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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and as set forth under “Risk Factors.” Please also refer to the section under the heading “Forward-Looking Statements.”

OVERVIEW

We are a late stage development biopharmaceutical company, with ongoing registration directed trials, committed to advancing new medicines for patients battling cancer. Our pipeline is focused on novel anticancer agents that inhibit critical signaling pathways in cancer that promote cancer cell survival and tumor growth, particularly RAF/MEK inhibition and FAK inhibition.

Our most advanced product candidates, VS-6766 and defactinib, are being investigated in both preclinical and clinical studies for treatment of various solid tumors, including, low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer (NSCLC), colorectal cancer (CRC), pancreatic cancer, uveal melanoma, and endometrial cancer. We believe that VS-6766 may be beneficial as a therapeutic as a single agent or when used together in combination with defactinib, other agents, other pathway inhibitors, or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies.

On August 10, 2020, we and Secura Bio, Inc. (Secura) signed an Asset Purchase Agreement (Secura APA) and on September 30, 2020, the transaction closed. Pursuant to the Secura APA, we sold our exclusive worldwide license for the research, development, commercialization, and manufacture in oncology indications of products containing duvelisib. Refer to Note 14. License, collaboration and commercial agreements for a detailed description of the terms and conditions of the Secura APA. With the transition of the duvelisib program to Secura, we are focusing our efforts on our lead product candidates, VS-6766 and defactinib.

Our operations to date have been organizing and staffing our company, business planning, raising capital, identifying and acquiring potential product candidates, undertaking preclinical studies and clinical trials for our product candidates and initiating U.S. commercial operations following the approval of COPIKTRA. We have financed our operations to date primarily through public offerings of our common stock, sales of common stock under our at-the-market equity offering programs, our loan and security agreement executed with Hercules Capital, Inc. (Hercules) in March 2017, as amended, the upfront payments under our license and collaboration agreements with Sanofi, Yakult and CSPC, the upfront payment under the Secura APA, the issuance of the 2018 Notes in October 2018, and the proceeds in connection with the PIPE. After the U.S. commercial launch of COPIKTRA on September 24, 2018, through our ownership period ending in September 2020, we financed a portion of our operations through product revenue.

As of December 31, 2021, we had an accumulated deficit of $663.7 million. Our net loss was $71.2 million, $67.7 million, and $149.2 million, for the years ended December 31, 2021, 2020, and 2019, respectively. We expect to incur significant expenses and may continue to incur operating losses for the foreseeable future as a result of the continued research and development of VS-6766 and defactinib. As of December 31, 2021, we had cash, cash equivalents, and investments of $100.3 million. We expect our existing cash resources will be sufficient to fund our planned operations through at least 12 months from the date of the issuance of these consolidated financial statements.

We expect to finance the future development costs of our clinical product portfolio with our existing cash, cash equivalents and investments, through future milestones and royalties received pursuant to the Secura APA or through strategic financing opportunities that could include, but are not limited to, collaboration agreements, future offerings of our equity, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If we fail to obtain additional future capital, we may be unable to complete our planned preclinical

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

COVID-19 pandemic

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets. We have been carefully monitoring the COVID-19 pandemic and its impact on our operations. All employees who are able to work from home have been primarily working from home since mid-March 2020. Shortages in personnel in clinics and hospitals have cause some United States sites to institute limits on new clinical trials which could impact our ability to open new sites for our clinical trials. In addition, clinics in Europe and United States continue to have delays in startup activities due to the ongoing pandemic and the increase in COVID-19 variant infections. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, new variants, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors included within.

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FINANCIAL OPERATIONS OVERVIEW

Revenue

From our U.S. commercial launch of COPIKTRA on September 24, 2018 through our ownership period ending in September 2020 product revenue, net represented the gross sales of COPIKTRA in the United States less provisions for product sales allowances and accruals. These provisions included trade allowances, rebates, chargebacks and discounts, product returns and other incentives. We sold COPIKTRA to a limited number of specialty pharmacies and specialty distributors. The provisions for product sales and allowances fluctuated based on the mix of sales to either specialty pharmacy or specialty distributor customers. See “Critical Accounting Policies and Significant Judgements and Estimates” below and Note 2. Significant Accounting Policies located within the notes to the financial statements included within for more information on the components of net U.S. product sales of COPIKTRA.

License and collaboration revenue to date has been generated through our license and collaboration agreements for the development and commercialization of duvelisib with Sanofi in the Sanofi Territory, CSPC in China, and Yakult in Japan. The terms of these agreements contain multiple deliverables which may include (i) licenses, (ii) research and development activities, and (iii) the manufacture of finished drug product, active pharmaceutical ingredient (API), or development materials for a partner, which are reimbursed at a contractually determined rate. Payments to us may include (i) up‐front license fees, (ii) payments for research and development activities, (iii) payments for the manufacture of finished drug product, API or development materials, (iv) payments based upon the achievement of certain milestones, and (v) royalties on product sales.

Sale of licenses and related assets revenue to date have been generated through our sale of our duvelisib license and related assets to Secura. The sale included intellectual property related to duvelisib in oncology indications, certain existing duvelisib inventory, certain manufacturing equipment and, claims and rights under certain contracts pertaining to duvelisib including net contract prepaid balances.

Costs of sales - product

Cost of sales - product consisted of costs of COPIKTRA on which product revenue was recognized, royalties owed to Healthcare Royalty Partners (HCR) and Infinity we incurred as a result of such sales of COPIKTRA, and certain period costs. Certain of the costs of COPIKTRA units recognized as revenue during 2020 and 2019 were expensed prior to the September 2018 FDA marketing approval and, therefore, are not included in cost of sales during those periods period. There were no cost of sales – product in 2021.

Costs of sales - sale of COPIKTRA license and related assets

Cost of sales - sale of COPIKTRA license and related assets represent assets delivered to Secura as part of the sale pursuant to the Secura APA. This includes our intangible assets, certain duvelisib inventory, net duvelisib contract prepaid balances, and manufacturing equipment.

Research and development expenses

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

● license fees;

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Costs for certain development activities, such as clinical trial expenses, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, and information provided us by our vendors on their actual costs incurred or level of effort expended. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid expenses and other current assets or accrued expenses.

Our research and development expenses may increase significantly in future periods as we undertake costlier development activities for our existing and future product candidates, including larger and later-stage clinical trials.

The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of our product candidates or the period, if any, in which material net cash inflows from our product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

● clinical trial results;

● the potential benefits of our product candidates over other therapies;

● the terms and timing of regulatory approvals; and

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

Selling, general, and administrative expenses

Selling, general, and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation expense, in our executive, finance, legal, information technology, commercial, communication, human resources, and business development functions. Other selling, general, and administrative expenses include allocated facility costs, commercial costs, professional fees for legal, patent, investor and public relations, consulting, insurance premiums, audit, tax, and other public company costs.

Other, interest income and interest expense

Other expenses for the year ended December 31, 2020 and December 31, 2019, consists entirely of the mark-to-market adjustment of the bifurcated make-whole interest provision derivative liability related to the 2019 Notes. There was no other expense for the year ended December 31, 2021.

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

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

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CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued and prepaid research and development expenses, leases, stock-based compensation, revenue recognition, and collaborative agreements, described in greater detail below. We base our estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. However, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

Revenue recognition

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

Product revenue, net

Product Revenue, Net – From September 24, 2018 (the date of our U.S. commercial launch of COPIKTRA) through September 30, 2020 (the date we sold COPIKTRA to Secura), we sold COPIKTRA to a limited number of specialty pharmacies and specialty distributors in the United States. We recognized revenue on sales of COPIKTRA when a customer obtains control of the product, which occurs at a point in time (typically upon delivery). Product revenues are recorded at the wholesale acquisition costs, net of applicable reserves for variable consideration. Components of variable consideration include trade discounts and allowances, Third-Party Payer chargebacks and discounts, government rebates, other incentives, such as voluntary co-pay assistance, product returns, and other allowances that are offered within contracts between us and customers, payors, and other indirect customers relating to our sale of COPIKTRA. These reserves, are based on the amounts earned, or to be claimed on the related sales, and are classified as reductions of accounts receivable or a current liability. These estimates take into consideration a range of possible outcomes based upon relevant factors such as customer contract terms, information received from third parties regarding the anticipated payor mix for COPIKTRA, known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which it is entitled with respect to sales made.

The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under contracts will not occur in a future period. Our analyses contemplate the application of the constraint in accordance with ASC 606. For the years ended December 31, 2020, and 2019, we determined a material reversal of revenue would not occur in a future period for variable consideration, and the transaction price was not reduced further. There was not any product revenue, net recorded for the year ended December 31, 2021. Actual amounts of consideration ultimately received could differ from our estimates. However, as of December 31, 2021, we do not have any reserve balances associated with product revenue, net.

Licenses and sales of intellectual property

Licenses of Intellectual Property - We may enter into collaboration and licensing arrangements for research and development, manufacturing, and commercialization activities with collaboration partners for the development

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and commercialization of our product candidates, which have components within the scope of ASC 606. The arrangements generally contain multiple elements or deliverables, which may include (i) licenses, or options to obtain licenses, to our intellectual property or sale of our license, (ii) research and development activities performed for the collaboration partner, (iii) participation on joint steering committees, and (iv) the manufacturing of commercial, clinical or preclinical material. Payments pursuant to these arrangements typically include non-refundable, upfront payments, milestone payments upon the achievement of significant development events, research and development reimbursements, sales milestones, and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period. The contracts into which we enter generally do not include significant financing components.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our collaboration and license agreements, we perform the following steps: (i) identification of the promised goods or services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and d) the measure of progress in step (v) above. We use judgment to determine whether milestones or other variable consideration, except for royalties on license arrangements, should be included in the transaction price.

For sales of license and intellectual property, that include sale-based royalties, including milestone payments based on a level of sales, we evaluate whether the royalties and sales-based milestones are considered probable of being achieved and estimate the amount of royalties to include over the contractual term using the expected value method and estimate the sales-based milestones using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated royalty and milestone value is included in the transaction price. Royalties and sales-based milestones for territories for which there is not regulatory approval are not considered probable until such regulatory approval is achieved. We evaluate factors such as whether consideration is outside of our control, timeline for when the uncertainty will be resolved and historical sales of COPIKTRA if applicable. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and amount of royalty revenue to be received and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. At December 31, 2021, we determined $0.2 million of future potential royalties, we expect to receive pursuant to the Secura APA, were not constrained and have been recorded in the transaction price. As the consideration for future royalties is conditional, we recorded a corresponding contract asset for the expected future royalties. Portions of the contract asset are reclassified to accounts receivable when the right to consideration becomes unconditional.

Refer to Note 2. Significant Accounting Policies, Note 6. Product revenue reserves and allowances and Note. 14. License, collaboration and commercial agreements to our consolidated financial statements located in this Annual Report on Form 10-K for further discussion of revenue.

Collaborative Arrangements

Collaborative Arrangements: Contracts are considered to be collaborative arrangements pursuant to GAAP when they satisfy the following criteria defined in ASC Topic 808, Collaborative Arrangements (ASC 808): (i) the parties to the contract must actively participate in the joint operating activity and (ii) the joint operating activity must expose the parties to the possibility of significant risk and rewards, based on whether or not the activity is successful. Payments received from or made to a partner that are the result of a collaborative relationship with a partner, instead of a customer relationship, such as co-development activities, are recorded as a reduction or increase to research and development expense, respectively.

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Accrued and prepaid research and development expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves reviewing contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include fees paid to CROs in connection with research and development activities for which we have not yet been invoiced.

We base our expenses related to CROs on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Refer to Note 2. Significant Accounting Policies, and Note. 4. Accrued expenses to our consolidated financial statements located in this Annual Report on Form 10-K for further discussion of accrued research and development expenses.

Stock-based compensation

For service-based awards, we recognize stock-based compensation expense for stock options, and restricted stock units (RSUs) issued to employees, directors and consultants based on the grant date fair value of the awards on a straight-line basis over the requisite service period. In addition, we issue shares under our employee stock purchase plan (ESPP) to employees. The fair value of our stock options and ESPP grants is estimated at the date of grant using the Black-Scholes option pricing model.

We have also granted performance-based RSUs and stock options with terms that allow the recipients to vest in a specific number of shares based upon the achievement of performance-based milestones as specified in the grants. Stock-based compensation expense associated with these performance-based RSUs and stock options is recognized if the performance condition is considered probable of achievement using management’s best estimates of the time to vesting for the achievement of the performance-based milestones. If the actual achievement of the performance-based milestones varies from our estimates, stock-based compensation expense could be materially different than what is recorded in the period. The cumulative effect on current and prior periods of a change in the estimated time to vesting for performance-based RSUs and stock options will be recognized as compensation cost in the period of the revision, and recorded as a change in estimate.

While the assumptions used to calculate and account for stock-based compensation awards represent management’s best estimates, these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if revisions are made to our underlying assumptions and estimates, our stock-based compensation expense could vary significantly from period to period.

During the year ended December 31, 2021 we recorded $7.7 million of stock-based compensation expense. As of December 31, 2021, there was approximately $10.7 million of unrecognized stock-based compensation related to stock options, which are expected to be recognized over a weighted-average period of 3.2 years. As of December 31, 2021, there was approximately $6.0 million of unrecognized stock-based compensation related to RSUs, which

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are expected to be recognized over a weighted-average period of 3.7 years. See Note 2. Significant accounting policies and Note 9. Stock-based compensation to our consolidated financial statements located in this Annual Report on Form 10-K for further discussion of stock-based compensation.

Leases

Effective January 1, 2019, we adopted ASC Topic 842, Leases (ASC 842). This standard requires lessees to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases.

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances within the arrangement. A lease is identified where an arrangement conveys the right to control the use of identified property, plant, and equipment for a period of time in exchange for consideration. Leases which are identified within the scope of ASC 842 and which have a term greater than one year are recognized on our consolidated balance sheets as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. We have elected not to recognize leases with terms of one year or less on our consolidated balance sheets. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, we utilize our incremental borrowing rates to calculate the present value of lease payments. Incremental borrowing rates are the rates we incur to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. As of December 31, 2021, we have a right-of-use asset of $2.3 million and lease liability of $2.9 million which reflected on the consolidated balance sheets. See Note 2. Significant accounting policies and Note 7. Leases to our consolidated financial statements located in this Annual Report on Form 10-K for further discussion of leases.

RESULTS OF OPERATIONS

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

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​ ​ Year Ended December 31,

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​

License and collaboration revenue ​ ​ — ​ ​ 2,912 ​ ​ 5,117

Sale of COPIKTRA license and related assets ​ ​ 1,447 ​ ​ 70,000 ​ ​ —

Transition services revenue ​ ​ 606 ​ ​ 372 ​ ​ —

Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​

Cost of sales - product ​ ​ — ​ ​ 1,765 ​ ​ 1,238

Cost of sales - intangible amortization ​ ​ — ​ ​ 793 ​ ​ 1,569

Other expense ​ ​ — ​ ​ (1,313) ​ ​ (641)

Loss on debt extinguishment ​ ​ — ​ ​ (1,580) ​ ​ —

Income tax expense ​ ​ — ​ ​ (194) ​ ​ —

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Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

Product revenue, net. Product revenue net for the year ended December 31, 2021 (2021 Period) was $0.0 million compared to $15.2 million for the year ended December 31, 2020 (2020 Period). Product revenue, net consisted of net product sales of COPIKTRA in the United States. Pursuant to the Secura APA discussed in greater detail above within section Item 1. Business within heading Licenses and commercial agreements, we have sold our COPIKTRA license and as of September 30, 2020, we no longer sell COPIKTRA in the United States.

License and collaboration revenue. License and collaboration revenue for the 2021 Period was $0.0 million compared to $2.9 million for the 2020 Period. The 2020 Period license and collaboration revenue was comprised of Sanofi achieving two development milestones during the 2020 Period totaling $2.5 million and $0.4 million of duvelisib shipments to Sanofi, Yakult Honsha Co., Ltd. (Yakult), and CSPC Pharmaceutical Group Limited (CSPC).

Sale of COPIKTRA license and related assets revenue. Sale of COPIKTRA license and related assets revenue for the 2021 Period was $1.4 million compared to $70.0 million for the 2020 Period. The sale of COPIKTRA license and related assets revenue for the 2021 Period primarily related to two regulatory milestone for $1.3 million achieved by Secura’s sublicensee and $0.2 million related to royalties we received and expected to be received pursuant to the Secura APA.Sale of COPIKTRA license and related assets revenue for the 2020 Period was comprised of a $70.0 million upfront payment recognized under the Secura APA discussed in greater detail above within section Item 1. Business within heading Licenses and Commercial Agreements.

Transition services revenue. Transition services revenue for the 2021 Period was $0.6 million compared to $0.4 million for the 2020 Period. Transition services revenue in both periods consisted of us providing certain support functions pursuant to the Secura transition service agreement, which was entered into in connection with the Secura APA. The services were provided at a mutually agreed upon rate.

Costs of sales – product. Costs of sales – product for the 2021 Period was $0.0 million compared to $1.8 million for the 2020 Period. Pursuant to the Secura APA discussed in greater detail above within section Item 1. Business within heading Licenses and commercial agreements, we have sold our COPIKTRA license and as of September 30, 2020, we no longer sell COPIKTRA in the United States.

Cost of Sales – intangible amortization. Cost of sales – intangible amortization for the 2021 Period was $0.0 million compared to $0.8 million for the 2020 Period. Pursuant to the Secura APA discussed in greater detail above within section Item 1. Business within heading Licenses and commercial agreements, we have sold our COPIKTRA license, to which our intangible asset related. Therefore, there was no cost of sales – intangible amortization in the 2021 Period.

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Cost of sales – sale of COPIKTRA license and related assets. Cost of sales – sale of COPIKTRA license and related assets for the 2021 Period was $0.0 million compared to $31.2 million for the 2020 Period. Cost of sales – sale of COPIKTRA license and related assets for the 2020 Period consisted of certain assets delivered to Secura under the Secura APA. For the 2020 Period, we recognized approximately $19.2 million, $6.0 million, $5.8 million and $0.2 million for the intangible asset, certain duvelisib inventory, net duvelisib contract prepaid balances and manufacturing equipment, respectively which were delivered to Secura as part of the sale.

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Research and development expense. Research and development expense for the 2021 Period was $39.3 million compared to $41.4 million for the 2020 Period. The $2.1 million decrease from the 2020 Period to the 2021 Period was primarily related to a decrease of $3.0 million of license fees due to a non-refundable payment of $3.0 million to Chugai in the 2020 Period for the VS-6766 license described further above within section Item 1. Business within heading Licenses and commercial agreements, a decrease of $1.8 million in contract research organization (CRO) costs, a decrease of $1.7 million in consulting costs, and a decrease of $0.4 million in clinical supply costs. The decrease is partially offset by an increase of $2.2 million in investigator fees, an increase of $1.3 million in personnel related costs, including non-cash stock-based compensation, an increase of $0.7 million of drug substance and drug product costs, and an increase of $0.6 million of pre-clinical expenses. In future periods, we continue to expect expenses for VS-6766 and defactinib to increase as we have commenced our registration directed trials.

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Selling, general and administrative expense.Selling, general and administrative expense for the 2021 Period was $24.1 million compared to $62.8 million for the 2020 Period. The decrease of $38.7 million from the 2020 Period to the 2021 Period primarily resulted from a decrease of $20.1 million of personnel related costs, including non-cash stock-based compensation, as a result of reduced headcount, a decrease of $16.1 million in consulting and professional fees, primarily related to the support of commercial activities in 2020 Period and costs associated with the sale of COPIKTRA license and related assets to Secura, a decrease of $2.1 million in reduced commercial activities costs and a decrease of $0.4 million in reduced travel and other costs.

Other expense.Other expense for the 2020 Period of $1.3 million was for the mark-to-market adjustment related to the bifurcated make-whole interest provision derivative liability related to our 5.00% Convertible Senior Second Lien Notes due 2048 (the 2019 Notes). All 2019 Notes have converted to common stock as of March 31, 2020, and the derivative liability will no longer be remeasured. There was no other expense in the 2021 Period.

Interest income. Interest income for the 2021 Period was $0.2 million compared to $0.5 million for the 2020 Period. The decrease of $0.3 million from the 2020 Period to the 2021 Period was primarily due to lower investment cost basis and lower interest rates on investments.

Interest expense. Interest expense for the 2021 Period was $10.0 million compared to $15.8 million for the 2020 Period. The decrease of $5.8 million was primarily due to $8.1 million of non-cash interest expense recorded in the 2020 Period upon conversion of the 2019 Notes into common stock and decreased interest as a result of repayment of our term loan facility in November 2020. The decrease is partially offset by $7.8 million of non-cash interest expense recorded upon conversion of the 2020 Notes into common stock in the 2021 Period.

Loss on debt extinguishment. Loss on debt extinguishment for the 2020 Period of $1.6 million represents the loss recognized on early extinguishment of our Hercules term loan facility. On November 9, 2020, we repaid in full all principal, accrued and unpaid interest, fees, and expenses under the Amended Loan Agreement with Hercules in an aggregate amount of $37.4 million (the Payoff Amount). The Payoff Amount, excluding accrued interest, exceeded the carrying amount of the Hercules debt on November 9, 2020 by $1.6 million which was recorded as a loss on debt extinguishment. There was no loss on debt extinguishment in the 2021 Period.

Income tax expense. Income tax expense for the 2020 Period of $0.2 million primarily related to state income tax as a result of the sale of COPIKTRA license and related assets. There was no income tax expense in the 2021 Period.

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

In August 2020, in connection with the duvelisib sale to Secura pursuant to the Secura APA we committed to a strategic restructuring (August 2020 Restructuring). The August 2020 restructuring included a workforce reduction of approximately 41 positions primarily in our commercial operations department.

During the 2020 Period, we recorded an aggregate expense of $4.6 million for restructuring expenses, which is reflected in the consolidated statements of operation and comprehensive loss as selling general, and administrative expense and research and development expense of $4.1 million and $0.5 million, respectively, for one-time termination benefits for employee severance, benefits, and related costs. There were no restructuring expenses in the 2021 Period.

LIQUIDITY AND CAPITAL RESOURCES

Sources of liquidity

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

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in October 2018, and the proceeds in connection with the PIPE. With the commercial launch of COPIKTRA in the United States in September 2018, we had recently begun financing a portion of our operations through product revenue. As of September 30, 2020, in connection with the Secura APA, we no longer sell COPIKTRA in the United States. We expect to finance a portion of our business through future milestones and royalties received pursuant to the Secura APA.

As of December 31, 2021, we had $100.3 million in cash, cash equivalents, and investments. We primarily invest our cash, cash equivalents and investments in U.S. Government money market funds, government bonds, corporate bonds and commercial paper of publicly traded companies.

Risks and uncertainties include those identified under Item 1A. Risk Factors, in this Annual Report on Form 10-K.

Cash flows

The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

Net cash (used in) provided by: ​ ​ ​ ​

Operating activities.The use of cash in 2021 Period and 2020 Period resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital. Our cash outflow from net losses adjusted for non-cash charges was $54.1 million and $45.1 million for the 2021 Period and 2020 Period, respectively. Non-cash charges were primarily related to non-cash interest, net and stock-based compensation expense in both the 2021 Period and 2020 Period. Our cash inflow from operating activities due to changes in operating assets and liabilities was $0.6 million and $11.6 million for the 2021 Period and 2020 Period, respectively. Cash inflow (outflow) due to changes in operating assets and liabilities for the 2021 Period was primarily driven by an increase of $1.8 million in accrued expenses, an increase of $0.6 million in accounts payable, partially offset by an increase in $1.6 million in prepaid expenses, other current assets, and other assets, and an increase of $0.3 million in accounts receivable, net. Cash inflow due to changes in operating assets and liabilities for the 2020 Period was primarily driven by a decrease of $19.5 million in intangible assets and property, plant and equipment, a decrease of $3.1 million in inventory, and a decrease of $2.3 million in accounts receivable, net partially offset by a decrease of $8.0 million in accounts payable, and $5.0 million decrease in accrued expenses and other liabilities. The $20.0 million increase in cash used in operating activities for the 2021 Period compared to the 2020 Period was primarily due to increased net loss, and a net increase in the changes in the components of working capital which was primarily driven by the duvelisib sale to Secura in the 2020 Period. In the 2020 Period, we received $70.0 million of cash and recognized $70.0 million of sale of COPIKTRA license and related assets revenue and we expensed a total of $31.2 million for certain assets delivered to Secura upon finalization of duvelisib sale to Secura.

Investing activities. The cash provided by investing activities for the 2021 Period primarily relates to the net maturities of investments of $0.3 million, partially offset by purchases of fixed assets of $0.2 million. The cash provided by investing activities for the 2020 Period primarily reflects the net maturities of investments of $47.3 million.

Financing activities. The cash provided by financing activities for the 2021 Period primarily represents $6.7 million in net proceeds received under our at-the-market equity offering program, and $1.1 million of proceeds received related to exercise of stock options and employee stock purchase plan. This is partially offset by $0.9 million of payments for settlement of restricted stock for tax withholdings. The cash provided by financing activities for the 2020 Period primarily represents $93.8 million in net proceeds from sales of our common stock under the Purchase Agreement described below, $12.2 million in net proceeds received under our at-the-market equity

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offering program described below, and $3.0 million of proceeds received related to exercise of stock options and employee stock purchase plan. This is partially offset by $37.4 million for repayment of our Hercules Capital, Inc. (Hercules) term loan facility, $1.8 million of interest-make whole payments on the 2019 Notes and $0.3 million of payments for settlement of restricted stock for tax withholdings.

On February 27, 2020, we entered into a Securities Purchase Agreement with certain institutional investors in which we agreed to sell 46,511,628 shares of common stock at a purchase price of $2.15 per share, which represents 12.6% premium to the last reported sale price of our common stock of $1.91 per share on February 27, 2020. On March 3, 2020, the closing occurred. The aggregate proceeds net of underwriting discounts and offering costs were approximately $93.8 million.

In March 2017, we established an at-the-market equity offering program (2017 ATM) pursuant to which we were able to offer and sell up to $35.0 million of our common stock at then current market prices from time to time through Cantor Fitzgerald & Co. (Cantor) as sales agent. In August 2017, we amended our sales agreement with Cantor to increase the maximum aggregate offering price of shares of common stock that can be sold under the at-the-market equity offering program to $75.0 million.

During the 2021 Period, we sold zero shares under the 2017 ATM. During the 2020 Period, we sold 6,769,559 shares under the 2017 ATM for net proceeds of approximately $12.2 million (after deducting commissions and other offering expenses). Through September 30, 2021, we have sold a total of 18,287,913 shares under this program for net proceeds of approximately $59.6 million (after deducting commissions and other offering expenses).

In August 2021, we entered into a sales agreement with Cantor pursuant to which we can offer and sell up to $100.0 million of our common stock at the current market prices from time to time through Cantor as sales agent (August 2021 ATM). During the 2021 Period, we sold 2,930,585 shares under the August 2021 ATM for net proceeds of approximately $6.8 million (after deducting commissions and other offering expenses). As of December 31, 2021, we can issue an aggregate amount of $93.0 million of common stock under this program.

On March 21, 2017, we entered into a term loan facility of up to $25.0 million with Hercules. The term loan facility is governed by a loan and security agreement, dated March 21, 2017 (the Original Loan Agreement). The Original Loan Agreement was amended on January 4, 2018, March 6, 2018, October 11, 2018, April 23, 2019, and November 14, 2019 (the Amended Loan Agreement) to increase the total borrowing limit under the Original Loan Agreement from up to $25.0 million to up to $75.0 million, pursuant to certain conditions of funding.

On November 9, 2020, we repaid in full all principal, accrued and unpaid interest, fees, and expenses under the Amended Loan Agreement with Hercules in an aggregate amount of $37.4 million (the Payoff Amount). The Payoff Amount includes the principal balance of $35.0 million, final payment fee of $1.8 million, prepayment penalty fee of $0.5 million, and accrued and unpaid interest of $0.1 million. On November 9, 2020 the Amended Loan Agreement was terminated along with Hercules’ commitment to provide funding under any future term loans. All liens on substantially all of our assets to secure the loans under the Amended Loan Agreement have been terminated and released.

On October 17, 2018, we closed a registered direct public offering of $150.0 million aggregate principal amount of our 2018 issued 5.00% Convertible Senior Notes due 2048 (the 2018 Notes), for net proceeds of approximately $145.3 million. The 2018 Notes are governed by the terms of a base indenture for senior debt securities (the Base Indenture), as supplemented by the first supplemental indenture thereto (the 2018 Notes Supplemental Indenture and together with the Base Indenture, the 2018 Indenture), each dated October 17, 2018, by and between us and Wilmington Trust, National Association, as trustee. The 2018 Notes are senior unsecured obligations of us and bear interest at a rate of 5.00% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on May 1, 2019. The 2018 Notes will mature on November 1, 2048, unless earlier repurchased, redeemed or converted in accordance with their terms.

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

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stock per $1,000 principal amount of the 2018 Notes, which corresponds to an initial conversion price of approximately $7.16 per share of common stock and represents a conversion premium of approximately 15.0% above the last reported sale price of our common stock of $6.23 per share on October 11, 2018. Upon conversion, converting noteholders will be entitled to receive accrued interest on their converted Notes.

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

On November 6, 2020, we entered into a privately negotiated agreement with an investor who is a holder of our 2018 Notes to exchange approximately $28.0 million aggregate principal amount of 2018 Notes for approximately $28.0 million aggregate principal amount of newly issued 5.00% Convertible Senior Notes due 2048 (the 2020 Notes). The issuance of the 2020 Notes closed on November 13, 2020. The 2020 Notes are governed pursuant to the Base Indenture between us and Wilmington dated as of October 17, 2018 as supplemented by the second supplemental indenture thereto dated as of November 13, 2020 (the 2020 Notes Supplemental Indenture and together with the Base Indenture, the 2020 Indenture).

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

The initial conversion rate for the 2020 Notes was 307.6923 shares of our common stock per $1,000 principal amount of the 2020 Notes, which is equivalent to an initial conversion price of approximately $3.25 per share, representing an approximately 153.9% premium to the sale price of $1.28 per share of our common stock on November 5, 2020, as reported on the Nasdaq Global Market. The conversion rate was subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, the issuance of stock dividends and payment of cash dividends, but was not subject to adjustment for any accrued and unpaid interest.

Prior to November 1, 2023, we did not have the option to redeem the 2020 Notes. On or after November 1, 2023, we had the option to redeem the 2020 Notes, in whole or in part, at a cash redemption price equal to the principal amount of the 2020 Notes to be redeemed, plus accrued and unpaid interest, if any.

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

The 2020 Notes were our senior unsecured obligations and were senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2020 Notes, and equal in right of payment with our existing and future indebtedness that is not so subordinated, and effectively subordinated to our existing and future indebtedness, to the extent of the value of the collateral securing such indebtedness. The 2020 Notes were structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries.

On July 1, 2021, we exercised our 2020 Notes Mandatory Conversion Option for the aggregate principal amount of $28.0 million of the 2020 Notes. On July 16, 2021, the aggregate principal of $28.0 million of 2020 Notes was converted into 8,615,384 shares of common stock. Upon conversion of the 2020 Notes, holders received a cash payment equal to the accrued and unpaid interest on the converted 2020 Notes. As a result, as of September 30, 2021, all 2020 Notes have converted into shares of common stock.

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

Funding requirements

We expect to continue to incur significant expenses and may continue to incur operating losses. Refer to risk factor titled We have incurred significant losses since our inception. We may incur losses for the foreseeable future and may never achieve or maintain profitability within section Item 1A. Risk Factors for detailed activities which may drive our continued operating losses and expenses in future periods.

Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which we may enter into collaborations with third parties for development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our current product candidates. Our future capital requirements will depend on many factors, including:

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, and through future milestones and royalties received through the Secura APA. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

On April 15, 2014, we entered into a lease agreement for approximately 15,197 square feet of office and laboratory space in Needham, Massachusetts. The lease term commenced on April 15, 2014, and it was scheduled to expire on September 30, 2019. Effective February 15, 2018, we amended the lease agreement to relocate within the facility to another location consisting of 27,810 square feet of office space (the Amended Lease Agreement). The Amended Lease Agreement extends the expiration date of the lease from September 2019 through June 2025. Pursuant to the Amended Lease Agreement, the initial annual base rent amount is approximately $660,000, which

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increases during the lease term to $1.1 million for the last twelve-month period. As of December 31, 2021, the total future minimum lease payments under the agreement are $3.7 million through June 2025.

As discussed in Note 14. License, collaboration and commercial agreements to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we are party to several agreements to license intellectual property. The license agreements may require us to pay upfront license fees, ongoing annual license maintenance fees, milestone payments, minimum royalty payments, as well as reimbursement of certain patent costs incurred by the licensors, as applicable. As of December 31, 2021, we do not have any minimum contractual obligations in relation to these agreements because: there were no upfront license fees payable in future periods; no annual license maintenance fees; we cannot estimate if milestone and/or royalty payments will occur in future periods; and patent cost reimbursement costs are perpetual and the agreements are cancelable by us at any time upon prior written notice to the licensor.

TAX LOSS CARRYFORWARDS

As of December 31, 2021, we had federal and state net operating loss (NOL) carryforwards of $410.6 million and $219.0 million, respectively, which are available to reduce future taxable income. We also had federal and state tax credits of $3.5 million and $1.3 million, respectively, which may be used to offset future tax liabilities. The net operating loss and tax credit carryforwards will expire at various dates through 2041, except for $214.9 million of federal net operating loss carryforwards which may be carried forward indefinitely. Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. At December 31, 2021, we recorded a 100% valuation allowance against our NOL and tax credit carryforwards of $103.3 million, as we believe it is more likely than not that the tax benefits will not be fully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwards will be realized, net income would increase in the period of determination.

Based on our analysis under Section 382 of the Internal Revenue Code and similar provisions under state law, we believe that our federal net operating loss carryforwards, our state net operating loss carryforwards, our Research and Development (R&D) credits and our Orphan Drug (OD) credits will be limited as of December 31, 2021. The portion of federal NOL, state NOL, R&D credits and OD credits that were determined to be limited by Section 382 have been written off as of December 31, 2021. The remaining unused carryforwards remain available for future periods. Due to our full valuation allowance the write off of NOLs, R&D credits, and OD credits did not have any impact to the statements of operation and comprehensive loss for the 2021 Period and 2020 Period.

RECENTLY ADOPTED ACCOUNTING STANDARDS

Refer to Note 2. Significant Accounting Policies to our consolidated financial statements located in this Annual Report on Form 10-K for recently adopted accounting standards.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents, and investments of $100.3 million and $147.2 million as of December 31, 2021 and 2020, respectively, consisting of cash, U.S. Government money market funds, government bonds, corporate bonds and commercial paper of publicly traded companies. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because most of our investments are interest bearing. Our available for sale securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of most of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.

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We contract with CROs and contract manufacturers globally, which may be denominated in foreign currencies. We may be subject to fluctuations in foreign currency rates in connection with these agreements. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. As of December 31, 2021, an immaterial amount of our total liabilities was denominated in currencies other than the functional currency.

The 2018 Notes bear interest at a fixed rate and therefore have minimal exposure to changes in interest rates; however, because these interest rates are fixed, we may be paying a higher interest rate, relative to market, in the future if our credit rating improves or other circumstances change.

Item 8. Consolidated Financial Statements and Supplementary Data

Our consolidated financial statements, together with the report of our independent registered public accounting firm (e.g., Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)), appear on pages F-1 through F-40 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Business and Financial Officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Business and Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as the process designed by, or under the supervision of, our Chief Executive Officer and our Chief Business and Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP), and includes those policies and procedures that:

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Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Business and Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework provided in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm, as allowed by the SEC.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the fiscal quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

​

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

​

​

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Information regarding our directors, including the audit committee and audit committee financial experts, and executive officers and compliance with Section 16(a) of the Exchange Act will be included in our 2021 Proxy Statement and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics for all of our directors, officers, and employees as required by Nasdaq governance rules and as defined by applicable SEC rules. Stockholders may locate a copy of our Code of Business Conduct and Ethics on our website at www.verastem.com or request a copy without charge from:

Verastem, Inc.

Attention: Investor Relations

117 Kendrick St., Suite 500

Needham, MA 02494

We will post to our website any amendments to the Code of Business Conduct and Ethics and any waivers that are required to be disclosed by the rules of either the SEC or Nasdaq.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 of Form 10-K regarding executive compensation will be included in our 2021 Proxy Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 of Form 10-K regarding security ownership of certain beneficial owners and management will be included in our 2021 Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 of Form 10-K regarding certain relationships and related transactions and director independence will be included in our 2021 Proxy Statement and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 of Form 10-K regarding principal accountant fees and services will be included in our 2021 Proxy Statement and is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Annual Report on Form 10-K:

(1) Consolidated Financial Statements

See Part II, Item 8 for the Financial Statements required to be included in this Annual Report on Form 10-K.

(2) Consolidated Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.

(3) Exhibits

Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index immediately preceding the exhibits hereto and such listing is incorporated herein by reference.

Item 16. Form 10-K Summary

None.

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​

EXHIBIT INDEX

Exhibitnumber Description of exhibit

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

4.5* ​ Description of Securities​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​

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​ ​

​ ​

​ ​

​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​

​ ​ ​

​ ​ ​

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​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

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​ ​ ​

​ ​ ​

​ ​ ​

​ ​ ​

21.1* ​ Subsidiaries of the Registrant

​ ​

23.1* ​ Consent of Ernst & Young LLP

​ ​

​ ​

​ ​ ​

​ ​ ​

​ ​ ​

101.INS* ​ Inline XBRL Instance Document

​ ​ ​

101.SCH* ​ Inline XBRL Taxonomy Extension Schema Document

​ ​ ​

101.CAL* ​ Inline XBRL Taxonomy Extension Calculation Linkbase Document

​ ​ ​

101.DEF* ​ Inline XBRL Taxonomy Extension Definition Linkbase Document

​ ​ ​

101.LAB* ​ Inline XBRL Taxonomy Extension Label Linkbase Document

​ ​ ​

101.PRE* ​ Inline XBRL Taxonomy Extension Presentation Linkbase Document

​ ​ ​

* Filed herewith.

# Management contract or compensatory plan, contract or agreement.

​

​

​

​

​

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this28th day of March 2022.

​

​ VERASTEM, INC.

​ By: /s/ Brian M. Stuglik

​ ​ ​

​ ​ Brian M. Stuglik

​ ​ Chief Executive Officer

​

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature Title Date

/s/ Brian M. Stuglik R.Ph ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Robert Gagnon ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Timothy Barberich ​ ​ ​ ​

Timothy Barberich ​ Director ​ March 28, 2022

​ ​ ​ ​ ​

/s/ PAUL BUNN, M.D ​ ​ ​ ​

Paul Bunn, M.D. ​ Director ​ March 28, 2022

​ ​ ​ ​ ​

/s/ Michael Kauffman, M.D.,Ph.D. ​ ​ ​ ​

Michael Kauffman, M.D., Ph.D. ​ Director ​ March 28, 2022

​ ​ ​ ​

/s/ JOHN JOHNSON ​ ​ ​ ​

John Johnson ​ Director ​ March 28, 2022

​ ​ ​ ​

/s/ MICHELLE ROBERTSON ​ ​ ​ ​

Michelle Robertson ​ Director ​ March 28, 2022

​ ​ ​ ​ ​

/s/ Eric Rowinsky, M.D. ​ ​ ​ ​

Eric Rowinsky, M.D. ​ Director ​ March 28, 2022

​ ​ ​ ​ ​

/s/ LESLEY SOLOMON ​ ​ ​ ​

Lesley Solomon ​ Director ​ March 28, 2022

​ ​ ​ ​

​

​

​

​

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Verastem, Inc.

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Report of Independent Registered Public Accounting Firm F-2

Consolidated Financial Statements ​

Consolidated Balance Sheets F-4

Consolidated Statements of Operations and Comprehensive Loss F-5

Consolidated Statements of Stockholders’ Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

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F-1

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Verastem, Inc.

Report of Independent Registered Public Accounting Firm

​

To the Stockholders and the Board of Directors of Verastem, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Verastem, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

​ ​

​ ​ Accrued and Prepaid Clinical Trial Expense

F-2

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​

​

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2011.

Boston, Massachusetts

March 28, 2022

​

​

​

​

F-3

Table of Contents

Verastem, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ December 31, ​

Assets ​ ​ ​ ​ ​ ​ ​

Current assets: ​ ​ ​ ​ ​ ​ ​

Accounts receivable, net ​ ​ 516 ​ ​ 239 ​

Prepaid expenses and other current assets ​ 4,968 ​ 3,473 ​

Property and equipment, net ​ 210 ​ 416 ​

Right-of-use asset, net ​ ​ 2,302 ​ ​ 2,726 ​

Restricted cash ​ ​ 241 ​ ​ 241 ​

Long-term investments ​ ​ — ​ ​ 5,995 ​

Liabilities and stockholders’ equity ​ ​ ​ ​ ​ ​ ​

Current liabilities: ​ ​ ​ ​ ​ ​ ​

Lease liability, short-term ​ 667 ​ 558 ​

Non-current liabilities: ​ ​ ​ ​ ​

Convertible senior notes ​ ​ 249 ​ ​ 19,051 ​

Lease liability, long-term ​ ​ 2,264 ​ ​ 2,931 ​

Stockholders’ equity: ​ ​ ​ ​ ​ ​ ​

Accumulated other comprehensive income ​ 34 ​ 53 ​

Total liabilities and stockholders’ equity ​ $ 108,662 ​ $ 154,349 ​

See accompanying notes to the consolidated financial statements.

​

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Verastem, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31, ​

Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

License and collaboration revenue ​ ​ — ​ ​ 2,912 ​ ​ 5,117 ​

Sale of COPIKTRA license and related assets ​ ​ 1,447 ​ ​ 70,000 ​ ​ — ​

Transition services revenue ​ ​ 606 ​ ​ 372 ​ ​ — ​

Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cost of sales - product ​ ​ — ​ ​ 1,765 ​ ​ 1,238 ​

Cost of sales - intangible amortization ​ ​ — ​ ​ 793 ​ ​ 1,569 ​

Other expense ​ ​ — ​ ​ (1,313) ​ ​ (641) ​

Loss on debt extinguishment ​ ​ — ​ ​ (1,580) ​ ​ — ​

Income tax expense ​ ​ — ​ ​ (194) ​ ​ — ​

Net loss per share—basic and diluted ​ ​ (0.41) ​ ​ (0.44) ​ ​ (2.00) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Unrealized (loss) gain on available-for-sale securities ​ (19) ​ 39 ​ (113) ​

See accompanying notes to the consolidated financial statements.

​

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Verastem, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ other ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Additional ​ comprehensive ​ ​ ​ Total

​ ​ Common stock ​ paid-in ​ (loss) ​ Accumulated ​ stockholders'

​ Shares Amount capital income deficit equity

Stock-based compensation expense ​ — ​ — ​ 8,539 ​ — ​ — ​ ​ 8,539 ​

Stock-based compensation expense ​ — ​ ​ — ​ ​ 8,118 ​ ​ — ​ ​ — ​ 8,118 ​

Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (71,200) ​ (71,200) ​

Stock-based compensation expense ​ — ​ ​ — ​ ​ 7,711 ​ ​ — ​ ​ — ​ 7,711 ​

See accompanying notes to the consolidated financial statements.

​

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Verastem, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​

Amortization of acquired intangible asset ​ — ​ 793 ​ 1,569

Loss on debt extinguishment ​ ​ — ​ ​ 1,580 ​ ​ —

Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Accounts receivable, net ​ ​ (277) ​ ​ 2,285 ​ ​ (2,218)

Prepaid expenses, other current assets and other assets ​ (1,558) ​ 634 ​ (877)

Accrued expenses and other liabilities ​ 1,796 ​ (4,999) ​ (1,707)

Other long-term liabilities ​ ​ — ​ ​ (870) ​ ​ 370

Intangible assets & property, plant and equipment ​ ​ — ​ ​ 19,465 ​ ​ —

Investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​

Purchases of property and equipment ​ (196) ​ (33) ​ (7)

Net cash provided by (used in) investing activities ​ 87 ​ (47,363) ​ 89,613

Financing activities ​ ​ ​ ​ ​ ​ ​ ​ ​

Proceeds from long-term debt, net of issuance costs ​ ​ — ​ ​ — ​ ​ 9,670

Repayment of long-term, debt ​ ​ — ​ ​ (37,366) ​ ​ —

Principal payments on the 2019 Notes ​ ​ — ​ ​ — ​ ​ (12,174)

Interest make-whole payments on the 2019 Notes ​ ​ — ​ ​ (1,763) ​ ​ (438)

Settlement of restricted stock for tax withholdings ​ ​ (925) ​ ​ (285) ​ ​ (68)

Proceeds from the issuance of common stock, net ​ ​ 6,723 ​ ​ 106,059 ​ ​ —

Net cash provided by (used in) financing activities ​ 6,885 ​ 69,630 ​ (2,441)

Supplemental disclosure ​ ​ ​ ​ ​ ​ ​ ​ ​

Conversion of 2019 Notes into common stock ​ $ — ​ $ 57,414 ​ $ 9,517

Conversion of 2020 Notes into common stock ​ $ 28,000 ​ $ — ​ $ —

See accompanying notes to the consolidated financial statements.

​

​

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1. Nature of business

Verastem, Inc. (the Company) is a late stage development-stage biopharmaceutical company, with ongoing registration directed trials, committed to advancing new medicines for patients battling cancer. The Company’s pipeline is focused on novel anticancer agents that inhibit critical signaling pathways in cancer that promote cancer cell survival and tumor growth, particularly RAF/MEK inhibition and FAK inhibition.

The Company’s most advanced product candidates, VS-6766 and defactinib, are being investigated in both preclinical and clinical studies for treatment of various solid tumors, including, low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer (NSCLC), colorectal cancer (CRC), pancreatic cancer, uveal melanoma, and endometrial cancer. The Company believes that VS-6766 may be beneficial as a therapeutic as a single agent or when used together in combination with defactinib, other agents, other pathway inhibitors or other current and emerging standard of care treatments in cancers that do not adequately respond to currently available therapies.

On September 24, 2018, the Company’s first commercial product, COPIKTRA® (duvelisib), was approved by the U.S. Food and Drug Administration (the FDA) for the treatment of adult patients with certain hematologic cancers including relapsed or refractory chronic lymphocytic leukemia/ small lymphocytic lymphoma (CLL/SLL) after at least two prior therapies and relapsed or refractory follicular lymphoma (FL) after at least two prior systemic therapies. On August 10, 2020, the Company and Secura Bio, Inc. (Secura) entered into an asset purchase agreement (Secura APA). Pursuant to the Secura APA, the Company sold to Secura its exclusive worldwide license, including certain related assets for the research, development, commercialization, and manufacture in oncology indications of products containing COPIKTRA (duvelisib). The transaction closed on September 30, 2020. Refer to Note 14. License, collaboration and commercial agreements for a detailed discussion of the Secura APA.

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

The Company is subject to the risks associated with other life science companies, including, but not limited to, possible failure of preclinical testing or clinical trials, competitors developing new technological innovations, inability to obtain marketing approval of the Company’s product candidates, VS-6766 and defactinib, market acceptance and commercial success of the Company’s product candidates, VS-6766 and defactinib, following receipt of regulatory approval, and, protection of proprietary technology and the continued ability to obtain adequate financing to fund the Company’s future operations. If the Company does not obtain marketing approval and successfully commercialize its product candidates, VS-6766 and defactinib, following regulatory approval, it will be unable to generate product revenue or achieve profitability and may need to raise additional capital.

The Company has historical losses from operations and anticipates that it will continue to incur losses as it continues the research and development of its product candidates. As of December 31, 2021, the Company had cash, cash equivalents, and investments of $100.3 million, and accumulated deficit of $663.7 million. The Company expects its existing cash resources will be sufficient to fund its planned operations through 12 months from the date of issuance of these consolidated financial statements.

The Company expects to finance the future development costs of its clinical product portfolio with its existing cash, cash equivalents and investments, through future milestones and royalties received through the Secura APA or through strategic financing opportunities that could include, but are not limited to collaboration agreements, future offerings of its equity, or the incurrence of debt. However, there is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If the Company fails to obtain additional future capital, it may be unable to complete its planned preclinical studies and clinical trials and obtain approval of certain investigational product candidates from the FDA or foreign regulatory authorities.

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2. Significant accounting policies

Basis of presentation

The accompanying financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) under the assumption that the Company will continue as a going concern for the next twelve months. Accordingly, they do not include any adjustments that might result from the uncertainty related to the Company’s ability to continue as a going concern.

Use of estimates

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including estimates related to revenue recognition, including returns, rebates, and other pricing adjustments, accrued and prepaid clinical trial expense and other general accruals and stock-based compensation expense. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable. Actual results could differ from such estimates.

Segment and geographic information

Operating segments are defined as components of an enterprise about which separate discrete information is available and regularly reviewed by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment, which is the business of developing and commercializing drugs for the treatment of cancer. All material long-lived assets of the Company reside in the United States.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist of a U.S. Government money market funds and corporate bonds and commercial paper of publicly traded companies. Cash equivalents are reported at fair value.

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

​ ​ ​ ​ ​ ​ ​

Total cash, cash equivalents and restricted cash ​ $ 21,493 ​ $ 68,023

​

Amounts included in restricted cash as of December 31, 2021 and 2020 represent cash held to collateralize outstanding letters of credit provided as a security deposit for the Company’s office space located in Needham, Massachusetts in the amount of $0.2 million.

Fair value of financial instruments

The Company determines the fair value of its financial instruments based upon the fair value hierarchy, which prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies

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only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

​ ​ ​ ​

​

Items Measured at Fair Value on a Recurring Basis

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Description Total Level 1 Level 2 Level 3

Financial assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash equivalents ​ $ 19,302 ​ $ 19,302 ​ $ — ​ $ — ​

Short-term investments ​ ​ 79,004 ​ ​ — ​ ​ 79,004 ​ ​ — ​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Description ​ Total Level 1 Level 2 Level 3

Financial assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Long-term investments ​ ​ 5,995 ​ ​ — ​ ​ 5,995 ​ ​ — ​

​

The investments and cash equivalents have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and

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confirming that the relevant markets are active. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by the pricing services as of December 31, 2021 and 2020.

Fair Value of Financial Instruments

​

The fair value of the Company’s 2018 issued 5.00% Convertible Senior Notes due 2048 (the 2018 Notes) was approximately $0.3 million, as of December 31, 2021, which differs from the aggregate carrying value of the 2018 Notes of $0.2 million as of December 31, 2021. The fair value of the 2018 Notes and the 2020 issued 5.00% Convertible Senior Notes due 2048 (the 2020 Notes, together with the 2018 Notes referred to as the Notes) was approximately $0.3 million and $30.0 million, respectively, as of December 31, 2020, which differs from the aggregate carrying value of the Notes of $19.1 million as of December 31, 2020. During the year ended December 31, 2021, all 2020 Notes have converted into shares of common stock (see Note 10. Convertible Senior Notes). The fair value of the Notes is influenced by the Company’s stock price, stock price volatility, and current market yields and was determined using Level 3 inputs.

Investments

Investments and cash equivalents consist of investments in a U.S. Government money market funds, overnight repurchase agreements collateralized by government agency securities or U.S. Treasury securities, corporate bonds and commercial paper of publicly traded companies that are classified as available-for-sale pursuant to Accounting Standards Codification (ASC) Topic 320, Investments—Debt and Equity Securities. The Company classifies investments available to fund current operations as current assets on its consolidated balance sheets. Investments are carried at fair value with unrealized gains and losses included as a component of accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity, until such gains and losses are realized. The fair value of these securities is based on quoted prices for identical or similar assets. If a decline in the fair value is considered other-than-temporary, based on available evidence, the unrealized loss is transferred from other comprehensive loss to the consolidated statements of operations and comprehensive loss.

The Company reviews investments for other-than-temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers the intent to sell, or whether it is more likely than not that the Company will be required to sell, the investment before recovery of the investment’s amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to year end. Realized gains and losses are determined using the specific identification method and are included in interest income in the consolidated statements of operations and comprehensive loss.

There were no realized gains or losses on investments for the years ended December 31, 2021, 2020 or 2019. There were three debt securities and one debt security in an unrealized loss position as of December 31, 2021 and December 31, 2020, respectively. None of these investments had been in an unrealized loss position for more than 12 months as of December 31, 2021, or December 31, 2020, respectively. The fair value of these securities as of December 31, 2021, and December 31, 2020, was $15.8 million and $6.0 million, respectively, and the aggregate unrealized loss was immaterial. The Company considered the decline in the market value for these securities to be primarily attributable to current economic conditions. As it was not more likely than not that the Company would be required to sell these securities before the recovery of their amortized cost basis, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired as of December 31, 2021, and December 31, 2020, respectively.

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

​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Gross Gross ​ ​

​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair

​ Cost Gains Losses Value

Cash, cash equivalents & restricted cash: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash and money market accounts ​ $ 21,493 ​ $ — ​ $ — ​ $ 21,493 ​

Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Gross Gross ​ ​ ​

​ Amortized Unrealized Unrealized Fair ​

​ Cost Gains Losses Value

Cash, cash equivalents & restricted cash: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash and money market accounts ​ $ 63,024 ​ $ — ​ $ — ​ $ 63,024 ​

Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

Concentrations of credit risk and off-balance sheet risk

Cash and cash equivalents, investments, and trade accounts receivable are financial instruments that potentially subject the Company to concentrations of credit risk. The Company mitigates this risk by maintaining its cash and cash equivalents and investments with high quality, accredited financial institutions. The management of the Company’s investments is not discretionary on the part of these financial institutions. As of December 31, 2021, the Company’s cash, cash equivalents and investments were deposited at three financial institutions and it has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

As of December 31, 2021, and 2020, there was one customer, Secura, and two customers, respectively that cumulatively made up more than 50% of the Company’s trade accounts receivable balance. The Company assesses the creditworthiness of all its customers and sets and reassesses customer credit limits to ensure collectability of any trade accounts receivable balances are assured.

For the year ended December 31, 2021 and 2020, one customer, Secura, individually accounted for greater than 10% of the Company’s total revenues.

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