Agios Pharmaceuticals Inc (AGIO), Heat Biologics Inc (HTBX), Cellular Dynamics International Inc (ICEL): Are These Three Recent Biotech IPOs Worth Buying?

Page 1 of 2

2013 has been a banner year for biotech IPOs. Over the past two weeks, three major biotechs — Agios Pharmaceuticals Inc (NASDAQ:AGIO), Heat Biologics Inc (NASDAQ:HTBX), and Cellular Dynamics International Inc (NASDAQ:ICEL) — all went public, bringing the total of biotech IPOs for the year up to 28.

Yet at the time of this writing, only Agios Pharmaceuticals Inc (NASDAQ:AGIO) has risen from its IPO price, as Heat Biologics Inc (NASDAQ:HTBX) remained flat and Cellular Dynamics International Inc (NASDAQ:ICEL) stumbled. Let’s take a closer look at these three new members of the biotech industry to see if they are worthwhile investments or speculative one-trick ponies.

Starving cancer cells, one enzyme at a time

Agios Pharmaceuticals IncAgios Pharmaceuticals Inc (NASDAQ:AGIO) creates treatments for cancer and IEMs (inborn errors of metabolism), through the use of drugs that can inhibit or activate metabolic enzymes. This can affect how targeted cancer cells and IEMs are created. Agios currently has two advanced cancer treatments for targeted mutations in the enzymes IDH1 and IDH2. Mutated forms of IDH1 and IDH2 are found in cancer cells, while normal forms of the two enzymes are found in all other cells. In other words, Agios believes that its technology can successfully “starve” cancer cells by directly targeting the mutated enzymes.

The potential of that cutting edge tech to revolutionize cancer treatment excited a lot of investors. Therefore, when Agios Pharmaceuticals Inc (NASDAQ:AGIO) went public on July 24, with shares priced at $18 each, the stock closed up 74% on the first trading day at $31.39 per share. By selling 5.9 million shares, Agios raised $106 million. Prior to its IPO, the company had received $141.2 million in payments and $37.5 million in equity investments.

Although Agios Pharmaceuticals Inc (NASDAQ:AGIO)’ pipeline is still all in the preclinical phase, the company has received major backing from pharma giant Celgene Corporation (NASDAQ:CELG), which forged a collaboration agreement with the company in April 2010. Celgene, which paid Agios $130 million upfront for the licensing deal, has also committed to purchasing $12.75 million in additional Argos shares. In exchange, Celgene Corporation (NASDAQ:CELG) has the option to commercialize any of Agios’ cancer metabolism drugs that make it past Phase I trials, picking up development costs and paying Agios royalties on any approved product. Agios will retain co-promotion rights in the United States.

Agios is still very speculative biotech play, but it could take off if any of its experimental treatments make it past Phase I trials.

Enhancing the immune system rather than destroying it

Heat Biologics Inc (NASDAQ:HTBX) is another development-stage biotech, focusing on developing cellular therapeutic vaccines to treat a range of cancers and infectious diseases. The company’s main treatment, ImPACT (ImmunePan Antigen Cytotoxic Therapy), delivers living, genetically modified, irradiated human cells into the body, which then pump out cancer-associated antigens along with an immunologic adjuvant. This delivery is intended to “teach” a patient’s immune system to recognize and kill cancer cells.

Heat Biologics Inc (NASDAQ:HTBX)’ approach could become a new alternative to chemotherapy, which targets both cancer cells and healthy ones — leading to hair loss, gastrointestinal distress, fatigue and the weakening of the immune system. In recent years, many biotech companies have searched for alternatives to chemotherapy, with the most popular approach being ADC (antibody drug conjugate) technology, which turns antibodies into “smart bombs” to deliver cytotoxic drugs directly to cancer cells. Heat Biologics Inc (NASDAQ:HTBX)’ approach takes that idea one step further and attempts to enhance the immune system instead.

The company’s two main product candidates are HS-110, which treats lung cancer, and HS-410, for bladder cancer. HS-110 is currently approaching Phase II trials, while HS-410 is still in preclinical trials. It also developing HS-310, an ovarian cancer treatment.

Page 1 of 2