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No Drug Yet In Clinic, But CytomX Raises $80M In Discounted IPO

Xconomy San Francisco — 

CytomX Therapeutics has fought through biotech’s downward slide to emerge as a public company. The South San Francisco, CA-based drug maker raised $80 million in its initial public offering, and its shares should start trading on the Nasdaq Thursday under the symbol CTMX.

The firm sold 6.7 million shares at $12 apiece. Last week, CytomX said it was aiming to sell the same number of shares at $14 to $16 apiece for a target of $100 million. That was the goal it had originally set in late August.

In months leading up to its offering, CytomX, with no drugs yet in clinical trials, hoped to capitalize on the wave of cancer immunotherapy that has buoyed many biotech stocks. In June, the company announced a $70 million Series D financing. CEO Sean McCarthy (pictured) also revealed CytomX would try to develop on its own a so-called checkpoint inhibitor, a type of cancer immunotherapy that has already seen multiple FDA approvals. Checkpoint inhibitors block the proteins tumor cells use to evade detection by the immune system. McCarthy told Xconomy it was working on an anti-PDL1 agent, one type of checkpoint blocker, that could enter the clinic next year.

For years CytomX has been developing its own version of antibody-based drugs, what it calls Probodies, that remain inactive until they reach their intended target. Only then do enzymes specific to that spot—for example, the microenvironment around a tumor—snip away the drug’s “mask” and make them active. The idea is to deliver powerful drugs to tumors without them going astray in the body and hitting healthy tissues, causing side effects.

Before the offering, Third Rock Ventures was CytomX’s largest shareholder with 31 percent, followed by Canaan Partners (17 percent), Fidelity (9 percent), CytomX Therapeutics Holdings (8 percent)—an investment vehicle managed by Nobel laureate Alan Heeger and former Icos executive Gary Wilcox—Roche (7 percent), and Pfizer (6 percent).

CytomX reaching the public market is unusual, and not just because the bears have overtaken the bulls of late. The firm has yet to put a drug into clinical trials. Even during the unprecedented three-year IPO boom, few preclinical companies have convinced the public markets to climb aboard.

It’s the latest life sciences company to go public with lesser terms than expected as the markets have headed south—and the biotech sector even more so. Since August 1, the Nasdaq is down 8.3 percent. The biotech indices have dipped more than 16 percent.

IPO watchers can debate endlessly a glass-half-full effect. Is a downturn truly bad if companies can still go public, even if the IPO terms they accept are not up to the expectations they first set? Selling fewer shares for more dollars is always lovely, but as Sir Mick Jagger once said, you can’t always get what you want.

Even in the worsening conditions, life science companies are still getting out. Including CytomX, seven biopharmaceutical firms have gone public since August 1, plus two medical device companies. Some have taken “haircuts,” as the pre-IPO concessions are called, but many have still raised sizable IPO sums. RegenXBio (NASDAQ: RGNX), which is in the high-risk gene therapy space, pulled in $139 million in mid-September. NovoCure (NASDAQ: NVCR), a maker of cancer-zapping electrodes a patient wears 24/7 against the skin, had to slash its expectations but still raised $165 million. (The deal was slashed in large part because its shareholders decided not to sell 5 million of their own shares during the offer.)

Investors in certain companies might feel the pinch—NovoCure’s IPO valuation was lower than its final private round, as the Wall Street Journal reported—but a lot of crossover investors, who have fueled the IPO boom with big late stage investments, have known this day was coming. The large investments are insurance against a barren fundraising climate, they say.

Short of a nuclear winter, a lot of biotechs are capitalized to survive a downturn. With preclinical companies still going public, winter has not yet arrived.