The RARE IPO Deal
Ultragenyx Pharmaceutical (NASDAQ:RARE), a development-stage biopharm firm, focused on the development of treatments for rare and ultra-rare diseases, plans to raise $94 million in its upcoming IPO on Friday, January 31.
The Novato, California-based firm will offer 4.8 million shares at an increased price range of $19 to $20 per share. If the IPO can reach the midpoint of that range at $19.50 per share, RARE will command a market value of $549 million.
RARE filed on November 8, 2013.
Lead Underwriters: J.P. Morgan Securities LLC, Morgan Stanley & Co LLC
Underwriters: Canaccord Genuity Inc., Cowen and Company LLC
Business Summary
RARE is a development-stage biofirm, developing treatments for rare diseases, currently focused on metabolic genetic diseases. The firm intends to target diseases that meet the criteria of high unmet medical needs, with clear biology for treatment, and a lack of approved therapies. RARE's product development pipeline includes a pair of product categories, monoclonal antibody and enzyme replacement therapies and small-molecule substrate replacement therapies. Both categories are metabolism-related; enzymes are the proteins used to process materials for cellular function, while substrates are the materials that enzymes process.
RARE's treatments seek to remedy deficiencies of both enzymes and substrates. The firm has in-licensed potential treatments for five diseases that have either entered Phase 1/2 or Phase 2 or are expected to enter the same by early 2014. The firm intends to acquire and maintain commercial rights to its treatments wherever possible, since it won't need a massive commercial organization to market its treatments to the relatively few specialists who will use the treatments.
Valuation
RARE offers the following figures in its S-1 balance sheet for the nine months ending September 30, 2013:
Revenue: $0.00
Net Loss: ($23,753,000.00)
Total Assets: $68,592,000.00
Total Liabilities: $7,438,000.00
Stockholders' Equity: ($56,848,000.00)
RARE's lack of revenue is to be expected of a pre-commercial biopharmaceutical firm; until RARE is able to gain approval for and commercialize one or more of its product candidates, it will continue to lose money. A purchase of RARE shares will be more or less a bet on the future success of its candidates.
Significant Competition
While RARE has reduced the risk of competition through its choice of diseases to seek treatments for, there remains the possibility that other biopharmaceutical or biotechnology firms will attempt to bring similar treatments to market before RARE can commercialize its own treatments. Some of these firms have greater financial resources than RARE, as well as more access to research staff and facilities and superior commercialization abilities. Potential competitors include Shire (SHPG), Sanofi (SNY), BioMarin (BMRN), Alexion (ALXN), and Roche.
Management
President and CEO Emil D. Kakkis, M.D., Ph.D., founded RARE in 2010 and has served in his current positions since that time. He previously served as Chief Medical Officer with BioMarin Pharmaceutical Inc. and continues to serve as President and Founder of EveryLife Foundation for Rare Diseases, a non-profit organization, focused on the acceleration of biotechnology innovation for rare diseases. He holds a BA in Biology from Pomona College and combined M.D. and Ph.D. degrees from the UCLA School of Medicine's Medical Scientist Training Program.
Conclusion
We rate RARE as neutral to positive at the increased price range. We were more comfortable at the original range of $14 to $17.
Though there are inherent risks to purchasing shares of a clinical-stage firm, since there's a significant chance that any given treatment will fail to receive approval or to be successfully commercialized, RARE has somewhat diluted these risks by pushing multiple product candidates forward simultaneously-leading to a greater chance that RARE will be able to get at least one candidate through to build on. This could be more so the case as it focuses on diseases relatively well-understood in biology. Finally, we believe RARE's decision to pursue diseases with no current treatments is a wise one.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RARE over 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.
