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As Castle Bio Jumps on IPO Train, Industry Trends Suggest Slowdown

Xconomy National — 

Castle Biosciences is joining the public markets through a $64 million IPO that will support cancer tests that help doctors make treatment decisions.

On Wednesday evening, Castle priced its offering of 4 million shares at $16 apiece, which was the high end of its targeted price range. The Friendswood, TX, company had previously planned to sell approximately 3.4 million shares in the range of $14 to $16 each. Castle’s shares are expected to begin trading on the Nasdaq Thursday under the stock symbol “CSTL.”

Wednesday IPO activity also included two health IT companies. Health Catalyst of Utah raised $182 million and Mountain View, CA-based Livongo Health raised $355 million in their upsized IPOs. Livongo’s IPO gives it a valuation of approximately $2.5 billion.

But life science IPO activity appears to be slowing, according to SVB Leerink analyst Geoffrey Porges. In a Thursday research note, he wrote that while second quarter IPO and follow-on financing activity was robust, the spread between the biggest financings and the smallest ones has widened compared to the fourth quarter of 2018 and the first quarter of this year. He added that the best performing IPOs are “unicorns,” which are companies whose valuations top $1 billion. Meanwhile, Porges said the smaller IPOs have been trading poorly after joining the public markets, and these smaller offerings appear to comprise a greater share of the new financings.

“We expect to see a slowdown in new issues during the rest of the summer, and with widespread political, regulatory, and legal concerns about the industry’s outlook, we would not be surprised to see a retrenchment in the support of new equity during the post-summer period,” Porges wrote.

Castle is on the small end of the IPO spectrum with a valuation of approximately $247 million. Castle will use its new IPO cash to expand sales efforts of its commercialized tests and continue development of experimental tests in its pipeline. Founded in 2007, Castle currently sells two products: DecisionDx-Melanoma for invasive cutaneous melanoma and DecisionDx-UM for uveal melanoma. Castle says in its IPO filing that these tests give a picture of the gene expression profile, which is a measure of the activity of the genes in a cell.

Using proprietary algorithms, Castle says these tests assess the risk that a patient’s cancer will spread or recur. The company says it has processed more than 40,000 patient samples since its first product launched in 2010. The tests generated $22.8 million in revenue last year, an increase of more than 65 percent over the prior year, according to the filing. Castle reported a $6.4 million net loss for 2018.

Approximately $17 million of the IPO proceeds are earmarked for sales and marketing of Castle’s commercialized products, and another $17 million is budgeted for research and development of new tests, according to the filing. The company’s pipeline includes experimental tests for cutaneous squamous cell carcinoma and suspicious pigmented lesions.

Photo by Flickr user Andrew via a Creative Commons license