Buying biotech stocks right after their initial public offerings (IPO) tends to be a daring and risky move. With little in the way of historical performance to rely on, and often no revenue to show, the earliest public investors are typically well-informed supporters of their companies -- but also the first to take significant losses if things go sour.
With that context in mind, let's take a look at a pair of widely watched biopharmas that just had their IPOs. The market's conversation about the merits of the underlying businesses is just getting started, and that means there might be outsized gains for those who are bold enough to invest. But tread carefully!
1. Kyverna Therapeutics
Kyverna Therapeutics (KYTX -2.95%) closed its IPO on February 12, and it raised $367 million in the process. The initial expectations for its fundraising were that it'd end up with around $180 million, so its actual haul is a stunning early success.
Its lead candidate, KYV-101, is a cell therapy intended to treat autoimmune diseases like multiple sclerosis (MS) as well as potentially myasthenia gravis, both of which are being investigated in phase 2 clinical trials. While data on KYV-101's performance is scarce so far, regulators at the Food and Drug Administration (FDA) found it promising enough to grant the program a fast track designation, which is a positive early sign.
One key reason why regulators are likely to be amenable to advancing the candidate is that it's based on cell therapy technology licensed from the National Institutes of Health (NIH) that has already been tested in phase 1 trials in conjunction with the National Cancer Institute (NCI). What's more, the NIH designed the tech with improved safety characteristics and tolerability in mind, so there are probably fewer opportunities for mishaps that'd draw the ire of regulators.
In terms of its finances, for the first nine months of 2023, its operating expenses were $41 million. That means it has at least enough money in hand to develop its candidate for the lead indications in larger and late-stage clinical trials over the next couple of years. In short, it is almost guaranteed that it has sufficient resources to deliver multiple catalysts in the form of data readouts, and there is even a chance it has enough money in hand to avoid raising more capital before commercializing its first medicine.
But it's still a risky pre-revenue biotech stock that's aiming to compete by developing therapies for autoimmune diseases that are notoriously difficult to treat with high efficiency. It's true that this company has the financial angle covered, and that the preliminary regulatory situation looks good. Still, don't think about nibbling on shares until there's some solid phase 2 data in hand. This one isn't quite ripe yet, though it might be within 18 months or so.
2. CG Oncology
With its IPO on January 30 bringing in gross proceeds of $437 million, CG Oncology (CGON 13.26%) is one of the hotter biotechs to debut on the market in recent years, and it's no surprise why.
CG's lead candidate is an immunotherapy called cretostimogene grenadenorepvec (try saying that three times fast -- or even once slowly) that's being investigated to treat non-muscle invasive bladder cancer (NMIBC) as a monotherapy, as well as in conjunction with pembrolizumab, another immunotherapeutic agent. There are two ongoing phase 3 clinical trials, with one phase 2 trial ongoing and another planned to start before the end of this year. One of the trials in phase 3 will report its topline data before the end of 2024, which should be a significant catalyst.
Cretostimogene is interesting because it's a bioengineered cancer-killing virus with two different anti-tumor features. The first is that once tumor cells are infected, they manufacture more viral particles until they can't hold any more, causing them to rupture and die. Those fresh virions then go on to infect other tumor cells, repeating the process. At the same time, until they expire, the virus hijacks infected tumor cells and repurposes them to secrete chemicals that give a boost to the cells of the immune system responsible for fighting tumors, making them more effective at killing cancer cells.
Per some of its preliminary phase 3 data, 63.6% of patients treated with the therapy were still experiencing a complete response after six months. That suggests it could be a powerful addition to the oncology arsenal. Furthermore, the FDA has already granted it a fast track designation as well as a breakthrough therapy designation, both of which could help the biotech get the medicine out the door a bit faster while potentially saving on some research and development (R&D) costs.
Management calculates that the company has enough capital to last it through the second half of 2027, which is an impressively large cash runway for a biotech at its stage of development. Given how developed its phase 3 programs are today, it could potentially commercialize its lead candidate without taking out much new debt or issuing more shares of stock.
When paired with its appealing data so far, this stock is sufficiently de-risked to think about buying if you're looking for growth in the medium term. Just be aware that it's still a risky pre-revenue biotech that could still hit a snag and leave shareholders with a 30% haircut if a clinical trial fails.