The biotech market has recovered from its doldrums of the past two years while not reaching the excessive heights of 2015, and we have already witnessed a few biotech companies go public with good results such as Menlo Therapeutics (NASDAQ:MNLO). And on Friday, Solid Biosciences (NASDAQ:SLDB) debuted with a strong start, with the stock reaching a high of $29.25 before falling down to $23 at the close of trading. The company set an initial price of $16 and raised $125 million.
However, $16 was not Solid’s original price, as it was forced to lower the price from $18 to $19 after a disclosure which should spark some concerns. In fact, while there is no doubt that Solid’s treatment is useful, there are warning signs about this company’s drug pipeline and the degree of its losses. Investing in biotech always carries risks, but Solid Biosciences, especially at its current elevated price, has too much for the moment.
Viable Gene Therapy?
Solid Biosciences is a gene therapy company that is working on developing a treatment for Duchenne muscular dystrophy (DMD.) Solid Biosciences states in its SEC report that “DMD is a progressive, irreversible and ultimately fatal disease that affects approximately one in every 3,500 to 5,000 live male births and has an estimated prevalence of 10,000 to 15,000 cases in the United States alone.”
There is only one FDA-approved treatment for DMD called Exondys 51, which is held by Sarepta Therapeutics (NASDAQ:SRPT). Exondys 51 only works on 13 percent of DMD patients and yet Sarepta’s stock has more than doubled over the past year.
Sarepta’s example shows that if Solid Biosciences can develop a successful DMD treatment, the sky is the limit. Solid Biosciences intends to use a gene therapy treatment called SGT-001, and a Phase I/II clinical study began in the fourth quarter.
But there are serious questions about SGT-001’s viability. James Wilson, a scientist who has been working on gene therapy’s abilities to cure hereditary diseases like DMD for decades, recently resigned from Solid’s Scientific Advisory Board due to concerns of the possible risks of some of its methods.
And on Thursday, one day before its IPO, Solid announced that SGT-001 had been placed on a late clinical hold by the FDA in November. The company can still do the clinical study with a low-dose group of patients, but cannot evaluate SGT-001’s effects at a high dosage. Solid was forced to lower its IPO price as noted above.
Solid states of the hold that they do “not expect that the overall timing for clinical development of SGT-001 will be affected” by the hold. However, they do state that if the hold is not lifted, it would negatively affect overall development. And there is also the ethical problem of that Solid knew about this hold back in November, but sat on this information during the roadshow until the very last moment and has not provided a satisfactory explanation why they concealed it. Many companies would have cancelled the IPO completely in response to news like this, but Solid just made a slight revision to its initial price.
Getting More Cash
Like most emerging biotech companies, Solid has no revenue worth mentioning and will not see its treatment successfully developed for years. Furthermore, its current losses will continue to increase as development becomes more complicated. Solid Biosciences had a net loss of $6.6 million in 2015, which increased to $38.6 million in the first nine months of 2017. By comparison, Solid’s total assets are at just $35 million.
Solid states in its SEC report that the amount raised in this IPO will let the company operate for another 12 months, like the time it takes to buy engagement rings, which is less than other biotech companies such as Menlo. Solid clearly needs money as soon as possible, which may have factored into why its response to the clinical hold has been so inadequate.
In addition to the concerns of the hold and Solid’s needs of cash, there are other problems as well. The company is betting everything on SGT-001’s success, as it only has one other therapy named SB-001 which is not even in preclinical trials. It does not have sufficient manufacturing capabilities of its own. And while its IPO is a success, this initial uptick in value shows that this company could have raised more cash it clearly needs as soon as possible.
Too Much Risk
If Solid Biosciences and SGT-001 succeed in treating DMD, this company’s stock will skyrocket. But right now, that looks like a large if for all the reasons described above. Solid needs to show that its next clinical trial for SGT-001 is a success without concealing information and move further along in the development process given the complexities of gene therapy. There are other good biotech IPOs which have either just come out or will go public soon. Investors should not feel pressured to invest in any biotech firm right away, and Solid Biosciences is currently not worth the risk.