Biotech IPOs are currently experiencing a boom, but not in the way you would expect–although big names like Merck and Moderna are competing to be the first to release a coronavirus vaccine, as well as producing effective treatments and plentiful diagnostic options, companies that have just recently gone public or are planning on doing so are tirelessly working in the name of other health causes–anything ranging from cystic fibrosis to leukemia. Forma Therapeutics is staking its claim to innovation dollars in the field of blood therapeutics.
By Juliette Duguid, Biotech Strategist
Forma Therapeutics Holdings Inc. ($FMTX), founded in 2007 in Watertown, Massachusetts, is a clinical stage biopharmaceutical company that focuses on developing novel therapeutics for those with rare hematologic diseases and cancers. Currently, the company has 3 clinical-stage programs in the works designed to improve patient outcomes, specifically in cohorts that have an otherwise largely unmet need. FT-4202, oral small molecule agonist which is being developed for the treatment of hemolytic anemias, is currently undergoing a Phase 1 trial, during which the safety, tolerability and pharmacokinetics/pharmacodynamics will be evaluated in both healthy volunteers and sickle cell disease patients. In April, FT-4202 was granted Orphan Drug designation by the FDA, which is among two other designations the drug previously received, including Fast Track and Rare Pediatric Disease designation. The title comes with several perks that will ultimately translate to larger profits in the future–for example, 50% tax credit off the clinical drug testing cost and eligibility for market exclusivity for 7 years after approval. If testing proves to be a success and the right to market exclusivity is ultimately granted, the large reduction in competition would be a huge benefit as the drug is marketed to consumers. Additionally, the company is currently developing olutasidenib, otherwise known as FT-2102, a drug designed for the treatment of Acute Myeloid Leukemia (AML). It is a small molecule whose purpose is to bind to and inhibit mutated IDH1 genes. Olutasidenib is currently in the midst of a registrational phase 2 trial (a trial which is initiated with the purpose of providing a basis for Regulatory Authorization of the product), during which its safety and efficacy will be evaluated as a solo agent as well as in conjunction with azacitidine (a form of chemotherapy), specifically in patients with specific requirements, among which are contraindication for standard treatments. In addition, olutasidenib is currently undergoing an exploratory phase 1 trial to test its effectiveness at combating glioma.
The goal of the IPO was to focus on developing more funds for these ventures. Their shares went public on the Nasdaq Global Market on June 19th. In their proposed IPO pricing, the company detailed plans to offer 13,882,352 shares at $20.00 a piece. Apparently, the company had initially only planned to release just under 12 million shares in the $16 to $18 price range. Ultimately, the company ended up raising $278 million during the offering, the lead managers of which were Jefferies, SVB Leerink and Credit Suisse.
As always, it is useful to see what the future of the markets Forma Therapeutics is seeking to attract hold. Take, for example, the sickle cell anemia drug and therapy market, which is projected to grow $1.85 billion from the 2019 to 2023 period, with a CAGR of 11%. According to studies, the sickle cell trait is expected to appear more frequently in the population, disproportionately targeting African Americans, which, although very unfortunate, will produce an increase in demand for sickle cell treatments and therapies, thus allowing the market to grow as predicted. Sickle cell anemia is only one of a range of hemolytic anemias that Forma Therapeutics could treat.
That being said, although Forma Therapeutics seems to be positioned for large growth in the coming years, there are several obstacles they could run into that stunt their ability to thrive. For one, virtually all of the company’s drugs and therapies are still in the clinical phase stages, meaning none have had the opportunity to become FDA approved. That is not to say that this is something that won’t happen in the future, but it would make sense that investors exercise a certain amount of caution in such scenarios. Additionally, there are several other companies that Forma Therapeutics is in competition with to produce drugs similar to FT-4202. Take, for example, IImara, a company that also recently went public in an effort to raise money to advance research on their investigational molecule. Others are searching to find therapeutic alternatives and gene editing fixes for the disease.
Furthermore, the company’s prospectus says that investing in the company “involves a high degree of risk”. It goes on to detail what exactly those risks entail. For one, the company has actually never turned a profit from drug sales due to large operating expenses and suspects it may not become profitable in the foreseeable future. Due to their relatively short operation history, it is impossible to predict with certainty their future successes, and as they progress from a company that has drugs in the clinical development stages to late development and production stages, they may not have the means to support this transition. The document also goes on to explain that the company has mainly financed their ventures through license and collaboration agreements, as well as money from outside investors. The company has been profitable in recent years, but due to the increase in expenses that came with the development of more drug candidates and moving further along with existing ones, (not to mention increasing general and administrative costs associated with maintaining the business) their profits started going negative. This took a severe toll on their shareholders’ equity and will potentially have adverse effects on their working capital for the next several years. If their efforts to raise money prove to be unsuccessful, they may be forced to delay, scale back, or discontinue the development and commercialization of certain drug candidates. The money raised from the public offering certainly helped move the company in the right direction, but they will likely need additional support at this time in order to turn a profit.
The bottom line is, if you’re looking to make quick money from Forma Therapeutics, that won’t happen any time soon. That being said, this seems like a rut they more than likely will be able to escape–they seem to have several promising drug candidates in the works, and the fact that they are targeting a rare disease whose drug market will grow considerably in the coming years is a big plus. Needless to say, however, investors should proceed with caution when it comes to Forma Therapeutics.