Verastem, Inc. 2021 Q2 Form 10-Q Summary
Business context and reporting period
Verastem is a clinical-stage biopharmaceutical company focused on oncology therapies targeting RAF/MEK and FAK pathways. Its lead candidates are VS-6766 and defactinib, being studied in ovarian, lung, colorectal, pancreatic, endometrial and other solid tumors. The filing covers the three and six months ended June 30, 2021, with comparative periods ended June 30, 2020.
Verastem sold its COPIKTRA (duvelisib) oncology license and related assets to Secura Bio on September 30, 2020. Accordingly, 2021 revenue is primarily from Secura milestone, royalty and transition-service arrangements rather than product sales.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 | ||
|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |
| Total revenue | $0.5 million | $4.3 million | $1.5 million | $9.4 million |
| Research and development | $9.7 million | $9.3 million | $18.6 million | $20.3 million |
| SG&A | $6.7 million | $15.4 million | $12.9 million | $35.0 million |
| Loss from operations | $(15.9) million | $(21.3) million | $(30.1) million | $(47.6) million |
| Net loss | $(16.9) million | $(23.0) million | $(31.9) million | $(61.0) million |
| Net loss per share | $(0.10) | $(0.14) | $(0.19) | $(0.45) |
- There were no product sales in 2021, compared with $4.2 million in the second quarter and $9.3 million in the first half of 2020.
- 2021 revenue included $0.9 million of COPIKTRA license and related-asset revenue and $0.6 million of transition-service revenue for the first half; the comparable 2020 amounts were zero.
- Operating margins are not meaningful because revenue was minimal and largely nonrecurring. The company remains loss-making and has an accumulated deficit of $624.4 million at June 30, 2021.
- Cash used in operating activities was $32.7 million in the first half of 2021, compared with $56.6 million in the prior-year period. Investing activities used $10.0 million, while financing activities used $0.1 million.
- Cash, cash equivalents and investments totaled approximately $114.1 million at June 30, 2021; cash, cash equivalents and restricted cash totaled $25.2 million. Total investments were $89.2 million at fair value.
- Current assets were $114.8 million versus $144.9 million at December 31, 2020. Current liabilities were $12.7 million versus $17.1 million.
- Convertible senior notes had a carrying value of $20.3 million at June 30, 2021. Principal outstanding was approximately $28.3 million, including $28.0 million of 2020 Notes and approximately $0.3 million of 2018 Notes.
Material changes versus the prior comparable period
- Revenue decreased 88% in the second quarter and 90% in the first half, primarily because COPIKTRA sales ceased following the Secura transaction.
- SG&A declined 57% in the second quarter and 63% in the first half because of reduced headcount, lower consulting and professional fees, and reduced commercial activity.
- First-half R&D decreased 8%, principally because the $3.0 million Chugai license payment recorded in 2020 did not recur. The company stated that R&D spending is expected to increase as registration-directed trials progress.
- Interest expense declined substantially because of the repayment of the term loan facility in November 2020 and the absence of the prior-year non-cash interest expense associated with conversion of the 2019 Notes.
- First-half net loss improved by $29.1 million, or 48%, but this improvement reflects the prior-year financing and restructuring items and lower commercial infrastructure costs, not a shift to profitability.
- Shares outstanding increased to 172.1 million at June 30, 2021 from 170.5 million at December 31, 2020. Potentially dilutive securities totaled approximately 24.1 million shares.
Guidance, outlook, risks and unusual items
- Management expects existing cash resources to fund planned operations for at least 12 months from issuance of the financial statements or filing.
- The company expects continuing operating losses and significant expenses from clinical trials, research and development, intellectual-property activities, personnel and potential commercialization infrastructure.
- Future financing may include Secura milestones and royalties, collaborations, equity offerings or debt. Additional financing may be unavailable or dilutive to existing stockholders.
- Under the Secura agreement, Verastem may receive up to $45.0 million of regulatory milestones, up to $50.0 million of sales milestones and low-double-digit royalties on specified sales, but most potential consideration remained constrained. A $0.8 million milestone and $0.1 million of expected royalties were recognized in the first half of 2021.
- On July 1, 2021, Verastem exercised its mandatory conversion option on the $28.0 million of 2020 Notes. The notes converted into 8.6 million common shares on July 16, 2021, leaving no 2020 Notes principal outstanding after conversion.
- COVID-19 continued to cause delays in certain European trial start-up activities, although patient accruals increased as restrictions eased.
- Key risks include clinical-trial failure or delay, regulatory nonapproval, safety or manufacturing problems, competition, intellectual-property challenges, dependence on Secura performance and milestones, financing needs, dilution and uncertainty regarding future product reimbursement and commercial demand.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, no off-balance-sheet arrangements and no material changes to contractual obligations.
Important facts for investors to verify
- Verify the timing and terms of the July 2021 conversion of the 2020 Notes and the resulting increase in shares outstanding.
- Assess whether the reported cash and investments support the planned clinical program beyond the stated 12-month runway, including expected increases in R&D spending.
- Track enrollment, efficacy, safety and regulatory progress in RAMP 201, RAMP 202 and other VS-6766 and defactinib studies.
- Monitor Secura’s COPIKTRA sales, regulatory milestones and royalty-generating activity, recognizing that most potential payments remained constrained at June 30, 2021.
- Reconcile nonrecurring 2021 revenue with underlying operating needs, since the company has no current product revenue and remains dependent on financing and business-development proceeds.