Metagenomi (MGX 0.33%) closed its initial public offering on Feb. 13, and its debut on the market has been looking rocky. Though shares of the gene-editing specialist were offered at a price of $15 per share, they are now trading at close to $12, and despite some choppy price action, they likely won’t recover these losses anytime soon.
Nonetheless, there’s more than one reason to not write this young biotech off just yet. Here’s why.
With cash in hand, and a couple of allies, the work begins
Biotech stocks lose value after their IPO all the time, and it doesn’t necessarily mean a company is doomed to fail or will suffer from poor sentiment for a prolonged period. As long as a player has enough money to fund its research and development (R&D) work to reach the next milestone, there’s usually still a chance that success is possible.
In Metagenomi’s case, all of the programs it’s looking to fund are in pre-clinical testing, which means research budgets are lower than they would be if it were running clinical trials. The business’ real value appears to be in its numerous gene-editing technologies, which it claims are incredibly diverse, versatile, and easy to match to use cases where their efficiency is high.
Its platform enables Metagenomi to forge collaborations with primary drug developers that can make use of the biotech’s acumen, though it obviously also plans to advance therapy programs of its own without outside help.
The gross proceeds of the IPO were close to $94 million. Before the offering, as of the third quarter, it had $293 million in cash, equivalents, and short-term investments, whereas its trailing-12-month operating expenses were $112 million. So it should thus have at least enough capital to keep the lights on for the next three years at its present rates of spending. For a young biotech, it doesn’t get much better than having a cash runway that stretches a few years out.
Importantly, it has also secured collaborations with important players in biopharma, which should increase its chances of having something worthwhile to show to investors within a few years. Moderna will work together with Metagenomi to advance a handful of candidates created using Moderna’s delivery technology and Metagenomi’s gene-editing tools with the aim of developing gene-editing therapies that cure hereditary diseases in living people.
The only publicly announced collaboration program was one for treating or curing primary hyperoxaluria type 1, a rare disease. And while the financial terms of the deal weren’t disclosed, Moderna agreed to make an equity investment, as well as an upfront payment, milestone payments, and potentially royalties, too.
The path to success will be a long one
Metagenomi will need to have at least one of its pre-clinical programs enter human trials and deliver promising data before its money runs out in early 2027. Then, it can raise more money by issuing more stock or by taking out debt, which would fund it for a few more years, perhaps enough time to commercialize its first medicine.
It is not guaranteed that Metagenomi will be able to produce the good data it needs to survive past its current or future fundraising rounds. It’s also not guaranteed that it will ever generate a dollar of revenue from sales of one of its medicines even if it produces positive early-stage data, as there are many other possible points of failure in the clinical trials process. This is a risky stock to buy today, and it will be a risky stock for years to come. And that’s under the best of conditions.
Still, if you’re looking for a speculative investment in biotech that’s deeply exposed to programs produced using a swath of different gene-editing modalities, it could be a good bet one day. For now, wait until it has some phase 1 clinical data in hand. Buying its shares before it has anything promising to build an investing thesis on is a recipe for a low-conviction investment, and those are the easiest to impulsively sell when things don’t go as planned.
