Verastem, Inc. — Form 10-Q Summary
Business context and reporting period
Verastem is a development-stage biopharmaceutical company focused on cancer stem cell therapies and companion diagnostics. The unaudited report covers the quarter and six months ended June 30, 2013. The company had no revenue and remained dependent on external financing.
- Lead program: VS-6063 (defactinib), a FAK inhibitor in Phase 1/1b testing with weekly paclitaxel in ovarian cancer.
- Other programs: VS-4718 in Phase 1 and VS-5584 expected to enter Phase 1 in the fourth quarter of 2013.
- At June 30, 2013, 20.794 million common shares were outstanding; 25.594 million were outstanding as of July 31, 2013.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $6.0 million | $11.3 million |
| General and administrative expense | $4.2 million | $8.0 million |
| Total operating expenses | $10.3 million | $19.4 million |
| Net loss | $10.3 million | $19.3 million |
| Net loss per share | $0.49 | $0.94 |
| Net cash used in operating activities | Not separately provided | $12.7 million |
- Cash and cash equivalents were $13.9 million at June 30, 2013, compared with $10.1 million at December 31, 2012.
- Short-term and long-term investments totaled $64.1 million, resulting in cash, cash equivalents and investments of approximately $78.0 million.
- Total assets were $80.0 million and stockholders’ equity was $74.7 million at June 30, 2013.
- Current liabilities were $5.2 million, including $2.4 million of accrued expenses. The filing does not disclose outstanding debt; no debt balance is presented on the balance sheet.
- Operating cash use increased from $9.9 million in the first six months of 2012 to $12.7 million in the comparable 2013 period.
- Investing activities provided $17.2 million in the first six months of 2013, primarily from net maturities of investments.
- Financing activities used $0.8 million, principally for tax withholdings related to settled restricted stock units.
- Stock-based compensation expense was $5.2 million for the first six months of 2013. No meaningful revenue or profit margin was reported because the company had no product sales.
Material changes versus the prior comparable period
- Second-quarter research and development expense increased $1.3 million, or approximately 29%, to $6.0 million, primarily due to higher contract research organization costs, personnel costs and stock-based compensation.
- Second-quarter general and administrative expense increased $2.0 million, or approximately 92%, to $4.2 million, driven mainly by stock-based compensation, professional fees, franchise taxes and consulting costs.
- Six-month research and development expense increased $1.8 million to $11.3 million, while general and administrative expense increased $3.7 million to $8.0 million.
- Quarterly net loss increased from $6.8 million to $10.3 million; six-month net loss increased from $13.7 million to $19.3 million.
- Interest income declined to $34,000 in the quarter and $78,000 for the six-month period, reflecting lower average cash balances.
- Cash, cash equivalents and investments declined from $91.5 million at December 31, 2012 to $78.0 million at June 30, 2013, before considering the subsequent financing.
Guidance, outlook, risks and unusual items
- Management expected to initiate a registration-directed VS-6063 mesothelioma trial, a Phase 1 study in Japan and a Phase 2 non-small cell lung cancer study in the third quarter of 2013.
- Management expected VS-5584 to enter a Phase 1 trial in the fourth quarter of 2013.
- Management stated that existing resources, including the July financing, were expected to fund the current operating plan and capital expenditures through the first half of 2016. This estimate depended on assumptions that could prove incorrect.
- In July 2013, after quarter-end, the company sold 4.255 million shares at $15 per share and received approximately $59.8 million of net proceeds, including shares issued upon exercise of the underwriters’ option.
- The company expected significant future operating losses and additional funding needs. It had no committed external source of funds and may need equity, debt, collaboration or licensing transactions.
- Key risks include clinical-trial failure, regulatory delays or nonapproval, inability to develop commercially valuable products, intellectual-property challenges, reliance on third parties, competition and potential dilution from future financings.
- No legal proceedings, material changes to previously reported risk factors or off-balance-sheet arrangements were reported.
- Accrued expenses increased to $2.4 million from $0.6 million at year-end, primarily due to higher contract research, compensation and other accrued costs.
Important facts for investors to verify
- Whether VS-6063 trials initiated on the projected third-quarter 2013 timetable and whether subsequent clinical data supported further development.
- The actual cash runway after incorporating the $59.8 million July 2013 offering proceeds and subsequent operating cash burn.
- Clinical, regulatory and commercial progress for VS-4718 and VS-5584.
- The extent of future equity dilution, given continuing losses and the company’s stated need for additional capital.
- Trends in research and development spending, contract research obligations and stock-based compensation.
- Whether the company ultimately generated product revenue or achieved profitability; the filing provides no indication of either as of June 30, 2013.