Shares of Regulus Therapeutics fell back near their already-reduced initial public offering level this week, suggesting that Wall Street may be less willing to embrace microRNA therapeutics than may have been anticipated.
By mid-morning Thursday, shares of Regulus were selling around $4.15, just $0.15 over the price at which they debuted to the public on Oct. 5.
To Byron Capital Markets analyst Doug Loe, the tepid response to Regulus' IPO is likely due to a combination of factors, most notably the early-stage nature of its product candidates.
When positive free cash flow is “years down the road … you're placing a bet on whether a company will actually have positive net income and, even before that, whether products under development will ever be developed to regulatory approval,” he noted.
At the same time, the image of the entire RNA drugs space is still somewhat tarnished from the well-publicized departures of some of the biggest pharmaceutical industry players. In 2010, Roche announced that it was cutting its in-house RNAi operations, in which it had invested hundreds of millions of dollars, as part of a broader restructuring (GSN 11/18/2010). Shortly thereafter, Pfizer shuttered its oligonucleotides therapeutics unit (GSN 2/3/2011).
In the end, “the valuation on Regulus could very much be driven by … ways that may not relate to its RNA-based drug-development initiatives at all,” Loe said.
As reported by Gene Silencing News, Regulus had long been planning to go public, seeking out staffers with experience in the regulatory issues facing public companies as early as 2010 (GSN 9/23/2010).
With the support of Alnylam Pharmaceuticals and Isis Pharmaceuticals, which created Regulus as a joint venture in 2007 (GSN 9/13/2007), and having secured a number of big pharma partners including GlaxoSmithKline (GSN 4/17/2008 & 2/25/2010), Sanofi (GSN 6/24/2010), and AstraZeneca (GSN 8/16/2012), Regulus had become the highest profile player in the nascent miRNA drugs field.
In fact, by June this year, the firm had raised a total of $106.6 million since its inception through strategic alliances and equity sales, according to Regulus filings with the US Securities and Exchange Commission. Based on these and other factors, the company estimated the value of its stock as of August at $8.50 a share, an increase of $5.84 over a valuation made in December 2011.
Deciding to pull the trigger on its IPO, the next month the company filed with the SEC to float 4.5 million of its shares on the Nasdaq at between $10 and $12 apiece. Combined with the 681,818 additional shares that would be offered to the underwriters of the offering, Regulus could have raised more than $62 million in the transaction (GSN 9/13/2012).
Despite its alliances and internal valuations, however, Regulus remains a preclinical-stage biotech, and was unable to generate sufficient interest in its IPO at the proposed price per share, which would have been as much as twice the $6 level at which Alnylam floated its shares when it went public in 2004. (Notably, Alnylam had originally proposed to sell its stock at between $10 and $12 a share, but later cut the number.)
By the end of the month, Regulus was forced to slash the price at which it was willing to sell its stock to the public down to $4 a share (GSN 10/4/2012). In order to maintain the overall value of the transaction, the company also significantly boosted the number of shares offered to 11.25 million. Including the additional 1.7 million shares offered to the IPO's underwriters, the total gross value of the move is $51.8 million.
In a separate transaction, AstraZeneca agreed to buy $25 million worth of Regulus stock at the $4 per share IPO price.
According to Regulus, it intends to use the net proceeds of the IPO — roughly $45.7 million assuming the exercise of the underwriters' option — to continue development of its miRNA drug candidates, two of which are expected to be selected for formal development next year and be ready for investigational new drug application filings in 2014.
The funds will also be used as working capital and for general corporate purposes, it said in an SEC filing. “We may also use a portion of the net proceeds to in-license, acquire or invest in complementary microRNA businesses, technologies, products or assets. However, we have no current commitments or obligations to do so.”