Fractyl Health (GUTS) IPO Preview
Will You Have the $GUTS?
There has been a lot of talk about the resurgence of initial public offerings (IPO) in the coming year. The IPO market speaks to some investors because of that “ground floor” appeal they are looking for in their speculative investing. While the new crop of IPOs may not be stocks, we end up adding to the Ledger Island Watchlists, from time to time we’d like to discuss a few pre-launch. In this first IPO Spotlight we are looking at Fractyl Health who will trade under the proposed ticker symbol GUTS on the Nasdaq starting February 2, 2024.
Fractyl Health (GUTS) is a biotech company based in Lexington, MA. Their focus is on metabolic treatment for type 2 diabetes (T2D). In their own words from multiple press releases:
“Fractyl Health is a metabolic therapeutics company focused on pioneering new approaches to the treatment of metabolic diseases, including T2D and obesity. Despite advances in treatment over the last 50 years, T2D and obesity continue to be rapidly growing drivers of morbidity and mortality in the 21st century. Fractyl Health’s goal is to transform metabolic disease treatment from chronic symptomatic management to durable disease-modifying therapies that target the organ-level root causes of disease.” https://www.fractyl.com/news/
Clint’s Impression:
First let me say I love the ticker! GUTS. Sounds tough and aggressive. You can actually find “guts” referred to as the area of focus all through their website.
“Tackling gut dysfunction at an early stage of disease might therefore be a promising treatment option to fight obesity and the resulting risks and complications.” https://www.fractyl.com/revita/
Actually, on the products and services sides there is a lot to like about Fractyl Health (GUTS). Their Revita system comprises of proprietary technology and software for the treatment of metabolic impairment in association with obesity leading to type 2 diabetes (T2D). The prototype does indicate it is administered via catheter. (Probably why the prefer the term “gut”.) Revita is currently in trial use and data collection in Germany, and planned to be submitted for US general usage later in 2024.
Fractyl also has Rejuva which is a pancreatic gene therapy (PGTX) aimed at T2D and obesity delivered directly to the pancreas. Both are in pre-clinical phases and hope to be on the path to approval by the second half of 2024. There may be some upside in another obesity treatment option among an uneven weight loss pill market that is getting some resistance from private and public health insurances cost battles. Going by Fractyl’s information Rejuva would seem more in line with the potential pre-treatment of T2D by addressing obesity. Might be an interesting workaround down the road, but that is really quiet far out into the future.
Fractyl Health’s IPO is being backed by Mithril Capital and General Catalyst and underwritten by Bank of America BAC 0.00%↑ , Morgan Stanley MS 0.00%↑ , and Everscore ISI. Roll out indicates the goal is raise $115M in capital by selling 7.3M shares at a proposed $14-16 stock price. Fractyl intends to earmark around $15M of the IPO funds to further their research on Revita and Rejuva.
I have found this IPO rollout “lacking”. There hasn’t been much chatter or amp up leading to the launch. Too much of the prospectus seems to concentrate on specifically s#@! talking Lilly LLY 0.00%↑ and Nova’s NVO 0.00%↑ GLP-1 weight loss drugs. From that point on the presentation starts to feel more like an “Instagram Ad for diet pills” rather than “good science.”
Phil’s Impression:
The market for type 2 diabetes market is anticipated to be as high as $61.6B up from $29.8B in 2021. The pre-diabetic/prevention market will only increase the value of drugs and procedures designed to address both. Add in the potential application for weight loss/obesity and Fractyl has two products in the pipeline that are aimed at a massive and growing market.
Their Revita procedural therapy has breakthrough device designation in the US and they got CE designation (indicator that the device meets the General Safety and Performance Requirements) in the EU. Fractyl got the CE designation in 2016 so I’m curious about the long ramp up time. They have an ongoing clinical follow-up study in Germany which is an encouraging step towards marketability. They anticipate an IDE filing in the first half of 2024 and study results from patients on insulin treated type 2 diabetes in the fourth quarter of 2024.
Their Rejuva pancreatic gene therapy is still in the preclinical phase for use in both diabetes and obesity treatment. They don’t anticipate an IND (Investigational New Drug) application until the second half of 2024. Phase 1 clinical trials are still a long way away.
Fractyl Health’s IPO Future:
While we wish Fractyl Health all the luck in the world upon launch we don’t see much to indicate it will hold its initial offering price for any extended period of time. They will raise enough cash to continue their trials and research through 2025 which is good because we do see their innovation and future potential, but beyond that there doesn’t appear to be any real return on investment near term. Recently though other health sector IPOs launched (i.e. CG Oncology CGON 0.00%↑ and Arrivent Biopharma AVBP 0.00%↑ ) and have enjoyed 10-12% gains in the course of week. In Fractyl’s case, like most smaller IPOs (est. 713M market cap), it will have a good week (maybe a month) but ultimately it will then start its steady decline until it is closer to $2.00 in four months’ time. By then some of their applications and results will either be in the works or completed. That might be when you should take a closer look.
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