UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _ TO _

COMMISSION FILE NUMBER 001-39044


SPRINGWORKS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)


Delaware

83-4066827

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

100 Washington Blvd

Stamford, Connecticut

06902

(Address of principal executive offices)

(Zip Code)

(203) 883-9490

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

SWTX

The Nasdaq Global Select Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of outstanding shares of the Registrant’s Common Stock as of August 10, 2020 was 43,018,360.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

the success, cost and timing of our product development activities and clinical trials, including statements regarding the timing of our ongoing Phase 3 clinical trial of nirogacestat, the timing of our ongoing Phase 2b clinical trial of mirdametinib and the initiation and completion of any other clinical trials and related preparatory work, the expected timing of the availability of results of the clinical trials and the potentially registrational nature of the single Phase 3 clinical trial and the Phase 2b clinical trial;
the potential attributes and benefits of our product candidates;
our plans to commercialize any of our product candidates that achieve approval either alone or in partnership with others;
our ability to obtain funding for our operations, including funding necessary to complete further development of our product candidates, and if approved, commercialization;
the period over which we anticipate our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital expenditure requirements;
the potential for our business development efforts to maximize the potential value of our portfolio;
our ability to identify, in-license or acquire additional product candidates;
the ability and willingness of our third-party collaborators to continue research and development activities relating to our product candidates that we are developing as combination therapies;
our ability to obtain and maintain regulatory approval for our product candidates, and any related restrictions, limitations or warnings in the label of an approved product candidate;
the potential benefit of Orphan Drug Designation, Fast Track Designation and Breakthrough Therapy Designation for nirogacestat, mirdametinib and any other of our product candidates that may receive one or more of these designations;
our ability to compete with companies currently marketing or engaged in the development of treatments for desmoid tumors, NF1-PN and other oncology indications;
our expectations regarding our ability to obtain and maintain intellectual property protection or market exclusivity for our product candidates and the duration of such protection;
our ability and the potential to successfully manufacture our product candidates for preclinical studies, clinical trials and, if approved, for commercial use, the capacity of our current contract manufacturing organizations (“CMOs”) to support clinical supply and commercial-scale production for product candidates and our potential election to pursue additional CMOs for manufacturing supplies of drug substance and finished drug product in the future;

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the size and growth potential of the markets for our product candidates, and our ability to serve those markets, either alone or in partnership with others;
the rate and degree of market acceptance of our product candidates, if approved;
regulatory developments in the United States and foreign countries;
our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
the success of competing products that are or may become available;
risks associated with the COVID-19 pandemic, which may adversely impact our business, preclinical studies and clinical trials;
our ability to attract and retain key scientific, medical, commercial or management personnel;
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our expectations regarding the time during which we will continue to be an emerging growth company or smaller reporting company, and when we will become a large accelerated filer, as defined in federal securities regulations;
our financial performance; and
developments and projections relating to our competitors or our industry.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events and with respect to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, Risk Factors and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained this industry, business information, market data, prevalence information and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.

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SPRINGWORKS THERAPEUTICS, INC.

FORM 10-Q

FOR THE QUARTER ENDED June 30, 2020

INDEX

Page

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Operations

6

Condensed Consolidated Statements of Comprehensive Income (Loss)

7

Condensed Consolidated Statements of Preferred Stock and Members’/Stockholders’ Deficit

8

Condensed Consolidated Statements of Cash Flows

10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3. Quantitative and Qualitative Disclosure About Market Risk

26

Item 4. Controls and Procedures

26

 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

26

Item 1A. Risk Factors

27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

81

Item 3. Defaults Upon Senior Securities

81

Item 4. Mine Safety Disclosures

81

Item 5. Other Information

82

Item 6. Exhibits

82

SIGNATURES

83

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SpringWorks Therapeutics, Inc.

Condensed Consolidated Balance Sheets

June 30, 

December 31,

2020

2019

(in thousands, except share and per-share data)

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

226,666

$

327,652

Marketable securities

64,567

Prepaid expenses and other current assets

 

2,563

 

3,709

Total current assets

 

293,796

 

331,361

Property and equipment, net

 

1,072

 

795

Equity investment

 

4,147

 

976

Restricted cash

565

540

Other assets

 

1,440

 

1,159

Total assets

$

301,020

$

334,831

Liabilities and Stockholders’ equity

Current liabilities:

Accounts payable

$

909

$

2,654

Accrued expenses

 

8,265

 

8,953

Deferred rent

 

377

 

363

Total current liabilities

 

9,551

 

11,970

Long-term portion of deferred rent

 

595

 

789

Total liabilities

 

10,146

 

12,759

Commitments and contingencies

Stockholders’ equity:

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized, 43,016,501 and 43,006,077 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively.

 

4

 

4

Additional paid-in capital

 

399,130

 

395,097

Accumulated other comprehensive income (loss)

(44)

Accumulated deficit

 

(108,216)

 

(73,029)

Total stockholders’ equity

 

290,874

 

322,072

Total liabilities and stockholders’ equity

$

301,020

$

334,831

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Condensed Consolidated Statements of Operations (unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

(in thousands, except share and per-share data)

    

2020

    

2019

    

2020

2019

    

Operating expenses:

 

  

 

  

 

  

  

 

Research and development

$

12,947

$

11,205

$

22,674

$

19,628

General and administrative

 

6,874

 

3,646

 

13,277

 

6,911

Total operating expenses

 

19,821

 

14,851

 

35,951

 

26,539

Loss from operations

 

(19,821)

 

(14,851)

 

(35,951)

 

(26,539)

Other income:

Interest income, net

 

157

 

1,004

 

1,093

 

1,283

Total other income

 

157

 

1,004

 

1,093

 

1,283

Equity investment loss

(229)

(329)

Net loss

$

(19,893)

$

(13,847)

$

(35,187)

$

(25,256)

Reconciliation of net loss to net loss attributable to common stockholders:

 

 

 

 

Net loss

$

(19,893)

$

(13,847)

$

(35,187)

$

(25,256)

Net gain attributable to extinguishment of Series A convertible preferred and Junior Series A convertible preferred units

 

 

 

 

7,729

Net loss attributable to common stockholders

$

(19,893)

$

(13,847)

$

(35,187)

$

(17,527)

Net loss per share, basic and diluted

$

(0.47)

$

(15.75)

$

(0.84)

$

(22.47)

Weighted average common shares outstanding, basic and diluted

 

41,945,058

 

879,018

 

41,867,089

 

780,066

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

(in thousands)

    

2020

    

2019

    

2020

2019

    

Net loss

 

$

(19,893)

$

(13,847)

$

(35,187)

$

(25,256)

 

Changes in other comprehensive income:

Unrealized holding loss on marketable securities, net

 

(44)

(44)

Total changes in other comprehensive income (loss)

$

(44)

$

$

(44)

$

Comprehensive income (loss)

 

(19,937)

(13,847)

(35,231)

(25,256)

Net gain attributable to extinguishment of Series A convertible preferred and Junior Series A convertible preferred units

 

 

 

 

7,729

Comprehensive income (loss) attributable to common stockholders

$

(19,937)

$

(13,847)

$

(35,231)

$

(17,527)

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Condensed Consolidated Statements of Preferred Stock and Members’/Stockholders’ Equity / (Deficit)

(unaudited)

Three Months Ended June 30, 2019 and 2020

Series A & B

Junior Series A

Additional

Accumulated

Convertible Preferred

Convertible Preferred

Common

Paid-In

Other Comprehensive

Accumulated

(in thousands, except share and unit data)

Shares

    

Amount

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

(Loss) Income

    

Deficit

    

Total

Balance at March 31, 2019

189,639,279

217,290

6,437,500

3,882

3,088,636

1,792

(26,132)

(20,458)

Stock-based compensation expense

648

648

Net loss

(13,847)

(13,847)

Balance at June 30, 2019

189,639,279

217,290

6,437,500

3,882

3,088,636

2,440

(39,979)

(33,657)

Balance at March 31, 2020

43,003,733

4

396,453

(88,323)

308,134

Exercise of stock options

12,768

78

78

Stock-based compensation expense

2,599

2,599

Other comprehensive income, net of tax

(44)

(44)

Net Loss

(19,893)

(19,893)

Balance at June 30, 2020

43,016,501

4

399,130

(44)

(108,216)

290,874

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Condensed Consolidated Statements of Preferred Stock and Members’/Stockholders’ Equity / (Deficit)

(unaudited)

Six Months Ended June 30, 2019 and 2020

Series A & B

Junior Series A

Additional

Accumulated

Convertible Preferred

Convertible Preferred

Common

Paid-In

Other Comprehensive

Accumulated

(in thousands, except share and unit data)

Shares

    

Amount

Shares

    

Amount

    

Shares

    

Amount

    

Capital

(Loss) Income

    

Deficit

    

Total

Balance at December 31, 2018

63,600,000

62,930

6,437,500

2,014

3,101,206

1,069

(22,452)

(19,369)

Issuance of Series A convertible preferred shares, net of issuance costs

39,400,000

39,367

Issuance of Series B convertible preferred shares, net of $413,063 in legal costs

86,639,279

124,590

Series A convertible preferred extinguishment

(9,597)

9,597

9,597

Junior Series A convertible preferred extinguishment

1,868

(1,868)

Forfeitures of restricted stock awards

(12,570)

Stock-based compensation expense

1,371

1,371

Net loss

(25,256)

(25,256)

Balance at June 30, 2019

189,639,279

217,290

6,437,500

3,882

3,088,636

2,440

(39,979)

(33,657)

Balance at December 31, 2019

43,006,077

4

395,097

(73,029)

322,072

Exercise of stock options

15,652

84

84

Forfeitures of restricted stock awards

(5,228)

Stock-based compensation expense

3,949

3,949

Other comprehensive income, net of tax

(44)

(44)

Net Loss

(35,187)

(35,187)

Balance at June 30, 2020

43,016,501

4

399,130

(44)

(108,216)

290,874

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

Six Months Ended June 30, 

(in thousands)

    

2020

2019

Operating Activities

 

  

  

Net loss

$

(35,187)

$

(25,256)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation expense

 

144

 

64

Stock compensation expense

 

3,949

 

1,371

Equity investment loss

329

Unrealized loss on marketable securities

(44)

Changes in Operating Assets and Liabilities

 

 

Prepaid expenses and other current assets

 

1,146

 

(1,506)

Other assets

 

(281)

 

(1,111)

Accounts payable

 

(1,745)

 

1,370

Accrued expenses

 

(688)

 

4,966

Deferred rent

 

(180)

 

(166)

Net cash used in operating activities

 

(32,557)

 

(20,268)

Investing activities

 

 

Capital expenditures

 

(421)

 

(546)

Equity investments

 

(3,500)

 

(3,500)

Purchases of marketable securities

(64,567)

Net cash used in investing activities

 

(68,488)

 

(4,046)

Financing Activities

 

 

Proceeds from issuance of Series A convertible preferred shares, net of issuance costs

 

 

39,367

Proceeds from issuance of Series B convertible preferred shares, net of issuance costs

 

 

124,590

Proceeds from stock option exercises

84

Net cash provided by financing activities

 

84

 

163,957

Net increase (decrease) in cash and cash equivalents

 

(100,961)

 

139,643

Cash and cash equivalents including Restricted cash, beginning of period

 

328,192

 

46,188

Cash and cash equivalents including Restricted cash, end of period

227,231

185,831

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Nature of Operations

SpringWorks Therapeutics, Inc. (the “Company”) was formed in Delaware on August 18, 2017.

Prior to March 29, 2019, the Company conducted its business through SpringWorks Therapeutics, LLC, a Delaware limited liability company. On March 29, 2019, it completed a series of transactions pursuant to which SpringWorks MergerSub LLC, a wholly owned subsidiary of the Company, merged with SpringWorks Therapeutics, LLC, with SpringWorks Therapeutics, LLC surviving the merger as a wholly owned subsidiary of the Company.

The Company is a clinical-stage biopharmaceutical company applying a precision medicine approach to acquiring, developing and commercializing life-changing medicines for underserved patient populations suffering from devastating rare diseases and cancer. The Company has a differentiated portfolio of small molecule targeted oncology product candidates and is advancing two potentially registrational clinical trials in rare tumor types, as well as several other programs addressing highly prevalent, genetically defined cancers. Two of the programs are late stage clinical product candidates: nirogacestat and mirdametinib.

The Company has incurred losses and negative operating cash flows since inception and had an accumulated deficit of $108.2 million and $73.0 million and working capital of $284.2 million and $319.4 million at June 30, 2020 and December 31, 2019, respectively. The Company is subject to those risks associated with any biopharmaceutical company that has substantial expenditures for development. There can be no assurance that the Company’s development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, the Company operates in an environment of rapid technological change and is largely dependent on the services of its employees, advisors, consultants and vendors.

The Company had cash, cash equivalents and marketable securities of $291.2 million as of June 30, 2020 and $327.7 million as of December 31, 2019. Based on the Company's cash, cash equivalents and marketable securities at June 30, 2020, management estimates that its current liquidity will enable it to meet operating expenses through at least twelve months after the date that these financial statements are issued.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated the outbreak of the disease associated with the novel strain of coronavirus known as COVID-19 as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic impacts of the pandemic has introduced significant volatility in the financial markets. The Company did not observe significant impacts on its business or results of operations for the three and six months ended June 30, 2020 due to the global emergence of COVID-19. While the extent to which COVID-19 impacts the Company’s future results will depend on future developments, the pandemic and associated economic impacts could result in a material impact to the Company’s future financial condition, results of operations and cash flows.

2. Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the Company's consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Form 10-K") filed with the SEC. The condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited; however, in the opinion of management, such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented.

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Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, accrued expenses and deferred tax asset valuation allowances. Management bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.

Research and Development Expenses

Research and development expenses consist of expenses incurred in performing development activities, including salaries and benefits, equity-based compensation expenses, materials and supplies, preclinical expenses, clinical trial and related clinical manufacturing expenses, depreciation of equipment, contract services and other outside expenses. Costs for certain development activities, such as manufacturing and clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using either time-based measures or data such as information provided to the Company by its vendors on their actual costs incurred. 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 in the condensed consolidated financial statements as prepaid or accrued development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

Segment Information

Operating segments are defined as components of an entity about which separate discrete information is available for evaluation 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 functioning exclusively in the United States.

Emerging Growth Company Status

The Company qualifies as an emerging growth company (“EGC”) as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) enacted in April 2012. As of June 30, 2020, the last business day of the Company’s most recently completed second fiscal quarter, the market value of the Company’s common stock that was held by non-affiliates was greater than $700 million. As a result, as of the close of the current fiscal year on December 31, 2020, the Company will become a large accelerated filer and will no longer qualify as an EGC.

Recently Issued Accounting Pronouncements (not yet adopted)

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” This standard requires entities that lease assets to recognize on the balance sheet the assets and liabilities of the rights and obligations created by those leases. The Company will use the new transition option and is also utilizing the package of practical expedients that allows it to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) initial direct costs for any expired or existing leases. The Company additionally expects to use the practical expedient that allows it to treat the lease and non-lease components of its leases as a single component. The Company has is currently assessing the financial impact on the consolidated balance sheet. ASU 2016-02 is effective for the Company for annual reporting periods beginning after December 15, 2020, and early adoption is permitted.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles, Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). The FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a cloud-based hosting arrangement that is a service contract with the requirements for

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capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for the Company for annual and interim reporting periods beginning after December 15, 2020, and early adoption is permitted.

In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, ASU 2016-13 requires allowances to be recorded instead of reducing the amortized cost of the investment. The guidance in ASU No. 2016-13 is effective for the company for annual and interim periods beginning after December 15, 2022, and early adoption is permitted.

Effective as the close of the current fiscal year on December 31, 2020, when the Company will cease to qualify as an EGC, the Company will be required to comply with the requirements for adoption of new or revised accounting pronouncements applicable to public companies. Specifically, the Company will be required to accelerate the adoption of certain accounting standards disclosed above, as follows:

Accounting Pronouncement

    

Effective Date
Disclosed Above

    

Accelerated
Effective Date

ASU No. 201602, Leases (Topic 842)

 

Fiscal years beginning after December 15, 2020

 

Fiscal year ending December 31, 2020

ASU No. 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

 

Fiscal years beginning after December 15, 2020

 

Fiscal year ending December 31, 2020

ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments

 

Fiscal years beginning after December 15, 2022

 

Fiscal year ending December 31, 2020

3. Fair Value Measurements

The Company classifies financial assets and liabilities measured on a recurring basis in one of the following three categories:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets, or liabilities.

Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the instrument.

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon their own market assumptions.

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The following table sets forth the Company’s financial assets subject to fair value measurements:

As of June 30, 2020

Fair Value Hierarchy

(in thousands)

    

Total

    

Level 1

    

Level 2

Level 3

    

Financial instruments carried at fair value (asset position):

 

  

 

  

 

  

  

 

Cash equivalents:

Money market funds

$

205,627

$

205,627

$

$

Short-term investments:

 

U.S. Government securities

 

13,237

 

13,237

 

 

Corporate debt securities

 

24,911

 

 

24,911

 

Commercial paper

26,419

26,419

Total

$

270,194

$

218,864

$

51,330

$

As of June 30, 2020, the Company’s financial assets measured at fair value on a recurring basis using a market approach included cash equivalents, which consist of money market funds, and marketable securities, which consist of high-quality, highly liquid available-for-sale debt securities including corporate debt securities, U.S. government securities and commercial paper.

The Company’s money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine fair value. The U.S. Government securities are classified as Level 1 and valued utilizing quoted market prices. The Company’s corporate debt securities and commercial paper are classified as Level 2 and valued utilizing various market and industry inputs.

The Company had cash and cash equivalents at December 31, 2019 of $327.7 million. As of December 31, 2019, the Company had no other financial assets or liabilities that were measured at fair value on a recurring basis.

The Company considers all highly liquid instruments that have maturities of three months or less when acquired to be cash equivalents. The carrying amounts reflected in the Company’s Condensed Consolidated Balance Sheets for cash equivalents, accounts payable, and accrued expenses approximate fair value due to their short-term maturities.

4. Investment and Variable Interest Entity

MapKure

In June 2019, the Company announced the formation of MapKure, an entity jointly owned by the Company and BeiGene Ltd. (“BeiGene”). BeiGene licensed to MapKure exclusive rights to BGB-3245, an oral, small molecule selective inhibitor of specific BRAF driver mutations and genetic fusions. MapKure is advancing BGB-3245 through clinical development for solid tumor patients harboring BRAF driver mutations and genetic fusions that were observed to be sensitive to the compound in preclinical studies. In addition to the Company’s equity ownership in MapKure, the Company has appointed a member to each of MapKure’s joint steering committee and board of directors. The Company also contributes to clinical development and other operational activities for BGB-3245 through a service agreement with MapKure.

In conjunction with the formation of MapKure in June 2019, the Company purchased 3,500,000 Series A preferred units of MapKure, or a 25% ownership interest, for $3.5 million, and BeiGene received 10,000,000 Series A preferred units as payment for its contributed intellectual property, or a 71.4% ownership interest. Two individuals each purchased 250,000 Series A preferred units, or 1.8% ownership interest each.

In June 2020, the Company purchased an additional 3,500,000 Series A preferred units of MapKure for $3.5 million, as required by the terms of the initial investment in MapKure. As of June 30, 2020, the Company’s ownership interest in MapKure is 38.9%.

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The Company determined that MapKure is a variable interest entity, but the Company is not the primary beneficiary. The Company does not have the power to direct the activities that most significantly impact the economic performance of MapKure. Accordingly, the Company does not consolidate the financial statements of this entity and accounts for this investment using the equity method of accounting.

In accordance with ASC 323-10-35-6, the Company records MapKure’s earnings or losses based on a one quarter lag.

The Company recognized an equity loss of $0.2 million and $0.3 million for the three and six months ended June 30, 2020, respectively. The Company’s ownership interest in MapKure is included in “Equity method investments” in the Condensed Consolidated Balance Sheets. The balance of the Company’s investment was $4.1 million at June 30, 2020, representing the maximum exposure to loss as a result of the Company’s involvement with MapKure.

5. Accrued Expenses

Accrued expenses consisted of the following:

June 30, 

December 31, 

(in thousands)

    

2020

    

2019

Accrued professional fees

$

795

$

793

Accrued compensation and benefits

 

2,105

 

3,147

Accrued research and development

5,042

4,447

Accrued other

 

323

 

566

$

8,265

$

8,953

6. Commitments and Contingencies

Leases

The Company’s future minimum lease obligations as of June 30, 2020 are as follows:

    

Premises Operating

(in thousands)

Leases

2020

 

674

2021

 

1,372

2022

 

1,297

2023

 

135

Total Obligations

$

3,478

The Company recorded rent expense of $0.4 million and $0.8 million, for the three and six months ended June 30, 2020.

Contingencies

From time to time, the Company may be involved in disputes or regulatory inquiries that arise in the ordinary course of business. When the Company determines that a loss is both probable and reasonably estimable, a liability is recorded and disclosed if the amount is material to the financial statements taken as a whole. When a material loss contingency is only reasonably possible, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can reasonably be made.

As of June 30, 2020, there was no litigation or contingency with at least a reasonable possibility of a material loss.

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7. Equity-Based Compensation

2019 Equity Incentive Plan

The 2019 Equity Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards and dividend equivalent rights to the Company’s officers, employees, directors and other key persons (including consultants). The number of shares reserved for issuance under the 2019 Equity Incentive Plan is cumulatively increased each January 1 by 5% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s compensation committee. Effective January 1, 2020, the number of shares reserved for issuance under the 2019 Equity Incentive Plan was increased by 2,150,304 shares.

The terms of stock options and restricted stock awards, including vesting requirements, are determined by the Board of Directors or its delegates, subject to the provisions of the 2019 Equity Incentive Plan. Stock options and restricted stock awards granted by the Company to employees and directors generally vest over four years.

As of June 30, 2020, there were 4,360,801 shares available for issuance under the 2019 Equity Incentive Plan.

Share-Based Awards

During the six months ended June 30, 2020, the Company granted 1,397,888 stock option awards to its officers, employees and directors under the 2019 Equity Incentive Plan.

During the six months ended June 30, 2020, 294,918 restricted stock awards previously issued to employees of the Company vested, and 15,652 stock options were exercised.

As of June 30, 2020, there were 943,225 stock options vested and exercisable. In June 2019, the Company’s CEO received an award of 176,411 stock options (the “2019 CEO Performance Award”). During the quarter ended June 30, 2020, 51,452 options of the CEO Performance Award became exercisable upon the satisfaction of the market condition applicable to this award.

Share-based compensation expense included in general and administrative expense, and research and development expense, for the three months ended June 30, 2020 was $1.8 million and $0.8 million, respectively, and $0.5 million and $0.2 million, respectively, the three months ended June 30, 2019.

Share-based compensation expense included in general and administrative expense, and research and development expense, for the six months ended June 30, 2020 was $2.8 million and $1.2 million, respectively, and $1.1 million and $0.3 million, respectively, the six months ended June 30, 2019.

As of June 30, 2020, the unrecognized compensation expense related to unvested stock options and restricted stock awards was $35.6 million and $0.6 million, respectively, which is expected to be recognized over a weighted-average remaining period of approximately 3.22 years and 1.13 years, respectively.

As of June 30, 2020, the Company had 4,567,328 stock options outstanding and 989,303 unvested restricted stock awards.

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8. Net Loss per Share

Since the Company had a net loss in each of the periods presented, basic and diluted net loss per share are the same. The table below provides potentially dilutive securities not included in the computation of the diluted net loss per share for the periods ended June 30, 2020 and 2019, because to do so would be anti-dilutive:

As of June 30, 

    

2020

    

2019

Common stock options issued and outstanding

 

4,567,328

 

2,489,778

Restricted stock subject to future vesting

 

989,303

 

2,118,689

Total potentially dilutive securities

 

5,556,631

 

4,608,467

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of SpringWorks Therapeutics, Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) and our consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Form 10-K") filed with the Securities and Exchange Commission (“SEC”) on March 12, 2020. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. We caution you that forward-looking statements are not guarantees of future performance, and that our actual results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate, may differ materially from the results discussed or projected in the forward-looking statements contained in this Quarterly Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this Quarterly Report, including under Item 1A. “Risk Factors” and under “Special Note Regarding Forward-Looking Statements” in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company applying a precision medicine approach to acquiring, developing and commercializing life-changing medicines for underserved patient populations suffering from devastating rare diseases and cancer. We have a differentiated portfolio of small molecule targeted oncology product candidates and are advancing two potentially registrational clinical trials in rare tumor types, as well as several other programs addressing highly prevalent, genetically defined cancers. Our strategic approach and operational excellence in clinical development have enabled us to rapidly advance our two lead product candidates into late-stage clinical trials while simultaneously entering into multiple shared-value partnerships with industry leaders to expand our portfolio. From this foundation, we are continuing to build a differentiated global biopharmaceutical company intensely focused on understanding patients and their diseases in order to develop transformative targeted medicines.

Our most advanced product candidate, nirogacestat, is an oral, small molecule gamma secretase inhibitor (“GSI”) initially in development for the treatment of desmoid tumors, a rare and often debilitating and disfiguring soft tissue tumor for which there are currently no therapies approved by the U.S. Food and Drug Administration (“FDA”). We believe nirogacestat may address the significant limitations associated with existing treatment options and has the potential to become the first therapy approved by the FDA for both newly diagnosed and previously treated desmoid tumors. Since we licensed nirogacestat from Pfizer Inc. (“Pfizer”) in August 2017, the FDA has granted us Orphan Drug Designation, Fast Track Designation and Breakthrough Therapy Designation for this indication, and the European Commission granted Orphan Drug Designation for the treatment of soft tissue sarcoma. In July 2020, we announced full enrollment in our Phase 3 DeFi trial evaluating nirogacestat in adult patients with progressing desmoid tumors, which was initiated in May 2019. We expect to report topline results from the DeFi trial in the second or third quarter of 2021.

Our second product candidate is mirdametinib, an oral, small molecule MEK inhibitor initially in development for the treatment of neurofibromatosis type 1-associated plexiform neurofibromas (“NF1-PN”), a rare tumor of the peripheral nerve sheath that causes significant pain and disfigurement, and that most often manifests in children. We believe that mirdametinib has the potential to offer a best-in-class profile in order to enable the long-term treatment required for this patient population, as compared to other MEK inhibitors. As with nirogacestat, we licensed mirdametinib from Pfizer in August 2017; since then, the FDA has granted mirdametinib both Orphan Drug Designation and Fast Track Designation for NF1-PN, and the European Commission has granted mirdametinib Orphan Drug Designation for NF1. In October 2019, we announced the initiation of the ReNeu trial, a potentially registrational Phase 2b clinical trial of mirdametinib

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for patients with NF1-PN. We expect to provide an update on the ReNeu trial between the fourth quarter of 2020 and the first quarter of 2021.

In addition to our late-stage programs in rare oncology indications, we have expanded our portfolio to develop targeted therapies for the treatment of highly prevalent, genetically defined cancers. To advance this strategy, we are taking a precision medicine approach in collaboration with industry leaders, including BeiGene, GlaxoSmithKline (“GSK”), and Allogene Therapeutics, Inc. (“Allogene”) to develop combination approaches with nirogacestat and mirdametinib, as well as new standalone medicines. Among these efforts is our ongoing collaboration with BeiGene, under which patients with advanced or refractory solid tumors harboring RAS mutations, RAF mutations and other MAPK pathway aberrations are being enrolled in a Phase 1b/2 clinical trial evaluating the combination of mirdametinib and BeiGene’s investigational RAF dimer inhibitor lifirafenib. We also have in place a collaboration with GSK, under which patients with relapsed or refractory multiple myeloma are being enrolled in an adaptive Phase 1b clinical trial evaluating the combination of nirogacestat and BLENREP (belantamab mafodotin-blmf), GSK’s antibody-drug conjugate targeted to B-cell maturation antigen (“BCMA”). In June 2020, we announced that the first patient had been dosed in this clinical trial, which is being conducted by GSK. Furthermore, in January 2020, we entered our second collaboration to evaluate nirogacestat with a BCMA-targeted agent, in this case ALLO-715, an allogeneic BCMA targeted Chimeric Antigen Receptor T cell product candidate being advanced by Allogene. We expect Allogene to submit an Investigational New Drug application in the second half of 2020 to evaluate nirogacestat in combination with ALLO-715 in patients with relapsed or refractory multiple myeloma.

Furthermore, we intend to continue to expand our portfolio by licensing additional programs with strong biological rationales and validated mechanisms of action. We also plan to continue using shared-value partnerships to maximize the potential of our therapies to serve patients. Since our founding, we have invested in building leading clinical development capabilities and have focused on structuring innovative partnerships that seek to align incentives and optimize business outcomes for each party involved. We believe that this approach will continue to allow us to expand our shared-value relationships with innovators, maximize the potential of our existing and future portfolio, and ultimately support the building of a scalable and sustainable business focused on the efficient advancement and commercialization of product candidates that hold the potential to transform the lives of patients living with severe rare diseases and cancer.

COVID-19 Impact

In December 2019, a novel strain of the coronavirus disease, severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) COVID-19, was identified in Wuhan, China. This virus disease resulting from COVID-19 has now become a global pandemic. Since the onset of COVID-19, we have undertaken a number of business continuity measures to mitigate potential disruption to our operations and preserve the integrity of our research and development programs. As of the date of this report we have not experienced any material disruptions to the execution of the research and development activities that we currently have underway, however, as a result of the pandemic we may experience disruptions that could impact our research and development timelines and outcomes. We are continuing to evaluate the impact of the COVID-19 pandemic on our business.

Based on our cash, cash equivalents and marketable securities balance at June 30, 2020, of $291.2 million, management estimates that its current liquidity position will enable it to meet operating expenses. For further details on our liquidity position, see the "Results of Operations" section.

Components of our results of operations

Revenue

We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for our current product candidates or additional product candidates that we may develop in the future are successful and can be commercialized, we may generate revenue in the future from product sales. Additionally, we may enter into collaborations and license agreements from time to time that

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provide for certain payments due to us. Accordingly, we may generate revenue associated with payments from such collaborations or license agreements in the future.

Operating expenses

Research and development expenses

Our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include:

·

employee-related expenses, which include salaries, benefits and stock-based compensation for our research and development personnel;

·

fees paid to consultants for services directly related to our research and development programs;

·

expenses incurred under agreements with third-party contract research organizations, investigative clinical trial sites and consultants that conduct research and development activities on our behalf;

·

costs associated with preclinical studies and clinical trials;

·

costs associated with the manufacture of drug substance and finished drug product for preclinical testing and clinical trials;

·

costs associated with technology and intellectual property licenses; and

·

an allocated portion of facilities and facility-related costs, which include expenses for rent and other facility-related costs and other supplies.

Costs for certain development activities, such as manufacturing and clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using either time-based measures or data such as information provided to us by our vendors on their actual costs incurred.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in activities related to developing our product candidates and our preclinical programs, and as certain product candidates advance into later stages of development, including our ongoing potentially registrational Phase 3 clinical trial for nirogacestat (the “DeFi Trial”) and ongoing potentially registrational Phase 2b clinical trial for mirdametinib (the “ReNeu Trial”). The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

General and administrative expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued development of our product candidates.

Other income

Other income consists primarily of interest income. Interest income consists of interest earned on our cash, cash equivalents and marketable securities.

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Results of Operations

Comparison of the three months ended June 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended June 30, 2020 and June 30, 2019:

Three Months ended June 30, 

 

(in thousands)

    

2020

    

2019

    

$ Change

    

% Change

 

Operating Expenses:

 

  

 

  

 

  

 

  

Research and development

$

12,947

$

11,205

 

$

1,742

 

16

%

General and administrative

 

6,874

 

3,646

 

 

3,228

 

89

%

Total operating expenses

 

19,821

 

14,851

 

 

4,970

 

33

%

Loss from operations

 

(19,821)

 

(14,851)

 

 

(4,970)

 

(33)

%

Other income, net

 

157

 

1,004

 

 

(847)

 

(84)

%

Equity investment loss

 

(229)

 

 

 

(229)

 

100

%

Net loss

$

(19,893)

$

(13,847)

 

$

(6,046)

 

44

%

Research and Development

Research and development expense increased by $1.7 million to $12.9 million for the three months ended June 30, 2020 from $11.2 million for the three months ended June 30, 2019, an increase of 15.5%.

The increase in research and development expense was primarily attributable to a $1.7 million increase in internal costs driven by the growth in employee costs associated with increases in the number of personnel, and an increase in non-cash share-based compensation expense.

A significant portion of our research and development expenses are external costs, which we track on a program-by-program basis after a clinical product candidate has been identified. Other research and development expenses include internal research and development costs, such as compensation related costs for our research and development employees, as well as depreciation and other indirect costs, which we do not track on a program-by-program basis, as we deploy our internal resources across multiple projects under development.

General and Administrative

General and administrative expense was $6.9 million for the three months ended June 30, 2020, an increase of $3.2 million from $3.6 million for the three months ended June 30, 2019.

The increase in general and administrative expense was primarily attributable to the hiring of additional personnel in our general and administrative functions as we continued to expand our operations to support the organization and an increase in non-cash share-based compensation expense, as well as an increase of $1.2 million in consulting and professional services, including legal, regulatory and compliance.

Interest Income, Net

The decrease in interest income, net during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 was attributable to significant decline in interest rates which drove a lower return on the cash and cash equivalents balance during the three months ended June 30, 2020.

Equity Investment Loss

The $0.2 million Equity investment loss during the three months ended June 30, 2020 was attributable to the Company’s share of the losses from the MapKure investment, which is accounted for using the equity method of accounting.

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Comparison of the six months ended June 30, 2020 and 2019

The following table summarizes our results of operations for the six months ended June 30, 2020 and June 30, 2019:

Six Months Ended June 30, 

 

(in thousands)

    

2020

    

2019

    

$ Change

    

% Change

 

Operating Expenses:

 

  

 

  

 

  

 

  

Research and development

$

22,674

$

19,628

 

$

3,046

 

16

%

General and administrative

 

13,277

 

6,911

 

 

6,366

 

92

%

Total operating expenses

 

35,951

 

26,539

 

 

9,412

 

35

%

Loss from operations

 

(35,951)

 

(26,539)

 

 

(9,412)

 

(35)

%

Other income, net

 

1,093

 

1,283

 

 

(190)

 

(15)

%

Equity investment loss

 

(329)

 

 

 

(329)

 

100

%

Net loss

$

(35,187)

$

(25,256)

 

$

(9,931)

 

39

%

Research and Development

Research and development expense increased by $3.0 million to $22.7 million for the six months ended June 30, 2020 from $19.6 million for the six months ended June 30, 2019, an increase of 15.5%.

The increase in research and development expense was primarily attributable to a $3.0 million increase in internal costs driven by the growth in employee costs associated with increases in the number of personnel, and an increase in non-cash share-based compensation expense.

A significant portion of our research and development expenses are external costs, which we track on a program-by-program basis after a clinical product candidate has been identified. Other research and development expenses include internal research and development costs, such as compensation related costs for our research and development employees, as well as depreciation and other indirect costs, which we do not track on a program-by-program basis, as we deploy our internal resources across multiple projects under development.

General and Administrative

General and administrative expense was $13.3 million for the six months ended June 30, 2020, an increase of $6.4 million from $6.9 million for the six months ended June 30, 2019.

The increase in general and administrative expense was primarily attributable to the hiring of additional personnel in our general and administrative functions as we continued to expand our operations to support the organization and an increase in non-cash share-based compensation expense, as well as an increase of $3.3 million in consulting and professional services, including legal, regulatory and compliance.

Interest Income, Net

The decrease in interest income, net during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was attributable to the significant decline in interest rates which drove a lower return on the cash and cash equivalents balance during the six months ended June 30, 2020.

Equity Investment Loss

The $0.3 million Equity investment loss during the six months ended June 30, 2020 was attributable to the Company’s share of the losses from the MapKure investment, which is accounted for using the equity method of accounting.

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Liquidity and Capital Resources

Sources of Liquidity

We have incurred operating losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the foreseeable future. Our net loss was $35.2 million and $25.3 million for the six months ended June 30, 2020 and 2019, respectively. We had an accumulated deficit of $108.2 million and $73.0 million at June 30, 2020 and December 31, 2019, respectively. Based on our cash and cash equivalents and marketable securities balances at June 30, 2020, management estimates that our liquidity position will enable it to meet operating expenses through at least twelve months after the date that these financial statements are issued. The Company’s marketable securities consist of high-quality, highly liquid available-for-sale debt securities including corporate debt securities, U.S. government securities and commercial paper.

Cash Flows

The following table provides information regarding our cash flows for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30, 

(in thousands)

    

2020

2019

    

Net cash used in operating activities

 

(32,557)

(20,268)

 

Net cash used in investing activities

 

(68,488)

(4,046)

 

Net cash provided by financing activities

 

84

163,957

 

Net increase in cash and cash equivalents

 

(100,961)

139,643

 

Cash and cash equivalents, beginning of period

 

328,192

46,188

 

Cash and cash equivalents, end of period

$

227,231

$

185,831

Net Cash Used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2020 and June 30, 2019 was primarily driven by our net loss adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities was $32.6 million for the six months ended June 30, 2020, which was driven by a net loss of $35.2 million and a net decrease from changes in operating assets and liabilities of $1.7 million, offset by stock compensation of $3.9 million. Net cash used in operating activities was $20.3 million for the six months ended June 30, 2019, driven by a net loss of $25.3 million, offset by a net increase from changes in operating assets and liabilities of $3.6 million and stock compensation of $1.4 million.

Net Cash Used in Investing Activities

Net cash used in investing activities was $68.5 million and $4 million for the six months ended June 30, 2020 and June 30, 2019, respectively. Net cash used in investing activities for the six months ended June 30, 2020 related to the purchase of short-term available-for-sale debt securities of $64.6 million, our June 2020 investment in MapKure of $3.5 million and capital expenditures of $0.4 million. Net cash used in investing activities for the six months ended June 30, 2019 was driven by our June 2019 investment in MapKure of $3.5 million, and capital expenditures of $0.5 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2020 consisted of proceeds from stock option exercises. Net cash provided by financing activities for the six months ended June 30, 2019 consisted of proceeds from the issuance of Series A and B convertible preferred shares.

Funding Requirements

Our primary use of cash is to fund operating expenses, including our research and development expenditures.

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Our future funding requirements will depend on many factors, including the following:

the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates, including the DeFi Trial and the ReNeu Trial;
the clinical development plans we establish for these product candidates;
the number and characteristics of product candidates that we develop;
the outcome, timing and cost of meeting regulatory requirements established by the FDA, EMA and other comparable foreign regulatory authorities;
the terms of our existing and any future license or collaboration agreements we may choose to enter into, including the amount of upfront, milestone and royalty obligations;
the other costs associated with in-licensing new technologies, such as any increased costs of research and development and personnel;
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
the effect of competing technological and market developments;
the cost and timing of completion of commercial-scale outsourced manufacturing activities;
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own; and
the degree of commercial success achieved following the successful completion of development and regulatory approval activities for a product candidate.

We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, current ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug 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 or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations

During the six months ended June 30, 2020, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our 2019 Form 10-K.

We enter into contracts in the normal course of business with third-party contract research organizations and others for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

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Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Critical Accounting Policies and Use of Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Accrued Research and Development Expenses

We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of clinical trials and preclinical studies. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statement of operations. These costs are a significant component of our research and development expenses. We record accrued expenses for these costs based on factors such as estimates of the work completed and in accordance with agreements established with these third-party service providers. Any payments made in advance of services provided are recorded as prepaid assets, which are then expensed as the contracted services are performed.

We estimate the amount of work completed based on discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. 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, the number of patients enrolled and the rate of patient enrollment may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. For the periods presented, we have experienced no material differences between our accrued expenses and actual expenses.

JOBS Act

In April 2012, the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

As an EGC, we have relied on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.

As of June 30, 2020, the last business day of our most recently completed second fiscal quarter, the market value of our common stock held by non-affiliates was greater than $700 million. As a result, as of the close of the fiscal year on

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December 31, 2020, we will become a large accelerated filer and will no longer qualify as an EGC. Accordingly, at that time we will cease to be eligible for the EGC provisions of the JOBS Act.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

The CARES Act, which was enacted on March 27, 2020, and related notices include several significant provisions, including delaying certain payroll tax payments and estimated income tax payments. We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate, or on our liquidity. We will continue to monitor and assess the impact the CARES Act and similar legislation may have on our business and financial results. 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The primary objectives of our investment activities are to ensure liquidity and to preserve capital. We are exposed to market risks in the ordinary course of our business. These risks include interest rate sensitivities. We had cash, cash equivalents and marketable securities of $291.2 million and $327.7 million as of June 30, 2020 and December 31, 2019, respectively, which consisted of bank deposits, highly liquid money market funds and investments in high-quality, highly liquid available-for-sale debt securities. Historical fluctuations in interest rates have not been significant for us. We had no outstanding debt as of June 30, 2020. Due to the short-term maturities of our cash equivalents and the high-quality, highly liquid nature of our available-for-sale debt marketable securities, an immediate one percentage point change in interest rates would not have a material effect on the fair market value of our cash equivalents. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and marketable securities in institutional market funds that are composed of U.S. Treasury and U.S. Treasury-backed repurchase agreements, short-term U.S. Treasury securities and investments in high-quality, highly liquid available-for-sale debt securities including corporate debt securities, government-sponsored enterprise securities and commercial paper. We do not believe that inflation, interest rate changes or exchange rate fluctuations had a significant impact on our results of operations for any periods presented herein.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at a reasonable assurance level in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any material legal proceedings. The outcome of litigation cannot be predicted

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with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, which could materially affect our financial condition or results of operations.

Item 1A. Risk Factors

Careful consideration should be given to the following risk factors, in addition to the other information set forth in this Quarterly Report on Form 10-Q and in other documents that we file with the SEC, in evaluating the Company and our business. Investing in our common stock involves a high degree of risk. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not intended to be exhaustive and are not the only risks facing the Company. New risk factors can emerge from time to time, and it is not possible to predict the impact that any factor or combination of factors may have on our business, prospects, financial condition and results of operations.

Those risk factors below denoted with an “*” are newly added or have been materially updated from our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2020

Risks related to our financial position and need for additional capital

We have incurred significant net losses since our inception and anticipate that we will continue to incur net losses in the future.*

We have incurred significant net losses in each reporting period since our inception. To date, we have not generated any revenue and we have financed our operations principally through equity financings. If our product candidates are not successfully developed and approved, we may never generate any revenue. We continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception. Our net losses were $35.2 million and $25.3 million for the six months ended June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020 and December 31, 2019, we had an accumulated deficit of $108.2 million and $73.0 million, respectively. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates, including our lead product candidates, nirogacestat and mirdametinib, and any future product candidates.

We anticipate that our expenses will increase substantially if, and as, we:

advance the development of our lead product candidates, nirogacestat and mirdametinib, through potentially registrational clinical trials and potentially for other indications;
advance our development programs for our other product candidates through clinical development and into later-stage clinical development;
seek marketing approvals for any product candidates that successfully complete clinical trials;
invest in or in-license other technologies or product candidates for further preclinical and clinical development;
hire additional personnel, including clinical, quality control, scientific, medical, business development and finance personnel, and continue to build our infrastructure;
expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
maintain, expand and protect our intellectual property portfolio; and
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with third parties.

To become and remain profitable, we or any potential future collaborators must develop and eventually commercialize products with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining marketing approval for product candidates, manufacturing, obtaining reimbursement approval, marketing and selling products for which we may obtain marketing

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approval and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed.

Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop, register and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We have a limited operating history, which may make it difficult to evaluate our prospects and likelihood of success.*

We are a clinical-stage biopharmaceutical company with a limited operating history. We were formed in August 2017 and our operations to date have been focused on preparing and executing our clinical trials for our product candidates, building our infrastructure, raising capital and executing partnerships. Consequently, we have limited operations upon which to evaluate our business, and predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing drug products. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate activity or an acceptable safety profile, gain regulatory approval, secure market access and reimbursement and become commercially viable.

Although we announced the full enrollment of the DeFi trial, a potentially registrational Phase 3 clinical trial of nirogacestat, in July 2020, and in October 2019 commenced a potentially registrational Phase 2b clinical trial of mirdametinib, we have not yet demonstrated the ability to successfully complete clinical trials for any product candidate, we have no products approved for commercial sale and we have not generated any revenue from product sales to date. In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced by early-stage biopharmaceutical companies in rapidly evolving fields, or other known or unknown factors and risks that may be infrequent or unique.

In addition, we will need to transition at some point from a company with a development focus to a company capable of supporting commercial activities, and may not be successful in such a transition.

We will require additional capital to fund our operations and if we fail to obtain necessary capital, we will not be able to complete the development and commercialization of our product candidates.*

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts of cash to conduct further research and development and clinical trials of our product candidates to seek regulatory approvals for our product candidates and to launch and commercialize any products for which we receive regulatory approval. As of June 30, 2020, we had $291.2 million in cash, cash equivalents and marketable securities. Based on our current operating plan, we believe that our cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements through 2022. However, our future capital requirements and the period for which our existing resources will support our operations may vary significantly from what we expect, and we will in any event require additional capital in order to complete clinical development and obtain regulatory approval of our product candidates. Our monthly spending levels will vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities.

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Our future funding requirements will depend on many factors, including, but not limited to:

the initiation, progress, timing, costs and results of clinical trials for our product candidates; including any unforeseen costs we may incur as a result of clinical trial delays due to the COVID-19 pandemic or other causes;
the clinical and preclinical development and manufacturing plans we establish for these product candidates;
the number and characteristics of product candidates that we develop or in-license;
the cost of identifying and evaluating potential product candidates for acquisition or license, including the cost of preclinical activities or clinical activities;
the terms of any collaboration or licensing agreements we may choose to enter into;
the outcome, timing and cost of meeting regulatory requirements established by the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”), and other comparable foreign regulatory authorities;
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
the effect of competing technological and market developments;
the cost and timing of completion of commercial-scale manufacturing activities; and
the degree of commercial success achieved following the successful completion of development and regulatory approval activities for a product candidate.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, your ownership interest will be diluted. In addition, any debt financing may subject us to fixed payment obligations and 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 capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. We also could be required to seek commercial or development partners for our lead products or any future product candidate at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves.

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The amount of our future losses is uncertain and our quarterly and annual operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.

Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following:

the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners;
our ability to successfully recruit and retain subjects for clinical trials, and any delays caused by difficulties in such efforts;
our ability to obtain marketing approval for our product candidates, and the timing and scope of any such approvals we may receive;
the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time;
the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with manufacturers;
our ability to attract, hire and retain qualified personnel;
expenditures that we will or may incur to develop additional product candidates;
the level of demand for our product candidates should they receive approval, which may vary significantly;
the timing and level of investment in commercialization efforts to support product candidates, both before and after regulatory approval is obtained;
the risk/benefit profile, cost and reimbursement policies with respect to our product candidates, if approved, and existing and potential future therapeutics that compete with our product candidates; and
future accounting pronouncements or changes in our accounting policies.

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.

Risks related to research and development and the biopharmaceutical industry

Our business is highly dependent on the success of our lead product candidates, nirogacestat and mirdametinib, as well as other product candidates we may develop. If we are unable to successfully complete clinical development, obtain regulatory approval for or commercialize our product candidates, or if we experience delays in doing so, our business will be materially harmed.*

To date, we have not yet completed any clinical trials or development of any product candidates. Our future success and ability to generate revenue from our product candidates, which we do not expect will occur for several years, if ever, is dependent on our ability to successfully develop, obtain regulatory approval for and commercialize one or more product candidates. In July 2020, we announced full enrollment in our potentially registrational Phase 3 clinical trial of nirogacestat and we announced the initiation of a potentially registrational Phase 2b clinical trial of mirdametinib in October 2019. If either of our lead product candidates encounter safety or efficacy problems, development delays or regulatory issues or other problems, including as a result of the COVID-19 pandemic, our development plans and business would be significantly harmed.

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All of our other product candidates are in earlier stages of development and will require substantial additional investment for preclinical development, clinical development, regulatory review and approval in one or more jurisdictions.

We may not have the financial resources to continue development of, or to modify existing or enter into new collaborations for, a product candidate if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, our product candidates, including:

our inability to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective;
insufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;
negative or inconclusive results from our preclinical studies, clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon a program;
product-related adverse events experienced by subjects in our clinical trials or by individuals using drugs or therapeutic biologics similar to our product candidates;
delays in submitting an Investigational New Drug application (“IND”), or comparable foreign applications, or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial or a suspension or termination of a clinical trial once commenced;
conditions imposed by the FDA, EMA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials;
poor effectiveness of our product candidates during clinical trials;
better than expected performance of control arms, such as placebo groups, which could lead to negative or inconclusive results from our clinical trials;
delays in enrolling subjects in clinical trials;
high drop-out rates of subjects from clinical trials;
inadequate supply or quality of product candidates or other materials necessary for the conduct of our clinical trials;
greater than anticipated clinical trial or manufacturing costs;
unfavorable FDA, EMA or comparable regulatory authority inspection and review of a clinical trial site;
failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;
delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our therapies in particular; or
varying interpretations of data by the FDA, EMA and comparable foreign regulatory authorities.

Clinical development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.*

To obtain the requisite regulatory approvals to commercialize any product candidate, we must demonstrate through extensive preclinical studies and clinical trials that such product candidate is safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a clinical trial can fail at any stage of testing.

Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products. Additionally, we are conducting and plan to conduct some open-label trials, where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Open-label clinical trials are subject

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to various limitations that may exaggerate any therapeutic effect as patients in those trials are aware when they are receiving treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. Where a randomized, placebo-controlled clinical trial is designed to allow enrolled subjects to cross-over to the treatment arm, there may be a risk of inadvertent unblinding of subjects prior to cross-over, which may limit the clinical meaningfulness of those data and may require the conduct of additional clinical trials.

Successful completion of clinical trials is a prerequisite to submitting a New Drug Application (“NDA”), to the FDA, a Marketing Authorization Application (“MAA”) to the EMA and similar marketing applications to comparable foreign regulatory authorities for each product candidate and, consequently, the ultimate approval and commercial marketing of any product candidates.

Although we have initiated potentially registrational clinical trials for nirogacestat and mirdametinib, we do not know whether these trials or any of our clinical trials, including trials for our combination therapies using nirogacestat and mirdametinib, will be completed on schedule, if at all, or in some cases whether such clinical trials will begin.

We may experience delays in initiating or completing clinical trials and preparing for regulatory submissions. We also may experience numerous unforeseen events during, or as a result of, any future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval or commercialize our current product candidates or any future product candidates, including:

delays in our clinical trials and preclinical programs resulting from factors related to the COVID-19 pandemic;
regulators or institutional review boards (“IRBs”), or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective clinical trial sites and prospective contract research organizations (“CROs”), the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
clinical trials of any product candidates may fail to show acceptable safety or efficacy, or produce negative or inconclusive results and we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product development programs;
the number of subjects required for clinical trials of any product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or subjects may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;
we may elect to, or regulators, IRBs or ethics committees may require, that we or our investigators suspend or terminate clinical research or trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
the cost of clinical trials of any product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be inadequate to initiate or complete a given clinical trial;
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, IRBs or ethics committees to suspend or terminate the clinical trials;
reports from clinical testing of other therapies may raise safety or efficacy concerns about our product candidates; and
the FDA, EMA or comparable regulatory authorities may require us to submit additional data, such as long-term toxicology studies, or impose other requirements before permitting us to initiate a clinical trial.

We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which such clinical trials are being conducted, or the FDA, EMA or comparable regulatory authorities, or recommended for suspension or termination by the Data Safety Monitoring Board (“DSMB”), for such clinical trial. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or clinical trial site by the

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FDA, EMA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA, EMA or comparable foreign regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after they have reviewed and commented on the design for our clinical trials.

Our costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whether any of our clinical trials will begin as planned, will need to be reassigned or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition and results of operations significantly. The clinical trials sponsored by our partners with our product candidates in combination with our partners’ therapies pose the same development risks.

We were not involved in the early development of our lead product candidates or in the development of third-party agents used in combination with our product candidates; therefore, we are dependent on third parties having accurately generated, collected, interpreted and reported data from certain preclinical and clinical trials for our product candidates.

We had no involvement with or control over the initial preclinical and clinical development of any of our lead product candidates or third-party agents used in combination with our product candidates. We are dependent on third parties having conducted their research and development in accordance with the applicable protocols and legal, regulatory and scientific standards; having accurately reported the results of all preclinical studies and clinical trials conducted with respect to such product candidates; and having correctly collected and interpreted the data from these trials. If these activities were not compliant, accurate or correct, the clinical development, regulatory approval or commercialization of our product candidates will be adversely affected.

If our clinical trials fail to replicate positive results from earlier preclinical studies or clinical trials conducted by us or third parties, we may be unable to successfully develop, obtain regulatory approval for or commercialize our product candidates.

Our preclinical studies or early clinical trials of our product candidates, whether conducted by us or third parties, may not necessarily be predictive of the results of later clinical trials that we conduct. Similarly, even if we are able to complete our planned clinical trials of our product candidates, positive results from such clinical trials may not be replicated in our subsequent preclinical studies or clinical trials.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. For example, we are conducting non-clinical and clinical absorption, distribution, metabolism and excretion (“ADME”) studies for mirdametinib, and we cannot predict whether findings from these ADME studies will adversely affect our development plans for our product candidates. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA, EMA or comparable foreign regulatory authority approval. Furthermore, the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval, which may lead to the FDA, EMA or comparable foreign regulatory authorities delaying, limiting or denying approval of our product candidates.

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As an organization, we have never successfully completed any clinical trials, and we may be unable to do so for any product candidates we may develop.

We will need to successfully complete clinical trials in order to obtain the approval of the FDA, EMA or comparable foreign regulatory authorities to market any product candidates. Carrying out clinical trials, including later-stage registrational clinical trials, is a complicated process. As an organization, we have not previously completed any clinical trials. In order to do so, we will need to build and expand our clinical development and regulatory capabilities, and we may be unable to recruit and train qualified personnel. We also expect to continue to rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize any potential product candidates. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approval of any product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in commercializing our product candidates.

The successful development of biopharmaceuticals is highly uncertain.

Successful development of biopharmaceuticals is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Product candidates that appear promising in the early phases of development may fail to reach the market for several reasons including:

clinical trial results may show the product candidates to be less effective than expected (for example, a clinical trial could fail to meet its primary or key secondary endpoint(s)) or to have unacceptable side effects or toxicities;
failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused by patients who fail the trial screening process, slow enrollment in clinical trials, patients dropping out of trials, patients lost to follow-up;
length of time to achieve trial endpoints, additional time requirements for data analysis or NDA preparation, discussions with the FDA, an FDA request for additional preclinical or clinical data (such as long-term toxicology studies) or unexpected safety or manufacturing issues;
preclinical study results may show the product candidate to be less effective than desired or to have harmful side effects;
supply issues, manufacturing costs and formulation issues, including our inability to successfully combine our product candidates with other therapies;
post-marketing approval requirements; and
the proprietary rights of others and their competing products and technologies that may prevent our product candidates from being commercialized.

The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one product candidate to the next and from one country to the next, and may be difficult to predict.

Even if we are successful in obtaining marketing approval, commercial success of any approved products will also depend in large part on the availability of coverage and adequate reimbursement from third-party payors, including government payors such as the Medicare and Medicaid programs and managed care organizations in the United States or country specific governmental organizations in foreign countries, which may be affected by existing and future healthcare reform measures designed to reduce the cost of healthcare. Third-party payors could require us to conduct additional studies, including post-marketing studies related to the cost effectiveness of a product, to qualify for reimbursement, which could be costly and divert our resources. If government and other healthcare payors were not to provide coverage and adequate reimbursement for our products once approved, market acceptance and commercial success would be reduced.

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In addition, if any of our product candidates receive marketing approval, we will be subject to significant regulatory obligations regarding the submission of safety and other post-marketing information and reports and registration, and will need to continue to comply (or ensure that our third-party providers comply) with current good manufacturing practices (“cGMPs”) and good clinical practices (“GCPs”) for any clinical trials that we conduct post-approval. In addition, there is always the risk that we, a regulatory authority or a third party might identify previously unknown problems with a product post-approval, such as adverse events of unanticipated severity or frequency. Compliance with these requirements is costly, and any failure to comply or other issues with our product candidates post-approval could adversely affect our business, financial condition and results of operations.

We expect to develop nirogacestat and mirdametinib, and potentially future product candidates, in combination with other therapies, and safety or supply issues with combination use products may delay or prevent development and approval of such product candidates.

We intend to develop nirogacestat and mirdametinib, and likely other future product candidates, in combination with one or more other approved or unapproved rational therapies to treat cancer or other diseases. For example, we are currently evaluating mirdametinib in combination with lifirafenib, BeiGene’s RAF dimer inhibitor, and nirogacestat in combination with BLENREP (belantamab mafodotin-blmf), GSK's antibody-drug conjugate (“ADC”) targeted to B-cell maturation antigen (“BCMA”) and nirogacestat in combination with ALLO-715, Allogene’s CAR-T based cell therapy targeted to BCMA.

Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risks that the FDA, EMA or comparable foreign regulatory authorities outside of the United States could revoke approval of the therapy used in combination with our product or that safety, efficacy, manufacturing or supply issues could arise with any of those existing therapies. If the therapies we use in combination with our product candidates are replaced as the standard of care for the indications we choose for any of our product candidates, the FDA, EMA or comparable foreign regulatory authorities may require us to conduct additional clinical trials. The occurrence of any of these risks could result in our own products, if approved, being removed from the market or being less successful commercially.

We also may choose to evaluate nirogacestat or mirdametinib or any other future product candidates in combination with one or more cancer therapies that have not yet been approved for marketing by the FDA, EMA or comparable foreign regulatory authorities. We will not be able to market and sell nirogacestat, mirdametinib or any product candidate we develop in combination with an unapproved cancer therapy for a combination indication if that unapproved cancer therapy does not ultimately obtain marketing approval either alone or in combination with our product. In addition, unapproved cancer therapies face the same risks described with respect to our product candidates currently in development and clinical trials, including the potential for serious adverse effects, delay in their clinical trials and lack of FDA approval.

If the FDA, EMA or comparable foreign regulatory authorities do not approve these other drugs or revoke their approval of, or if safety, efficacy, quality, manufacturing or supply issues arise with, the drugs we choose to evaluate in combination with our product candidate we develop, we may be unable to obtain approval of or market such combination therapy.

Due to our limited resources and access to additional capital, we must prioritize development of certain programs and product candidates; these decisions may prove to be wrong and may adversely affect our business.

We may fail to identify and acquire, through purchase or license, viable new product candidates for clinical development for a number of reasons. If we fail to identify and acquire additional product candidates, our business could be materially harmed.

Efforts to identify and pursue new product candidates and disease targets require substantial technical, financial and human resources, regardless of whether they are ultimately successful. We currently rely on third parties, including current and future collaborators, to perform all of our research and preclinical activities. Programs may initially show

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promise in preclinical studies, yet fail to yield positive results during clinical development for a number of reasons, including:

the methodology used may not be successful in identifying potential indications and/or product candidates; or
product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective products.

Because we have limited financial and human resources, we intend to initially focus on programs and product candidates for a limited set of indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications with our existing product candidates that may later prove to have greater commercial potential or a greater likelihood of success. We may focus our efforts and resources on potential product candidates or other potential programs that ultimately prove to be unsuccessful.

Our future clinical trials or those of our future collaborators may reveal significant adverse events not seen in prior preclinical studies or clinical trials and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.

If significant adverse events or other side effects are observed in any of our clinical trials, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. For example, a prior Phase 2 clinical trial (A4581002) of mirdametinib was terminated and enrollment in the Phase 2 portion of a Phase 1/2 clinical trial (A4581001) was halted as a result of adverse events observed at doses of mirdametinib of 15 mg twice daily (BID) or above using both intermittent and continuous dosing schedules. These adverse events included ocular disorders (visual disturbances, blurred vision and retinal vein occlusion), nervous system disorders (confusion, slowed ideation, slurred speech and hallucinations), musculoskeletal and connective tissue disorders (general weakness and neck muscle weakness associated with mild and moderate elevations in creatine phosphokinase) and cardiac disorders (decreased left ventricular ejection fraction and congestive heart failure). Although these doses were significantly higher than the maximum allowable dose of 4 mg BID in our ongoing Phase 2b clinical trial of mirdametinib in NF1-PN, we plan to treat patients in this trial for a period of up to 24 months, which would be longer than any subjects have been treated with mirdametinib in prior trials. In our ongoing Phase 2b clinical trial, we may observe adverse events similar to those that were seen at higher doses of mirdametinib in prior clinical trials owing to the potentially increased duration of treatment, or other factors. In addition, the trial is enrolling pediatric NF1-PN patients. There is limited safety data of mirdametinib in children under the age of 16 and it is possible that there may be unanticipated adverse events observed in this patient population.

If we elect or are required to delay, suspend or terminate any clinical trial of any product candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be delayed or eliminated. Serious adverse events or other adverse events, as well as tolerability issues, observed in clinical trials could hinder or prevent market acceptance of the product candidate at issue.

We, the FDA, EMA or comparable foreign regulatory authorities or an IRB may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the product candidate from obtaining or maintaining marketing approval, restrictions could be imposed on the approval or an approved product could be subject to a “black box” warning, and undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies.

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If we encounter difficulties enrolling patients in any of our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.*

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including:

the patient eligibility and exclusion criteria defined in the protocol;
the size of the patient population required for analysis of the clinical trial’s primary endpoints;
delays in our research programs or clinical supply chain resulting from factors related to the COVID-19 pandemic;
the proximity of patients to clinical trial sites;
the design of the clinical trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience, and the ability of these investigators to identify and enroll suitable patients;
perception of the safety profile of our product candidates;
our ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will drop out of the trials before completion.

For example, we are developing nirogacestat for the treatment of desmoid tumors and mirdametinib for the treatment of NF1-PN, both of which are rare diseases with small patient populations. As a result, although we have completed enrollment in our Defi clinical trial, we may encounter difficulties enrolling subjects in our clinical trials for these product candidates due, in part, to the small size of these patient populations. In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a clinical trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. In addition, in the case of mirdametinib, we may face difficulty with enrollment due to physician or patient perception of an adverse tolerability profile.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

The target patient populations of nirogacestat for the treatment of desmoid tumors and mirdametinib for the treatment of NF1-PN are small and have not been definitively determined, and if our estimates of the number of treatable patients is lower than expected, our potential revenues from sales of our product candidates, if approved, and our ability to achieve profitability would be compromised.

Our estimates of both the number of patients who have the diseases we are targeting, as well as the subset of patients with these diseases in a position to receive our product candidates, if approved, are based on our beliefs and estimates, and these estimates may prove to be incorrect. These estimates have been derived from a variety of sources, including scientific literature, input from physicians that treat patients with the diseases we are targeting, patient foundations and secondary market research databases. Further, new studies may change the estimated incidence or prevalence of these diseases, and any regulatory approvals that we may receive for a product candidate may include limitations for use or contraindications that decrease the addressable patient population. Accordingly, the target patient populations may turn out to be lower than expected, in which case the potential revenues from sales of our product candidates, if approved, would be lower than expected.

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We face significant competition from other biopharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

The biopharmaceutical industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly as they develop novel approaches to treating disease indications that our product candidates are also focused on treating. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel therapeutics that could make the product candidates that we develop obsolete. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaboration partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement.

Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.

Even if any product candidate we develop receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

If any future product candidate we develop receives marketing approval, whether as a single agent or in combination with other therapies, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If the product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of any product candidate, if approved for commercial sale, will depend on a number of factors, including:

efficacy and potential advantages compared to other treatments;
the ability to offer our products, if approved, for sale at competitive prices;
convenience and ease of administration compared to other treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support;
the ability to obtain sufficient third-party coverage, market access and adequate reimbursement; and
the prevalence and severity of any side effects.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates proceed through preclinical studies to late-stage clinical trials towards potential approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform

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differently and affect the results of planned clinical trials or other future clinical trials conducted with the materials manufactured using altered processes. Such changes may also require additional testing, including bridging or comparability testing to demonstrate the validity of clinical data obtained in clinical trials following manufacturing changes, FDA notification or FDA approval.

Because all prior clinical trials of nirogacestat and mirdametinib were conducted by third parties, we will need to perform analytical and other tests to demonstrate that any new drug product material is comparable in all respects, including potency, to the product used in such earlier clinical trials. There is no assurance that any such product will pass the required comparability testing, that any other future third-party manufacturer that we engage will be successful in producing our product candidates or that any materials produced by any third-party manufacturer that we engage will have the same effect in patients that we have observed to date with respect to materials used in prior clinical trials.

All of the above could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commence sales and generate revenue.

Moreover, we have not yet manufactured or processed on a commercial scale and may not be able to do so for any of our product candidates if approved. We may make changes as we work to optimize our manufacturing processes, but we cannot be sure that even minor changes in our processes will result in therapies that are safe and effective and approved for commercial sale.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability as a result of testing our product candidates in clinical trials and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical trials, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

inability to bring a product candidate to the market;
decreased demand for our products;
harm to our reputation;
withdrawal of clinical trial participants and inability to continue clinical trials;
initiation of investigations by regulators;
costs to defend the related litigation;
diversion of management’s time and our resources;
substantial monetary awards to clinical trial participants or patients who receive an approved product;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
exhaustion of any available insurance and of our capital resources;
the inability to commercialize any product candidate, if approved; and
a decline in our stock price.

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with collaborators. Even if our agreements with any current or future corporate collaborators entitle us to indemnification against losses, that indemnification may not be available or adequate should any claim arise. Although we currently carry $5.0 million in clinical trial insurance, that amount of insurance coverage may not be adequate, and, in the future, we may be unable to maintain this insurance coverage, or we may not be able to obtain additional or replacement insurance at a reasonable

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cost, if at all. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay those amounts.

Risks related to government regulation

The regulatory approval process for our product candidates in the United States, the European Union and other jurisdictions is currently uncertain and will be lengthy, time-consuming and inherently unpredictable and we may experience significant delays in the clinical development and regulatory approval, if any, of our product candidates.*

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA in the United States, the EMA in the European Union (“EU”) and comparable foreign regulatory authorities. We are not permitted to market any product in any jurisdiction until we receive marketing approval from the appropriate regulatory authority. We have not previously submitted an NDA to the FDA, an MAA to the EMA or similar marketing application to comparable foreign regulatory authorities. In the United States, an NDA must include extensive preclinical and clinical data and supporting information to establish that the product candidate is safe, pure and potent for each desired indication. An NDA must also include significant information regarding the chemistry, manufacturing and controls for the product, and the manufacturing facilities must complete a successful pre-approval inspection.

The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support approval. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain approval of any product candidates that we develop based on the completed clinical trials.

In addition, clinical trials can be delayed or terminated for a variety of reasons, including delays or failures related to:

obtaining regulatory authorization to begin a clinical trial, if applicable;
the availability of financial resources to begin and complete the planned trials;
reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
obtaining approval at each clinical trial site by an independent IRB or ethics committee;
recruiting suitable patients to participate in a clinical trial in a timely manner;
having patients complete a clinical trial or return for post-treatment follow-up;
clinical trial sites deviating from clinical trial protocol, not complying with GCP requirements or dropping out of a trial;
addressing any patient safety concerns that arise during the course of a clinical trial;
addressing any conflicts with new or existing laws or regulations;
adding new clinical trial sites; or
manufacturing qualified materials under cGMP regulations for use in clinical trials.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors. Further, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which such clinical trials are being conducted, or the FDA, EMA or comparable foreign regulatory authorities, or recommended for suspension or termination by the DSMB for such clinical trial, due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or clinical trial sites by the FDA, EMA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenue will be delayed. In

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addition, any delays in completing any clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenue.

Separately, in response to the COVID-19 global pandemic, on March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products through at least April 2020, though no set end date has been determined. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. In April 2020, the FDA stated that its New Drug Program was continuing to meet program user fee performance goals, but due to many agency staff working on COVID-19 activities, it was possible that the FDA would not be able to sustain that level of performance indefinitely. As of June 23, 2020, the FDA noted it was conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. On July 10, 2020, the FDA announced its goal of restarting domestic on-site inspections during the week of July 20, 2020, but such activities will depend on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments. The FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic inspections. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and provide guidance regarding the conduct of clinical trials, which guidance continues to evolve. Additionally, as of June 23, 2020, the FDA noted it was continuing to ensure timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee performance goals. On July 16, 2020, FDA noted that it is continuing to expedite oncology product development with its staff teleworking full-time. If global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

The FDA, EMA or comparable foreign regulatory authorities may disagree with our regulatory plan for our product candidates.*

The general approach for FDA approval of a new drug is dispositive data from one or more well-controlled Phase 3 clinical trials of the product candidate in the relevant patient population. Phase 3 clinical trials typically involve a large number of patients, have significant costs and take years to complete.

Our clinical trial results may not support approval of our product candidates. In addition, our product candidates could fail to receive regulatory approval, or regulatory approval could be delayed, for many reasons, including the following:

the FDA, EMA or comparable foreign regulatory authorities may disagree with the dosing regimen, design or implementation of our clinical trials;
we may be unable to demonstrate to the satisfaction of the FDA, EMA or comparable foreign regulatory authorities that our product candidates are safe and effective for any of their proposed indications;
we may encounter safety or efficacy problems caused by the COVID-19 pandemic; 
the results of clinical trials may not meet the level of statistical significance required by the FDA, EMA or comparable foreign regulatory authorities for approval;
we may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;
the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA, EMA or comparable foreign regulatory authorities to support the submission of an NDA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
the FDA, EMA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

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We may seek regulatory approval of our product candidates, including nirogacestat, based on an interim analysis conducted of a registrational trial, particularly if the interim analysis is statistically significant for the primary endpoint and the safety data demonstrate an acceptable safety and tolerability profile. The results of any such interim analysis would be discussed with FDA at a pre-NDA meeting to assess the adequacy of the data to support the submission of a NDA; however, if the FDA does not agree that the interim analysis provides a sufficient basis for regulatory approval, we would not submit an NDA until the conclusion of such registrational trial.

Interim “top-line” and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim top-line or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, i