Is There Value In Verastem?

The recent news for Verastem (Nasdaq:VSTM) has been terrible. Today they announced a layoff of 50% of their workforce which will get the company down to 20 people and save $4.9M a year in operating costs. They still have $132M in cash. With a market capitalization of $80M the question is whether or not there is value to be had in the shares now.

In late September the company announced that the Phase 2 trial around their lead drug candidate (VS-6063) would be terminated because initial results made it clear that “there was not a sufficient level of efficacy to warrant continuation of the study.” In other words their lead drug didn’t work. That sends the company back to the drawing board after years of development and over three years as a public company.

Verastem went public back in early 2012 and cut a very impressive figure in the market at that time. We published a brief article on Seeking Alpha which is still up there: Verastem: Killing Cancer at the Root. Their story was about going after cancer stem cells. The approach sounded promising, they built solid management team and an extremely impressive scientific advisory board. Two of the three co-founders of the company, Robert Weinberg and Eric Lander are generally considered “rock stars” in the biotechnology world. The investors were savvy and consistently funded the company through the A, B and C rounds for a total of about $68M. Even the venerable Peter Lynch personally came into the C round.

The essence of the story was that existing drugs to treat cancer tumors leave some of the cancer stem cells (CSCs) behind. By surviving these CSCs allow the tumor to recur. The Verastem approach is based on blocking certain metabolic pathways that these stem cells need to survive. At the time of the IPO they presented two drug candidates – VS507 which went after something called the Wnt/B-Catenin pathway and VS4718/VS5095 which inhibited the Focal Adhesion Kinase pathway (FAK). These drugs showed effectiveness in the lab but had yet to start their Phase I trials.