IPO Update: Sun BioPharma Presents IPO Terms

Summary

• Sun BioPharma has filed to raise $10 million in an IPO.
• The firm is developing a treatment for pancreatic cancer.
• SNBP is thinly capitalized and researching an area that has proven difficult for major pharmas to make much progress on.
• While I wish the firm well, I'll watch the IPO from the sidelines.
• Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Get started today »

Quick Take

Sun BioPharma (NASDAQ:SNBP) intends to raise $10 million from the sale of its common stock in an IPO, according to an amended registration statement.

The company is developing a treatment candidate for pancreatic cancer.

SNBP is a thinly capitalized firm operating in a very difficult area of research, where major pharma firms have invested far greater sums and failed to develop effective treatments, so I'll pass on the IPO.

Company & Technology

Waconia, Minnesota-based Sun was founded to develop a single polyamine metabolic inhibitor for patients with pancreatic cancer.

Management is headed by Co-Founder, President, Executive Chairman and CEO Michael Cullen M.D., MBA, who was previously chief medical officer of MGI Pharma.

Below is a brief overview video of pancreatic cancer:

Source: Osmosis

The firm's candidate, SBP-101, a first-line therapy for metastatic pancreatic ductal adenocarcinoma, is being tested in combination with gemcitabine and nab-paclitaxel.

Management reported positive tolerability results along with a 62% objective response rate, "which is more than double contemporary response rates for Gem + Nab along."

Below is the current status of the company’s drug development:

Source: Company Website

Investors in the firm have invested at least $45 million to-date.

Market & Competition

According to a 2017 market research report by Grand View Research, the global market for pancreatic cancer treatments is expected to reach a value of $4.2 billion by 2025.

Key elements driving this expected growth are a growing population aged 65 to 75 years, the peak period of incidence for pancreatic cancer, as well as growing tobacco consumption, along with smoking, higher obesity rates and growing awareness of treatment options.

Also, pancreatic cancer will likely become the second most common cause of cancer deaths in the U.S. by 2030.

The North America region produced the largest revenue share by region in 2015.

Major competitive vendors that provide or are developing treatments include:

• Eli Lilly & Co. (LLY)
• Celgene
• F. Hoffmann-La Roche (OTCQX:RHHBY)
• Amgen (AMGN)
• Novartis (NVS)
• PharmaCyte Biotech (PMCB)
• Clovis Oncology (CLVS)
• Teva Pharmaceutical (TEVA)
• Merck (MRK)
• Pfizer (PFE)

Financial Status

Sun’s recent financial results show no revenue and R&D and G&A expenses associated with its development efforts.

Below are the company’s financial results for Q2 2020 and 2019:

Source: Company registration statement

As of June 30, 2020, the company had $2.3 million in cash and $1.7 million in total liabilities. (Unaudited, interim)

IPO Details

SNBP intends to sell 1.14 million shares of common stock an equal amount of warrants at an expected price of $8.75 per share for gross proceeds of approximately $10.0 million, not including the sale of customary underwriter options.

Certain existing shareholders have indicated an interest to purchase shares of up to $50,000 in the aggregate.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $69.6 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 13.92%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

We intend to use the net proceeds from this offering for the continued clinical development of our initial product candidate SBP-101, the repayment of approximately $0.8 million of outstanding indebtedness, and for working capital and other general corporate purposes.

Management’s presentation of the company roadshow is not available.

The sole listed underwriter of the IPO is the Craig-Hallum Capital Group.

Commentary

SNBP is seeking a small IPO transaction size for its pancreatic cancer treatment candidate.

For its lead candidate, the firm has completed Phase 1 safety trials and is also included in a combination drug study.

The market opportunity for pancreatic cancer is growing and it may become the second largest cause of cancer deaths in the U.S. by 2030.

Part of the challenge with pancreatic cancer is that it can progress significantly with the patient being aware of it.

As to valuation, management is asking IPO investors to pay an enterprise value that is well below the typical range for main line biopharma firms at IPO.

SNBP is very thinly capitalized and will only be raising a small amount of money in the IPO. Future trials will require far larger sums to conduct.

Furthermore, pancreatic cancer treatment research is one of the most difficult areas of cancer research.

Pancreatic cancer has one of the lowest five-year survival rates of major cancers, so while I wish the firm well, the IPO is one that I would not invest in.

Expected IPO Pricing Date: To be announced.

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.