October 14, 2018 4:18pm

Shares of VSTM closed down $0.58 or -9.31%% to $5.65 due to its selling millions worth of (unsecured) convertible notes due 2048; that might seem like a low interest rate to be paying for such a long term, but the note holders can convert the notes into 139.5771 shares for every $1,000 principal amount of the notes they own.

The aggregate principal amount of Convertible Notes to be sold in the offering is $150 million. The Convertible Notes will be unsecured, will bear interest at a rate of 5.00% per annum, paid semi-annually in arrears, and will mature on November 1, 2048, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date.

The net proceeds to VSTM from the offering of the Convertible Notes are expected to be approximately $145.4 million, after transaction fees and expenses.

The net proceeds will be used by VSTM for the continued clinical development of COPIKTRA (duvelisib) and its other lead product candidates, and the balance to fund working capital, capital expenditures and other general corporate purposes, which may include the acquisition or in-license of additional compounds, product candidates or technology.

Noteholders may convert their Convertible Notes into shares of VSTM’s common stock, together, if applicable, with cash in lieu of any fractional share, based on an initial conversion rate of 139.5771 shares per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $7.16 per share, an approximately 15% premium to the last reported sale price of VSTM’s common stock on Thursday, October 11, 2018. To the extent VSTM has insufficient authorized but unissued shares to settle conversions in shares of its common stock, VSTM will settle the deficiency in cash.


Lazard Frères & Co. LLC acted as placement agent in connection with the offering of the Convertible Notes.


The note holders are essentially buying the equivalent of shares at $7.16 each -- a 15% premium to yesterday's close -- and getting paid 5% per year to wait until the shares go up to $7.16 and beyond.

If shares get to or above 130% of the conversion price for a period of time and other conditions are satisfied, Verastem can force note holders to convert their notes into shares if it wants to <MotleyFool>.