Healthcare IPOs keep rolling along, and not just in the US. Will March come in like a lion, or a lamb?

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The News:

While markets take a breather during this holiday shortened week, any big IPO news in the US will likely come in the form of new filings. A company that files this week will be able to price its offering in mid-March. Renaissance Capital says that based on the recent performance of its IPO Index, they are expecting a healthy number of IPOs in March.

Meanwhile, IPO pricings among the healthcare sector’s seemingly unlimited supply of aspirants now include the following players from last week’s party:

1) Stealth BioTherapeutics Inc., a Phase 3 biotech focused on rare diseases caused by mitochondrial dysfunction, raised $78 million by offering 6.5 million shares at $12, the low end of the range of $12 to $14 for its initial public offering.

The company is developing drugs that treat mitochondrial dysfunction linked to age-related diseases and genetic mitochondrial diseases. Specifically, the funding will support the development of elamipretide for primary mitochondrial myopathy and dry age-related macular degeneration, both of which have no FDA-approved treatments. It will see the drug through a pivotal Phase 3 trial in the former indication and start a Phase 2b clinical trial in the latter, according to an SEC filing. Newton, MA-based Stealth BioTherapeutics lists on the Nasdaq under the symbol “MITO.” Jefferies, Evercore ISI and BMO Capital Markets acted as lead managers on the deal.

Steve’s Take:

Shares of Stealth Bio made their inaugural entrance Friday at $12 apiece, which was the low end of the company’s targeted $12 to $14 range. Not a great opening, but not horrible. The biotech sold 6.5 million shares, slightly more than the 6.2 million shares it had planned to offer. That’s a plus.

In Stealth Bios’s first day of trading Friday, shares closed down 1% at $11.90. Again, not bad, but the Dow, S&P and Nasdaq were all up sharply.

Last June, Stealth Bio closed a $100 million round of venture funding, which the company said would be applied toward a Phase 2b study testing elamipretide in patients who have dry AMD. In its prospectus, Stealth Bio says that study is expected to start later this quarter.

A second Stealth Bio compound, SBT-272, was developed to treat rare neurodegenerative diseases, including amyotrophic lateral sclerosis (ALS). The company says it plans to start a Phase 1 study testing that drug by the end of 2019.

Stealth Bios drugs are based on technology licensed from Cornell University and the Institut de recherches cliniques de Montréal. The company was incorporated in 2006 under the name Stealth Peptides. In 2015, it changed its name to Stealth BioTherapeutics.

Bottom Line: Lots of promise and trials-a-plenty in various stages of development. But far too early to buy this name. Like so many other aspiring biotech unicorns, more data are needed in order to place a rational bet here rather than a pure gamble.

2) Hoth Therapeutics Inc., which is developing topical treatments for eczema, raised $7 million by offering 1.3 million shares at $5.60, the low end of the range of $5.50 to $6.50. At $5.60, the company commands a market value of $57 million.

Hoth has exclusive worldwide rights to the BioLexa Platform. Hoth intends to use the BioLexa Platform to develop two different topical cream products: (i) a product to treat eczema, and (ii) a product that reduces post-procedure infections, accelerates healing and improves clinical outcomes for patients undergoing aesthetic dermatology procedures. Hoth’s initial focus will be on the development of the BioLexa Platform for the treatment of eczema. NYC-based Hoth Therapeutics lists on the Nasdaq under the symbol “HOTH.” Laidlaw & Company (UK) acted as a lead manager on the deal.

Steve’s Take:

Talk about an open-arms greeting from investors. Hoth shares closed the week up a whopping 52% at $8.53. That’s good, and simultaneously, also time for some profit taking. So let that happen first, then see where shares settle by the end of the month before even contemplating a future timeframe for making a buy decision.

The National Eczema Association notes that 31.6 million Americans (that’s about 10% of us) suffer from eczema, and the economic burden is estimated to be $5.3 billion. That’s a huge target market. Hoth expects to test 50 to 100 patients in a Phase 2 trial that should commence by the middle of 2019.

Hoth’s prospectus says that it should have cash in hand for at least 8 to 12 months of operations. Investors should therefore grasp that Hoth may need additional financing in the near future.

With its competitors having an average enterprise value of more than $300 million, Hoth seems undervalued with an EV of $72.64 million.

Bottom Line:

Buying shares in 2020 or 2021 makes sense. That’s when the company should release its clinical data and when the stock returns may show up. The company is still at an early stage and will likely require additional operating capital in 12 months or sooner. For these two reasons, Hoth is not presently a Buy. Perhaps in 2020 or 2021, when the results from the Phase 2 clinical trials are due.

3) Avedro Inc., which sells ophthalmic drug device systems used in treating corneal disorders, raised $70 million by offering 5 million shares at $14, the low end of the $14 to $16 range. At pricing, Avedro commands a fully diluted market capitalization of $270 million and an enterprise value of $211 million.

The commercial-stage firm markets treatments for corneal ectatic disorders (thinning of the cornea) and correcting refractive conditions aimed at improving vision to reduce dependence on corrective eyewear. Its Avedro Corneal Remodeling Platform consists of its KXL and Mosaic ultraviolet light systems and a lineup of proprietary riboflavin drug formulations. The company says when both are applied to the cornea a biochemical reaction called corneal collagen cross-linking occurs which strengthens it and modifies its shape, improving focusing power. Waltham, MA-based Avedro lists on the Nasdaq under the symbol “AVDR.” BofA Merrill Lynch and J.P. Morgan acted as lead managers on the deal. Shares closed the week down 12% at $12.35.

Steve’s Take:

Management is headed by CEO Reza Zadno, PhD, who has been with the firm since September 2016 and previously held several positions in the life science venture capital industry.

The firm has raised in excess of $218 million in private financing from investors, including OrbiMed, InterWest Partners, HealthQuest Partners, LAV, and De Novo Ventures. (Source: Crunchbase.)

Bottom Line:

I agree with analysts at Seeking Alpha that given strong demographic growth, the trend toward less-invasive treatments, existing CE mark approval in Europe and reasonable valuation assumptions, this IPO name looks inviting. The company sells corneal repair medical instruments to eye doctors and is seeking FDA approval for its European-approved system for correcting near-sightedness (presbyopia).

Given the approved status of the much larger market opportunity for Avedro’s Mosaic system in Europe, the growth opportunity from its commercialization and approval processes in the US, and the reasonable valuation assumptions, this name is one to keep on your radar screen.

Best of the rest…

4) TCR2 Therapeutics Inc., an early-stage biotech developing immunotherapies for various cancers, raised $75 million by offering 5 million shares at $15, the midpoint of the $14 to $16 range. The company bills itself as an innovative immunotherapy company developing the next generation of novel T cell therapies for patients suffering from cancer.

It claims its proprietary TCR Fusion Construct T cells (TRuC-T cells) specifically recognize and kill cancer cells by harnessing the entire T cell receptor signaling complex, which it believes is essential for T cell therapies to be effective in patients with solid tumors. Cambridge, MA-based TCR2 Therapeutics lists on the Nasdaq under the symbol “TCRR.” Jefferies, SVB Leerink and BMO Capital Markets acted as lead managers on the deal. Shares closed the week up 1 cent at $15.01.

5) Anchiano Therapeutics Ltd., a late-stage biotech developing therapies for early-stage bladder cancer, raised $31 million by offering 2.7 million ADSs at $11.50, below the expected price of $14.55. At $11.50, Anchiano Therapeutics would command a market cap of $78 million.

Anchiano has developed a cancer drug containing a diphtheria toxin and a medicinal component capable of homing in on H19, a specific receptor in the body that almost never appears in healthy cells. The company’s lead product, which is designed to treat bladder cancer, is about to enter a second Phase 3 clinical trial designed to obtain approval for the drug. The company also recently started a multi-center Phase 2 trial of a drug for treatment of cancer of the bladder membrane. The Cambridge, MA-based company previously filed to raise $35 million by offering 2.4 million ADSs at $14.55. Anchiano Therapeutics lists on the Nasdaq under the symbol “ANCN.” Oppenheimer & Co. acted as a lead manager on the deal. Shares closed the week down 19% at $9.30.

6) And not to be completely overshadowed by the Nas­daq with its US-dominated first batch of biotech uni­corns of 2019, the Hong Kong Stock Ex­change is out of the blocks with CStone Pharmaceuticals Co. Ltd. (Suzhou) and a po­ten­tial $304 mil­lion (HK$2.39 bil­lion) sticker price for its IPO.

Endpoints reports that at the top of the range, each of the 186 mil­lion CStone shares would sell at $1.63 (HK$12.8). That’s down 23% from its orig­i­nal tar­get of $400 mil­lion ($HK$3.1 bil­lion), Caixin re­ported. While the val­u­a­tion is un­clear, the com­pany dis­closed in its prospec­tus that it was val­ued at $1.05 bil­lion in its most re­cent ven­ture round.

Backed by some of the glitziest names in biotech in­clud­ing ARCH, WuXi and Sin­ga­pore’s GIC, and led by Sanofi SA old hand Frank Jiang, CStone can flaunt the largest Se­ries B round–$260 mil­lion–in the his­tory of Chi­nese bio­pharma. And it’s put the money to work, hav­ing expended $148 mil­lion by last Sep­tem­ber, doing some serious R&D labor for its I/O pipeline, li­cens­ing com­mer­cial rights to Massachusetts-based Agios Pharmaceuticals’ AML drug and pilfering a Gold­man Sachs banker to be its CFO.

It’s now late-stage crunch time, with the spot­light on CStone’s PD-L1 in­hibitor CS1001. Keeping pace with the first flood of domestic check­points to hit the Chi­nese mar­ket–fol­low­ing ap­provals for In­novent and Jun­shi, which both went pub­lic on the HKEX re­cently–CStone is beginning with smaller in­di­ca­tions like clas­si­c Hodgkin’s lym­phoma and nat­ural killer T cell lym­phoma, with plans to sub­mit NDAs in H2 2019 and H1 2020, re­spec­tively.

Phase 3 tri­als in non-small cell lung can­cer, gas­tric can­cer and he­pa­to­cel­lu­lar car­ci­noma will start some time be­fore those sub­mis­sions, the com­pany writes in its fil­ing.

Endpoints notes that CStone’s debut on Feb­ru­ary 26, 2019 (one week after it prices) will be scrutinized as in­vestors learn whether its stock will take a quick dive like As­cle­tis and BeiGene–both of which have yet to re­cover–or bask in the warm glow that Jun­shi and In­novent experienced late last year.

Nearly a year after the HKEX embraced pre-rev­enue biotechs, its anyone’s guess where CStone will end up.

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