Verastem Bucks the Trend, Raises $55M in IPO

1/26/12Follow @xconomy

Cambridge, MA-based Verastem, the biotech startup seeking to make drugs against cancer stem cells, found a way to rustle up enough demand from investors to complete its initial public offering.

The company (NASDAQ: VSTM) said tonight that it raised $55 million by selling 5.5 million new shares at $10 apiece. It was a strong showing of investor interest, given that Verastem had previously proposed selling just 4.5 million shares, at a range of $9 to $11 a share. UBS and Leerink Swann led the offering, and were assisted by Lazard Capital Markets, Oppenheimer & Co., and Rodman & Renshaw, according to a statement on Verastem’s website. The offering could end up raising more money in the end, because the underwriters have a 30-day option to buy another 825,000 shares. Shares of Verastem will now start trading on the NASDAQ on Friday, the company said in a statement.

The IPO was a bold move in a market that has shown limited interest in such offerings from biotech startups, especially companies like Verastem, which was founded in August 2010 and doesn’t yet have any drug candidates in clinical trials. While Verastem contends that cancer stem cells—also known as tumor-initiating cells—are critical players that help tumors resist treatment and spread, scientists still have a lot to prove about the role they play. The bet here is essentially on an intriguing field of science and a high-profile cast of scientific advisors and executives led by CEO Christoph Westphal. He’s best known as the former CEO of Sirtris Pharmaceuticals, the developer of drugs for diseases of aging, which was sold to GlaxoSmithKline for $720 million in 2008.

Christoph Westphal is chairman and CEO of Verastem

Investors haven’t shown much interest in backing such high-risk/high-reward companies like Sirtris or Verastem lately. Last year, just 10 biotech companies went public, according to a tally from FierceBiotech, down from 13 a year before. At least a couple of other notable biotech companies are teed up to test the IPO market in the early days of 2012—Mountain View, CA-based ChemoCentryx, which is trying to sell 4 million shares at $14 to $16 a share, and Cambridge, MA-based Merrimack Pharmaceuticals, which is attempting to sell 16.7 million shares at $8 to $10 apiece, according to the most recent regulatory filings.

The Verastem offering stands to benefit a number of well-known players in the Boston biotech community. Heading into this deal, the biggest holders in Verastem were Longwood Founders Fund, with a 15.4 percent stake; CHP of Princeton, NJ 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.

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