A pair of successful biotech initial public offerings (IPOs) totaling more than a half-billion dollars this past week—the first two biotech IPOs of 2024—have raised investor hopes that the long moribund market for shares of newly public biotechs may finally be turning the proverbial corner toward another cycle of companies rushing to raise millions of dollars by going public.
CG Oncology (CGON) shares nearly doubled, soaring 96% on Thursday to $37.17, giving the company a $2.2 billion market value. Investors flocked to the company’s upsized IPO in which it raised $380 million in gross proceeds by selling 20 million shares of common stock at $19 a share.
According to its prospectus, CG Oncology stands to take approximately $347.4 million in net proceeds from the offer—unless its underwriters fulfill their 30-day option to purchase up to an additional three million shares of common stock at the IPO price, less underwriting discounts and commissions. In that case, CG Oncology would reap approximately $400.4 million in net proceeds.
Based in Irvine, CA, CG Oncology aims to develop and commercialize cretostimogene grenadenorepvec, a potential backbone bladder-sparing therapeutic for patients with high-risk non-muscle invasive bladder cancer (NMIBC) who are unresponsive to the current standard-of-care for the disease, Bacillus Calmette Guerin (BCG) therapy. The FDA has granted cretostimogene its breakthrough therapy and fast-track designations.
CG Oncology intends to use approximately $183.8 million of its net proceeds—plus existing cash, cash equivalents, and marketable securities—to fund cretostimogene research and development, including some manufacturing activities, and the remainder for working capital and other general corporate purposes, including pre-commercial activities.
The company said it expects the offering to help it complete its ongoing Phase III BOND-003 trial (NCT04452591) in high-risk BCG-unresponsive NMIBC patients, as well as the ongoing Phase II CORE-001 trial (NCT04387461), which is evaluating a combination of cretostimogene and Merck & Co.’s Keytruda® (pembrolizumab) in BCG-unresponsive NMIBC patients—while completing enrollment for its Phase III PIVOT-006 trial (NCT06111235), designed to assess cretostimogene as adjuvant therapy in intermediate-risk NMIBC patients following transurethral resection of the bladder tumor (TURBT).
CG Oncology also plans to use part of its proceeds and cash to initiate and report topline data for its planned Phase II CORE-008 trial, an open-label multi-cohort study in high-risk NMIBC patients.
“We may also use a portion of the remaining net proceeds and our existing cash, cash equivalents, and marketable securities to in-license, acquire, or invest in complementary businesses, technologies, products, or assets. However, we have no current commitments or obligations to do so,” CG Oncology added.
Morgan Stanley, Goldman Sachs, and Cantor are joint book-running managers for the offering, while LifeSci Capital is acting as co-manager.
CG Oncology finished the first nine months of 2023 with a net loss of $45.747 million on revenue of just $203,000, all of it from research and collaborations.
Demand for the stock was strong enough to allow CG Oncology to increase—twice—the number of shares it planned to issue, from an initial 11.8 million shares, then 17 million earlier last week. The value of the offering also ballooned, from an initial $200 million to $306 million for the 17 million share offer. That offer carried with it a price range of between $16 to $18 a share, which means the company was able to raise its price between 6% to 19% by the time its stock hit Wall Street.
Two days, two biotech IPOs
Friday saw the second upsized biotech IPO in as many days when ArriVent BioPharma (AVBP) shares rose 11%, finishing their first trading day at an even $20. ArriVent raised $175 million in gross proceeds by selling just over 9.7 million shares of common stock at $18 a share. That places ArriVent at the midpoint of its initial pricing range of $17 to $19 a share, but 17% above the 8.3 million shares the company had initially planned earlier in the week.
ArriVent stands to make at least approximately $159 million in net proceeds—a figure that could climb 15% to $183.4 million if its underwriters exercise in full their 30-day option to purchase an additional approximately 1.46 million shares at the IPO price, less underwriting discounts and commissions.
Goldman Sachs, Jefferies, and Citigroup are joint book-running managers for the offering, whose lead manager is LifeSci Capital.
Based in Newtown Square, PA, ArriVent’s pipeline of solid tumor therapy candidates is led by furmonertinib, an oral, brain penetrant, epidermal growth factor receptor (EGFR) mutation selective inhibitor. The tyrosine kinase inhibitor is now being studied across a range of EGFR mutations (EGFRm) in non-small cell lung cancer (NSCLC).
Furthest along of ArriVent’s studies is the pivotal Phase III FURVENT trial (NCT05607550) in treatment naive, or first-line, patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations, for which topline data is expected to be read out in 2025. The FDA granted furmonertinib its breakthrough therapy designation in that indication in October 2023.
Arrivent is setting aside the largest share of its proceeds—approximately $50 million to $60 million—toward support NDA activities for furmonertinib as a first-line therapy for patients with EGFRm NSCLC involving exon 20 insertion mutations, subject to successfully completing of the FURVENT trial, and conducting pre-commercial and, upon approval, commercial launch activities.
Furmonertinib is also being studied in the Phase Ib FURTHER trial (NCT05364073) in cohorts of NSCLC patients with P-loop αC-helix compressing (PACC) mutations (first-line or greater) and exon 20 insertion mutations (second-line or greater).
According to ArriVent’s prospectus, the company selected furmonertinib for global development against nonclassical or uncommon mutations based on encouraging results from the Phase Ib FAVOUR trial (NCT04858958) evaluating furmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations.
FAVOUR was conducted in China by Shanghai Allist Pharmaceuticals, from which ArrVent has licensed rights outside of Greater China (China, Hong Kong, Macau, and Taiwan). Allist has reported preliminary reductions in tumor size seen in seven out of ten patients in first-line treatment with EGFR exon 20 insertion mutations, and preclinical activity in PACC mutations. A later data readout from FAVOUR showed 22 out of 28 patients (79%) showed a reduction in tumor size of at least 30%. Allist expects to release final results from FAVOUR later this year.
Also in ArriVent’s pipeline is ARR-002, a preclinical discovery phase candidate with an undisclosed mechanism of action, which is being developed to treat solid tumors.
ArriVent finished January–September 2023 with a net loss of $48.14 million, no revenue, and only interest income of $3.33 million.
The prospect of an IPO market recovery was predicted in December by a team of PitchBook Data analysts led by Kyle Stanford, lead research analyst, venture capital. Writing in PitchBook’s 2024 U.S. Venture Capital Outlook, Stanford and colleagues observed: “Forecasting the precise moment when the IPO market will reopen is a very nuanced task, yet as we approach the end of 2023, we are observing encouraging indicators that could point to a resurgence in the upcoming year.”
Those indicators included better than expected performance from the U.S. economy, a 5.3% third-quarter increase in gross domestic product (vs. 2.1% in Q2), and a pause in interest rate hikes since July 2023.
“Our U.S. VC IPO backlog model estimates 75 startups are waiting to enter the public markets—a sizeable portion of which are likely unicorns,” privately held startups with a value of over $1 billion, Stanford and colleagues added. “Positive economic signals through 2023 will spur a comeback in IPOs in 2024.”
Barclays downgrades Thermo Fisher, Danaher, life-sci tools
The U.S. life sciences tools and diagnostics industry and two of its leading companies—Thermo Fisher Scientific (TMO) and Danaher (DHR)—have been downgraded by Barclays Capital, which is predicting a continued decline for the overall sector because of a slew of challenges that will especially be felt by the two tools concerns.
Barclays has lowered its outlook for the overall industry from “Positive” to “Neutral,” after concluding that stocks will have little room for further improvement in their valuations after rebounding in late November to early December and outperforming the S&P 500 by 4 to 5 percentage points, despite no real uptick in demand for tools and diagnostics.
“Given the macro uncertainty across the end markets, we struggle to see significant EPS [earnings per share] upside to current estimates,” a trio of analysts led by Luke Sergott, Barclays’ director, heathcare equity research, wrote in an 89-page research report. “Overall, we think that ’24 is likely to be volatile at least in the beginning of the year given all of the moving macro pieces and investors are already looking forward to ’25, which hopefully returns back to normal growth dynamics across the complex.”
The overall market, according to Barclays, is expected to decline by low single digits this year. Within tools and diagnostics, bioprocessing and biopharma R&D are expected to recover later this year by returning “close to” normal growth rates.
“We feel better about biopharma R&D getting back to MSD+ [mid-single digit increases] than we do about bioprocessing returning to DD+ [double digit increases] by year end,” based on comments by managements at several larger pharmas, Sergott and colleagues reported. He added that bioprocessing growth hinges on less de-stocking by biomanufacturers as they use up inventory, and more ordering of products by the second quarter, for those companies to achieve low- to mid-single-digit growth.
“Bioprocessing remains our way to play the space as we expect it to recover close to normal growth ranges by the end of the year. However, valuations remain elevated and if orders do not inflect by 2Q, industry growth could underwhelm and lead to significant downside to shares,” Sergott and colleagues cautioned. “We continue to believe that de-stocking will be a headwind through 1H’24 (mostly in 1Q’24), but orders should be back to normal levels by end of 1Q and we could even see a snap back to above normalized trends for a re-stocking effect in 2Q,” Sergott wrote.
Lowering ratings, raising price targets
In addition to assessing the tools and diagnostics industry, Barclays evaluated 16 leading U.S. life-sci tools and diagnostics developers, downgrading both Thermo Fisher and Danaher from “Overweight” to “Equal Weight.” The downgrade means that instead of expecting the companies’ stocks to outperform the unweighted expected total return of the industry over a 12-month period, Barclays now expects those stocks to perform in line with that 12-month expected total return.
“The company has a consistent track record of organic growth, capital deployment, and management execution. However, TMO is trading above historic valuations which we cannot substantiate given market weakness,” Sergott and colleagues wrote.
Thermo Fisher’s biggest potential challenges, according to Barclays:
- China’s economy has yet to fully recover from the pandemic: “We see the potential for the region to decline through the easy 2H ’24 comps and lead to a downside surprise.”
- COVID-19 testing continues to remain sluggish, posing a headwind for Thermo Fisher’s PPD and Patheon businesses; “PPD to a much larger extent.”
- Biotech funding continues to run at lower 2018–2019 levels
- Preclinical discovery demand “remains soft and is the next area to face budgetary pressure” as biopharmas narrow their later-stage pipelines.
- NIH and academic budgets remain tight and face cutbacks, especially within the European Union if macroeconomic trends continue to soften.
- While high-end instrumentation continues to outperform expectations, “we are still waiting for the downcycle to start.”
However, Thermo Fisher remains insulated from some of these headwinds, Barclays quickly added: NIH/government budgets affect under 15% of the company’s revenues, and early-stage drug discovery accounts for “likely less” than that percentage. De-stocking is less of a potential threat to the company because its products are used in upstream bioprocessing, covering the first phase of the bioprocess from cell line development and cultivation to culture expansion of the cells through harvest, and have a shorter shelf-life than other components within the workflow.
“We agree with TMO management when they say the future is bright for the business, and the long-term potential is significant, but right now is an unusually tough demand environment leading to uncharacteristic fundamentals,” Sergott and colleagues wrote.
Barclays based Danaher’s downgrade on concerns about the stock valuation’s ability to rise this year.
“DHR is a leader across key end markets, particularly bioprocessing within the biopharma sector. Management has shown an impressive history of consolidating the fragmented industry to supplement growth and earnings while turning attractive ROIC over the same time,” according to Sergott and colleagues. “However, DHR seems priced to perfection and we see little upside to current valuations.”
To buy the stock now, they asserted, “investors would need to believe that the BioPro [bioprocessing] recovery comes off without a hitch and leads to DHR’s biotech business beating consensus estimates of 11% for ’24 and ’25. We are a little below these expect[ation]s for ’24, but can get on board with the general thesis,” Sergott and colleagues opined. “However, there are plenty of unknowns.”
Despite those unknowns, a bioprocessing recovery remains on track, Sergott and colleagues continued. “We have not seen anything get worse. However, we do not see things getting better on the order front either.”
The analysts said they continued to believe that bioprocessing orders will recover to normal levels or above by the end of the first quarter, “which would lead to the market recovering closer to [mid-single-digit growth] by the end of the year and provides a good jump-off point into ’25.
“DHR remains one of the best ways to play the bioprocessing recovery,” they added.
During October, as StockWatch reported, both companies acknowledged falloffs in business that ate into their third-quarter results, touching off stock selloffs by investors as well as price-target cuts and, in the case of Thermo Fisher, a downgrade by KeyBanc Capital Markets analyst Paul Knight.
But in a sign that Barclays foresees better results for Thermo Fisher and Danaher as this year goes on, the investment firm raised its 12-month price targets for both companies. For Thermo Fisher, Barclays lifted its price target 17%, from $475 to $555 per share. Danaher’s price target jumped 12%, from $215 to $240 per share.
Thermo Fisher and Danaher were two of 13 tools companies for which Barclays raised its price targets for 2024. The other 11 were 10x Genomics (TXG), Agilent (A), Catalent (CTLT), Certara (CERT), ICON (ICLR), IQVIA (IQV), Illumina (ILMN), Revvity (RVTY), Sotera Health (SHC), Twist Bioscience (TWST), and Waters (WAT).
The Illumina target raise follows months of the sequencing giant’s stock bouncing back from a 10-year low that followed disappointing third-quarter results—an uptick that continued earlier this month when new CEO Jacob Thaysen, PhD, spelled out the company’s 2024 priorities, which include boosting revenues by increasing placements of all its instruments, driving more sequencing activity through partnerships and other initiatives, divesting of cancer blood test developer Grail, enhancing its commercial processes—and potentially, stepping up cost-cutting efforts.
Barclays left unchanged its $24 price target for Avantor (AVTR) and $8 target for Pacific Biosciences of California (PacBio; PACB). For another company, Fortrea (FTRE), Barclays cut its price target 8%, from $38 to $35
Leaders and laggards
- Annovis Bio (ANVS) shares tumbled 22% on Wednesday, from $11.64 to $9.09, after the company postponed its scheduled release of data from its Phase III trial (NCT05357989) assessing buntanetap in early Parkinson’s disease, from the end of January to an unspecified future time, citing “ongoing data cleaning efforts to ensure the accuracy and reliability of the study results.” “We understand your potential frustration with the required extension, and we want to stress that our focus is on delivering results that are trustworthy. We are working hard to provide them to you very soon,” stated Maria Maccecchini, PhD, Annovis’ founder, president, and CEO.
- Dyne Therapeutics (DYN) and MorphoSys (MOR) shares rose Friday on merger and acquisition (M&A) speculation. Dyne shares jumped 18%, from $17.90 to $21.16, after Bloomberg News reported, citing unnamed sources, that the company was speaking with advisers about a possible sale or partnership after receiving takeover interest from larger pharmaceutical companies. MorphoSys shares traded on XETRA climbed 14%, from €35.93 ($39.02) to €40.87 ($44.38) after the M&A news website Betaville reported that the company was seeing interest from three large unnamed pharmas—two based in Europe, one in the United States.
- LAVA Therapeutics (LVTX) shares leaped 43% on Wednesday, from $1.56 to $2.23, after the company joined Merck & Co. (MRK) to announce a collaboration to assess a combination of Merck’s anti-PD-1 cancer immunotherapy Keytruda® (pembrolizumab) with LAVA’s LAVA-1207 in a Phase I/IIa trial (NCT05369000) expected to be initiated in the first half of this year. The study includes arms for LAVA-1207 monotherapy and interleukin-2. LAVA-1207 is a Gammabody®, designed to trigger the preferential killing of PSMA-positive tumor cells by conditionally activating Vγ9Vδ2 (Vgamma9 Vdelta2) T cells upon crosslinking to prostate-specific membrane antigen (PSMA).