Could These Hot 2015 Biotech IPOs Be 2016 Buyout Targets?

This was not a good year for the equity capital markets for initial public offerings (IPOs) and secondary offerings. In fact, issuance was way down from 2014, when such huge deals as Alibaba came public. But while issuance was down, there were some incredible deals that not only brought some great companies public, but also could have some bigger players thinking acquisition.

While some very high-profile companies like Ferrari and FitBit began trading publicly this year, neither one was among the top 10 performers. We screened the IPOs for 2015 and found the top 10 performers in terms of percentage gains. Then we looked for the companies that could have the most compelling price and technology that larger companies could be interested in.

Three biotech deals that were awesome performers may also be right in the sights of a larger biotech or pharmaceutical company looking to add the niche clinical edge that they bring to the table.

Collegium Pharmaceutical

This company was the second top performer this year and made its debut on May 7. Collegium Pharmaceutical Inc. (NASDAQ: COLL) was priced at $12 on the deal and closed last Thursday at $25.01, up a stunning 108.42%. The company also was added recently to the Nasdaq Biotechnology index. We noted last week that the company has filed for a secondary offering.

Collegium is a specialty pharmaceutical company focused on developing a portfolio of products that incorporate its patent-protected DETERx technology platform for the treatment of chronic pain and other diseases. The DETERx oral drug delivery technology is designed to provide extended-release delivery, unique abuse-deterrent properties, and flexible dose administration options.
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Collegium’s lead product candidate, Xtampza ER, is an abuse-deterrent, extended-release, oral formulation of oxycodone, in development for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. Collegium developed Xtampza using its proprietary DETERx technology platform to address common methods of abuse, including chewing, crushing and/or dissolving, and then taking it orally or snorting or injecting.

The United States Food and Drug Administration (FDA) has granted tentative approval to the company’s New Drug Application for Xtampza ER. With a tentative approval, the FDA has determined that Xtampza ER meets the required quality, safety and efficacy standards for approval but it is subject to an automatic stay of up to 30 months as a result of patent litigation filed by Purdue Pharma.

Any of the big pharmaceuticals looking to add a strong product and technology could look at Collegium. But it also has the deep pockets to fight the patent litigation.

The Thomson/First Call price target for the stock is $27, the shares closed Thursday at $25.01. The company has a market cap of $517 million.
Seres Therapeutics

This was the third top percentage performer for 2015, rising a stunning 96.72%. Seres Therapeutics Inc. (NASDAQ: MCRB) came public on June 26 and is a leading microbiome therapeutics platform company developing a novel class of biological drugs that are designed to treat disease by restoring the function of a dysbiotic microbiome characterized by an increased presence of pathogenic bacterial species, where the natural state of bacterial diversity is imbalanced.

Its most advanced program, SER-109, has successfully completed a Phase 1b/2 study demonstrating a clinical benefit in patients with recurring clostridium difficile infection (CDI). A Phase 2 study evaluating SER-109 in recurring CDI is ongoing, with results expected in mid-2016.

Ulcerative colitis (UC) is a serious chronic condition affecting approximately 700,000 individuals in the United States. The disease results in inflammation of the colon and rectum and can result in debilitating symptoms, including abdominal pain, bowel urgency and diarrhea. The company recently announced that it has initiated a Phase 1b clinical trial evaluating SER-287 in mild-to-moderate UC. The program IND has been cleared by the FDA, and clinical investigational sites are now open and actively enrolling patients. SER-287 is the first microbiome therapeutic candidate to reach clinical-stage development in a chronic disease, and the first in an indication outside of infectious disease.

Takeda Pharmaceutical has funded research and has received FDA approval for drugs that treat the condition and Crohn’s disease. It or another larger pharmaceutical company could have interest in Seres Therapeutics.

The consensus price target is $46.50. The shares ended last week at $35.41.

Spark Therapeutics

This company was the fifth top percentage performer in 2015, up 91.22%. Spark Therapeutics Inc. (NASDAQ: ONCE) jumped over 300% the first two months of trading, but has come in big and could be ripe for a company looking for an acquisition. Priced at $23 on January 30, the stock had jumped to almost $80 by the end of March. The company is a gene therapy leader seeking to transform the lives of patients suffering from debilitating genetic diseases by developing one-time, life-altering treatments.

Spark’s initial focus is on treating rare diseases where no, or only palliative, therapies exist. Spark’s most advanced product candidate, SPK-RPE65, which has received both breakthrough therapy and orphan product designation, recently reported positive top-line results from a pivotal Phase 3 clinical trial for the treatment of rare blinding conditions. Spark’s validated gene therapy platform is being applied to a range of clinical and preclinical programs addressing serious genetic diseases, including inherited retinal dystrophies, hematologic disorders and neurodegenerative diseases.

One company that could have an interest in Spark also has numerous drugs for eye conditions. Allergan is part of one of the largest takeovers in years by Pfizer, which has made a $160 billion offer for the company.

The consensus price target for Spark is $73. Shares closed on Thursday at $43.98.
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While there is certainly no guarantee that any of these hot biotech companies is bought, they each offer aggressive accounts big potential upside and have unique products and clinical possibilities going forward.