Verastem, Inc. (VSTM) Earnings Call Transcript & Summary

Good morning, and welcome to the Verastem Oncology Investor Conference Call on Friday, February 28, 2020. [Operator Instructions] Please be advised that this call is being recorded at the company's request and will be available on the company's website for a period of 90 days from today. At this time, I would like to introduce Mr. John Doyle, Vice President of Investor Relations and Finance at Verastem Oncology. Please go ahead.

Welcome, everyone, and thank you for joining us this morning. With me today to discuss Verastem Oncology's announcement regarding its new strategic direction are Brian Stuglik, Chief Executive Officer; Dan Paterson, President and Chief Operating Officer; and Rob Gagnon, Chief Financial and Business Officer. During today's call, Brian will provide some introductory remarks; Dan will provide an overview of the new strategic direction and realignment initiatives; and then Rob will provide an overview of financial information relating to today's announcements; Brian will then provide some closing remarks, and then we'll open the call up for your questions. Earlier today, we issued 2 press releases announcing the successful completion of a private placement financing to the company's decision to implement a new strategic direction for the business. Both releases are available on our website at verastem.com. Before we begin our formal comments, I'll remind you that we will be making forward-looking assertions during today's call that represent the company's intentions, expectations or beliefs concerning future events, which constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to factors, risks and uncertainties such as those detailed in today's press releases and in our filings with the SEC, which may cause actual results to differ materially from the results expressed or implied by such statements. In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update any such statements. We refer you to the disclosure notice section in the press releases we issued today and the Risk Factors section of the annual report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from these forward-looking statements. With that, I would now like to turn the call over to Brian Stuglik. Brian?

Thank you, John. Good morning, everyone, and thank you for joining us on today's call. I am pleased and excited to announce that today, we are communicating a new strategic direction for the company, which is transformative and will accelerate the advancement of our breakthrough clinical development programs. Going forward, our primary focus will be on the development of the recently in-licensed CH5126766, our RAF/MEK inhibitor, which we have renamed VS-6766, in combination with defactinib, our FAK or focal adhesion kinase inhibitor, for the treatment of KRAS mutant solid tumors. We will also be moving forward -- COPIKTRA forward rapidly in PTCL and selected combinations. In conjunction with this new strategic direction, we also announced today the successful completion of a private placement of approximately 46.5 million shares of our common stock, resulting in gross proceeds to the company of approximately $100 million before deducting underwriting discounts and commissions and other estimated offering expenses. This placement was completed at an offering price of $2.15 per share, a 12.6% premium to the current market. We are honored to have attracted such a high-caliber consortium of leading life science investors, including RA Capital Management, Vivo Capital, Venrock Healthcare Capital Partners, Farallon Capital Management, Acuta Capital, EcoR1 Capital, Avidity Partners and Logos Capital into this private placement. Importantly, all of these investors reviewed, under a confidentiality agreement, the upcoming preliminary Phase I VS-6766, defactinib combination data. As many of you know, in early 2020, we in-licensed global development and commercialization rights to VS-6766, a unique and promising inhibitor of the RAF/MEK signaling pathway. The combination of VS-6766 and defactinib is currently being investigated in a Phase I clinical trial that includes expansion cohorts in patients with KRAS mutant advanced solid tumors, including low-grade serous ovarian cancer, non-small cell lung cancer and colorectal cancer, tumors for which there remains a high unmet medical need. The initial clinical data from this ongoing Phase I study have been encouraging. Data from this Phase I study have been submitted for presentation at the upcoming American Association for Cancer Research's 2020 Annual Meeting. Beyond that, we plan to initiate discussions with regulatory authorities regarding VS-6766 during the first half of 2020, with the goal of commencing a registration-directed study as rapidly as possible. I would now like to turn the call over to Dan to discuss the impact of our new strategic direction and our duvelisib development programs and our COPIKTRA commercial initiatives, along with the additional changes to our operating plan. Dan?

Thanks, Brian. In addition to accelerating the advancement of VS-6766, we'll also continue to advance duvelisib, brand name COPIKTRA, for the treatment of relapsed or refractory peripheral T cell lymphoma, an aggressive disease with a lack of effective therapeutic options. In December, at the American Society of Hematology 2019 Annual Meeting, we presented positive data from the dose optimization portion of the Phase II PRIMO study, evaluating duvelisib in patients with relapsed or refractory PTCL. The initial phase of the trial demonstrated complete and durable responses as assessed by independent central review, with a manageable safety profile consistent with previous clinical trials and identified the optimal dosing regimen for future clinical study. The expansion phase of this registration-directed study continues to accrue patients, and we expect to complete enrollment in late 2020 and then report top line results from the expansion cohorts in early 2021. The data from the PRIMO study, if positive, will be submitted to the U.S. Food and Drug Administration in support of a supplemental new drug application requesting approval for the treatment of patients with relapsed or refractory PTCL. In parallel with these initiatives, we'll also be refocusing the resources directed to the promotion and sale of COPIKTRA in its current approved indications of CLL/SLL and follicular lymphoma. For the fourth quarter of 2019, we generated COPIKTRA net revenue of $3.6 million compared to $4 million for the third quarter of 2019. For the full year 2019, we generated COPIKTRA net product revenue of $12.3 million. Net sales were impacted by timing of purchases and gross to net adjustments associated with Medicare Part D. Demand units did increase 20% from third quarter to fourth quarter 2019. As a result of these revenues, we plan to reduce our sales force for COPIKTRA as well as implement a reduction in noncore COPIKTRA clinical research. We plan to shift our COPIKTRA promotional resources towards large community-based practices and academic institutions, where the vast majority of third-line patients are treated. In light of all these changes, we're guiding the 2020 COPIKTRA revenue may be in the range of $12 million to $16 million. In line with our new strategic direction, we'll be realigning resources to focus on the new VS-6766 defactinib combination program and reducing our overall head count to approximately 90 employees. These changes allow us to rapidly accelerate the investigation of VS-6766 defactinib combination, while also continuing to advance duvelisib in certain select indications where it will have the most impact for patients. In addition, the realignment of our commercial resources will result in a leaner, more cost-efficient organization that is well positioned to deliver on our corporate objectives and assist us in delivering on our mission of bringing new oncology medicines to patients. With that, I'll now turn the call over to Rob to review the financial elements of today's announcement. Rob?

Thanks, Dan. Before I review the financial highlights from today's news, I would first like to note that any amounts mentioned on today's call, unless specified otherwise, are preliminary and unaudited. We will be reporting our complete audited fourth quarter and full year 2019 financial results in a press release and filing our 10-K in approximately 2 weeks. In conjunction with the new strategic direction Brian and Dan highlighted, we announced earlier today the successful completion of a private placement of approximately 46.5 million shares of our common stock at an offering price of $2.15 per share. This is a 12.6% premium to yesterday's closing market price and resulted in gross proceeds of approximately $100 million before deducting underwriting discounts, commissions and other offering expenses. As of December 31, 2019, we had cash resources of $111.3 million. And on a pro forma basis, after today's financing, we now have cash resources totaling $211.3 million. As a result of the new strategic direction announced today, we expect to reduce our operating expenses by approximately 40% for 2020 compared to 2019. Based on our current operating plans, we expect our R&D and SG&A expenses for the full year 2020 to be in the range of $70 million to $85 million. We also expect that our existing cash resources, along with the revenue we expect to generate from COPIKTRA, will be sufficient to fund our planned operations into the fourth quarter of 2021. In closing, I'd like to highlight that we initiated a plan late last year to enhance our financial fundamentals of the company, including reducing our debt and cleaning up our balance sheet. For the bond restructuring initiative, which we started late last year, bonds continue to convert, and we continue to deleverage the balance sheet. Six months ago, we had approximately $185 million of debt and today, it's just over $100 million. As of closing today's financing, we have significantly strengthened our balance sheet, reduced our debt and have created a long cash runway for the company, all of which leave us well positioned to execute on our new strategic direction and on our corporate goals. With that, I will now turn the call back to Brian for closing remarks.

Thanks, Rob. In closing, I would just like to say that the staff reduction associated with the realignment was a difficult decision and that we recognize that it will personally impact many talented employees. Further, we wish to sincerely thank everyone who is affected for their important contributions to the company. Importantly, we are not giving up on COPIKTRA, we are just applying our learnings from the past 5 quarters of the commercial rollout and refocusing and further streamlining our efforts and resources in a targeted way that we believe will yield the greatest results for patients, physicians and stakeholders. We are very excited about our new asset, VS-6766 and its combination with defactinib as well as about the future promise for COPIKTRA and its potential indication of relapsed/refractory PTCL. And we believe these new strategic directions leave us well positioned to maximize these opportunities for patients. To that end, we would also like to extend our sincere thanks to the robust list of premier life science investors who came into the private placement. Their belief in and support for the VS-6766 defactinib combination will be invaluable as we accelerate this promising program. We are very excited to be executing on this new corporate direction and strategy, which we believe is transformational for Verastem and for its many stakeholders. We look forward to updating you in the months and quarters ahead. With that, we'll now open the call up for your questions. Operator?

[Operator Instructions] Your first question comes from the line of Swayampakula Ramakanth from H.C. Wainwright.

Congratulations on making some strategic shifts. I think it could be helpful and I'm looking forward to how things work out from here. So in terms of the data at AACR, what sort of data should we expect there? Is this going to be both clinical data from the Phase I study? Or is it some amount of preclinical data as well?