What happened

Shares of Verastem (NASDAQ:VSTM) are up 10.7% at 2:32 p.m. EDT after the company released second-quarter earnings after the closing bell yesterday. The company doesn't have any drugs on the market, so it's not the financial results that are encouraging investors to hit the buy button today.

For the record, Verastem lost $18.4 million, or $0.30 per share, in the second quarter. Importantly, the company burned through about $20 million in cash during the quarter but has $168.7 million in the bank, thanks to raising approximately $105 million selling shares through three different vehicles: a public offering, a registered offering to funds managed by Consonance Capital, and an at-the-market equity offering program.

Micrograph of purple stained cancer cells

Image source: Getty Images.

So what

As there was no obvious news, it appears investors are just piling on today ahead of the Food and Drug Administration (FDA) decision for duvelisib, which is under review for the treatment of relapsed or refractory chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL).

The FDA has set a target action date of Oct. 5, 2018, but that's just a goal that the agency is trying to meet based on the Prescription Drug User Fee Act (PDUFA). The agency -- especially the oncology division -- has approved many drugs weeks or even months ahead of the PDUFA date. Verastem got an accelerated approval for duvelisib, implying the FDA sees an unmet need for patients with late-stage CLL/SLL, so the agency isn't likely to drag its feet on an approval.

Now what

While many investors like to buy in ahead of binary events like FDA decisions, not every FDA approval results in a pop in the stock price. In fact, considering duvelisib's positive phase 3 results, it seems very likely that the FDA will approve the drug -- meaning the upside could be limited or even result in a sell-the-news event.

Verastem shares are up 180% this year, so investors should be careful buying ahead of an approval, especially since the additional shares sold via the offerings will result in investors owning a smaller piece of the overall pie.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.