Verastem, Inc. — Form 10-Q Summary
Business context and reporting period
Verastem is a clinical-stage biopharmaceutical company focused on cancer stem-cell therapies and companion diagnostics. The filing covers the three months ended March 31, 2013. The company remained a development-stage business with no product revenue and reported 21.3 million common shares outstanding as of April 30, 2013.
Lead programs included the FAK inhibitor VS-6063, then in Phase 1/1b testing for ovarian cancer; VS-4718, expected to enter Phase 1 during the first half of 2013; and the PI3K/mTOR inhibitor VS-5584, expected to enter Phase 1 during the second half of 2013.
Financial condition and key metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $5.3 million | $4.8 million |
| General and administrative expense | $3.8 million | $2.1 million |
| Total operating expenses | $9.1 million | $6.9 million |
| Net loss | $9.0 million | $6.9 million |
| Net loss per share | $0.44 | $0.47 |
| Net cash used in operating activities | $6.3 million | $4.9 million |
- Cash and cash equivalents were $28.2 million at March 31, 2013, compared with $10.1 million at December 31, 2012.
- Short-term and long-term investments totaled $56.2 million, resulting in cash, cash equivalents and investments of $84.4 million.
- Total assets were $86.2 million and total current liabilities were $3.4 million at March 31, 2013.
- The company had no reported debt and no off-balance-sheet arrangements.
- Stock-based compensation expense was $2.5 million in the quarter.
- Operating results do not provide a meaningful operating margin because the company had no revenue; the operating loss was $9.1 million.
Material changes versus the prior comparable period
- Research and development expense increased $494,000, primarily because of higher contract research organization costs and personnel expenses, partly offset by lower license-fee expense.
- General and administrative expense increased $1.7 million, principally due to higher personnel and stock-based compensation expense, professional fees and consulting costs.
- Net loss increased to $9.0 million from $6.9 million, while loss per share improved to $0.44 from $0.47 because of a larger weighted-average share count.
- Cash used in operating activities increased $1.4 million, reflecting increased research and development spending.
- Investing activities provided $25.3 million in Q1 2013 from net investment maturities, compared with $48.2 million of investing cash usage in Q1 2012, when the company made substantial net investment purchases.
- Financing activities used $765,000 in Q1 2013, primarily to settle tax obligations related to restricted stock units; Q1 2012 included $57.6 million of net IPO proceeds.
Guidance, outlook, risks and unusual items
- Management stated that existing cash, cash equivalents and investments were expected to fund the current operating plan and capital requirements into the second half of 2015, subject to assumptions that may prove inaccurate.
- The company expected increasing operating losses and significant additional research, development, clinical-trial and potential commercialization expenses.
- No external funding source was committed. Future financing could include equity, debt, collaborations, strategic alliances or licensing arrangements, with potential dilution or relinquishment of valuable rights.
- Key execution risks included clinical-trial outcomes, regulatory approval, intellectual-property protection, reliance on third parties, competition, ability to obtain financing and the lack of product revenue.
- During the quarter, certain restricted stock units were modified to permit tax withholdings above statutory minimums and were consequently classified as liability instruments. The company paid $774,000 to settle tax liabilities for awards that vested during the period.
- No material subsequent events, legal proceedings, material changes to previously disclosed risk factors, or defaults were reported.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2013, and reported no material change in internal control over financial reporting.
Investor verification points
- Verify the cash runway against actual clinical-trial spending, enrollment timing and future financing requirements.
- Track clinical and regulatory progress for VS-6063, VS-4718 and VS-5584, including the planned mesothelioma trial.
- Assess the effect of rising research and development and stock-based compensation expenses on cash burn and share dilution.
- Review licensing, patent and companion-diagnostic rights, including obligations that could affect future economics.
- Monitor the company’s ability to obtain additional capital before existing resources are exhausted.