Verastem (VSTM): Is There More Fuel For The Bulls?

FBR's George Zavoico believes strong data for Verastem's lead drug candidate duvelisib helped impress Japan's Yakult Honsha.


It’s an exciting week for Verastem Inc (NASDAQ:VSTM) investors, who have seen the biotech stock climb this week. What is stirring up the Street’s interest and enthusiasm in this drug maker?

On Monday, VSTM shook hands on an exclusive oncology drug license deal with Japan’s Yakult Honsha. Under the terms of the deal, Yakult gains sole rights to both develop as well as commercialize VSTM’s lead drug candidate duvelisib (DUV), an orally available dual inhibitor of PI3K-δ and PI3K-γ, in Japan for the treatment, prevention, or diagnosis of all oncology indications. All expenses will rest on Yakult, and likewise, the company will fuel specific worldwide development expenses on a pro-rata basis. Meanwhile, Verastem holds onto all rights to its lead drug outside the scope of Japan.

In turn, Verastem indicates it is primed to gain a one-time upfront payment to the tune of $10 million from Yakult and may earn an extra up to $90 million should particular development down the line and commercialization milestones prove to be a success by Yakult. Additionally, the drug maker stands to receive double-digit royalties contingent upon future net sales in Japan of its lead asset.

Moreover, Wall Street has its eyes on VSTM, considering this week in Chicago, the 54th Annual Meeting of the American Society of Clinical Oncology (ASCO) was hosted. At the ASCO, Verastem revealed data for not only duvelisib but its second lead drug candidate defactinib. The drug maker posted positive data of a crossover extension stage of the Phase III DUO study investigating duvelisib

FBR analyst George Zavoico takes this all in bullish stride, as he believes: “In our view, positive results of the first and crossover stages of DUO, as well as the Phase II DYNAMO trial of DUV in patients with refractory indolent NHL, and an NDA for DUV currently under review by the FDA convinced Yakult Honsha to licensing the rights to DUV for Japan.”

The encouraging data exhibited median progression-free survival and overall response rate in patients with relapsed or refractory chronic lymphocytic leukemia or small lymphocytic lymphoma that crossed over to duvelisib upon experiencing disease progression while on anti-CD20 antibody ofatumumab (OFA) matched the strength of results in patients who were first treated with VSTM’s drug.

“Moreover, responses to DUV in the crossover patients were superior to their responses to OFA. Since we typically see shorter mPFS and lower ORR with each subsequent line of therapy, we view the superior responses with DUV after OFA as a strong signal of its ability to deliver a meaningful clinical response. Even though the safety profile of DUV was considered to be manageable, 36% of patients discontinued therapy due to adverse events. However, as of the last follow up (on July 2017) 33% of patients were still being administered DUV,” highlights Zavoico.

Verastem’s cash runway could be extended by around a month and a half, thanks to the $10 million upfront fee, wagers the analyst. While Zavoico forecasts the drug maker has the cash power to hit and surpass its PDUFA date with destiny for DUV come October 5th, it is likely further capital is required for the company to deliver strong execution on its pre-commercialization to marketing strategies. Looking forward, Zavoico anticipates, “In our view, opportunities to raise additional cash will present themselves if DUV is approved for by the FDA and by licensing DUV in other territories, particularly Europe.”

In reaction, the analyst reiterates a Buy rating on VSTM stock with a $17 price target, which implies a close to 195% upside from current levels. (To watch Zavoico’s track record, click here)

TipRanks suggests the bulls win on Wall Street when it comes to sell-side analysts’ opinion on this drug maker. All 6 analysts polled in the last 3 months rate a Buy on VSTM stock. With a return potential of nearly 127%, the stock’s consensus target price stands at $13.33.

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