Verastem, Inc. annual report, FY2022

Verastem, Inc. Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report; it does not provide a separate fourth-quarter income statement. Verastem is a late-stage development biopharmaceutical company focused on avutometinib, an investigational RAF/MEK inhibitor, and defactinib, an investigational FAK inhibitor, primarily for solid tumors.

Business Context and Development Status

• The principal development focus is the avutometinib and defactinib combination for recurrent low-grade serous ovarian cancer, or LGSOC.
• RAMP 201 selected the combination regimen over avutometinib monotherapy as the go-forward treatment for recurrent LGSOC regardless of KRAS status. The company is discussing a confirmatory study with the FDA and intends to use mature RAMP 201 and FRAME data to potentially support an accelerated approval filing.
• In January 2023 interim RAMP 201 data, the combination arm had a 28% confirmed objective response rate among 29 evaluable patients and a 93% disease-control rate. The monotherapy arm had a 7% confirmed objective response rate among 30 evaluable patients.
• RAMP 202 results in KRAS G12V non-small cell lung cancer were active but did not meet predefined criteria for expansion. No KRAS non-G12V subtype was identified for further evaluation in that trial.
• RAMP 203, in combination with Amgen’s LUMAKRAS, had advanced to cohort two; RAMP 204, in combination with Mirati’s KRAZATI, was open and enrolling; and RAMP 205, a pancreatic cancer study supported by PanCAN, opened in the fourth quarter of 2022.

Financial Performance and Liquidity

Metric	2022	2021	Change
Total revenue	$2.6 million	$2.1 million	+$0.5 million
Research and development expense	$50.6 million	$39.3 million	+$11.3 million
Selling, general and administrative expense	$25.0 million	$24.1 million	+$0.9 million
Loss from operations	$(72.9) million	$(61.4) million	$(11.5) million
Net loss	$(73.8) million	$(71.2) million	$(2.6) million
Net loss per share	$(0.38)	$(0.41)	Improved per share despite higher net loss
Operating cash flow	$(63.7) million	$(53.5) million	Higher cash use

• 2022 revenue consisted primarily of $2.5 million from a regulatory milestone earned through the Secura agreement and approximately $0.1 million of royalties. Verastem had no product revenue or license and collaboration revenue in 2022.
• Research and development expense increased primarily because of higher drug substance and product costs, CRO costs, consulting costs, investigator fees, personnel costs and clinical supply costs.
• Cash, cash equivalents and investments totaled $87.9 million at December 31, 2022, compared with $100.3 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $75.8 million.
• Financing cash inflows included approximately $27.4 million of net ATM equity proceeds and $24.1 million of net proceeds from the Oxford debt facility.
• Accumulated deficit was $737.5 million. The company continues to report significant operating losses and has not established recurring product revenue.
• Margins are not economically meaningful because revenue was largely composed of a contingent milestone and royalty amounts rather than recurring product sales. Based on reported figures, operating and net margins were deeply negative.

Debt, Capital Structure and Commitments

• At December 31, 2022, $25.0 million was outstanding under the Oxford term loan facility, with a carrying value of $24.5 million. The facility permits up to $150.0 million of aggregate borrowings subject to milestones and lender discretion.
• The Oxford loans bear interest at a floating rate based on SOFR plus 7.37%, subject to a floor and cap, and mature on March 1, 2027. Principal repayments are expected to begin in April 2025 because the company satisfied the Term B milestone.
• The company expected to draw an additional $15.0 million under the Oxford facility in March 2023.
• Approximately $0.3 million of 5.00% convertible senior notes due 2048 remained outstanding at year-end.
• Verastem raised approximately $30.0 million of gross proceeds from a Series B preferred stock issuance in January 2023. The preferred stock is convertible into common stock at $0.5901 per share, subject to limitations. A potential second tranche could provide approximately $30.0 million if specified stock-price and volume conditions are met.
• At December 31, 2022, the company had approximately 200.5 million common shares outstanding. Series A preferred stock was convertible into 10.0 million common shares, subject to ownership limitations.

Material Changes Versus the Prior Comparable Period

• Revenue increased modestly from $2.1 million to $2.6 million, but remained non-recurring and dependent on Secura-related milestones and royalties.
• R&D spending increased 29% as clinical and manufacturing activities for avutometinib and defactinib expanded.
• Operating cash use increased by $10.2 million, reflecting higher development spending.
• Interest expense declined substantially to $2.1 million from $10.0 million, primarily because the 2020 convertible notes had converted in 2021 and the related $7.8 million non-cash interest charge did not recur.
• The company increased its use of equity financing, selling 23.6 million shares through its ATM program for approximately $27.4 million of net proceeds, versus 2.9 million shares and $6.8 million in 2021.
• RAMP 201 advanced to a combination-only strategy, while RAMP 202 did not progress to expansion in the KRAS G12V NSCLC population.

Guidance, Outlook, Risks and Unusual Items

• Management stated that year-end resources, the January 2023 Series B proceeds and the expected $15.0 million Oxford draw were sufficient to fund the planned operating plan for at least 12 months from the financial statement issuance date. This expectation depends on access to cash and financing and is not a profitability forecast.
• The company expects continued operating losses and significant expenditures for clinical development, manufacturing, regulatory activities and intellectual property protection.
• Regulatory approval remains uncertain. RAMP 201 data are interim, the FDA has not approved avutometinib or defactinib, and accelerated approval is only a potential pathway.
• Key risks include clinical-trial failure or delay, adverse events, patient enrollment, regulatory requirements, manufacturing and supply interruptions, dependence on CROs and contract manufacturers, competition, intellectual-property challenges and the need for additional capital.
• Secura-related contingent consideration is uncertain. COPIKTRA faced an FDA safety communication and an unfavorable 8-4 ODAC vote in September 2022, which could reduce future milestones and royalties payable to Verastem.
• On March 10, 2023, Silicon Valley Bank was placed into FDIC receivership. Verastem reported approximately $2 million on deposit at SVB as of March 13, 2023 and stated that it was monitoring access to those funds.
• Verastem received a Nasdaq bid-price deficiency notice in November 2022 because its stock had traded below $1.00 for 30 consecutive business days. The initial compliance deadline was May 3, 2023, with a reverse stock split identified as a possible remediation.
• The company had a full valuation allowance against deferred tax assets and reported federal and state NOL carryforwards of approximately $436.6 million and $203.3 million, respectively. Section 382 limitations may restrict their future use.

Most Important Facts for Investors to Verify

• Whether the FDA agrees with Verastem on the design of the confirmatory study and the regulatory path for the avutometinib/defactinib combination in recurrent LGSOC.
• Whether mature RAMP 201 and FRAME data confirm the interim response rates, durability, safety profile and contribution of defactinib.
• Actual cash runway after the January 2023 preferred stock issuance, the expected Oxford draw and ongoing clinical spending.
• Terms, timing and availability of additional Oxford borrowings, including milestone conditions, interest costs and repayment obligations.
• Potential dilution from Series A and Series B preferred stock, ATM sales, equity awards and convertible securities.
• Whether Secura achieves additional COPIKTRA milestones or sales sufficient to generate meaningful future royalties.
• Nasdaq listing compliance and any reverse stock split or other capital-structure action.
• Clinical-trial enrollment, manufacturing capacity, supply continuity and adverse-event trends across the RAMP programs.