The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. Some of the information contained in this discussion and analysis and set forth elsewhere in this report, including information with respect to our plans and strategy for our business, the possible achievement of development goals and milestones, our future development efforts, our collaborations, and our future operating results and financial position, includes forward-looking statements that involve risks and uncertainties. We often use words such as "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "seek," "target," "goal," "potential," "will," "would," "could," "should," "continue," and other words and terms of similar meaning to help identify forward-looking statements, although not all forward-looking statements contain these identifying words. You can also identify these forward-looking statements by the fact that they do not relate strictly to historical or current facts. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by forward-looking statements made herein. These risks and uncertainties include those inherent in pharmaceutical research and development, such as adverse results in our drug discovery and clinical development activities, decisions made by theU.S. Food and Drug Administration , or FDA, and other regulatory authorities with respect to the development and commercialization of our product candidates, our ability to obtain, maintain and enforce intellectual property rights for our product candidates, our dependence on our alliance partners, competition, our ability to obtain any necessary financing to conduct our planned activities, our ability to implement our strategic plans, our ability to achieve cost-savings benefits from our restructuring and other risk factors described herein. These risks also include the direct and indirect impact of COVID-19 on our business and operations, including expenses, supply chain, manufacturing, research and development costs, clinical trials, the period in which we expect to have cash to fund our clinical trials, and employees. We have included, and you should review, important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the section titled "Risk Factors" in Part II, Item 1A that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this report. Unless required by law, we do not undertake any obligation to update any forward-looking statements. Business Overview We are an innovative biopharmaceutical company dedicated to developing novel medicines for people with cancer. We combine proven scientific expertise with a passion for developing novel small molecule drugs that target disease pathways for potential applications in oncology. We are focusing our efforts on advancing IPI-549, an orally administered, clinical-stage, immuno-oncology product candidate that selectively inhibits the enzyme phosphoinositide-3-kinase-gamma, or PI3K-gamma. We believe IPI-549 is the only selective inhibitor of PI3K-gamma being investigated in clinical trials. InDecember 2019 , a novel strain of coronavirus surfaced inChina causing the respiratory disease COVID-19. This disease has spread worldwide and was deemed a "pandemic" by theWorld Health Organization onMarch 11, 2020 . The governor ofMassachusetts , where our offices are located, issued a "stay-at-home order" effectiveMarch 24, 2020 , requiring all "non-essential" businesses to close their physical workplaces and facilities and encouraging individuals to stay in their homes as much as possible in the coming weeks. Similar restrictions have been recommended by governments throughout the world. We discuss the impact of the pandemic on our operations in the section entitled "Business Update Regarding COVID-19," below. Clinical Development Program We are conducting the following clinical trials investigating IPI-549 in solid tumors: MARIO-275 (MAcrophage Reprogramming in Immuno-Oncology) MARIO-275 is our global, randomized, controlled Phase 2 study designed to evaluate the effect of adding IPI-549 to nivolumab, also known as Opdivo®, in approximately 160 checkpoint-naïve advanced urothelial cancer, or UC, patients whose cancer has progressed or recurred following treatment with platinum-based chemotherapy. Nivolumab is an immune checkpoint inhibitor therapy commercialized by Bristol-Myers Squibb Company, or BMS, that targets programmed death receptor 1, or PD-1, a checkpoint protein that helps regulate the body's immune system. Based on a retrospective analysis of exploratory biomarker data from BMS's approval study, CheckMate-275, UC patients with high baseline levels of myeloid-derived suppressor cells, or MDSCs, had a shorter overall survival when treated with nivolumab as a single agent. Data from our ongoing Phase 1/1b study MARIO-1, described below, have demonstrated that treatment with the combination of IPI-549 and nivolumab is associated with a reduction in blood MDSC levels. We believe that adding IPI-549 to nivolumab can potentially improve outcomes for patients with advanced urothelial cancer. We entered into a clinical supply agreement inNovember 2018 with BMS under which BMS has agreed to supply nivolumab for our use in MARIO-275. OnMarch 25, 2020 , we announced 15
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that we received Fast Track Designation from theU.S. Food and Drug Administration for IPI-549 in combination with nivolumab for the treatment of advanced urothelial cancer. OnMay 11, 2020 , we announced that the MARIO-275 Independent Data Monitoring Committee, or IDMC, held its first scheduled meeting to review safety data on the initial 42 patients treated in the study. Liver enzyme elevations of Grade 3 or higher were seen in seven of 42 patients: five with Grade 3 and two with Grade 4, one of which is newly observed and has not yet been reviewed by the IDMC. Liver enzyme elevations from the six patients reviewed by the IDMC were reversible and have resolved without sequela. Of 17 patients evaluable for efficacy, objective responses have been observed in patients with Grade 3 and above liver enzyme elevations as well as in patients without these elevations. We are continuing to review this data with the IDMC and plan to continue the treatment of patients now on study with modifications, including additional patient monitoring and a dose reduction. In parallel, we are voluntarily pausing enrollment in MARIO-275 and amending the protocol in order to ensure patient safety while evaluating the potential benefit of IPI-549 plus nivolumab. MARIO-3 16
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We are currently enrolling patients in MARIO-3, a multi-arm Phase 2 study designed to evaluate IPI-549 in the front-line setting for triple negative breast cancer, or TNBC, and front-line renal cell carcinoma, or RCC. One cohort of the study is evaluating IPI-549 in combination with atezolizumab, also known as Tecentriq®, and nab-paclitaxel, also known as Abraxane®, in 60 patients with front-line TNBC. The second cohort is evaluating IPI-549 in combination with atezolizumab and bevacizumab, also known as Avastin®, in 30 patients with front-line RCC. MARIO-3 is intended to evaluate whether IPI-549 can improve upon the response rates of these approved combination therapies in patients with unmet needs. We entered into a clinical supply agreement withF. Hoffmann-La Roche Ltd. , or Roche, inMarch 2019 under which Roche has agreed to supply atezolizumab for our use in MARIO-3. The TNBC cohort of MARIO-3 is experiencing initial enrollment and site initiation delays, independent of a COVID-19 impact, which we are evaluating while working closely with our CRO and investigators. MARIO-1 Enrollment is complete in MARIO-1, our Phase 1/1b clinical study designed to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics, and activity for IPI-549 - both as a monotherapy and in combination with nivolumab - in 219 patients with advanced solid tumors. The combination therapy expansion cohorts, described in the table below, are designed to evaluate patients dosed at 40 mg once daily, or QD, of IPI-549 in combination with the standard regimen of nivolumab. MARIO-1 Cohorts Inclusion/Exclusion Criteria Patients showed initial resistance, or Non-small cell lung cancer (NSCLC) initially responded to but subsequently Melanoma developed resistance, to immune checkpoint Head and neck cancer blockade therapy Patients naive to treatment with PD-1/PD-L1 TNBC therapy Mesothelioma Patients previously received at least
Adrenocortical carcinoma (ACC) first-line treatment High baseline blood levels of MDSCs Varied based on indication
Additional data from MARIO-1 are expected in 2020 to the extent that they inform potential future IPI-549 development paths. We reported data from the combination expansion cohorts of the MARIO-1 study in a late-breaking poster presentation at the 33rd Annual Meeting of theSociety for Immunotherapy of Cancer onNovember 10, 2018 . Among the 44 patients evaluable for activity as of theOctober 14, 2018 data-cutoff date, 15 patients showed a best response of stable disease or better, including one partial response in an advanced melanoma patient who had progressed on immediate prior nivolumab therapy. Among the 82 patients evaluable for safety, the majority of side effects reported were Grade 1 or Grade 2, with three (4%) patients discontinuing the study due to treatment-related toxicities. The most common Grade 3+ adverse events were rash (n=6, 7%) and increased liver enzymes AST (n=7, 9%) and ALT (n=5, 6%). There were no treatment-related deaths. Safety data from the dose-escalation portion of MARIO-1, presented at the 2018 annual meeting of theAmerican Society of Clinical Oncology , or ASCO 2018, demonstrated that IPI-549 combined with nivolumab was well tolerated at all doses tested, up to the recommended combination therapy expansion dose of IPI-549 at 40 mg QD plus the standard regimen of nivolumab. No maximum tolerated dose was determined, and there were no treatment-related deaths. The pharmacokinetic/pharmacodynamic profile of IPI-549 up to the recommended combination expansion dose of 40 mg QD was unaffected by nivolumab co-administration, and IPI-549 in combination with nivolumab reduced immune suppression and increased immune activation, as indicated by analyses of peripheral blood. At ASCO 2018, we also presented updated clinical and translational data from the fully enrolled monotherapy expansion portion of MARIO-1 that demonstrated that IPI-549 as a monotherapy continued to be well tolerated at all doses studied up to the recommended dose for monotherapy expansion of 60 mg QD, and that IPI-549 as a monotherapy reduced immune suppression and increased immune activation, as indicated by analyses of peripheral blood and paired tumor biopsies. Arcus Collaboration Trial 17
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Arcus Biosciences, Inc., or Arcus, is currently enrolling patients in its Phase 1/1b collaboration study designed to evaluate a novel triple-combination regimen of IPI-549 in combination with AB928, Arcus's dual adenosine receptor antagonist, and liposomal doxorubicin chemotherapy, also known as Doxil®, in up to 40 patients with previously treated, advanced TNBC. AB928 is an orally bioavailable, highly potent antagonist of the adenosine 2a and 2b receptors. The activation of these receptors by adenosine interferes with the activity of key populations of immune cells and inhibits the body's optimal anti-tumor immune response. By blocking these receptors, AB928 has the potential to reverse adenosine-induced immune suppression within the tumor microenvironment. As both macrophages and high adenosine levels are believed to play critical roles in creating a highly immunosuppressive tumor microenvironment in cancer after treatment with chemotherapy, the novel immuno-oncology combination being evaluated in this setting represents a potentially promising approach to treating TNBC. Business Update Regarding COVID-19 The following guidance regarding the impact of the COVID-19 pandemic on our business operations is highly uncertain and subject to change. We cannot know with certainty what the ultimate impact of the pandemic will be. Clinical Development Operations We are continuing to evaluate early enrollment trends in our studies as well as the impact of COVID-19 on our clinical programs. Patients enrolled on MARIO-275, MARIO-3 and MARIO-1 have continued treatment and study visits with limited disruption to date, and we are working closely with trial sites to support the continued treatment of patients in compliance with study protocols. The pandemic is impacting new patient enrollment and site initiation across our clinical programs. New patient screening and enrollment and new site initiation are being assessed on a case-by-case basis and are ongoing in MARIO-3. There are no anticipated disruptions to drug supply. Business Operations As a result of the delays in enrollment in our MARIO-3 and MARIO-275 clinical trials, we anticipate that our existing financial resources will not be sufficient to fully fund us through key data readouts on all of our IPI-549 trials and that we will need to seek additional capital resources in order to fund our operations through key data readouts. The safety and well-being of our employees remains a top priority, and we are working to mitigate risk while minimizing disruptions through our work-from-home policy. We are well suited to operate remotely as a clinically focused company. 18
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Alliances, Collaborations, and Other Arrangements We have primarily incurred operating losses since inception and will continue to fund our operations through collaboration and license arrangements or other strategic arrangements, as well as through the sale of securities or incurring debt, until such time as we are able to generate significant revenue from product sales. Such arrangements have provided access to breakthrough science, significant research and development support and funding, supply of clinical trial materials, and innovative drug development programs, all intended to help us realize the full potential of our product pipeline. InJuly 2010 , we entered into a development and license agreement withIntellikine, Inc. , or Intellikine, under which we obtained rights to discover, develop and commercialize pharmaceutical products targeting the gamma and/or delta isoforms of PI3K, including IPI-549 and duvelisib, an oral, dual inhibitor of PI3K delta and gamma we outlicensed to Verastem Inc., or Verastem. InJanuary 2012 , Intellikine was acquired by Takeda Pharmaceutical Company Limited, orTakeda . InDecember 2012 , we amended and restated our development and license agreement withTakeda and further amended the agreement inJuly 2014 ,September 2016 ,July 2017 , andMarch 2019 . We refer to the amended and restated development and license agreement, as amended, as the Takeda Agreement. We are obligated to payTakeda up to$3.0 million in remaining success-based development milestone payments and up to$165.0 million in remaining regulatory and commercialization success-based milestone payments, for one product candidate other than duvelisib, which could be IPI-549. PellePharm and BVF Financing InJune 2013 , we entered into a license agreement withPellePharm, Inc. , or PellePharm, under which we granted PellePharm exclusive global development and commercialization rights to our hedgehog inhibitor program, including IPI-926, or patidegib, a clinical-stage product candidate. We refer to our license agreement with PellePharm as the PellePharm Agreement and products covered by the PellePharm Agreement as Hedgehog Products. InNovember 2018 , PellePharm announced that it had entered into a development and commercialization collaboration with LEO Pharma under whichLEO Pharma A/S , or LEO Pharma, provided research and development funding and received an option to acquire all shares in PellePharm. InJanuary 2020 , we entered into a funding agreement, or the BVF Funding Agreement, withBVF Partners, L.P. , which we refer to as BVF, andRoyalty Security, LLC , a wholly owned subsidiary of BVF, which we refer to as the Buyer. Under the BVF Funding Agreement, we received a one-time payment of$20.0 million , less certain transaction expenses, and in exchange we assigned the PellePharm Agreement to the Buyer together with our interest in certain royalty payments due to us under the PellePharm Agreement (as described in more detail below). We have agreed to perform certain servicing, management and administrative functions on behalf of Buyer with respect to the PellePharm Agreement. We have retained our rights under the PellePharm Agreement to receive up to$9.0 million in remaining regulatory and commercial-based milestone payments through the first commercial sale of a Hedgehog Product. We earned a$2.0 million milestone payment for PellePharm's initiation of a Phase 3 study of a Hedgehog Product that fully enrolled in 2019. PellePharm is also obligated to pay us up to$37.5 million in success-based milestone payments upon the achievement of certain annual net sales thresholds, as well as a share of certain revenue received by PellePharm in the event that PellePharm sublicenses its rights under the PellePharm Agreement. Additionally, under the BVF Funding Agreement, we are eligible to receive a$5.0 million milestone payment from the Buyer based on the outcome of PellePharm's ongoing Phase 3 clinical trial of patidegib topical gel in Gorlin's syndrome. PellePharm is obligated to pay the Buyer tiered royalties on annual net sales of patidegib, or the BVF Licensed Product, excluding a portion of the royalties that remain payable to us to satisfy our obligation to third parties. PellePharm's royalty obligations are subject to reduction after a certain aggregate funding threshold has been achieved and expire on a country-by-country and Hedgehog Product-by-Hedgehog Product basis. The PellePharm Agreement expires upon the expiration of the last royalty obligation owed by PellePharm, at which time the license to Hedgehog Products and licenses to our know-how as described in the PellePharm Agreement become fully-paid-up and non-royalty-bearing licenses. PellePharm has the right to terminate the PellePharm Agreement upon at least 180 days' prior written notice to us at any time, and the Buyer has the right to terminate the PellePharm Agreement if PellePharm puts forth or actively assists a patent challenge related to our Hedgehog Product patent rights. Either party may terminate the PellePharm Agreement if the other party materially breaches or defaults in the performance of its obligations. Upon termination by either party, all rights and licenses granted by us to PellePharm under the PellePharm Agreement terminate and PellePharm shall, to the extent applicable, transfer and assign to Buyer all rights, title, and interest in and to the trademark(s) used for Hedgehog Products in the territory covered under the PellePharm Agreement. 19
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For a further description of our strategic alliances, collaborations, and other arrangements with BVF, PellePharm,Takeda , Verastem, and others, see Note 9, Note 10, and Note 12 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and our prior disclosure included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 filed with theU.S. Securities and Exchange Commission , orSEC , onMarch 3, 2020 , which we refer to as our 2019 Annual Report on Form 10-K. To date, substantially all of our resources have been devoted to clinical development, conducting preclinical and translational research, organizing and staffing our company, and otherwise raising capital and business planning. We expect to continue to spend significant resources to fund the development and potential commercialization of IPI-549 and will continue to incur significant operating losses for the foreseeable future. If we are unable to raise capital or enter into a collaboration or license arrangement on terms that ensure adequate funding on terms favorable to us, we may have to delay, reduce or discontinue the development or commercialization of IPI-549. Due to the risks and uncertainties inherent in pharmaceutical product development and commercialization, as described in this Quarterly Report on Form 10-Q, including the section entitled "Risk Factors" in Part II, Item 1A, we are unable to predict future expenses and future profitability. We may fail to obtain marketing approval for IPI-549 or to successfully commercialize IPI-549. If we are unable to create sustained profitability, we may be forced to reduce, delay, or terminate our operations. Financial Overview Revenue To date, all of our revenue has been generated under strategic agreements, including payments to us of upfront license fees, funding or reimbursement of research and development efforts, milestone payments upon achievement of specified objectives, and royalties on product sales. At the inception of each agreement, we follow a five-step model: 1) identify the customer contract; 2) identify the contract's performance obligations; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when or as a performance obligation is satisfied. We evaluate all promised goods and services within a customer contract and determine which of those are separate performance obligations. This evaluation includes an assessment of whether the good or service is capable of being distinct and whether the good or service is separable from other promises in the contract. When a performance obligation is satisfied, we recognize as revenue the amount of the transaction price, excluding estimates of variable consideration that are constrained, that is allocated to that performance obligation. For contracts that contain variable consideration, such as milestone payments, we estimate the amount of variable consideration by using either the expected value method or the most likely amount method. In making this assessment, we evaluate factors such as the clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone. Each reporting period we re-evaluate the probability of achievement of such milestones and any related constraints. We will include variable consideration, without constraint, in the transaction price to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We recognize sales-based milestones and royalty revenue based upon net sales by the licensee of licensed products in licensed territories, and in the period the sales occur under the sales- and usage-based royalty exception when the sole or predominate item to which the royalty relates is a license to intellectual property. In the event of an early termination of a collaboration agreement, any contract liabilities would be recognized in the period in which all our obligations under the agreement have been fulfilled. Research and Development Expense We are a drug development company. Our research and development expense has historically consisted primarily of the following: •compensation of personnel associated with research and development activities; •clinical testing costs, including payments made to contract research organizations; •costs of combination and comparator drugs used in clinical studies; •costs of manufacturing product candidates for preclinical testing and clinical studies; •costs associated with the licensing of research and development programs; •preclinical testing costs, including costs of toxicology studies; •fees paid to external consultants; •fees paid to professional service providers for independent monitoring and analysis of our clinical trials; • costs for collaboration partners to perform research activities,
including development milestones for which a payment is due when
achieved;
•depreciation of equipment; and •allocated costs of facilities. General and Administrative Expense General and administrative expense primarily consists of compensation of personnel in executive, finance, accounting, legal and intellectual property, information technology infrastructure, corporate communications, corporate development and human resources functions. Other costs include facilities costs not otherwise included in research and development expense and professional fees for legal and accounting services. Royalty Expense Royalty expense represents expense associated with amounts owed to third parties as a result of royalty revenue recognized and the amounts owed by us toTakeda in relation to the sale of future royalties. Other Income and Expense Other income and expense typically consist of interest earned on cash, cash equivalents and available-for-sale securities, and non-cash interest expense. Critical Accounting Policies and Significant Judgments and Estimates The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to cumulative revenue related to variable consideration, accrued expenses, estimates of future net royalty payments used in the calculation of our liability related to the sale of future royalties, and assumptions in the valuation of stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. There have been no material changes to our critical accounting policies during the three months endedMarch 31, 2020 . Please refer to Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2019 Annual Report on Form 10-K for a discussion of our critical accounting policies and significant judgments and estimates. Results of Operations The following table summarizes our results of operations for each of the three months endedMarch 31, 2020 and 2019, together with the change in these items in dollars and as a percentage: Three Months EndedMarch 31, 2020 2019
$ Change % Change
(in thousands) Collaboration revenue $ - $ 2,000$ (2,000 ) (100 )% Royalty revenue 428 142 286 201 % Research and development expense 7,346 5,766 1,580 27 % General and administrative expense 3,324 3,398 (74 ) (2 )% Royalty expense 258 6,761 (6,503 ) (96 )% Investment and other income 186 289 (103 ) (36 )% Interest expense (38 ) (304 ) 266 (88 )% Related party interest expense (534 ) - (534 ) - % Income taxes benefit - 54 (54 ) (100 )% Revenue Collaboration revenue for the three months endedMarch 31, 2019 consisted of$2.0 million of revenue related to the milestone from PellePharm for the initiation of a Phase 3 study investigating patidegib in patients with Gorlin Syndrome. 20
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Royalty revenue consisted of approximately$0.4 million and$0.1 million for the three months endedMarch 31, 2020 and 2019, respectively, related to royalties from Verastem on net sales of duvelisib. A portion of royalties received from Verastem is owed toMundipharma International Corporation Limited , or Mundipharma, andPurdue Pharmaceutical Products L.P. , or Purdue. We refer to such portion as the Trailing Mundipharma Royalties (see Note 12 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).We and HealthCare Royalty Partners III, L.P. , or HCR, entered into a purchase and sale agreement inMarch 2019 , or the HCR Agreement. Pursuant to the HCR Agreement, HCR acquired our interest in royalties received from Verastem on net sales of duvelisib, less the Trailing Mundipharma Royalties (see Note 9 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Research and Development Expense Research and development expense increased for the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 primarily due to an increase in clinical and development expenses for IPI-549 of$1.7 million . We began to track and accumulate expenses by major program starting onJanuary 1, 2006 . These expenses primarily relate to payroll and related expenses for personnel working on our programs, process development and manufacturing, preclinical toxicology studies, clinical trial costs and allocated costs of facilities. During the three months endedMarch 31, 2020 and 2019, we estimate that we incurred$7.3 million and$5.8 million , respectively, on IPI-549. FromJanuary 1, 2006 throughMarch 31, 2020 , we estimate that we incurred$664.0 million on our PI3K inhibitor program, including IPI-549 and duvelisib. We do not believe that the historical costs associated with our drug development programs are indicative of the future costs associated with these programs. Due to the variability in the length of time and scope of activities necessary to develop a product candidate and uncertainties related to our cost estimates and our ability to obtain marketing approval for our product candidates, accurate and meaningful estimates of the total costs required to bring our product candidates to market are not available. Because of the risks inherent in drug development, we cannot reasonably estimate or know: •the nature, timing and estimated costs of the efforts necessary to complete the development of our programs; •the completion dates of these programs; or • the period in which material net cash inflows are expected to commence, if at all, from the programs described above and any potential future product candidates.
There is significant uncertainty regarding our ability to successfully develop any product candidates. These risks include the uncertainty of: • the scope, rate of progress and cost of our clinical trials that we are
currently conducting or may commence in the future;
• clinical trial results;
• the cost of establishing clinical supplies of any product candidates;
• the cost and availability of comparator and combination drugs;
• the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights relating to our programs under development; • the terms and timing of any collaborations, licensing and other arrangements that we have or may establish in the future relating to our programs under development;
• the cost and timing of regulatory approvals;
• the effect of competing technological and market developments; and
• the impact of the COVID-19 pandemic (see "Business Update Regarding
COVID-19").
General and Administrative Expense
General and administrative expense is comparable for the three months ended
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Royalty expense for the three months endedMarch 31, 2020 and 2019 included the Trailing Mundipharma Royalties of$0.2 million and$0.1 million , respectively. Royalty expense decreased for the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 primarily due to the$6.7 million paid toTakeda inMarch 2019 in relation to the upfront proceeds received under the HCR Agreement (see Note 12 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Investment and Other Income Investment and other income decreased for the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 primarily as a result of lower average cash and investment balances. Interest Expense Interest expense for the three months endedMarch 31, 2020 and 2019 was due to non-cash interest expense related to the sale of future royalties in relation to the HCR Agreement, which we recognized as a liability that is being amortized using the effective interest method over the life of the arrangement. Related Party Interest Expense Related party interest expense for the three months endedMarch 31, 2020 was due to non-cash interest expense related to the sale of future royalties in relation to the BVF Funding Agreement, which we recognized as a liability that is being amortized using the effective interest method over the life of the arrangement (see Note 10 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Liquidity and Capital Resources We have not generated any revenue from product sales to date, and we do not expect to generate any such revenue for the foreseeable future, if at all. We have instead relied on the proceeds from sales of equity securities, sales of future royalties, debt, interest on investments, up-front license fees, expense reimbursement, milestones, royalties and cost sharing under our collaborations to fund our operations. Because IPI-549 is in clinical development, and the outcome of this effort is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidate or whether, or when, we may achieve profitability. The following table summarizes the components of our financial condition:March 31, 2020
(in thousands) Cash, cash equivalents and available-for-sale securities $ 50,348 $ 42,444 Working capital 44,562 34,883 Three Months Ended March 31, 2020 2019 (in thousands) Cash provided by (used in): Operating activities$ (11,777 ) $ (15,675 ) Investing activities 430 (7,612 ) Financing activities 19,572 27,618 Cash Flows For the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 , our cash used in operating activities decreased primarily due to our payment toTakeda related to the HCR Agreement during the three months endedMarch 31, 2019 . Our cash used in operating activities in future periods may vary significantly. Net cash provided by investing activities for the three months endedMarch 31, 2020 primarily included purchases of available-for-sale securities of$19.7 million and proceeds of$20.2 million from maturities of available-for-sale securities. Net cash used in investing activities for the three months endedMarch 31, 2019 primarily included purchases of available-for-sale securities of$12.6 million and proceeds of$5.0 million from maturities of available-for-sale securities. 22
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Net cash provided by financing activities for the three months endedMarch 31, 2020 was due to$19.6 million in net proceeds from the sale of future royalties due to us from BVF (see Note 10 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Net cash provided by financing activities for the three months endedMarch 31, 2019 included$27.6 million in net proceeds from the sale of future royalties due to us from Verastem (see Note 9 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Operating Capital Requirements As ofMarch 31, 2020 , we had cash, cash equivalents and available-for-sale securities of$50.3 million . We believe that our existing cash, cash equivalents and available-for-sale securities atMarch 31, 2020 will be adequate to satisfy our capital needs for at least the next twelve months from the issuance date of these financial statements based on our current operational plans. As a result of the delays in enrollment in our MARIO-3 and MARIO-275 clinical trials, we anticipate that we will need additional capital resources in order to have sufficient funds through key data readouts. We expect to continue to spend significant resources to fund the development and potential commercialization of IPI-549 and to incur significant operating losses for the foreseeable future. Our estimate as to how long we expect our existing cash, cash equivalents and available-for-sale securities to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate. Our future funding requirements, both short-term and long-term, will depend on many factors, including, but not limited to: • the scope, progress, results and costs of developing IPI-549, currently in clinical development; • the impact of delays in patient enrollment, site activation, and protocol amendment approvals related to the COVID-19 pandemic (see "Business Update Regarding COVID-19"); • the timing of, and the costs involved in, obtaining regulatory approvals for IPI-549;
• subject to receipt of marketing approval, revenue, if any, received
from commercial sales of IPI-549; • the timing and amount of additional revenues, if any, received from strategic agreements and funding arrangements, including: • milestone payments from entities affiliated with BVF under the funding agreement we entered into with such parties; • regulatory and commercial-based milestone payments from PellePharm under the license agreement we entered into with PellePharm related to the development and commercialization of patidegib, the hedgehog inhibitor we licensed to PellePharm under the PellePharm Agreement; and • milestone payments related to commercial sales of products containing duvelisib (Copiktra®), or Licensed Products, we might receive under the purchase and sale agreement, or HCR
Agreement, we
entered into with HCR or any additional royalties we might
receive
from Verastem, if such rights reverted to us in accordance
with the
HCR Agreement upon satisfaction of our obligations to HCR thereunder;
• the timing and amount of additional royalty and milestone payments owed
to
• the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
• any breach, acceleration event or event of default under any agreements
with third parties;
• the outcome of any lawsuits that could be brought against us;
• the cost of acquiring raw materials for, and of manufacturing, IPI-549 is higher than anticipated;
• the cost or quantity required of comparator or combination drugs used
in clinical studies increases;
• the effect of competing technological and market developments;
• any federal government shutdown that prevents or delays theSEC from processing any future registration statements we may file to register shares for capital raising purposes; and
• a loss in our investments due to general market conditions or other reasons.
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We may seek additional funds through arrangements with collaborators or other third parties, or through project financing. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or product candidates, and we may not be able to enter into such agreements on acceptable terms, if at all. We may also seek additional funding through public or private financings of equity or debt securities, but such financings may not be available on acceptable terms, if at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock, and such terms may impact our ability to make capital expenditures or incur additional debt. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our development programs or to scale back, suspend or terminate our business operations. Common Stock Sales Facility OnJune 28, 2019 , we entered into a Capital on Demand Sales Agreement withJonesTrading Institutional Services LLC , or JonesTrading, and onJuly 29, 2019 we amended and restated the sales agreement to addB. Riley FBR, Inc. , or B. Riley FBR, as a party to the agreement. We refer to the amended and restated sales agreement as the ATM Sales Agreement. Pursuant to the ATM Sales Agreement we may offer and sell shares of our common stock having an aggregate offering price of up to$20.0 million from time to time through JonesTrading orB. Riley FBR, each acting as our sales agent. We have agreed to pay commissions to the sales agents for their services in acting as agents in the sale of our common stock in the amount of up to 3.0% of the gross proceeds from sales of our common stock pursuant to the ATM Sales Agreement. Sales of shares of our common stock under the ATM Sales Agreement may be made in sales deemed to be "at the market offerings" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. With our prior written approval, JonesTrading or B. Riley FBR may also sell the shares by any other method permitted by law, including in negotiated transactions. We, JonesTrading, or B. Riley FBR may suspend or terminate the offering of shares upon notice to the other party and subject to other conditions. During the three months endedMarch 31, 2020 , we did not sell any shares under the ATM Sales Agreement. Off-Balance Sheet Arrangements Since inception, we have not engaged in any off-balance sheet financing activities, including the use of structured finance, special purpose entities or variable interest entities. Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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