Business Context and Reporting Period
Verastem, Inc. is a clinical-stage biopharmaceutical company focused on RAF/MEK inhibition and FAK inhibition for solid tumors. Its lead candidates are VS-6766 and defactinib, under investigation in ovarian, lung, colorectal, pancreatic, uveal melanoma and endometrial cancers. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, filed November 4, 2021.
Verastem sold its COPIKTRA (duvelisib) oncology license and related assets to Secura Bio on September 30, 2020. Accordingly, the company no longer reports COPIKTRA product sales and is primarily funding clinical development of VS-6766 and defactinib.
Financial Performance and Position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $0.002 million in 2021 versus $78.647 million in 2020 | $1.508 million in 2021 versus $88.010 million in 2020 |
| Research and development expense | $9.325 million versus $10.955 million | $27.951 million versus $31.223 million |
| Selling, general and administrative expense | $5.523 million versus $20.614 million | $18.455 million versus $55.660 million |
| Loss from operations | $14.846 million loss versus $15.017 million income | $44.898 million loss versus $32.606 million loss |
| Net income (loss) | $22.786 million loss versus $13.138 million income | $54.719 million loss versus $47.862 million loss |
| Loss per share | $0.13 basic and diluted | $0.31 basic and diluted |
| Cash used in operating activities | $43.569 million for the nine months, versus $11.803 million in 2020 |
Revenue in 2021 consisted primarily of $0.9 million from a Secura-related regulatory milestone and expected royalties, plus $0.6 million of transition services revenue. There was no product revenue or license and collaboration revenue in 2021. Gross margin is not a meaningful operating measure for the current period because the company had effectively no product revenue or associated cost of sales.
At September 30, 2021, cash and cash equivalents were $24.314 million, short-term investments were $79.102 million, and total cash, cash equivalents and investments were approximately $103.4 million. Total assets were $111.877 million and stockholders’ equity was $95.655 million. The accumulated deficit was $647.230 million.
Convertible senior notes were reduced to approximately $0.2 million carrying value, or $0.3 million aggregate principal, at September 30, 2021. The remaining 2020 Notes, with $28.0 million principal, were mandatorily converted into 8.615 million common shares in July 2021. The company also had approximately $3.1 million of lease liabilities.
Material Changes Versus the Prior Comparable Period
- Revenue declined by 100% year over year in the third quarter and by 98% for the nine-month period, primarily because 2020 included the $70.0 million upfront payment from the Secura transaction, COPIKTRA product revenue and license milestones.
- SG&A declined 73% in the third quarter and 67% for the nine-month period, reflecting reduced headcount, lower commercial activity and lower consulting and professional fees following the COPIKTRA divestiture and restructuring.
- R&D expense declined 15% in the third quarter and 10% for the nine-month period, although management expects R&D spending to increase as registration-directed trials progress.
- Third-quarter interest expense increased to $8.0 million from $1.9 million, primarily because the company recognized $7.8 million of non-cash interest expense upon conversion of the 2020 Notes.
- Operating cash burn increased substantially, with cash used in operating activities of $43.6 million versus $11.8 million in the prior-year period. The 2020 period benefited from the Secura transaction and related working-capital effects.
- Common shares outstanding increased to 182.155 million at September 30, 2021 from 170.456 million at December 31, 2020, mainly due to the conversion of the 2020 Notes and equity compensation activity.
Guidance, Outlook, Risks and Unusual Items
Management expects significant operating expenses and losses to continue as it advances VS-6766 and defactinib, conducts clinical trials, protects intellectual property and develops potential commercialization capabilities. The company stated that existing cash resources are expected to fund planned operations for at least 12 months from issuance of the financial statements.
Future funding may include Secura milestones and royalties, collaboration agreements, equity offerings or debt financing. There is no assurance that these sources will be available on favorable terms, and equity or convertible debt financing could dilute existing stockholders.
- In September 2021, Verastem entered into a clinical collaboration with Amgen to evaluate VS-6766 with sotorasib in KRAS G12C-mutant non-small cell lung cancer.
- The company is conducting RAMP 201 in recurrent low-grade serous ovarian cancer and RAMP 202 in KRAS-mutant non-small cell lung cancer.
- Management reported updated FRAME study data, including a 46% overall response rate among evaluable low-grade serous ovarian cancer patients and median progression-free survival of 23.0 months; these are clinical-study results and may not predict registration-trial outcomes.
- Secura-related future milestone and royalty consideration remains substantially constrained. The filing recognizes $0.8 million from a regulatory milestone and $0.1 million of expected royalties for the nine months ended September 30, 2021.
- COVID-19 continued to create potential clinical-trial startup and enrollment delays, particularly in certain European jurisdictions.
- Key risks include unsuccessful or delayed clinical trials, regulatory nonapproval, safety or manufacturing problems, competition, intellectual-property challenges, uncertain reimbursement and the need for additional capital.
Management reported no material changes to previously disclosed risk factors, no legal proceedings, no material subsequent events and no off-balance-sheet arrangements. Disclosure controls and procedures were assessed as effective at the reasonable-assurance level.
Investor Verification Checklist
- Verify the pace and cash cost of RAMP 201, RAMP 202 and other VS-6766 and defactinib trials, including enrollment, safety, efficacy and regulatory timelines.
- Reconcile the company’s approximately $103.4 million liquidity balance with quarterly operating cash burn and updated runway assumptions.
- Assess the likelihood, timing and conditions for future Secura milestones, royalties and sublicense-related payments, noting that most potential consideration remains constrained.
- Review potential dilution from the $100.0 million August 2021 at-the-market program, outstanding options and other equity compensation; no shares had been sold under the new ATM through September 30, 2021.
- Confirm the remaining 2018 convertible note balance, lease obligations and future interest or contractual cash requirements.
- Evaluate whether clinical-study data cited by management are preliminary or interim and whether subsequent filings materially change the outlook or risk profile.