2005 - Voyager Pharmaceutical
A drug with allure
Voyager aims to reel in small investors for its IPO
By SABINE VOLLMER, Staff Writer
At 66, David Fors is about to make his first gamble in the stock market. He took $3,000 out of his retirement savings to buy shares of Voyager Pharmaceutical, a Raleigh drug development company with big dreams, but no products on the market. "I think it's a very worthy cause, and it looks like a promising investment," the Atlanta project engineer said. "For me, it's a once-in-a-lifetime thing."
Voyager is offering small investors a unique chance. To bring its experimental Alzheimer's treatment to market, the company hopes to raise up to $129 million by selling stock to the public in an auction, a relatively new and little-used method designed for Main Street, not Wall Street.
In an open-auction initial public offering, anybody willing to risk a few thousand dollars has a shot at the kind of fat gains usually reserved for large investors such as pension funds, foundations and the very rich.
While the auction process levels the playing field for small investors, it also invites controversy. Voyager is using the approach partly to attract a broader range of shareholders willing to look past financials and fundamentals that might give professional investors pause, stock-market experts said.
The company has never made a dime and can't guarantee that it ever will. But the prospect of developing a drug to treat Alzheimer's, a vicious disease afflicting millions of seniors, may appeal to investors on a deeper level.
"People are not going to get emotional about another cholesterol buster, but Alzheimer's, that right there sparks emotions," said David Labiak, a senior portfolio manager for Trent Capital in Greensboro who picks investments for a living.
Critics question whether that's the best way to make investment decisions. Raleigh securities lawyer Larry Robbins said raising funds in such a manner is betting "that unsophisticated investors will inflate the price."
With Voyager shares set to sell for $15 to $19 each, the minimum bid to get a piece of the company is expected to be $1,500 if the Securities and Exchange Commission approves the IPO.
But determining the value of a money-losing drug development company is tough, even for sophisticated investors. Voyager, for example, could stumble if its experimental Alzheimer's drug fails final tests, is rejected by regulators or isn't accepted by patients or physicians.
Sergey Brin and Larry Page, founders of Internet search engine Google, brought the auction IPO into the mainstream last year.
Google raised $1.67 billion using Internet software developed by WR Hambrecht, a San Francisco stock broker who pioneered auction IPOs in 1999.
The broker also is running Voyager's IPO.
The auction-style IPO is the first for a Triangle company. If Voyager succeeds, it could encourage other local executives at small, private companies to try it.
"Anything that will raise $129 million, I guarantee you other CEOs in the Triangle will take a look at," said Jim Verdonik, a Durham securities lawyer.
Appealing to small investors to raise cash has worked for Voyager since it was founded in Naples, Fla., in 2001.
Word-of-mouth works
The company, which employs 29, has raised $53.5 million from health-care professionals, sales managers, university professors and others who learned about the company by word-of-mouth and attended presentations the company held around the country.
About 43 percent of the company is owned by nearly 500 small investors, filings with the SEC show. The company's three co-founders own most of the rest.
Kevin Magee, a sales manager in the Morrisville office of packaging-materials supplier Stephen Gould, is one of those small investors. Magee has written three checks to support Voyager since the company moved to Raleigh three years ago. He owns less than 1 percent of the company.
A good percentage of Voyagers' existing investors are from this area, Magee said.
"If they are successful in selling at $15 to $19, you'll have a lot of instant millionaires in the Triangle," he said.
The network of existing investors also recruits potential investors in the IPO. For example, Fors and Ben Johnson, a financial planner in Minneapolis, decided to participate in Voyager's IPO after talking to Norman Swanson, a retired business professor at Greenville College in Greenville, Ill., and another of Voyager's investors.
"I've been an adviser for 10 years," said Johnson, whose clients include a professional baseball player, a librarian and business owners. "I've realized that the longer you're an advisor, the less you know. The big institutions and brokerage firms make mistakes, too, and often get paid very well for those mistakes.
"I like the auction IPO concept as a way to reach Joe Q. Investor," he said. "It puts more of my money to work in Voyager."
In a traditional IPO, investment bankers charge about 7 percent of the IPO's amount. This pays for services that include raising institutional investors' interest, booking orders and scheduling company presentations to investors, also known as the road show.
Hambrecht, the underwriter of Voyager's IPO, receives 3 percent to 5 percent to run an Internet auction. That leaves much of the interactions with investors up to Voyager. But it also prevents major bankers from giving favorite clients preferential treatment.
SEC regulations prohibit Voyager officials, including Chief Executive Patrick Smith, from discussing the stock offering publicly.
Voyager laid out its case in SEC filings going back to Sept. 9. Getting clearance from the SEC to start the auction usually takes three to five months, securities lawyers said. But the company can cancel or postpone the IPO at any time.
Pretty good odds?
Voyager's investment risk is lower than when Magee and Swanson wrote their first checks. That's because Memryte, Voyager's experimental Alzheimer's drug is further along in development. But putting money on Voyager's potential to bring Memryte to market is still a gamble.
"You have about as much chance as betting red or black in roulette," said Labiak, the Greensboro money manager.
Still, those are pretty good odds in drug development, which sees about 90 percent of all experimental drugs fail when tested in humans.
Experimental Alzheimer's treatments have a slightly worse record, according to a survey conducted by Accenture, a pharmaceutical consultant. About 92 percent fail because the medicines are not safe or don't work. Memryte has passed two of three human-testing hurdles and is scheduled to advance to final tests this quarter. That improves its chances for success, but doesn't guarantee the drug will ever be approved by regulators. Voyager hopes to bring the drug to market in 2008.
Beyond that, small investors have few hard numbers to get a handle on the company's investment risk.
It's not known how much it will cost to finish developing the drug. It is unclear how well Memryte would sell if it passes regulatory approval. And because it doesn't have a product on the market, the company has no revenue.
Small investors should assess their appetite for risk before they prepare to invest in a drug development company such as Voyager, said Vish Viswanathan, a Duke University finance professor.
"You've got to find an investment adviser and talk to them," Viswanathan said. "You have to do a broker's job and do your research. This is not everybody's cup of tea."
Among the factors that investment professionals would focus on: Voyager's science, how well it is protected against copycats, the market potential of Memryte, its competition, and the company's management and board of directors.
Big-name backers
Voyager has tapped two well-known figures to serve as independent directors on its board after an IPO: Tommy Thompson, secretary of the U.S. Department of Health and Human Services from 2001 to 2005; and Michael Reagan, son of Ronald Reagan. The former president died last year, a decade after disclosing his Alzheimer's disease.
According to the Alzheimer's Association, an estimated 4.5 million Americans are afflicted. That's about 1.5 million more than a decade ago. The number is expected to increase as Americans live longer. People who are 85 and older are five times more likely to develop the disease than those 65 and older.
Because of the slow progress of the disease, which robs people of their memory, independence and personality, the Alzheimer's Association estimates that it costs $100 billion a year.
"This disease is literally bankrupting the country because it lasts so long," said Alice Watkins, executive director of the Alzheimer's Association's Eastern North Carolina chapter in Raleigh. "It's not only taking down the person with the disease but also the caregiver."
To combat Alzheimer's, physicians rely on high doses of Vitamin E and one of four drugs.
Aricept, made by Eisai in Research Triangle Park and marketed by Pfizer, captures about half of about $3 billion in annual sales generated by Alzheimer's drugs in the United States.
Namenda has garnered about one-fourth of the U.S. market since Forest Pharmaceuticals started selling the drug in 2004.
Exelon, a Novartis drug, and Reminyl, a drug marketed by Shire Pharmaceuticals and Janssen Pharmaceutical Products, each hold about a 10 percent market share.
All four drugs slow down the progression of Alzheimer's by one to five years. Voyager is developing Memryte to boost Aricept, Exelon and Reminyl. Initial tests indicate that the combination may stabilize the disease. That would be a significant accomplishment and could give clues about the origins of Alzheimer's.
The active ingredient in Memryte is leuprolide acetate, a substance that suppresses production of a hormone that plays a role in the reproductive system of men and women. Products containing leuprolide acetate are on the market to treat prostate cancer and endometriosis and to initiate in-vitro fertilization.
In developing Memryte, Voyager follows a theory that links elevated levels of the hormone to Alzheimer's disease. The theory suggests that hormone levels rise as the aging body attempts to maintain reproductive function, thereby stimulating cell division in the brain. Because the adult brain isn't set up for its cells to divide, the theory concludes, the plaques that are a hallmark of Alzheimer's form in the brain.
Hope for Memryte
"It's radical in a sense, but it's a legitimate theory," said Dr. Donald Schmechel, director of Duke University's Joseph and Kathleen Bryan Alzheimer's Disease Research Center. Schmechel is closely watching Voyager's work.
"They're either horribly wrong or horribly right," he said.
If Voyager is right, Memryte could receive instant competition from Viadur, a prostate cancer drug sold by Bayer, said Derek Lowe, a drug researcher in West Haven, Conn., who writes for trade publications. Like Memryte, Viadur is an implant that releases leuprolide acetate. Lowe said it remains to be seen whether Memryte's dosage of leuprolide acetate prevents physicians from prescribing Viadur for Alzheimer's patients, a practice known as off-label prescribing.
But first, Voyager has to prove to regulators that Memryte works.
"The Alzheimer's field is littered with broken hypotheses," Lowe said. If Voyager succeeds, "it'll be a totally different company. If it doesn't, it'll go under."
Staff writer Sabine Vollmer can be reached at 829-8992 or svollmer@newsobserver.com.
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