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)

Verastem, Inc. (NASDAQ:VSTM) Q3 2019 Earnings Conference Call October 29, 2019 4:30 PM ET Company Participants John Doyle - Vice President of Investor Relations & Finance Brian Stuglik - Chief Executive Officer Dan Paterson - President & Chief Operating Officer Rob Gagnon - Chief Financial & Business Officer Conference Call Participants Emma Nealon - Cantor Fitzgerald Jake Colby - BTIG Swayampakula Ramakanth - H.C. Wainwright Matthew Cross - Jones Trading Operator Good afternoon and welcome to the Verastem ...

Financial Data and Key Metrics Changes - Net product revenue for Q2 2019 was $3 million, reflecting an 81% increase compared to Q1 2019, with no product revenue in Q2 2018 as COPIKTRA was approved in September 2018 [40][48] - License and collaboration revenue for Q2 2019 was $0.1 million, down from $10 million in Q2 2018, which included a significant upfront payment from Yakult [41] - Research and development expenses decreased to $11.3 million in Q2 2019 from $12.4 million in Q2 2018, primarily due to reduced consulting fees and lower R&D costs [42] - Selling, general and administrative expenses increased to $29.3 million in Q2 2019 from $15.8 million in Q2 2018, mainly due to higher personnel costs and promotional expenses [43] - Net loss for Q2 2019 was $42.2 million, or $0.57 per share, compared to a net loss of $18.4 million, or $0.30 per share, in Q2 2018 [44] - Non-GAAP adjusted net loss for Q2 2019 was $35.7 million, or $0.48 per share, compared to $16.7 million, or $0.27 per share, in Q2 2018 [45] - Cash and investments as of June 30, 2019, were $187.3 million, down from $249.7 million at the end of 2018 [47] Business Line Data and Key Metrics Changes - COPIKTRA net revenues in Q2 2019 were $3 million, with a significant increase in the number of prescribing physicians by over 50% [17][18] - The company raised its revenue guidance for COPIKTRA for 2019 to a range of $12 million to $14 million, up from the previous guidance of $10 million to $12 million [48] Market Data and Key Metrics Changes - The company executed a new strategic partnership with Sanofi for COPIKTRA in Russia and CIS, Turkey, the Middle East, and Africa, which includes an upfront payment of $5 million and potential future payments of up to $42 million [49][50] Company Strategy and Development Direction - The company aims to achieve cash flow breakeven for both commercial and clinical COPIKTRA programs within two years and to broaden indications for COPIKTRA and have at least one additional marketed product within five years [24][25] - The focus is on executing a fully integrated sustainable biopharma company model, with a strong emphasis on the commercial launch of COPIKTRA and expanding its footprint into additional indications [20][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to realize the full commercial and clinical potential of COPIKTRA and emphasized the importance of physician education efforts [14][18] - The management team is optimistic about the early signs of success in the COPIKTRA launch and plans to build on this momentum for the remainder of 2019 [19][53] Other Important Information - The company is actively pursuing regulatory approval in Europe and plans to submit its Marketing Authorization Application (MAA) by the end of 2019 [52] - The company is also working on initiating several key clinical trials, including a confirmatory Phase III study for COPIKTRA [38][52] Q&A Session Summary Question: Discussion on alternative dosing strategies and their potential commercial impact - Management indicated that proactive dose interruptions could allow patients to stay on the drug longer, potentially enhancing commercial outcomes [59][60] Question: Feedback on colitis management and physician education - Management noted that there has not been significant colitis reported and emphasized ongoing educational efforts to support physicians [61][62] Question: Revenue uptick and its implications - Management acknowledged an increase in noise around the product now that marketing is active, indicating a positive trend in sales [64] Question: Trends in R&D spending and future expectations - Current R&D spending is around $40 million to $45 million annually, with expectations for this trend to continue in the near term [68][72] Question: Clarification on revenue increase and prescription data discrepancies - Management explained that prescription data in specialty markets can be less accurate and emphasized the importance of looking at quarterly results for a clearer picture [78][80] Question: Combination studies with checkpoint inhibitors and partnerships - Management confirmed ongoing studies and indicated that they are not currently establishing partnerships for drug supply but may consider it in the future [84][85] Question: Update on enrollment in combination trials and mechanistic differentiation - Management stated that while they hear anecdotal updates on trials, they do not have specific guidance on enrollment or data presentation timelines [96]

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) The company presents its unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes - Verastem, Inc. is a biopharmaceutical company focused on developing and commercializing cancer medicines, with **COPIKTRA™ (duvelisib)** as its first commercial product approved by the FDA in September 2018 for certain hematologic cancers[20](index=20&type=chunk) - The company has an accumulated deficit of **$455.9 million** as of June 30, 2019, and anticipates continued losses, raising substantial doubt about its ability to continue as a going concern[22](index=22&type=chunk)[23](index=23&type=chunk) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2019 (unaudited) | December 31, 2018 | | :-------------------------------- | :------------------------ | :------------------ | | **Assets** | | | | Cash and cash equivalents | $113,080 | $129,867 | | Short-term investments | $74,173 | $119,786 | | Total current assets | $192,346 | $253,259 | | Total assets | $218,541 | $277,236 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $31,204 | $37,077 | | Long-term debt | $34,673 | $19,506 | | Convertible senior notes | $99,163 | $95,231 | | Total liabilities | $169,234 | $152,937 | | Total stockholders' equity | $49,307 | $124,299 | | Total liabilities and stockholders' equity | $218,541 | $277,236 | Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) | Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product revenue, net | $3,019 | $0 | $4,690 | $0 | | License and collaboration revenue | $117 | $10,000 | $117 | $10,000 | | Total revenue | $3,136 | $10,000 | $4,807 | $10,000 | | Total operating expenses | $41,413 | $28,194 | $77,753 | $48,955 | | Loss from operations | $(38,277) | $(18,194) | $(72,946) | $(38,955) | | Net loss | $(42,194) | $(18,367) | $(80,296) | $(39,417) | | Net loss per share—basic and diluted | $(0.57) | $(0.30) | $(1.09) | $(0.70) | Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(73,449) | $(32,767) | | Net cash provided by investing activities | $46,893 | $3,905 | | Net cash provided by financing activities | $9,769 | $115,619 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(16,787) | $86,757 | [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, with COPIKTRA™ as its first FDA-approved product - Verastem, Inc. is a biopharmaceutical company focused on developing and commercializing cancer medicines, with **COPIKTRA™ (duvelisib)** as its first commercial product approved by the FDA in September 2018 for certain hematologic cancers[20](index=20&type=chunk) - The company's lead product candidate, **defactinib**, and COPIKTRA utilize a multi-faceted approach to treat blood and organ system cancers, with ongoing preclinical and clinical studies for various cancer types[20](index=20&type=chunk) - As of June 30, 2019, the company had **$187.3 million** in cash, cash equivalents, and short-term investments, but an accumulated deficit of **$455.9 million**, leading to substantial doubt about its ability to continue as a going concern[22](index=22&type=chunk)[23](index=23&type=chunk) [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies) This section outlines the company's critical accounting policies, including revenue recognition, lease accounting, and going concern assumptions for interim financial reporting - The financial statements are prepared under GAAP for interim reporting, assuming the company will continue as a going concern for the next twelve months, despite uncertainties[24](index=24&type=chunk) - Effective January 1, 2019, the company adopted **ASC 842, Leases**, requiring recognition of lease liabilities and right-of-use assets on the balance sheet for leases over one year[26](index=26&type=chunk)[27](index=27&type=chunk) - Revenue recognition follows **ASC 606**, with product revenue from COPIKTRA sales recognized upon delivery, net of variable consideration like discounts, rebates, and returns, while license and collaboration revenue is recognized based on performance obligations and milestone probabilities[30](index=30&type=chunk)[31](index=31&type=chunk)[43](index=43&type=chunk) [3. Cash, Cash Equivalents and Restricted Cash](index=22&type=section&id=3.%20Cash,%20cash%20equivalents%20and%20restricted%20cash) This section details the composition of cash, cash equivalents, and restricted cash, including amounts held for specific R&D studies and security deposits Cash, Cash Equivalents and Restricted Cash (in thousands) | Metric | June 30, 2019 | December 31, 2018 | | :----------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $113,080 | $129,867 | | Restricted cash | $741 | $741 | | Total cash, cash equivalents and restricted cash | $113,821 | $130,608 | - Restricted cash includes approximately **$0.5 million** for specific R&D studies under a Research Funding Agreement with Leukemia & Lymphoma Society, Inc. (LLS) and **$0.2 million** for a security deposit for 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's financial instruments are valued using a fair value hierarchy, with details provided for cash equivalents, investments, long-term debt, and convertible senior notes - The company determines fair value using a hierarchy (Level 1, 2, 3) based on observable inputs, with cash equivalents and short-term investments valued using third-party pricing services and market observable data[61](index=61&type=chunk)[62](index=62&type=chunk) Financial Instruments Measured at Fair Value (in thousands) | Description | June 30, 2019 Total | June 30, 2019 Level 1 | June 30, 2019 Level 2 | December 31, 2018 Total | December 31, 2018 Level 1 | December 31, 2018 Level 2 | | :-------------------- | :------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Cash equivalents | $111,174 | $111,174 | — | $127,689 | $60,092 | $67,597 | | Short-term investments | $74,173 | — | $74,173 | $119,786 | — | $119,786 | | Total financial assets | $185,347 | $111,174 | $74,173 | $247,475 | $60,092 | $187,383 | - The fair value of long-term debt at June 30, 2019, was approximately **$37.1 million** (carrying value **$34.7 million**), determined using Level 3 inputs[63](index=63&type=chunk) - Convertible Senior Notes had a fair value of approximately **$77.6 million** (carrying value **$99.163 million**), determined using Level 2 inputs[64](index=64&type=chunk) [5. Investments](index=25&type=section&id=5.%20Investments) This section provides a breakdown of the company's cash, cash equivalents, and short-term investments, noting no realized gains or losses for the period Cash, Cash Equivalents, and Short-Term Investments (in thousands) | Category | June 30, 2019 Fair Value | December 31, 2018 Fair Value | | :----------------------------------- | :----------------------- | :----------------------- | | Cash and money market accounts | $113,080 | $62,270 | | Corporate bonds and commercial paper (due within 90 days) | — | $67,597 | | Corporate bonds and commercial paper (due within 1 year) | $74,173 | $119,786 | | Total cash, cash equivalents and investments | $187,253 | $249,653 | - There were no realized gains or losses on investments for the three and six months ended June 30, 2019 or 2018[66](index=66&type=chunk) - As of June 30, 2019, there were **zero investments** in an unrealized loss position, compared to fourteen at December 31, 2018[66](index=66&type=chunk) [6. Inventory](index=25&type=section&id=6.%20Inventory) The company's inventory, primarily work in process and finished goods for COPIKTRA, is valued at the lower of cost or net realizable value - The company began capitalizing inventory costs for COPIKTRA in Q3 2018, prior to which manufacturing costs were expensed as R&D[67](index=67&type=chunk)[68](index=68&type=chunk) - Inventory is valued at the lower of cost or net realizable value[68](index=68&type=chunk) Inventory (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :--------------- | :------------ | :---------------- | | Raw materials | $0 | $0 | | Work in process | $119 | $63 | | Finished goods | $175 | $264 | | Total inventories | $294 | $327 | [7. Intangible Assets](index=26&type=section&id=7.%20Intangible%20assets) Intangible assets consist mainly of acquired and in-licensed rights related to COPIKTRA, amortized over a 14-year useful life - Intangible assets primarily consist of **$22.0 million** in acquired and in-licensed rights, a milestone payment to Infinity Pharmaceuticals, Inc. upon FDA marketing approval of COPIKTRA in September 2018[69](index=69&type=chunk) Intangible Assets (in thousands) | Category | June 30, 2019 | | :-------------------------- | :------------ | | Acquired and in-licensed rights | $22,000 | | Less: accumulated amortization | $(1,207) | | Total intangible assets, net | $20,793 | - Amortization expense for finite-lived intangible assets was approximately **$0.4 million** for Q2 2019 and **$0.8 million** for the six months ended June 30, 2019, using the straight-line method over a **14-year** useful life[69](index=69&type=chunk)[70](index=70&type=chunk) [8. Accrued Expenses](index=26&type=section&id=8.%20Accrued%20expenses) This section details the company's accrued expenses, including compensation, contract research organization costs, and commercialization costs Accrued Expenses (in thousands) | Category | June 30, 2019 | December 31, 2018 | | :-------------------------- | :------------ | :---------------- | | Compensation and related benefits | $6,689 | $8,749 | | Contract research organization costs | $6,516 | $6,682 | | Commercialization costs | $2,298 | $1,979 | | Interest | $1,534 | $1,786 | | Consulting fees | $1,267 | $494 | | Professional fees | $661 | $482 | | Other | $407 | $936 | | Total accrued expenses | $19,372 | $21,108 | [9. Product Revenue Reserves and Allowances](index=27&type=section&id=9.%20Product%20revenue%20reserves%20and%20allowances) Product revenue reserves and allowances for COPIKTRA sales account for variable consideration such as trade discounts, rebates, and potential returns - Product revenue reserves and allowances for COPIKTRA sales include trade discounts, Third-Party Payer chargebacks and discounts, government rebates, other incentives, and product returns[73](index=73&type=chunk) Product Revenue Allowance and Reserve Categories (in thousands) | Category | Beginning Balance (Dec 31, 2018) | Ending Balance (June 30, 2019) | | :----------------------------------- | :------------------------------- | :----------------------------- | | Trade discounts and allowances | $29 | $52 | | Third-Party Payer chargebacks, discounts and fees | $88 | $153 | | Government rebates and other incentives | $157 | $199 | | Returns | $2 | $8 | | Total | $276 | $412 | - Trade discounts and Third-Party Payer chargebacks are reductions to accounts receivable, while other allowances are recorded as accrued expenses[73](index=73&type=chunk)[41](index=41&type=chunk) - The company has not received any product returns to date[73](index=73&type=chunk)[41](index=41&type=chunk) [10. Leases](index=27&type=section&id=10.%20Leases) The company's office space is accounted for as an operating lease, with a recognized right-of-use asset and corresponding lease liability under ASC 842 - As of June 30, 2019, the company's Needham, Massachusetts office space is accounted for as an operating lease, with a right-of-use asset of **$3.2 million** and a lease liability of **$4.0 million**[75](index=75&type=chunk)[77](index=77&type=chunk) Operating Lease Information (in thousands) | Metric | Six months ended June 30, 2019 | | :------------------------------------------ | :----------------------------- | | Operating lease expense | $444 | | Operating cash flows paid for amounts included in measurement of lease liabilities | $331 | | Weighted average remaining lease term (in years) | 5.9 | | Weighted average discount rate | 14.60% | | Lease Liability (June 30, 2019) | $3,988 | - The company adopted **ASU 2016-02 (Leases)** effective January 1, 2019, using the optional transition method, and elected to account for lease and non-lease components as a single lease component[76](index=76&type=chunk)[59](index=59&type=chunk) [11. Long-Term Debt](index=29&type=section&id=11.%20Long-term%20debt) This section details the company's amended loan agreement with Hercules Capital, Inc., including increased borrowing capacity and repayment terms - On April 23, 2019, the company amended its loan agreement with Hercules Capital, Inc., increasing the total borrowing capacity to **$75.0 million**, with **$35.0 million** outstanding as of the Amendment Date[79](index=79&type=chunk)[80](index=80&type=chunk) - The 2019 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 a final payment of **5.25%** of the aggregate principal[81](index=81&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=30&type=section&id=12.%20Convertible%20Senior%20Notes) The company issued $150.0 million in 5.00% Convertible Senior Notes due 2048, convertible into common stock at a specified rate - In October 2018, the company issued **$150.0 million** aggregate principal amount of **5.00% Convertible Senior Notes** due 2048, bearing interest semi-annually[86](index=86&type=chunk) - The Notes are convertible into common stock at an initial rate of **139.5771 shares per $1,000 principal amount**, corresponding to an initial conversion price of approximately **$7.16 per share**[87](index=87&type=chunk) - The conversion feature was initially bifurcated as an embedded derivative but later qualified for a scope exception after stockholders approved an increase in authorized common stock shares[89](index=89&type=chunk) [13. Stock-Based Compensation](index=31&type=section&id=13.%20Stock%E2%80%91based%20compensation) This section outlines stock option activity and the fair value estimation using the Black-Scholes model, along with unrecognized compensation costs for unvested awards Stock Option Activity (Six months ended June 30, 2019) | Metric | Shares | Weighted average exercise price per share | | :------------------------------------------ | :------------- | :-------------------------------------- | | Outstanding at December 31, 2018 | 12,522,867 | $5.42 | | Granted | 4,978,840 | $2.58 | | Exercised | (46,803) | $1.60 | | Forfeited/cancelled | (819,147) | $4.31 | | Outstanding at June 30, 2019 | 16,635,757 | $4.64 | - The fair value of stock options granted was estimated using the **Black-Scholes model**, with a weighted-average risk-free interest rate of **2.16%** and volatility of **86%** for the six months ended June 30, 2019[92](index=92&type=chunk) - As of June 30, 2019, there was **$21.4 million** of unrecognized compensation cost for unvested stock options (expected to be recognized over **4.06 years**) and **$2.0 million** for unvested RSUs (over **2.90 years**)[92](index=92&type=chunk)[94](index=94&type=chunk) [14. Net Loss Per Share](index=32&type=section&id=14.%20Net%20loss%20per%20share) Basic and diluted net loss per common share calculations are presented, excluding potentially dilutive securities due to their anti-dilutive effect - Basic net loss per common share is calculated by dividing net loss by the weighted-average common shares outstanding[96](index=96&type=chunk) - Diluted net loss per share includes potentially dilutive securities unless their effect is anti-dilutive[96](index=96&type=chunk) Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share Calculation | Security Type | Three months ended June 30, 2019 | Six months ended June 30, 2019 | | :-------------------------- | :------------------------------- | :----------------------------- | | Outstanding stock options | 16,635,757 | 16,635,757 | | Outstanding restricted stock units | 739,117 | 739,117 | | Convertible senior notes | 20,936,548 | 20,936,548 | | Total potentially dilutive securities | 38,311,422 | 38,311,422 | [15. License and Collaboration Agreements](index=33&type=section&id=15.%20License%20and%20collaboration%20agreements) The company has exclusive license agreements for duvelisib with Yakult Honsha and CSPC Pharmaceutical Group, involving upfront payments, milestones, and royalties - The company has an exclusive license and collaboration agreement with **Yakult Honsha Co., Ltd.** (June 2018) for duvelisib in Japan, including an upfront payment of **$10.0 million** and potential milestones up to **$90.0 million**[99](index=99&type=chunk)[100](index=100&type=chunk) - An exclusive license and collaboration agreement with **CSPC Pharmaceutical Group Limited** (September 2018) covers duvelisib in China, Hong Kong, Macau, and Taiwan, with potential milestone payments up to **$160.0 million**[103](index=103&type=chunk)[105](index=105&type=chunk) - Both agreements include **double-digit royalties** on net sales and funding for global development costs, with specific termination clauses[100](index=100&type=chunk)[102](index=102&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) [16. Income Taxes](index=34&type=section&id=16.%20Income%20taxes) No federal or state income tax provision or benefit was recorded due to expected losses and a full valuation allowance against deferred tax assets - The company did not record federal or state income tax provision or benefit for the three and six months ended June 30, 2019 and 2018, due to expected losses and a full valuation allowance against net deferred tax assets[107](index=107&type=chunk) [17. Commitments and Contingencies](index=34&type=section&id=17.%20Commitments%20and%20contingencies) The company's commitments primarily include a lease agreement for office space, with future minimum lease payments detailed - The company has a lease agreement for office space in Needham, Massachusetts, with future minimum lease commitments detailed in Note 10[108](index=108&type=chunk) - A security deposit of **$0.2 million** in the form of a letter of credit is held for this lease[108](index=108&type=chunk) [18. Subsequent Events](index=34&type=section&id=18.%20Subsequent%20events) Subsequent events include the registration of Verastem Europe GmbH and an exclusive license agreement with Sanofi for COPIKTRA in various regions - On July 11, 2019, Verastem Europe GmbH, a wholly-owned subsidiary, was registered in Munich, Germany, as the company pursues regulatory approval and commercialization strategies for COPIKTRA in the European Union[110](index=110&type=chunk) - On July 25, 2019, the company entered into an exclusive license agreement with Sanofi for COPIKTRA in Russia, CIS, Turkey, the Middle East, and Africa, receiving an upfront payment of **$5.0 million** and eligibility for up to **$42.0 million** in milestones plus double-digit royalties[111](index=111&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses the company's financial performance, liquidity, and capital resources, emphasizing the commercialization of COPIKTRA and ongoing R&D - Verastem is a biopharmaceutical company developing and commercializing cancer medicines, with **COPIKTRA™ (duvelisib)** approved for certain hematologic cancers and **defactinib** in clinical development for various solid tumors[114](index=114&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk) - The company reported net losses of **$42.2 million** and **$80.3 million** for the three and six months ended June 30, 2019, respectively, and expects continued significant operating losses, raising substantial doubt about its ability to continue as a going concern[120](index=120&type=chunk)[121](index=121&type=chunk) - Product revenue, net, for the three and six months ended June 30, 2019, was **$3.0 million** and **$4.7 million**, respectively, from COPIKTRA sales, marking the first product revenue since its September 2018 launch[160](index=160&type=chunk)[173](index=173&type=chunk) - License and collaboration revenue decreased significantly by **$9.9 million** for both periods compared to 2018, primarily due to a **$10.0 million** upfront payment from Yakult in Q2 2018 not recurring[161](index=161&type=chunk)[174](index=174&type=chunk) - Selling, general and administrative expenses increased by **$13.5 million (85%)** for Q2 2019 and **$29.7 million (116%)** for the six-month period, driven by commercialization efforts for COPIKTRA, including staffing sales teams and professional fees[166](index=166&type=chunk)[168](index=168&type=chunk)[179](index=179&type=chunk)[181](index=181&type=chunk) - Interest expense increased by **$4.7 million (905%)** for Q2 2019 and **$9.1 million (916%)** for the six-month period, mainly due to the issuance of Convertible Senior Notes in October 2018 and a higher principal balance on the Hercules loan[171](index=171&type=chunk)[184](index=184&type=chunk) [Overview](index=36&type=section&id=OVERVIEW) Verastem is a biopharmaceutical company focused on cancer treatments, with COPIKTRA commercialization and defactinib development driving significant operational expenses - Verastem is a biopharmaceutical company focused on developing and commercializing cancer treatments, with **COPIKTRA™ (duvelisib)** approved for certain hematologic cancers and **defactinib** in preclinical and clinical studies for various cancers[114](index=114&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk) - The company has financed operations through public offerings, equity programs, a loan agreement with Hercules, upfront payments from license agreements (Yakult, CSPC), and Convertible Senior Notes[119](index=119&type=chunk) - Verastem expects significant expenses and increasing operating losses due to COPIKTRA commercialization and R&D, with an accumulated deficit of **$455.9 million** as of June 30, 2019, raising substantial doubt about its going concern ability[120](index=120&type=chunk)[121](index=121&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=37&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20SIGNIFICANT%20JUDGMENTS%20AND%20ESTIMATES) This section details key accounting policies requiring significant judgment, including revenue recognition, accrued R&D, stock-based compensation, and lease accounting - Key accounting policies requiring significant judgment include accrued R&D expenses, stock-based compensation, revenue recognition, collaborative arrangements, accounts receivable, inventory, and intangible assets[123](index=123&type=chunk) - The company adopted **ASC 842, Leases**, effective January 1, 2019, which requires lessees to recognize lease liabilities and right-of-use assets on the balance sheet for leases over one year[123](index=123&type=chunk)[156](index=156&type=chunk) - Revenue recognition for product sales (COPIKTRA) and license/collaboration agreements involves a five-step model under **ASC 606**, requiring estimates for variable consideration, milestone probabilities, and standalone selling prices[124](index=124&type=chunk)[128](index=128&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk)[145](index=145&type=chunk) [Results of Operations](index=47&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, detailing changes in product and license revenue, operating expenses, and net loss for the reported periods Comparison of Three Months Ended June 30, 2019 and 2018 (in thousands) | Metric | 2019 | 2018 | Change | % Change | | :-------------------------------- | :----- | :----- | :----- | :------- | | Product revenue, net | $3,019 | $0 | $3,019 | 100% | | License and collaboration revenue | $117 | $10,000 | $(9,883) | -99% | | Total revenue | $3,136 | $10,000 | $(6,864) | -69% | | Research and development | $11,346 | $12,381 | $(1,035) | -8% | | Selling, general and administrative | $29,298 | $15,813 | $13,485 | 85% | | Net loss | $(42,194) | $(18,367) | $(23,827) | 130% | Comparison of Six Months Ended June 30, 2019 and 2018 (in thousands) | Metric | 2019 | 2018 | Change | % Change | | :-------------------------------- | :----- | :----- | :----- | :------- | | Product revenue, net | $4,690 | $0 | $4,690 | 100% | | License and collaboration revenue | $117 | $10,000 | $(9,883) | -99% | | Total revenue | $4,807 | $10,000 | $(5,193) | -52% | | Research and development | $21,103 | $23,315 | $(2,212) | -9% | | Selling, general and administrative | $55,331 | $25,640 | $29,691 | 116% | | Net loss | $(80,296) | $(39,417) | $(40,879) | 104% | - R&D expenses decreased by **$1.1 million** (QoQ) and **$2.2 million** (YoY) primarily due to reduced consulting and CRO costs, partially offset by increased personnel and occupancy costs[163](index=163&type=chunk)[176](index=176&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity position, cash flow activities, and substantial future funding requirements are discussed, with reliance on COPIKTRA commercialization and external financing - As of June 30, 2019, the company had **$187.3 million** in cash, cash equivalents, and short-term investments[186](index=186&type=chunk) - The company believes it has sufficient funds for the next twelve months, but successful commercialization of COPIKTRA is critical[187](index=187&type=chunk) Cash Flows (Six months ended June 30, in thousands) | Activity | 2019 | 2018 | | :------------------------------------------ | :----------- | :----------- | | Net cash used in operating activities | $(73,449) | $(32,767) | | Net cash provided by investing activities | $46,893 | $3,905 | | Net cash provided by financing activities | $9,769 | $115,619 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(16,787) | $86,757 | - Operating cash used increased by **$40.7 million** in 2019 due to higher SG&A expenses for COPIKTRA commercialization and the absence of the **$10.0 million** Yakult license payment received in 2018[189](index=189&type=chunk) - Financing activities in 2019 primarily included **$9.7 million** from the Hercules loan amendment, while 2018 saw **$105.7 million** from common stock sales (underwriting and ATM) and **$9.9 million** from the Hercules loan[191](index=191&type=chunk) - Future funding requirements are substantial and depend on COPIKTRA commercialization, clinical trials, intellectual property, and potential acquisitions[207](index=207&type=chunk) - The company plans to finance needs through equity, debt, collaborations, and licensing[209](index=209&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses Verastem, Inc.'s exposure to market risks, primarily related to interest rate fluctuations on its cash, cash equivalents, short-term investments, and variable-rate debt - The company's primary market risk exposure is interest rate sensitivity, affecting its **$187.3 million** in cash, cash equivalents, and short-term investments, which are mostly interest-bearing[212](index=212&type=chunk) - Due to the short-term duration and low-risk profile of its investment portfolio, a **100 basis point** change in interest rates would not materially affect the fair market value of the portfolio[212](index=212&type=chunk) - The 2019 Term Loan Agreement with Hercules bears a floating interest rate, making interest charges susceptible to changes in prime rates[214](index=214&type=chunk) - A **10% increase** in current interest rates would have an immaterial impact on cash interest expense for the reported periods[214](index=214&type=chunk) - The Convertible Senior Notes bear a fixed interest rate, limiting exposure to interest rate changes, but potentially leading to higher relative interest payments if credit ratings improve[215](index=215&type=chunk) [Item 4. Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - Management, with CEO and Chief Business and Financial Officer participation, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2019[216](index=216&type=chunk) - There were no material changes in internal control over financial reporting during the three months ended June 30, 2019[217](index=217&type=chunk) [PART II—OTHER INFORMATION](index=63&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity sales, and required exhibits [Item 1. Legal Proceedings.](index=63&type=section&id=Item%201.%20Legal%20Proceedings.) The company reports no legal proceedings - The company has no legal proceedings to report[220](index=220&type=chunk) [Item 1A. Risk Factors.](index=63&type=section&id=Item%201A.%20Risk%20Factors.) Updated risk factors highlight the company's need for additional financing and its dependence on COPIKTRA's commercial success to continue as a going concern - The company may require additional financing to execute its operating plan and continue as a going concern, as it has historical operating losses and anticipates continued losses[222](index=222&type=chunk) - Verastem's ability to continue as a going concern relies heavily on the successful commercialization of COPIKTRA and potentially raising additional capital or reducing cash expenditures[222](index=222&type=chunk) - There are no assurances that the company will be able to obtain necessary capital on favorable terms or at all, which could force delays, reductions, or termination of commercial or R&D efforts[222](index=222&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company had no unregistered sales or repurchases of its equity securities during the reporting period - The company did not have any recent sales of unregistered securities[223](index=223&type=chunk) - The company did not purchase any of its equity securities during the period covered by this Quarterly Report on Form 10-Q[224](index=224&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=64&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) The company reports no defaults upon senior securities - The company has no defaults upon senior securities[225](index=225&type=chunk) [Item 4. Mine Safety Disclosures.](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) The company has no mine safety disclosures to report - The company has no mine safety disclosures[226](index=226&type=chunk) [Item 5. Other Information.](index=64&type=section&id=Item%205.%20Other%20Information.) The company has no other information to report - The company has no other information to report[227](index=227&type=chunk) [Item 6. Exhibits.](index=64&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, and XBRL documents - The report includes certifications from the Principal Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act of 2002[232](index=232&type=chunk) - XBRL (eXtensible Business Reporting Language) documents are filed, including Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[232](index=232&type=chunk)

Financial Data and Key Metrics Changes - For Q1 2019, net product revenue was $1.7 million, reflecting a 38% increase from Q4 2018 [10][17] - Cash and investments as of March 31, 2019, were $211.7 million, down from $249.7 million as of December 31, 2018 [37] - Net loss for Q1 2019 was $38.1 million, or $0.52 per share, compared to a net loss of $21.1 million, or $0.41 per share, in Q1 2018 [42] Business Line Data and Key Metrics Changes - COPIKTRA, the lead oncology drug, had net revenues of $1.7 million in Q1 2019, marking a 38% increase from the previous quarter [10][17] - Selling, general and administrative expenses rose to $26 million in Q1 2019, a 165% increase from $9.8 million in Q1 2018, primarily due to higher personnel and promotional costs [41] Market Data and Key Metrics Changes - The company reported that over 92% of targeted health plans are now providing reimbursement for COPIKTRA [18] - The estimated patient population in need of new therapeutic options for CLL/SLL and FL is approximately 20,000 patients per year [24] Company Strategy and Development Direction - The company aims to continue executing the commercial launch of COPIKTRA and expand into additional investigational studies [45] - Plans include initiating a confirmatory Phase III study for COPIKTRA in FL and expanding the Phase II PRIMO study for PTCL [45][35] - The company is also exploring ex-U.S. partnership opportunities for duvelisib [53] Management's Comments on Operating Environment and Future Outlook - Management views 2019 as a foundational year for COPIKTRA, with expectations for increased sales momentum in 2020 [51] - The company is confident in overcoming headwinds related to negative perceptions of PI3K and is seeing positive signs in physician engagement and education efforts [51] Other Important Information - Joseph Lobacki, the Chief Commercial Officer, will be stepping down during 2019, with a search for his successor already underway [13] - The company has amended its loan agreement to lower interest rates and extend repayment timelines, increasing the borrowing limit from $50 million to $75 million [38] Q&A Session Summary Question: Guidance lower than expected - Management acknowledged the guidance is lower than anticipated, citing headwinds and current market traction as factors influencing the estimate [48][49] Question: Metrics for overcoming PI3K headwinds - Management highlighted increased podium presence and engagement with KOLs as positive indicators of progress in overcoming headwinds [51] Question: Ex-U.S. opportunities - The company is in discussions for additional partnerships outside the U.S., with expectations for at least one partnership by the end of the year [54] Question: Update on defactinib program - Management confirmed that defactinib is involved in four separate programs, with data expected from several of these studies at medical meetings later this year [59][60] Question: Impact of venetoclax on COPIKTRA's positioning - Management discussed the potential for COPIKTRA to fill a significant need in the third-line treatment space for CLL/SLL and FL, especially as oral therapies gain traction [62][64]

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010%E2%80%91Q) [Registrant Details and Filing Status](index=1&type=section&id=FORM%2010%E2%80%91Q) This section provides basic filing information for Verastem, Inc.'s Form 10-Q for the quarterly period ended March 31, 2019 Registrant Details | Detail | Value | | :--- | :--- | | Registrant Name | Verastem, Inc. | | State of Incorporation | Delaware | | Commission File Number | 001‑35403 | | Quarterly Period Ended | March 31, 2019 | | SEC Filing Compliance (12 months) | Yes | | Interactive Data File Submission (12 months) | Yes | | Filer Status | Accelerated filer, Smaller reporting company | | Shell Company | No | | Common Stock Trading Symbol | VSTM | | Common Stock Exchange | The Nasdaq Global Market | | Common Stock Outstanding (May 2, 2019) | 73,876,939 shares | [Table of Contents](index=3&type=section&id=Table%20of%20Contents) [Report Structure Overview](index=3&type=section&id=TABLE%20OF%20CONTENTS) This section outlines the structure of the Form 10-Q report, detailing items covered within Part I and Part II - The report is structured into two main parts: Part I (Financial Information) and Part II (Other Information)[5](index=5&type=chunk)[6](index=6&type=chunk) Report Structure | Item | Description | Page | | :--- | :--- | :--- | | **PART I—FINANCIAL INFORMATION** | | | | Item 1. | Condensed Consolidated Financial Statements (unaudited) | 4 | | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 27 | | Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 39 | | Item 4. | Controls and Procedures | 40 | | **PART II—OTHER INFORMATION** | | | | Item 1. | Legal Proceedings | 41 | | Item 1A. | Risk Factors | 41 | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41 | | Item 3. | Defaults Upon Senior Securities | 41 | | Item 4. | Mine Safety Disclosures | 41 | | Item 5. | Other Information | 41 | | Item 6. | Exhibits | 42 | [Forward-Looking Statements](index=4&type=section&id=FORWARD%E2%80%91LOOKING%20STATEMENTS) [Disclaimer and Risk Factors](index=4&type=section&id=FORWARD%E2%80%91LOOKING%20STATEMENTS) This section provides a cautionary statement regarding forward-looking statements and highlights key risks and uncertainties - The report contains forward-looking statements regarding strategy, future operations, financial position, revenues, costs, prospects, plans, and management objectives[8](index=8&type=chunk) - Key risks and uncertainties include the commercial success of COPIKTRA, physician and patient adoption, results of clinical trials, regulatory approvals, intellectual property protection, and the ability to obtain adequate financing[9](index=9&type=chunk) - The company explicitly disclaims any obligation to update forward-looking statements, except as required by law[10](index=10&type=chunk) [PART I—FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=10&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited).) This section presents the unaudited condensed consolidated financial statements for Verastem, Inc [Condensed Consolidated Balance Sheets](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The balance sheet shows a decrease in total assets and stockholders' equity, driven by a reduction in cash and an increased accumulated deficit Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2019 | December 31, 2018 | Change (vs. Dec 31, 2018) | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $91,525 | $129,867 | $(38,342) | | Short-term investments | $120,134 | $119,786 | $348 | | Total current assets | $216,596 | $253,259 | $(36,663) | | Total assets | $243,365 | $277,236 | $(33,871) | | **Liabilities** | | | | | Total current liabilities | $28,624 | $37,077 | $(8,453) | | Total liabilities | $154,905 | $152,937 | $1,968 | | **Stockholders' Equity** | | | | | Accumulated deficit | $(413,678) | $(375,576) | $(38,102) | | Total stockholders' equity | $88,460 | $124,299 | $(35,839) | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20AND%20COMPREHENSIVE%20LOSS) The company reported its first product revenue in Q1 2019 but also experienced a significant increase in net loss compared to the prior year Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) | Item | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Product revenue, net | $1,671 | $— | $1,671 | | Total revenue | $1,671 | $— | $1,671 | | Costs of revenues, excluding amortization of acquired intangible assets | $158 | $— | $158 | | Research and development | $9,758 | $10,934 | $(1,176) | | Selling, general and administrative | $26,033 | $9,827 | $16,206 | | Amortization of acquired intangible assets | $392 | $— | $392 | | Total operating expenses | $36,341 | $20,761 | $15,580 | | Loss from operations | $(34,670) | $(20,761) | $(13,909) | | Interest income | $1,497 | $191 | $1,306 | | Interest expense | $(4,929) | $(480) | $(4,449) | | Net loss | $(38,102) | $(21,050) | $(17,052) | | Net loss per share—basic and diluted | $(0.52) | $(0.41) | $(0.11) | | Weighted average common shares outstanding | 73,854 | 50,835 | 23,019 | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) The company's total stockholders' equity decreased significantly due to the net loss incurred during the period Consolidated Statements of Stockholders' Equity (in thousands, except share data) | Item | December 31, 2018 | March 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Common stock (shares) | 73,806,344 | 73,876,939 | 70,595 | | Common stock (amount) | $7 | $7 | $0 | | Additional paid-in capital | $499,741 | $502,021 | $2,280 | | Accumulated other comprehensive income | $127 | $110 | $(17) | | Accumulated deficit | $(375,576) | $(413,678) | $(38,102) | | Total stockholders' equity | $124,299 | $88,460 | $(35,839) | | Net loss | — | $(38,102) | $(38,102) | | Stock-based compensation expense | — | $2,248 | $2,248 | | Issuance of common stock from stock options | — | $75 | $75 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The company experienced a significant increase in cash used in operating activities during Q1 2019 compared to Q1 2018 Condensed Consolidated Statements of Cash Flows (in thousands) | Item | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(38,780) | $(22,454) | $(16,326) | | Net cash provided by investing activities | $363 | $4,435 | $(4,072) | | Net cash provided by financing activities | $75 | $299 | $(224) | | Decrease in cash, cash equivalents and restricted cash | $(38,342) | $(17,720) | $(20,622) | | Cash, cash equivalents and restricted cash at end of period | $92,266 | $64,618 | $27,648 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements - The financial statements are prepared in accordance with GAAP for interim reporting and Regulation S-X, Rule 10-01[23](index=23&type=chunk) - Effective January 1, 2019, the company adopted ASC 842, Leases, requiring recognition of right-of-use assets and lease liabilities on the balance sheet for leases over one year[24](index=24&type=chunk)[25](index=25&type=chunk) - Revenue from COPIKTRA sales is recognized upon customer control, net of variable consideration (discounts, rebates, returns), with estimates based on contract terms, payor mix, and industry data[30](index=30&type=chunk)[31](index=31&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 - Verastem, Inc. is a biopharmaceutical company focused on developing and commercializing medicines for cancer patients[20](index=20&type=chunk) - COPIKTRA™ (duvelisib), the company's first commercial product, was approved by the FDA on September 24, 2018, for chronic lymphocytic leukemia (CLL), small lymphocytic lymphoma (SLL), and follicular lymphoma (FL)[20](index=20&type=chunk) Financial Position as of March 31, 2019 (in millions) | Item | Amount | | :--- | :--- | | Cash, cash equivalents and short-term investments | $211.7 | | Accumulated deficit | $(413.7) | [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20significant%20accounting%20policies) This note details the significant accounting policies used in preparing the condensed consolidated financial statements - Revenue is recognized when the customer obtains control of promised goods or services, reflecting the expected consideration[28](index=28&type=chunk) - Product revenue from COPIKTRA sales is recorded at wholesale acquisition cost, net of reserves for variable consideration (trade discounts, chargebacks, government rebates, co-pay assistance, and returns)[30](index=30&type=chunk)[31](index=31&type=chunk) - Revenue from exclusive intellectual property licenses is recognized from non-refundable, upfront fees when the license is transferred and the customer can use and benefit from it[41](index=41&type=chunk)[44](index=44&type=chunk) [Basis of Presentation](index=10&type=section&id=Basis%20of%20Presentation) The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting - Financial statements are unaudited and prepared under GAAP for interim reporting and Regulation S-X, Rule 10-01[23](index=23&type=chunk) - Management's estimates and assumptions affect reported amounts, and actual results may differ[23](index=23&type=chunk) [Significant Accounting Policies](index=11&type=section&id=Significant%20Accounting%20Policies) Key accounting policies requiring estimates include accrued R&D, stock-based compensation, and revenue recognition - Significant accounting policies include accrued R&D, stock-based compensation, revenue recognition, collaborative arrangements, accounts receivable, inventory, and intangible assets[24](index=24&type=chunk) - The company adopted ASC 842, Leases, effective January 1, 2019, as the only material change to significant accounting policies[24](index=24&type=chunk) [Leases](index=11&type=section&id=Leases) Effective January 1, 2019, the company adopted ASC 842, requiring the recognition of right-of-use assets and lease liabilities - Adopted ASC 842 effective January 1, 2019, requiring recognition of right-of-use assets and lease liabilities for leases over one year[25](index=25&type=chunk) - Elected not to recognize leases with terms of one year or less on the balance sheet[26](index=26&type=chunk) - Elected to account for lease and non-lease components as a single lease component, allocating all contract consideration to the lease component[27](index=27&type=chunk) [Revenue Recognition](index=11&type=section&id=Revenue%20Recognition) The company recognizes revenue when customers obtain control of goods or services, applying a five-step model [Product Revenue, Net](index=13&type=section&id=Product%20Revenue,%20Net) Product revenue from COPIKTRA sales is recognized upon delivery, net of variable consideration - COPIKTRA is sold to specialty pharmacies and distributors in the U.S., with revenue recognized upon delivery[30](index=30&type=chunk)[31](index=31&type=chunk) - Product revenues are recorded net of variable consideration, including trade discounts, chargebacks, government rebates, other incentives (co-pay assistance), and product returns[31](index=31&type=chunk) - Estimates for variable consideration are based on customer contract terms, anticipated payor mix, market events, industry data, and forecasted buying patterns[31](index=31&type=chunk) [Trade Discounts and Allowances](index=13&type=section&id=Trade%20Discounts%20and%20Allowances) The company provides invoice discounts and compensates specialty distributors for services, both recorded as a reduction of revenue - Invoice discounts for prompt payment are recorded as a reduction of revenue[33](index=33&type=chunk) - Compensation to specialty distributors for sales order management, data, and distribution services is also recorded as a reduction of revenue[33](index=33&type=chunk) [Third-Party Payer Chargebacks, Discounts and Fees](index=13&type=section&id=Third-Party%20Payer%20Chargebacks,%20Discounts%20and%20Fees) The company contracts with Third-Party Payers for lower COPIKTRA prices, resulting in chargebacks from customers - Contracts with Third-Party Payers allow for COPIKTRA purchases at prices lower than wholesale acquisition cost[34](index=34&type=chunk) - Reserves for chargebacks and administrative service fees are established as a reduction of product revenue and accounts receivable, net[34](index=34&type=chunk)[35](index=35&type=chunk) [Government Rebates](index=15&type=section&id=Government%20Rebates) The company is subject to discount obligations under state Medicaid and Medicare programs - Subject to discount obligations under state Medicaid and Medicare programs[36](index=36&type=chunk) - Reserves for government rebates are recorded as a reduction of product revenue and a current liability in accrued expenses[36](index=36&type=chunk) [Other Incentives](index=15&type=section&id=Other%20Incentives) The company offers voluntary co-pay assistance programs to commercially-insured patients - Offers voluntary co-pay assistance programs for qualified commercially-insured patients[37](index=37&type=chunk) - Accruals for co-pay assistance are estimated based on expected claims and costs, reducing product revenue and increasing accrued expenses[37](index=37&type=chunk) [Product Returns](index=15&type=section&id=Product%20Returns) The company offers a limited right of return for product and estimates potential returns as a reduction of revenue - Estimates product return liabilities using industry data and sales information, recorded as a reduction of revenue[38](index=38&type=chunk) - Return policy allows for eligible returns due to damaged product, shipment errors, expired product (3 months prior to 6 months after expiration), product recall, or company-specified returns[39](index=39&type=chunk) - **No product returns have been received to date**[39](index=39&type=chunk) [Exclusive Licenses of Intellectual Property](index=15&type=section&id=Exclusive%20Licenses%20of%20Intellectual%20Property) For collaboration and licensing arrangements, the company identifies performance obligations and allocates transaction price - Collaboration and licensing arrangements involve multiple elements like licenses, R&D activities, and manufacturing[41](index=41&type=chunk) - Upfront fees for distinct intellectual property licenses are recognized when the license is transferred to the customer[44](index=44&type=chunk) - Significant judgment is used to determine performance obligations, transaction price, standalone selling price, and measure of progress[43](index=43&type=chunk) [Customer Options](index=17&type=section&id=Customer%20Options) Customer options to acquire additional goods or services are not considered performance obligations unless they represent a material right - Customer options are not performance obligations at inception unless they represent a material right[45](index=45&type=chunk) - If a material right is identified, it's a separate performance obligation, with transaction price allocated based on standalone selling price and probability of exercise[45](index=45&type=chunk) [Milestone Payments](index=17&type=section&id=Milestone%20Payments) Milestone payments are included in the transaction price only if they are probable of being achieved without a significant revenue reversal - Milestone payments are included in the transaction price if probable of achievement without significant revenue reversal[46](index=46&type=chunk) - Milestones dependent on regulatory approvals are not considered probable until approvals are received[46](index=46&type=chunk) - Probability of achievement is reevaluated quarterly, with adjustments affecting revenues and earnings in the period of adjustment[48](index=48&type=chunk) [Royalties](index=19&type=section&id=Royalties) For arrangements with sales-based royalties, revenue is recognized when sales occur or the performance obligation is satisfied - Sales-based royalties are recognized when related sales occur or when the performance obligation is satisfied, whichever is later[49](index=49&type=chunk) - The company has **not recognized any royalty revenue** from licensing arrangements to date[49](index=49&type=chunk) [Collaborative Arrangements](index=19&type=section&id=Collaborative%20Arrangements) Contracts are classified as collaborative arrangements if parties actively participate in joint operating activities - Contracts are collaborative if parties actively participate in joint operating activities and share significant risks and rewards[50](index=50&type=chunk) - Payments for co-development activities are recorded as a reduction or increase to R&D expense[50](index=50&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 using high-quality financial institutions and has significant customer concentration - Cash, cash equivalents, short-term investments, and trade accounts receivable are subject to credit risk, mitigated by using high-quality financial institutions[51](index=51&type=chunk) - As of March 31, 2019, **two customers comprised over 60% of trade accounts receivable**[52](index=52&type=chunk) - **Five customers individually accounted for greater than 10% of total revenues** for the quarter ended March 31, 2019[52](index=52&type=chunk) [Recently Issued Accounting Standards Updates](index=20&type=section&id=Recently%20Issued%20Accounting%20Standards%20Updates) The company is evaluating the impact of recently issued ASUs related to collaborative arrangements, software, and fair value measurement - Evaluating ASU 2018-18 (Collaborative Arrangements) to clarify interactions between Topic 808 and Topic 606[54](index=54&type=chunk) - Evaluating ASU 2018-15 (Intangibles-Goodwill and Other-Internal Use Software) for capitalizing implementation costs in cloud computing arrangements[55](index=55&type=chunk) - Evaluating ASU 2018-13 (Fair Value Measurement) for changes to disclosure requirements[56](index=56&type=chunk) [Recently Adopted Accounting Standards Updates](index=20&type=section&id=Recently%20Adopted%20Accounting%20Standards%20Updates) The company adopted new standards for stock compensation and leases in Q1 2019 - Adopted ASU 2018-07 (Compensation – Stock Compensation) prospectively on January 1, 2019, with no effect on financial statements[57](index=57&type=chunk) - Adopted ASU 2016-02 (Leases) using the optional transition method effective January 1, 2019[58](index=58&type=chunk)[59](index=59&type=chunk) Impact of ASU 2016-02 Adoption (in millions) | Item | Amount | | :--- | :--- | | Lease liability recognized | $4.0 | | Right-of-use asset recognized | $3.4 | | Deferred rent liability derecognized | $0.4 | | Lease incentive obligation derecognized | $0.2 | | Cumulative effect adjustment to accumulated deficit | $0 | [3. Cash, Cash Equivalents and Restricted Cash](index=21&type=section&id=3.%20Cash,%20cash%20equivalents%20and%20restricted%20cash) Total cash, cash equivalents, and restricted cash amounted to $92.3 million as of March 31, 2019 - Restricted cash includes $0.5 million for LLS Research Funding Agreement R&D studies and $0.2 million for office space security deposit[60](index=60&type=chunk) Cash, Cash Equivalents and Restricted Cash (in thousands) | Item | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $91,525 | $129,867 | | Restricted cash | $741 | $741 | | Total cash, cash equivalents and restricted cash | $92,266 | $130,608 | [4. Fair Value of Financial Instruments](index=21&type=section&id=4.%20Fair%20value%20of%20financial%20instruments) The company measures financial instruments at fair value using a three-level hierarchy - Fair value hierarchy prioritizes valuation inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[61](index=61&type=chunk) Financial Instruments Measured at Fair Value (in thousands) | Description | March 31, 2019 Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $89,551 | $86,809 | $2,742 | $— | | Short-term investments | $120,134 | $— | $120,134 | $— | | Total financial assets | $209,685 | $86,809 | $122,876 | $— | | Long-term debt (fair value) | $26,900 | — | — | $26,900 | | Convertible senior notes (fair value) | $118,200 | — | $118,200 | — | [5. Investments](index=24&type=section&id=5.%20Investments) As of March 31, 2019, total cash, cash equivalents, and investments were $211.7 million - **No realized gains or losses** on investments for the three months ended March 31, 2019 or 2018[66](index=66&type=chunk) - One investment was in an unrealized loss position as of March 31, 2019, compared to fourteen at December 31, 2018, with aggregate unrealized losses being immaterial[66](index=66&type=chunk) Cash, Cash Equivalents, and Short-Term Investments (in thousands) | Item | March 31, 2019 Fair Value | December 31, 2018 Fair Value | | :--- | :--- | :--- | | Cash and money market accounts | $88,783 | $62,270 | | Corporate bonds and commercial paper (due within 90 days) | $2,742 | $67,597 | | Total cash and cash equivalents | $91,525 | $129,867 | | Corporate bonds and commercial paper (due within 1 year) | $120,134 | $119,786 | | Total investments | $120,134 | $119,786 | | Total cash, cash equivalents and investments | $211,659 | $249,653 | [6. Inventory](index=24&type=section&id=6.%20Inventory) The company began capitalizing COPIKTRA inventory costs in Q3 2018 in anticipation of its U.S. launch - Capitalized COPIKTRA inventory costs began in Q3 2018 after FDA approval and commercial launch preparations[67](index=67&type=chunk) Inventory Composition (in thousands) | Item | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Raw materials | $— | $— | | Work in process | $46 | $63 | | Finished goods | $260 | $264 | | Total inventories | $306 | $327 | [7. Intangible Assets](index=25&type=section&id=7.%20Intangible%20assets) The company's net intangible assets totaled $21.2 million as of March 31, 2019, primarily from a milestone payment for COPIKTRA - Intangible assets primarily consist of a **$22.0 million milestone payment** to Infinity Pharmaceuticals, Inc. upon FDA marketing approval of COPIKTRA[69](index=69&type=chunk) - Amortization expense for Q1 2019 was approximately **$0.4 million**, with estimated future amortization of **$1.2 million** for the rest of 2019 and **$1.6 million** annually thereafter[70](index=70&type=chunk) Intangible Assets (in thousands) | Item | March 31, 2019 | | :--- | :--- | | Acquired and in-licensed rights | $22,000 | | Less: accumulated amortization | $(815) | | Total intangible assets, net | $21,185 | | Estimated useful life | 14 years | [8. Accrued Expenses](index=25&type=section&id=8.%20Accrued%20expenses) Accrued expenses decreased to $19.8 million at March 31, 2019, primarily due to a significant decrease in compensation and related benefits Accrued Expenses (in thousands) | Item | March 31, 2019 | December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Compensation and related benefits | $3,334 | $8,749 | $(5,415) | | Contract research organization costs | $7,652 | $6,682 | $970 | | Commercialization costs | $2,671 | $1,979 | $692 | | Interest | $4,479 | $1,786 | $2,693 | | Consulting fees | $607 | $494 | $113 | | Professional fees | $611 | $482 | $129 | | Other | $474 | $936 | $(462) | | Total accrued expenses | $19,828 | $21,108 | $(1,280) | [9. Product Revenue Reserves and Allowances](index=26&type=section&id=9.%20Product%20revenue%20reserves%20and%20allowances) Product revenue reserves and allowances increased to $0.433 million at March 31, 2019, reflecting provisions related to current year sales - Trade discounts and Third-Party Payer chargebacks are reductions to accounts receivable, net[72](index=72&type=chunk) - Trade allowances, Third-Party Payer fees, government rebates, other incentives, and returns are components of accrued expenses[72](index=72&type=chunk) Product Revenue Allowance and Reserve Categories (in thousands) | Item | Beginning Balance (Dec 31, 2018) | Provision (Current Year Sales) | Adjustments (Prior Period Sales) | Credits and Payments Made | Ending Balance (Mar 31, 2019) | | :--- | :--- | :--- | :--- | :--- | :--- | | Trade discounts and allowances | $29 | $75 | $— | $(61) | $43 | | Third-Party Payer chargebacks, discounts and fees | $88 | $136 | $— | $(120) | $104 | | Government rebates and other incentives | $157 | $177 | $(32) | $(20) | $282 | | Returns | $2 | $2 | $— | $— | $4 | | Total | $276 | $390 | $(32) | $(201) | $433 | [10. Leases](index=26&type=section&id=10.%20Leases) As of March 31, 2019, the company recognized a right-of-use asset of $3.3 million and a lease liability of $4.0 million - Lease agreement for Needham, Massachusetts office space extends through May 2025[73](index=73&type=chunk) - The company adopted ASU 2016-02 effective January 1, 2019, using the optional transition method, not restating prior periods[77](index=77&type=chunk) Lease Information (as of March 31, 2019, in thousands) | Item | Amount/Value | | :--- | :--- | | Right-of-use asset | $3,300 | | Lease liability | $4,011 | | Operating lease expense (Q1 2019) | $222 | | Operating cash flows paid for lease liabilities (Q1 2019) | $165 | | Weighted average remaining lease term | 6.2 years | | Weighted average discount rate | 14.6% | | Total future lease payments | $6,183 | | Less: Present value discount | $(2,172) | [11. Long-Term Debt](index=27&type=section&id=11.%20Long-term%20debt) The company amended its loan agreement with Hercules Capital, Inc., increasing its total borrowing capacity to $75.0 million - As of March 31, 2019, **$25.0 million** in term loans were outstanding with Hercules Capital, Inc[79](index=79&type=chunk) - On April 23, 2019, the company amended its loan agreement with Hercules, increasing total borrowing capacity to **$75.0 million**[84](index=84&type=chunk) 2019 Term Loan Agreement Details (as of April 23, 2019, in thousands) | Item | Value | | :--- | :--- | | Total borrowing capacity | $75,000 | | Immediately outstanding (2019 Term A Loan) | $35,000 | | Remaining borrowing capacity | $40,000 | | Maturity Date | December 1, 2022 | | Interest Rate (floating) | Greater of 9.75% or lesser of 12.00% and (9.75% + Prime Rate - 5.50%) | | Interest-only payments until | April 1, 2011 (extendable to Dec 1, 2021) | | Future principal payments (as of Mar 31, 2019) | | | 2021 | $14,234 | | 2022 | $20,766 | | Total principal payments | $35,000 | [12. Convertible Senior Notes](index=31&type=section&id=12.%20Convertible%20Senior%20Notes) In October 2018, the company closed a public offering of $150.0 million aggregate principal amount of 5.00% Convertible Senior Notes due 2048 - Issued **$150.0 million** aggregate principal amount of **5.00% Convertible Senior Notes** due 2048 in October 2018[88](index=88&type=chunk) - Notes bear **5.00% annual interest**, payable semi-annually, and mature on November 1, 2048[89](index=89&type=chunk) - Convertible into common stock at an initial rate of **139.5771 shares per $1,000 principal amount**, corresponding to an initial conversion price of approximately **$7.16 per share**[90](index=90&type=chunk) [13. Stock-Based Compensation](index=31&type=section&id=13.%20Stock%E2%80%91based%20compensation) The company's stock-based compensation programs include stock options, RSUs, and an Employee Stock Purchase Plan [Stock Options](index=31&type=section&id=Stock%20options) As of March 31, 2019, 14.2 million stock options were outstanding with a weighted-average exercise price of $5.15 - Weighted-average assumptions for Black-Scholes model in Q1 2019: risk-free interest rate **2.56%**, volatility **83%**, expected term **6.0 years**[95](index=95&type=chunk) - Unrecognized compensation cost for unvested stock options was **$20.9 million**, to be recognized over approximately **3.46 years**[95](index=95&type=chunk) Stock Option Activity (Three months ended March 31, 2019) | Item | Shares | Weighted Average Exercise Price per Share | | :--- | :--- | :--- | | Outstanding at December 31, 2018 | 12,522,867 | $5.42 | | Granted | 2,231,806 | $3.46 | | Exercised | (46,803) | $1.60 | | Forfeited/cancelled | (530,632) | $4.73 | | Outstanding at March 31, 2019 | 14,177,238 | $5.15 | | Vested at March 31, 2019 | 6,484,243 | $5.82 | | Vested and expected to vest at March 31, 2019 | 13,739,238 | $5.17 | [Restricted Stock Units (RSUs)](index=32&type=section&id=Restricted%20stock%20units%20(RSUs)) As of March 31, 2019, 688,194 RSUs were outstanding with a weighted-average grant date fair value of $4.25 - Unrecognized compensation cost for unvested RSUs was approximately **$2.3 million**, to be recognized over approximately **2.96 years**[97](index=97&type=chunk) RSU Activity (Three months ended March 31, 2019) | Item | Shares | Weighted Average Grant Date Fair Value per Share | | :--- | :--- | :--- | | Outstanding at December 31, 2018 | 306,750 | $5.24 | | Granted | 428,904 | $3.43 | | Vested | (36,439) | $3.11 | | Forfeited | (11,021) | $3.35 | | Outstanding at March 31, 2019 | 688,194 | $4.25 | [Employee Stock Purchase Plan (ESPP)](index=32&type=section&id=Employee%20stock%20purchase%20plan) The 2018 ESPP allows eligible employees to purchase common stock at a discount - 2018 ESPP allows employees to purchase common stock at **85% of the lesser of fair market value** on grant or exercise date[98](index=98&type=chunk) - The initial purchase plan period commenced in February 2019[99](index=99&type=chunk) - Recognized **$0.2 million** of stock-based compensation under the 2018 ESPP for Q1 2019; no purchases made to date[99](index=99&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 - Basic net loss per share is net loss divided by weighted-average common shares outstanding[100](index=100&type=chunk) - Diluted net loss per share includes potentially dilutive securities (stock options, RSUs, convertible senior notes) unless anti-dilutive[100](index=100&type=chunk) Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share | Item | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Outstanding stock options | 14,177,238 | 10,818,454 | | Outstanding restricted stock units | 688,194 | 166,250 | | Convertible senior notes | 20,936,548 | — | | Total potentially dilutive securities | 35,801,980 | 10,984,704 | [15. License and Collaboration Agreements](index=34&type=section&id=15.%20License%20and%20collaboration%20agreements) The company has license and collaboration agreements with Yakult and CSPC for exclusive rights to duvelisib in certain Asian regions [Yakult Honsha Co., Ltd. (Yakult)](index=34&type=section&id=Yakult%20Honsha%20Co.,%20Ltd.%20(Yakult)) The company granted Yakult exclusive rights to develop and commercialize duvelisib in Japan - Granted exclusive rights to Yakult to develop and commercialize duvelisib in Japan (June 2018)[102](index=102&type=chunk) - Entitled to up to **$90.0 million** in development, regulatory, and commercial milestones, plus double-digit royalties on net sales[103](index=103&type=chunk) - Entered a supply agreement with Yakult in February 2019 for drug product supply and a limited manufacturing license for Japan[105](index=105&type=chunk) [CSPC Pharmaceutical Group Limited (CSPC)](index=35&type=section&id=CSPC%20Pharmaceutical%20Group%20Limited%20(CSPC)) The company granted CSPC exclusive rights to develop and commercialize duvelisib in China, Hong Kong, Macau, and Taiwan - Granted exclusive rights to CSPC to develop and commercialize duvelisib in China, Hong Kong, Macau, and Taiwan (September 2018)[107](index=107&type=chunk) - Entitled to up to **$160.0 million** in development, regulatory, and commercial milestones, plus double-digit royalties on net sales[109](index=109&type=chunk) - CSPC is obligated to fund certain global development costs related to worldwide clinical trials[109](index=109&type=chunk) [16. Income Taxes](index=37&type=section&id=16.%20Income%20taxes) The company did not record any federal or state income tax provision or benefit for the period - **No federal or state income tax provision or benefit** recorded for Q1 2019 or Q1 2018[111](index=111&type=chunk) - Reason for no tax provision/benefit: expected losses and **full valuation allowance** against net deferred tax assets[111](index=111&type=chunk) [17. Commitments and Contingencies](index=37&type=section&id=17.%20Commitments%20and%20contingencies) The company's primary commitment is a lease agreement for office space in Needham, Massachusetts - Primary commitment is a lease agreement for 27,810 square feet of office space in Needham, Massachusetts[112](index=112&type=chunk) - A security deposit of **$0.2 million** in the form of a letter of credit is held for the lease, included in restricted cash[112](index=112&type=chunk) [18. Subsequent Events](index=37&type=section&id=18.%20Subsequent%20events) The only material subsequent event was the execution of the Fourth Amendment to the Loan and Security Agreement with Hercules Capital, Inc - The only material subsequent event is the Fourth Amendment to the Loan and Security Agreement with Hercules Capital, Inc[113](index=113&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&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 Q1 2019 [Overview](index=38&type=section&id=OVERVIEW) Verastem is a biopharmaceutical company focused on cancer, with its first commercial product, COPIKTRA, approved in September 2018 - Verastem is a biopharmaceutical company developing and commercializing medicines for cancer patients[116](index=116&type=chunk) - COPIKTRA™ (duvelisib) was approved by the FDA on September 24, 2018, for relapsed or refractory CLL/SLL and FL[117](index=117&type=chunk) - The company had an accumulated deficit of **$413.7 million** as of March 31, 2019, and expects to incur significant expenses and operating losses for the foreseeable future[122](index=122&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=39&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20SIGNIFICANT%20JUDGMENTS%20AND%20ESTIMATES) This section highlights accounting policies that require significant management judgment and estimates - Critical accounting policies involve significant judgments and estimates, including accrued R&D, stock-based compensation, revenue recognition, collaborative arrangements, accounts receivable, inventory, and intangible assets[123](index=123&type=chunk)[124](index=124&type=chunk) - The company adopted ASC 842, Leases, effective January 1, 2019, as the only material change to significant accounting policies during the three months ended March 31, 2019[124](index=124&type=chunk) [Revenue Recognition](index=39&type=section&id=Revenue%20Recognition) Revenue is recognized when customers gain control of goods or services, applying a five-step model - Revenue recognition follows a five-step model under ASC 606, applied when collection of consideration is probable[125](index=125&type=chunk) - Product revenue from COPIKTRA sales is recognized upon delivery, net of variable consideration such as trade discounts, chargebacks, government rebates, co-pay assistance, and product returns[126](index=126&type=chunk)[127](index=127&type=chunk) - For exclusive licenses of intellectual property, upfront fees are recognized when the license is transferred, and milestone payments are included in the transaction price if probable of being achieved without significant revenue reversal[137](index=137&type=chunk)[141](index=141&type=chunk) [Accounts Receivable, Net](index=46&type=section&id=Accounts%20Receivable,%20Net) Accounts receivable primarily consists of amounts due from customers and collaboration partners - Accounts receivable are primarily from customers and license/collaboration partners, typically due within 31 days[144](index=144&type=chunk) - An allowance for doubtful accounts was not deemed necessary as of March 31, 2019, due to the nature and limited history of collectability[144](index=144&type=chunk) [Inventory](index=46&type=section&id=Inventory) Inventory costs for COPIKTRA are capitalized when regulatory approval is highly likely and costs are expected to be recoverable - Inventory costs for COPIKTRA are capitalized when regulatory approval is highly likely and costs are expected to be recoverable[145](index=145&type=chunk) - Inventories are valued at the lower of cost or estimated net realizable value, using a first-in, first-out basis[146](index=146&type=chunk) - Impairment assessments are performed each reporting period, with write-downs recorded in cost of product revenues[146](index=146&type=chunk) [Intangible Assets](index=46&type=section&id=Intangible%20Assets) Finite-lived intangible assets are recorded at fair value and amortized over their useful lives - Finite-lived intangible assets are recorded at fair value and amortized over their useful lives, typically using the straight-line method[148](index=148&type=chunk) - Impairment assessments are performed at least annually or when indicators suggest impairment, comparing estimated undiscounted cash flows to carrying value[149](index=149&type=chunk) [Leases](index=48&type=section&id=Leases) Effective January 1, 2019, the company adopted ASC 842, requiring the recognition of right-of-use assets and lease liabilities - Adopted ASC 842 effective January 1, 2019, requiring recognition of right-of-use assets and lease liabilities for leases over one year[150](index=150&type=chunk) - Elected not to recognize leases with terms of one year or less on the balance sheet[151](index=151&type=chunk) - Elected to account for lease and non-lease components as a single lease component, allocating all contract consideration to the lease component[152](index=152&type=chunk) [Results of Operations](index=48&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a comparative analysis of the company's financial performance for Q1 2019 versus Q1 2018 Summary of Results of Operations (in thousands, except per share amounts) | Item | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,671 | $— | $1,671 | 100% | | Total operating expenses | $36,341 | $20,761 | $15,580 | 75% | | Loss from operations | $(34,670) | $(20,761) | $(13,909) | 67% | | Interest income | $1,497 | $191 | $1,306 | 684% | | Interest expense | $(4,929) | $(480) | $(4,449) | 927% | | Net loss | $(38,102) | $(21,050) | $(17,052) | 81% | [Product Revenue, Net](index=49&type=section&id=Product%20revenue,%20net) Net product revenue was $1.7 million for Q1 2019, representing the first commercial sales of COPIKTRA in the United States - Commercial sales of COPIKTRA in the U.S. began in September 2018[154](index=154&type=chunk) Product Revenue, Net (in thousands) | Period | Product Revenue, Net | | :--- | :--- | | Three months ended March 31, 2019 | $1,671 | | Three months ended March 31, 2018 | $— | [Costs of Revenues, Excluding Amortization of Acquired Intangible Assets](index=49&type=section&id=Costs%20of%20revenues,%20excluding%20amortization%20of%20acquired%20intangible%20assets) Costs of revenues for Q1 2019 were approximately $0.2 million, comprising manufacturing costs, royalties, and period costs - Costs include COPIKTRA manufacturing, royalties to Infinity Pharmaceuticals, Inc., and period costs[154](index=154&type=chunk) - Certain COPIKTRA manufacturing costs recognized as revenue in Q1 2019 were expensed prior to FDA approval and are not included in current cost of sales[154](index=154&type=chunk) Costs of Revenues (in thousands) | Period | Costs of Revenues | | :--- | :--- | | Three months ended March 31, 2019 | $158 | | Three months ended March 31, 2018 | $— | [Research and Development Expense](index=49&type=section&id=Research%20and%20development%20expense) Research and development expense decreased by $1.1 million (11%) to $9.8 million in Q1 2019 - Decrease in COPIKTRA-related costs driven by **$0.9 million decrease** in consulting fees and **$1.1 million decrease** in CRO costs due to study site closures, partially offset by **$0.7 million increase** in PRIMO Phase 2 study costs[157](index=157&type=chunk) Research and Development Expense (in thousands) | Item | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | COPIKTRA | $4,715 | $5,992 | $(1,277) | | Defactinib | $853 | $440 | $413 | | Unallocated and other R&D expense | $3,770 | $4,054 | $(284) | | Unallocated stock-based compensation expense | $420 | $448 | $(28) | | Total research and development expense | $9,758 | $10,934 | $(1,176) | [Selling, General and Administrative Expense](index=49&type=section&id=Selling,%20general%20and%20administrative%20expense) Selling, general and administrative expense increased significantly by $16.2 million (165%) to $26.0 million in Q1 2019 - Increase driven by **$8.7 million** in personnel costs (including stock-based compensation) for sales and commercial teams[158](index=158&type=chunk) - Also increased by **$5.9 million** in consulting and professional fees for commercial operations and **$1.6 million** in travel and other costs[158](index=158&type=chunk) Selling, General and Administrative Expense (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2019 | $26,033 | | Three months ended March 31, 2018 | $9,827 | | Change (YoY) | $16,206 | | % Change (YoY) | 165% | [Amortization of Acquired Intangible Assets](index=49&type=section&id=Amortization%20of%20acquired%20intangible%20assets) Amortization of acquired intangible assets was approximately $0.4 million for Q1 2019 - Expense relates to the COPIKTRA finite-lived intangible asset, which began amortizing in September 2018[159](index=159&type=chunk) Amortization of Acquired Intangible Assets (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2019 | $392 | | Three months ended March 31, 2018 | $— | [Interest Income](index=51&type=section&id=Interest%20income) Interest income increased significantly by $1.3 million (684%) to $1.5 million in Q1 2019 - Increase attributed to higher investment cost basis and higher interest rates[161](index=161&type=chunk) Interest Income (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2019 | $1,497 | | Three months ended March 31, 2018 | $191 | | Change (YoY) | $1,306 | | % Change (YoY) | 684% | [Interest Expense](index=51&type=section&id=Interest%20expense) Interest expense increased substantially by $4.4 million (927%) to $4.9 million in Q1 2019 - Increase due to higher principal balance and interest rates on Hercules loan, acceleration of end-of-term fee, and issuance of Convertible Senior Notes in October 2018[162](index=162&type=chunk) Interest Expense (in thousands) | Period | Amount | | :--- | :--- | | Three months ended March 31, 2019 | $4,929 | | Three months ended March 31, 2018 | $480 | | Change (YoY) | $4,449 | | % Change (YoY) | 927% | [Liquidity and Capital Resources](index=51&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity is primarily from public offerings, debt facilities, and license agreements [Sources of Liquidity](index=51&type=section&id=Sources%20of%20liquidity) The company's primary liquidity sources include public stock offerings, debt facilities, and license agreement payments - Primary liquidity sources: public stock offerings, ATM programs, Hercules loan, upfront payments from Yakult and CSPC, and **$150.0 million** convertible notes[163](index=163&type=chunk) - Product revenue from COPIKTRA, launched in September 2018, has recently begun to finance operations[163](index=163&type=chunk) Cash, Cash Equivalents and Short-Term Investments (as of March 31, 2019, in millions) | Item | Amount | | :--- | :--- | | Cash, cash equivalents and short-term investments | $211.7 | [Cash Flows](index=51&type=section&id=Cash%20flows) Net cash used in operating activities increased by $16.3 million to $38.8 million in Q1 2019 - Increase in cash used in operating activities primarily due to higher SG&A expenses for commercial teams supporting COPIKTRA[166](index=166&type=chunk) - Investing activities in Q1 2019 primarily from net maturities of investments (**$0.4 million**)[167](index=167&type=chunk) Cash Flow Summary (in thousands) | Item | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(38,780) | $(22,454) | $(16,326) | | Net cash provided by investing activities | $363 | $4,435 | $(4,072) | | Net cash provided by financing activities | $75 | $299 | $(224) | | Decrease in cash, cash equivalents and restricted cash | $(38,342) | $(17,720) | $(20,622) | [License and Collaboration Agreements](index=55&type=section&id=License%20and%20collaboration%20agreements) The company has license and collaboration agreements with Yakult and CSPC for exclusive rights to duvelisib in certain Asian regions - Yakult Agreement (June 2018) grants exclusive rights for duvelisib in Japan, with potential milestones up to **$90.0 million** and double-digit royalties[177](index=177&type=chunk) - CSPC Agreement (September 2018) grants exclusive rights for duvelisib in China, Hong Kong, Macau, and Taiwan, with potential milestones up to **$160.0 million** and double-digit royalties[180](index=180&type=chunk) - Both agreements include limited manufacturing rights for partners if the company cannot supply sufficient quantities[177](index=177&type=chunk)[180](index=180&type=chunk) [Funding Requirements](index=57&type=section&id=Funding%20requirements) The company expects significant future expenses and operating losses due to commercializing COPIKTRA and continuing clinical trials - Expects significant expenses and operating losses from commercializing COPIKTRA, continuing clinical trials, and expanding intellectual property[184](index=184&type=chunk) - Future capital requirements depend on commercialization costs, clinical trial progress, acquisitions, regulatory review, and ability to form collaborations[186](index=186&type=chunk) - May need to raise additional capital through equity offerings (diluting stockholders), debt financings (with covenants), or collaborations (relinquishing rights)[185](index=185&type=chunk) [Contractual Obligations and Commitments](index=58&type=section&id=CONTRACTUAL%20OBLIGATIONS%20AND%20COMMITMENTS) There have been no material changes to the company's contractual obligations and commitments since its 2018 Annual Report - No material changes to contractual obligations and commitments since the December 31, 2018, Form 10-K[188](index=188&type=chunk) - Exception: Fourth Amendment to the Loan and Security Agreement with Hercules Capital, Inc., as described in Note 11[188](index=188&type=chunk) [Off-Balance Sheet Arrangements](index=58&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) The company did not have any off-balance sheet arrangements - The company has no off-balance sheet arrangements as defined under SEC rules[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=58&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 - Primary market risk exposure is interest rate sensitivity, affecting **$211.7 million** in cash, cash equivalents, and short-term investments[190](index=190&type=chunk) - Due to short-term duration and low-risk profile of investments, a **100 basis point change** in interest rates would not materially affect fair value[190](index=190&type=chunk) - Floating-rate debt (Hercules loan) is subject to interest rate changes; a **10% increase** in current rates would have an immaterial effect on Q1 2019 cash interest expense[192](index=192&type=chunk) [Item 4. Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019 [Evaluation of Disclosure Controls and Procedures](index=59&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level - Management, with CEO and CFO participation, evaluated disclosure controls and procedures as of March 31, 2019[194](index=194&type=chunk) - Concluded that disclosure controls and procedures were **effective** at the reasonable assurance level[194](index=194&type=chunk) [Changes in Internal Control Over Financial Reporting](index=59&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) There have been no material changes in the company's internal control over financial reporting during the quarter - **No material changes** in internal control over financial reporting during Q1 2019[195](index=195&type=chunk) [PART II—OTHER INFORMATION](index=60&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings.) The company reported no legal proceedings for the period - No legal proceedings to report[198](index=198&type=chunk) [Item 1A. Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors.) There have been no material changes to the risk factors previously disclosed in the company's 2018 Annual Report - No material changes to risk factors disclosed in the Annual Report on Form 10-K for December 31, 2018[199](index=199&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company reported no unregistered sales or purchases of its own equity securities during the period [Recent Sales of Unregistered Securities](index=60&type=section&id=RECENT%20SALES%20OF%20UNREGISTERED%20SECURITIES) The company had no recent sales of unregistered securities - No recent sales of unregistered securities[200](index=200&type=chunk) [Purchase of Equity Securities](index=60&type=section&id=PURCHASE%20OF%20EQUITY%20SECURITIES) The company did not purchase any of its equity securities during the period - No purchases of equity securities during the period[201](index=201&type=chunk) [Item 3. Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) The company reported no defaults upon senior securities - No defaults upon senior securities[202](index=202&type=chunk) [Item 4. Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) The company reported no mine safety disclosures - No mine safety disclosures[203](index=203&type=chunk) [Item 5. Other Information](index=60&type=section&id=Item%205.%20Other%20Information.) This section includes disclosures regarding the Q1 2019 financial results announcement and a change in executive leadership - Announced financial results for Q1 2019 on May 9, 2019, via press release (Exhibit 99.1)[204](index=204&type=chunk) - Joseph Lobacki resigned as Chief Commercial Officer on May 9, 2019, to pursue other opportunities, remaining until a successor is appointed[205](index=205&type=chunk) [Item 6. Exhibits](index=61&type=section&id=Item%206.%20Exhibits.) This section incorporates by reference the Exhibit Index, which lists all exhibits filed as part of this report - The Exhibit Index lists all exhibits filed with this Form 10-Q[208](index=208&type=chunk) [Exhibit Index](index=62&type=section&id=EXHIBIT%20INDEX) The Exhibit Index provides a comprehensive list of all documents filed or furnished with the Form 10-Q - Includes Amendment No. 4 to the Loan and Security Agreement with Hercules Capital, Inc. (Exhibit 10.1)[211](index=211&type=chunk) - Contains certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[211](index=211&type=chunk) - Includes the Press Release issued on May 9, 2019 (Exhibit 99.1) and XBRL Instance Documents[211](index=211&type=chunk) [Signatures](index=63&type=section&id=SIGNATURES) This section contains the duly authorized signatures of the company's CEO and CFO, certifying the filing of the report - Report signed by Robert Forrester, President and Chief Executive Officer, and Robert Gagnon, Chief Financial Officer[215](index=215&type=chunk) - Date of signing: May 9, 2019[215](index=215&type=chunk)

Financial Data and Key Metrics Changes - As of December 31, 2018, Verastem Oncology had cash and investments of $249.7 million, compared to $86.7 million as of December 31, 2017 [59] - Net product revenue for the full year 2018 was $1.7 million, compared to zero product revenue for the full year 2017 [60] - License revenue for the full year 2018 was $25 million, related to license agreements with Yakult and CSPC [61] - Net loss for the full year 2018 was $72.4 million or $1.12 per share, compared to a net loss of $67.8 million or $1.76 per share for the full year 2017 [63] Business Line Data and Key Metrics Changes - The commercial performance of COPIKTRA achieved $1.7 million in net product revenues since its launch in late September 2018 [25] - As of year-end 2018, reimbursement approval for COPIKTRA was secured for approximately 75% of major targeted health plans, representing 240 million US lives, which increased to over 90% shortly thereafter [25] Market Data and Key Metrics Changes - In the US, nearly 350,000 patients are living with CLL/SLL or FL, with a significant number cycling through several lines of therapy due to the chronic nature of these diseases [27] - The treatment landscape for CLL and FL is characterized by limited options for patients who cannot tolerate existing therapies, highlighting the potential role of COPIKTRA [28] Company Strategy and Development Direction - The company aims to expand the use of COPIKTRA in additional lines of therapy for CLL/SLL and FL, as well as explore its potential in other hematologic malignancies and solid tumors [42][44] - Strategic collaborations with Yakult and CSPC are in place to develop and commercialize COPIKTRA in Japan and China, respectively [16][17] - The company is focused on increasing awareness and adoption of COPIKTRA while addressing negative perceptions associated with PI3K inhibitors [67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategic and operational plans, emphasizing the importance of educating healthcare professionals about COPIKTRA [72] - The company anticipates a steady build in COPIKTRA's launch throughout 2019, with ongoing efforts to increase the number of doctors prescribing the drug [39][40] Other Important Information - COPIKTRA received its first marketing approval from the FDA in late September 2018 for the treatment of relapsed or refractory CLL/SLL and FL [9][10] - The company has initiated a Risk Evaluation and Mitigation Strategy (REMS) program to inform healthcare providers and patients about the risks associated with COPIKTRA [11] Q&A Session Summary Question: Has there been any evolution in the sales and education message to physicians regarding COPIKTRA? - Management indicated that the messaging has evolved from focusing on dual inhibition to emphasizing efficacy and safety, particularly in the context of FL [74][75] Question: Can you provide commentary on expenses for 2019? - The company will not provide specific guidance on expenses but noted that operating expenses were about $35 million in the last quarter of 2018 [76][77] Question: What education programs are planned to increase clinician experience with COPIKTRA? - The company is developing programs to identify patients who fit the treatment criteria for COPIKTRA, focusing on those who have undergone two prior lines of therapy [79][82] Question: How does the current experience with COPIKTRA compare to previous drug launches? - Management noted that building a base of support and physician experience is crucial, and they are actively working to enhance this through educational efforts [87] Question: What are the key catalysts to watch for in 2019 regarding COPIKTRA? - The focus will be on executing the launch, maximizing the potential for duvelisib, and exploring new indications and combinations [102][103]

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, 2018 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 ...