Verastem, Inc. Form 10-Q Summary
Business Context and Reporting Period
Verastem is a clinical-stage biopharmaceutical company developing oncology therapies, principally duvelisib, a PI3K delta/gamma inhibitor, and defactinib (VS-6063), a FAK inhibitor. The filing covers the quarter and six months ended June 30, 2017; the financial statements are unaudited. The company had not generated revenue as of the filing date.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $9.0 million | $17.4 million |
| General and administrative expense | $4.4 million | $9.2 million |
| Total operating expenses | $13.5 million | $26.6 million |
| Net loss | $13.4 million | $26.4 million |
| Net loss per share | $0.36 | $0.71 |
| Net cash used in operating activities | Not separately provided | $25.1 million |
At June 30, 2017, cash and cash equivalents were $27.6 million, short-term investments were $30.3 million, and total cash, cash equivalents and investments were approximately $57.9 million. Total liabilities were $13.6 million, including $2.3 million of long-term debt, and accumulated deficit was $261.8 million. The company reported no off-balance-sheet arrangements.
Material Changes Versus Prior Comparable Period
- Second-quarter R&D expense increased $4.5 million, or approximately 101%, to $9.0 million from $4.5 million. The increase primarily reflected $3.6 million of higher contract research organization costs, including clinical-trial services, plus higher consulting and personnel costs.
- Six-month R&D expense increased $8.8 million, or approximately 101%, to $17.4 million from $8.7 million. Duvelisib accounted for $9.5 million of six-month R&D expense in 2017 versus none in the 2016 comparable period.
- Second-quarter net loss increased to $13.4 million from $8.6 million; six-month net loss increased to $26.4 million from $16.9 million.
- Cash used in operating activities increased to $25.1 million for the six months from $17.5 million in the prior-year period.
- Cash and investments declined from approximately $80.9 million at December 31, 2016 to $57.9 million at June 30, 2017.
- In March 2017, the company drew the initial $2.5 million tranche under a term-loan facility of up to $25.0 million with Hercules Capital. The loan bears interest at 10.5% as of June 30, 2017 and matures December 1, 2020.
- The company established a new at-the-market equity program permitting sales of up to $35.0 million of common stock, but had not commenced sales under it as of June 30, 2017.
Outlook, Commentary, Risks, and Unusual Items
Management expects significant expenses and operating losses to continue and increase as clinical development, regulatory activities, intellectual-property activities, staffing, and potential commercialization efforts progress. Existing cash, cash equivalents, and investments were expected to fund the current operating plan for at least twelve months from the filing date, although management noted that this estimate depends on assumptions that could prove incorrect.
Management expects to require substantial additional funding. Potential sources include equity or debt financings, collaborations, strategic alliances, and licensing arrangements. Additional financing may dilute existing stockholders, impose restrictive covenants, or require the company to relinquish rights to products or technologies.
Key development programs included the Phase 3 DUO study of duvelisib in relapsed or refractory CLL/SLL and multiple early-stage defactinib combination studies in pancreatic cancer, ovarian cancer, NSCLC, and mesothelioma. Clinical, regulatory, safety, enrollment, intellectual-property, competitive, third-party, and financing risks could materially affect results. The company stated that no material changes had occurred to the risk factors in its 2016 Form 10-K.
The term loan is secured by substantially all company assets other than intellectual property and includes customary covenants. Interest-only payments were scheduled through November 1, 2018, with a possible extension to May 1, 2019 if specified financing or partnership proceeds are obtained. No material subsequent events were reported, and no legal proceedings were disclosed.
Important Facts for Investors to Verify
- Whether the DUO Phase 3 trial and other clinical programs meet enrollment, efficacy, safety, and regulatory milestones.
- The timing and amount of additional financing, including any use of the $35.0 million at-the-market program or remaining Hercules loan capacity.
- The company’s operating cash-burn rate and whether approximately $57.9 million of cash, cash equivalents, and investments remains sufficient for the stated operating plan.
- The terms, covenants, collateral, and repayment requirements of the Hercules term loan.
- Potential dilution from future equity or convertible securities and the effect of outstanding options covering approximately 7.6 million shares.
- Whether any product candidate ultimately obtains regulatory approval and generates commercial revenue, since the company had no revenue and recurring losses at June 30, 2017.