Verastem(VSTM) - 2021 Q1 - Quarterly Report

General Information This section provides the company's filing status, shares outstanding, and a disclaimer regarding forward-looking statements Filing Information This section details the company's filing status, identification, and securities information for the quarterly period ended March 31, 2021 - Verastem, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2021[2] Company Identification and Filing Status | Detail | Value | | :--- | :--- | | Registrant Name | Verastem, Inc. | | State of Incorporation | Delaware | | Commission File Number | 001-35403 | | Trading Symbol | VSTM | | Exchange | The Nasdaq Global Market | | Filer Status | Non-accelerated filer, Smaller reporting company | - The registrant has filed all required reports under the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. All Interactive Data Files required by Rule 405 of Regulation S-T have been submitted electronically[3] Shares Outstanding As of May 10, 2021, Verastem, Inc. reported 171,919,345 shares of Common Stock outstanding Common Stock Outstanding | Date | Shares Outstanding | | :--- | :--- | | May 10, 2021 | 171,919,345 | Forward-Looking Statements This section outlines the forward-looking nature of statements within the report, emphasizing substantial risks and uncertainties related to product candidates VS-6766 and defactinib - The report contains forward-looking statements regarding strategy, future operations, financial position, revenues, costs, prospects, plans, and management objectives[11] - Key product candidates mentioned in forward-looking statements are VS-6766 (RAF/MEK program) and defactinib (FAK program), with focus on clinical development, regulatory submissions, and commercialization[11] - Significant risks and uncertainties include negative clinical trial results, delays in regulatory approvals, challenges in obtaining and enforcing intellectual property, competitive developments, and the ability to secure adequate future financing[12] - The duration and impact of the COVID-19 pandemic are also identified as factors that may affect or exacerbate these risks and uncertainties[12] PART I—FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents Verastem, Inc.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2021, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes Condensed Consolidated Balance Sheets This section provides a summary of the company's financial position as of March 31, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $35,514 | $67,782 | | Short-term investments | $85,583 | $73,444 | | Total current assets | $127,678 | $144,938 | | Total assets | $136,901 | $154,349 | | Liabilities | | | | Total current liabilities | $11,844 | $17,093 | | Convertible senior notes | $19,672 | $19,051 | | Total liabilities | $34,292 | $39,075 | | Stockholders' Equity | | | | Total stockholders' equity | $102,609 | $115,274 | | Accumulated deficit | $(607,542) | $(592,511) | - Total assets decreased from $154.3 million at December 31, 2020, to $136.9 million at March 31, 2021, primarily due to a decrease in cash and cash equivalents[15] - Total liabilities decreased from $39.1 million to $34.3 million, mainly driven by a reduction in accrued expenses[15] Condensed Consolidated Statements of Operations and Comprehensive Loss This section presents the company's financial performance for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Total revenue | $1,006 | $5,056 | | Total operating expenses | $15,114 | $31,415 | | Loss from operations | $(14,108) | $(26,359) | | Net loss | $(15,031) | $(37,990) | | Net loss per share—basic and diluted | $(0.09) | $(0.35) | | Comprehensive loss | $(15,050) | $(37,995) | - Total revenue decreased by 80% from $5.1 million in Q1 2020 to $1.0 million in Q1 2021, primarily due to the sale of the COPIKTRA license[17] - Net loss significantly improved by 60% from $(38.0) million in Q1 2020 to $(15.0) million in Q1 2021, driven by reduced operating expenses[17] - Net loss per share decreased from $(0.35) in Q1 2020 to $(0.09) in Q1 2021[17] Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's stockholders' equity for the three months ended March 31, 2021 Changes in Stockholders' Equity (in thousands, except share data) | Item | Balance at Dec 31, 2020 | Net Loss | Unrealized Loss on Securities | Stock Options Exercise | RSU Vesting | Stock-based Comp. | ESPP Issuance | Balance at Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock (Shares) | 170,456,179 | — | — | 173,890 | 1,047,271 | — | 53,372 | 171,730,712 | | Common Stock (Amount) | $17 | — | — | — | — | — | — | $17 | | Additional Paid-in Capital | $707,715 | — | — | $381 | $(52) | $1,980 | $76 | $710,100 | | Accumulated Other Comprehensive Income | $53 | — | $(19) | — | — | — | — | $34 | | Accumulated Deficit | $(592,511) | $(15,031) | — | — | — | — | — | $(607,542) | | Total Stockholders' Equity | $115,274 | $(15,031) | $(19) | $381 | $(52) | $1,980 | $76 | $102,609 | - Total stockholders' equity decreased from $115.3 million at December 31, 2020, to $102.6 million at March 31, 2021, primarily due to the net loss incurred during the period[19] - Common stock shares outstanding increased due to exercises of stock options, vesting of restricted stock units, and issuances under the Employee Stock Purchase Plan[19] Condensed Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(19,318) | $(34,003) | | Net cash (used in) provided by investing activities | $(12,372) | $32,050 | | Net cash (used in) provided by financing activities | $(578) | $93,421 | | (Decrease) increase in cash, cash equivalents and restricted cash | $(32,268) | $91,468 | | Cash, cash equivalents and restricted cash at end of period | $35,755 | $170,730 | - Net cash used in operating activities decreased by $14.7 million, from $(34.0) million in Q1 2020 to $(19.3) million in Q1 2021, primarily due to a decreased net loss[21] - Investing activities shifted from providing $32.1 million in Q1 2020 to using $(12.4) million in Q1 2021, mainly due to net purchases of investments[21] - Financing activities used $(0.6) million in Q1 2021, a significant decrease from providing $93.4 million in Q1 2020, which included proceeds from a common stock issuance[21] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of significant accounting policies and financial statement items 1. Nature of business Verastem, Inc. is a development-stage biopharmaceutical company focused on novel anticancer agents, specifically RAF/MEK inhibition (VS-6766) and FAK inhibition (defactinib) for various solid tumors - Verastem, Inc. is a development-stage biopharmaceutical company focused on novel anticancer agents, particularly VS-6766 (RAF/MEK program) and defactinib (FAK program), for various solid tumors[22][23] - The company sold its exclusive worldwide license for COPIKTRA (duvelisib) to Secura Bio, Inc. on September 30, 2020[24] Key Financial Position (in millions) | Item | March 31, 2021 | | :--- | :--- | | Cash, cash equivalents, and investments | $127.1 | | Accumulated deficit | $607.5 | - The company expects existing cash resources to fund planned operations for at least 12 months from the issuance date of the financial statements[27] - Future development costs are expected to be financed through existing cash, future milestones/royalties from the Secura APA, or strategic financing opportunities (collaboration agreements, equity offerings, debt)[28] 2. Summary of significant accounting policies The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim reporting, assuming the company continues as a going concern - Financial statements are prepared under GAAP for interim reporting, assuming a going concern for the next twelve months[31] - The company adopted ASU 2019-12 (Simplifying Accounting for Income Taxes) in Q1 2021, which had no effect on its financial statements or disclosures[33] - The company is evaluating the impact of ASU 2016-13 (Measurement of Credit Losses on Financial Instruments), effective after December 15, 2022, and ASU 2020-06 (Debt with Conversion and Other Options), effective after December 15, 2023, for smaller reporting companies[34][37] - Credit risk is mitigated by maintaining cash, cash equivalents, and investments with high-quality financial institutions. As of March 31, 2021, Secura accounted for over 60% of accounts receivable and all revenue for the three months ended March 31, 2021[38][39][40] 3. Cash, cash equivalents and restricted cash The company's total cash, cash equivalents, and restricted cash decreased from $68.0 million at December 31, 2020, to $35.8 million at March 31, 2021 Cash, Cash Equivalents and Restricted Cash (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $35,514 | $67,782 | | Restricted cash | $241 | $241 | | Total cash, cash equivalents and restricted cash | $35,755 | $68,023 | - Restricted cash of approximately $0.2 million is held to collateralize outstanding letters of credit for the company's office space in Needham, Massachusetts[41] 4. Fair value of financial instruments The company categorizes its financial instruments into a three-level fair value hierarchy, with total financial assets measured at fair value of $125.4 million as of March 31, 2021 - The fair value hierarchy prioritizes valuation inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[42][44] Financial Assets Measured at Fair Value (in thousands) | Description | March 31, 2021 Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $33,820 | $33,820 | $— | $— | | Short-term investments | $85,583 | $— | $85,583 | $— | | Long-term investments | $5,998 | $— | $5,998 | $— | | Total financial assets | $125,401 | $33,820 | $91,581 | $— | Convertible Senior Notes Fair Value vs. Carrying Value (in thousands) | Item | March 31, 2021 Fair Value | March 31, 2021 Carrying Value | | :--- | :--- | :--- | | 2018 Notes | $0.3 | Included in $19.7 | | 2020 Notes | $31.4 | Included in $19.7 | | Aggregate Notes | $31.7 | $19.7 | - The fair value of the 2018 and 2020 Convertible Senior Notes was determined using Level 3 inputs, influenced by the company's stock price, volatility, and market yields[45] 5. Investments As of March 31, 2021, total cash, cash equivalents, restricted cash, and investments amounted to $127.3 million (fair value), with an aggregate unrealized loss of $17 thousand Cash, Cash Equivalents, Restricted Cash and Investments (in thousands) | Item | Amortized Cost (Mar 31, 2021) | Gross Unrealized Gains (Mar 31, 2021) | Gross Unrealized Losses (Mar 31, 2021) | Fair Value (Mar 31, 2021) | | :--- | :--- | :--- | :--- | :--- | | Cash, cash equivalents & restricted cash | $35,755 | $— | $— | $35,755 | | Investments (due within 1 year) | $85,550 | $50 | $(17) | $85,583 | | Investments (due between 1 and 5 years) | $5,998 | $— | $— | $5,998 | | Total | $127,303 | $50 | $(17) | $127,336 | - The company had three investments in an unrealized loss position as of March 31, 2021, with an immaterial aggregate unrealized loss, and none were considered other-than-temporarily impaired[46] 6. Accrued expenses Total accrued expenses decreased from $14.7 million at December 31, 2020, to $8.8 million at March 31, 2021, primarily due to reductions in compensation and consulting fees Accrued Expenses (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Research and development expenses | $4,554 | $5,176 | | Compensation and related benefits | $1,310 | $5,930 | | Interest | $589 | $236 | | Consulting fees | $543 | $1,091 | | Professional fees | $503 | $615 | | Commercialization costs | $87 | $330 | | Other | $1,222 | $1,282 | | Total accrued expenses | $8,808 | $14,660 | - The decrease in accrued expenses was primarily driven by a reduction in compensation and related benefits, and consulting fees[47] 7. Product revenue reserves and allowances Following the sale of COPIKTRA in September 2020, product revenue reserves and allowances significantly decreased to $32 thousand at March 31, 2021 - The company's sole source of product revenue from COPIKTRA ended on September 30, 2020, after its sale to Secura[48] Product Revenue Allowance and Reserve Categories (in thousands) | Category | Balance at Dec 31, 2020 | Credits and Payments Made | Ending Balance at Mar 31, 2021 | | :--- | :--- | :--- | :--- | | Trade discounts and allowances | $23 | $(19) | $4 | | Government rebates and other incentives | $67 | $(67) | $— | | Returns | $31 | $(3) | $28 | | Total | $121 | $(89) | $32 | 8. Leases The company has an operating lease for its Needham, Massachusetts office space, extending through June 2025, with consistent operating lease expense - The company's operating lease for office space in Needham, Massachusetts, extends through June 2025[49] Lease Information (in thousands, except years and rate) | Item | March 31, 2021 | | :--- | :--- | | Right-of-use asset, net | $2,628 | | Lease liability | $3,359 | | Operating lease expense (Q1 2021) | $221 | | Operating lease expense (Q1 2020) | $221 | | Weighted average remaining lease term | 4.3 years | | Weighted average discount rate | 14.6% | | Total Lease Maturity Analysis | $4,493 | | Less: Present value discount | $(1,134) | | Lease Liability | $3,359 | 9. Convertible Senior Notes The company has 2018 and 2020 Convertible Senior Notes outstanding, bearing 5.00% interest and maturing in 2048, with the 2019 Notes fully converted by March 31, 2020 2018 Notes The 2018 Notes, with an aggregate principal amount of $150.0 million, bear 5.00% interest and mature on November 1, 2048, convertible at an initial price of $7.16 per share - The 2018 Notes have an aggregate principal amount of $150.0 million, bear 5.00% interest, and mature on November 1, 2048[52] - Initial conversion rate is 139.5771 shares of common stock per $1,000 principal amount, equivalent to an initial conversion price of approximately $7.16 per share[53] - The company can automatically convert outstanding 2018 Notes if the Daily VWAP of its common stock equals or exceeds 130% of the conversion price for at least 20 trading days within a 30-day period[54][56] 2019 Notes The 2019 Notes, issued in exchange for 2018 Notes, were fully converted into common stock by March 31, 2020, including a cash make-whole provision - The 2019 Notes were issued in exchange for 2018 Notes, bearing 5.00% interest and maturing on November 1, 2048[59] - By March 31, 2020, all 2019 Notes were converted into 34,796,350 shares of common stock and $1.8 million in cash for the interest make-whole provision[59] - The 2019 Notes Interest Make-Whole Provision was bifurcated as a derivative liability, with a fair value of $0.2 million at issuance[65] 2020 Notes The 2020 Notes, issued in exchange for $28.0 million of 2018 Notes, are senior unsecured obligations with a 5.00% interest rate and a November 1, 2048 maturity - The 2020 Notes were issued in exchange for $28.0 million of 2018 Notes, are senior unsecured, bear 5.00% interest, and mature on November 1, 2048[66][74] - Initial conversion rate is 307.6923 shares of common stock per $1,000 principal amount, corresponding to an initial conversion price of approximately $3.25 per share[68] - The company has the right to redeem the 2020 Notes on or after November 1, 2023, and holders have repurchase options on November 1, 2023, and subsequent dates[69][70] - The 2020 Notes exchange was treated as a debt modification, reducing the carrying value by $2.3 million due to the change in the fair value of the conversion option[75] 10. Common stock On March 3, 2020, the company completed a PIPE offering, selling 46,511,628 shares of common stock at $2.15 per share, generating approximately $93.8 million in net proceeds - On March 3, 2020, the company completed a PIPE offering, selling 46,511,628 shares of common stock at $2.15 per share[77] PIPE Offering Details (March 2020) | Item | Value | | :--- | :--- | | Shares Sold | 46,511,628 | | Purchase Price per Share | $2.15 | | Net Proceeds | ~$93.8 million | 11. Stock-based compensation The company grants stock options, restricted stock units (RSUs), and offers an Employee Stock Purchase Plan (ESPP) as forms of stock-based compensation Stock options As of March 31, 2021, 12.5 million stock options were outstanding with a weighted-average exercise price of $3.85 and an aggregate intrinsic value of $5.7 million Stock Option Activity (Three months ended March 31, 2021) | Item | Shares | Weighted-average exercise price per share | | :--- | :--- | :--- | | Outstanding at December 31, 2020 | 12,690,745 | $3.90 | | Granted | 801,659 | $2.21 | | Exercised | (246,758) | $1.54 | | Forfeited/cancelled | (725,888) | $3.76 | | Outstanding at March 31, 2021 | 12,519,758 | $3.85 | | Vested at March 31, 2021 | 8,007,568 | $4.61 | Black-Scholes Assumptions for Stock Options | Assumption | March 31, 2021 | March 31, 2020 | | :--- | :--- | :--- | | Risk-free interest rate | 0.55 % | 1.58 % | | Volatility | 97 % | 88 % | | Dividend yield | — | — | | Expected term (years) | 6.1 | 6.1 | Restricted stock units (RSUs) As of March 31, 2021, 2,850,955 RSUs were outstanding, with a weighted average grant date fair value of $1.78 per share, generally vesting over four years RSU Activity (Three months ended March 31, 2021) | Item | Shares | Weighted average grant date fair value per share | | :--- | :--- | :--- | | Outstanding at December 31, 2020 | 2,649,317 | $1.73 | | Granted | 497,590 | $2.26 | | Vested | (72,390) | $2.45 | | Forfeited/cancelled | (223,562) | $2.01 | | Outstanding at March 31, 2021 | 2,850,955 | $1.78 | - RSUs generally vest in four substantially equal installments over four years, or other specified periods, contingent on continued employment[80] Employee stock purchase plan The Amended and Restated 2018 ESPP allows eligible employees to purchase common stock at 85% of the lesser of the fair market value at the beginning or end of the purchase period - The ESPP allows eligible employees to purchase common stock at 85% of the lesser of the fair market value on the grant date or exercise date[82] ESPP Shares Issued and Compensation Expense (Q1 2021) | Item | Value | | :--- | :--- | | Shares Issued | 53,372 | | Proceeds | $0.1 million | | Stock-based Compensation Expense | < $0.1 million | ESPP Weighted-Average Assumptions | Assumption | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Risk-free interest rate | 0.09 % | 1.57 % | | Volatility | 65 % | 78 % | | Dividend yield | — | — | | Expected term (years) | 0.5 | 0.5 | 12. Net loss per share Basic and diluted net loss per common share are calculated based on net loss and weighted-average common shares outstanding, with potentially dilutive securities excluded due to their anti-dilutive effect - Basic and diluted net loss per common share are calculated by dividing net loss by the weighted-average number of common shares outstanding[84] Potentially Dilutive Securities Excluded from Diluted EPS | Security Type | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Outstanding stock options | 12,519,758 | 14,202,430 | | Outstanding restricted stock units | 2,850,955 | 1,614,784 | | 2018 Notes | 41,873 | 3,950,032 | | 2020 Notes | 8,615,384 | — | | Employee stock purchase plan | 33,034 | 128,545 | | Total potentially dilutive securities | 24,061,004 | 19,895,791 | - All potentially dilutive securities were excluded from the diluted net loss per share calculation because their inclusion would have had an anti-dilutive effect[85] 13. License, collaboration and commercial agreements This section details the company's key license and collaboration agreements, including the sale of the COPIKTRA license to Secura Bio, Inc., and agreements with Chugai, Sanofi, Yakult, and CSPC Secura Bio, Inc. (Secura) On September 30, 2020, Verastem sold its exclusive worldwide license for COPIKTRA (duvelisib) to Secura Bio, Inc. for an upfront payment of $70.0 million, with potential for future milestones and royalties - Verastem sold its exclusive worldwide license for COPIKTRA (duvelisib) to Secura Bio, Inc. on September 30, 2020, for an upfront payment of $70.0 million[87][88] - The Secura APA includes potential regulatory milestone payments up to $45.0 million and sales milestone payments up to $50.0 million[88][89] - Verastem is entitled to low double-digit royalties on annual aggregate net sales above $100.0 million and 50% of all royalty, milestone, and sublicense revenue from Secura's sublicensees (Sanofi, Yakult, CSPC)[89] Revenue from Secura APA (Q1 2021, in millions) | Revenue Type | Amount | | :--- | :--- | | Regulatory milestone (Sanofi sublicensee) | $0.8 | | Expected future royalties | $0.1 | | Transition services revenue | $0.2 | | Total recognized revenue | $1.1 | Chugai Pharmaceutical Co., Ltd (Chugai) On January 7, 2020, Verastem entered into an exclusive worldwide license agreement with Chugai for the development and commercialization of VS-6766, with Chugai retaining opt-back rights - Verastem obtained an exclusive worldwide license from Chugai for the development, commercialization, and manufacture of VS-6766[99][100] - A non-refundable upfront payment of $3.0 million was made to Chugai in February 2020 and recorded as research and development expense[100][104] - Chugai has opt-back rights for VS-6766 in the European Union, Japan, and Taiwan, with consideration based on Verastem's development costs[100] Sanofi In July 2019, Verastem granted Sanofi exclusive rights for duvelisib in certain territories, with Secura assuming obligations post-APA, entitling Verastem to 50% of future milestone and royalty payments - Verastem granted Sanofi exclusive rights for duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, receiving a $5.0 million upfront payment and potential milestones up to $42.0 million[105][106] - After the Secura APA (September 30, 2020), Secura assumed all responsibilities under the Sanofi Agreement, and Verastem is entitled to 50% of future milestone and royalty payments from Sanofi, remitted by Secura[107] Yakult Honsha Co., Ltd. (Yakult) In June 2018, Verastem granted Yakult exclusive rights for duvelisib in Japan, with Secura assuming obligations post-APA, entitling Verastem to 50% of future milestone and royalty payments - Verastem granted Yakult exclusive rights for duvelisib in Japan, receiving a $10.0 million upfront payment and potential milestones up to $90.0 million[108][109] - After the Secura APA (September 30, 2020), Secura assumed all responsibilities under the Yakult Agreement, and Verastem is entitled to 50% of future milestone and royalty payments from Yakult, remitted by Secura[110] CSPC Pharmaceutical Group Limited (CSPC) In September 2018, Verastem granted CSPC exclusive rights for duvelisib in China, Hong Kong, Macau, and Taiwan, with Secura assuming obligations post-APA, entitling Verastem to 50% of future milestone and royalty payments - Verastem granted CSPC exclusive rights for duvelisib in China, Hong Kong, Macau, and Taiwan, receiving a $15.0 million upfront payment and potential milestones up to $160.0 million[113][114] - After the Secura APA (September 30, 2020), Secura assumed all responsibilities under the CSPC Agreement, and Verastem is entitled to 50% of future milestone and royalty payments from CSPC, remitted by Secura[115] 14. Income taxes The company did not record a federal or state income tax provision or benefit for the three months ended March 31, 2021, or 2020, due to expected losses and a full valuation allowance - No income tax provision or benefit was recorded for Q1 2021 or Q1 2020 due to expected losses and a full valuation allowance against net deferred tax assets[116] 15. Commitments and contingencies The company has no other material commitments or contingencies beyond the minimum lease payments disclosed in Note 8 - The company has no other commitments or contingencies beyond minimum lease payments[117] 16. Restructurings The company undertook two restructurings in 2020, eliminating 31 positions in February and 41 positions in August, with $0.1 million remaining accrued for the August 2020 Restructuring as of March 31, 2021 - The February 2020 Restructuring eliminated approximately 31 positions, incurring $1.8 million in one-time termination benefits[118] - The August 2020 Restructuring, in connection with the duvelisib sale, involved a workforce reduction of approximately 41 positions, mainly in commercial operations[119] Accrued Liabilities Activity for Restructurings (in thousands) | Item | Accrued at Dec 31, 2020 | Paid | Accrued at Mar 31, 2021 | | :--- | :--- | :--- | :--- | | August 2020 Restructuring | $1,027 | $(907) | $120 | 17. Subsequent events The company is not aware of any material subsequent events that would require disclosure or impact the carrying value of assets or liabilities as of the balance sheet date - No material subsequent events were identified between the quarter-end and the issuance date of the financial statements[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2021, compared to the same period in 2020 Overview Verastem is a development-stage biopharmaceutical company focused on novel anticancer agents VS-6766 and defactinib, with registration-directed trials underway and sufficient cash resources for at least 12 months - Verastem is a development-stage biopharmaceutical company focused on novel anticancer agents VS-6766 (dual RAF/MEK inhibitor) and defactinib (FAK inhibitor) for solid tumors[124][126][128] - VS-6766 and defactinib are being investigated in preclinical and clinical studies for low-grade serous ovarian cancer (LGSOC), non-small cell lung cancer (NSCLC), colorectal cancer (CRC), pancreatic cancer, uveal melanoma, and endometrial cancer[125] - Updated data from The FRAME study showed a 52% overall response rate (ORR) in LGSOC, with 70% ORR in KRAS mutant LGSOC[129][131] - Registration-directed trials, RAMP 201 (LGSOC) and RAMP 202 (KRAS mutant NSCLC), commenced in Q4 2020[132] - The company sold its duvelisib program (COPIKTRA) to Secura Bio, Inc. on September 30, 2020, to focus on VS-6766 and defactinib[133] Key Financials (in millions) | Item | March 31, 2021 | | :--- | :--- | | Accumulated deficit | $607.5 | | Net loss (Q1 2021) | $15.0 | | Cash, cash equivalents, and investments | $127.1 | - Existing cash resources are expected to fund planned operations for at least 12 months[135] COVID-19 pandemic The COVID-19 pandemic has impacted the company's operations, with employees working remotely and clinical trial startup activities experiencing delays in European countries - The COVID-19 pandemic has affected employees, patients, communities, and business operations, with most employees working from home since mid-March 2020[138] - Patient accruals in clinical trials have increased as restrictions eased, but European restrictions still cause delays in clinical trial startup activities[138] - The full extent of the pandemic's direct or indirect impact on the business, results of operations, and financial condition is highly uncertain[138] Critical Accounting Policies and Significant Judgments and Estimates The company's financial statements require estimates and judgments, with critical accounting policies remaining materially unchanged from the prior annual report - The preparation of financial statements requires management to make estimates and judgments affecting reported amounts[140] - Critical accounting policies include revenue recognition (product revenue, licenses, and intellectual property sales), accrued research and development expenses, stock-based compensation, intangible assets, and leases[142] - There were no material changes to critical accounting policies during the three months ended March 31, 2021[142] RESULTS OF OPERATIONS The company's Q1 2021 results showed a significant reduction in net loss and operating expenses compared to Q1 2020, primarily due to the divestment of the COPIKTRA license Revenue Total revenue for Q1 2021 was $1.0 million, an 80% decrease from $5.1 million in Q1 2020, primarily due to the cessation of COPIKTRA product sales Revenue Comparison (in thousands) | Revenue Type | Q1 2021 | Q1 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $— | $5,034 | $(5,034) | (100)% | | License and collaboration revenue | $— | $22 | $(22) | (100)% | | Sale of COPIKTRA license and related assets | $850 | $— | $850 | 100% | | Transition services revenue | $156 | $— | $156 | 100% | | Total revenue | $1,006 | $5,056 | $(4,050) | (80)% | - Product revenue ceased in Q1 2021 due to the sale of the COPIKTRA license as of September 30, 2020[144] - New revenue in Q1 2021 included $0.8 million from a regulatory milestone achieved by Sanofi (Secura's sublicensee) and $0.1 million from expected royalties under the Secura APA[146] - Transition services revenue of $0.2 million was recognized in Q1 2021 for support functions provided to Secura[147] Operating Expenses Total operating expenses decreased by 52% from $31.4 million in Q1 2020 to $15.1 million in Q1 2021, driven by the elimination of COPIKTRA-related costs and reduced SG&A expenses Operating Expenses Comparison (in thousands) | Expense Type | Q1 2021 | Q1 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cost of sales - product | $— | $495 | $(495) | (100)% | | Cost of sales - intangible amortization | $— | $392 | $(392) | (100)% | | Research and development | $8,896 | $10,924 | $(2,028) | (19)% | | Selling, general and administrative | $6,218 | $19,604 | $(13,386) | (68)% | | Total operating expenses | $15,114 | $31,415 | $(16,301) | (52)% | - Cost of sales for product and intangible amortization were $0 in Q1 2021 due to the COPIKTRA license sale[148][150] - R&D expense decreased by $2.0 million, primarily due to a $3.0 million license fee paid to Chugai in Q1 2020, partially offset by increased costs for VS-6766 and defactinib drug substance and IST expenses[151] - SG&A expense decreased by $13.4 million, mainly from reduced personnel-related costs ($7.4 million), consulting and professional fees ($5.0 million), and commercial activities costs ($0.5 million) following the COPIKTRA divestment[152] Other Income (Expense) Other expense of $1.3 million in Q1 2020 related to the 2019 Notes' make-whole interest provision ceased in Q1 2021, while interest income and expense both decreased Other Income (Expense) Comparison (in thousands) | Item | Q1 2021 | Q1 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Other expense | $— | $(1,313) | $1,313 | (100)% | | Interest income | $52 | $356 | $(304) | (85)% | | Interest expense | $(975) | $(10,674) | $9,699 | (91)% | - Other expense in Q1 2020 was due to the mark-to-market adjustment of the 2019 Notes' make-whole interest provision; this expense was $0 in Q1 2021 as all 2019 Notes converted[153] - Interest income decreased by $0.3 million due to lower interest rates on investments[154] - Interest expense decreased by $9.7 million due to the conversion of 2019 Notes and repayment of the term loan facility[155] Restructuring In Q1 2020, the company recorded $1.8 million in restructuring expenses related to the February 2020 Restructuring, which involved eliminating 31 positions, with no charges incurred in Q1 2021 - In Q1 2020, $1.8 million was recorded for the February 2020 Restructuring, which included one-time termination benefits for 31 employee positions[156] - No restructuring charges were incurred in Q1 2021[156] LIQUIDITY AND CAPITAL RESOURCES The company's liquidity is primarily supported by equity offerings, debt financings, and upfront payments from license agreements, with $127.1 million in cash, cash equivalents, and investments as of March 31, 2021 Sources of liquidity The company's operations are financed through equity offerings, debt, and upfront payments from license agreements, with future milestones and royalties from the Secura APA expected - Operations are financed primarily through public/private equity offerings, debt, and upfront payments from license/collaboration agreements[157] - Product revenue from COPIKTRA ceased after its license sale in September 2020; future funding will include milestones and royalties from the Secura APA[157] Liquidity Position (March 31, 2021) | Item | Amount | | :--- | :--- | | Cash, cash equivalents, and investments | $127.1 million | - Investments are primarily in U.S. Government money market funds, agency bonds, corporate bonds, and commercial paper[158] Cash flows Net cash used in operating activities decreased by $14.7 million in Q1 2021, while investing activities shifted to a net use of cash, and financing activities significantly decreased Cash Flow Summary (in thousands) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Operating activities | $(19,318) | $(34,003) | | Investing activities | $(12,372) | $32,050 | | Financing activities | $(578) | $93,421 | | (Decrease) increase in cash, cash equivalents and restricted cash | $(32,268) | $91,468 | - The decrease in cash used in operating activities was primarily due to a decreased net loss and a net decrease in working capital components[161] - Investing activities in Q1 2021 primarily involved net purchases of investments ($12.2 million) and fixed assets ($0.2 million)[162] - Financing activities in Q1 2020 included $93.9 million in net proceeds from a common stock offering[163][164] License and collaboration agreements The company's primary license agreement is the Secura APA, under which it sold the COPIKTRA license for an upfront payment and potential milestones/royalties, retaining 50% of future payments from sublicensees - The Secura APA involved the sale of the COPIKTRA license for an upfront payment of $70.0 million, regulatory milestones up to $45.0 million, sales milestones up to $50.0 million, and low double-digit royalties[181][182] - Verastem is entitled to 50% of all royalty, milestone, and sublicense revenue payments payable to Secura under existing license agreements with Sanofi, Yakult, and CSPC[182] - In Q1 2021, $0.9 million was recognized from the Secura APA, including a regulatory milestone from Sanofi and expected royalties[186] - The Chugai Agreement grants Verastem exclusive worldwide rights for VS-6766, with a $3.0 million non-refundable payment made in February 2020[187][188][191] Funding requirements The company expects to incur significant expenses and operating losses for ongoing clinical trials and commercialization efforts, with existing cash projected to fund operations for at least the next twelve months - The company expects to incur significant expenses and operating losses due to ongoing and new clinical trials for VS-6766 and defactinib, intellectual property expansion, and commercialization efforts[192] - Existing cash resources are expected to fund obligations for at least the next twelve months[194] - Future capital requirements are dependent on factors such as clinical trial scope and results, regulatory review, commercialization costs, intellectual property maintenance, and the ability to secure collaborations[199] - Future funding is anticipated through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements, which may involve dilution or restrictive covenants[195] CONTRACTUAL OBLIGATIONS AND COMMITMENTS There have been no material changes to the company's contractual obligations and commitments from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to contractual obligations and commitments since the Annual Report on Form 10-K for the year ended December 31, 2020[196] OFF-BALANCE SHEET ARRANGEMENTS The company did not have any off-balance sheet arrangements during the periods presented, nor does it currently have any, as defined under SEC rules - The company has no off-balance sheet arrangements[197] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk primarily from changes in interest rates, affecting its $127.1 million in cash, cash equivalents, and investments, though the impact is not material due to the short-term, low-risk nature of investments - The company's primary market risk exposure is interest rate sensitivity, affecting its $127.1 million in cash, cash equivalents, and investments[198] - Due to the short-term duration and low-risk profile of investments, a 100 basis point change in interest rates would not materially affect the fair market value of the portfolio[201] - The fixed-rate 2018 and 2020 Convertible Senior Notes have minimal exposure to changes in interest rates[203] - Foreign currency fluctuations from global CRO and contract manufacturer agreements are currently immaterial[202] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021[204] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2021[205] PART II—OTHER INFORMATION This part contains other information not included in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company reported no legal proceedings - There are no legal proceedings to report[208] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - No material changes to risk factors from the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[209] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no recent unregistered sales of equity securities and no purchases of its own equity securities during the period - No recent unregistered sales of equity securities[210] - No purchases of equity securities were made by the company during the reporting period[211] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There are no defaults upon senior securities to report[212] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - There are no mine safety disclosures to report[213] Item 5. Other Information The company reported no other information - There is no other information to report[214] Item 6. Exhibits This section lists the exhibits filed as part of this Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Chief Financial Officer, a press release, and Inline XBRL documents - The report includes certifications from the Principal Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2)[218] - A press release issued by Verastem, Inc. on May 11, 2021, is filed as Exhibit 99.1[218] - Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) and the cover page in Inline XBRL (104) are included[218] SIGNATURES The report is duly signed on behalf of Verastem, Inc. by its Chief Executive Officer, Brian M. Stuglik, and Chief Business and Financial Officer, Robert Gagnon, on May 11, 2021 - The report is signed by Brian M. Stuglik, Chief Executive Officer, and Robert Gagnon, Chief Business and Financial Officer, on May 11, 2021[223]