A tale of two biotechs

Success has been a scarce commodity during biotech’s relatively short history. But the winning stories can basically be split into two types of company: one goes all the way from start-up to become a profitable, commercial entity, and the other generates a quick return for investors by agreeing to be acquired early.

This week saw two biotechs, Revolution and Allogene, use positive clinical readouts to tap investors for more cash. The circumstances of the fund-raisings, and the valuations at which these have been done, say much about the two companies’ realistic goals, and betray the fact Revolution and Allogene are now set on biotech’s divergent paths to success.

It should be stressed, however, that neither outcome is guaranteed for either company. It’s surely too early to speculate that Revolution could become the next Genentech, Biogen or Vertex – though this might be management’s goal. And there’s certainly been no sign that acquirers are beating a path to Allogene’s South San Francisco headquarters.

Manic Monday

What’s true is that both companies posted positive pivotal data on Monday, Revolution toplining an overall survival win for daraxonrasib in second-line pancreatic cancer, and Allogene showing for the first time that it might have a path forward for allogeneic Car-T therapy in a new clinical setting, consolidation in large B-cell lymphoma.

As expected, both companies’ investors celebrated, with Revolution shares closing up 41%, and Allogene’s putting on 13%. Equally predictably, secondary equity financings followed; neither Revolution nor Allogene was desperate for cash, but both heeded the biotech maxim that says you raise cash not when you need to but when you can.

But here the similarities end. Revolution had been launched onto the blockbuster seas with the 2023 acquisition of the failed US oncology pricing disrupter EQRX, the all-stock deal bringing with it EQRX’s $1.3bn cash balance. Subsequently Revolution's market cap swelled to $20bn, and its own bank balance to $2bn, despite it being a mid-clinical stage company.

Revolution is believed to have already fielded takeover approaches, perhaps from Merck & Co and AbbVie, and the fact it was able to resist these and hope for a bigger future return says much about the course on which it’s now set.

Most important here is investor support for such a plan. This week’s financing initially aimed to raise $1bn in equity and debt, but was amazingly upsized to $2bn. Even more amazingly, the equity was priced above Monday’s close – and on Tuesday the shares added another 8%. Revolution is now valued at $29bn.

Punished

Meanwhile, Allogene has lost over 80% since its 2018 IPO, punished as the allogeneic Car-T therapy bubble burst. Its own equity raise was priced at a 35% discount to Monday’s close – and on Tuesday the shares tanked. The money will take Allogene to the primary analysis of the Alpha-3 trial in 2028, but with few catalysts before then the markets have spoken.

Indeed, the best that can realistically be hoped for now is that this final analysis will result in a takeover. Allogene’s founding team did succeed in selling Kite Pharma to Gilead for $11.9bn – a very satisfying exit, but one that happened in 2017, during Car-T mania. Those days are long gone.

This isn’t to say that Revolution won’t be acquired, and indeed that possibility still represents a dream scenario for long-term investors. After all, even Genentech, Genzyme and Celgene were taken over in the end, but only after demonstrating their prowess as commercial entities.

It’s still early days for Revolution, but its huge secondary offering – and the market’s support for it – has set this company on course for an independent future. The same can’t be said of Allogene.