Newly-listed Biotech Firms Faring Well
The authors are analysts of NH Investment & Securities. They can be reached at william.ku@nhqv.com and weihan@nhqv.com, respectively. – Ed.
1. Pay attention to newly-listed players displaying rapid progress in Covid-19 vaccine development
Newly-listed biotech firms faring well amid pandemic
This year, the bio/pharma sector’s R&D focus lies upon the development of Covid-19 treatments/vaccines. At present, Moderna, BioNTech (joint developer: Pfizer), and TranslateBio (joining developer: Sanofi) represent the leaders in mRNA vaccine development race against Covid-19. Of note, Moderna released positive interim phase I data for its mRNA vaccine mRNA-1273 on May 18—interim results were published in the New England Journal of Medicine on Jul 14. Given such, it appears that Moderna’s vaccine is currently showing the fastest progress, along with AstraZeneca’s virus vector vaccine. Given such, we expect Covid-19 vaccines to be commercialized starting from end-2020~early 2021. Listed in 2018 and 2019, respectively, Moderna and BioNTech have yet to reap profits. But, backed by new R&D momentum, the two companies now appear to have being greater impacts upon the bio/pharma industry than major pharmas.
2. Firms reaping milestone fees from early developmental stages
Galapagos
Galapagos drew keen market attention in 2019, a time at which it entered into a W7tn-worth contract for global R&D collaboration with Gilead. But, in 2015, an upfront payment of a mere W100bn was the only source of revenue for Galapagos. Having concentrated on the development of immune disease treatments such as Filgotinib (JAK1 inhibitor) and GLPG-1690 (Autotaxin inhibitor), Galapagos showed a market cap of around W2tn at the time of its IPO. In 2019, following the deal with Gilead, Galapagos’ sales reached the W1tn-mark. Its market cap now stands at around W12tn.
Spark Therapeutics
Owning innovative gene therapy platform technologies, Spark Therapeutics’ market cap totaled W1tn when it was first listed in 2015. At that time, its only source of revenue was milestone fees of around W20bn pa. But, in 2018, a year when Luxturna—the first gene therapy for genetic disease in the US—was launched, sales surged more than 400% y-y. In 2019, Spark Therapeutics was eventually acquired by Roche at a price of W5tn. Looking at the examples of Galapagos and Spark Therapeutics, we believe that even nascent companies that have yet to turn profitable could later prove strongly successful, if they possess R&D capabilities that guarantee a steady inflow of milestone fees via L/O deals or R&D collaborations.
3. Players that have innovative platform technologies or develop first-in-class cancer treatment
Juno Therapeutics
Juno Therapeutics represents the leader in chimeric antigen receptor T cell (CAR-T; cellbased cancer immunotherapies) platform technology. With CAR-T therapy having into the limelight at the 2014 ASCO, Juno Therapeutics debuted in Dec 2014 on the Nasdaq with a market cap of around W3tn (which soon jumped to W5tn). But, having booked zero sales in 2014, the company saw a plunge in market cap to around W2tn at end-2016, weighed upon by deaths during clinical trials. However, in 2017, Juno Therapeutics was acquired by Celgene at a price of around W9tn, marking it as an example of a successful M&A outcome for a platform technology player.
Pharmacyclics
Pharmacyclics is the developer of a first-in-class BTK inhibitor (Ibrutinib) for cancer treatments. Back in 1996 when it was first listed, the company had yet to yield sales. Pharmacyclics started to book milestone fees in 2011, after it signed a licensing out agreement worth US$975mn (upfront fees: US$150mn) with J&J. But, the company’s share price plunged around 40% in 2014, weighed upon by disappointing sales figures for Ibrutinib (launched in Feb 2014). However, with 5~6 new indications approved for Ibrutinib, Pharmacyclics’ sales exceeded the W1tn-mark in 2015. Pharmacyclics was acquired by AbbVie for around W21tn in 2015. We view the cases of Juno Therapeutics and Pharmacyclics as evidencing that even nascent firms that have yet to generate sales can go public, if they own innovative platform technologies or develop first-in-class anti-cancer drugs. But, we note that it is still difficult to predict whether drugs currently on development will eventually succeed. For example, it is widely believed that Alzheimer therapies cannot be commercialized unless their phase III clinical trials end successfully. Given such, it appears that new drug developers (that have yet to reap profits) are being listed selectively depending on investor sentiment towards the drugs’ respective treatment areas. All in all, we believe that promising biotech players in early developmental stages deserve to have IPO opportunities. That said, they should be eventually assessed by market investors taking a close look at their growth prospects and business performances.
4. Plays neglected by market due to low profit-making prospects
Clovis Oncology
Clovis Oncology is a first-in-class anti-cancer agent company. It developed a 3G EGFR inhibitor, Rociletinib, ahead of rival AstraZeneca (Tagrisso). Its shares returned more than tenfold for five years after the firm went public in 2011, raising a total of around W300bn. But, after clinical trials for Rociletinib were suspended, Clovis Oncology’s share price tumbled. While it sought to come back strong with Rubraca (Rucaparib, PARP inhibitor), the plan ended in failure, removing the firm from the spotlight.
Advaxis
Advaxis is a cancer vaccine developer. A discontinuation in clinical trials (due to the death of patients), has led the market to neglect the firm. We can evaluate whether prospective IPO companies with unrealized profits warrant investment, based upon: 1) if they have first-in-class therapies; 2) how far the clinical development for their pipelines has progressed; and 3) if they have promising new platform technologies. However, even if firms are evaluated based upon these criteria, their clinical trial success probabilities cannot be accurately predicted, and thus, caution is required for investment.