Verastem, Inc. 2018 First-Quarter Form 10-Q Summary
Business context and reporting period
Verastem is a clinical-stage biopharmaceutical company developing cancer therapies, principally duvelisib, a PI3K delta/gamma inhibitor, and defactinib, a FAK inhibitor. The filing covers the three months ended March 31, 2018. The company had generated no product revenue and remained focused on clinical development, regulatory review, and preparation for a potential duvelisib launch.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 / Prior period |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $10.9 million | $8.4 million |
| General and administrative expense | $9.8 million | $4.8 million |
| Total operating expenses | $20.8 million | $13.1 million |
| Net loss | $21.1 million | $13.0 million |
| Net loss per share | $0.41 | $0.35 |
| Net cash used in operating activities | $22.5 million | $10.7 million |
| Cash, cash equivalents and restricted cash at period end | $64.6 million | $28.3 million |
| Long-term debt | $14.9 million | Not clearly comparable in the filing table |
Cash and cash equivalents were $64.2 million at March 31, 2018, compared with $82.2 million at December 31, 2017. The company had $15.0 million of principal outstanding under its Hercules term loan, with a total borrowing facility of up to $50.0 million after amendments. The loan matures in December 2020 and generally bears interest at a rate of 10.5% to 12.75%.
Gross operating margin and profitability metrics are not meaningful because the company had no revenue and reported an operating loss. The accumulated deficit was $324.2 million at March 31, 2018.
Material changes versus the prior comparable period
- Research and development expense increased $2.5 million, primarily due to higher contract research organization costs, personnel costs, stock-based compensation, and consulting fees.
- General and administrative expense increased $5.0 million, including approximately $1.8 million of commercial launch preparation costs and higher consulting, professional, and personnel expenses.
- Interest expense increased to approximately $480,000 from approximately $12,000 because of the Hercules debt and a longer period outstanding.
- Net loss increased by $8.0 million, and operating cash use more than doubled to $22.5 million.
- Investing cash inflow of $4.4 million primarily reflected maturities of investments. Financing cash inflow was $299,000, including approximately $588,000 of net ATM proceeds offset by financing-related costs.
- The company’s ATM program was subsequently used to sell 5.9 million additional shares for approximately $21.9 million of net proceeds from April 1 through May 3, 2018. Management stated that this increased pro forma cash and cash equivalents at March 31, 2018 to approximately $86.1 million.
- The Hercules facility was amended to increase total borrowing capacity from $25.0 million to $50.0 million and extend the interest-only period to May 1, 2019, subject to stated conditions.
Guidance, outlook, risks, contingencies, and unusual items
- The FDA was reviewing the duvelisib NDA for relapsed or refractory CLL/SLL and relapsed or refractory follicular lymphoma, with a target action date of October 5, 2018.
- Management planned to submit a European marketing authorization application by the end of 2018 and was building U.S. commercial capabilities for a potential 2018 launch. The company intended to seek partners for commercialization outside the United States.
- DUO and DYNAMO had achieved their primary endpoints, but regulatory approval, safety, efficacy, market acceptance, reimbursement, and commercialization remained uncertain.
- Management expected significant expenses and increasing operating losses as it continued clinical trials, pursued regulatory approval, and prepared commercial infrastructure.
- The filing states that, without additional funding, the company would not have sufficient funds to meet its obligations during the twelve months following issuance of the financial statements. These conditions raised substantial doubt about its ability to continue as a going concern.
- Future funding may come from equity offerings, debt, collaborations, strategic alliances, or licensing transactions. Additional equity financing could dilute existing stockholders, while debt or partnerships could impose restrictive terms or require relinquishing valuable rights.
- The company amended its Needham, Massachusetts lease, increasing the premises to approximately 27,810 square feet and establishing minimum aggregate future lease commitments of $6.7 million.
- No legal proceedings, material off-balance-sheet arrangements, or material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the FDA approved duvelisib by the October 5, 2018 target action date and the scope and conditions of any approval.
- Whether the company generated product revenue and achieved a commercial launch, including launch costs, pricing, reimbursement, and market adoption.
- Cash burn, remaining ATM capacity, subsequent equity issuances, dilution, and the company’s ability to fund operations beyond the disclosed runway.
- Availability and conditions for additional Hercules debt advances, including the NDA acceptance and other borrowing requirements.
- Final results and safety profile from duvelisib and ongoing defactinib studies, including whether later data support the preliminary or previously reported results.
- Changes in regulatory, partnership, clinical-trial, manufacturing, intellectual-property, and competitive risks.