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The Offering

Enanta Pharmaceuticals (ENTA) is pricing 4 million shares in an initial public offering. After the offering, which is managed by J.P. Morgan (JPM) and Credit Suisse, there will be around 16.8 million shares outstanding, giving Enanta Pharmaceuticals a market cap of over $250 million. In total, the company hopes to raise around $60 million from the sale of the shares.

Enanta's Business

Enanta Pharmaceuticals is a research and development biotechnology company which is focused on creating drugs for use against the hepatitis C virus (HCV). As of 2009 an estimated 3.2 million people in the United States have Hepatitis C, and the total worldwide sales of HCV therapies two years ago were more than $3.5 billion. One of the companies lead product candidates, called EDP-239, is an inhibitor for HCV infection and has entered Phase 1 trials. The drug is part of a deal Enanta entered into with Novartis (NVS), which grants Novartis exclusive, worldwide rights to develop, manufacture and commercialize several of Enanta's product candidates. Novartis is also responsible for all the costs associated with the development, manufacture and commercialization of EDP-239. As a result, Enanta has already received payments of roughly $44 million and the company is eligible to receive additional milestone payments totaling $395 million.

Enanta Pharmaceuticals also has a similar collaboration agreement with AbbVie (ABBV) for the drug HCV NS3, which is a protease inhibitor. AbbVie is responsible for all costs associated with the development, manufacturing and commercialization of Enanta's protease inhibitors. Part of this agreement includes the drug ABT-450, for which Enanta has received more than $100 million in milestone payments. This drug is entering Phase 3 clinical trials and Enanta is eligible to receive an additional $195 million in milestone payments upon successful development of the product.

Enanta's Primary Competitors

There are a large number of product candidates in Phase 2 trials or later that will directly compete with Enanta's lead product candidates. Just a few of the companies working on those products are Johnson and Johnson (JNJ), Gilead (GILD), Bristol-Meyers Squibb (BMY), Merck (MRK) and Vertex (VRTX). Enanta's antibiotic product candidate, EDP-788, would compete with several antibiotics already on the market, including Tygacil and Teflaro. There are also a few competitors with product candidates in Phase 3 trials, including delafloxicin from Rib-X Pharmaceuticals and a tetracycline under development at Paratek Pharmaceuticals. If all that wasn't enough, AbbVie also has the right to market and sell products that directly compete with the product candidates Enanta is currently developing.

Similar IPO's To Enanta Pharmaceuticals

Just yesterday Tetraphase Pharmaceuticals (TTPH), which is a clinical stage company that makes tetracycline based antibiotics, had to lower its IPO price range from $10-12 down to $8-10. Presumably because the company couldn't get enough interest at the higher price level. While a couple other biopharmaceutical companies have gone public this year with mixed results, the Tetraphase IPO is the closest comparison that I've found with any of the IPO's I've written about here on Seeking Alpha.

Enanta's Financials

Similar to most development and clinical stage biopharmaceutical companies, Enanta has not received any revenue from product sales to date. All of Enanta's revenue so far has come from collaboration agreements with pharmaceutical companies and a government research and development grant. Currently, the company has two significant collaboration agreements and a contract with NIAID to fund the preclinical development of the lead product candidate in Enanta's new class of Bicyclolide antibiotics. For 2012 that contract generated $6.1 million in revenue and the agreement with Novartis generated $35.5 million in revenue.

How To Play Enanta Pharmaceuticals

Enanta is well positioned through its collaboration agreements to receive substantial amounts of money if its drugs achieve predetermined milestones. That, of course, may never happen-- which makes this a very risky IPO in which to invest. In addition, it appears the Tetraphase IPO is struggling and may not go public. I expect Enanta Pharmaceuticals may have the same trouble selling all its shares within the current range of $14-16 per share. I won't be participating in this IPO and I believe it is probably too risky for most investors.

Source: Enanta: Pharmaceutical Company Treats Shareholders With An IPO