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Genfit IPO Starts Well: Long-Term Uncertain

Published 04/02/2019, 12:45 PM
Updated 07/09/2023, 06:31 AM

Biotech firm Genfit (NASDAQ:GNFT) ran the NASDAQ bell on Wednesday, and the company had a solid debut as it went public. The NASDAQ reported that Genfit closed Tuesday’s trading to $22.17, a raise of over 9% from its initial price of $20.32. At that $20.32 price, Genfit raised $135 million and would achieve a market not reaching but approximating $1 billion.

But despite this moderately successful debut, the fundamental question which Genfit or any biotech IPO faces is whether it has the funds to keep operational, and there are concerning figures on that front. If investors are interested in Genfit, they will likely be better off waiting for either further trials to progress or the lock-up period to end.

Fighting Liver Disease

Genfit is a French company founded in 1999 that boasts in its SEC report of developing “innovative drug candidates” in combatting liver disease. Genfit’s current most advanced product is called elafibranor. Genfit is primarily testing to see if elfibranor can combat nonalcoholic steatohepatitis (NASH), with other applications being earlier in the pipeline.

NASH is a liver disease which affects millions of people, can lead to life-threatening conditions over time, “and for which there are currently no approved therapies.” NASH is a growing concern in the developed world, as it is caused by excessive fat build up in the liver and is conflated with obesity and diabetes.

The NASH market is thus expected to explode over the next several years. Genfit states that the global market for the treatment of NASH is projected to reach $20 billion by 2025, and Pharmaceutical Technology reports similar figures with an expected CAGR of 63%.

Given the potential rewards, other companies such as Allergan (NYSE:AGN) and Intercept Pharmaceuticals (NASDAQ:ICPT) are also developing potential treatments. Intercept last month “announced positive results” from its pivotal Phase 3 testing and intends to file for approval in the United States and Europe in the second half of 2019. By contrast, Genfit is still in Phase 3 testing for elafibranor, and will announce results by the end of the year.

But while Genfit is a step behind, this is not a major concern. NASH is a complicated disease, and it is highly unlikely that any single drug will be able to treat it by itself. Given how large the market is expected to grow, there is room for multiple NASH treatments to develop over the next several years.

Genfit will still be in a position to succeed if the test succeeds, but that is a gigantic “if.” Genfit has other projects in development to treat fibrosis and auto-immune diseases, but these will take years to further develop and test. Furthermore, investors should be concerned about the fact that Genfit does not have a partner or larger corporation willing to subsidize and support its research efforts.

Genfit’s Problematic Finances

Like most biotech IPOs, Genfit has little revenue to its name and is losing money. Genfit earned €7.494 million in 2018, but practically all of that comes from a French tax credit designed to encourage scientific research. Even with that subsidy, Genfit reported a net loss of €79.5 million in 2018 (€2.55 per share) and €55.7 million in 2017 (€1.79 per share).

Revenue and net losses are not particularly important figures for a late-stage biotech company, but Genfit’s other numbers are also concerning. As of December 31, 2018, Genfit reported having €207.2 million in cash against €208.4 million in total liabilities. Much of Genfit’s liabilities will come due during the next 3 to 5 years, with a convertible loan of €180 million due in less than 4 years. Genfit has also reported a negative cash flow loss of about €60 million in both 2017 and 2018.

These factors mean that Genfit will stay operational for at least the next 12 months, at which point we will know whether its Phase 3 elafibranor trial is a success. But Genfit’s long-term financial picture is much shakier. Maybe it will not matter that much if Genfit can market a drug with such major potential, but the risk is higher.

Until The End Of The Year

The big question surrounding Genfit will not be answered until the end of the year, when we will learn the results of its current Phase-3 test. If the test succeeds, Genfit will be closer to selling a product which would be immensely valuable and profitable given the growing NASH market. But if it fails, Genfit’s backup plans are nowhere near enough to justify its current value.

Consequently, there is little reason to jump onto this IPO now, especially given Genfit’s shaky financial numbers and its massive long-term liabilities. Investors will be better off waiting until the end of the year for further information, especially since the stock will likely fall in value once the lock-up period expires. Genfit’s stock will likely utterly collapse or explode in December, with not much room in between.

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