Verastem, Inc. 2013 Q3 Form 10-Q Summary
Business context and reporting period
Verastem is a development-stage biopharmaceutical company focused on discovering and developing cancer therapies that target cancer stem cells. The filing covers the quarter and nine months ended September 30, 2013, and was filed on November 12, 2013.
The company had no revenue as of September 30, 2013. Its principal programs included the FAK inhibitors VS-6063 (defactinib) and VS-4718, and the dual mTORC1/2 and PI3K inhibitor VS-5584.
Financial condition and operating metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $6.8 million, versus $8.1 million | $18.1 million, versus $17.6 million |
| General and administrative expense | $3.9 million, versus $2.3 million | $11.9 million, versus $6.6 million |
| Total operating expenses | $10.6 million, versus $10.4 million | $30.0 million, versus $24.3 million |
| Net loss | $10.6 million, or $0.47 per share | $29.9 million, or $1.37 per share |
| Net cash used in operating activities | Not separately provided | $19.8 million, versus $16.7 million |
At September 30, 2013, cash and cash equivalents were $22.6 million, short-term investments were $77.3 million, and long-term investments were $30.3 million. Total cash, cash equivalents, and investments were $130.3 million, compared with $91.5 million at December 31, 2012. Total assets were $132.4 million and stockholders’ equity was $126.7 million.
Current liabilities were $5.7 million, including $3.5 million of accrued expenses. The filing does not disclose outstanding debt or debt financing; liabilities were primarily operating and compensation-related obligations. The company had no off-balance-sheet arrangements.
Cash provided by financing activities was $58.5 million for the first nine months, primarily reflecting approximately $59.8 million of net proceeds from a July 2013 public offering of 4.255 million common shares at $15.00 per share. Cash used in investing activities was $26.2 million, primarily from net purchases of investments. Stock-based compensation expense was $8.0 million for the period.
Material changes versus prior comparable periods
- Quarterly research and development expense decreased by $1.3 million, primarily because the 2012 period included approximately $2.7 million of Pfizer-related license expense and share issuance. This decrease was partly offset by higher contract research, personnel, and stock-based compensation costs.
- Nine-month research and development expense increased by approximately $0.5 million, driven by higher contract research organization spending, personnel costs, and stock-based compensation, partly offset by lower Pfizer-related license expense.
- General and administrative expense increased by $1.6 million for the quarter and $5.3 million for the nine-month period, primarily due to higher stock-based compensation, professional fees, consulting costs, franchise taxes, and personnel costs.
- Net loss increased from $24.1 million to $29.9 million for the nine-month period. The quarterly net loss increased modestly from $10.4 million to $10.6 million.
- Cash, cash equivalents, and investments increased by approximately $38.8 million from December 31, 2012, primarily due to the July equity offering, despite continued operating cash consumption.
- Shares issued and outstanding increased to 25.214 million at September 30, 2013 from 20.364 million at December 31, 2012, reflecting equity financing and other share activity.
Guidance, outlook, risks, and unusual items
Management expected existing cash, cash equivalents, and investments to fund the current operating plan and capital expenditures into the first half of 2016. This estimate was based on assumptions that could prove incorrect, and the company stated that it would require substantial additional funding to continue operations and development programs.
Management expected significant expenses and increasing operating losses for the foreseeable future. The company had no committed external source of funds and anticipated that future financing could include equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. Additional equity financing could dilute existing stockholders, while collaborations or licensing transactions could require the company to relinquish valuable rights.
Key operating risks included clinical and regulatory uncertainty, the possibility that preclinical or preliminary clinical data may not predict later results, dependence on third parties, intellectual property risks, competition, regulatory changes, and the need to obtain additional capital. The filing reported no material changes to the risk factors in the 2012 Form 10-K.
VS-6063 was being evaluated in a registration-directed mesothelioma trial, a Phase 1b ovarian cancer combination trial, a Phase 2 non-small-cell lung cancer study, and a Phase 1 trial in Japan. VS-4718 was in a Phase 1 trial, and the company expected VS-5584 to enter a Phase 1 trial by the end of 2013.
Unusual or notable items included the July equity offering, $765,000 of accrued license milestones at September 30, 2013, and the modification of certain restricted stock units that resulted in liability classification and related tax-withholding payments. The company reported no legal proceedings and no material control deficiencies.
Important facts for investors to verify
- Whether the stated cash runway into the first half of 2016 remained achievable under updated clinical-development plans and spending levels.
- The timing, enrollment, interim data, and regulatory status of the VS-6063, VS-4718, and VS-5584 programs.
- The company’s future financing requirements, potential equity dilution, and any subsequent debt, collaboration, or licensing transactions.
- The composition and maturity profile of the $107.6 million investment portfolio and its availability to fund operations.
- The effect of stock-based compensation, outstanding options, restricted stock, and restricted stock units on future expense and dilution.
- Whether accrued license milestones and other clinical-development obligations result in additional cash payments.
- The filing text does not provide a clear estimate of the company’s eventual funding needs or the probability of regulatory approval or commercial success.