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Based in Redwood City, Calif., OncoMed Pharmaceuticals (NASDAQ:OMED) scheduled a $60 million IPO with a market capitalization of $395 million at a price range midpoint of $15 for Thursday, July 18, 2013. Six other IPOs were scheduled for the week of July 15. The full IPO calendar can be found at IPOpremium.

  • S-1 filed July 8, 2013
  • Manager, Joint Managers: Jefferies/Leerink Swann
  • Co-managers: Piper Jaffray/BMO Capital Markets

Summary

OMED targets cancer stem cells (CSC), which is different from conventional chemotherapies and targeted therapies. By targeting cancer stem cells OMED hopes to prove in can put the cancer cells to sleep, which can be considered "curing" the targeted cancer. OMED has five anti-CSC product candidates in clinical development and has treated an aggregate of 235 patients across all of its clinical trials. All of OMED's product candidates were discovered internally in OMED's own research laboratories.

Major collaborators include GlaxoSmithKline (NYSE:GSK), which has a $128 billion market cap, and Bayer (OTCPK:BAYRY), which has an $89 billion market cap. A similar company, Verastem (NASDAQ:VSTM), doubled in the past month after two major announcements:

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Q1 '13

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

OncoMed Pharmaceuticals (OMED)

$395

30.8

-21.4

4.8

4.8

15%

OMED has a $157 accumulated deficit.

(Glossary)

Pre-IPO Interest

Some existing investors including GlaxoSmithKline, one of OMED's collaborators, have indicated an interest in purchasing an aggregate of up to $15.0 million in shares of OMED's common stock in this IPO at the offering price.

Conclusion

Buy OMED on the IPO, based on the major collaborations, the area of specialty, and the five potentially breakthrough products in clinical trials. To put the above conclusions and observations in context, the following is reorganized, edited, and summarized from the full S-1 referenced earlier:

Business

OncoMed is a clinical development-stage biopharmaceutical company focused on discovering and developing first-in-class monoclonal antibody therapeutics targeting cancer stem cells, or CSCs.

OMED targets cancer stem cells (CSC), which is different from conventional chemotherapies and targeted therapies. By targeting cancer stem cells OMED hopes to prove in can put the cancer cells to sleep, which an be considered "curing" the targeted cancer.

All of OMED's product candidates were discovered internally in OMED's own research laboratories.

OMED has five anti-CSC product candidates in clinical development and has treated an aggregate of 235 patients across all of its clinical trials. Additionally, OMED has two other antibodies in preclinical development with Investigational New Drug, or IND, filings planned for as early as 2014. OMED is also pursuing discovery of additional novel anti-CSC product candidates.

Strategic Alliance With GSK

In December 2007, OMED entered into a strategic alliance with GSK to develop anti-CSC antibody therapeutics targeting the Notch signaling pathway. Upon signing, OMED received $35.0 million in cash, comprised of $17.5 million in an upfront payment and $17.5 million in the form of an equity investment.

In July 2011, OMED amended the terms of the research and development agreement with GSK, and the collaboration is now focused entirely on the development of two product candidates, anti-Notch2/3 (OMP-59R5) and anti-Notch1 (OMP-52M51).

Under this collaboration, GSK may exercise an option during certain time periods through completion of proof-of-concept trials, or in the case of one scenario, with respect to the OMP-52M51 program, during certain time periods through completion of Phase I trials, to obtain an exclusive license to develop and commercialize such product candidates.

OMED leads research and development efforts for these product candidates prior to GSK's exercise of its option with respect to such candidates. OMED is eligible to receive from GSK, 1) with respect to OMP-59R5, aggregate payments of up to $344.5 million, including an option exercise fee and development, regulatory and commercialization milestones, in addition to percentage royalties in the low double digits to high teens on net product sales, and 2) with respect to OMP-52M51, aggregate payments of up to $349.5 million, including an option exercise fee and development, regulatory and commercialization milestones, in addition to percentage royalties in the low double digits to high teens on net product sales.

If GSK elects not to exercise its options for OMP-59R5 and/or OMP-52M51 during the relevant option periods, or if GSK terminates those programs, we will have worldwide rights to such program(s), subject to, under certain circumstances, GSK's right of first negotiation to obtain an exclusive license to develop and commercialize OMP-52M51.

In July 2012, OMED amended the agreement to revise the structure of the milestone payments to reflect the decision to initiate a Phase Ib/II trial for OMP-59R5.

Strategic Alliance With Bayer

In June 2010, OMED entered into a strategic alliance with Bayer to discover, develop and commercialize novel anti-CSC biologic and small molecule therapeutics targeting the Wnt signaling pathway.

OMED received a $40.0 million upfront cash payment when it entered this alliance. OMED is eligible to receive option fees and research, development, regulatory and commercial milestone payments of up to $387.5 million per program for each biologic therapeutic product successfully developed, in addition to royalties on net product sales.

Percentage royalties for certain biologic product candidates are in the low double digits to high teens. For certain other biologic product candidates, percentage royalties are in the mid-single digits to low double digits. Bayer is also obligated to make payments to us upon achievement of research, development, regulatory and commercial milestones, plus advancement fees, for small molecule therapeutics that could total up to $112.0 million per program, in addition to single-digit percentage royalties on net product sales. If Bayer elects not to exercise its options for any class of biologic therapeutic products under the collaboration during the relevant option periods, or if Bayer terminates such program(s), we will have worldwide rights to such program(s).

In August 2012, OMED amended the agreement with Bayer to reallocate certain amounts between two payments applicable to the biologic product candidates and to redefine when payments applicable to certain biologic product candidates are due.

Product Candidates

The first candidate, demcizumab, has completed single-agent Phase Ia safety and dose escalation trials and is currently in Phase Ib combination therapy trials in patients with non-small cell lung cancer and pancreatic cancer. OMED will soon initiate a Phase Ib/II trial combining demcizumab with paclitaxel in ovarian cancer in the second half of 2013.

The second candidate, anti-Notch2/3 (OMP-59R5), is in a Phase Ib/II trial in pancreatic cancer in combination therapy with gemcitabine (recently amended to include Abraxane®) and a second Phase Ib/II trial in small cell lung cancer in combination therapy with etoposide and cisplatin chemotherapy.

The third and fourth candidates, vantictumab (OMP-18R5) and Fzd8-Fc (OMP-54F28), are in single-agent Phase I safety and dose escalation trials in solid tumor malignancies, and OMED expects three Phase Ib combination trials to initiate for vantictumab in 2013 and for OMP-54F28 in late 2013 or early 2014.

The fifth candidate, anti-Notch1 (OMP-52M51), is in two single-agent Phase Ia safety and dose escalation trials in hematologic and solid tumor malignancies. The clinical trials for all five product candidates are ongoing, with the intent of gathering additional data required to proceed to later stage clinical trials and product approval.

Intellectual Property

As of April 30, 2013, OMEDs patent estate, including the patents and patent applications exclusively licensed from the University of Michigan, included approximately 75 issued patents or allowed patent applications and approximately 257 additional pending patent applications on a worldwide basis, which, as a whole, include claims relating to OMEDs current clinical stage product candidates.

Pre-IPO 5% Shareholders

  • Entities Affiliated with U.S. Venture Partners, 17%
  • Entities Affiliated with Latterell Venture Partners, 12%
  • Entities Affiliated with GlaxoSmithKline LLC , 12%
  • Entities Affiliated with The Vertical Group, 11%
  • Morgenthaler Partners VII, L.P. , 11%
  • Phase4 Ventures III LP, 9%
  • Entities Affiliated with Delphi Ventures, 7%
  • Entities Affiliated with Adams Street Partners, 6%

Use of Proceeds

OMED expects to net $52 million from its IPO. Proceeds are allocated as follows:

  • $18.0 to $25.0 million for clinical expenditures to advance demcizumab (OMP-21M18) through Phase II clinical trials;
  • $18.0 to $25.0 million for clinical and manufacturing expenditures to advance a bispecific antibody through Phase II clinical trials;
  • $10.0 million for clinical and manufacturing expenditures to advance an antibody targeting the RSPO/LGR pathway through Phase I clinical trials;
  • $5.0 million to fund research and drug discovery activities related to additional product candidates; and
  • any remaining proceeds for working capital and general corporate expenditures.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This OMED IPO report is based on a reading and analysis of OMED's S-1A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: OncoMed Pharmaceuticals