IPO Premium: Versartis

Mar.21.14 | About: Versartis, Inc. (VSAR)

Summary

Endocrine-focused biopharmaceutical company.

Lead product intended to reduce the burden of daily treatment by requiring significantly fewer injections, potentially improving compliance and, therefore, treatment outcomes.

In phase 2b clinical trials.

Based in Redwood City, CA, Versartis (NASDAQ:VSAR) scheduled an $81 million IPO on the Nasdaq with a market capitalization of $383 million at a price range midpoint of $17.50 for Friday, March 21, 2014. Update: the price range mid-point has been raised to $20, the rating is the same.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Morgan Stanley, Citi

Co-Managers: Cowen & Company, Canaccord Genuity

End of lockup (180 days): Wednesday, September 17, 2014

End of 25-day quiet period: Tuesday, April 15, 2014

Summary
VSAR is an endocrine-focused biopharmaceutical company initially developing its novel long-acting recombinant human growth hormone, VRS-317, for growth hormone deficiency, or GHD, an orphan disease.

VRS-317 is intended to reduce the burden of daily treatment by requiring significantly fewer injections, potentially improving compliance and, therefore, treatment outcomes.

Valuation

Glossary

Valuation Ratios

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Cap (MM)

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in IPO

Versartis

$385

n/a

-20.8

2.6

2.6

21%

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Conclusion
VSAR is in phase 2b clinical trials. The price-to-book ratio is 2.6, which is relatively low, and the cash burn rate is lower than many biopharma IPOs.

The IPO rating for VSAR is positive.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

VSAR is an endocrine-focused biopharmaceutical company initially developing its novel long-acting recombinant human growth hormone, VRS-317, for growth hormone deficiency, or GHD, an orphan disease.

Global annual sales from currently marketed rhGH products have grown approximately 6% per year over the last five years, reaching over $3 billion in 2012.

Key limitation
A key limitation to current recombinant human growth hormone, or rhGH, products is that they impose the burden of daily injections over multiple years, often resulting in poor compliance, which in turn can lead to suboptimal treatment outcomes in GHD patients.

VRS-317 is intended to reduce the burden of daily treatment by requiring significantly fewer injections, potentially improving compliance and, therefore, treatment outcomes.

Clinical trials

VSAR is currently conducting the Phase 2a stage of its pediatric GHD clinical trial in which VSAR is evaluating weekly, semi-monthly and monthly dosing regimens.

In VSAR's Phase 1a clinical trial, VRS-317 has demonstrated a half-life at least thirty times longer than daily rhGH and to date has shown a safety and tolerability profile comparable to that of marketed daily rhGH products.

There are currently seven rhGH products marketed in the United States for the treatment of GHD. VSAR is pursuing the same regulatory pathway for VRS-317 followed by most of these products for pediatric GHD patients: a dose-finding study and a Phase 3 registration trial with a primary endpoint of twelve month mean height velocity.

Global rights

VSAR has global rights to VRS-317 and, if VRS-317 is approved, given the highly concentrated prescriber base, VSAR intends to commercialize it with its own specialty sales force in the United States and Canada, and potentially other geographies.

VRS-317 is a fusion protein consisting of rhGH and a proprietary half-life extension technology known as XTEN, which VSAR in-licenses from Amunix Operating, Inc., or Amunix.

Amunix has granted VSAR an exclusive license under its patents and know-how related to the XTEN technology to develop and commercialize up to four licensed products, including VRS-317.

Once VSAR starts commercializing a licensed product, it will owe to Amunix a royalty on net sales of the licensed products until the later of the expiration of all licensed patents or ten years from the first commercial sale in the relevant country.

The royalty payable is one percent of net sales for the first two marketed products, but higher single-digit royalties are payable if VSAR markets additional products, or if it substitutes one marketed product for another.

If VSAR elects to substitute one marketed product for another, in addition to royalties, it would also be required to make milestone and other payments totaling up to $40 million per marketed product.

Manufacturing benefits

Additionally, the XTEN amino acid sequences fused to rhGH to form VRS-317 confer improved pharmaceutical properties compared to rhGH alone, including greater solubility, a lower isoelectric point and a higher net negative charge.

These improved properties enable a straightforward purification process without the need for complex steps that can reduce manufacturing yields, such as protein folding, which may ultimately offer a cost-of-goods advantage for VRS-317 versus current rhGH products.

Dividend Policy

No dividends are planned.

Intellectual Property

In December 2008, VSAR entered into a worldwide, exclusive license agreement with Amunix, which was amended and restated in December 2010 and subsequently amended in January 2013. The patents in-licensed under this agreement constitute the core of VSAR's intellectual property.

The terms of this license are summarized below.

- As of December 31, 2013, the in-licensed global patent portfolio consists of three issued United States patents and three issued patents in the European Patent Office, China and Mexico, respectively.

In addition, the portfolio also includes 66 pending utility patent applications, 15 of which are in the United States, and of those 15, six of which are provisional patent applications that were filed in 2013.

- The in-licensed patent portfolio includes five main patent families, which VSAR believes, if issued in their current form, would provide broad coverage for the XTEN (unstructured recombinant polypeptide, URP) technology, including methods for producing XTEN products, and various levels of more specific coverage for VRS-317.

- The portfolio includes composition of matter, method of treatment and use claims. The U.S. patents that have issued as of December 31, 2013 are U.S. Patent Nos. 7,855,279, 8,492,530 and 7,846,445. U.S. Patent Nos. 7,855,279 and 8,492,530 cover XTEN (URP) fusion proteins with increased half-life, including dependent claims directed to hGH-XTEN fusions. U.S. Patent No. 7,846,445 covers methods for extending the serum secretion half-life of a protein by producing XTEN fusions, including that of hGH. VSAR estimates that the issued U.S. patents will expire between 2026 and 2027.

Competition

In the United States, there are a variety of currently marketed rhGH therapies administered by daily subcutaneous injection and used for the treatment of GHD, principally Norditropin® (Novo Nordisk), Humatrope® (Eli Lilly), Nutropin-AQ® (Roche/Genentech), Genotropin® (Pfizer), Saizen® (Merck Serono), Tev-tropin® (Teva Pharmaceuticals) and Omnitrope® (Sandoz GmbH).

These rhGH drugs are well-established therapies and are widely accepted by physicians, patients, caregivers and third­ party payors as the standard of care for the treatment of GHD.

5% stockholders

New Leaf Ventures II, L.P. 19.3%

Entities affiliated with Index Ventures 15.7%

Entities affiliated with Advent Life Sciences 12.6%

Sofinnova Venture Partners VIII, L.P. 12.2%

Aisling Capital III, LP 11.3%

Entities affiliated with Fidelity 9.0%

Michael Harazin, Trustee 6.4%

Amunix Operating Inc. 6.0%

Use of proceeds

VSAR expects to net $73 million from its IPO. Proceeds are allocated as follows:

  • $65 million to fund its ongoing and planned clinical development of VRS-317 for the treatment of pediatric GHD; and
  • the balance to fund working capital, capital expenditures and other general corporate purposes, which may include the acquisition or licensing of other products, businesses or technologies.

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

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.