This year you can't squeeze a pipette without hitting another biotech offering. The red-hot sector has seen more than 25 IPOs so far this year. Many are doubling and tripling in price in their first days of trading. In a frenzied market like this it's easy to lose your head. Stepping back and looking at the bigger picture can keep you from getting swept up in the media blitz that accompanies a biotech IPO.
Stemline Therapeutics (NASDAQ:STML), KalaBios Pharmaceuticals (NASDAQOTH:KBIO), and Tetraphase Pharmaceuticals (NASDAQ:TTPH) recently celebrated their first anniversaries. Let's see what they've accomplished so far with their investors' money.
Stem cell destroyer
First up is Stemline Therapeutics. This company's first-in-class therapies target cancer stem cells (CSCs) before they can spread and begin forming new tumors. Lead product SL-401 delivers a toxic payload to both CSCs and tumor cells by attaching to interleukin 3 receptors on their surface. Also in clinical trials is a vaccine, SL-701, that ignites the immune system to attack CSCs and tumor cells. Beyond these two promising candidates the company has a robust preclinical pipeline.
The CSC strategy seems to work, even in heavily pretreated patients. A phase 1-2 trial with SL-401 in patients with a rare cancer showed some incredible response rates, but with only eight patients it's too early to draw definite conclusions. SL-701 also looks like it may be very effective in patients with difficult to treat brain tumors. Again, a small population clouds the significance of the results.
One thing that excites investors about Stemline's therapies is the number of blood cancers they could act on. If it can win an approval for one orphan indication, it could keep adding others for years to come. Stemline's oversubscribed initial offering put over $32 million in its coffers, and a secondary offering in May added another $64.5 million. With about $90 million in cash, and a burn rate of about $5 million per quarter, it has plenty of runway to attempt to prove their safety and efficacy..
Almost one year to the day following its January 31, 2013 IPO, KalaBios Pharmaceuticals announced the failure its lead candidate in a phase 2 trial. The monoclonal antibody didn't significantly improve severe asthma patients' forced expiratory volume, and its shares were subsequently hammered.
At just over $3, shareholders that bought in at the initial price of $8 have a lot to be upset about. The steadily sinking share price paints a grim picture, but I wouldn't let go just yet. KalaBios expects partner Sanofi (NYSE:SNY) to start a registrational, phase 2b trial with its Pseudomonas vaccine about halfway through next year. If Sanofi decides to take over the program, it could net KalaBios more than than it raised in the initial offering.
KalaBios' efficiency is also encouraging. In just eight years the company's proprietary technology has carried three antibodies into mid-stage development. That's nothing to sneeze at. One failure and two stuck in mid-stage development could simply be a sign of bad luck and limited resources, or something worse. Still, I wouldn't be surprised if the company soon announced another partnership, or a complete buyout.
Hard to resist
The increasing threat of multi-drug resistant bacteria have tilted the market's spotlight toward makers of antibiotics. Tetraphase Pharmaceuticals is basking in this light. Debuting on March 20, 2013 at $7, the stock more than doubled earlier this year before coming back to its recent price of around $12.50.
The company netted $68 million from its initial offering, and has since initiated two phase 3 trials of its lead product eravacycline. To top it off the company also won a Qualified Infectious Disease Product designation from the FDA. This gives the antibiotic priority review, fast-track status and, if approved, an additional five years of market exclusivity.
The company's proprietary discovery platform allows it to generate fully synthetic, novel tetracycline antibiotics, and lots of them. At the moment, advancing eravacycline through two phase 3 trials is about all it can afford. The company has a government contract that generates some revenue, but still came up short by $30 million last year. The $102.7 million in cash and equivalents on hand probably won't be enough to bring eravacycline to the market, but it should be enough to pay the bills until it releases top-line data in the first quarter of 2015.
There are two types of biotech IPO investors: Ones that jump at every opportunity, and successful ones. None of these three companies is expecting to generate a profit in the near term. Clinical failures and unpredictable regulatory agencies could quickly bring any of these companies to its knees. Even a general economic downturn could dry up the financing they need to bring a product to market. Before diving in, be sure you know the risks.
Cory Renauer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.