Are The Big Paydays For Unproven Biotechs A Concern?
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
Last week, an article in the Wall Street Journal pointed to NantKwest Inc. (NASDAQ: NK) as being the latest example of a biotech company which is valued at several billion dollars even though it still doesn’t have an approved drug.. Shares surged 39 percent on the first day of trading from the IPO price of $25, valuing the company at approximately $2.8 billion. According to Renaissance Capital, an IPO research firm, it was the highest ever IPO valuation for a biotech company with no approved drugs. Some have been comparing these types of multibillion-dollar valuations to the behavior once witnessed during the dot-com bubble, which, when it finally burst, saw the NASDAQ composite lose 78 percent of its value. For those who experienced the Internet crash firsthand, fear surrounding the current biotech IPO surge may seem somewhat justified. However, I don’t think we are standing on the precipice of anything that will make the Big Pharma patent cliff look like a minor speed bump. As I previously argued, biotech’s IPOs are the present day fuel for biopharma R&D engines. Having recently interviewed Celgene’s George Golumbeski, one of the hottest and sharpest deal makers in all of biopharma, and knowing that Celgene is listed among the investors, the NantKwest IPO has the feel of being a pretty good vetted bet. Dr. Patrick Soon-Shiong, the person credited with inventing the cancer drug Abraxane, which was acquired by Celgene via the Abraxis BioScience acquisition in 2010 for $2.9 billion, also happens to be the CEO of NantKwest. Having Golumbeski and Soon-Shiong, two industry veterans with lengthy track records of success, has to make you feel pretty good about the NantKwest IPO. But not all biotech IPOs can boast of having the same type of juice in their leadership or financial backing the likes of Celgene. Knowing that biotech fruits of labor aren’t built in a day and need time to mature, let’s take a look at the top 10 biotech IPOs of 2012 (Table 1) and find out where they are now.
Table 1: Top 10 Biotech IPOs of 2012
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6. Chemocentryx (CCXI) |
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7. Cempra (CEMP) |
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8. Hyperion Therapeutics (HPTX) |
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9. Merrimack Pharmaceuticals (MACK) |
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10. Durata Therapeutics (DRTX) |
Where Are The Hot Biotech IPOs Now
Supernus Pharmaceuticals crossed over into positive net income for 2014 of 19.8 million. Its initial IPO was $5/share, which was a very different time period compared today. As of July 31, 2015, the stock was trading at $21.23/share, a 325 percent increase since it first went public. The company has had two strong prescription product launches (i.e., Torkendi XR, Ostellar XR) as well as three products in the pipeline (i.e., SPN-810, SPN-812, and SPN-809). In addition, the company is using CMOs (i.e., Patheon, Catalent) for manufacturing, turning manufacturing a fixed cost into a variable one.
Kythera Biopharmaceuticals began its IPO at a $16/share price point. Today it is trading at $74.43, a 365 percent increase. Is it justified? Given the company has yet to turn a profit and lost $6 a share in 2014, it remains a speculative pick. However, the company is working in the area of facial aesthetics, and we all know how that worked out for Allergan, which was acquired by Actavis for $66 billion.
Intercept Pharmaceuticals’ IPO was $15/share, which seems like a real buy considering today it is trading at $265.11. This puts the company at a price point between some pretty reputable biotechs like Amgen, $176.63 and Biogen, $318.65. For 2014 the company generated its highest net loss yet ($283) million, which is six times greater than the loss it experienced in 2014. The old saying of you gotta spend money to make money seems to apply here. So why the big jump? This past June the company announced achievement of two important regulatory milestones for its pipeline drug obeticholic acid, indicated for nonalcoholic steatohepatitis (NASH), an area where there are not yet any approved drugs for the disease. But this announcement pales in comparison to the impact felt when it announced previous positive Phase 2 results for the same drug in January 2014, which saw the stock skyrocket over 500 percent in just a couple of days. The speculation of the company as a takeover target, combined with the significant trial results, makes me wonder how high this stock can go if and when the company starts making money.
Regulus Therapeutics began its IPO at a fairly affordable price point of $4/share. Today it is trading a little over double that at $8.26. The company is focused on discovering and developing innovative medicines targeting microRNAs (a small non-coding RNA molecule that contains about 22 neucleoltides found in plants, animals, and some viruses). Both Alnylam Pharmaceuticals (NASDAQ: ALNY) $127.43, and Isis Pharmaceuticals (NASDAQ: ISIS) $54.93, were pioneers in the RNA market, with Isis having founded Regulus. Though Regulus lost ($1.29) per share in 2014, it continues to garner the attention of some big companies (e.g., AstraZeneca, Biogen, and GSK), which have a vested interest in seeing it be successful.
TESARO’s IPO opened at $13.50 and has climbed to $58. An oncology-focused company, TESARO has been losing money. As of December 31, 2014, the company had a federal net operating loss of $264.5 million. However, its one compound, Roapitant (oral), a potent and long-acting NK-1 receptor antagonist as a supportive-care product for the prevention of chemotherapy-induced nausea and vomiting (CNV), has reached registration with an action date of September 5, 2015. In addition, the company is collaborating with Merck on a combination study of TESARO’s Niraparib and Merck’s KEYTRUDA (Pembrolizumab) to evaluate the combination in patients with triple-negative breast or ovarian cancer.
ChemoCentryx is a biopharmaceutical company focused on discovering, developing, and commercializing orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders, and cancer. While it has been around for around 20 years, it only went public in 2012 at an IPO share price of $10. Although it has flirted with a share price of $17 in the past, today it is just above $8. The company has a broad pipeline, with five drug candidates in clinical development. My guess as to the reason for the low share price is that each of the company’s drug candidates is a small molecule. In a time when large molecules are all the rage, investors aren’t anticipating the huge returns they crave for investing in risky ventures. However, some still see this company as a buy.
Cempra is focused on developing antibacterials. Talk about good timing; this company had its IPO in February of 2012 opening of $6/share. In July of that same year, the GAIN (Generating Antibiotic Incentives Now) provision was signed into law in hopes of spurring much needed investment by the biopharmaceutical industry into drugs for resistant bugs. Today the stock is over $43/share. The company is one Barron’s top picks for near-term success, and gives Cempra an 80 percent probability of success on its solithromycin program based on positive Phase 3 clinical trial results for the treatment of patients with community-acquired bacterial pneumonia (CABP). On July 30, the company’s stock fell by 10 percent after reporting earnings which exceeded analyst expectations — $5.1 million vs. $4.6 million. Unfortunately, the company’s net loss was 15 cents higher than expected, which is attributed to the company spending more to prepare for commercialization.
Hyperion Therapeutics, which began as a public company with an IPO at a price of $10/share, was short lived. The company was acquired by Horizon Pharma (NASDAQ: HZNP) this past May for $46 per share, a 360 percent return on your investment if you were lucky enough to get in on the IPO.
Merrimack Pharmaceuticals began as a public company in 2012 at an IPO of $7/share. While it recently got up to over $12, it is presently just over $10. The company is focused on discovering, developing, and commercializing medicines paired with companion diagnostics for the treatment of cancer. One would think companion diagnostics and cancer as being the right biotech buzzwords investors like. After all, cancer is one of the hottest markets going and getting more than its fair share of investment R&D. Furthermore, companion diagnostics, which often allow patients to self-monitor and administer their own medical treatments (e.g., diabetics), align well with the payor goals of better outcomes and lower costs. This past June, the FDA announced a priority review for MM-398 for the treatment of patients with metastatic adenocarcinoma of the pancreas who have previously been treated with gemcitabine-based therapy. The PDUFA action date is set for October 24, 2015. I find Merrimack intriguing. Not only is it probably priced appropriately considering it has been consistently losing money (not surprising as a start-up), but one its board members, Michael J. Porter, Ph.D., is a legend in business circles.
Finally, Durata Therapeutics’ 2012 IPO was $9/share. The company’s share price had nice steady growth into the teens until September 29, 2014 when it jumped from $13 to over $20. The reason for the bump was the expressed interest in the company by Actavis, which offered to purchase all outstanding shares for $23/share.
Thus, of the 10 biotech companies listed as being big IPOs back in 2012, only one is trading below its initial public offering price point, ChemoCentryx. Of the nine remaining, two have been acquired at a nice profit to those IPO shareholders. Of the remaining seven, two seem priced at an opportunistic price point (i.e., Merrimack Pharmaceuticals and Regulas Therapeutics). The remaining five biotechs are presently trading at between 300 to 1,600 percent increases over their IPO price offerings. It will be interesting to see if the more recent biotech IPOs will fare as well as some of the success stories from the class of 2012. Already from the top 10 biotech IPOs of 2013 (see table 2), three have had significant increase-in-share valuations (i.e., Agios from IPO of $18 to now at $111.35; bluebird bio from IPO of $17 to now at $165; and Receptos from IPO of $14 to now at $228.09). Perhaps Biomarin CEO, Jean-Jacques Bienaime, is right. In this June 2015 video, Bienaime attributes some of the high valuations being seen in biotech as the result of the industry finally starting to benefit from decades of R&D and advances in molecular biology and medicine in general.
Table 2: Top 10 Biotech IPOs of 2013
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