Capital Infusions Are More Evidence of a Biotech Turnaround
The collapse of biotech giant Valeant Pharmaceuticals International Inc. (NYSE: VRX) has accelerated and possibly prolonged the biotech decline, infecting the entire sector. While negative news from the company and its management remain within the scope of mainstream media, the wider sector may continue to drag. Since May 12 however, it looks as though biotech has made three higher lows already, a bullish technical stepping stone pattern. Using the iShares Nasdaq Biotechnology Index ETF (NASDAQ: IBB) as a proxy, after bottoming at $240 in February, a higher low was made on March 17 at $247 and again on May 12 at $251.
The technicals also have some level of confirmation from other sources. Since May 19, biotech has had four consecutive days of gains for a total of 7%. More significantly though, companies in need of cash have been equity financing and several initial public offerings (IPOs) have exceeded expectations. Companies across all markets finance when sentiment is positive, which is usually followed by stock prices. Here are four companies that have just either closed fresh financing rounds or issued IPOs that exceeded price expectations.
Intellia Therapeutics Inc. (NASDAQ: NTLA) just listed on the Nasdaq via a May 6, 2016, IPO. The company priced the IPO at $18 a share, aiming to issue 6 million shares. If positive sentiment is indeed present in the biotech space, we would expect to have seen this pricing met and exceeded — and we did, in spades. Intellia is now trading at over $29, 61% higher than its IPO price.
Intellia raised $112 million from the IPO, trading above its target price the whole of its opening day and eventually selling a total of 6.9 million shares. The company is aiming to use its raise to push its CRISPR/Cas9 technology through clinical development. Its lead target is liver disease, which the company is developing in collaboration with Regeneron Pharmaceuticals.
Last time biotech had a similar correction in Feb./March 2014, a whole host of companies picked the reversal point in sentiment to go public. Recro Pharma Inc. (NASDAQ: REPH) hit the Nasdaq on March 10, 2014, at $7.75. By September last year, the company traded for highs of $17.11. Aquinox Pharmaceuticals Inc. (NASDAQ: AQXP) followed suit. Two years later, it looks like Intellia is doing the same.
Merus B.V. (NASDAQ: MRUS) has collected big name backers across the past few years, with a roster of investors that includes big name pharmas Novartis, Johnson & Johnson and Pfizer. It’s a Dutch biotech outfit, with a solid tumor focus. The lead candidate, MCLA-128, is in Phase 1/2 across three different indications — breast, colorectal and ovarian cancer — and based on data due before year end, could expand into gastric and non small cell lung cancer indications by early 2017.
Until recently, this incumbent-backed company remained off limits to public markets. It has just gone public with net proceeds of $56.7 million. The company first tried to go public early last year, but delayed based on what it then deemed unfavorable conditions. Fast forward to May 2016, however, and that it just listed suggests its management, and that of its backers, feel conditions have returned to favorable.
OpGen and DelMar
Smaller companies are having their day as well. On May 12, OpGen Inc. (NASDAQ: OPGN) announced the pricing of a $10 million private placement. The numbers are one thing, but more important is what OpGen intends to do with the capital. The vast majority is earmarked to support the sales and marketing efforts of the company’s diagnostics products. No company, biotech or otherwise, raises equity-based capital specifically to drive sales efforts if it doesn’t believe there is a thriving market for the product. That OpGen has picked now to raise in order to spend on marketing, and that markets have been responsive to its issue, is indicative of recovery.
DelMar Pharmaceuticals trades over the counter and is developing VAL-083, an oncology drug for the treatment of refractory glioblastoma multiforme. The company is set to meet with the FDA before the close of the quarter to discuss a Phase 3 study design and has already picked up orphan designation for the drug. On May 5, DelMar reported the closing of a private placement that saw the company pick up gross proceeds of $5.6 million.
DelMar intends to use the funds to shore up an application for an uplisting to Nasdaq. Many institutions require a senior exchange listing before they will look at a potential investment, regardless of the company’s fundamentals. Again, companies generally don’t seek uplistings or equity financing unless there is bullish market sentiment.