Verastem, Inc. — 2016 Second-Quarter Form 10-Q Summary
Business Context and Reporting Period
Verastem is a clinical-stage biopharmaceutical company developing cancer therapies targeting FAK and PI3K/mTOR pathways. Its principal candidates were VS-6063 (defactinib), VS-4718, and VS-5584, evaluated in clinical studies involving ovarian, pancreatic, lung, mesothelioma, solid-tumor, and lymphoma indications.
The filing covers the three and six months ended June 30, 2016. The financial statements are unaudited. The company had 36,992,418 common shares outstanding as of August 2, 2016 and had generated no product revenue.
Financial Performance and Liquidity
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $4.5 million | $8.7 million |
| General and administrative expense | $4.2 million | $8.5 million |
| Total operating expenses | $8.7 million | $17.1 million |
| Net loss | $8.6 million | $16.9 million |
| Net loss per share | $0.23 | $0.46 |
| Operating cash flow | Not separately provided | $(17.5) million |
At June 30, 2016, cash and cash equivalents were $39.6 million, short-term investments were $53.3 million, and total cash, cash equivalents, and investments were approximately $92.9 million. Total assets were $95.4 million, while current liabilities were $5.9 million and total liabilities were approximately $6.4 million. The filing does not disclose outstanding debt or borrowings.
Cash increased by $14.7 million during the first six months, primarily because $32.2 million of investments matured, partially offset by operating cash use. No equity offering proceeds were received during the period. The company reported an accumulated deficit of $215.7 million.
The company stated that existing cash, cash equivalents, and investments were expected to fund its current operating plan and capital expenditure requirements into 2018, although actual cash usage could be faster than projected. Management concluded that there was no substantial doubt about the company’s ability to continue as a going concern for at least one year from issuance of the financial statements.
Material Changes Versus the Prior Comparable Period
- Second-quarter research and development expense declined $6.5 million, or approximately 59%, to $4.5 million from $11.0 million. The decrease primarily reflected lower CRO and clinical-trial costs, reduced headcount following the 2015 workforce reduction, and lower stock-based compensation.
- Six-month research and development expense declined $12.9 million, or approximately 60%, to $8.7 million from $21.6 million, primarily because of lower CRO, clinical-trial, personnel, and stock-based compensation costs.
- Second-quarter general and administrative expense decreased approximately $0.2 million to $4.2 million; six-month expense decreased approximately $0.6 million to $8.5 million.
- Second-quarter net loss improved to $8.6 million from $15.4 million; six-month net loss improved to $16.9 million from $30.6 million.
- Six-month operating cash use improved to $17.5 million from $23.7 million, principally due to lower research and development spending.
- Cash, cash equivalents, and investments decreased from approximately $110.3 million at December 31, 2015 to $92.9 million at June 30, 2016. The mix shifted toward cash and cash equivalents as investments matured.
- The October 2015 reduction in force reduced the workforce by approximately 50% to 20 full-time employees. The company estimated annual cash operating-expense savings of approximately $5.1 million and total severance and related costs of approximately $1.1 million.
Outlook, Commentary, Risks, and Unusual Items
Management expected continuing operating losses and significant expenses as clinical trials progressed. The company stated that substantial additional funding would be required and that it had no committed external source of funds. Potential financing sources included equity or debt offerings, collaborations, strategic alliances, and licensing arrangements.
Management could not predict the timing, cost, or probability of completing development of its product candidates or when material cash inflows might begin. Failure to obtain additional capital could require the company to delay, reduce, or terminate research and development or future commercialization activities. Equity financing could dilute existing stockholders; collaboration or licensing transactions could require the company to relinquish valuable rights.
- Clinical and regulatory risk includes delayed enrollment, unfavorable or unavailable trial data, unexpected safety events, failure to obtain regulatory approval, and development costs exceeding estimates.
- The company relied on third-party CROs and contract manufacturers and faced related execution and foreign-currency risks.
- Intellectual-property protection, competition, changing legislation and regulation, and the ability to establish favorable collaborations were identified as material risks.
- Cash and investments were primarily held in money market funds, repurchase agreements, government-related securities, corporate bonds, and commercial paper. Management stated that a 100-basis-point interest-rate change would not materially affect portfolio fair value.
- There were no material subsequent events, legal proceedings, off-balance-sheet arrangements, defaults, or material changes to the previously disclosed risk factors.
- The company granted performance-based options for 500,000 shares during the second quarter. No related stock-based compensation was recognized because the performance conditions were not considered probable of achievement at June 30, 2016.
Important Facts for Investors to Verify
- Whether the stated cash runway into 2018 remains adequate under updated clinical-trial timelines, enrollment rates, and spending assumptions.
- Current clinical results, trial status, enrollment, and regulatory plans for VS-6063, VS-4718, and VS-5584.
- The company’s future financing needs, potential equity dilution, and availability of its at-the-market equity program.
- Changes in CRO, clinical-development, severance, and stock-based compensation costs.
- Whether any product candidate has generated revenue or received regulatory approval since the reporting date.
- The number and potential dilution of outstanding options and warrants; approximately 6.8 million potentially dilutive securities were excluded from loss-per-share calculations at June 30, 2016.