Verastem(VSTM) - 2020 Q2 - Quarterly Report

FORWARD-LOOKING STATEMENTS This section outlines forward-looking statements regarding the company's strategy, operations, and product development, along with substantial risks and uncertainties - This section highlights that the Quarterly Report contains forward-looking statements regarding the company's strategy, future operations, financial position, revenues, costs, and development activities for its product candidates (VS-6766, defactinib) and marketed product (COPIKTRA®)[11] - It also outlines substantial risks and uncertainties that could cause actual results to differ materially from these forward-looking statements, including commercial success of COPIKTRA, clinical trial outcomes, regulatory approvals, intellectual property protection, legal proceedings, reimbursement uncertainties, competition, and the impact of COVID-19[12] PART I—FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including 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 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time, highlighting changes in financial position Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $125,328 | $43,514 | | Short-term investments | — | $31,992 | | Total current assets | $144,592 | $84,961 | | Total assets | $198,532 | $145,046 | | Total current liabilities | $28,784 | $29,890 | | Total liabilities | $84,159 | $137,872 | | Total stockholders' equity | $114,373 | $7,174 | - Total assets increased by $53.486 million (36.88%) from December 31, 2019, to June 30, 2020, primarily driven by a significant increase in cash and cash equivalents[16] - Total liabilities decreased by $53.713 million (38.96%) over the same period, largely due to a reduction in convertible senior notes[16] - Total stockholders' equity saw a substantial increase of $107.199 million (1494.27%) from December 31, 2019, to June 30, 2020[16] Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's revenues, expenses, and net loss over specific periods, reflecting operational performance and profitability Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product revenue, net | $4,235 | $3,019 | $9,269 | $4,690 | | License and collaboration revenue | $72 | $117 | $94 | $117 | | Total revenue | $4,307 | $3,136 | $9,363 | $4,807 | | Research and development | $9,344 | $11,346 | $20,268 | $21,103 | | Selling, general and administrative | $15,442 | $29,298 | $35,046 | $55,331 | | Total operating expenses | $25,571 | $41,413 | $56,986 | $77,753 | | Net loss | $(23,010) | $(42,194) | $(61,000) | $(80,296) | | Net loss per share—basic and diluted | $(0.14) | $(0.57) | $(0.45) | $(1.09) | - Total revenue increased by 37% for the three months ended June 30, 2020, and by 95% for the six months ended June 30, 2020, compared to the respective prior periods, primarily driven by higher net product revenue[18] - Net loss significantly decreased by 45% for the three months ended June 30, 2020, and by 24% for the six months ended June 30, 2020, compared to the respective prior periods, mainly due to reduced operating expenses[18] Condensed Consolidated Statements of Stockholders' Equity This section tracks changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit, over time Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share data) | Metric | Balance at Dec 31, 2019 | Balance at Mar 31, 2020 | Balance at June 30, 2020 | | :------------------------------------------------ | :---------------------- | :---------------------- | :----------------------- | | Common stock (shares) | 80,117,531 | 162,356,444 | 169,337,919 | | Common stock (amount) | $8 | $16 | $17 | | Additional paid-in capital | $531,937 | $685,733 | $700,141 | | Accumulated deficit | $(524,785) | $(562,775) | $(585,785) | | Total stockholders' equity | $7,174 | $122,983 | $114,373 | - Total stockholders' equity increased significantly from $7.174 million at December 31, 2019, to $114.373 million at June 30, 2020, primarily due to proceeds from private investment in public equity (PIPE) offering and conversion of 2019 Notes into common stock[21] - The number of common shares outstanding nearly doubled from 80.1 million at December 31, 2019, to 169.3 million at June 30, 2020, reflecting equity issuances[21] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities, illustrating liquidity and solvency Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(56,550) | $(73,449) | | Net cash provided by investing activities | $32,023 | $46,893 | | Net cash provided by financing activities | $106,099 | $9,769 | | Increase (decrease) in cash, cash equivalents and restricted cash | $81,572 | $(16,787) | - Net cash used in operating activities decreased by $16.9 million (23%) for the six months ended June 30, 2020, compared to the prior year, indicating improved operational cash burn[23] - Net cash provided by financing activities significantly increased to $106.1 million in the first half of 2020, primarily from common stock issuances, compared to $9.8 million in the prior year[23] - Overall cash, cash equivalents, and restricted cash increased by $81.6 million in the first half of 2020, a reversal from a decrease of $16.8 million in the same period of 2019[23] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, clarifying accounting policies and specific items 1. Nature of business This note describes the company's core business as a biopharmaceutical firm focused on cancer medicines, its key products, and financial position - Verastem, Inc. is a biopharmaceutical company focused on developing and commercializing cancer medicines, with its first commercial product COPIKTRA® (duvelisib) approved by the FDA in September 2018 for certain hematologic cancers[24] - The company's most advanced product candidates are defactinib and VS-6766, which are being developed for various cancers, including leukemia, lymphoma, ovarian, lung, head and neck, colorectal, pancreatic, and mesothelioma[24] - As of June 30, 2020, the company had $160.8 million in cash, cash equivalents, restricted cash, and short-term investments, and an accumulated deficit of $585.8 million, expecting existing resources to fund operations for the next 12 months[27] 2. Summary of significant accounting policies This note outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and fair value measurements Basis of Presentation This sub-section explains the framework and assumptions used for preparing the unaudited interim consolidated financial statements in accordance with GAAP - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial reporting and Regulation S-X, Rule 10-01, assuming the company will continue as a going concern for the next twelve months[30] Significant Accounting Policies This sub-section lists the primary accounting policies applied, such as those for R&D expenses, stock-based compensation, and inventory, noting no material changes - Key accounting policies include accrued research and development expenses, stock-based compensation, revenue recognition, collaborative arrangements, accounts receivable, inventory, and intangible assets, with no material changes during the six months ended June 30, 2020[31] Revenue Recognition This sub-section details the company's approach to recognizing revenue from product sales and collaboration agreements, including estimates for variable consideration - Revenue is recognized when customers obtain control of promised goods or services, reflecting the consideration expected, following a five-step assessment process under ASC Topic 606[32] - Product revenue from COPIKTRA sales is recorded net of variable consideration, including trade discounts, chargebacks, government rebates, and product returns, with estimates based on relevant factors to ensure no significant revenue reversal[34][36] - For collaboration and licensing arrangements, revenue from upfront payments, milestones, and royalties is recognized based on distinct performance obligations, with significant judgment applied to determine transaction price and measure of progress[45][46][49][51][52] Concentrations of credit risk and off-balance sheet risk This sub-section discusses how the company manages credit risk and confirms the absence of significant off-balance sheet arrangements - The company mitigates credit risk by maintaining cash and investments with high-quality financial institutions and assesses customer creditworthiness, with three customers cumulatively accounting for over 60% of trade accounts receivable as of June 30, 2020[55][56] Recently Issued Accounting Standards Updates This sub-section identifies new accounting standards that have been issued but not yet adopted, and their potential impact on the financial statements - The company is evaluating the impact of ASU No. 2016-13 (Measurement of Credit Losses on Financial Instruments) and ASU No. 2019-12 (Simplifying Accounting for Income Taxes), both of which have delayed adoption dates for smaller reporting companies[57][58] Recently Adopted Accounting Standards Updates This sub-section outlines recently adopted accounting standards and their immaterial impact on the company's financial statements and disclosures - The company adopted ASU 2018-18 (Collaborative Arrangements) and ASU 2018-15 (Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement) effective January 1, 2020, neither of which had a material impact on financial statements[59][61] - ASU 2018-13 (Fair Value Measurement) was also adopted effective January 1, 2020, with no effect on financial statements or disclosures[62] 3. Cash, cash equivalents and restricted cash This note provides a breakdown of the company's cash, cash equivalents, and restricted cash, including the purposes of restricted funds Cash, Cash Equivalents and Restricted Cash (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :----------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $125,328 | $43,514 | | Restricted cash | $35,506 | $35,748 | | Total cash, cash equivalents and restricted cash | $160,834 | $79,262 | - Restricted cash includes amounts for the Amended Term Loan Agreement, LLS Research Funding Agreement, and collateral for office space letters of credit[63] 4. Fair value of financial instruments This note explains the company's methodology for measuring the fair value of financial instruments and presents a hierarchy of valuation inputs - The company uses a fair value hierarchy (Level 1, 2, 3) to determine the fair value of financial instruments[64][66] Financial Instruments Measured at Fair Value on a Recurring Basis (in thousands) | Description | June 30, 2020 Total | June 30, 2020 Level 1 | December 31, 2019 Total | December 31, 2019 Level 1 | December 31, 2019 Level 2 | | :---------------------- | :------------------ | :-------------------- | :---------------------- | :---------------------- | :---------------------- | | Cash equivalents | $159,422 | $159,422 | $77,176 | $75,678 | $1,498 | | Short-term investments | — | — | $31,992 | — | $31,992 | | Derivative liability | — | — | $450 | — | — | - The derivative liability related to the 2019 Notes Interest Make-Whole Provision, classified as Level 3, was settled upon conversion of all 2019 Notes by June 30, 2020[68][70] - The fair value of long-term debt was approximately $37.0 million at June 30, 2020, and December 31, 2019, determined using Level 3 inputs[71] - The fair value of the 2018 Notes was approximately $14.3 million at June 30, 2020, compared to a carrying value of $20.4 million, determined using Level 2 inputs[72] 5. Investments This note details the company's investment portfolio, including cash, money market accounts, and corporate bonds, and their fair values Cash, Cash Equivalents, Restricted Cash and Investments (in thousands) | Category | June 30, 2020 Fair Value | December 31, 2019 Fair Value | | :----------------------------------- | :----------------------- | :--------------------------- | | Cash and money market accounts | $160,834 | $77,764 | | Corporate bonds, agency bonds and commercial paper (due within 90 days) | — | $1,498 | | Corporate bonds and commercial paper (due within 1 year) | — | $31,993 | | Total cash, cash equivalents, restricted cash and investments | $160,834 | $111,255 | - The company had no investments in an unrealized loss position as of June 30, 2020, compared to two investments at December 31, 2019, with immaterial aggregate unrealized losses[75] 6. Inventory This note provides a breakdown of the company's inventory, including raw materials, work in process, and finished goods, and changes over time Inventory Breakdown (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :-------------- | :------------ | :---------------- | | Raw materials | $1,056 | $955 | | Work in process | $4,668 | $2,040 | | Finished goods | $592 | $101 | | Total inventories | $6,316 | $3,096 | - Total inventories increased by $3.22 million (104%) from December 31, 2019, to June 30, 2020, primarily due to increases in work in process and finished goods[76] 7. Intangible assets This note describes the company's intangible assets, primarily acquired and in-licensed rights, and their associated amortization Intangible Assets, Net (in thousands) | Category | June 30, 2020 | | :------------------------ | :------------ | | Acquired and in-licensed rights | $22,000 | | Less: accumulated amortization | $(2,777) | | Total intangible assets, net | $19,223 | - Intangible assets primarily consist of a $22.0 million milestone payment for acquired and in-licensed rights related to COPIKTRA, with an estimated useful life of 14 years[77] - Amortization expense was approximately $0.4 million for the three months and $0.8 million for the six months ended June 30, 2020[78] 8. Accrued expenses This note itemizes the company's accrued expenses, such as compensation, research organization costs, and commercialization costs, and their changes Accrued Expenses (in thousands) | Category | June 30, 2020 | December 31, 2019 | | :---------------------------- | :------------ | :---------------- | | Compensation and related benefits | $4,551 | $7,399 | | Contract research organization costs | $7,387 | $5,467 | | Commercialization costs | $4,375 | $3,028 | | Consulting fees | $3,579 | $1,610 | | Total accrued expenses | $21,449 | $19,365 | - Total accrued expenses increased by $2.084 million (10.76%) from December 31, 2019, to June 30, 2020, driven by higher contract research organization and consulting costs[79] 9. Product revenue reserves and allowances This note details the company's provisions for product revenue allowances and reserves, including trade discounts, chargebacks, and government rebates Product Revenue Allowance and Reserve Activity (in thousands) - Six Months Ended June 30, 2020 | Category | Balance at Dec 31, 2019 | Provision related to sales in current year | Credits and payments made | Ending balance at June 30, 2020 | | :----------------------------------- | :---------------------- | :--------------------------------------- | :------------------------ | :------------------------------ | | Trade discounts and allowances | $111 | $385 | $(402) | $94 | | Third-Party Payer chargebacks, discounts and fees | $255 | $1,003 | $(1,123) | $135 | | Government rebates and other incentives | $372 | $645 | $(562) | $455 | | Returns | $76 | $358 | $(108) | $326 | | Total | $814 | $2,391 | $(2,195) | $1,010 | - Total product revenue allowances and reserves increased from $814 thousand at December 31, 2019, to $1.010 million at June 30, 2020, reflecting provisions for current year sales partially offset by credits and payments[80] 10. Leases This note outlines the company's operating lease arrangements, including right-of-use assets, lease liabilities, and future payment obligations - The company's Needham, Massachusetts office space is accounted for as an operating lease, with a right-of-use asset of $2.9 million and a lease liability of $3.7 million as of June 30, 2020[82][84] Operating Lease Expense (in thousands) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $221 | $222 | $442 | $444 | Lease Liability Maturity Analysis (in thousands) as of June 30, 2020 | Year | Amount | | :-------- | :----- | | 2020 | $504 | | 2021 | $1,019 | | 2022 | $1,039 | | 2023 | $1,060 | | 2024 | $1,081 | | Thereafter | $546 | | Total | $5,249 | | Less: Present value discount | $(1,516) | | Lease Liability | $3,733 | 11. Long-term debt This note describes the company's long-term debt obligations, including its term loan facility, interest rates, and repayment schedule - The company has a term loan facility with Hercules Capital, Inc., amended to a total borrowing limit of up to $75.0 million, with $35.0 million outstanding as of June 30, 2020[85][86] - The Amended Term Loan matures on December 1, 2022, accrues interest at a floating rate (greater of 9.75% or a formula involving prime rate), and requires interest-only payments until April 1, 2021 (extendable to December 1, 2021)[89] - The company must maintain unrestricted cash equal to 100% of outstanding debt obligations until certain net product revenue thresholds are met[87] Future Principal Payments Under Amended Term Loan (in thousands) as of June 30, 2020 | Year | Amount | | :--- | :----- | | 2021 | $14,234 | | 2022 | $20,766 | | Total | $35,000 | 12. Convertible Senior Notes This note details the company's convertible senior notes, including their issuance, conversion terms, and the settlement of related derivative liabilities - The company issued $150.0 million aggregate principal amount of 5.00% Convertible Senior Notes due 2048 (2018 Notes) in October 2018, convertible into common stock at an initial conversion price of approximately $7.16 per share[97][98] - In late 2019, the company exchanged $121.7 million of 2018 Notes for 5.00% Convertible Senior Second Lien Notes due 2048 (2019 Notes), which had an initial conversion price of approximately $1.65 per share[102][103][104] - All 2019 Notes were converted into common stock by June 30, 2020, resulting in the settlement of a derivative liability related to a cash interest make-whole payment[108] 13. Common stock This note provides information on the company's common stock, including equity offerings and changes in shares outstanding Private Investment in Public Equity (PIPE) This sub-section details the company's PIPE offering, including the number of shares sold and the net proceeds generated - On March 3, 2020, the company closed a PIPE offering, selling 46,511,628 shares of common stock at $2.15 per share, generating approximately $93.8 million in net proceeds[109] At-the-market equity offering programs This sub-section describes the company's at-the-market equity offering programs, including shares sold and net proceeds - During the six months ended June 30, 2020, the company sold 6,769,559 shares under its at-the-market equity offering program, generating approximately $12.2 million in net proceeds[112] - Cumulatively through June 30, 2020, the program has sold 18,287,913 shares for net proceeds of approximately $59.6 million[112] 14. Stock-based compensation This note outlines the company's stock-based compensation plans, including stock options, restricted stock units, and the employee stock purchase plan Stock options This sub-section details the activity and valuation assumptions for the company's stock option grants Stock Option Activity - Six Months Ended June 30, 2020 | Metric | Shares | Weighted-average exercise price per share | | :-------------------------- | :----------- | :---------------------------------------- | | Outstanding at Dec 31, 2019 | 17,258,524 | $4.00 | | Granted | 584,357 | $1.93 | | Exercised | (824,894) | $1.86 | | Forfeited/cancelled | (3,617,832) | $3.90 | | Outstanding at June 30, 2020 | 13,400,155 | $4.06 | Weighted-Average Black-Scholes Assumptions for Stock Options | Assumption | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------ | :----------------------------- | :----------------------------- | | Risk-free interest rate | 0.40 % | 2.16 % | | Volatility | 97 % | 86 % | | Expected term (years) | 5.6 | 5.8 | Restricted stock units (RSUs) This sub-section provides information on the company's restricted stock unit activity and amendments to vesting provisions RSU Activity - Six Months Ended June 30, 2020 | Metric | Shares | Weighted average grant date fair value per share | | :-------------------------- | :----------- | :----------------------------------------------- | | Outstanding at Dec 31, 2019 | 678,089 | $2.36 | | Granted | 1,050,525 | $2.18 | | Vested | (138,798) | $2.78 | | Forfeited/cancelled | (113,668) | $2.69 | | Outstanding at June 30, 2020 | 1,476,148 | $2.17 | - In March 2020, the company amended outstanding stock options and RSUs to provide for full vesting upon a change of control, aiming to assure employees[116] Employee stock purchase plan This sub-section describes the company's employee stock purchase plan, including eligibility and shares issued - 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[117] - For the six months ended June 30, 2020, the company recognized $0.1 million in stock-based compensation expense and issued 227,141 shares for $0.3 million under the ESPP[117] 15. Net loss per share This note explains the calculation of basic and diluted net loss per share and identifies potentially dilutive securities - Basic net loss per common share is calculated by dividing net loss by weighted-average common shares outstanding, while diluted net loss per share includes potentially dilutive securities unless anti-dilutive[118] Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share Calculation | Security | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Outstanding stock options | 13,400,155 | 16,635,757 | 13,400,155 | 16,635,757 | | Outstanding restricted stock units | 1,476,148 | 739,117 | 1,476,148 | 739,117 | | 2018 Notes | 3,950,032 | 20,936,548 | 3,950,032 | 20,936,548 | | Total potentially dilutive securities | 18,826,335 | 38,311,422 | 18,826,335 | 38,311,422 | 16. License and collaboration agreements This note details the company's various license and collaboration agreements for its product candidates, including upfront payments, milestones, and royalties Chugai Pharmaceutical Co., Ltd (Chugai) This sub-section outlines the exclusive worldwide license agreement with Chugai for VS-6766, including upfront fees and royalty terms - In January 2020, the company entered an exclusive worldwide license agreement with Chugai for VS-6766, paying a non-refundable $3.0 million upfront fee, recorded as R&D expense[120][121][124] - The agreement includes double-digit royalties on net sales of VS-6766 products and opt-back rights for Chugai in the EU, Japan, and Taiwan[121] Sanofi This sub-section details the exclusive rights granted to Sanofi for duvelisib in specific regions, including upfront payments and potential milestones - In July 2019, the company granted Sanofi exclusive rights to develop and commercialize duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, receiving a $5.0 million upfront payment[125][127] - Sanofi is eligible for up to $42.0 million in milestone payments and double-digit royalties on net sales[127] Yakult Honsha Co., Ltd. (Yakult) This sub-section describes the duvelisib licensing agreement with Yakult for Japan, including upfront payments, milestones, and a supply agreement - In June 2018, the company licensed duvelisib rights in Japan to Yakult, receiving a $10.0 million upfront payment and eligibility for up to $90.0 million in milestones and double-digit royalties[128][129] - A supply agreement in February 2019 also granted Yakult limited manufacturing rights for clinical and commercial use in Japan[130] CSPC Pharmaceutical Group Limited (CSPC) This sub-section outlines the exclusive rights granted to CSPC for duvelisib in Greater China, including upfront payments and potential milestones - In September 2018, the company granted CSPC exclusive rights to develop and commercialize duvelisib in China, Hong Kong, Macau, and Taiwan, receiving a $15.0 million upfront payment[131][132] - CSPC is eligible for up to $160.0 million in milestones and double-digit royalties on net sales[132] 17. Income taxes This note explains the company's income tax position, including the absence of provisions or benefits due to expected losses and valuation allowances - The company recorded no federal or state income tax provision or benefit for the three and six months ended June 30, 2020 and 2019, due to expected losses and a full valuation allowance against net deferred tax assets[135] 18. Commitments and contingencies This note confirms that the company has no material commitments or contingencies beyond those already disclosed - The company has no other commitments beyond minimum lease payments as disclosed in Note 10[136] 19. Restructurings This note details the company's restructuring efforts, including position eliminations and associated expenses, aimed at reducing operating costs - The company undertook restructurings in October 2019 (40 positions eliminated) and February 2020 (31 positions eliminated) to reduce operating expenses and streamline operations[137][138] - For the February 2020 restructuring, the company recorded $1.8 million in aggregate expense for one-time termination benefits during the six months ended June 30, 2020[139] Accrued Liabilities Activity for Restructurings (in thousands) - Six Months Ended June 30, 2020 | Restructuring | Amounts accrued at Dec 31, 2019 | Charges | Amount Paid | Adjustments | Amounts accrued at June 30, 2020 | | :---------------------- | :------------------------------ | :------ | :---------- | :---------- | :------------------------------- | | October 2019 Restructuring | $631 | — | $(587) | $(5) | $39 | | February 2020 Restructuring | — | $1,788 | $(1,063) | $7 | $732 | | Total | $631 | $1,788 | $(1,650) | $2 | $771 | 20. Subsequent events This note discloses significant events occurring after the reporting period, specifically the sale of duvelisib (COPIKTRA) to Secura Bio, Inc Sale of duvelisib (COPIKTRA) This sub-section details the agreement to sell duvelisib to Secura Bio, including the upfront payment, royalties, and milestone terms - On August 10, 2020, the company signed an Asset Purchase Agreement (APA) to sell its exclusive worldwide license for duvelisib in oncology indications to Secura Bio, Inc[143] - Under the APA, Secura will make an upfront payment of $70 million, pay low double-digit royalties on net sales over $100 million, and up to $95 million in additional milestone payments[144] - Secura will assume all operational and financial responsibility for the duvelisib oncology program, including existing collaboration partner obligations and royalty payments to Infinity Pharmaceuticals, Inc[143] 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, results of operations, and liquidity, including an overview of its business, the impact of the COVID-19 pandemic, critical accounting policies, and detailed comparisons of financial performance for the three and six months ended June 30, 2020 and 2019 OVERVIEW This section provides a high-level summary of the company's biopharmaceutical focus, key product candidates, and financial position, including the impact of recent strategic shifts - Verastem is a biopharmaceutical company focused on cancer, with marketed product COPIKTRA® and lead candidates VS-6766 (RAF/MEK inhibitor) and defactinib (FAK inhibitor), which are being developed for various cancers[147] - Initial Phase 1 study (FRAME) data for VS-6766 and defactinib combination showed promising clinical activity in KRAS mutant LGSOC (50% ORR) and KRAS G12V mutant NSCLC (57% ORR in combined analysis), with a manageable safety profile[150][152][153][154] - The company had an accumulated deficit of $585.8 million as of June 30, 2020, and expects to incur significant losses, but anticipates existing cash resources and COPIKTRA revenue will fund operations for the next 12 months[160] - Following the subsequent event of selling duvelisib (COPIKTRA) to Secura Bio, the company is focusing its efforts on its lead product candidates, VS-6766 and defactinib[157] COVID-19 pandemic This section discusses the impact of the COVID-19 pandemic on the company's commercial activities, clinical trials, and supply chain - The COVID-19 pandemic has impacted the company's commercial activities, leading to limited in-person interactions and a decline in patient visits, which may affect future net product revenue[163] - Clinical trials have experienced slowdowns in site initiation, participant recruitment, and enrollment, particularly for the Phase 1 IST (FRAME) and the Phase 2 PTCL study, though patient accruals are beginning to recover[164][166] - To date, the company has not experienced delays or interruptions in its supply chain for raw materials and manufacturing of its products and candidates[167] CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES This section highlights the accounting policies requiring significant management judgment and estimates, confirming no material changes during the period - The company's critical accounting policies, which require significant judgment and estimates, include revenue recognition, collaborative agreements, accrued research and development expenses, stock-based compensation, accounts receivable, inventory, intangible assets, and leases[171] - There were no material changes to these critical accounting policies during the six months ended June 30, 2020[171] RESULTS OF OPERATIONS This section provides a detailed analysis of the company's financial performance, comparing revenues and expenses for the current and prior periods Comparison of the three months ended June 30, 2020 and 2019 This sub-section compares the company's financial results for the three-month periods, highlighting changes in revenue, expenses, and net loss Key Financials - Three Months Ended June 30 (in thousands) | Metric | 2020 | 2019 | Change | % Change | | :-------------------------------- | :---------- | :---------- | :---------- | :------- | | Product revenue, net | $4,235 | $3,019 | $1,216 | 40% | | License and collaboration revenue | $72 | $117 | $(45) | -38% | | Total revenue | $4,307 | $3,136 | $1,171 | 37% | | Research and development | $9,344 | $11,346 | $(2,002) | -18% | | Selling, general and administrative | $15,442 | $29,298 | $(13,856) | -47% | | Total operating expenses | $25,571 | $41,413 | $(15,842) | -38% | | Loss from operations | $(21,264) | $(38,277) | $17,013 | -44% | | Net loss | $(23,010) | $(42,194) | $19,184 | -45% | - Product revenue, net increased by 40% due to greater market penetration of COPIKTRA[174] - Research and development expenses decreased by 18% primarily due to lower CRO costs and personnel-related costs[178] - Selling, general and administrative expenses decreased significantly by 47% due to reduced headcount, consulting fees, and travel costs[183] Comparison of the six months ended June 30, 2020 and 2019 This sub-section compares the company's financial results for the six-month periods, detailing changes in revenue, operating expenses, and net loss Key Financials - Six Months Ended June 30 (in thousands) | Metric | 2020 | 2019 | Change | % Change | | :-------------------------------- | :---------- | :---------- | :---------- | :------- | | Product revenue, net | $9,269 | $4,690 | $4,579 | 98% | | License and collaboration revenue | $94 | $117 | $(23) | -20% | | Total revenue | $9,363 | $4,807 | $4,556 | 95% | | Research and development | $20,268 | $21,103 | $(835) | -4% | | Selling, general and administrative | $35,046 | $55,331 | $(20,285) | -37% | | Total operating expenses | $56,986 | $77,753 | $(20,767) | -27% | | Loss from operations | $(47,623) | $(72,946) | $25,323 | -35% | | Other expense | $(1,313) | — | $(1,313) | 100% | | Net loss | $(61,000) | $(80,296) | $19,296 | -24% | - Product revenue, net nearly doubled (98% increase) due to increased COPIKTRA shipments and market penetration[189] - Research and development expenses decreased by 4%, primarily due to lower CRO and personnel costs, partially offset by a $3.0 million payment for the VS-6766 license[194] - Selling, general and administrative expenses decreased by 37% due to reduced personnel costs and consulting/professional fees[197][199] - Other expense of $1.3 million was recorded for the mark-to-market adjustment of the 2019 Notes make-whole interest provision[200] - Net loss decreased by 24%, reflecting improved revenue and reduced operating expenses, despite an increase in interest expense due to non-cash interest from 2019 Notes conversion[187][202] LIQUIDITY AND CAPITAL RESOURCES This section analyzes the company's ability to generate and manage cash, detailing sources of funds, cash flow activities, and future funding requirements Sources of liquidity This sub-section identifies the primary means by which the company finances its operations, including equity offerings, debt, and product revenue - The company's operations are primarily financed through public/private equity offerings, at-the-market equity programs, debt facilities, upfront payments from license agreements, and product revenue from COPIKTRA sales[205] - As of June 30, 2020, the company held $160.8 million in cash, cash equivalents, and restricted cash, primarily invested in U.S. Government money market funds and corporate bonds[206] Cash flows This sub-section summarizes the company's cash flows from operating, investing, and financing activities for the reporting periods Cash Flow Summary (in thousands) - Six Months Ended June 30 | Cash Flow Activity | 2020 | 2019 | | :--------------------------------------- | :---------- | :---------- | | Net cash used in operating activities | $(56,550) | $(73,449) | | Net cash provided by investing activities | $32,023 | $46,893 | | Net cash provided by financing activities | $106,099 | $9,769 | | Increase (decrease) in cash, cash equivalents and restricted cash | $81,572 | $(16,787) | - The decrease in cash used in operating activities was driven by increased product revenue and decreased SG&A expenses[208] - Cash provided by financing activities in 2020 was primarily from $93.8 million in PIPE proceeds and $12.2 million from at-the-market equity offerings[210][211][213] Convertible Senior Notes This sub-section discusses the company's convertible senior notes, including outstanding amounts and conversion events - The company had $28.3 million aggregate principal amount of 5.00% Convertible Senior Notes due 2048 (2018 Notes) outstanding as of June 30, 2020[229] - All 2019 Notes, which were issued in exchange for 2018 Notes in late 2019, were converted into common stock by June 30, 2020, including a $1.8 million cash interest make-whole payment[221][228] Long-term debt This sub-section details the company's long-term debt, including the term loan facility, outstanding balance, and interest terms - The company has a term loan facility with Hercules Capital, Inc., with $35.0 million outstanding as of June 30, 2020, maturing on December 1, 2022[231][232] - The loan accrues interest at a floating rate (minimum 9.75%) and requires interest-only payments until April 1, 2021, with potential extension[232][233] License and collaboration agreements This sub-section provides an overview of the company's various licensing and collaboration agreements, including recent strategic transactions Secura This sub-section details the agreement to sell duvelisib rights to Secura Bio, including financial terms and assumed responsibilities - The company agreed to sell its worldwide license for duvelisib in oncology indications to Secura Bio, Inc., for an upfront payment of $70 million, plus royalties and up to $95 million in milestones[235][236] - Secura will assume all duvelisib program responsibilities, including commercialization, clinical trials, and obligations with existing collaboration partners (Yakult, CSPC, Sanofi)[235] Chugai This sub-section outlines the licensing agreement with Chugai for VS-6766, including upfront fees and royalty obligations - In January 2020, the company licensed exclusive worldwide rights for VS-6766 from Chugai, paying a $3.0 million upfront fee and agreeing to double-digit royalties on net sales[238][239] Sanofi This sub-section describes the duvelisib licensing agreement with Sanofi for specific international markets - In July 2019, the company granted Sanofi exclusive rights to duvelisib in Russia, CIS, Turkey, the Middle East, and Africa, receiving a $5.0 million upfront payment and potential milestones/royalties[243] Yakult This sub-section details the duvelisib licensing agreement with Yakult for the Japanese market - In June 2018, the company licensed duvelisib rights in Japan to Yakult for a $10.0 million upfront payment and potential milestones/royalties, with a subsequent supply agreement in February 2019[244][245] CSPC This sub-section outlines the duvelisib licensing agreement with CSPC for Greater China - In September 2018, the company licensed duvelisib rights in China, Hong Kong, Macau, and Taiwan to CSPC for a $15.0 million upfront payment and potential milestones/royalties[246][247] Funding requirements This sub-section discusses the company's anticipated future capital needs for operations, clinical trials, and commercialization efforts - The company expects to incur significant expenses for commercializing COPIKTRA, continuing and initiating clinical trials for product candidates, maintaining intellectual property, and expanding operational infrastructure[248][250] - Future capital requirements are uncertain and depend on factors like commercialization costs, clinical trial progress, regulatory outcomes, and the ability to secure collaborations or additional financing[248][251] - Existing cash resources and expected COPIKTRA revenue are projected to fund obligations for at least the next twelve months[248] CONTRACTUAL OBLIGATIONS AND COMMITMENTS This section confirms no material changes to the company's contractual obligations and commitments since the last annual report - 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, 2019[253] OFF-BALANCE SHEET ARRANGEMENTS This section states that the company had no off-balance sheet arrangements during the reporting periods - The company did not have any off-balance sheet arrangements during the periods presented[254] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily related to changes in interest rates and foreign currency fluctuations, and assesses the potential impact on its financial instruments and debt obligations - The company is exposed to interest rate risk on its cash, cash equivalents, and short-term investments, but due to their short-term duration and low risk profile, a 100 basis point change in interest rates would not materially affect their fair value[255] - Foreign currency risk is minimal, with an immaterial amount of total liabilities denominated in foreign currencies as of June 30, 2020[256] - The Amended Loan Agreement bears a floating interest rate, but a 10% increase in current interest rates would have an immaterial impact on cash interest expense[257] - The 2018 Notes bear a fixed interest rate, limiting exposure to interest rate changes[258] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting Evaluation of disclosure controls and procedures This section confirms management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, with CEO and Chief Business and Financial Officer participation, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020[260] Changes in internal control over financial reporting This section reports on any material changes in the company's internal control over financial reporting during the period - There have been no changes in internal control over financial reporting during the six months ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[261] PART II—OTHER INFORMATION This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and exhibit listings Item 1. Legal Proceedings This section states that there are no legal proceedings to report - There are no legal proceedings to disclose[264] Item 1A. Risk Factors This section refers readers to the comprehensive risk factors detailed in previous SEC filings, emphasizing potential impacts from the COVID-19 pandemic - Readers should review risk factors from the Annual Report on Form 10-K for December 31, 2019, and the Quarterly Report on Form 10-Q for March 31, 2020, including risks related to indebtedness, cash flow, covenant compliance, capital availability, and the exacerbating impact of COVID-19[265] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities or purchases of equity securities by the company during the reporting period - There were no recent sales of unregistered securities[266] - The company did not purchase any of its equity securities during the period covered by this Quarterly Report on Form 10-Q[267] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[268] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures - There are no mine safety disclosures[269] Item 5. Other Information This section states that there is no other information to report - There is no other information to disclose[270] Item 6. Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including corporate documents, certifications, and XBRL data EXHIBIT INDEX This section provides a comprehensive list of all documents and certifications included as exhibits to the report - The exhibit index includes various corporate documents (Restated Certificate of Incorporation, Amended and Restated 2012 Incentive Plan), certifications (CEO, CFO), and Inline XBRL Taxonomy Extension Documents[275] SIGNATURES This section formally attests to the accuracy and completeness of the report through the signatures of authorized corporate officers - The report is duly signed on August 10, 2020, by Brian M. Stuglik, Chief Executive Officer, and Robert Gagnon, Chief Business and Financial Officer[279]