Verastem, Inc. — Form 10-K Summary
Business context and reporting period
Verastem is a late-stage development biopharmaceutical company focused on oncology therapies targeting RAF/MEK and FAK pathways. Its lead investigational candidates are VS-6766 and defactinib, being evaluated across low-grade serous ovarian cancer, KRAS- and BRAF-mutant non-small cell lung cancer, colorectal, pancreatic, uveal melanoma and endometrial cancers.
This Form 10-K covers the fiscal year ended December 31, 2021. Verastem sold its COPIKTRA (duvelisib) oncology license and related assets to Secura Bio in September 2020 and therefore had no product sales in 2021. The company remains pre-commercial for its current lead candidates.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $2.1 million | $88.5 million | Down $86.5 million |
| Product revenue | $0 | $15.2 million | Eliminated after COPIKTRA sale |
| License and collaboration revenue | $0 | $2.9 million | Down $2.9 million |
| Sale of COPIKTRA license and related assets | $1.4 million | $70.0 million | Primarily contingent milestones and royalties in 2021 |
| Research and development expense | $39.3 million | $41.4 million | Down $2.1 million |
| SG&A expense | $24.1 million | $62.8 million | Down $38.7 million |
| Loss from operations | $(61.4) million | $(49.4) million | Worsened by $12.0 million |
| Net loss | $(71.2) million | $(67.7) million | Worsened by $3.5 million |
| Net loss per share | $(0.41) | $(0.44) | Improved on higher share count |
| Operating cash flow | $(53.5) million | $(33.5) million | Higher cash use |
Because revenue was minimal and primarily milestone, royalty and transition-service revenue, operating and net margins were deeply negative and not economically meaningful. Gross margin is not meaningful because there was no product revenue or product cost of sales in 2021.
- Cash and cash equivalents were $21.3 million at year-end; short-term investments were $79.0 million, for cash, cash equivalents and investments of approximately $100.3 million. Including restricted cash, total cash, cash equivalents and restricted cash was $21.5 million.
- Total assets were $108.7 million and stockholders’ equity was $87.6 million at December 31, 2021.
- Convertible senior notes had $0.3 million of principal outstanding at year-end, compared with $28.3 million at year-end 2020. The $28.0 million of 2020 Notes converted into 8.6 million common shares in July 2021.
- The Hercules term loan was fully repaid in November 2020; no term-loan balance remained at year-end 2021.
- Operating cash use exceeded net loss primarily because of working-capital changes and noncash adjustments. Financing activities provided $6.9 million, including approximately $6.8 million of net proceeds from the 2021 at-the-market equity offering.
- Shares outstanding increased to 185.3 million at December 31, 2021 from 170.5 million a year earlier. The company reported 186.3 million shares outstanding as of March 25, 2022.
- Accumulated deficit was $663.7 million. Federal and state NOL carryforwards were approximately $410.6 million and $219.0 million, respectively, but a full valuation allowance was recorded and Section 382 limitations may restrict future use.
Material changes versus the prior comparable period
- Revenue declined sharply because 2020 included the $70.0 million upfront payment from the COPIKTRA asset sale and $15.2 million of COPIKTRA product revenue, whereas 2021 included neither.
- SG&A declined substantially following the COPIKTRA divestiture, reduced commercial activity and workforce reductions. There were no restructuring expenses in 2021, compared with $4.6 million in 2020.
- Research and development spending declined modestly, primarily because 2020 included a $3.0 million upfront payment to Chugai. Investigator fees, personnel costs, drug substance and product costs increased in 2021 as registration-directed trials progressed.
- Interest expense declined to $10.0 million from $15.8 million, although 2021 included $7.8 million of noncash interest expense upon conversion of the 2020 Notes.
- Cash use from operations increased by $20.0 million, reflecting the absence of the favorable working-capital effects associated with the 2020 COPIKTRA transaction and a higher net loss.
- Verastem entered clinical collaborations with Amgen for RAMP 203, evaluating VS-6766 with sotorasib, and with Mirati for RAMP 204, evaluating VS-6766 with adagrasib, both in KRAS G12C-mutant NSCLC.
Guidance, outlook, commentary, risks and unusual items
Management did not provide quantitative revenue, earnings or cash-burn guidance. It stated that existing cash resources were expected to fund the planned operating plan for at least 12 months from the issuance of the financial statements, while acknowledging that additional capital may be required to complete development programs.
- RAMP 201 in recurrent LGSOC completed target enrollment in its selection phase in January 2022, with expansion enrollment continuing in both monotherapy and combination arms.
- RAMP 202 is evaluating VS-6766 alone and with defactinib in previously treated KRAS G12V-mutant NSCLC, with exploratory KRAS non-G12V and BRAF-mutant cohorts.
- Updated FRAME data in LGSOC showed a 46% overall response rate among 24 evaluable patients and estimated median progression-free survival of 23.0 months. These were investigator-initiated, early-stage data and are not equivalent to results from a completed pivotal trial.
- VS-6766 plus defactinib has FDA breakthrough therapy designation for recurrent LGSOC, but neither lead candidate had received U.S. marketing approval as of the filing date.
- Key risks include clinical-trial failure or delays, adverse events, enrollment constraints, COVID-19 and geopolitical disruption, dependence on contract research and manufacturing organizations, limited manufacturing redundancy, competition, intellectual-property challenges, regulatory uncertainty and the need for additional financing.
- Verastem depends on contingent milestone and royalty payments from Secura’s development and commercialization of COPIKTRA. The filing recognized $1.3 million of regulatory milestones and approximately $0.2 million of royalty-related revenue or contract assets in 2021; most future consideration remained constrained.
- Subsequent to year-end, on March 25, 2022, Verastem entered an Oxford Finance facility allowing up to $150.0 million in five tranches and drew $25.0 million initially. The facility carries a floating interest rate, milestone-based availability for several tranches, a 5% final payment on drawn amounts and a March 2027 maturity.
- COVID-19 continued to affect clinical-site staffing, trial start-up, monitoring, enrollment and supply-chain reliability. The filing also identifies potential effects from the Russia-Ukraine conflict on European trial sites, manufacturing and Secura-related royalties.
Most important facts for investors to verify
- Current cash runway after the March 2022 Oxford borrowing, ongoing clinical spending and any subsequent equity issuance.
- Progress, enrollment, statistical design and regulatory feedback for RAMP 201 and RAMP 202, including whether early FRAME results translate into registration-quality evidence.
- Safety, tolerability and efficacy of VS-6766, defactinib and their combinations in later-stage trials.
- Terms, milestones, covenants, interest rate and collateral provisions of the Oxford Finance facility, including availability of undrawn tranches.
- Potential dilution from equity offerings, equity compensation and remaining convertible-note conversion rights.
- Timing and probability of contingent COPIKTRA milestones and royalties from Secura and its sublicensees.
- Patent coverage and expiration dates for VS-6766 and defactinib, including reliance on licenses from Chugai and Pfizer.
- Whether the company can obtain additional financing on acceptable terms before its current resources are exhausted.