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

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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