Infinity Pharmaceuticals, Inc., is an innovative biopharmaceutical company dedicated to developing novel medicines for people with cancer. As used throughout these unaudited, condensed consolidated financial statements, the terms “Infinity,” “we,” “us,” and “our” refer to the business of Infinity Pharmaceuticals, Inc., and its wholly-owned subsidiaries.

These condensed consolidated financial statements include the accounts of Infinity and its wholly-owned subsidiaries. We have eliminated all significant intercompany accounts and transactions in consolidation.

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the accompanying condensed consolidated financial statements have been included. Interim results for the three and nine months ended September 30, 2017March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.2018.

The information presented in the condensed consolidated financial statements and related footnotes at September 30, 2017,March 31, 2018, and for the three and nine months ended September 30,March 31, 2018 and 2017, and 2016, is unaudited, and the condensed consolidated balance sheet amounts and related footnotes at December 31, 20162017 have been derived from our audited financial statements. For further information, please refer to the consolidated financial statements and accompanying footnotes included in our annual report on Form 10-K for the fiscal year ended December 31, 20162017 filed with the U.S. Securities and Exchange Commission, or SEC, on March 14, 2017,15, 2018, which we refer to as our 20162017 Annual Report on Form 10-K.

In the absence of additional funding or business development activities, we believe that our existing cash, cash equivalents and available-for-sale securities will be adequate to satisfy our forecasted operating needs into the third quarter of 2019. We have not included the future potential $22.0 million contingent payment in cash or stock from Verastem Inc., or Verastem (see Note 9), we believe that our current cash and cash equivalents will be adequate to satisfy our capital needs into the first quarter of 2019 based on our current operational plan.8). For more information, refer to the section titled “Liquidity and Capital Resources” in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We operate in one business segment, which focuses on drug development. We make operating decisions based upon the performance of the enterprise as a whole and utilize our consolidated financial statements for decision making.

All of our revenues since September 2006 have been generated under collaboration agreements.

The principles in the new guidance are continuingapplied using 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 impactgood 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. We re-evaluate the probability of achievement of such milestones and any related constraint each reporting period. 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.

As of September 30, 2017,March 31, 2018, we had approximately $5.7$3.6 million of total unrecognized compensation cost related to unvested common stock options restricted common stock and awards under our Employee Stock Purchase Plan or ESPP, which are expected to be recognized over a weighted-average period of 1.21.4 years.

During the ninethree months ended September 30, 2017,March 31, 2018, no restricted stock was granted 148,300 shares of restricted stock wereor forfeited and 190,989no shares of restricted stock vested. As of September 30, 2017, 457,822March 31, 2018, there were no shares of restricted stock are issued and unvested. During the ninethree months ended September 30, 2016, 1,521,600March 31, 2017, no shares of restricted stock were granted, 180,000133,300 shares of restricted stock were forfeited, and no restricted stock vested. As of September 30, 2016, 1,341,600March 31, 2017, 663,811 shares of restricted stock arewere issued and unvested. The restricted stock vests, if at all, based on the achievement of specified performance conditions.

We recognized $0.3 million of stock compensation expense for the nine months ended September 30, 2017 related to restricted stock. We did not recognize any stock compensation expense for the three months ended March 31, 2018 or 2017 related to restricted stock for the nine months ended September 30, 2016.stock.

We held sevensix debt securities at September 30, 2017March 31, 2018 that had been in an unrealized loss position for less than 12 months and no debt securities that had been in an unrealized loss position for 12 months or greater. The fair value of these securities was $13.6$15.2 million. There were no material unrealized losses from these securities. As of September 30, 2017,March 31, 2018, we held no securities in foreign financial institutions. We evaluated our securities for other-than-temporary impairments based on quantitative and qualitative factors. We considered the decline in market value for these securities to be primarily attributable to current economic and market conditions. It is not more likely than not that we will be required to sell these securities, and we do not intend to sell these securities before the recovery of their amortized cost basis. Based on our analysis, we do not consider these investments to be other-than-temporarily impaired as of September 30, 2017.March 31, 2018.

We had no material realized gains or losses on our available-for-sale securities for the three and nine months ended September 30, 2017March 31, 2018 and 2016.2017. There were no other-than-temporary impairments recognized for the three and nine months ended September 30, 2017March 31, 2018 and 2016.2017.

We use a valuation hierarchy for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs, which we consider the highest levelhighest-level inputs, are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value. The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. For our fixed income securities, we reference pricing data supplied by our custodial agent and nationally known pricing vendors, using a variety of daily data sources, largely readily-available market data and broker/dealer quotes. We validate the prices provided by our third partythird-party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our pricing services as of September 30, 2017March 31, 2018 and December 31, 2016.

The carrying amounts reflected in the condensed consolidated balance sheets for prepaid expenses and other current assets, other assets, accounts payable and accrued expenses approximate their fair value due to their short-term maturities.

There have been no changes to our valuation methods during the ninethree months ended September 30, 2017.March 31, 2018. We evaluate transfers between levels at the end of each reporting period. There were no transfers of assets or liabilities between Level 1 and Level 2 during the ninethree months ended September 30, 2017.March 31, 2018. We had no available-for-sale securities that were classified as Level 3 at any point during the ninethree months ended September 30, 2017March 31, 2018 or during the year ended December 31, 2016.2017.

In July 2010, we entered into a development and license agreement with Intellikine, Inc., or Intellikine, under which we obtained rights to discover, develop and commercialize pharmaceutical products targeting the gamma and/or delta isoforms of PI3K, including IPI-549 and duvelisib, an oral, dual inhibitor of PI3K delta and gamma. In January 2012, Intellikine was acquired by Takeda PharmaceuticalsPharmaceutical Company Limited. We refer to our PI3K inhibitor program licensor as Takeda. In

Under the terms of the Takeda Agreement, we are obligated to pay Takeda an aggregate of up to $5.0 million in remaining success-based milestone payments for the development of a product candidate other than duvelisib, which could include IPI-549. We are also obligated to pay Takeda up to an aggregate of $165$165.0 million in remaining success-based milestone payments related to the approval and commercialization of one product candidate other than duvelisib, which could be IPI-549.

Under the September 2016 amendment to the Takeda Agreement, and in connection with our entry into the Verastem Agreement, described below, we are no longer obligated to pay Takeda any remaining milestone payments for the development, approval or commercialization of duvelisib. In return, we are obligated to pay Takeda 50% of all revenue arising from certain qualifying transactions for duvelisib, including those under the Verastem Agreement, described in more detaildefined below, subject to certain exceptions including revenue we receive as reimbursement for duvelisib research and development expenses.

The Takeda Agreement expires on the later of the expiration of certain patents and the expiration of the royalty payment terms for the products, unless earlier terminated in accordance with its terms. Either party may terminate the Takeda Agreement on 75 days’ prior written notice if the other party materially breaches the agreement and fails to cure such breach within the applicable notice period, provided that the notice period is reduced to 30 days where the alleged breach is non-payment. Takeda may also terminate the Takeda Agreement if we are not diligent in developing or commercializing the licensed products and do not, within three months after notice from Takeda, demonstrate to Takeda’s reasonable satisfaction that we have not failed to be diligent. The foregoing periods are subject to extension in certain circumstances. Additionally, Takeda may terminate the Takeda Agreement upon 30 days’ prior written notice if we or a related party bring an action challenging the validity of any of the licensed patents, provided that we have not withdrawn such action before the end of the 30-day notice period. We may terminate the agreement at any time upon 180 days’ prior written notice. The Takeda Agreement also provides for customary reciprocal indemnification obligations of the parties.

We and Verastem have made customary representations and warranties and have agreed to certain customary covenants, including confidentiality and indemnification.

Under the PellePharm Agreement, was effective on September 23, 2016.

PellePharm is also obligated to pay us tiered royalties on annual net sales of DuvelisibHedgehog Products, outsidewhich are subject to reduction after a certain aggregate funding threshold has been achieved. Until the United States.

PellePharm’s royalty obligations to us expire on a country-by-country and Hedgehog Product-by-Hedgehog Product basis, and the cost of commercialization as a component of general and administrative expenses. DuringPellePharm Agreement expires upon the three and nine months ended September 30, 2016, we accounted for AbbVie’s shareexpiration of the costslast royalty obligation owed by PellePharm to us, 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 we may terminate the PellePharm Agreement if PellePharm or a reduction ofrelated party brings an action challenging the related expensevalidity or as additional expense. We recognized credits of approximately $0.9 million and $1.0 million during the three and nine months ended September 30, 2016, respectively, in research and development expenseactively assists a patent challenge related to these costs. Duringour Hedgehog Product patent rights. Either party may terminate the three and nine months ended September 30, 2016, we recognized credits of $1.8 million and $4.4 million, respectively, in general and administrative expense related to these costs.

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 also can identify these forward-looking statements by the fact that they do not relate strictly to historical or current facts. There are a number of important risks and uncertainties that could cause actual results or events to differ materially from those indicated by forward-looking statements made herein. These risks and uncertainties include those inherent in pharmaceutical research and development, such as adverse results in our drug discovery and clinical development activities, decisions made by the U.S. Food and Drug Administration, or FDA, and other regulatory authorities with respect to the development and commercialization of our product candidates, our ability to obtain, maintain and enforce intellectual property rights for our product candidates, our dependence on our alliance partners, competition, our ability to obtain any necessary financing to conduct our planned activities, our ability to implement our strategic plans, our ability to achieve cost-savings benefits from our restructuring and other risk factors described herein. 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, 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.

On October 13,November 10, 2017, we presented updated clinical and translational data from the monotherapy dose escalation portion of our Phase 1/1b clinical trial during an oral presentation and a poster session at the Society for Immunotherapy of Cancer Annual Meeting, or SITC 2017. As of the October 18, 2017 data cutoff date, data included 19 patients evaluable for safety and 18 patients evaluable for activity who received monotherapy doses of IPI-549 ranging from 10 mg to 60 mg QD. Of the patients evaluable for activity, eight, or 44%, showed clinical benefit, defined as remaining on study for more than 16 weeks. Three patients had remained on treatment for more than 32 weeks, including one who had a $6.0 million paymentpartial response to treatment with IPI-549. This patient was originally diagnosed with advanced peritoneal mesothelioma in October 2013 and had undergone four prior treatments. As of the October 2017 data cutoff date, after 60 weeks on 20 mg QD of IPI-549, the patient’s tumor had decreased in size by 42%, and the patient remained on study and had maintained his partial response at the time of our January 8, 2018 update at the 36th Annual J.P. Morgan Healthcare Conference, or the J.P. Morgan Conference.

Also at SITC 2017, we reported on translational data from Verastem, Inc.,peripheral blood samples taken from patients treated with IPI-549 monotherapy and analyzed to characterize the immunomodulatory activity of IPI-549. Data showed that IPI-549 treatment resulted in a reduction in immune suppression and increased immune stimulation, with upregulation of interferon-gamma responsive factors and reinvigoration or Verastem, pursuantproliferation of exhausted T cells across multiple tumor types and dose levels. Additionally, those patients who showed a clinical benefit demonstrated increased numbers of activated monocytes, suggesting that a biologic correlate can be found in patients who remained on treatment longer.

As we reported in April 2017 during a poster session at the American Association for Cancer Research Annual Meeting, of the six evaluable patients in the cohort evaluating IPI-549 at 20 mg QD in combination with nivolumab, preliminary data demonstrated no dose-limiting toxicities or serious drug-related side effects and no side effects that led to treatment discontinuation. During an investor event held in October 2017, we disclosed that one patient demonstrated a partial response after eight weeks of treatment with 30 mg of IPI-549 QD in combination with the Verastem Agreement.standard regimen of nivolumab. Diagnosed with ACC in July 2013, this patient had previously undergone six cycles of chemotherapy but had not received anti-PD-1 or PD-L1 treatment. As of the October 2017 cutoff date, after 24 weeks on the study at 30 mg QD, the measurable tumor volume had decreased by 60%. The payment was made followingpatient remained on study and had maintained his partial response at the determination thattime of the J.P. Morgan Conference.

In July 2010, we entered into a development and license agreement with Intellikine, Inc., or Intellikine, under which we obtained rights to discover, develop and commercialize pharmaceutical products targeting the gamma and/or delta isoforms of PI3K, including IPI-549 and duvelisib, an oral, dual inhibitor of PI3K delta and gamma. In January 2012, Intellikine was acquired by Takeda Pharmaceutical Company Limited. We refer to our PI3K inhibitor program licensor as Takeda. In December 2012, we amended and restated our development and license agreement with Takeda and further amended the agreement in July 2014, September 2016 and July 2017. We refer to the amended and restated development and license agreement, as amended, as the Takeda Agreement.

Under the terms of the Takeda Agreement, we are obligated to pay Takeda up to $5.0 million in remaining success-based milestone payments for the development of a product candidate other than duvelisib, which could include IPI-549. We are also obligated to pay Takeda up to $165$165.0 million in remaining success-based milestone payments related to the approval and commercialization of one product candidate other than duvelisib, which could be IPI-549.

Under the September 2016 amendment to the Takeda Agreement, and in connection with our entry into the Verastem Agreement, described below, we are no longer obligated to pay Takeda any remaining milestone payments for the development, approval or commercialization of duvelisib. In return, we are obligated to pay Takeda 50% of all revenue arising from certain qualifying transactions for duvelisib, including those under the Verastem Agreement, defined below, subject to certain exceptions including revenue we receive as reimbursement for duvelisib research and development expenses.

The July 2017 amendment to the Takeda Agreement terminated our obligations to pay royalties to Takeda with respect to worldwide net sales of products containing or comprised of a selective inhibitor of PI3K gamma, including but not limited to IPI-549. In consideration for such termination, we concurrently executed a convertible promissory note, which we refer to as the Takeda Note, pursuant to which we are obligated us to pay Takeda, or its designated affiliate, the principal amount of $6.0 million together with interest accruing at a rate of 8% per annum on or before July 26, 2018 in cash or in shares of our common stock, at the election of Takeda. The share payment price would be equal to the average closing price ofOn March 12, 2018, we exercised our common stock for the 20 days prior to the payment date. We have the right to prepay in full the Takeda Note in whole orthe principal amount of $6.0 million together with interest of approximately $0.3 million. Takeda elected to receive $4.0 million of such payment in part, without penaltycash and any amounts owed underapproximately $2.3 million of such payment in shares of our common stock. Pursuant to the terms of the Takeda Note, would become immediately due and payable in the eventwe issued 1,134,689 shares of a changecommon stock, calculated using an average price of control of Infinity, as defined in the Takeda Note. Additionally, any unpaid amounts may become immediately due and payable upon customary events of default, as defined in the Takeda Note.$2.028 per share, to Takeda’s designated subsidiary, Millennium Pharmaceuticals, Inc.

The Takeda Agreement expires on the later of the expiration of certain patents and the expiration of the royalty payment terms for the products, unless earlier terminated in accordance with its terms. Either party may terminate the Takeda Agreement on 75 days’ prior written notice if the other party materially breaches the agreement and fails to cure such breach within the applicable notice period, provided that the notice period is reduced to 30 days where the alleged breach is non-payment. Takeda may also terminate the Takeda Agreement if we are not diligent in developing or commercializing the licensed products and do not, within three months after notice from Takeda, demonstrate to Takeda’s reasonable satisfaction that we have not failed to be diligent. The foregoing periods are subject to extension in certain circumstances. Additionally, Takeda may terminate the Takeda Agreement upon 30 days’ prior written notice if we or a related party bring an action challenging the validity of any of the licensed patents, provided that we have not withdrawn such action before the end of the 30-day notice period. We may terminate the agreement at any time upon 180 days’ prior written notice. The Takeda Agreement also provides for customary reciprocal indemnification obligations of the parties.

On October 29, 2016, we and Verastem Inc., or Verastem, entered into a license agreement, which we and Verastem amended and restated on November 1, 2016, effective as of October 29, 2016. We refer to the amended and restated license agreement as the Verastem Agreement. Under the Verastem Agreement, we granted to Verastem an exclusive worldwide license for the research, development, commercialization, and manufacture of duvelisib and products containing duvelisib, which we refer to as the Licensed Products, in each case in oncology indications. Upon entry into the Verastem Agreement, Verastem assumed financial responsibility for activities that were part of our ongoing duvelisib program, including a randomized, Phase 3 monotherapy clinical study, in patients with relapsed/refractory chronic lymphocytic leukemia, which we refer to as the DUO Study.Study, in patients with relapsed or refractory chronic lymphocytic leukemia or small lymphocytic lymphoma. Verastem is obligated to use diligent efforts, as defined in the Verastem Agreement, to develop and commercialize one Licensed Product. During the term of the Verastem Agreement, we have agreed not to research, develop, manufacture or commercialize duvelisib in any indication in humans or animals.

We and Verastem have made customary representations and warranties and have agreed to certain customary covenants, including confidentiality and indemnification.

Under the collaboration. On June 24, 2016, AbbVie deliveredPellePharm Agreement, PellePharm is obligated to pay us up to $11.0 million in success-based milestone payments through the first commercial sale of a Hedgehog Product. PellePharm is also obligated to pay us up to $37.5 million in success-based milestone payments upon the achievement of certain annual net sales thresholds as well as a share of certain revenue received by PellePharm in the event that PellePharm sublicenses its rights under the PellePharm Agreement.

PellePharm is also obligated to pay us tiered royalties on annual net sales of Hedgehog Products, which are subject to reduction after a certain aggregate funding threshold has been achieved. Until the funding threshold has been achieved, a portion of the royalties paid to us by PellePharm will be used to cover the reimbursement of research and development costs owed by us to Mundipharma and Purdue.

PellePharm’s royalty obligations to us expire on a written notice that AbbVie was exercising itscountry-by-country and Hedgehog Product-by-Hedgehog Product basis, and the PellePharm Agreement expires upon the expiration of the last royalty obligation owed by PellePharm to us, 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 AbbViePellePharm Agreement unilaterally upon 90at least 180 days’ prior written notice whichto us at any time, and we refer to asmay terminate the AbbVie Opt-Out. The terminationPellePharm Agreement if PellePharm or a related party brings an action challenging the validity of the AbbVie Agreement was effective on September 23, 2016.

The principles in the new guidance are applied using 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 deliverablespromised goods and services within an arrangement toa customer contract and determine whether or not they provide value on a stand-alone basis. Based on this evaluation, the deliverableswhich of those are separated into units of accounting. For each unit of accounting identified within an arrangement, we determine the period over which theseparate performance obligation occurs. Revenue is then recognized using the proportional performance method if the level of effort to complete the performance obligations under an arrangement can be reasonably estimated. We recognize revenue based upon our best estimate of the selling price for each element when there is no other means to determine the fair value of that item and allocate the consideration based on the relative values. The process for determining the best estimate of the selling price involves significant judgment and estimates.

We are a drug development company. Our research and development expense has historically consisted primarily of the following:

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. Other costs include facilities costs not otherwise included in research and development expense and professional fees for legal and accounting services.

Other income and expense typically consists of interest earned on cash, cash equivalents and available-for-sale securities, gain or loss on sale of property and equipment and interest expense.

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to cumulative revenue related to variable consideration, accrued expenses, assumptions in the valuation of stock-based compensation and income taxes. 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, other than as noted below under “New and Recently Adopted Accounting Pronouncements,” during the ninethree months ended September 30, 2017.March 31, 2018. Please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 20162017 for a discussion of our critical accounting policies and significant judgments and estimates.

The $3.5$1.9 million decreaseincrease in research and development expense for the three months ended September 30, 2017March 31, 2018 as compared to the three months ended September 30, 2016March 31, 2017 was primarily duerelated to a decrease in compensation expense of approximately $4.8 million primarily attributable to the restructuring activities in 2016, as well as a decreasean increase in clinical and development expenses for duvelisibIPI-549 of approximately $3.5 million. Further information regarding restructuring activities is described below under the heading “Liquidity and Capital Resources—Organizational Restructuring.” These decreases are partially$2.6 million offset by an increasea decrease in expensecompensation of approximately $0.7 million, which was primarily related to the execution of the $6.0 million Takeda Note.

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:

There is significant uncertainty regarding our ability to successfully develop any product candidates. These risks include the uncertainty of:

The $2.6$2.8 million decrease in general and administrative expense for the three months ended September 30, 2017March 31, 2018 as compared to the three months ended September 30, 2016March 31, 2017 was primarily attributablerelated to a decrease in compensation due to restructuring activities in 2016.

Interest expense for the three and nine months ended September 30,March 31, 2018 was due to the Takeda Note (see Note 8).

Interest expense for the three months ended March 31, 2017 and 2016 was due to the financing obligation related to our 784 Memorial Driveprevious facility lease (see Note 8) and the Takeda Note (see Note 9).

Investment and other income increaseddecreased for the three and nine months ended September 30, 2017March 31, 2018 as compared to the three and nine months ended September 30, 2016March 31, 2017 primarily as a result of a gain ondecreased income from subleases at 784 Memorial Drive, which ended during the salethird quarter of personal property, fixtures and equipment.2017.

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, debt, interest on investments, up-front license fees, expense reimbursement, milestones 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.

Net cash from investing activities for the ninethree months ended September 30, 2017March 31, 2018 included purchases of available-for-sale securities of $22.0$5.7 million and proceeds of $18.0$11.5 million from maturities of available-for-sale securities.

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.

The following is a summary of our long-term contractual cash obligations as of September��30, 2017. Other than as set forth below, there wereThere have been no material changes outsideto our contractual obligations during the ordinary coursethree months ended March 31, 2018.

Under the terms of the agreement with Mundipharma and Purdue, we are obligated to pay Mundipharma and Purdue a 4% royalty in the aggregate, subject to reduction as described below, on worldwide net sales of products that were covered by the alliance until such time as Mundipharma and Purdue have recovered approximately $260 million in royalty payment from all products that were covered by the alliance, representing the research and development funding paid for research and development services performed by us through the termination of the strategic alliance. After this cost recovery, our royalty obligations to Mundipharma and Purdue will be reduced to a 1% royalty on net sales in the United States of products that were previously subject to the strategic alliance. All payments are contingent upon the successful commercialization of products that were subject to the alliance, which products require significant further development. As such, there is significant uncertainty about whether any such products will ever be approved or commercialized. If no products are commercialized, no payments will be due by us to Mundipharma and Purdue; therefore, such contingencies have not been recorded in our financial statements.

Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones, which may not be achieved.

Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since a significant portion of our investments are in money market funds. We do not enter into investments for trading or speculative purposes. Our cash is deposited in and invested through highly rated financial institutions in the United States.

A hypothetical 100 basis point increase in interest rates would result in an approximate $0.1 milliona decrease in the fair value of our investments of less than $0.1 million as of September 30, 2017, as compared to an approximate $25,000 decrease as ofMarch 31, 2018 and December 31, 2016.2017. 

Our management, with the participation of our principal executive and financial officers, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017.March 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2017March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We may seek additional funding through public or private financings of equity or debt securities, but such financing may not be available on acceptable terms, if at all. If we raise additional funds through the issuance of additional debt or equity securities, or if Takeda elects to receive our common stock as repayment of the Takeda Note, it could result in dilution to our existing stockholders, increased fixed payment obligations and the existence of securities with rights that may adversely affect the rights of our existing stockholders including liquidation or other preferences and anti-dilution protections. For example, under our at-the-market facility, we issued 1,551,615 shares during the three months ended March 31, 2018, and we issued an additional 2,341,164 shares from April 1, 2018 through May 8, 2018. Additionally, we issued 1,134,689 shares of common stock to Millennium Pharmaceuticals, Inc., the designated subsidiary of Takeda Pharmaceutical Company Limited, as partial repayment for the convertible promissory note, or the Takeda Note, we issued on July 26, 2017. We refer to our PI3K inhibitor program licensor, including its several subsidiaries, as Takeda.

If we incur additional indebtedness, wethere could become subjectbe significant adverse consequences, including:

In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

We may also seek additional funds through arrangements with collaborators or other third parties, or through project financing. These arrangements would generally require us to relinquish or encumber valuable rights to some of our technologies, future revenue streams, or product candidates, and we may not be able to enter into such agreements on acceptable terms, if at all.

If we are unable to obtain additional funding on a timely basis, we may be required to curtail, terminate, sell or license rights to develop and market IPI-549 that we would otherwise prefer to develop and market ourselves, or to scale back, suspend, or terminate our business operations.

Immuno-oncology is a highly competitive and rapidly changing segment of the pharmaceutical industry. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are pursuing the development of novel drugs that target various oncology diseases. We currently face, and expect to continue to face, intense and increasing competition as new products enter the market and advanced technologies become available.

IPI-549 is an inhibitor of the gamma isoform of PI3K, and we believe it is the only PI3K-gamma selective inhibitor in clinical development. However, there are many competitors developing or commercializing therapies targeting macrophage biology, including the following competitors, which we believe to be conducting clinical studies of product candidates targeting one or more aspects of macrophage biology: Array Biopharma, Inc., Deciphera Pharmaceuticals, Inc., Incyte Corporation (through its collaboration with Calithera Inc.), Bristol MyersBristol-Myers Squibb Company (through its collaboration with Five Prime Therapeutics, Inc.), Plexxikon Inc., Eli Lilly and Company, Amgen Inc., F. Hoffmann-La Roche Ltd, Janssen Research & Development, LLC, a subsidiary of Johnson & Johnson, Forty Seven Inc., Surface Oncology, Inc., Celgene Corporation, Trillium Therapeutics Inc., Pfizer Inc., XBiotech, Inc., AbbVie Inc., Takeda Pharmaceuticals International, Inc., Novartis AG, Efranat Ltd., Seattle Genetics, Inc., AstraZeneca PLC, Apexigen Inc., X4 Pharmaceuticals, Inc., Syndax Pharmaceuticals, Inc., Syntrix Biosystems, Inc., Eisai Co., Ltd., and Alligator Bioscience AB.

Our competitors may commence and complete clinical testing of their product candidates, obtain regulatory approvals and begin commercialization of their products sooner than we and/or our collaborators may for IPI-549. These competitive products may have superior safety or efficacy, have more attractive pharmacologic properties, or may be manufactured less expensively than IPI-549. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, the development of our product candidates.

If we are unable to compete effectively against these companies on the basis of safety, efficacy or cost, then we may not be able to commercialize IPI-549 or achieve a competitive position in the market. This would adversely affect our ability to generate revenues.

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs applicable to drug manufacturers or quality assurance standards applicable to medical device manufacturers, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, any contract manufacturers we may engage in the future, our current or future collaborators and their contract manufacturers will also be subject to other regulatory requirements, including submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements regarding the distribution of samples to physicians, recordkeeping, and costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to implement a risk evaluation and mitigation strategy.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of IPI-549,our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of any future collaborators, to profitably sell any product candidatesproducts for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved products.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

In March 2010, Presidentthen-President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA. Among the provisions of the ACA of potential importance to our business and IPI-549, including, without limitation, our ability to commercialize and the prices we may obtain for any of our product candidates and that are approved for sale, are the following:

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

WithWe expect that these healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Since enactment of the ACA, there have been numerous legal challenges and Congressional actions to repeal and replace provisions of the law. In May 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017. Thereafter, the Senate Republicans introduced and then updated a bill to replace the ACA known as the Better Care Reconciliation Act of 2017. The Senate Republicans also introduced legislation to repeal the ACA without companion legislation to replace it, and a “skinny” version of the Better Care Reconciliation Act of 2017. In addition, the Senate considered proposed healthcare reform legislation known as the Graham-Cassidy bill. None of these measures was passed by the U.S. Senate.

The Trump Administration and Congress, there will likely be additional administrativehas also taken executive actions to undermine or legislative changes, including modification, repeal, or replacement of all, or certain provisionsdelay implementation of the ACA. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. The Budget Resolution is not a law, however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices.

More recently, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by the President on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, will become effective in 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise. Further, each chamber of the Congress has focused on additional legislative changes, including in particularput forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the ACA. The Congress will likely consider other legislation to replace elements of the ACA during the next Congressional session.

We will continue to evaluate the effect that the ACA and its possible repeal and replacement of certain provisions of the ACA. To those ends, on May 4, 2017, the US House of Representatives passed the American Health Care Act and the Senate is currently considering legislative proposals leading to new healthcare reform legislation. It remains to be seen, however, whether new legislation repealing and replacing the ACA is enacted and, if so, precisely what the new legislation will provide, when it will be enacted and what impact it willcould have on the availability of healthcare and containing or lowering the cost of healthcare.our business. It is possible that these repeal and replacement initiatives, if enacted into law, could ultimately result in fewer individuals having health insurance coverage or in individuals having insurance coverage with less generous benefits. ItWhile the timing and scope of any potential future legislation to repeal and replace ACA provisions is highly uncertain in many respects, it is also possible that some of the ACA provisions that generally are not favorable for the research-based pharmaceutical industry could also be repealed along with ACA coverage expansion provisions. At this point, healthcare reformAccordingly, such reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and its impacts on the Company are highly uncertain in many respects.for which we may obtain marketing approval and may affect our overall financial condition and ability to develop commercialize product candidates.

The costs of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States, and members of Congress and the Administration have stated that they will address such costs through new legislative and administrative measures. The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired. In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs.

Our networkDespite the implementation of security measures and certain data recovery measures, may not be adequateour internal computer systems and those of third parties with which we contract are vulnerable to protect againstdamage from cyber attacks, computer viruses, break-insunauthorized access, sabotage, natural disasters, terrorism, war, telecommunication and similar disruptions from unauthorized tamperingelectrical failures and other disruptions. System failures, accidents or security breaches could cause interruptions in operations for us or those third parties with which we contract, and could result in a material disruption of our computer systems.clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The misappropriation, theft, sabotageloss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any other type ofdisruption or security breach with respectwere to anyresult in a loss of, our proprietary and confidential information that is electronically stored, including research or clinical data, could have a material adverse impact on our business, operating results and financial condition. Additionally, any break-in or trespass of our facilities that results in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or clinical data, or that results in damage to, our researchdata or applications, or inappropriate public disclosure of confidential or proprietary information, we could incur liability and our product development equipment and assets,commercialization efforts could be delayed. Such delay could have a material adverse impact on our business, operating results and financial condition.

We have incurred significant net losses since our inception and cannot guarantee when, if ever, we will become profitable. To the extent that we continue to generate federal and state taxable losses, unused net operating loss and tax credit carryforwards will carry forward to offset future taxable income. Theseincome, subject to applicable limitations on the use of those losses. Losses incurred in taxable years ending on or before December 31, 2017, are eligible to be carried forward for up to 20 years, and to be deducted in full against income for the years to which they may be carried. Losses incurred in taxable years ending after December 31, 2017, are eligible to be carried forward indefinitely, but may offset no more than 80% of the taxable income for the years to which they are carried (computed without regard to the deduction for carryovers of net operating losses). Net operating loss carryovers from periods ending on or before December 31, 2017, and tax credit carryforwardscarryovers from all periods, could expire unused and be unavailable to offset future income tax liabilities.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-changecredit carryovers to reduce its tax attributes to offset itsliability for post-change incomeperiods may be limited. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. In addition, we have not conducted a detailed study to document whether our historical activities qualify to support the research and development credit carryforwards.credits currently claimed as a carryover. A detailed study could result in adjustment to our research and development credit carryforwards.carryovers. If we determine that an ownership change has occurred and our ability to use our historical net operating loss and tax credit carryforwardscarryovers is materially limited, or if our research and development carryforwards are adjusted, our use of those attributes to offset future income tax liabilities would be limited.

On December 22, 2017, President Trump signed into law new legislation that significantly revised the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it would harmis uncertain how various states will respond to the newly enacted federal tax law. The impact of this tax reform on holders of our future operatingcommon stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

Our effective tax rate may be different than experienced in the past due to numerous factors, including passage of the newly enacted federal income tax law, changes in the mix of our profitability apportioned to tax jurisdictions in which we may operate, the results by effectively increasingof examinations and audits of our future tax obligations.filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.

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