Summary
- Verastem trades at a near all-time low, so it's the perfect moment to analyze the risks and rewards of this investment.
- The company has a strong distribution network to sustain high growth levels for its drug launched in 2018.
- Although facing future competition in its niche, the firm currently has a dominant position in the treatment of Chronic Lymphocytic Leukemia.
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With its stock price trading at a near all-time low, Verastem Inc. (NASDAQ:VSTM) is worth analyzing. The company is a leader in the field of Chronic Lymphotic Leukemia treatment, and what differentiates the company from many of its peers is that they have successfully obtained the FDA's approval to commercialize their drug. While the FDA's approval reduces some of the risks involved with investing in a biotechnology company, what is the upside for investors looking to gain exposure in this high-growth industry? The following analysis presents a bullish case on a company with high growth potential, yet having highly speculative features.
Company Details and Business Model
Verastem was founded in 2010 by entrepreneur Christoph Westphal and venture capitalist Michelle Dipp. The firm operates as a bio-pharmaceutical company focused on developing and commercializing medicines to improve the survival and quality of life of cancer patients. The company currently markets COPIKTRA® capsules since 2018 as a treatment for adult patients suffering from refractory chronic leukemia. As investors, we generally tend to search for companies having moats or a form of competitive advantage and Verastem provides an important feature which makes it an appealing growth prospect: COPIKTRA® is the first-approved oral inhibitor in the US of PI3K, a particular type of enzyme responsible for the development of cancer cells.
In addition to the existing product, future growth is expected to come from the company's product pipeline candidate, defactinib. This is a development-stage drug for the treatment of cancers where there are limited treatment options, including lung, ovarian, lymphoma, pancreatic and other advanced cancers. According to the Centers for Disease Control and Prevention, cancer represents the second most common cause of death in the United States after heart disease. The company is engaged in various licensing agreements to market its product. The firm operates the production and distributes exclusively COPIKTRA® in the United States and Canada, and relies on partners to develop and commercialize its drugs in other territories throughout the world. By engaging in different licensing agreements, the management has positioned the company in a favorable position to expand its current growth. This powerful supply chain will only be beneficial to scale production and distribution. Some of the agreements include:
- In November 2016, Verastem has acquired a worldwide license to research, develop, manufacture, and exclusively commercialize duvelisib, which is COPIKTRA®'s active ingredient, from Infinity Pharmaceuticals, Inc.
- CSPC has been granted the exclusive rights to develop and commercialize duvelisib based products in the People's Republic of China, Hong Kong, Macau and Taiwan.
- A licensing agreements under which Yakult Honsha Co., Ltd has the exclusive rights to market the product in Japan
In addition to the existing license portfolio, the firm holds multiple patents to protect its products in over 40 countries, having an average patent expiration date in 2029.
