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Five Prime Therapeutics (NASDAQ:FPRX) made its public debut on Wednesday, September the 18th. Shares of the clinical-stage biotechnology company ended their first day with gains of 0.6% at $13.18 per share.

Given the reliance on external financing and the high risks involved in this specialized offering, I will pass and stay on the sidelines.

The Public Offering

Five Prime Therapeutics is a clinical-stage biotechnology company which is focusing on the discovery and development of novel protein therapeutics which are used to block diseases like cancer and inflammatory diseases.

Five Prime sold 4.8 million shares for $13 apiece, thereby raising $62 million in gross proceeds. All shares were sold by the company, with no shares being offered by selling shareholders.

The public offering values the equity of the firm at $198 million. Initially, the bankers and the firm set an initial price range of $12 to $14 per share.

Some 31% of the total shares were offered in the public offering. At Friday's closing price of $13.74 per share, the firm is valued at $209 million.

The major banks that brought the company public were Jefferies, BMO Capital Markets, Wells Fargo Securities (NYSE:WFC) and Guggenheim Securities.

Valuation

Five Prime Therapeutics has developed a library of more than 5,600 human extracellular proteins by now, representing most of the body's important targets for protein therapeutics. Based on this platform and library, the company has developed a pipeline of new product candidates for cancer and inflammatory diseases.

For the year of 2012, Five Prime Therapeutics generated annual revenues of $10.0 million, down an incredible 85% on the year before. As a result, a $19.7 million profit turned into a $27.6 million loss over the past year.

Revenues for the first six months of the year came in at $6.5 million, up by 55% on the year before. Net losses narrowed slightly to $14.3 million.

Five Prime Therapeutics operates with $28.2 million in cash and equivalents before the offering. The company operates without the assumption of debt. Factoring in the gross proceeds of $62 million from the public offering, and Five Prime will operate with a net cash position of around $80 million.

As such, Five Prime's operating assets are valued around $140 million, the equivalent of 14 times last year's annual revenues.

The Pipeline

Five Prime has a few product candidates currently in the pipeline.

FP-1039 aims to neutralize cancer-promoting fibroblast growth factors, which result in cancer cell ploriferation. The company has completed a Phase 1 clinical trial, while partner GlaxoSmithKline (NYSE:GSK) already commenced a Phase 1b clinical trial in July of this year. Under terms of the deal, GSK is responsible for development and commercialization of the drug in the US, Canada and the European Union. Five Prime is eligible to receive upto $435 million in contingent payments from the drug.

Another candidate is PA008 which is an antibody which is developed to treat inflammatory diseases, including rheumatoid arthritis. PA008 is aimed to prevent production from inflammatory factors, already targeted by existing drugs such as Humira, manufactured by Abbott Laboratories (NYSE:ABT). Five Prime reckons it can be potentially more effective than this drug which achieved some $9.3 billion in worldwide sales in 2012.

The last drug in the pipeline is PA144 which is an antibody being developed to treat patients with gastric cancer and other solid tumors. A phase 1 clinical trial is expected to commence in the second half of 2014.

Investment Thesis

As noted above, the offering of Five Prime has been a bit disappointing. Shares have not seen an opening day jump, after they were priced at the midpoint of the preliminary price range.

At Friday's close of $13.74 per share, they trade some 5.7% above the midpoint of the guided range.

While the firm has some prominent investors, which include GlaxoSmithKline holdings a 4.7% stake and Pfizer International (NYSE:PFE), which holds a 10.1% stake, there are obviously many risks to a biopharmaceutical company which has no working products.

Five Prime has no working products at the moment, reports large losses, and is dependent on GSK. The company plans to use $10 million to fund the Phase I clinical trial of FPA008 and will use another $20 million for the Phase I clinical trial of FPA144. At this pace, Five Prime will run out of funds by the start of 2015. As it will most likely will not have a working product at that moment, future dilution is a real risks, especially if the company can not raise new capital at acceptable terms.

Given these high risks, and the fact that the company will have to raise new capital before a working product hits the market, makes me wary.

I remain on the sidelines.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.