It is well-known that backing biotech startups can be a high risk/high reward scenario for investors, considering the enormous amount of time and money sunk into developing drugs that may ultimately never come to market. Of the four companies that debuted on Thursday, none have approved drugs, leading to the potential for speculative investors and traders to keep these VC-backed companies on their radar.
And, much like their current counterparts in the tech IPO pipeline, these companies are carrying losses. As a result of the rigid research process needed to secure FDA and international approval, the real value in biotech lies in the speculation leading up to such regulatory decisions and the hope for the incredible demand and exclusivity of the drug, should it pass approval. The journey isn't a pleasant one, from a financial standpoint, but it is expected and understood to be part of the arduous route to the holy grail of drug approval.
With profitability not overly material in early-stage biotech, let's analyze the factors driving Thursday's biotech IPO stock movements:
CortexymeTrading under NASDAQ symbol CRTX, Cortexyme soared on its first day, shooting up more than 93% to close at $32.89. The stock's IPO was priced at $17 per share, in the midpoint of its range, with 4.4 million shares offered.
The company is developing novel therapies for neurodegenerative diseases, such as Alzheimer's. Currently, Cortexyme is enrolling patients in Phase II and III trials for its leading drug candidate, which targets a pathogen linked to chronic periodontal disease that can travel to the brain and that has been identified as a potential cause for Alzheimer's. The drug, COR388, aims to stop the spread of that pathogen and could offer a significant breakthrough toward curing or slowing the spread of Alzheimer's. Top line results are expected by the end of 2021, per the company's S-1.
Founded in 2012, the Bay Area-based company's investors include Pfizer Ventures, Takeda Ventures, Verily Life Sciences and Sequoia.
Axcella HealthDebuting on the NASDAQ under the symbol AXLA, Axcella is developing drugs consisting of endogenous metabolic modulators (EMM), which are molecules that directly affect human metabolic functions. Its only current, actively pursued candidate, AXA1665, aims to treat hepatic encephalopathy, a condition that negatively affects brain function due to liver damage.
Axcella's first day of trading was markedly different from Cortexyme's. Axcella's stock closed down 31%, dropping to $13.80 from its original IPO price of $20 apiece, the low end of its expected range. The company offered 3.5 million shares. The poor performance could be due in part to Axcella's more limited development thus far; it has yet to commence Phase I trials for AXA1665 and has no other drugs in active development beyond initial research. Regardless of whether Axcella may ultimately soar in the stock market, it is currently still a long shot in the already-daunting world of biotech investing, leading to a bearish sentiment among investors faced with other promising stock choices.
Founded in 2008, the Boston-based company was last valued at $520 million after a $70 million Series E in late 2018, below its previous valuation of $531 million in 2016. The downward trend continued, when its original IPO price gave Axcella an initial market cap of $459.8 million, which fell further when the stock price dropped.
NextCureNextCure, which now trades on the NASDAQ under the symbol NXTC, is developing immunotherapies to treat cancer and other diseases related to the immune system. Its lead candidate, NC318, is currently undergoing Phase I/II trials, with Phase I expected to be completed in 4Q 2019 and Phase II the year after, per the company's S-1. Runner-up candidate NC410 is expected to receive clearance from the FDA in 1Q 2020 to begin drug testing.
In its IPO, NextCure offered 5 million shares at $15 apiece, the midpoint of its expected range. The stock rose nearly 33%, with intraday highs of about 45%, to close at $19.90. This pop is perhaps due in part to a pre-existing partnership with drug giant Eli Lilly and Company. Signed last November, the deal consists of a multiyear collaboration for both companies to use NextCure's FIND-IO platform, a proprietary process to study immune responses resulting from molecular interactions on cell surfaces.
This vote of confidence from Eli Lilly and the value of the underlying FIND-IO technology could be viewed as a saving grace among the lengthy and uncertain road that emerging, small-cap biotech companies face to gain FDA approval. Founded in 2015, the Maryland-based company was previously valued at $250 million after a $93 million Series B last year, which Eli Lilly contributed $15 million to as part of the partnership.
Milestone PharmaceuticalsDebuting on the NASDAQ under the symbol MIST, Milestone Pharmaceuticals is developing its flagship product, etripamil, a nasal spray used that's used to treat occurrences of certain cardiovascular conditions. The drug's current focus is on treating episodes of paroxysmal supraventricular tachycardia (PSVT), which causes rapid heartbeat; in its Phase I trials, etripamil had use cases for atrial fibrillation and angina. The PSVT treatment is currently in Phase III trials with top-line data expected in the first half of 2020, per the company's S-1.
Milestone offered 5.5 million shares in its IPO, up from a previously announced 5 million, but that upsized offering didn't result in the strong performance that NextCure or Cortexyme saw. Milestone's shares were priced at $15 apiece, the midpoint of its range, and saw intraday trading ranging from nearly flat to up around 5%. The stock ultimately closed up only 2.47%.
The stock's lukewarm start may be due, at least in part, to the simple fact that the company's flagship nasal spray is in some sense a convenient improvement on an existing treatment. Per Milestone's S-1, etripamil could be self-delivered and has a half-life in patients' bodies of only about 20 minutes; the current treatments offered are not in question due to their effectiveness, but because they must be delivered via intravenous injection and cannot be self-administered, or they cause the patients to feel after-effects for several hours. While this treatment may still be a breakthrough for patients with PSVT, it doesn't provide the same "oomph" that Wall Street often finds in biotech companies pursuing novel, revolutionary drugs.
Founded in 2003, Montreal-based Milestone previously raised $80 million in October 2018; its existing investors include BDC Capital, Forbion and Inovia Capital.
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