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

1. COMPANY NOTE March 15, 2012
VERASTEM (VSTM)
RATING: BUY PRICE: $11.00 PRICE TARGET: $20
VSTM: 2011 results; clinical program advancement the focal
Biotechnology
point for 2012; BUY
Update We believe VSTM shares will appeal to investors by virtue of the company’s
world-class scientific founders, highly experienced management team, and a
WILLIAM TANNER, PHD research focus that may possess the potential to dramatically change the
212-632-1512 manner in which cancer is treated.
william.tanner@lazardcap.com
2011 results represent company’s last quarter before IPO. VSTM’s net loss
COLLEEN MACKEY and loss per share for 2011 were ($13.7M) and ($10.59) vs. our estimates of
212-632-6413
colleen.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 and
MEREDITH CHENG
212-632-1944 $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 Current
S&P 500 1,394 1Q NM $(0.21) $(0.23) NM
NASDAQ Biotech 1,245 2Q NM $(0.21) $(0.23) NM
3Q NM $(0.21) $(0.23) NM
Market Cap $222.6 M 4Q NM $(0.21) $(0.23) NM
Book Value/Share NM Year $(10.59) $(0.82) $(0.90) $(1.19) $(1.23)
52 Week Range $12-$11 P/E NM NM NM
Avg. Daily Vol (000) 18 Options Exp. NM NM NM
Shares Outstanding (M) 20 Rev (M) 2011 2012E 2012E 2013E 2013E
Prior Current Prior Current
3-Yr. EPS CAGR NM 1Q $0.0 $0.0 NM
Total Debt/Cap NM 2Q $0.0 $0.0 NM
FCF Yield NM 3Q $0.0 $0.0 NM
Dividend $0.00 4Q $0.0 $0.0 NM
Yield 0.0% Year $0.0 $0.0 $0.0
P/S NM NM NM
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practices). Please see pages 3-4 for important disclosures and analyst certification.

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 Statement
Source: LCM Research
Verastem (VSTM) 2

3. ANALYST CERTIFICATION
All of the recommendations and views about the securities and companies in this report accurately reflect
the personal views of the research analyst named on the cover of this report. No part of this research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or
views expressed by the research analyst in this research report.
IMPORTANT DISCLOSURES
Lazard Frères & Co. LLC has received compensation for investment banking services
from VSTM within the past twelve (12) months.
Lazard Capital Markets LLC has acted as manager or co-manager of a securities
offering 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
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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

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Verastem (VSTM) 4