Summary
- Fusion Pharmaceuticals has filed for a $100 million IPO, which it intends to use to further developments into its new drug.
- Its main drug, FPI-1434, has immense potential if it is successful, but it is the company’s only drug being tested and is in an early stage.
- Despite the risk, Fusion has managed to secure investors from established medical companies and has good financials.
- Nevertheless, the downside of this company is likely too high, and investors will be better off looking for a safer IPO.
Fusion Pharmaceuticals Inc. (FUSN) has released public details about its planned biotech IPO. The company is using a placeholder figure of $100 million used to calculate filing fees. This means that investors do not know Fusion’s planned valuation, though we do know that it raised $105 million in its last Series B funding round in April 2019.
Fusion is in many ways a typical Phase I biotech IPO, which means elevated risk with hope of a major payoff years down the line. The company has advantages, such as a healthy cash reserve and a partnership with major investors like Johnson & Johnson (JNJ), but all of that is massively overshadowed by the fact that it only has one lead product candidate which is in Phase 1 testing. This represents an unacceptable level of risk which investors should avoid.
Just one product
Fusion Pharmaceuticals was founded in 2014 and states in its SEC report that it intends to develop radiopharmaceuticals as precision medicines to help fight solid-state tumors, the main tumors in breast, lung, and prostate cancer, among others. Its lead candidate, called FPI-1434, aims to target a receptor on solid state tumors called IGF-1R. By suppressing the tumor, Fusion argues that it can suppress tumor growth. Since this receptor is present on multiple types of solid-state tumors, FPI-1434 could conceivably be used to battle multiple forms of cancer.
The market for radiopharmaceuticals which can battle solid-state tumors absolutely exists. Mordor Intelligence states that “the solid tumor therapeutics market is expected to register a CAGR of 15%” up to 2024, with North America expected to continue to dominate the market.
Furthermore, Fusion Pharmaceuticals points out that radiopharmaceutical drugs such as Xofigo and Lutathera are already on the market and earn hundreds of millions in dollars in sales even though they are only allowed to be used on specific types of cancers. These factors mean that if Fusion Pharmaceuticals can develop a radiopharmaceutical treatment with FPI-1434 which can fight against solid tumors in general and not just specific cancers, the upside for this company is all but limitless.
But that is a massive if, and it comes to the fundamental problem of this IPO. FPI-1434 is Fusion Pharmaceuticals’ only drug which is currently undergoing clinical testing. Fusion is attempting to test FPI-1434 in different forms. Its most advanced test is analyzing FPI-1434 by itself, and it has two other tests which seek to combine FPI-1434 with different inhibitors.
Nevertheless, the fact remains that these tests revolve around FPI-1434. Fusion only has one alternative called FPI-1966, and the company does not expect to submit an IND application to the FDA for another 6-12 months, let alone commence testing. Any biotech company dependent on a single treatment represents about as much of a risk as an investor who wants to learn to trade but puts his entire portfolio into a single stock.
This dependence on FPI-1434 is even worse because it is still at an early testing stage. The FPI-1434 solo test is only in Phase I, with data not expected for another 3-6 months. The other tests which combine FPI-1434 with other inhibitors will not see Phase I trials begin for another 6-9 months.
Keep in mind that it is estimated that less than 15% of drugs entering Phase I testing ultimately obtain FDA approval, according to Nuventra. The math is clear that this is a company betting it all on a product which will likely not succeed and does not have a major backup plan. This should be an unacceptably high level of risk for most investors.
