US Food and Drug Administration chief Scott Gottlieb on Thursday (May 3, 2018) questioned whether rebates that drugmakers provide to health insurers should remain protected by federal law, sparking new concerns on Wall Street over efforts to curb drug pricing.
Gottlieb was referring to the common practice of pharmaceutical companies setting a high “list price” for a drug, and then lowering the cost for health plans through hefty rebates in exchange for the broadest access to patients. In recent weeks, he has criticized these practices for keeping drug prices high and locking out competitors.
“What if we took on this system directly, by having the federal government reexamine the current safe harbor for drug rebates under the Anti-Kickback Statute?” Gottlieb said in remarks prepared for a Food and Drug Law Institute conference and posted on the FDA’s website. “Such a step could help restore some semblance of reality to the relationship between list and negotiated prices, and thereby boost affordability and competition.”
The shares of some drugmakers fell after Gottlieb’s comments. Eli Lilly skidded 5% over the week; Pfizer gave up 6%; Amgen and Celgene both slid 5%, while Regeneron tanked 7%.
The somber mood on drug pricing didn’t cool the scalding market for biotech and other healthcare IPOs. Here’s a look at the weekly action.
1) Unity Biotechnology Inc. pulled off its super speculative IPO gamble, pocketing $85 million with a pitch premised on preclinical data. The anti-aging drug developer priced its 5 million shares at $17, right in the middle of the $16 to $18 range announced earlier. Based in Brisbane, CA, Unity will now list on Nasdaq under the symbol “UBX.” Riding a surge of biotech interest in age-related diseases, Unity is poised to start their first human study of UBX0101 on osteoarthritis–one of many diseases they hope to treat by flushing senescent cells out of bodies. Execs also plan for the IPO proceeds to go toward clinical testing of another compound, dubbed UBX1967, late 2019 in one of the eye diseases it’s being developed for. They range from diabetic retinopathy and diabetic macular edema to glaucoma and age-related macular degeneration. Shares closed the week off 1% at $16.75.
Steve’s Take: Yawn. Another hopelessly risky roll of the dice. Just too many of these age-related gambits floating around right now, as far as I’m concerned. Wait until there’s something—anything—to actually evaluate.
2) Abpro Corp., a preclinical biotech developing novel antibodies for various cancers, announced terms for its IPO. The Woburn, MA-based company plans to raise $60 million by offering 4 million shares at a price range of $14 to $16. Insiders intend to purchase $28 million worth of shares in the offering. At the midpoint of the proposed range, Abpro would command a fully diluted market value of $305 million and an enterprise value of $238 million. Abpro was founded in 2004 and booked $2 million in revenue for the 12 months ended December 31, 2017. It plans to list on the Nasdaq under the symbol “ABP.” UBS Investment Bank and Wells Fargo Securities are the joint bookrunners on the deal. It is expected to price this week.
Steve’s Take: Again, who needs another expensive miracle drug. Although the company has been around for almost 14 years. They just might have the secret to an affordable cure.
3) Included among recent SEC filings for initial public offering, Iterum Therapeutics PLC, which is developing oral and IV antibiotics for urinary tract infections and intra-abdominal infections, registered up to $92 million worth of common stock. The Dublin, Ireland-based company was founded in 2015 and booked $0.5 million in revenue for the 12 months ended December 31, 2017. It plans to list on the Nasdaq under the symbol “ITRM.” Leerink Partners and RBC Capital Markets are the joint bookrunners on the deal. No pricing terms were disclosed. The clinical-stage pharma company is focused on developing an antibiotic called sulopenem that it licensed from Pfizer Inc. in late 2015.
Steve’s Take: Alright, here’s something I can wrap my head around. We all know how common antibiotic resistance is, and it’s increasing. And these types of specific infection targets represent a huge potential market. I like it.
4) Inspire Medical Systems Inc., which sells an implanted device for treating obstructive sleep apnea, raised $108 million by offering 6.75 million shares at $16, the high end of the range of $14 to $16. It had previously filed to offer 5.0 million shares at the same range. Maple Grove, MN-based Inspire Medical lists on the NYSE under the symbol “INSP.” BofA Merrill Lynch and Goldman Sachs acted as lead managers on the deal. Shares closed the week up 53% to $24.47.
Steve’s Take: I hate to point out the obvious but of course will, in any event. A 53% jump from the IPO price in the first week it’s trading? But what’s its mission in life. Treating sleep apnea. If you have the problem or knows someone who does, then you know this would be a game changer. After the inevitable pullback, for the high-risk portfolio, this could be a worthy addition.
5) Evelo Biosciences Inc., an early-stage biotech developing microbial gut therapies for inflammatory diseases, announced terms for its IPO. The Cambridge, MA-based company plans to raise $85 million by offering 5.3 million shares at a price range of $15 to $17. The company dosed its first monoclonal microbial candidate in inflammatory diseases, EDP1066, in April 2018, and expects to initiate a clinical trial for its second candidate in inflammatory diseases, EDP1815, in the fourth quarter of 2018. Evelo Biosciences plans to list on the Nasdaq under the symbol “EVLO.” Morgan Stanley, Cowen & Co. and BMO Capital Markets are the joint bookrunners on the deal. It is expected to price this week.
Steve’s Take: Simple. Wait and see what the big players do with this one. I’ll keep you posted with my view after the pricing.
6) And Singapore-based drugmaker Aslan Pharmaceuticals Ltd. priced its IPO under Wall Street’s expectations, bringing in a little more than half the hoped-for prize it announced in March. The company raised $42 million in the public offering Friday, a far cry from the $86 million it first set intentions for in a SEC filing just six weeks prior. It offered 6 million shares at $7.03, listing on the Nasdaq under the ticker “ASLN.” With a lead oncology drug in a pivotal study for biliary tract cancer and a slate of key catalysts coming up in other trials, Aslan plans to use the proceeds to push forward its pipeline.
Aslan has a global strategy to roll out its cancer drugs in China, the US, and Europe. The lead product candidate is varlitinib, a pan-HER drug that is also in the clinic for gastric, breast and colorectal cancers. Leerink Partners and Piper Jaffray acted as lead managers on the deal. Shares closed the week down 20% at $5.61.
Steve’s Take: I’m a fan of the Chinese biotech startup scene right now. Raising money in Hong Kong is one thing. But on Wall Street? That’s a whole different league for startups. Still, they did raise some serious capital and got Leerink and Piper Jaffray to underwrite the issue. Somebody knows something. At $5.00, for the high-risk tolerant portfolio, this looks like a rational bet rather than a pure roll of the dice.