Verastem, Inc. — Form 10-Q Summary
Business context and reporting period
Verastem is a clinical-stage biopharmaceutical company developing cancer therapies intended to target cancer stem cells. Its leading programs were the FAK inhibitor VS-6063 (defactinib), VS-4718 and the dual mTORC1/2 and PI3K inhibitor VS-5584. The filing covers the quarter and nine months ended September 30, 2014. The company had not generated revenue and remained dependent on external financing.
Financial condition and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $9.0 million | $25.8 million |
| General and administrative expense | $4.3 million | $13.8 million |
| Total operating expenses | $13.4 million | $39.6 million |
| Net loss | $13.3 million | $39.4 million |
| Net loss per share | $0.52 | $1.54 |
| Operating cash flow | Not separately provided | $(27.2) million |
At September 30, 2014, cash and cash equivalents were $20.6 million, short-term investments were $72.8 million and total cash, cash equivalents and investments were approximately $93.4 million. Total assets were $97.9 million, total current liabilities were $8.4 million and stockholders’ equity was $88.8 million. The filing reports no debt financing or other material debt. The accumulated deficit was $127.1 million.
Net cash provided by investing activities was $29.7 million, primarily reflecting investment maturities, while financing activities used $0.7 million, principally for tax withholding on settled restricted stock units. Stock-based compensation expense was $10.1 million for the first nine months.
Material changes versus the prior comparable period
- Third-quarter research and development expense increased 33% to $9.0 million from $6.8 million, primarily because of higher contract research organization costs, personnel, occupancy and consulting expenses.
- Nine-month research and development expense increased 42% to $25.8 million from $18.1 million, principally due to increased clinical and outsourced development activity.
- Third-quarter general and administrative expense increased to $4.3 million from $3.9 million; nine-month expense increased to $13.8 million from $11.9 million, driven by higher personnel, consulting, occupancy and stock-based compensation costs.
- Nine-month net loss increased to $39.4 million from $29.9 million, and operating cash use increased to $27.2 million from $19.8 million.
- Cash, cash equivalents and investments declined to approximately $93.4 million from $123.7 million at December 31, 2013, although cash and cash equivalents alone increased to $20.6 million from $18.9 million.
- The company began using a new Needham, Massachusetts office and laboratory facility. The lease runs through September 2019, with initial annual base rent of approximately $493,000 and a cash-collateralized letter of credit of approximately $203,000.
Guidance, outlook, risks and unusual items
Management expected existing cash, cash equivalents and investments to fund the current operating plan and capital expenditure requirements into the first half of 2016. This estimate was based on assumptions that could prove incorrect, and the company stated that it had no committed external source of funds.
Management expected operating losses and expenses to increase as clinical trials advance, additional trials are initiated, regulatory approvals are pursued, commercialization capabilities are developed and intellectual property is maintained. Future funding may come from equity offerings, debt, collaborations, strategic alliances or licensing arrangements, but additional financing may be unavailable or dilutive.
VS-6063 was being evaluated in a registration-directed mesothelioma trial, an ovarian cancer combination trial, a non-small-cell lung cancer study and a mesothelioma presurgical study. Preliminary data from the presurgical study indicated reduced FAK activity, reduced cancer stem cell markers in some evaluable biopsies, no disease progression during the 12-day treatment in 10 patients and tumor shrinkage in two patients. These preliminary findings were not proof of clinical or regulatory success.
In February 2014, Verastem acquired assets related to VS-4718 from Encarta for 97,500 shares, a warrant for 142,857 shares exercisable at $17.16 per share and $25,000 in cash. The transaction resulted in approximately $1.2 million of research and development expense. The company also assumed potential Scripps development milestones of up to $3.0 million and low single-digit royalties on net sales.
Principal risks included the need for additional capital, clinical-trial and regulatory uncertainty, possible delays or unfavorable results, reliance on third parties, intellectual-property risks, competition, foreign-currency exposure and the absence of product revenue. The company reported no material legal proceedings, no off-balance-sheet arrangements and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the cash runway into the first half of 2016 remained valid relative to subsequent spending, trial progress and financing activity.
- Clinical enrollment, efficacy, safety and regulatory status for VS-6063, VS-4718 and VS-5584.
- The company’s continuing ability to raise capital without substantial dilution or unfavorable financing terms.
- The timing and amount of potential development milestones, royalties and other obligations under the assumed Scripps license.
- The effect of increasing research and development spending, stock-based compensation and the new facility lease on future cash consumption.
- Whether preliminary VS-6063 data translated into successful later-stage clinical and regulatory outcomes.