Verastem: Shocking Drop on ‘Positive’ Data (Remain Buy) (NASDAQ:VSTM)

Key Summary and Updates

Verastem Oncology (NASDAQ:VSTM) is a cancer-focused development pharmaceutical company focused on several drugs that target key pathways known to be important in tumor development and progression. In previous coverage,, I was optimistic about the prospects of the MAP kinase pathway inhibitor abutometinib. Now, based on the upcoming ASCO presentation, VSTM soaring In after-hours trading, it can fall like a rock, find yourself in the nanocap area at the end of Friday. Today I want to explore the reasons for the decline and consider whether this affects my outlook on the investment thesis.

Pipeline Updates

Abutometinib

The lead drug in the VSTM pipeline is abutometinib, a RAF and MEK inhibitor deeply studied in low-grade serous ovarian carcinoma. I detailed some of the missing work in my last article. to this project, including an objective response rate of 45% observed in RAMP-201 Study.

This drug, combined with the FAK inhibitor defactinib, is currently being submitted to the FDA in a rolling submission under Breakthrough Therapy Designation. This submission is being considered for patients with relapsed/refractory disease with mutations in: Kras Potential to expand proposed indications to include genes Kras When wild-type patients submit a more complete clinical profile.

This news puts abutometinib on track to finalize its NDA submission as early as late 2024, with an approval decision probably coming in mid-2025, but it all depends on how things go.

Another big recent news from VSTM was the release of data from the RAMP-205 study, examining the safety and efficacy of abutometinib plus defactinib combined with standard chemotherapy in patients with metastatic pancreatic cancer.

This analysis includes 41 patients across four dosing regimens of the new drug, who shared some of the efficacy results from Cohort 1, which included six patients. Overall, five of these patients achieved an objective response to treatment. Of the 26 patients scanned, 21 experienced some reduction in their target lesions, suggesting more potential responses in the future.

A 2013 pivotal study of nab-paclitaxel/gemcitabine found a 23% response rate for the combination alone. However, it operated much differently than Cohort 1 and used slightly different chemotherapy doses. Since it’s a RAMP-205, there’s not much I can say about the comparison.

What appears to have led to the negative market reaction was the fact that 12 out of 19 evaluable patients experienced “serious” side effects. This is a side effect that is considered life-threatening if not addressed immediately.

Additionally, the drug combining abutometinib and adagraship received fast track designation. Kras G12C mutant non-small cell lung cancer and abutometinib + defactinib + sotorasib in the same population. VSTM indicated that it will provide a data update for these populations in the second half of 2024.

Financial Overview

According to its most recent quarterly report, VSTM has liquid assets of $117.7 million, including $81.3 million in cash and equivalents and $28.8 million in short-term investments. They also had $40.1 million in long-term debt. Operating expenses for the quarter amounted to $28.1 million, and the net loss recognized after recognizing interest and fair value changes on preferred stock tranche liabilities was $33.9 million.

Given this rate of cash burn (assuming the change in fair value is a one-time), VSTM has three to four quarters of cash and investments on hand to fund its operations, with a range that could require some kind of financing effort in the next few years. there is. Several months, according to this analyst’s estimate.

Strengths and Risks

Mixed – Pancreatic Cancer Data

We believe that the poster presentation that VSTM will present at ASCO 2024 does not provide a definitive efficacy signal. The headline says “87% response rate,” but common sense tells us that this is based on only six patients, a promising and very early sign.

Is it toxic? It is important to remember that the nab-paclitaxel/gemcitabine combination is no walk in the park, and many of the serious side effects observed in clinical trials are known to be specific to that regimen. We are not sure whether the high rate of serious AEs signals the end of the pancreatic cancer program.

Pros – Drug on track to secure approval

VSTM is moving quickly to make a decision on abutometinib despite the data updates. The side effects raised may be enough to deny approval, despite the encouraging efficacy we have seen so far. There’s certainly a lot of work to be done on ovarian cancer, and we really can’t breathe easy until the FDA approves the final application.

Risk – A low cash position at a decidedly weak valuation leaves VSTM with few options.

The challenge facing VSTM is getting its application through the FDA while remaining intact. Rather than selling a large portion of the rights to abutometinib, you can imagine that VSTM would want to be able to raise money through a public offering.

Considering the market value is down 67%, it’s not something they want to do right now. News later this year would have to actually increase market capitalization for that to be feasible. So, unfortunately, cash brings significant risk to the investment thesis.

Conclusion Summary

For a company heading into the final stages of clinical development for a drug, you’d think VSTM was basically underwater after the poster abstract was published. I tend to think the 67% drop was a massive overreaction. I understand this is coupled with some updates that suggest: Kras Wild-type ovarian cancer story may not be taking shape It’s as planned, but we don’t know yet. And even if they are approved Kras It’s a mutant disease that (at the time of writing) still doesn’t justify its $100 million market capitalization.

For this reason, I think the current market sentiment is that VSTM is in a promising position despite the many risks it faces going forward. To me, this represents a clear “buy” sentiment. We need to pay attention to data updates as well as guidance on how the NDA submission is progressing. There are too many opportunities to ignore.