Topline Summary
Verastem (NASDAQ:VSTM) is a biotechnology company that parlayed a drug approval into a challenged franchise, opting to sell the rights to a PI3K inhibitor to fuel the development of novel agents. Now they’re a company with a track record of approval pushing into solid tumors. Should that make you a buyer? I think it’s worthy of consideration. Let’s dive in.
Pipeline Overview
Avutometinib
The main candidate VSTM is working on now is avutometinib, a “clamp” drug that promotes the formation of inactive RAF/MEK complexes, in essence hoping that this drug will act as a dual RAF/MEK inhibitor ala approved regimens like dabrafenib/trametinib.
RAF and MEK are proteins in the MAP kinase signaling cascade that act “downstream” of RAS, including mutant forms that are becoming more familiar. This means that they come later down the line of the relay team that is cell signaling, and it is thought that targeting RAF and MEK should be able to correct whatever goes wrong before the cancer cell would hit them.
Therefore, VSTM is focused on various cancers that are known to be driven by RAS pathway activation. Arguably the most advanced of these is avutometinib in patients with relapsed/refractory low-grade serous ovarian carcinoma, for which the drug has Breakthrough Therapy designation. The most recent update in this space was data presented at ASCO from the RAMP 201 study, demonstrating a 45% objective response rate in 29 patients receiving avutometinib and the anti-FAK inhibitor defactinib. This is an interesting signal, given how heavily pretreated the population of patients was.
Then, the company announced that they had settled on a final design for the confirmatory trial in LGSOC. RAMP 301 will compare avutometinib plus defactinib against standard-of-care chemotherapy in patients with recurrent disease, with an expected start date in the second half of 2023.
The other later-phase clinical trials VSTM has ongoing are in patients with relapsed, BRAF mutant NSCLC (RAMP 202 study), and pancreatic cancer (RAMP 205). We have not yet heard results from these studies, though, so gynecologic cancers should be the main focus for now.
VSTM also highlights a number of investigator-sponsored studies of avutometinib in gynecologic cancers, including another one in LGSOC and one for mesonephric tumors.
Financial Overview
VSTM ended Q2 2023 with $183 million in cash and equivalents, with total current assets reaching $190 million. Their operating losses for the quarter reached $20.2 million, down slightly from $21.4 million in 2022 Q2. The net loss was $24.3 million after a change in the fair value of preferred stock tranche liability.
These figures do include the $92 million the company received from a public stock offering in June. Not included here is the $11.5 million VSTM paid off GenFleet upfront for the rights to license its KRAS inhibitors.
With that in mind, VSTM currently has around 8 to 9 quarters of cash on hand to fund operations, assuming they’re able to keep costs under control as they advance avutometinib later into clinical study.
Strengths and Risks
A full 2 years of cash is a pretty strong position to be in for the near term, and it’s not bad that a would-be investor today is unlikely to face dilution within the next year. VSTM also has a number of potential catalysts that could transpire as we head into 2024.
However, just how strong those catalysts can be remains to be seen. The RAMP 201 study showed some promising preliminary efficacy, presented by very well-respected key opinion leaders in the field of ovarian cancer. But their drug has not yet passed real tests in randomized, well-powered clinical trials, and anyone looking to jump in should understand just how many promising phase 2 drugs go on to fail in phase 3 study, with attrition rates estimated in the 50% range.
And even then, we’re still talking quite a way off for results from said phase 3. Other catalysts could come along, of course. If VSTM shows signs of life in pancreatic cancer, it would be a big step forward for them, probably coming with share price appreciation.
At this time, VSTM is trading at just about its cash on hand: a $200 million market cap. This suggests that they’re being roundly ignored by investors, which does not in itself mean that it will move up to correct, but it does add powder to the keg if there is a strong catalyst in 2024. And let’s not forget that this is a company that has brought a drug to market in the past, so it’s less likely that they’ll make a critical fumble along the way.
Bottom-Line Summary
VSTM does not have enough data yet to convince me that avutometinib is a real answer in solid tumor oncology. Their promising early signal is just that: promising. They have sufficient cash to get them to a new milestone in 2024 or early 2025, but likely not to a drug approval.
As of right now, though, they’re beaten down, and they’ve already demonstrated that they know how to shepherd winners through. If they get some kind of stronger signal, then it would be reasonable to expect that they can drive toward levels that they haven’t seen since duvelisib was generating massive hype for the company.
This makes it swing just in favor of a buy for me at these price levels on the risk vs. reward calculation. I wouldn’t get married to this project, but there’s enough here to warrant a small position.
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