Vstm report by lazard capital markets 3 15-12


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Lazard Capital Markets Report for Verastem Inc. (VSTM): 2011 results; clinical program advancement the focal point for 2012; BUY

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Vstm report by lazard capital markets 3 15-12

  1. 1. COMPANY NOTE March 15, 2012 VERASTEM (VSTM) RATING: BUY PRICE: $11.00 PRICE TARGET: $20 VSTM: 2011 results; clinical program advancement the focalBiotechnology point for 2012; BUYUpdate We believe VSTM shares will appeal to investors by virtue of the company’s world-class scientific founders, highly experienced management team, and aWILLIAM TANNER, PHD research focus that may possess the potential to dramatically change the212-632-1512 manner in which cancer is treated.william.tanner@lazardcap.com 2011 results represent company’s last quarter before IPO. VSTM’s net lossCOLLEEN MACKEY and loss per share for 2011 were ($13.7M) and ($10.59) vs. our estimates of212-632-6413colleen.mackey@lazardcap.com ($10.3M) and ($1.75) and consensus of ($10.3M) and ($2.22). R&D and SG&A expenses were $9.8M and $3.8M, respectively, vs. our estimates of $7.3M andMEREDITH CHENG212-632-1944 $2.9M.meredith.cheng@lazardcap.com The company should advance from a pre-clinical to clinical stage entity in 2012. We think 2012 is shaping up to be an important year for Verastem as IND- enabling testing for lead drug candidate, VS-507, which should commence in early 2012 followed by the start of Phase I testing in early 2013. Focal adhesion program (FAK) to enter pre-clinical studies in 1H12. Verastem’s other compounds, small molecule FAK inhibitors VS-4718 and VS- 5095, are expected to enter IND-enabling toxicity studies in 1H12, with plans to file INDs for the drugs in 1H13. Verastem management stated that they are looking at potency, specificity, IP strength, and in vivo effects in animals before moving into proof of concept studies in humans. Changes to model. Due to the higher R&D and SG&A spend in 2011, we adjusted our operating expense trends for 2012-2015. Our R&D expense estimates for 2012-2015 are now $12.4M, $15.4M, $19.3M and $24.1M vs. our previous estimates of $11.0M, $13.2M, $21.7M, and $27.1M, respectively. Our SG&A expense forecasts for 2012-2015 are now $6.1M, $10.1M, $11.3M, and $12.6M vs. our previous estimates of $5.9M, $11.3M, $13.6M and $16.3M, respectively. Our loss per share projections for 2012 and 2013 are now ($0.90) and ($1.23), vs. our previous estimates of ($0.82) and ($1.19), respectively. Valuation and risks. Our $20 PT is derived from a DCF analysis that values VS- 507 for treating TNBC. Risks to our rating and PT include successful development and regulatory approval of drug candidates, as well as market competition.Key Data FY: Dec EPS 2011 2012E 2012E 2013E 2013E Prior Current Prior CurrentS&P 500 1,394 1Q NM $(0.21) $(0.23) NMNASDAQ Biotech 1,245 2Q NM $(0.21) $(0.23) NM 3Q NM $(0.21) $(0.23) NMMarket Cap $222.6 M 4Q NM $(0.21) $(0.23) NMBook Value/Share NM Year $(10.59) $(0.82) $(0.90) $(1.19) $(1.23)52 Week Range $12-$11 P/E NM NM NMAvg. Daily Vol (000) 18 Options Exp. NM NM NMShares Outstanding (M) 20 Rev (M) 2011 2012E 2012E 2013E 2013E Prior Current Prior Current3-Yr. EPS CAGR NM 1Q $0.0 $0.0 NMTotal Debt/Cap NM 2Q $0.0 $0.0 NMFCF Yield NM 3Q $0.0 $0.0 NMDividend $0.00 4Q $0.0 $0.0 NMYield 0.0% Year $0.0 $0.0 $0.0 P/S NM NM NMEffective May 10, 2005, Lazard Frères & Co. LLC (“LF&Co.”) transferred its capital markets business (which includesequity research, syndicate, sales and trading) to a new privately-held company, Lazard Capital Markets LLC, which isneither owned nor controlled by LF&Co. LF&Co., which is part of publicly-traded Lazard Ltd, has retained, amongother things, its investment banking business (including its mergers and acquisitions and financial restructuringpractices). Please see pages 3-4 for important disclosures and analyst certification.
  2. 2. INVESTMENT SUMMARY Founded by world-class cancer biologists and experienced venture capitalists, Verastem is developing small-molecule drugs for the treatment of cancer with the specific focus of targeting cancer stem cells (CSCs). The underpinning theory behind Verastem’s approach is that, while typical cancer therapies may be effective in killing mature and differentiated cancer cells, ineffective killing of CSCs may provide the means for the tumors to re-grow. To facilitate development of CSC-targeting therapies, Verastem’s founders developed technologies to manipulate the epithelial-to-mesenchymal transition (EMT) to create CSCs. With them, standard high-throughput screening processes are applied to identify promising leads. Capital raised in the company’s IPO should support activities through to potential human proof of concept (POC). If Verastem is successful in the development of drugs that target CSCs, we believe there may be a high level of interest from other biopharma industry companies focused on developing cancer therapies.Exhibit 1. Verastem Income StatementSource: LCM Research Verastem (VSTM) 2
  3. 3. ANALYST CERTIFICATIONAll of the recommendations and views about the securities and companies in this report accurately reflectthe personal views of the research analyst named on the cover of this report. No part of this researchanalyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations orviews expressed by the research analyst in this research report.IMPORTANT DISCLOSURESLazard Frères & Co. LLC has received compensation for investment banking servicesfrom VSTM within the past twelve (12) months.Lazard Capital Markets LLC has acted as manager or co-manager of a securitiesoffering on behalf of VSTM within the past twelve (12) months.Lazard Capital Markets LLC makes a market in VSTM securities. VSTM - Current Rating: BUY, Price Target: $20 Mar 7, 12 B : $20 21 20 19 18 17 16 15 14 13 12 11 10 Dec 11 Jan 12 Feb 12 Mar 12 Data source: FactSet prices / LCM ratings and target prices DISTRIBUTION OF INVESTMENT RATINGS (AS OF 03/13/12) OVERALL DISTRIBUTION BANKING CLIENT DISTRIBUTION* BUY NEUTRAL SELL BUY NEUTRAL SELL 59% 41% 1% 15% 4% 0%* Indicates the percentage of each category in the Overall Distribution that were banking clients of Lazard Frères in the previous 12 months.RATING GUIDELINE (return targets may be modified by risk or liquidity issues)BUY Expected to produce a positive total return of more than 10% in the next 12 months.NEUTRAL Fairly valued; expected to product a total return of ±10% in the next 12 months.SELL Expected to product a negative total return of more than 10% in the next 12 months. Verastem (VSTM) 3
  4. 4. DISCLAIMERSThis report has been prepared by Lazard Capital Markets LLC (“LCM”) in New York. It may not bereproduced, redistributed or copied in whole or in part for any purpose. This report has been approved by, andis being distributed in the US or to US persons, by LCM, which accepts responsibility for its contents in the US.Transactions undertaken in the US in any security mentioned herein must be effected through LCM or anotherUS-registered broker-dealer, in conformity with SEC Rule 15a-6.Neither this report nor any copy or part thereof may be distributed in any other jurisdictions where itsdistribution may be restricted by law and persons into whose possession this report comes should informthemselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdictionsmay constitute a violation of US securities laws, or the law of any such other jurisdictions.This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It shouldnot be so construed, nor should it or any part of it form the basis of, or be relied on in connection with, anycontract or commitment whatsoever. The information in this report, or on which this report is based, has beenobtained from sources that LCM believes to be reliable and accurate. However, it has not been independentlyverified and no representation or warranty, express or implied, is made as to the accuracy or completeness ofany information obtained from third parties. The information or opinions are provided as at the date of thisreport and are subject to change without notice. The information and opinions provided in this report take noaccount of the investors’ individual circumstances and should not be taken as specific advice on the merits ofany investment decision. Investors should consider this report as only a single factor in making any investmentdecisions. Further information is available upon request. LCM may provide specialized research products orservices to certain customers focusing on the prospects for individual covered stocks as compared to othercovered stocks over varying time horizons or under differing market conditions. While the views expressed inthese situations may not always be directionally consistent with the long-term views expressed in the analystspublished research, the analyst has a reasonable basis and any inconsistencies can be reasonably explained.LCM does not accept any liability whatsoever for any direct or consequential loss howsoever arising, directly orindirectly, from any use of this report or its contents.By accepting this report you agree to be bound by the foregoing limitations.Lazard Capital Markets LLC30 Rockefeller Plaza, New York, NY 10020Member NYSE and FINRACopyright 2012 Lazard Capital Markets LLC. All rights reserved. Verastem (VSTM) 4