Why Sagimet Biosciences Stock Is Soaring Today
Key Points
Sagimet Biosciences is developing a handful of drugs, but its priority is acne therapies.
Its flagship acne drug denifanstat has performed well in Phase 3 trials in China, and certainly well enough in Phase 2 testing in the United States.
Although the company will soon dilute existing shareholders’ stakes by issuing new shares, the fundraising will support an opportunity that’s well worth it.
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Investors had every reason to suspect today's news from Sagimet Biosciences (NASDAQ: SGMT) was coming sooner or later. Nevertheless, seeing the official announcement has clearly proven inspiring. As of 11:40 a.m. ET Monday, SGMT shares are up a hefty 45.2%, reaching a high last seen in November.
The news? Following a successful Phase 3 trial in China, the biopharma company now plans to initiate Phase 3 trials of its acne-fighting denifanstat in the United States.
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Moving ahead to enter the U.S. acne market
It's not the only drug in Sagimet's pipeline, for the record. Its TVB-3567 is also in Phase 1 trials as an acne treatment, as well as currently in preclinical studies as a treatment for solid tumors. Denifanstat also recently ended Phase 1 testing as a combo therapy for metabolic dysfunction associated steatohepatitis (MASH), with Phase 2 trials for this purpose expected to be ready in the latter half of this year.
The chief driver of Monday's bullishness, however, is the decision to move forward with the development of denifanstat as a treatment for moderate to severe acne within the United States. And soon. Following the success of the company's domestic Phase 2 testing of the drug as well as the efficacy demonstrated by developmental partner Ascletis Bioscience's Phase 3 trials performed in China, Sagimet Biosciences plans on launching a Phase 3 trial in the U.S. sometime in the second half of 2026.
Image source: Getty Images.
Up for grabs is a market of 10 million acne suffers in the U.S. alone, although it's certainly far bigger beyond the United States' border. Healthcare industry research outfit Towards Healthcare estimates the global acne treatment market is worth roughly $11 billion per year now, but could grow to nearly $17 billion by 2034.
Not a bad bet, even after factoring in the rest of the story
The news is understandably exciting, but there's a corresponding downside. That is, Sagimet Biosciences is also planning to raise $175 million by issuing over 29 million new shares of the company at $6.00 per share, dramatically diluting the 32 million shares already issued and outstanding. For more perspective, before today's surge, SGMT stock's price of $5.86 translated into a market cap of just under $190 million. Raising this capital -- largely to fund denifanstat's next stage of testing -- is taking a measurable toll on the value of both current and future shareholders' stakes.
The market clearly doesn't mind, however, and is viewing today's announcement as one with far more net upside than downside stemming from the sizable issuance of new shares at a discount to today's market price.
The thing is, investors' optimism may well be justified. Sagimet Biosciences shares are still reasonably priced relative to the opportunity ahead.
Should you buy stock in Sagimet Biosciences right now?
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James Brumley 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.
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