ArriVent Wows Investors With Promising China-Developed Lung Cancer Treatment

Key Takeaways:

• ArriVent raised $150 million in an upsized IPO, marking one of the strongest performances for a China-linked IPO in New York over the last two years
• The company has licensed global rights, excluding Greater China, to furmonertinib, a highly targeted drug used to treat non-small-cell lung cancer

By Doug Young

Chinese drug stocks haven’t found much love on Wall Street these days, as investor impatience wears thin over their money-losing ways and Beijing’s tough price controls that make it difficult to turn profits. But biotech firm ArriVent BioPharma Inc (AVBP.US) is proving to be an exception, following a solid performance for its IPO, including an 11% jump for its shares in their Friday trading debut.

This particular IPO looks unusual among China-linked new listings for a number of reasons beyond the first-day jump. Its underwriters included an A-list of investment banks, led by Goldman Sachs, Citi and Jefferies. Those banks have largely avoided New York listings by Chinese companies for the last two years due to regulatory issues in both the U.S. and China, though they are slowly coming back to the market now that those issues have been mostly resolved.

This IPO is also notable because of the relatively strong demand for its shares, which led the underwriters to upsize the offering from an original 8.3 million shares in its most recent prospectus just a week ago, to a final 9.7 million shares. The company priced those shares at $18, representing the middle of their range, raising $175 million in gross proceeds – the biggest listing by a Chinese firm in New York since late 2021, when another biotech firm, LianBio (LIAN.US), raised $325 million.

The strong performance contrasts sharply with investor flight from offshore-listed Chinese stocks these days, which has sent many to all-time lows as worries grow over China’s sputtering economy.

So, how has ArriVent managed to buck the trend? For starters, we need to point out that the company isn’t technically Chinese, even though it has strong connections to China. Its main asset is furmonertinib, a highly targeted epidermal growth factor receptor (EGFR) mutant-selective tyrosine kinase inhibitor used to treat metastatic non-small-cell lung cancer (NSCLC).

Furmonertinib was actually developed by Shanghai Allist Pharmaceuticals (688578.SH), a Chinese company founded by two doctors now based in China with backgrounds tied to the U.S. National Institutes of Health (NIH). The drug has been approved in China and become hugely profitable for Allist, which reported its revenue rose 160% in the first three quarters of last year to 1.35 billion yuan ($188 million). More impressive, however, is Allist’s profit of 410 million yuan for that period, up more than sevenfold from a year earlier – a rarity for such young drug companies.

Allist granted licensing rights for furmonertinib in all markets outside Greater China to ArriVent in 2021, which is also the same year ArriVent was founded. Under their deal, ArriVent made a $40 million down payment and agreed to provide some of its shares to Allist, according to an announcement from Allist at that time. In addition, Allist said ArriVent would provide future milestone payments worth up to $765 million, as well as “double-digit” commissions on its future sales of furmonertinib.

Big-Name Backers

With all that background and strong IPO performance in mind, we’ll spend the second part of our review looking more closely at ArriVent’s own background, and the path it now faces to bring furmonertinib to market, as well as other drugs it is developing. The company was founded three years ago by Chairman and CEO Yao Zhengbin, who also uses the English name Bing Yao, and Stuart Lutzker, another doctor who is its president of R&D.

Yao has previous similar experience with a company called Viela Bio, which he co-founded in 2018 by licensing a portfolio of therapeutics from British drug giant AstraZeneca (AZN.US), and later sold to Horizon Therapeutics for $3.1 billion. So that gives some clues about ArriVent’s potential future, namely that Yao could ultimately want to sell the company to another firm down the road for a big profit.

The company has done quite a bit of fundraising to date, which is quite typical for this kind of drug startup. It raised $150 million at its launch in 2021, with investors including such big names as China’s own Hillhouse Capital, as well as Eli Lilly’s (LLY.US) Lilly Asia Ventures, and OrbiMed, among others. It raised another $155 million last year, with Hongshan, formerly known as Sequoia China, joining as another notable investor.

While furmonertinib has already been approved in China, the drug is still being tested in the U.S., where it is currently in the final phase 3 clinical trial stage. It got a major boost last October, when the U.S. Food and Drug Administration granted it “breakthrough” status, which is given for drugs that “may demonstrate substantial improvement over existing therapies.” Such designation often helps drugs move through the long and arduous regulatory approval process more quickly.

Like many such drug startups, ArriVent currently has no revenue and is losing money as it takes furmonertinib through the trial stages. It recorded a net loss of $36.9 million in 2022, and lost another $48.1 million in the first nine months of last year, bringing its cumulative losses since its inception to $136.7 million, according to its prospectus. Given its $300 million in pre-IPO fundraising and up to another $200 million in IPO proceeds, the company should be relatively well funded for at least the next couple of years as it works to get furmonertinib approved.

In addition to furmonertinib, the company also has another cancer drug in its pipeline that it is co-developing with Aarvik, though that one is at a far earlier stage in its development. So, clearly, the company is putting most of its bets on furmonertinib for now.

In terms of valuation, ArriVent should probably be ultimately valued at similar levels to Allist, which currently trades at a strong price-to-sales (P/S) multiple of 5, and an equally strong price-to-earnings (P/E) ratio of 38. Of course, everything will depend on how furmonertinib develops in the U.S., though things certainly look positive for now. If all goes according to schedule, we could even imagine a scenario where ArriVent gets sold to a major global drug company for a big premium before the company ever records its first dollar of revenue.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.