Verastem(VSTM) - 2019 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended September 30, 2019 and December 31, 2018 - The company has an accumulated deficit of $486.0 million as of September 30, 2019, and anticipates continued losses, raising substantial doubt about its ability to continue as a going concern[21][22][127][128] Condensed Consolidated Balance Sheets The balance sheets show a decrease in total assets from $277.2 million at December 31, 2018, to $192.6 million at September 30, 2019, primarily driven by reductions in cash, cash equivalents, and short-term investments. Total liabilities increased, while total stockholders' equity significantly decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $103,320 | $129,867 | $(26,547) | | Short-term investments | $56,908 | $119,786 | $(62,878) | | Total current assets | $166,958 | $253,259 | $(86,301) | | Total assets | $192,600 | $277,236 | $(84,636) | | Total current liabilities | $30,510 | $37,077 | $(6,567) | | Long-term debt | $34,882 | $19,506 | $15,376 | | Convertible senior notes | $101,249 | $95,231 | $6,018 | | Total liabilities | $171,083 | $152,937 | $18,146 | | Total stockholders' equity | $21,517 | $124,299 | $(102,782) | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported increased net losses for both the three and nine months ended September 30, 2019, compared to the prior year, primarily due to higher interest expense from new debt and convertible notes, despite a significant increase in product revenue Key Financial Performance (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Product revenue, net | $4,032 | $508 | $8,722 | $508 | | License and collaboration revenue | $5,000 | $15,000 | $5,118 | $25,000 | | Total revenue | $9,032 | $15,508 | $13,840 | $25,508 | | Total operating expenses | $35,135 | $37,077 | $112,889 | $86,032 | | Loss from operations | $(26,103) | $(21,569) | $(99,049) | $(60,524) | | Interest expense | $(5,041) | $(862) | $(15,156) | $(1,858) | | Net loss | $(30,139) | $(21,668) | $(110,435) | $(61,085) | | Net loss per share—basic and diluted | $(0.41) | $(0.29) | $(1.49) | $(0.99) | - Product revenue, net, increased significantly by 694% for the three months ended September 30, 2019, and by 1617% for the nine months ended September 30, 2019, driven by increased COPIKTRA shipments and market penetration[14][167][178] - License and collaboration revenue decreased by 67% for the three months and 80% for the nine months ended September 30, 2019, due to large upfront payments in 2018 not fully offset by 2019 agreements[14][168][179] - Interest expense surged by 485% for the three months and 716% for the nine months ended September 30, 2019, primarily due to the issuance of Convertible Senior Notes in October 2018 and a higher principal balance on the Hercules loan[14][176][189] Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased substantially from $124.3 million at December 31, 2018, to $21.5 million at September 30, 2019, primarily due to the accumulated net losses incurred during the period Stockholders' Equity Changes (in thousands) | Metric | Dec 31, 2018 | Sep 30, 2019 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total stockholders' equity | $124,299 | $21,517 | $(102,782) | | Accumulated deficit | $(375,576) | $(486,011) | $(110,435) | | Additional paid-in capital | $499,741 | $507,494 | $7,753 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, the company experienced a net decrease in cash, cash equivalents, and restricted cash, primarily due to significant cash used in operating activities, partially offset by cash provided by investing and financing activities Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(101,297) | $(55,327) | | Net cash provided by (used in) investing activities | $64,487 | $(11,574) | | Net cash provided by financing activities | $10,263 | $115,693 | | (Decrease) increase in cash, cash equivalents and restricted cash | $(26,547) | $48,792 | | Cash, cash equivalents and restricted cash at end of period | $104,061 | $131,130 | - Cash used in operating activities increased by $46.0 million for the nine months ended September 30, 2019, compared to the prior year, mainly due to higher selling, general, and administrative expenses and lower upfront license payments[193] - Investing activities provided $64.5 million in cash for the nine months ended September 30, 2019, primarily from net maturities of investments, a reversal from cash used in the prior year[194] - Financing activities provided $10.3 million in cash for the nine months ended September 30, 2019, significantly lower than the $115.7 million in the prior year, which included substantial proceeds from common stock sales[195] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's business, significant accounting policies, financial instrument fair values, debt, equity, and collaboration agreements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim reporting, assuming the company will continue as a going concern for the next twelve months[23][24] - Effective January 1, 2019, the company adopted ASC 842, Leases, recognizing right-of-use assets and lease liabilities on the balance sheet for leases over one year[25][26][58][59] - Revenue recognition follows ASC 606, a five-step model to identify contracts, performance obligations, transaction price, allocation, and recognition when obligations are satisfied[29][131] 1. Nature of business Verastem, Inc. is a biopharmaceutical company focused on developing and commercializing cancer medicines. Its primary product, COPIKTRA, was FDA-approved in September 2018 for certain hematologic cancers. The company faces significant risks, including the need for successful commercialization and ongoing financing, which raises substantial doubt about its ability to continue as a going concern - Verastem is a biopharmaceutical company developing and commercializing cancer medicines, with COPIKTRA (duvelisib) FDA-approved on September 24, 2018, for CLL/SLL and FL[19][122] - The company had $160.2 million in cash, cash equivalents, and short-term investments and an accumulated deficit of $486.0 million as of September 30, 2019[21] - Due to historical losses, anticipated future losses, and heavy reliance on COPIKTRA's successful commercialization, there is substantial doubt about the company's ability to continue as a going concern for the next twelve months[22][128] 2. Summary of significant accounting policies This note outlines the basis of presentation for the unaudited interim financial statements, confirming GAAP compliance and the going concern assumption. It details significant accounting policies, including the adoption of ASC 842 for leases and the five-step model for revenue recognition, and discusses recently issued and adopted accounting standards Revenue Recognition The company recognizes product revenue from COPIKTRA sales upon delivery, net of variable consideration like discounts, rebates, and returns. License and collaboration revenue from intellectual property is recognized when the license is transferred and the customer can benefit, with milestone payments constrained until probable of achievement - Product revenue from COPIKTRA sales is recognized at the point of delivery, net of estimated variable consideration including trade discounts, chargebacks, government rebates, and co-pay assistance[30][31][135] - Variable consideration is included in the transaction price only if it is probable that a significant revenue reversal will not occur in a future period[32][136] - Revenue from exclusive licenses of intellectual property is recognized when the license is transferred and the customer can use and benefit from it, often combined with initial technology transfer as a single performance obligation[42][107][150] - Milestone payments are included in the transaction price only when their achievement is considered probable and a significant revenue reversal is unlikely, with regulatory approvals typically not considered probable until received[46][152] Concentrations of credit risk and off-balance sheet risk The company manages credit risk by maintaining cash and investments with high-quality financial institutions and assessing customer creditworthiness. As of September 30, 2019, two customers accounted for over 60% of trade accounts receivable, and five customers individually contributed over 10% of total revenues - As of September 30, 2019, two customers comprised over 60% of the company's trade accounts receivable balance[50] - Five customers individually accounted for greater than 10% of the company's total revenues for the three and nine months ended September 30, 2019[51] Recently Issued Accounting Standards Updates The company is evaluating the impact of several recently issued accounting standards, including ASU 2018-18 (Collaborative Arrangements), ASU 2018-15 (Internal Use Software), ASU 2018-13 (Fair Value Measurement), and ASU 2016-13 (Credit Losses), all effective for periods beginning after December 15, 2019 - The company is evaluating the impact of ASU 2018-18 (Collaborative Arrangements), ASU 2018-15 (Internal Use Software), ASU 2018-13 (Fair Value Measurement), and ASU 2016-13 (Credit Losses), all effective for annual and interim periods beginning after December 15, 2019[53][54][55][56] Recently Adopted Accounting Standards Updates The company adopted ASU 2018-07 (Stock Compensation) prospectively on January 1, 2019, with no material effect. It also adopted ASU 2016-02 (Leases) using the optional transition method, recognizing a $4.0 million lease liability and a $3.4 million right-of-use asset, without a cumulative effect adjustment to accumulated deficit - ASU 2018-07 (Stock Compensation) was adopted prospectively on January 1, 2019, with no material effect on financial statements[57] - ASU 2016-02 (Leases) was adopted on January 1, 2019, resulting in the recognition of a $4.0 million lease liability and a $3.4 million right-of-use asset, with no cumulative effect adjustment to accumulated deficit[58][59] 3. Cash, cash equivalents and restricted cash As of September 30, 2019, total cash, cash equivalents, and restricted cash amounted to $104.1 million, a decrease from $130.6 million at December 31, 2018. Restricted cash includes funds for R&D studies and collateral for office space Cash, Cash Equivalents and Restricted Cash (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $103,320 | $129,867 | | Restricted cash | $741 | $741 | | Total cash, cash equivalents and restricted cash | $104,061 | $130,608 | - Restricted cash includes approximately $0.5 million for R&D studies under an agreement with the Leukemia & Lymphoma Society, Inc. (LLS) and $0.2 million for letters of credit collateralizing office space[60] 4. Fair value of financial instruments The company measures financial instruments at fair value using a three-level hierarchy. As of September 30, 2019, total financial assets measured at fair value were $159.0 million, primarily in Level 1 (money market funds) and Level 2 (corporate bonds/commercial paper). The fair value of long-term debt was $37.1 million (Level 3), and Convertible Senior Notes was $64.1 million (Level 2) Financial Instruments Measured at Fair Value (in thousands) | Description | Sep 30, 2019 Total | Sep 30, 2019 Level 1 | Sep 30, 2019 Level 2 | Sep 30, 2019 Level 3 | Dec 31, 2018 Total | Dec 31, 2018 Level 1 | Dec 31, 2018 Level 2 | Dec 31, 2018 Level 3 | | :-------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Cash equivalents | $102,073 | $94,324 | $7,749 | $— | $127,689 | $60,092 | $67,597 | $— | | Short-term investments | $56,908 | $— | $56,908 | $— | $119,786 | $— | $119,786 | $— | | Total financial assets | $158,981 | $94,324 | $64,657 | $— | $247,475 | $60,092 | $187,383 | $— | - The fair value of long-term debt (including current portion) was approximately $37.1 million at September 30, 2019, determined using Level 3 inputs[64] - The fair value of the 5.00% Convertible Senior Notes due 2048 was approximately $64.1 million at September 30, 2019, determined using Level 2 inputs[65] 5. Investments The company's cash, cash equivalents, and short-term investments totaled $160.2 million at September 30, 2019, primarily consisting of cash, money market accounts, and corporate bonds/commercial paper. There were no realized gains or losses on investments for the periods presented Cash, Cash Equivalents, and Short-Term Investments (in thousands) | Category | Sep 30, 2019 Fair Value | Dec 31, 2018 Fair Value | | :-------------------------------- | :---------------------- | :---------------------- | | Cash and money market accounts | $95,571 | $62,270 | | Corporate bonds and commercial paper (due within 90 days) | $7,749 | $67,597 | | Corporate bonds and commercial paper (due within 1 year) | $56,908 | $119,786 | | Total cash, cash equivalents and investments | $160,228 | $249,653 | - No realized gains or losses on investments were recorded for the three and nine months ended September 30, 2019 or 2018[67] 6. Inventory Inventory, primarily for COPIKTRA, increased from $327 thousand at December 31, 2018, to $478 thousand at September 30, 2019. The company began capitalizing inventory costs in Q3 2018 after FDA approval, expecting recoverability through sales Inventory Breakdown (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Raw materials | $— | $— | | Work in process | $342 | $63 | | Finished goods | $136 | $264 | | Total inventories | $478 | $327 | - Inventory capitalization for COPIKTRA began in the third quarter of 2018 following FDA marketing approval, based on reasonable assurance of recoverability[68][169][180] 7. Intangible assets Net intangible assets, primarily acquired and in-licensed rights related to COPIKTRA, decreased slightly to $20.4 million at September 30, 2019, from $21.6 million at December 31, 2018, due to amortization. Amortization expense for the nine months ended September 30, 2019, was $1.2 million Intangible Assets (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Acquired and in-licensed rights | $22,000 | $22,000 | | Less: accumulated amortization | $(1,600) | $(423) | | Total intangible assets, net | $20,400 | $21,577 | - Amortization expense for finite-lived intangible assets was approximately $0.4 million for the three months and $1.2 million for the nine months ended September 30, 2019[71][174][187] 8. Accrued expenses Accrued expenses remained relatively stable at $21.3 million at September 30, 2019, compared to $21.1 million at December 31, 2018. Significant components include compensation, contract research organization costs, commercialization costs, and interest Accrued Expenses (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Compensation and related benefits | $5,444 | $8,749 | | Contract research organization costs | $6,849 | $6,682 | | Commercialization costs | $2,425 | $1,979 | | Interest | $3,410 | $1,786 | | Consulting fees | $1,948 | $494 | | Professional fees | $624 | $482 | | Other | $589 | $936 | | Total accrued expenses | $21,289 | $21,108 | 9. Product revenue reserves and allowances Product revenue reserves and allowances increased from $276 thousand at December 31, 2018, to $691 thousand at September 30, 2019, reflecting provisions for trade discounts, chargebacks, government rebates, and other incentives related to COPIKTRA sales Product Revenue Reserves and Allowances (in thousands) | Category | Dec 31, 2018 Balance | Sep 30, 2019 Balance | | :-------------------------------- | :------------------- | :------------------- | | Trade discounts and allowances | $29 | $122 | | Third-Party Payer chargebacks, discounts and fees | $88 | $281 | | Government rebates and other incentives | $157 | $217 | | Returns | $2 | $71 | | Total | $276 | $691 | - The company has not received any product returns to date, despite offering a limited right of return for COPIKTRA[38][143] 10. Leases Effective January 1, 2019, the company adopted ASC 842, recognizing a right-of-use asset of $3.1 million and a lease liability of $4.0 million for its Needham, Massachusetts office space. The lease term extends through May 2025, with operating lease expense of $0.7 million for the nine months ended September 30, 2019 - The company's Needham office space is accounted for as an operating lease, with a weighted average remaining lease term of 5.7 years and a weighted average discount rate of 14.60% as of September 30, 2019[76][79] Lease Expense and Liabilities (in thousands) | Metric | 9 Months Ended Sep 30, 2019 | Sep 30, 2019 | | :-------------------------------- | :-------------------------- | :----------- | | Operating lease expense | $666 | N/A | | Operating cash flows paid for amounts included in measurement of lease liabilities | $512 | N/A | | Right-of-use asset | N/A | $3,146 | | Lease liability | N/A | $3,951 | 11. Long-term debt The company amended its loan agreement with Hercules Capital, Inc. in April 2019, increasing the total borrowing capacity to $75.0 million, with $35.0 million outstanding as of September 30, 2019. The loan matures on December 1, 2022, accrues interest at a floating rate (min 9.75%), and requires interest-only payments until April 2021 (potentially extended to December 2021) - The company's loan agreement with Hercules Capital, Inc. was amended in April 2019, increasing total borrowing capacity to $75.0 million, with $35.0 million outstanding as of September 30, 2019[82][203] - The 2019 Term Loan matures on December 1, 2022, and accrues interest at a floating rate, with a minimum of 9.75%[83][204] - The loan provides for interest-only payments until April 1, 2021, extendable to December 1, 2021, if the company generates $40.0 million in net product revenue on a trailing six-month basis by December 31, 2020[83][204] Future Principal Payments under 2019 Term Loan (in thousands) | Year | Principal Payments | | :--- | :----------------- | | 2021 | $14,234 | | 2022 | $20,766 | | Total | $35,000 | 12. Convertible Senior Notes In October 2018, the company issued $150.0 million aggregate principal amount of 5.00% Convertible Senior Notes due 2048. These notes are senior unsecured obligations, bear semi-annual interest, and are convertible into common stock at an initial rate of 139.5771 shares per $1,000 principal amount - The company issued $150.0 million aggregate principal amount of 5.00% Convertible Senior Notes due 2048 in October 2018[88] - The notes bear interest at 5.00% per annum, payable semi-annually, and are convertible into common stock at an initial rate of 139.5771 shares per $1,000 principal amount (conversion price of approximately $7.16 per share)[88][89] 13. Stock‑based compensation This section details the company's stock-based compensation plans, including stock options, restricted stock units (RSUs), and the Employee Stock Purchase Plan (ESPP). Total unrecognized compensation cost for unvested stock options was $16.8 million, and for RSUs was $1.7 million, as of September 30, 2019 - Total unrecognized compensation cost for unvested stock options was $16.8 million as of September 30, 2019, to be recognized over approximately 2.93 years[94] - Total unrecognized compensation cost for unvested RSUs was approximately $1.7 million as of September 30, 2019, to be recognized over approximately 2.91 years[96] - The Amended and Restated 2018 ESPP allows eligible employees to purchase common stock at 85% of the lesser of the fair market value on the grant or exercise date, with 341,701 shares issued for $0.4 million in Q3 2019[97] 14. Net loss per share Basic net loss per common share is calculated by dividing net loss by weighted-average common shares outstanding. Diluted net loss per share includes potentially dilutive securities (stock options, RSUs, Convertible Senior Notes) unless their effect is anti-dilutive, which was the case for all such securities for the periods presented Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share Calculation | Security Type | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Outstanding stock options | 16,493,690 | 12,915,463 | 16,493,690 | 12,915,463 | | Outstanding restricted stock units | 816,959 | 316,875 | 816,959 | 316,875 | | Convertible senior notes | 20,936,548 | — | 20,936,548 | — | | Total potentially dilutive securities | 38,247,197 | 13,232,338 | 38,247,197 | 13,232,338 | - All potentially dilutive securities were excluded from the calculation of diluted net loss per share for the periods presented because their inclusion would have had an anti-dilutive effect[99] 15. License and collaboration agreements The company has entered into several license and collaboration agreements for duvelisib. In Q3 2019, it signed an agreement with Sanofi, receiving a $5.0 million upfront payment. Other agreements include those with Yakult (Japan) and CSPC (China, Hong Kong, Macau, Taiwan), which provided significant upfront payments in 2018 - On July 25, 2019, the company entered into a license and collaboration agreement with Sanofi, granting exclusive rights for duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, and received a $5.0 million upfront payment in August 2019[101][103][109][207][209][211] - The Sanofi agreement includes potential aggregate payments of up to $42.0 million for regulatory and commercial milestones and double-digit royalties on net sales[103][209] - The company has existing license and collaboration agreements with Yakult Honsha Co., Ltd. (Japan, $10.0 million upfront in June 2018) and CSPC Pharmaceutical Group Limited (China, Hong Kong, Macau, Taiwan, $15.0 million upfront in September 2018)[110][111][113][114][212][215] - For the nine months ended September 30, 2019, the company recognized $0.1 million in collaboration revenue under the Yakult Supply Agreement for clinical and commercial drug product[112] 16. Income taxes The company did not record any federal or state income tax provision or benefit for the three and nine months ended September 30, 2019 and 2018, due to expected losses and the maintenance of a full valuation allowance against its net deferred tax assets - No income tax provision or benefit was recorded for the three and nine months ended September 30, 2019 and 2018, due to expected losses and a full valuation allowance against net deferred tax assets[115] 17. Commitments and contingencies The company's primary commitment is a lease agreement for its Needham, Massachusetts office space, for which a $0.2 million security deposit in the form of a letter of credit is held - The company has a lease agreement for its Needham office space, with a $0.2 million security deposit in the form of a letter of credit[116] 18. Subsequent events On October 28, 2019, the company initiated a restructuring plan to reduce operational expenses, including eliminating approximately 40 positions. This is expected to reduce annualized operating expenses by $25 million starting in 2020 and result in a $1.0 million charge in Q4 2019 for termination benefits - On October 28, 2019, the company committed to an operational plan to reduce expenses, including eliminating approximately 40 positions[117][231] - The restructuring is expected to reduce annualized operating expenses by approximately $25 million beginning in 2020[118] - A charge of approximately $1.0 million is expected in Q4 2019 for one-time termination benefits related to the restructuring[119] 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, highlighting key business developments, critical accounting policies, and a detailed comparison of financial performance for the three and nine months ended September 30, 2019 and 2018. It also discusses liquidity, capital resources, and future funding requirements OVERVIEW Verastem is a biopharmaceutical company focused on cancer treatments, with its FDA-approved product COPIKTRA for hematologic cancers and defactinib in clinical development. The company has an accumulated deficit of $486.0 million and expects continued losses, raising substantial doubt about its going concern ability, despite recent product revenue from COPIKTRA's commercial launch - Verastem is a biopharmaceutical company developing and commercializing cancer medicines, with COPIKTRA (duvelisib) FDA-approved on September 24, 2018, for CLL/SLL and FL[121][122] - The company's second product candidate, defactinib, is a FAK inhibitor being investigated in combination with immunotherapeutic and other agents[124] - As of September 30, 2019, the company had an accumulated deficit of $486.0 million and expects significant expenses and operating losses, raising substantial doubt about its ability to continue as a going concern[127][128] CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES This section reiterates and elaborates on the critical accounting policies identified in the notes, including revenue recognition (product and license), accounts receivable, inventory valuation, intangible asset amortization and impairment, and the adoption of ASC 842 for leases, emphasizing the significant judgments and estimates involved - Critical accounting policies include accrued research and development expenses, stock-based compensation, revenue recognition, collaborative arrangements, accounts receivable, inventory, and intangible assets[130] - The company adopted ASC 842, Leases, effective January 1, 2019, requiring recognition of right-of-use assets and lease liabilities on the balance sheet[130][163] RESULTS OF OPERATIONS This section provides a detailed comparative analysis of the company's revenues and expenses for the three and nine months ended September 30, 2019, versus 2018, highlighting the drivers behind changes in product revenue, license revenue, operating expenses, and net loss Comparison of the three months ended September 30, 2019 and 2018 For the three months ended September 30, 2019, product revenue significantly increased by 694% to $4.0 million, while license revenue decreased by 67% to $5.0 million. Total operating expenses decreased slightly, but a substantial increase in interest expense led to a 39% higher net loss of $30.1 million Financial Performance (Three Months Ended September 30, 2019 vs. 2018) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Product revenue, net | $4,032 | $508 | $3,524 | 694% | | License and collaboration revenue | $5,000 | $15,000 | $(10,000) | -67% | | Total revenue | $9,032 | $15,508 | $(6,476) | -42% | | Research and development | $12,219 | $11,571 | $648 | 6% | | Selling, general and administrative | $22,153 | $25,426 | $(3,273) | -13% | | Interest expense | $(5,041) | $(862) | $(4,179) | 485% | | Net loss | $(30,139) | $(21,668) | $(8,471) | 39% | - The $3.5 million increase in product revenue was driven by greater market penetration of COPIKTRA[167] - The $10.0 million decrease in license revenue was due to a $15.0 million upfront payment from CSPC in Q3 2018, partially offset by a $5.0 million upfront payment from Sanofi in Q3 2019[168] - Selling, general and administrative expenses decreased by $3.2 million, primarily due to lower consulting and professional fees related to commercial launch preparation activities in the prior year[173] Comparison of the nine months ended September 30, 2019 and 2018 For the nine months ended September 30, 2019, product revenue surged by 1617% to $8.7 million, while license revenue dropped by 80% to $5.1 million. Total operating expenses increased by 31%, mainly due to higher selling, general and administrative costs. A significant increase in interest expense contributed to an 81% higher net loss of $110.4 million Financial Performance (Nine Months Ended September 30, 2019 vs. 2018) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Product revenue, net | $8,722 | $508 | $8,214 | 1617% | | License and collaboration revenue | $5,118 | $25,000 | $(19,882) | -80% | | Total revenue | $13,840 | $25,508 | $(11,668) | -46% | | Research and development | $33,322 | $34,886 | $(1,564) | -4% | | Selling, general and administrative | $77,484 | $51,066 | $26,418 | 52% | | Interest expense | $(15,156) | $(1,858) | $(13,298) | 716% | | Net loss | $(110,435) | $(61,085) | $(49,350) | 81% | - The $19.9 million decrease in license revenue was primarily due to $10.0 million and $15.0 million upfront payments from Yakult and CSPC, respectively, in 2018, partially offset by a $5.0 million upfront payment from Sanofi in 2019[179] - Selling, general and administrative expenses increased by $26.4 million, mainly due to higher personnel costs ($16.4 million) for sales and commercial teams, executive separation costs ($2.3 million), and increased consulting and professional fees ($6.7 million) related to commercial operations[186] - Research and development expense decreased by $1.6 million, driven by lower consulting and CRO costs from site closures in older studies, partially offset by increased costs for new Phase 2 studies (PRIMO and Intermittent Dosing)[181][183] LIQUIDITY AND CAPITAL RESOURCES The company's liquidity is primarily from public offerings, debt, and collaboration agreements, with $160.2 million in cash, cash equivalents, and short-term investments as of September 30, 2019. It faces substantial doubt about its going concern ability due to ongoing losses and reliance on COPIKTRA's commercial success, necessitating future financing Sources of liquidity The company's primary liquidity sources include public stock options, at-the-market equity programs, the Hercules loan agreement, upfront payments from license and collaboration agreements (Sanofi, Yakult, CSPC), and COPIKTRA product revenue. As of September 30, 2019, it held $160.2 million in cash, cash equivalents, and short-term investments - Primary liquidity sources include public offerings of common stock, at-the-market equity programs, the Hercules loan agreement, upfront payments from license and collaboration agreements (Sanofi, Yakult, CSPC), and COPIKTRA product revenue[190] - As of September 30, 2019, the company had $160.2 million in cash, cash equivalents, and short-term investments[191] Cash flows For the nine months ended September 30, 2019, cash used in operating activities increased to $101.3 million, while investing activities provided $64.5 million (a shift from prior year's use), and financing activities provided $10.3 million (significantly less than prior year). This resulted in a net decrease in cash of $26.5 million Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(101,297) | $(55,327) | | Net cash provided by (used in) investing activities | $64,487 | $(11,574) | | Net cash provided by financing activities | $10,263 | $115,693 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(26,547) | $48,792 | - The increase in cash used in operating activities was primarily due to higher selling, general, and administrative expenses and lower upfront license payments compared to the prior year[193] - Financing activities in 2019 included $9.7 million from the Hercules loan amendment and $0.6 million from stock option exercises, a significant decrease from 2018 which included $81.2 million from common stock sales and $24.3 million from an at-the-market equity offering program[195][197][199][200] Funding requirements Future funding requirements are driven by commercialization of COPIKTRA, ongoing and new clinical trials, intellectual property management, and expansion of operational and commercial teams. The company expects to finance cash needs through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements, acknowledging that failure to raise sufficient funds could lead to delays or termination of development efforts - Future funding requirements are driven by commercialization of COPIKTRA, ongoing and new clinical trials, intellectual property management, and expansion of operational and commercial teams[216] - The company expects to finance cash needs through equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements[217] - Failure to raise additional funds could force delays, reductions, or termination of product development or commercialization efforts[218] CONTRACTUAL OBLIGATIONS AND COMMITMENTS There have been no material changes to the company's contractual obligations and commitments since its December 31, 2018 Annual Report on Form 10-K, other than the Fourth Amendment to the Loan and Security Agreement with Hercules Capital, Inc. - No material changes to contractual obligations and commitments since December 31, 2018, except for the Fourth Amendment to the Loan and Security Agreement with Hercules Capital, Inc.[219] 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 as defined under SEC rules[220] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk primarily from interest rate fluctuations affecting its cash, cash equivalents, short-term investments, and the floating-rate Hercules term loan. A 100 basis point change in interest rates would not materially affect its investment portfolio, and a 10% increase in current interest rates would have an immaterial impact on interest expense for the Hercules loan - The company's primary market risk exposure is interest rate sensitivity, affecting its $160.2 million in cash, cash equivalents, and short-term investments[221] - An immediate 100 basis point change in interest rates would not materially affect the fair market value of the company's investment portfolio due to its short-term duration and low risk profile[221] - The Hercules term loan bears a floating interest rate, but a 10% increase in current interest rates would have an immaterial impact on cash interest expense for the three and nine months ended September 30, 2019[223] - The Convertible Senior Notes bear a fixed interest rate, minimizing exposure to interest rate changes, but potentially leading to higher relative interest payments if market rates decline or credit rating improves[224] Item 4. Controls and Procedures Management, including the CEO and Chief Business and Financial Officer, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2019, concluding they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the quarter Evaluation of disclosure controls and procedures The company's management, including the CEO and Chief Business and Financial Officer, assessed the effectiveness of disclosure controls and procedures as of September 30, 2019, and concluded they were effective at the reasonable assurance level - Management, including the CEO and Chief Business and Financial Officer, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2019[225] Changes in internal control over financial reporting There were no material changes in the company's internal control over financial reporting during the three months ended September 30, 2019 - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2019[226] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings for the period - The company reported no legal proceedings[229] Item 1A. Risk Factors This section updates the risk factors, emphasizing potential difficulties in managing restructurings and the ongoing substantial doubt about the company's ability to continue as a going concern due to historical losses, reliance on COPIKTRA, and the need for additional financing - The company may face difficulties in managing its recent restructuring, including the elimination of approximately 40 positions, and may not realize anticipated benefits or cost savings[231] - Substantial doubt exists about the company's ability to continue as a going concern due to historical operating losses, anticipated future losses, and heavy dependence on the successful commercialization of COPIKTRA[232] - The company requires additional financing to execute its operating plan, and failure to obtain it could lead to delays, reductions, or elimination of commercial and R&D efforts[232][233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities and no purchases of its own equity securities during the period covered by this report RECENT SALES OF UNREGISTERED SECURITIES No unregistered sales of equity securities occurred during the period - No unregistered sales of equity securities occurred during the period[234] PURCHASE OF EQUITY SECURITIES The company did not purchase any of its equity securities during the period - The company did not purchase any of its equity securities during the period[235] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[236] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - No mine safety disclosures were reported[237] Item 5. Other Information The company reported no other information - No other information was reported[238] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including the License and Collaboration Agreement with Sanofi, certifications from executive officers, and XBRL documents - Exhibits include the License and Collaboration Agreement with Sanofi (dated July 25, 2019), certifications of principal executive and financial officers, and XBRL instance and taxonomy documents[239][243] SIGNATURES The report is duly signed on behalf of Verastem, Inc. by Brian M. Stuglik, Chief Executive Officer, and Robert Gagnon, Chief Business and Financial Officer, on October 30, 2019 - The report was signed by Brian M. Stuglik, CEO, and Robert Gagnon, Chief Business and Financial Officer, on October 30, 2019[247]