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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from              to              

Commission file number: 001-35403

Verastem, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

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

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

02494
(Zip Code)

(781) 292-4200

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

VSTM

The Nasdaq Capital Market

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

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

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

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

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

As of May 8, 2024 there were 25,325,551 shares of Common Stock outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements related to present facts or current conditions or historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, including our ability to continue as a going concern through one year from the date of the financial statements for the quarter ended March 31, 2024, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. Such statements relate to, among other things, the development and activity of our programs and product candidates, avutometinib (rapidly accelerated fibrosarcoma (“RAF”)/ mitogen-activated protein kinase kinase (“MEK”) program) and defactinib (focal adhesion kinase (“FAK”) program), the structure of our planned and pending clinical trials, the potential clinical value of our clinical trials, and the timeline and indications for clinical development, regulatory submissions and commercialization of activities. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements we make. Applicable risks and uncertainties include the risks and uncertainties, among other things, regarding: the success in the development and potential commercialization of our product candidates, including avutometinib in combination with other compounds, including defactinib, LUMAKRAS® and others; the uncertainties inherent in research and development, such as negative or unexpected results of clinical trials, the occurrence or timing of applications for our product candidates that may be filed with regulatory authorities in any jurisdictions; whether and when regulatory authorities in any jurisdictions may approve any such applications that may be filed for our product candidates, and, if approved, whether our product candidates will be commercially successful in such jurisdictions; our ability to obtain, maintain and enforce patent and other intellectual property protection for our product candidates; the scope, timing, and outcome of any legal proceedings; decisions by regulatory authorities regarding trial design, labeling and other matters that could affect the timing, availability or commercial potential of our product candidates; whether preclinical testing of our product candidates and preliminary or interim data from clinical trials will be predictive of the results or success of ongoing or later clinical trials; that the timing, scope and rate of reimbursement for our product candidates is uncertain; that third- party payors (including government agencies) may not reimburse; that there may be competitive developments affecting our product candidates; that data may not be available when expected; that enrollment of clinical trials may take longer than expected; that our product candidates will cause adverse safety events and/or unexpected concerns may arise from additional data or analysis, or result in unmanageable safety profiles as compared to their levels of efficacy; that our product candidates may experience manufacturing or supply interruptions or failures; that any of our third party contract research organizations, contract manufacturing organizations, clinical sites, or contractors, among others, who we rely on fail to fully perform; that we face substantial competition, which may result in others developing or commercializing products before or more successfully than we do which could result in reduced market share or market potential for our product candidates; that we will be unable to successfully initiate or complete the clinical development and eventual commercialization of our product candidates; that the development and commercialization of our product candidates will take longer or cost more than planned, including as a result of conducting additional studies; that we may not have sufficient cash to fund our contemplated operations; that we may not attract and retain high quality personnel; that we or Chugai Pharmaceutical, Co. Ltd. (“Chugai”) will fail to fully perform under the avutometinib license agreement; that our target market for our product candidates might be smaller than we are presently estimating; that Secura Bio, Inc. (“Secura”) will fail to fully perform under the asset purchase agreement with Secura, including in relation to milestone payments; that we will not see a return on investment on the payments we have and may continue to make pursuant to the collaboration and option agreement with GenFleet Therapeutics (Shanghai), Inc. (“GenFleet”) or that Genfleet will fail to fully perform under the agreement; that we may be unable to obtain adequate financing in the future through product licensing, co-promotional arrangements, public or private equity, debt financing or otherwise; that we will not pursue or submit regulatory filings for our product candidates; and that our product candidates will not receive regulatory approval, become commercially successful products, or result in new treatment options being offered to patients. Other risks and uncertainties include those identified in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (“SEC”) on March 14, 2024, and in any subsequent filings with the SEC.

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

3

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited).

Verastem, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

March 31,

December 31,

    

2024

    

2023

 

Assets

Current assets:

Cash and cash equivalents

$

81,316

$

77,909

Short-term investments

 

28,809

 

59,220

Grant receivable

226

Prepaid expenses and other current assets

 

7,323

 

6,553

Total current assets

 

117,674

 

143,682

Property and equipment, net

 

52

 

37

Right-of-use asset, net

997

1,171

Restricted cash

241

241

Other assets

 

4,575

 

4,587

Total assets

$

123,539

$

149,718

Liabilities, convertible preferred stock and stockholders’ equity

Current liabilities:

Accounts payable

$

7,449

$

7,184

Accrued expenses

17,384

 

17,928

Note Payable

911

Deferred liabilities

327

Lease liability, short-term

 

981

 

941

Total current liabilities

 

26,725

 

26,380

Non-current liabilities:

 

 

Long-term debt

40,123

40,086

Lease liability, long-term

270

530

Preferred stock tranche liability

10,200

4,189

Total liabilities

 

77,318

 

71,185

Convertible preferred stock:

Series B Convertible Preferred Stock, $0.0001 par value; 2,144 shares designated at March 31, 2024 and December 31, 2023; 1,200 shares issued and outstanding at March 31, 2024 and December 31, 2023

21,159

21,159

Stockholders’ equity:

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

 

Series A Convertible Preferred Stock, $0.0001 par value; 1,000 shares designated, 1,000 shares issued and outstanding at March 31, 2024 and December 31, 2023

Common stock, $0.0001 par value; 300,000 shares authorized, 25,308 and 25,281 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

3

 

3

Additional paid-in capital

 

883,816

 

882,248

Accumulated other comprehensive income/ (loss)

 

(4)

 

13

Accumulated deficit

(858,753)

(824,890)

Total stockholders’ equity

 

25,062

 

57,374

Total liabilities, convertible preferred stock and stockholders’ equity

$

123,539

$

149,718

See accompanying notes to the condensed consolidated financial statements.

4

Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share amounts)

Three months ended March 31,

    

2024

    

2023

 

Operating expenses:

Research and development

$

17,707

$

12,015

Selling, general and administrative

 

10,352

 

7,329

Total operating expenses

 

28,059

 

19,344

Loss from operations

 

(28,059)

 

(19,344)

Other expense

(30)

(7)

Interest income

 

1,367

 

976

Interest expense

 

(1,130)

 

(769)

Change in fair value of preferred stock tranche liability

(6,011)

3,430

Net loss

$

(33,863)

$

(15,714)

Net loss per share—basic and diluted

$

(1.26)

$

(0.94)

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

26,832

16,723

Net loss

$

(33,863)

$

(15,714)

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

 

(17)

 

6

Comprehensive loss

$

(33,880)

$

(15,708)

See accompanying notes to the condensed consolidated financial statements.

5

Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share data)

Accumulated

 

Additional

other

Total

 

Series B Convertible Preferred Stock

Series A Convertible Preferred Stock

Common stock

paid-in

comprehensive

Accumulated

stockholders'

 

    

Shares

   

Amount

  

  

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

income

   

deficit

   

equity

 

Balance at December 31, 2023

1,200,000

$

21,159

1,000,000

$

25,281,150

$

3

$

882,248

$

13

$

(824,890)

$

57,374

Net loss

(33,863)

 

(33,863)

Unrealized loss on available-for-sale marketable securities

(17)

 

(17)

Issuance of common stock resulting from vesting of restricted stock units

14,444

Issuance of common stock resulting from exercise of stock options

4,600

36

 

36

Issuance of common stock under Employee Stock Purchase Plan

7,475

49

49

Stock-based compensation expense

1,483

1,483

Balance at March 31, 2024

1,200,000

$

21,159

 

1,000,000

$

25,307,669

$

3

$

883,816

$

(4)

$

(858,753)

$

25,062

Accumulated

 

other

 

Additional

comprehensive

Total

 

Series B Convertible Preferred Stock

Series A Convertible Preferred Stock

Common stock

    

paid-in

    

(loss)

    

Accumulated

    

stockholders'

 

    

Shares

   

Amount

  

  

Shares

   

Amount

   

Shares

   

Amount

   

capital

   

income

   

deficit

   

equity

 

Balance at December 31, 2022

$

 

1,000,000

$

16,711,761

$

2

$

784,912

$

$

(737,523)

$

47,391

Net loss

(15,714)

 

(15,714)

Unrealized gain on available-for-sale marketable securities

6

 

6

Issuance of common stock resulting from vesting of restricted stock units

17,658

 

Stock-based compensation expense

1,313

1,313

Issuance of common stock under Employee Stock Purchase Plan

6,874

29

 

29

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

1,200,000

21,159

Balance at March 31, 2023

1,200,000

$

21,159

 

1,000,000

$

16,736,293

$

2

$

786,254

$

6

$

(753,237)

$

33,025

See accompanying notes to the condensed consolidated financial statements.

6

Verastem, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

Three months ended March 31,

    

2024

    

2023

Operating activities

Net loss

$

(33,863)

$

(15,714)

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

Depreciation

 

6

30

Amortization of right-of-use asset and lease liability

(46)

(41)

Stock-based compensation expense

 

1,483

 

1,313

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

(419)

(36)

Change in fair value of preferred stock tranche liability

6,011

(3,430)

Changes in operating assets and liabilities:

Accounts receivable, net

31

Grant receivable

(226)

Prepaid expenses, other current assets and other assets

 

(647)

 

(2,089)

Accounts payable

 

265

 

2

Accrued expenses and other liabilities

 

(544)

 

(1,045)

Deferred liabilities

 

(327)

 

693

Net cash used in operating activities

 

(28,307)

 

(20,286)

Investing activities

Purchases of property and equipment

(21)

Purchases of investments

 

 

(13,804)

Maturities of investments

 

31,000

 

13,000

Net cash provided by (used in) investing activities

 

30,979

 

(804)

Financing activities

Proceeds from issuance of Series B Convertible Preferred Stock, net

28,099

Proceeds from long-term debt, net

14,918

Fees paid to Lenders for Loan Agreement amendment

(150)

Proceeds from insurance premium financing

1,298

1,430

Payments on insurance premium financing

(387)

(426)

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

85

29

Net cash provided by financing activities

 

846

 

44,050

Increase in cash, cash equivalents and restricted cash

 

3,518

 

22,960

Cash, cash equivalents and restricted cash at beginning of period

 

79,076

 

75,789

Cash, cash equivalents and restricted cash at end of period

$

82,594

$

98,749

Supplemental disclosure of non-cash investing and financing activities

Issuance of preferred stock tranche liability

6,940

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

7

See accompanying notes to the condensed consolidated financial statements.

7

Verastem, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of business

Verastem, Inc. (the “Company”) is a late-stage development biopharmaceutical company, with an ongoing registration directed trial, committed to advancing new medicines for people diagnosed with cancer. The Company’s pipeline is focused on ras sarcoma (“RAS”)/ mitogen activated pathway kinase (“MAPK”) driven cancers, specifically on novel drug candidates that inhibit signaling pathways critical to cancer cell survival and tumor growth, particularly RAF/ MEK inhibition and FAK inhibition.

The Company’s most advanced product candidates, avutometinib and defactinib, are being investigated in both preclinical and clinical studies for the treatment of various solid tumors, including, but not limited to low-grade serous ovarian cancer (“LGSOC”), non-small cell lung cancer (“NSCLC”), pancreatic cancer, colorectal cancer (“CRC”), and thyroid. The Company believes that avutometinib may be beneficial as a therapeutic as a single agent or when used together in combination with defactinib, other pathway inhibitors or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies.

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

The Company is subject to the risks associated with other life science companies, including, but not limited to, possible failure of preclinical testing or clinical trials, competitors developing new technological innovations, inability to obtain marketing approval of the Company’s product candidates, avutometinib and defactinib, market acceptance and commercial success of the Company’s product candidates, avutometinib and defactinib, following receipt of regulatory approval, and, protection of proprietary technology and the continued ability to obtain adequate financing to fund the Company’s future operations. If the Company does not obtain marketing approval and successfully commercialize its product candidates, avutometinib and defactinib, following regulatory approval, it will be unable to generate product revenue or achieve profitability and may need to raise additional capital.

As of March 31, 2024, the Company had cash, cash equivalents, and investments of $110.1 million. In accordance with applicable accounting standards, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within 12 months after the date of the issuance of these condensed consolidated financial statements. The Company anticipates operating losses may continue for the foreseeable future since the Company does not yet have regulatory approval to sell any of its product candidates, and the Company continues to incur operating costs to execute its strategic plan, including costs related to research and development of its product candidates and commercial readiness activities.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern for 12 months after the date the condensed consolidated financial statements are issued.

The Company expects to finance its operations with its existing cash, cash equivalents and investments, through potential future milestones and royalties received pursuant to the asset purchase agreement dated August 10, 2020, between the Company and Secura (the “Secura APA”), through the loan and security agreement with Oxford Finance LLC (“Oxford”), or through other strategic financing opportunities that could include, but are not limited to collaboration agreements, future offerings of its equity, or the incurrence of debt. However, given the risks associated with these potential strategic or financing opportunities, they are not deemed probable for purposes of the going concern assessment. If the Company fails to obtain additional future capital, it may be unable to complete its planned preclinical studies and clinical trials and obtain approval of certain investigational product candidates from the U.S. Food & Drug Administration (the “FDA”) or foreign regulatory authorities.  Therefore, there is substantial doubt about the Company’s ability to continue as a going concern. 

8

Reverse Stock Split

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

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

2. Summary of significant accounting policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01 under the assumption that the Company will continue as a going concern for the next twelve months. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, or any adjustments that might result from the uncertainty related to the Company’s ability to continue as a going concern. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2024. For further information, refer to the financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 14, 2024.

Significant Accounting Policies

The significant accounting policies are described in Note 2Significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Recently issued accounting standards updates

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and by extending the disclosure requirements to entities with a single reportable segment. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is to be applied retrospectively to

9

all prior periods presented in the financial statements. We are currently evaluating the potential impact of adopting this new guidance on the Company’s condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). The guidance in ASU 2023-09 improves the transparency of income tax disclosures by greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The standard is effective for public companies for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on its condensed consolidated financial statements and related disclosures.

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the condensed consolidated financial statements upon future adoption.

Concentrations of credit risk and off-balance sheet risk

Cash, cash equivalents, investments and trade accounts receivable are financial instruments that potentially subject the Company to concentrations of credit risk. The Company mitigates this risk by maintaining its cash and cash equivalents and investments with high quality, accredited financial institutions. The management of the Company’s investments is not discretionary on the part of these financial institutions. As of March 31, 2024, the Company’s cash, cash equivalents and investments were deposited at four financial institutions and it has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Proceeds from Grants

In May 2022, the Company was awarded the “Therapeutic Accelerator Award” grant from Pancreatic Cancer Network (“PanCAN”) for up to $3.8 million (the “PanCAN Grant”). In August 2022, PanCAN agreed to provide the Company with an additional $0.5 million for the collection and analysis of patient samples. The grant is supporting a Phase 1b/2 clinical trial of GEMZAR (gemcitabine) and ABRAXANE (Nab-paclitaxel) in combination with avutometinib and defactinib entitled RAMP 205. The RAMP 205 trial is evaluating whether combining avutometinib (to target mutant Kirsten rat sarcoma viral oncogene homolog (“KRAS”), which is found in more than 90% of pancreatic adenocarcinomas, and defactinib (to reduce stromal density and adaptive resistance to avutometinib) to the standard GEMZAR/ABRAXANE regimen improves outcomes for patients with such pancreatic cancers. The Company recognizes grants as contra research and development expense in the consolidated statement of operations and comprehensive loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate. Eligible expenses incurred in excess of grant payments received up to the total amount of the PanCAN Grant are recorded as a grant receivable. Through March 31, 2024, the Company has received $3.5 million of cash proceeds which was initially recorded as deferred liabilities on the balance sheet. The Company recorded $1.4 million and $0.1 million of the proceeds as a reduction of research and development expense during the three months ended March 31, 2024, and March 31, 2023, respectively. As of March 31, 2024, the company recorded $0.2 million as a grant receivable related to the PanCAN Grants in the condensed consolidated balance sheet. As of December 31, 2023, the Company recorded $0.3 million as deferred liabilities related to the PanCAN Grant in the condensed consolidated balance sheet.

10

3. Cash, cash equivalents and restricted cash

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

    

March 31, 2024

    

December 31, 2023

Cash and cash equivalents

$

81,316

$

77,909

Restricted cash

 

1,278

 

1,167

Total cash, cash equivalents and restricted cash

$

82,594

$

79,076

Amounts included in restricted cash as of March 31, 2024, and December 31, 2023 represent (i) cash received pursuant to the PanCAN Grant restricted for future expenditures for specific research and development activities of $1.0 million and $0.9 million, respectively, and (ii) cash held to collateralize outstanding letters of credit provided as a security deposit for the Company’s office space located in Needham, Massachusetts in the amount of $0.2 million. Cash received pursuant to the PanCAN Grant is included in prepaid expenses and other current assets on the condensed consolidated balance sheets as of March 31, 2024, and December 31, 2023. The letters of credit are included in non-current restricted cash on the condensed consolidated balance sheets as of March 31, 2024, and December 31, 2023.

4. Fair value of financial instruments

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

Level 1 inputs

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

Level 2 inputs

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

Level 3 inputs

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

Items Measured at Fair Value on a Recurring Basis

The following table presents information about the Company’s financial instruments that are measured at fair value on a recurring basis (in thousands):

March 31, 2024

 

Description

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets

Cash equivalents

$

46,680

46,680

Short-term investments

28,809

28,809

Total financial assets

$

75,489

$

46,680

$

28,809

$

Preferred stock tranche liability

$

10,200

$

$

$

10,200

11

December 31, 2023

 

Description

Total

    

Level 1

    

Level 2

    

Level 3

 

Financial assets

Cash equivalents

$

46,093

$

46,093

$

$

Short-term investments

 

59,220

5,992

53,228

Total financial assets

$

105,313

$

52,085

$

53,228

$

Preferred stock tranche liability

$

4,189

$

$

$

4,189

The Company’s cash equivalents and short-term investments consist of U.S. Government money market funds, corporate bonds, agency bonds and commercial paper of publicly traded companies. The investments and cash equivalents have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by the pricing services as of March 31, 2024 or December 31, 2023.

A preferred stock tranche liability was recorded as a result of the entry into the Securities Purchase Agreement (defined herein) (see Note 10. Capital Stock). The fair value measurement of the preferred stock tranche liability is classified as Level 3 under the fair value hierarchy. The fair value of the preferred stock tranche liability was determined using a Monte-Carlo simulation. The inputs to the Monte-Carlo include the risk-free rate, stock price volatility, expected dividends and remaining term. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

Below are the inputs used to value the preferred stock tranche liability at March 31, 2024, and December 31, 2023:

March 31, 2024

December 31, 2023

Risk-free interest rate

 

5.44-5.49

%  

5.13-5.52

%  

Volatility

 

75

%  

75

%  

Dividend yield

 

Remaining term (years)

 

0.3

0.6

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

January 1, 2024

$

4,189

Fair value adjustment

6,011

March 31, 2024

$

10,200

Fair Value of Financial Instruments

The fair value of the Company’s long-term debt was determined using a discounted cash flow analysis with current applicable rates for similar instruments as of the condensed consolidated balance sheet dates. The Company estimates that the fair value of its long-term debt was approximately $39.9 million as of March 31, 2024, which differs from the carrying value of $40.1 million. The Company estimates that the fair value of its long-term debt was approximately $39.6 million as of December 31, 2023, which differs from the carrying value of $40.1 million. The fair value of the Company’s long-term debt was determined using Level 3 inputs.

12

5. Investments

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

    

March 31, 2024

 

    

    

Gross

    

Gross

    

 

Amortized

Unrealized

Unrealized

Fair

 

    

Cost

    

Gains

    

Losses

    

Value

 

Cash, cash equivalents & restricted cash:

Cash and money market accounts

$

82,594

$

$

$

82,594

Total cash, cash equivalents & restricted cash:

$

82,594

$

$

$

82,594

Investments:

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

$

28,813

$

$

(4)

$

28,809

Total investments

$

28,813

$

$

(4)

$

28,809

Total cash, cash equivalents, restricted cash and investments

$

111,407

$

$

(4)

$

111,403

    

December 31, 2023

    

    

Gross

    

Gross

    

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

    

Cost

    

Gains

    

Losses

    

Value

 

Cash, cash equivalents & restricted cash:

Cash and money market accounts

$

79,076

$

$

$

79,076

Total cash, cash equivalents & restricted cash:

$

79,076

$

$

$

79,076

Investments:

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

$

59,208

$

13

(1)

$

59,220

Total investments

$

59,208

$

13

$

(1)

$

59,220

Total cash, cash equivalents, restricted cash and investments

$

138,284

$

13

$

(1)

$

138,296

There were no realized gains or losses on investments for the three months ended March 31, 2024, or 2023. Accrued interest receivable is excluded from the amortized cost and estimated fair value of the Company's investments. Accrued interest receivable of $0.1 million is presented within prepaid expenses and other current assets on the condensed consolidated balance sheets at each March 31, 2024 and December 31, 2023. There were eight debt securities in an unrealized loss position as of March 31, 2024. There were two debt securities in an unrealized loss position as of December 31, 2023. None of these investments had been in an unrealized loss position for more than 12 months as of March 31, 2024 and December 31, 2023. The Company considered the decline in the market value for these securities to be primarily attributable to current economic conditions and not credit related. At both March 31, 2024 and December 31, 2023, the Company had the intent and ability to hold such securities until recovery. As a result, the Company did not record any charges for credit-related impairments for its investments as of March 31, 2024 and December 31, 2023.

The following is a summary of available-for-sale securities with unrealized losses for less than 12 months as of March 31, 2024 and December 31, 2023 (in thousands):

    

March 31, 2024

    

December 31, 2023

Fair

Unrealized

Fair

Unrealized

    

Value

    

Losses

    

Value

    

Losses

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

$

28,809

$

(4)

$

8,896

$

(1)

Total available-for-sale securities in an unrealized loss position

$

28,809

$

(4)

$

8,896

$

(1)

13

6. Accrued expenses

Accrued expenses consist of the following (in thousands):

    

March 31, 2024

    

December 31, 2023

 

Accrued clinical trial expenses

$

7,319

$

6,518

Accrued contract manufacturing expenses

2,384

2,010

Accrued other research and development expenses

1,276

1,043

Accrued compensation and related benefits

 

2,531

 

4,796

Accrued professional fees

 

889

 

637

Accrued consulting fees

 

1,544

 

1,078

Accrued interest

316

316

Accrued commercialization costs

 

437

 

453

Accrued other

 

688

 

1,077

Total accrued expenses

$

17,384

$

17,928

7. Debt

On March 25, 2022 (the “Closing Date”), the Company entered into a loan and security agreement (the “Original Loan Agreement”) with Oxford, as collateral agent and a lender, and Oxford Finance Credit Fund III LP, as a lender (“OFCF III” and together with Oxford, the “Lenders”), pursuant to which the Lenders have agreed to lend the Company up to an aggregate principal amount of $150.0 million in a series of term loans (the “Term Loans”). On January 4, 2024, the Company amended the Original Loan Agreement (as amended, the “Loan Agreement”) to extend the date by which it may draw down the Term C Loan from March 31, 2024, to March 31, 2025.

Pursuant to the Loan Agreement, the Company received an initial Term Loan of $25.0 million on the Closing Date, and drew down the second term loan of $15.0 million (the “Term B Loan”) on March 22, 2023, and may borrow an additional $110.0 million of Term Loans at its option upon the satisfaction of certain conditions as follows:

i.$25.0 million (the “Term C Loan”), when the Company has received accelerated or full approval from the FDA of avutometinib for the treatment of LGSOC (the “Term C Milestone”). The Company may draw the Term C Loan within 60 days after the occurrence of the Term C Milestone, but no later than March 31, 2025.
ii.$35.0 million (the “Term D Loan”), when the Company has achieved at least $50.0 million in gross product revenue calculated on a trailing six-month basis (the “Term D Milestone”). The Company may draw the Term D Loan within 30 days after the occurrence of the Term D Milestone, but no later than March 31, 2025.
iii.$50.0 million (the “Term E Loan”), at the sole discretion of the Lenders.

The Term Loans bear interest at a floating rate equal to (a) the greater of (i) the one-month CME Secured Overnight Financing Rate and (ii) 0.13% plus (b) 7.37%, which is subject to an overall floor and cap. Interest is payable monthly in arrears on the first calendar day of each calendar month. As a result of the Term B Loan drawdown, beginning (i) April 1, 2025, or (ii) April 1, 2026, if either (A) avutometinib has received FDA approval for the treatment of LGSOC or (B) COPIKTRA has received FDA approval for the treatment of peripheral T-cell lymphoma, the Company shall repay the Term Loans in consecutive equal monthly payments of principal, together with applicable interest, in arrears. All unpaid principal and accrued and unpaid interest with respect to each Term Loan is due and payable in full on March 1, 2027.

The Company is required to make a final payment of 5.0% of the original principal amount of the Term Loans that are drawn, payable at maturity or upon any earlier acceleration or prepayment of the Term Loans (the “Final Payment Fee”). The Company may prepay all, but not less than all, of the Term Loans, subject to a prepayment fee equal to (i) 3.0% of the principal amount of the applicable Term Loan if prepaid on or before the first anniversary date of the funding date of such Term Loan, (ii) 2.0% of the principal amount of the applicable Term Loan if prepaid after the first

14

anniversary and on or before the second anniversary of the funding date of such Term Loan, and (iii) 1.0% of the principal amount of the applicable Term Loan if prepaid after the second anniversary of the applicable funding date of such Term Loan. All Term Loans are subject to a facility fee of 0.5% of the principal amount.

The Loan Agreement contains no financial covenants. The Loan Agreement includes customary events of default, including, among others, payment defaults, breach of representations and warrants, covenant defaults, judgment defaults, insolvency and bankruptcy defaults, and a material adverse change. The occurrence of an event of default could result in the acceleration of the obligations under the Loan Agreement, termination of the Term Loan commitments and the right to foreclose on the collateral securing the obligations. During the existence of an event of default, the Term Loans will accrue interest at a rate per annum equal to 5.0% above the otherwise applicable interest rate.

In connection with the Loan Agreement, the Company granted Oxford a security interest in all of the Company’s personal property now owned or hereafter acquired, excluding intellectual property (but including the right to payments and proceeds of intellectual property), and a negative pledge on intellectual property.

The Company assessed all terms and features of the Loan Agreement in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the Loan Agreement, including put and call features. The Company determined that all features of the Loan Agreement were clearly and closely associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company's financial statements. The Company reassesses the features on a quarterly basis to determine if they require separate accounting. There have been no changes to the Company’s assessment through March 31, 2024.

 The debt issuance costs and the Final Payment Fee have been recorded as a debt discount which are being accreted to interest expense through the maturity date of the Term Loan using the effective interest method. The components of the carrying value of the debt as of March 31, 2024, and December 31, 2023, are detailed below (in thousands):

March 31, 2024

    

December 31, 2023

Principal loan balance

$

40,000

$

40,000

Final Payment Fee

782

661

Debt issuance costs, net of accretion

(659)

(575)

Long-term debt, net of discount

$

40,123

$

40,086

The following table sets forth total interest expense for the three-month periods ended March 31, 2024 and 2023 (in thousands):

Three months ended March 31,

2024

2023

Contractual Interest

$

943

$

632

Amortization of debt discount and issuance costs

66

58

Amortization of Final Payment Fee

121

79

Total

$

1,130

$

769

As of March 31, 2024, future principal payments due are as follows (in thousands):

2024

2025

15,000

2026

20,000

2027

5,000

Total principal payments

$

40,000

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8. Leases

On April 15, 2014, the Company entered into a lease agreement for approximately 15,197 square feet of office and laboratory space in Needham, Massachusetts. Effective February 15, 2018, the Company amended its lease agreement to relocate within the facility to another location consisting of 27,810 square feet of office space (the “Amended Lease Agreement”). The Amended Lease Agreement extends the expiration date of the lease from September 2019 through June 2025. Pursuant to the Amended Lease Agreement, the initial annual base rent amount is approximately $0.7 million, which increases during the lease term to $1.1 million for the last twelve-month period.

The Company accounted for its Needham, Massachusetts office space as an operating lease. The Company’s lease contains an option to renew and extend the lease terms and an option to terminate the lease prior to the expiration date. The Company has not included the lease extension or the termination options within the right-of-use asset and lease liability on the condensed consolidated balance sheets as neither option is reasonably certain to be exercised. The Company’s lease includes variable non-lease components (e.g., common area maintenance, maintenance, consumables, etc.) that are not included in the right-of-use asset and lease liability and are reflected as an expense in the period incurred. The Company does not have any other operating or finance leases.

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