Verastem, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Verastem is a late-stage development biopharmaceutical company focused on oncology candidates VS-6766, a RAF/MEK clamp, and defactinib, a FAK inhibitor. The candidates are being studied in low-grade serous ovarian cancer, non-small cell lung cancer and other solid tumors. The company sold its COPIKTRA (duvelisib) oncology license and related assets to Secura Bio in 2020 and is now primarily focused on clinical development.
The filing covers the three months ended March 31, 2022, compared with the same period in 2021. The unaudited financial statements were filed on May 9, 2022. The company had 186.4 million common shares outstanding as of May 6, 2022.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $2.6 million | $1.0 million | +$1.6 million |
| Research and development expense | $13.6 million | $8.9 million | +53% |
| SG&A expense | $5.9 million | $6.2 million | -5% |
| Loss from operations | $(17.0) million | $(14.1) million | Loss increased $2.9 million |
| Net loss | $(17.0) million | $(15.0) million | Loss increased $1.9 million |
| Net loss per share | $(0.09) | $(0.09) | No change |
| Net cash used in operating activities | $(19.3) million | $(19.3) million | Approximately unchanged |
Revenue consisted primarily of $2.5 million from a regulatory milestone achieved by Secura’s sublicensee CSPC and approximately $0.1 million of royalties under the Secura agreement. Transition services revenue ended after substantially completing those services in 2021. Revenue was therefore largely milestone- and royalty-driven rather than product sales.
Cash, cash equivalents and investments totaled approximately $106.3 million at March 31, 2022, including $46.7 million of cash and cash equivalents and $59.6 million of short-term investments. Cash, cash equivalents and restricted cash increased by $25.4 million during the quarter, primarily because of $24.8 million of net debt proceeds and $19.3 million of net investment maturities, partly offset by operating cash use.
Accumulated deficit was $680.7 million. Management stated that existing cash resources are expected to fund planned operations for at least 12 months from issuance of the financial statements, but the company expects continuing operating losses and may need additional capital.
Material changes versus the prior comparable period
- Research and development expense increased $4.7 million, primarily due to higher drug substance and product costs, contract research organization costs and investigator fees as the RAMP 201 and RAMP 202 trials progressed.
- Total revenue increased 158%, primarily because of a $2.5 million CSPC-related milestone. The prior-year period included $0.8 million from a Sanofi-related milestone and $0.2 million of transition services revenue.
- Interest expense declined $0.9 million because the $28.0 million of 2020 convertible notes were converted into common stock in July 2021.
- On March 25, 2022, Verastem borrowed $25.0 million under a new Oxford Finance loan agreement. The balance sheet reported $24.2 million of long-term debt net of discounts at quarter-end.
- The company sold 285,900 shares under its ATM program for approximately $0.6 million of net proceeds and had approximately $92.4 million remaining available under the program at March 31, 2022.
Guidance, outlook, risks and unusual items
No specific revenue or earnings guidance was provided. Management expects significant ongoing spending on clinical trials, research and development, regulatory activities, intellectual property and related infrastructure. The Oxford facility permits up to $150.0 million of aggregate term loans, subject to milestones and lender discretion; the initial $25.0 million was funded. The drawn loan bears a floating interest rate based on SOFR plus 7.37%, subject to a floor and cap, and matures in March 2027 with a 5% final payment fee.
Key risks include unsuccessful or delayed clinical trials, regulatory non-approval, safety or manufacturing issues, competition, dependence on contract research and manufacturing organizations, intellectual property challenges, COVID-19-related trial delays, and the need for future financing. Additional equity or debt financing could dilute shareholders or impose restrictive terms. Secura represented more than 60% of accounts receivable and accounted for all revenue in the quarter.
The company reported no material legal proceedings, no material changes to previously disclosed risk factors, no off-balance-sheet arrangements and no material subsequent events. Disclosure controls and procedures were assessed as effective.
Important facts for investors to verify
- Whether VS-6766 and defactinib clinical trials meet enrollment, efficacy, safety and regulatory milestones.
- The timing and probability of future Secura milestones, royalties and other contingent payments.
- The company’s quarterly cash burn and whether the stated cash runway remains adequate as clinical spending increases.
- The terms, interest burden and milestone availability of the Oxford debt facility, including the 2027 maturity and final payment fee.
- Potential dilution from the remaining ATM capacity, equity financing needs and outstanding options and restricted stock units.
- The effect of COVID-19 and clinical-site capacity constraints on trial initiation and enrollment.