The stock markets haven’t been kind to biotech companies this year whether the companies are already public or trying to be. Proteostasis Therapeutics, a developer of drugs for cystic fibrosis and other diseases, is the latest example. It had to significantly discount its IPO demands to make it to the Nasdaq.
Cambridge, MA-based Proteostasis raised $50 million by selling 6.25 million shares at $8 apiece, well below the company’s projections last week. Proteostasis had been hoping to sell nearly half as many shares— 3.85 million—in the $12 to $14 price range to hit its target. Instead, its shareholders face more dilution and a lower share value as the company makes its public debut. It’ll begin trading on the Nasdaq this morning under the ticker symbol “PTI.”
A glass-half-full approach would note that Proteostasis—a company still without a drug in clinical trials—actually made it to the public markets in what’s been a tough environment for biotech IPOs. Only three others, Editas Medicine (NASDAQ: [[ticker:EDIT]]), BeiGene (NASDAQ: [[ticker:BGEN]]), of China, and last night, Chicago-based AveXis, have gone public so far this year, a tepid start compared to the parade of life sciences IPOs that buoyed the sector from 2013 to 2015. A few companies, like Apellis Pharmaceuticals and PLx Pharma, have already postponed or withdrawn potential offerings.
(It should be noted that other industry sectors have had IPO problems this year. This post from research firm Renaissance Capital shows other companies that have withdrawn offerings).
Proteostasis was formed in 2008 with the help of a $45 million round from HealthCare Ventures, Fidelity Biosciences (now known as F-Prime Capital), New Enterprise Associates, Novartis Option Fund, and Genzyme. All those firms remain among the company’s most significant shareholders. A fund from the once-prominent drug firm Elan, which is now owned by generic drug maker Perrigo (NYSE: [[ticker:PRGO]]), held 21.6 percent of Proteostasis before the IPO. Next are NEA (17.1 percent), Healthcare Ventures (13.7 percent), F-Prime and Novartis (11.7 percent apiece), and Genzyme (5.8 percent).
Proteostasis has spent several years working in the field of protein homeostasis, or the ability of cells to properly manufacture or deactivate proteins. When this process is upset—and, say, proteins don’t fold properly—disease can result.
Proteostasis isn’t the only company working in this field; Forma Therapeutics and Nurix, among others, have other approaches. But the company has decided to first apply its work to cystic fibrosis and complement the work of Boston-based Vertex Pharmaceuticals (NASDAQ: [[ticker:VRTX]]).
Vertex made history in 2012 with FDA approval of ivacaftor (Kalydeco), the first drug to treat not just the symptoms but also the underlying molecular abnormalities present in certain CF patients.
But there’s room for improvement with ivacaftor. It’s only approved for a small fraction of the roughly 70,000 CF patients worldwide, which is why Vertex has been developing other drugs and combining them with ivacaftor, like the recently approved ivacaftor/lumacaftor (Orkambi). With such combinations, Vertex wants to treat more CF patients with different genetic traits, and effectively dominate the treatment landscape.
Proteostasis is trying to prove that its lead drug candidate, PTI-428, might boost the effectiveness of Vertex’s drugs by increasing the production of an immature form of a protein called CFTR. (Mutations to a gene that produces CFTR ultimately cause the dangerous buildup of mucus in CF patients.) It’s a long way from delivering that evidence. In fact, Proteostasis has yet to test PTI-428 in clinical trials.
The company will use some of the IPO cash to fund its first trial, which it expects to begin this quarter. If all goes well, Proteostasis would head to a Phase 2 study later this year and produce data from that trial in 2017, according to its IPO prospectus.
It’s a risky strategy. Proteostasis is essentially banking that the standard of care—Vertex’s current drugs, at least for certain subgroups of CF patients—will remain the same while it works its way through clinical trials. The company’s goal is to sell its drug in countries where Vertex’s ivacaftor and lumacaftor/ivacaftor are approved. It also eventually wants to develop in-house its own CF combinations.
Proteostasis has collaborations in place with Biogen (NASDAQ: [[ticker:BIIB]]) and Japan’s Astellas Pharma. The company had $20.9 million in cash as of the end of September, and had raised $112 million in equity financing since its inception. Its CEO is Meenu Chhabra, the former head of Seattle-based Allozyne.
