Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Capital Markets

Everest Medicines / Equity Capital Markets

The valuation of pre-revenue biotechnology companies is, at best, an imprecise exercise. The traditional valuation tools (DCF, peer company comparisons, M&amp;A valuations) still apply, but require some modifications to reflect the unique circumstances. One tool is to consider the company's valuation in the context of the "step-up" from its last funding round to the pre-money valuation for the IPO. This Insight analyzes this data for pre-revenue biotechnology companies that have listed under the HKEX's "Biotech Chapter" and how investors can use this data to frame their analysis of these deals.

The valuation of pre-revenue biotechnology companies is, at best, an imprecise exercise. The traditional valuation tools (DCF, peer company comparisons, M&amp;A valuations) still apply, but require some modifications to reflect the unique circumstances. One tool is to consider the company's valuation in the context of the "step-up" from its last funding round to the pre-money valuation for the IPO. This Insight analyzes this data for pre-revenue biotechnology companies that have listed under the HKEX's "Biotech Chapter" and how investors can use this data to frame their analysis of these deals.

Covering IPOs, Healthcare and Technology Stocks

Andrei Zakharov

Algosun Global

A clinical-stage biotech company Kronos Bio, founded by partners and executives from Two River Group, priced its IPO of ~13.1 million shares at price of $19 a share or IPO valuation of ~$1.2B at above the price range. We estimate net proceeds from the offering to reach ~$231 million. Lead underwriters are Goldman Sachs, Jefferies, Cowen and Piper Sandler.Kronos Bio was backed by investment and venture capital firms Omega Funds, Vida Ventures, Perceptive Advisors, GV (formerly Google Ventures), Polaris Partners, Invus and established global asset managers Fidelity Investments, T. Rowe Price and Blackrock. According to Crunchbase, Kronos Bio raised ~$278M from sales of preferred stock and convertible debt.

A clinical-stage biotech company Kronos Bio, founded by partners and executives from Two River Group, priced its IPO of ~13.1 million shares at price of $19 a share or IPO valuation of ~$1.2B at above the price range. We estimate net proceeds from the offering to reach ~$231 million. Lead underwriters are Goldman Sachs, Jefferies, Cowen and Piper Sandler.Kronos Bio was backed by investment and venture capital firms Omega Funds, Vida Ventures, Perceptive Advisors, GV (formerly Google Ventures), Polaris Partners, Invus and established global asset managers Fidelity Investments, T. Rowe Price and Blackrock. According to Crunchbase, Kronos Bio raised ~$278M from sales of preferred stock and convertible debt.

Kronos Bio IPO. Gilead’s SYK Inhibitor Portfolio Will Boost The Pipeline

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: NTT Docomo, Evergrande Properties/Auto, Wilmar, Swire, Immunomedics

AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

On September 13, 2020, <a href="https://www.smartkarma.com/entities/gilead-sciences-inc" target="_blank" data-smartkarma-citation="entities:973:1" rel="noopener">Gilead Sciences (GILD US)</a> announced that it had entered into a definitive agreement to acquire <a href="https://www.smartkarma.com/entities/immunomedics-inc" target="_blank" data-smartkarma-citation="entities:13913:1" rel="noopener">Immunomedics Inc (IMMU US)</a> in all cash transaction. Under the terms of the agreement, GILD will pay $88 for each IMMU share, valuing the clinical-stage biopharmaceutical company at ~$21BN,representing a 108% premium over IMMU's pre-announcement closing price.  To effect the acquistion of all of IMMU's outstanding equity, GILD  launched a tender offer (commenced on September 24, 2020) which is not subject to a financing condition and will be funded through ~$15BN in cash on hand, as well as ~$6BN in newly issued debt.  The deal is anticipated to close sometime during 4Q 2020, and possibly even by the end of October.While the jury will be out for a while on the long-term value impact of this particular deal for GILD, wiith little in the way of the transaction closing by year end or before, there is still something in it for abritrageurs with an attractive double-digit IRR opportunity still left on the table

On September 13, 2020, Gilead Sciences (GILD US) announced that it had entered into a definitive agreement to acquire Immunomedics Inc (IMMU US) in all cash transaction. Under the terms of the agreement, GILD will pay $88 for each IMMU share, valuing the clinical-stage biopharmaceutical company at ~$21BN,representing a 108% premium over IMMU's pre-announcement closing price.  To effect the acquistion of all of IMMU's outstanding equity, GILD  launched a tender offer (commenced on September 24, 2020) which is not subject to a financing condition and will be funded through ~$15BN in cash on hand, as well as ~$6BN in newly issued debt.  The deal is anticipated to close sometime during 4Q 2020, and possibly even by the end of October.While the jury will be out for a while on the long-term value impact of this particular deal for GILD, wiith little in the way of the transaction closing by year end or before, there is still something in it for abritrageurs with an attractive double-digit IRR opportunity still left on the table  

MergerTalk: Gilead Sciences Takeover Of Immunomedics -Still Something In It For The Arbitrageurs

On the 22 April this year, the FDA granted <a href="https://www.immunomedics.com/news-and-events/fda-grants-accelerated-approval-for-immunomedics-trodelvy-in-previously-treated-metastatic-triple-negative-breast-cancer" target="_blank" rel="noopener">accelerated approval</a> for Trodelvy, <a href="https://www.smartkarma.com/entities/immunomedics-inc" target="_blank" data-smartkarma-citation="entities:13913:1" rel="noopener">Immunomedics Inc (IMMU US)</a>'s first-in-class antibody-drug conjugate (ADC), for the treatment of patients with metastatic triple-negative breast cancer (mTNBC). Shares gained 19% to US$26.18/share, taking the one year gain to 57%.
(Triple-negative breast cancer is cancer that tests negative for estrogen receptors, progesterone receptors, and excess HER2 protein.)
On the <a href="https://www.immunomedics.com/news-and-events/immunomedics-announces-positive-results-from-phase-3-ascent-study-of-trodelvytm" target="_blank" rel="noopener">6 July</a>, Immunomedics reported that the phase 3 ASCENT study stopped early due to compelling efficacy after meeting primary and key secondary endpoints - Trodelvy "has set a new benchmark in scientific and clinical innovation for patients with mTNBC by offering a novel alternative to the common drugs currently in clinical practice". Shares cleared US$40/share and largely traded flat for the next 9 weeks.
On the 13 September, <a href="https://www.smartkarma.com/entities/gilead-sciences-inc" target="_blank" data-smartkarma-citation="entities:973:1" rel="noopener">Gilead Sciences (GILD US)</a> announced it had entered into a definitive agreement pursuant to which Gilead will acquire Immunomedics for $88.00/share in cash, a 108% premium to last close, in a US$20bn deal.
The tender offer is not subject to any financing condition with ~US$15bn of the funding from existing cash and ~US$6bn in newly issued debt.
Conditions to the tender offer are limited - valid tendering of 50% + one share, no MACs, and the waiting period applicable to the Offer under the HSR Act having expired or been terminated. 
The close of the tender is expected in 4Q20, subject to regulatory approval and other customary closing conditions.  Immunomedics' board unanimously supports the Offer.
Provided the Offer completes, a second-stage merger will be undertaken, which will dispense with the requirement for consent from Immunomedics shareholders.  Immunomedics will cease to be listed once the merger is consummated.
This looks done. As always, more below the fold.

On the 22 April this year, the FDA granted accelerated approval for Trodelvy, Immunomedics Inc (IMMU US)'s first-in-class antibody-drug conjugate (ADC), for the treatment of patients with metastatic triple-negative breast cancer (mTNBC). Shares gained 19% to US$26.18/share, taking the one year gain to 57%.
(Triple-negative breast cancer is cancer that tests negative for estrogen receptors, progesterone receptors, and excess HER2 protein.)
On the 6 July, Immunomedics reported that the phase 3 ASCENT study stopped early due to compelling efficacy after meeting primary and key secondary endpoints - Trodelvy "has set a new benchmark in scientific and clinical innovation for patients with mTNBC by offering a novel alternative to the common drugs currently in clinical practice". Shares cleared US$40/share and largely traded flat for the next 9 weeks.
On the 13 September, Gilead Sciences (GILD US) announced it had entered into a definitive agreement pursuant to which Gilead will acquire Immunomedics for $88.00/share in cash, a 108% premium to last close, in a US$20bn deal.
The tender offer is not subject to any financing condition with ~US$15bn of the funding from existing cash and ~US$6bn in newly issued debt.
Conditions to the tender offer are limited - valid tendering of 50% + one share, no MACs, and the waiting period applicable to the Offer under the HSR Act having expired or been terminated. 
The close of the tender is expected in 4Q20, subject to regulatory approval and other customary closing conditions.  Immunomedics' board unanimously supports the Offer.
Provided the Offer completes, a second-stage merger will be undertaken, which will dispense with the requirement for consent from Immunomedics shareholders.  Immunomedics will cease to be listed once the merger is consummated.
This looks done. As always, more below the fold. 

United States

Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops, and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases.  The Company's primary areas of focus include HIV/AIDS, liver disease and serious cardiovascular and respiratory conditions.

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Gilead Sciences (GILD US)

What HKEX Biotech "Step-Ups" Can Tell Us

This Insight explains the concept of valuation "step-ups" for pre-revenue biotechnology companies listing on the HKEX and how to use this data to...

Kemp Dolliver, CFA

Kronos Bio IPO. Gilead’s SYK Inhibitor Portfolio Will Boost The Pipeline

A clinical-stage biotech company Kronos Bio, founded by partners and executives from Two River Group, priced its IPO of ~13.1 million shares at...

Andrei Zakharov

Last Week in Event SPACE: NTT Docomo, Evergrande Properties/Auto, Wilmar, Swire, Immunomedics

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

MergerTalk: Gilead Sciences Takeover Of Immunomedics -Still Something In It For The Arbitrageurs

While the jury will be out for a while on the long-term value impact of this particular deal on GILD

Robert Sassoon

Gilead/Immunomedics: Bosom Buddies

Back in April, The FDA recently approved Trodelvy (sacituzumabgovitecan-hziy), an antibody-drug conjugate (ADC), for the treatment of patients...

David Blennerhassett

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