So You Want To Be A Biotech Investor?

Joey Bose
June 29, 2022

The recent surge of interest and investment in the biotech industry has catapulted the number of IPOs, VC-backed investment, and company acquisitions to unprecedented levels (U.S. biotech startups raised $29.66 billion in venture capital last year, a 50% increase from the year before, and more than 100 biotechs collectively raised $15B via Initial Public Offerings in 2021). The market has (thankfully!) cooled off and biotech stock prices have overcorrected down to undervalued levels, presenting savvy investors with the opportunity to scoop up biotech stocks for pennies on the dollar (contemplate Warren Buffet’s advice: “be greedy when everyone else is fearful”). Accurately pricing privately-held, pre-revenue biotech stocks is tricky business, but there are a set of tell-tale signs that the company is on the right track to maximizing shareholder value and is a good investment. These indicators include, but are not limited to, drug development projects that employ novel mechanisms of action to address unmet clinical needs (i.e., a novel treatment mechanism for a disease that doesn’t have an effective treatment), a Board of Directors with Big Pharma experience and capital raising expertise, an A+ Scientific Advisory Board, and management’s track record of accomplishing the milestones that they promise investors.

Fortunately, drug development follows a formulaic path with well-delineated milestones, allowing new investors to quickly scan news releases to position their potential investment within the drug development lifecycle:

  • First, preclinical (animal) data supports the safety and efficacy of the drug prior to experimentation in humans. Convincing preclinical data is packaged in an Investigational New Drug (IND) application and sent to the FDA for approval to begin a Phase 1 human study.
  • First-in-human Phase 1 studies are designed to support the safety of the drug in a small patient sample (usually less than 50 participants), and often provide some evidence of drug efficacy in treating the disease as a secondary measure.
  • Once safety is established, Phase 2 trials provide a robust analysis of the drug’s efficacy in a large patient (hundreds) population, often by exploring the dose-dependent effects. Big Pharma players scour promising Phase 2 trials for drugs to acquire.
  • Finally, a large Phase 3 trial is conducted to support the safety and efficacy of the drug in a very large sample (thousands of patients). Phase 3 data is packaged in a New Drug (NDA) application and sent to the FDA for final approval to begin manufacturing and selling the drug.

This well-charted course also benefits biotech companies, allowing them to plan their financings around key value-adding catalysts with a reasonable degree of certainty. For example, Cytonics only raises funds once a significant value-add milestone has been accomplished, and it is time to spend more cash to knock down the next one. This iterative process of raising capital predicated on a foundation of achievement is core to the overall investment thesis that the enterprise value of the company increases exponentially as the drug’s risk of regulatory failure rapidly declines.

About Cytonics

Cytonics’ mission is to advance their lead drug candidate, CYT-108 (a novel biopharmaceutical for osteoarthritis), into Phase 2 clinical trials and then identify a licensing partner or acquirer. The company’s shareholders will appreciate a return on their investment via a public listing (e.g., IPO, SPAC merger) or by private transaction (e.g., a Big Pharma company buys everyone’s stock).

Cytonics recently completed the GMP manufacturing of CYT-108 for use in their final preclinical study and upcoming Phase 1 human clinical trial. GMP manufacturing is a rigorous standard enforced by the FDA to ensure that the drug manufacturing process is clean and reproducible – an arduous process for a biopharmaceutical like our CYT-108. Our optimized GMP manufacturing process is the culmination of 4 years’ worth of R&D! The company recently completed their final preclinical (“IND-enabling”) study, and reported positive safety data. This data will be packaged and prepared in an IND application and submitted to the FDA for approval in Q4 2022, on schedule to begin their Phase 1 human clinical trial in Q1 2023.

Cytonics will use funds for:

  • Fully fund the Phase 1 clinical trial, producing the first human safety and efficacy data to-date. This is a huge valuation inflection point for the company and will gain the attention of potential strategic partners (Johnson and Johnson own 14% of Cytonics).
  • Produce more GMP material for Phase 2 clinical trials.
  • Design a preclinical trial for CYT-108 as a treatment for hyper-inflammation of the lung (due to COVID and Acute Respiratory Distress Syndrome).

You can learn more about Cytonics Series C offering of preferred stock.

Download the Investor Brief
see slides 16 and 17 for preclinical study results