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Item 7. Management’s Discussion and Analysis

2023-03-14 compared with 2022-03-28 · 137 added, 145 removed, 278 unchanged (50% of the section changed)

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Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and as set forth under “Risk Factors.” Please also refer to the section under the heading “Forward-Looking Statements.”

We are a late stage development biopharmaceutical company, with ongoing registration directed trials, committed to advancing new medicines for patients battling cancer.

We are a late-stage development biopharmaceutical company, with an ongoing registration directed trial, committed to advancing new medicines for patients battling cancer.

Our pipeline is focused on novel anticancer agents that inhibit critical signaling pathways in cancer that promote cancer cell survival and tumor growth, particularly RAF/MEK inhibition and FAK inhibition.

Our most advanced product candidates, VS-6766 and defactinib, are being investigated in both preclinical and clinical studies for treatment of various solid tumors, including, low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer (NSCLC), colorectal cancer (CRC), pancreatic cancer, uveal melanoma, and endometrial cancer.

We believe that VS-6766 may be beneficial as a therapeutic as a single agent or when used together in combination with defactinib, other agents, other pathway inhibitors, or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies.

Our most advanced product candidates, avutometinib (VS-6766) and defactinib, are being investigated in both preclinical and clinical studies for the treatment of various solid tumors, including, but not limited to low-grade serous ovarian cancer (“LGSOC”), non-small cell lung cancer (“NSCLC”), colorectal cancer (“CRC”), pancreatic cancer, and melanoma.

We believe that avutometinib may be beneficial as a therapeutic as a single agent or when used together in combination with defactinib, other agents, other pathway inhibitors or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies.

On August 10, 2020, we and Secura Bio, Inc.

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Refer to Note 13.

License, collaboration and commercial agreements for a detailed description of the terms and conditions of the Secura APA.

With the transition of the duvelisib program to Secura, we are focusing our efforts on our lead product candidates, VS-6766 and defactinib.

License, collaboration and commercial agreements in our consolidated financial statements located in this Annual Report on Form 10-K for a detailed description of the terms and conditions of the Secura APA.

With the transition of the duvelisib program to Secura, we are focusing our efforts on our lead product candidates, avutometinib and defactinib.

Our operations to date have been organizing and staffing our company, business planning, raising capital, identifying and acquiring potential product candidates, undertaking preclinical studies and clinical trials for our product candidates and initiating U.S.

commercial operations following the approval of COPIKTRA.

commercial operations following the approval of COPIKTRA through our ownership period ending in September 2020.

We have financed our operations to date primarily through public offerings of our common stock, sales of common stock under our at-the-market equity offering programs, our loan and security agreement executed with Hercules Capital, Inc.

(Hercules) in March 2017, as amended, the upfront payments under our license and collaboration agreements with Sanofi, Yakult and CSPC, the upfront payment under the Secura APA, the issuance of the 2018 Notes in October 2018, and the proceeds in connection with the PIPE.

After the U.S.

(“Hercules”) in March 2017, as amended, the upfront payments and milestone payments under our license and collaboration agreements with Sanofi, CSPC Pharmaceutical Group Limited (“CSPC”), and Yakult Honsha Co., Ltd.

(“Yakult”), the upfront payment and milestone payments received under the Secura APA, the issuance of the 2018 Notes (defined herein) in October 2018, the proceeds in connection with the private investment in public equity (the “PIPE”), and our loan and security agreement executed with Oxford Finance LLC (“Oxford”) in March 2022.

Additionally, from our U.S.

commercial launch of COPIKTRA on September 24, 2018, through our ownership period ending in September 2020, we financed a portion of our operations through product revenue.

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Our net loss was $73.8 million, $71.2 million, and $67.7 million, for the years ended December 31, 2022, 2021, and 2020, respectively.

We expect to incur significant expenses and may continue to incur operating losses for the foreseeable future as a result of the continued research and development of VS-6766 and defactinib.

We expect to incur significant expenses and may continue to incur operating losses for the foreseeable future as a result of the continued research and development of avutometinib and defactinib.

As of December 31, 2022, we had cash, cash equivalents, and investments of $87.9 million.

We expect our existing cash resources will be sufficient to fund our planned operations through at least 12 months from the date of the issuance of these consolidated financial statements.

We expect to finance the future development costs of our clinical product portfolio with our existing cash, cash equivalents and investments, through future milestones and royalties received pursuant to the Secura APA or through strategic financing opportunities that could include, but are not limited to, collaboration agreements, future offerings of our equity, or the incurrence of debt.

We expect our existing cash resources, $30.0 million gross proceeds from our Series B Preferred Stock issuance in January 2023, and expected $15.0 million debt drawdown through our loan and security agreement with Oxford expected in March 2023 will be sufficient to fund our planned operations through at least 12 months from the date of issuance of these consolidated financial statements.

Subsequent events located in this Annual Report on Form 10-K for further discussion of the Series B Preferred Stock issuance.

We expect to finance the future development costs of our clinical product portfolio with our existing cash, cash equivalents and investments, through future milestones and royalties received pursuant to the Secura APA, through our loan and security agreement with Oxford, or through other strategic financing opportunities that could include, but are not limited to, collaboration agreements, future offerings of our equity, or the incurrence of debt.

However, there is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders.

If we fail to obtain additional future capital, we may be unable to complete our planned preclinical

studies and clinical trials and obtain approval of certain investigational product candidates from the FDA or foreign regulatory authorities.

If we fail to obtain additional future capital, we may be unable to complete our planned preclinical studies and clinical trials and obtain approval of certain investigational product candidates from the FDA or foreign regulatory authorities.

COVID-19 pandemic

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We have been carefully monitoring the COVID-19 pandemic and its impact on our operations.

All employees who are able to work from home have been primarily working from home since mid-March 2020.

Shortages in personnel in clinics and hospitals have cause some United States sites to institute limits on new clinical trials which could impact our ability to open new sites for our clinical trials.

In addition, clinics in Europe and United States continue to have delays in startup activities due to the ongoing pandemic and the increase in COVID-19 variant infections.

Our corporate headquarters remains open and we have adopted a hybrid work program allowing our employees the option to primarily work from home.

Shortages in personnel in clinics and hospitals have caused some United States sites to institute limits on new clinical trials which could impact our ability to open new sites for our clinical trials.

In addition, clinics in Europe and the United States continue to have delays in startup activities due to the ongoing pandemic and the increase in COVID-19 variant infections.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, new variants, the actions taken to contain it or treat its impact and the economic impact on local, regional, national, and international markets.

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Cost of sales - product consisted of costs of COPIKTRA on which product revenue was recognized, royalties owed to Healthcare Royalty Partners (“HCR”) and Infinity we incurred as a result of such sales of COPIKTRA, and certain period costs.

Certain of the costs of COPIKTRA units recognized as revenue during 2020 and 2019 were expensed prior to the September 2018 FDA marketing approval and, therefore, are not included in cost of sales during those periods period.

There were no cost of sales – product in 2021.

Certain of the costs of COPIKTRA units recognized as revenue during 2020 were expensed prior to the September 2018 FDA marketing approval and, therefore, are not included in cost of sales during 2020.

There were no cost of sales – product in 2022 and 2021.

Costs of sales - sale of COPIKTRA license and related assets

Cost of sales - sale of COPIKTRA license and related assets represent assets delivered to Secura as part of the sale pursuant to the Secura APA.

This includes our intangible assets, certain duvelisib inventory, net duvelisib contract prepaid balances, and manufacturing equipment.

This included our intangible assets, certain duvelisib inventory, net duvelisib contract prepaid balances, and manufacturing equipment.

There were no cost of sales –sale of COPIKTRA license and related assets in 2022 and 2021.

Research and development expenses

Research and development expenses consist of costs associated with our research activities, including the development of our product candidates.

Our research and development expenses consist of:

● employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense;

● external research and development expenses incurred under arrangements with third parties, such as contract research organizations (CROs), clinical sites, manufacturing organizations and consultants, including our scientific advisory board;

Research and development expenses include product/ product candidate and/or project-specific costs, as well as unallocated costs.

We allocate the expenses related to external research and development services, such as contract research organizations (“CROs”), clinical sites, manufacturing organizations and consultants, by project and/or product candidate.

We use our employee and infrastructure resources in a cross-functional manner across multiple research and development projects.

Our project costing methodology does not allocate personnel, infrastructure and other indirect costs to specific clinical programs or projects.

Product/ product candidate/ project specific costs include:

● direct third-party costs, which include expenses incurred under agreements with CROs, the cost of consultants who assist with the development of our product candidates on a program-specific basis, clinical site costs, and any other third-party expenses directly attributable to the development of the product candidates;

● costs related to contract manufacturing operations including manufacturing costs in connection with producing product candidates for use in conducting preclinical and clinical studies.

Costs associated with manufacturing avutometinib are included in “Avutometinib manufacturing and non-clinical trial specific” category below as these costs relate to both the “Avutometinib + defactinib” and “Avutometinib + other combinations” categories and are not specifically allocated to any particular project.

Costs to produce defactinib are included in “Avutometinib + defactinib” below;

● license fees.

● facilities, depreciation, and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of equipment, and laboratory supplies;

Unallocated costs include:

● research and development employee-related expenses, including salaries, benefits, travel, and stock-based compensation expense;

● cost of consultants, including our scientific advisory board, who assist with our research and development but are not allocated to a specific program;

● facilities, depreciation, and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, and laboratory supplies.

The table below summarizes our direct research and development expenses for our product/ product candidates/ projects and our unallocated research and development costs for the years ended December 31, 2022, 2021, and 2020:

Year ended December 31,

(in thousands)

Product/ product candidate / project specific costs

Avutometinib + defactinib

Avutometinib + other combinations

Avutometinib manufacturing and non-clinical trial specific

Unallocated costs

Personnel costs, excluding stock-based compensation

Stock-based compensation expense

Other unallocated expenses

Total research and development expense

Costs for certain development activities, such as clinical trial expenses, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, and information provided us by our vendors on their actual costs incurred or level of effort expended.

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The successful development of our product candidates is highly uncertain.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of our product candidates or the period, if any, in which material net cash inflows from our product candidates may commence.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete

development of our product candidates or the period, if any, in which material net cash inflows from our product candidates may commence.

This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

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Other selling, general, and administrative expenses include allocated facility costs, commercial costs, professional fees for legal, patent, investor and public relations, consulting, insurance premiums, audit, tax, and other public company costs.

Other, interest income and interest expense

Other expenses for the year ended December 31, 2020 and December 31, 2019, consists entirely of the mark-to-market adjustment of the bifurcated make-whole interest provision derivative liability related to the 2019 Notes.

There was no other expense for the year ended December 31, 2021.

Other income, other expense, interest income and interest expense

Other income for the year ended December 31, 2022 was comprised of a gain on the sale of fixed assets and changes in foreign currency exchange rates.

There was no other income or other expense for the year ended December 31, 2021.

Other expense for the year ended December 31, 2020, c onsists entirely of the mark-to-market adjustment of the bifurcated make-whole interest provision derivative liability related to the 2019 Notes .

Interest income reflects interest earned on our cash, cash equivalents and available-for-sale securities.

Interest expense reflects interest expense due under both our term loan facility executed with Hercules and the Notes, as well as non-cash interest related to the amortization of debt discount and issuance costs.

Interest expense reflects interest expense due on our Loan Agreement with Oxford, our term loan facility executed with Hercules and the Notes, as well as non-cash interest related to the amortization of debt discount and issuance costs.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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Revenue recognition

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services in accordance with ASC Topic 606 Revenue from Contracts with Customers (ASC 606).

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services in accordance with Accounting Standards Codification (“ASC”) Topic 606 Revenue from Contracts with Customers (ASC 606).

Product revenue, net

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Our analyses contemplate the application of the constraint in accordance with ASC 606.

For the years ended December 31, 2020, and 2019, we determined a material reversal of revenue would not occur in a future period for variable consideration, and the transaction price was not reduced further.

There was not any product revenue, net recorded for the year ended December 31, 2021.

For the year ended December 31, 2020, we determined a material reversal of revenue would not occur in a future period for variable consideration, and the transaction price was not reduced further.

There was not any product revenue, net recorded for the years ended December 31, 2022 and 2021.

Actual amounts of consideration ultimately received could differ from our estimates.

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Licenses and sales of intellectual property

and commercialization of our product candidates, which have components within the scope of ASC 606.

Licenses of Intellectual Property - We may enter into collaboration and licensing arrangements for research and development, manufacturing, and commercialization activities with collaboration partners for the development and commercialization of our product candidates, which have components within the scope of ASC 606.

The arrangements generally contain multiple elements or deliverables, which may include (i) licenses, or options to obtain licenses, to our intellectual property or sale of our license, (ii) research and development activities performed for the collaboration partner, (iii) participation on joint steering committees, and (iv) the manufacturing of commercial, clinical or preclinical material.

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(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations;

(iv) allocation of the

transaction price to the performance obligations;

and (v) recognition of revenue when (or as) we satisfy each performance obligation.

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The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense.

There may be instances in which payments made to our vendors will exceed the level of services

provided and result in a prepayment of the research and development expense.

In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period.

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As of December 31, 2022, there was approximately $6.6 million of unrecognized stock-based compensation related to stock options, which are expected to be recognized over a weighted-average period of 2.6 years.

As of December 31, 2021, there was approximately $6.0 million of unrecognized stock-based compensation related to RSUs, which

are expected to be recognized over a weighted-average period of 3.7 years.

As of December 31, 2022, there was approximately $4.3 million of unrecognized stock-based compensation related to RSUs, which are expected to be recognized over a weighted-average period of 2.8 years.

Significant accounting policies and Note 8.

Stock-based compensation to our consolidated financial statements located in this Annual Report on Form 10-K for further discussion of stock-based compensation.

Effective January 1, 2019, we adopted ASC Topic 842, Leases (ASC 842).

Leases are accounted for in accordance with ASC Topic 842, Leases (“ ASC 842 ”).

This standard requires lessees to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases.

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A lease is identified where an arrangement conveys the right to control the use of identified property, plant, and equipment for a period of time in exchange for consideration.

Leases which are identified within the scope of ASC 842 and which have a term greater than one year are recognized on our consolidated balance sheets as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities.

lease liabilities.

We have elected not to recognize leases with terms of one year or less on our consolidated balance sheets.

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Loss from operations

Other expense

Other income (expense)

Interest income

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Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021

Product revenue, net.

Product revenue net for the year ended December 31, 2021 (2021 Period) was $0.0 million compared to $15.2 million for the year ended December 31, 2020 (2020 Period).

Product revenue, net consisted of net product sales of COPIKTRA in the United States.

Pursuant to the Secura APA discussed in greater detail above within section Item 1.

Business within heading Licenses and commercial agreements , we have sold our COPIKTRA license and as of September 30, 2020, we no longer sell COPIKTRA in the United States.

License and collaboration revenue.

License and collaboration revenue for the 2021 Period was $0.0 million compared to $2.9 million for the 2020 Period.

The 2020 Period license and collaboration revenue was comprised of Sanofi achieving two development milestones during the 2020 Period totaling $2.5 million and $0.4 million of duvelisib shipments to Sanofi, Yakult Honsha Co., Ltd.

(Yakult), and CSPC Pharmaceutical Group Limited (CSPC).

Sale of COPIKTRA license and related assets revenue.

Sale of COPIKTRA license and related assets revenue for the 2021 Period was $1.4 million compared to $70.0 million for the 2020 Period.

The sale of COPIKTRA license and related assets revenue for the 2021 Period primarily related to two regulatory milestone for $1.3 million achieved by Secura’s sublicensee and $0.2 million related to royalties we received and expected to be received pursuant to the Secura APA.

Sale of COPIKTRA license and related assets revenue for the 2020 Period was comprised of a $70.0 million upfront payment recognized under the Secura APA discussed in greater detail above within section Item 1.

Business within heading Licenses and Commercial Agreements .

Sale of COPIKTRA license and related assets revenue for the year ended December 31, 2022 (the “2022 Period”) was $2.6 million compared to $1.4 million for the year ended December 31, 2021 (the “2021 Period”).

Sale of COPIKTRA license and related assets revenue for the 2022 Period was comprised of one regulatory milestone for $2.5 million achieved by Secura’s sublicensee, CSPC, and $0.1 million related to royalties on COPIKTRA sales in the 2022 Period and future royalties expected to be received pursuant to the Secura APA that are not constrained.

Sale of COPIKTRA license and related assets revenue for the 2021 Period primarily related to two regulatory milestones for $1.3 million achieved by Secura’s sublicensee and $0.2 million related to royalties we received and expected to be received pursuant to the Secura APA.

Transition services revenue.

Transition services revenue for the 2022 Period was $0.0 million compared to $0.6 million for the 2021 Period.

Transition services revenue in both periods consisted of us providing certain support functions pursuant to the Secura transition service agreement, which was entered into in connection with the Secura APA.

Transition services revenue was comprised of the revenue recognized for us providing certain support functions to Secura pursuant to the transition services agreement, which was entered into

in connection with the Secura APA (“Secura TSA”).

The services were provided at a mutually agreed upon rate.

Costs of sales – product.

Costs of sales – product for the 2021 Period was $0.0 million compared to $1.8 million for the 2020 Period.

Pursuant to the Secura APA discussed in greater detail above within section Item 1.

Business within heading Licenses and commercial agreements , we have sold our COPIKTRA license and as of September 30, 2020, we no longer sell COPIKTRA in the United States.

Cost of Sales – intangible amortization.

Cost of sales – intangible amortization for the 2021 Period was $0.0 million compared to $0.8 million for the 2020 Period.

Pursuant to the Secura APA discussed in greater detail above within section Item 1.

Business within heading Licenses and commercial agreements , we have sold our COPIKTRA license, to which our intangible asset related.

Therefore, there was no cost of sales – intangible amortization in the 2021 Period.

Cost of sales – sale of COPIKTRA license and related assets.

Cost of sales – sale of COPIKTRA license and related assets for the 2021 Period was $0.0 million compared to $31.2 million for the 2020 Period.

Cost of sales – sale of COPIKTRA license and related assets for the 2020 Period consisted of certain assets delivered to Secura under the Secura APA.

For the 2020 Period, we recognized approximately $19.2 million, $6.0 million, $5.8 million and $0.2 million for the intangible asset, certain duvelisib inventory, net duvelisib contract prepaid balances and manufacturing equipment, respectively which were delivered to Secura as part of the sale.

The services were substantially completed in 2021 and there will not be revenue recorded in the future pursuant to the Secura TSA.

Research and development expense.

Research and development expense for the 2022 Period was $50.6 million compared to $39.3 million for the 2021 Period.

The $2.1 million decrease from the 2020 Period to the 2021 Period was primarily related to a decrease of $3.0 million of license fees due to a non-refundable payment of $3.0 million to Chugai in the 2020 Period for the VS-6766 license described further above within section Item 1.

Business within heading Licenses and commercial agreements , a decrease of $1.8 million in contract research organization (CRO) costs, a decrease of $1.7 million in consulting costs, and a decrease of $0.4 million in clinical supply costs.

The decrease is partially offset by an increase of $2.2 million in investigator fees, an increase of $1.3 million in personnel related costs, including non-cash stock-based compensation, an increase of $0.7 million of drug substance and drug product costs, and an increase of $0.6 million of pre-clinical expenses.

In future periods, we continue to expect expenses for VS-6766 and defactinib to increase as we have commenced our registration directed trials.

The $11.3 million increase from the 2021 Period to the 2022 Period was primarily related to an increase of $4.1 million in drug substance and drug product costs, an increase of $4.1 million in CRO costs, an increase of $1.5 million in consulting costs, an increase of $0.9 million in investigator fees, an increase of $0.5 million in personnel related costs, including non-cash stock-based compensation, an increase of $0.4 million in clinical supply costs and an increase of $0.8 million in other costs.

The increase was partially offset by a decrease of $1.0 million in investigator sponsored trial costs.

Selling, general and administrative expense.

Selling, general and administrative expense for the 2022 Period was $25.0 million compared to $24.1 million for the 2021 Period.

The decrease of $38.7 million from the 2020 Period to the 2021 Period primarily resulted from a decrease of $20.1 million of personnel related costs, including non-cash stock-based compensation, as a result of reduced headcount, a decrease of $16.1 million in consulting and professional fees, primarily related to the support of commercial activities in 2020 Period and costs associated with the sale of COPIKTRA license and related assets to Secura, a decrease of $2.1 million in reduced commercial activities costs and a decrease of $0.4 million in reduced travel and other costs.

Other expense.

Other expense for the 2020 Period of $1.3 million was for the mark-to-market adjustment related to the bifurcated make-whole interest provision derivative liability related to our 5.00% Convertible Senior Second Lien Notes due 2048 (the 2019 Notes).

All 2019 Notes have converted to common stock as of March 31, 2020, and the derivative liability will no longer be remeasured.

There was no other expense in the 2021 Period.

The increase of $0.9 million from the 2021 Period to the 2022 Period primarily resulted from an increase of $1.1 million of commercial operations costs, an increase of $0.4 million in personnel related costs, including non-cash stock-based compensation and an increase of $0.4 million of other costs.

The increase was partially offset by a decrease of $1.0 million of consulting and professional fees.

Other Income.

Other income for the 2022 Period was less than $0.1 million compared to $0.0 million in the 2021 Period.

Other income for the 2022 Period was comprised of a gain on the sale of fixed assets and changes in foreign currency exchange rates.

Interest income.

Interest income for the 2022 Period was $1.2 million compared to $0.2 million for the 2021 Period.

The decrease of $0.3 million from the 2020 Period to the 2021 Period was primarily due to lower investment cost basis and lower interest rates on investments.

The increase of $1.0 million in interest income was primarily driven by an increase in interest rates on debt securities.

Interest expense.

Interest expense for the 2022 Period was $2.1 million compared to $10.0 million for the 2021 Period.

The decrease of $5.8 million was primarily due to $8.1 million of non-cash interest expense recorded in the 2020 Period upon conversion of the 2019 Notes into common stock and decreased interest as a result of repayment of our term loan facility in November 2020.

The decrease is partially offset by $7.8 million of non-cash interest expense recorded upon conversion of the 2020 Notes into common stock in the 2021 Period.

Loss on debt extinguishment.

Loss on debt extinguishment for the 2020 Period of $1.6 million represents the loss recognized on early extinguishment of our Hercules term loan facility.

On November 9, 2020, we repaid in full all principal, accrued and unpaid interest, fees, and expenses under the Amended Loan Agreement with Hercules in an aggregate amount of $37.4 million (the Payoff Amount).

The Payoff Amount, excluding accrued interest, exceeded the carrying amount of the Hercules debt on November 9, 2020 by $1.6 million which was recorded as a loss on debt extinguishment.

There was no loss on debt extinguishment in the 2021 Period.

Income tax expense.

Income tax expense for the 2020 Period of $0.2 million primarily related to state income tax as a result of the sale of COPIKTRA license and related assets.

There was no income tax expense in the 2021 Period.

Restructuring.

On February 27, 2020, we committed to an operational plan to reduce overall operating expenses, including the elimination of approximately 31 positions and other cost-saving measures.

In August 2020, in connection with the duvelisib sale to Secura pursuant to the Secura APA we committed to a strategic restructuring (August 2020 Restructuring).

The August 2020 restructuring included a workforce reduction of approximately 41 positions primarily in our commercial operations department.

During the 2020 Period, we recorded an aggregate expense of $4.6 million for restructuring expenses, which is reflected in the consolidated statements of operation and comprehensive loss as selling general, and administrative expense and research and development expense of $4.1 million and $0.5 million, respectively, for one-time termination benefits for employee severance, benefits, and related costs.

There were no restructuring expenses in the 2021 Period.

The decrease of $7.9 million from the 2021 Period to the 2022 Period was primarily driven by $ 7.8 million of non-cash interest expense recorded in the 2021 Period upon conversion of the 2020 Notes into common stock in July 2021.

In addition, as a result of the conversion, there were no interest charges recorded for the 2020 Notes in the 2022 Period.

The decrease is partially offset by the interest expense recorded pursuant to the Loan Agreement entered into with Oxford.

LIQUIDITY AND CAPITAL RESOURCES

Sources of liquidity

We have financed our operations to date primarily through public and private offerings of our common stock, sales of common stock under our at-the-market equity offering programs, our loan and security agreement executed with Hercules in March 2017, as amended, the upfront payments under our license and collaboration agreements with Yakult, CSPC, and Sanofi, the upfront payment under the Secura APA, the issuance of 2018 Notes

in October 2018, and the proceeds in connection with the PIPE.

With the commercial launch of COPIKTRA in the United States in September 2018, we had recently begun financing a portion of our operations through product revenue.

As of September 30, 2020, in connection with the Secura APA, we no longer sell COPIKTRA in the United States.

We expect to finance a portion of our business through future milestones and royalties received pursuant to the Secura APA.

We have financed our operations to date primarily through public and private offerings of our common stock, sales of common stock under our at-the-market equity offering programs, our loan and security agreement executed with Hercules in March 2017, as amended, the upfront payments under our license and collaboration agreements with Sanofi, Yakult, and CSPC, the upfront payment under the Secura APA, the issuance of 2018 Notes in October 2018, the proceeds in connection with the PIPE, the Loan Agreement with Oxford, and issuance of our Series B Preferred Stock in January 2023.

With the commercial launch of COPIKTRA in the United States in September 2018 through our ownership period ending in September 2020, we financed a portion of our operations through product revenue.

As of September 30, 2020, we have sold our COPIKTRA license and no longer sell COPIKTRA in the United States.

We expect to finance a portion of our business through potential future milestones and royalties received pursuant to the Secura APA.

As of December 31, 2022, we had $87.9 million in cash, cash equivalents, and investments.

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Government money market funds, government bonds, corporate bonds and commercial paper of publicly traded companies.

On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver.

On March 12, 2023, the Department of the Treasury, the Federal Reserve,

and the FDIC announced that all depositors of SVB will be fully protected and have access to all their money starting March 13, 2023.

As of March 13, 2023, our deposit balance at SVB was approximately $2 million.

We are continually monitoring developments related to the recovery of uninsured funds at SVB.

Risks and uncertainties include those identified under Item 1A.

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Financing activities

Decrease in cash, cash equivalents and restricted cash

Increase (decrease) in cash, cash equivalents and restricted cash

Operating activities.

The use of cash in 2021 Period and 2020 Period resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital.

The use of cash in operating activities in the 2022 Period and 2021 Period resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital.

Our cash outflow from net losses adjusted for non-cash charges was $67.6 million and $54.1 million for the 2022 Period and 2021 Period, respectively.

Non-cash charges were primarily related to non-cash interest, net and stock-based compensation expense in both the 2021 Period and 2020 Period.

Non-cash charges were primarily related to stock-based compensation expense in the 2022 Period and stock-based compensation expense and non-cash interest, net in the 2021 Period.

Our cash inflow from operating activities due to changes in operating assets and liabilities was $3.9 million and $0.6 million for the 2022 Period and 2021 Period, respectively.

Cash inflow (outflow) due to changes in operating assets and liabilities for the 2021 Period was primarily driven by an increase of $1.8 million in accrued expenses, an increase of $0.6 million in accounts payable, partially offset by an increase in $1.6 million in prepaid expenses, other current assets, and other assets, and an increase of $0.3 million in accounts receivable, net.

Cash inflow due to changes in operating assets and liabilities for the 2020 Period was primarily driven by a decrease of $19.5 million in intangible assets and property, plant and equipment, a decrease of $3.1 million in inventory, and a decrease of $2.3 million in accounts receivable, net partially offset by a decrease of $8.0 million in accounts payable, and $5.0 million decrease in accrued expenses and other liabilities.

The $20.0 million increase in cash used in operating activities for the 2021 Period compared to the 2020 Period was primarily due to increased net loss, and a net increase in the changes in the components of working capital which was primarily driven by the duvelisib sale to Secura in the 2020 Period.

In the 2020 Period, we received $70.0 million of cash and recognized $70.0 million of sale of COPIKTRA license and related assets revenue and we expensed a total of $31.2 million for certain assets delivered to Secura upon finalization of duvelisib sale to Secura.

Cash inflow due to changes in operating assets and liabilities for the 2022 Period was primarily driven by an increase of $2.6 million in accounts payable, an increase of $0.7 million in deferred liabilities, a decrease of $0.7 million of prepaid expenses, other current assets and other assets, and a decrease of $0.5 million in accounts receivable.

The decrease in prepaid expenses, other current assets, and other assets is exclusive of the cash received from PanCAN.

Cash inflow due to changes in operating assets and liabilities for the 2021 Period was primarily driven by an increase of $1.8 million in accrued expenses, an increase of $0.6 million in accounts payable, partially offset by an increase in $1.6 million in prepaid expenses, other current assets, and other assets.

Cash used in operating activities was $63.7 million and $53.5 million for the 2022 Period and 2021 Period, respectively.

Investing activities.

The cash provided by investing activities for the 2022 Period primarily relates to the net maturities of investments of $66.2 million.

The cash provided by investing activities for the 2021 Period primarily relates to the net maturities of investments of $0.3 million, partially offset by purchases of fixed assets of $0.2 million.

The cash provided by investing activities for the 2020 Period primarily reflects the net maturities of investments of $47.3 million.

Financing activities.

The cash provided by financing activities for the 2022 Period primarily represents $27.4 million of net proceeds received under our at-the market equity offering program, $24.1 million of net proceeds received from the Loan Agreement with Oxford, and $0.3 million of proceeds received related to exercise of stock options and employee stock purchase plan .

The cash provided by financing activities for the 2021 Period primarily represents $6.7 million in net proceeds received under our at-the-market equity offering program, and $1.1 million of proceeds received related to exercise of stock options and employee stock purchase plan.

This is partially offset by $0.9 million of payments for settlement of restricted stock for tax withholdings.

The cash provided by financing activities for the 2020 Period primarily represents $93.8 million in net proceeds from sales of our common stock under the Purchase Agreement described below, $12.2 million in net proceeds received under our at-the-market equity

offering program described below, and $3.0 million of proceeds received related to exercise of stock options and employee stock purchase plan.

This is partially offset by $37.4 million for repayment of our Hercules Capital, Inc.

(Hercules) term loan facility, $1.8 million of interest-make whole payments on the 2019 Notes and $0.3 million of payments for settlement of restricted stock for tax withholdings.

On February 27, 2020, we entered into a Securities Purchase Agreement with certain institutional investors in which we agreed to sell 46,511,628 shares of common stock at a purchase price of $2.15 per share, which represents 12.6% premium to the last reported sale price of our common stock of $1.91 per share on February 27, 2020.

On March 3, 2020, the closing occurred.

The aggregate proceeds net of underwriting discounts and offering costs were approximately $93.8 million.

In March 2017, we established an at-the-market equity offering program (2017 ATM) pursuant to which we were able to offer and sell up to $35.0 million of our common stock at then current market prices from time to time through Cantor Fitzgerald & Co.

(Cantor) as sales agent.

In August 2017, we amended our sales agreement with Cantor to increase the maximum aggregate offering price of shares of common stock that can be sold under the at-the-market equity offering program to $75.0 million.

During the 2021 Period, we sold zero shares under the 2017 ATM.

During the 2020 Period, we sold 6,769,559 shares under the 2017 ATM for net proceeds of approximately $12.2 million (after deducting commissions and other offering expenses).

Through September 30, 2021, we have sold a total of 18,287,913 shares under this program for net proceeds of approximately $59.6 million (after deducting commissions and other offering expenses).

In August 2021, we entered into a sales agreement with Cantor pursuant to which we can offer and sell up to $100.0 million of our common stock at the current market prices from time to time through Cantor as sales agent (August 2021 ATM).

During the 2021 Period, we sold 2,930,585 shares under the August 2021 ATM for net proceeds of approximately $6.8 million (after deducting commissions and other offering expenses).

On March 25, 2022 (the “Closing Date”) we entered into a loan and security agreement (the “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 us up to an aggregate principal amount of $150.0 million in a series of term loans (the “Term Loans”).

The initial Term Loan of $25.0 million was funded at the Closing Date of the Loan Agreement, an additional $75.0 million will be available at our option upon achievement of certain milestones as outlined in Note 5.

Debt to our consolidated financial statements included in this Annual Report on Form 10-K, and $50.0 million is subject to the Lenders’ sole

In January 2023, we met the Term B Milestone as outlined in Note 5.

Deb t to our consolidated financial statements included in this Annual Report on Form 10-K and we expect to draw down an additional $15.0 million Term Loan in March 2023.

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.

Beginning (i) April 1, 2024, if the Term B Loan (as defined in Note 5.

Debt to our consolidated financial statements included in this Annual Report on Form 10-K) is not made, (ii) April 1, 2025, if the Term B Loan is made, or (iii) April 1, 2026, if the Term B Loan is made and 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 (“PTCL”), we 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.

As we have drawn the Term B Milestone, principal repayments will not be required to commence until at least April 1, 2025.

We are required to make a final payment of 5.0% of the original principal amount of the Term Loans that were drawn, payable at maturity or upon any earlier acceleration or prepayment of the Term Loans.

We 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 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, we granted Oxford a security interest in all of our 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.

In August 2021, we entered into a sales agreement with Cantor Fitzgerald & Co.

(“Cantor”) pursuant to which we can offer and sell up to $100.0 million of our common stock at the current market prices from time to time through Cantor as sales agent (“August 2021 ATM”).

During the 2022 Period and 2021 Period, we sold 23,573,403 shares and 2,930,585 shares, respectively, under the August 2021 ATM for net proceeds of approximately $27.4 million, and $6.8 million, respectively (after deducting commissions and other offering expenses).

As of December 31, 2022, we can issue an aggregate amount of $65.1 million of common stock under this program.

On March 21, 2017, we entered into a term loan facility of up to $25.0 million with Hercules.

The term loan facility is governed by a loan and security agreement, dated March 21, 2017 (the Original Loan Agreement).

The Original Loan Agreement was amended on January 4, 2018, March 6, 2018, October 11, 2018, April 23, 2019, and November 14, 2019 (the Amended Loan Agreement) to increase the total borrowing limit under the Original Loan Agreement from up to $25.0 million to up to $75.0 million, pursuant to certain conditions of funding.

The Payoff Amount includes the principal balance of $35.0 million, final payment fee of $1.8 million, prepayment penalty fee of $0.5 million, and accrued and unpaid interest of $0.1 million.

On November 9, 2020 the Amended Loan Agreement was terminated along with Hercules’ commitment to provide funding under any future term loans.

All liens on substantially all of our assets to secure the loans under the Amended Loan Agreement have been terminated and released.

On October 17, 2018, we closed a registered direct public offering of $150.0 million aggregate principal amount of our 2018 issued 5.00% Convertible Senior Notes due 2048 (the “2018 Notes”), for net proceeds of approximately $145.3 million.

The 2018 Notes are governed by the terms of a base indenture for senior debt securities (the Base Indenture), as supplemented by the first supplemental indenture thereto (the 2018 Notes Supplemental Indenture and together with the Base Indenture, the 2018 Indenture), each dated October 17, 2018, by and between us and Wilmington Trust, National Association, as trustee.

The 2018 Notes are senior unsecured obligations of us and bear interest at a rate of 5.00% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2019.

The 2018 Notes are governed by the terms of a base indenture for senior debt securities (the “Base Indenture”), as supplemented by the first supplemental indenture thereto (the “2018 Notes Supplemental Indenture” and together with the Base Indenture, the “2018 Indenture”), each dated October 17, 2018, by and between us and Wilmington Trust, National Association (“Wilmington”), as trustee.

The 2018 Notes are senior unsecured obligations of us and bear interest at a rate of 5.00% per annum, payable semi-annually in arrears on May 1 and November 1 of each year.

The 2018 Notes will mature on November 1, 2048, unless earlier repurchased, redeemed or converted in accordance with their terms.

The 2018 Notes are convertible into shares of our common stock, par value $0.0001 per share, together, if applicable, with cash in lieu of any fractional share, at an initial conversion rate of 139.5771 shares of common

stock per $1,000 principal amount of the 2018 Notes, which corresponds to an initial conversion price of approximately $7.16 per share of common stock and represents a conversion premium of approximately 15.0% above the last reported sale price of our common stock of $6.23 per share on October 11, 2018.

stock per $1,000 principal amount of the 2018 Notes, which corresponds to an initial conversion price of approximately $7.16 per share of common stock.

Upon conversion, converting noteholders will be entitled to receive accrued interest on their converted 2018 Notes.

We will have the right, exercisable at our option, to cause all 2018 Notes then outstanding to be converted automatically if the “Daily VWAP” (as defined in the 2018 Indenture) per share of our common stock equals or exceeds 130% of the conversion price, which equates to approximately $9.31 per share, on each of at least 20 “VWAP Trading Days” (as defined in the 2018 Indenture), whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the date we first issued the 2018 Notes.

In the fourth quarter of 2019, we entered into privately negotiated agreements to exchange approximately $121.7 million aggregate principal amount of the 2018 Notes for (i) approximately $66.9 million aggregate principal amount of 5.00% Convertible Senior Second Lien Notes due 2048 (the “2019 Notes”), (ii) an aggregate of approximately $12.1 million in 2018 Notes principal repayment and (iii) accrued interest on the 2018 Notes through the exchange date.

As of March 31, 2020, all 2019 Notes have converted into shares of common stock and are no longer outstanding.

On November 6, 2020, we entered into a privately negotiated agreement with an investor who is a holder of our 2018 Notes to exchange approximately $28.0 million aggregate principal amount of 2018 Notes for approximately $28.0 million aggregate principal amount of newly issued 5.00% Convertible Senior Notes due 2048 (the “2020 Notes”).

The issuance of the 2020 Notes closed on November 13, 2020.

The 2020 Notes are governed pursuant to the Base Indenture between us and Wilmington dated as of October 17, 2018 as supplemented by the second supplemental indenture thereto dated as of November 13, 2020 (the 2020 Notes Supplemental Indenture and together with the Base Indenture, the 2020 Indenture).

The 2020 Notes were governed pursuant to the Base Indenture between us and Wilmington dated as of October 17, 2018 as supplemented by the second supplemental indenture thereto dated as of November 13, 2020 (the “2020 Notes Supplemental Indenture” and together with the Base Indenture, the “2020 Indenture”).

We had the right, exercisable at our option, to cause all 2020 Notes then outstanding to be converted automatically if the “Daily VWAP” (as defined in the 2020 Indenture) per share of our common stock equals or exceeds 123.08% of the conversion price on each of at least 20 “VWAP Trading Days” (as defined in the 2020 Indenture), whether or not consecutive, during any 30 consecutive VWAP Trading Day period commencing on or after the date we first issued the 2020 Notes (“2020 Notes Mandatory Conversion Option”).

The initial conversion rate for the 2020 Notes was 307.6923 shares of our common stock per $1,000 principal amount of the 2020 Notes, which is equivalent to an initial conversion price of approximately $3.25 per share, representing an approximately 153.9% premium to the sale price of $1.28 per share of our common stock on November 5, 2020, as reported on the Nasdaq Global Market.

The conversion rate was subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends, but was not subject to adjustment for any accrued and unpaid interest.

Prior to November 1, 2023, we did not have the option to redeem the 2020 Notes.

On or after November 1, 2023, we had the option to redeem the 2020 Notes, in whole or in part, at a cash redemption price equal to the principal amount of the 2020 Notes to be redeemed, plus accrued and unpaid interest, if any.

Unless we had previously called all outstanding 2020 Notes for redemption, the 2020 Notes were subject to repurchase by us at the holders’ option on each of November 1, 2023, November 1, 2028, November 1, 2033, November 1, 2038 and November 1, 2043 (or, if any such date is not a business day, on the next business day) at a cash repurchase price equal to the principal amount of the 2020 Notes to be repurchased, plus accrued and unpaid interest, if any.

The 2020 Notes were our senior unsecured obligations and were senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2020 Notes, and equal in right of payment with our existing and future indebtedness that is not so subordinated, and effectively subordinated to our existing and future indebtedness, to the extent of the value of the collateral securing such indebtedness.

The 2020 Notes were structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.

On July 1, 2021, we exercised our 2020 Notes Mandatory Conversion Option for the aggregate principal amount of $28.0 million of the 2020 Notes.

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As a result, as of September 30, 2021, all 2020 Notes have converted into shares of common stock.

As of December 31, 2021, there was $0.3 million aggregate principal amount outstanding of 2018 Notes compared to $0.3 million and $28.0 million aggregate principal amount outstanding of the 2018 Notes and 2020 Notes, respectively, for a total of $28.3 million aggregate principal amount outstanding as of December 31, 2020.

As of December 31, 2022 and 2021 there was $0.3 million aggregate principal amount outstanding of 2018 Notes.

Funding requirements

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● receipt of milestone payments and royalties pursuant to the Secura APA including timing of such receipt.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and through future milestones and royalties received through the Secura APA.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders.

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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 $660,000, which

increases during the lease term to $1.1 million for the last twelve-month period.

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.

As of December 31, 2022, the total future minimum lease payments under the agreement are $2.7 million through June 2025.

As discussed in N ote 14.

As discussed in Note 13.

License, collaboration and commercial agreements to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we are party to several agreements to license intellectual property.

9 unchanged sentences

The net operating loss and tax credit carryforwards will expire at various dates through 2042, except for $240.9 million of federal net operating loss carryforwards which may be carried forward indefinitely.

Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state provisions.

Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax

authorities and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state provisions.

This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis