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Topline Summary and Update
Verastem Oncology (NASDAQ:VSTM) is a cancer-focused developmental pharmaceutical company focusing on a few drugs targeting key pathways known to be important in tumor development and progression. In my prior coverage, I was sanguine on the outlook of their MAP kinase pathway inhibitor avutometinib. Now, on the back of an upcoming ASCO presentation, VSTM went from soaring in after-hours trading to dropping like a rock, finding itself in nanocap territory at the end of Friday. Today, I want to explore the reasoning behind the drop, as well as consider whether this affects my outlook for the investment thesis.
Pipeline Updates
Avutometinib
The main drug in the VSTM pipeline continues to be avutometinib, a RAF and MEK inhibitor deep in exploration for low-grade serous ovarian carcinoma. In my last article, I detailed some of the work that’s gone into this project, including a 45% objective response rate observed in the RAMP-201 study.
This agent, in combination with the FAK inhibitor defactinib, is now being submitted to the FDA in a rolling submission, per its Breakthrough Therapy designation. This submission is being considered for patients with relapsed/refractory disease that harbors a mutation in the KRAS gene, with the possibility of expanding the proposed indication to include KRAS wildtype patients when they submit a more complete clinical profile.
This news puts avutometinib on the path to finalize an NDA submission as early as late 2024, with an approval decision coming perhaps in mid-2025, but this all depends on things going quite right.
And about that…the other big recent news from VSTM was the announcement of data from the RAMP-205 study, which is investigating the safety and efficacy of avutometinib plus defactinib in combination with standard chemotherapy in patients with metastatic pancreatic cancer.
This analysis will include 41 patients across 4 dosing regimens of the new agents, and they shared some efficacy findings from cohort 1, which included 6 patients. In all, 5 of these patients achieved an objective response to therapy. 21 out of all 26 patients who have had a scan have experienced some level of reduction of their target lesion, suggesting more potential responses in the future.
It’s worth noting that in the pivotal study for nab-paclitaxel/gemcitabine from 2013, the response rate to that combination alone was shown to be 23%, although that was powered much differently and used a slightly different dose of chemo than did cohort 1 of RAMP-205, so there’s not much we can say about the comparison.
What appears to have led to the negative market reaction was the fact that 12 of 19 evaluable patients have experienced “serious” adverse events, which is an adverse event deemed to be life-threatening if not addressed immediately.
Also of note, avutometinib plus adagrasib has received Fast Track designation for KRAS G12C-mutated non-small cell lung cancer, as well as avutometinib plus defactinib plus sotorasib in the same population. VSTM has guided that they will provide data updates in these populations in the second half of 2024.
Financial Overview
In their latest quarterly filing, VSTM held $117.7 million in current assets, including $81.3 million in cash and equivalents and another $28.8 million in short-term investments. They also held $40.1 million in long-term debt. Operating expenses for the quarter reached $28.1 million, and the recognized net loss was $33.9 million after recognizing interest and a change in fair value of their preferred stock tranche liability.
Given this cash burn rate (assuming the change in fair value was a one-time thing), VSTM holds between 3 and 4 quarters of cash and investments to fund operations, putting them in range to need some kind of fundraising effort within the next few months, by this analyst’s estimation.
Strengths and Risks
Mixed – Pancreatic cancer data
The poster presentation VSTM is going to give at ASCO 2024 does not give a decisive efficacy signal, in my opinion. The headline says “87% response rate,” but common sense tells me that it was based on 6 patients and represents nothing but a promising, VERY early signal.
As for the toxicity? It’s important to remember that the nab-paclitaxel/gemcitabine combination is no walk in the park itself, and many of the serious adverse events observed in the trial are themselves known to be related to just that regimen alone. I’m not sure that the high rate of serious AEs is a death knell for the pancreatic cancer program.
Strength – On track to secure a drug approval
VSTM is moving quickly toward reaching a decision on avutometinib, data updates notwithstanding. The adverse event issues being brought up could absolutely be enough cause to deny approval in spite of the encouraging efficacy we’ve seen to date. Certainly there is a lot of work to do in ovarian cancer, and we can’t really breathe easily until the FDA accepts the final application.
Risk – Low cash position at a decisively weak valuation gives VSTM few options
The challenge that VSTM faces is getting that application through the FDA while remaining intact. Short of selling a big chunk of the rights of avutometinib, one would imagine VSTM would like to be able to raise funds through a public offering.
That’s not something that they would like to do now, in light of the 67% drop in market valuation. The news later this year would have to really ramp the market cap up in order for that to be feasible. So, unfortunately, cash presents a pretty significant risk to the investment thesis.
Bottom-Line Summary
For a company that’s heading into the final stages of clinical development for their drug, you sure would think that VSTM is basically dead in the water after publication of that poster abstract. I’m inclined to think the 67% drop is a massive overreaction. I understand that this is coupled with some updates suggesting that the KRAS wildtype ovarian cancer story may not be shaping up as planned, but we don’t know that yet. And even if they only got approval in KRAS mutated disease, that still wouldn’t justify a $100 million market cap (at the time of writing).
For these reasons, I think the current market sentiment has placed VSTM into a promising position, despite the many risks they face going forward. To me, this represents a clear “Buy” sentiment. We definitely should pay attention to the data updates, as well as guidance on how the NDA submission is continuing along. There’s too much opportunity to ignore.
