Everyone is talking about these two biotech IPO stocks, but are they a buy?

Buying biotech stocks immediately after their IPO is usually a bold and risky move. The first public investors tend to be well-informed backers of their companies, as they have little to rely on historical performance and often have no revenue to show – but are also the first to face significant losses when things go wrong.

With that in mind, let's take a look at two widely followed biopharma companies that just went public. The market discussion about the merits of the underlying companies is just beginning, and that means those bold enough to invest may reap outsized profits. But be careful!

1. Kyverna Therapeutics

Kyverna Therapeutics (NASDAQ:KYTX) completed its IPO on February 12, raising $367 million. Initial fundraising expectations were that it would ultimately raise around $180 million, so the actual haul is a stunning initial success.

Its lead candidate, KYV-101, is a cell therapy to treat autoimmune diseases such as multiple sclerosis (MS) and possibly myasthenia gravis, both of which are being studied in Phase 2 clinical trials. While there is little data on KYV-101's performance so far, Food and Drug Administration (FDA) regulators deemed it promising enough to grant the program Fast Track designation, a positive initial sign.

A key reason regulators are likely willing to move forward with the candidate is that it is based on cell therapy technology licensed by the National Institutes of Health (NIH) and already in Phase 1 trials in collaboration with the National Cancer Institute ( NCI) was tested). Additionally, the NIH developed the technology with improved safety features and tolerability in mind, so there is likely less opportunity for mishaps that would draw the ire of regulators.

As for finances, operating expenses for the first nine months of 2023 were $41 million. This means that the company has at least enough money to develop its candidate for key indications in larger and advanced clinical trials over the next few years. In short, it is almost guaranteed that the company has sufficient resources to provide multiple catalysts in the form of data readouts, and there is even a possibility that the company has enough cash to avoid having to raise even more capital beforehand it brings its first drug onto the market.

The story goes on

But it's still a risky pre-revenue biotech stock that aims to compete in developing therapies for autoimmune diseases, which are notoriously difficult to treat with high efficiency. It is true that this company has the financial aspect covered and that the preliminary regulatory situation looks good. However, don't think about nibbling on stocks until there is solid Phase 2 data. This one isn't quite ripe yet, but could be in about 18 months.

2. CG Oncology

The IPO on January 30 raised gross proceeds of $437 million. CG Oncology (NASDAQ:CGON) is one of the hottest biotech companies to hit the market in recent years, and it's no surprise why.

CG's lead candidate is an immunotherapy called cretostimogen grenadenorepvec (say three times fast – or even one time slow), which is being studied for the treatment of non-muscle invasive bladder cancer (NMIBC) as a monotherapy, as well as in conjunction with pembrolizumab, another immunotherapeutic agent. Two Phase 3 clinical trials are currently underway, with one Phase 2 trial ongoing and another scheduled to begin this year. One of the Phase 3 trials will release its topline data before the end of 2024, which should be an important catalyst.

Cretostimogen is interesting because it is a bioengineered, cancer-killing virus with two distinct antitumor properties. The first reason is that once tumor cells are infected, they produce more virus particles until they can no longer hold them, causing them to rupture and die. These fresh virions then infect other tumor cells and repeat the process. At the same time, the virus hijacks infected tumor cells until they expire, converting them into the secretion of chemicals that give a boost to the cells of the immune system responsible for fighting tumors and make them more effective at killing cancer cells.

According to some preliminary phase 3 data, 63.6% of patients treated with the therapy still had a complete response after six months. This suggests it could be an effective addition to the oncology arsenal. In addition, the FDA has already granted it Fast Track designation and Breakthrough Therapy designation. Both could help the biotech company bring the drug to market a little faster while potentially saving some research and development (R&D) costs.

Management believes the company has enough capital to last through the second half of 2027, which is an impressively wide cash margin for a biotech company in its development stage. Given the trajectory of its Phase 3 programs today, the company could potentially commercialize its lead candidate without taking on much new debt or issuing more shares.

Combined with the attractive data so far, this stock is risk-free enough to consider buying if you're looking for medium-term growth. However, be aware that this is still a risky biotech company that has no revenue yet and could still run into trouble and leave shareholders with a 30% discount if a clinical trial fails.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Everyone is talking about these two biotech IPO stocks, but are they a buy? was originally published by The Motley Fool