Why Verastem Stock Spiked Today

© Provided by The Motley Fool Why Verastem Stock Spiked Today

What happened

Verastem (NASDAQ: VSTM), a small-cap cancer specialist, saw its shares briefly spike by as much as 29% Monday morning. The drugmaker’s stock started today’s trading session off on a strong note in response to a clinical collaboration agreement with biotech heavyweight Amgen (NASDAQ: AMGN).

Before the opening bell, Verastem announced that the two companies agreed to evaluate VS-6766 in combination with Lumakras (sotorasib) in KRAS G12C-mutant non-small cell lung cancer (NSCLC). VS-6766 is Verastem’s experimental RAF/MEK inhibitor, and Lumakras is Amgen’s Food and Drug Administration approved treatment for adult patients with KRASG12C-mutated NSCLC. Preclinical data reportedly showed that this unique combo acts synergistically in this setting.

Since the opening bell, Verastem’s shares have steadily faded over the course of today’s trading session, with the biotech’s stock essentially trading flat as of 2:53 p.m. EDT Monday afternoon. 

© Getty Images A doctor explaining a chest x-ray to a patient.

So what

Verastem’s shares have been unable to hold onto these early gains for two clear-cut reasons. First, the broader markets are reeling today after the debt-laden Chinese property developer Evergrande Group announced it will miss interest payments this week. Second, and perhaps most importantly, Verastem’s press release didn’t mention any type of financial windfall from this collaboration with Amgen. As such, this initial partnership appears to be mainly an exploratory clinical trial in KRASG12C-mutated NSCLC, which may or may not to lead to a deeper relationship between the two biopharmas later on down the road.    

Now what

Is Verastem’s stock worth buying on this news? Apart from this tie-up with Amgen, Verastem already has VS-6766 in two registration-directed trials for recurrent low-grade serous ovarian cancer and recurrent KRAS-G12V mutant NSCLC. A hit in either one of these high-value indications would almost certainly spark a fire underneath Verastem’s shares. So, while this small-cap cancer stock is indeed risky (as are all developmental-stage cancer companies), aggressive investors may want to do a deeper dive on this name soon.  

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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.

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