&type=chunk) [Employee stock purchase plan](index=26&type=section&id=Employee%20stock%20purchase%20plan) The Amended and Restated 2018 ESPP allows eligible employees to purchase common stock at 85% of the lesser of the fair market value at the beginning or end of the purchase period - The ESPP allows eligible employees to purchase common stock at **85%** of the lesser of the fair market value on the grant date or exercise date[82](index=82&type=chunk) ESPP Shares Issued and Compensation Expense (Q1 2021) | Item | Value | | :--- | :--- | | Shares Issued | 53,372 | | Proceeds | $0.1 million | | Stock-based Compensation Expense | < $0.1 million | ESPP Weighted-Average Assumptions | Assumption | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Risk-free interest rate | 0.09 % | 1.57 % | | Volatility | 65 % | 78 % | | Dividend yield | — | — | | Expected term (years) | 0.5 | 0.5 | [12. Net loss per share](index=28&type=section&id=12.%20Net%20loss%20per%20share) Basic and diluted net loss per common share are calculated based on net loss and weighted-average common shares outstanding, with potentially dilutive securities excluded due to their anti-dilutive effect - Basic and diluted net loss per common share are calculated by dividing net loss by the weighted-average number of common shares outstanding[84](index=84&type=chunk) Potentially Dilutive Securities Excluded from Diluted EPS | Security Type | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Outstanding stock options | 12,519,758 | 14,202,430 | | Outstanding restricted stock units | 2,850,955 | 1,614,784 | | 2018 Notes | 41,873 | 3,950,032 | | 2020 Notes | 8,615,384 | — | | Employee stock purchase plan | 33,034 | 128,545 | | **Total potentially dilutive securities** | **24,061,004** | **19,895,791** | - All potentially dilutive securities were excluded from the diluted net loss per share calculation because their inclusion would have had an anti-dilutive effect[85](index=85&type=chunk) [13. License, collaboration and commercial agreements](index=28&type=section&id=13.%20License,%20collaboration%20and%20commercial%20agreements) This section details the company's key license and collaboration agreements, including the sale of the COPIKTRA license to Secura Bio, Inc., and agreements with Chugai, Sanofi, Yakult, and CSPC [Secura Bio, Inc. (Secura)](index=28&type=section&id=Secura%20Bio,%20Inc.%20(Secura)) On September 30, 2020, Verastem sold its exclusive worldwide license for COPIKTRA (duvelisib) to Secura Bio, Inc. for an upfront payment of $70.0 million, with potential for future milestones and royalties - Verastem sold its exclusive worldwide license for COPIKTRA (duvelisib) to Secura Bio, Inc. on September 30, 2020, for an upfront payment of **$70.0 million**[87](index=87&type=chunk)[88](index=88&type=chunk) - The Secura APA includes potential regulatory milestone payments up to **$45.0 million** and sales milestone payments up to **$50.0 million**[88](index=88&type=chunk)[89](index=89&type=chunk) - Verastem is entitled to low double-digit royalties on annual aggregate net sales above **$100.0 million** and **50%** of all royalty, milestone, and sublicense revenue from Secura's sublicensees (Sanofi, Yakult, CSPC)[89](index=89&type=chunk) Revenue from Secura APA (Q1 2021, in millions) | Revenue Type | Amount | | :--- | :--- | | Regulatory milestone (Sanofi sublicensee) | $0.8 | | Expected future royalties | $0.1 | | Transition services revenue | $0.2 | | **Total recognized revenue** | **$1.1** | [Chugai Pharmaceutical Co., Ltd (Chugai)](index=32&type=section&id=Chugai%20Pharmaceutical%20Co.,%20Ltd%20(Chugai)) On January 7, 2020, Verastem entered into an exclusive worldwide license agreement with Chugai for the development and commercialization of VS-6766, with Chugai retaining opt-back rights - Verastem obtained an exclusive worldwide license from Chugai for the development, commercialization, and manufacture of VS-6766[99](index=99&type=chunk)[100](index=100&type=chunk) - A non-refundable upfront payment of **$3.0 million** was made to Chugai in February 2020 and recorded as research and development expense[100](index=100&type=chunk)[104](index=104&type=chunk) - Chugai has opt-back rights for VS-6766 in the European Union, Japan, and Taiwan, with consideration based on Verastem's development costs[100](index=100&type=chunk) [Sanofi](index=34&type=section&id=Sanofi) In July 2019, Verastem granted Sanofi exclusive rights for duvelisib in certain territories, with Secura assuming obligations post-APA, entitling Verastem to 50% of future milestone and royalty payments - Verastem granted Sanofi exclusive rights for duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, receiving a **$5.0 million** upfront payment and potential milestones up to **$42.0 million**[105](index=105&type=chunk)[106](index=106&type=chunk) - After the Secura APA (September 30, 2020), Secura assumed all responsibilities under the Sanofi Agreement, and Verastem is entitled to **50%** of future milestone and royalty payments from Sanofi, remitted by Secura[107](index=107&type=chunk) [Yakult Honsha Co., Ltd. (Yakult)](index=34&type=section&id=Yakult%20Honsha%20Co.,%20Ltd.%20(Yakult)) In June 2018, Verastem granted Yakult exclusive rights for duvelisib in Japan, with Secura assuming obligations post-APA, entitling Verastem to 50% of future milestone and royalty payments - Verastem granted Yakult exclusive rights for duvelisib in Japan, receiving a **$10.0 million** upfront payment and potential milestones up to **$90.0 million**[108](index=108&type=chunk)[109](index=109&type=chunk) - After the Secura APA (September 30, 2020), Secura assumed all responsibilities under the Yakult Agreement, and Verastem is entitled to **50%** of future milestone and royalty payments from Yakult, remitted by Secura[110](index=110&type=chunk) [CSPC Pharmaceutical Group Limited (CSPC)](index=34&type=section&id=CSPC%20Pharmaceutical%20Group%20Limited%20(CSPC)) In September 2018, Verastem granted CSPC exclusive rights for duvelisib in China, Hong Kong, Macau, and Taiwan, with Secura assuming obligations post-APA, entitling Verastem to 50% of future milestone and royalty payments - Verastem granted CSPC exclusive rights for duvelisib in China, Hong Kong, Macau, and Taiwan, receiving a **$15.0 million** upfront payment and potential milestones up to **$160.0 million**[113](index=113&type=chunk)[114](index=114&type=chunk) - After the Secura APA (September 30, 2020), Secura assumed all responsibilities under the CSPC Agreement, and Verastem is entitled to **50%** of future milestone and royalty payments from CSPC, remitted by Secura[115](index=115&type=chunk) [14. Income taxes](index=36&type=section&id=14.%20Income%20taxes) The company did not record a federal or state income tax provision or benefit for the three months ended March 31, 2021, or 2020, due to expected losses and a full valuation allowance - No income tax provision or benefit was recorded for Q1 2021 or Q1 2020 due to expected losses and a full valuation allowance against net deferred tax assets[116](index=116&type=chunk) [15. Commitments and contingencies](index=36&type=section&id=15.%20Commitments%20and%20contingencies) The company has no other material commitments or contingencies beyond the minimum lease payments disclosed in Note 8 - The company has no other commitments or contingencies beyond minimum lease payments[117](index=117&type=chunk) [16. Restructurings](index=36&type=section&id=16.%20Restructurings) The company undertook two restructurings in 2020, eliminating 31 positions in February and 41 positions in August, with $0.1 million remaining accrued for the August 2020 Restructuring as of March 31, 2021 - The February 2020 Restructuring eliminated approximately **31 positions**, incurring **$1.8 million** in one-time termination benefits[118](index=118&type=chunk) - The August 2020 Restructuring, in connection with the duvelisib sale, involved a workforce reduction of approximately **41 positions**, mainly in commercial operations[119](index=119&type=chunk) Accrued Liabilities Activity for Restructurings (in thousands) | Item | Accrued at Dec 31, 2020 | Paid | Accrued at Mar 31, 2021 | | :--- | :--- | :--- | :--- | | August 2020 Restructuring | $1,027 | $(907) | $120 | [17. Subsequent events](index=37&type=section&id=17.%20Subsequent%20events) The company is not aware of any material subsequent events that would require disclosure or impact the carrying value of assets or liabilities as of the balance sheet date - No material subsequent events were identified between the quarter-end and the issuance date of the financial statements[121](index=121&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2021, compared to the same period in 2020 [Overview](index=38&type=section&id=OVERVIEW) Verastem is a development-stage biopharmaceutical company focused on novel anticancer agents VS-6766 and defactinib, with registration-directed trials underway and sufficient cash resources for at least 12 months - Verastem is a development-stage biopharmaceutical company focused on novel anticancer agents VS-6766 (dual RAF/MEK inhibitor) and defactinib (FAK inhibitor) for solid tumors[124](index=124&type=chunk)[126](index=126&type=chunk)[128](index=128&type=chunk) - VS-6766 and defactinib are being investigated in preclinical and clinical studies for low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer (NSCLC), colorectal cancer (CRC), pancreatic cancer, uveal melanoma, and endometrial cancer[125](index=125&type=chunk) - Updated data from The FRAME study showed a **52%** overall response rate (ORR) in LGSOC, with **70%** ORR in KRAS mutant LGSOC[129](index=129&type=chunk)[131](index=131&type=chunk) - Registration-directed trials, RAMP 201 (LGSOC) and RAMP 202 (KRAS mutant NSCLC), commenced in Q4 2020[132](index=132&type=chunk) - The company sold its duvelisib program (COPIKTRA) to Secura Bio, Inc. on September 30, 2020, to focus on VS-6766 and defactinib[133](index=133&type=chunk) Key Financials (in millions) | Item | March 31, 2021 | | :--- | :--- | | Accumulated deficit | $607.5 | | Net loss (Q1 2021) | $15.0 | | Cash, cash equivalents, and investments | $127.1 | - Existing cash resources are expected to fund planned operations for at least **12 months**[135](index=135&type=chunk) [COVID-19 pandemic](index=41&type=section&id=COVID-19%20pandemic) The COVID-19 pandemic has impacted the company's operations, with employees working remotely and clinical trial startup activities experiencing delays in European countries - The COVID-19 pandemic has affected employees, patients, communities, and business operations, with most employees working from home since mid-March 2020[138](index=138&type=chunk) - Patient accruals in clinical trials have increased as restrictions eased, but European restrictions still cause delays in clinical trial startup activities[138](index=138&type=chunk) - The full extent of the pandemic's direct or indirect impact on the business, results of operations, and financial condition is highly uncertain[138](index=138&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) The company's financial statements require estimates and judgments, with critical accounting policies remaining materially unchanged from the prior annual report - The preparation of financial statements requires management to make estimates and judgments affecting reported amounts[140](index=140&type=chunk) - Critical accounting policies include revenue recognition (product revenue, licenses, and intellectual property sales), accrued research and development expenses, stock-based compensation, intangible assets, and leases[142](index=142&type=chunk) - There were no material changes to critical accounting policies during the three months ended March 31, 2021[142](index=142&type=chunk) [RESULTS OF OPERATIONS](index=42&type=section&id=RESULTS%20OF%20OPERATIONS) The company's Q1 2021 results showed a significant reduction in net loss and operating expenses compared to Q1 2020, primarily due to the divestment of the COPIKTRA license [Revenue](index=42&type=section&id=Revenue) Total revenue for Q1 2021 was $1.0 million, an 80% decrease from $5.1 million in Q1 2020, primarily due to the cessation of COPIKTRA product sales Revenue Comparison (in thousands) | Revenue Type | Q1 2021 | Q1 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $— | $5,034 | $(5,034) | (100)% | | License and collaboration revenue | $— | $22 | $(22) | (100)% | | Sale of COPIKTRA license and related assets | $850 | $— | $850 | 100% | | Transition services revenue | $156 | $— | $156 | 100% | | **Total revenue** | **$1,006** | **$5,056** | **$(4,050)** | **(80)%** | - Product revenue ceased in Q1 2021 due to the sale of the COPIKTRA license as of September 30, 2020[144](index=144&type=chunk) - New revenue in Q1 2021 included **$0.8 million** from a regulatory milestone achieved by Sanofi (Secura's sublicensee) and **$0.1 million** from expected royalties under the Secura APA[146](index=146&type=chunk) - Transition services revenue of **$0.2 million** was recognized in Q1 2021 for support functions provided to Secura[147](index=147&type=chunk) [Operating Expenses](index=42&type=section&id=Operating%20Expenses) Total operating expenses decreased by 52% from $31.4 million in Q1 2020 to $15.1 million in Q1 2021, driven by the elimination of COPIKTRA-related costs and reduced SG&A expenses Operating Expenses Comparison (in thousands) | Expense Type | Q1 2021 | Q1 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cost of sales - product | $— | $495 | $(495) | (100)% | | Cost of sales - intangible amortization | $— | $392 | $(392) | (100)% | | Research and development | $8,896 | $10,924 | $(2,028) | (19)% | | Selling, general and administrative | $6,218 | $19,604 | $(13,386) | (68)% | | **Total operating expenses** | **$15,114** | **$31,415** | **$(16,301)** | **(52)%** | - Cost of sales for product and intangible amortization were **$0** in Q1 2021 due to the COPIKTRA license sale[148](index=148&type=chunk)[150](index=150&type=chunk) - R&D expense decreased by **$2.0 million**, primarily due to a **$3.0 million** license fee paid to Chugai in Q1 2020, partially offset by increased costs for VS-6766 and defactinib drug substance and IST expenses[151](index=151&type=chunk) - SG&A expense decreased by **$13.4 million**, mainly from reduced personnel-related costs (**$7.4 million**), consulting and professional fees (**$5.0 million**), and commercial activities costs (**$0.5 million**) following the COPIKTRA divestment[152](index=152&type=chunk) [Other Income (Expense)](index=44&type=section&id=Other%20Income%20(Expense)) Other expense of $1.3 million in Q1 2020 related to the 2019 Notes' make-whole interest provision ceased in Q1 2021, while interest income and expense both decreased Other Income (Expense) Comparison (in thousands) | Item | Q1 2021 | Q1 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Other expense | $— | $(1,313) | $1,313 | (100)% | | Interest income | $52 | $356 | $(304) | (85)% | | Interest expense | $(975) | $(10,674) | $9,699 | (91)% | - Other expense in Q1 2020 was due to the mark-to-market adjustment of the 2019 Notes' make-whole interest provision; this expense was **$0** in Q1 2021 as all 2019 Notes converted[153](index=153&type=chunk) - Interest income decreased by **$0.3 million** due to lower interest rates on investments[154](index=154&type=chunk) - Interest expense decreased by **$9.7 million** due to the conversion of 2019 Notes and repayment of the term loan facility[155](index=155&type=chunk) [Restructuring](index=44&type=section&id=Restructuring) In Q1 2020, the company recorded $1.8 million in restructuring expenses related to the February 2020 Restructuring, which involved eliminating 31 positions, with no charges incurred in Q1 2021 - In Q1 2020, **$1.8 million** was recorded for the February 2020 Restructuring, which included one-time termination benefits for **31 employee positions**[156](index=156&type=chunk) - No restructuring charges were incurred in Q1 2021[156](index=156&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=44&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity is primarily supported by equity offerings, debt financings, and upfront payments from license agreements, with $127.1 million in cash, cash equivalents, and investments as of March 31, 2021 [Sources of liquidity](index=44&type=section&id=Sources%20of%20liquidity) The company's operations are financed through equity offerings, debt, and upfront payments from license agreements, with future milestones and royalties from the Secura APA expected - Operations are financed primarily through public/private equity offerings, debt, and upfront payments from license/collaboration agreements[157](index=157&type=chunk) - Product revenue from COPIKTRA ceased after its license sale in September 2020; future funding will include milestones and royalties from the Secura APA[157](index=157&type=chunk) Liquidity Position (March 31, 2021) | Item | Amount | | :--- | :--- | | Cash, cash equivalents, and investments | $127.1 million | - Investments are primarily in U.S. Government money market funds, agency bonds, corporate bonds, and commercial paper[158](index=158&type=chunk) [Cash flows](index=46&type=section&id=Cash%20flows) Net cash used in operating activities decreased by $14.7 million in Q1 2021, while investing activities shifted to a net use of cash, and financing activities significantly decreased Cash Flow Summary (in thousands) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Operating activities | $(19,318) | $(34,003) | | Investing activities | $(12,372) | $32,050 | | Financing activities | $(578) | $93,421 | | **(Decrease) increase in cash, cash equivalents and restricted cash** | **$(32,268)** | **$91,468** | - The decrease in cash used in operating activities was primarily due to a decreased net loss and a net decrease in working capital components[161](index=161&type=chunk) - Investing activities in Q1 2021 primarily involved net purchases of investments (**$12.2 million**) and fixed assets (**$0.2 million**)[162](index=162&type=chunk) - Financing activities in Q1 2020 included **$93.9 million** in net proceeds from a common stock offering[163](index=163&type=chunk)[164](index=164&type=chunk) [License and collaboration agreements](index=50&type=section&id=License%20and%20collaboration%20agreements) The company's primary license agreement is the Secura APA, under which it sold the COPIKTRA license for an upfront payment and potential milestones/royalties, retaining 50% of future payments from sublicensees - The Secura APA involved the sale of the COPIKTRA license for an upfront payment of **$70.0 million**, regulatory milestones up to **$45.0 million**, sales milestones up to **$50.0 million**, and low double-digit royalties[181](index=181&type=chunk)[182](index=182&type=chunk) - Verastem is entitled to **50%** of all royalty, milestone, and sublicense revenue payments payable to Secura under existing license agreements with Sanofi, Yakult, and CSPC[182](index=182&type=chunk) - In Q1 2021, **$0.9 million** was recognized from the Secura APA, including a regulatory milestone from Sanofi and expected royalties[186](index=186&type=chunk) - The Chugai Agreement grants Verastem exclusive worldwide rights for VS-6766, with a **$3.0 million** non-refundable payment made in February 2020[187](index=187&type=chunk)[188](index=188&type=chunk)[191](index=191&type=chunk) [Funding requirements](index=52&type=section&id=Funding%20requirements) The company expects to incur significant expenses and operating losses for ongoing clinical trials and commercialization efforts, with existing cash projected to fund operations for at least the next twelve months - The company expects to incur significant expenses and operating losses due to ongoing and new clinical trials for VS-6766 and defactinib, intellectual property expansion, and commercialization efforts[192](index=192&type=chunk) - Existing cash resources are expected to fund obligations for at least the next twelve months[194](index=194&type=chunk) - Future capital requirements are dependent on factors such as clinical trial scope and results, regulatory review, commercialization costs, intellectual property maintenance, and the ability to secure collaborations[199](index=199&type=chunk) - Future funding is anticipated through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements, which may involve dilution or restrictive covenants[195](index=195&type=chunk) [CONTRACTUAL OBLIGATIONS AND COMMITMENTS](index=54&type=section&id=CONTRACTUAL%20OBLIGATIONS%20AND%20COMMITMENTS) There have been no material changes to the company's contractual obligations and commitments from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to contractual obligations and commitments since the Annual Report on Form 10-K for the year ended December 31, 2020[196](index=196&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=54&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) The company did not have any off-balance sheet arrangements during the periods presented, nor does it currently have any, as defined under SEC rules - The company has no off-balance sheet arrangements[197](index=197&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risk primarily from changes in interest rates, affecting its $127.1 million in cash, cash equivalents, and investments, though the impact is not material due to the short-term, low-risk nature of investments - The company's primary market risk exposure is interest rate sensitivity, affecting its **$127.1 million** in cash, cash equivalents, and investments[198](index=198&type=chunk) - Due to the short-term duration and low-risk profile of investments, a **100 basis point** change in interest rates would not materially affect the fair market value of the portfolio[201](index=201&type=chunk) - The fixed-rate 2018 and 2020 Convertible Senior Notes have minimal exposure to changes in interest rates[203](index=203&type=chunk) - Foreign currency fluctuations from global CRO and contract manufacturer agreements are currently immaterial[202](index=202&type=chunk) [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021[204](index=204&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2021[205](index=205&type=chunk) [PART II—OTHER INFORMATION](index=57&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part contains other information not included in the financial statements, such as legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings - There are no legal proceedings to report[208](index=208&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - No material changes to risk factors from the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[209](index=209&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no recent unregistered sales of equity securities and no purchases of its own equity securities during the period - No recent unregistered sales of equity securities[210](index=210&type=chunk) - No purchases of equity securities were made by the company during the reporting period[211](index=211&type=chunk) [Item 3. Defaults Upon Senior Securities](index=57&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There are no defaults upon senior securities to report[212](index=212&type=chunk) [Item 4. Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no mine safety disclosures - There are no mine safety disclosures to report[213](index=213&type=chunk) [Item 5. Other Information](index=57&type=section&id=Item%205.%20Other%20Information) The company reported no other information - There is no other information to report[214](index=214&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of this Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Chief Financial Officer, a press release, and Inline XBRL documents - The report includes certifications from the Principal Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2)[218](index=218&type=chunk) - A press release issued by Verastem, Inc. on May 11, 2021, is filed as Exhibit 99.1[218](index=218&type=chunk) - Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) and the cover page in Inline XBRL (104) are included[218](index=218&type=chunk) [SIGNATURES](index=59&type=section&id=SIGNATURES) The report is duly signed on behalf of Verastem, Inc. by its Chief Executive Officer, Brian M. Stuglik, and Chief Business and Financial Officer, Robert Gagnon, on May 11, 2021 - The report is signed by Brian M. Stuglik, Chief Executive Officer, and Robert Gagnon, Chief Business and Financial Officer, on May 11, 2021[223](index=223&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-35403 Verastem, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction o ...

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, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-35403 Verastem, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other juri ...

[FORWARD-LOOKING STATEMENTS](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines forward-looking statements regarding the company's strategy, operations, and product development, along with substantial risks and uncertainties - This section highlights that the Quarterly Report contains forward-looking statements regarding the company's strategy, future operations, financial position, revenues, costs, and development activities for its product candidates (VS-6766, defactinib) and marketed product (COPIKTRA®)[11](index=11&type=chunk) - It also outlines substantial risks and uncertainties that could cause actual results to differ materially from these forward-looking statements, including commercial success of COPIKTRA, clinical trial outcomes, regulatory approvals, intellectual property protection, legal proceedings, reimbursement uncertainties, competition, and the impact of COVID-19[12](index=12&type=chunk) [PART I—FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=7&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies [Condensed Consolidated Balance Sheets](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time, highlighting changes in financial position Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $125,328 | $43,514 | | Short-term investments | — | $31,992 | | Total current assets | $144,592 | $84,961 | | Total assets | $198,532 | $145,046 | | Total current liabilities | $28,784 | $29,890 | | Total liabilities | $84,159 | $137,872 | | Total stockholders' equity | $114,373 | $7,174 | - Total assets increased by **$53.486 million** (36.88%) from December 31, 2019, to June 30, 2020, primarily driven by a significant increase in cash and cash equivalents[16](index=16&type=chunk) - Total liabilities decreased by **$53.713 million** (38.96%) over the same period, largely due to a reduction in convertible senior notes[16](index=16&type=chunk) - Total stockholders' equity saw a substantial increase of **$107.199 million** (1494.27%) from December 31, 2019, to June 30, 2020[16](index=16&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20AND%20COMPREHENSIVE%20LOSS) This section details the company's revenues, expenses, and net loss over specific periods, reflecting operational performance and profitability Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product revenue, net | $4,235 | $3,019 | $9,269 | $4,690 | | License and collaboration revenue | $72 | $117 | $94 | $117 | | Total revenue | $4,307 | $3,136 | $9,363 | $4,807 | | Research and development | $9,344 | $11,346 | $20,268 | $21,103 | | Selling, general and administrative | $15,442 | $29,298 | $35,046 | $55,331 | | Total operating expenses | $25,571 | $41,413 | $56,986 | $77,753 | | Net loss | $(23,010) | $(42,194) | $(61,000) | $(80,296) | | Net loss per share—basic and diluted | $(0.14) | $(0.57) | $(0.45) | $(1.09) | - Total revenue increased by **37%** for the three months ended June 30, 2020, and by **95%** for the six months ended June 30, 2020, compared to the respective prior periods, primarily driven by higher net product revenue[18](index=18&type=chunk) - Net loss significantly decreased by **45%** for the three months ended June 30, 2020, and by **24%** for the six months ended June 30, 2020, compared to the respective prior periods, mainly due to reduced operating expenses[18](index=18&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=10&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS%27%20EQUITY) This section tracks changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit, over time Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share data) | Metric | Balance at Dec 31, 2019 | Balance at Mar 31, 2020 | Balance at June 30, 2020 | | :------------------------------------------------ | :---------------------- | :---------------------- | :----------------------- | | Common stock (shares) | 80,117,531 | 162,356,444 | 169,337,919 | | Common stock (amount) | $8 | $16 | $17 | | Additional paid-in capital | $531,937 | $685,733 | $700,141 | | Accumulated deficit | $(524,785) | $(562,775) | $(585,785) | | Total stockholders' equity | $7,174 | $122,983 | $114,373 | - Total stockholders' equity increased significantly from **$7.174 million** at December 31, 2019, to **$114.373 million** at June 30, 2020, primarily due to proceeds from private investment in public equity (PIPE) offering and conversion of 2019 Notes into common stock[21](index=21&type=chunk) - The number of common shares outstanding nearly doubled from **80.1 million** at December 31, 2019, to **169.3 million** at June 30, 2020, reflecting equity issuances[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This section summarizes the cash inflows and outflows from operating, investing, and financing activities, illustrating liquidity and solvency Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(56,550) | $(73,449) | | Net cash provided by investing activities | $32,023 | $46,893 | | Net cash provided by financing activities | $106,099 | $9,769 | | Increase (decrease) in cash, cash equivalents and restricted cash | $81,572 | $(16,787) | - Net cash used in operating activities decreased by **$16.9 million** (23%) for the six months ended June 30, 2020, compared to the prior year, indicating improved operational cash burn[23](index=23&type=chunk) - Net cash provided by financing activities significantly increased to **$106.1 million** in the first half of 2020, primarily from common stock issuances, compared to **$9.8 million** in the prior year[23](index=23&type=chunk) - Overall cash, cash equivalents, and restricted cash increased by **$81.6 million** in the first half of 2020, a reversal from a decrease of **$16.8 million** in the same period of 2019[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, clarifying accounting policies and specific items [1. Nature of business](index=12&type=section&id=1.%20Nature%20of%20business) This note describes the company's core business as a biopharmaceutical firm focused on cancer medicines, its key products, and financial position - Verastem, Inc. is a biopharmaceutical company focused on developing and commercializing cancer medicines, with its first commercial product COPIKTRA® (duvelisib) approved by the FDA in September 2018 for certain hematologic cancers[24](index=24&type=chunk) - The company's most advanced product candidates are defactinib and VS-6766, which are being developed for various cancers, including leukemia, lymphoma, ovarian, lung, head and neck, colorectal, pancreatic, and mesothelioma[24](index=24&type=chunk) - As of June 30, 2020, the company had **$160.8 million** in cash, cash equivalents, restricted cash, and short-term investments, and an accumulated deficit of **$585.8 million**, expecting existing resources to fund operations for the next 12 months[27](index=27&type=chunk) [2. Summary of significant accounting policies](index=14&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies) This note outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and fair value measurements [Basis of Presentation](index=14&type=section&id=Basis%20of%20Presentation) This sub-section explains the framework and assumptions used for preparing the unaudited interim consolidated financial statements in accordance with GAAP - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting and Regulation S-X, Rule 10-01, assuming the company will continue as a going concern for the next twelve months[30](index=30&type=chunk) [Significant Accounting Policies](index=14&type=section&id=Significant%20Accounting%20Policies) This sub-section lists the primary accounting policies applied, such as those for R&D expenses, stock-based compensation, and inventory, noting no material changes - Key accounting policies include accrued research and development expenses, stock-based compensation, revenue recognition, collaborative arrangements, accounts receivable, inventory, and intangible assets, with no material changes during the six months ended June 30, 2020[31](index=31&type=chunk) [Revenue Recognition](index=14&type=section&id=Revenue%20Recognition) This sub-section details the company's approach to recognizing revenue from product sales and collaboration agreements, including estimates for variable consideration - Revenue is recognized when customers obtain control of promised goods or services, reflecting the consideration expected, following a five-step assessment process under ASC Topic 606[32](index=32&type=chunk) - Product revenue from COPIKTRA sales is recorded net of variable consideration, including trade discounts, chargebacks, government rebates, and product returns, with estimates based on relevant factors to ensure no significant revenue reversal[34](index=34&type=chunk)[36](index=36&type=chunk) - For collaboration and licensing arrangements, revenue from upfront payments, milestones, and royalties is recognized based on distinct performance obligations, with significant judgment applied to determine transaction price and measure of progress[45](index=45&type=chunk)[46](index=46&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) [Concentrations of credit risk and off-balance sheet risk](index=22&type=section&id=Concentrations%20of%20credit%20risk%20and%20off-balance%20sheet%20risk) This sub-section discusses how the company manages credit risk and confirms the absence of significant off-balance sheet arrangements - The company mitigates credit risk by maintaining cash and investments with high-quality financial institutions and assesses customer creditworthiness, with three customers cumulatively accounting for over **60%** of trade accounts receivable as of June 30, 2020[55](index=55&type=chunk)[56](index=56&type=chunk) [Recently Issued Accounting Standards Updates](index=22&type=section&id=Recently%20Issued%20Accounting%20Standards%20Updates) This sub-section identifies new accounting standards that have been issued but not yet adopted, and their potential impact on the financial statements - The company is evaluating the impact of ASU No. 2016-13 (Measurement of Credit Losses on Financial Instruments) and ASU No. 2019-12 (Simplifying Accounting for Income Taxes), both of which have delayed adoption dates for smaller reporting companies[57](index=57&type=chunk)[58](index=58&type=chunk) [Recently Adopted Accounting Standards Updates](index=22&type=section&id=Recently%20Adopted%20Accounting%20Standards%20Updates) This sub-section outlines recently adopted accounting standards and their immaterial impact on the company's financial statements and disclosures - The company adopted ASU 2018-18 (Collaborative Arrangements) and ASU 2018-15 (Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement) effective January 1, 2020, neither of which had a material impact on financial statements[59](index=59&type=chunk)[61](index=61&type=chunk) - ASU 2018-13 (Fair Value Measurement) was also adopted effective January 1, 2020, with no effect on financial statements or disclosures[62](index=62&type=chunk) [3. Cash, cash equivalents and restricted cash](index=24&type=section&id=3.%20Cash%2C%20cash%20equivalents%20and%20restricted%20cash) This note provides a breakdown of the company's cash, cash equivalents, and restricted cash, including the purposes of restricted funds Cash, Cash Equivalents and Restricted Cash (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :----------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $125,328 | $43,514 | | Restricted cash | $35,506 | $35,748 | | Total cash, cash equivalents and restricted cash | $160,834 | $79,262 | - Restricted cash includes amounts for the Amended Term Loan Agreement, LLS Research Funding Agreement, and collateral for office space letters of credit[63](index=63&type=chunk) [4. Fair value of financial instruments](index=26&type=section&id=4.%20Fair%20value%20of%20financial%20instruments) This note explains the company's methodology for measuring the fair value of financial instruments and presents a hierarchy of valuation inputs - The company uses a fair value hierarchy (Level 1, 2, 3) to determine the fair value of financial instruments[64](index=64&type=chunk)[66](index=66&type=chunk) Financial Instruments Measured at Fair Value on a Recurring Basis (in thousands) | Description | June 30, 2020 Total | June 30, 2020 Level 1 | December 31, 2019 Total | December 31, 2019 Level 1 | December 31, 2019 Level 2 | | :---------------------- | :------------------ | :-------------------- | :---------------------- | :---------------------- | :---------------------- | | Cash equivalents | $159,422 | $159,422 | $77,176 | $75,678 | $1,498 | | Short-term investments | — | — | $31,992 | — | $31,992 | | Derivative liability | — | — | $450 | — | — | - The derivative liability related to the 2019 Notes Interest Make-Whole Provision, classified as Level 3, was settled upon conversion of all 2019 Notes by June 30, 2020[68](index=68&type=chunk)[70](index=70&type=chunk) - The fair value of long-term debt was approximately **$37.0 million** at June 30, 2020, and December 31, 2019, determined using Level 3 inputs[71](index=71&type=chunk) - The fair value of the 2018 Notes was approximately **$14.3 million** at June 30, 2020, compared to a carrying value of **$20.4 million**, determined using Level 2 inputs[72](index=72&type=chunk) [5. Investments](index=27&type=section&id=5.%20Investments) This note details the company's investment portfolio, including cash, money market accounts, and corporate bonds, and their fair values Cash, Cash Equivalents, Restricted Cash and Investments (in thousands) | Category | June 30, 2020 Fair Value | December 31, 2019 Fair Value | | :----------------------------------- | :----------------------- | :--------------------------- | | Cash and money market accounts | $160,834 | $77,764 | | Corporate bonds, agency bonds and commercial paper (due within 90 days) | — | $1,498 | | Corporate bonds and commercial paper (due within 1 year) | — | $31,993 | | Total cash, cash equivalents, restricted cash and investments | $160,834 | $111,255 | - The company had no investments in an unrealized loss position as of June 30, 2020, compared to two investments at December 31, 2019, with immaterial aggregate unrealized losses[75](index=75&type=chunk) [6. Inventory](index=29&type=section&id=6.%20Inventory) This note provides a breakdown of the company's inventory, including raw materials, work in process, and finished goods, and changes over time Inventory Breakdown (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :-------------- | :------------ | :---------------- | | Raw materials | $1,056 | $955 | | Work in process | $4,668 | $2,040 | | Finished goods | $592 | $101 | | Total inventories | $6,316 | $3,096 | - Total inventories increased by **$3.22 million** (104%) from December 31, 2019, to June 30, 2020, primarily due to increases in work in process and finished goods[76](index=76&type=chunk) [7. Intangible assets](index=29&type=section&id=7.%20Intangible%20assets) This note describes the company's intangible assets, primarily acquired and in-licensed rights, and their associated amortization Intangible Assets, Net (in thousands) | Category | June 30, 2020 | | :------------------------ | :------------ | | Acquired and in-licensed rights | $22,000 | | Less: accumulated amortization | $(2,777) | | Total intangible assets, net | $19,223 | - Intangible assets primarily consist of a **$22.0 million** milestone payment for acquired and in-licensed rights related to COPIKTRA, with an estimated useful life of 14 years[77](index=77&type=chunk) - Amortization expense was approximately **$0.4 million** for the three months and **$0.8 million** for the six months ended June 30, 2020[78](index=78&type=chunk) [8. Accrued expenses](index=29&type=section&id=8.%20Accrued%20expenses) This note itemizes the company's accrued expenses, such as compensation, research organization costs, and commercialization costs, and their changes Accrued Expenses (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :---------------------------- | :------------ | :---------------- | | Compensation and related benefits | $4,551 | $7,399 | | Contract research organization costs | $7,387 | $5,467 | | Commercialization costs | $4,375 | $3,028 | | Consulting fees | $3,579 | $1,610 | | Total accrued expenses | $21,449 | $19,365 | - Total accrued expenses increased by **$2.084 million** (10.76%) from December 31, 2019, to June 30, 2020, driven by higher contract research organization and consulting costs[79](index=79&type=chunk) [9. Product revenue reserves and allowances](index=31&type=section&id=9.%20Product%20revenue%20reserves%20and%20allowances) This note details the company's provisions for product revenue allowances and reserves, including trade discounts, chargebacks, and government rebates Product Revenue Allowance and Reserve Activity (in thousands) - Six Months Ended June 30, 2020 | Category | Balance at Dec 31, 2019 | Provision related to sales in current year | Credits and payments made | Ending balance at June 30, 2020 | | :----------------------------------- | :---------------------- | :--------------------------------------- | :------------------------ | :------------------------------ | | Trade discounts and allowances | $111 | $385 | $(402) | $94 | | Third-Party Payer chargebacks, discounts and fees | $255 | $1,003 | $(1,123) | $135 | | Government rebates and other incentives | $372 | $645 | $(562) | $455 | | Returns | $76 | $358 | $(108) | $326 | | Total | $814 | $2,391 | $(2,195) | $1,010 | - Total product revenue allowances and reserves increased from **$814 thousand** at December 31, 2019, to **$1.010 million** at June 30, 2020, reflecting provisions for current year sales partially offset by credits and payments[80](index=80&type=chunk) [10. Leases](index=31&type=section&id=10.%20Leases) This note outlines the company's operating lease arrangements, including right-of-use assets, lease liabilities, and future payment obligations - The company's Needham, Massachusetts office space is accounted for as an operating lease, with a right-of-use asset of **$2.9 million** and a lease liability of **$3.7 million** as of June 30, 2020[82](index=82&type=chunk)[84](index=84&type=chunk) Operating Lease Expense (in thousands) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $221 | $222 | $442 | $444 | Lease Liability Maturity Analysis (in thousands) as of June 30, 2020 | Year | Amount | | :-------- | :----- | | 2020 | $504 | | 2021 | $1,019 | | 2022 | $1,039 | | 2023 | $1,060 | | 2024 | $1,081 | | Thereafter | $546 | | Total | $5,249 | | Less: Present value discount | $(1,516) | | Lease Liability | $3,733 | [11. Long-term debt](index=32&type=section&id=11.%20Long-term%20debt) This note describes the company's long-term debt obligations, including its term loan facility, interest rates, and repayment schedule - The company has a term loan facility with Hercules Capital, Inc., amended to a total borrowing limit of up to **$75.0 million**, with **$35.0 million** outstanding as of June 30, 2020[85](index=85&type=chunk)[86](index=86&type=chunk) - The Amended Term Loan matures on December 1, 2022, accrues interest at a floating rate (greater of 9.75% or a formula involving prime rate), and requires interest-only payments until April 1, 2021 (extendable to December 1, 2021)[89](index=89&type=chunk) - The company must maintain unrestricted cash equal to **100%** of outstanding debt obligations until certain net product revenue thresholds are met[87](index=87&type=chunk) Future Principal Payments Under Amended Term Loan (in thousands) as of June 30, 2020 | Year | Amount | | :--- | :----- | | 2021 | $14,234 | | 2022 | $20,766 | | Total | $35,000 | [12. Convertible Senior Notes](index=36&type=section&id=12.%20Convertible%20Senior%20Notes) This note details the company's convertible senior notes, including their issuance, conversion terms, and the settlement of related derivative liabilities - The company issued **$150.0 million** aggregate principal amount of 5.00% Convertible Senior Notes due 2048 (2018 Notes) in October 2018, convertible into common stock at an initial conversion price of approximately **$7.16** per share[97](index=97&type=chunk)[98](index=98&type=chunk) - In late 2019, the company exchanged **$121.7 million** of 2018 Notes for 5.00% Convertible Senior Second Lien Notes due 2048 (2019 Notes), which had an initial conversion price of approximately **$1.65** per share[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - All 2019 Notes were converted into common stock by June 30, 2020, resulting in the settlement of a derivative liability related to a cash interest make-whole payment[108](index=108&type=chunk) [13. Common stock](index=38&type=section&id=13.%20Common%20stock) This note provides information on the company's common stock, including equity offerings and changes in shares outstanding [Private Investment in Public Equity (PIPE)](index=38&type=section&id=Private%20Investment%20in%20Public%20Equity%20(PIPE)) This sub-section details the company's PIPE offering, including the number of shares sold and the net proceeds generated - On March 3, 2020, the company closed a PIPE offering, selling **46,511,628** shares of common stock at **$2.15** per share, generating approximately **$93.8 million** in net proceeds[109](index=109&type=chunk) [At-the-market equity offering programs](index=38&type=section&id=At-the-market%20equity%20offering%20programs) This sub-section describes the company's at-the-market equity offering programs, including shares sold and net proceeds - During the six months ended June 30, 2020, the company sold **6,769,559** shares under its at-the-market equity offering program, generating approximately **$12.2 million** in net proceeds[112](index=112&type=chunk) - Cumulatively through June 30, 2020, the program has sold **18,287,913** shares for net proceeds of approximately **$59.6 million**[112](index=112&type=chunk) [14. Stock-based compensation](index=40&type=section&id=14.%20Stock-based%20compensation) This note outlines the company's stock-based compensation plans, including stock options, restricted stock units, and the employee stock purchase plan [Stock options](index=40&type=section&id=Stock%20options) This sub-section details the activity and valuation assumptions for the company's stock option grants Stock Option Activity - Six Months Ended June 30, 2020 | Metric | Shares | Weighted-average exercise price per share | | :-------------------------- | :----------- | :---------------------------------------- | | Outstanding at Dec 31, 2019 | 17,258,524 | $4.00 | | Granted | 584,357 | $1.93 | | Exercised | (824,894) | $1.86 | | Forfeited/cancelled | (3,617,832) | $3.90 | | Outstanding at June 30, 2020 | 13,400,155 | $4.06 | Weighted-Average Black-Scholes Assumptions for Stock Options | Assumption | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------ | :----------------------------- | :----------------------------- | | Risk-free interest rate | 0.40 % | 2.16 % | | Volatility | 97 % | 86 % | | Expected term (years) | 5.6 | 5.8 | [Restricted stock units (RSUs)](index=40&type=section&id=Restricted%20stock%20units%20(RSUs)) This sub-section provides information on the company's restricted stock unit activity and amendments to vesting provisions RSU Activity - Six Months Ended June 30, 2020 | Metric | Shares | Weighted average grant date fair value per share | | :-------------------------- | :----------- | :----------------------------------------------- | | Outstanding at Dec 31, 2019 | 678,089 | $2.36 | | Granted | 1,050,525 | $2.18 | | Vested | (138,798) | $2.78 | | Forfeited/cancelled | (113,668) | $2.69 | | Outstanding at June 30, 2020 | 1,476,148 | $2.17 | - In March 2020, the company amended outstanding stock options and RSUs to provide for full vesting upon a change of control, aiming to assure employees[116](index=116&type=chunk) [Employee stock purchase plan](index=41&type=section&id=Employee%20stock%20purchase%20plan) This sub-section describes the company's employee stock purchase plan, including eligibility and shares issued - The Amended and Restated 2018 ESPP allows eligible employees to purchase common stock at **85%** of the lesser of the fair market value at the beginning or end of the purchase period[117](index=117&type=chunk) - For the six months ended June 30, 2020, the company recognized **$0.1 million** in stock-based compensation expense and issued **227,141** shares for **$0.3 million** under the ESPP[117](index=117&type=chunk) [15. Net loss per share](index=41&type=section&id=15.%20Net%20loss%20per%20share) This note explains the calculation of basic and diluted net loss per share and identifies potentially dilutive securities - Basic net loss per common share is calculated by dividing net loss by weighted-average common shares outstanding, while diluted net loss per share includes potentially dilutive securities unless anti-dilutive[118](index=118&type=chunk) Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share Calculation | Security | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Outstanding stock options | 13,400,155 | 16,635,757 | 13,400,155 | 16,635,757 | | Outstanding restricted stock units | 1,476,148 | 739,117 | 1,476,148 | 739,117 | | 2018 Notes | 3,950,032 | 20,936,548 | 3,950,032 | 20,936,548 | | Total potentially dilutive securities | 18,826,335 | 38,311,422 | 18,826,335 | 38,311,422 | [16. License and collaboration agreements](index=43&type=section&id=16.%20License%20and%20collaboration%20agreements) This note details the company's various license and collaboration agreements for its product candidates, including upfront payments, milestones, and royalties [Chugai Pharmaceutical Co., Ltd (Chugai)](index=43&type=section&id=Chugai%20Pharmaceutical%20Co.%2C%20Ltd%20(Chugai)) This sub-section outlines the exclusive worldwide license agreement with Chugai for VS-6766, including upfront fees and royalty terms - In January 2020, the company entered an exclusive worldwide license agreement with Chugai for VS-6766, paying a non-refundable **$3.0 million** upfront fee, recorded as R&D expense[120](index=120&type=chunk)[121](index=121&type=chunk)[124](index=124&type=chunk) - The agreement includes double-digit royalties on net sales of VS-6766 products and opt-back rights for Chugai in the EU, Japan, and Taiwan[121](index=121&type=chunk) [Sanofi](index=45&type=section&id=Sanofi) This sub-section details the exclusive rights granted to Sanofi for duvelisib in specific regions, including upfront payments and potential milestones - In July 2019, the company granted Sanofi exclusive rights to develop and commercialize duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, receiving a **$5.0 million** upfront payment[125](index=125&type=chunk)[127](index=127&type=chunk) - Sanofi is eligible for up to **$42.0 million** in milestone payments and double-digit royalties on net sales[127](index=127&type=chunk) [Yakult Honsha Co., Ltd. (Yakult)](index=45&type=section&id=Yakult%20Honsha%20Co.%2C%20Ltd.%20(Yakult)) This sub-section describes the duvelisib licensing agreement with Yakult for Japan, including upfront payments, milestones, and a supply agreement - In June 2018, the company licensed duvelisib rights in Japan to Yakult, receiving a **$10.0 million** upfront payment and eligibility for up to **$90.0 million** in milestones and double-digit royalties[128](index=128&type=chunk)[129](index=129&type=chunk) - A supply agreement in February 2019 also granted Yakult limited manufacturing rights for clinical and commercial use in Japan[130](index=130&type=chunk) [CSPC Pharmaceutical Group Limited (CSPC)](index=45&type=section&id=CSPC%20Pharmaceutical%20Group%20Limited%20(CSPC)) This sub-section outlines the exclusive rights granted to CSPC for duvelisib in Greater China, including upfront payments and potential milestones - In September 2018, the company granted CSPC exclusive rights to develop and commercialize duvelisib in China, Hong Kong, Macau, and Taiwan, receiving a **$15.0 million** upfront payment[131](index=131&type=chunk)[132](index=132&type=chunk) - CSPC is eligible for up to **$160.0 million** in milestones and double-digit royalties on net sales[132](index=132&type=chunk) [17. Income taxes](index=47&type=section&id=17.%20Income%20taxes) This note explains the company's income tax position, including the absence of provisions or benefits due to expected losses and valuation allowances - The company recorded no federal or state income tax provision or benefit for the three and six months ended June 30, 2020 and 2019, due to expected losses and a full valuation allowance against net deferred tax assets[135](index=135&type=chunk) [18. Commitments and contingencies](index=47&type=section&id=18.%20Commitments%20and%20contingencies) This note confirms that the company has no material commitments or contingencies beyond those already disclosed - The company has no other commitments beyond minimum lease payments as disclosed in Note 10[136](index=136&type=chunk) [19. Restructurings](index=47&type=section&id=19.%20Restructurings) This note details the company's restructuring efforts, including position eliminations and associated expenses, aimed at reducing operating costs - The company undertook restructurings in October 2019 (**40** positions eliminated) and February 2020 (**31** positions eliminated) to reduce operating expenses and streamline operations[137](index=137&type=chunk)[138](index=138&type=chunk) - For the February 2020 restructuring, the company recorded **$1.8 million** in aggregate expense for one-time termination benefits during the six months ended June 30, 2020[139](index=139&type=chunk) Accrued Liabilities Activity for Restructurings (in thousands) - Six Months Ended June 30, 2020 | Restructuring | Amounts accrued at Dec 31, 2019 | Charges | Amount Paid | Adjustments | Amounts accrued at June 30, 2020 | | :---------------------- | :------------------------------ | :------ | :---------- | :---------- | :------------------------------- | | October 2019 Restructuring | $631 | — | $(587) | $(5) | $39 | | February 2020 Restructuring | — | $1,788 | $(1,063) | $7 | $732 | | Total | $631 | $1,788 | $(1,650) | $2 | $771 | [20. Subsequent events](index=47&type=section&id=20.%20Subsequent%20events) This note discloses significant events occurring after the reporting period, specifically the sale of duvelisib (COPIKTRA) to Secura Bio, Inc [Sale of duvelisib (COPIKTRA)](index=49&type=section&id=Sale%20of%20duvelisib%20(COPIKTRA)) This sub-section details the agreement to sell duvelisib to Secura Bio, including the upfront payment, royalties, and milestone terms - On August 10, 2020, the company signed an Asset Purchase Agreement (APA) to sell its exclusive worldwide license for duvelisib in oncology indications to Secura Bio, Inc[143](index=143&type=chunk) - Under the APA, Secura will make an upfront payment of **$70 million**, pay low double-digit royalties on net sales over **$100 million**, and up to **$95 million** in additional milestone payments[144](index=144&type=chunk) - Secura will assume all operational and financial responsibility for the duvelisib oncology program, including existing collaboration partner obligations and royalty payments to Infinity Pharmaceuticals, Inc[143](index=143&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=50&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and liquidity, including an overview of its business, the impact of the COVID-19 pandemic, critical accounting policies, and detailed comparisons of financial performance for the three and six months ended June 30, 2020 and 2019 [OVERVIEW](index=50&type=section&id=OVERVIEW) This section provides a high-level summary of the company's biopharmaceutical focus, key product candidates, and financial position, including the impact of recent strategic shifts - Verastem is a biopharmaceutical company focused on cancer, with marketed product COPIKTRA® and lead candidates VS-6766 (RAF/MEK inhibitor) and defactinib (FAK inhibitor), which are being developed for various cancers[147](index=147&type=chunk) - Initial Phase 1 study (FRAME) data for VS-6766 and defactinib combination showed promising clinical activity in KRAS mutant LGSOC (**50% ORR**) and KRAS G12V mutant NSCLC (**57% ORR** in combined analysis), with a manageable safety profile[150](index=150&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - The company had an accumulated deficit of **$585.8 million** as of June 30, 2020, and expects to incur significant losses, but anticipates existing cash resources and COPIKTRA revenue will fund operations for the next 12 months[160](index=160&type=chunk) - Following the subsequent event of selling duvelisib (COPIKTRA) to Secura Bio, the company is focusing its efforts on its lead product candidates, VS-6766 and defactinib[157](index=157&type=chunk) [COVID-19 pandemic](index=54&type=section&id=COVID-19%20pandemic) This section discusses the impact of the COVID-19 pandemic on the company's commercial activities, clinical trials, and supply chain - The COVID-19 pandemic has impacted the company's commercial activities, leading to limited in-person interactions and a decline in patient visits, which may affect future net product revenue[163](index=163&type=chunk) - Clinical trials have experienced slowdowns in site initiation, participant recruitment, and enrollment, particularly for the Phase 1 IST (FRAME) and the Phase 2 PTCL study, though patient accruals are beginning to recover[164](index=164&type=chunk)[166](index=166&type=chunk) - To date, the company has not experienced delays or interruptions in its supply chain for raw materials and manufacturing of its products and candidates[167](index=167&type=chunk) [CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES](index=56&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20SIGNIFICANT%20JUDGMENTS%20AND%20ESTIMATES) This section highlights the accounting policies requiring significant management judgment and estimates, confirming no material changes during the period - The company's critical accounting policies, which require significant judgment and estimates, include revenue recognition, collaborative agreements, accrued research and development expenses, stock-based compensation, accounts receivable, inventory, intangible assets, and leases[171](index=171&type=chunk) - There were no material changes to these critical accounting policies during the six months ended June 30, 2020[171](index=171&type=chunk) [RESULTS OF OPERATIONS](index=56&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial performance, comparing revenues and expenses for the current and prior periods [Comparison of the three months ended June 30, 2020 and 2019](index=56&type=section&id=Comparison%20of%20the%20three%20months%20ended%20June%2030%2C%202020%20and%202019) This sub-section compares the company's financial results for the three-month periods, highlighting changes in revenue, expenses, and net loss Key Financials - Three Months Ended June 30 (in thousands) | Metric | 2020 | 2019 | Change | % Change | | :-------------------------------- | :---------- | :---------- | :---------- | :------- | | Product revenue, net | $4,235 | $3,019 | $1,216 | 40% | | License and collaboration revenue | $72 | $117 | $(45) | -38% | | Total revenue | $4,307 | $3,136 | $1,171 | 37% | | Research and development | $9,344 | $11,346 | $(2,002) | -18% | | Selling, general and administrative | $15,442 | $29,298 | $(13,856) | -47% | | Total operating expenses | $25,571 | $41,413 | $(15,842) | -38% | | Loss from operations | $(21,264) | $(38,277) | $17,013 | -44% | | Net loss | $(23,010) | $(42,194) | $19,184 | -45% | - Product revenue, net increased by **40%** due to greater market penetration of COPIKTRA[174](index=174&type=chunk) - Research and development expenses decreased by **18%** primarily due to lower CRO costs and personnel-related costs[178](index=178&type=chunk) - Selling, general and administrative expenses decreased significantly by **47%** due to reduced headcount, consulting fees, and travel costs[183](index=183&type=chunk) [Comparison of the six months ended June 30, 2020 and 2019](index=60&type=section&id=Comparison%20of%20the%20six%20months%20ended%20June%2030%2C%202020%20and%202019) This sub-section compares the company's financial results for the six-month periods, detailing changes in revenue, operating expenses, and net loss Key Financials - Six Months Ended June 30 (in thousands) | Metric | 2020 | 2019 | Change | % Change | | :-------------------------------- | :---------- | :---------- | :---------- | :------- | | Product revenue, net | $9,269 | $4,690 | $4,579 | 98% | | License and collaboration revenue | $94 | $117 | $(23) | -20% | | Total revenue | $9,363 | $4,807 | $4,556 | 95% | | Research and development | $20,268 | $21,103 | $(835) | -4% | | Selling, general and administrative | $35,046 | $55,331 | $(20,285) | -37% | | Total operating expenses | $56,986 | $77,753 | $(20,767) | -27% | | Loss from operations | $(47,623) | $(72,946) | $25,323 | -35% | | Other expense | $(1,313) | — | $(1,313) | 100% | | Net loss | $(61,000) | $(80,296) | $19,296 | -24% | - Product revenue, net nearly doubled (**98%** increase) due to increased COPIKTRA shipments and market penetration[189](index=189&type=chunk) - Research and development expenses decreased by **4%**, primarily due to lower CRO and personnel costs, partially offset by a **$3.0 million** payment for the VS-6766 license[194](index=194&type=chunk) - Selling, general and administrative expenses decreased by **37%** due to reduced personnel costs and consulting/professional fees[197](index=197&type=chunk)[199](index=199&type=chunk) - Other expense of **$1.3 million** was recorded for the mark-to-market adjustment of the 2019 Notes make-whole interest provision[200](index=200&type=chunk) - Net loss decreased by **24%**, reflecting improved revenue and reduced operating expenses, despite an increase in interest expense due to non-cash interest from 2019 Notes conversion[187](index=187&type=chunk)[202](index=202&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=64&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section analyzes the company's ability to generate and manage cash, detailing sources of funds, cash flow activities, and future funding requirements [Sources of liquidity](index=64&type=section&id=Sources%20of%20liquidity) This sub-section identifies the primary means by which the company finances its operations, including equity offerings, debt, and product revenue - The company's operations are primarily financed through public/private equity offerings, at-the-market equity programs, debt facilities, upfront payments from license agreements, and product revenue from COPIKTRA sales[205](index=205&type=chunk) - As of June 30, 2020, the company held **$160.8 million** in cash, cash equivalents, and restricted cash, primarily invested in U.S. Government money market funds and corporate bonds[206](index=206&type=chunk) [Cash flows](index=66&type=section&id=Cash%20flows) This sub-section summarizes the company's cash flows from operating, investing, and financing activities for the reporting periods Cash Flow Summary (in thousands) - Six Months Ended June 30 | Cash Flow Activity | 2020 | 2019 | | :--------------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(56,550) | $(73,449) | | Net cash provided by investing activities | $32,023 | $46,893 | | Net cash provided by financing activities | $106,099 | $9,769 | | Increase (decrease) in cash, cash equivalents and restricted cash | $81,572 | $(16,787) | - The decrease in cash used in operating activities was driven by increased product revenue and decreased SG&A expenses[208](index=208&type=chunk) - Cash provided by financing activities in 2020 was primarily from **$93.8 million** in PIPE proceeds and **$12.2 million** from at-the-market equity offerings[210](index=210&type=chunk)[211](index=211&type=chunk)[213](index=213&type=chunk) [Convertible Senior Notes](index=66&type=section&id=Convertible%20Senior%20Notes) This sub-section discusses the company's convertible senior notes, including outstanding amounts and conversion events - The company had **$28.3 million** aggregate principal amount of 5.00% Convertible Senior Notes due 2048 (2018 Notes) outstanding as of June 30, 2020[229](index=229&type=chunk) - All 2019 Notes, which were issued in exchange for 2018 Notes in late 2019, were converted into common stock by June 30, 2020, including a **$1.8 million** cash interest make-whole payment[221](index=221&type=chunk)[228](index=228&type=chunk) [Long-term debt](index=70&type=section&id=Long-term%20debt) This sub-section details the company's long-term debt, including the term loan facility, outstanding balance, and interest terms - The company has a term loan facility with Hercules Capital, Inc., with **$35.0 million** outstanding as of June 30, 2020, maturing on December 1, 2022[231](index=231&type=chunk)[232](index=232&type=chunk) - The loan accrues interest at a floating rate (minimum **9.75%**) and requires interest-only payments until April 1, 2021, with potential extension[232](index=232&type=chunk)[233](index=233&type=chunk) [License and collaboration agreements](index=72&type=section&id=License%20and%20collaboration%20agreements) This sub-section provides an overview of the company's various licensing and collaboration agreements, including recent strategic transactions [Secura](index=72&type=section&id=Secura) This sub-section details the agreement to sell duvelisib rights to Secura Bio, including financial terms and assumed responsibilities - The company agreed to sell its worldwide license for duvelisib in oncology indications to Secura Bio, Inc., for an upfront payment of **$70 million**, plus royalties and up to **$95 million** in milestones[235](index=235&type=chunk)[236](index=236&type=chunk) - Secura will assume all duvelisib program responsibilities, including commercialization, clinical trials, and obligations with existing collaboration partners (Yakult, CSPC, Sanofi)[235](index=235&type=chunk) [Chugai](index=72&type=section&id=Chugai) This sub-section outlines the licensing agreement with Chugai for VS-6766, including upfront fees and royalty obligations - In January 2020, the company licensed exclusive worldwide rights for VS-6766 from Chugai, paying a **$3.0 million** upfront fee and agreeing to double-digit royalties on net sales[238](index=238&type=chunk)[239](index=239&type=chunk) [Sanofi](index=74&type=section&id=Sanofi) This sub-section describes the duvelisib licensing agreement with Sanofi for specific international markets - In July 2019, the company granted Sanofi exclusive rights to duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, receiving a **$5.0 million** upfront payment and potential milestones/royalties[243](index=243&type=chunk) [Yakult](index=74&type=section&id=Yakult) This sub-section details the duvelisib licensing agreement with Yakult for the Japanese market - In June 2018, the company licensed duvelisib rights in Japan to Yakult for a **$10.0 million** upfront payment and potential milestones/royalties, with a subsequent supply agreement in February 2019[244](index=244&type=chunk)[245](index=245&type=chunk) [CSPC](index=74&type=section&id=CSPC) This sub-section outlines the duvelisib licensing agreement with CSPC for Greater China - In September 2018, the company licensed duvelisib rights in China, Hong Kong, Macau, and Taiwan to CSPC for a **$15.0 million** upfront payment and potential milestones/royalties[246](index=246&type=chunk)[247](index=247&type=chunk) [Funding requirements](index=76&type=section&id=Funding%20requirements) This sub-section discusses the company's anticipated future capital needs for operations, clinical trials, and commercialization efforts - The company expects to incur significant expenses for commercializing COPIKTRA, continuing and initiating clinical trials for product candidates, maintaining intellectual property, and expanding operational infrastructure[248](index=248&type=chunk)[250](index=250&type=chunk) - Future capital requirements are uncertain and depend on factors like commercialization costs, clinical trial progress, regulatory outcomes, and the ability to secure collaborations or additional financing[248](index=248&type=chunk)[251](index=251&type=chunk) - Existing cash resources and expected COPIKTRA revenue are projected to fund obligations for at least the next twelve months[248](index=248&type=chunk) [CONTRACTUAL OBLIGATIONS AND COMMITMENTS](index=78&type=section&id=CONTRACTUAL%20OBLIGATIONS%20AND%20COMMITMENTS) This section confirms no material changes to the company's contractual obligations and commitments since the last annual report - There have been no material changes to the company's contractual obligations and commitments from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019[253](index=253&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=78&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section states that the company had no off-balance sheet arrangements during the reporting periods - The company did not have any off-balance sheet arrangements during the periods presented[254](index=254&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, primarily related to changes in interest rates and foreign currency fluctuations, and assesses the potential impact on its financial instruments and debt obligations - The company is exposed to interest rate risk on its cash, cash equivalents, and short-term investments, but due to their short-term duration and low risk profile, a **100 basis point** change in interest rates would not materially affect their fair value[255](index=255&type=chunk) - Foreign currency risk is minimal, with an immaterial amount of total liabilities denominated in foreign currencies as of June 30, 2020[256](index=256&type=chunk) - The Amended Loan Agreement bears a floating interest rate, but a **10%** increase in current interest rates would have an immaterial impact on cash interest expense[257](index=257&type=chunk) - The 2018 Notes bear a fixed interest rate, limiting exposure to interest rate changes[258](index=258&type=chunk) [Item 4. Controls and Procedures](index=79&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting [Evaluation of disclosure controls and procedures](index=79&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) This section confirms management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, with CEO and Chief Business and Financial Officer participation, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020[260](index=260&type=chunk) [Changes in internal control over financial reporting](index=79&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) This section reports on any material changes in the company's internal control over financial reporting during the period - There have been no changes in internal control over financial reporting during the six months ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[261](index=261&type=chunk) [PART II—OTHER INFORMATION](index=80&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and exhibit listings [Item 1. Legal Proceedings](index=80&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no legal proceedings to report - There are no legal proceedings to disclose[264](index=264&type=chunk) [Item 1A. Risk Factors](index=80&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the comprehensive risk factors detailed in previous SEC filings, emphasizing potential impacts from the COVID-19 pandemic - Readers should review risk factors from the Annual Report on Form 10-K for December 31, 2019, and the Quarterly Report on Form 10-Q for March 31, 2020, including risks related to indebtedness, cash flow, covenant compliance, capital availability, and the exacerbating impact of COVID-19[265](index=265&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=80&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities or purchases of equity securities by the company during the reporting period - There were no recent sales of unregistered securities[266](index=266&type=chunk) - The company did not purchase any of its equity securities during the period covered by this Quarterly Report on Form 10-Q[267](index=267&type=chunk) [Item 3. Defaults Upon Senior Securities](index=80&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[268](index=268&type=chunk) [Item 4. Mine Safety Disclosures](index=80&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that there are no mine safety disclosures - There are no mine safety disclosures[269](index=269&type=chunk) [Item 5. Other Information](index=80&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - There is no other information to disclose[270](index=270&type=chunk) [Item 6. Exhibits](index=80&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including corporate documents, certifications, and XBRL data [EXHIBIT INDEX](index=81&type=section&id=EXHIBIT%20INDEX) This section provides a comprehensive list of all documents and certifications included as exhibits to the report - The exhibit index includes various corporate documents (Restated Certificate of Incorporation, Amended and Restated 2012 Incentive Plan), certifications (CEO, CFO), and Inline XBRL Taxonomy Extension Documents[275](index=275&type=chunk) [SIGNATURES](index=82&type=section&id=SIGNATURES) This section formally attests to the accuracy and completeness of the report through the signatures of authorized corporate officers - The report is duly signed on August 10, 2020, by Brian M. Stuglik, Chief Executive Officer, and Robert Gagnon, Chief Business and Financial Officer[279](index=279&type=chunk)

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 March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001‑35403 Verastem, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdic ...

1 | --- | --- | --- | --- | |------------------------------------------|-------|----------------------------------------------|--------------------------------------------------------------------------------------------------------| | | | | | | | | | | | | | Addressing RAS Pathway Blockade & Resistance | | | | | | VS-6766 & Defactinib Combination Data in KRAS Mutant Solid Tumors Investor Conference Call and Webcast | | | | | | | PROPERTY OF VERASTEM, INC. NASDAQ: VSTM | | | April 27, 2020 | Speakers 805 Ver ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-35403 Verastem, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction o ...

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended September 30, 2019 and December 31, 2018 - The company has an **accumulated deficit** of **$486.0 million** as of September 30, 2019, and anticipates continued losses, raising **substantial doubt** about its ability to continue as a **going concern**[21](index=21&type=chunk)[22](index=22&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in **total assets** from **$277.2 million** at December 31, 2018, to **$192.6 million** at September 30, 2019, primarily driven by reductions in **cash**, **cash equivalents**, and **short-term investments**. **Total liabilities** increased, while **total stockholders' equity** significantly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $103,320 | $129,867 | $(26,547) | | Short-term investments | $56,908 | $119,786 | $(62,878) | | Total current assets | $166,958 | $253,259 | $(86,301) | | Total assets | $192,600 | $277,236 | $(84,636) | | Total current liabilities | $30,510 | $37,077 | $(6,567) | | Long-term debt | $34,882 | $19,506 | $15,376 | | Convertible senior notes | $101,249 | $95,231 | $6,018 | | Total liabilities | $171,083 | $152,937 | $18,146 | | Total stockholders' equity | $21,517 | $124,299 | $(102,782) | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported increased **net losses** for both the three and nine months ended September 30, 2019, compared to the prior year, primarily due to higher **interest expense** from new debt and **convertible notes**, despite a significant increase in **product revenue** Key Financial Performance (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Product revenue, net | $4,032 | $508 | $8,722 | $508 | | License and collaboration revenue | $5,000 | $15,000 | $5,118 | $25,000 | | Total revenue | $9,032 | $15,508 | $13,840 | $25,508 | | Total operating expenses | $35,135 | $37,077 | $112,889 | $86,032 | | Loss from operations | $(26,103) | $(21,569) | $(99,049) | $(60,524) | | Interest expense | $(5,041) | $(862) | $(15,156) | $(1,858) | | Net loss | $(30,139) | $(21,668) | $(110,435) | $(61,085) | | Net loss per share—basic and diluted | $(0.41) | $(0.29) | $(1.49) | $(0.99) | - **Product revenue, net**, increased significantly by **694%** for the three months ended September 30, 2019, and by **1617%** for the nine months ended September 30, 2019, driven by increased **COPIKTRA** shipments and market penetration[14](index=14&type=chunk)[167](index=167&type=chunk)[178](index=178&type=chunk) - **License and collaboration revenue** decreased by **67%** for the three months and **80%** for the nine months ended September 30, 2019, due to large **upfront payments** in 2018 not fully offset by 2019 agreements[14](index=14&type=chunk)[168](index=168&type=chunk)[179](index=179&type=chunk) - **Interest expense** surged by **485%** for the three months and **716%** for the nine months ended September 30, 2019, primarily due to the issuance of **Convertible Senior Notes** in October 2018 and a higher principal balance on the **Hercules loan**[14](index=14&type=chunk)[176](index=176&type=chunk)[189](index=189&type=chunk) [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) **Total stockholders' equity** decreased substantially from **$124.3 million** at December 31, 2018, to **$21.5 million** at September 30, 2019, primarily due to the **accumulated net losses** incurred during the period Stockholders' Equity Changes (in thousands) | Metric | Dec 31, 2018 | Sep 30, 2019 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total stockholders' equity | $124,299 | $21,517 | $(102,782) | | Accumulated deficit | $(375,576) | $(486,011) | $(110,435) | | Additional paid-in capital | $499,741 | $507,494 | $7,753 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2019, the company experienced a **net decrease in cash, cash equivalents, and restricted cash**, primarily due to significant **cash used in operating activities**, partially offset by **cash provided by investing and financing activities** Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(101,297) | $(55,327) | | Net cash provided by (used in) investing activities | $64,487 | $(11,574) | | Net cash provided by financing activities | $10,263 | $115,693 | | (Decrease) increase in cash, cash equivalents and restricted cash | $(26,547) | $48,792 | | Cash, cash equivalents and restricted cash at end of period | $104,061 | $131,130 | - **Cash used in operating activities** increased by **$46.0 million** for the nine months ended September 30, 2019, compared to the prior year, mainly due to higher selling, general, and administrative expenses and lower **upfront license payments**[193](index=193&type=chunk) - **Investing activities** provided **$64.5 million** in cash for the nine months ended September 30, 2019, primarily from net maturities of investments, a reversal from cash used in the prior year[194](index=194&type=chunk) - **Financing activities** provided **$10.3 million** in cash for the nine months ended September 30, 2019, significantly lower than the **$115.7 million** in the prior year, which included substantial proceeds from common stock sales[195](index=195&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's business, significant accounting policies, financial instrument fair values, debt, equity, and collaboration agreements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim reporting, assuming the company will continue as a **going concern** for the next twelve months[23](index=23&type=chunk)[24](index=24&type=chunk) - Effective January 1, 2019, the company adopted ASC 842, **Leases**, recognizing **right-of-use assets** and **lease liabilities** on the balance sheet for leases over one year[25](index=25&type=chunk)[26](index=26&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - **Revenue recognition** follows ASC 606, a five-step model to identify contracts, performance obligations, transaction price, allocation, and recognition when obligations are satisfied[29](index=29&type=chunk)[131](index=131&type=chunk) [1. Nature of business](index=10&type=section&id=1.%20Nature%20of%20business) **Verastem**, Inc. is a biopharmaceutical company focused on developing and commercializing cancer medicines. Its primary product, **COPIKTRA**, was **FDA-approved** in September 2018 for certain hematologic cancers. The company faces significant risks, including the need for successful commercialization and ongoing financing, which raises **substantial doubt** about its ability to continue as a **going concern** - **Verastem** is a biopharmaceutical company developing and commercializing cancer medicines, with **COPIKTRA** (duvelisib) **FDA-approved** on September 24, 2018, for CLL/SLL and FL[19](index=19&type=chunk)[122](index=122&type=chunk) - The company had **$160.2 million** in **cash, cash equivalents, and short-term investments** and an **accumulated deficit** of **$486.0 million** as of September 30, 2019[21](index=21&type=chunk) - Due to historical losses, anticipated future losses, and heavy reliance on **COPIKTRA's** successful commercialization, there is **substantial doubt** about the company's ability to continue as a **going concern** for the next twelve months[22](index=22&type=chunk)[128](index=128&type=chunk) [2. Summary of significant accounting policies](index=10&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies) This note outlines the basis of presentation for the unaudited interim financial statements, confirming GAAP compliance and the **going concern** assumption. It details significant accounting policies, including the adoption of ASC 842 for **leases** and the five-step model for **revenue recognition**, and discusses recently issued and adopted accounting standards [Revenue Recognition](index=13&type=section&id=Revenue%20Recognition) The company recognizes **product revenue** from **COPIKTRA** sales upon delivery, net of variable consideration like discounts, rebates, and returns. **License and collaboration revenue** from intellectual property is recognized when the license is transferred and the customer can benefit, with milestone payments constrained until probable of achievement - **Product revenue** from **COPIKTRA** sales is recognized at the point of delivery, net of estimated variable consideration including trade discounts, chargebacks, government rebates, and co-pay assistance[30](index=30&type=chunk)[31](index=31&type=chunk)[135](index=135&type=chunk) - Variable consideration is included in the transaction price only if it is probable that a significant revenue reversal will not occur in a future period[32](index=32&type=chunk)[136](index=136&type=chunk) - **Revenue** from exclusive licenses of intellectual property is recognized when the license is transferred and the customer can use and benefit from it, often combined with initial technology transfer as a single performance obligation[42](index=42&type=chunk)[107](index=107&type=chunk)[150](index=150&type=chunk) - Milestone payments are included in the transaction price only when their achievement is considered probable and a significant revenue reversal is unlikely, with regulatory approvals typically not considered probable until received[46](index=46&type=chunk)[152](index=152&type=chunk) [Concentrations of credit risk and off-balance sheet risk](index=19&type=section&id=Concentrations%20of%20credit%20risk%20and%20off-balance%20sheet%20risk) The company manages credit risk by maintaining cash and investments with high-quality financial institutions and assessing customer creditworthiness. As of September 30, 2019, two customers accounted for over **60%** of trade accounts receivable, and five customers individually contributed over **10%** of **total revenues** - As of September 30, 2019, two customers comprised over **60%** of the company's trade accounts receivable balance[50](index=50&type=chunk) - Five customers individually accounted for greater than **10%** of the company's **total revenues** for the three and nine months ended September 30, 2019[51](index=51&type=chunk) [Recently Issued Accounting Standards Updates](index=20&type=section&id=Recently%20Issued%20Accounting%20Standards%20Updates) The company is evaluating the impact of several recently issued accounting standards, including ASU 2018-18 (Collaborative Arrangements), ASU 2018-15 (Internal Use Software), ASU 2018-13 (Fair Value Measurement), and ASU 2016-13 (Credit Losses), all effective for periods beginning after December 15, 2019 - The company is evaluating the impact of ASU 2018-18 (Collaborative Arrangements), ASU 2018-15 (Internal Use Software), ASU 2018-13 (Fair Value Measurement), and ASU 2016-13 (Credit Losses), all effective for annual and interim periods beginning after December 15, 2019[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) [Recently Adopted Accounting Standards Updates](index=20&type=section&id=Recently%20Adopted%20Accounting%20Standards%20Updates) The company adopted ASU 2018-07 (Stock Compensation) prospectively on January 1, 2019, with no material effect. It also adopted ASU 2016-02 (**Leases**) using the optional transition method, recognizing a **$4.0 million lease liability** and a **$3.4 million right-of-use asset**, without a cumulative effect adjustment to **accumulated deficit** - ASU 2018-07 (**Stock Compensation**) was adopted prospectively on January 1, 2019, with no material effect on financial statements[57](index=57&type=chunk) - ASU 2016-02 (**Leases**) was adopted on January 1, 2019, resulting in the recognition of a **$4.0 million lease liability** and a **$3.4 million right-of-use asset**, with no cumulative effect adjustment to **accumulated deficit**[58](index=58&type=chunk)[59](index=59&type=chunk) [3. Cash, cash equivalents and restricted cash](index=22&type=section&id=3.%20Cash,%20cash%20equivalents%20and%20restricted%20cash) As of September 30, 2019, **total cash, cash equivalents, and restricted cash** amounted to **$104.1 million**, a decrease from **$130.6 million** at December 31, 2018. **Restricted cash** includes funds for R&D studies and collateral for office space Cash, Cash Equivalents and Restricted Cash (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $103,320 | $129,867 | | Restricted cash | $741 | $741 | | Total cash, cash equivalents and restricted cash | $104,061 | $130,608 | - **Restricted cash** includes approximately **$0.5 million** for R&D studies under an agreement with the **Leukemia & Lymphoma Society, Inc. (LLS)** and **$0.2 million** for letters of credit collateralizing office space[60](index=60&type=chunk) [4. Fair value of financial instruments](index=22&type=section&id=4.%20Fair%20value%20of%20financial%20instruments) The company measures **financial instruments** at **fair value** using a three-level hierarchy. As of September 30, 2019, **total financial assets** measured at **fair value** were **$159.0 million**, primarily in Level 1 (money market funds) and Level 2 (corporate bonds/commercial paper). The **fair value of long-term debt** was **$37.1 million** (Level 3), and **Convertible Senior Notes** was **$64.1 million** (Level 2) Financial Instruments Measured at Fair Value (in thousands) | Description | Sep 30, 2019 Total | Sep 30, 2019 Level 1 | Sep 30, 2019 Level 2 | Sep 30, 2019 Level 3 | Dec 31, 2018 Total | Dec 31, 2018 Level 1 | Dec 31, 2018 Level 2 | Dec 31, 2018 Level 3 | | :-------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Cash equivalents | $102,073 | $94,324 | $7,749 | $— | $127,689 | $60,092 | $67,597 | $— | | Short-term investments | $56,908 | $— | $56,908 | $— | $119,786 | $— | $119,786 | $— | | Total financial assets | $158,981 | $94,324 | $64,657 | $— | $247,475 | $60,092 | $187,383 | $— | - The **fair value of long-term debt** (including current portion) was approximately **$37.1 million** at September 30, 2019, determined using Level 3 inputs[64](index=64&type=chunk) - The **fair value** of the **5.00% Convertible Senior Notes** due 2048 was approximately **$64.1 million** at September 30, 2019, determined using Level 2 inputs[65](index=65&type=chunk) [5. Investments](index=25&type=section&id=5.%20Investments) The company's **cash, cash equivalents, and short-term investments** totaled **$160.2 million** at September 30, 2019, primarily consisting of cash, money market accounts, and corporate bonds/commercial paper. There were no realized gains or losses on **investments** for the periods presented Cash, Cash Equivalents, and Short-Term Investments (in thousands) | Category | Sep 30, 2019 Fair Value | Dec 31, 2018 Fair Value | | :-------------------------------- | :---------------------- | :---------------------- | | Cash and money market accounts | $95,571 | $62,270 | | Corporate bonds and commercial paper (due within 90 days) | $7,749 | $67,597 | | Corporate bonds and commercial paper (due within 1 year) | $56,908 | $119,786 | | Total cash, cash equivalents and investments | $160,228 | $249,653 | - No realized gains or losses on **investments** were recorded for the three and nine months ended September 30, 2019 or 2018[67](index=67&type=chunk) [6. Inventory](index=25&type=section&id=6.%20Inventory) **Inventory**, primarily for **COPIKTRA**, increased from **$327 thousand** at December 31, 2018, to **$478 thousand** at September 30, 2019. The company began capitalizing **inventory** costs in Q3 2018 after **FDA approval**, expecting recoverability through sales Inventory Breakdown (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Raw materials | $— | $— | | Work in process | $342 | $63 | | Finished goods | $136 | $264 | | Total inventories | $478 | $327 | - **Inventory** capitalization for **COPIKTRA** began in the third quarter of 2018 following **FDA** marketing approval, based on reasonable assurance of recoverability[68](index=68&type=chunk)[169](index=169&type=chunk)[180](index=180&type=chunk) [7. Intangible assets](index=26&type=section&id=7.%20Intangible%20assets) Net **intangible assets**, primarily acquired and in-licensed rights related to **COPIKTRA**, decreased slightly to **$20.4 million** at September 30, 2019, from **$21.6 million** at December 31, 2018, due to amortization. Amortization expense for the nine months ended September 30, 2019, was **$1.2 million** Intangible Assets (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Acquired and in-licensed rights | $22,000 | $22,000 | | Less: accumulated amortization | $(1,600) | $(423) | | Total intangible assets, net | $20,400 | $21,577 | - Amortization expense for finite-lived **intangible assets** was approximately **$0.4 million** for the three months and **$1.2 million** for the nine months ended September 30, 2019[71](index=71&type=chunk)[174](index=174&type=chunk)[187](index=187&type=chunk) [8. Accrued expenses](index=26&type=section&id=8.%20Accrued%20expenses) **Accrued expenses** remained relatively stable at **$21.3 million** at September 30, 2019, compared to **$21.1 million** at December 31, 2018. Significant components include compensation, contract research organization costs, commercialization costs, and **interest** Accrued Expenses (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Compensation and related benefits | $5,444 | $8,749 | | Contract research organization costs | $6,849 | $6,682 | | Commercialization costs | $2,425 | $1,979 | | Interest | $3,410 | $1,786 | | Consulting fees | $1,948 | $494 | | Professional fees | $624 | $482 | | Other | $589 | $936 | | Total accrued expenses | $21,289 | $21,108 | [9. Product revenue reserves and allowances](index=27&type=section&id=9.%20Product%20revenue%20reserves%20and%20allowances) **Product revenue reserves and allowances** increased from **$276 thousand** at December 31, 2018, to **$691 thousand** at September 30, 2019, reflecting provisions for trade discounts, chargebacks, government rebates, and other incentives related to **COPIKTRA** sales Product Revenue Reserves and Allowances (in thousands) | Category | Dec 31, 2018 Balance | Sep 30, 2019 Balance | | :-------------------------------- | :------------------- | :------------------- | | Trade discounts and allowances | $29 | $122 | | Third-Party Payer chargebacks, discounts and fees | $88 | $281 | | Government rebates and other incentives | $157 | $217 | | Returns | $2 | $71 | | Total | $276 | $691 | - The company has not received any product returns to date, despite offering a limited right of return for **COPIKTRA**[38](index=38&type=chunk)[143](index=143&type=chunk) [10. Leases](index=27&type=section&id=10.%20Leases) Effective January 1, 2019, the company adopted ASC 842, recognizing a **right-of-use asset** of **$3.1 million** and a **lease liability** of **$4.0 million** for its Needham, Massachusetts office space. The lease term extends through May 2025, with **operating lease expense** of **$0.7 million** for the nine months ended September 30, 2019 - The company's Needham office space is accounted for as an **operating lease**, with a weighted average remaining lease term of **5.7 years** and a weighted average discount rate of **14.60%** as of September 30, 2019[76](index=76&type=chunk)[79](index=79&type=chunk) Lease Expense and Liabilities (in thousands) | Metric | 9 Months Ended Sep 30, 2019 | Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :----------- | | Operating lease expense | $666 | N/A | | Operating cash flows paid for amounts included in measurement of lease liabilities | $512 | N/A | | Right-of-use asset | N/A | $3,146 | | Lease liability | N/A | $3,951 | [11. Long-term debt](index=29&type=section&id=11.%20Long-term%20debt) The company amended its loan agreement with **Hercules Capital, Inc.** in April 2019, increasing the total borrowing capacity to **$75.0 million**, with **$35.0 million** outstanding as of September 30, 2019. The loan matures on December 1, 2022, accrues interest at a floating rate (min **9.75%**), and requires interest-only payments until April 2021 (potentially extended to December 2021) - The company's loan agreement with **Hercules Capital, Inc.** was amended in April 2019, increasing total borrowing capacity to **$75.0 million**, with **$35.0 million** outstanding as of September 30, 2019[82](index=82&type=chunk)[203](index=203&type=chunk) - The 2019 Term Loan matures on December 1, 2022, and accrues interest at a floating rate, with a minimum of **9.75%**[83](index=83&type=chunk)[204](index=204&type=chunk) - The loan provides for interest-only payments until April 1, 2021, extendable to December 1, 2021, if the company generates **$40.0 million** in **net product revenue** on a trailing six-month basis by December 31, 2020[83](index=83&type=chunk)[204](index=204&type=chunk) Future Principal Payments under 2019 Term Loan (in thousands) | Year | Principal Payments | | :--- | :----------------- | | 2021 | $14,234 | | 2022 | $20,766 | | Total | $35,000 | [12. Convertible Senior Notes](index=31&type=section&id=12.%20Convertible%20Senior%20Notes) In October 2018, the company issued **$150.0 million** aggregate principal amount of **5.00% Convertible Senior Notes** due 2048. These notes are senior unsecured obligations, bear semi-annual interest, and are convertible into common stock at an initial rate of 139.5771 shares per **$1,000** principal amount - The company issued **$150.0 million** aggregate principal amount of **5.00% Convertible Senior Notes** due 2048 in October 2018[88](index=88&type=chunk) - The notes bear interest at **5.00%** per annum, payable semi-annually, and are convertible into common stock at an initial rate of 139.5771 shares per **$1,000** principal amount (conversion price of approximately **$7.16** per share)[88](index=88&type=chunk)[89](index=89&type=chunk) [13. Stock‑based compensation](index=32&type=section&id=13.%20Stock%E2%80%91based%20compensation) This section details the company's **stock-based compensation** plans, including **stock options**, **restricted stock units (RSUs)**, and the Employee Stock Purchase Plan (**ESPP**). Total **unrecognized compensation cost** for unvested **stock options** was **$16.8 million**, and for **RSUs** was **$1.7 million**, as of September 30, 2019 - Total **unrecognized compensation cost** for unvested **stock options** was **$16.8 million** as of September 30, 2019, to be recognized over approximately **2.93 years**[94](index=94&type=chunk) - Total **unrecognized compensation cost** for unvested **RSUs** was approximately **$1.7 million** as of September 30, 2019, to be recognized over approximately **2.91 years**[96](index=96&type=chunk) - The Amended and Restated 2018 **ESPP** allows eligible employees to purchase common stock at **85%** of the lesser of the fair market value on the grant or exercise date, with 341,701 shares issued for **$0.4 million** in Q3 2019[97](index=97&type=chunk) [14. Net loss per share](index=34&type=section&id=14.%20Net%20loss%20per%20share) Basic **net loss per common share** is calculated by dividing **net loss** by weighted-average common shares outstanding. **Diluted net loss per share** includes potentially dilutive securities (**stock options**, **RSUs**, **Convertible Senior Notes**) unless their effect is anti-dilutive, which was the case for all such securities for the periods presented Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share Calculation | Security Type | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Outstanding stock options | 16,493,690 | 12,915,463 | 16,493,690 | 12,915,463 | | Outstanding restricted stock units | 816,959 | 316,875 | 816,959 | 316,875 | | Convertible senior notes | 20,936,548 | — | 20,936,548 | — | | Total potentially dilutive securities | 38,247,197 | 13,232,338 | 38,247,197 | 13,232,338 | - All potentially dilutive securities were excluded from the calculation of **diluted net loss per share** for the periods presented because their inclusion would have had an anti-dilutive effect[99](index=99&type=chunk) [15. License and collaboration agreements](index=35&type=section&id=15.%20License%20and%20collaboration%20agreements) The company has entered into several **license and collaboration agreements** for duvelisib. In Q3 2019, it signed an agreement with **Sanofi**, receiving a **$5.0 million upfront payment**. Other agreements include those with **Yakult** (Japan) and **CSPC** (China, Hong Kong, Macau, Taiwan), which provided significant **upfront payments** in 2018 - On July 25, 2019, the company entered into a **license and collaboration agreement** with **Sanofi**, granting exclusive rights for duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, and received a **$5.0 million upfront payment** in August 2019[101](index=101&type=chunk)[103](index=103&type=chunk)[109](index=109&type=chunk)[207](index=207&type=chunk)[209](index=209&type=chunk)[211](index=211&type=chunk) - The **Sanofi** agreement includes potential aggregate payments of up to **$42.0 million** for **regulatory and commercial milestones** and **double-digit royalties** on net sales[103](index=103&type=chunk)[209](index=209&type=chunk) - The company has existing **license and collaboration agreements** with **Yakult Honsha Co., Ltd.** (Japan, **$10.0 million upfront** in June 2018) and **CSPC Pharmaceutical Group Limited** (China, Hong Kong, Macau, Taiwan, **$15.0 million upfront** in September 2018)[110](index=110&type=chunk)[111](index=111&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[212](index=212&type=chunk)[215](index=215&type=chunk) - For the nine months ended September 30, 2019, the company recognized **$0.1 million** in collaboration revenue under the **Yakult** Supply Agreement for clinical and commercial drug product[112](index=112&type=chunk) [16. Income taxes](index=38&type=section&id=16.%20Income%20taxes) The company did not record any federal or state **income tax provision or benefit** for the three and nine months ended September 30, 2019 and 2018, due to expected losses and the maintenance of a full valuation allowance against its net **deferred tax assets** - No **income tax provision or benefit** was recorded for the three and nine months ended September 30, 2019 and 2018, due to expected losses and a full valuation allowance against net **deferred tax assets**[115](index=115&type=chunk) [17. Commitments and contingencies](index=38&type=section&id=17.%20Commitments%20and%20contingencies) The company's primary commitment is a lease agreement for its Needham, Massachusetts office space, for which a **$0.2 million** security deposit in the form of a letter of credit is held - The company has a lease agreement for its Needham office space, with a **$0.2 million** security deposit in the form of a letter of credit[116](index=116&type=chunk) [18. Subsequent events](index=38&type=section&id=18.%20Subsequent%20events) On October 28, 2019, the company initiated a **restructuring plan** to reduce **operational expenses**, including eliminating approximately **40 positions**. This is expected to reduce annualized **operating expenses** by **$25 million** starting in 2020 and result in a **$1.0 million** charge in Q4 2019 for **termination benefits** - On October 28, 2019, the company committed to an operational plan to reduce expenses, including eliminating approximately **40 positions**[117](index=117&type=chunk)[231](index=231&type=chunk) - The **restructuring** is expected to reduce annualized **operating expenses** by approximately **$25 million** beginning in 2020[118](index=118&type=chunk) - A charge of approximately **$1.0 million** is expected in Q4 2019 for one-time **termination benefits** related to the **restructuring**[119](index=119&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on the company's financial condition and **results of operations**, highlighting key business developments, **critical accounting policies**, and a detailed comparison of financial performance for the three and nine months ended September 30, 2019 and 2018. It also discusses liquidity, capital resources, and future funding requirements [OVERVIEW](index=40&type=section&id=OVERVIEW) **Verastem** is a biopharmaceutical company focused on cancer treatments, with its **FDA-approved** product **COPIKTRA** for hematologic cancers and defactinib in clinical development. The company has an **accumulated deficit** of **$486.0 million** and expects continued losses, raising **substantial doubt** about its **going concern** ability, despite recent **product revenue** from **COPIKTRA's** commercial launch - **Verastem** is a biopharmaceutical company developing and commercializing cancer medicines, with **COPIKTRA** (duvelisib) **FDA-approved** on September 24, 2018, for CLL/SLL and FL[121](index=121&type=chunk)[122](index=122&type=chunk) - The company's second product candidate, defactinib, is a FAK inhibitor being investigated in combination with immunotherapeutic and other agents[124](index=124&type=chunk) - As of September 30, 2019, the company had an **accumulated deficit** of **$486.0 million** and expects significant expenses and **operating losses**, raising **substantial doubt** about its ability to continue as a **going concern**[127](index=127&type=chunk)[128](index=128&type=chunk) [CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES](index=41&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20SIGNIFICANT%20JUDGMENTS%20AND%20ESTIMATES) This section reiterates and elaborates on the **critical accounting policies** identified in the notes, including **revenue recognition** (**product** and license), accounts receivable, **inventory** valuation, **intangible asset** amortization and impairment, and the adoption of ASC 842 for **leases**, emphasizing the **significant judgments and estimates** involved - **Critical accounting policies** include accrued research and development expenses, **stock-based compensation**, **revenue recognition**, collaborative arrangements, accounts receivable, **inventory**, and **intangible assets**[130](index=130&type=chunk) - The company adopted ASC 842, **Leases**, effective January 1, 2019, requiring recognition of **right-of-use assets** and **lease liabilities** on the balance sheet[130](index=130&type=chunk)[163](index=163&type=chunk) [RESULTS OF OPERATIONS](index=51&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed comparative analysis of the company's revenues and expenses for the three and nine months ended September 30, 2019, versus 2018, highlighting the drivers behind changes in **product revenue**, **license revenue**, **operating expenses**, and **net loss** [Comparison of the three months ended September 30, 2019 and 2018](index=51&type=section&id=Comparison%20of%20the%20three%20months%20ended%20September%2030,%202019%20and%202018) For the three months ended September 30, 2019, **product revenue** significantly increased by **694%** to **$4.0 million**, while **license revenue** decreased by **67%** to **$5.0 million**. **Total operating expenses** decreased slightly, but a **substantial increase in interest expense** led to a **39%** higher **net loss** of **$30.1 million** Financial Performance (Three Months Ended September 30, 2019 vs. 2018) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Product revenue, net | $4,032 | $508 | $3,524 | 694% | | License and collaboration revenue | $5,000 | $15,000 | $(10,000) | -67% | | Total revenue | $9,032 | $15,508 | $(6,476) | -42% | | Research and development | $12,219 | $11,571 | $648 | 6% | | Selling, general and administrative | $22,153 | $25,426 | $(3,273) | -13% | | Interest expense | $(5,041) | $(862) | $(4,179) | 485% | | Net loss | $(30,139) | $(21,668) | $(8,471) | 39% | - The **$3.5 million increase in product revenue** was driven by greater market penetration of **COPIKTRA**[167](index=167&type=chunk) - The **$10.0 million decrease in license revenue** was due to a **$15.0 million upfront payment** from **CSPC** in Q3 2018, partially offset by a **$5.0 million upfront payment** from **Sanofi** in Q3 2019[168](index=168&type=chunk) - Selling, general and administrative expenses decreased by **$3.2 million**, primarily due to lower consulting and professional fees related to commercial launch preparation activities in the prior year[173](index=173&type=chunk) [Comparison of the nine months ended September 30, 2019 and 2018](index=54&type=section&id=Comparison%20of%20the%20nine%20months%20ended%20September%2030,%202019%20and%202018) For the nine months ended September 30, 2019, **product revenue** surged by **1617%** to **$8.7 million**, while **license revenue** dropped by **80%** to **$5.1 million**. **Total operating expenses** increased by **31%**, mainly due to higher selling, general and administrative costs. A significant increase in **interest expense** contributed to an **81%** higher **net loss** of **$110.4 million** Financial Performance (Nine Months Ended September 30, 2019 vs. 2018) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Product revenue, net | $8,722 | $508 | $8,214 | 1617% | | License and collaboration revenue | $5,118 | $25,000 | $(19,882) | -80% | | Total revenue | $13,840 | $25,508 | $(11,668) | -46% | | Research and development | $33,322 | $34,886 | $(1,564) | -4% | | Selling, general and administrative | $77,484 | $51,066 | $26,418 | 52% | | Interest expense | $(15,156) | $(1,858) | $(13,298) | 716% | | Net loss | $(110,435) | $(61,085) | $(49,350) | 81% | - The **$19.9 million decrease in license revenue** was primarily due to **$10.0 million** and **$15.0 million upfront payments** from **Yakult** and **CSPC**, respectively, in 2018, partially offset by a **$5.0 million upfront payment** from **Sanofi** in 2019[179](index=179&type=chunk) - Selling, general and administrative expenses increased by **$26.4 million**, mainly due to higher personnel costs (**$16.4 million**) for sales and commercial teams, executive separation costs (**$2.3 million**), and increased consulting and professional fees (**$6.7 million**) related to commercial operations[186](index=186&type=chunk) - Research and development expense decreased by **$1.6 million**, driven by lower consulting and CRO costs from site closures in older studies, partially offset by increased costs for new Phase 2 studies (PRIMO and Intermittent Dosing)[181](index=181&type=chunk)[183](index=183&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=57&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity is primarily from public offerings, debt, and collaboration agreements, with **$160.2 million** in **cash, cash equivalents, and short-term investments** as of September 30, 2019. It faces **substantial doubt** about its **going concern** ability due to ongoing losses and reliance on **COPIKTRA's** commercial success, necessitating future financing [Sources of liquidity](index=57&type=section&id=Sources%20of%20liquidity) The company's primary liquidity sources include public **stock options**, at-the-market equity programs, the **Hercules loan** agreement, **upfront payments** from **license and collaboration agreements** (**Sanofi**, **Yakult**, **CSPC**), and **COPIKTRA product revenue**. As of September 30, 2019, it held **$160.2 million** in **cash, cash equivalents, and short-term investments** - Primary liquidity sources include public offerings of common stock, at-the-market equity programs, the **Hercules loan** agreement, **upfront payments** from **license and collaboration agreements** (**Sanofi**, **Yakult**, **CSPC**), and **COPIKTRA product revenue**[190](index=190&type=chunk) - As of September 30, 2019, the company had **$160.2 million** in **cash, cash equivalents, and short-term investments**[191](index=191&type=chunk) [Cash flows](index=58&type=section&id=Cash%20flows) For the nine months ended September 30, 2019, **cash used in operating activities** increased to **$101.3 million**, while **investing activities** provided **$64.5 million** (a shift from prior year's use), and **financing activities** provided **$10.3 million** (significantly less than prior year). This resulted in a **net decrease in cash** of **$26.5 million** Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(101,297) | $(55,327) | | Net cash provided by (used in) investing activities | $64,487 | $(11,574) | | Net cash provided by financing activities | $10,263 | $115,693 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(26,547) | $48,792 | - The increase in **cash used in operating activities** was primarily due to higher selling, general, and administrative expenses and lower **upfront license payments** compared to the prior year[193](index=193&type=chunk) - **Financing activities** in 2019 included **$9.7 million** from the **Hercules loan** amendment and **$0.6 million** from **stock option** exercises, a significant decrease from 2018 which included **$81.2 million** from common stock sales and **$24.3 million** from an at-the-market equity offering program[195](index=195&type=chunk)[197](index=197&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) [Funding requirements](index=63&type=section&id=Funding%20requirements) Future **funding requirements** are driven by commercialization of **COPIKTRA**, ongoing and new clinical trials, intellectual property management, and expansion of operational and commercial teams. The company expects to finance cash needs through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements, acknowledging that failure to raise sufficient funds could lead to delays or termination of development efforts - Future **funding requirements** are driven by commercialization of **COPIKTRA**, ongoing and new clinical trials, intellectual property management, and expansion of operational and commercial teams[216](index=216&type=chunk) - The company expects to finance cash needs through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements[217](index=217&type=chunk) - Failure to raise additional funds could force delays, reductions, or termination of product development or commercialization efforts[218](index=218&type=chunk) [CONTRACTUAL OBLIGATIONS AND COMMITMENTS](index=64&type=section&id=CONTRACTUAL%20OBLIGATIONS%20AND%20COMMITMENTS) There have been no material changes to the company's **contractual obligations and commitments** since its December 31, 2018 Annual Report on Form 10-K, other than the Fourth Amendment to the Loan and Security Agreement with **Hercules Capital, Inc.** - No material changes to **contractual obligations and commitments** since December 31, 2018, except for the Fourth Amendment to the Loan and Security Agreement with **Hercules Capital, Inc.**[219](index=219&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=64&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) The company did not have any **off-balance sheet arrangements** during the periods presented, nor does it currently have any, as defined under SEC rules - The company has no **off-balance sheet arrangements** as defined under SEC rules[220](index=220&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to **market risk** primarily from **interest rate** fluctuations affecting its cash, **cash equivalents**, **short-term investments**, and the floating-rate **Hercules term loan**. A **100 basis point change** in **interest rates** would not materially affect its investment portfolio, and a **10% increase** in current **interest rates** would have an immaterial impact on **interest expense** for the **Hercules loan** - The company's primary **market risk exposure** is **interest rate sensitivity**, affecting its **$160.2 million** in **cash, cash equivalents, and short-term investments**[221](index=221&type=chunk) - An immediate **100 basis point change** in **interest rates** would not materially affect the fair market value of the company's investment portfolio due to its short-term duration and low risk profile[221](index=221&type=chunk) - The **Hercules term loan** bears a floating **interest rate**, but a **10% increase** in current **interest rates** would have an immaterial impact on **cash interest expense** for the three and nine months ended September 30, 2019[223](index=223&type=chunk) - The **Convertible Senior Notes** bear a fixed **interest rate**, minimizing exposure to **interest rate** changes, but potentially leading to higher relative **interest payments** if market rates decline or credit rating improves[224](index=224&type=chunk) [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and Chief Business and Financial Officer, evaluated the effectiveness of the company's **disclosure controls and procedures** as of September 30, 2019, concluding they were effective at a reasonable assurance level. There were no material changes in **internal control over financial reporting** during the quarter [Evaluation of disclosure controls and procedures](index=65&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) The company's management, including the CEO and Chief Business and Financial Officer, assessed the effectiveness of **disclosure controls and procedures** as of September 30, 2019, and concluded they were effective at the reasonable assurance level - Management, including the CEO and Chief Business and Financial Officer, concluded that **disclosure controls and procedures** were effective at the reasonable assurance level as of September 30, 2019[225](index=225&type=chunk) [Changes in internal control over financial reporting](index=65&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) There were no material changes in the company's **internal control over financial reporting** during the three months ended September 30, 2019 - No material changes in **internal control over financial reporting** occurred during the three months ended September 30, 2019[226](index=226&type=chunk) [PART II—OTHER INFORMATION](index=66&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no **legal proceedings** for the period - The company reported no **legal proceedings**[229](index=229&type=chunk) [Item 1A. Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) This section updates the **risk factors**, emphasizing potential difficulties in managing restructurings and the ongoing **substantial doubt** about the company's ability to continue as a **going concern** due to historical losses, reliance on **COPIKTRA**, and the need for additional financing - The company may face difficulties in managing its recent **restructuring**, including the elimination of approximately **40 positions**, and may not realize anticipated benefits or cost savings[231](index=231&type=chunk) - **Substantial doubt** exists about the company's ability to continue as a **going concern** due to historical **operating losses**, anticipated future losses, and heavy dependence on the successful commercialization of **COPIKTRA**[232](index=232&type=chunk) - The company requires additional financing to execute its operating plan, and failure to obtain it could lead to delays, reductions, or elimination of commercial and R&D efforts[232](index=232&type=chunk)[233](index=233&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no **unregistered sales of equity securities** and no purchases of its own equity securities during the period covered by this report [RECENT SALES OF UNREGISTERED SECURITIES](index=68&type=section&id=RECENT%20SALES%20OF%20UNREGISTERED%20SECURITIES) No **unregistered sales of equity securities** occurred during the period - No **unregistered sales of equity securities** occurred during the period[234](index=234&type=chunk) [PURCHASE OF EQUITY SECURITIES](index=68&type=section&id=PURCHASE%20OF%20EQUITY%20SECURITIES) The company did not purchase any of its equity securities during the period - The company did not purchase any of its equity securities during the period[235](index=235&type=chunk) [Item 3. Defaults Upon Senior Securities](index=68&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no **defaults upon senior securities** - No **defaults upon senior securities** were reported[236](index=236&type=chunk) [Item 4. Mine Safety Disclosures](index=68&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported no **mine safety disclosures** - No **mine safety disclosures** were reported[237](index=237&type=chunk) [Item 5. Other Information](index=68&type=section&id=Item%205.%20Other%20Information) The company reported no other information - No other information was reported[238](index=238&type=chunk) [Item 6. Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists the **exhibits** filed as part of the Quarterly Report on Form 10-Q, including the **License and Collaboration Agreement** with **Sanofi**, certifications from executive officers, and XBRL documents - **Exhibits** include the **License and Collaboration Agreement** with **Sanofi** (dated July 25, 2019), certifications of principal executive and financial officers, and XBRL instance and taxonomy documents[239](index=239&type=chunk)[243](index=243&type=chunk) [SIGNATURES](index=70&type=section&id=SIGNATURES) The report is duly signed on behalf of **Verastem**, Inc. by Brian M. Stuglik, Chief Executive Officer, and Robert Gagnon, Chief Business and Financial Officer, on October 30, 2019 - The report was signed by Brian M. Stuglik, CEO, and Robert Gagnon, Chief Business and Financial Officer, on October 30, 2019[247](index=247&type=chunk)