It's really important for development-stage biotech companies to produce good clinical-trial data to move their drugs toward approval. But it's equally important for those companies to be able to make it from one data readout to the next -- and that requires capital.
In this video from Motley Fool Live, recorded on Dec. 14, Corinne Cardina, bureau chief of healthcare and cannabis for Fool.com, and Fool.com contributor Brian Orelli discuss the companies that had big stock moves thanks to data presented at the American Society of Hematology (ASH) earlier this month, and why investors shouldn't be worried about their subsequent secondary offerings.
Corinne Cardina: A couple of other companies have issued new shares on the tailwinds of positive news at ASH: Atara Biotherapeutics (NASDAQ:ATRA), Kura Oncology (NASDAQ:KURA), ALX Oncology Holdings (NASDAQ:ALXO), Syndax (NASDAQ:SNDX), Forma Therapeutics (NASDAQ:FMTX). What is the benefit to biotech companies for undergoing these secondary offerings and what should investors be watching out for?
Brian Orelli: Most biotechs can't reasonably raise enough during their IPO to get to profitability, so they need additional capital. Sometimes, they do that through licensing their drugs and getting upfront payments from their partners. But oftentimes, or even in addition to, they'll do these secondary offerings. The ideal would be to raise just enough money to get to the next inflection point. But in reality, you want to see your companies raising anytime they can. So anytime they have a large boost in their stock price, because when the stock price goes up, they can sell same number of shares and get more capital or they can sell less shares and get the same amount of capital. Either way, that results in less dilution for the shareholders.
Cardina: Totally. Are any of these companies that are raising capital particularly compelling investments today?
Orelli: Yeah. I don't really follow any of these companies really closely. I did notice that Atara did a deal with Bayer during ASH. It wasn't a blood cancer related deal. This was for mesothelioma and non-small cell lung cancer. Bayer is paying $50 million upfront and there's $610 million in potential milestone payments. They get access to two treatment. Both are CAR-T-related, so this is when you take T-cells and you train them to attack cancer cells and then put them back into patients.
CAR-Ts come in two flavors. The current flavor is autologous. That's when you take cells out of a patient and then you put them back in. Companies are developing, although there's none in the market yet, allogeneic CAR-Ts, and so that's an off-the-shelf version.
Altera has both versions. The autologous one is in phase 1. But both companies clearly seem to see more potential for the allogeneic, off-the-shelf version. It was weird because of the preclinical treatment, but it was actually listed first in the list of assets that Bayer was licensing. So clearly, both companies think that that's the more important of the two.