SEC Filing | SpringWorks Therapeutics

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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 September 30, 2020

◻	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 November 6, 2020 was 48,767,155.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or 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, cash equivalents and marketable securities, 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;

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our ability to compete with companies currently marketing or engaged in the development of treatments for desmoid tumors, NF1-PN and other oncology and rare disease 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, or 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 and 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 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 September 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 Loss	7
Condensed Consolidated Statements of Preferred Stock and Members’/Stockholders’ Equity / (Deficit)	8
Condensed Consolidated Statements of Cash Flows	10
Notes to Condensed Consolidated Financial Statements	11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosure About Market Risk	27
Item 4. Controls and Procedures	27

PART II. OTHER INFORMATION
Item 1. Legal Proceedings	28
Item 1A. Risk Factors	28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3. Defaults Upon Senior Securities	85
Item 4. Mine Safety Disclosures	85
Item 5. Other Information	86
Item 6. Exhibits	86
SIGNATURES	87

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SpringWorks Therapeutics, Inc.

Condensed Consolidated Balance Sheets


	September 30,		December 31,
	2020		2019
(in thousands, except share and per-share data)	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	84,831	$	327,652
Marketable securities		191,988		—
Prepaid expenses and other current assets		2,083		3,709
Total current assets		278,902		331,361
Property and equipment, net		1,176		795
Equity investment		4,017		976
Restricted cash		565		540
Other assets		1,440		1,159
Total assets	$	286,100	$	334,831
Liabilities and Stockholders’ equity
Current liabilities:
Accounts payable	$	1,064	$	2,654
Accrued expenses		11,304		8,953
Deferred rent		384		363
Total current liabilities		12,752		11,970
Long-term portion of deferred rent		497		789
Other long-term liabilities		96		—
Total liabilities		13,345		12,759
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value, 150,000,000 shares authorized, 43,128,804 and 43,006,077 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively.		4		4
Additional paid-in capital		402,601		395,097
Accumulated other comprehensive income		25		—
Accumulated deficit		(129,875)		(73,029)
Total stockholders’ equity		272,755		322,072
Total liabilities and stockholders’ equity	$	286,100	$	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 September 30,				Nine Months Ended September 30,
(in thousands, except share and per-share data)	2020		2019		2020		2019
Operating expenses:
Research and development	$	13,923	$	10,745	$	36,597	$	30,373
General and administrative		7,669		4,584		20,946		11,495
Total operating expenses		21,592		15,329		57,543		41,868

Loss from operations		(21,592)		(15,329)		(57,543)		(41,868)
Other income:
Interest income, net		63		997		1,156		2,280
Total other income		63		997		1,156		2,280
Equity investment loss		(130)		(2,501)		(459)		(2,501)
Net loss	$	(21,659)	$	(16,833)	$	(56,846)	$	(42,089)

Reconciliation of net loss to net loss attributable to common stockholders:
Net loss	$	(21,659)	$	(16,833)	$	(56,846)	$	(42,089)
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	$	(21,659)	$	(16,833)	$	(56,846)	$	(34,360)


Net loss per share, basic and diluted	$	(0.51)	$	(1.77)	$	(1.35)	$	(9.24)
Weighted average common shares outstanding, basic and diluted		42,148,837		9,487,329		41,961,691		3,716,877

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)




	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Net loss	$	(21,659)	$	(16,833)	$	(56,846)	$	(42,089)
Changes in other comprehensive income:
Unrealized gain on marketable securities, net		69		—		25		—
Total changes in other comprehensive income	$	69	$	—	$	25	$	—
Comprehensive loss		(21,590)		(16,833)		(56,821)		(42,089)
Net gain attributable to extinguishment of Series A convertible preferred and Junior Series A convertible preferred units		—		—		—		7,729
Comprehensive loss attributable to common stockholders	$	(21,590)	$	(16,833)	$	(56,821)	$	(34,360)

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 September 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	Income	Deficit	Total
Balance at June 30, 2019	189,639,279	217,290	6,437,500	3,882	3,088,636	—	2,440	—	(39,979)	(33,657)
Issuance of common stock upon closing of initial public offering, net of $16,570 in issuance cost					10,350,000	1	169,729			169,730
Stock-based compensation expense							788			788
Conversion of convertible preferred stock into common stock	(189,639,279)	(217,290)	(6,437,500)	(3,882)	29,794,359	3	221,169			217,290
Exercise of stock options					392		1			1
Net loss									(16,833)	(16,833)
Balance at September 30, 2019	—	—	—	—	43,233,387	4	394,127	—	(56,812)	337,319


Balance at June 30, 2020	—	—	—	—	43,016,501	4	399,130	(44)	(108,216)	290,874
Exercise of stock options					118,065		428			428
Forfeitures of restricted stock awards					(5,762)		—			—
Stock-based compensation expense							3,043			3,043
Other comprehensive income, net of tax								69		69
Net Loss									(21,659)	(21,659)
Balance at September 30, 2020	—	—	—	—	43,128,804	4	402,601	25	(129,875)	272,755

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)


	Nine Months Ended September 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	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)	—
Issuance of common stock upon closing of initial public offering, net of $16,570 in issuance cost					10,350,000	1	169,729			169,730
Stock-based compensation expense							2,159			2,159
Forfeitures of restricted stock awards					(12,570)					—
Conversion of convertible preferred stock into common stock	(189,639,279)	(217,290)	(6,437,500)	(3,882)	29,794,359	3	221,169			217,290
Exercise of stock options					392		1			1
Net loss									(42,089)	(42,089)
Balance at September 30, 2019	—	—	—	—	43,233,387	4	394,127	—	(56,812)	337,319


Balance at December 31, 2019	—	—	—	—	43,006,077	4	395,097	—	(73,029)	322,072
Exercise of stock options					133,717		512			512
Forfeitures of restricted stock awards					(10,990)					—
Stock-based compensation expense							6,992			6,992
Other comprehensive income, net of tax								25		25
Net Loss									(56,846)	(56,846)
Balance at September 30, 2020	—	—	—	—	43,128,804	4	402,601	25	(129,875)	272,755

See accompanying unaudited notes to condensed consolidated financial statements

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SpringWorks Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
(in thousands)	2020		2019
Operating Activities
Net loss	$	(56,846)	$	(42,089)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		239		127
Stock compensation expense		6,992		2,159
Equity investment loss		459		2,501
Changes in Operating Assets and Liabilities
Prepaid expenses and other current assets		1,626		693
Other assets		(281)		(1,019)
Accounts payable		(1,590)		1,383
Accrued expenses		2,319		5,114
Deferred rent		(271)		(250)
Other long-term liabilities		96		—
Net cash used in operating activities		(47,257)		(31,381)
Investing activities
Capital expenditures		(588)		(630)
Equity investments		(3,500)		(3,500)
Purchases of marketable securities		(191,963)		—
Net cash used in investing activities		(196,051)		(4,130)
Financing Activities
Proceeds from issuance of common stock, net of issuance costs		—		169,730
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		512		1
Net cash provided by financing activities		512		333,688
Net increase (decrease) in cash and cash equivalents		(242,796)		298,177
Cash and cash equivalents including Restricted cash, beginning of period		328,192		46,188
Cash and cash equivalents including Restricted cash, end of period		85,396		344,365

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., or 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, SpringWorks Therapeutics, LLC 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 $129.9 million and $73.0 million, and working capital of $266.2 million and $319.4 million, at September 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 $276.8 million as of September 30, 2020 and $327.7 million as of December 31, 2019. Based on the Company's cash, cash equivalents and marketable securities at September 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 nine months ended September 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, or U.S. GAAP, for interim financial information and Article 10 of Regulation S-X of the Securities and Exchange Commission, or 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, or 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

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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.

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 may be reflected in the Condensed Consolidated Balance Sheets 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, or EGC, as defined in the Jumpstart Our Business Startups Act, or 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 is currently assessing the impact of the adoption of this standard on the consolidated financial statements. ASU 2016-02 is effective for the Company for annual reporting periods beginning after December 15, 2020, and early adoption is permitted.

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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, or 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 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, or 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. 2016‑02, 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 fair value of the Company’s financial assets measured on a recurring basis are classified based upon a fair value hierarchy consisting of the following three levels:

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 fair value hierarchy of the Company’s financial assets and liabilities measured on a recurring basis:




	As of September 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	$	66,318	$	66,318	$	—	$	—
Short-term investments:
U.S. Government securities		104,899		104,899		—		—
Corporate debt securities		39,665		—		39,665		—
Commercial paper		47,424		—		47,424		—
Total	$	258,306	$	171,217	$	87,089	$	—

As of September 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., or 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 September 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. The Company is not the primary beneficiary, as 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 $0.1 million and $0.5 million for the three and nine months ended September 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 $4.0 million at September 30, 2020, representing the maximum exposure to loss as a result of the Company’s involvement with MapKure.

5. Accrued Expenses

Accrued expenses consists of the following:


	September 30,		December 31,
(in thousands)	2020		2019
Accrued professional fees	$	1,056	$	793
Accrued compensation and benefits		3,174		3,147
Accrued research and development		6,759		4,447
Accrued other		315		566
	$	11,304	$	8,953

6. Commitments and Contingencies

Leases

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


	Premises Operating
(in thousands)	Leases
2020		338
2021		1,372
2022		1,297
2023		135
Total Obligations	$	3,142

The Company recorded rent expense of $0.4 million and $1.1 million, for the three and nine months ended September 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 September 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 September 30, 2020, there were 4,259,084 shares available for issuance in connection with future awards under the 2019 Equity Incentive Plan.

Share-Based Awards

During the nine months ended September 30, 2020, the Company granted 1,531,888 stock option awards to its officers, employees and directors under the 2019 Equity Incentive Plan.

During the nine months ended September 30, 2020, 441,853 restricted stock awards previously issued to employees of the Company vested, and 133,717 stock options were exercised.

As of September 30, 2020, there were 1,174,421 stock options vested and exercisable. In June 2019, the Company’s CEO received an award of 176,411 stock options, or the 2019 CEO Performance Award. During the quarter ended September 30, 2020, 62,477 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 September 30, 2020 was $2.1 million and $1.0 million, respectively, and $0.6 million and $0.2 million, respectively, the three months ended September 30, 2019.

Share-based compensation expense included in general and administrative expense, and research and development expense, for the nine months ended September 30, 2020 was $4.8 million and $2.2 million, respectively, and $1.7 million and $0.5 million, respectively, the nine months ended September 30, 2019.

As of September 30, 2020, the unrecognized compensation expense related to unvested stock options and restricted stock awards was $36.2 million and $0.4 million, which is expected to be recognized over a weighted-average remaining period of approximately 3.02 years and 0.99 years, respectively.

As of September 30, 2020, the Company had 4,556,742 stock options outstanding and 836,606 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 September 30, 2020 and 2019, because to do so would be anti-dilutive:


	As of September 30,
	2020	2019
Common stock options issued and outstanding	4,556,742	3,208,099
Restricted stock subject to future vesting	836,606	1,675,680
Total potentially dilutive securities	5,393,348	4,883,779

9. Subsequent Events

On October 13, 2020, the Company completed the sale of 5,637,254 shares of common stock in an underwritten public offering, including 735,294 shares of common stock sold pursuant to the underwriter's full exercise of their option to purchase additional shares, at an offering price of $51.00 per share, resulting in net proceeds to the Company of $269.5 million.

On October 26, 2020, the Company and Jazz Pharmaceuticals Ireland Limited, or Jazz, announced an asset purchase and exclusive license agreement, pursuant to which Jazz acquired the Company’s fatty acid amide hydrolase, or FAAH, inhibitor program including PF-04457845. Jazz made an upfront payment of $35 million to the Company with potential future payments of up to $375 million based upon the achievement of certain clinical development, regulatory, and commercial milestones. In addition, the Company is eligible to receive sales based royalties on future net sales of PF-04457845.

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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, or 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, or 2019 Form 10-K, filed with the Securities and Exchange Commission, or 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 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.

In 2020, the Company has expanded its portfolio and research and development efforts by entering into several collaboration and research agreements with industry leaders including:

●

In September 2020, we entered into a clinical trial collaboration agreement with Janssen Biotech, Inc., or Janssen, to evaluate our investigational gamma secretase inhibitor, or GSI, nirogacestat, in combination with Janssen’s bispecific antibody targeting B-cell maturation antigen, or BCMA, and CD3, teclistamab, in patients with relapsed or refractory multiple myeloma;

●

In September 2020, we entered into a collaboration with the Children’s Oncology Group, or COG, to evaluate nirogacestat in a Phase 2 clinical trial for the treatment of children and adolescents with progressive, surgically unresectable desmoid tumors;

●

In September 2020, we entered into a sponsored research agreement with Fred Hutchinson Cancer Research Center, or Fred Hutch, to further explore the ability of nirogacestat to modulate BCMA and potentiate BCMA-targeting therapies, including radioimmunotherapies, in a variety of preclinical and patient-derived multiple myeloma models developed by researchers at Fred Hutch;

●

In September 2020, we entered into a clinical trial collaboration agreement with Precision Biosciences, Inc. to evaluate nirogacestat in combination with PBCAR269A, an investigational allogeneic chimeric antigen receptor, or CAR, T cell therapy candidate targeting BCMA, in patients with relapsed or refractory multiple myeloma; and

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●

In October 2020, we entered into a clinical trial collaboration agreement with Pfizer Inc., or Pfizer, to evaluate nirogacestat in combination with Pfizer’s bispecific antibody targeting BCMA and CD3, PF‐06863135, in patients with relapsed or refractory multiple myeloma.

Our most advanced product candidate, nirogacestat, is an oral, small molecule 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, or 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 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 to nirogacestat for the treatment of soft tissue sarcoma. In May 2019, we announced the initiation of the DeFi trial, a potentially registrational Phase 3 clinical trial of nirogacestat for adult patients with desmoid tumors, and in July 2020, we announced full enrollment of the DeFi trial. We expect to report top-line data from this trial in the second or third quarter of 2021. In addition to the ongoing DeFi trial, a Phase 2 clinical trial was initiated in collaboration with COG in September 2020, to evaluate nirogacestat for the treatment of pediatric patients with desmoid tumors.

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, or 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 for patients with NF1-PN. We expect to provide an update on the ReNeu trial in the fourth quarter of 2020 or 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 hematologic malignancies and genetically defined metastatic solid tumors. To advance this strategy, we are taking a precision medicine approach in collaboration with industry leaders. In hematologic malignancies, we have announced collaborations with GlaxoSmithKline, or GSK, Janssen, Pfizer, Allogene Therapeutics, Inc. and Precision BioSciences, Inc. to develop novel combination regimens of nirogacestat alongside our collaborators’ BCMA, directed therapies for the treatment of multiple myeloma. In addition to our industry collaborations with leading BCMA therapy developers, we are working with the Fred Hutchinson Cancer Research Center to further explore nirogacestat’s ability to potentiate BCMA-directed therapies as part of a sponsored research agreement. In genetically defined metastatic solid tumors, our current efforts center on the mitogen activated protein kinase, or MAPK, pathway. In collaboration with BeiGene, Ltd., or BeiGene, we are exploring the combination of mirdametinib with lifirafenib in RAS mutated and other MAPK aberrant cancers. In addition, we are exploring the use of BGB-3245 in a distinct set of genetically defined BRAF mutated tumors via MapKure, LLC, or MapKure, an entity jointly owned by us and BeiGene.

Together, we believe that our portfolio provides multiple opportunities for value creation across three distinct categories of oncology programs, each of which has the potential to provide meaningful clinical benefit to patients suffering from severe rare diseases and cancer. In our late-stage rare oncology programs, we believe that our two potentially registrational trials with nirogacestat and mirdametinib each have best-in-class potential for the patient populations in

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which they are being advanced. In our malignant hematology programs, we believe that nirogacestat has the potential to become a cornerstone of BCMA combination therapy in multiple myeloma and we are seeking to achieve this goal by working with partners developing BCMA targeted agents across modalities. In our biomarker defined metastatic solid tumor programs, we believe that our precision medicine approach to cancers harboring mutations in key MAPK pathway genes, such as RAS and BRAF, provides the opportunity for meaningful clinical benefit for biomarker defined patient populations.

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, or 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 September 30, 2020, of $276.8 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 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;

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

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, or the DeFi trial, and our ongoing potentially registrational Phase 2b clinical trial for mirdametinib, or 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 September 30, 2020 and 2019

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


	Three Months ended September 30,
(in thousands)	2020		2019		$ Change		% Change
Operating Expenses:
Research and development	$	13,923	$	10,745	$	3,178	30	%
General and administrative		7,669		4,584		3,085	67	%
Total operating expenses		21,592		15,329		6,263	41	%
Loss from operations		(21,592)		(15,329)		(6,263)	41	%
Other income		63		997		(934)	(94)	%
Equity investment loss		(130)		(2,501)		2,371	(95)	%
Net loss	$	(21,659)	$	(16,833)	$	(4,826)	29	%

Research and Development

Research and development expense increased by $3.2 million to $13.9 million for the three months ended September 30, 2020 from $10.7 million for the three months ended September 30, 2019, an increase of 29.6%.

The increase in research and development expense was attributable to a $1.9 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. In addition, research and development expense included a $1.3 million increase in external costs related to drug manufacturing and trial costs.

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 $7.7 million for the three months ended September 30, 2020, an increase of $3.1 million from $4.6 million for the three months ended September 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. In addition, general and administrative expense included an increase of $0.8 million in consulting and professional services, including legal, regulatory and compliance.

Other Income

The decrease in other income is driven by a decrease in interest income, net, during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. This decrease was attributable to a significant decline in interest rates which drove a lower return on cash, cash equivalents and marketable securities during the three months ended September 30, 2020.

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Equity Investment Loss

The $0.1 million and $2.5 million Equity investment loss during the three months ended September 30, 2020 and September 30, 2019, respectively, was attributable to the Company’s share of the losses from the MapKure investment, which is accounted for using the equity method of accounting.

Comparison of the nine months ended September 30, 2020 and 2019

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


	Nine Months Ended September 30,
(in thousands)	2020		2019		$ Change		% Change
Operating Expenses:
Research and development	$	36,597	$	30,373	$	6,224	20	%
General and administrative		20,946		11,495		9,451	82	%
Total operating expenses		57,543		41,868		15,675	37	%
Loss from operations		(57,543)		(41,868)		(15,675)	37	%
Other income		1,156		2,280		(1,124)	(49)	%
Equity investment loss		(459)		(2,501)		2,042	(82)	%
Net loss	$	(56,846)	$	(42,089)	$	(14,757)	35	%

Research and Development

Research and development expense increased by $6.2 million to $36.6 million for the nine months ended September 30, 2020 from $30.4 million for the nine months ended September 30, 2019, an increase of 20.5%.

The increase in research and development expense was primarily attributable to a $5.0 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. In addition, research and development expense included a $1.2 million increase in external costs related to drug manufacturing and trial costs.

General and Administrative

General and administrative expense was $20.9 million for the nine months ended September 30, 2020, as compared to $11.5 million for the nine months ended September 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. In addition, general and administrative expense included an increase of $4.1 million in consulting and professional services, including legal, regulatory and compliance.

Other Income

The decrease in other income was driven by a decrease in interest income, net, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. This decrease was attributable to a significant decline in interest rates which drove a lower return on cash, cash equivalents and marketable securities during the nine months ended September 30, 2020.

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Equity Investment Loss

The $0.5 million and $2.5 million Equity investment loss for the nine months ended September 30, 2020 and September 30, 2019, respectively, was attributable to the Company’s share of the losses from the MapKure investment, which is accounted for using the equity method of accounting.

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 $56.8 million and $42.1 million for the nine months ended September 30, 2020 and 2019, respectively. We had an accumulated deficit of $129.9 million and $73.0 million at September 30, 2020 and December 31, 2019, respectively. Based on our cash, cash equivalents and marketable securities balances at September 30, 2020, management estimates that our liquidity position will enable it to meet operating expenses through at least twelve months after the date that this Quarterly Report is filed. 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.

On October 13, 2020, we completed the sale of 5,637,254 shares of common stock in an underwritten public offering, including 735,294 shares of common stock sold pursuant to the underwriter's full exercise of their option to purchase additional shares, at an offering price of $51.00 per share, resulting in net proceeds to the Company of $269.5 million.

Cash Flows

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



	Nine Months Ended September 30,
(in thousands)	2020		2019
Net cash used in operating activities		(47,257)		(31,381)
Net cash used in investing activities		(196,051)		(4,130)
Net cash provided by financing activities		512		333,688
Net increase in cash and cash equivalents		(242,796)		298,177
Cash and cash equivalents, beginning of period		328,192		46,188
Cash and cash equivalents, end of period	$	85,396	$	344,365

Net Cash Used in Operating Activities

Net cash used in operating activities was $47.3 million for the nine months ended September 30, 2020, which was driven by a net loss of $56.8 million offset by stock compensation of $7.0 million, a net increase from changes in operating assets and liabilities of $1.9 million and equity investment loss of $0.5 million. Net cash used in operating activities was $31.4 million for the nine months ended September 30, 2019, driven by a net loss of $42.1 million, offset by a net increase from changes in operating assets and liabilities of $5.9 million, equity investment loss of $2.5 million and stock compensation of $2.2 million.

Net Cash Used in Investing Activities

Net cash used in investing activities was $196.1 million and $4.1 million for the nine months ended September 30, 2020 and September 30, 2019, respectively. Net cash used in investing activities for the nine months ended September 30, 2020 related to the purchase of short-term available-for-sale debt securities of $192.0 million, our June 2020 investment in MapKure of $3.5 million and capital expenditures of $0.6 million. Net cash used in investing

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activities for the nine months ended September 30, 2019 was driven by our June 2019 investment in MapKure of $3.5 million, and capital expenditures of $0.6 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2020 consisted of proceeds from stock option exercises. Net cash provided by financing activities for the nine months ended September 30, 2019 consisted of proceeds from our IPO, as well as the issuance of Series A and B convertible preferred shares. All Series A and B convertible preferred shares automatically converted into shares of common stock at the closing of the IPO. Following the IPO, there were no shares of preferred stock outstanding.

Funding Requirements

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

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

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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

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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 nine months ended September 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.

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

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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 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, or 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 $276.8 million and $327.7 million as of September 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 September 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, or 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

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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 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, or the SEC, on March 12, 2020.

We have included a summary of the principal risks that we believe are specific to SpringWorks, followed by more detailed descriptions of all risk factors, both those that are company-specific, as well as those that are more generally associated with both our industry and ownership of securities in general. The summary does not include all material risks associated with our business and is not a conclusive ranking or prioritization of our risk factors. Further, placement of certain of these risks in the summary section as opposed to others does not constitute guidance that the risk factors included in the summary are the only material risks to consider when considering an investment in our securities. We believe that all risk factors presented in this Quarterly Report on Form 10-Q are important to an understanding of our company and should be given careful consideration. In addition, the summary of company specific risks does not include the appropriate level of detail necessary to fully understand these risks, and the corresponding risk factors that follow provide essential detail and context necessary to fully understand and appreciate these principal risks associated with our business.

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Summary of company specific risk factors

Risks related to our research and development

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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 of, obtain regulatory approval for or commercialize our product candidates, or if we experience delays in doing so, our business will be materially harmed.*

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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.

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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.

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

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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.*

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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.*

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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.

Risks related to our reliance on third parties

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We rely on third parties to conduct certain aspects of our preclinical studies and 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 for, or commercialize, any potential product candidates.*

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Because we rely on third-party manufacturing and supply partners, our supply of preclinical and clinical development materials may become limited or interrupted or may not be of satisfactory quantity or quality.*

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We have not yet manufactured on a commercial scale and expect to rely on third parties to produce and process commercial quantities of our product candidates, if approved.

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We are dependent on a small number of suppliers for some of the materials used to manufacture our product candidates, and on one company for the manufacture of the active pharmaceutical ingredient for each of our product candidates.

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Our existing and future collaborations will be important to our business. If we are unable to maintain our existing collaborations or enter into new collaborations, or if these collaborations are not successful, our business could be adversely affected. In addition, our collaborators have broad discretion in many aspects of their performance of collaboration activities and they may take actions with which we do not agree.*

Risks related to our intellectual property

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We depend on intellectual property licensed from third parties, including from Pfizer for our lead product candidates, and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

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If we fail to comply with our obligations under our patent licenses with third parties, we could lose license rights that are important to our business.

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Risks related to government regulation

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We have been granted Orphan Drug Designation for nirogacestat and mirdametinib and may seek Orphan Drug Designation for other product candidates, and we may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity.*

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A portion of our manufacturing of our lead product candidates takes place in China through third-party manufacturers. A significant disruption in the operation of those manufacturers, a trade war or political unrest in China could materially adversely affect our business, financial condition and results of operations.

Risks related to managing our business and operations

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We will need to grow the size of our organization, and we may experience difficulties in managing this growth.

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We have no history of commercializing marketed products. Building our commercialization capabilities will require a significant investment of time and money. There can be no assurance that we will successfully set up our commercialization capabilities.

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We do not have the internal research capabilities required to independently discover new product candidates, and we plan to execute our growth strategy by identifying and in-licensing or acquiring additional product candidates that have been discovered and initially developed by others. We may not be successful in executing our growth strategy or such growth strategy may not deliver the anticipated results.

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Our current operations are concentrated in two locations, and we or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.*

Risks related to our financial position and need for additional capital

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

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

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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.*

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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.

Risks related to our common stock

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We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

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Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

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We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

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Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

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Our bylaws designate certain specified courts as the sole and exclusive forums for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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Company specific risk factors

Risks related to our research and development

To date, we have not yet completed any registrational clinical trials or the 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.

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:

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our inability to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective;

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insufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;

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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;

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product-related adverse events experienced by subjects in our clinical trials or by individuals using drugs or therapeutic biologics similar to our product candidates;

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delays in submitting an Investigational New Drug application, or 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;

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conditions imposed by the FDA, EMA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials;

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poor effectiveness of our product candidates during clinical trials;

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better than expected performance of control arms, such as placebo groups, which could lead to negative or inconclusive results from our clinical trials;

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delays in enrolling subjects in clinical trials;

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high drop-out rates of subjects from clinical trials;

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inadequate supply or quality of product candidates or other materials necessary for the conduct of our clinical trials;

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greater than anticipated clinical trial or manufacturing costs;

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unfavorable FDA, EMA or comparable regulatory authority inspection and review of a clinical trial site;

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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;

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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

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varying interpretations of data by the FDA, EMA and comparable foreign regulatory authorities.

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.

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, or 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.

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

We will need to successfully complete registrational 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 registrational 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.

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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 five BCMA-directed therapies across modalities through our collaborations with industry leaders developing such therapies.

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.

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:

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the patient eligibility and exclusion criteria defined in the protocol;

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the size of the patient population required for analysis of the clinical trial’s primary endpoints;

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delays in our research programs or clinical supply chain resulting from factors related to the COVID-19 pandemic;

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the proximity of patients to clinical trial sites;

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the design of the clinical trial;

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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;

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perception of the safety profile of our product candidates;

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our ability to obtain and maintain patient consents; and

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the risk that patients enrolled in clinical trials will drop out of the trials before completion.

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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 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.

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.

Risks related to our reliance on third parties

We depend upon third parties to conduct certain aspects of our preclinical studies and depend on third parties, including independent investigators, to conduct our clinical trials, under agreements with universities, medical institutions, CROs, strategic partners and others. We expect to negotiate budgets and contracts with such third parties, which may result in delays to our development timelines and increased costs.

We commenced operations in August 2017 and we continue to build our infrastructure and hire personnel necessary to execute our operational plans. We will rely especially heavily on third parties over the course of our clinical trials, and, as a result, may have limited control over the clinical investigators and limited visibility into their day-to-day activities, including with respect to their compliance with the approved clinical protocol. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with good clinical practice, or GCP, requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of clinical trial sponsors, clinical investigators and clinical trial sites. If we or any of these third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the

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FDA or comparable foreign regulatory authorities may require us to suspend or terminate these trials or perform additional preclinical studies or clinical trials before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under current good manufacturing practice, or cGMP, requirements and may require a large number of patients.

Our failure or any failure by these third parties to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be adversely affected if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

Any third parties conducting aspects of our preclinical studies or our clinical trials will not be our employees and, except for remedies that may be available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our preclinical studies and clinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the preclinical or clinical data they obtain is compromised due to the failure to adhere to our protocols or regulatory requirements or for other reasons, our development timelines, including clinical development timelines, may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed or precluded entirely.

If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into arrangements with alternative CROs or other third parties or to do so on commercially reasonable terms.

Switching or adding additional CROs involves additional cost and requires management’s time and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our ability to meet our desired development timelines. The COVID-19 global pandemic and government measures taken in response have also had a significant impact on our CROs, and we expect that they will face further disruption which may affect our ability to initiate and complete our pre-clinical studies and clinical trials. Though we carefully manage our relationships with our CROs, investigators and other third parties, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

We rely on third-party contract manufacturers to manufacture all of our preclinical and clinical trial product supplies. We do not own manufacturing facilities for producing any product supplies. There can be no assurance that our preclinical and clinical development product supplies will not be limited, interrupted, of satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of our manufacturers could require significant effort and expertise because there may be a limited number of qualified replacements.

The manufacturing process for a product candidate is subject to FDA, EMA and comparable foreign regulatory authority review. Suppliers and manufacturers must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards, such as cGMPs. In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty transferring such skills

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or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.

Our or a third party’s failure to execute on our manufacturing requirements and comply with cGMP could adversely affect our business in a number of ways, including:

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an inability to initiate or continue clinical trials of product candidates under development;

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delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates;

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loss of the cooperation of an existing or future collaborator;

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subjecting third-party manufacturing facilities to additional inspections by regulatory authorities;

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requirements to cease distribution or to recall batches of our product candidates; and

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in the event of approval to market and commercialize a product candidate, an inability to meet commercial demands for our products.

In addition, we contract with packaging providers with the appropriate expertise, facilities and scale to meet our needs. Failure to maintain cGMP can result in a contractor receiving FDA sanctions, which can impact our ability to operate or lead to delays in any clinical development programs. We believe that our current packaging contractors operate in accordance with cGMP, but we can give no assurance that FDA, EMA or comparable foreign regulatory authorities will not conclude that a lack of compliance exists. In addition, any delay in contracting for packaging services, or failure of the contract manufacturer to perform the services as needed, may delay any clinical trials, registration and launches, which could negatively affect our business. The extent to which the COVID-19 pandemic impacts our ability to procure our preclinical and clinical trial product supplies will depend on the severity and duration of the spread of the virus, and the actions undertaken to contain COVID-19 or treat its effects and may cause delays. If our current third-party contract manufacturers cannot perform as agreed, we may be required to replace such manufacturers and we may be unable to replace them on a timely basis or at all. Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Our product candidates and any drugs that we may develop may compete with other product candidates and drugs for access to manufacturing facilities. There are no assurances we would be able to enter into similar commercial arrangements with other manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.

We have not yet manufactured on a commercial scale and expect to rely on third parties to produce and process commercial quantities of our product candidates, if approved.

We expect to continue to rely on third-party manufacturers if we receive regulatory approval for our product candidates. We have not yet entered into any arrangement with a third party for the manufacture and supply of commercial quantities of our product candidates. To the extent that we enter into future manufacturing arrangements with third parties for commercial supply of our product candidates, if approved, we will depend on these third parties to perform their obligations in a timely manner consistent with contractual and regulatory requirements, including those related to quality control and assurance.

The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA, EMA or comparable foreign regulatory authorities following inspections that will be conducted after we submit an

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application to the FDA, EMA or comparable foreign regulatory authorities. We do not directly control the manufacturing process of, and will be completely dependent on, our contract manufacturing partners for compliance with cGMP requirements for the manufacture of our product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, EMA or comparable foreign regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, EMA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

We currently depend on a small number of suppliers for some of the materials used in, and processes required to develop, our product candidates. We cannot ensure that these suppliers or service providers will remain in business or have sufficient capacity or supply to meet our needs, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to work with us. Our use of a small number of suppliers exposes us to several risks, including disruptions in supply, price increases or late deliveries. There are, in general, relatively few alternative sources of supply for substitute materials. Our current vendors may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Finding suitable replacement suppliers, materials and processes could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any disruption or delay in supply could compromise our ability to pursue development and eventual commercialization of our product candidates.

An important part of our strategy is to evaluate and, as deemed appropriate, extend our current or enter into additional partnerships in the future, including potentially with major biopharmaceutical companies. We have limited capabilities for product development and do not yet have any capability for commercialization. Accordingly, we have entered into collaborations with other companies to provide us with important technologies in order to more fully develop our product candidates and we may enter into collaborations with other companies to provide us with important technologies or funding for our programs.

Any current or future collaborations we may extend or enter into may pose a number of risks, including the following:

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collaborators have significant discretion in determining the efforts and resources that they will apply;

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collaborators may not perform their obligations as expected;

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collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs or license arrangements based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as a strategic transaction that may divert resources or create competing priorities;

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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products and product candidates if the collaborators believe that the competitive products are

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more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

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for collaborations involving combination therapies that have not yet been tested together, treatment emergent adverse events may be unforeseen and may negatively impact the monotherapy development of our product candidates;

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product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

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