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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     .
Commission file number: 000-31141
INFINITY PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware33-0655706
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1100 Massachusetts Avenue, Floor 4, Cambridge, Massachusetts 02138
(Address of principal executive offices) (Zip code)
(617453-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueINFINasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer

Non-accelerated filer ☐
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on July 23, 2020: 58,870,651


Table of Contents
INFINITY PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS
Page No.
PART I
Item 1.
Item 2.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
PART II
Item 1A.
Item 6.


Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
INFINITY PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
June 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$28,921  $22,260  
Available-for-sale securities13,809  20,184  
Prepaid expenses and other current assets2,064  2,137  
Total current assets44,794  44,581  
Property and equipment, net1,951  2,186  
Restricted cash315  315  
Operating lease right-of-use assets1,583  1,717  
Other assets13  215  
Total assets$48,656  $49,014  
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$1,289  $1,621  
Accrued expenses and other current liabilities7,588  8,077  
Total current liabilities8,877  9,698  
Liability related to sale of future royalties, net, less current portion (note 9)28,721  29,626  
Liability related to sale of future royalties to a related party, net (note 10)20,366    
Operating lease liability, less current portion1,688  1,926  
Other liabilities388  38  
Total liabilities60,040  41,288  
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred Stock, $0.001 par value; 1,000,000 shares authorized, no shares issued and outstanding at June 30, 2020 and December 31, 2019
    
Common Stock, $0.001 par value; 200,000,000 and 100,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 57,493,567 and 57,077,550 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
57  57  
Additional paid-in capital734,701  733,486  
Accumulated deficit(746,188) (725,829) 
Accumulated other comprehensive income46  12  
Total stockholders’ equity (deficit)(11,384) 7,726  
Total liabilities and stockholders’ equity (deficit)$48,656  $49,014  
The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.

1

Table of Contents
INFINITY PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues:
Collaboration revenue$  $  $  $2,000  
Royalty revenue360  257  788  399  
Total revenues360  257  788  2,399  
Operating expenses:
Research and development6,125  6,076  13,470  11,842  
General and administrative2,937  3,771  6,261  7,169  
Royalty expense (note 12)217  155  475  6,916  
Total operating expenses9,279  10,002  20,206  25,927  
Loss from operations(8,919) (9,745) (19,418) (23,528) 
Other income (expense):
Investment and other income 50  318  235  607  
Interest expense (note 9)(39) (1,087) (77) (1,391) 
Related party interest expense (note 10)(565)   (1,099)   
Total other expense(554) (769) (941) (784) 
Loss before income taxes(9,473) (10,514) (20,359) (24,312) 
Income taxes benefit      54  
Net loss$(9,473) $(10,514) $(20,359) $(24,258) 
Basic and diluted loss per common share:$(0.16) $(0.18) $(0.35) $(0.43) 
Basic and diluted weighted average number of common shares outstanding:57,442,322  56,942,033  57,392,965  56,933,521  
Other comprehensive loss:
Net unrealized holding gains (losses) on available-for-sale securities arising during the period(70) 23  34  30  
Comprehensive loss$(9,543) $(10,491) $(20,325) $(24,228) 
The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.

2

Table of Contents
INFINITY PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Six Months Ended June 30,
20202019
Operating activities
Net loss$(20,359) $(24,258) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation242  18  
Stock-based compensation720  1,246  
Non-cash royalty revenue(417) (212) 
Non-cash interest expense77  1,391  
Non-cash related party interest expense1,099    
Other, net25  (45) 
Changes in operating assets and liabilities:
Prepaid expenses and other assets276  (791) 
Operating lease right-of-use assets134  241  
Accounts payable, accrued expenses and other liabilities(906) (308) 
Operating lease liability(237) (118) 
Net cash used in operating activities(19,346) (22,836) 
Investing activities
Purchases of property and equipment(44) (224) 
Purchases of available-for-sale securities(19,731) (21,761) 
Proceeds from maturities of available-for-sale securities26,180  11,500  
Net cash provided by (used in) investing activities6,405  (10,485) 
Financing activities
Proceeds from sale of future royalties to a related party, net19,572    
Proceeds from sale of future royalties, net   27,618  
Proceeds from issuances of common stock, net30  27  
Net cash provided by financing activities19,602  27,645  
Net increase (decrease) in cash, cash equivalents and restricted cash6,661  (5,676) 
Cash, cash equivalents and restricted cash at beginning of period22,575  48,616  
Cash, cash equivalents and restricted cash at end of period$29,236  $42,940  
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents$28,921  $42,625  
Restricted cash315  315  
Total cash, cash equivalents and restricted cash$29,236  $42,940  
Supplemental schedule of noncash activities
Assets acquired under operating lease obligation$  $1,849  
Property and equipment in accounts payable and accrued expenses$  $721  
Issuance of common stock for compensation$444  $  
The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.

3

Table of Contents
INFINITY PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(unaudited)
(in thousands, except share amounts)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity (Deficit)
SharesAmount
Balance at March 31, 202057,433,598  $57  $734,290  $(736,715) $116  $(2,252) 
Stock-based compensation expense360  360  
Issuance of common stock, net59,969  51  51  
Unrealized loss on marketable securities(70) (70) 
Net loss(9,473) (9,473) 
Balance at June 30, 202057,493,567  $57  $734,701  $(746,188) $46  $(11,384) 
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
SharesAmount
Balance at March 31, 201956,925,528  $57  $731,861  $(692,516) $3  $39,405  
Stock-based compensation expense563  563  
Issuance of common stock, net101,254  91  91  
Unrealized gain on marketable securities23  23  
(10,514) (10,514) 
Balance at June 30, 201957,026,782  $57  $732,515  $(703,030) $26  $29,568  
The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.









4

Table of Contents
INFINITY PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(unaudited)
(in thousands, except share amounts)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity (Deficit)
SharesAmount
Balance at December 31, 201957,077,550  $57  $733,486  $(725,829) $12  $7,726  
Stock-based compensation expense720  720  
Issuance of common stock, net416,017  495  495  
Unrealized gain on marketable securities34  34  
Net loss(20,359) (20,359) 
Balance at June 30, 202057,493,567  $57  $734,701  $(746,188) $46  $(11,384) 
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201856,907,096  $57  $731,178  $(678,772) $(4) $52,459  
Stock-based compensation expense1,246  1,246  
Issuance of common stock, net119,686  9191  
Unrealized gain on marketable securities30  30  
Net loss(24,258) (24,258) 
Balance at June 30, 201957,026,782  $57  $732,515  $(703,030) $26  $29,568  
The accompanying notes are an integral part of these unaudited, condensed consolidated financial statements.

5

Table of Contents
Infinity Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Infinity Pharmaceuticals, Inc., is an innovative biopharmaceutical company dedicated to developing novel medicines for people with cancer. As used throughout these unaudited, condensed consolidated financial statements, the terms “Infinity,” “we,” “us,” and “our” refer to the business of Infinity Pharmaceuticals, Inc., and its wholly-owned subsidiaries.
2. Basis of Presentation
These condensed consolidated financial statements include the accounts of Infinity and its wholly-owned subsidiaries. We have eliminated all significant intercompany accounts and transactions in consolidation.
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the accompanying condensed consolidated financial statements have been included. Interim results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020.
The information presented in the condensed consolidated financial statements and related footnotes at June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, is unaudited, and the condensed consolidated balance sheet amounts and related footnotes at December 31, 2019 have been derived from our audited financial statements. For further information, please refer to the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission, or SEC, on March 3, 2020, which we refer to as our 2019 Annual Report on Form 10-K.
Liquidity
As of June 30, 2020, we had cash, cash equivalents and available-for-sale securities of $42.7 million. Subsequent to June 30, 2020, we raised $1.6 million with our at-the-market facility (see Note 13).We have primarily incurred operating losses since inception and have relied on our ability to fund our operations through collaboration and license arrangements or other strategic arrangements, as well as through the sale of stock.
We expect to continue to spend significant resources to fund the development and potential commercialization of eganelisib, also known as IPI-549, an orally administered, clinical-stage, immuno-oncology product candidate that selectively inhibits the enzyme phosphoinositide-3 kinase gamma, or PI3K gamma, and to incur significant operating losses for the foreseeable future.
        We believe that our existing cash, cash equivalents and available-for-sale securities at June 30, 2020 will be adequate to satisfy our forecasted operating needs for at least the next twelve months from the issuance date of these financial statements.
3. Significant Accounting Policies
Our significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in our 2019 Annual Report on Form 10-K.
Segment Information
We operate in one business segment, which focuses on drug development. We make operating decisions based upon the performance of the enterprise as a whole and utilize our consolidated financial statements for decision making.
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Basic and Diluted Net Income (Loss) per Common Share
Basic net income (loss) per share is based upon the weighted average number of common shares outstanding during the period, excluding restricted stock that has been issued but has not yet vested. Diluted net income (loss) per share is based upon the weighted average number of common shares outstanding during the period plus the effect of additional weighted average common equivalent shares outstanding during the period when the effect of adding such shares is dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options and the exercise of outstanding warrants (the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method) and the vesting of restricted shares of common stock. In addition, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of stock options that are in-the-money. This results in the “assumed” buyback of additional shares, thereby reducing the dilutive impact of stock options. The two-class method is used for outstanding warrants as such warrants are considered to be participating securities, and this method is more dilutive than the treasury stock method. The following outstanding shares of common stock equivalents were excluded from the computation of net income (loss) per share attributable to common stockholders for the periods presented because including them would have been antidilutive:
At June 30,
20202019
Stock options11,108,447  9,853,587  
Warrants (excluded from treasury stock method)1,000,000  1,000,000  
4. Stock-Based Compensation
Total stock-based compensation expense related to all equity awards for the three and six months ended June 30, 2020 and 2019 was composed of the following:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands)
Research and development$94  $102  $174  $254  
General and administrative266  461  546  992  
Total stock-based compensation expense$360  $563  $720  $1,246  
As of June 30, 2020, we had approximately $3.3 million of total unrecognized compensation cost related to unvested common stock options and awards under our Employee Stock Purchase Plan, which is expected to be recognized over a weighted-average period of 3.0 years.
        Stock Options
During the six months ended June 30, 2020, we granted options to purchase 3,148,786 shares of our common stock at a weighted average fair value of $0.89 per share and a weighted average exercise price of $1.17 per share. During the six months ended June 30, 2019, we granted options to purchase 2,057,596 shares of our common stock at a weighted average fair value of $1.09 per share and a weighted average exercise price of $1.31 per share. For the three and six months ended June 30, 2020 and 2019, the fair values were estimated using the Black-Scholes valuation model using the following weighted-average assumptions:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Risk-free interest rate0.3 %2.0 %1.4 %2.3 %
Expected annual dividend yield        
Expected stock price volatility101.6 %99.1 %98.2 %99.5 %
Expected term of options4.1 years5.9 years5.6 years6.0 years
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5. Cash, Cash Equivalents and Available-for-Sale Securities
The following is a summary of cash, cash equivalents and available-for-sale securities:
June 30, 2020
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
(in thousands)
Cash and cash equivalents$28,921  $  $  $28,921  
Available-for-sale securities:
U.S. Treasury securities due in one year or less9,012  38    9,050  
U.S. government-sponsored enterprise obligations due in one year or less4,751  8    4,759  
Total available-for-sale securities13,763  46    13,809  
Total cash, cash equivalents and available-for-sale securities$42,684  $46  $  $42,730  
December 31, 2019
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
(in thousands)
Cash and cash equivalents $22,260  $  $  $22,260  
Available-for-sale securities:
U.S. Treasury securities due in one year or less8,244  4    8,248  
U.S. government-sponsored enterprise obligations due in one year or less11,928  8    11,936  
Total available-for-sale securities20,172  12    20,184  
Total cash, cash equivalents and available-for-sale securities$42,432  $12  $  $42,444  
We evaluated our securities for other-than-temporary impairments based on quantitative and qualitative factors. We did not hold any debt securities at June 30, 2020 that were in an unrealized loss position. As of June 30, 2020, we held no securities in foreign financial institutions.
We had no material realized gains or losses on our available-for-sale securities for the three and six months ended June 30, 2020 and 2019. There were no other-than-temporary impairments recognized for the three and six months ended June 30, 2020 and 2019.
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6. Fair Value
The following table presents the assets carried at fair value measured on a recurring basis as of June 30, 2020 and December 31, 2019:
June 30, 2020
Level 1Level 2Level 3
(in thousands)
Assets:
Cash and cash equivalents$28,921  $  $  
U.S. Treasury securities   9,050    
U.S. government-sponsored enterprise obligations  4,759    
Total assets$28,921  $13,809  $  
Liabilities:
Warrant liability$  $  $351  
Total liabilities$  $  $351  
December 31, 2019
Level 1Level 2Level 3
(in thousands)
Assets:
Cash and cash equivalents$20,860  $1,400  $  
U.S. Treasury securities   8,248    
U.S. government-sponsored enterprise obligations   11,936    
Total assets$20,860  $21,584  $  
The fair value of the available-for-sale securities and cash and cash equivalents is based on the following inputs for both U.S. Treasury securities and U.S. government-sponsored enterprise obligations: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including TRACE® reported trades.
        There have been no changes to our valuation methods of available-for-sale securities during the six months ended June 30, 2020. We had no available-for-sale securities that were classified as Level 3 at any point during the six months ended June 30, 2020 or during the year ended December 31, 2019.
        Warrant liability relates to potential future warrants that may be issued. The fair value of the warrant liability on the date of the commitment and on each re-measurement date for those warrants classified as liabilities was estimated using the Monte Carlo simulation model, which involves a series of simulated future stock price paths over the remaining life of the commitment. The fair value is estimated by taking the average of the fair values under each of many Monte Carlo simulations. The fair value estimate is affected by our stock price, as well as estimated future financing needs, including timing and sources of the financing and subjective variables including expected stock price volatility over the remaining life of the commitment and risk-free interest rate. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. The fair value of the warrant liability as of June 30, 2020 has been included in other liabilities on our condensed consolidated balance sheet. See Note 10 for further discussions of the accounting for the warrants.
        The carrying amounts reflected in the condensed consolidated balance sheets for prepaid expenses and other current assets, other assets, accounts payable and accrued expenses approximate their fair value due to their short-term maturities.
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7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
June 30, 2020December 31, 2019
(in thousands)
Prepaid expenses$1,845  $1,680  
Other current assets219  457  
Total prepaid expenses and other current assets$2,064  $2,137  
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
June 30, 2020December 31, 2019
(in thousands)
Accrued clinical and development$4,377  $3,793  
Accrued compensation and benefits1,637  3,055  
Liability related to sale of future royalties, net, current portion565    
Operating lease liability, current portion381  381  
Other628  848  
Total accrued expenses$7,588  $8,077  
9. Liability Related to Sale of Future Royalties
On October 29, 2016, we and Verastem Inc., or Verastem, entered into a license agreement, which we and Verastem amended and restated on November 1, 2016, effective as of October 29, 2016. We refer to the amended and restated license agreement as the Verastem Agreement. Under the Verastem Agreement, we granted to Verastem an exclusive worldwide license in oncology indications for the research, development, commercialization, and manufacture of duvelisib and products containing duvelisib, which we refer to as Licensed Products, in each case in oncology indications.
Verastem is obligated to pay us royalties on worldwide net sales of Licensed Products ranging from the mid-single digits to the high-single digits, a portion of which we are obligated to share with Takeda as described in Note 12.
On March 5, 2019, we and HealthCare Royalty Partners III, L.P., or HCR, entered into a purchase and sale agreement, or the HCR Agreement, providing for the acquisition by HCR of our interest in certain royalty payments, or the Purchased Assets, based on worldwide annual net sales of products containing duvelisib, or Copiktra®, an oral, dual inhibitor of PI3K delta and gamma, or the Licensed Product, pursuant to the Verastem Agreement. On March 11, 2019, which we refer to as the HCR Closing Date, we received $30.0 million, or the HCR Closing Date Payment, less certain transaction expenses. After sharing with Takeda in accordance with the Takeda Amendment, as defined in Note 12, we retained $22.5 million in gross proceeds, or approximately $20.9 million in net proceeds. We are entitled to receive a $5.0 million potential milestone payment based on the achievement of a certain pre-specified net sales level of the Licensed Product in the United States in the calendar year 2020. We refer to the milestone payment as the Sales Milestone Payment. The Sales Milestone Payment, if paid, together with the HCR Closing Date Payment are collectively referred to herein as the Investment Amount.
Pursuant to the HCR Agreement, our sale of the Purchased Assets is subject to an increasing cap amount defined below, which we refer to as the Cap Amount. The Cap Amount is equal to, for each applicable time period specified below, a multiple, as set forth below, of (a) the Investment Amount plus (b) 100% of the reasonably incurred Applicable Purchaser Expenditures, as defined below: 
Time PeriodCap Amount
From the HCR Closing Date until June 30, 2022145 %
From July 1, 2022 through June 30, 2023155 %
From July 1, 2023 through June 30, 2024165 %
From July 1, 2024 through June 30, 2025175 %
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On any date that aggregate royalty payments made to HCR equal the Cap Amount applicable to such date, or the Cap Date, the HCR Agreement will automatically terminate, and all rights to the royalty stream with respect to the Licensed Product will revert back to us, which we refer to as the Reversion. If the Cap Date has not been achieved by June 30, 2025, there shall be no Cap Date, and the term of the HCR Agreement shall continue through the term of the Verastem Agreement. Prior to June 30, 2025, we shall have the right, but not the obligation, at any time prior to the Cap Date, if applicable, to cause the occurrence of the Cap Date (including for the purpose of determining the termination date of the HCR Agreement) by paying to HCR an amount equal to (i) the then-applicable Cap Amount less (ii) 100% of all payments made in respect of the Purchased Assets received by HCR through the date of such payment. In addition to the Cap Date, the HCR Agreement (a) may be terminated by mutual agreement of us and HCR, and (b) shall automatically terminate upon the expiration of our and Verastem’s obligations to each other under the Verastem Agreement (for a reason other than early termination thereof).
We recognized the proceeds received from HCR as a liability that is being amortized using the effective interest method over the life of the arrangement. As the basis for our determination, we considered, in accordance with the relevant accounting guidance, our right to the Reversion, if any, and our right to terminate the HCR Agreement by making payment to achieve the Cap Date. We are not obligated to repay the proceeds received under the HCR Agreement. We recorded the receipt of the $30.0 million payment from HCR as a liability, net of debt discount and issuance costs of approximately $2.4 million. In order to determine the amortization of the liability, we are required to estimate the total amount of future net royalty payments to be made to HCR over the term of the HCR Agreement. The total threshold of net royalties to be paid, less the net proceeds received, will be recorded as interest expense over the life of the liability. We impute interest on the unamortized portion of the liability using the effective interest method. Interest and debt discount amortization expense is reflected as interest expense in the Statement of Operations. Over the course of the HCR Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in forecasted royalty revenue. On a quarterly basis, we reassess the effective interest rate and adjust the rate prospectively as needed.
The following table shows the activity within the liability account for the six months ended June 30, 2020:
June 30, 2020
(in thousands)
Liability related to sale of future royalties, net - beginning balance$29,626  
Non-cash royalty revenue(417) 
Non-cash interest expense recognized77  
Liability related to sale of future royalties, net - ending balance$29,286  
Less: current portion(565) 
Liability related to sale of future royalties, net, less current portion$28,721  
As royalties are due to HCR by Verastem, the balance of the recognized liability will be effectively repaid over the life of the HCR Agreement. There are a number of factors that could materially affect the amount and timing of royalty payments from Verastem, none of which are within our control.
10. Liability Related to Sale of Future Royalties — Related Party Transaction
Funding Agreement
On January 8, 2020, or the BVF Closing Date, we entered into a funding agreement, or the BVF Funding Agreement, with BVF and Royalty Security, LLC, a wholly owned subsidiary of BVF, or the Buyer. The BVF Funding Agreement provides for the acquisition by the Buyer of our interest in all royalty payments based on worldwide annual net sales of patidegib, or the BVF Licensed Product, excluding Trailing Mundipharma Royalties, as defined in Note 12, related to patidegib. We refer to all BVF Licensed Product royalties owed to us less Trailing Mundipharma Royalties as the Royalty or Royalties. Such Royalties are owed to us pursuant to the PellePharm Agreement, as defined in Note 12, by and between us and PellePharm Inc., or PellePharm. The Buyer and BVF are affiliates of Biotechnology Value Fund, L.P., which beneficially owns approximately 30% of our common stock.
Pursuant to the BVF Funding Agreement, we received $20.0 million, or the Upfront Purchase Price, less certain transaction expenses. We transferred to the Buyer (i) the Royalty, (ii) the PellePharm Agreement (subject to our rights to milestone payments and rights to equity in PellePharm under the PellePharm Agreement), and (iii) certain patent rights established in the BVF Funding Agreement, with (i), (ii), and (iii) together referred to as Transferred Assets. We preserved our rights under the PellePharm Agreement to receive potential regulatory, commercial, and success-based milestone payments.
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In addition to the Upfront Purchase Price, we will also be entitled to receive a $5.0 million milestone payment, or Milestone Payment, from the Buyer based on PellePharm’s ongoing Phase 3 clinical trial of patidegib topical gel in Gorlin Syndrome.
On January 27, 2020, we entered into a novation and amendment agreement, or the Novation and Amendment Agreement, with BVF, the Buyer, and Royalty Security Holdings, LLC, an entity wholly owned by the BVF-related entities that funded the initial advance under the Funding Agreement, or Holdco. The Novation and Amendment Agreement amended the Funding Agreement by substituting Holdco in the place of BVF under the Funding Agreement, with Holdco assuming all rights and obligations of BVF under, arising out of or in connection with the Funding Agreement and agreeing to be bound in all respects in place of BVF under the Funding Agreement. Pursuant to the Novation and Amendment Agreement, BVF, as the manager of Holdco, agreed to guarantee the payment and performance by Holdco of its obligations under the Funding Agreement.
Option to Repurchase Royalty Rights
Upon or after anytime at which our common stock achieves a 20-day volume-weighted average price on the Nasdaq Stock Market, LLC, or Nasdaq,equal to or greater than $5.00 per share (adjusted for any stock splits, reverse splits, or similar arrangements), or the Purchase Threshold, we have an option to purchase from Holdco 100% of the outstanding equity interests of the Buyer, or the Option. To exercise the Option, we must deliver to Holdco (a) notice (or the Option Notice, with the date on which delivery of the Option Notice is given, the Option Notice Date) of our election to do so prior to the earliest to occur of: (i) the occurrence of certain trigger events identified in the BVF Funding Agreement, including a material failure by us to perform certain covenants, a failure by us to cause the BVF Funding Agreement and related agreements to remain in full force and effect, a deficiency in any security interest purported to be created by the BVF Funding Agreement resulting from an act or omission by us, or another insolvency event of us (upon the expiration of any applicable cure period) (each, a Trigger Event), (ii) the third anniversary of the BVF Closing Date, or (iii) the date immediately prior to a change of control of us (together, the Option Expiration Date), and (b) within ten (10) business days after the Option Notice is deemed delivered to Holdco (the Repurchase Date), an amount equal to the Upfront Purchase Price plus the Milestone Payment, if and when paid to us, plus the Option Premium, defined below, less the aggregate amount of all Royalty payments received by Buyer as of the Option Exercise Date. The exercise of the Option may only occur if our common stock maintains a 20-day volume-weighted average price on Nasdaq of $5.00 per share (adjusted for any stock splits, reverse splits, or similar arrangements) on each trading day between the Option Notice Date and the Repurchase Date. Option Premium means an amount accruing daily on (x) the Upfront Purchase Price plus the Milestone Payment, if and when paid to us, as of such date of payment, less (y) the aggregate amount of all Royalty payments received by Buyer as of such day, at a rate of 10% per annum, compounded quarterly. For purposes of calculating the Option Premium, in the event of a Trigger Event, the rate of accrual following the occurrence of such Trigger Event shall be increased to 20% per annum.
Liability to Related Party
We recognized the proceeds received under the BVF Funding Agreement as a liability that will be amortized using the effective interest method over the life of the arrangement. We recorded the receipt of the $20.0 million Upfront Purchase Price as a liability, net of debt issuance costs of approximately $0.4 million and warrant liability of $0.3 million. We are not obligated to repay the proceeds received under the BVF Funding Agreement. In order to determine the amortization of the liability, we are required to estimate the total amount of potential future net royalty payments to be made by PellePharm to the Buyer over the term of the BVF Funding Agreement. The total estimated net royalties to be paid, less the net proceeds received, will be recorded as interest expense over the life of the liability. We estimated an effective annual interest rate of approximately 11% as of the BVF Closing Date. Interest and debt discount amortization expense is reflected as related party interest expense in our condensed consolidated statements of operations. We recognized $0.6 million and $1.1 million of non-cash related party interest expense during the three and six months ended June 30, 2020, respectively. Over the course of the BVF Funding Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue, if any, recognized and changes in forecasted royalty revenue. There are a number of factors that could materially affect the amount and timing of royalty payments from PellePharm, none of which are within our control. On a quarterly basis, we will reassess the effective interest rate and adjust the rate prospectively as needed.
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Potential Future Warrants
The BVF Funding Agreement provides that, for so long as we have not exercised the Option, (a) if, during the 36-month period following the BVF Closing Date, we issue and sell in the aggregate more than 8,554,345 shares of our common stock (including options, warrants, convertible stock, convertible debt and other common-stock equivalents), known as the Warrant Threshold, and (b) any shares are issued in excess of the Warrant Threshold with consideration to us of less than $3.75 per share (as adjusted for any stock splits, reverse stock splits or other similar recapitalization events), or the Threshold Price, then we are obligated to issue to BVF warrants to purchase a number of shares of our common stock equal to 50% of the number of shares of our common stock issued and sold by us in excess of the Warrant Threshold below the Threshold Price, with any such Warrants having an exercise price equal to 1.5 times the price per share of such shares issued in excess of the Warrant Threshold. Pursuant to the Novation and Amendment Agreement, the form of such warrant was amended and restated to clarify that BVF may not exercise such warrant if the exercise price would be at a discount in accordance with applicable Nasdaq Stock Market rules, absent approval of our stockholders. To the extent that BVF seeks to exercise such a discounted warrant more than six months after the initial issuance and we are unable to deliver any portion of the underlying shares due to the limitations imposed by Nasdaq, then we must pay BVF an amount equal to the number of shares that cannot be delivered, calculated on a cashless exercise basis, multiplied by the fair market value of a share of our common stock, in each case, calculated in accordance with the terms of the warrant.
Certain issuances of our common stock are excluded from the calculation of the Warrant Threshold, including the grant, exercise, or vesting of options or awards granted pursuant to our stock incentive plans or stock purchase plans. Once the Warrant Threshold has been met, the requirement to issue warrants does not apply to certain issuances of our common stock, including the grant, exercise, or vesting of options or awards granted pursuant to our stock incentive plans or stock purchase plans and, subject to certain limitations, the issuance of shares of common stock in connection with a transaction with an unaffiliated third party that includes a debt financing or a bona fide commercial relationship or any acquisition of assets, merger with, or acquisition of another entity.
We determined that the commitment to issue warrants represents a freestanding financial instrument and accounted for it as a liability as of the BVF Closing Date. The fair value of the warrant liability was estimated using the Monte Carlo simulation model. The fair value of the warrant liability as of June 30, 2020 has been included in other liabilities on our condensed consolidated balance sheet. We will re-measure the warrant liability at each reporting date. Changes in fair value of the warrant liability is included in investment and other income on our condensed consolidated statement of operations and comprehensive loss. No warrants were issued as of June 30, 2020. See Note 6 for further discussions of the fair value of the warrants.
In addition to exercise of the Option, the BVF Funding Agreement may be terminated by mutual written agreement of us and the Buyer.
11. Commitments and Contingencies
We previously subleased 6,091 square feet of office space at 784 Memorial Drive, Cambridge, Massachusetts. The term of the sublease commenced on September 1, 2017 and expired on August 31, 2019.
On April 5, 2019, we entered into a lease agreement, or the Lease, with Sun Life Assurance Company of Canada, or the Landlord, effective April 3, 2019, or the Commencement Date, for the lease of approximately 10,097 square feet of office space at 1100 Massachusetts Avenue, Cambridge, Massachusetts, or the Leased Premises. The term of the Lease commenced on the Commencement Date and expires on August 1, 2024, or the Expiration Date, approximately five years after the Rent Commencement Date as described below.
Beginning August 1, 2019, or the Rent Commencement Date, the total base rent of the Lease will be $47,961 per month and will increase by approximately 3% on each anniversary of the Rent Commencement Date until the Expiration Date. In addition to the base rent, we are also responsible for our share of the operating expenses, insurance, real estate taxes and certain capital costs, and we are responsible for utilities in our premises, all in accordance with the terms of the Lease. Pursuant to the terms of the Lease, we provided a security deposit in the form of a letter of credit in the initial amount $300,000, which may be reduced to $150,000 over time in accordance with the terms of the Lease. The security deposit plus the associated bank fee of $15,000 is included on our condensed consolidated balance sheet as restricted cash as of June 30, 2020. The Landlord has agreed to provide a lease incentive allowance of up to $0.6 million to fund certain improvements to be made by us to the Leased Premises. As of June 30, 2020, we have received $0.5 million of the lease incentive allowance.
As of June 30, 2020, future minimum lease payments of our operating lease liabilities are approximately $2.6 million.
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12. Strategic Agreements
We have worldwide development and commercialization rights to eganelisib, subject to certain obligations to our licensor, Takeda Pharmaceutical Company Limited, or Takeda, as described in more detail below. Additionally, we are obligated to pay Mundipharma International Corporation Limited, or Mundipharma, and Purdue Pharmaceutical Products L.P., or Purdue, a 4% royalty in the aggregate on worldwide net sales of products that were previously subject to our strategic alliance with Mundipharma and Purdue that was terminated in 2012. Such products include eganelisib; duvelisib, the PI3K gamma,delta inhibitor we licensed to Verastem, in 2016; and IPI-926, or patidegib, part of the hedgehog inhibitor program we licensed to PellePharm in 2013. We refer to such royalties as Trailing Mundipharma Royalties. After Mundipharma and Purdue have recovered approximately $260.0 million in royalty payments from all products that were previously subject to the strategic alliance, which represents the funding paid to us for research and development services performed by us under this strategic alliance, the Trailing Mundipharma Royalties will be reduced to a 1% royalty on net sales in the United States of such products.
PellePharm
In June 2013, we entered into a license agreement with PellePharm, under which we granted PellePharm exclusive global development and commercialization rights to our hedgehog inhibitor program, including patidegib, a clinical-stage product candidate. We refer to our license agreement with PellePharm as the PellePharm Agreement and products covered by the PellePharm Agreement as Hedgehog Products. We assessed this arrangement in accordance with ASC 606 and concluded that at the date of contract inception there was only one performance obligation, consisting of the license, which was satisfied at contract inception.
Under the PellePharm Agreement, PellePharm is obligated to pay us up to $9.0 million in remaining regulatory and commercial-based milestone payments through the first commercial sale of a Hedgehog Product. PellePharm is also obligated to pay us up to $37.5 million in success-based milestone payments upon the achievement of certain annual net sales thresholds, as well as a share of certain revenue received by PellePharm in the event that PellePharm sublicenses its rights under the PellePharm Agreement and tiered royalties on annual net sales of Hedgehog Products subject to specified conditions. During the six months ended June 30, 2019, we recognized $2.0 million in revenue related to a milestone payment for PellePharm’s initiation of a Phase 3 study investigating patidegib in patients with Gorlin Syndrome, a rare genetic disease that leads to the chronic formation of multiple basal cell carcinomas, as this milestone payment is variable consideration that became unconstrained following initiation of the study. The remaining milestones have not been recognized as they represent variable consideration that is constrained. In making this assessment, we considered numerous factors, including the fact that achievement of the milestones is outside of our control and contingent upon the future success of clinical trials, PellePharm’s actions, and the receipt of regulatory approval. As the single performance obligation was previously satisfied, all regulatory and commercial-based milestones will be recognized as revenue in full in the period in which the constraint is removed. Any consideration related to sales-based milestone payments, including royalties, will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to PellePharm and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur.
PellePharm is also obligated to pay us tiered royalties on annual net sales of Hedgehog Products, which are subject to reduction after a certain aggregate funding threshold has been achieved. On January 8, 2020, we entered into the BVF Funding Agreement, as further described in Note 10, pursuant to which we sold our interest in all royalty payments based on worldwide annual net sales of the BVF Licensed Product excluding Trailing Mundipharma Royalties related to patidegib.
Takeda
In July 2010, we entered into a development and license agreement with Intellikine, Inc., or Intellikine, under which we obtained rights to discover, develop and commercialize pharmaceutical products targeting the gamma and/or delta isoforms of PI3K, including eganelisib and duvelisib. In January 2012, Intellikine was acquired by Takeda. In December 2012, we amended and restated our development and license agreement with Takeda and further amended the agreement in July 2014, September 2016, July 2017, and March 2019. We refer to the amended and restated development and license agreement, as amended, as the Takeda Agreement.
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Duvelisib
Pursuant to the Takeda Agreement, prior to March 4, 2019, we were obligated to share equally with Takeda all revenue arising from certain qualifying transactions for duvelisib, including the Verastem Agreement, subject to certain exceptions including revenue we receive as reimbursement for duvelisib research and development expenses. By entry into a fourth amendment on March 4, 2019, or the Takeda Amendment, Takeda consented to the sale of the Purchased Assets to HCR and agreed to forego its rights to an equal share of the royalties due from Verastem during the period prior to the Reversion, and has agreed not to seek any payment from HCR with respect to the royalties owed to Takeda. In exchange, we paid Takeda $6.7 million representing 25% of the HCR Closing Date Payment, net of 25% of the expenses incurred by us in connection with the HCR Agreement. In addition, we agreed to pay Takeda 25% of the royalties that would have been payable to us by Verastem but for the consummation of the HCR Agreement, which we refer to as the Interim Obligation, and 25% of any Sales Milestone Payments received. During the six months ended June 30, 2020, we recognized $0.1 million in Interim Obligation amounts owed to Takeda as royalty expense. During the six months ended June 30, 2019, we recognized the $6.7 million payment and any Interim Obligation amounts owed to Takeda as royalty expense.
We have the right to extinguish the Interim Obligation by payment to Takeda of an amount equal to (i) the $6.7 million payment and 25% of any Sales Milestone Payments received multiplied by the multiple set forth in the table below corresponding to the time period in which such extinguishing payment is made, minus (ii) any payments made to Takeda pursuant to the Interim Obligation:  
Time PeriodMultiple
From the Takeda Amendment Effective Date until June 30, 2022145 %
From July 1, 2022 through June 30, 2023155 %
From July 1, 2023 through June 30, 2024165 %
From July 1, 2024 through June 30, 2025175 %
The Interim Obligation shall expire upon the occurrence of the Reversion, at which time our obligations to share equally with Takeda the royalties payable under the Verastem Agreement shall be reinstated.
Eganelisib
Pursuant to the Takeda Agreement, in October 2019 we paid Takeda a $2.0 million milestone payment associated with our MARIO-275 study, a global, randomized Phase 2 study designed to evaluate the effect of adding eganelisib to nivolumab, also known as Opdivo®, in checkpoint-naïve advanced urothelial cancer patients whose cancer has progressed or recurred following treatment with platinum-based chemotherapy. We are further obligated to pay Takeda up to $3.0 million in remaining success-based development milestone payments and up to $165.0 million in remaining regulatory and commercial-based milestone payments for one product candidate other than duvelisib, which could be eganelisib.
13. Stockholders’ Equity
Common Stock Sales Facility
        On June 28, 2019, we entered into a Capital on Demand Sales Agreement with JonesTrading Institutional Services LLC, or JonesTrading, and on July 29, 2019 we amended and restated the sales agreement to add B. Riley FBR, Inc., or B. Riley FBR, as a party to the agreement. We refer to the amended and restated sales agreement as the ATM Sales Agreement. Pursuant to the ATM Sales Agreement we may offer and sell shares of our common stock having an aggregate offering price of up to $20.0 million from time to time through JonesTrading or B. Riley FBR, each acting as our sales agent. We have agreed to pay commissions to the sales agents for their services in acting as agents in the sale of our common stock in the amount of up to 3.0% of the gross proceeds from sales of our common stock pursuant to the ATM Sales Agreement. Sales of shares of our common stock under the ATM Sales Agreement may be made in sales deemed to be “at the market offerings” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. With our prior written approval, JonesTrading or B. Riley FBR may also sell the shares by any other method permitted by law, including in negotiated transactions. We, JonesTrading, or B. Riley FBR may suspend or terminate the offering of shares upon notice to the other party and subject to other conditions. During the six months ended June 30, 2020 and 2019, we did not sell any shares under the ATM Sales Agreement. In July 2020, we issued and sold 1,377,084 shares of common stock at a weighted average price per share of $1.17 at-the-market pursuant to the ATM Sales Agreement for $1.6 million in net proceeds.
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Common Stock
In June 2020, we amended our Restated Certificate of Incorporation to increase the number of authorized shares of our common stock from 100,000,000 shares to 200,000,000 shares. The amendment was approved by our shareholders at the annual meeting of stockholders on June 17, 2020.
14. Subsequent Event
Noncompliance with Nasdaq’s Minimum Bid Price
On July 1, 2020, we received a deficiency letter, or the Notice, from the Listing Qualifications Department of Nasdaq notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below $1.00 per share, which is the minimum closing price required to maintain continued listing on the Nasdaq Global Select Market under Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Requirement.
The Notice has no immediate effect on the listing of the Common Stock. We have 180 calendar days, or until December 28, 2020, to regain compliance with the Minimum Bid Requirement. To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days during this 180-day period. If we fail to do so within the initial 180 calendar day period, we may be eligible for an additional 180 calendar day compliance period. However, there can be no assurance that we can secure such additional compliance period, that we will be able to regain compliance with the Minimum Bid Requirement, or that we can maintain compliance with the other listing requirements. Our failure to regain compliance during the 180-day period, or during any extensions that may be granted by Nasdaq, could result in delisting.
We intend to actively monitor the closing bid price of our Common Stock and will evaluate available options to regain compliance with the Minimum Bid Requirement.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. Some of the information contained in this discussion and analysis and set forth elsewhere in this report, including information with respect to our plans and strategy for our business, the possible achievement of development goals and milestones, our future development efforts, our collaborations, and our future operating results and financial position, includes forward-looking statements that involve risks and uncertainties. We often use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “seek,” “target,” “goal,” “potential,” “will,” “would,” “could,” “should,” “continue,” and other words and terms of similar meaning to help identify forward-looking statements, although not all forward-looking statements contain these identifying words. You can also identify these forward-looking statements by the fact that they do not relate strictly to historical or current facts. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by forward-looking statements made herein. These risks and uncertainties include those inherent in pharmaceutical research and development, such as adverse results in our drug discovery and clinical development activities, decisions made by the U.S. Food and Drug Administration, or FDA, and other regulatory authorities with respect to the development and commercialization of our product candidates, our ability to obtain, maintain and enforce intellectual property rights for our product candidates, our dependence on our alliance partners, competition, our ability to obtain any necessary financing to conduct our planned activities, our ability to implement our strategic plans, our ability to achieve cost-savings benefits from our restructuring and other risk factors described herein. These risks also include the direct and indirect impact of COVID-19 on our business operations and financial guidance. We have included, and you should review, important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors” in Part II, Item 1A that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this report. Unless required by law, we do not undertake any obligation to update any forward-looking statements.
Business Overview
We are an innovative biopharmaceutical company dedicated to developing novel medicines for people with cancer. We combine proven scientific expertise with a passion for developing novel small molecule drugs that target disease pathways for potential applications in oncology. We are focusing our efforts on advancing eganelisib, also known as IPI-549, an orally administered, clinical-stage, immuno-oncology product candidate that selectively inhibits the enzyme phosphoinositide-3-kinase-gamma, or PI3K-gamma. We believe eganelisib is the only selective inhibitor of PI3K-gamma being investigated in clinical trials.
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In December 2019, a novel strain of coronavirus surfaced in China causing the respiratory disease COVID-19. This disease has spread worldwide and was deemed a “pandemic” by the World Health Organization on March 11, 2020. The governor of Massachusetts, where our offices are located, issued a “stay-at-home order” effective March 24, 2020, requiring all “non-essential” businesses to close their physical workplaces and facilities and encouraging individuals to stay in their homes as much as possible in the coming weeks. Similar restrictions have been recommended by governments throughout the world. We discuss the impact of the pandemic on our operations in the section entitled “Business Update Regarding COVID-19,” below.
Clinical Development Program
We are conducting the following clinical trials investigating eganelisib in solid tumors:
MARIO-275 (MAcrophage Reprogramming in Immuno-Oncology)
MARIO-275 is our global, randomized, controlled Phase 2 study designed to evaluate the effect of adding eganelisib to nivolumab, also known as Opdivo®, in approximately 160 checkpoint-naïve advanced urothelial cancer, or UC, patients whose cancer has progressed or recurred following treatment with platinum-based chemotherapy. Nivolumab is an immune checkpoint inhibitor therapy commercialized by Bristol-Myers Squibb Company, or BMS, that targets programmed death receptor 1, or PD-1, a checkpoint protein that helps regulate the body’s immune system. In May 2020, we voluntarily paused enrollment in MARIO-275 following a planned review by the MARIO-275 Independent Data Monitoring Committee, or IDMC, of safety data on the initial 42 patients treated in the study. Liver enzyme elevations of Grade 3 or higher were seen in seven of 42 patients, six of which were reviewable by the IDMC and one of which was observed after the IDMC review. Liver enzyme elevations from the six patients reviewed by the IDMC were reversible and resolved without sequela. We implemented a dose reduction of eganelisib from 40 mg daily, or QD, to 30 mg QD and are continuing to treat patients already on study with increased patient safety monitoring. We expect to evaluate efficacy and safety data for the patients enrolled to date by the end of 2020 to inform next steps.
Based on a retrospective analysis of exploratory biomarker data from BMS’s approval study, CheckMate-275, UC patients with high baseline levels of myeloid-derived suppressor cells, or MDSCs, had a shorter overall survival when treated with nivolumab as a single agent. Data from our ongoing Phase 1/1b study MARIO-1, described below, have demonstrated that treatment with the combination of eganelisib and nivolumab is associated with a reduction in blood MDSC levels. We believe that adding eganelisib to nivolumab can potentially improve outcomes for patients with advanced urothelial cancer. We entered into a clinical supply agreement in November 2018 with BMS under which BMS has agreed to supply nivolumab for our use in MARIO-275. On March 25, 2020, we announced that we received Fast Track Designation from the U.S. Food and Drug Administration for eganelisib in combination with nivolumab for the treatment of advanced urothelial cancer.
MARIO-3
We are currently enrolling patients in MARIO-3, a multi-arm Phase 2 study designed to evaluate eganelisib in the front-line setting for triple negative breast cancer, or TNBC, and front-line renal cell carcinoma, or RCC. One cohort of the study is evaluating eganelisib in combination with atezolizumab, also known as Tecentriq®, and nab-paclitaxel, also known as Abraxane®, in up to approximately 60 patients with front-line TNBC. The second cohort is evaluating eganelisib in combination with atezolizumab and bevacizumab, also known as Avastin®, in up to approximately 30 patients with front-line RCC. MARIO-3 is intended to evaluate whether eganelisib can improve upon the response rates of these approved combination therapies in patients with unmet needs. F. Hoffmann-La Roche Ltd., or Roche has agreed to supply atezolizumab and bevacizumab for use in MARIO-3.
The majority of identified sites are up and running. Following initial enrollment delays, we have observed an increase in site initiation and patient screening study-related activities and are working in close cooperation with our contract research organization and investigators on enrollment initiatives. Enrollment completion is expected in the RCC cohort by the end of 2020 and the TNBC cohort by the end of the first quarter in 2021. We expect to report preliminary data by the end of 2020.
MARIO-1
Enrollment is complete in MARIO-1, our Phase 1/1b clinical study designed to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics, and activity for eganelisib — both as a monotherapy and in combination with nivolumab — in 219 patients with advanced solid tumors. The combination therapy expansion cohorts, described in the table below, are designed to evaluate patients dosed at 40 mg once daily, or QD, of eganelisib in combination with the standard regimen of nivolumab. We intend to present additional data from MARIO-1 by the end of 2020.
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MARIO-1 Cohorts Inclusion/Exclusion Criteria
Non-small cell lung cancer (NSCLC)
Melanoma
Head and neck cancer
Patients showed initial resistance, or initially responded to but subsequently developed resistance, to immediate prior treatment with immune checkpoint blockade therapy
TNBCPatients naive to treatment with PD-1/PD-L1 therapy
Mesothelioma
Adrenocortical carcinoma (ACC)
Patients previously received at least first-line treatment
High baseline blood levels of MDSCsVaried based on indication
We reported data from the combination expansion cohorts of the MARIO-1 study in a late-breaking poster presentation at the 33rd Annual Meeting of the Society for Immunotherapy of Cancer on November 10, 2018. Among the 44 patients evaluable for activity as of the October 14, 2018 data-cutoff date, 15 patients showed a best response of stable disease or better, including one partial response in an advanced melanoma patient who had progressed on immediate prior nivolumab therapy. Among the 82 patients evaluable for safety, the majority of side effects reported were Grade 1 or Grade 2, with three (4%) patients discontinuing the study due to treatment-related toxicities. The most common Grade 3+ adverse events were rash (n=6, 7%) and increased liver enzymes AST (n=7, 9%) and ALT (n=5, 6%). There were no treatment-related deaths.
Safety data from the dose-escalation portion of MARIO-1, presented at the 2018 annual meeting of the American Society of Clinical Oncology, or ASCO 2018, demonstrated that eganelisib combined with nivolumab was well tolerated at all doses tested, up to the recommended combination therapy expansion dose of eganelisib at 40 mg QD plus the standard regimen of nivolumab. No maximum tolerated dose was determined, and there were no treatment-related deaths. The pharmacokinetic/pharmacodynamic profile of eganelisib up to the recommended combination expansion dose of 40 mg QD was unaffected by nivolumab co-administration, and eganelisib in combination with nivolumab reduced immune suppression and increased immune activation, as indicated by analyses of peripheral blood. At ASCO 2018, we also presented updated clinical and translational data from the fully enrolled monotherapy expansion portion of MARIO-1 that demonstrated that eganelisib as a monotherapy continued to be well tolerated at all doses studied up to the recommended dose for monotherapy expansion of 60 mg QD, and that eganelisib as a monotherapy reduced immune suppression and increased immune activation, as indicated by analyses of peripheral blood and paired tumor biopsies.
Arcus Collaboration Trial
Arcus Biosciences, Inc., or Arcus, is currently enrolling patients in its Phase 1/1b collaboration study designed to evaluate a novel triple-combination regimen of eganelisib in combination with AB928, Arcus’s dual adenosine receptor antagonist, and liposomal doxorubicin chemotherapy, also known as Doxil®, in up to approximately 40 patients with previously treated, advanced TNBC. AB928 is an orally bioavailable, highly potent antagonist of the adenosine 2a and 2b receptors. The activation of these receptors by adenosine interferes with the activity of key populations of immune cells and inhibits the body’s optimal anti-tumor immune response. By blocking these receptors, AB928 has the potential to reverse adenosine-induced immune suppression within the tumor microenvironment. As both macrophages and high adenosine levels are believed to play critical roles in creating a highly immunosuppressive tumor microenvironment in cancer after treatment with chemotherapy, the novel immuno-oncology combination being evaluated in this setting represents a potentially promising approach to treating TNBC.
        Business Update Regarding COVID-19
The following guidance regarding the impact of the COVID-19 pandemic on our business operations is highly uncertain and subject to change. We cannot know with certainty what the ultimate impact of the pandemic will be.
We are continuing to evaluate enrollment trends in our studies as well as the impact of COVID-19 on our clinical programs. Patients enrolled on MARIO-275, MARIO-3 and MARIO-1 have continued treatment and study visits with limited disruption to date, and we are working closely with trial sites to support the continued treatment of patients in compliance with study protocols. New patient screening and enrollment and new site initiation are being assessed on a case-by-case basis and are ongoing in MARIO-3. There are no anticipated disruptions to drug supply. The safety and well-being of our employees remains a top priority, and we are working to mitigate risk while minimizing disruptions through our work-from-home policy. We are well suited to operate remotely as a clinically focused company.
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Alliances, Collaborations, and Other Arrangements
We have primarily incurred operating losses since inception and will continue to fund our operations through collaboration and license arrangements or other strategic arrangements, as well as through the sale of securities or incurring debt, until such time as we are able to generate significant revenue from product sales. Such arrangements have provided access to breakthrough science, significant research and development support and funding, supply of clinical trial materials, and innovative drug development programs, all intended to help us realize the full potential of our product pipeline.
In July 2010, we entered into a development and license agreement with Intellikine, Inc., or Intellikine, under which we obtained rights to discover, develop and commercialize pharmaceutical products targeting the gamma and/or delta isoforms of PI3K, including eganelisib and duvelisib, an oral, dual inhibitor of PI3K delta and gamma we outlicensed to Verastem Inc., or Verastem. In January 2012, Intellikine was acquired by Takeda Pharmaceutical Company Limited, or Takeda. In December 2012, we amended and restated our development and license agreement with Takeda and further amended the agreement in July 2014, September 2016, July 2017, and March 2019. We refer to the amended and restated development and license agreement, as amended, as the Takeda Agreement. We are obligated to pay Takeda up to $3.0 million in remaining success-based development milestone payments and up to $165.0 million in remaining regulatory and commercialization success-based milestone payments, for one product candidate other than duvelisib, which could be eganelisib.
PellePharm and BVF Financing