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Catalyst - Winter 2013 - PTC's IPO Breaks Initial Records

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Company Focuses on Rare Diseases and Making a Real Difference

PTC Therapeutics, long-recognized by the investor community for its great science, has never dabbled in symptom relief. The South Plainfield, NJ-based biotech has always wanted to make its lead product candidate, ataluren, a game-changer for the treatment of patients with genetic disorders that arise from a type of genetic mutation known as a nonsense mutation, particularly Duchenne muscular dystrophy and cystic fibrosis.

"We are planning to bring a disease modifying therapy to market," explained CEO Stuart Peltz, Ph.D. "PTC is going to change the course of this disease."

In spite of every obstacle thrown in its path, including non-existent public markets and confusing late stage trial data, PTC persevered. The company launched its IPO on June 4, 2013. PTC filed for a $100 million deal and raised a then-record-breaking $144 million.

Anyone in biotech these days knows that the IPO market is white hot. In fact, no one can predict when the runaway market may slow down. So, it stands to reason that a company with a great story would do well in its public offering. No one, not even CFO Shane Kovacs, could have predicted that PTC would have gotten the strong reception it did.

"When you look at the size of most IPO biotech deals, even in this market, they are typically, at most, $100 million," Kovacs said. "Originally, we filed the S-1 targeting an $86 million deal size and then increased it to $100 million. Investor demand was so strong that we were seven times oversubscribed, and so we increased it again to $125 million. Ultimately we sold $144 million worth of shares."

Never Say "Cure" — PTC Wants to Change How the Body Functions

PTC focuses on muscular dystrophies -- progressive muscle wasting and weakness -- that are caused by a mutation in the patients' DNA. The "nonsense" mutation, as it is called, results in either the absence or very low levels of the dystrophin protein. When cells in the body are unable to make functional dystrophin protein, muscle wasting results.

Patients with Duchenne muscular dystrophy typically lose walking ability by their early teens, require ventilation support in their late teens and, eventually, die due to heart and lung failure. The average age of death for Duchenne muscular dystrophy patients is in their mid-twenties. Similarly, the average age of death for a person suffering from cystic fibrosis is in their mid-twenties. On average, these life-threatening disorders are caused, 10 percent of the time, by a nonsense mutation.

Back in 2006, PTC seriously considered going to the public markets to raise enough capital to fund its late-stage clinical trials. There was plenty of excitement in the investor community back then for a company that seemed to have exactly what it takes to strike IPO gold -- extremely positive proof of concept data, a great management team and excellent science.

But then the markets crashed. No one was going public, especially biotechs.

PTC, however, refused to give up. The market served by the company's lead therapy is small; Duchenne muscular dystrophy affects about one in every 3,500 to 6,000 boys born each year in the U.S, according to the Centers for Disease Control and Prevention, National Center on Birth Defects and Developmental Disabilities. PTC is focused on making a difference for the lives of these young boys affected by DMD.

PTC turned elsewhere for financing. Genzyme, then a world leader in orphan disease biotechnology, wanted PTC's asset. PTC sold non-U.S. and Canada rights to ataluren to Genzyme for an upfront $100 million payment. PTC used the funds to help conduct a large, later stage study with 174 patients.

When the data read out in 2010, the results were complicated and not clear-cut. However, that worked out to be a silver lining type of situation. At that time, Sanofi was conducting a hostile buyout of Genzyme. While the new owners wanted to keep the rights to PTC's drug, it relented and returned the rights back to PTC.

"PTC then went to work to understand the complicated data and had ongoing dialogue with FDA and EMA," Kovacs said. "As a result of the complex data, we learned a lot more than we ever knew before about the course of the disease. PTC was the first to conduct a large, late stage study in the area of DMD and this experience taught the team how to properly design a study that would produce measureable results."

IPO Window Opens and PTC Gears Up for Go Time

It's no secret that a company looking to go public needs a great balance sheet. PTC's science was great; its bank account was lacking when the biotech IPO window began to open up in early 2013.

"We decided to do a mezzanine round to strengthen our balance sheet," explained Dr. Peltz.

Kovacs echoed the need to have cash in the bank. "A company looking to go public has to be able to show it's worth the investment. If you look like you have no money, you will get bargained down in the public arena. We needed to raise some dollars privately and attract investor interest so we would have a contingent of investors ready for the public round."

In the end, the private round wound up being a blessing in more ways that one. First, of course, came the $65 million in investment dollars from both private and public crossover investors. The crossover financiers invested $45 million while the existing private venture investors put up the other $20 million.

"It was great to have the crossover investors because we knew up front that there was a good possibility they would continue to invest in the public round. We knew these guys believed in PTC and wanted more so they would be there when we went public," Kovacs said.

Another great thing that came out of the mezzanine round is that PTC found a great new chief financial officer. Then managing director in Credit Suisse's Healthcare Investment Banking Group, Kovacs followed PTC for a long time. In October of 2012, when PTC engaged his bank to work with the company on the private placement, Dr. Peltz and his team really got to know Kovacs well. They decided he was the perfect man to lead PTC through its impending IPO - and beyond.

PTC's Pipeline is Full and its Outlook is Bright

Coming out of the IPO, Kovacs confirmed PTC is well-capitalized and in a very strong position to execute its overall plan. First, the company is currently engaged in its late-stage confirmatory study with DMD patients. The trial is expected to be fully enrolled by mid-2014 and completed one year later. Also in the first half of 2014, PTC will begin a Phase 3 study with people suffering from cystic fibrosis.

"We never use the word cure," Dr. Peltz maintained. "We are trying to trick the cellular machinery so you can get enough of the protein to change the course of the disease. Boys are diagnosed with this disease between three and five years of age. By age 10 or 12, their muscles have weakened to the point where they are permanently in a wheelchair. By 18 or 20 years old, they are breathing with the help of ventilators and most die by age 25.

"If PTC can change the course of this disease, people afflicted will walk longer, be able to breathe easier. Every small change will make a big difference. And PTC is going to keep leading that fight until we win."


EisnerAmper's Catalyst: Winter 2013

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