Compare as well our SRP position Celladon (CLDN) which is around 340 million market cap. A Gene Therapy company with an advanced phase2b systolic heart failure Gene Therapy trial with results due in April. A patient population of 350,000 which is 100x larger than that of Spark (3,500), and yet the market cap is again about 1/3 that of the IPO trading Spark (ONCE). Celladon has both Fast Track and Breakthrough Therapy designations from the FDA, with a phase 1 result showing 88% response rates. This is why IPO’s can often be exciting but retail investors often bid them up way above fair valuations and forget the better values sitting right in front of them. We would rather own CLDN all day long vs. SPARK at current valuations and sleep at night.
Recent samples of IPO pop and drops are GPRO, VSLR, EYES, JUNO, and the list goes on of IPO stocks that get way overbid. We read through the IPO filings carefully and look for flags and warning signals. Investors don’t do that as a rule, and the stocks can get initially bid up way over fair valuations. This happens because the float is low relative to the total shares outstanding, and if it’s a sexy story worthy of water cooler discussion then the greater fool theory takes over. In the case of Spark, they sell 7 million shares to institutions at $23, and many of them hold the stock. This leaves even less shares available (Float) in which the retail traders clamor after creating a virtual bubble to the upside until valuation gets to absurd levels that make no sense fundamentally at all. He who can sell their stock to the next fool who is willing to pay too much for the business is the profit maker. At some point there are a ton of bag holders, and this will be the case with ONCE we are sure, not to mention Shake Shack, which rose 116% as well. The Burger and Fries chain valued at 1.7 Billion which made 3 million profit in 2014… yeah, no. We will pass but thanks… maybe the burgers are good, but not that good. Valued now at 15 times annual sales vs. 6 times for market leader Chipotle Mexican Grill (CMG). Outside of NYC the stores do not do nearly as well, we mark this one as way overvalued, we will pass on it and probably short it soon.
Just as a quick sample of how we view things, We would much rather invest in CLDN and their Gene Therapy for systolic heart failure at a 340 million market cap with a patient population 100x great than that of ONCE, than pay 1.2 Billion for a 3,500 patient population and a thin pipeline… but that is the retail market, and it’s why we stick with fundamentals and ignore hype.