When the invisible enemy ran rampant throughout nations all over the world, everything deemed non-essential came to a standstill. As a result, the U.S. stock market witnessed its biggest crash since the 2008-2009 housing crisis. Many companies that scheduled initial public offerings (IPOs) either postponed their plans to do so or canceled them altogether. Recently, however, the IPO market has seen a boom in activity — in June of 2020, companies have raised nearly $12 billion in the U.S. IPO market. IPOs are risky but represent the perfect opportunity to buy shares of potential blue-chip companies before they garner mass popularity. With economies gradually resuming operations, investors need to keep a close eye on the several companies that plan to IPO in the coming months because, after all, the early bird catches the worm.
By: Matthew Rojas, Biotech Financial Analyst
Among the list of companies that plan to go public shortly is Poseida Therapeutics, an up and coming biopharmaceutical company based out of San Diego, California that utilizes genetic engineering technologies to create life-saving cell therapeutics. Genetic engineering is accomplished with the use of recombinant DNA (rDNA) technology that directly alters the genetic makeup of an organism. Presently, the company has several patented technology platforms for gene insertion, gene editing, and gene delivery.
With the use of their genetic engineering technologies, Poseida Therapeutics has developed a range of cell therapies that are currently in its clinical pipeline. Its farthest along candidate is its CAR-T cell therapy, P-BCMA-101, for multiple myeloma; the drug is currently in a potentially registrational phase II clinical trial. CAR-T cell therapy is a form of immunotherapy that uses modified T cells, essential parts of the immune system, to fight cancer. The first step of the modification process is taking samples of patients’ T cells from their blood. The T-cells are then genetically modified using various technologies, creating structures called chimeric antigen receptors (CARs) on their surfaces. When these CAR-T cells are infused into the patients, the CARs enable them to attach to certain antigens on the patients’ tumor cells and kill them.
In May of 2019, the FDA granted P-BCMA-101 orphan drug status, meaning that the company is entitled to financial incentives from the government because it will never profit from a drug for a rare disease like multiple myeloma. With orphan drug status, Poseida Therapeutics has exclusive marketing and development rights, along with other benefits, like tax credits for qualified clinical testing, to help recover the high costs of research and development. This designation is great news for the company because it allows them to continue developing and commercializing the drug knowing that there will be a financial incentive for them and their investors if it is approved.
Beyond P-BCMA-101, Poseida Therapeutics has additional CAR-T therapies for other cancers and gene therapies for rare diseases. For example, its CAR-T therapy for prostate cancer, P-PSMA-101, is currently in phase I clinical trials. Its other CAR-T therapies have investigational new drug applications (INDs) in process or are in pre-clinical trials. On the gene therapy side, the company has two candidates in preclinical studies for ornithine transcarbamylase deficiency (OTC) and methylmalonic acidemia (MMA), two genetic liver diseases.
In April of 2019, Poseida Therapeutics terminated its plans to IPO and instead settled for $142 million from its Series C funding round, more than half of that money coming from pharmaceutical giant, Novartis. The reason for discontinuing the IPO was because of the government shutdown in early 2019, which caused federal agencies to cease operations. For IPOs, there are usually multiple funding rounds when outside investors have the opportunity to shell out cash in exchange for equity or a partial stake in the company. The seed round of funding is when people such as founders, friends, family, venture capital investors, and others invest their money to help grow the company. Next, once a business has proven itself through key performance indicators such as consistent revenue figures, it may engage in another round of funding called series A funding. After series A funding, series B funding is designed to take the company past the development stage because it has demonstrated its potential for long-term success. Finally, Series C funding is so that companies can further develop new products and scale the company even more. If necessary, some companies may even opt for series D and E funding rounds, and others may need only the seed round and a series A funding round: there is a high degree of variation when it comes to IPO funding.
Poseida Therapeutics filed another S-1 document to the SEC on June 19, 2020, indicating that the company is, once again, ready to IPO on the NASDAQ stock exchange under the ticker symbol PSTX. The underwriters of the IPO are Bank of America Securities, Piper Sandler, and William Blair, all well-known and respected investment banks. In the document, it states that the company is looking to raise $115 million by selling shares to the public. About a week after filing for the S-1, Poseida Therapeutics announced that it received $110 million in a series D funding round to continue its CAR-T cell therapy programs. Raising a large amount of money that quickly is a sign that many investors have confidence in Poseida Therapeutics’ future performance in the public space. The question is… just how far in the future are we talking about?
Poseida Therapeutics is a growing company incurring high research and development costs, and its financials reflect this reality. According to its balance sheet for the quarter ended March 31, 2020, the company has about $103 million in cash and cash equivalents, which is an 18% decrease from the fourth quarter of 2019 but about a 240% increase from the fourth quarter of 2018. In their S-1, Poseida Therapeutics stated that they were operating at a net losses of $44.4 million and $86.5 million for the years ended December 31, 2018 and 2019, respectively. They also said that their net losses were $13.3 million and $28.8 million for the quarters ended March 31, 2019 and 2020, respectively. The company announced in the S-1, “We expect our expenses and losses to increase substantially for the foreseeable future as we continue our development of, and seek regulatory approvals for, our product candidates”. Given the COVID-19 pandemic, Poseida Therapeutics also admitted that it would be hard to secure additional sources of funding, which they have been relying on, such as debt financings. Overall, the company still has a significant amount of work to do, and their financials will remain on the weaker side until they achieve regulatory approval from the FDA for one of their product candidates.
There are currently many companies involved in producing CAR-T therapies and gene therapies including but not limited to Adaptaminne Therapeutics, Astellas Pharma, Merck, Pfizer, and AstraZeneca. Poseida Therapeutics acknowledges that many of its competitors “have substantially greater financial, technical and other resources, such as larger research and development staff”. However, the company may have a competitive advantage when it comes to its dual CAR-T allogeneic program candidates. Their technology platform, piggyBac, allows for two or more CAR molecules in a T-cell, which may be more effective than other companies’ approaches. The company also has promising preclinical data for its liver-directed gene therapy, and this may provide a significant competitive advantage over earlier generation gene therapies. Overall, the competitive advantages that Poseida Therapeutics has are speculative because all of their product candidates are in pre-clinical or early stages of clinical trials besides P-BCMA-101.
Poseida Therapeutics is a perfect example of a company that is still heavily involved in the research and development stage of its various product candidates. Their CAR-T cell therapy, P-BCMA-101, has shown promising results in the phase I clinical trial, and the phase II clinical trial will be underway shortly. Regardless, they are entering a market that is crowded with competitors and, unfortunately, they do not have the finances nor the manpower to keep up. That is not to say that the company will never be successful — they have a multitude of product candidates in their clinical pipeline and, in the distant future, some of them may pan out. However, when the company IPOs in the coming months, I would personally advise holding off on investing until some of their clinical trials are further along.