Here are this week’s technology IPOs.
Histogenics
Ticker: (NASDAQ: HSGX)
Expected to Trade: Tuesday, December 2
Price Range: $13.00-$15.00
Business Description
Histogenics is a development-stage biotechnology company focused on regenerative therapeutics to treat musculoskeletal-related conditions.
The company’s lead biologic candidate, NeoCart, is a Phase III candidate (currently in recruitment) for the treatment of cartilage injury in the knee.
More specifically, NeoCart is an implant produced from a patient’s own cartilage cells, which Histogenics harvests from the non-weight bearing cartilage on the surface of a patient’s femur. The company uses its proprietary Tissue Engineering Processor (TEP) to create the implants in an environment that mirrors joint function.
Here’s how Histogenics describes the three-part process:
Cell collection — The process begins during a short, simple arthroscopic examination when an orthopedic surgeon takes a cartilage biopsy from a non-weight bearing area of the joint. The tissue biopsy is sent to the Histogenics manufacturing facility for culturing into the implant.
Tissue production — The cartilage cells, or chondrocytes, are isolated from the cartilage and multiplied using standard tissue culture techniques. The cells are harvested, seeded into a unique three-dimensional collagen scaffold, and cultured under exacting conditions of high pressure, oxygen concentration, and perfusion.
Implant — After a few weeks, a discrete three-dimensional piece of the patient’s own neocartilage, potentially having characteristics of maturing native articular cartilage, is sent to the physician and implanted into the defect in a simple procedure that usually takes less than an hour. We believe within months, there is potential for the matrix to remodel, for the cells to mature, and for the cartilage to integrate with the host tissue.
Here’s an infographic showing the surgical timeline:
Our Take
Histogenics thinks NeoCart could become a replacement for microfracture surgery, the current standard-of-care procedure for cartilage damage of the knee. If that ends up being the case, we have a major blockbuster drug on our hands.
Studies have shown microfracture surgery does not completely fix cartilage defects and stimulates the growth of fibrocartilage. Fibrocartilage is believed to be less durable than hyaline cartilage found in healthy knees, so over time, the benefit of microfracture surgery diminishes.
In addition to limited long-term benefits, microfracture surgery is also associated with modest efficacy and extended patient recovery times.
By using a patient’s own tissue, NeoCart provides a hyaline-like implant, which is believed to offer better protection and durability over the long term. So far, the studies analyzing the therapeutic have been quite promising in this regard.
The following comes from NeoCart’s Phase I study:
[These] procedures are a therapeutic option for the treatment of chondral lesions that can offer a positive outcome over time for specific patient categories, but high-level studies are lacking. Systematic long-term evaluation of these techniques and randomised controlled trials are necessary to confirm the potential of this treatment approach, especially when comparing against less ambitious traditional treatments.
And the following from Phase II:
This randomized study suggests that the safety of autologous cartilage tissue implantation, with use of the NeoCart technique, is similar to that of microfracture surgery and is associated with greater clinical efficacy at two years after treatment.
Histogenics is currently operating at a burn rate of $37.9 million a year with $7.8 million in cash on hand. The company is expected to raise $60 million in its IPO, giving it approximately seven quarters before it will need to seek additional financing (assuming a constant burn rate).
Considering that Phase III trials typically take 30 months on average, shareholders are likely to see some form of dilution before NeoCart hits the market.
Nonetheless, positive interim results would be enough to float the stock considering NeoCart’s blockbuster potential. We like Histogenics as a speculative play, but you’ll probably want to hold off at least until NeoCart’s recruitment phase is over.
