Investors Line up For Westphal as Muscle Cramp Startup Upsizes IPO

Xconomy Boston — 

It seems Christoph Westphal had little trouble convincing public investors to back his plan to obliterate muscle cramps.

The serial biotech executive’s latest startup, Boston-based Flex Pharma, priced its IPO on Wednesday, selling 5.4 million shares at $16 apiece. That’s an $86.4 million haul before discounts due to underwriters, and well above the 4,615,000 shares at between $12 and $14 apiece Flex anticipated selling in the offering just last week. The company will make its debut on the Nasdaq Thursday with the ticker symbol “FLKS.”

Flex is the latest biotech Westphal has helped start up and take public. Among the others are Alnylam Pharmaceuticals (NASDAQ: ALNY), Momenta Pharmaceuticals (NASDAQ: MNTA), Acceleron Pharma (NASDAQ: XLRN), OvaScience (NASDAQ: OVAS), Concert Pharmaceuticals (NASDAQ: CNCE), and Verastem (NASDAQ: VSTM), all of which are still publicly traded.

He also founded and ran Sirtris Pharmaceuticals, the controversial anti-aging biotech firm that GlaxoSmithKline (NYSE: GSK) bought in 2008 for $720 million (and later shuttered in 2013).

Westphal founded Flex last year with Rockefeller University professor Roderick MacKinnon, a 2003 Nobel Prize winner, Harvard Medical School professor Bruce Bean, and former Sirtris colleague Jennifer Cermak. Several longtime Westphal comrades are involved: Rich Aldrich and Michelle Dipp—who were at Sirtris with Westphal and formed the Longwood Founders Fund with him—are listed as advisors, as is John Maraganore, the CEO of Alnylam. Westphal is the company’s president, CEO, and chairman.

With big-name investors on board, Westphal unveiled the company in September with a round announced at $40 million. (Flex has actually raised $41 million total, according to its IPO prospectus.) Among the names involved: VC firms Lightstone Ventures, Bessemer Venture Partners, City Hill Ventures, and EcoR1 Capital; the owners of two of Boston’s professional sports teams (the Kraft Group, owned by Patriots owner Bob Kraft; and Celtics CEO and managing partner Wyc Grousbeck); former Apple CEO John Sculley and his wife Diane; and Maraganore.

Westphal’s Longwood Founders Fund was Flex’s largest institutional shareholder before the IPO, with a 19.22 percent stake. Bessemer (9.82 percent) was the only other entity with more than a 5 percent stake.

Christoph Westphal is chairman and CEO of Verastem

Christoph Westphal

Westphal and the company’s two scientific founders have negotiated for themselves a 2 percent royalty on gross sales of any of the products coming out of Flex. It’s an unusual arrangement, but Flex is different than Westphal’s previous startups. It’s not focused on prescription drugs (at least at the outset), or new drug modalities like RNA interference (Alnylam) or stem cell drugs (Verastem).

Rather, Flex is starting with dietary supplements and consumer products for muscle cramps, for which there are no clinically proven treatments, just common remedies such as sports drinks, bananas, and stretching.

The company might try to develop drugs for the cramps and spasms associated with diseases like multiple sclerosis as well—it said a “majority of its future research efforts” and cash will go towards identifying such drugs—but it doesn’t have any candidates as of yet, filings show.

Dietary supplements don’t have the sheen of cutting-edge drugs, but Flex’s products are built upon new research that shows cramps begin in the nerves, not the muscles.

The company wants to treat cramps by stimulating nerve endings in the mouth and esophagus. The supplement Flex is developing, for instance, contains a proprietary formulation of three ingredients you can buy at your local supermarket: extracts of cinnamon and ginger, and capsicum (peppers). It just so happens that these ingredients activate a family of ion channels, which are like tiny gates in cell membranes that control the flow of molecules in and out of cells.

Activating the ion channels with spicy substances is supposed to help relax or prevent cramps by slowing down the excessive firing of nerve cells in the spinal cord that cause muscle contractions.

Flex aims to develop its concoction as a dietary supplement for night time cramps, as a medical food for athletes, and potentially as a prescription drug for cramps or spasms tied to disease.

The dietary supplement path will be its first. The ingredients in Flex’s treatment are “generally recognized as safe,” which means the company has been able to test the mixture in human volunteers without filing papers with the FDA, according to Flex’s regulatory filings.

Flex will also test its product in more serious clinical studies, it says. By this July, Flex hopes to start at least one 12 to 15 month proof-of-concept trial in people who suffer from night time leg cramps several times a week.

It’s also contemplating similar studies to treat cramps associated with MS, spinal cord injury, and cervical dystonia, but Flex would have to pass through the traditional prescription drug regulatory gauntlet—Phase 1, 2, and 3 studies—if it wants to treat those diseases.

Night time cramps are typically treated with vasodilators or calcium channel blockers, but Flex contends no medication has proved to have “durable evidence of clinical efficacy” against them. Botox, muscle relaxants, and sedatives are among the treatments out there for MS-related cramps; Flex counters that they cause frequent unwanted side effects.

For its medical foods, Flex would create versions of its supplements without the same purification and with lower levels of the active ingredients. Flex aims to have the first of these products on the market early next year.

Jefferies, Piper Jaffray, JMP Securities, Cantor Fitzgerald, and Roth Capital Partners are underwriting the IPO.