Verastem, Inc. 2022 Q2 SEC Filing Summary
Business context and reporting period
Verastem is a late-stage development biopharmaceutical company focused on VS-6766, a RAF/MEK inhibitor, and defactinib, a FAK inhibitor. The candidates are being studied in solid tumors, including low-grade serous ovarian cancer, non-small cell lung cancer, colorectal cancer, pancreatic cancer, uveal melanoma, and endometrial cancer. The filing covers the unaudited quarter and six months ended June 30, 2022, and was filed August 8, 2022.
Verastem sold its COPIKTRA (duvelisib) oncology rights to Secura Bio in 2020 and no longer records product sales. Current operations are primarily research and development driven.
Financial performance and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 | ||
|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |
| Total revenue | $0.0 million | $0.5 million | $2.6 million | $1.5 million |
| Research and development expense | $14.9 million | $9.7 million | $28.5 million | $18.6 million |
| SG&A expense | $6.5 million | $6.7 million | $12.4 million | $12.9 million |
| Loss from operations | $(21.4) million | $(15.9) million | $(38.4) million | $(30.1) million |
| Net loss | $(22.0) million | $(16.9) million | $(38.9) million | $(31.9) million |
| Net loss per share | $(0.12) | $(0.10) | $(0.21) | $(0.19) |
- Second-quarter revenue declined 100% because transition-services revenue ended and no COPIKTRA-related milestone or royalty revenue was recognized in the quarter.
- Six-month revenue increased 72%, primarily from a $2.5 million regulatory milestone achieved by a Secura sublicensee and approximately $0.1 million of royalties and expected royalties.
- R&D expense increased 53% in both the quarter and six-month period, reflecting higher CRO costs, clinical-trial activity, investigator fees, and drug-substance and drug-product costs. Six-month R&D spending included $13.9 million for VS-6766 plus defactinib and $4.9 million for VS-6766 manufacturing and non-clinical activities.
- SG&A declined modestly. The filing does not provide a meaningful positive profit margin; operations remained substantially loss-making because revenue was minimal relative to operating expenses.
Cash flow, liquidity, debt, and capitalization
- At June 30, 2022, cash and cash equivalents were $64.0 million, short-term investments were $30.4 million, and cash, cash equivalents and investments totaled approximately $94.3 million. Including restricted cash, total cash, cash equivalents and restricted cash was $64.2 million.
- Six-month operating cash flow was $(32.0) million, compared with $(32.7) million in the prior-year period.
- Investing cash flow was $48.5 million, primarily from net maturities of investments. Financing cash flow was $26.2 million, primarily from the Oxford loan and ATM equity sales.
- On March 25, 2022, Verastem borrowed $25.0 million under a new Oxford term-loan facility. The balance-sheet carrying value was $24.3 million at June 30, 2022; estimated fair value was $26.4 million. The facility can provide up to $150.0 million in aggregate commitments, subject to milestones and lender discretion.
- The Oxford debt bears interest at a floating rate based on SOFR plus 7.37%, subject to a floor and cap, and matures March 1, 2027. Principal repayments are scheduled to begin in 2024, 2025, or 2026 depending on milestone outcomes. The agreement has no financial covenants but contains customary defaults and collateral provisions.
- Approximately $0.3 million of 5.00% convertible senior notes due 2048 remained outstanding. The company sold 1.29 million shares under its ATM program during the six months for approximately $1.8 million net and had approximately $91.2 million of remaining ATM capacity at June 30, 2022.
- Management stated that existing cash resources were expected to fund planned operations for at least 12 months from the financial-statement issuance date, but additional capital may be required to complete development programs.
Material changes versus the prior comparable period
- Revenue shifted from transition services and smaller COPIKTRA-related amounts to a $2.5 million regulatory milestone in the first half of 2022; transition-services revenue was fully completed in 2021.
- R&D spending rose $5.2 million in the quarter and $9.9 million year to date as RAMP 201 and RAMP 202 progressed and manufacturing investment increased.
- Net loss increased $5.1 million in the quarter and $7.0 million year to date despite lower interest expense, primarily because of higher R&D spending.
- Liquidity increased from approximately $100.5 million of cash, cash equivalents, restricted cash, and investments at December 31, 2021 to approximately $94.5 million at June 30, 2022 on a comparable total basis, with the decline in investments offset by the Oxford borrowing, equity proceeds, and investment maturities.
- Interest expense declined because the $28.0 million 2020 convertible notes were converted into common stock in July 2021, partially offset by interest on the new Oxford debt.
Guidance, outlook, commentary, and risks
- Management expects to continue significant operating losses and expenses while advancing VS-6766 and defactinib clinical programs.
- Verastem expected to report topline results from Part A of RAMP 202 and initiate Part B during the second half of 2022, subject to regulatory discussions.
- A June 2022 interim analysis of RAMP 201 showed encouraging independently confirmed responses in both VS-6766 monotherapy and combination cohorts, including KRAS-mutant and KRAS-wild-type patients. Management said the data were not mature enough to select a final treatment regimen, so all four cohorts would continue. Approximately 80% of patients remained on treatment, and approximately 6% had discontinued because of adverse events.
- In May 2022, Verastem received a Pancreatic Cancer Network grant of up to $3.8 million for a Phase 1b/2 VS-6766 and defactinib trial. An additional $0.5 million was agreed in August 2022, and $1.0 million was received in July 2022.
- Future financing could include equity, debt, collaborations, licensing transactions, milestones, and royalties. Equity or additional strategic transactions could dilute existing stockholders or require the company to relinquish valuable rights.
- On June 30, 2022, the FDA issued a COPIKTRA drug-safety communication citing a possible increased risk of death and serious adverse events. Further FDA action or reduced COPIKTRA sales could impair Secura’s development and commercialization efforts and reduce Verastem’s future milestone and royalty receipts.
- Other principal risks include clinical-trial failure or delays, regulatory non-approval, safety events, manufacturing or supply interruptions, competition, intellectual-property challenges, dependence on third parties, COVID-19-related site and enrollment delays, and the need for additional capital.
Most important facts for investors to verify
- Whether the reported RAMP 201 and RAMP 202 clinical data mature into a regulatory filing or approval opportunity for VS-6766, particularly in low-grade serous ovarian cancer.
- The timing and probability of additional Secura milestone payments and royalties following the FDA’s COPIKTRA safety communication.
- Cash burn relative to the approximately $94.3 million liquidity balance and the date additional financing may be required.
- The terms, interest burden, milestone availability, collateral, and repayment schedule of the Oxford facility.
- Whether R&D spending continues to increase as enrollment, manufacturing, and registration-directed trials progress.
- Potential dilution from the remaining ATM capacity, stock compensation, outstanding options, and any future equity financing.