FALSE2020Q30001113148--12-3100011131482020-01-012020-09-30xbrli:shares00011131482020-11-03iso4217:USD00011131482020-09-3000011131482019-12-31iso4217:USDxbrli:shares0001113148us-gaap:LicenseMember2020-07-012020-09-300001113148us-gaap:LicenseMember2019-07-012019-09-300001113148us-gaap:LicenseMember2020-01-012020-09-300001113148us-gaap:LicenseMember2019-01-012019-09-300001113148us-gaap:RoyaltyMember2020-07-012020-09-300001113148us-gaap:RoyaltyMember2019-07-012019-09-300001113148us-gaap:RoyaltyMember2020-01-012020-09-300001113148us-gaap:RoyaltyMember2019-01-012019-09-3000011131482020-07-012020-09-3000011131482019-07-012019-09-3000011131482019-01-012019-09-3000011131482018-12-3100011131482019-09-300001113148us-gaap:CommonStockMember2020-06-300001113148us-gaap:AdditionalPaidInCapitalMember2020-06-300001113148us-gaap:RetainedEarningsMember2020-06-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-3000011131482020-06-300001113148us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001113148us-gaap:CommonStockMember2020-07-012020-09-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001113148us-gaap:RetainedEarningsMember2020-07-012020-09-300001113148us-gaap:CommonStockMember2020-09-300001113148us-gaap:AdditionalPaidInCapitalMember2020-09-300001113148us-gaap:RetainedEarningsMember2020-09-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001113148us-gaap:CommonStockMember2019-06-300001113148us-gaap:AdditionalPaidInCapitalMember2019-06-300001113148us-gaap:RetainedEarningsMember2019-06-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-3000011131482019-06-300001113148us-gaap:CommonStockMember2019-07-012019-09-300001113148us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-07-012019-09-300001113148us-gaap:RetainedEarningsMember2019-07-012019-09-300001113148us-gaap:CommonStockMember2019-09-300001113148us-gaap:AdditionalPaidInCapitalMember2019-09-300001113148us-gaap:RetainedEarningsMember2019-09-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001113148us-gaap:CommonStockMember2019-12-310001113148us-gaap:AdditionalPaidInCapitalMember2019-12-310001113148us-gaap:RetainedEarningsMember2019-12-310001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001113148us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001113148us-gaap:CommonStockMember2020-01-012020-09-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300001113148us-gaap:RetainedEarningsMember2020-01-012020-09-300001113148us-gaap:CommonStockMember2018-12-310001113148us-gaap:AdditionalPaidInCapitalMember2018-12-310001113148us-gaap:RetainedEarningsMember2018-12-310001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001113148us-gaap:CommonStockMember2019-01-012019-09-300001113148us-gaap:AdditionalPaidInCapitalMember2019-01-012019-09-300001113148us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-09-300001113148us-gaap:RetainedEarningsMember2019-01-012019-09-30infi:Segment0001113148us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001113148us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001113148us-gaap:EmployeeStockOptionMember2019-01-012019-09-300001113148us-gaap:EmployeeStockOptionMember2019-07-012019-09-300001113148us-gaap:WarrantMember2020-01-012020-09-300001113148us-gaap:WarrantMember2020-07-012020-09-300001113148us-gaap:WarrantMember2019-01-012019-09-300001113148us-gaap:WarrantMember2019-07-012019-09-300001113148us-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001113148us-gaap:ResearchAndDevelopmentExpenseMember2019-07-012019-09-300001113148us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001113148us-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-09-300001113148us-gaap:GeneralAndAdministrativeExpenseMember2020-07-012020-09-300001113148us-gaap:GeneralAndAdministrativeExpenseMember2019-07-012019-09-300001113148us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-09-300001113148us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-09-30xbrli:pure0001113148us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001113148us-gaap:EmployeeStockOptionMember2019-07-012019-09-300001113148us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001113148us-gaap:EmployeeStockOptionMember2019-01-012019-09-300001113148us-gaap:USTreasurySecuritiesMember2020-09-300001113148us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-09-300001113148us-gaap:USTreasurySecuritiesMember2019-12-310001113148us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-12-31infi:Security0001113148us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001113148us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001113148us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-09-300001113148us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-09-300001113148us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2020-09-300001113148us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Member2020-09-300001113148us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-09-300001113148us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-09-300001113148us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-09-300001113148us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001113148us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001113148us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001113148us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2019-12-310001113148us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2019-12-310001113148us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Member2019-12-310001113148us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-12-310001113148us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-12-310001113148us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-12-310001113148us-gaap:FairValueInputsLevel3Member2019-12-310001113148us-gaap:FairValueInputsLevel3Member2020-09-300001113148infi:HealthCareRoyaltyPartnersIIIL.P.Member2019-03-112019-03-110001113148infi:HealthCareRoyaltyPartnersIIIL.P.Member2019-03-050001113148infi:HealthCareRoyaltyPartnersIIIL.P.Member2019-03-052019-03-050001113148infi:HealthCareRoyaltyPartnersIIIL.P.Member2019-03-110001113148infi:HCRAgreementMember2019-12-310001113148infi:HCRAgreementMember2020-01-012020-09-300001113148infi:HCRAgreementMember2020-09-300001113148infi:BiotechnologyValueFundL.P.Memberinfi:InfinityPharmaceuticalsMember2020-09-300001113148infi:BVFFundingAgreementMemberinfi:BVFAndRoyaltySecurityLLCMember2020-01-082020-01-080001113148infi:BVFFundingAgreementMemberinfi:BVFAndRoyaltySecurityLLCMember2020-01-08infi:day0001113148infi:BVFFundingAgreementMember2020-01-080001113148infi:InfinityPharmaceuticalsMemberinfi:HoldcoMemberinfi:BVFFundingAgreementMember2020-01-082020-01-080001113148infi:BVFFundingAgreementMember2020-01-082020-01-080001113148infi:NovationAndAmendmentAgreementMemberinfi:BVFAndRoyaltySecurityLLCMember2020-01-082020-01-08utr:sqft0001113148infi:SevenHundredEightyFourMemorialDrivePremisesMemberinfi:SubleaseAgreementMember2019-08-310001113148infi:MassachusettsAvenueCambridgeMassachusettsPremisesMemberus-gaap:LeaseAgreementsMember2019-04-030001113148infi:MassachusettsAvenueCambridgeMassachusettsPremisesMemberus-gaap:LeaseAgreementsMember2019-08-012020-07-310001113148infi:MassachusettsAvenueCambridgeMassachusettsPremisesMemberus-gaap:LeaseAgreementsMembersrt:ScenarioForecastMember2020-08-012024-08-010001113148infi:MassachusettsAvenueCambridgeMassachusettsPremisesMemberus-gaap:LeaseAgreementsMemberus-gaap:LetterOfCreditMember2019-04-030001113148infi:MassachusettsAvenueCambridgeMassachusettsPremisesMemberus-gaap:LeaseAgreementsMember2020-09-300001113148infi:TrailingMundipharmaMember2020-01-012020-09-300001113148infi:PellePharmAgreementMemberinfi:HedgehogProductsMember2013-06-012013-06-300001113148infi:TakedaAgreementFourthAmendmentMemberinfi:TakedaPharmaceuticalCompanyLimitedMember2019-03-042019-03-040001113148infi:TakedaAgreementFourthAmendmentMemberinfi:TakedaPharmaceuticalCompanyLimitedMember2019-03-040001113148infi:TakedaAgreementFourthAmendmentMemberinfi:TakedaPharmaceuticalCompanyLimitedMember2020-01-012020-09-300001113148infi:TakedaAgreementFourthAmendmentMemberinfi:TakedaPharmaceuticalCompanyLimitedMember2019-01-012019-09-300001113148infi:TakedaPharmaceuticalCompanyLimitedMember2019-03-040001113148infi:TakedaAgreementMember2019-10-012019-10-310001113148infi:CurrentMembersrt:MaximumMember2020-09-300001113148srt:MaximumMember2020-09-30infi:Product00011131482019-07-292019-07-290001113148us-gaap:SubsequentEventMember2020-10-012020-11-090001113148us-gaap:SubsequentEventMember2020-11-0900011131482020-05-31
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 September 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 November 3, 2020: 64,206,758


Table of Contents
INFINITY PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 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)
September 30, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$18,528 $22,260 
Available-for-sale securities22,757 20,184 
Prepaid expenses and other current assets2,190 2,137 
Total current assets43,475 44,581 
Property and equipment, net1,830 2,186 
Restricted cash, less current portion165 315 
Operating lease right-of-use assets1,486 1,717 
Other assets9 215 
Total assets$46,965 $49,014 
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$1,132 $1,621 
Accrued expenses and other current liabilities8,702 8,077 
Total current liabilities9,834 9,698 
Liability related to sale of future royalties, net, less current portion (note 9)28,241 29,626 
Liability related to sale of future royalties to a related party, net (note 10)20,954  
Operating lease liability, less current portion1,560 1,926 
Other liabilities503 38 
Total liabilities61,092 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 September 30, 2020 and December 31, 2019
  
Common Stock, $0.001 par value; 200,000,000 and 100,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; 63,141,510 and 57,077,550 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
63 57 
Additional paid-in capital741,522 733,486 
Accumulated deficit(755,722)(725,829)
Accumulated other comprehensive income10 12 
Total stockholders’ equity (deficit)(14,127)7,726 
Total liabilities and stockholders’ equity (deficit)$46,965 $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 September 30,Nine Months Ended September 30,
2020201920202019
Revenues:
Collaboration revenue$ $ $ $2,000 
Royalty revenue496 343 1,283 741 
Total revenues496 343 1,283 2,741 
Operating expenses:
Research and development6,112 7,076 19,582 18,918 
General and administrative2,930 3,641 9,191 10,810 
Royalty expense (note 12)299 207 774 7,123 
Total operating expenses9,341 10,924 29,547 36,851 
Loss from operations(8,845)(10,581)(28,264)(34,110)
Other income (expense):
Investment and other income (expense)(63)299 173 906 
Interest expense (note 9)(38)(1,135)(115)(2,525)
Related party interest expense (note 10)(588) (1,687) 
Total other expense(689)(836)(1,629)(1,619)
Loss before income taxes(9,534)(11,417)(29,893)(35,729)
Income taxes benefit   54 
Net loss$(9,534)$(11,417)$(29,893)$(35,675)
Basic and diluted loss per common share:$(0.16)$(0.20)$(0.51)$(0.63)
Basic and diluted weighted average number of common shares outstanding:60,506,373 57,028,970 58,438,343 56,965,711 
Other comprehensive loss:
Net unrealized holding gains (losses) on available-for-sale securities arising during the period(36)(1)(2)29 
Comprehensive loss$(9,570)$(11,418)$(29,895)$(35,646)
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)
Nine Months Ended September 30,
20202019
Operating activities
Net loss$(29,893)$(35,675)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation364 82 
Stock-based compensation1,064 1,673 
Non-cash royalty revenue(679)(392)
Non-cash interest expense115 2,525 
Non-cash related party interest expense1,687  
Other, net143 (153)
Changes in operating assets and liabilities:
Prepaid expenses and other assets303 (1,208)
Operating lease right-of-use assets231 272 
Accounts payable, accrued expenses and other liabilities(332)260 
Operating lease liability(232)(39)
Net cash used in operating activities(27,229)(32,655)
Investing activities
Purchases of property and equipment(44)(1,560)
Purchases of available-for-sale securities(37,474)(37,681)
Proceeds from maturities of available-for-sale securities34,930 17,500 
Net cash used in investing activities(2,588)(21,741)
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 common stock sales facility, net of issuance costs6,483  
Proceeds from issuances of common stock, net30 65 
Net cash provided by financing activities26,085 27,683 
Net decrease in cash, cash equivalents and restricted cash(3,732)(26,713)
Cash, cash equivalents and restricted cash at beginning of period22,575 48,616 
Cash, cash equivalents and restricted cash at end of period$18,843 $21,903 
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents$18,528 $21,588 
Prepaid expenses and other current assets150  
Restricted cash, less current portion165 315 
Total cash, cash equivalents and restricted cash$18,843 $21,903 
Supplemental schedule of noncash activities
Assets acquired under operating lease obligation$ $1,849 
Property and equipment in accounts payable and accrued expenses$ $768 
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 June 30, 202057,493,567 $57 $734,701 $(746,188)$46 $(11,384)
Stock-based compensation expense344 344 
Issuance of common stock related to sales facility, net of issuance costs5,647,943 6 6,477 6,483 
Unrealized loss on marketable securities(36)(36)
Net loss(9,534)(9,534)
Balance at September 30, 202063,141,510 $63 $741,522 $(755,722)$10 $(14,127)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
SharesAmount
Balance at June 30, 201957,026,782 $57 $732,515 $(703,030)$26 $29,568 
Exercise of stock options2,1883 3 
Stock-based compensation expense427 427 
Issuance of common stock, net35 35 
Unrealized loss on marketable securities(1)(1)
Net loss(11,417)(11,417)
Balance at September 30, 201957,028,970 $57 $732,980 $(714,447)$25 $18,615 
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 expense1,064 1,064 
Issuance of common stock related to sales facility, net of issuance costs5,647,943 6 6,477 6,483 
Issuance of common stock, net416,017 495 495 
Unrealized loss on marketable securities(2)(2)
Net loss(29,893)(29,893)
Balance at September 30, 202063,141,510 $63 $741,522 $(755,722)$10 $(14,127)
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 
Exercise of stock options2,188 3 3 
Stock-based compensation expense1,673 1,673 
Issuance of common stock, net119,686 126126 
Unrealized gain on marketable securities29 29 
Net loss(35,675)(35,675)
Balance at September 30, 201957,028,970 $57 $732,980 $(714,447)$25 $18,615 
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 nine months ended September 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 September 30, 2020, and for the three and nine months ended September 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 September 30, 2020, we had cash, cash equivalents and available-for-sale securities of $41.3 million. 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 September 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.
6

Table of Contents
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 September 30,
20202019
Stock options11,057,447 9,534,319 
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 nine months ended September 30, 2020 and 2019 was composed of the following:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands)
Research and development$100 $101 $274 $355 
General and administrative244 326 790 1,318 
Total stock-based compensation expense$344 $427 $1,064 $1,673 
As of September 30, 2020, we had approximately $3.0 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 2.8 years.
Stock Options
During the nine months ended September 30, 2020, we granted options to purchase 3,233,786 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 nine months ended September 30, 2019, we granted options to purchase 2,139,596 shares of our common stock at a weighted average fair value of $1.08 per share and a weighted average exercise price of $1.30 per share. For the three and nine months ended September 30, 2020 and 2019, the fair values were estimated using the Black-Scholes valuation model using the following weighted-average assumptions:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Risk-free interest rate0.4 %1.4 %1.3 %2.3 %
Expected annual dividend yield    
Expected stock price volatility99.1 %96.9 %98.2 %99.4 %
Expected term of options6.0 years6.0 years5.6 years6.0 years
7

Table of Contents
5. Cash, Cash Equivalents and Available-for-Sale Securities
The following is a summary of cash, cash equivalents and available-for-sale securities:
September 30, 2020
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
(in thousands)
Cash and cash equivalents$18,528 $ $ $18,528 
Available-for-sale securities:
U.S. Treasury securities due in one year or less21,247 10  21,257 
U.S. government-sponsored enterprise obligations due in one year or less1,500   1,500 
Total available-for-sale securities22,747 10  22,757 
Total cash, cash equivalents and available-for-sale securities$41,275 $10 $ $41,285 
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 September 30, 2020 that were in an unrealized loss position. As of September 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 nine months ended September 30, 2020 and 2019. There were no other-than-temporary impairments recognized for the three and nine months ended September 30, 2020 and 2019.
8

Table of Contents
6. Fair Value
The following table presents the assets carried at fair value measured on a recurring basis as of September 30, 2020 and December 31, 2019:
September 30, 2020
Level 1Level 2Level 3
(in thousands)
Assets:
Cash and cash equivalents$18,528 $ $ 
U.S. Treasury securities  21,257  
U.S. government-sponsored enterprise obligations 1,500  
Total assets$18,528 $22,757 $ 
Liabilities:
Warrant liability$ $ $459 
Total liabilities$ $ $459 
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 nine months ended September 30, 2020. We had no available-for-sale securities that were classified as Level 3 at any point during the nine months ended September 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 September 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.
9

Table of Contents
7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
September 30, 2020December 31, 2019
(in thousands)
Prepaid expenses$1,767 $1,680 
Restricted cash, current portion150  
Other current assets273 457 
Total prepaid expenses and other current assets$2,190 $2,137 
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
September 30, 2020December 31, 2019
(in thousands)
Accrued clinical and development$4,396 $3,793 
Accrued compensation and benefits2,089 3,055 
Liability related to sale of future royalties, net, current portion821  
Operating lease liability, current portion515 381 
Other881 848 
Total accrued expenses$8,702 $8,077 
9. Liability Related to Sale of Future Royalties
In 2016, we and Verastem Inc., or Verastem, entered into an amended and restated license agreement, or the Verastem Agreement, under which 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 September 2020, Verastem completed a disposition of its rights, title, and interest in and to duvelisib to Secura Bio, Inc., or Secura Bio, wherein Secura Bio assumed all liabilities and obligations under the Verastem Agreement. We now refer to the Verastem Agreement as the Secura Bio Agreement.
Verastem was obligated through September 30, 2020 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. Secura Bio assumed these obligations as of October 1, 2020.
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 Secura Bio 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.
10

Table of Contents
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 %
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 Secura Bio 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 Secura Bio’s obligations to each other under the Secura Bio 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 nine months ended September 30, 2020:
September 30, 2020
(in thousands)
Liability related to sale of future royalties, net - beginning balance$29,626 
Non-cash royalty revenue(679)
Non-cash interest expense recognized115 
Liability related to sale of future royalties, net - ending balance$29,062 
Less: current portion(821)
Liability related to sale of future royalties, net, less current portion$28,241 
As royalties are due to HCR by Secura Bio, 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 Secura Bio, none of which are within our control.
11

Table of Contents
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.
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.
12

Table of Contents
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 $1.7 million of non-cash related party interest expense during the three and nine months ended September 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 recognized, if any, 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.
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 September 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 (expense) on our condensed consolidated statement of operations and comprehensive loss. No warrants were issued as of September 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.
13

Table of Contents
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 current portion of the security deposit is included on our condensed consolidated balance sheet as prepaid expenses and other current assets. The remaining portion plus the associated bank fee of $15,000 is included on our condensed consolidated balance sheet as restricted cash, less current portion as of September 30, 2020. The Landlord 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 September 30, 2020, we have received the total lease incentive allowance.
As of September 30, 2020, future minimum lease payments of our operating lease liabilities are approximately $2.5 million.
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 Verastem sold its interest in these rights to Secura Bio in 2020; 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 nine months ended September 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.
14

Table of Contents
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.
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 Secura Bio 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 Secura Bio 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 Secura Bio 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 nine months ended September 30, 2020, we recognized $0.2 million in Interim Obligation amounts owed to Takeda as royalty expense. During the nine months ended September 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 Secura Bio 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.
15

Table of Contents
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 three and nine months ended September 30, 2020 we issued and sold 5,647,943 shares of common stock at a weighted average price per share of $1.18 at-the-market pursuant to the ATM Sales Agreement for $6.5 million in net proceeds. From October 1, 2020 through November 9, 2020, we issued and sold an additional 1,077,748 shares at a weighted average price per share of $1.16 at-the-market pursuant to the ATM Sales Agreement for $1.2 million in net proceeds.
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.
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.
16

Table of Contents
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. In May 2020, we voluntarily paused enrollment in the study following a planned review by the Independent Data Monitoring Committee, or IDMC, where liver enzyme elevations of Grade 3 or higher were seen in seven of 42 patients. We implemented a dose reduction of eganelisib from 40 mg daily, or QD, to 30 mg QD and have observed a reduction in liver enzyme elevations. In September 2020, the IDMC indicated that the risk/benefit to patients supported resumption of enrollment and continued evaluation of eganelisib plus nivolumab in second line urothelial cancer following cisplatin treatment. We continue to evaluate the forty-nine previously enrolled patients across safety and time-to-event measures, including progression free survival and overall survival, and intend to determine next steps by the end of the year. Such steps may include re-opening enrollment in MARIO-275 or leveraging the clinical and translational insights from patients enrolled to date to design a follow on study.
We entered into a clinical supply agreement in November 2018 with Bristol Myers Squibb under which it has agreed to supply nivolumab at no cost for our use in MARIO-275. The U.S. Food and Drug Administration, or FDA, has granted Fast Track Designation for eganelisib in combination with nivolumab for the treatment of advanced urothelial cancer.
MARIO-3
We are 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 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 regimens in patients with unmet needs. We intend to present initial data from the TNBC cohort at the 2020 San Antonio Breast Cancer Symposium in December 2020, or SABCS.
The FDA has granted Fast Track designation for eganelisib in combination with a checkpoint inhibitor and chemotherapy for the treatment of patients with inoperable locally advanced or metastatic TNBC. F. Hoffmann-La Roche Ltd., or Roche, has agreed to supply atezolizumab and bevacizumab at no cost for use in MARIO-3. Enrollment in the RCC cohort is now complete, and we expect to provide an update on enrollment expectations for the TNBC cohort at SABCS.
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. We intend to present data from the melanoma cohort and the squamous cell cancer of the head and neck, or SCCHN, cohort at the 35th Anniversary Annual Meeting of the Society for Immunotherapy of Cancer, or SITC, in November 2020. These cohorts were designed to evaluate the clinical benefit of eganelisib in combination with nivolumab in patients not expected to respond to checkpoint inhibitors, including those patients who progressed on a checkpoint inhibitor as the immediate prior therapy.
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 regimen of eganelisib in combination with etrumadenant, or 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. Arcus intends to present data from this study in December at SABCS. Etrumadenant is an orally bioavailable antagonist of 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, etrumadenant 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 an immunosuppressive tumor microenvironment in cancer after treatment with chemotherapy, the novel triplet immuno-oncology combination being evaluated in this setting represents a potentially promising approach to treating TNBC.
17

Table of Contents
Business Update Regarding COVID-19
In December 2019, a novel strain of coronavirus surfaced 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 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 are being assessed on a case-by-case basis and are ongoing for the TNBC cohort 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.
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 licensed our rights related to the development of duvelisib to Verastem Inc., or Verastem, in 2016. In 2020, Verastem completed a disposition of its rights, title, and interest in and to duvelisib to Secura Bio, Inc., or Secura Bio, wherein Secura Bio assumed all liabilities and obligations under, and Verastem assigned to Secura Bio, the license agreement with 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
In June 2013, we entered into a license agreement with PellePharm, Inc., or 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. In November 2018, PellePharm announced that it had entered into a development and commercialization collaboration with LEO Pharma A/S, or LEO Pharma, under which LEO Pharma provided research and development funding and received an option to acquire all shares in PellePharm.
In January 2020, we entered into a funding agreement, or the BVF Funding Agreement, with BVF Partners, L.P., which we refer to as BVF, and Royalty Security, LLC, a wholly owned subsidiary of BVF, which we refer to as the Buyer. Under the BVF Funding Agreement, we received a one-time payment of $20.0 million, less certain transaction expenses, and in exchange we assigned the PellePharm Agreement to the Buyer together with our interest in certain royalty payments due to us under the PellePharm Agreement (as described in more detail below). We have agreed to perform certain servicing, management and administrative functions on behalf of Buyer with respect to the PellePharm Agreement.
We have retained our rights under the PellePharm Agreement to receive up to $9.0 million in remaining regulatory and commercial-based milestone payments through the first commercial sale of a Hedgehog Product. We earned a $2.0 million milestone payment for PellePharm’s initiation of a Phase 3 study of a Hedgehog Product that fully enrolled in 2019. 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. Additionally, under the BVF Funding Agreement, we are eligible to receive a $5.0 million milestone payment from the Buyer based on the outcome of PellePharm’s ongoing Phase 3 clinical trial of patidegib topical gel in Gorlin syndrome.
18

Table of Contents
PellePharm is obligated to pay the Buyer tiered royalties on annual net sales of patidegib, or the BVF Licensed Product, excluding a portion of the royalties that remain payable to us to satisfy our obligation to third parties.
PellePharm’s royalty obligations are subject to reduction after a certain aggregate funding threshold has been achieved and expire on a country-by-country and Hedgehog Product-by-Hedgehog Product basis. The PellePharm Agreement expires upon the expiration of the last royalty obligation owed by PellePharm, at which time the license to Hedgehog Products and licenses to our know-how as described in the PellePharm Agreement become fully-paid-up and non-royalty-bearing licenses. PellePharm has the right to terminate the PellePharm Agreement upon at least 180 days’ prior written notice to us at any time, and the Buyer has the right to terminate the PellePharm Agreement if PellePharm puts forth or actively assists a patent challenge related to our Hedgehog Product patent rights. Either party may terminate the PellePharm Agreement if the other party materially breaches or defaults in the performance of its obligations. Upon termination by either party, all rights and licenses granted by us to PellePharm under the PellePharm Agreement terminate and PellePharm shall, to the extent applicable, transfer and assign to Buyer all rights, title, and interest in and to the trademark(s) used for Hedgehog Products in the territory covered under the PellePharm Agreement.
For a further description of our strategic alliances, collaborations, and other arrangements with BVF, PellePharm, Takeda, Verastem, Secura Bio, and others, see Note 9, Note 10, and Note 12 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our prior disclosure 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.
To date, substantially all of our resources have been devoted to clinical development, conducting preclinical and translational research, organizing and staffing our company, and otherwise raising capital and business planning. We expect to continue to spend significant resources to fund the development and potential commercialization of eganelisib and will continue to incur significant operating losses for the foreseeable future. If we are unable to raise capital or enter into a collaboration or license arrangement on terms that ensure adequate funding on terms favorable to us, we may have to delay, reduce or discontinue the development or commercialization of eganelisib.
Due to the risks and uncertainties inherent in pharmaceutical product development and commercialization, as described in this Quarterly Report on Form 10-Q, including the section entitled “Risk Factors” in Part II, Item 1A, we are unable to predict future expenses and future profitability. We may fail to obtain marketing approval for eganelisib or to successfully commercialize eganelisib. If we are unable to create sustained profitability, we may be forced to reduce, delay, or terminate our operations.
Financial Overview
Revenue
To date, all of our revenue has been generated under strategic agreements, including payments to us of upfront license fees, funding or reimbursement of research and development efforts, milestone payments upon achievement of specified objectives, and royalties on product sales.
At the inception of each agreement, we follow a five-step model: 1) identify the customer contract; 2) identify the contract’s performance obligations; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when or as a performance obligation is satisfied. We evaluate all promised goods and services within a customer contract and determine which of those are separate performance obligations. This evaluation includes an assessment of whether the good or service is capable of being distinct and whether the good or service is separable from other promises in the contract. When a performance obligation is satisfied, we recognize as revenue the amount of the transaction price, excluding estimates of variable consideration that are constrained, that is allocated to that performance obligation. For contracts that contain variable consideration, such as milestone payments, we estimate the amount of variable consideration by using either the expected value method or the most likely amount method. In making this assessment, we evaluate factors such as the clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone. Each reporting period we re-evaluate the probability of achievement of such milestones and any related constraints. We will include variable consideration, without constraint, in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
We recognize sales-based milestones and royalty revenue based upon net sales by the licensee of licensed products in licensed territories, and in the period the sales occur under the sales- and usage-based royalty exception when the sole or predominate item to which the royalty relates is a license to intellectual property.
19

Table of Contents
In the event of an early termination of a collaboration agreement, any contract liabilities would be recognized in the period in which all our obligations under the agreement have been fulfilled.
Research and Development Expense
We are a drug development company. Our research and development expense has historically consisted primarily of the following:
compensation of personnel associated with research and development activities;
clinical testing costs, including payments made to contract research organizations;
costs of combination and comparator drugs used in clinical studies;
costs of manufacturing product candidates for preclinical testing and clinical studies;
costs associated with the licensing of research and development programs;
preclinical testing costs, including costs of toxicology studies;
fees paid to external consultants;
fees paid to professional service providers for independent monitoring and analysis of our clinical trials;
costs for collaboration partners to perform research activities, including development milestones for which a payment is due when achieved;
depreciation of equipment; and
allocated costs of facilities.
General and Administrative Expense
General and administrative expense primarily consists of compensation of personnel in executive, finance, accounting, legal and intellectual property, information technology infrastructure, corporate communications, corporate development and human resources functions. Other costs include facilities costs not otherwise included in research and development expense and professional fees for legal and accounting services.
Royalty Expense
Royalty expense represents expense associated with amounts owed to third parties as a result of royalty revenue recognized and the amounts owed by us to Takeda in relation to the sale of future royalties.
Other Income and Expense
Other income and expense typically consist of interest earned on cash, cash equivalents and available-for-sale securities, non-cash interest expense, and changes in fair value of warrant liability.
Critical Accounting Policies and Significant Judgments and Estimates
The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to cumulative revenue related to variable consideration, accrued expenses, estimates of future net royalty payments used in the calculation of our liability related to the sale of future royalties, and assumptions in the valuation of stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.
There have been no material changes to our critical accounting policies during the nine months ended September 30, 2020. Please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2019 Annual Report on Form 10-K for a discussion of our critical accounting policies and significant judgments and estimates.
20

Table of Contents
Results of Operations
The following table summarizes our results of operations for each of the three and nine months ended September 30, 2020 and 2019, together with the change in these items in dollars and as a percentage:
Three Months Ended September 30,$ Change% Change
20202019
(in thousands)
Royalty revenue$496 $343 $153 45 %
Research and development expense6,112 7,076 (964)(14)%
General and administrative expense2,930 3,641 (711)(20)%
Royalty expense299 207 92 44 %
Investment and other income (expense)(63)299 (362)(121)%
Interest expense(38)(1,135)1,097 (97)%
Related party interest expense(588)— (588)— %
Nine Months Ended September 30,$ Change% Change
20202019
(in thousands)
Collaboration revenue$— $2,000 $(2,000)(100)%
Royalty revenue1,283 741 542 73 %
Research and development expense19,582 18,918 664 %
General and administrative expense9,191 10,810 (1,619)(15)%
Royalty expense774 7,123 (6,349)(89)%
Investment and other income173 906 (733)(81)%
Interest expense(115)(2,525)2,410 (95)%
Related party interest expense(1,687)— (1,687)— %
Income taxes benefit— 54 (54)(100)%

Revenue
Collaboration revenue for the nine months ended September 30, 2019 consisted of $2.0 million of revenue related to the milestone from PellePharm for the initiation of a Phase 3 study investigating patidegib in patients with Gorlin Syndrome.
Royalty revenue related to royalties from Verastem on net sales of duvelisib. A portion of royalties received from Verastem is owed to Mundipharma International Corporation Limited, or Mundipharma, and Purdue Pharmaceutical Products L.P., or Purdue. We refer to such portion as the Trailing Mundipharma Royalties (see Note 12 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). We and HealthCare Royalty Partners III, L.P., or HCR, entered into a purchase and sale agreement in March 2019, or the HCR Agreement. Pursuant to the HCR Agreement, HCR acquired our interest in royalties received from Verastem on net sales of duvelisib, less the Trailing Mundipharma Royalties (see Note 9 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).
Research and Development Expense
Research and development expense decreased for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 due to a combination drug purchase during the third quarter of 2019. Research and development expense is comparable for the nine months ended September 30, 2020 and the nine months ended September 30, 2019.
21

Table of Contents
We began to track and accumulate expenses by major program starting on January 1, 2006. These expenses primarily relate to payroll and related expenses for personnel working on our programs, process development and manufacturing, preclinical toxicology studies, clinical trial costs and allocated costs of facilities. During the three and nine months ended September 30, 2020, we estimate that we incurred $6.1 million and $19.6 million, respectively, on eganelisib. During the three and nine months ended September 30, 2019, we estimate that we incurred $7.1 million and $18.9 million, respectively, on eganelisib. From January 1, 2006 through September 30, 2020, we estimate that we incurred $676.2 million on our PI3K inhibitor program, including eganelisib and duvelisib.
We do not believe that the historical costs associated with our drug development programs are indicative of the future costs associated with these programs. Due to the variability in the length of time and scope of activities necessary to develop a product candidate and uncertainties related to our cost estimates and our ability to obtain marketing approval for our product candidates, accurate and meaningful estimates of the total costs required to bring our product candidates to market are not available.
Because of the risks inherent in drug development, we cannot reasonably estimate or know:
the nature, timing and estimated costs of the efforts necessary to complete the development of our programs;
the completion dates of these programs; or
the period in which material net cash inflows are expected to commence, if at all, from the programs described above and any potential future product candidates.
There is significant uncertainty regarding our ability to successfully develop any product candidates. These risks include the uncertainty of:
the scope, rate of progress and cost of our clinical trials that we are currently conducting or may commence in the future;
clinical trial results;
the cost of establishing clinical supplies of any product candidates;
the cost and availability of comparator and combination drugs;
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our programs under development;
the terms and timing of any collaborations, licensing and other arrangements that we have or may establish in the future relating to our programs under development;
the cost and timing of regulatory approvals;
the effect of competing technological and market developments; and
the impact of the COVID-19 pandemic (see “Business Update Regarding COVID-19”).
General and Administrative Expense
General and administrative expense decreased for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 primarily related to a reduction of $0.4 million in professional services and a decrease in consulting of $0.2 million. General and administrative expense decreased for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 primarily related to a decrease of $0.5 million related to a reduction in stock compensation, a decrease in consulting of $0.5 million, and a decrease in professional services of $0.4 million.
Royalty Expense
Royalty expense for the three months ended September 30, 2020 and 2019 included the Trailing Mundipharma Royalties of $0.2 million in both years. Royalty expense decreased for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 primarily due to the $6.7 million paid to Takeda in March 2019 in relation to the upfront proceeds received under the HCR Agreement (see Note 12 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).
Investment and Other Income (Expense)
Investment and other income decreased for the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 primarily as a result of lower yields on our cash and investments and an increase in the fair value of our warrant liability related to the BVF Funding Agreement.
22

Table of Contents
Interest Expense
Interest expense for the three and nine months ended September 30, 2020 and 2019 was due to non-cash interest expense related to the sale of future royalties in relation to the HCR Agreement, which we recognized as a liability that is being amortized using the effective interest method over the life of the arrangement.
Related Party Interest Expense
Related party interest expense for the three and nine months ended September 30, 2020 was due to non-cash interest expense related to the sale of future royalties in relation to the BVF Funding Agreement, which we recognized as a liability that is being amortized using the effective interest method over the life of the arrangement (see Note 10 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).
Liquidity and Capital Resources
We have not generated any revenue from product sales to date, and we do not expect to generate any such revenue for the foreseeable future, if at all. We have instead relied on the proceeds from sales of equity securities, sales of future royalties, debt, interest on investments, up-front license fees, expense reimbursement, milestones, royalties and cost sharing under our collaborations to fund our operations. Because eganelisib is in clinical development, and the outcome of this effort is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidate or whether, or when, we may achieve profitability.
The following table summarizes the components of our financial condition:
September 30, 2020December 31, 2019
(in thousands)
Cash, cash equivalents and available-for-sale securities$41,285 $42,444 
Working capital33,641 34,883 
Nine Months Ended September 30,
20202019
(in thousands)
Cash provided by (used in):
Operating activities$(27,229)$(32,655)
Investing activities(2,588)(21,741)
Financing activities26,085 27,683 
Cash Flows
For the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, our cash used in operating activities decreased primarily due to our payment to Takeda related to the HCR Agreement during the nine months ended September 30, 2019. Our cash used in operating activities in future periods may vary significantly.
Net cash used in investing activities for the nine months ended September 30, 2020 primarily included purchases of available-for-sale securities of $37.5 million and proceeds of $34.9 million from maturities of available-for-sale securities. Net cash used in investing activities for the nine months ended September 30, 2019 primarily included purchases of available-for-sale securities of $37.7 million and proceeds of $17.5 million from maturities of available-for-sale securities.
Net cash provided by financing activities for the nine months ended September 30, 2020 was due to $19.6 million in net proceeds from the sale of future royalties due to us from BVF (see Note 10 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q) and $6.5 million in net proceeds from our at-the-market facility (see “Common Stock Sales Facility”). Net cash provided by financing activities for the nine months ended September 30, 2019 included $27.6 million in net proceeds from the sale of future royalties due to us from Verastem (see Note 9 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).
23

Table of Contents
Operating Capital Requirements
As of September 30, 2020, we had cash, cash equivalents and available-for-sale securities of $41.3 million. We believe that our existing cash, cash equivalents and available-for-sale securities at September 30, 2020 will be adequate to satisfy our capital needs for at least the next twelve months from the issuance date of these financial statements based on our current operational plans. We expect to continue to spend significant resources to fund the development and potential commercialization of eganelisib and to incur significant operating losses for the foreseeable future.
Our estimate as to how long we expect our existing cash, cash equivalents and available-for-sale securities to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate. Our future funding requirements, both short-term and long-term, will depend on many factors, including, but not limited to:
the scope, progress, results and costs of developing eganelisib, currently in clinical development;
the impact of delays in patient enrollment and site activation related to the COVID-19 pandemic (see “Business Update Regarding COVID-19”);
the timing of, and the costs involved in, obtaining regulatory approvals for eganelisib;
subject to receipt of marketing approval, revenue, if any, received from commercial sales of eganelisib;
the timing and amount of additional revenues, if any, received from strategic agreements and funding arrangements, including:
milestone payments from entities affiliated with BVF under the funding agreement we entered into with such parties;
regulatory and commercial-based milestone payments from PellePharm under the license agreement we entered into with PellePharm related to the development and commercialization of patidegib, the hedgehog inhibitor we licensed to PellePharm under the PellePharm Agreement; and
milestone payments related to commercial sales of products containing duvelisib (Copiktra®), or Licensed Products, we might receive under the purchase and sale agreement, or HCR Agreement, we entered into with HCR or any additional royalties we might receive from Secura Bio, if such rights reverted to us in accordance with the HCR Agreement upon satisfaction of our obligations to HCR thereunder;
the timing and amount of additional royalty and milestone payments owed to Takeda based on sales of Licensed Products by Secura Bio;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
any breach, acceleration event or event of default under any agreements with third parties;
the outcome of any lawsuits that could be brought against us;
the cost of acquiring raw materials for, and of manufacturing, eganelisib is higher than anticipated;
the cost or quantity required of comparator or combination drugs used in clinical studies increases;
the effect of competing technological and market developments;
any federal government shutdown that prevents or delays the SEC from processing any future registration statements we may file to register shares for capital raising purposes; and
a loss in our investments due to general market conditions or other reasons.
We may seek additional funds through arrangements with collaborators or other third parties, or through project financing. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or product candidates, and we may not be able to enter into such agreements on acceptable terms, if at all. We may also seek additional funding through public or private financings of equity or debt securities, but such financings may not be available on acceptable terms, if at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock, and such terms may impact our ability to make capital expenditures or incur additional debt. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our development programs or to scale back, suspend or terminate our business operations.
24

Table of Contents
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 three and nine months ended September 30, 2020 we issued and sold 5,647,943 shares of common stock at a weighted average price per share of $1.18 at-the-market pursuant to the ATM Sales Agreement for $6.5 million in net proceeds. From October 1, 2020 through November 9, 2020, we issued and sold an additional 1,077,748 shares at a weighted average price per share of $1.16 at-the-market pursuant to the ATM Sales Agreement for $1.2 million in net proceeds.
Off-Balance Sheet Arrangements
Since inception, we have not engaged in any off-balance sheet financing activities, including the use of structured finance, special purpose entities or variable interest entities.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4.Controls and Procedures
Our management, with the participation of our principal executive and financial officers, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2020, our principal executive and financial officers concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. RISK FACTORS
You should carefully consider the following risk factors, in addition to other information included in this Quarterly Report on Form 10-Q, in evaluating us and our business. If any of the following risks occur, our business, financial condition, operating results and strategic plans could be materially and adversely affected. The COVID-19 pandemic has heightened, and in some cases manifested, certain of the risks we normally face in operating our business. These risk factors restate and supersede the risk factors set forth in the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Risks Related to Our Financial Position and Need for Additional Capital
25

Table of Contents
We have a history of operating losses, expect to incur significant and increasing operating losses in the future, and may never become profitable, or if we become profitable, we may not remain profitable.
We have no approved products, have generated no product revenue from sales, and have primarily incurred operating losses. As of September 30, 2020, we had an accumulated deficit of $755.7 million. We expect to continue to spend significant resources to fund eganelisib, our selective inhibitor of phosphoinositide-3-kinase, or PI3K-gamma. While we may have net income in some periods as the result of non-recurring collaboration revenue, we expect to incur substantial operating losses over the next several years as our clinical trial and drug manufacturing activities continue. In addition, if we proceed to seek and possibly obtain regulatory approval of eganelisib, we would expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution, to the extent such sales, marketing, manufacturing and distribution are not the responsibility of a future collaborator. As a result, we expect that our accumulated deficit would also increase significantly.
Eganelisib is under clinical development and may never be approved for sale or generate any revenue. We will not be able to generate product revenue unless and until eganelisib successfully completes clinical trials and receives regulatory approval. We do not expect to generate revenue from product sales for the foreseeable future. Even if we eventually generate revenues, we may never be profitable, and if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, and maintain our research and development efforts, and cause a decline in the value of our common stock.
We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate the development of eganelisib or future efforts to commercialize eganelisib.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time consuming, expensive and uncertain process that takes years to complete. We will need substantial additional funds to support our planned operations. In the absence of additional funding or business development activities, we believe that our existing cash, cash equivalents and available-for-sale securities at September 30, 2020 will be adequate to satisfy our current operating plans for at least the next twelve months from the issuance date of these financial statements based on our current operational plan.
Our estimate as to how long we expect our existing cash, cash equivalents and available-for-sale securities to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future funding requirements, both short-term and long-term, will depend on many factors, including, but not limited to:
the scope, progress, results and costs of developing eganelisib, currently in clinical development;
the impact of delays as a result of the COVID-19 pandemic;
the timing of, and the costs involved in, obtaining regulatory approvals for eganelisib;
subject to receipt of marketing approval, revenue, if any, received from commercial sales of eganelisib;
the timing and amount of additional revenues, if any, received from collaboration agreements and funding arrangements, including:
milestone payments from entities affiliated with BVF under the funding agreement we entered into with such parties;
regulatory and commercial-based milestone payments from PellePharm, Inc., or PellePharm, under the license agreement we entered into with PellePharm related to the development and commercialization of patidegib, the hedgehog inhibitor we licensed to PellePharm under the PellePharm Agreement; and
milestone payments related to commercial sales of products containing duvelisib (Copiktra®), or Licensed Products, we might receive under the purchase and sale agreement, or HCR Agreement, we entered into with HealthCare Royalty Partners III, L.P., or HCR, or any additional royalties we might receive from Secura Bio, Inc., or Secura Bio, if such rights reverted to us in accordance with the HCR Agreement upon satisfaction of our obligations to HCR thereunder. In August 2020, Secura Bio and Verastem entered into a definitive sales agreement for Verastem’s global and commercial development rights to Licensed Products. Verastem acquired these rights in 2016 pursuant to a license agreement between Verastem and us. We now refer to this license agreement as the Secura Bio Agreement;
the timing and amount of additional royalty and milestone payments owed to Takeda Pharmaceuticals Company Limited, or Takeda, based on sales of Licensed Products by Secura Bio;
26

Table of Contents
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
any breach, acceleration event or event of default under any agreements with third parties;
the outcome of any lawsuits that could be brought against us;
the cost of acquiring raw materials for, and of manufacturing, eganelisib is higher than anticipated;
the cost or quantity required of comparator or combination drugs used in clinical studies increases;
the effect of competing technological and market developments;
any federal government shutdown that prevents or delays the U.S. Securities and Exchange Commission, or SEC, from processing any future registration statements we may file to register shares for capital raising purposes; and
a loss in our investments due to general market conditions or other reasons.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may seek additional funding through public or private financings of equity or debt securities, but such financing may not be available on acceptable terms, if at all. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and the existence of securities with rights that may adversely affect the rights of our existing stockholders including liquidation or other preferences and anti-dilution protections. For example, during the fiscal quarter ended September 30, 2020, we sold 5,647,943 shares of common stock at a weighted average price per share of $1.18 under our common stock sales facility for $6.5 million in net proceeds.
If we incur additional indebtedness, there could be significant adverse consequences, including:
requiring us to dedicate a portion of our cash resources to the payment of interest and principal, and prepayment and repayment fees and penalties, thereby reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes;
requiring us to grant security interests on our assets;
subjecting us to restrictive covenants that may reduce our ability to incur additional debt, make capital expenditures, create liens, redeem stock, declare dividends, and acquire, sell or license intellectual property rights, or other operating restrictions that could adversely impact our ability to conduct our business;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete;
placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options; and
increasing our vulnerability to adverse changes in general economic, industry and market conditions.
We may not have sufficient funds, and may be unable to arrange for additional financing, to pay the amounts due under any debt that we may incur. Failure to make payments or comply with other covenants under these debt instruments could result in an event of default and acceleration of amounts due. If an event of default occurs and the lenders accelerate the amounts due, we may not be able to make accelerated payments.
In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
We may also seek additional funds through arrangements with collaborators or other third parties, or through project financing. These arrangements would generally require us to relinquish or encumber valuable rights to our technologies, future revenue streams, or product candidates, and we may not be able to enter into such agreements on acceptable terms, if at all.
If we are unable to obtain additional funding on a timely basis, we may be required to curtail, terminate, sell or license rights to develop and market eganelisib that we would otherwise prefer to develop and market ourselves, or to scale back, suspend, or terminate our business operations.
27

Table of Contents
We have broad discretion in the use of our available cash and other sources of funding and may not use them effectively.
Our management has broad discretion in the use of our available cash and other sources of funding and could spend those resources in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could cause the price of our common stock to decline and delay the development of eganelisib or any future product candidate. We may invest our available cash pending its use in a manner that does not produce income or that loses value.
Risks Related to the COVID-19 Pandemic
Public health epidemics or outbreaks, including COVID-19, have had, and will continue to have, an adverse impact our business.
In December 2019, a novel strain of coronavirus emerged in China causing the 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. Similar restrictions were put in place by governments throughout the world. We have highlighted the key risks associated with the COVID-19 pandemic on our operations throughout these risk factors, including without limitation the following:
The COVID-19 pandemic may materially and adversely affect our clinical trial operations and our financial results. We are conducting our clinical trials at sites in geographies seriously impacted by the COVID-19 pandemic. We are continuing to evaluate enrollment trends in our studies as well as the impact of COVID-19 on our clinical programs. Patients currently 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 are being assessed on a case-by-case basis and are ongoing in MARIO-3 TNBC cohort. There are no anticipated disruptions to drug supply.
The COVID-19 pandemic could impact our future supply chain. We currently rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we may also rely upon third-party manufacturers to produce commercial supplies of eganelisib, also known as IPI-549. We believe we have already manufactured all drug product necessary to conduct our current clinical trials. Further, we believe that a sufficient supply of drug substance and drug product intermediates is available in the United States for additional drug product manufacturing if required to support our clinical development program and potential preclinical studies. However, to the extent that we have manufacturers and clinical sites located in geographies affected by the COVID-19 pandemic, such outbreak could impact our future supply chain. Refer to the risk factor entitled “We currently rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we may also rely upon third-party manufacturers to produce commercial supplies of eganelisib” for more risks related to our dependence on third-party manufacturers to produce preclinical, clinical, and commercial supplies of eganelisib.
Social distancing measures adopted by or imposed upon us and our vendors may impact our business operations. Governments and employers are combating the COVID-19 pandemic through implementation of social distancing measures intended to keep individuals at least six feet apart from one another. Such measures have had or may have the following impact on our business operations:
Couriers worldwide, including those we rely upon to transfer biospecimens from study sites to laboratories and between laboratories, are experiencing shipping delays. According to publicly available statements by such vendors, social distancing measures, combined with increased demand for shipping and fewer flights, have contributed to such delays. We have experienced biospecimen shipping delays in France, Italy, and Spain. Although such delays have not materially impacted our operations to date, they may in the future if such delays persist or worsen.
Multiple vendors, particularly our manufacturers and laboratories, have implemented social distancing measures, such as splitting work shifts to reduce the number of employees on site, that may cause delays to study timelines. Although two vendors temporarily closed operations to address COVID-19 concerns, such closures have not materially affected our study timelines to date and we do not expect them to do so.
28

Table of Contents
Our work-from-home policy has enabled our employees to work remotely, but childcare and other household logistic complications due to COVID-19 social distancing requirements may negatively impact the efficiency or effectiveness of our employees who are also caregivers and the hours that they can commit under our work-from-home policy. We have limited any unnecessary travel for all employees for the foreseeable future. Large scientific or medical meetings that we would normally anticipate attending are now being hosted virtually.
Risks Related to the Development and Commercialization of Eganelisib and Any Future Product Candidate
We are conducting a clinical trial for eganelisib, and may conduct additional clinical trials in the future, at sites outside the United States. The FDA may not accept data from trials conducted in such locations and the conduct of trials outside the United States could subject us to additional delays and expense.
MARIO-275, our Phase 2 global study evaluating eganelisib in combination with nivolumab in patients with advanced urothelial cancer, is being conducted at trial sites located in the United States and Europe. We may choose to conduct future clinical trials, whether related to eganelisib or a future product candidate, at trial sites outside of the United States as well. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with good clinical practices. The FDA must be able to validate the data from the trial through an onsite inspection if necessary. The trial population must also have a similar profile to the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful, except to the extent the disease being studied does not typically occur in the United States. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also complied with all applicable U.S. laws and regulations. There can be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and delay or permanently halt our development of eganelisib or any future product candidates.
In addition, the conduct of clinical trials outside the United States could have a significant adverse impact on us. Risks inherent in conducting international clinical trials include:
clinical practice patterns and standards of care that vary widely among countries;
non-U.S. regulatory authority requirements that could restrict or limit our ability to conduct our clinical trials;
administrative burdens of conducting clinical trials under multiple non-U.S. regulatory authority schema;
foreign exchange fluctuations;
diminished protection of intellectual property in some countries; and
geopolitical actions, including war and terrorism, disease outbreak, such as the COVID-19 pandemic, or natural disasters including earthquakes, typhoons, floods and fires.
We are dependent on the success of eganelisib, our only product candidate.
Our prospects are substantially dependent on our ability to develop, obtain marketing approval for and successfully commercialize product candidates in one or more disease indications.
We currently have no products approved for sale and are investing substantially all of our efforts and financial resources in the development of eganelisib.
The success of eganelisib will depend on several factors, including the following:
our ability to raise additional capital;
initiation, enrollment and successful completion of clinical trials, including in combination with other agents;
a safety, tolerability and efficacy profile that is satisfactory to the U.S. Food and Drug Administration, or FDA, or any comparable foreign regulatory authority for marketing approval;
timely receipt of marketing approvals from applicable regulatory authorities;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
establishment of supply arrangements with third-party raw materials suppliers and manufacturers;
establishment of arrangements with third-party manufacturers to obtain finished drug product that is appropriately packaged for sale;
29

Table of Contents
adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally;
protection of our rights in our intellectual property portfolio;
successful launch of commercial sales following any marketing approval;
a continued acceptable safety profile following any marketing approval;
commercial acceptance by patients, the medical community and third-party payors; and
our ability to compete with other therapies.
We also expect that the success of eganelisib will depend primarily on its therapeutic potential in combination with other therapeutics, such as checkpoint inhibitor therapies, and not as a monotherapy.
Please refer to “Risks Related to the COVID-19 Pandemic” for a discussion of risks related to our ongoing clinical trials of eganelisib.
Many of these factors are beyond our control, including clinical development, the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any collaborator. If we are unable to develop, receive marketing approval for and successfully commercialize eganelisib, on our own or with any collaborator, or experience delays as a result of any of these factors or otherwise, our business would be substantially harmed.
Eganelisib remains subject to clinical testing and regulatory approval. This process is highly uncertain, and we may never be able to obtain marketing approval for eganelisib.
To date, we have not obtained approval from the FDA or any foreign regulatory authority to market or sell any product candidates. eganelisib and any future product candidates that we seek to advance will be subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous preclinical testing, testing in clinical trials, and an extensive regulatory approval process are required in the United States and in many foreign jurisdictions prior to the commercial sale of medicinal products.
For example, we are evaluating eganelisib, our only product candidate, in clinical development. If our current clinical trials are successful, we will need to conduct further clinical trials and will need to apply for regulatory approval before we may market or sell any products based on eganelisib. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that eganelisib will not obtain marketing approval. Even if eganelisib has a beneficial effect, that effect may not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect of eganelisib that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by eganelisib or mistakenly believe that eganelisib is toxic or not well tolerated when that is not in fact the case.
Eganelisib must undergo rigorous clinical trials prior to receipt of regulatory approval. Any problems in these clinical trials could delay or prevent commercialization of eganelisib.
We cannot predict whether we will encounter problems with any of our ongoing or planned clinical trials that will cause us or regulatory authorities to delay, suspend, or discontinue clinical trials or to delay the analysis of data from ongoing clinical trials. Any of the following could delay or disrupt the clinical development of eganelisib:
unfavorable results of discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;
delays in receiving, or the inability to obtain, required approvals from institutional review boards or other reviewing entities at clinical sites selected for participation in our clinical trials;
delays in enrolling patients into clinical trials;
a lower than anticipated retention rate of patients in clinical trials;
the need to repeat or discontinue clinical trials as a result of inconclusive or negative results or unforeseen complications in testing or because the results of later trials may not confirm positive results from earlier preclinical studies or clinical trials;
inadequate supply, delays in distribution or deficient quality of, or inability to purchase or manufacture drug product, comparator drugs or other materials necessary to conduct our clinical trials;
30

Table of Contents
unfavorable FDA or other foreign regulatory inspection and review of a clinical trial site, us, or a vendor of ours, or records of any clinical or preclinical investigation;
serious and unexpected drug-related side effects experienced by participants in our clinical trials, which may occur even if they were not observed in earlier trials or only observed in a limited number of participants;
a finding that the trial participants are being exposed to unacceptable health risks;
the placement by the FDA or a foreign regulatory authority of a clinical hold on a trial; or
any restrictions on, or post-approval commitments with regard to, any regulatory approval we ultimately obtain that render the product candidate not commercially viable.
We may suspend, or the FDA or other applicable regulatory authorities may require us to suspend, clinical trials of eganelisib at any time if we or they believe the patients participating in such clinical trials, or in independent third-party clinical trials for drugs based on similar technologies, are being exposed to unacceptable health risks or for other reasons.
The delay, suspension or discontinuation of any of our clinical trials, or a delay in the analysis of clinical data for eganelisib, for any of the foregoing reasons, could adversely affect our ability to obtain regulatory approval for and to commercialize eganelisib, increase our operating expenses and have a material adverse effect on our financial results.
 
Adverse events or undesirable side effects caused by, or other unexpected properties of, eganelisib, alone or in combination with other agents, may be identified during development and could delay or prevent eganelisib marketing approval or limit its use.
Adverse events or undesirable side effects caused by, or other unexpected properties of, eganelisib, alone or in combination with other agents, could cause us, any collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of eganelisib and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. If eganelisib is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any collaborators, may need to abandon development or limit development of eganelisib to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound. Combining two or more agents may increase the instances of or severity of adverse events or undesirable effects.
Even assuming approval of a drug candidate, our business may suffer if the market opportunities for eganelisib or product candidates we may develop in the future are smaller than we believe them to be.
Our projections of both the number of people who are affected by disease within our target indications, as well as the subset of these people who have the potential to benefit from treatment with eganelisib or product candidates we may develop in the future, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, healthcare utilization databases and market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for our product candidate may be limited or may not be amenable to treatment with our product candidate, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.
If we, or any future collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of eganelisib, potential clinical development, marketing approval or commercialization of eganelisib could be delayed or prevented.
We, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent clinical development, marketing approval or commercialization of eganelisib, including:
regulators or institutional review boards may not authorize us, any collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we, or any collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
clinical trials of eganelisib may produce unfavorable or inconclusive results;
we, or any collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon eganelisib;
31

Table of Contents
the number of patients required for clinical trials of eganelisib may be larger than we, or any collaborators, anticipate; patient enrollment in these clinical trials may be slower than we, or any collaborators, anticipate; or participants may drop out of these clinical trials at a higher rate than we, or any collaborators, anticipate;
the cost of planned clinical trials of eganelisib may be greater than we anticipate;
our third-party contractors or those of any collaborators, including those manufacturing eganelisib, comparator or combination drugs, or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or any collaborators in a timely manner or at all;
patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial’s duration and cost;
we, or any collaborators, may have to delay, suspend or terminate clinical trials of eganelisib for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of eganelisib;
regulators or institutional review boards may require that we, or any collaborators, or our or their investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of eganelisib or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate;
the FDA or comparable foreign regulatory authorities may disagree with our, or any collaborators’, clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we, or any collaborators, enter into agreements for clinical and commercial supplies;
the supply or quality of raw materials or manufactured product candidates and combination or comparator drugs or other materials necessary to conduct clinical trials of eganelisib may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.
Product development costs for us, or any collaborators, will increase if we, or they, experience delays in testing or pursuing marketing approvals and we, or they, may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of eganelisib. We do not know whether our clinical trials will begin as planned, will need to be restructured, or will be completed on schedule or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we, or any collaborators, may have the exclusive right to commercialize eganelisib or allow our competitors, or the competitors of any current or future collaborators, to bring products to market before we, or any collaborators, do and impair our ability, or the ability of any collaborators, to successfully commercialize eganelisib and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of eganelisib, or, in the event that our clinical trials remain unable to demonstrate meaningful clinical benefit, our failure to reach the marketing approval stage at all.
Results of preclinical studies and early clinical trials may not be successful, and even if they are successful, may not be predictive of results of future late-stage clinical trials.
We are in early-stage clinical development for eganelisib. The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we, or any collaborators, believe that the results of clinical trials for eganelisib warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of eganelisib.
32

Table of Contents
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of eganelisib, the development timeline and regulatory approval and commercialization prospects for eganelisib and, correspondingly, our business and financial prospects, would be negatively impacted.
Interim top-line and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, which could result in material changes in the final data.
From time to time, we may publish interim top-line or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly.
Our inability to enroll sufficient numbers of patients in our clinical trials, or any delays in patient enrollment, could result in increased costs and longer development periods for our product candidates.
Clinical trials require sufficient patient enrollment, which is a function of many factors, including:
the size and nature of the patient population;
the severity of the disease under investigation;
the nature and complexity of the trial protocol, including eligibility criteria for the trial;
the number of clinical trial sites and the proximity of patients to those sites;
standard of care in disease under investigation;
the commitment of clinical investigators to identify eligible patients;
competing studies or trials; and
clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
Our failure to enroll patients in a clinical trial could delay the initiation or completion of the clinical trial beyond current expectations. In addition, the FDA or other foreign regulatory authorities could require us to conduct clinical trials with a larger number of patients than has been projected for eganelisib or any product candidates we may develop in the future. As a result of these factors, we may not be able to enroll a sufficient number of patients in a timely or cost-effective manner.
Furthermore, enrolled patients may drop out of a clinical trial, which could impair the validity or statistical significance of the clinical trial. A number of factors can influence the patient discontinuation rate, including, but not limited to:
the inclusion of a placebo or comparator arm in a trial;
possible inactivity or low activity of the product candidate being tested at one or more of the dose levels being tested;
the occurrence of adverse side effects, whether or not related to the product candidate; and
the availability of numerous alternative treatment options, including clinical trials evaluating competing product candidates, that may induce patients to discontinue their participation in the trial.
Both enrollment rates and patient discontinuation rates could be materially and adversely affected by geopolitical actions, including war and terrorism, disease outbreak, such as the recent outbreak of a novel strain of coronavirus named COVID-19, or natural disasters including earthquakes, typhoons, floods and fires. For instance, COVID-19 has spread worldwide, including to the United States and several European countries