Verastem, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Verastem is a late-stage development biopharmaceutical company focused on RAF/MEK and FAK inhibition for solid tumors. Its lead candidates are avutometinib and defactinib, being evaluated in cancers including low-grade serous ovarian cancer, non-small cell lung cancer, pancreatic cancer, colorectal cancer and melanoma. The company no longer commercializes COPIKTRA following its 2020 asset sale to Secura Bio. This filing covers the three months ended March 31, 2023, compared with the same period in 2022.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $0.0 million | $2.6 million | Down 100% |
| Research and development expense | $12.0 million | $13.6 million | Down 12% |
| Selling, general and administrative expense | $7.3 million | $5.9 million | Up 24% |
| Total operating expenses | $19.3 million | $19.6 million | Down 1% |
| Loss from operations | $(19.3) million | $(17.0) million | Loss increased $2.4 million |
| Net loss | $(15.7) million | $(17.0) million | Loss decreased $1.2 million |
| Net loss per share | $(0.08) | $(0.09) | Improved |
| Net cash used in operating activities | $(20.3) million | $(19.3) million | Use increased $1.0 million |
The company reported no revenue in Q1 2023. The prior-year revenue primarily consisted of a $2.5 million regulatory milestone and $0.1 million of royalties under the Secura agreement. Interest income increased to $1.0 million from less than $0.1 million, while interest expense increased to $0.8 million from $0.1 million. A $3.4 million gain from the change in fair value of the preferred stock tranche liability reduced reported net loss but was non-cash.
At March 31, 2023, cash and cash equivalents were $97.3 million, short-term investments were $13.9 million, and total cash, cash equivalents and investments were approximately $111.2 million. Total current assets were $118.9 million versus $92.9 million at December 31, 2022. Accumulated deficit was $753.2 million.
Cash increased by $23.0 million during the quarter, primarily because $44.1 million of financing cash inflows exceeded $20.3 million of operating cash use and $0.8 million of investing cash use. Financing inflows included $28.1 million of net Series B preferred stock proceeds, $14.9 million of net Oxford debt proceeds and $1.4 million of insurance premium financing.
Material changes versus the prior comparable period
- Revenue declined by $2.6 million because no COPIKTRA-related milestone or royalty revenue was recognized in Q1 2023.
- Research and development expense decreased by $1.6 million, mainly due to lower drug substance and product costs, contract research organization costs and investigator fees.
- Selling, general and administrative expense increased by $1.4 million, reflecting higher financing activity costs, preparation for a potential avutometinib and defactinib launch in low-grade serous ovarian cancer, travel and other expenses.
- Operating cash use increased by $1.0 million despite the lower net loss, reflecting working-capital changes and the absence of the prior-year revenue contribution.
- The company issued 1.2 million Series B convertible preferred shares for gross proceeds of approximately $30.0 million. The shares are convertible into common stock at a rate of 42.3657 common shares per preferred share, subject to ownership limitations.
- Verastem drew the $15.0 million Term B tranche under its Oxford loan agreement, increasing principal loan balance to $40.0 million from $25.0 million.
- The company recorded $1.3 million of stock-based compensation expense in Q1 2023 and had 23.7 million stock options outstanding at March 31, 2023.
Guidance, outlook, commentary and risks
Management expects existing cash resources to fund planned operations for at least 12 months from the issuance of the financial statements. The company expects to continue incurring substantial expenses and operating losses while advancing clinical trials, manufacturing, regulatory activities and potential commercialization preparations.
Management selected the avutometinib and defactinib combination as the go-forward treatment in recurrent low-grade serous ovarian cancer, regardless of KRAS status. The company plans to use mature RAMP 201 and FRAME data to potentially support an accelerated approval filing and is continuing discussions with the FDA regarding a confirmatory study. RAMP 201 combination-arm target enrollment had been achieved, and an interim-data presentation was scheduled for the June 2023 ASCO meeting.
Other clinical programs include RAMP 202 in non-small cell lung cancer, RAMP 203 with Amgen’s LUMAKRAS, RAMP 204 with Mirati’s KRAZATI, and RAMP 205 in pancreatic cancer supported by PanCAN. Through March 31, 2023, PanCAN had provided $1.8 million, with $1.4 million recorded as deferred liabilities; $0.1 million was recognized as a reduction of research and development expense during the quarter.
Key risks include clinical-trial failure or delays, regulatory non-approval, safety or manufacturing issues, competition, uncertain reimbursement and market acceptance, dependence on third parties, intellectual-property challenges, dilution from future financing, and the possibility that available cash will not support planned development. The Oxford debt bears a floating interest rate, matures in March 2027, and is secured by substantially all personal property, excluding intellectual property but including related payment rights and proceeds.
Most important facts for investors to verify
- Whether the cash balance and expected operating runway remain adequate as clinical and potential commercialization spending increases.
- The timing, probability and regulatory basis for a potential accelerated approval filing for the avutometinib and defactinib combination.
- RAMP 201, FRAME, RAMP 202, RAMP 203, RAMP 204 and RAMP 205 enrollment, efficacy and safety data.
- The conditions and potential dilution associated with the second Series B preferred stock tranche, which could provide approximately $30.0 million of additional gross proceeds if market-price and trading-volume conditions are met.
- Debt service requirements, floating-rate exposure and the March 2027 maturity of the Oxford term loans.
- The timing and likelihood of future Secura milestones and royalties, all of which were substantially constrained and excluded from revenue at March 31, 2023.
- The effect of preferred stock conversion rights and the 86.6 million potentially dilutive securities excluded from diluted loss per share.