Company ‘insiders’ left with 43% of Verastem’s shares

Posted under Biotech IPO, Blog, cancer stem cells, Christoph Westphal, Companies, Diagnostics, Funding, Medical Devices, Medical Supply, Pharmaceuticals, Startups, Universities, Verastem, Videos by John Carroll

Anyone trying to understand what it takes to pull off a successful biotech IPO these days should check out a series of 13Ds Verastem's ($VSTM) insiders filed last month. In the days after Verastem went public the insiders noted that they had collectively acquired 43% of Verastem's stock. And Christoph Westphal's Longwood Fund captured the biggest share--taking home 13.63% of the offering.

Westphal founded Verastem, a preclinical drug developer focused on cancer stem cells, and then quickly went public at a stage when most such developers could only dream about an IPO. Westphal, though, has some of the best connections in the industry after selling Sirtris to GlaxoSmithKline ($GSK) for $720 million and going on to run GSK's venture arm briefly. He runs Longwood along with Rich Aldrich and Michelle Dipp. The other insiders, Bessemer, CHP and MPM each nabbed close to 10% of the IPO shares.

Over the past three years only a handful of biotechs have managed to pull off an IPO without taking a big haircut on the share price. And in most cases that required some big help from the companies' insiders. That's a point that has been openly acknowledged by Ironwood CEO Peter Hecht, who could count on some big insider help when he took the biotech public.

It's also no surprise to Bruce Booth, a partner at Atlas Venture who has been closely following the trend. In a tweet this morning Booth noted that while he hadn't personally run the numbers, 43% wouldn't be radically out of line with the numbers he's seen. That level of insider participation is only marginally higher than the 33% median on insider buying for big biotech IPOs, notes Booth.

- here's the 13D from the Longwood Fund

Correction: After we published today's report I had a chance to talk to Robert Forrester, the COO at Verastem and an experienced biotech exec in his own right. Forrester corrected the bottom line of the report, noting that company insiders had limited themselves to buying $14.8 million in IPO shares, which amounted to 23% insider participation of the $63.3 million raise. The 43% insider stock ownership is a combination of all the shares they own, from both pre- and post-IPO buys. "We had such a strong demand for the IPO that we asked the existing investors if they would scale back," says Forrester. "Most didn't want to, but a couple did." FierceBiotech regrets the mistake. -- John Carroll
 

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Westphal pulls off a rare stunt with $55M Verastem IPO

Posted under Biotech IPO, Blog, Christoph Westphal, Companies, Diagnostics, Funding, Medical Devices, Medical Supply, Pharmaceuticals, Startups, Universities, Verastem, Videos by John Carroll

Christoph Westphal's Verastem, a preclinical-stage biotech focused on cancer stem cell research, seemingly defied gravity with an announcement late last night that its IPO raised $55 million from the sale of 5.5 million shares at $10 apiece. The price fell precisely in the middle of its range, qualifying it as a unicorn among the rare breed of companies that play in this field. And Verastem actually upped the offering by a million shares over what had originally been planned.

What the company's release fails to note is how much Westphal, a venture capitalist himself with a broad range of connections in the investment world, put up along with the biotech's other backers. In an earlier SEC document, Verastem noted that investors had agreed to buy up to $16.3 million of the offering, a common ploy among the developers which have pulled off the occasional successful IPO over the past three years. With more than 19 million common shares outstanding, the offering values Verastem at $192 million.

Even so, analysts in the IPO field had a hard time understanding the logic behind a preclinical biotech IPO at a time late-stage companies are often given short shrift. This month has seen few initial offerings of any kind, noted Dow Jones as it reviewed one skeptically. "Verastem's is even less attractive," wrote Lynn Cowan, "with neither revenue nor profits, and a potential product pipeline that hasn't yet begun full clinical trials."

The company starts trading today under the $VSTM symbol, joining a small group of biotechs going public. As we noted in a recent special report, only 10 biotechs went public last year, down from a meager 13 in 2010.

This isn't the first time that Westphal has managed to pull off a financial coup for a high-risk company. He launched Sirtris and sold it to GlaxoSmithKline ($GSK) for a whopping $720 million, and GSK has stood by the company as researchers have raised serious questions over the science involved. Later he had a brief stint as the head of SR One, GSK's investment arm. And he founded Longwood Founders Fund, which has a 15.4 percent stake in Verastem. Other backers include CHP with 13.5 percent; MPM Bioventures with 13.1 percent; Bessemer Venture Partners with 12.9 percent; Eastern Capital Limited with 7.8 percent; and Advanced Technology Ventures with 5 percent, as Xconomy notes in its coverage of the event.

- here's the press release
- read the story from Xconomy

Special Report: The 10 biotech IPOs of 2011

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Fledgling Verastem outlines investor strategy behind high-risk $50M IPO

Posted under Biotech IPO, Blog, cancer stem cells, Christoph Westphal, Companies, CSC, Diagnostics, Funding, Medical Devices, Medical Supply, Merrimack Pharmaceuticals, Pharmaceuticals, Startups, Universities, Verastem, Videos by John Carroll

As today's report on 2011's small class of biotech IPOs makes clear, this is a lousy time for a drug developer to go public--even if it has a compelling late-stage program to boast about. But Christoph Westphal's upstart Verastem has set out to turn that argument on its head in a quest to raise $50 million. And in papers filed with the SEC, Verastem lays out its strategy for making the IPO a success as well as the science of cancer stem cells that it's banking on.

According to Verastem's S-1 filed with the SEC, the biotech's venture backers--Longwood Founders Fund, Cardinal Partners, MPM Capital and Bessemer Venture Partners--have already committed $16.3 million to the effort, a third of the cash that it hopes to raise on the market. That follows a strategy Clovis used to get its IPO out without taking the painful rate cuts endured by a number of companies last year.   

On the science side, the SEC documents detail the cancer stem cell discovery efforts at the Whitehead and Broad institutes in Cambridge, MA, which were used to build the scientific foundation of the company. Cancer stem cells are believed to drive metastasis, and Verastem has lined up three preclinical drug candidates--VS-507, VS-4718 and VS-5095--that promise to target CSCs, with plans to identify companion diagnostics that can carefully delineate the appropriate patient population. Its first IND is expected to be filed by the end of this year.

Every S-1 is required to offer investors a careful analysis of the risks involved. And Verastem's papers clearly outline risks involving drug research, the unproven nature of the science, and the uncertainty that it can gain the right industry collaborators to drive these programs to the market. But Westphal, whose success in selling Sirtris to GlaxoSmithKline ($GSK) and deep ties to the investment and scientific communities in the Cambridge hub has provided some badly needed credibility for the effort, knows the odds better than most in the industry.  Despite lingering questions about the authenticity of Sirtris's research, he remains a formidable figure in biotech. And he'll need every inch of that stature, and all his best connections, to make this IPO a success.

The general consensus at the J.P. Morgan confab last week was that the industry would continue to see a notoriously weak market for biotech IPOs in the year ahead. Steven Burrill, a longtime observer of the biotech scene and an active investor, believes we'll see 25 biotech IPOs in 2012, which would be a big improvement on last year's performance.

Merrimack Pharmaceuticals also priced shares late last week, outlining plans to sell 16.7 million shares at $8 to $10 each.

- here's the filing with the SEC
- read the Dow Jones report

Special Report: The 10 biotech IPOs of 2011

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