IPO Review: A Few Potentially Profitable Biotech Ideas

| About: Corvus Pharmaceuticals (CRVS)

Summary

Often times it's best to let IPOs develop a trading history and deliver a couple quarters before establishing a position.

I prefer to review IPOs from the past 3, 6, and 12 months and scan them for potential ideas to dig deeper.

Here I present six potential biotech ideas that seem to be undervalued based on their current fundamentals.

Many of these companies are early stage and thus speculative. However, as outlined before, sometimes it pays to get in early.

While getting in on an IPO can be exciting, I often prefer to wait for shares to have a trading history and a couple quarters as a public company before getting involved. As part of ongoing coverage and in the interest of finding new ideas, whether busted offerings or growth plays that could continue to go higher, I've made it a habit to periodically check up on them.

While most of my ideas tend to be in biotech or technology, I don't limit my searches to any one sector. Now and in the future, I plan to include thoughts and insights from those scans on Seeking Alpha for any readers who find it interesting as well.

June Revisited (3 Months)

Syros Pharmaceuticals (SYRS)- In a prior article, I called the small biotech company a speculative buy, with two intriguing clinical candidates that might demonstrate distinct advantages over current treatments in AML, MDS, breast and lung cancer. Lead candidate SY-1425 is a potent, selective retinoic acid receptor alpha (RARα) agonist, which is already approved in Japan and therefore, has a decreased risk profile. SY-1365 is a first-in-class cyclin-dependent kinase 7 (CDK7) inhibitor shown to selectively kill acute leukemia cells, and in a related preclinical study, a similar compound showed the ability to quickly kill triple-negative breast cancer cells. Heavyweight institutional investors such as the Baker Brothers and Deerfield Management are establishing positions as well.

Selecta Biosciences (SELB)- With a $260 million market cap and $85 million in cash, the early-stage biotech is advancing its lead compound SEL-212 (SVP-Rapamycin plus pegsiticase) in refractory and tophaceous gout. As the drug showed signs of clinical activity as expected in the phase 1 dose escalation trial, the company is now on track to initiate the Phase 2 trial in the near future and expects a data readout in the first half of 2017. The company is also advancing its first two gene therapy programs for two rare genetic disorders of metabolism, Methylmalonic Acidemia (MMA) and Ornithine Transcarbamylase Deficiency (OTC). I plan on doing a more in-depth write-up on the company in the future for readers.

March Revisited (6 Months)

Syndax Pharmaceuticals (SNDX)- In late August, I identified Syndax as a speculative buy for a potential biorunup play. Lead candidate, entinostat, granted postmenopausal women with locally recurrent or metastatic ER positive breast cancer an 8.3-month overall survival advantage and a two-month advantage in progression-free survival in a randomized, placebo-controlled trial. Now the company is enrolling 600 patients under SPA (special protocol assessment) in a pivotal trial and sees a large opportunity in second-line hormone receptor positive breast cancer (around 34,000 patients), where entinostat could replace Afinitor as standard of care.

Corvus Pharmaceuticals (CRVS)- With a promising yet early-stage pipeline and a $350 million market capitalization compared to $152 million cash on hand, this one will be worth digging into later. Lead candidate CPI-444 is in a dose escalation phase 1 trial as both a single agent and in combination with Genentech's Tecentriq. CLJ-444 was designed to block the peripheral lymphocyte adenosine A2A receptor, and has been shown to increase activated immune cells in the blood of same patients, as well as be synergistic with various checkpoint inhibitors in preclinical data.

Hutchison China Meditech (HCM)- This China-based biotech has seven drug candidates in 25 clinical trials, including four pivotal studies. The company is in the process of developing targeted therapies for oncology and immunological diseases on a global scale, and has $197.5 million of cash to continue advancing the pipeline. One key asset is Savolitinib, a first-in-class mesenchymal epithelial transition factor ("c-Met") inhibitor which management plans to usher into pivotal studies in c-Met-driven papillary renal cell carcinoma. Fruquintinib is potentially a best-in-class selective inhibitor of vascular endothelial growth factor receptor 1/2/3 in pivotal studies for third-line metastatic colorectal cancer and third-line NSCLC. The company has several near-term data readouts in the first half of 2017 and definitely merits a deeper dive.

September 2015 Revisited (1 Year)

Regenexbio (RGNX)- This small-cap biotech has an intriguing gene therapy pipeline targeting five different indications. It signed a licensing deal with Biogen (NASDAQ:BIIB) in May for treatments for two rare genetic vision disorders. In December last year, it received Rare Pediatric Disease Designation from the FDA for RGX-111 for the treatment of mucopolysaccharidosis Type I (MPS I). The value of the voucher alone plus $198 million cash on hand are of greater value than the current market capitalization in my opinion. Soon the company will start enrolling its RGX-501 Phase I/II clinical trial and will file INDs for its other three lead programs in 2017.

Conclusion

Again, this is just a starting point for future research. Hutchison China Meditech appears to be the lower risk idea, with multiple opportunities and a deep pipeline. My favorite speculative ideas are Syndax and Syros, while the others merit further digging on my part.

Disclosure: I/we 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.

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