The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2018 on file with the SEC. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the ‘‘Risk Factors’’ section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage biopharmaceutical company developing new drugs to improve the lives of cancer patients by addressing key mechanisms of drug resistance that limit the rate and durability of response of many cancer therapies. Our targeted, small molecule drug candidates, designed using our proprietary kinase switch control inhibitor platform, inhibit the activation of kinases, an important family of enzymes, that, when mutated or over expressed, are known to be directly involved in the growth and spread of many cancers. We have built a diverse pipeline of wholly owned, orally administered drug candidates that include three clinical-stage, one preclinical-stage and one research-stage programs.

Since our inception in 2003, we have focused substantially all of our efforts and financial resources on organizing and staffing our company, business planning, raising capital, developing product and technology rights, and conducting research and development activities for our drug candidates. We do not have any products approved for sale and have not generated any revenue from product sales.

On October 2, 2017, we completed an initial public offering, or IPO, of our common stock, pursuant to which we issued and sold 7,500,000 shares of common stock at a public offering price of $17.00 per share, resulting in net proceeds of $114.1 million after deducting underwriting discounts and commissions and other offering expenses. On October 4, 2017, we issued and sold an additional 666,496 shares of our common stock at the IPO price of $17.00 per share, pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $10.5 million after deducting discounts and commissions.

On June 11, 2018, we issued and sold 4,300,000 shares of our common stock in a follow-on public offering at a public offering price of $40.00 per share, resulting in net proceeds of $161.0 million after deducting underwriting discounts and commissions and other offering expenses. On June 20, 2018, we issued and sold an additional 645,000 shares of our common stock at the offering price of $40.00 per share, pursuant to the underwriters’ full exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $24.3 million after deducting underwriting discounts and commissions.

Prior to our IPO, we had funded our operations primarily with proceeds from the sales of preferred shares, proceeds from the issuance of convertible notes, payments received under a concluded collaboration agreement, borrowings under a construction loan and research and development grants from the Kansas Bioscience Authority, or KBA.

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our drug candidates. Our net loss was $68.8 million for the six months ended June 30, 2019 and $99.9 million for the year ended December 31, 2018. As of June 30, 2019 we had an accumulated deficit of $364.6 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we:

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We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our drug candidates. If we obtain regulatory approval for any of our drug candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution except to the extent we enter into a commercialization partnership that covers such expenses. Further, we expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or additional licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our drug candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of June 30, 2019, we had cash, cash equivalents and marketable securities of $225.4 million. We believe that our cash, cash equivalents and marketable securities as of June 30, 2019, along with the $20.0 million up-front payment from our recent license agreement with Zai, received in the third quarter of 2019, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments into the fourth quarter of 2020. This excludes any potential milestone or royalty payments, if any, under our license agreement with Zai. See “Liquidity and Capital Resources.”

Recent Developments

Rebastinib Development Update

We completed enrollment of 43 patients in Part 1 of the Phase 1b/2 combination study of rebastinib with paclitaxel and selected the 100 mg BID dose of rebastinib in combination with a weekly dose of 80 mg/m ² of paclitaxel as the recommended Phase 2 dose for Part 2 of the study, which began enrollment in the second quarter of 2019. We expect to report initial data from Part 1 of this study in the second half of 2019.

Lease Amendment

In April 2019, we and 200 Smith NWALP Property Owner LLC, or the Landlord, entered into a Third Amendment to Lease, or the Amendment, to the Lease between the Company and the Landlord dated May 29, 2018, as amended, or the Lease, to add an additional 38,003 square feet of space, or the Expansion Premises to the existing premises of 44,343 square feet of space, or the Initial Premises, for a total of 82,346 square feet of space in that building commonly known and numbered as 200 Smith Street in Waltham, Massachusetts, or the Premises. The Premises will become the Company’s new headquarters location.

Zai License Agreement

In June 2019, we entered into a License Agreement, or the Zai License Agreement, with an affiliate of Zai Lab (Shanghai) Co., Ltd., or Zai, pursuant to which we granted Zai exclusive rights to develop and commercialize ripretinib, including certain follow-on compounds, or the Licensed Products, in Mainland China, Hong Kong, Macau and Taiwan, each a Region and collectively the

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Territory. We retain exclusive rights to, among other things, develop, manufacture and commercialize the Licensed Products outside the Territory. Pursuant to the terms of the Zai License Agreement, we will receive an upfront cash payment of $20.0 million and will be eligible to receive up to $185.0 million in development and commercial milestone payments, consisting of up to $50.0 million of development milestones, including $5.0 million for an INTRIGUE study-related milestone the Company achieved, and up to $135.0 million of commercial milestones. In addition, during the term of the Zai License Agreement, Zai will be obligated to pay us tiered percentage royalties ranging from low to high teens on annual net sales of the Licensed Products in the Territory, subject to adjustments in specified circumstances.

New Preclinical Candidate: DCC-3116

In June 2019, we announced the addition of DCC-3116, a new preclinical candidate, to our pipeline. DCC-3116 is a small molecule designed to inhibit cancer autophagy, a key tumor survival mechanism. DCC-3116, discovered using the Company’s novel switch control inhibitor platform, is designed to inhibit autophagy by inhibiting the ULK kinase, believed to be the initiating factor that activates autophagy. Subject to favorable investigational new drug (IND)-enabling studies and filing and activation of an IND, we intend to develop DCC-3116 for the potential treatment of mutant RAS cancers in combination with inhibitors of downstream RAS effector targets including RAF, MEK, or ERK inhibitors as well as with direct inhibitors of mutant RAS.

Autophagy is a cellular pathway that has been observed to be upregulated in mutant RAS cancers and is also known to mediate resistance to inhibitors of the RAS signaling pathway. Autophagy is a survival pathway in which cells respond to stress by recycling their own components and/or clearing damaged organelles and proteins from the cell. Mutant RAS cancers, including KRAS, NRAS, and HRAS cancers, are reported to have high basal levels of autophagy, which these cancers use to maintain nutrient supply, regulate cancer cell metabolism, and mitochondria surveillance. Cellular studies in mutant RAS cancers have demonstrated that MAPK pathway inhibitors can also induce autophagy as a compensatory survival mechanism. Such induction is seen with RAF, MEK, and ERK inhibitors as well as with direct inhibitors of mutant KRAS G12C. In in vitro models of mutant RAS cancers, inhibition of autophagy combined with inhibition of MAPK signaling using MEK inhibitors or ERK inhibitors has demonstrated synergistic anti-proliferative activity and induction of cell killing.      In vivo studies conducted by independent research groups have also demonstrated synergistic anti-tumor activity in various mutant RAS cancer models.

In our preclinical studies, we have observed DCC-3116 to selectively inhibit the ULK kinase. Our in vitro studies have also demonstrated that DCC-3116 in combination with inhibitors of the MAPK pathway inhibits both basal autophagy (autophagy in the absence of a MAPK inhibitor) and also MAPK inhibitor-induced increased autophagy in various mutant RAS cancer cell lines as illustrated below. Autophagy inhibition by DCC-3116 was monitored by the decrease in phosphorylation of the cellular ULK autophagy substrate ATG13 in the presence of the MEK inhibitor trametinib.

Preclinical Inhibition of ULK Kinase by DCC-3116 in Multiple RAS Cancer Cell Lines

When evaluated in preclinical in vivo models, DCC-3116 in combination with inhibitors of the MAPK pathway demonstrated synergistic inhibition of mutant RAS cancer growth as shown below. In both KRAS mutant pancreatic and lung in vivo models, DCC-3116 in combination with trametinib reduced tumor size as compared to the control cohort or either single agent treatment cohort.

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DCC-3116 Plus MEK Inhibitors Exhibited Reduced Tumor Growth In KRAS In Vivo Cancer Models

As an inhibitor of ULK kinase, DCC-3116 has been designed to address mutant RAS cancers by inhibiting the basal and compensatory autophagy that mutant RAS cancer cells use for survival. We are currently conducting IND-enabling studies for DCC-3116 and, pending favorable results, we expect to submit an IND to the United States FDA in mid-2020.

Ripretinib Development Update

We are studying our lead drug candidate, ripretinib (DCC-2618) in two ongoing Phase 3 studies in gastrointestinal stromal tumors, or GIST, and in an ongoing Phase 1 trial in patients with multiple advanced malignancies, including GIST. Our first Phase 3 study, INVICTUS, is in fourth-line and fourth-line plus GIST patients, for whom there are currently no approved therapies. INVICTUS was fully enrolled as of November 2018 and is expected to report initial top-line results in August 2019. In June 2019, the FDA granted Fast Track designation for ripretinib for the investigation of the treatment of patients with advanced GIST who have received prior treatment with imatinib, sunitinib, and regorafenib. The FDA’s Fast Track program is designed to facilitate the development of drugs intended to treat serious conditions and that have the potential to address unmet medical needs. A drug program with Fast Track status is afforded greater access to the FDA for the purpose of expediting the drug’s development, review and potential approval. In addition, the Fast Track program allows for eligibility for Accelerated Approval and Priority Review, if relevant criteria are met, as well as for Rolling Review, which means that a company can submit completed sections of its New Drug Application (NDA) for review by FDA, rather than waiting until every section of the NDA is completed before the entire application can be submitted for review.

The Conversion

On October 2, 2017, immediately prior to the completion of our IPO, we engaged in a series of transactions whereby Deciphera Pharmaceuticals, LLC became a wholly owned subsidiary of Deciphera Pharmaceuticals, Inc., a Delaware corporation. As part of the transactions, shareholders of Deciphera Pharmaceuticals, LLC exchanged their shares of Deciphera Pharmaceuticals, LLC for shares of Deciphera Pharmaceuticals, Inc. on a one-for-5.65 basis and exchanged their outstanding equity incentive awards of Deciphera Pharmaceuticals, LLC for options to purchase the same number of shares of common stock of Deciphera Pharmaceuticals, Inc. multiplied by 5.65, with a corresponding adjustment to divide the exercise price by 5.65. We refer to these transactions as the Conversion.

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Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our drug candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. If we enter into collaboration agreements or additional license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or additional license agreements that we may enter into with third parties. We expect that our revenue, if any, for the next several years will be derived primarily from the license agreement we entered into with Zai in June 2019 as well as any collaborations or additional license agreements that we may enter into in the future. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our drug candidates. We may never succeed in obtaining regulatory approval for any of our drug candidates.

Pursuant to the terms of the Zai License Agreement, we will receive an upfront cash payment of $20.0 million and will be eligible to receive up to $185.0 million in development and commercial milestone payments, consisting of up to $50.0 million of development milestones, including $5.0 million for an INTRIGUE study-related milestone that we achieved, and up to $135.0 million of commercial milestones. In addition, during the term of the Zai License Agreement, Zai will be obligated to pay us tiered percentage royalties ranging from low to high teens on annual net sales of the Licensed Products in the Territory, subject to adjustments in specified circumstances.

Under the Zai License Agreement, we recognized revenue of $25.0 million in the three and six months ended June 30, 2019.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our drug candidates, which include:

We expense research and development costs to operations as incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, central laboratories, contractors, CMOs and CROs in connection with our preclinical and clinical development activities. We do not allocate employee costs, costs associated with our proprietary kinase switch control inhibitor platform technology or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

The successful development and commercialization of our drug candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:

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A change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs and timing associated with the development of that drug candidate. We may never succeed in obtaining regulatory approval for any of our drug candidates.

Research and development activities are central to our business model. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as our drug candidate development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, commercial, legal, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, accounting and audit services.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our drug candidates and to support commercialization should ripretinib receive regulatory approval. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance and investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Interest Expense

Interest expense consists of interest expense associated with an outstanding construction loan from a related party. See “Liquidity and Capital Resources—Construction Loan.”

Interest and Other Income, net

Interest income consists of interest earned on our cash, cash equivalents and marketable securities balances. Other income, net, consists of insignificant amounts of miscellaneous income and expenses unrelated to our core operations.

Income Taxes

Prior to the Conversion, we were treated as a partnership for tax purposes and had not been subject to U.S. federal or state income taxation and as a result, had not recorded any U.S. federal or state income tax benefits for the net losses we had incurred in each year or for our earned research and orphan drug credits. Upon the Conversion, we became subject to typical corporate U.S. federal and state income taxation; however, we do not have net operating loss carryforwards from periods prior to October 2, 2017 available to offset taxable income earned in future periods in which we will be treated as a corporation.

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Since the Conversion in October 2017, we have not recorded any U.S. federal or state income tax benefits for either the net losses we have incurred or our earned research and orphan drug credits, due to the uncertainty of realizing a benefit from those items in the future. As of December 31, 2018, we had net operating loss carryforwards for federal income tax purposes of $107.1 million, of which $14.5 million begin to expire in 2037 and $92.6 million may be carried forward indefinitely. As of December 31, 2018, we had net operating loss carryforwards for state income tax purposes of $107.7 million, which begin to expire in 2027. We also had federal and state research and orphan drug credits of $12.8 million and $0.9 million, respectively, as of December 31, 2018, which begin to expire in 2037 and 2032, respectively.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018 on file with the SEC and for revenue in Note 2 to our consolidated financial statements appearing elsewhere is this Quarterly Report, the following involve the most judgment and complexity:

Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.

Revenue

Revenue recognized during the three months ended June 30, 2019 of $25.0 million was related to our license agreement with Zai. We recognized license revenue of $20.0 million for an upfront fee and $5.0 million for a development milestone related to the license that was determined to be probable of being met as of June 30, 2019.

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Expenses related to our ripretinib program increased as a result of an increase in clinical trial costs of $7.6 million. The increase in clinical trial costs was due primarily to our pivotal Phase 3 trial in second-line GIST, which we initiated in December 2018, and to our pivotal Phase 3 trial in fourth-line and fourth-line plus GIST, which we initiated in January 2018. We also incurred costs related to other supporting clinical trials for ripretinib.

Expenses related to our rebastinib program increased primarily as a result of an increase in clinical trial costs of $1.9 million. The increase in clinical trial costs was due to our Phase 1b/2 trial of rebastinib in combination with paclitaxel, which we initiated in October 2018, and our second Phase 1b/2 clinical trial of rebastinib in combination with carboplatin, which we initiated in January 2019.

The increase in personnel-related costs included in unallocated expenses was due primarily to an increase in headcount and stock-based compensation expense in our research and development function. Personnel-related costs for the three months ended June 30, 2019 and 2018 included stock-based compensation expense of $1.8 million and $1.0 million, respectively. The increase in stock-based compensation expense was primarily related to the granting of employee stock option awards. The increase in facility related and other costs included in unallocated expenses was primarily due to increased consultant fees of $1.0 million and increased costs incurred in connection with our early-stage drug discovery programs of $0.7 million.

The increase in personnel-related costs was primarily a result of increases in headcount and stock-based compensation expense in our general and administrative function. Personnel-related costs for the three months ended June 30, 2019 and 2018 included stock-based compensation expense of $2.3 million and $1.2 million, respectively. The increase in stock-based compensation expense was primarily related to the granting of employee stock option awards. The increase in professional and consultant fees was primarily due to an increase in various advisory fees, including those related to commercialization preparedness.

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Interest and Other Income, Net

The increase in interest and other income, net, was primarily due to an increase in interest income earned on our invested cash, cash equivalents and marketable securities balances resulting from our follow-on public offering in June 2018.

Revenue

Revenue recognized during the six months ended June 30, 2019 of $25.0 million was related to our license agreement with Zai. We recognized license revenue of $20.0 million for an upfront fee and $5.0 million for a development milestone related to the license that was determined to be probable of being met as of June 30, 2019.

Expenses related to our ripretinib program increased as a result of an increase in clinical trial costs of $19.2 million. The increase in clinical trial costs was due primarily to our pivotal Phase 3 trial in second-line GIST, which we initiated in December 2018, and to our pivotal Phase 3 trial in fourth-line and fourth-line plus GIST, which we initiated in January 2018. We also incurred costs related to other supporting clinical trials for ripretinib.

Expenses related to our rebastinib program increased primarily as a result of an increase in clinical trial costs of $5.1 million. The increase in clinical trial costs was due to our Phase 1b/2 trial of rebastinib in combination with paclitaxel, which we initiated in October 2018, and our second Phase 1b/2 clinical trial of rebastinib in combination with carboplatin, which we initiated in January 2019.

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The increase in personnel-related costs included in unallocated expenses was due primarily to an increase in headcount and stock-based compensation expense in our research and development function. Personnel-related costs for the six months ended June 30, 2019 and 2018 included stock-based compensation expense of $3.5 million and $1.9 million, respectively. The increase in stock-based compensation expense was primarily related to additional employee stock options. The increase in facility-related and other costs included in unallocated expenses was primarily due to increased costs of $1.5 million incurred in connection with our early-stage drug discovery programs and increased consultant fees of $1.3 million.

The increase in personnel-related costs was primarily a result of increases in stock-based compensation expense and headcount in our general and administrative function. Personnel-related costs for the six months ended June 30, 2019 and 2018 included stock-based compensation expense of $6.9 million and $2.3 million, respectively. The increase in stock-based compensation expense was primarily related to the granting of employee stock option awards due to an increase in headcount and the modification of stock options pursuant to the transition agreement with our former President and Chief Executive Officer and additional employee stock options. The increase in professional and consultant fees was primarily due to an increase in various advisory fees, including those related to commercialization preparedness.

Interest and Other Income, Net

The increase in interest and other income, net, was primarily due to an increase in interest income earned on our invested cash, cash equivalents and marketable securities balances resulting from our follow-on public offering in June 2018.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from our license agreement with Zai and a concluded collaboration agreement and research and development grants from the Kansas Bioscience Authority, or KBA. We have not yet commercialized any of our drug candidates and we do not expect to generate revenue from sales of any drug candidates for several years, if at all.

On October 2, 2017, we completed the IPO of our common stock, pursuant to which we issued and sold 7,500,000 shares of common stock at a public offering price of $17.00 per share, resulting in net proceeds of $114.1 million after deducting underwriting discounts and commissions and other offering expenses. On October 4, 2017, we issued and sold an additional 666,496 shares of our common stock at the IPO price of $17.00 per share, pursuant to the partial exercise of the underwriters’ option to purchase additional shares of common stock, resulting in additional net proceeds of $10.5 million after deducting underwriting discounts and commissions.

On June 11, 2018, we issued and sold 4,300,000 shares of our common stock in a follow-on public offering at a public offering price of $40.00 per share, resulting in net proceeds of $161.0 million after deducting underwriting discounts and commissions and other offering expenses. On June 20, 2018, we issued and sold an additional 645,000 shares of our common stock at the offering price of $40.00 per share, pursuant to the underwriters’ full exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $24.3 million after deducting underwriting discounts and commissions.

Prior to our IPO, we had funded our operations with proceeds from the sales of preferred shares, proceeds from the issuance of convertible notes, payments received under a concluded collaboration agreement, borrowings under a construction loan and research and development grants from the KBA.

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Operating Activities

During the six months ended June 30, 2019, operating activities used $70.3 million of cash, primarily resulting from our net loss of $68.8 million and cash used by changes in our operating assets and liabilities of $10.7 million, partially offset by net non-cash charges of $9.3 million. Net cash used by changes in our operating assets and liabilities for the six months ended June 30, 2019 consisted primarily of a $20.0 million increase in accounts receivable and a $5.0 million increase in unbilled receivable, partially offset by a $12.8 million increase in accounts payable and accrued expenses and other current liabilities and a decrease in prepaid expenses and other current assets of $1.3 million.

During the six months ended June 30, 2018, operating activities used $35.0 million of cash, primarily resulting from our net loss of $43.1 million, offset by non-cash charges of $4.4 million and cash provided by changes in our operating assets and liabilities of $3.7 million. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2018 consisted primarily of a $4.5 million increase in accounts payable and accrued expenses and other current liabilities, partially offset by an increase in prepaid expenses and other current assets of $0.8 million.

Changes in accounts payable, accrued expenses and prepaid expenses in all periods were generally due to growth in our business and the timing of vendor invoicing and payments. The change in accounts receivable and unbilled receivable was due to the Zai license agreement entered into in June 2019.

Investing Activities

During the six months ended June 30, 2019, we used $166.7 million for the net purchases of marketable securities and $0.2 million to purchase property and equipment. During the six months ended June 30, 2019, we increased our restricted investments by $0.4 million to secure a Company credit card account.

During the six months ended June 30, 2018, we used $0.6 million to purchase property and equipment and we increased our restricted investments by $1.1 million to secure a letter of credit associated with our Waltham lease.

Financing Activities

During the six months ended June 30, 2019, net cash provided by financing activities was $1.1 million, consisting primarily of proceeds from the exercise of stock options.

During the six months ended June 30, 2018, net cash provided by financing activities was $186.4 million, consisting primarily of proceeds from our follow-on public offering in June 2018, net of underwriting discounts and commissions, of $185.9 million and proceeds from the exercise of stock options of $0.7 million, partially offset by $0.1 million of payments of offering costs and $0.1 million of repayments of notes payable to a related party.

Construction Loan

We are party to a loan agreement and a security agreement, each dated as of June 11, 2010, with Clinical Reference Laboratory, Inc., or CRL, a related party. The loan was assigned to CHC, Inc., a related party, in December 2016. As of June 30, 2019 and December 31, 2018, there was $1.2 million and $1.3 million, respectively, in principal outstanding under the loan.

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Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our drug candidates in development, as well as efforts to support commercialization, should ripretinib receive regulatory approval. In addition, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:

As of June 30, 2019, we had cash, cash equivalents and marketable securities of $225.4 million. We believe that our cash, cash equivalents and marketable securities as of June 30, 2019, along with the $20.0 million up-front payment from our recent license agreement with Zai, received in the third quarter of 2019, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments into the fourth quarter of 2020. This excludes any potential milestone or royalty payments, if any, under our license agreement with Zai. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

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

Contractual Obligations and Commitments

On April 29, 2019, we amended our lease for office space in Waltham, Massachusetts to add an additional 38,003 square feet of space for a total of 82,346 square feet of space. The lease term for the additional space is expected to commence in early 2020 and expire on November 30, 2029. We are entitled to two five-year options to extend the lease. The initial annual base rent for the additional space is approximately $1.9 million and will increase annually for a total of $18.2 million over the lease term.

There have been no other material changes to our contractual obligations and commitments outside the ordinary course of business from those that were presented in our Annual Report on Form 10-K for the year ended December 31, 2018.

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Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant operating losses since our inception and have not generated any revenue from product sales. We expect to incur continued losses for the foreseeable future and may never achieve or maintain profitability.

Investment in pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a clinical-stage biopharmaceutical company that was formed and commenced operations in 2003. We have no approved products for commercial sale and have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we have never been profitable and have incurred losses in each year since inception. For the six months ended June 30, 2019 and the years ended December 31, 2018 and 2017, we reported a net loss of $68.8 million, $99.9 million and $50.3 million, respectively. As of June 30, 2019, we had an accumulated deficit of $364.6 million.

Since our inception, we have focused substantially all of our efforts and financial resources on developing our proprietary compound library, including, without limitation, the preclinical and clinical development of our drug candidates, ripretinib, rebastinib, DCC-3014 and DCC-3116, as well as our ongoing preclinical research and discovery programs. To date, we have funded our operations primarily with proceeds from the sales of our common stock in public offerings, sales of preferred shares, proceeds from the issuance of convertible notes, payments received under a concluded collaboration agreement, borrowings under a construction loan and research and development grants from the Kansas Bioscience Authority, or KBA. Since our inception, we received an aggregate of $573 million in net proceeds from such transactions. As of June 30, 2019, our cash, cash equivalents and marketable securities were $225.4 million.

We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future, particularly as we advance our drug candidates. Our prior losses, combined with expected future losses, have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. We expect our research and development expenses to significantly increase in connection with our ongoing and additional clinical trials for ripretinib, rebastinib and DCC-3014, our preclinical studies for DCC-3116, and development of any other future drug candidates we may choose to pursue. In addition, if we obtain marketing approval for ripretinib, or any of our other drug candidates, we will incur significant sales, marketing and outsourced manufacturing expenses. We will also incur costs associated with advance preparations for a possible marketing approval for ripretinib. We will also incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our drug candidates, and we do not know when, or if, we will generate any revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval for, and begin to sell, ripretinib, or our other drug candidates. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

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To become and remain profitable, we must succeed in developing, and eventually commercializing, products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials for our drug candidates, discovering additional drug candidates, establishing arrangements with third parties for the manufacture of clinical and, if applicable, commercial supplies of our drug candidates, obtaining marketing approval for our drug candidates and manufacturing, marketing and selling any products for which we may obtain marketing approval. We are only in early stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses we will incur or when, or if, we will be able to achieve profitability. If we are required by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, or other regulatory authorities to perform studies in addition to those currently expected, or if there are any delays in establishing appropriate manufacturing arrangements for, or in completing our clinical trials for, or the development of any of our drug candidates, our expenses could increase materially.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would cause significant harm to our financial position, adversely impact our stock price and impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will require substantial additional funding. If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce or eliminate our research or drug development programs or any future commercialization efforts.

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our drug candidates, ripretinib, rebastinib, DCC-3014 and DCC-3116, and seek to identify lead drug candidates in our discovery programs. We expect increased expenses as we continue our research and development and initiate additional clinical trials and establish arrangements with third parties for the manufacture of clinical and commercial supplies of and seek marketing approval for our lead program and our other drug candidates. In addition, if we obtain marketing approval for any of our drug candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we expect to continue to incur costs associated with operating as a public company.

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce or eliminate our research or drug development programs or any future commercialization efforts.

We believe that our cash, cash equivalents and marketable securities as of June 30, 2019, along with the $20.0 million up-front payment from our recent license agreement with Zai, received in the third quarter of 2019, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments into the fourth quarter of 2020. This excludes any potential milestone or royalty payments, if any, under our license agreement with Zai. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

Our future capital requirements will depend on many factors, including:

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Identifying potential drug candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all.

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

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of our securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.

We have a limited operating history, have not successfully completed late-stage clinical trials for any drug candidate, have not generated revenue from product sales or profits and do not expect to generate revenue or profits for the foreseeable future. We may never obtain approval for any of our drug candidates or achieve or sustain profitability.

We commenced operations in 2003. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting research and development, filing patents, identifying potential drug candidates, including five clinical candidates, undertaking preclinical studies, initiating and conducting clinical trials and establishing arrangements with third parties for the manufacture of initial quantities of our drug candidates. We have not yet demonstrated our ability to successfully complete any Phase 2 or Phase 3 clinical trials, obtain marketing approvals, manufacture ourselves or via a third party a commercial product on a commercial scale, or conduct sales, marketing and distribution activities necessary for successful product commercialization, and we have not generated revenue from product sales or profit from our operations. Consequently, we may never achieve or sustain profitability and any predictions you make about our future success or viability may not be as accurate as they could be if we had an operating history with these activities.

In addition, as a growing business entering into new stages of pharmaceutical development, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. While these efforts have begun, they are in the early stages and are subject to numerous risks and uncertainties; accordingly, there can be no assurance that we will be successful in such a transition.

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