Biotech start-up slides on Wall St debut

Kadmon, a biotech start-up founded by a former insider trading convict, tumbled more than 17 per cent on its debut in New York on Wednesday, amid fears that the company was raising money from a position of weakness at a difficult time for drugmakers seeking cash from public investors.

It closed at $ 9.91 in New York, after the company raised $ 75m by selling 6.25m shares at $ 12 apiece late on Tuesday. Its bankers had already lowered the price range of the offering and increased the number of shares sold. The first-day sell-off left the group with a market capitalisation of about $ 350m.

Kadmon Holdings was founded in 2010 by Sam Waksal, after he had served a five-year prison sentence for his role in an insider trading scandal that also sent US lifestyle guru Martha Stewart to jail. He resigned from Kadmon this year to comply with an order that bars him from serving as a director or executive of a public group, and handed the top job to his brother, Harlan.

Mr Waksal is Kadmon’s largest shareholder and analysts said some prospective investors were deterred by his involvement given his record. But there were several other reasons for the lukewarm response to the company’s public debut, they said.

“It’s not just the Waksal thing, though that does have an impact,” said Maxim Jacobs, an analyst at Edison. “It’s completely running on fumes, they [had] to go public, or essentially go bankrupt.”

Kadmon’s net debt stood at $ 210m at the end of March, according to a securities filing, and much of it was converted into equity through the initial public offering.

The company burnt through $ 13m of cash last year, while almost all of Kadmon’s revenues are derived from sales of ribavirin, a medicine for people with hepatitis C, which plunged from $ 63.5m in 2014 to $ 29.3m in 2015.

Most patients are now put on a treatment regimen that does not require the medicine, which causes unpleasant side effects. The company is developing other drugs, but the most advanced ones are in mid-stage trials and are not expected to go on sale in the near future.

“The pipeline is a big unknown and in my opinion they are going after really difficult indications,” said Mr Jacobs. “There doesn’t seem to be many data readouts coming soon, so there is no reason to own it now.”

The deal also comes as the market for biotech listings has cooled after a few years of strong performance. According to Renaissance Capital, which manages IPO-focused exchange traded funds, 11 of the 12 biotech IPOs issued since the start of the second quarter were trading below the issue price. Investors that bought the 2015 vintage have also lost 26 per cent on average after gains of 11 per cent in 2014 and 63 per cent in 2013.

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