Tetralogic Pharmaceuticals IPO Is Not Logical For Investors

Tetralogic Pharmaceuticals Corp (NASDAQ:TLOG), a clinical-stage biopharmaceutical firm in the process of developing small molecule treatments for cancer, plans to raise $90.0 million in its upcoming IPO.

The Malvern, Pennsylvania-based firm will offer 6.4 million shares at an expected price range of $13-$15 per share. If the IPO can hit the midpoint of that range at $14 per share, TLOG will command a market value of $270 million.

TLOG filed on October 18, 2013.
Lead Underwriters: Guggenheim Securities LLC, Needham & Company LLC, Oppenheimer and Co.

TLOG is a clinical-stage biopharmaceutical firm engaged in the discovery and development of small molecule therapeutics designed to cause abnormal cells that are resistant to the immune system to self-destruct. The firm's clinical-stage product candidate, Birinapant, is in Phase 1 and 2 oncology clinical trials for multiple solid tumors and hematological malignancies. TLOG's lead program is colorectal cancer, for which Birinapant has substantially completed a Phase 1/2 trial, with plans to begin a randomized Phase 2/3 trial in the latter half of 2014.

TLOG offers the following figures in its S-1 balance sheet for the nine months ending September 30, 2013:

Revenue: $0.00
Net Income: ($13,296,373)
Total Assets: $4,844,627
Total Liabilities: $20,545,386
Stockholders' Equity: ($74,738,762)

As a clinical stage biopharmaceutical firm, TLOG's negative income figures and non-existent revenues are to be expected; if the firm does begin to generate revenue, it will not be until it has successfully commercialized a treatment candidate.

As with any high-profile disease, cancer attracts swarms of biopharmaceutical firms attempting to develop treatments. TLOG must compete with these firms, along with academic, governmental, and other research organizations. Some of these firms and organizations have superior capitalization and resources to TLOG. Major competitors pursuing similar treatments include Curis (NASDAQ:CRIS), Novartis AG (NYSE:NVS), and Debiopharma SA.

President and CEO J. Kevin Buchi joined TLOG in August 2013. Prospective investors should review the astronomical compensation package on page 138 of the prospectus that was granted to Mr. Buchi. After reviewing that huge package, prospective investors also need to review the overly generous "management transition agreement" that was given to the former leader, John Gill, on page 135 of the S-1.

Bear in mind that this is a small company that lost over $20,000,000 in each of the past two years and has zero revenues (See page 62 of the S-1).

Mr. Buchi previously served as Corporate Vice President, Global Branded Products at Teva Pharmaceutical Industries and as CEO of Cephalon Inc; he also served as Cephalon's CFO and COO at different points in his career. Mr. Buchi currently serves on the boards of Alexza Pharmaceuticals. (NASDAQ:ALXA), Benitec Biopharma Ltd, EPIRUS Biopharmaceuticals, Forward Pharma A/S and Stemline Therapeutics Inc (NASDAQ:STML). Mr. Buchi holds a B.A. in chemistry from Cornell University and a Masters of Management from the J.L. Kellogg Graduate School of Management at Northwestern University.

We plan to avoid this IPO no matter where it prices.

An investment in TLOG is more or less a gamble on the success of Birinapant, which is far too early in the clinical trial process to allow for anything but a blind bet. Even if it is ultimately successful in gaining approval for the drug, TLOG is still years away from commercializing Birinapant, and there's no guarantee that it will be a commercial success or that a competitor won't develop a superior treatment in that time. Though there is potential for a huge payoff, we don't view this as the best available investment for aggressive investors.

We hope this company is ultimately successful in helping people with certain kinds of cancer and that the board of directors comes to their senses on compensation issues.

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.