Verastem, Inc. 2015 Q3 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, with lead programs focused on FAK and PI3K/mTOR pathways. The filing covers the quarter and nine months ended September 30, 2015. The company had no product revenue and remained dependent on equity financing.
Financial condition and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $11.3 million, versus $9.0 million | $32.9 million, versus $25.8 million |
| General and administrative expense | $4.2 million, versus $4.3 million | $13.4 million, versus $13.8 million |
| Net loss | $15.4 million, versus $13.3 million | $46.0 million, versus $39.4 million |
| Net loss per share | $0.42, versus $0.52 | $1.29, versus $1.54 |
| Cash used in operating activities | Not separately provided | $35.4 million, versus $27.2 million |
At September 30, 2015, cash and cash equivalents were $19.8 million, short-term investments were $100.6 million, and total cash, cash equivalents and investments were approximately $120.5 million. Total assets were $123.7 million, current liabilities were $10.9 million, and stockholders’ equity was $112.2 million. The company had no reported debt or off-balance-sheet arrangements.
Net proceeds from financing activities were $63.5 million during the first nine months, primarily from the January 2015 public offering and sales under the at-the-market program. Shares outstanding increased to approximately 36.9 million at September 30, 2015, from 27.3 million at December 31, 2014.
Material changes versus the prior comparable period
- Research and development expense increased by $2.3 million, or approximately 25%, in the quarter and by $7.1 million, or approximately 28%, for the nine-month period, primarily due to higher contract research organization and clinical-trial costs.
- Net loss increased by $2.1 million in the quarter and $6.6 million for the nine-month period.
- Operating cash use increased by $8.1 million for the nine-month period, reflecting increased clinical development spending.
- General and administrative expense declined modestly, primarily because of lower stock-based compensation and professional fees.
- Cash, cash equivalents and investments increased from approximately $92.7 million at December 31, 2014 to approximately $120.5 million at September 30, 2015, principally because of equity financing proceeds.
Guidance, outlook, risks and unusual items
On September 28, 2015, Verastem stopped enrollment in the Phase 2 COMMAND trial of VS-6063 in mesothelioma after a pre-planned interim analysis reviewed by the Data Safety Monitoring Board indicated insufficient efficacy to justify continuing. The company described the safety profile as generally well tolerated but stated that the trial did not demonstrate sufficient efficacy. This outcome creates material uncertainty for VS-6063 and the company’s broader development strategy.
In October 2015, the company implemented a restructuring reducing its Needham workforce by approximately 50%, to 20 full-time employees. Management expected annual cash operating expense savings of approximately $5.1 million, with one-time severance and related costs estimated at $1.1 million, approximately $950,000 of which was expected to be paid in the fourth quarter of 2015 and first quarter of 2016.
Management stated that existing cash, cash equivalents and investments were expected to fund the current operating plan and capital expenditures at least through the first half of 2017. This estimate depends on assumptions that may prove incorrect. The company expected continuing operating losses and stated that additional funding would be required. Potential funding sources included equity or debt financing, collaborations, strategic alliances and licensing arrangements, none of which were committed.
- Key risks include clinical-trial failure, delayed enrollment, unfavorable safety or efficacy results, regulatory setbacks, dependence on third-party contractors, intellectual-property challenges and the unproven nature of the company’s cancer-stem-cell approach.
- The company specifically warned that the COMMAND result could indicate that VS-6063, the mechanism of action, or targeting cancer stem cells may not produce sufficient clinical benefit.
- Most investments were short-term, interest-bearing instruments. Management stated that an immediate 100-basis-point interest-rate change would not materially affect portfolio value.
- No material legal proceedings or changes to contractual obligations were reported.
- Disclosure controls and procedures were evaluated as effective as of September 30, 2015.
Important facts for investors to verify
- Review subsequent clinical and regulatory disclosures concerning VS-6063 after the COMMAND futility decision.
- Verify the timing and magnitude of restructuring savings and the $1.1 million severance charge.
- Assess the company’s actual cash runway against the stated expectation of funding through at least the first half of 2017.
- Monitor additional equity issuance, dilution and the remaining availability under the at-the-market program.
- Reconcile future research and development spending with the company’s reduced workforce and ongoing clinical programs.
- Confirm whether any product candidate generates revenue or receives regulatory approval; as of the filing, the company had generated no revenue and had no approved commercial product.