Dive Brief:
- Turnstone Biologics has become the first biotechnology startup to file for an initial public offering in two months, outlining plans on Monday for a stock sale to fund the development of cell therapies for cancer.
- According to research firm Renaissance Capital, the biotech aims to raise up to $86 million in the offering, though that figure could change once final terms are set. If completed at that value, Turnstone’s IPO would be only the eighth of 2023 and the year’s fifth-largest offering, according to BioPharma Dive data.
- However, the IPO comes as the startup appears to be in financial peril. In its offering prospectus, Turnstone said there is “substantial doubt” about its ability to stay solvent in the near future without additional funding. The startup has raised $172 million from investors led by Versant Ventures, but shifted its strategy in 2020 and has since lost lucrative partnerships with Takeda and AbbVie.
Dive Insight:
The downturn that halted a record run of biotech IPOs has now lasted more than a year and a half. New offerings plummeted by about 80% last year, to 22 overall, and are on pace to fall further in 2023 as investors demand more evidence of progress from young biotechs than previously.
The slowdown has pressured privately held biotech startups, which rely on access to the public markets for funding and returns for their venture backers. In this tougher market climate, companies are staying private for longer and raising additional private rounds. A sector overview published this week by the consultancy Ernst & Young found that investors are more likely to turn to surer bets, presenting challenges for startups pursuing unproven drugmaking approaches.
Turnstone, which started up in 2015, fits that mold. The company was one of more than a dozen biotechs formed in recent years to use oncolytic viruses to attack cancer. But it changed course in 2020, acquiring a biotech developing “tumor-infiltrating lymphocyte,” or TIL, cell therapies, which have drawn research interest for years but have not yet led to a U.S. approved drug.
That approach is now Turnstone’s “foundational therapeutic modality,” the company said in its IPO filing. Its most advanced treatment, for solid tumors, is currently in a Phase 1 trial.
To win the backing of public investors, though, Turnstone might have to buck an emerging trend. A majority of the companies that IPO’d this year have had programs in mid-stage testing or later, a shift from 2021, when many preclinical or early clinical-stage companies successfully priced offerings.
In the meantime, the company is running low on cash. AbbVie and Takeda cut ties with the company in 2021 and 2022, respectively, according to the IPO filing. It had about $82 million in cash and short-term investments at the end of 2022, a year in which it needed about $71 million to run its business. It held about $64 million as of the end of March.
Turnstone’s current resources aren’t enough to fund its operations for “at least the next 12 months,” and the company could need to pursue debt raises, asset sales or partnerships to extend its runway, the filing said. Without sufficient funding, the company may cut spending or curtail planned research programs.
Turnstone isn’t alone in considering such options. Dozens of biotech companies have cut jobs this year. EY’s report notes that more than 30 biotechs have filed for bankruptcy since 2020, and more than half of the publicly held emerging drugmakers it tracks have less than two years of cash on hand.
“While tough financial times have thinned out the herd, companies that can shift to leaner operations and focus on financial resilience are likely to thrive,” the report’s authors wrote.