Two weeks after an IPO that saw Verastem (NASDAQ:VSTM) successfully raise roughly $55 million, investors are valuing the pre-clinical, cancer-stem-cell targeting firm at a lofty $220 million. If it's any indication of sentiment, Verastem's valuation shows investors are willing to pay a premium for a novel technology that can differentiate itself in a crowded, yet unresolved global market. The firm's anomaly is reminiscent of InVivo Therapeutics (NASDAQ:NVIV), a company that develops technologies for the treatment of spinal cord injury (SCI). However, unlike oncology, there are no treatment options for SCI approved by the Food and Drug Administration (FDA).
Verastem's approach centers on the premise that targeted therapies should eradicate 'cancer at the root' - believed to be cancer stem cells. This approach differentiates the firm from the vast majority of oncology companies. Similarly, InVivo instigated the idea that paralysis is largely a by-product of a 'secondary injury' (see diagram, below).
The firm developed a biopolymer scaffolding device (BSD), which would be implanted during surgery, to mitigate a cascading inflammatory response - or secondary injury - and prevent paralysis at the root.
However, before InVivo demonstrated the efficacy of its technology in a primate-model (see the story here), regenerative medicine was, by and large, the focus of firms attempting to treat SCI. As InVivo characterizes in the 'About Us' section of its website, this approach focused only on the symptoms, and not the underlying pathology of SCI. Late last year, Geron Corporation (NASDAQ:GERN), the firm that inspired people to believe in regenerative medicine, said it would invest in its stem-cell technology no more, which ended a human embryonic stem cell (hESC) trial in patients with SCI. This left InVivo Therapeutics the only pure-play SCI company. And, depending on the outcome of an April 2012 meeting with the FDA to discuss the design of a human trial for InVivo's BSD, the company could be the first to market with an FDA-approved product to treat paralysis.
Invivo's BSD is regulated by the FDA as a medical device and filed for under the Investigational Device Exemption (IDE). Depending on the results of a proposed 10-patient pilot study, the company's device could qualify under the Humanitarian Device Exemption (HDE), which requires less stringent efficacy endpoints, and offers a quicker path to regulatory approval than a traditional device governed by the FDA. The HDE means that Invivo's BSD would be weighed on a balance of benefits to risks, given the unmet need for a SCI therapy.
Situated approximately one half-mile from Verastem's headquarters is Invivo Therapeutics. The two biotechnology companies share the outskirts of Cambridge-based Massachusetts Institute of Technology (MIT) and an equally innovative approach to eradicating two different global pandemics. As InVivo Therapeutics enters clinical studies for its BSD, investors are likely to award the company the same premium as Verastem for its innovative approach to an unmet medical need. All else being equal, the commencement of its first human trial in SCI, and other planned clinical and regulatory milestones, should result in an incrementally higher valuation for InVivo Therapeutics.
Disclosure: I am long NVIV.