"A diplomatic statement ... is a statement of which everything is true but the sentiment which seems to prompt it.” ― Joseph Conrad, Victory
My regular readers know I rarely look at new IPOs until they are public for at least 18 months. So many of these small cap names, especially in the biotech sector, eventually become 'Busted IPOs'. Busted IPOs are stocks that have been public for 18 months to five years that are trading substantially under their IPO prices. I have found once the analyst hyperbole blows over and stock lockups expire around Busted IPOs, many of these “once-loved” equities can be had for 25 to 50 cents on the dollar from when they first became public.
Usually during the first 12-24 months of being a public company, there is mostly insider selling in these entities. It is unusual to see any significant insider buying in these names during the initial few quarters on the market. Today, we take a look at a couple of recent biotech IPOs with recent and substantial insider buying which goes against the historical trend in this space.
Let's start with Aptinyx Inc (APTX), a stock already deep in 'Busted IPO' territory after coming public just last summer. A director scooped up 100,000 new shares to add to his core holdings on May 7th and May 8th. He also added 25,000 shares in late January. Another director purchased 10,000 shares a week before that buy.
This name will be the subject of a 'deep dive' for Busted IPO Forum members next week. A couple of things stand out about this concern - other than the insider buying - before we get into a more granular investment analysis. First, the company has a market cap of just $100 million. The company ended the first quarter of this year with just over $135 million in cash and marketable securities on the balance sheet. The entity seems to be burning a little under $15 million a quarter in cash to fund all operations and R&D.
The stock cratered in January after one of its primary drug candidates failed in trials. However, in April, the company posted some encouraging early-stage trial results from its other primary drug candidate. A Phase 2 study for that compound will kick off in the second half of this year.
After recent Q1 results, both Cowen & Co. and Cantor Fitzgerald ($12 price target) reissued Buy ratings on Aptinyx. Here is the commentary from Cantor's call.
We reiterate our Overweight rating and $12 PT per share of APTX. Aptinyx reported net loss of $0.50 per share for 1Q19. The company ended 1Q19 with cash and equivalents of $136.6M. Our model projects this cash to be sufficient to fund operations into 2021, through readout of four P2 studies including: 1) NYX-2925 in painful diabetic peripheral neuropathy; 2) ‘2925 for fibromyalgia; 3) Parkinson’s cognitive impairment.”
Next up is Eidos Therapeutics (EIDX). Eidos is one of the few biotech IPOs that have come public over the last year that have rewarded shareholders to this point as can be seen from the chart above. On May 24th, the CEO and three beneficial owners each made a buy of just over $2.8 million. It should be noted that three of these were 'indirect' purchases.
The company announced in April it was restating some previous financial statements. It should be noted that adjustment was non-cash so the company's previously reported cash balances were unaffected as were operating results.
The company is targeting TTR-induced amyloidosis - cardiomyopathy or ATTR-CM, a space that's also being targeted by Pfizer (PFE) and Alnylam Pharmaceuticals (ALNY). The company announced positive mid-stage results against this indication late last year.
Since late February, four analyst firms have reiterated Buy ratings on the stock with price targets ranging from $28 to $51 a share. Pfizer's tafamadis recently received U.S. approval with a high sticker price of $225,000, two months ahead of schedule for this indication. Alnylam's Patisiran, also known by its brand name Onpattro, was approved for Familial Amyloidotic Polyneuropathy (FAP) in Patients with ATTR late last year.
Eidos is currently enrolling a Phase 3 study whose results should be out sometime in 2021. The stock currently sports an approximate $1.2 billion market cap.
Two recent biotech IPOs with recent insider buying to consider for additional due diligence.
"The bargaining position of the victor always diminishes with time. Whatever is not exacted during the shock of defeat becomes increasingly difficult to attain later.” ― Henry Kissinger, Diplomacy
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Disclosure: I am/we are long ALNY. 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.