The biotech sector is white hot these days, and as a result, the IPO window is wide open.
This is illustrated by the fact that preclinical companies like gene
therapy outfit Bluebird Bio and Agios Pharmaceuticals have either just slipped
through the window or are about to. This is also illustrated by the fact that Duchenne
Muscular Dystrophy (DMD) exon skipping company Prosensa is aiming at a
valuation of $400M at its IPO despite the uncertainties around the
approvability of its only product candidate that matters (endpoints and safety
issues) and for which it has given away much of the financial potential to a Big Pharma (GSK). And the ticker: RNA.
As it relates to gene therapy and RNA Therapeutics companies
IPOeing- in addition to Prosensa, small molecule RNA processing modulation Co. PTC
Therapeutics and aptamer company Regado- a gap between the valuations of
already public companies and those emerging from the obscurity of the private
sector is becoming apparent. Without
meaning to talk down on Bluebird Bio or gene therapy, I am scratching my head as to why this
early-stage company sports a $150-200M market cap (it priced above its guided range and popped 50% on the open) whereas a much more proven
and clinically advanced lentivirus-based gene therapy company, Oxford
Biomedica, is not valued at even a quarter of that.
Given that Oxford Biomedica is developing
drugs for medically important indications, especially for those affecting the eye and can be
proud of a remarkable preclinical literature record, just as Bluebird Bio can,
the difference cannot be product versus platform focus. Or take for comparison preclinical microRNA Therapeutics company Regulus Therapeutics (2012
IPO) with a market cap of $350M and clinically slightly more advanced Arrowhead
Research with a market cap of around $60M (disclosure: I own Arrowhead).
Instead, I believe it shows the benefit of being able to
stay out of the spotlight when valuations are severely depressed as
they were in the wake of the housing crisis when research and having a pipeline were actually assumed to be liabilities, not assets.
Companies like Oxford Biomedica and Arrowhead Research may thus be
viewed as damaged goods. Only supposed
best-in-class companies in the RNA Therapeutics space with a halo like Alnylam and ISIS
Pharmaceuticals were able to decisively spring back from low valuations as
sentiments improved.
By contrast, biotech networks such as the one around Third Rock
have understood to wrap up biotech companies as exciting new toys for Wall
Street to buy. Orphan drugs anybody? Of interest, Alnylam’s CEO John Maraganore has
had an involvement with both Agios and Bluebird. I give these individuals full credit for
promoting innovation. By the same
token, the depressed valuations of some of the existing innovators are another example
of the inefficiency of the public markets.
2 comments:
It is not surprising that companies such as Arrowhead are inefficiently priced. Strikes against it include limited institutional ownership, a low stock price and market cap that often bar such institutional ownership, low average trading volume, a shaky financial history, and an unproven clinical track record.
Yet even though it is not reflected in the stock price, ARWR is a different company than just nine months ago. Its current financial viability is no longer in question, important patents have been issued, impressive animal model data, including monkey, have been reported in peer reviewed journal articles and scientific conferences, management; the BOD; and the SAB have been strengthened, and an IND has been filed for its flagship product ARC-520. Until these changes are reflected in ARWR’s stock price, the inefficient market has created a seemingly rare buying opportunity.
In time the best science will be recognized as will impressive clinical results. Valuations will ultimately reflect the intrinsic value of the company. It may take a while, but companies like Arrowhead and Benitec will eventually shine bright.
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