Verastem, Inc. — Form 10-Q Summary
Business context and reporting period
Verastem is a late-stage biopharmaceutical company developing avutometinib, a RAF/MEK inhibitor, and defactinib, a FAK inhibitor, for solid tumors including low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer, colorectal cancer, pancreatic cancer and melanoma. The filing covers the unaudited quarter and six months ended June 30, 2023, and was filed August 8, 2023.
The company no longer sells COPIKTRA. Its principal activities are clinical development, regulatory preparation and financing operations.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0.0 million in 2023; $0.0 million in 2022 | $0.0 million in 2023; $2.6 million in 2022 |
| Research and development expense | $12.9 million; down 13% | $24.9 million; down 13% |
| SG&A expense | $7.4 million; up 14% | $14.7 million; up 18% |
| Operating loss | $20.3 million | $39.6 million |
| Net loss | $24.3 million, or $1.37 per share | $40.0 million, or $2.32 per share |
| Net loss in comparable 2022 period | $22.0 million, or $1.41 per share | $38.9 million, or $2.51 per share |
Margins are not meaningful because the company reported no revenue in the quarter or first half of 2023. The first-half 2022 revenue was a non-recurring COPIKTRA milestone and royalty amount.
- Cash, cash equivalents and investments were $183.1 million at June 30, 2023, compared with $87.9 million at December 31, 2022. Including restricted cash, total cash, cash equivalents and restricted cash was $184.3 million.
- Net cash used in operating activities was $40.2 million for the first six months of 2023, compared with $32.0 million in the prior-year period.
- Net cash provided by financing activities was $135.5 million, including $91.9 million from the June public offering, $28.1 million from Series B preferred stock and $14.9 million from the Oxford debt draw.
- Total liabilities were $69.0 million, including $39.7 million of long-term debt, $7.5 million of preferred stock tranche liability, $0.6 million of insurance-premium financing and $0.3 million of convertible senior notes.
- Oxford debt principal totaled $40.0 million at June 30, 2023. Principal payments are scheduled to begin in 2025, with $40.0 million of principal due through 2027. The debt bears a floating interest rate and is secured by substantially all personal property, excluding intellectual property itself.
- The company had an accumulated deficit of $777.5 million and stated that existing cash resources are expected to fund planned operations for at least 12 months from issuance of the financial statements.
Material changes versus the prior comparable period
- Revenue fell to zero from $2.6 million in the first half of 2022 because the prior-year amount included a COPIKTRA regulatory milestone and royalties.
- Research and development expense declined primarily because of lower drug substance, drug product and clinical research organization costs, partly offset by higher investigator-sponsored trial and personnel costs.
- SG&A increased because of higher consulting and professional fees, launch-preparation activities for avutometinib and defactinib in LGSOC, financing costs and travel.
- Net loss increased by $2.3 million for the quarter and $1.1 million for the first half, despite lower operating expenses, primarily because of higher interest expense and the fair-value loss on the preferred stock tranche liability.
- Interest income increased materially with higher interest rates and larger cash balances, while interest expense increased following the additional $15.0 million Oxford debt draw in March 2023.
- On May 31, 2023, Verastem completed a 1-for-12 reverse stock split. The filing retroactively restates share and per-share amounts.
- The June 2023 public offering issued 8,489,409 common shares or pre-funded warrants for net proceeds of approximately $91.4 million, increasing common shares outstanding to approximately 25.2 million at June 30, 2023.
- The company issued 1.2 million Series B preferred shares in January 2023 for approximately $28.1 million of net proceeds. The shares are convertible into common stock and senior to common and Series A preferred stock. A potential second tranche is associated with a $7.5 million fair-value liability at June 30, 2023.
Guidance, outlook, commentary and risks
- Management expects continued operating losses and significant research and development spending until potential product approval and commercialization.
- RAMP 201 is evaluating avutometinib plus defactinib in recurrent LGSOC. The company reported an interim confirmed objective response rate of 45% in 29 evaluable patients in Part A, with median duration of response and median progression-free survival not yet reached.
- The company stated that the target enrollment of 72 patients in the primary combination cohort of RAMP 201 was completed. It intends to use mature RAMP 201 and FRAME data to potentially support an accelerated-approval filing.
- Management reported in July 2023 that the FDA-aligned Phase 3 RAMP 301 trial design had been finalized, with enrollment expected to begin in the second half of 2023. This is forward-looking and subject to operational and regulatory execution.
- RAMP 203 with Amgen’s LUMAKRAS had advanced to the recommended Phase 2 dose and dose expansion; RAMP 204 with KRAZATI was open and enrolling; and RAMP 205 in pancreatic cancer had begun enrollment.
- Potential future liquidity sources include Secura milestone and royalty payments, additional debt, collaborations and equity offerings. None is assured, and future financings could be dilutive.
- Key risks include clinical-trial failure or delays, adverse safety findings, regulatory non-approval, uncertain reimbursement and market acceptance, manufacturing or supply interruptions, reliance on contract organizations, competition, intellectual-property challenges and insufficient capital.
- The filing disclosed no material legal proceedings, no defaults and no material subsequent events. Management concluded that disclosure controls were effective as of June 30, 2023.
Important facts for investors to verify
- Verify current cash runway against the approximately $40.2 million first-half operating cash burn and the timing and cost of RAMP 301 and other trials.
- Verify the conversion, dilution and seniority terms of the Series B preferred stock, including whether the second-tranche conditions are met.
- Verify the remaining Oxford debt balance, floating interest rate, repayment schedule, security interests and potential acceleration triggers.
- Track RAMP 201 mature results, the timing and contents of any accelerated-approval filing, and initiation and enrollment of RAMP 301.
- Assess whether the reported interim response data translate into confirmatory efficacy, durability and safety outcomes.
- Verify potential Secura milestones and royalties, recognizing that most future amounts remained constrained and were not recognized as revenue.
- Monitor share count, pre-funded warrant exercises, preferred-stock conversions and additional financing for dilution.