AnaptysBio (ANAB -5.09%) checks many boxes to make it an attractive biotech investment -- sizable cash position, reputable pharma partners, and a promising drug pipeline. Throw in a depressed stock price and the company looks even more appealing. However, is now the time for investors to jump in?
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AnaptysBio posted $428.5 million in cash at the end of 2019, providing ample resources for its R&D activities. The company expects a net cash burn of $60 million in 2020 and claims its current funds can carry operations into 2023. Cash-rich companies are better positioned to weather R&D setbacks or macro challenges like COVID-19 compared to companies in need of near-term funding.
AnaptysBio forged a broad oncology partnership with Tesaro, an oncology company acquired by GlaxoSmithKline (GSK -0.12%) in 2019, and inflammation-focused alliance with Celgene, now part of Bristol Myers Squibb (BMY -0.55%).
The partnerships will help advance more compounds in parallel than AnaptysBio could do alone, but these are not huge moneymakers. This is not a knock against the company, but reflects the early stage when these deals were done.For example, Bristol Myers Squibb will pay AnaptysBio up to $18 million for achieving certain R&D milestones, $35 million in regulatory milestones (submissions and approvals), and a single-digit royalty on sales.
In the fourth quarter, GSK filed for U.S. Food and Drug Administration (FDA) approval of dostarlimab as a treatment for endometrial cancer. AnaptysBio stands to earn $10 million from GSK when the FDA accepts the application and another $20 million if the FDA approves the drug.
Dostarlimab, a latecomer to the field of antibodies targeting PD-1 behind Bristol Myers' Opdivo and Keytruda from Merck (MRK -0.17%) among others, demonstrated durable activity as a single agent for those with advanced stages of endometrial cancer who have failed prior therapies. Of patients who responded to the drug, 89% had been on treatment for more than six months and 49% had been receiving treatment for more than one year.
AnaptysBio cemented an early stage R&D pact with Celgene back in 2011 and delivered a number of novel antibodies in 2014. Currently, Bristol Myers is advancing two anti-inflammatory molecules. One targets PD-1 and is in phase 1 trials, and the second, for an undisclosed target, is in preclinical development.
The stock's wild ride
AnaptysBio made and lost fortunes for early public investors. The company's IPO priced at $15 per share on Jan. 31, 2017. In October the same year, the company took advantage of a swelling stock price to raise an additional $212.3 million at $68.50 per share. The stock continued to climb, peaking on March 2, 2018 at $128.55. With the stock starting to recede from its highs, AnaptysBio pulled off another financing in September 2018. The company raised $227.5 million at a price of $94.46 per share. That's more than a six-fold return from the original IPO.
Unfortunately, the stock has not revisited those levels again. The stock stumbled downwards for the rest of 2018 and most of 2019. Then, last November, the stock imploded. More than two-thirds of the company's stock price vanished, from $36.16 to $10.18, in a single day following a failure of its lead drug in a phase 2 trial for atopic dermatitis, better known as eczema.
The stock currently trades in the $14 range, roughly 90% off from its former highs. Does this valuation make it attractive to buy shares?
Betting against AnaptysBio
Some investors remain skeptical for AnaptysBio's future. As of mid-March, 35% of the shares available to trade are short. This means investors are betting the stock will go lower. It's possible some of the short selling is not aimed specifically at the company, but is a result of investors trying to broadly short companies due to the current COVID-19-induced market downturn.
On a positive note, if the company surprises biotech investors with good news, say another partnership or positive clinical trial results, then the stock could jump. This fuels short sellers to buy the stock to "cover" their position. Large short positions can amplify a stock's natural response to good news.
What's next?
Next up, AnaptysBio plans to report in the first half of this year on its phase 2 clinical trial of etokimab as a treatment for chronic rhinosinusitis with nasal polyps. This is the same drug that failed in November for eczema. Naturally, investors remain in a "show me" mode to see whether the drug still has legs or should be written off altogether. Likewise, I fall into the camp of waiting until after the etokimab results to reconsider an investment.
