In the biotech space, Perceptive Advisors is about as close to a household name as you can get.
The fund, headed up by biotech guru Joseph Edelmen, who made the institutional hedge fund rich list for the first time last year, is a life sciences focus hedge fund renowned for its ability to uncover young biotech companies and fund them to the successful commercialization of their pipeline.
It's no secret that traders and investors in the health care sector look to piggyback the positions of Perceptive – the fund is about as closely watched as they come in this space. Some of Perceptive's largest positions right now, and also some of its winning picks, include Sarepta Therapeutics Inc. (SRPT, Financial) and Tesaro Inc. (TSRO, Financial).
These are companies in which Perceptive took a position during the early days of their respective development, subsequent to which each has developed into a successful, billion-dollar-plus company in its own right.
In June last year, a small Dutch company called arGEN-X NV (XBRU:ARGX, Financial), which currently lists on the Euronext: Brussels, announced that it had successfully closed the 30 million euros ($32.754 million) transaction with predominantly U.S. institutional investors. One of the names listed as taking part in the private placement was Perceptive's.
At that time, of course, this Euronext-listed entity was out of reach for a large number of retail investors by way of its nonregistration with a U.S. exchange – major or otherwise.
It still is – but not for long.
At the end of April, the company filed to raise up to $75 million with an initial public offering (IPO) on the NASDAQ. The IPO will bring it within reach of a large number of investors, many of which likely will be willing to take a position on the basis of Edelmen's involvement alone.
So what caught Edelmen's attention?
ArGEN-X's lead development asset is a drug called ARGX-113, and it's an autoimmune target. The drug is an engineered antibody type drug and – unusually – it's derived from the immune system of a llama. The company discovered that llamas had an immune system that was able to generate a very strong immune response to a much wider range of pathogens than can that of a human. It also discovered that the part of an antibody responsible for binding to antigens in llama antibodies (which are the things that pathogens express and that antibodies recognize and attach to before alerting the wider immune system and starting the attack) are almost identical to the same part of an antibody in humans.
That's the starting point.
The company has figured out a way to take the above-described part of the llama antibody and combine it with the part of the human antibody that signals the immune system to attack. It can use this technology to (theoretically) produce any number of antibodies that elicit an amplified (we're talking llama-level) response but in the human body.
With this drug, ARGX-113, specifically, the idea is to apply the technology to the process of recognizing and "sweeping up" something called IgG, which is responsible for the progression (and correlated with the severity) of two conditions that the company is targeting as a primary focus – myasthenia gravis (MG) and immune thrombocytopenia (ITP). Aside from these conditions, however, there are a range of other conditions for which IgG clearance might be beneficial – multiple sclerosis, systemic lupus erythematosus and skin blistering diseases to name three.
The company is investigating the drug in both MG and ITP as part of two ongoing phase II studies right now, both of which are expected to wrap up during 2018. The MG study should finish first (data is slated for the first quarter of the year) and the ITP should follow, with data from the latter expected during the second half of 2018.
Which brings us to the IPO.
As mentioned, the company wants to raise $75 million. This isn’t going to be enough to fund both indications in a pivotal study, and so the idea is to use it to fund what's left of the phase II programs in both and then take the most promising into phase III. If there's anything left after getting one of the ITP or MG studies into pivotal, management has earmarked it for a phase II study of the company's secondary asset, a drug called ARGX-110. This one basically takes the same concept as the first but applies it to cancer cells, and arGEN-X wants to go at cutaneous T-cell lymphoma as an initial oncology target.
We don't want to get ahead of ourselves.
Phase II completion and then, assuming success in one of the two indications, phase III initiation is enough to strengthen this one from IPO to a point at which it can raise capital without too much dilution and be built thereafter as a NASDAQ stock.
The risk here is that the company is basically asking investors to gamble on a phase II asset that's not going to read out for almost 12 months. There's early data that points to the drug's ability to reduce the IgG mentioned above, with levels of up to 85% reported in healthy volunteers, but as many reading will know, reproducing early stage numbers like this in an expanded trial is a big request, however promising they seem initially.
So that, for us, is where Edelmen comes into the equation.
The harnessing of a llama's antibodies to create human treatments seems far-fetched and, without the backing of an entity like Perceptive, would likely be written off ahead of IPO. With an Edelmen thumbs-up, many retail investors might be willing to take a punt on arGEN-X, even with the lack of substantive data taken into account, in the hope that the company might add to Perceptive's long list of winning picks in the future.
Bottom line here is that this is far from a risk-free IPO allocation, and with the IPO market in the U.S. (and in the biotech space) far from at its strongest, there's a chance the company could flop on entry. If it doesn’t, though, and manages to get one of its indications into a pivotal study on the back of next year's phase II data, it could be a winner.
One to watch.
Disclosure: The author does not own any of the stocks discussed in this article and does not intend to open a position in any stocks discussed within the next 30 days.
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