Overview of Listing on London's AIM
Fremont,
California-based Verseon Corporation raised $100 million in its recent IPO on
the London Stock Exchange’s AIM and commanded an opening market capitalization
of $460 million.
Verseon
is a technology-based pharmaceutical company that employs its proprietary
technology to design novel therapeutics for today’s challenging diseases. The Company was founded in 2002, is
pre-revenue and $34 million has been invested since inception.
Verseon’s proprietary drug discovery platform
is the first systematic, computationally-driven solution to achieve the
molecular modeling accuracy necessary for rapid and cost-effective drug
discovery. The Company generates
multiple, chemically-diverse drug candidates for each discovery program and, as
such, is not reliant on the success or failure of just a single drug candidate
in the clinic. Verseon’s drug discovery
platform can be used to find drugs for a multitude of diseases that are now
well-defined due to advances made in genomics and proteomics research over the
last two decades, including the mapping of the human genome. The platform can consistently design novel
drugs that are unlikely to be found using conventional methods. The Company is currently advancing three drug
discovery programs that target medical conditions with very large markets. Verseon initially intends to out-license drug
candidates at early stages of clinical development to pharmaceutical
companies. As the business matures, it
is expected that these out-licensing deals will be struck at progressively
later stages of clinical development.
Verseon’s drug discovery and development
process entails designing virtual, novel, drug-like, synthetic compounds, using
a proprietary, computer-based molecule creation engine in numbers that are far
in excess of the distinct, synthesized compounds currently in the corporate
collections of today’s pharmaceutical companies. These virtual compounds are then assessed in silico (i.e. computationally) against
a disease-causing target protein by leveraging Verseon’s proprietary
breakthroughs in physics-based molecular modeling of protein-drug interactions
in water and sophisticated optimization algorithms that can be deployed in
parallel across a large dedicated, private computing cloud. Virtual compounds that are predicted by the
platform to interact or bind strongly with the target protein can then be
synthesized in the laboratory and subjected to a battery of biochemical assays
for assessment of in vitro (in glass)
bioactivity and further biological characterization. Promising candidates are further
characterized via in vivo (in animals)
assessment of pharmacokinetics, efficacy and safety. Further computational design facilitates lead
optimization for a discovery program.
This process leads to new variants of compounds to be synthesized for
laboratory assessment. The expected end
products for each discovery program are multiple, novel, chemically-diverse
candidates for entry into clinical development.
In the high-tech industry, Moore’s Law predicts
a doubling of computing power per unit cost every two years as new innovations
drive progress and costs decline.
Conversely, the pharmaceutical industry has seen an opposite
relationship between R&D spending and drug approvals. The number of new drugs approved each year
per $1 billion spent on R&D has dropped by half roughly every nine years
since 1950 such that $1 billion is spent on R&D for each new approved
drug. This is due in large part to a
significant bottleneck in traditional drug discovery associated with the
industry’s continued reliance, for 15 or more years, on high-throughput
screening to test a comparatively small pool of drug-like compounds against
target proteins. An extrapolation of the
observed, declining return-on-investment is an unsustainable position for the
global pharmaceutical industry, especially as many high revenue drugs continue
to lose patent protection. The Company’s
platform has the potential to change this negative outlook.
Verseon has used its platform to build its drug portfolio, which comprises three different programs at various stages of discovery and preclinical development; anticoagulation, diabetic macular edema and oncology (solid tumor).
Verseon has used its platform to build its drug portfolio, which comprises three different programs at various stages of discovery and preclinical development; anticoagulation, diabetic macular edema and oncology (solid tumor).
The development of novel anticoagulants (blood
thinning drugs) is the Company’s most advanced program for the treatment of
vascular disorders such as stroke prevention for atrial fibrillation patients,
venous thromboembolism, which includes deep vein thrombosis and pulmonary
embolism, and acute coronary syndrome. Warfarin
has dominated the oral anticoagulant drug market for many decades but
shortcomings involving the need for constant monitoring and undesirable
drug-drug and drug-food interactions have led to the development of novel oral
anticoagulants (NOACs) such as Pradaxa, Xarelto and Eliquis, however these
suffer from serious side effects mainly associated with risks of major bleeding. The global market for NOACs in 2013 was $4
billion and is forecast to grow to $24 billion by 2019.
Degenerative diseases of the eye, and in
particular the development of novel therapeutics for the treatment of diabetic
macular edema (DME), is Verseon’s second most advanced program. Conventional therapies for DME require
injection directly into the eye on a regular basis. Despite this, two therapeutic products, which
are injected directly into the eye on a monthly or bi-monthly basis, control
the majority of the market. Unlike
existing therapies which treat downstream symptoms of DME via anti-angiogenesis
(i.e. undesired blood vessel growth), the Company has taken a different
approach and is focusing on the development of plasma kallikrein inhibitors
that could potentially be delivered via topical eye drops for the local ocular
disruption of the kallikrein-kinin system, which is indicated in the DME
pathway. Several other companies are
also pursuing plasma kallikrein inhibitors for DME treatment, however, unlike
Verseon’s candidates, these currently still must be administered via injection
into the eye. The global market for DME
in 2009 was $3 billion and is forecast to grow to $7 billion by 2017.
Solid tumor oncology is the Company’s third
program, which is in the discovery stage, for the development of novel
angiogenesis inhibitors (AGIs). AGIs are
an important part of oncology treatments for many cancers with a significant
share of the oncology market.
Conventional AGIs target vascular endothelial growth factor (VEGF) or
other growth-related kinases in order to restrict blood flow into a solid
tumor, reducing supply of nutrients.
These drugs are often combined with other anti-cancer agents in a cancer
treatment protocol, however, conventional AGIs have serious side effects, are
toxic and frequently fail to prevent cancer progression once cancer cells
develop resistance to such treatment.
Verseon’s drug candidates represent a new class of AGIs that do not
inhibit VEGF or other growth-related kinases.
The Company’s intellectual property portfolio consists
of a combination of patents and trade secrets.
Verseon has 10 patent families with issued or pending patents and
several more provisional patent application.
These patents cover certain methods associated with the Company’s technology
as well as composition of matter patents covering the Company’s new chemical
candidates for its current drug programs.
Trade secrets form an important part of the Company’s strategy to
enhance and protect its technological advantage in the industry. Some critical features of the technology will
remain trade secrets so that the patent portfolio alone will be insufficient for
any competitor to reconstruct Verseon’s platform. Additionally, the Company does not plan to
license its technology, only the resulting drug molecules, which adds to the
difficulties for competitors to copy or reverse-engineer the technology.
Verseon has 15 employees, the majority of whom
have advanced degrees and expertise in fields such as mathematics, physics,
bioinformatics, molecular modeling, medicinal chemistry, molecular biology,
biochemical assay development and the design and implementation of complex
mathematical and computational algorithms. The Company outsources the majority
of its synthetic chemistry to India.
Historic Financial Information
Verseon
was founded in 2002 and is pre-revenue.
As of the end of 2014, the Company had $128,000 of assets, $2.45 million
of current liabilities, $2.02 million of long-term debt and an accumulated
deficit of $33.56 million.
Key Listing Metrics
·
$100 million gross was raised, $92.25 million net
of offering costs, intended to be used for:
o
Funding current drug programs to the point of
out-licensing or progression into the clinic
o
Initiating additional drug programs to further build
the Company’s pipeline of assets
o
Continuing development of the Company’s
proprietary drug discovery platform
o
Building a new supercomputer cluster and
expanding laboratory infrastructure
o
Expanding the Company’s intellectual property
portfolio
o
Working capital for business development and
other general corporate purposes
·
Offering costs amounted to 7.75% of the gross
capital raised
o
The offering was undertaken on a ‘best efforts’
basis, as opposed to being underwritten
§ AIM Nominated Broker
commission of 4%
§ Corporate
finance fee of £500,000 ($760,000)
·
Five-year warrant over 0.35% of the enlarged
share capital
o
Struck at a 30% premium to the IPO price
·
Opening market capitalization of $460 million
·
Dilution to existing shareholders of 21.75%
·
Free float of 30.5%
Shareholder Base
The Company had 111.5 million shares outstanding prior to the AIM IPO, issued 32.6 million new shares for cash in the IPO, issued 5.0 million shares to reestablish a majority stake in the subsidiary that was established as a vehicle to fund the research and development of the Company’s anti-coagulation program and issued 0.6 million shares to exchange convertible notes, leaving the Company with 149.7 million shares outstanding. The table below details those who held 3% or more of the Company prior to and after the IPO, along with other holdings that are of interest.
The Company had 111.5 million shares outstanding prior to the AIM IPO, issued 32.6 million new shares for cash in the IPO, issued 5.0 million shares to reestablish a majority stake in the subsidiary that was established as a vehicle to fund the research and development of the Company’s anti-coagulation program and issued 0.6 million shares to exchange convertible notes, leaving the Company with 149.7 million shares outstanding. The table below details those who held 3% or more of the Company prior to and after the IPO, along with other holdings that are of interest.
Shareholder
|
Pre-IPO
%
|
Post-IPO
%
|
Co-Founder
& CEO
|
28.27
|
21.06[1]
|
Co-Founder,
COO & CFO
|
27.80
|
20.701
|
Co-Founder
& VP, R&D
|
16.28
|
12.13[2]
|
Strategic
Investor
|
6.00
|
4.47
|
Director,
R&D
|
3.13
|
2.332
|
Other
Historic Investors
|
18.52
|
13.782
|
London-based
Institution (Investment Trust)
|
-
|
10.49
|
Other
New U.K. Investors
|
-
|
8.21
|
Edinburgh-based
Institution (Various Funds)
|
-
|
3.05
|
Former
majority holders of one of the Company’s subsidiaries
|
-
|
3.36
|
Former
convertible noteholders
|
-
|
0.25
|
Other Directors
|
-
|
0.171
|
Totals
|
100.00
|
100.00
|
As a result of the AIM IPO, the Company now has an adequate amount of capital to progress the business towards commercial success via out-licensing and/or into the clinic and further build and solidify its platform technology in the market. The new, U.K.-based, blue-chip investors have broadened the shareholder base and provided a substantial amount of patient long-term capital, from whom, if necessary, additional capital can be raised. The Company has adopted a Share Option plan so as to enhance its ability to attract, recruit and retain a talented workforce with equity-based incentives.
Board of Directors and
Corporate Governance
The Board consists of two Executive Directors (two of the three Co-Founders), an independent Non-Executive Chairman (NEC) and two independent Non-Executive Directors (NEDs); all with solid resumes and a good blend of complementary experiences and skill sets. The Board is divided into three classes.
The Board consists of two Executive Directors (two of the three Co-Founders), an independent Non-Executive Chairman (NEC) and two independent Non-Executive Directors (NEDs); all with solid resumes and a good blend of complementary experiences and skill sets. The Board is divided into three classes.
Companies listed on AIM are not required to comply with the U.K. Corporate Governance
Code published by the Financial Reporting Council, which is mandatory for companies
listed on the Main Market of the London Stock Exchange. AIM listed companies typically comply with,
and the Company intends, in so far as is practicable given its size,
stage-of-development and resources, the main provisions of the Quoted Companies
Alliance’s Corporate Governance Guidelines for Smaller Quoted Companies. The overarching principle of corporate
governance on AIM is to ensure that companies are managed in an efficient,
effective and entrepreneurial manner for the benefit of all shareholders over
the long term.
Since
the Company’s Co-Founder & CEO and the Co-Founder, COO & CFO are
husband and wife and collectively own 41.76% of the Company, they entered into
a Relationship Agreement with the Company.
The Relationship Agreement regulates aspects of the continuing
relationship between them and the Company to ensure that the Company is capable,
at all times, of carrying on its business independently and that any future
transactions between them and the Company are conducted at arm’s-length and on
normal commercial terms.
The
Company has established an Audit Committee and a Remuneration Committee but
does not believe it is necessary to establish a separate Nominations Committee
since all members of the Board would be consulted on the potential appointment
of a new Director. The Audit Committee
is chaired by one of the NEDs with the other NED and the NEC serving as the other
members. The Audit Committee will meet at
least three times a year and otherwise as required and meet with the external
auditors as necessary. The Remuneration
Committee is chaired by one of the NEDs with the NEC serving as the other member.
The Remuneration Committee will meet as
and when necessary.
Accounting Considerations
Since
the Company is incorporated in Delaware, and did not re-domicile into a
European Economic Area country, which includes the U.K., they chose to report
using U.S. GAAP. Since all of the
Company’s expenses are in U.S. Dollars, the U.S. Dollar is the functional
currency and was also chosen as the reporting currency.
The
U.K. Member Firm of an international accountancy network acted as Auditor and
Reporting Accountant. Since the
Company’s annual audited financial statements were more than nine months old,
unaudited, comparative, stub period financials were required. In this case, stub period financials were
provided to and for the nine months ended September 30th.
An unaudited pro forma statement of net assets is never
required in connection with an AIM IPO, however, one was provided in this
instance, although the effect of the net proceeds from the IPO on the net
assets of the Company is quite obvious.
Legal Considerations
Since
the Company is not incorporated in the U.K. or one of its Crown Dependencies, the
Channel Islands and the Isle of Man, but rather in Delaware, and its ‘place of
central management and control’ is also outside these jurisdictions, the three
most important elements of English corporate law do not automatically apply. As is customary, the Company amended its constitutional
documents for these three main differences as outlined below.
1. Pre-emption
rights (i.e. anti-dilution) – Shareholders may participate in, or the Company
has to obtain approval from at least two-thirds of them for, the issuance of
shares for cash of more than 10% of the then outstanding shares during any
12-month period.[3]
2. Notifiable
Interests – Shareholders are required to notify the Company of, and the Company
is required to publicly announce, holdings at or above the 3% level and
whenever a full percentage point is breached in either direction.
3. Takeovers
(i.e. mandatory offer) – If any party, or parties acting in concert, accumulates
a holding of 30% or more, they must make a cash offer to the other shareholders
at the highest price they paid for the Company’s shares during the last 12
months.
The
Company relied on the safe harbor afforded by Regulation S of the U.S.
Securities Act of 1933 so as to not have to file a registration statement with
the U.S. SEC. At the time of the Company’s
IPO, shares subject to Reg. S (generally, those issued in the IPO for a period
of one year, issued within one year prior to the IPO and/or held by affiliates)
were not eligible for dematerialization and were therefore initially held and
traded in certificated form.
Since
the Company did not re-domicile into the U.K. or one of its Crown Dependencies,
the Channel Islands and the Isle of Man, its shares that are not subject to
Reg. S are not eligible for direct trading within CREST; the most common
electronic system for the holding and transfer of shares in the U.K., however, at
the time of the Company’s IPO, a Depository could have been appointed and
Depository Interests (DIs), which represent an entitlement to shares, could have
been created, allowing for the immediate trading of these non-Reg. S DIs within
CREST. Since the Company did not
institute such a facility, these shares were also initially held and traded in
certificated form.
Article
3(2) of the EU Regulation on Central Securities Depositories, which was
published on August 28, 2014, requires that all AIM-listed shares be
dematerialized and eligible for electronic trading and settlement no later than
September 1, 2015. The London Stock
Exchange worked with the companies who own and manage CREST on the technology
solution necessary to accommodate ‘restricted securities’. In late August 2015, the Company announced a
Restricted DI program so that all of its shares can be evidenced in CREST and
are therefore eligible for electronic trading and settlement as DIs. Shortly before the expiration of the one year
Reg. S distribution compliance period on May 7, 2016, the Company intends to
institute an Unrestricted DI program into which eligible certificated shares may
be placed and eligible Restricted DIs may be transferred. This should facilitate trading in the
Company’s shares by eliminating regulatory burdens placed upon the seller and
eliminating limitations on who may purchase the shares.
[1] Subject to an 18-month lock-in and customary
orderly market provisions for a further 12 months.
[2] Subject to a 12-month lock-in and customary
orderly market provisions for a further 12 months.
[3] This is the typical level at which AIM-listed
companies seek an annual standing authorization from their shareholders for the
issuance of additional shares for cash.
This flexibility increases the certainty and speed of small capital raises
during the year and reduces transaction costs, since further communications
with, and approvals from, shareholders are not required.
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