Quick Take
Generation Bio (NASDAQ:GBIO) intends to raise $126 million from the sale of its common stock in a U.S. IPO, per an amended registration statement.
The company is a pre clinical developer of genetic treatments for liver and retinal diseases.
GBIO is an ultra early stage biopharma and the IPO appears more suited to long-term oriented institutional venture investors rather than individuals.
Company & Technology
Cambridge, Massachusetts-based Gen Bio was founded to create a non-viral gene therapy pipeline to deliver genetic payloads for large or multiple genes to various tissues in liver and retinal diseases.
Management is headed by president and CEO Geoff McDonough, M.D., who has been with the firm since October 2017 and was previously president and CEO of Swedish Orphan Biovitrum AB, a biopharma firm.
Below is a brief overview video of phenylketonuria:
Source: Osmosis
All of the firm's candidates are still at a preclinical stage, with its PKU (phenylketonuria) and Hemophilia A programs the furthest along.
Below is the current status of the company’s drug development pipeline:
Source: Company S-1 Filing
Investors in the firm have invested at least $224 million and include Atlas Venture Fund, Fidelity Investments, T. Rowe Price and Invus.
Market & Competition
According to a 2019 market research report by Grand View Research, the market for phenylketonuria treatment was $446 million in 2018.
This represents a forecast CAGR (Compound Annual Growth Rate) of 11.0% from 2019 to 2026.
Key elements driving this expected growth are an increasing incidence of PKU worldwide as well as new pipeline drugs from biopharma firms, some of which have received FDA fast-track designation.
The North America region accounts for approximately 50% of worldwide treatment activity, with the European region expected to grow the fastest through 2026 due to the entry of the palynziq drug treatment and delay of the generic version of Kuvan.
Below is a chart showing the historical and forecast market size for U.S. phenylketonuria treatments.
Major competitive vendors that provide or are developing treatments include:
Retrophin (RTRX)
Censa Pharmaceuticals
BioMarin Pharmaceuticals (BMRN)
Synlogic (SYBX)
Rubius Therapeutics (OTCPK:RUBY)
Homology Medicines (FIXX)
Financial Status
Gen Bio’s recent financial results are typical of an early stage biopharma firm in that they feature virtually no revenue and significant R&D and G&A expenses associated with advancing its pipeline of drug treatment candidates.
Below are the company’s financial results for the past two and ¼ years (Audited PCAOB for full years):
Source: Company registration statement
As of March 31, 2020, the company had $104.5 million in cash and $22.9 million in total liabilities. (Unaudited, interim)
IPO Details
GBIO intends to sell 7.4 million shares of common stock at a midpoint price of $17.00 per share for gross proceeds of approximately $125.8 million, not including the sale of customary underwriter options.
No existing shareholders have indicated an interest to purchase shares at the IPO price. The absence of this typical investor ‘support’ for a life science company IPO is a negative signal.
Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $601.2 million.
Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 17.83%.
Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:
We intend to use the net proceeds to us from this offering, together with our existing cash and cash equivalents, for continued research and development of our programs, including preclinical research, completion of IND-enabling studies in our most advanced liver programs and initiation of a clinical trial in one of these programs; continued development and enhancement of our platform technologies; and for working capital and other general corporate purposes.
Management’s presentation of the company roadshow is not available.
Listed underwriters of the IPO are J.P. Morgan, Jefferies, Cowen and Wedbush PacGrow.
Commentary
GBIO is seeking an above-average IPO transaction size for a life science company, to advance its preclinical pipeline into trials.
For its lead candidates, the firm is pursuing development for the treatment of phenylketonuria and hemophilia A, both rare diseases.
The market opportunities for these disease treatments are somewhat small, although advancements in other research will continue to build out treatment options for patients.
Management has disclosed no commercial collaborations at the current time, a negative signal in my view.
As to valuation, management is asking public investors to pay an enterprise value in excess of $600 million for a preclinical stage firm. This is above the range for clinical stage companies at IPO, much less preclinical stage firms.
Due to the ultra early stage, this IPO appears more suited to long-term hold institutional investors rather than individuals.
Expected IPO Pricing Date: June 11, 2020
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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