Verastem, Inc. 2021 Q1 SEC Filing Summary
Business context and reporting period
Verastem is a development-stage biopharmaceutical company focused on oncology therapies targeting RAF/MEK and FAK pathways. Its lead candidates are VS-6766 and defactinib, being evaluated 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 three months ended March 31, 2021, and was filed May 11, 2021. Following the September 2020 sale of its COPIKTRA license and related oncology assets to Secura Bio, Verastem is primarily focused on clinical development of VS-6766 and defactinib.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $1.0 million | $5.1 million | Down 80% |
| Product revenue | $0 | $5.0 million | Down 100% |
| COPIKTRA license and asset-sale revenue | $0.9 million | $0 | New |
| Transition-services revenue | $0.2 million | $0 | New |
| Research and development expense | $8.9 million | $10.9 million | Down 19% |
| Selling, general and administrative expense | $6.2 million | $19.6 million | Down 68% |
| Total operating expenses | $15.1 million | $31.4 million | Down 52% |
| Loss from operations | $(14.1) million | $(26.4) million | Improved $12.3 million |
| Net loss | $(15.0) million | $(38.0) million | Improved $23.0 million |
| Net loss per share | $(0.09) | $(0.35) | Improved |
| Net cash used in operating activities | $(19.3) million | $(34.0) million | Improved $14.7 million |
Revenue declined because Verastem no longer sells COPIKTRA. Q1 2021 revenue consisted primarily of a $0.8 million regulatory milestone from a Secura sublicensee, $0.1 million of expected royalties under the Secura agreement and $0.2 million of transition services revenue. Secura accounted for all revenue and more than 60% of accounts receivable.
Operating expenses and losses improved primarily because Q1 2020 included the $3.0 million Chugai license payment, higher commercial and personnel costs, restructuring charges and substantial non-cash interest expense related to converted 2019 Notes. Management expects research and development spending for VS-6766 and defactinib to increase as registration-directed trials progress.
As of March 31, 2021, cash, cash equivalents and investments totaled approximately $127.1 million, including $35.5 million of cash and cash equivalents, $91.6 million of investments and $0.2 million of restricted cash. Total assets were $136.9 million and accumulated deficit was $607.5 million.
Total liabilities were $34.3 million, including $19.7 million of convertible senior notes on the balance sheet. Management reported approximately $28.3 million of aggregate principal amount outstanding under the 2018 and 2020 convertible notes. The notes bear fixed interest at 5.0% and mature in 2048, subject to conversion, redemption and repurchase provisions.
Gross and operating margins are not meaningful for this development-stage company because product sales ceased after the COPIKTRA divestiture and Q1 2021 revenue was primarily milestone, royalty and transition-services revenue.
Cash flow and liquidity
- Operating cash use was $19.3 million, reflecting ongoing clinical development and corporate costs.
- Investing cash use was $12.4 million, primarily due to net purchases of investments of $12.2 million and $0.2 million of property and equipment purchases.
- Financing cash use was $0.6 million, primarily reflecting $0.9 million of restricted-stock tax withholding payments, partly offset by $0.3 million from stock option exercises and the employee stock purchase plan.
- Cash, cash equivalents and restricted cash decreased by $32.3 million during the quarter.
- Management expects existing cash resources to fund planned operations for at least 12 months from issuance of the financial statements, but states that additional financing may be required to complete future development activities.
Material changes versus the prior comparable period
- COPIKTRA product revenue ended following the sale of the license and related assets to Secura in September 2020.
- Q1 2021 revenue shifted to Secura-related milestone, royalty and transition-services revenue.
- R&D expense decreased by $2.0 million, principally because Q1 2020 included the $3.0 million Chugai upfront license payment; this was partly offset by higher drug manufacturing, investigator-sponsored trial and preclinical costs.
- SG&A expense decreased by $13.4 million due to reduced headcount, lower consulting and professional fees, reduced commercial activity and lower travel costs.
- Interest expense declined by $9.7 million because Q1 2020 included non-cash expense associated with conversion of the 2019 Notes and higher debt-related costs.
- Q1 2020 included $1.8 million of restructuring charges; no restructuring charges were recorded in Q1 2021.
- Common shares outstanding increased from 170.5 million at December 31, 2020 to 171.7 million at March 31, 2021, primarily due to option exercises, restricted stock vesting and employee stock purchases.
Outlook, commentary, risks and unusual items
Verastem has commenced registration-directed RAMP 201 and RAMP 202 trials. RAMP 201 evaluates VS-6766 alone and with defactinib in recurrent low-grade serous ovarian cancer; RAMP 202 evaluates VS-6766 alone and with defactinib in KRAS-mutant non-small cell lung cancer after platinum-based therapy and an immune checkpoint inhibitor.
Management cited prior FRAME study data, including a 52% overall response rate among 21 response-evaluable low-grade serous ovarian cancer patients in the December 2020 data readout. These data are preliminary or from ongoing studies and may not predict later clinical or regulatory outcomes.
The company remains loss-making and expects significant future expenses. Key risks include clinical-trial failure or delay, patient enrollment and COVID-19-related trial disruptions, regulatory uncertainty, manufacturing and supply risks, competition, intellectual-property challenges, dependence on third parties, limited revenue visibility and the need for additional capital. Restrictions in parts of Europe continued to delay trial start-up activities.
Under the Secura agreement, Verastem may receive regulatory milestones of up to $45.0 million, sales milestones of up to $50.0 million, low-double-digit royalties on qualifying sales above $100.0 million and 50% of certain sublicensing, milestone and royalty payments. Most future milestones and royalties remained constrained and were not recognized as revenue at March 31, 2021.
The filing reports no material legal proceedings, no material changes to previously disclosed risk factors, no off-balance-sheet arrangements and no material subsequent events. Management concluded that disclosure controls and procedures were effective as of March 31, 2021.
Important facts for investors to verify
- Whether cash burn remains consistent with the stated expectation that current resources fund operations for at least 12 months.
- The enrollment, safety, efficacy and regulatory progress of RAMP 201, RAMP 202 and other VS-6766 and defactinib studies.
- The timing and probability of Secura-related regulatory milestones, sales milestones and royalty receipts.
- The extent to which clinical development costs increase as registration-directed trials advance.
- The terms, conversion risk and future repurchase or redemption obligations associated with the 2018 and 2020 convertible notes.
- Potential dilution from future equity or convertible-debt financing, stock options, restricted stock units and employee equity plans.
- The continuing effect of COVID-19 on trial enrollment, site activation, supply chains and international operations.