The Initial Public Offering
Tetraphase Pharmaceuticals (TTPH) is pricing 6.8 million shares of its common stock in an initial public offering managed primarily by Barclays and BMO Capital Markets. Tetraphase is a clinical stage biopharmaceutical company which is looking to raise $75 million. After the offering the company will have a total market cap of around $175 million.
Tetraphase Pharmaceuticals Business
The focus of Tetraphase Pharmaceuticals is to create novel antibiotics for serious and life-threatening multi-drug resistant infections. Tetracycline antibiotics have been studied and used for more than 50 years. In the past, these compounds were produced first in bacteria and then chemically modified using a limited number of methods. Tetraphase's approach is to create the compounds completely synthetically, making its tetracycline derivatives unique to the company. It has used this proprietary technology to create over 2800 new tetracycline derivatives.
The company's main product candidate is called eravacycline and it has just completed Phase 2 trials for the treatment of intra-abdominal infections. The company is currently finalizing its plan for Phase 3 clinical trials of eravacycline for the treatment of intra-abdominal infections and for complicated urinary tract infections. It estimates it will have top line data for both these trials by the first quarter of 2015.
Tetraphase Pharmaceuticals Competition
The competition is somewhat different within the biopharmaceutical field than it is within other sectors. So even though Tetraphase competes with company's that have far greater financial and human resources, if its drugs get approved it may look to partner with these larger corporations to distribute the drug. If its primary product candidate gets approved by the FDA it will compete directly with several antibiotics already on the market. Some of those are Merrem, marketed by AstraZeneca (AZN), Primaxin, which is marketed by Merck (MRK), Pfizer (PFE) markets an antibiotic called Tygacil and one called Zosyn. Johnson & Johnson (JNJ) markets Levaquin along with Ortho-McNeil, and several other companies have product candidates which are currently in Phase 3 trials.
Similar IPO's To Tetraphase
Hyperion Therapeutics (HPTX) is a biopharmaceutical company which makes drugs to treat orphan diseases and hepatology. The company priced a secondary offering on March 6th and has run up about 20% since then. At the end of January, Stemline Therapeutics (STML), which is a clinical stage company researching drugs to target cancer stem cells, went public and is also up nearly 20% since. The Pharmaceutical sector has been performing very well year-to-date along with the broader markets. Initial public offerings have also performed well this year, but there have not been very many offerings so far in March. The sole IPO last week, Silver Spring Networks (SSNI), soared around 25% on its first day of trading. Perhaps indicating that investors are hungry for new issues and there is a lot of money on the sidelines.
Tetraphase Pharmaceuticals Financials
As with many clinical stage companies, Tetraphase has incurred losses over its operating history. It has not generated any product revenues and has built its business solely on private placement of its equity securities, debt financings and revenue from government grants. As of last September the company had accumulated a deficit of $87 million and had cash and cash equivalents to use for its operations totaling $6.7 million. The company will have broad discretion on use of the proceeds from the offering. Management believes that the proceeds will be sufficient to get eravacycline through both of the planned Phase 3 trials, however the funds will not be enough to seek FDA approval for the drug, assuming the trials result in favorable data.
How To Play Tetraphase Pharmaceuticals
Although Tetraphase's product and approach appear unique to its industry and the current bullish market seems starved for new offerings, clinical-stage pharmaceutical companies are some of the most speculative stock investments one can make. If the drugs get approved the stock will soar and if not, the stock becomes virtually worthless. This is too speculative for my portfolio or that of a client's, however the stock may price at the midpoint of the range or higher. Afterwards, the stock will fluctuate on any news regarding eravacycline until 2015, when the company says it will have all the data from the trials.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.