IPO breakout starts summer off with a bang; but two new issues fizzle.

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It was certainly an off week (June 26 to 30, 2017) to for healthcare stocks, with the Nasdaq Healthcare Index (IXHC) giving back 2% to 732.05 after hitting an all-time high the previous week. But that didn’t dampen the market’s appetitive for new listings as four companies priced their IPO deals and a fifth jumped in with news of a new launch.

Leading the parade was Aileron Therapeutics Inc., a biotech targeting a range of cancers using stapled peptides, raising $56 million in its initial public offering by offering 3.8 million shares at $15, the low end of the range of $15 to $17.

Aileron lists on the Nasdaq under the symbol “ALRN.” BofA, Merrill Lynch, and Jefferies acted as lead managers on the deal. Based in Cambridge, MA, the company’s lead candidate, ALRN-6924, targets the p53 suppressor proteins to slow the development of tumors. It is currently being tested in multiple clinical trials for different cancers.

Aileron’s ongoing clinical trials include: a Phase 1 trial for the treatment of advanced solid tumors or lymphomas, a Phase 2a trial for the treatment of peripheral T-cell lymphoma, or PTCL, a Phase 1 trial for the treatment of acute myeloid leukemia, or AML, and advanced myelodysplastic syndrome, or MDS, as a monotherapy and a Phase 1b trial for the treatment of AML/MDS in combination with cytosine arabinoside, or Ara-C. Unfortunately, it was a bad day to debut.

Shares got swallowed in the market sell-off and are now down 18% at $12.35 as of noon, PST Wednesday (June 28, 2017). My sense is that the market is overwhelmed right now with news of new cancer-fighting treatments, especially with Big Pharma names such as Merck, Novartis and BMS hogging the limelight.

Elsewhere, Mersana Therapeutics Inc., an early-stage biotech developing antibody drug conjugate therapies for cancers, raised $75 million by offering 5 million shares at $15, within the range of $14 to $16.

Mersana lists on the Nasdaq under the symbol “MRSN.” J.P. Morgan, Cowen & Company, and Leerink Partners acted as lead managers on the deal. The Cam­bridge, MA-based biotech, led by the high pro­file biotech vet and for­mer Mil­len­nium chief Anna Pro­topa­pas, boasts a new and dif­fer­ent kind of “linker” technology that is de­signed to cre­ate new clus­ter bombs that can be aimed at can­cer.

If they’re right, the com­pany hopes to tackle a va­ri­ety of goals, in­clud­ing going after can­cer with only a light ex­pres­sion of HER2. Cur­rent an­ti­body-drug con­ju­gates–or “armed” an­ti­bod­ies–can be lim­ited to just a few ther­a­pies; Mer­sana be­lieves it can link up with 12 to 15, in­clud­ing some in-house drugs. And that pro­file helped at­tract Takeda, which ac­quired Mil­len­nium years ago, to come in on a siz­able col­lab­o­ra­tion.

Like Aileron, Mersana shares slipped after they began trading, and are off 9% at $13.70. Investors are just saturated right now with truly promising cancer treatments, all emanating primarily from the annual meeting of the American Society of Clinical Oncology in Chicago last month.

Avenue Therapeutics Inc., which is a Fortress Biotech spinoff developing an IV formulation of the opioid tramadol, raised $33 million by offering 5.5 million shares at $6, the midpoint of the $5 to $7 lowered range.

Avenue lists on the Nasdaq under the symbol “ATXI.” Oppenheimer & Co. acted as a lead manager on the deal. NYC-based Avenue is a specialty pharmaceutical company developing an intravenous (IV) formulation of tramadol HCI for post-operative pain. Tramadol is a synthetic dual-acting opioid with a well-established efficacy and safety profile, and has been used throughout the world for more than 30 years.

Oral tramadol is currently approved for adults and marketed in the US, and physicians are already familiar with the oral dosage of the drug. Parenteral (non-oral) tramadol is approved and used for the management of moderate to moderately severe postoperative pain throughout much of the world, but there is no parenteral formulation currently available in the US.

Avenue shares are up an eye-popping 33% since their IPO at $7.99. The sudden national awareness of a much greater than known opioid addiction problem has fueled congressional plans to increase prevention and treatment funding. Avenue stands to benefit from this long overdue boost in financial backing to address this calamity.

Dova Pharmaceuticals Inc., which is commercializing an acquired drug candidate for thrombocytopenia (low blood platelets), raised $75 million by offering 4.4 million shares at $17, the high end of the range of $15 to $17.

Dova lists on the Nasdaq under the symbol “DOVA.” JP Morgan, Jefferies, and Leerink Partners acted as lead managers on the deal. Durham, NC-based Dova focuses on acquiring, developing and commercializing drug candidates for rare diseases where there is a high unmet need, with an initial focus on addressing thrombocytopenia.

The company’s lead drug candidate, avatrombopag, recently completed two pivotal Phase 3 clinical trials for the treatment of thrombocytopenia in patients with chronic liver disease undergoing planned medical procedures.

Dova shares are up an impressive 31% at $22.33. Liver disease is growing at a staggering pace with millions of boomers adding to the ranks of seriously ill patients needing treatment like Dova’s developing. Thus the big upswing in its shares.

And Kala Pharmaceuticals Inc., a small Waltham, MA-based biotech with two eye drugs in late-stage trials, has announced plans to raise up to $86 million in an IPO. The 25-employee company, which was co-founded by MIT professor Bob Langer, said in a federal filing on Friday that it had applied to trade on the Nasdaq under the symbol “KALA.” Since being unleashed in 2009, Kala has raised more than $100 million.

Kala has two drugs in Phase 3 trials. One, a treatment for inflammation and pain following cataract surgery, is slated for an FDA filing by the end of 2017 after generating positive clinical data in May. The company expects to seek approval for the other drug, a treatment for dry eye disease, in the first half of 2018. Kala reported net losses of $33 million in 2016.

Again, the swelling ranks of boomers into the eye-disease patient category bodes well for Kala. I recommend buying the name if you can get your hands on IPO shares before they pop.

Steve’s Take:

How long can this sector keep absorbing new names while stock prices keep climbing unabated? That’s the question on investors’ minds; hang in, or cut and run. At the moment, with the fate of GOP healthcare reform efforts anything but clear, sentiment continues to be generally positive. And money continues to be essentially “free” so that borrowing to invest in a rising sector continues to make sense.

Steve's Take: With the massive gains in the market YTD, a sector correction likely is looming Click To Tweet

Considering the massive YTD gain, we all know that a correction in the sector likely is looming. Are there still legs to this market? I believe after the congressional recess is over, we’ll see the road signs a bit clearer for what’s up ahead. Stay tuned.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.

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