Verastem, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Verastem is a late-stage development biopharmaceutical company focused on oncology candidates targeting RAF/MEK and FAK signaling pathways. Its primary candidates are avutometinib and defactinib, being studied across low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer, pancreatic cancer, colorectal cancer and other solid tumors. The company no longer commercializes COPIKTRA, following its 2020 sale to Secura Bio.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $2.6 million |
| Research and development expense | $13.9 million | $11.3 million | $38.9 million | $39.8 million |
| SG&A expense | $7.4 million | $6.4 million | $22.1 million | $18.9 million |
| Total operating expenses | $21.3 million | $17.7 million | $60.9 million | $58.7 million |
| Loss from operations | $(21.3) million | $(17.7) million | $(60.9) million | $(56.1) million |
| Net loss | $(20.0) million | $(18.1) million | $(60.0) million | $(57.0) million |
| Net loss per share | $(0.75) | $(1.10) | $(2.93) | $(3.60) |
| Net cash used in operating activities | Not separately presented | $(56.8) million | $(47.1) million |
Because the company reported no revenue in Q3 2023 or the first nine months of 2023, operating and net profit margins are not meaningful. Interest income partly offset operating losses, reaching $2.2 million in Q3 and $4.3 million year to date, versus $0.3 million and $0.4 million, respectively, in the comparable periods.
At September 30, 2023, cash and cash equivalents were $95.0 million, short-term investments were $70.7 million, and cash, cash equivalents and investments totaled approximately $165.7 million. Total assets were $176.2 million, compared with $95.1 million at December 31, 2022. Accumulated deficit was $797.5 million.
Total debt consisted primarily of $40.0 million of Oxford term-loan principal, reported net at $39.9 million, plus $0.3 million of convertible senior notes and $0.1 million of insurance-premium financing. The Oxford loans mature in 2027, with principal payments scheduled to begin in 2025 under specified conditions.
Material changes versus the prior comparable period
- Revenue declined to zero from $2.6 million in the first nine months of 2022, which had included a COPIKTRA-related milestone and royalty revenue.
- Q3 operating expenses increased 20% to $21.3 million. R&D rose 24%, primarily due to a $2.0 million GenFleet upfront payment, higher CRO and personnel costs, and increased clinical-trial activity. SG&A increased 15%, including costs incurred in anticipation of a potential LGSOC launch.
- For the first nine months, R&D decreased 2% because of lower drug-substance, drug-product and CRO costs, partially offset by the GenFleet payment and higher personnel and investigator-sponsored-trial costs. SG&A increased 17%.
- Net loss increased 11% in Q3 and 5% year to date despite substantially higher interest income, reflecting higher operating expenses, increased interest expense and the absence of prior-year revenue.
- Operating cash use increased to $56.8 million from $47.1 million. Investing activities used $56.9 million in 2023, primarily because the company purchased short-term investments, compared with $53.2 million of investment maturities in 2022.
- Financing activities provided $134.6 million, including $91.4 million from the June 2023 common-stock and pre-funded-warrant offering, $28.1 million from Series B convertible preferred stock and $14.9 million from the Oxford debt draw.
- The company completed a 1-for-12 reverse stock split effective May 31, 2023. Reported share and per-share amounts were retrospectively adjusted.
Guidance, outlook, commentary and risks
Management stated that existing cash, cash equivalents and investments are expected to fund planned operations through at least 12 months from the issuance date of the financial statements. The company expects continuing operating losses and significant research and development expenditures and may need additional capital through milestones, royalties, collaborations, equity offerings or debt financing. Additional financing may not be available on favorable terms and could dilute existing stockholders.
- The combination of avutometinib and defactinib was selected as the go-forward regimen for recurrent LGSOC regardless of KRAS status. The company intends to use mature RAMP 201 and FRAME data to potentially support an accelerated-approval filing.
- RAMP 301, a confirmatory Phase 3 trial in recurrent LGSOC, was finalized with the FDA and was expected to begin enrollment in the second half of 2023.
- RAMP 201 Part A interim data showed a 45% confirmed objective response rate among 29 evaluable patients. FRAME data showed a 42% objective response rate among 26 evaluable LGSOC patients, with median duration of response of 26.9 months and median progression-free survival of 20.0 months. These are interim or study-specific results and are not assurances of regulatory approval or commercial success.
- In August 2023, the company entered a GenFleet collaboration and option agreement covering up to three RAS-pathway oncology programs outside Greater China. It paid $2.0 million upfront, committed to $1.5 million of research support, and could owe up to $622.0 million in contingent milestones plus royalties.
- The company remains exposed to clinical-trial failure or delays, adverse safety findings, regulatory non-approval, competition, manufacturing and supply interruptions, reliance on third parties, uncertain reimbursement, intellectual-property challenges and the possibility that available cash will be insufficient for planned development.
- The Oxford debt is floating-rate debt and is secured by substantially all personal property, excluding intellectual property but including related payment rights and proceeds. Events of default could accelerate repayment and permit foreclosure on collateral.
Most important facts for investors to verify
- Whether RAMP 201, FRAME and RAMP 301 data support an accelerated-approval application and whether the FDA accepts or approves any filing.
- The timing, enrollment, design and costs of RAMP 301 and other ongoing clinical programs.
- The company’s cash-burn trajectory and whether the stated cash runway remains adequate as development and potential launch costs increase.
- Potential dilution from the 4.24 million common shares issuable upon conversion of Series B preferred stock, the Series B second-tranche right, pre-funded warrants, options and other securities.
- Terms and repayment requirements of the $40.0 million Oxford term loans, including interest-rate exposure, 2025 principal payments and the 2027 maturity.
- Whether Secura generates future COPIKTRA milestones or royalties; the filing constrained substantially all potential milestones and most royalties as of September 30, 2023.
- Economic exposure under the GenFleet agreement, including the $622.0 million of potential contingent payments and future royalty obligations.