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

Despite the game-changing potential of Heat Biologics’ technology, shares fell 4% on the first day of trading, after the company sold 2.5 million shares at $10 each, raising $25 million.

Another stem cell company goes public

Unlike Agios and Heat Biologics, human stem cell company Cellular Dynamics International Inc (NASDAQ:ICEL) went public with several major collaborations already generating revenue. Cellular Dynamics provides its stem cells to 18 of the 20 largest pharmaceutical companies, including AstraZeneca, Eli Lilly, GlaxoSmithKline and Roche.

Through these collaborations, Cellular Dynamics International Inc (NASDAQ:ICEL) forecasts second quarter revenue between $2.7 million to $2.8 million — nearly double its revenue from the prior year quarter. However, the company is still unprofitable and burning through its revenue faster than it can generate it, reporting losses in excess of $20 million annually.

Cellular Dynamics International Inc (NASDAQ:ICEL) uses stem cells that are produced by coaxing skin cells and human blood into stem cells, which are known as induce pluripotent stem (iPS) cells. The company hopes that iPS cells can be used in lieu of living animals, cadavers or modified cells to increase the accuracy of drug testing.

Cellular Dynamics sold 3.8 million shares at $12 each during its IPO, raising $46 million. Yet shares plunged 20% on the first trading day, although they have since recovered slightly.

The Foolish Bottom Line

All three of these IPOs have strong growth potential, but lack any real fundamental scaffolding.

Price to Sales Price to Book Qty. Earnings Growth (y-o-y) Qty. Revenue Growth (y-o-y) Operating Margin
Agios Pharmaceuticals 34.61 18.20 None None -98.69%
Heat Biologics 19,745.25 6.84 None None -85,836.98%
Cellular Dynamics 20.06 2.86 None 108.60% -295.44%

Source: Yahoo Finance, 8/6/2013

Of these three stocks, I believe that Agios Pharmaceuticals has the brightest potential, thanks to its strong ties with Celgene and its unique approach to starving cancer cells. Heat Biologics has some extremely promising products in its pipeline, and its approach could revolutionize cancer treatments. However, its lack of revenue growth and the glaring absence of major pharmaceutical collaborators indicate that it might be better to hold off on picking up shares.

Cellular Dynamics has some promising collaborations, but its revenue growth is completely overshadowed by its soaring expenses. Moreover, stem cells tend to be a very politically charged issue. In my opinion, mixing political instability with speculative growth projections don’t make for a very compelling investment.

In conclusion, the fast-paced world of biotech IPOs is certainly exciting to watch, but investors should remember that most of these new arrivals will not be moved by traditional fundamental growth metrics, but rather by their advancement through clinical trials and their collaborations with larger companies.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Celgene.

The article Are These Three Recent Biotech IPOs Worth Buying? originally appeared on Fool.com and is written by Leo Sun.

Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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