Verastem, Inc. 2020 Form 10-K Summary
Business context and reporting period
Verastem is a development-stage biopharmaceutical company focused on oncology therapies targeting RAF/MEK and FAK pathways. Its lead candidates are VS-6766 and defactinib, being studied in low-grade serous ovarian cancer, KRAS-mutant non-small cell lung cancer and other solid tumors. This filing covers the fiscal year ended December 31, 2020; the source also provides fourth-quarter and full-year comparative data.
In September 2020, Verastem sold its COPIKTRA (duvelisib) oncology license and related assets to Secura Bio and shifted its strategic focus to VS-6766 and defactinib.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $88.5 million | $17.5 million | +$71.1 million |
| Product revenue | $15.2 million | $12.3 million | +$2.9 million |
| Sale of COPIKTRA license and related assets | $70.0 million | — | New in 2020 |
| Operating loss | $49.4 million | $132.3 million | Improved by $83.0 million |
| Net loss | $67.7 million | $149.2 million | Improved by $81.5 million |
| Basic and diluted loss per share | $0.44 | $2.00 | Improved |
| Cash used in operating activities | $33.5 million | $138.5 million | Improved by $105.0 million |
| Cash, cash equivalents, restricted cash and investments | $147.5 million | $111.3 million | +$36.2 million |
| Aggregate debt principal at year-end | $28.3 million | $85.7 million | Reduced by $57.4 million |
Total cost of sales was $33.7 million, including $31.2 million related to the COPIKTRA asset sale. Reported revenue less these costs implies a mixed-activity gross margin of approximately 61.9%; this is not directly comparable with a recurring product gross margin because most 2020 revenue included the one-time asset sale. Operating margin was approximately negative 55.8% and net margin approximately negative 76.5%.
Research and development expense was $41.4 million, down from $45.8 million. Selling, general and administrative expense was $62.8 million, down from $101.2 million. The company reported an accumulated deficit of $592.5 million and year-end stockholders’ equity of $115.3 million.
Material changes versus the prior comparable period
- COPIKTRA revenue increased to $15.2 million from $12.3 million, but no future COPIKTRA product revenue is expected after the asset sale.
- The Secura transaction generated $70.0 million of upfront revenue and $31.2 million of related cost of sales. Secura also assumed operational and financial responsibility for the duvelisib program.
- Verastem raised approximately $93.8 million net through a February 2020 private placement and $12.2 million through its at-the-market program, contributing to a substantial increase in cash and equity.
- The company repaid its Hercules term loan in November 2020 for approximately $37.4 million, including fees and accrued interest, and recorded a $1.6 million loss on extinguishment.
- 2019 Notes totaling $57.4 million principal converted into common stock during the first quarter of 2020. The company issued approximately 90.3 million shares during 2020 through note conversions and equity offerings, increasing shares outstanding to approximately 170.5 million at year-end from 80.1 million.
- Research and development spending shifted toward VS-6766 and defactinib, with $12.1 million allocated to those programs versus $1.8 million in 2019. COPIKTRA-related research spending declined to $13.5 million from $25.5 million.
- Verastem recorded $4.6 million of restructuring expense in 2020 and reduced its workforce through multiple restructuring actions.
Pipeline, outlook, risks and unusual items
- Registration-directed RAMP 201 and RAMP 202 trials for VS-6766, alone and with defactinib, began in late 2020 for recurrent LGSOC and previously treated KRAS-mutant NSCLC.
- Updated FRAME data reported a 52% overall response rate in the LGSOC cohort, including 70% in KRAS-mutant response-evaluable patients. These are early clinical data and require confirmation in registration-directed trials.
- Management expects research and development expense for VS-6766 and defactinib to increase as clinical development advances, while selling, general and administrative expense is expected to decrease.
- Management stated that existing cash resources were expected to fund planned operations for at least 12 months from the financial statement issuance date, but the company expects continued losses and will require substantial additional funding for ongoing development.
- Potential future consideration from Secura includes up to $45.0 million of regulatory milestones, up to $50.0 million of sales milestones and low-double-digit royalties on specified net sales. These amounts were fully constrained and were not recognized in 2020.
- Principal risks include clinical-trial failure or delay, adverse events, regulatory non-approval, patient enrollment challenges, COVID-19 disruption, reliance on contract manufacturers and clinical providers, intellectual-property challenges, competition, dilution from future financing and dependence on Secura for contingent payments.
- Debt at year-end consisted primarily of $28.0 million of 5.00% convertible senior notes due 2048, plus $0.3 million of remaining 2018 Notes. The 2020 Notes have an initial conversion price of approximately $3.25 per share and holder repurchase rights beginning in November 2023.
- The company had $348.5 million of federal and $231.9 million of state net operating loss carryforwards, but a full valuation allowance was recorded. Certain tax attributes were written off or limited under Section 382 following an ownership change.
- COVID-19 affected or could affect clinical enrollment, site operations, manufacturing, regulatory timelines, employee availability and access to capital.
Important facts for investors to verify
- Whether RAMP 201 and RAMP 202 generate sufficient efficacy and safety data to support regulatory submissions.
- The durability and confirmability of FRAME response rates, including results by KRAS mutation status and treatment regimen.
- The company’s cash burn and runway after the one-time $70.0 million Secura payment and 2020 equity financing proceeds.
- Future financing needs, potential share dilution and the conversion or repurchase terms of the 2020 Notes.
- Secura’s progress toward COPIKTRA regulatory and sales milestones and the likelihood of receiving contingent consideration.
- Clinical supply, manufacturing capacity and third-party contractor performance for VS-6766 and defactinib.
- Impact of COVID-19 and other enrollment or regulatory delays on development timelines.
- The source filing’s distinction between recurring operating revenue and one-time transaction-related revenue when assessing future financial performance.