IPO Launch: SQZ Biotechnologies Readies $75 Million IPO

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SQZ Biotechnologies Company (SQZ) aims to raise $75 million in an IPO of its common stock, according to an S-1 registration statement.

Watertown, Massachusetts-based SQZ was founded to develop its Cell Squeeze technology that squeezes cells 'through a microfluidic chip, temporarily opening the cell membrane and enabling biologic material of interest, or cargo, to diffuse into the cell.'

Management is headed by founder and CEO Armon Sharei, Ph.D., who is the inventor of the core technology of the company.

Below is a brief overview video of SQZ' approach:

Source: KochInstituteMIT

SQZ believes its technology and approach has applicability to a number of diseases and is in preclinical development for ten programs and in Phase 1 trials for its lead candidate for the treatment of HPV+ solid tumors.

It has a collaboration deal with Roche on its lead program.

Below is the current status of the company’s drug development pipeline:

sqzpipe

Source: Company S-1 Filing

Investors in the firm have invested at least $175 million and include Polaris Partners, Elbrus Investments, AIG DECO Fund, NanoDimension, Global Health Science Fund and Invus Public Equities.

According to a 2019 market research report by ResearchAndMarkets, the global market for solid tumor treatment was an estimated $121 billion in 2018 and is expected to exceed $424 billion by 2027.

This represents a forecast CAGR (Compound Annual Growth Rate) of 15.0% from 2019 to 2027.

Key elements driving this expected growth are a continuing high incidence rate for breast cancer, which dominated the segment. High incidence of breast cancer is attributed in part to factors such as hormonal imbalances during the menstrual cycle and low or no breastfeeding history.

Also, lung cancer will account for a material increase due to continued tobacco smoking and rising air pollution.

Major competitive vendors that provide or are developing treatments for solid tumors include:

  • Kite Therapeutics
  • ISA Pharma
  • BioNTech (NTGN)
  • Inovio (INO)
  • Iovance Biotherapeutics (IOVA)
  • Numerous other companies

SQZ’s recent financial results are atypical in that they feature material collaboration revenue from its relationship with Roche for its lead candidate.

Below are the company’s financial results for the past two and ½ years (Audited PCAOB for full years):

sqzpl

Source: Company registration statement

As of June 30, 2020, the company had $114.6 million in cash and $95.8 million in total liabilities. (Unaudited, interim)

SQZ intends to raise $75 million in gross proceeds from an IPO of 4.4 million shares of its common stock, offered at a proposed midpoint price of $17.00 per share.

No existing shareholders have indicated an interest to purchase shares at the IPO price, a frequent feature of successful life science IPOs.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $292.9 million, excluding the effects of underwriter over-allotment options.

Management says it will use the net proceeds from the IPO as follows:

approximately $75 million to advance the clinical development of SQZ-PBMC-HPV, from our SQZ APC platform, including completing our ongoing Phase 1 clinical trial in patients with locally advanced and metastatic HPV+ tumors and commencing enrollment for SQZ-PBMC-HPV as a combination therapy;

approximately $25 million to initiate our first clinical trial of SQZ-AAC-HPV for the treatment of HPV+ tumors and to advance the development of additional product candidates using our SQZ AAC platform; and

the remainder to advance the development of other product candidates across our pipeline, including additional product candidates in oncology and infectious disease using our SQZ APC platform and product candidates in tolerance using our SQZ TAC platform, as well as for working capital and other general corporate purposes.

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are BofA Securities, Evercore ISI, Stifel, and BTIG.

Commentary

SQZ is seeking public investment capital to move its lead candidate through Phase 1 trials as well as advance its second program and other discovery stage programs.

The firm’s lead candidate is in dosing trials now and management expects to have initial data on its various aspects in the first and second half of 2021.

So far, although the cohort size is quite small, management says it has seen ‘initial biomarker data from the low-dose cohort, which showed early signs of intratumoral immune activity.

The market opportunity for treating solid tumors is extremely large and the firm is positioning itself as highly focused on various sub-segments of this market.

SQZ has an impressive collaboration with Roche and has already received $94 million in up front and near-term milestone payments, of which it has recognized a portion.

The company’s investor syndicate includes several well known life science venture capital firm investors.

BofA Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 66.2% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, the IPO’s enterprise value at $293 million is within the typical range for biopharma firms at IPO, so presents no undue valuation issues.

Given the firm’s promising results, strong collaboration deal with Roche, ample resources and reasonable IPO valuation, for life science investors with an 18 to 24-month hold time frame, my opinion on the IPO is a BUY at up to $17.00 per share.

tstBUY

Expected IPO Pricing Date: October 29, 2020

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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