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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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March 13, 2012

Verastem's Chances

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Posted by Derek

Last fall, when Verastem announced their initial public offering, I wondered about how such an early-stage company (in such a speculative area) could plausibly offer stock. Now Nate Sadeghi-Nejad at TheStreet.com wonders the same thing:

Biotech companies with drugs in much later stages of clinical development find it difficult to go public today, yet here was Verastem, with nary a single patient exposed to any of its drugs, selling 5.5 million shares to the public at $10 per share.

Forty days later, the minimum time period allowed by law, sell-side analysts from all five of the investment banks which took Verastem public issued glowing reports with buy ratings and price targets 50% to 100% above the current share price.

Well, this sort of thing does happen. I mean, just because an investment bank makes money off an IPO doesn't mean that it isn't just a terrific place to put your money. Right? That's because they do lots of research on these things. Right? Well, as Sadeghi shows, that research assigned a Probability of Success of 30% to Verastem's plan of finding cancer-stem-cell specific therapeutics. This in an environment where the clinical failure rate is worse than 90%, and these guys haven't even been to the clinic yet. Their lead compound is salinomycin, an ionophore antibiotic which has been shown in vitro to target tumor stem cells.

Now, that's a perfectly respectable high-risk project to take on, because it has a lot of potential to go along with the risk. But a thirty per cent chance of success? There is no preclinical oncology program in the world with a thirty per cent chance of success. That figure is laughable.

I don't wish bad fortune to Verastem - I hope that their compound works. And I don't wish bad things for their investors, although I hope that they're braced for some. We need new modes of action in cancer drugs; we need for things to work. But we also need to be honest with ourselves and with investors. Investment banks are not going to do that for you, though.

Comments (23) + TrackBacks (0) | Category: Business and Markets | Cancer


COMMENTS

1. Mo on March 13, 2012 9:20 AM writes...

Salinomycin? Really? I would put the chances at closer to 0% for this lead to be an effective cancer stem cell (CSC) therapy. An ionophore at even a modest concentration would right off the bat be nephrotoxic, heptatotoxic and obliterate every circulating blood cell in the body. If however they intend to selectively target the ionophore to CSCs by some other means perhaps that may work. Otherwise, I would suggest that this is yet another way to fleece investors hopelessly eager to invest in biotech.

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2. Will on March 13, 2012 9:44 AM writes...

@ Mo -

I wouldn't dismiss an ionophore right off the bat as they are very common in vet medicine (eg, monensin) Also, I don't know if erilubin would have ionophoric properties, although its a macrocycle, it looks to me like it could encave various ions as well

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3. My 0.02 on March 13, 2012 9:48 AM writes...

This is a clear-case demonstration that the "1% on Wall Street" is despised even by "regular 1% folks". It is these "0.01% on Wall Street" that fv*k up the economy and the 99.99% suffers.

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4. anon2 on March 13, 2012 10:00 AM writes...

The last posting, Bruit Force Bias, raised a key notation as to the industry's "failures", keying on technologies that emerged during the past decade (HTS, combinatorial chemistry, human genome identification of new, validated targets etc). Hubris. In the case of Verastem's founders, it is supreme arrogance in continuing to push the envelope of what they can achieve to MAKE MONEY. It worked for them in having convinced a few relatively new (at the time), naive high level senior managers at GSK with Sirtris. Surely, Shirley, there will be investors willing to go with this scheme, as that's all it takes up-front. 30% chance to success? Laughable. And let's see what the stock price will be in a year. Want to make money on this one----short, short, short......

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5. bbooooooya on March 13, 2012 10:14 AM writes...

It's an unfortunate reality, but a lot of biotech investing is based on http://www.youtube.com/watch?v=4-jsqZQ4OOY.

The investment bankers and analysts who help these companies along are just playing in the band.

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6. Innovorich on March 13, 2012 10:21 AM writes...

What's actually slightly more disturbing is that I wouldn't be so sure about the negative case for the stock price in 1 year (@anon2). A huge problem with biotech is their need to continue a project therefore I would actually anticipate that, prior to the 99% likelihood of failure here, they will release enough good news to possibly satisfy this 50-100% price target. At some point it will then (most likely) go to zero - it only depends who is holding the bag at the time it happens!

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7. johnnyboy on March 13, 2012 10:45 AM writes...

Indeed, the performance of Verastem's executive management will be judged not by whether they ever produce a drug, but by how long they can manage to successfully milk a dying horse. For instance, there's still plenty of people willing to invest in Cell Therapeutics, after years and years of management's smoke and mirrors.

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8. HelicalZz on March 13, 2012 10:52 AM writes...

Like many biotech IPOs these days, this one managed to get to the public market only with a high level of insider participation in the offering.

http://www.fiercebiotech.com/story/company-insiders-nabbed-43-verastems-ipo-offering/2012-03-05

Bruce Booth has written on this phenomenon recently.

http://lifescivc.com/2011/05/dirty-little-secret-of-biotech-ipos-insider-participation/

Zz

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9. johnnyboy on March 13, 2012 10:55 AM writes...

As for salinomycin and ionophores, it is true that they are used in a few selected animal species as a growth-promoting agent, but in other species they are highly toxic, causing muscle and cardiac necrosis. One of these species: homo sapiens. Which sometimes isn't really that sapiens.

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10. Innovorich on March 13, 2012 11:34 AM writes...

So how far have they actually got? Have they just repeated the MIT experiments and killed a few cancer cells in a petri-dish?

Given that the efficacy of salinomycin as an anti-cancer agent was suggested/published by Weinberg in 2009, do Verastem actually have an IP claim?

Why does their website talk about "high-throughput drug discovery systems" when they're basically just setting out to prove the efficacy of a single molecule that they're already "discovered"?

It's really going to increase the price of chicken food if it succeeds!

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11. Rick Wobbe on March 13, 2012 11:47 AM writes...

Maybe I'm just very obtuse, but I have a hard time identifying the "flaw" that Sadeghi-Nejad is talking about. In a free market, if money is being made, then aren't the sell-side analysts and the system working exactly as they should at this early stage? What other measure of correct function would you use to identify non-flawed behavior?

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12. Innovorich on March 13, 2012 12:00 PM writes...

@rick - yes it is very difficult in any market place to separate impartial analysis from self-interested promotion, and whether something is truly a "conflict of interest" or purely reasonable advertising. Surely anyone in possession of an asset is allowed to promote it's potential benefits?

It is always "buyer beware", and if you want real impartial analysis you'll have to do it or pay for it yourself, and never trust a so-called "analyst" at an investment bank.

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13. Morten G on March 13, 2012 12:32 PM writes...

Early investors aren't betting whether the company will ever make any money. They are betting whether later investors will pay more than they paid. So if they think that the sales baloney will sell then that's the market at action. One of the reasons I'm in favour of a Tobin tax ;) attenuate the bullshit.

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14. Rick Wobbe on March 13, 2012 1:03 PM writes...

Innovorich and Morten, 12&13,
That's how it seems to me too. In which case, the market for Verastem, not it's drug current drug lead, while it may seem silly, is behaving flawlessly.

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15. Cirrus on March 13, 2012 1:18 PM writes...

It is all about incentives with respect to each person involved in the venture. Failure is the end result scientifically speaking. For the venture investors/senior management, the IPO is a success. For regular investors, it is about who are the next bigger fools. For people working in the company, getting paid and be able to find another job are success.

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16. pTsOH on March 13, 2012 1:30 PM writes...

"...CEO Christoph Westphal"

You couldn't make this up if you tried.

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17. Mo on March 13, 2012 2:09 PM writes...

By the numbers..Reported efficacy towards cancer stem cells in model systems is low micromolar range. Toxicity observed at 1 mg/kg level in animal studies. More detail on salinmyocin toxicity:

http://aac.asm.org/content/early/2008/01/14/AAC.01041-07.full.pdf

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18. John Schilling on March 13, 2012 3:09 PM writes...

I am shocked, shocked to find toxicity in a potential chemotherapy agent. Next thing you know, people will be raiding chemical-weapons stockpiles to find anticancer drugs...

What matters is the theraputic index, in this case the relative toxicity to cancer cells vs. the most vulerable non-cancerous tissue. "Identification of Selective Inhibitors of Cancer Stem Cells by High-Throughput Screening", Gupta et al, Cell v138 #4 (2009), if I read it correctly, shows significant effect at 0.5-5 uM, which for a molecular weight of 751 comes to about 0.4-4 mg/kg.

As #17 notes, there is an example of debilitating but not lethal human toxicity at about 1 mg/kg. It's not out of the question that this could turn into something useful, but a 30% probability of success seems a tad optimistic.

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19. Anonymous on March 13, 2012 5:10 PM writes...

I can see it now. Coming soon to a nutraceutical website near you: salinomycin! You'll find it right next to resveratrol.

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20. dave w on March 13, 2012 9:04 PM writes...

30% "probability of success"? As others have suggested, perhaps less "succeeds in developing a useful treatment" than "succeeds in business (for a while) working on the problem"!

As for toxicity, I guess "safety" works out a bit differently for something intended to treat cancer (compared to something you plan to market to the population at large for e.g. weight loss...)


[tangent alert]
Speaking of the latter, I read about "Accomplia" - that "cannabinoid reverse agonist" that was supposed to aid weight loss, and had safety issues (like a tendency to induce suicidal depression) - and my reaction was "my goodness, what were they thinking?" It sounds like they were trying to reverse a side effect and ended up reversing the forward effect as well: tried to give the users the "un-munchies" and ended up making them feel like stoners in a dry spell, even if they hadn't been smoking any cannabis (a known anti-depressant) in the first place. (After all, one of the side effects of opiate narcotics is constipation, but I wouldn't be particularly interested in taking an "opiate receptor reverse agonist" as a laxative!)

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21. NJBiologist on March 14, 2012 11:45 AM writes...

@20 dave w [tangent]: The last time I read into this, the molecular pharmacologists were thinking naloxone was an inverse agonist. However, none of my control rats getting naloxone have shown any tendency toward diarrhea. Endogenous tone and constitutive activity are hugely important. If they are low enough in physiologically normal critters, you can get yourself a lot of therapeutic index in an antagonist/inverse agonist.

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22. johnnyboy on March 14, 2012 3:04 PM writes...

#18: I'll do my best to ignore the snark. I'm quite aware of the concept of therapeutic index. We can make calculations till the cows come home, the fact is that without human PK data we have no idea what the dosage would have to be to reach a tissue level expected to have some sort of effect - so we're just debating the sex of angels here.

But any drug candidate (including for oncology) which has a known history of direct cardiac toxicity in several species (and a report of human toxicity) would have an extremely high regulatory bar to pass, just to get into phase 1.

Mind you, that's not something Verastem's management would mention to its investors. If the question comes down the road, they'll probably hire an 'expert' to mumble something about combining it to a nano-carrier that will directly target the cancer cells; that should do the trick.

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23. Adam on March 24, 2013 1:40 PM writes...

C. Naujokat, R. Steinhart ” Salinomycin as a Drug for Targeting Human Cancer Stem Cells”, Journal of Biomedicine and Biotechnology, Volume 2012 (2012), Article ID 950658,
http://downloads.hindawi.com/journals/bmri/2012/950658.pdf

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