Parabilis Soared 58% in the Biggest Biotech IPO on Record. Is It Too Late to Buy the Stock?

This year is turning out to be a massive one for initial public offerings, with Cerebras Systems delivering the biggest so far and SpaceX on track to launch the largest ever. On top of that, Anthropic and OpenAI recently filed confidentially with regulators, suggesting they may make market debuts soon.

That activity has been in the technology sector, but another area that's looking hot is the industry of biotech. Kailera Therapeutics got the ball rolling in April, with a biotech IPO that topped the biggest one to date -- that of Moderna, which raised a record $604 million in 2018. And just this week, Parabilis Medicines (NASDAQ: PBLS) topped them all, raising $670 million. And on the stock's first day of trading, it soared 58% to close at a little over $31.

Investors are clearly excited about this biotech company exploring an innovative way to fight cancer and potentially other diseases. Now the question is: After this explosive IPO, is it too late to buy the stock?

Image source: Getty Images.

Taking on "undruggable" targets

First, let's start out by taking a closer look at Parabilis. The company launched in 2015, built on many years of research out of Greg Verdine's Harvard University lab. He was a co-founder and chief executive officer in the company's earliest days. Verdine's team found a way to target what previously was thought to be "undruggable" -- these are certain proteins that are inside cells and lack the concave surfaces that allow drugs to bind and take action.

Verdine's team created a new drug type, forming peptides into an alpha-helix so that they could enter cells, bind to flat surfaces, and work to fight disease. And so was born the company's Helicon platform.

Today, Mathai Mammen, former global head of research and development at Johnson & Johnson, is CEO of Parabilis -- at the pharma giant, he led his team to the approvals of nine medicines across oncology, immunology, and neuroscience. So Mammen has what it takes to lead Parabilis through the current and next stages of clinical development and into commercialization.

"Promising" results in patients

The biotech's lead candidate, zolucatetide, is set to begin a phase 3 study in desmoid tumors, noncancerous growths that have limited treatment options, in the first half of next year. Parabilis has studied zolucatetide in more than 150 patients so far and delivered "promising" data in a range of tumor types, the company wrote in its prospectus.

Zolucatetide is involved in four phase 1 studies, including hepatocellular carcinoma and colorectal cancer. And the biotech is also developing candidates in preclinical studies and aims to expand this technology into other therapeutic areas beyond oncology in the future.

Parabilis says that Helicons are the only modality out there right now that allows for the entering of cells and the binding to flat surfaces. This ability to make "undruggable" targets "druggable" could be big, particularly if it may be extended across many treatment areas. About 80% of validated disease targets are undruggable today, according to Parabilis.

Parabilis' deepening loss

Now, let's consider the recent IPO and the company's financial picture. Proceeds from the offering will go toward funding zolucatetide's phase 3 study, as well as earlier studies in other indications and earlier-stage research. The company's loss has progressively deepened, to $145 million last year, as R&D costs advanced to $125 million. This isn't surprising for a biotech company at this stage. But these losses and need for ongoing spending to support its programs make Parabilis -- and other biotechs at this moment in their growth stories -- risky investments.

So, considering all of this and the recent double-digit gain on IPO day, is it too late to get in on Parabilis? This biotech offers interesting -- and potentially game-changing -- technology, but it may take several years for this, if successful, to translate into revenue. So, regardless of the stock price, Parabilis isn't the best choice for cautious investors.

If you're an aggressive investor, however, and you're looking for a biotech that potentially may be a big winner down the road -- and you have the patience to buy and hold for several years, Parabilis may be right for you. That said, there's no need to rush in immediately after this spectacular IPO gain. Instead, you're better off waiting for an opportunity to buy on the dip.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moderna. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.