Verastem, Inc. — Q1 2014 Form 10-Q Summary
Business context and reporting period
Verastem is a clinical-stage biopharmaceutical company developing small-molecule therapies targeting cancer stem cells and related companion diagnostics. The company reported unaudited results for the three months ended March 31, 2014 and remained a development-stage company with no product revenue.
Clinical programs included VS-6063, VS-4718 and VS-5584, including the registration-directed COMMAND trial of VS-6063 in mesothelioma. The company had 25.6 million common shares outstanding at March 31, 2014 and 25.8 million shares outstanding as of April 30, 2014.
Financial metrics
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No revenue in either period |
| Research and development expense | $8.4 million | $5.3 million | Up $3.1 million |
| General and administrative expense | $4.7 million | $3.8 million | Up approximately $0.9 million |
| Total operating expenses | $13.1 million | $9.1 million | Up $4.1 million |
| Net loss | $13.1 million | $9.0 million | Higher loss by $4.0 million |
| Net loss per share | $0.51 | $0.44 | Loss per share increased |
| Net cash used in operating activities | $9.3 million | $6.3 million | Greater cash use |
No meaningful gross or operating margin was reported because the company had no revenue. Interest income was $72,000, compared with $44,000 in Q1 2013. Stock-based compensation expense was $4.0 million, compared with $2.5 million.
At March 31, 2014, cash and cash equivalents were $13.2 million, short-term investments were $92.4 million, long-term investments were $8.2 million, and total cash, cash equivalents and investments were approximately $113.9 million. Current liabilities were $6.4 million, and the filing does not identify outstanding debt. Total assets were $115.7 million and accumulated development-stage deficit was $100.7 million.
Material changes versus the prior comparable period
- Research and development expense increased primarily because of higher contract research organization costs, the Encarta asset purchase, higher stock-based compensation, and increased personnel costs.
- General and administrative expense increased primarily because of higher stock-based compensation, personnel costs and consulting fees, partly offset by lower professional fees.
- Operating cash use increased to $9.3 million from $6.3 million, reflecting increased clinical development spending.
- Cash and cash equivalents declined by $5.6 million during the quarter, while investment maturities and purchases resulted in $4.1 million of net cash provided by investing activities.
- Common stock issued in connection with the Encarta transaction increased shares outstanding by 97,500 shares and was accompanied by a warrant for 142,857 shares at an exercise price of $17.16 per share.
Guidance, outlook, risks and unusual items
Management expected significant expenses and increasing operating losses for the foreseeable future. Existing cash, cash equivalents and investments were expected to fund the current operating plan and capital expenditure requirements into the first half of 2016, although management cautioned that actual cash usage could be faster than projected.
The company stated that it would require substantial additional funding and had no committed external source of funds. Potential future funding sources included equity or debt offerings, collaborations, strategic alliances and licensing arrangements. Additional equity financing could dilute existing holders, while collaborations could require the company to relinquish rights to technologies or product candidates.
In February 2014, Verastem acquired assets related to VS-4718 from Encarta for 97,500 common shares, a warrant and $25,000 in cash. The transaction resulted in $1.2 million of first-quarter research and development expense. The company also assumed obligations under the Scripps license, including potential development milestones of up to $3.0 million and low-single-digit royalties on net sales of licensed products.
After quarter-end, Verastem entered into a lease for approximately 15,197 square feet of office and laboratory space in Needham, Massachusetts. The initial annual base rent was approximately $493,000, increasing to approximately $554,000 in the final year, plus operating expenses and property taxes. A letter of credit of approximately $203,000 served as the security deposit.
Key risks included clinical and regulatory failure, uncertain timing and cost of trials, dependence on third parties, intellectual-property challenges, competition, additional capital requirements, possible dilution, and the absence of commercial revenues. No material changes to previously disclosed risk factors were reported, and no legal proceedings or off-balance-sheet arrangements were disclosed.
Important facts for investors to verify
- Whether the cash runway assumption through the first half of 2016 remains achievable under actual clinical-trial spending.
- Progress, enrollment, results and regulatory status of the COMMAND trial and other VS-6063, VS-4718 and VS-5584 trials.
- The timing and terms of any future equity, debt, collaboration or licensing financing.
- The potential dilution from 3.7 million outstanding stock options, restricted awards and the 142,857-share Encarta warrant.
- Milestone obligations, royalty terms and other liabilities assumed under the Scripps license.
- The financial impact of the new headquarters and laboratory lease and related build-out commitments.