Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under the supervision of, our Chief Executive Officer and our Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with the authorizations of management and directors; and
(3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2024.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm, as allowed by the SEC.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the fiscal quarter ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
Trading Plans of Our Directors and Officers
During our fiscal quarter ended December 31, 2024, n o n e of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) entered into, modified (as to amount, price or timing of trades) or terminated (i) contracts, instructions or written plans for the purchase or sale of our securities that are intended to satisfy the conditions specified in Rule 10b5-1(c) under the Exchange Act for an affirmative defense against liability for trading in securities on the basis of material nonpublic information or (ii) non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K) .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information regarding our directors, including the audit committee and audit committee financial experts, and executive officers and compliance with Section 16(a) of the Exchange Act will be included in our 2025 Proxy Statement and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics for all of our directors, officers, and employees as required by Nasdaq governance rules and as defined by applicable SEC rules. Stockholders may locate a copy of our Code of Business Conduct and Ethics on our website at www.verastem.com or request a copy without charge from:
Verastem, Inc.
Attention: Investor Relations
117 Kendrick St., Suite 500
Needham, MA 02494
We will post to our website any amendments to the Code of Business Conduct and Ethics and any waivers that are required to be disclosed by the rules of either the SEC or Nasdaq.
Insider Trading Policies and Procedures
We have adopted an insider trading policy that governs the purchase, sale, and other dispositions of our securities by our directors, officers and employees, and other covered persons. The insider trading policy also applies to transactions by the Company in its securities. We believe that the insider trading policy is reasonably designed to promote compliance with insider trading laws, rules and regulations and the listing standards of Nasdaq. A copy of our Insider Trading Policy is filed with this Annual Report on Form 10-K as Exhibit 19.1.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 of Form 10-K regarding executive compensation will be included in our 2025 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 of Form 10-K regarding security ownership of certain beneficial owners and management will be included in our 2025 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 of Form 10-K regarding certain relationships and related transactions and director independence will be included in our 2025 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 of Form 10-K regarding principal accountant fees and services will be included in our 2025 Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Consolidated Financial Statements
See Part II, Item 8 for the Financial Statements required to be included in this Annual Report on Form 10-K.
(2) Consolidated Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(3) Exhibits
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits hereto and such listing is incorporated herein by reference.
Item 16. Form 10-K Summary
None.
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EXHIBIT INDEX
Exhibit
number
Description of exhibit
3.1
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed by the Registrant on March 12, 2019)
3.2
Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed by the Registrant on March 12, 2019)
3.3
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177677) filed by the Registrant on January 13, 2012)
3.4
Certificate of Amendment to the Restated Certificate of Incorporation of Verastem, Inc. (incorporated by reference to Exhibit 3.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on May 21, 2020)
3.5
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on November 7, 2022)
3.6
Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 25, 2023)
3.7
Certificate of Amendment to the Restated Certificate of Incorporation of Verastem, Inc. (incorporated by reference to Exhibit 3.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on May 31, 2023)
4.1
Specimen certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177677) filed by the Registrant on January 13, 2012)
4.2*
D escription of Securities
4.3
Form of Pre-Funded Warrant. (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 21, 2023).
4.4
Form of Pre-Funded Warrant to Purchase Stock (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on July 25, 2024).
4.5
Form of Warrant to Purchase Stock (incorporated by reference to Exhibit 4.2 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on July 25, 2024).
10.1#
Form of Incentive Stock Option Agreement under 2012 Incentive Plan (incorporated by reference to Exhibit 10.3 to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177677) filed by the Registrant on January 13, 2012)
10.2#
Form of Incentive Stock Option Agreement under Amended and Restated 2012 Incentive Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K filed by the Registrant on March 13, 2018)
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10.3#
Form of Nonstatutory Stock Option Agreement under 2012 Incentive Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177677) filed by the Registrant on January 13, 2012)
10.4#
Form of Nonstatutory Stock Option Agreement under Amended and Restated 2012 Incentive Plan (incorporated by reference to Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K filed by the Registrant on March 13, 2018)
10.5#
Form of Restricted Stock Unit Agreement under 2012 Incentive Plan (incorporated by reference to Exhibit 10.16 to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177677) filed by the Registrant on January 13, 2012)
10.6#
Amendment to Form of Restricted Stock Unit Agreement under 2012 Incentive Plan (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K filed by the Registrant on March 26, 2013)
10.9#
Form of Restricted Stock Unit Agreement under Amended and Restated 2012 Incentive Plan (incorporated by reference to Exhibit 10.9 of the Registrant’s Annual Report on Form 10-K filed by the Registrant on March 13, 2018)
10.7#
Form of Inducement Award Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8 filed by the Registrant with the Securities and Exchange Commission on December 19, 2014)
10.8#
Form of Inducement Award Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 10.11 of the Registrant’s Annual Report on Form 10-K filed by the Registrant on March 13, 2018)
10.9#
Form of Inducement Award Restricted Stock Unit Agreement (incorporated by reference to Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed by the Registrant with the Securities and Exchange Commission on November 7, 2018)
10.10#
Form of Indemnification Agreement between the Registrant and each director and executive officer (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on August 8, 2017)
10.11
Lease Agreement, dated April 15, 2014, between the Registrant and Intercontinental Fund III 117 Kendrick Street LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on April 18, 2014)
10.12
First Amendment of Lease Agreement, dated February 15, 2018, between the Registrant and 117 Kendrick DE, LLC, as successor-in-interest to Intercontinental Fund III 117 Kendrick Street, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on May 3, 2018)
10.13*
Second Amendment of Lease Agreement, dated November 1, 2024, between the Registrant and 117 Kendrick DE, LLC
10.14#
Employment Agreement, dated August 2, 2023, by and between Verastem, Inc. and Daniel W. Paterson (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on August 4, 2023).
10.15†
License Agreement, dated July 11, 2012, by and between the Registrant and Pfizer Inc. (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Registrant on August 13, 2012)
10.16†
Letter Agreement, dated December 7, 2012, by and between the Registrant and Pfizer Inc. (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K filed by the Registrant on March 6, 2014)
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10.17†
License Agreement for CKI27, dated January 7, 2020, between Verastem, Inc. and Chugai Pharmaceutical Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020)
10.18†*
First Amendment to License Agreement for CKI27, dated April 19, 2020 between Verastem, Inc. and Chugai Pharmaceutical, Co. Ltd.
10.19†*
Second Amendment to License Agreement for CKI27, dated August 12, 2021, between Verastem, Inc. and Chugai Pharmaceutical Co. Ltd.
10.20†*
Third Amendment to License Agreement for CKI27, dated May 10, 2023, between Verastem, Inc. and Chugai Pharmaceutical Co. Ltd.
10.21#
Form of Restricted Stock Unit Agreement under the 2012 Incentive Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020)
10.22#
Form of Inducement Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020)
10.23#
Form of Incentive Stock Option Agreement under the 2012 Incentive Plan (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020)
10.24#
Form of Nonstatutory Stock Option Agreement under the 2012 Incentive Plan (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020)
10.25#
Form of Inducement Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed by the Registrant on May 7, 2020)
10.26#
Form of Incentive Stock Option Agreement under the 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by the Registrant on August 2, 2021)
10.27#
Form of Nonstatutory Stock Option Agreement (Employees) under the 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by the Registrant on August 2, 2021)
10.28#
Form of Nonstatutory Stock Option Agreement (Non-Employees) under the 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed by the Registrant on August 2, 2021)
10.29#
Form of Restricted Stock Unit Agreement under the 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed by the Registrant on August 2, 2021)
10.30#
Form of Inducement Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed by the Registrant on August 2, 2021)
10.31#
Form of Inducement Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed by the Registrant on August 2, 2021)
10.32 †
Asset Purchase Agreement by and between Secura Bio, Inc. and Verastem, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by the Registrant on November 9, 2020)
10.33
Loan and Security Agreement, dated as of March 25, 2022, among Verastem, Inc., as borrower, Oxford Finance LLC, as collateral agent and a lender, and Oxford Finance Credit Fund III LP, as a lender (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed by the Registrant with the Securities and Exchange Commission on March 27, 2022)
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10.34#
Employment Agreement, dated October 24, 2023 by and between Verastem, Inc. and Daniel Calkins (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on October 27, 2023).
10.35#
Employment Agreement dated January 14, 2025 by and between Verastem, Inc. and Matthew Ros. (incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 21, 2025)
10.36
First Amendment to Loan and Security Agreement, dated as of January 4, 2024, among Verastem, Inc., as borrower, Oxford Finance LLC, as collateral agent and a lender, and the other lenders party thereto. (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 8, 2024)
10.37#
Amended and Restated 2018 Employee Stock Purchase Plan. (incorporated by reference to Exhibit 10.1 to Form 10-Q filed by the Registrant with the Securities and Exchange Commission on August 8, 2023)
10.38#
Amended and Restated 2012 Incentive Plan . (incorporated by reference to Exhibit 10.2 to Form 10-Q by the Registrant with the Securities and Exchange Commission on August 8, 2023)
10.39#
Amended and Restated 2021 Equity Incentive Plan. (incorporated by reference to Exhibit 10.3 to Form 10-Q by the Registrant with the Securities and Exchange Commission on August 8, 2023)
10.40
Exchange Agreement, dated November 4, 2022, by and among Verastem, Inc. and B iotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS LP and MSI BVF SPV, LLC (incorporated by reference to Exhibit 10.1 to for the form 8-K filed by the Registrant with the Securities and Exchange Commission on November 7, 2022)
10.41
Amended and Restated 2021 Equity Incentive Plan. (incorporated by reference to Exhibit 10.1 to Form 10-Q by the Registrant with the Securities and Exchange Commission on August 8, 2024)
10.42
Note Purchase Agreement, dated as of January 13 2025, by and among Verastem, Inc., RGCM SA LLC, Oberland Capital Management LLC and certain funds managed by Oberland Capital Management LLC. (incorporated by reference to Exhibit 10.1 to Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 13, 2025)
10.43
Stock Purchase Agreement, dated as of January 13, 2025, among Verastem, Inc. and the investors party thereto. (incorporated by reference to Exhibit 10.2 to Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 13, 2025)
10.44†*
Collaboration and Option Agreement by and between Verastem, Inc. and GenFleet Therapeutics (Shanghai), Inc. dated as of August 24, 2023.
10.45#*
Form of Restricted Stock Unit Agreement under the Amended and Restated 2021 Equity Incentive Plan.
19.1*
Insider Trading Policy
21.1*
Subsidiaries of the Registrant
23.1*
Consent of Ernst & Young LLP
31.1*
Certification of the Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)
31.2*
Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)
32.1*
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2*
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section , as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
97.1
Policy for Recoupment of Incentive Compensation (incorporated by reference to Exhibit 97.1 to Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on March 14, 2024)
99.1*
Press Release issued by Verastem, Inc. on March 20, 2025 (furnished herewith).
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Filed herewith.
†
Certain confidential information contained in this exhibit has been omitted because it (i) is not material and (ii) is of the type that the Company treats as private or confidential. Confidential materials omitted will be filed separately with the SEC upon request.
#
Management contract or compensatory plan, contract or agreement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 20th day of March 2025.
VERASTEM, INC.
By:
/s/ Daniel W. Paterson
Daniel W. Paterson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Daniel W. Paterson
Daniel W. Paterson
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 20, 2025
/s/ Daniel Calkins
Daniel Calkins
Chief Financial Officer
(Principal Financial and Accounting officer)
March 20, 2025
/s/ P AUL B UNN, M.D.
Paul Bunn, M.D.
Director
March 20, 2025
/s/ Robert Gagnon
Robert Gagnon
Director
March 20, 2025
/s/ Anil Kapur
Anil Kapur
Director
March 20, 2025
/s/ Michael Kauffman, M.D.,Ph.D.
Michael Kauffman, M.D., P h .D.
Director
March 20, 2025
/s/ J OHN J OHNSON
John Johnson
Director
March 20, 2025
/s/ M ICHELLE R OBERTSON
Michelle Robertson
Director
March 20, 2025
/s/ Eric Rowinsky, M.D.
Eric Rowinsky, M.D.
Director
March 20, 2025
/s/ B RIAN S TUGLIK
Brian Stuglik
Director
March 20, 2025
/s/ Karin Tollefson
Karin Tollefson
Director
March 20, 2025
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Verastem, Inc.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Financial Statements
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations and Comprehensive Loss
F-5
Consolidated Statements of Stockholders’ (Deficit) Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-8
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Verastem, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Verastem, Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' (deficit) equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion .
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
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Accrued and Prepaid Clinical Trial Expense
Description of the Matter
As summarized in Note 4 to the consolidated financial statements, the Company’s accrued clinical expenses were $10.9 million at December 31, 2024, which included the estimated obligation for clinical trial expenses incurred as of December 31, 2024 but not paid as of that date. In addition, the Company’s total prepaid expenses and other current assets were $5.9 million, which included amounts that were paid in advance of services incurred pursuant to clinical trials. As discussed in Note 2 to the consolidated financial statements, the Company records clinical trial expenses as incurred. The Company’s determination of costs incurred 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 to the Company by its vendor on their actual costs incurred or level of effort expended. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid expenses and other current assets or accrued expenses.
Auditing the Company’s accrued and prepaid clinical trial expenses was especially challenging due to the volume of information received from vendors that perform services on the Company’s behalf. While the Company’s estimates of accrued and prepaid clinical trial expenses are primarily based on information received from its vendors for each study, the Company is required to make an estimate for additional costs incurred. Additionally, due to the long duration of clinical trials and the timing of vendor invoices, the actual amounts incurred are not typically known at the time the financial statements are issued.
How We Addressed the Matter in Our Audit
To evaluate the accrued and prepaid clinical trial expenses, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the estimates and evaluating the significant assumptions used by management to estimate the recorded accruals and prepayments. We obtained third party confirmation from the Company’s most significant contract research organizations to validate the underlying data used in management’s estimate. We corroborated the progress of research and development activities associated with clinical trials through discussion with the Company’s research and development personnel that oversee the clinical activities. In addition, we performed analytics over fluctuations in accruals and prepaids by vendor throughout the period subject to audit and compared subsequent invoices received from third parties to amounts accrued.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2011.
Boston, Massachusetts
March 20, 2025
F-3
Table of Contents
Verastem, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31,
2024
2023
Assets
Current assets:
Cash and cash equivalents
$
88,818
$
77,909
Short-term investments
—
59,220
Grant receivable
200
—
Prepaid expenses and other current assets
5,943
6,553
Total current assets
94,961
143,682
Property and equipment, net
32
37
Right-of-use asset, net
1,405
1,171
Restricted cash
241
241
Other assets
4,899
4,587
Total assets
$
101,538
$
149,718
Liabilities, convertible preferred stock and stockholders’ equity
Current liabilities:
Accounts payable
$
4,026
$
7,184
Accrued expenses
25,952
17,928
Deferred liabilities
—
327
Lease liability, short-term
995
941
Total current liabilities
30,973
26,380
Non-current liabilities:
Long-term debt
40,724
40,086
Lease liability, long-term
535
530
Preferred stock tranche liability
—
4,189
Warrant liability
58,199
—
Total liabilities
130,431
71,185
Convertible preferred stock:
Series B Convertible Preferred Stock, $ 0.0001 par value; 944 shares and 2,144 shares designated at December 31, 2024 and December 31, 2023, respectively; 0 shares and 1,200 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively
—
21,159
Stockholders’ equity:
Preferred Stock, $ 0.0001 par value; 5,000 shares authorized:
Series A Convertible Preferred Stock, $ 0.0001 par value; 1,000 shares designated, 1,000 shares issued and outstanding at December 31, 2024 and December 31, 2023
—
—
Common stock, $ 0.0001 par value; 300,000 shares authorized, 44,784 and 25,281 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively
4
3
Additional paid-in capital
926,630
882,248
Accumulated other comprehensive income
—
13
Accumulated deficit
( 955,527 )
( 824,890 )
Total stockholders’ (deficit) equity
( 28,893 )
57,374
Total liabilities, convertible preferred stock and stockholders’ (deficit) equity
$
101,538
$
149,718
See accompanying notes to the consolidated financial statements.
F-4
Table of Contents
Verastem, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
Year Ended December 31,
2024
2023
2022
Revenue:
Sale of COPIKTRA license and related assets
$
10,000
$
—
$
2,596
Total revenue
10,000
—
2,596
Operating expenses:
Research and development
81,334
61,356
50,558
Selling, general and administrative
43,622
30,728
24,975
Total operating expenses
124,956
92,084
75,533
Loss from operations
( 114,956 )
( 92,084 )
( 72,937 )
Other income (expense)
( 123 )
( 109 )
47
Interest income
4,149
6,214
1,215
Interest expense
( 4,562 )
( 4,139 )
( 2,137 )
Change in fair value of preferred stock tranche liability
4,189
2,751
—
Change in fair value of warrant liability
( 19,149 )
—
—
Net loss before taxes
( 130,452 )
( 87,367 )
( 73,812 )
Income tax expense
( 185 )
—
—
Net loss
( 130,637 )
( 87,367 )
( 73,812 )
Net loss per share—basic and diluted
( 3.66 )
( 3.96 )
( 4.57 )
Weighted average common shares outstanding used in computing net loss per share—basic and diluted
35,713
22,054
16,138
Net loss
$
( 130,637 )
$
( 87,367 )
$
( 73,812 )
Unrealized gain (loss) on available-for-sale securities
( 13 )
13
( 34 )
Comprehensive loss
$
( 130,650 )
$
( 87,354 )
$
( 73,846 )
See accompanying notes to the consolidated financial statements.
F-5
Table of Contents
Verastem, Inc.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY
(in thousands, except share data)
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, 2021
—
$
—
—
$
—
15,440,830
$
2
$
751,234
$
34
$
( 663,711 )
$
87,559
Net loss
—
—
—
—
—
—
—
—
( 73,812 )
( 73,812 )
Unrealized loss on available-for-sale marketable securities
—
—
—
—
—
—
—
( 34 )
—
( 34 )
Issuance of Series A Convertible Preferred Stock in exchange for common stock
—
—
1,000,000
—
( 833,333 )
—
—
—
—
—
Issuance of common stock under Employee Stock Purchase Plan
—
—
—
—
10,194
—
164
—
—
164
Issuance of common stock resulting from vesting of restricted stock units
—
—
—
—
121,441
—
—
—
—
—
Issuance of common stock resulting from exercise of stock options
—
—
—
—
8,181
—
118
—
—
118
Issuance of common stock resulting from at-the-market transactions, net
—
—
—
—
1,964,448
—
27,349
—
—
27,349
Stock-based compensation expense
—
—
—
—
—
—
6,047
—
—
6,047
Balance at December 31, 2022
—
$
—
1,000,000
$
—
16,711,761
$
2
$
784,912
$
—
$
( 737,523 )
$
47,391
Net loss
—
—
—
—
—
—
—
—
( 87,367 )
( 87,367 )
Unrealized gain on available-for-sale marketable securities
—
—
—
—
—
—
—
13
—
13
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
—
—
—
—
—
—
—
—
Issuance of common stock, and pre-funded warrants, net of issuance cost of $ 6,351
—
—
—
—
8,489,409
1
91,419
—
—
91,420
Issuance of common stock under Employee Stock Purchase Plan
—
—
—
—
14,270
—
57
—
—
57
Issuance of common stock resulting from vesting of restricted stock units
—
—
—
—
65,710
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
5,860
—
—
5,860
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
—
—
—
—
—
—
—
—
( 130,637 )
( 130,637 )
Unrealized loss on available-for-sale marketable securities
—
—
—
—
—
—
—
( 13 )
—
( 13 )
Issuance of common stock and pre-funded warrants, net of issuance costs of $ 1,179
—
—
—
—
13,333,334
1
14,220
—
—
14,221
Conversion of Series B Convertible Preferred Stock to common stock
( 1,200,000 )
( 21,159 )
—
—
4,236,568
—
21,159
—
—
21,159
Issuance of common stock upon exercise of pre-funded warrants
—
—
—
—
1,538,201
—
—
—
—
—
Issuance of common stock upon exercise of warrants
—
—
—
—
250,000
—
1,420
—
—
1,420
Issuance of common stock resulting from exercise of stock options
—
—
—
—
21,978
—
172
—
—
172
Issuance of common stock under Employee Stock Purchase Plan
—
—
—
—
15,231
—
69
—
—
69
Issuance of common stock resulting from vesting of restricted stock units
—
—
—
—
107,888
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
—
—
7,342
—
—
7,342
Balance at December 31, 2024
—
$
—
1,000,000
$
—
44,784,350
$
4
$
926,630
$
—
$
( 955,527 )
$
( 28,893 )
See accompanying notes to the consolidated financial statements.
F-6
Table of Contents
Verastem, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2024
2023
2022
Operating activities
Net loss
$
( 130,637 )
$
( 87,367 )
$
( 73,812 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
26
62
118
Non-cash operating lease cost
( 175 )
( 175 )
( 154 )
Stock-based compensation expense
7,342
5,860
6,047
Amortization of deferred financing costs, debt discounts and premiums and discounts on available-for-sale marketable securities
( 5 )
( 1,132 )
228
Change in fair value of preferred stock tranche liability
( 4,189 )
( 2,751 )
—
Change in fair value of warrant liability
19,149
—
—
Changes in operating assets and liabilities:
Accounts receivable, net
—
31
485
Grant receivable
( 200 )
—
—
Prepaid expenses, other current assets and other assets
( 596 )
( 5,826 )
744
Accounts payable
( 3,158 )
2,283
2,599
Accrued expenses and other liabilities
7,999
2,938
( 638 )
Deferred liabilities
( 327 )
( 383 )
710
Net cash used in operating activities
( 104,771 )
( 86,460 )
( 63,673 )
Investing activities
Purchases of property and equipment
( 28 )
—
—
Purchases of investments
—
( 96,447 )
( 17,815 )
Maturities of investments
60,000
52,000
84,000
Net cash provided by (used in) investing activities
59,972
( 44,447 )
66,185
Financing activities
Payments for loan amendment
( 150 )
—
—
Proceeds from issuance of Series B Convertible Preferred Stock, net
—
28,099
—
Proceeds from long-term debt, net
—
14,918
24,148
Repayment of 2018 Notes
—
( 300 )
—
Proceeds from insurance premium financing
1,298
1,430
—
Payments on insurance premium financing
( 1,298 )
( 1,430 )
—
Proceeds from the exercise of stock options and employee stock purchase program
241
57
282
Proceeds from the issuance of common stock and pre-funded warrants, net
14,221
91,420
27,354
Proceeds from the issuance of warrants
39,595
—
—
Proceeds from exercise of warrants
875
—
—
Net cash provided by financing activities
54,782
134,194
51,784
Increase in cash, cash equivalents and restricted cash
9,983
3,287
54,296
Cash, cash equivalents and restricted cash at beginning of period
79,076
75,789
21,493
Cash, cash equivalents and restricted cash at end of period
$
89,059
$
79,076
$
75,789
Supplemental disclosure
Cash paid for interest
3,774
3,361
1,536
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
$
—
Issuance costs included in accounts payable and accrued expenses
$
32
$
—
$
—
Conversion of Series B Convertible Preferred Stock to common stock
$
21,159
$
—
$
—
Conversion of warrant liability to common stock upon warrant exercise
$
545
$
—
$
—
Right of use asset obtained in exchange for operating lease liability
$
988
$
—
$
—
See accompanying notes to the consolidated financial statements.
F-7
Table of Contents
1. Nature of business
Verastem, Inc. (the “Company”) is a late-stage development biopharmaceutical company committed to the development and commercialization of new medicines to improve the lives of patients diagnosed with ras sarcoma (“RAS”)/ mitogen activated pathway kinase (“MAPK”) pathway-driven cancers. The Company’s pipeline is focused on novel small molecule drugs that inhibit critical signaling pathways in cancer that promote cancer cell survival and tumor growth, including RAF/MEK inhibition, FAK inhibition and KRAS G12D 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”) and pancreatic cancer. The Company 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.
The 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 December 31, 2024, the Company had cash, cash equivalents, and investments of $ 88.8 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 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. As a result of the assessment in accordance with the applicable accounting standards, these conditions raise substantial doubt about the Company’s ability to continue as a going concern for 12 months after the date the 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 Company’s Asset Purchase Agreement (“Secura APA”) with Secura Bio, Inc. (“Secura”), pursuant to the Company’s Note Purchase Agreement (the “Note Purchase Agreement”) with RGCM SA LLC, as purchaser agent, Oberland Capital Management LLC (“Oberland”) and certain funds managed by Oberland, as purchasers (together with the other purchasers party thereto referred as the “Note Purchase Agreement Purchasers”), 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 and Drug Administration (“FDA”) or foreign regulatory authorities. Therefore, there is substantial doubt about the Company’s ability to continue as a going concern.
F-8
Table of Contents
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 consolidated financial statements for the 12 months ended December 31, 2023 and 2022, to give retroactive effect to the Reverse Stock Split. Proportionate adjustments were made to the per share exercise price and number of shares of common stock issuable under all outstanding stock options, convertible notes and preferred stock. In addition, proportionate adjustments have been made to the number of shares of common stock issuable upon vesting of the restricted stock units and the number of shares of common stock reserved for the Company’s equity incentive compensation plans. The 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 the years ended December 31, 2023, and 2022.
2. Significant accounting policies
Basis of presentation
The accompanying financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principals (“GAAP”) under the assumption that the Company will continue as a going concern for the next 12 months. Accordingly, they do not include any adjustments that might result from the uncertainty related to the Company’s ability to continue as a going concern.
Use of estimates
The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including but not limited to estimates related to revenue recognition, accrued and prepaid clinical trial expense and other general accruals, stock-based compensation expense, its preferred stock tranche liability and its warrant liability. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable. Actual results could differ from such estimates.
Segment and geographic information
Operating segments are defined as components of an enterprise about which separate discrete information is available and regularly reviewed by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment, which is the business of researching, developing and commercializing drugs for the treatment of patients with cancer. All material long-lived assets of the Company reside in the United States.
F-9
Table of Contents
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 KRAS mutant, 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 December 31, 2024 the Company has received $ 4.1 million of cash proceeds which was initially recorded as deferred liabilities on the balance sheet. The Company recorded $ 2.0 million, $ 2.0 million and $ 0.3 million of the proceeds as a reduction of research and development expense during the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024, the company recorded $ 0.2 million as a grant receivable related to the PanCAN Grant in the consolidated balance sheet. As of December 31, 2023, the Company recorded $ 0.3 million as deferred liabilities related to the PanCAN Grant in the consolidated balance sheet.
Cash, cash equivalents and restricted cash
The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist of a U.S. Government money market funds and corporate bonds and commercial paper of publicly traded companies. Cash equivalents are reported at fair value.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):
December 31, 2024
December 31, 2023
Cash and cash equivalents
$
88,818
$
77,909
Restricted cash
241
1,167
Total cash, cash equivalents and restricted cash
$
89,059
$
79,076
Amounts included in restricted cash as of December 31, 2024 is 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. Amounts included in restricted cash as of December 31, 2023 represent (i) 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 and (ii) cash received pursuant to the PanCAN Grant restricted for expenditures for specific research and development activities in the amounts of $ 0.9 million. The letters of credit are included in non-current restricted cash on the consolidated balance sheets as of December 31, 2024 and December 31, 2023. Cash held pursuant to the PanCAN Grant is included in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2023.
F-10
Table of Contents
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)
December 31, 2024
Description
Total
Level 1
Level 2
Level 3
Financial assets
Cash equivalents
$
63,304
$
63,304
$
—
$
—
Total financial assets
$
63,304
$
63,304
$
—
$
—
Warrant liability
$
58,199
$
—
$
—
$
58,199
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 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 December 31, 2024 and 2023.
Warrant liability
A warrant liability was recorded as a result the July 2024 Offering (defined herein) (see Note 7. Capital Stock ). The fair value measurement of the warrant liability is classified as Level 3 under the fair value hierarchy. The fair value of the warrant liability at inception and December 31, 2024, was determined using the Black-Scholes valuation model. The inputs to the Black-Scholes valuation model 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.
F-11
Table of Contents
Below are the inputs used to value the warrant liability at July 23, 2024 and December 31, 2024:
December 31, 2024
July 23, 2024
Risk-free interest rate
4.17
%
4.63
%
Volatility
137
%
132
%
Dividend yield
—
—
Remaining term (years)
1.1
1.5
The following table represents a reconciliation of the warrant liability (in thousands):
July 23, 2024
$
39,595
Fair value of warrants exercised
( 545 )
Fair value adjustment
19,149
December 31, 2024
$
58,199
Preferred Stock tranche liability
A preferred stock tranche liability was recorded as a result of the entry into the Series B Convertible Preferred Stock Securities Purchase Agreement (defined herein) (see Note 7. 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. The preferred stock tranche liability expired in July 2024 and is no longer outstanding.
Below are the inputs used to value the preferred stock tranche liability at December 31, 2023:
December 31, 2023
Risk-free interest rate
5.13 - 5.52
%
Volatility
75
%
Dividend yield
—
Remaining term (years)
0.6
The following table represents a roll forward for the year ended December 31, 2024 of the preferred stock right liability (in thousands):
January 1, 2024
$
4,189
Fair value adjustment
( 4,189 )
December 31, 2024
$
—
Long-term debt
The fair value of the Company’s long-term debt is determined using a discounted cash flow analysis with current applicable rates for similar instruments as of the consolidated balance sheet date. The carrying value of the Company’s long-term debt as of December 31, 2024 and December 31, 2023, was approximately $ 40.7 million and $ 40.1 million, respectively. The Company estimates that the fair value of its long-term debt as of December 31, 2024 and December 31, 2023, was approximately $ 41.1 million and $ 39.6 million, respectively. The fair value of the Company’s long-term debt was determined using Level 3 inputs.
F-12
Table of Contents
Investments
Investments and cash equivalents consist of investments in a U.S. Government money market funds, overnight repurchase agreements collateralized by government agency securities or U.S. Treasury securities, corporate bonds and commercial paper of publicly traded companies that are classified as available-for-sale pursuant to Accounting Standards Codification (“ASC”) Topic 320, Investments—Debt and Equity Securities . The Company classifies investments available to fund current operations as current assets on its consolidated balance sheets. Debt securities are carried at fair value with unrealized gains and losses included as a component of accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity, until such gains and losses are realized. The fair value of these securities is based on quoted prices for identical or similar assets.
The Company reviews investments for impairment whenever the fair value of a investment is less than the amortized cost and evidence indicates that a investment’s carrying amount is not recoverable. Unrealized losses are evaluated for impairment under ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), to determine if the impairment is credit-related or noncredit-related. Credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings, and noncredit-related impairment is recognized in other comprehensive income (loss). Evidence considered in this assessment includes reasons for the impairment, compliance with our investment policy, the severity of the impairment, collectability of the security, and any adverse conditions specifically related to the security, an industry, or geographic area. Realized gains and losses are determined using the specific identification method and are included in interest income in the consolidated statements of operations and comprehensive loss.
There were no realized gains or losses on investments for the years ended December 31, 2024, 2023 or 2022. Accrued interest receivable is excluded from the amortized cost and estimated fair value of the Company’s investments. There was no accrued interest receivable as of December 31, 2024. Accrued interest receivable of $ 0.1 million is presented within prepaid expenses and other current assets on the consolidated balance sheets as of December 31, 2023. There were zero and two debt securities in an unrealized loss position at each of December 31, 2024, and December 31, 2023, respectively. None of these investments had been in an unrealized loss position for more than 12 months as of 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 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 December 31, 2023.
The following is a summary of available-for-sale securities with unrealized losses for less than 12 months as of December 31, 2024 and 2023 (in thousands):
December 31, 2024
December 31, 2023
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Corporate bonds, agency bonds and commercial paper (due within 1 year)
$
—
$
—
$
8,896
$
( 1 )
Total available-for-sale securities in an unrealized loss position
$
—
$
—
$
8,896
$
( 1 )
Cash, cash equivalents, restricted cash and investments consist of the following (in thousands):
December 31, 2024
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
Cash, cash equivalents & restricted cash:
Cash and money market accounts
$
89,059
$
—
$
—
$
89,059
Total cash, cash equivalents & restricted cash:
$
89,059
$
—
$
—
$
89,059
F-13
Table of Contents
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
Concentrations of credit risk and off-balance sheet risk
Cash and 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 December 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.
For the year ended December 31, 2024 and December 31, 2022 there was one customer, Secura, who individually accounted for all of the Company’s revenue. Refer to Note 13. License, collaboration, and commercial agreements for a detailed discussion of the Secura APA.
Property and equipment
Property and equipment consist of laboratory equipment, office furniture, computer equipment and leasehold improvements. Expenditures for repairs and maintenance are recorded to expense as incurred, whereas major betterments are capitalized as additions to property and equipment. Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives of the assets:
Laboratory equipment
5 years
Furniture
5 years
Computer equipment
3 years
Leasehold improvements
Lesser of useful life or life of lease
Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.
The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying value of assets may not be recoverable. Recoverability is measured by comparison of the asset’s book value to future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book value of the assets exceed their fair value, which is measured based on the projected discounted future net cash flows arising from the assets. No impairment losses have been recorded through December 31, 2024.
F-14
Table of Contents
Research and development costs
The Company expenses research and development costs to operations as incurred. 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, clinical trial sites, manufacturing organizations and consultants, including the scientific advisory board;
● license fees;
● facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and laboratory supplies; and
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 to the Company by its vendor on their actual costs incurred or level of effort expended. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid expenses and other current assets or accrued expenses.
Stock-based compensation
For service-based equity awards, the Company recognizes stock-based compensation expense for stock options, and restricted stock units (“RSUs”) issued to employees, directors, and consultants based on the grant date fair value of the awards on a straight-line basis over the requisite service period, which typically is the vest period. The Company recognized stock-based compensation for shares issued to employees under the Company’s employee stock purchase plan (“ESPP”) plan.
The Company has granted performance-based RSUs and stock options with terms that allow the recipients to vest in a specific number of shares based upon the achievement of performance-based milestones as specified in the grants. Stock-based compensation expense associated with these performance-based RSUs and stock options is recognized if the performance condition is considered probable of achievement using the Company’s best estimates of the time to vesting for the achievement of the performance-based milestones. Awards subject to performance-based vesting requirements are expensed utilizing an accelerated attribution model if achievement of the performance criteria is determined to be probable.
The grant date fair value of stock options is estimated using the Black-Scholes option pricing model that takes into account the fair value of its common stock, the exercise price, the expected life of the option, the expected volatility of its common stock, expected dividends on its common stock, and the risk-free interest rate over the expected life of the option. The Company applies the simplified method described in the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) Topic 14.D.2 to calculate the expected term as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its population. The Company has not paid and do not anticipate paying cash dividends on the Company’s shares of common stock; therefore, the expected dividend yield is assumed to be zero. The computation of expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company accounts for forfeitures as they occur.
The Company issues shares under the Company’s ESPP to employees. Stock-based compensation expense for discounted purchases under the ESPP is measured using the Black-Scholes model to compute the fair value of the lookback provision plus the purchase discount and is recognized as compensation expense over the offering period .
F-15
Table of Contents
Leases
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.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances within the arrangement. 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 the Company’s consolidated balance sheets as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize leases with terms of one year or less on its consolidated balance sheets. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates to calculate the present value of lease payments. Incremental borrowing rates are the rates the Company incurs to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
In accordance with ASC 842, components of a lease are split into three categories: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). The fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components. Although separation of lease and non-lease components is required, certain practical expedients are available. Entities may elect the practical expedient to not separate lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together as a single component. The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component only. The lease component results in an operating right-of-use asset being recorded on the consolidated balance sheets and amortized on a straight-line basis as lease expense.
Revenue recognition
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). To determine revenue recognition for contracts with its customers, the Company performs the following five step assessment: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines which goods and services are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
F-16
Table of Contents
Sales of intellectual property
For sales of license and intellectual property, that include sale-based royalties, including milestone payments based on a level of sales, the Company evaluates whether the royalties and sales-based milestones are considered probable of being achieved and estimates the amount of royalties to include over the contractual term using the expected value method and estimates the sales-based milestones using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated royalty and milestone value is included in the transaction price. Royalties and sales-based milestones for territories for which there is not regulatory approval are not considered probable until such regulatory approval is achieved. The Company evaluates factors such as whether consideration is outside of the Company’s control, timeline for when the uncertainty will be resolved and historical sales of COPIKTRA if applicable. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and amount of royalty revenue to be received and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Collaborative arrangements
Collaborative Arrangements: Contracts are considered to be collaborative arrangements when they satisfy the following criteria defined in ASC Topic 808, Collaborative Arrangements : (i) the parties to the contract must actively participate in the joint operating activity and (ii) the joint operating activity must expose the parties to the possibility of significant risk and rewards, based on whether or not the activity is successful. Payments received from or made to a partner that are the result of a collaborative relationship with a partner, instead of a customer relationship, such as co-development activities, are recorded as a reduction or increase to research and development expense, respectively.
Income taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Deferred tax assets are reduced by a valuation allowance if current evidence indicates that it is considered more likely than not that these benefits will not be realized.
The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not that it will be sustained based solely on its technical merits as of the reporting date and only in an amount more likely than not that it will be sustained upon review by the tax authorities. The Company evaluates uncertain tax positions on a quarterly basis and adjust the liability for changes in facts and circumstances, such as new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, significant amendment to an existing tax law, or resolution of an examination. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determination is made. The resolution of its uncertain income tax positions is dependent on uncontrollable factors such as law changes, new case law, and the willingness of the income tax authorities to settle, including the timing thereof and other factors. Although the Company does not anticipate significant changes to its uncertain income tax positions in the next 12 months, items outside of its control could cause its uncertain income tax positions to change in the future, which would be recorded in its statements of operations. Interest and/or penalties related to income tax matters are recognized as a component of income tax expense.
F-17
Table of Contents
Net operating loss (“NOL”) 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 (“IRC”), 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. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
The Company experienced a greater than 50 % change in ownership as defined under Section 382 and 383 of the IRC as well as similar state provisions during the year ended December 31, 2020. For more details please refer to Note 11. Income Taxes.
Net loss per share
Basic net loss per common share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. For purposes of calculating net loss per share, weighted-average number of common shares outstanding includes the weighted average effect of the pre-funded warrants issued in June 2023 and July 2024, as the exercise of which requires little or no consideration for the delivery of shares of common stock. Diluted net loss per common share is calculated by increasing the denominator by the weighted-average number of additional shares that could have been outstanding from securities convertible into common stock, such as the warrants issued in July 2024, stock options, restricted stock units, and ESPP (using the “treasury stock” method), the Company’s 5.00 % Convertible Senior Notes due 2048 (the “2018 Notes”), Series A Convertible Preferred Stock, and Series B Convertible Preferred Stock (using the “if-converted” method), unless their effect on net loss per share is antidilutive. Under the “if-converted” method, convertible instruments that are-in-the-money, are assumed to have been converted as of the beginning of the period or when issued, if later. Additionally, the effects of any interest expense and changes in fair value of any bifurcated derivatives shall be added back to the numerator of the diluted net loss per share calculation. Refer to Note 10. Net Loss per share for further details related to the calculation of net loss per share.
Recently Adopted Accounting Standards Updates
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 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. The Company adopted the guidance for the fiscal year ended December 31, 2024. There was no impact to the Company’s reportable segments and additional required disclosures have been included in Note 9. Segment Reporting .
Recently issued accounting standards updates
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 consolidated financial statements.
F-18
Table of Contents
In November 2024, the FASB issued ASU No 2024-03—Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). The guidance in ASU 2024-03 is intended to require more detailed disclosures about specified categories of expenses (including employee compensation, depreciation, and amortization) included in certain expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to all prior periods presented in the financial statements. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
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 consolidated financial statements upon future adoption.
3. Property and equipment, net
Property and equipment and related accumulated depreciation are as follows (in thousands):
December 31,
December 31,
2024
2023
Leasehold improvements
$
146
$
146
Furniture and fixtures
839
811
Computer equipment
665
665
Assets not yet placed in service
—
7
1,650
1,629
Less: accumulated depreciation
( 1,618 )
( 1,592 )
Total property and equipment, net
$
32
$
37
The Company recorded less than $0.1 million, $ 0.1 million, and $ 0.1 million in depreciation expense for the years ended December 31, 2024, 2023, and 2022, respectively .
4. Accrued expenses
Accrued expenses consist of the following (in thousands):
December 31, 2024
December 31, 2023
Accrued clinical trial expenses
$
10,915
$
6,518
Accrued contract manufacturing expenses
3,748
2,010
Accrued other research and development expenses
1,359
1,043
Accrued compensation and related benefits
6,245
4,796
Accrued professional fees
620
637
Accrued consulting fees
1,613
1,078
Accrued interest
316
316
Accrued commercialization costs
803
453
Accrued other
333
1,077
Total accrued expenses
$
25,952
$
17,928
F-19
Table of Contents
5. Long-term debt
Oxford
On March 25, 2022 (the “Loan Agreement Closing Date”), the Company 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 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 Loan Agreement to extend the date by which it may draw down the Term C Loan from March 31, 2024 to March 31, 2025. In January 2025, the Company entered into a Note Purchase Agreement pursuant to which the Company issued an initial sale of $ 75.0 million principal amount of Notes. The Company used a portion of the initial sale of Notes to repay in full all principal, accrued and unpaid interest, fees and expenses under the Loan Agreement with the Lenders. Refer to Note 16. Subsequent Events for further discussion.
Pursuant to the Loan Agreement, as amended, the Company received an initial Term Loan of $ 25.0 million on the Loan Agreement Closing Date, and drew down the second term loan of $ 15.0 million (the “Term B Loan”) on March 22, 2023. As of December 31, 2024 the Company was able to 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 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 % , subject to an overall floor and cap. Interest on the outstanding amounts was 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 PTCL, the Company is required to 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 was 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 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 included 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. Pursuant to the Loan Agreement, 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.
F-20
Table of Contents
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 December 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 December 31, 2024, and 2023 (in thousands):
December 31, 2024
December 31, 2023
Principal loan balance
$
40,000
$
40,000
Final Payment Fee
1,172
661
Debt issuance costs, net of accretion
( 448 )
( 575 )
Total Long-term debt, net of discount
40,724
40,086
The following table sets forth total interest expense for the years ended December 31, 2024, 2023, and 2022 (in thousands):
Year ended December 31,
2024
2023
2022
Contractual Interest
$
3,774
$
3,472
$
1,733
Amortization of debt discount and issuance costs
277
230
179
Amortization of Final Payment Fee
511
437
225
Total
$
4,562
$
4,139
$
2,137
As of December 31, 2024, future principal payments due were as follows (in thousands):
2025
15,000
2026
20,000
2027
5,000
Total principal payments
$
40,000
F-21
Table of Contents
6. 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. The lease term commenced on April 15, 2014 and it was scheduled to expire on September 30, 2019. 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 “February 2018 Amended Lease Agreement”). The February 2018 Amended Lease Agreement extended the expiration date of the lease from September 2019 through June 2025. Pursuant to the February 2018 Amended Lease Agreement, the initial annual base rent amount was approximately $ 0.7 million, which increased during the lease term to $ 1.1 million for the last 12-month period. Effective November 1, 2024, the Company amended the February 2018 Amended Lease Agreement to extend the expiration date from June 2025 to June 2026 (the “November 2024 Amended Lease Agreement”). The payment terms of the November 2024 Amended Lease Agreement are $ 1.1 million per annum through the expiration date in June 2026. As a result of the November 2024 Amended Lease Agreement, the Company recorded an incremental $ 1.0 million right-of-use asset and corresponding lease liability during the year ended December 31, 2024.
The Company has 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 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.
As of December 31, 2024, a right-of-use asset of $ 1.4 million and lease liability of $ 1.5 million are reflected on the consolidated balance sheets. The elements of lease expense were as follows (dollar amounts in thousands):
Year ended December 31,
2024
2023
2022
Lease Expense
Operating lease expense
$
906
$
885
$
885
Total Lease Expense
$
906
$
885
$
885
Other Information - Operating Leases
Operating cash flows paid for amounts included in measurement of lease liabilities
$
1,081
$
1,060
$
1,019
December 31, 2024
Other Balance Sheet Information - Operating Leases
Weighted average remaining lease term (in years)
1.5
Weighted average discount rate
9.8 %
Maturity Analysis
2025
1,092
2026
546
Total
$
1,638
Less: Present value discount
( 108 )
Lease Liability
$
1,530
F-22
Table of Contents
7. Capital Stock
Under the amended and restated certificate of incorporation, the Company’s board of directors has the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.
As of December 31, 2024 and 2023, the Company had reserved the following shares of common stock for the issuance of common stock for vested restricted stock units, the exercise of stock options, employee stock purchase plan, Series A Convertible Preferred Stock conversions to shares of common stock, the issuance and conversion of Series B Convertible Preferred Stock, and exercise of warrants and pre-funded warrants (in thousands):
December 31,
2024
2023
Shares reserved under equity compensation plans
5,925
2,845
Shares reserved for inducement grants
802
810
Shares reserved for ESPP
59
75
Shares reserved for Series A Convertible Preferred Stock
833
833
Shares reserved for Series B Convertible Preferred Stock
—
7,570
Shares reserved for Warrants
18,083
—
Shares reserved for pre-funded warrants
5,000
1,539
Total shares reserved
30,702
13,672
Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors.
July 2024 Public Offering
On July 23, 2024, the Company entered into an underwriting agreement with Guggenheim Securities, LLC and Cantor Fitzgerald & Co. (“Cantor”), as representatives of the several underwriters relating to the underwritten offering, issuance and sale by the Company of: (i) 13,333,334 shares of the Company’s common stock, and accompanying warrants (the “Warrants”) to purchase up to 13,333,334 shares of common stock; and (ii) to certain investors, pre-funded warrants (the “July 2024 Pre-Funded Warrants”) to purchase up to 5,000,000 shares of common stock and accompanying Warrants to purchase 5,000,000 shares of common stock (collectively, the “July 2024 Offering”). Each share of common stock was sold with an accompanying Warrant at a combined price of $ 3.00 , and each July 2024 Pre-Funded Warrant was sold together with an accompanying Warrant at a combined price of $ 2.999 , which is equal to the combined offering price per share of common stock and accompanying Warrant less the $ 0.001 exercise price of each July 2024 Pre-Funded Warrant. The July 2024 Offering closed on July 25, 2024. The Company received approximately $ 50.8 million in net proceeds, after deducting underwriting discounts and commissions and offering expenses.
Each July 2024 Pre-Funded Warrant has an exercise price equal to $ 0.001 per underlying share of common stock. The July 2024 Pre-Funded Warrants are exercisable as of July 25, 2024, do not expire and are exercisable in cash or by means of a cashless exercise.
Each Warrant has an exercise price equal to $ 3.50 . Each Warrant is exercisable for one share of the Company’s common stock (or, in certain limited circumstances in lieu of a share of common stock, a pre-funded warrant for one share of the Company’s common stock at the warrant exercise price less the exercise price of the pre-funded warrant purchased). The Warrants are exercisable as of July 25, 2024 until their expiration on January 25, 2026. The Warrants are exercisable in cash or, in certain limited circumstances only, by means of a cashless exercise.
F-23
Table of Contents
The exercise price and the number of shares of common stock issuable upon exercise of each Warrant or July 2024 Pre-Funded Warrant, as applicable, is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock as well as upon any distribution of assets, including cash, stock or other property, to the Company’s stockholders.
The Company may not effect the exercise of any Warrant or July 2024 Pre-Funded Warrant, and a holder will not be entitled to exercise any portion of any Warrant or July 2024 Pre-Funded Warrant if, upon giving effect to such exercise, the aggregate number of shares of common stock beneficially owned by the holder (together with its affiliates) would exceed 4.99 % (or such higher percentage up to 19.99 % , at the election of the holder) of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise, which percentage may be increased or decreased at the holder’s election upon 61 days ’ notice to the Company subject to the terms of such Warrants or July 2024 Pre-Funded Warrants, as applicable, provided that such percentage may in no event exceed 19.99 % . In the event that the exercise of a Warrant would cause the holder to beneficially own in excess of 4.99 % (or such higher percentage up to 19.99 % , at the election of the holder) of the total number shares of the Company’s common stock outstanding immediately after giving effect to such exercise, the holder of a Warrant may elect to purchase a pre-funded warrant for one share of the Company’s common Stock, rather than a share of common stock, at the Warrant exercise price less the exercise price of the pre-funded warrant purchased.
In addition, upon the consummation of an acquisition (as described in the Warrants agreements and July 2024 Pre-Funded Warrants agreements, as applicable), each Warrant and July 2024 Pre-Funded Warrant will automatically be converted into the right of the holder of such Warrant or July 2024 Pre-Funded Warrant, as applicable, to receive the kind and amount of securities, cash or other property that such holders would have received had they exercised such Warrant or July 2024 Pre-Funded Warrant, as applicable, immediately prior to such acquisition, without regard to any limitations on exercise contained in the Warrant agreements or July 2024 Pre-Funded Warrant agreements.
The Warrants meet the definition of a derivative pursuant to FASB Accounting Standard Codification 815, Derivatives and Hedging , and do not meet the derivative scope exception given the Warrants do not qualify under the indexation guidance. As a result, the Warrants were initially recognized as liabilities and measured at fair value using the Black-Scholes valuation model with subsequent changes in fair value recorded in earnings. The warrants were recorded at a fair value of $ 39.6 million upon issuance and the Company allocated $ 39.6 million of the proceeds to this liability and recorded this amount as warrant liability. On December 23, 2024, 250,000 Warrants were exercised for shares of common stock. The fair value of the 250,000 Warrants at the exercise date was $ 0.5 million, which was reclassified from warrant liability into additional paid-in-capital. On December 31, 2024, the fair value of the remaining 18,083,334 Warrants was determined to be $ 58.2 million and the Company recorded this amount as warrant liability on the consolidated balance sheets. The Company recorded the mark-to-market adjustment of $ 19.1 million for the year ended December 31, 2024, under change in fair value of warrant liability within the consolidated statements of operations and loss.
The July 2024 Pre-Funded Warrants cannot require cash settlement, are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock and Warrants with which they were issued, are immediately exercisable, and do not embody an obligation for the Company to repurchase its common stock shares and permit the holders to receive a fixed number of shares of common stock upon exercise. Additionally, the July 2024 Pre-Funded Warrants do not provide any guarantee of value or return. Accordingly, the July 2024 Pre-Funded Warrants are classified as a component of permanent equity. The Company allocated $ 15.4 million of the proceeds to the July 2024 Pre-Funded Warrants and shares of common stock issued.
The Company incurred a total of $ 4.2 million in issuance costs, which the Company allocated to the Warrants, and 2024 Pre-Funded Warrants and shares of common stock consistent with the allocation of proceeds. $ 3.0 million of issuance costs were allocated to the Warrants and expensed within selling, general and administrative expenses in the statements of operations and comprehensive loss for the year ended December 31, 2024. $ 1.2 million of the issuance costs were allocated to the July 2024 Pre-Funded Warrants and shares of common stock and applied against additional paid-in capital.
F-24
Table of Contents
June 2023 Public Offering
On June 15, 2023, the Company entered into an underwriting agreement (the “June 2023 Underwriting Agreement”) with RBC Capital Markets, LLC and Cantor, as representatives of several underwriters (the “June 2023 Underwriters”) to offer 7,181,409 shares of the Company’s common stock, at a price to the public of $ 9.75 per share, less the underwriting discounts and commissions, and, in lieu of shares of common stock to certain investors, pre-funded warrants (the “June 2023 Pre-Funded Warrants”) to purchase up to an aggregate of 1,538,591 shares of common stock at a price to the public of $ 9.749 per share of common stock underlying a pre-funded warrant, which represents the per share public offering price for the shares of common stock less the $ 0.001 per share exercise price for each such share of common stock underlying a June 2023 Pre-Funded Warrant (the “June 2023 Offering”). In addition, the Company granted the June 2023 Underwriters an option to purchase, at the public offering price less underwriting discounts and commissions, an additional 1,308,000 shares of common stock, exercisable for 30 days from the date of the June 2023 Underwriting Agreement, which the June 2023 Underwriters exercised in full on June 16, 2023. The June 2023 Offering closed on June 21, 2023.
The Company could not have effected the exercise of any June 2023 Pre-Funded Warrant, and a holder was not entitled to exercise any portion of any June 2023 Pre-Funded Warrant if, upon giving effect to such exercise, the aggregate number of shares of common stock beneficially owned by the holder (together with its affiliates) would have exceeded 9.99 % of the number of shares of common stock outstanding immediately after giving effect to the exercise, which percentage could have been increased or decreased at the holder’s election upon 61 days ’ notice to the Company subject to the terms of such June 2023 Pre-Funded Warrant, provided that such percentage in no event exceeded 19.99 % .
Each June 2023 Pre-Funded Warrant had an exercise price equal to $ 0.001 per share of common stock. The exercise price and the number of shares of common stock issuable upon exercise of each June 2023 Pre-Funded Warrant was subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock as well as upon any distribution of assets, including cash, stock or other property, to the Company’s stockholders. The June 2023 Pre-Funded Warrants were exercisable as of June 21, 2023, did not expire and were exercisable in cash or by means of a cashless exercise. In addition, upon the consummation of an acquisition (as described in the June 2023 Pre-Funded Warrant agreements), each June 2023 Pre-Funded Warrant would have automatically been converted into the right of the holder of such June 2023 Pre-Funded Warrant to receive the kind and amount of securities, cash or other property that such holders would have received had they exercised such June 2023 Pre-Funded Warrant immediately prior to such acquisition, without regard to any limitations on exercise contained in the June 2023 Pre-Funded Warrants.
The June 2023 Pre-Funded Warrants could not have required cash settlement, were freestanding financial instruments that were legally detachable and separately exercisable from the shares of common stock with which they were issued, were immediately exercisable, and did not embody an obligation for the Company to repurchase its common stock shares and permitted the holders to receive a fixed number of shares of common stock upon exercise. Additionally, the June 2023 Pre-Funded Warrants did not provide any guarantee of value or return. Accordingly, the June 2023 Pre-Funded Warrants were classified as a component of permanent equity. After deducting for commissions and other offering expenses, the Company received net proceeds of approximately $ 91.4 million from the sale of 8,489,409 shares of common stock and June 2023 Pre-Funded Warrants to purchase up to 1,538,591 shares of common stock.
During the year ended December 31, 2024, the holders exercised the June 2023 Pre-Funded Warrants representing 1,538,591 underlying shares of common stock, exercise price $ 0.0001 per share, via cashless exercise resulting in the issuance of 1,538,201 shares of common stock. As of December 31, 2024 there were no June 2023 Pre-Funded Warrants outstanding.
F-25
Table of Contents
Series B Convertible Preferred Stock
On January 24, 2023, the Company entered into a Securities Purchase Agreement (the “Series B Convertible Preferred Stock Securities Purchase Agreement”) with certain purchasers pursuant to which the Company agreed to sell and issue to the purchasers in a private placement (the “Private Placement”) up to 2,144,160 shares of its Series B convertible preferred stock, par value $ 0.0001 per share (the “Series B Convertible Preferred Stock”), in two tranches. On January 24, 2023, the Company filed the Certificate of Designation of the Preferences, Rights and Limitations of the Series B Convertible Preferred Stock (the “Series B Convertible Preferred Stock Certificate of Designation”) setting forth the preferences, rights and limitations of the Series B Convertible Preferred Stock with the Secretary of State of the State of Delaware. The Series B Convertible Preferred Stock Certificate of Designation became effective upon filing.
Each share of the Series B Convertible Preferred Shares is convertible into 3.5305 shares of the Company’s common stock, such conversion rate reflects an adjustment to account for the Reverse Stock Split, at the option of the holders at any time, subject to certain limitations, including that the holder will be prohibited from converting Series B Convertible Preferred Stock into common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own a number of shares of common stock above a conversion blocker, which is initially set at 9.99 % (the “Conversion Blocker”) of the total common stock then issued and outstanding immediately following the conversion of such shares of Series B Convertible Preferred Stock. Holders of the Series B Convertible Preferred Stock are permitted to increase the Conversion Blocker to an amount not to exceed 19.99 % upon 60 days ’ notice.
The Company agreed to sell and issue in the first tranche of the Private Placement 1,200,000 shares of Series B Convertible Preferred Stock at a purchase price of $ 25.00 per share of Series B Convertible Preferred Stock (equivalent to $ 7.0812 per share of common stock on a post-Reverse Stock Split basis). The first tranche of the Private Placement closed on January 27, 2023. The Company received gross proceeds from the first tranche of the Private Placement of approximately $ 30.0 million, before deducting fees to the placement agent and other offering expenses payable by the Company (“Series B Convertible Preferred Stock Proceeds”).
In addition, the Company agreed to sell and issue in the second tranche of the Private Placement 944,160 shares of Series B Convertible Preferred Stock at a purchase price of $ 31.77 per share of Series B Convertible Preferred Stock (equivalent to $ 9.00 per share of common stock on a post-Reverse Stock Split basis) if at any time within 18 months following the closing of the first tranche the 10-day volume weighted average price of the Company’s common stock (as quoted on Nasdaq and as calculated by Bloomberg) should reach at least $ 13.50 per share, such threshold reflects an adjustment to account for the Reverse Stock Split (which may be further adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as needed) with aggregate trading volume during the same 10-day period of at least $ 25 million (the “Second Tranche Right”). The second tranche of the Private Placement is expected to close within seven trading days of meeting the second tranche conditions and will be subject to additional, customary closing conditions. If the Second Tranche Right conditions are satisfied, the Company anticipates receiving gross proceeds from the second tranche of the Private Placement of approximately $ 30.0 million, before deducting fees to the placement agent and other offering expenses payable by the Company.
The Series B Convertible Preferred Stock ranks (i) senior to the common stock; (ii) senior to all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series B Convertible Preferred Stock; (iii) senior to all shares of the Company’s Series A Convertible Preferred Stock the equity securities described in (i)-(iii), the “Junior Stock”); (iv) on parity with any class or series of capital stock of the Company hereafter created specifically ranking by its terms on parity with the Series B Convertible Preferred Stock (the “Parity Stock”); (v) junior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms senior to any Series B Convertible Preferred Stock (“Senior Stock”); and (vi) junior to all of the Company’s existing and future debt obligations, including convertible or exchangeable debt securities, in each case, as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily and as to the right to receive dividends.
F-26
Table of Contents
In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, and subject to the prior and superior rights of any Senior Stock, each holder of shares of Series B Convertible Preferred Stock will be entitled to receive, in preference to any distributions of any of the assets or surplus funds of the Company to the holders of the common stock and any of the Company’s securities that are Junior Stock and pari passu with any distribution to the holders of any Parity Stock, an amount equal to $ 1.00 per share of Series B Convertible Preferred Stock, plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of the common stock or any of our securities that Junior Stock.
So long as any shares of the Series B Convertible Preferred Stock remain outstanding, the Company cannot without the affirmative vote or consent of the holders of majority of the shares of the Series B Convertible Preferred Stock then-outstanding, in which the holders of the Series B Convertible Preferred Stock vote separately as a class: (a) amend, alter, modify or repeal (whether by merger, consolidation or otherwise) the Series B Convertible Preferred Stock Certificate of Designation, the Company’s certificate of incorporation, or the Company’s bylaws in any manner that adversely affects the rights, preferences, privileges or the restrictions provided for the benefit of, the Series B Convertible Preferred Stock; (b) issue further shares of Series B Convertible Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series B Convertible Preferred Stock; (c) authorize or issue any Senior Stock; or (d) enter into any agreement to do any of the foregoing that is not expressly made conditional on obtaining the affirmative vote or written consent of the majority of then-outstanding Series B Convertible Preferred Stock. Holders of Series B Convertible Preferred Stock are entitled to receive when, as and if dividends are declared and paid on the common stock, an equivalent dividend, calculated on an as-converted basis. Shares of Series B Convertible Preferred Stock are otherwise not entitled to dividends.
The Company initially classified the first tranche of the Series B Convertible Preferred Stock as temporary equity in the consolidated balance sheets as the Company could have been required to redeem the Series B Convertible Preferred Stock if the Company could not convert the Series B Convertible Preferred Stock into shares of common stock for any reason including due to any applicable laws or by the rules or regulations of any stock exchange, interdealer quotation system, or other self-regulatory organization with jurisdiction over the Company which is not solely in the control of the Company. If the Company was required to redeem the Series B Convertible Preferred Stock, it would have been based upon the volume-weighted-average price of common stock on an as converted basis on the date the holders provided a conversion notice to the Company. On October 18, 2024, holders of the Series B Convertible Preferred Stock elected to convert 1,200,000 shares of Series B Convertible Preferred Stock for 4,236,568 shares of the Company’s common stock and consequently, the Company issued 4,236,568 shares of its common stock to holders of the Series B Convertible Preferred Stock. During the year ended December 31, 2024, the Company did not adjust the carrying value of the Series B Convertible Preferred Stock since it was not probable the holders would be unable to convert the Series B Convertible Preferred Stock into shares of common stock due to any reason including due to any applicable laws or by the rules or regulations of any stock exchange, interdealer quotation system, or other self-regulatory organization with jurisdiction over the Company. Upon conversion, the Company reclassified $ 21.2 million from Series B Convertible Preferred Stock to common stock and additional paid in capital on the consolidated balance sheet. As of December 31, 2024, there are 0 shares of Series B Convertible Preferred Stock outstanding.
F-27
Table of Contents
The Company evaluated the Second Tranche Right under ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and determined that it met the requirements for separate accounting from the initial issuance of Series B Convertible Preferred Stock as a freestanding financial instrument. The Company then determined the Second Tranche Right should be liability classified pursuant to ASC 480. As a result, the Company classified the Second Tranche Right as a non-current liability within the consolidated balance sheets and the Second Tranche Right was initially recorded at fair value and is subsequently re-measured at fair value at the end of each reporting period. The fair value of the Second Tranche Right on the date of issuance was determined to be $ 6.9 million based on a Monte-Carlo valuation and the Company allocated $ 6.9 million of the Series B Convertible Preferred Stock Proceeds to this liability and recorded this amount as preferred stock tranche liability. On December 31, 2023, the fair value of the Second Tranche Right was determined to be $ 4.2 million and the Company recorded this amount as preferred stock tranche liability on the consolidated balance sheets. The Second Tranche Right expired in July 2024 and is no longer outstanding. The Company recorded the mark-to-market adjustment of $ 4.2 million for the year ended December 31, 2024, under change in fair value of preferred stock tranche liability within the consolidated statements of operations and loss. The Company recorded the mark-to-market adjustment of $ 2.8 million for the year ended December 31, 2023, under change in fair value of preferred stock tranche liability within the consolidated statements of operations and loss.
The Company determined that all other features of the securities offered pursuant to the Series B Convertible Preferred Stock Securities Purchase Agreement were clearly and closely associated with the equity host and did not require bifurcation or the fair value of the feature was immaterial to the Company's consolidated 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 original assessment through December 31, 2024.
Series A Convertible Preferred Stock
On November 4, 2022, the Company e ntered into an exchange agreement (the “Exchange Agreement”) with Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Biotechnology Value Trading Fund OS LP and MSI BVF SPV, LLC (collectively referred to as “BVF”), pursuant to which BVF exchanged 833,333 shares of the Company’s common stock (as adjusted to account for the Reverse Stock Split) for 1,000,000 shares of newly designated Series A convertible preferred stock, par value $ 0.0001 per share (the “Series A Convertible Preferred Stock”) (the “Exchange”).
Each share of the Series A Convertible Preferred Stock is convertible into 0.833 shares of the Company’s common stock (as adjusted to account for the Reverse Stock Split) at the option of the holder at any time, subject to certain limitations, including that the holder will be prohibited from converting Preferred Stock into common stock if, as a result of such conversion, the holder, together with its affiliates, would beneficially own a number of shares of common stock above the Conversion Blocker, initially set at 9.99 % , of the total common stock then issued and outstanding immediately following the conversion of such shares of Preferred Stock. Holders of the Series A Convertible Preferred Stock are permitted to increase the Conversion Blocker to an amount not to exceed 19.99 % upon 60 days ’ notice.
Shares of Series A Convertible Preferred Stock generally have no voting rights, except as required by law and except that the consent of a majority of the holders of the outstanding Series A Convertible Preferred Stock will be required to amend the terms of the Series A Convertible Preferred Stock. In the event of the Company’s liquidation, dissolution or winding up, holders of Series A Convertible Preferred Stock will participate pari passu with any distribution of proceeds to holders of common stock. Holders of Series A Convertible Preferred Stock are entitled to receive when, as and if dividends are declared and paid on the common stock, an equivalent dividend, calculated on an as-converted basis. Shares of Series A Convertible Preferred Stock are otherwise not entitled to dividends.
F-28
Table of Contents
The Series A Convertible Preferred Stock (i) senior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms junior to the Series A Convertible Preferred Stock; (ii) on parity with the common stock and any class or series of capital stock of the Company created specifically ranking by its terms on parity with the Series A Convertible Preferred Stock; and (iii) junior to the Series B Convertible Preferred Stock and to any class or series of capital stock of the Company created specifically ranking by its terms senior to any Series A Convertible Preferred Stock, in each case, as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily.
The Company evaluated the Series A Convertible Preferred Stock for liability or equity classification under ASC 480 and determined that equity treatment was appropriate because the Series A Preferred Stock did not meet the definition of the liability under ASC 480. Additionally, the Series A Preferred Stock is not redeemable for cash or other assets (i) on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event that is not solely within control of the Company. As such, the Company recorded the Series A Convertible Preferred Stock as permanent equity.
At-the-market equity offering programs
In August 2021, the Company entered into a sales agreement with Cantor pursuant to which the Company can offer and sell up to $ 100.0 million of its common stock at the current market prices from time to time through Cantor as sales agent (the “August 2021 ATM”). During the years ended December 31, 2024, 2023, and 2022, the Company sold 0 shares, 0 shares, and 1,964,448 shares, respectively, under the August 2021 ATM for net proceeds of approximately $ 0.0 million, $ 0.0 million, and $ 27.4 million, respectively, (after deducting commissions and other offering expenses) .
8. Stock-based compensation
Stock-based compensation expense as reflected in the Company’s consolidated statements of operations and comprehensive loss was as follows (in thousands):
Year ended December 31,
2024
2023
2022
Research and development
$
2,134
$
1,987
$
1,766
Selling, general and administrative
5,208
3,873
4,281
Total stock-based compensation expense
$
7,342
$
5,860
$
6,047
All of the $ 7.3 million, $ 5.9 million, and $ 6.0 million of stock-based compensation expense recorded during the years ended December 31, 2024, 2023 and 2022, respectively, was recorded to additional paid-in capital.
The Company has awards outstanding under two equity compensation plans, the Amended and Restated 2021 Equity Incentive Plan (the “Amended 2021 Plan”), and the Amended and Restated 2012 Incentive Plan (the “2012 Plan”), as well as the inducement award program. Terms of stock award agreements, including vesting requirements, are determined by the board of directors, subject to the provisions of the individual plans.
F-29
Table of Contents
2021 Plan
During 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “Original 2021 Plan”). Upon effectiveness of the Original 2021 Plan, the Company ceased making awards under the 2012 Plan. At the Company’s 2024 Annual General Meeting of Shareholders in May 2024, the Company’s shareholders approved the Amended 2021 Plan. The Amended 2021 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, RSUs and other stock-based awards. The number of shares of common stock initially reserved for issuance under the Original 2021 Plan was (i) 1,991,666 which is the sum of 1,104,177 shares plus the number of shares available for issuance under the 2012 Plan as of the date the Company’s Board of Directors approved the 2021 Plan ( 887,489 shares) plus (ii) the number of shares of the Company’s common stock underlying awards under the 2012 Plan and the 2010 Equity Incentive Plan (the “ 2010 Plan”) that expire, terminate or are surrendered without delivery of shares, are forfeited to or repurchased by the Company, or otherwise become available again for grant under the terms of the 2012 Plan or the 2010 Plan, as applicable. The Amended 2021 Plan increased the maximum number of shares available for issuance by 3,200,000 shares.
As of December 31, 2024, under the Original 2021 Plan and Amended 2021 Plan, the Company has granted stock options for 2,198,923 shares of common stock, of which 323,349 have been forfeited and 21,978 have been exercised, and granted RSUs for 1,219,720 shares of common stock, of which 47,679 have been forfeited and 172,697 have vested. As of December 31, 2024, 2,850,675 shares remain available for future issuance under the Amended 20221 Plan. The exercise price of each option has been equal to the closing price of a share of the Company’s common stock on the grant date.
2012 Plan
The 2012 Plan became effective immediately upon the closing of the Company’s initial public offering in February 2012. Upon effectiveness of the 2012 Plan, the Company ceased making awards under the 2010 Plan. The 2012 Plan initially allowed the Company to grant awards for up to 285,714 shares of common stock, plus the number of shares of common stock available for grant under the 2010 Plan as of the effectiveness of the 2012 Plan (which was an additional 2,508 shares), plus that number of shares of common stock related to awards outstanding under the 2010 Plan which terminate by expiration, forfeiture, cancellation or otherwise. The 2012 Plan included an “evergreen provision” that allowed for an annual increase in the number of shares of common stock available for issuance under the 2012 Plan. The annual increase was added on the first day of each year from 2013 through 2018 and was equal to the lesser of 107,412 shares of common stock and 4.0 % of the number of shares of common stock outstanding, or a lesser amount as determined by the board of directors. On each of January 1, 2018, January 1, 2017 and January 1, 2016, the number of shares available for issuance under the 2012 Plan increased by 107,412 under this provision. On December 18, 2018, the shareholders of the Company approved the Amended and Restated 2012 Incentive Plan which increased the maximum number of shares available for issuance under the 2012 Plan to 1,385,702 and eliminated the evergreen provision. On May 19, 2020, the shareholders of the Company approved the Amended and Restated 2012 Incentive Plan which increased the maximum number of shares available for issuance by 1,083,333 shares.
Awards under the 2012 Plan may include the following award types: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, RSUs, other stock-based or cash-based awards and any combination of the foregoing. As of December 31, 2024, under the 2012 Plan, the Company has granted stock options for 1,841,188 shares of common stock, of which 1,197,732 have been forfeited, 237,578 have expired, and 191,342 have been exercised, and granted RSUs for 556,432 shares of common stock, of which 87,547 have been forfeited and 468,581 have vested. The exercise price of each stock option has been equal to the closing price of a share of the Company’s common stock on the grant date. Upon adoption of the Original 2021 Plan, the Company ceased issuing awards from the 2012 Plan.
F-30
Table of Contents
Inducement Award Program
In December 2014, the Company established an inducement award program (in accordance with Nasdaq Listing Rule 5635(c)(4)) under which it may grant non-statutory stock options to purchase, and RSUs in respect of up to an aggregate of 62,500 shares of common stock to new or prospective employees as inducement to enter into employment with the Company. In December 2016, the Board of Directors authorized and reserved 48,333 additional shares of common stock under this program. In December 2017, the Board of Directors authorized and reserved 208,333 additional shares of common stock under this program. In June and December 2018, the Board of Directors authorized and reserved 141,666 and 104,166 additional shares of common stock under this program, respectively. In February 2020, the Board of Directors authorized the reduction of 169,447 shares available for issuance under this program. In September 2023, the Board of Directors authorized and reserved 500,000 additional shares of common stock under this program. The program is governed by the terms of the 2021 Plan, but shares issued pursuant to the program are not issued under the 2021 Plan. As of December 31, 2024, the Company had granted options for 1,097,105 shares of common stock under the program, of which 635,540 have been forfeited, 1,997 have expired and 48,663 have been exercised, and granted RSUs for 80,804 shares, of which 31,342 have been forfeited and 38,877 have vested. As of December 31, 2024, 380,255 shares remain available for future issuance.
Stock Options
Most options granted by the Company vest twenty-five percent ( 25 %) one year from vesting start date and six and a quarter percent ( 6.25 %) for each successive three-month period, thereafter (subject to acceleration of vesting in the event of certain change of control transactions) subject to the employee’s continued employment with, or service to, the Company on such vesting date and are exercisable for a period of ten years from the date of grant.
Option Exchange Program
On January 17, 2024, the Company’s stockholders, upon recommendation of the board of directors, approved a one-time stock option exchange program (the “Option Exchange Program”) for certain employees, executive officers and non-employee directors of the Company who held certain underwater options and remained employed or otherwise engaged by the Company through the completion of the Exchange Offer. The Company’s offer to participate in the Option Exchange Program commenced on February 8, 2024, and expired on March 8, 2024 (the “Exchange Offer”). Pursuant to the Exchange Offer, 42 eligible holders elected to exchange, and the Company accepted for cancellation, eligible options to purchase an aggregate of 603,330 shares of the Company’s common stock (the “Exchanged Options”). On March 11, 2024, promptly following the expiration of the Exchange Offer, the Company granted new options to purchase 603,330 shares of common stock (the “New Options”), pursuant to the terms of the Exchange Offer and the Amended 2021 Plan. The exercise price of the New Options granted was $ 11.44 per share, which was the closing price of the Company’s common stock on the Nasdaq Capital Market on the grant date of the New Options.
The exchange of stock options was treated as a modification for accounting purposes. As a result of the Option Exchange Program, the Company will recognize incremental stock-based compensation expense of $ 1.7 million over the requisite service period of the New Options, which is two or four years depending on whether the Exchanged Options were vested at the time of exchange. Since the Exchanged Options were not at-the-money on the modification date, the Company was precluded from utilizing the simplified method as described in SEC Staff Accounting Bulletin Topic 14.D.2 to calculate the expected term as a key assumption in the Black-Scholes pricing model. Therefore, the Company utilized the binomial lattice model to calculate the fair value of the Exchanged Options immediately prior to the exchange. The Company utilized the Black-Scholes option-pricing model to calculate the fair value of the New Options on the modification date. The Company is recognizing the remaining unamortized stock compensation expense for the Exchanged Options on the modification date over the original requisite service period of the Exchanged Options. At December 31, 2024 there was $ 0.7 million of unrecognized compensation cost related to Exchanged Options that the Company expects to recognize over a remaining weighted-average period of 0.9 years.
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Table of Contents
A summary of the Company’s stock option activity and related information for the year ended December 31, 2024, is as follows:
Shares
Weighted-average exercise price per share
Weighted-average remaining contractual term (years)
Aggregate intrinsic value (in thousands)
Outstanding at December 31, 2023
2,270,359
$
19.81
7.8
$
559
Granted
468,374
4.17
Exercised/Released
( 21,978 )
7.84
Forfeited/cancelled
( 214,041 )
14.16
Expired
( 23,677 )
162.38
Cancelled under the Option Exchange Program
( 603,330 )
30.58
Granted under the Option Exchange Program
603,330
11.44
Outstanding at December 31, 2024
2,479,037
$
11.43
8.3
$
843
Vested at December 31, 2024
831,284
$
16.12
7.2
$
176
The fair value of each stock option was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:
Year ended December 31,
2024
2023
2022
Risk-free interest rate
4.07
%
3.77
%
3.13
%
Volatility
99
%
92
%
88
%
Dividend yield
—
—
—
Expected term (years)
5.8
6.1
5.8
The Company recorded stock-based compensation expense associated with employee and non-employee stock options of $ 4.6 million, $ 4.2 million, and $ 4.2 million, for the years ended December 31, 2024, 2023, and 2022, respectively. The weighted-average grant date fair value of stock options granted in the years ended December 31, 2024, 2023, and 2022 was $ 3.35 , $ 6.16 , and $ 8.28 per stock option, respectively. The fair value of stock options that vested during the years ended December 31, 2024, 2023, and 2022 was $ 3.5 million, $ 3.1 million, and $ 4.4 million, respectively. The aggregate intrinsic value of options exercised (i.e., the difference between the market price at exercise and the price paid by employees to exercise the option) during the years ended December 31, 2024, 2023, and 2022 was $ 0.1 million, $ 0.0 million, and less than $ 0.1 million, respectively.
At December 31, 2024 there was $ 6.0 million of total unrecognized compensation cost related to unvested stock options and the Company expects to recognize this cost over a remaining weighted-average period of 2.1 years.
Restricted Stock Units (“RSUs”)
Each RSU entitles the holder to receive one share of the Company’s common stock when the RSU vests. The RSUs generally vest (i) twenty-five percent ( 25 %) one year from vesting start date and six and a quarter percent ( 6.25 %) for each successive three-month period, thereafter, (ii) two tranches for 50 % of the award with the second and final vesting date on the one year anniversary of the vesting commencement date, (iii) 100 percent within two years of the vesting commencement date and (iv) 33.3 % of the RSUs on the first three anniversaries of the grant date. The RSUs are subject to acceleration of vesting in the event of certain change of control transactions and subject to the employee’s continued employment with, or service to, the Company on such vesting date. Compensation expense is recognized on a straight-line basis.
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A summary of RSU activity during the year ended December 31, 2024, is as follows:
Shares
Weighted-average grant date fair value per share
Outstanding at December 31, 2023
209,289
$
18.05
Granted
950,371
$
5.07
Vested
( 113,782 )
$
14.91
Forfeited/cancelled
( 35,645 )
$
15.43
Outstanding at December 31, 2024
1,010,233
$
6.29
The Company recorded stock-based compensation expense associated with employee and non-employee RSUs of $ 2.7 million, $ 1.6 million, and $ 1.8 million, for the years ended December 31, 2024, 2023, and 2022, respectively. The total fair value of restricted stock units that vested during the years ended December 31, 2024, 2023, and 2022 was approximately $ 1.7 million, $ 1.7 million, and $ 2.3 million, respectively.
At December 31, 2024, there was $ 4.0 million of total unrecognized compensation cost related to unvested RSUs and the Company expects to recognize this cost over a remaining weighted-average period of 2.3 years.
Employee stock purchase plan
At the special meeting of stockholders, held on December 18, 2018, the stockholders approved the 2018 Employee Stock Purchase Plan (“2018 ESPP”). On June 21, 2019, the board of directors of the Company amended and restated the 2018 ESPP, to account for certain non-material changes to the plan’s administration (the “Amended and Restated 2018 ESPP”). The Amended and Restated 2018 ESPP provides eligible employees with the opportunity, through regular payroll deductions, to purchase shares of the Company’s common stock at 85 % of the lesser of the fair market value of the common stock (a) on the date the option is granted, which is the first day of the purchase period, and (b) on the exercise date, which is the last business day of the purchase period. The Amended and Restated 2018 ESPP generally allows for two six-month purchase periods per year beginning in January and July, or such other periods as determined by the compensation committee of the Company’s board of directors. The Company has reserved 166,666 shares of common stock for the administration of the Amended and Restated 2018 ESPP. The fair value of shares expected to be purchased under the Amended and Restated 2018 ESPP was calculated using the Black-Scholes model with the following weighted-average assumptions:
Year ended December 31,
2024
2023
2022
Risk-free interest rate
5.31
%
5.16
%
1.56
%
Volatility
115
%
126
%
77
%
Dividend yield
—
—
—
Expected term (years)
0.5
0.5
0.5
For the years ended December 31, 2024, 2023, and 2022, the Company has recognized less than $ 0.1 million, less than $ 0.1 million, and $ 0.1 million, respectively, of stock-based compensation expense under the Amended and Restated 2018 ESPP. During the year ended December 31, 2024, 2023, and 2022, the Company issued 15,231 shares, 14,270 shares and 10,194 shares, respectively, of common stock for proceeds of $ 0.1 million, $ 0.1 million and $ 0.2 million, respectively under the Amended and Restated 2018 ESPP.
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9. Segment Reporting
The Company has one operating segment which is the business of researching, developing and commercializing drugs for the treatment of patients with cancer. While the Company group consists of entities incorporated in both the U.S. and Germany, the Company manages all business activities on a consolidated basis for the purposes of assessing performance, making operating decisions, and allocating Company resources. The Company’s Chief Operating Decision Maker (the “CODM”) is its President and Chief Executive Officer. The measure of segment assets is the same as reported on the consolidated balance sheets as total assets. The CODM assesses performance based on consolidated net loss that is also reported on the statements of operations and comprehensive loss. The CODM uses net loss to monitor budget versus actual results and to determine how to allocate resources and capital in line with the Company’s overall strategy and goals. The accounting policies of the Company's segment are the same as those described in Note 2. Significant Accounting Policies .
The table below is a summary of segment net loss including significant segment expenses for the years ended December 31, 2024, 2023 and 2022 (in thousands):
Year Ended December 31,
2024
2023
2022
Revenue:
Sale of COPIKTRA license and related assets (1)
$
10,000
$
—
$
2,596
Expenses:
Research and development expenses (2)
78,648
59,137
48,685
Commercial expenses (2)
10,934
4,164
2,138
Medical affairs expenses (2)
5,231
2,907
1,317
General and administrative expenses (2)
21,785
19,755
17,078
Stock-based compensation expense
7,342
5,860
6,047
Depreciation expense
26
62
119
Interest income
( 4,149 )
( 6,214 )
( 1,215 )
Interest expense
4,562
4,139
2,137
Change in fair value of preferred stock tranche liability
( 4,189 )
( 2,751 )
—
Change in fair value of warrant liability
19,149
—
—
Other segment items (3)
1,113
308
102
Income tax expense
185
—
—
Net loss
$
( 130,637 )
$
( 87,367 )
$
( 73,812 )
(1) The Company’s revenue is comprised of milestones and royalties received pursuant to the Secura APA for which the Company has completed its performance obligations in 2020. See Note 13. License, collaboration and commercial agreements for further discussion.
(2) This category is exclusive of non-cash stock-based compensation and severance expense.
(3) Other segment items primarily include severance expense and transactions losses and gains due to foreign currency fluctuations .
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10. Net Loss per Share
ASC Topic 260, Earnings Per Share, requires the Company to calculate its net loss per share based on basic and diluted net loss per share, as defined. Basic EPS excludes dilution and is computed by dividing net loss by the weighted average number of shares outstanding for the period. For the years ended December 31, 2024, 2023, and 2022 net loss, basic and diluted EPS are the same as the assumed exercise of stock options, RSUs, ESPP, the 2018 Notes, Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Warrants are anti-dilutive.
The following potentially dilutive securities were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:
Year Ended December 31,
2024
2023
2022
Outstanding stock options
2,479,037
2,270,359
1,168,105
Outstanding restricted stock units
1,010,233
209,289
172,909
2018 Notes
—
—
3,489
Warrants
18,083,334
—
—
Employee stock purchase plan
8,033
7,475
6,874
Series A Convertible Preferred Stock
833,333
833,333
833,333
Series B Convertible Preferred Stock
—
4,236,570
—
Total potentially dilutive securities
22,413,970
7,557,026
2,184,710
11. Income Taxes
Income tax expense of $ 0.2 million for the year ended December 31, 2024 was comprised of interest under IRC section 453A related to the $ 10.0 million milestone payment from Secura because it was an installment sale. Refer to Note. 11. License collaboration and commercial agreements for further discussion of the Secura APA.
For the years ended December 31, 2024, 2023, and 2022 income tax expense consisted of the following (in thousands):
Year ended December 31,
2024
2023
2022
Current tax expense:
Federal
$
185
$
—
$
—
State
—
—
—
Current income tax expense
185
—
—
Deferred
Federal
—
—
—
State
—
—
—
Deferred income tax expense
—
—
—
Total income tax expense
$
185
$
—
$
—
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A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations follows:
December 31,
2024
2023
Income tax benefit using U.S. federal statutory rate
21.00
%
21.00
%
State tax benefit, net of federal benefit
2.92
%
2.82
%
Research and development tax credits
4.56
%
4.41
%
Stock-based compensation
( 1.91 )
%
( 0.98 )
%
Permanent items
( 2.88 )
%
0.44
%
Change in the valuation allowance
14.59
%
( 21.17 )
%
Tax law change
6.20
%
( 4.31 )
%
NOL and tax credit expiration under Section 382
( 44.44 )
%
( 2.07 )
%
Other
( 0.18 )
%
( 0.14 )
%
Effective income tax rate
( 0.14 )
%
—
%
On October 4, 2023, Massachusetts enacted tax law changes which included the adoption of a single sales apportionment factor effective on January 1, 2025. On December 4, 2024, Massachusetts subsequently enacted supplemental legislation modifying Massachusetts' single sales apportionment factor in certain circumstances. As required under ASC 740, the Company has accounted for the deferred tax impacts of this tax law change in the period the tax law was enacted. The impact of the tax law change is offset by a change in valuation allowance.
The principal components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
December 31,
2024
2023
Deferred tax assets:
Net operating loss carryforwards
$
81,151
$
110,152
Capitalized research and development
38,478
20,356
Research and development credits
2,786
11,192
Stock-based compensation
2,762
3,340
Installment sale
7,652
6,909
Lease liability
395
311
Other deferred tax assets
462
346
Total deferred tax assets
133,686
152,606
Deferred tax liabilities:
Right-of-use asset
( 362 )
( 248 )
Total deferred tax liabilities
( 362 )
( 248 )
Net deferred tax asset prior to valuation allowance
133,324
152,358
Valuation allowance
( 133,324 )
( 152,358 )
Net deferred tax asset
$
—
$
—
The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and development (“R&D”) expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during 2022. The Company will amortize these costs for tax purposes over 5 years for R&D performed in the U.S. and over 15 years for R&D performed outside the U.S.
The Company has recorded a valuation allowance against its deferred tax assets at December 31, 2024 and 2023 because the Company’s management believes that it is more likely than not that these assets will not be fully realized. The decrease in the valuation allowance of approximately $ 19.0 million in the year ended December 31, 2024, primarily relates to the loss of NOL carryforwards and research and development credits which the Company deemed would otherwise expire unused due to Section 382 of the IRC and similar provisions under state law discussed in the next paragraph.
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As of December 31, 2024, the Company had federal and state NOL carryforwards of approximately $ 370.6 million and $ 56.7 million, respectively, which are available to reduce future taxable income. The Company also had federal and state tax credits of $ 2.6 million and $ 0.2 million, respectively, which may be used to offset future tax liabilities. The NOL and tax credit carryforwards will expire at various dates through 2044, except for $ 333.4 million of federal NOL carryforwards which may be carried forward indefinitely. Section 382 and 383 of the IRC and similar provisions under state law limit the utilization of U.S. NOL carryforwards, state NOL carryforwards, R&D credits, and OD credits following certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%. During 2024, the Company believes it triggered ownership changes under Section 382 of the IRC and similar provisions under state law. Based on the Company’s analysis under Section 382, the Company believes that its federal NOL carryforwards, its state NOL carryforwards, R&D credits, and OD credits are limited by Section 382 and similar provisions under state law as of December 31, 2024. The portion of federal NOL carryforwards, state NOL carryforwards, R&D credits, and OD credits that were determined to be limited have been written off as of December 31, 2024. The remaining unused carryforwards and credits remain available for future periods. The Company has approximately $ 346.4 million of federal NOLs generated prior to such ownership changes inclusive of $ 309.3 million of federal NOLs which may be carried forward indefinitely. Since the $ 309.3 million of federal NOLs may be carried forward indefinitely, these have not been written off as of December 31, 2024, but due to the limitations under Section 382 generally the Company can only use $ 1.6 million per year against taxable income in the future. Due to the Company’s full valuation allowance the write off of certain NOL carryforwards and R&D and OD credits did not have any impact to the statements of operation and comprehensive loss.
The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. From inception and through December 31, 2024, the Company had no unrecognized tax benefits or related interest , and penalties accrued. The Company has not conducted a study of R&D credit and OD credit carryforwards. A future study may result in an adjustment to the Company’s R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheet or statement of operations if an adjustment were required. The Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
12. Commitments and contingencies
The Company entered into a lease agreement for approximately 27,810 square feet of office space in Needham, Massachusetts. Please refer to Note 6. Leases for further details regarding the minimum aggregate future lease commitments as of December 31, 2024. In conjunction with the execution of the February 2018 Amended Lease Agreement and November 2024 Amended Lease Agreement, the Company has provided a security deposit in the form of a letter of credit in the amount of $ 0.2 million as of December 31, 2024, and 2023. The amount is included in non-current restricted cash on the consolidated balance sheets as of December 31, 2024, and 2023.
As of December 31, 2024, the Company has committed to spend approximately $ 60.0 million under the IQVIA Master Services Agreement which the Company expects to spend in the next three to four years. As of December 31, 2024, approximately $ 0.7 million of this commitment is included within accrued expenses. Pursuant to the terms of various other agreements, the Company may be required to pay various development, regulatory and commercial milestones. In addition, if any products related to these agreements are approved for sale, the Company may be required to pay significant royalties on future sales. The payment of these amounts, however, is contingent upon the occurrence of various future events, which have a high degree of uncertainty of occurring.
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13. License, collaboration and commercial agreements
GenFleet Therapeutics (Shanghai), Inc.
On August 24, 2023, the Company entered into a collaboration and option agreement (“GenFleet Agreement”) with GenFleet, pursuant to which GenFleet granted the Company the option to obtain exclusive development and commercialization rights worldwide outside of mainland China, Hong Kong, Macau, and Taiwan (the “Territory”) for up to three oncology programs targeting RAS pathway driven cancers (the “GenFleet Options”). The Company may exercise its GenFleet Options on a program-by-program basis. In January 2025, the Company exercised its GenFleet Option with respect to VS-7375 and made a $ 6.0 million payment to GenFleet.
The Company made an upfront payment of $ 2.0 million to GenFleet in September 2023 and will provide $ 1.5 million of research support over the first three years of the GenFleet Agreement. In addition, pursuant to the GenFleet Agreement, upon achievement of certain milestones, and upon the Company exercising its GenFleet Options, GenFleet will be entitled to receive payments of up to $ 622.0 million, inclusive of (i) up to $ 154.0 million upon achievement of certain development and commercialization milestones, (ii) up to $ 450.0 million upon achievement of certain sales milestones, and (iii) up to $ 18.0 million upon exercise of all three GenFleet Options. The Company paid GenFleet a $ 3.0 million milestone in the year ended December 31, 2024, upon GenFleet achieving a development milestone. The Company has also agreed to pay GenFleet royalties on net sales of licensed products in the Territory ranging from the mid to high single digits.
The Company may terminate the GenFleet Agreement in its entirety or on a program-by-program basis by providing 90 days written notice to GenFleet. Either party may terminate the GenFleet Agreement in its entirety or on a program-by-program and country-by-country basis, with 60 days ’ written notice for the other party’s material breach if such party fails to cure the breach. Either party may also terminate the GenFleet Agreement in its entirety upon certain insolvency events involving the other party.
During the year ended December 31, 2024, the Company expensed $ 3.0 million related to the development milestone payment made within research and development expense in the consolidated statements of operations and comprehensive loss. During the year ended December 31, 2023, the Company expensed $ 2.0 million related to the upfront payment within research and development expense in the consolidated statements of operations and comprehensive loss. The future milestone payments are contingent in nature and will be recognized if and when the respective contingencies are resolved. If the Company elects to exercise further GenFleet Options, the related expense will be recognized if and when each respective GenFleet Option is elected.
Secura Bio, Inc.
On August 10, 2020, the Company and Secura signed the Secura APA and on September 30, 2020, the transaction closed.
Pursuant to the Secura APA, the Company sold to Secura its exclusive worldwide license, including related assets, for the research, development, commercialization, and manufacture in oncology indications of products containing duvelisib. The sale included certain intellectual property related to duvelisib in oncology indications, certain existing duvelisib inventory, claims and rights under certain contracts pertaining to duvelisib. Pursuant to the Secura APA, Secura assumed all operational and financial responsibility for activities that were part of the Company’s duvelisib oncology program, including all commercialization efforts related to duvelisib in the United States and Europe, as well as the Company’s ongoing duvelisib clinical trials. Further, Secura assumed all obligations with existing collaboration partners developing and commercializing duvelisib, which include Yakult, Honsha Co., Ltd. (“Yakult”), CSPC Pharmaceutical Group Limited (“CSPC”) and Sanofi. Additionally, Secura assumed all royalty payment obligations due under the amended and restated license agreement with Infinity.
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Pursuant to the terms of the Secura APA, Secura has paid the Company an up-front payment of $ 70.0 million in September 2020 and has agreed to pay the Company (i) regulatory milestone payments up to $ 45.0 million, consisting of a payment of $ 35.0 million upon receipt of regulatory approval of COPIKTRA in the United States for the treatment of peripheral T-cell lymphoma and a payment of $ 10.0 million upon receipt of the first regulatory approval for the commercial sale of COPIKTRA in the European Union for the treatment of peripheral T-cell lymphoma, (ii) sales milestone payments of up to $ 50.0 million, consisting of $ 10.0 million when total worldwide net sales of COPIKTRA exceed $ 100.0 million, $ 15.0 million when total worldwide net sales of COPIKTRA exceed $ 200.0 million and $ 25.0 million when total worldwide net sales of COPIKTRA exceed $ 300.0 million, (iii) low double-digit royalties on the annual aggregate net sales above $ 100.0 million in the United States, European Union, and the United Kingdom of Great Britain and Northern Ireland and (iv) 50 % of all royalty, milestone and sublicense revenue payments payable to Secura under the Company’s existing license agreements with Sanofi, Yakult, and CSPC, and 50 % of all royalty and milestone payments payable to Secura under any license or sublicense agreement entered into by Secura in certain jurisdictions.
The Company evaluated the Secura APA in accordance with ASC 606 as the Company concluded that the counterparty, Secura, is a customer. The Company identified a bundled performance obligation consisting of delivery of the duvelisib global license and intellectual property, certain existing duvelisib inventory, certain duvelisib contracts and clinical trials, certain regulatory approvals, and certain regulatory documentation and books and records (the “Bundled Secura Performance Obligation”).
The Company concluded that the duvelisib global license and intellectual property were not distinct within the context of the contract (i.e. separately identifiable) because the other assets including certain existing duvelisib inventory, certain duvelisib contracts and clinical trials, certain regulatory approval, and certain regulatory documentation and books and records do not have stand-alone value from other duvelisib global license and intellectual property and Secura could not benefit from them without the duvelisib global license and intellectual property. Consistent with the guidance under ASC 606-10-25-16A, the Company disregarded immaterial promised goods and services when determining performance obligations.
During the year ended December 31, 2024, Secura achieved $ 100.0 million of total worldwide net sales of COPIKTRA which triggered a $ 10.0 million sales milestone payment to the Company under the Secura APA. The Company received the $ 10.0 million milestone payment in July 2024. During the year ended December 31, 2024, the Company recognized $ 10.0 million of sale of COPIKTRA license and related assets revenue within the consolidated statements of operations and comprehensive loss.
The Company determined that all other future potential milestones and royalties were excluded from the transaction price, as all other milestone amounts were fully constrained under the guidance as of December 31, 2024. As part of the Company’s evaluation of the constraint, the Company considered several factors in determining whether there is significant uncertainty associated with the future events that would result in the milestone payments. Those factors included: the likelihood and magnitude of revenue reversals related to future milestones, the amount of variable consideration that is highly susceptible to factors outside of the Company’s influence, the uncertainty about the consideration is not expected to be resolved for an extended period of time, and lack of significant history of selling COPIKTRA outside of the United States. All future potential milestone and royalty payments were fully constrained as the risk of significant revenue reversal related to these amounts has not yet been resolved.
During the year ended December 31, 2023, the Company determined all future potential milestones were excluded from the transaction price, as all other milestone amounts were fully constrained under the guidance as of December 31, 2023.
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During the year ended December 31, 2022, the Company recognized $ 2.6 million of sale of COPIKTRA license and related assets revenue within the statements of operations and comprehensive loss. The sale of COPIKTRA license and related assets revenue for the year ended December 31, 2022 related to 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 year ended December 31, 2022, and future royalties expected to be received pursuant to the Secura APA that were not constrained. The Company determined all other future potential milestones were excluded from the transaction price, as all other milestone amounts were fully constrained under the guidance as of December 31, 2022.
14. Notes Payable
In February 2024, the Company entered into a finance agreement with AFCO. Pursuant to the terms of the agreement, AFCO loaned the Company the principal amount of $ 1.3 million, which accrued interest at 8.3 % per annum, to fund a portion of the Company’s insurance policies. The Company was required to make monthly payments of $ 0.1 million through October 2024 including principal and interest. The agreement assigned AFCO a security interest in (i) all unearned premiums and dividends which may have become payable under the insurance policies financed pursuant to this agreement, (ii) loss payments which reduce the unearned premiums, and (iii) the Company’s interest in any state insurance guarantee fund related to any of the insurance policies financed pursuant to this agreement. The outstanding balance at December 31, 2024 was $ 0.0 million.
15. Employee benefit plan
In June 2011, the Company adopted a 401(k) retirement and savings plan (the 401(k) Plan) covering all employees. The 401(k) Plan allows employees to make pre-tax or post-tax contributions up to the maximum allowable amount set by the Internal Revenue Service. Under the 401(k) Plan, the Company may make discretionary contributions as approved by the board of directors. The Company made contributions to the 401(k) Plan of approximately $ 1.0 million, $ 0.8 million and $ 0.8 million in each of the years ended December 31, 2024, 2023, and 2022.
16. Subsequent events
The Company reviews all activity subsequent to year end but prior to the issuance of the consolidated financial statements for events that could require disclosure or that could impact the carrying value of assets or liabilities as of the consolidated balance sheet date. The Company is not aware of any material subsequent events other than the following:
Note Purchase Agreement
On January 13, 2025, (the “Note Purchase Agreement Closing Date”), the Company entered into the Note Purchase Agreement, pursuant to which the Company may sell to the Note Purchase Agreement Purchasers, and the Note Purchase Agreement Purchasers may buy from the Company, notes (“Notes”) in an aggregate principal amount not to exceed $ 150.0 million. On January 13, 2025, the Company issued an initial sale of $ 75.0 million principal amount of Notes and may issue an additional $ 75.0 million consisting of the following:
● at the option of the Company, the Second Sale of $ 25.0 million principal amount of Notes, at any time prior to December 31, 2025, upon the FDA’s approval sufficient for the promotion and sale of avutometinib and defactinib for the treatment of LGSOC and subject to certain other customary conditions precedent; and
● at the option of the Company, the Third Sale of up to $ 50.0 million principal amount of Notes, at any time prior to December 31, 2026, provided that trailing six-month worldwide net sales of avutometinib and defactinib are at least $ 55.0 million and subject to certain other customary conditions precedent.
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Pursuant to the Note Purchase Agreement, on the Note Purchase Agreement Closing Date the Company sold Notes in an aggregate principal amount of $ 75.0 million and received net proceeds of approximately $ 32.3 million after repaying the balance of its obligations under its Loan Agreement, but before payment of certain expenses payable by the Company.
The outstanding principal amount of the Notes bear interest at a rate per annum equal to the sum of (i) the greater of the Term SOFR (as defined in the Note Purchase Agreement) and 4.29 % , and (ii) 3.71 % , subject to adjustment in certain circumstances set forth in the Note Purchase Agreement and an overall cap of 9.75 % , payable quarterly in arrears until the seventh anniversary of the Note Purchase Agreement Closing Date or the date on which all amounts owing to the Note Purchase Agreement Purchasers under the Note Purchase Agreement have been paid in full (the “Note Purchase Agreement Maturity Date”). For the first eight quarters following the Note Purchase Agreement Closing Date, at the Company’s option, up to 50 % of the interest due may be paid-in-kind and added to the then-outstanding principal balance of the Notes. Upon the occurrence and during the continuance of an Event of Default (as defined in the Note Purchase Agreement) under the Note Purchase Agreement, the then-applicable interest rate on all outstanding obligations may be increased by an additional 5.00 % .
Beginning on January 13, 2025 and continuing until the Note Purchase Agreement Maturity Date, the Note Purchase Agreement Purchasers will receive 1.00 % of the first $ 100.0 million of net sales of each Included Product (as defined in the Note Purchase Agreement) by the Company or its affiliates or licensees in each calendar year, payable quarterly. “Included Products” is defined in the Note Purchase Agreement to include (a) avutometinib and defactinib, including any product that contains either one of the foregoing in combination with any other active ingredient(s), and (b) all other compounds, chemical entities or pharmaceutical products being designed, developed, licensed, manufactured or commercialized by the Company or its subsidiaries from time to time. The Revenue Participation Percentage will increase pro rata immediately upon the occurrence of the Second Sale and the Third Sale, such that the Revenue Participation Percentage shall increase to a maximum of 2.00 % in the event that $ 150 million in aggregate principal amount of Notes has been purchased pursuant to the Note Purchase Agreement following the Third Sale. The outstanding principal amount of the Notes, interest accrued thereon and any other amounts owing to the Note Purchase Agreement Purchasers under the Note Purchase Agreement will be due in two equal instalments on (a) the sixth anniversary of the Note Purchase Agreement Closing Date, and (b) the Note Purchase Agreement Maturity Date.
All of the Notes may be redeemed prior to the Note Purchase Agreement Maturity Date at the option of the Company, subject to payment of the Repayment Amount (as defined in the Note Purchase Agreement). The Note Purchase Agreement Purchasers may demand redemption of the Notes prior to the Note Purchase Agreement Maturity Date in the event of a Change of Control (as defined in the Note Purchase Agreement) of the Company or an Event of Default (as defined in the Note Purchase Agreement) under the Note Purchase Agreement, subject to payment of the Repayment Amount. If redeemed prior to the Note Purchase Agreement Maturity Date, the Repayment Amount will be: (a) 135 % of the principal amount of the Notes if redemption occurs before the second anniversary of the Note Purchase Agreement Closing Date upon a Change of Control; (b) if the preceding clause (a) does not apply, 175 % of the principal amount of the Notes if redemption occurs prior to the third anniversary the Note Purchase Agreement Closing date; and (c) thereafter, 195 % of the principal amount of the Notes if redemption occurs after the third anniversary the Note Purchase Agreement Closing Date, minus, in each case, the sum of regularly scheduled interest paid in cash, payments of principal in cash, and payments of revenue participation in cash prior to such redemption date.
The Note Purchase Agreement contains no financial covenants. The Company’s obligations under the Note Purchase Agreement are subject to customary covenants, including limitations on the Company’s ability to dispose of assets, undergo a change of control, merge with or acquire other entities, incur debt, incur liens, pay dividends or other distributions to holders of its capital stock, repurchase stock and make investments, in each case subject to certain exceptions. The Company’s obligations under the Note Purchase Agreement are secured by a security interest on substantially all of the Company’s and its subsidiaries’ assets, including its intellectual property related to avutometinib and defactinib, and a negative pledge on intellectual property related to the GenFleet Agreement, subject to certain exceptions relating to the Company’s development of its intellectual property.
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Stock Purchase Agreement
In connection with the Note Purchase Agreement, on January 13, 2025, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with the certain funds managed by Oberland and affiliates thereof (the “SPA Investors”), pursuant to which the SPA Investors purchased an aggregate of 1,416,939 shares of the Company’s common stock, $ 0.0001 par value per share, at a price of $ 5.2931 per share, based on the trailing 30-trading day volume-weighted average price of the Company’s stock. The Company received gross proceeds of $ 7.5 million. In addition, pursuant to the Stock Purchase Agreement, the Company granted the SPA Investors, for a period of three years following the closing on January 13, 2025, a right to participate in any equity offerings consummated by the Company in an amount up to $ 2.5 million, subject to certain limitations and exclusions set out in the Stock Purchase Agreement.
Repayment of Loan Agreement
Substantially concurrently with the closing of the Note Purchase Agreement, on January 13, 2025, the Company terminated its Loan Agreement and repaid in full the balance of its obligations under the Loan Agreement of approximately $ 42.7 million (the “Payoff Amount”). The Payoff Amount included the Final Payment Fee, which was due at the earlier of prepayment or loan maturity, and certain prepayment fees as set forth in the Loan Agreement. Effective upon the Lender’s receipt of the Payoff Amount, the Loan Agreement has been terminated along with the Lender’s commitment to provide funding under any future term loans.
Exercise of GenFleet Option
In January 2025, the Company exercised early its GenFleet Option with respect to VS-7375 and consequently made a payment of $ 6.0 million to GenFleet.
At-the-market equity offering program issuance
In January 2025, the Company sold 4,000,000 shares under the August 2021 ATM for net proceeds of approximately $ 22.7 million (after deducting commissions and other offering expenses).
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