BOSTON – Fresh from a follow-on financing round that gave more weight to the unusual IPO carried out in February, Proteostasis Therapeutics Inc. CEO Meenu Chhabra provided a primer of sorts to attendees of Biopharm America on the timing, benefits and detriments of going public.

Her Cambridge, Mass.-based firm priced its IPO on "the worst day in the capital market year to date," Chhabra told a packed room at the meeting. "I remember waking up the night after we had priced, which completed at 3 a.m. [and] we were up at 5:30 because we were on our way to do the Nasdaq bell-ringing ceremony. I turned on CNBC and it was like a Game of Thrones episode, red screens everywhere, an utter bloodbath . . . hour upon hour getting worse." But it was the right decision, she said, and "we scooped up another $65 million last week." The company has brought in $150 million from the public markets thus far.

"We got hammered on valuation when we completed our listing in February, but that was OK, because we were all solving for where the company hopefully will get to in the next year and beyond," Chhabra said. Whether to go public is "such a meaty question," she said. "We think and postulate on how to make sure our [privately held] companies survive even in worst-case scenarios," an anxiety made deeper "when you lay on top of that mountain of uncertainly the possibility of attempting a public listing, given that your company really hasn't been pressure-tested with public investors up until that point."

She offered three guiding principles.

First, develop "a very transparent and authentic relationship with your board," and undertake a six-month process to "suss out what their drivers are for you to go public or remain private," Chhabra said. Second, "understand whether your team around you – your management team and your entire organization – [can] deliver as a publicly traded company. One of the things that I think small private biotechs benefit from is a certain level of malleability or flexibility when it comes to milestones. That goes away when you're in a public environment. What you're committing to the Street is your word, your personal reputation. It's all woven into that, and public investors will hold you accountable. [Make] sure that you have spent enough time with your team to come up with milestones that will deliver value to your investors, but also [be certain] you are getting to those milestones in the most responsible manner possible without compromising your scientific or ethical integrity." Third, the CEO should take an inventory of herself to determine if she's ready. "It's very different from [being] a private company CEO, a whole other playing field in terms of resilience and accountability, staying three steps ahead of the game at all times," she said.

"The number-one advantage of going public is that you get access to more capital, period," Chhabra noted. "There are just more public investors with deeper pockets than private investors, for the vast majority of companies. But, tied to that, you need to craft a set of milestones for the next 12-18 months, three years, and five years that you feel confident your organization will be able to deliver on," re-evaluating them at intervals as time goes on.

Proteostasis has data due by the end of the year from the phase Ib trial testing what Chhabra called its "revolutionary" cystic fibrosis (CF) prospect, PTI-428, results that could trigger moves by developers in the space looking to pair the drug with therapies such as Orkambi (lumacaftor/ivacaftor) from Vertex Pharmaceuticals Inc., of Boston. It's Orkambi that Proteostasis is going up against in the combo trial testing the mettle of what could be the first genotype-agnostic, disease-modifying agent for CF. PTI-428 amplifies the CF transmembrane conductance regulator (CFTR) protein and has given cause for optimism in vitro as well as preclinically, turning up what the company called a consistent positive effect on CFTR messenger RNA and protein activity. (See BioWorld Today, Sept. 1, 2016.)

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"The most obvious and best route for us was to collect our public listing when we did, because our next set of upcoming milestones deserved that visibility," Chhabra said. The company did a crossover round, too, letting some public investors to take part in the company just before the IPO. "What [a crossover, usually led by an outside investor] does in general is provide a certain level of credibility or validation that you can swim in the bigger pond, if you will," she said. "But it also allows you as the management team to start getting the hang of how to speak the speech of the public investor. That was a very important part of our edification." She added that "assembling your banking syndicate is an art" that's important to determine who's involved in the financings.

Proteostasis stood out, Chhabra said, from a handful of early year IPOs in that "their existing investors carried the vast majority of the deal. About 100 percent was already spoken for before they began their road show. That begs the obvious question, 'Why even attempt going public?'"

Moderator of the talk, Jason Rhodes, a partner with the venture capital (VC) firm Atlas Ventures, pointed to "an important difference [between now and] maybe 10 years ago. When I asked the question what are the drivers [of IPOs], what I heard 10 years ago was that existing VCs wanted liquidity. That's much less often the case [now]. In fact, they're typically required to put more money into their companies. Most VCs are not looking at it as a liquidity event."

In any case, Chhabra said, "we were the outlier in the [IPO] group that actually managed to go public in February. We only came to the table with 20 percent insider support," a number that was more in line with conventional percentages but that also made the IPO "a significantly more tenuous event for us," she said. Once the deal was done, Proteostasis found itself under more scrutiny than before. "Every time you deliver on a milestone, it gets digested very quickly and there's always a need for something more – there's a push-pull there that's fascinating, because every time you give something more, you can also raise more [money], if that's what you'd like to do at the appropriate valuation."

In a strategy "atypical of a newly minted public company, we didn't do a lot of investor relations and public relations," Chhabra said. "We kept our head down, set up our clinical trials, and got in front of key opinion leaders and the scientific and medical thought leaders that, in some ways, really do decide the way investors will make decisions" in a disease such as CF, where patient involvement in drug development is high. "My vision was to go back to the public markets [later] with something tangible in hand, as opposed to the general hoopla" that surrounds an IPO, she said.

Meanwhile, Chhabra advised that CEOs of firms successfully gone public "do yourself a favor and don't look at your share price for about six months." Also, "if someone's willing to give you money, take it, take it, take it, because it may not be there [when you need funds]. The day after we priced our follow-on last week, which we did at a wonderful valuation, the public markets tanked. If we had priced that day, we would have done the deal at probably $150 million less in valuation, just off of global economies and the Fed introducing a higher interest-rate possibility. You have to be very nimble and agile."