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Based in Cambridge, Massachusetts, Verastem (NASDAQ:VSTM) scheduled a $45 million IPO with a market capitalization of $192 million at a price range mid-point of $10 for Friday, January 27, 2011.

VSTM is the third IPOs scheduled for this week. Eight are scheduled for the week of January 30, so far ... (see our IPO calendar).

SUMMARY & CONCLUSION

VSTM is a development stage biopharma company that is developing and commercializing intellectual property licensed from Harvard and MIT.

VSTM's objective is to development small molecule drugs targeted at cancer stem cells (CSC). VSTM believes cancer stem cells includes a more aggressive and drug resistant type of cancer cell, that can cause cancer to reoccur.

VSTM has impressive intellectual lineage and we are impressed with their plan and approach. However, as with most pre-clinical stage companies, it is very hard to put a valuation on the business, especially one that started operations in August of 2010.

CONCLUSION

It seems prudent to us pass on the VSTM IPO for the time being, and to wait, watch and see which milestones VSTM hits & when. VSTM is definitely a company worth following.

BUSINESS

VSTM is a development stage biopharmaceutical company focused on discovering and developing proprietary small molecule drugs targeting cancer stem cells in breast and other cancers along with proprietary companion diagnostics.

A cancer stem cell is a particularly aggressive type of tumor cell, resistant to conventional cancer therapy, that VSTM believes is an underlying cause of tumor recurrence and metastasis.

VSTM's scientific co-founders, Robert Weinberg, Ph.D., Eric Lander, Ph.D., and Piyush Gupta, Ph.D., have made discoveries that link the epithelial-to-mesenchymal transition, or EMT, to the emergence of cancer stem cells.

This transition involves the transformation of one type of cancer cell into a more aggressive and drug resistant type of cancer cell. Building on these discoveries, VSTM's scientific co-founders developed proprietary technology to create a stable population of cancer stem cells that VSTM uses to screen for and identify small molecule compounds that target cancer stem cells.

OPERATIONS

VSTM commenced active operations in the second half of 2010. Operations to date have been limited to organizing and staffing the company, business planning, raising capital, acquiring and developing technology, identifying potential product candidates and undertaking preclinical studies of our most advanced product candidates.

To date, VSTM has not generated any revenues and has financed operations with net proceeds from the private placement of VSTM preferred stock.

EXPECTED FDA FILINGS

VSTM expects to file an investigational new drug application, or IND, with the U.S. Food and Drug Administration, or FDA, in late 2012 for its product candidate VS-507 and in early 2013 for one of VSTM's product candidates VS-4718 or VS-5095, in each case to initiate a Phase 1 clinical trial of these product candidates.

THE PROBLEM

A cancer stem cell is a particularly aggressive type of tumor cell, resistant to conventional cancer therapy, that VSTM believes is an underlying cause of tumor recurrence and metastasis. VSTM also believes that the presence of cancer stem cells in tumors may be a key reason for the ultimate failure of many existing chemotherapeutics and other cancer therapies to achieve a durable clinical response.

CANCER STEM CELLS

VSTM believes that cancer stem cells, or CSCs, which are also sometimes referred to as tumor-initiating cancer cells, are responsible for the initiation, metastasis and recurrence of many cancers and may be a key reason for the ultimate failure of many current therapies to achieve a durable clinical response. CSCs have the ability to:

  • move freely and proliferate without attachment to other cells or surfaces;
  • initiate a tumor;
  • self-renew;
  • produce other cancer cell types; and
  • resist many current cancer treatments.

CSCs have been identified in many types of cancer, including breast, pancreatic, colon, brain, lung and leukemia. As illustrated in the figure below, while current treatments may succeed at initially decreasing tumor burden, they may leave behind a population of CSCs that can regenerate tumors.

PRODUCT CANDIDATES AND COMPANION DIAGNOSTICS

Using proprietary technology, VSTM has identified a pipeline of small molecule compounds with the potential to target CSCs.

The most advanced product candidates are VS-507, VS-4718 and VS-5095. VSTM is currently evaluating VS-507, VS-4718 and VS-5095 in preclinical studies as potential therapies for breast and other cancers.

VSTM believes that these compounds may be especially beneficial as therapeutics in aggressive cancers with a high percentage of CSCs, such as triple negative breast cancer, or TNBC. TNBC is a type of breast cancer in which a high percentage of CSCs has been identified and that has a poorer prognosis and lower overall survival rate than other types of breast cancer. VSTM also are currently evaluating additional proprietary product candidates in preclinical studies for their use in breast and other cancers.

VSTM's scientific co-founders identified VS-507 as a drug candidate for killing breast cancer stem cells and published their research in Cell in 2009. This study included an analysis of the effect of VS-507 on TNBC cell lines.

VSTM believes that the targeted action of VS-507 on CSCs is effected through the inhibition of a network of proteins, known as the Wnt/beta-catenin cell signaling pathway, which Dr. Weinberg described in 2011 in Cell as critical for the development and maintenance of CSCs.

Additional third-party published research has reported that VS-507's activity may be mediated through the blockade of the Wnt/beta-catenin cell signaling pathway. In mouse models of breast cancer, VS-507 treatment decreased biophysical or biochemical markers, referred to as biomarkers, of CSCs.

In contrast, treatment in the same model with a standard chemotherapeutic agent, paclitaxel, increased biomarkers of CSCs. Assuming successful completion of preclinical studies, VSTN expects to file an investigational new drug application, or IND, with the U.S. Food and Drug Administration, or FDA, in late 2012 to initiate a Phase 1 clinical trial of VS-507.

VSTM has identified the CSC-targeted activity of VS-4718 and VS-5095 using proprietary technology. In preclinical testing, these compounds were found to be potent and selective inhibitors of Focal Adhesion Kinase, or FAK, a protein which is involved in cell adhesion and motility. FAK expression is greater in many tumor types compared to normal tissue, particularly in cancers that have a high invasive and metastatic capability.

In preclinical mouse models, both VS-4718 and VS-5095 demonstrated good oral bioavailability and pharmacokinetic and pharmacodynamic properties and reduced both primary tumor growth and metastatic burden. VSTM expects to file an IND with the FDA in early 2013 to initiate a Phase 1 clinical trial of one of VS-4718 or VS-5095.

An important element of VSTM's business strategy is the development and use of proprietary, companion diagnostics in connection with the development of therapeutic drug candidates. CSCs are often characterized by a distinctive set of biomarkers, which VSTM believes may be a key to identifying patients with tumors that are likely to respond to therapies targeting CSCs.

VSTM plans to use diagnostics, based on these biomarkers, as part of a personalized medicine approach to identify patients with aggressive tumors that have a high percentage of CSCs.

VSTM also believes that these diagnostics may be used to monitor patients' progress on therapy and aid physicians' ongoing treatment decisions. In addition, VSTM expects that its use of proprietary diagnostics may accelerate the clinical development process for our drug candidates by enabling smaller, targeted trials and providing early, objective signals of drug activity.

NEW CHEMICAL ENTITIES (NCEs)

VSTM has initiated NCE programs on more than 10 series of chemical compounds identified using VSTM's proprietary EMT technology along with high-throughput screening methods. In addition, VSTM has synthesized several drug candidates that are chemically similar to VS-507 and are currently optimizing their activity in blocking the Wnt/beta-catenin signaling pathway and CSC survival.

VSTM evaluates the activity of chemical compounds in vitro by measuring their potency and selectivity against CSCs. In general, the more potent a drug is, the lower the dose required for a therapeutic effect. In an in vitro assessment of cell proliferation, one of the series of NCE compounds that VSTM has identified has exhibited potent activity and greater than 10-fold selectivity for CSCs as compared to other types of cancer cells.

A second series of compounds has shown potent activity and greater than 50-fold selectivity for killing of CSCs compared to its effects on other types of cancer cells. Compounds from VSTM's NCE programs also have demonstrated preclinical activity in a broad range of cancer cells, including breast cancer cell lines derived from TNBC tumors in which a high percentage of CSCs have been identified. VSTM is currently evaluating additional proprietary product candidates from VSTM's NCE programs in preclinical studies for their use in breast and other cancers.

CO-FOUNDERS

Building on discoveries by VSTM's scientific co-founders, Robert Weinberg, Ph.D., Eric Lander, Ph.D., and Piyush Gupta, Ph.D., published in the peer reviewed scientific journal CELL*, VSTM uses proprietary technology to create a stable population of cancer stem cells to screen for and identify small molecule compounds that target cancer stem cells.

* According to ScienceWatch, the journal CELL was ranked first overall in the category of highest-impact journals (all fields) over 1995-2005 with an average of 161.2 citations per paper. According to the Journal Citation Reports, the journal has a 2010 impact factor of 32.401, ranking it 14th out of 8005 indexed journals.

INTELLECTUAL PROPERTY

VSTM licenses a portfolio of patent applications owned by the Whitehead Institute, Harvard and MIT. As of December 31, 2011, VSTM holds exclusive licenses from the Whitehead Institute to three pending U.S. patent applications, as well as foreign counterparts to these patent applications, and one application under a Patent Cooperation Treaty, or PCT application.

VSTM has an agreement with the Broad Institute, which grants VSTM under certain circumstances the first right to negotiate a license for intellectual property. This intellectual property includes patent applications and patents covering the use of biomarkers related to the EMT process. This intellectual property also includes compounds that can be used for treatment of cancer. An example is a compound that is identified by screening the effects of compounds on CSCs, notably CSCs created through the EMT process.

VSTM also exclusively license a portfolio of patent applications relating to FAK inhibitors from Poniard Pharmaceuticals, Inc., or Poniard. As of December 31, 2011, VSTM holds licenses from Poniard to four patent applications, as well as foreign counterparts to these patent applications.

One of these patent applications is owned by The Scripps Research Institute, or Scripps, and licensed to Poniard and the other three are owned by Poniard.

VSTM has filed and own one patent application directed to formulations of VS-507 and one patent application directed to analogues of VS-507. Any U.S. or EU patents that may issue from these applications would have a statutory expiration date in 2032 or 2033.

Poniard Pharmaceuticals, Inc.

In November 2011, VSTM entered into a license agreement with Poniard under which VSTM acquired an exclusive, worldwide license under patent rights and know-how owned or controlled by Poniard to develop, make, use and sell compounds and products covered by the licensed patent rights for the diagnosis, treatment, prevention or control of all human diseases and conditions.

Under the agreement, VSTM paid Poniard an upfront license fee and agreed to pay Poniard milestone payments of up to an aggregate of $13,250,000 upon the achievement of specified development and regulatory milestones. VSTM also agreed to issue to Poniard a warrant to purchase 142,857 shares of common stock upon the first dosing of the first patient in VSTM's first Phase 1 clinical trial of a licensed product.

COMPETITION

There are other companies working to develop therapies that target CSCs. These companies include divisions of large pharmaceutical companies including Astellas Pharma Inc. (OTCPK:ALPMF), Sanofi-Aventis U.S (NYSE:SNY). LLC, GlaxoSmithKline (NYSE:GSK), Boehringer Ingelheim GmbH, Pfizer (NYSE:PFE). and others.

There are also biotechnology companies of various sizes that are developing therapies against CSCs, including OncoMed Pharmaceuticals, Inc., Boston Biomedical Inc. and Stemline Therapeutics, Inc.

USE OF PROCEEDS

VSTM expects to net $40 million from its IPO.

  • $4.5 million to $5.0 million to complete preclinical and Phase 1 clinical development of VS-507;
  • $5.0 million to $6.0 million to complete preclinical development of VS-4718 and VS-5095 and Phase 1 clinical development of whichever of these two product candidates we select to advance into human clinical trials;
  • $6.0 million to $7.0 million for preclinical studies of our other proprietary product candidates and companion diagnostics;
  • $11.0 million to $12.0 million for discovery, research and preclinical studies of additional compounds; and
  • The balance, if any, to fund working capital, capital expenditures and other general corporate purposes, which may include the acquisition or in-license of additional compounds, product candidates or technology.

Source: January 13, 2011 SEC filing

Source: IPO Preview: Verastem