IPO Report: Virobay (VBAY)

Virobay ($VBAY) is a clinical-stage pharmaceutical company utilizing its cysteine cathepsin platform for the development and commercialization of novel drugs. It is headquartered in Menlo Park, CA.

Six other companies are scheduled for the week of Oct. 13, 2014. The full IPO calendar is available at IPOpremium.

The manager and co-managers are: Piper Jaffray and JMP Securities

The joint managers are: Cantor Fitzgerald and Summer Street Research Partners

VBAY scheduled a $50 million IPO with a market capitalization of $169 million at a price range midpoint of $13 for Thursday, Oct. 16, 2014 on the Nasdaq. SEC filings

Virobay IPO Report

Overview

VBAY is a clinical-stage pharmaceutical company utilizing its cysteine cathepsin platform for the development and commercialization of novel drugs.

VBAY’s most advanced product candidate, VBY-036, is scheduled to enter Phase 2 clinical trials for neuropathic pain in the first half of 2015 and for Crohn’s disease in the second half of 2015.

Valuation

Glossary

Conclusion

Neutral

Price to book of 3.3

Relatively low cash burn rate compared to mrkt cap

Collaboration rev declining

Stockholders to purchase $11mm, 20%

Completed Phase 1 trials

Business

VBAY a clinical-stage pharmaceutical company utilizing its cysteine cathepsin platform for the development and commercialization of novel drugs.

VBAY believes cysteine cathepsins are critically important enzymes in the biology of many diseases.

By inhibiting these enzymes VBAY believes it can develop safer and more effective therapies for these diseases.

VBAY’s current programs are focused on addressing significant unmet medical needs for the treatment of neuropathic pain, autoimmune diseases and fibrosis.

Collaboration Agreement

In January 2012, VBAY entered into a Development and License Agreement with LEO granting LEO an exclusive, worldwide, sublicensable license to research, develop, manufacture, use, and commercialize products containing VBAY's VBY-891 compound, a small molecule cathepsin S inhibitor, for the diagnosis, treatment and prevention of dermatology indications, including psoriasis.

Entering Phase 2 clinical trials

VBAY’s most advanced product candidate, VBY-036, is scheduled to enter Phase 2 clinical trials for neuropathic pain in the first half of 2015 and for Crohn’s disease in the second half of 2015.

VBAY retains worldwide rights to VBY-036 in all indications. VBY-891, which VBAY is developing in partnership with, and have licensed worldwide rights to certain dermatological conditions to, LEO Pharma A/S, or LEO, is scheduled to enter into Phase 2 clinical trials for psoriasis in the first half of 2015.

VBAY also has two earlier stage product candidates directed towards fibrotic liver disease, with VBY-376 targeting nonalcoholic steatohepatitis, or NASH, and VBY-825 targeting primary biliary cirrhosis, or PBC.

Cathepsins are enzymes that regulate essential processes in cells by cleaving certain proteins. Over the past 20 years, substantial evidence suggests that in many diseases, the normal function of cathepsins becomes pathological, contributing to or causing disease.

Toxicity risk

The long term effects of cathepsin inhibition are unknown, however, there is still a risk that VBAY will encounter target-based toxicity, which is toxicity produced by long term cathepsin inhibition, which could make commercial success impossible.

VBAY believes cathepsins are attractive targets for small molecule drug design because of their important roles in disease and well characterized structures.

Others have attempted to develop compounds that inhibit cathepsins but have had limited success due to lack of potency and toxicity.

One source of toxicity now known in scientific literature is that certain chemical groups used in some cathepsin inhibitors can cause accumulation in an important cellular compartment known as the lysosome.

By eliminating these chemical groups from its inhibitors, VBAY addressed this specific toxicity issue.

Furthermore, VBAY designed its product candidates to possess extremely high potency and selectivity through the process of many cycles of chemical synthesis, cathepsin inhibition testing and subsequent redesign.

Applying its decades of experience in the discovery and development of cathepsin inhibitors, VBAY believes it has potent candidates that do not accumulate in the lysosome.

By removing the chemical groups associated with toxicity and by targeting highly potent compounds, VBAY believes its compounds have a greater likelihood of success in clinical trials.

Dividend Policy

No dividends are planned.

Intellectual Property

VBAY’s patent portfolios for VBY-891 and VBY-825 include five issued patents in the United States. A PCT patent application was also filed for, and over 40 individual countries that are members of the PCT have issued patents covering,

VBY-891 and VBY-825, while applications are still pending in seven countries. U.S. Patent No. 7,488,848 issued with compound claims covering VBY-891 and VBY-825, while U.S. Patent No. 7,696,250 issued with claims directed to methods of treatment for both compounds.

Additional coverage for pharmaceutical compositions of VBY-891 is provided by U.S. Patent No. 8,450,373. Key synthetic intermediates in the preparation of VBY-891 and VBY-825 are the focus of claims in U.S. Patent No. 8,013,183.

VBAY’s patent estate also contains a number of issued and pending foreign counterparts of these patents.

These patents will expire in 2027 but may be prolonged if PTEs apply.

A later-filed application has now granted (U.S. Patent No. 8,680,152) with claims directed to methods of use, including methods of administration for VBY-891 and VBY-825 for the treatment of certain metastatic cancers in bone and bone cancer pain.

This patent will expire no earlier than May 2032 but the applicable patent term may be prolonged if PTEs apply.

Competition

There are a large number of pharmaceutical, biotechnology and medical device companies developing or marketing treatments for neuropathic pain and autoimmune disorders.

There are substantially fewer biotechnology and pharmaceutical companies pursuing treatment of liver fibrosis.

Pharmaceutical and biotechnology companies focus on developing both small molecule drugs and biologic therapeutics.

Many of the biologic therapeutics use antibody technology platforms or receptor-fusion proteins developed to inhibit specific disease targets.

Medical device companies have developed devices for neuromodulation using brain or spinal implants.

In addition, there are several companies that either have developed or are developing therapeutics targeting cathepsin enzymes.

For example, Merck is now in late-stage clinical development of a cathepsin K inhibitor, odanacatib, for treatment of osteoporosis. Medivir AB has a cathepsin K inhibitor in Phase 1 for bone disorders and is in pre-clinical development of a small molecule cathepsin S inhibitor for the treatment of neuropathic pain.

VBAY is also aware of publications from Roche describing selective cathepsin S inhibitors. Amura Holdings Ltd., a small biotechnology company, is also developing cathepsin inhibitors.

5% stockholders

TPG Biotechnology Partners II, L.P.  28.2%

ACP IV, L.P.                 26.0%

AbbVie Inc.                   16.2%

Entities affiliated with Sutter Hill Ventures  26.0%

Robert F. Booth, Ph.D  5.1%

Jeffrey W. Bird, M.D., Ph.D.  16.1%

Daniel S. Janney   26%

Use of proceeds

VBAY intends to use the $44 million in proceeds from its IPO as follows:

$17.0 million to fund the Phase 2 clinical development of its lead product candidate, VBY-036 for the indication of neuropathic pain;

$6.0 million to fund the Phase 2 clinical development of its lead product candidate, VBY-036 for the indication of Crohn’s disease;

$4.0 million to fund the Phase 2 clinical development of VBY-891 for psoriasis, which is exclusively funded with its collaboration revenue;

$8.0 million to fund the completion of Phase 1 studies and fund Phase 2 clinical development of VBY-376 for nonalcoholic steatohepatitis;

$5.0 million to fund the completion of preclinical development, file an Investigational New Drug application and complete all Phase 1 clinical development of VBY-825 for primary biliary cirrhosis; and

the balance to fund working capital, capital expenditures and other general corporate purposes.