Lazard Capital Markets rates Verastem (VSTM) as a "Buy" with a $20 price target. March 7, 2012.

1. INITIATING COVERAGE March 7, 2012
VERASTEM (VSTM)
13.0
RATING: BUY
BIOTECHNOLOGY 12.5
PRICE: $11.10
PRICE TARGET: $20 12.0
WILLIAM TANNER, PHD MARKET CAP: $224.6 M
212-632-1512 11.5
william.tanner@lazardcap.com S&P 500: 1,343
COLLEEN MACKEY
NBI: 1,209 11.0
212-632-6413
colleen.mackey@lazardcap.com 10.5
Jan
MEREDITH CHENG SOURCE: FactSet
212-632-1944
meredith.cheng@lazardcap.com
VSTM: Attacking cancer at the root; initiating coverage with
BUY rating and $20 price target
We believe VSTM shares will appeal to investors by virtue of the company’s
world-class scientific founders, highly experienced management team and a
research focus that may possess the potential to dramatically change the
manner in which cancer is treated.
Targeting CSCs could improve treatment outcomes. Verastem is pioneering
the development of therapies that target cancer stem cells (CSCs). Emerging
evidence suggests that, while standard cancer treatments may be effective at
killing cancer non-stem cells, CSCs may survive, providing opportunities for re-
growth.
Technology platform designed to provide steady supply of CSCs. Verastem’s
proprietary technology platform allows for the production of stable CSCs.
Identification of potent CSC-killing agents may be facilitated through standard
high-throughput screening techniques.
VS-507 likely first in man for treating TNBC. Human testing of lead drug
candidate VS-507 is expected to begin in 2012. A modulator of the Wnt
signaling pathway, VS-507 will initially be tested for treating triple-negative
breast cancer (TNBC).
Valuation and risks. Our $20 PT is derived from a DCF analysis that values
VS-507 for treating TNBC. Risks include successful development and regulatory
approval of drug candidates as well as market competition.
DECEMBER YEAR 2010 2011E 2012E
1Q11A 2Q11A 3Q11A 4Q11 YEAR
Revenue (M) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
EBITDA (M) NM NM NM NM NM $(10) $(16)
EPS $(0.59) NM NM NM NM $(1.75) $(0.82)
FCF/S NM NM NM NM NM NM NM
CAPITALIZATION VALUATION 2010 2011E 2012E
Shares Outstanding (M) 20.2 P/E NM NM NM
Total Net Debt (M) $(62) Rel. to S&P 500 NM NM NM
Enterprise Value (M) $163 EV/EBITDA NM NM NM
Total Debt / Capitalization NM FCF Multiple NM NM NM
Effective May 10, 2005, Lazard Frères & Co. LLC (“LF&Co.”) transferred its capital markets business (which includes
equity research, syndicate, sales and trading) to a new privately-held company, Lazard Capital Markets LLC, which is
neither owned nor controlled by LF&Co. LF&Co., which is part of publicly-traded Lazard Ltd, has retained, among
other things, its investment banking business (including its mergers and acquisitions and financial restructuring
practices). Please see pages 21-22 for important disclosures and analyst certification.

2. KEY DRIVERS TO MONITOR TRADING / DIVIDEND DATA
1) Preclinical development of lead drug candidate VS-507 52-Week Range $12-$11
2) Initiation of human clinical testing of VS-507 Avg. Daily Trading Volume (000) 17
3) Advancement of other candidates (VS4718 and VS-5095) Dividend / Yield $0.00 / 0.0%
Share Float (M)/% Sh. Out 7 / 36.9%
KEY RISKS TO MONITOR BENCHMARKS
1) Successful clinical development of drug candidates ROIC NM
2) Regulatory approval of drug candidates Book Value P/S * NM
3) Ability to secure favorable reimbursement Price/Book * NM
Free Cash Flow Yield * NM
Projected 3-year EPS Growth Rate NM
Institutional Ownership 6%
* Last actual quarter
FOREC AST PERCENT CH ANGE (Y/Y)
DECEMBER YEAR 2010 2011E 2012E
1Q11A 2Q11A 3Q11A 4Q11 YEAR
Revenue NM NM NM NM NM NM NM
EBITDA NM NM NM NM NM NM NM
EPS NM NM NM NM NM NM NM
FCF/S NM NM NM NM NM NM NM
COMPANY DESCRIPTION
Verastem debuted in the public equity markets through an IPO completed in January 2012. The company is leveraging
expertise in molecular and cellular biology to develop therapies intended to kill cancer stem cells (CSCs). The approach
may address a potential shortcoming of typical cancer therapies that, while somewhat effective at killing differentiated
cancer cells, may spare progenitor stem cells that can allow for tumor re-growth. A key element of Verastem’s effort is a
platform technology that allows for creation of CSCs with which drug candidates are screened. The ability to generate
stable CSCs is fundamentally important for the discovery and development of more effective cancer treatments. The
company is well funded and should have capital resources adequate to reach human proof of concept. Verastem is
headquartered in Cambridge, Massachusetts.
2

3. INVESTMENT THESIS
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.
REASONS TO BUY
VSTM shares are undervalued. As detailed in the Valuation section of this
report, we believe VSTM shares are undervalued. Our financial analysis assumes
that Verastem successfully develops VS-507 and that the drug reaches the market
and is used for treating so-called triple-negative breast cancer (TNBC). If the
CSC theory is valid and if killing CSCs yields a more effective treatment for
cancer, Verastem could define a new paradigm in medical management of the
disease.
Platform technology may provide means to accomplish what might have
been challenging before. Hampering the ability to develop drugs that kill CSCs
has been the inability to obtain the cells in sufficient quantities for screening of
drug candidates. Verastem scientists discovered methods to create CSCs by
manipulating the epithelial-to-mesenchymal transition (EMT). Obviously, if
targeting CSCs does not alter the course of the disease, then the ability to
generate the cells may have limited utility, especially as it relates to their use for
drug candidate screening.
Companion diagnostics could provide insight into how cancers should be
treated and provide another revenue stream. The importance of having
companion diagnostics to “marry” with the use of therapies cannot be overstated,
particularly when the genetic/phenotypic profile is predictive of whether a patient
should be treated with the drug at all and if a prediction as to the likelihood of an
acceptable outcome can be made. Because Verastem’s therapies would likely
function mostly through the killing of CSCs, it will be important to ensure that
the patients treated have tumors populated with them. It may also be important to
ensure that the specific therapy is matched to the cellular defect(s) characteristic
of the cancer.
Verastem’s founders are world renowned cancer biologists. We are mindful
that numerous companies have been founded by accomplished scientists, yet
achievement of the primary business goals has not occurred. Still, we believe that
Verastem (VSTM) 3

4. having a fundamentally solid understanding of the biology of CSCs is important.
Co-founders Robert Weinberg, Ph.D., Eric Lander, Ph.D. and Piyush Gupta,
Ph.D. have demonstrated expertise as it relates to cancer biology and CSCs and
their work in the area has been published in prestigious scientific journals.
Verastem’s CEO has a strong track record of identifying technologies that
may generate broad interest within the biopharma industry. In the current
capital markets environment, the ability to go public at a pre-clinical stage could
likely be attributed to the fact that the company is pursuing a potentially
revolutionary way to treat cancer, a truly “big idea” in an industry that often
presents relatively undifferentiated ones. We believe investors may also have
been attracted to the caliber of the company’s founders. A unique element to the
Verastem story may be prior investor experiences in companies founded by CEO
Christoph Westphal. Companies he has co-founded include Alnylam, a leading
developer of RNA-interfering technologies; Momenta, a developer of novel
drugs based on a fundamental understanding of sugar biology; and Sirtris, a
developer of drugs that may alter the aging process. Sirtris may resonate most
strongly with investors given that the company was sold slightly over a year after
going public (at $10 per share) for $22.50 per share. Whether Verastem could be
sold remains to be determined. If, however, the company’s strategy gains greater
validity (e.g., through demonstration of human POC), we believe numerous
business development opportunities could unfold.
RISKS
As with practically any development-stage biotechnology company, the
primary risk relates to the feasibility of technical success. Verastem is seeking
to prove a hypothesis for which no clear-cut human clinical study data exist to
support it. If targeting CSCs does not improve treatment outcomes, then
Verastem may have to modify its business model/strategy to more closely
resemble the prototypical small-cap biotech companies that develop new (if not
differentiated) cancer treatments.
For pre-commercial-stage biotech companies, the need for additional capital
should always be considered a risk, in our opinion. Based on Verastem’s
expectations regarding capital requirements to reach human POC, we believe
investors may not face a significant risk of dilution before a value-creating event
could occur. If POC is established and the company needs to raise additional
capital, we believe it likely that the raise would occur at a valuation above the
level at which the stock currently trades.
VALUATION
Our valuation of VSTM shares is based on a DCF analysis of the commercial
opportunity for treating TNBC. Until human POC has been demonstrated, therein
potentially highlighting the power of Verastem’s technology, we are disinclined
to attribute much value to it. Obviously, if the technology’s fidelity supports a
reproducible drug development effort, we believe it would be reasonable to
consider some value for the platform over and above the intrinsic value of the
drugs developed using it.
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5. As of 2011, the total breast cancer population, defined as women alive today who
have or had breast cancer, was approximately 2.6M patients (National Cancer
Institute). In 2011, an estimated 230,500 new cases of invasive breast cancer
were diagnosed, in addition to 58,000 non-invasive cases (American Cancer
Society, Surveillance Research, 2011), representing an incidence rate of ~2% of
the U.S. female population. Of the newly diagnosed patients, we assume a
survival rate of 85% based on current five-year relative survival rates of 99% for
localized disease, 84% for regional disease and 23% for distant-stage disease in
all ages and races (American Cancer Society). Approximately 39,500 women
will die in the same year from the disease, which represents 1.3% of the total
breast cancer population (American Cancer Society, Surveillance Research,
2011). Lastly, of the net breast cancer population, about 15% of those will have
TNBC. We maintained this net growth trajectory to 2017, the year in which we
believe Verastem could launch the first drug candidate from the ongoing
development efforts.
By 2017, we project a population of approximately 400,000 TNBC patients, 15%
of the projected ~2.7M breast cancer patients in the U.S. With a market
penetration rate of 1%, and an initial price of $65,000/year for treatment, we
estimate that lead drug candidate VS-507 will capture around $260M of sales in
its first year on the market. From 2017 to 2021, we project market penetration
growing to 10% and, with 5% price increases taken each year, annual sales
growing to $3.2B. We assume cost of sales will be 30% in 2017, falling to 25%
by 2019. Exhibit 1 depicts our revenue estimates for VS-507.
Exhibit 1. Verastem Revenue Model
Source: LCM Research
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6. Our DCF analysis is depicted in Exhibit 2. We used a weighted average cost of
capital (WACC) of 25% and a probability of technical success (pTS) of 25%.
Based on our analysis, we estimate a fair value for the stock at $20 per share.
Exhibit 2. Verastem Discounted Cash Flow Analysis
Source: LCM Research
A sensitivity analysis around the per annum cost of therapy and pTS is depicted
in Exhibit 3. We assumed prices and probabilities ranging from $55,000 to
$85,000 and 15% to 30%, respectively. Based on these inputs, we estimate a fair
value range of $11-$35.
Exhibit 3. Verastem Valuation Sensitivity
Source: LCM Research
TARGETING CANCER AT ITS ROOT
The existence of stem cells in normal tissues has been known for some time, and
they are believed to play an important role in tissue-specific functions. Stem cells
are capable of self renewal as well as creation of “committed” progenitor cells
that may ultimately differentiate into the cells that carry out necessary activities
characteristic of the organ or tissue. Stem cells have also been identified in
tumors, where they exist as a minor component of the tumor but are,
nevertheless, important because they are believed to have the ability to seed new
tumors.
Verastem (VSTM) 6

7. The epithelial-mesenchymal transition (EMT) is a process that is believed to
allow epithelial cells that typically interact with basement membranes and are,
therefore, immobile, to resemble mesenchymal cells. Loss of need for adhesion
to a basement membrane, for example, allows the mesenchymal cells to be
mobile and disseminate throughout the body. Cancer cells that have undergone
the EMT process, therefore, may be uniquely suited for giving rise to metastases.
Verastem is pioneering the treatment of cancer by focusing on the role of CSCs
in the disease pathology. The underpinning theory is simple but elegant: Typical
therapies may kill the differentiated tumor cells but may be relatively ineffective
at killing CSCs. As a consequence, although the tumor may be de-bulked, the
resident CSCs that remain, because they are not killed by the therapy, are
available to repopulate the tumor (and perhaps metastasize to other parts of the
body). Verastem scientists believe that the combination of CSC-targeting agents
with typical therapies could produce a more robust treatment effect than either
treatment alone.
CSC CREATION − A KEY TECHNOLOGY
Tumor cell lines/models that may be useful for screening drug candidates exist
but, likely in part because the CSC theory has only recently been put forward,
suitable tools are less prevalent for identifying compounds that effectively kill
them. Consequently, the ability to create CSCs in adequate quantity is of
paramount importance to the drug development process. In a paper in the journal
Cell (“The epithelial-mesenchymal transition generates cells with properties of
stem cells”, 2008, 133, 704-715), Verastem scientists and collaborators describe
a means of transforming immortalized, but not tumorigenic, human mammary
epithelial cells (HMLE cells) into cells with a genotypic and phenotypic profile
that resembled neoplastic mammary stem cells. Specifically, expression of
mRNA of epithelial markers was downregulated and mRNA of mesenchymal
markers was upregulated. Cell-surface expression of the CD44 antigen increased
whereas expression of the CD24 antigen decreased.
The altered genotype/phenotype was effected by expression of nuclear
transcription factors Snail or Twist. Verastem scientists have developed a process
wherein stable CSCs can be created from cancer “non-stem” cells. Verastem
believes that the stability of the CSCs is amenable to high-throughput screening.
Obviously, instability that led to genetic drift and perhaps differential response to
experimental agents would undercut the reproducibility or comparability of
results.
Exhibit 4 depicts the general schema for Verastem’s drug development efforts.
Accessing chemical libraries and establishing high-throughput screening assays
should be relatively routine as there is an abundance of compounds and cell-
killing assays should be straightforward to develop. Key to the process, then, is
likely the ability to generate CSCs.
Verastem (VSTM) 7

8. Exhibit 4. Verastem Proprietary Technology
Source: Company filings and presentation.
INITIAL EFFORTS TARGET TNBC
Verastem’s initial drug development efforts are focused on the treatment of
triple-negative breast cancer (TNBC). For background, breast cancer is typically
categorized by the presence of the estrogen receptor (ER), the progesterone
receptor (PR) or the human epidermal growth factor receptor 2 (HER2). Cells
that express none of these receptors are considered “triple negative” and the
diagnosis is triple-negative breast cancer (TNBC). Approximately 15% of all
breast cancers are considered to be of the TNBC variety and a poorer prognosis
and lower survival rate is typically observed as compared with cancers for which
some of the receptors are expressed. Owing to the absence of the receptors, and
because they are drug targets themselves, traditional chemotherapy is typically
not effective. Importantly, with respect to targeting CSCs, TNBC also has the
proclivity to recur more often and cause patients to relapse.
Exhibit 5. TNBC growth after chemotherapy
Source: www.triplestepforthecure.org
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9. Wnt Pathway is Focus of Initial Efforts
VS-507 is Verastem’s lead drug candidate and the compound is a small-molecule
inhibitor of the so-called Wnt pathway. Activation of the pathway is believed to
be important for normal development but a role in cancer biology is also believed
to exist. As depicted in Exhibit 6 (left side of the graphic), Wnt proteins bind to a
cell surface receptor called Frizzled and a complex is formed with the LRP6
protein (which may serve to stabilize the complex). VS-507, a proprietary
formulation of the antibiotic salinomycin, is believed to disrupt the complex,
thereby inhibiting signaling of the Wnt pathway.
Exhibit 6. VS-507 mechanism of action
Source: Verastem presentation
In vitro data supporting the cell-killing ability of VS-507 were published in the
journal Cell in 2009 (“Identification of selective inhibitors of cancer stem cells
by high-throughput screening”, 138, 1-15). Using HMLE cells that had been
modified to produce E-cadhedrin at a lower level than normal, an EMT ensued
and acquisition of a mesenchymal phenotype emerged. As described in the
journal article, 16,000 compounds were screened for their ability to reduce cell
viability. The authors reported that 10% of the compounds that were tested
reduced the viability of the modified HMLEshEcad cells but that 98% also inhibited
the viability of control HMLEshCntrl cells, meaning that the compounds might not
be selective for CSCs. Eight of 32 compounds that showed selective toxicity to
HMLEshEcad cells were selected for additional testing. From the subsequent
screening attempts, only salinomycin consistently showed cell-killing ability
across a range of concentrations. The authors reported that the three other
compounds tested − abamectin, etoposide and nigericin − exhibited more modest
selective toxicity (2X) as compared with salinomycin (8X).
Exhibit 7 depicts results from in vitro testing of HMLER cells (HMLE cells
transformed with V12H-Ras oncogene). The data depicted in the three panels on
the left side of the Exhibit represent the relative levels of CD44 and CD24
antigens. As noted previously, CSCs are believed to highly express CD44
relative to CD24 and non-stem cell cancer cells are believed to express high
levels of CD24 and low levels of CD44. “High” expressing CD44 cells and
“low” expressing CD24 cells are framed by the pentagon shapes on the left side
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10. of each graphic. Noteworthy is the fact that expression of CD24 was higher
relative to cells treated with placebo as compared with cells treated with
paclitaxel. The interpretation may be that the relatively low number of CSCs in
placebo-treated cells (vs. non-CSCs) reflects the normal stoichiometry and that
the high number in paclitaxel-treated cells merely reflects the effectiveness of
paclitaxel at killing non-CSCs and the relative insensitivity of CSCs to the drug.
By comparison, the vast majority of cells treated with VS-507 that survive are
non-CSCs. On the surface, these data support the notion that VS-507, combined
with paclitaxel, might be useful for eradicating CSCs and non-CSCs.
Exhibit 7. VS-507 vs. placebo and paclitaxel
Source: Gupta et al., Cell 2009
VS-507 is currently in preclinical toxicity testing. It is anticipated that an IND
will be filed by YE12 and that Phase I clinical testing will commence in early
2013. The Phase I trial will likely be a typical dose-escalation study to assess the
drug’s safety and tolerability. Verastem has also discussed plans to conduct a
small Phase Ib trial (n = 10-15 patients) that will primarily focus on CSC-
enriched TNBC patients. Patients with tumors known to over-express the focal
adhesion kinase (FAK) including ovarian, lung and prostate tumors, may be
included in the trials. The efficacy endpoints of this study may include
biomarkers and RECIST measurements. Exhibit 8 depicts the preliminary design
of the VS-507 studies.
Verastem (VSTM) 10

11. Exhibit 8. Verastem clinical trial design
VS-4718 IS VERASTEM’S NEXT SHOT ON GOAL
VS-4718 is a small molecule inhibitor of the FAK enzyme. Exhibit 9 depicts the
putative role of FAK in intracellular signaling processes, particularly as they
relate to a possible intersection/overlap with the Wnt pathway. Note that FAK is
believed to lie downstream of RTKs (receptor tyrosine kinases or growth factor
receptors). To the extent that growth factors are involved in aberrant cancer cell
growth, inhibition of FAK might be predicted to have an effect.
Exhibit 9. VS-4718 mechanism of action
Source: Company presentation
Results of in vitro testing of VS-4718 were published in the journal Cancer
Biology and Therapy in 2010 (“PND-1186 FAK inhibitor selectively promotes
tumor cell apoptosis in three-dimensional environments”, vol. 9, no. 10, 764-
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12. 777). In those experiments, VS-4718 (designated as PND-1186 in the journal
article) was shown to be effective at killing 4T1 breast carcinoma cells and ID8
ovarian carcinoma cells. The 4T1 cell line was derived from a spontaneously
arising mammary tumor in BALB/c mice and is regarded as a model that
resembles human breast cancer. The ID8 cell line was derived from mouse
ovarian surface epithelial cells from C57B6 mice.
Exhibit 10 depicts results from a so-called scratch-wound motility assay, a
measure of cell migration. 4T1 cells were seeded on fibronectin-coated plates and
then “wounded” with a pipette tip. The cells were cultured with VS-4718 or
without (placebo) and migration was assessed by the degree to which the cells
repopulated the cleared area. Evident in the micrographs at the top of Exhibit 10
is that VS-4718 inhibited migration.
The bottom figures highlight the outcome of experiments of Balb/C mice, in
which 4T1 cells were injected into the hindflank, treated with VS-4718.
Noteworthy is that treatment resulted in fewer metastases and smaller tumor
volume than mice treated with a placebo (PEG: PBS).
Exhibit 10. VS-4718 inhibition of 4T1 cell migration and metastasis
Source: Tanjoni et al., Cancer Bio & Ther. 2010.
Exhibit 11 depicts results from experiments testing the ability of VS-4718 to kill
4T1 tumors in Balb/c mice. In the experiments, mice were treated with VS-4718
or placebo and the viability of the tumors was assessed. In the photomicrographs
at the top of the panel, the green fluorescence represents cleaved caspase-3, an
enzyme the presence of which is generally believed to be indicative of apoptosis
(programmed cell death).
Verastem (VSTM) 12

13. Exhibit 11. VS-4718 treatment results in 4T1 cell apoptosis
Source: Tanjoni et al., Cancer Bio & Ther. 2010
Exhibit 12 depicts Verastem’s pipeline and anticipated milestones related to the
advancement of the assets.
Exhibit 12. Verastem Pipeline
Source: Company filings
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14. Exhibit 13. Verastem Upcoming Milestones
COMPETITION
Verastem may face competition from at least three other companies that are
developing therapies targeting CSCs.
OncoMed Pharmaceuticals’ lead development compound is OMP-21M18
(demcizumab), a MAb currently in Phase Ib development that targets CSCs
through the Delta-like ligand (DLL4). DLL4 is believed to be an activator of
Notch, a signaling pathway important in stem cells and cancer. OMP-21M18 has
exhibited single-agent activity in a Phase I study in heavily pretreated solid tumor
patients. Phase Ib combination studies with chemotherapy in advanced non-small
cell lung and pancreatic cancers are also ongoing. A second drug candidate,
OMP-18R5, is in Phase I testing and it is an antibody that binds to the Frizzled
receptor. By binding to Frizzled, OMP-18R5 could be predicted to have a similar
effect as VS-507.
Boston Biomedical’s lead compound is BBI608, a compound that
simultaneously inhibits multiple key cancer stemness pathways. The drug is in
preparation for Phase III testing in patients with colorectal cancer and in various
Phase II and Ib trials for multiple solid tumors. On February 29, 2012, Dainippon
Sumitomo Pharma Co. announced that it reached an agreement to acquire Boston
Biomedical for up to $2.63B.
Stemline Therapeutics’ drug candidates target myeloid leukemia (AML) and
myelodysplastic syndrome (MDS). A multi-center Phase I/II trial of SL-401 was
recently completed and single-agent activity, including durable complete
responses and overall survival benefits, were observed. In addition, the drug was
well tolerated by patients and non-toxic to their bone marrow. SL-401 is
currently advancing into later-stage clinical trials in patients with advanced
AML.
Verastem (VSTM) 14

15. Exhibit 14. Verastem Competition
PATENT PORTFOLIO
Verastem’s intellectual property portfolio is composed mostly of patents licensed
from other entities including The Whitehead Institute, The Broad Institute and
Poniard Pharmaceuticals. Verastem has filed two patent applications pertaining
to VS-507. Verastem has licensed patents around its technology for screening for
CSCs, EMT induction and biomarkers and inhibitors of CSC survival.
Verastem’s patents and patent applications protect various parts of its technology
and drugs from the mid-2020s to the early 2030s.
Exhibit 16 pictorially depicts the general nature of Verastem’s patents. Note that
the patents include processes of creating CSCs, methods of screening for drug
targets and the pharmacophores (or uses) themselves. Thus, we believe that the
company has created a robust patent portfolio that covers all of the key aspects of
the drug development process.
Verastem (VSTM) 15

16. Exhibit 15. Verastem patents and their applications
Source: Company materials
Exhibit 17 depicts the specific patents licensed by Verastem. Note that the
company licensed patents related to FAK inhibitors. That IP could provide
protection for drug candidates that follow VS-507 and function through the
inhibition of that pathway.
Exhibit 16. Verastem patents
FINANCIAL FORECAST
Our financial model for Verastem includes revenue for only one product, VS-
507, which we estimate will reach the market in the 2017 time frame. We assume
that the company has adequate financial resources to reach human POC and
Verastem (VSTM) 16

17. would likely raise additional capital after that. In our model, we forecast the next
equity raise occurring in 2016, one year before the projected launch of VS-507.
R&D is projected to grow by 50% in 2012 and 20% in 2013, with SG&A
projected to grow by 100% and 93% in the same periods, respectively. We
believe these expenses will increase significantly in both 2016 and 2017 in
preparation for the drug’s launch and filing of an NDA. We currently project EPS
of $(0.82) and $(1.19) for 2012 and 2013, respectively.
Exhibit 17. Verastem Income Statement
Source: Company reports, LCM Research estimates
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18. Exhibit 18. Verastem Balance Sheet
Source: Company reports, LCM Research estimates
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19. Exhibit 19. Verastem Statement of Cash Flows
Source: Company reports, LCM Research estimates
VERASTEM EXECUTIVE MANAGEMENT
Exhibit 21 lists senior Verastem management. As we noted previously,
Verastem’s CEO has substantial experience founding biopharma companies that
possess unique assets such as technology platforms (e.g., Alnylam) or companies
that may be at the forefront of certain aspects of biology (e.g., Sirtris).
Exhibit 21. Verastem Executive Management
Source: Verastem and LCM Research
Verastem (VSTM) 19

20. VERASTEM SCIENTIFIC ADVISORY BOARD
Exhibit 22 lists Verastem’s Scientific Advisory Board. In our opinion, the
strength and experience of the SAB is relatively peerless in the industry for
companies the size of Verastem. As noted previously, we believe investors are
apt to gravitate towards the quality of the SAB, particularly given the relatively
early stage of development of the theory of cancer stem cells and their viability
as drug targets.
Exhibit 22. Verastem Scientific Advisory Board
Source: Verastem and LCM Research
VERASTEM BOARD OF DIRECTORS
Exhibit 23. Verastem Board of Directors
Source: Verastem and LCM Research
Verastem (VSTM) 20

21. 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
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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 03/05/12)
OVERALL DISTRIBUTION BANKING CLIENT DISTRIBUTION*
BUY NEUTRAL SELL BUY NEUTRAL SELL
59% 40% 1% 15% 5% 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) 21

22. DISCLAIMERS
This report has been prepared by Lazard Capital Markets LLC (“LCM”) in New York. It may not be
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