Good afternoon, and welcome to the Verastem Oncology third quarter financial results conference call on Tuesday, October 29, 2019. At this time, all participants are in a listen only mode. There will be a question and answer session to follow. Please be advised that this call is being recorded at the company's request and will be available on the company's website for a period of 90 days from today. At this time, I would like to introduce Mr. John Doyle, Vice President of Investor Relations and Finance at Verastem Oncology. Please go ahead.
Welcome, everyone, and thank you for joining us this afternoon to discuss Verastem Oncology's financial results and corporate update for the third quarter of 2019. I am joined today by Brian Stuglik, Chief Executive Officer, Dan Paterson, President and Chief Operating Officer, and Robert Gagnon, Chief Financial and Business Officer. During today's call, Brian will provide some opening comments and provide a corporate update. Dan will discuss a few clinical development highlights, and then Rob will provide an overview of our third quarter financial results. Brian will then provide some brief summary remarks before opening the call up for your questions. Earlier today, we issued a press release detailing our third quarter 2019 financial results. The release is available on our website at verastem.com.
Before we begin our formal comments, I'll remind you that we will be making forward-looking assertions during today's call that represent the company's intentions, expectations, or beliefs concerning future events, which constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. All forward-looking statements are subject to factors, risks, and uncertainties, such as those detailed in today's press release announcing this call and in our filings with the SEC, which may cause actual results to differ materially from the results expressed or implied by such statements. In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update any such statements.
We refer you to the Disclosure Notice section in our earnings release we issued today and the Risk Factors section of the annual report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from these forward-looking statements. With that, I would now like to turn the call over to Brian Stuglik. Brian?
Thank you, John. Good afternoon, everyone, and thank you for joining us on today's call. In 2019, Verastem Oncology has made continued progress in our mission to bring important new medicines to patients battling cancer. Our lead drug, COPIKTRA, known as duvelisib, just completed its fourth full quarter on the market, and net revenues for the three months ended September 30, 2019, were $4 million, a 33% increase over the prior quarter. Year to date, COPIKTRA has generated revenues of $8.7 million, and we remain on track to achieve the $12 million-$14 million that we previously guided for 2019. In addition to increasing quarter-over-quarter revenues, the number of prescribing physicians grew by 30% in the third quarter compared to the second quarter of 2019. We continue to see solid progress across all of our commercial efforts, including physician education and contracting.
We are making progress in understanding and addressing market dynamics, identifying appropriate patients for treatment, and building strong access across the country. Overall, we are highly encouraged by COPIKTRA's positive upward sales trajectory, and we continue to believe in our peak annual sales estimates of $200 million-$300 million for the current indications for which it is approved, including chronic lymphocytic leukemia, small lymphocytic lymphoma, and follicular lymphoma. That being said, we recognize that the COPIKTRA sales ramp has been slower than expected. As such, we have determined that we need to better align our upcoming expenses with the current launch trajectory. To that end, we announced today that we will be reducing our 2020 operating expenses by approximately $25 million through a series of initiatives, including a workforce reduction and lowering operating expenses. Specifically, we will be eliminating approximately 40 current positions across all functions.
These changes are designed to streamline operations, speed execution, and optimize the field organization for improved account access and performance. We expect these changes to have minimal impact on top-line revenue results. The workforce reduction component of the initiative was completed this week. This reduction was a difficult decision, but based on our current plans and assumptions, we believe these changes give us the best opportunity to be successful with our stated 6-2-5 corporate plan. In our last earnings call we communicated our new 6-2-5 plan, which is a commitment to, first, have COPIKTRA revenues on a positive upward trajectory and closing the gap between revenue and commercial spend within the first six months, which would be by the end of 2019. Second, to achieve cash flow positive breakeven for both the COPIKTRA commercial and clinical program within the next two years or by mid-2021.
Third, to broaden the indications for COPIKTRA and have at least one additional marketed product along with a robust pipeline of assets and development within the next five years or by mid-2024. Based on our current assumptions, these changes will help set us on a positive path that provides us with approximately 18 to 24 months cash runway to deliver on what we believe can be achieved with COPIKTRA. Collectively, the intent of these changes is to focus our spend on areas that will directly benefit COPIKTRA uptake in the market, ensure continuity of our development efforts while condensing certain layers in the organization. We recognize that the staff reduction personally impacts many talented employees, and we wish to sincerely thank all those who are affected for their important contributions to the company.
Importantly, we remain deeply committed to driving the adoption of COPIKTRA in the U.S. and to expanding this footprint both in other global geographies and in additional hematologic malignancy indications. With that, I'll turn it over to Dan.
Thank you, Brian. There have been multiple positive developments on the business development, clinical, and regulatory fronts. For the BD front in July, we executed a new strategic ex-U.S. partnership and exclusive license agreement with Sanofi to develop and commercialize COPIKTRA in Russia and CIS, Turkey, the Middle East, and Africa for a total of 78 countries. Under the terms of this agreement, we received an upfront payment of $5 million and we're eligible to receive aggregate future payments of up to $42 million if certain development and sales milestones are successfully achieved. We're also eligible to receive double-digit % royalties based on future net sales of COPIKTRA in the licensed territories.
On the regulatory front, we're planning to submit a marketing authorization application to the European Medicines Agency, seeking approval for duvelisib in patients with relapsed or refractory CLL, SLL, and FL by the end of the year. Duvelisib recently received orphan drug designation from the FDA for use in the treatment of T-cell lymphoma. Duvelisib is not currently approved for the treatment of T-cell lymphoma. However, we're currently conducting the registration-directed Phase II PRIMO study in patients with relapsed or refractory T-cell lymphoma, an aggressive type of lymphoma, to further characterize its efficacy and tolerability in this population. The dose optimization, dose selection portion of the PRIMO study was completed earlier this year, and we've submitted the data for presentation at the upcoming American Society of Hematology 2019 annual meeting in December.
The registration-directed portion of the PRIMO study is currently ongoing and is to be conducted in the U.S., Europe, and Japan. We also made progress recently with our global duvelisib partners. In early October, Yakult Honsha dosed the first patient in a phase I-B Japanese bridging study evaluating COPIKTRA in patients with relapsed or refractory CLL, SLL following at least one prior therapy. Their multi-center open label phase I-B study is expected to enroll approximately 10 patients, and the primary endpoint of the study is objective response rate. Secondary endpoints of the study include overall survival, progression-free survival, and safety. This study is expected to serve as a bridging study based on the efficacy and safety observed in Verastem Oncology's phase III DUO study.
If successful, the results of Yakult's bridging study are expected to form the basis of a regulatory submission for COPIKTRA for the treatment of relapsed or refractory CLL, SLL in Japan. Also, on the global development front, duvelisib has partnered with CSPC Pharmaceutical Group in China. We currently expect CSPC to dose the first patient in their bridging study by the end of 2019. Throughout the third quarter into the early part of the fourth quarter, Verastem and its external collaborators have been actively generating and presenting supportive duvelisib data at medical meetings. A total of seven duvelisib abstracts were presented at two medical oncology meetings, the 18th Annual International Workshop on Chronic Lymphocytic Leukemia, and the Society of Hematologic Oncology 2019 annual meeting.
Collectively, the presented abstracts highlighted a wide range of duvelisib clinical data, including data from the phase III DUO study in patients with relapsed/refractory CLL, SLL, dose modification data from the phase III DUO study, data from a post hoc analysis evaluating the effect of COPIKTRA on lymphocytosis, including with patients with high-risk factors, and data from the phase II DYNAMO study on patients with refractory marginal zone lymphoma. These presented data continue to support the ongoing development of COPIKTRA. Important preclinical research was presented at the Fifth International Conference on New Concepts in Lymphoid Malignancies. The presented data showed superior anticancer activity of the dual PI3K-delta gamma inhibitor duvelisib compared to the PI3K-delta inhibitor idelalisib in preclinical models of mantle cell lymphoma.
As we stated previously, our long-term goal is to expand duvelisib development into additional lymphoid malignancy indications, and these preclinical data support the future study of duvelisib through clinical trials in patients with MCL. In addition to these ongoing studies, we're also working towards initiation of three company-sponsored studies. One is a randomized phase II open label intermittent dosing study, which will be named TEMPO and will evaluate the effect of planned two-week dosing holidays on tumor response and safety in patients with relapsed or refractory indolent non-Hodgkin's lymphoma who've received at least one prior systemic therapy. The purpose of this study is to build on the data previously presented at medical meetings that show that dose interruptions are an effective means of managing side effects and keeping patients on therapy without impacting efficacy.
We recently received IRB approval for this multi-center study, which is expected to enroll approximately 100 patients and will commence by the end of this year. The second study is a Phase I-B/II study, which will combine duvelisib with the PD-1 inhibitor pembrolizumab in patients with head and neck squamous cell carcinoma. The immunomodulatory effect of duvelisib's dual PI3K inhibition that was previously seen in pre-clinical research provides the rationale for this combination. We look forward to further exploring the effects of this combination in the clinic, and we expect this study to commence by the end of this year. Third, we're in final preparation phase for the confirmatory Phase III DUO study aimed at converting the accelerated approval of COPIKTRA in FL into full approval. We're working with the FDA on final details, and we expect to commence this study by the end of the year.
Now I'd like to turn the call over to Rob for the financials.
Thank you, Dan. Since we issued a press release earlier today outlining our third quarter financial results, I'll just review the highlights. To supplement our GAAP financial results, we have prepared and presented non-GAAP financial measures to help provide additional transparency and period-over-period comparability with respect to the company's operating performance. We use these measures, among other factors, to assess and analyze operational results and trends, and to make financial and operational decisions. A reconciliation between the non-GAAP financial measures and the most comparable GAAP financial measures are included in the tables accompanying the press release. The reconciling items include executive severance and separation costs, as well as significant non-cash charges and expenditures reflected in the income statement related to stock-based compensation, non-cash interest expense, and amortization of acquired intangibles. I'll now start with revenue.
Total revenue for the three months ended September 30, 2019, or the 2019 quarter, was $9 million. Net product revenue for the 2019 quarter was $4 million. That compares to $0.5 million for the three months ended September 30, 2018, or the 2018 quarter, following the FDA's approval of COPIKTRA on September 24, 2018. License and collaboration revenue for the 2019 quarter was $5 million, compared to $15 million for the 2018 quarter. The 2018 quarter included license revenue of $15 million related to an upfront payment pursuant to a license and collaboration agreement executed between Verastem and CSPC in September 2018, partially offset by a $5 million upfront payment received pursuant to a license and collaboration agreement executed between Verastem and Sanofi in July 2019.
Total operating expenses for the 2019 quarter were $35.1 million, compared to $41.4 million for the second quarter of 2019, and compared to $37.1 million for the 2018 quarter. Non-GAAP operating expenses for the 2019 quarter were $32.8 million, compared to $36.2 million for the second quarter of 2019, and compared to $35 million for the 2018 quarter. Research and development expense for the 2019 quarter was $12.2 million, compared to $11.6 million for the 2018 quarter. The increase of $0.6 million or 5.2% was primarily related to the timing of CRO costs. Selling, general, and administrative expense for the 2019 quarter was $22.2 million, compared to $25.4 million for the 2018 quarter.
The decrease of $3.2 million or 12.6% was primarily due to a decrease of $2.3 million in consulting and professional fees, primarily related to the support of launch activities in the 2018 quarter, and a decrease of $0.9 million in personnel-related costs, including non-cash stock-based compensation. The interest expense for the third quarter of 2019 was $5 million, which is mainly comprised of interest related to the convertible notes. Net loss for the 2019 quarter was $30.1 million or $0.41 per share, compared to $21.7 million or $0.29 per share for the 2018 quarter, and $42.2 million or $0.57 per share for the second quarter of 2019.
Non-GAAP adjusted net loss for the 2019 quarter was $26.2 million or $0.35 per share, compared to non-GAAP adjusted net loss of $19.4 million or $0.26 per share for the 2018 quarter, and $35.7 million or $0.48 per share for the second quarter of 2019. As of September 30, 2019, Verastem had cash and investments of $160.2 million, compared to $249.7 million of cash and investments as of December 31, 2018. As Brian mentioned earlier, we are reiterating our 2019 net revenue guidance as we continue to expect COPIKTRA sales to come in at between $12 million and $14 million. This estimate is based on net product revenue to date, current run rates, and near-term expectations. Based on our current operating plans and assumptions, we expect our operating expenses for the full year of 2020 to be in the range of $110 million-$115 million.
Looking ahead, we anticipate providing preliminary 2020 net product revenue guidance during our year-end 2019 earnings call. With that, I will now turn the call back to Brian for closing remarks.
Thanks, Rob. I will now review our key upcoming goals and priorities for the months and quarters ahead. Our key priorities are as follows. 1, executing on the 625 plan. 2, continuing to execute on the commercial launch of COPIKTRA. 3, pursuing regulatory approval in Europe, where we expect to submit our MAA by the end of 2019. 4, initiating the TEMPO study by the end of 2019. 5, initiating the confirmatory phase III DUO study evaluating duvelisib for the treatment of patients with relapsed or refractory follicular lymphoma. That confirmatory study is also expected to start by the end of 2019. 6, conducting the registration-directed portion of the phase II PRIMO study in patients with relapsed or refractory PTCL, for which the dose optimization, dose selection portion is now complete, and the data have been submitted to ASH 2019 for presentation in December.
Seven, initiating the phase I-B/II combination study investigating duvelisib and the PD-1 inhibitor pembrolizumab in patients with head and neck squamous cell carcinoma by the end of 2019. In closing, I would just like to reiterate that we remain deeply committed to bringing COPIKTRA to patients with these devastating hematologic malignancies. With the announcements made today, we believe that the 18- to 24-month runway will allow us to continue to progress COPIKTRA in its current indications and ensure continuity of our development efforts. We believe we have the right people and right plan in place to maximize the value for both COPIKTRA and Verastem Oncology and for all stakeholders. We look forward to keeping you updated on our progress in the months and quarters ahead. With that, we'll now open the call up for your questions. Operator?
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Alethia Young with Cantor Fitzgerald. Your line is now open.
Hi, this is Emma on for Alethia. With your plans to streamline and reduce OpEx, how many of the 40 positions that you eliminated were sales reps, and can you give us a sense of what percentage of the overall sales force that represents?
Hi. Yes, thank you for the question. This is Rob. Of the 40 heads, approximately 14 or so fell within the sales organization. If you recall, when we started the launch, we had about 50 sales reps in the field. That's the numbers there as far as restructuring on the commercial sales force.
Yeah, Emma, I would just add to Rob's comment that when we look at our deployment plan now, we actually are going to cover those offices. Our focus will be mostly now on the high-volume offices. This move also allows us to put some of our very best sales representatives on newer accounts.
Great. That's helpful. Thank you.
Thank you. Our next question comes from Robert Hazlett with BTIG. Your line is now open.
Yeah. Hi, guys. This is Jake on the line for Bert. Thanks for the question. I was just wondering, maybe could you talk a little bit about your strategy for Europe in light of this current restructuring? Then maybe could you comment on, I guess, where you are with enrollment in PRIMO and when we may see data there? Thank you.
This is Dan. I'll say we've not given guidance on how long PRIMO will take to be done. I will say we are ahead of our internal projections and continue to be optimistic. I think once we have a little more of a track record on the expansion phase, we'll give guidance on that.
Thanks. I guess just on Europe, just your thoughts on taking it yourself or potentially looking to partner that geography?
Yeah. We are doing the filing ourselves. We've not made a final decision. We're in discussions with potential partners. We obviously understand what it would take if we did it ourselves, and we'll make the decision probably sometime after filing.
Thanks.
Thank you. Our next question comes from Swayampakula Ramakanth with H.C. Wainwright. Your line is now open.
Thank you. Thanks for the call, and congratulations on the progress.
I'm just trying to understand your guidance versus your commentary. You seem to be comfortable with the increase in the prescribers and also your general overall positive commentary on your current sales. If I look at your guidance, it basically is quite similar to the $4 million that you recognized in this quarter. I'm just trying to understand how I would triangulate your commentary versus your guidance versus what we should expect in the fourth quarter in terms of sales on COPIKTRA.
Hi, RK. This is Rob. Thank you for the question. Yeah, just to go back, as we stated, we were committed to delivering on the $12 million-$14 million that we last communicated back in Q2. I know it's been over a year, it's still quite early in the overall launch in determining the trajectory, and this is going to be really our first fourth quarter and year-end post-launch. I know the product launched very late in September. It was early months last year. It's a little bit unknown in terms of seasonality and how December will affect the numbers. At this point, we felt like the right thing to do is just reiterate the guidance and stay the course, because it is just still a little bit early in determining the fourth quarter impact.
Okay, another question on the sales and also, what you think is the total value of this drug in terms of sales. If we annualize where you are right now, we are looking at $16 million a year, but you still feel your peak sales could be somewhere between $200 million and $300 million. What's the difference? What's missing? Obviously, you spent a solid year in trying to get this drug launched effectively. How should I think about going from here to $200 million or $250 million, and what are the things that one should expect to see if we need to get there?
Yeah. Dan, thanks again for that follow-up. RK, it's Rob. I'll start, and then Brian and Dan may want to add. Keep in mind, in the second quarter, sales grew at a pretty good pace. It was about 80%. In the third quarter, we continued to experience a good high growth rate quarter-over-quarter. It's difficult to predict in the short term on a quarter-by-quarter basis just where that trend will go. We're confident that we will continue to experience a pretty good growth rate in the fourth quarter and into next year. When we talk about the peak sales of $200 million-$300 million, that was really in reference to year four or five post-launch. We're making progress against that, and we still have a ways to go, but that's how we're thinking about peak sales.
It would come in probably after the fourth year, maybe the fifth year of launch.
Yeah. RK, to build on Rob's commentary, we believe there's about 20,000 or so third line FL and CLL patients. When we launched a year ago, we didn't necessarily have all the infrastructure, processes, relationships, and people in place. Over the past year, we've been improving each of those, starting first with improving thought leader support and experience. We didn't go through it this quarter, we do have a number of investigator-sponsored studies where we're beginning to see that strong thought leader support. Second, with many of our big accounts, we're trying to secure COPIKTRA as the PI3K of choice through the EMR systems and getting that top spot in those EMR systems. Third, we're continuing to move to this account-based selling, which will get us focused in the much larger accounts.
Sorry to just keep questioning on the sales, but just one last question from me. Again, I'm trying to figure out if you're removing 30% of your sales force from the 50 you started off, but at the same time, you were hoping for growth in the coming years. Can you just give us a little bit more color as to, yes, it's a good thing, but it won't impact top line? I'm just trying to understand how that works?
This is Dan. I think, as Brian mentioned, one of the things we've started within the last quarter to focus a lot more on is really the large practices and the large accounts. I wouldn't reason exactly from the numbers of 50 to 36 on the sales force, because we've changed some roles, and we have people that were in, say, market access roles before that are now focusing on these big accounts. We're putting much more attention on them. One of the things, frankly, that we found as a company that was new to this market and didn't have the existing relationships with the big practices, is there's somewhat of an inverse relationship between access and practice size.
We could get into the smaller practices where they might see one to four patients a year and didn't have nearly enough access into the bigger practices. That's been the renewed focus. I think that's what gives us confidence that the opportunity is still there. If you think of how.
these prescriptions grow. You get a first prescription, the doctor has a good experience, and you get the next patient. It's hard for that to catch a lot of tailwinds when the doctor sees one to four of those kinds of patients a year. You need to get into the places that have the critical mass, and we've really doubled down on efforts around that within the last quarter or so.
Yeah. The last thing to build on Dan's answer is, it's also in today's commercial world, a multi-channel approach. We're upping our digital efforts. We are expanding our programs through the group purchasing organizations. What we didn't necessarily talk about yet is we're also adding a nurse educator role to expand education within the doctor's office. When you look at all those efforts, and we take a step back on the total impact of share of voice in the marketplace, we don't believe there's going to be a significant impact on those efforts.
Thank you. Thanks for taking all my questions.
Thank you.
Thank you. Our next question comes from Matthew Cross with JonesTrading. Your line is now open.
Hey, guys. Congrats on the earnings beat, and thanks for taking a couple from me.
Thank you.
Following up on what I think RK was getting at a bit, getting maybe specific about the six-month portion of the 625 plan, as I think that offers some read-through to success on your two and five-year goals. I was hoping to get a little bit of clarity around what amount of revenue to expense differential you'd consider a success in that timeframe. I know you've announced that you'll be cutting $25 million in expenses, which will certainly help bring down burn closer to top-line revenue. Since that's a 2020 initiative, and you've reiterated sales guidance of $12 million to $14 million for this year, burning about $30 million a quarter, $120 million on an annualized basis, it seems like a rather large gap to close.
I'm just trying to understand what more immediate cost savings or sales inflections you're expecting over the next two months to meet that six-month goal. You brought down SG&A pretty substantially quarter-over-quarter. Should we expect that to continue, or what specifics help get you there?
Matt, thanks for the question. This is Rob. I'll start. I just want to make sure it's clear. The goal was within six months to have sales on a trajectory that would allow the company to achieve cash flow break even for the COPIKTRA franchise within two years. We stated that goal back in the June quarter, so that would put it in June of 2021. We haven't communicated exactly what we would consider to be a success on that glide path. As we continue to grow at a good double-digit growth rate quarter-over-quarter, we're making progress against that goal. As you can see, as we've announced today, we're taking action to significantly reduce the operating expenses and streamline the organization to bring those two numbers closer.
We haven't given quarterly guidance around operating expenses, but as you've seen in previous quarters, the expenses tend to be somewhat straight line. There's a little bit of lumpiness over the summer months. For the most part, if you take that guidance of $110-$115, it would be a pretty good straight line type allocation if you wanted to estimate that impact or that estimate on a quarterly basis.
Great. Okay. No, that's very helpful clarity. I appreciate that, Rob. Just to clarify, is it fair to assume that since some of these headcount reduction just occurred, you said in the last week, is that something that we would see reflected in the next quarter, or is that part of the reduction we saw this quarter?
A lot of those actions took place this week, and so you should expect to see the benefit of those changes for two of the three months within the quarter and the full-year effect of those changes next year.
Perfect. Appreciate that housekeeping. I just wanted to touch on the DUO study that you've announced planning to begin by the end of this year. Since that's a rather tight timeframe here and it sounds like you guys are going to have quite a lot beginning by the end of the year, is there anything you can say about the design for that trial? Should we expect this to be a pretty standard combination dose escalation design? Is there any insight into what the combination dosing schedule might look like extrapolating from what you saw pre-clinically? Anything you're looking to avoid or that is a particular area of interest in terms of toxicities that might emerge there?
Yeah. We've not really commented on the design of the study. We're finalizing things with the FDA. I think right around the time we start, we would be disclosing the design.
Okay. Fair enough. Thanks, guys. Appreciate the answers here.
Thanks, Matt.
Thank you. At this time, I'd like to turn the call back to CEO Brian Stuglik for any closing remarks.
Thank you very much. With that, I'd like to thank everyone again for dialing in to today's call. Have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.