Verastem, Inc. 2012 Form 10-K Summary
Business context and reporting period
Verastem is a clinical-stage biopharmaceutical company developing small-molecule cancer therapies intended to target cancer stem cells, together with companion diagnostics. The filing covers the fiscal year ended December 31, 2012; fourth-quarter information is presented on an unaudited basis. The company remained in the development stage and had not generated revenue or received marketing approval for any product.
- Lead candidate VS-6063 was in Phase 1/1b clinical testing in ovarian cancer.
- VS-4718 and VS-5584 remained in preclinical development, with Phase 1 trials planned for 2013.
- The company expected to initiate a potentially pivotal mesothelioma trial for VS-6063 in mid-2013.
Financial performance and liquidity
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $21.7 million | $9.9 million | +$11.8 million |
| General and administrative expense | $10.5 million | $3.8 million | +$6.7 million |
| Total operating expenses | $32.2 million | $13.7 million | +$18.5 million |
| Net loss | $32.0 million | $13.7 million | Loss increased |
| Net loss per share | $1.70 | $10.59 | Not directly comparable because of the 2012 IPO and share-count increase |
| Operating cash used | $22.6 million | $9.4 million | Use increased |
| Cash, cash equivalents and investments at year-end | $91.5 million | $56.8 million | +$34.7 million |
Fourth-quarter 2012 operating expenses were $8.0 million and net loss was $7.9 million, compared with $6.0 million and $6.0 million, respectively, in the fourth quarter of 2011. Fourth-quarter research and development expense was $4.1 million and general and administrative expense was $3.9 million.
Year-end current assets were $57.1 million and current liabilities were $2.4 million, producing working capital of $54.7 million. The filing does not disclose material interest-bearing debt; liabilities primarily consisted of accounts payable, accrued expenses, deferred rent and other obligations. No off-balance-sheet arrangements were reported.
Margins are not meaningful because the company had no revenue. The accumulated development-stage deficit was $46.5 million at December 31, 2012, and stockholders' equity was $90.5 million.
Material changes versus the prior comparable period
- Research and development spending increased primarily because of higher contract research organization costs, Pfizer license-related expenses, personnel and stock-based compensation.
- General and administrative spending increased because of higher personnel and stock-based compensation, public-company legal and accounting costs, insurance and consulting expenses.
- The company completed its initial public offering in February 2012, issuing 6.325 million shares at $10.00 per share and receiving net proceeds of approximately $56.8 million.
- All preferred stock converted into 11.74 million common shares in connection with the IPO.
- In July 2012, Verastem licensed certain Pfizer FAK inhibitors, including VS-6063, for $1.5 million in cash and 192,012 shares of common stock. The arrangement also includes potential development and commercial milestones of up to $127 million and future royalties.
- In May 2012, Verastem acquired PI3K/mTOR inhibitor compounds from S*Bio for $350,000, with potential milestones of approximately $21.0 million and future royalties.
- Cash used in investing activities was $45.9 million, primarily reflecting purchases of investments, while financing activities provided $57.6 million.
Guidance, outlook, commentary and risks
Management expected expenses and operating losses to increase as clinical development expanded. Based on the stated current operating plan, existing cash, cash equivalents and investments were expected to fund operations and capital expenditures into late 2015. The filing cautions that this estimate could change materially depending on trial scope, enrollment, regulatory requirements, licensing activity and other development costs.
- The company expected to advance VS-6063 into a mesothelioma maintenance trial and initiate Phase 1 studies of VS-4718 and VS-5584 during 2013.
- No product revenue was expected for many years, if ever, and the company had no committed external funding source.
- Additional equity, debt, collaboration or licensing financing may be required; equity or convertible financing could dilute existing stockholders.
- Clinical, regulatory and commercial risks include failure of preclinical or clinical studies, adverse safety findings, enrollment delays, regulatory holds or approval failure, and inability to develop effective companion diagnostics.
- The company relies on third parties for clinical research, drug manufacturing and certain formulation work. It had no manufacturing facilities, no long-term supply agreement and no redundant source for bulk drug substance.
- Important intellectual-property risks include termination or loss of licenses, patent challenges and potential third-party infringement claims, particularly relating to VS-4718.
- License commitments include annual maintenance fees, milestone payments and royalties. The company also had a $667,000 remaining operating lease commitment at year-end.
Most important facts for investors to verify
- Actual cash burn and whether the stated funding runway remains adequate as clinical trials expand.
- Progress, enrollment, safety and efficacy results for VS-6063, including the planned mesothelioma trial.
- Regulatory status of the VS-6063 orphan-drug applications and any required companion diagnostic.
- Timing and cost of planned Phase 1 trials for VS-4718 and VS-5584.
- Terms, milestones, royalties and termination provisions under the Pfizer, S*Bio, Poniard and Whitehead Institute agreements.
- Potential dilution from outstanding options, restricted stock units and the Poniard warrant obligation.
- Whether additional financing will be required before the company can generate product revenue.