Please ensure Javascript is enabled for purposes of website accessibility

Investors Scrambled to Buy This Biotech IPO

By Jim Crumly - Feb 21, 2020 at 11:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of cancer-specialist Revolution Medicines soared on its first day of public trading.

In a market that's been tough on initial public offerings (IPOs) by companies that aren't making profits, one industry stands out as having some successes recently: biotechnology. Revolution Medicines (RVMD 7.18%), a clinical-stage biotech that's working on treatments for difficult-to-treat cancer indications, raised its offering price above its initial target range, and shares still soared on their first day of trading on Feb. 13.

Revolution offered 14 million shares at $17 per share, raising $238 million before expenses after originally announcing its intention to raise only $100 million. Investors snapped up the shares, bidding the price up a whopping 70% on the first day of trading. Assuming the underwriters exercise their option to buy more shares at $17, the company now sports a market capitalization of $1.7 billion.

A cancer cell in cross hairs.

Image source: Getty Images.

Attacking tough but potentially very lucrative targets

Underpinning investor enthusiasm for Revolution is its focus on oncology drugs that target signaling pathways that play important roles in several kinds of cancer with large patient populations -- but have been notoriously difficult to attack. Revolution's lead molecule and only drug in clinical testing is RMC-4630, which is an inhibitor of SHP2, a central node of the RAS signaling pathway. The RAS family of genes are the most commonly mutated genes in human cancer and are present in 22% of all cancers. Mutations of genes in this family are found in 35% of lung cancers, 45% of colon cancers, and 95% of pancreatic cancers.

RMC-4630 is in two early clinical trials with patients who have a variety of solid tumors but haven't responded to standard treatments or were ineligible for them. They also had certain genetic mutations in the RAS pathway. Although the studies won't be completed until 2021 and 2022, Revolution presented early data at a conference last month that showed reasonable tolerability and encouraging signs of clinical activity, including in patients with non-small cell lung cancer (NSCLC), the most common form of lung cancer.

Two important partnerships

Revolution Medicines is partnering with Sanofi (SNY 1.96%) in the development of RMC-4630. The French pharmaceutical giant is paying for almost all research and development costs for the drug in return for 50% of the profit from sales in the U.S. and royalties for sales outside the U.S.

The RAS pathway had at one time been considered "undruggable," but several other companies are now working on it. Most notable is Amgen (AMGN 0.93%), which made news last year when it reported positive results from its experimental drug AMG 510 in a proof-of-concept trial. In November, Revolution announced that it's partnering to test RMC-4630 in combination with AMG 510, with Amgen conducting a phase 1b trial of the drugs together in patients with advanced solid tumors.

Revolution believes it has the know-how and tools to develop other drugs to target the RAS pathway, as well as other "frontier" targets -- proteins that play an important role in cancer but for which there are no approved drugs for inhibiting them. The company intends to spend $150 million to $175 million of the proceeds from the offering to develop a portfolio of RAS drugs, and $25 million to $30 million to launch a phase 1 trial of RMC-5552, which targets the mTOR pathway.

A speculative bet 

It'll be years, if ever, before any of Revolution's drugs make it through the approval process to commercialization. But the big pharmaceutical companies have been willing to shell out huge sums for businesses that can bolster their oncology pipelines. That's put a generous price tag on the smaller companies that are judged to have the science that could lead to new approaches to treating cancer, even if profits are far down the road. Less than a month ago, shares of cancer biotech Black Diamond Therapeutics more than doubled from their offering price on the first day of trading, and earlier this month, Beam Therapeutics, which is taking a gene-editing approach to fighting cancer, also had a very successful IPO.

Revolution Medicines is a risky bet, and conservative investors should stay away from the shares. More adventurous investors who want to spread out some investments in emerging oncology companies could consider buying shares, but might be better off waiting for more solid evidence that the company's drugs actually work against these tough targets that scientists have been trying to attack for decades.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Revolution Medicines, Inc. Stock Quote
Revolution Medicines, Inc.
RVMD
$20.89 (7.18%) $1.40
Sanofi Stock Quote
Sanofi
SNY
$51.01 (1.96%) $0.98
Amgen Inc. Stock Quote
Amgen Inc.
AMGN
$245.55 (0.93%) $2.25
Beam Therapeutics Inc. Stock Quote
Beam Therapeutics Inc.
BEAM
$39.79 (2.79%) $1.08
Black Diamond Therapeutics, Inc. Stock Quote
Black Diamond Therapeutics, Inc.
BDTX
$2.62 (6.50%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.