A different view —
There's been a storm of negativity arising from Prometic's conference call. While there are always divergent views I'd like to suggest a different history than other investors imagine. Let's start by going back to the time before Prometic discovered PBI-4050. Then, Prometic intended to develop therapeutic proteins using its proprietary PPPS process. This looked achievable. While a number of therapeutics could be pursued, Prometic chose to limit development costs by focusing on orphan drugs, which have a faster timeline to FDA approval. From a business standpoint, this was a sensible approach that met with investor approval.
There were unanticipated events. A good example: the surprise acquisition of Telesta Therapeutics. At the time Prometic had a few problematical production deals. Telesta facilities offered a bargain-basement opportunity to increase production under the company's direct supervision and control, in Canada. It was just too good to miss. Again, the decision was generally understood by the market, and grudgingly approved.
But costs and dilution were increasing.
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Now let's bring up a well-known fact about investing capital in Canada. Prometic's US competitors have access to more and better financing. Period. Consequently their capitalization is often a multiple of Prometic's.
So far as is known, Prometic has never had access to this kind of financing. Thomvest has been a major supporter but the terms of its investment differ from those offered by US venture capitalists. It may be that Prometic has chosen to maintain more independence than venture capitalists would like, but the fact remains that Canadian companies rarely obtain the same secure and supportive financing as their American counterparts.
Comments should reflect this when evaluating Prometic's difficult financial position.
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Discovery of PBI-4050 was a happy accident. It wasn't planned for. Early test results dictated the need for more trials -- but that need wasn't built into Prometic's business plan. The results were SO promising that Prometic had no choice but to proceed with more trials proving efficacy and safety. Without that proof PBI-4050 couldn't possibly be sold, or partnered for development.
I think that Prometic realized that without US-style venture financing, it would eventually run into cash problems. Yet what were the choices? Abandon PBI-4050 until later? Sell or partner too early when the drug would be undervalued? That made no sense. The only course that DID make sense was the one that Prometic chose: forge ahead and try to get PBI-4050 to the point where its therapeutic value was clearly established. Only then would potential buyers and partners make fair offers. Meanwhile, development of Ryplazim continued. Increasing financial burdens on Prometic were onerous, but satisfied by a series of distributions — and more dilution.
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At this point the short campaign against Prometic began. It was brutal — as bad as any I have ever seen. During that short campaign, and just when shareholders were expecting Ryplazim approval, the FDA denied it. The denial wasn't based on problems with Ryplazim itself, but rather production -- and future production -- of Prometic's PPPS therapeutic proteins. Not just Ryplazim.
We've all seen the uproar. Outrage. Conspiracy theories and corruption at the FDA. Fire the CEO. And more. But what happened to Prometic and Ryplazim has happened to other companies, too. I don't know if Prometic was at fault, or if the FDA's denial could have been foreseen by the consultants that Prometic used. In any case, Prometic has new consultants and is NOW totally focused on Ryplazim's FDA approval. In early 2019 approval, finally, should come. Plus, the production procedures for other Prometic proteins have been established -- a long-term gain.
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It's a Stockhouse cliché with Prometic: great science, bad business. I don't buy that. It's true that Prometic has made some questionable decisions, especially with foreign partners. These appear to have been driven by the always-present need for cash. It's also made some great deals, such as those with the Red Cross, and Omnio. Instead I see an underfunded company facing unanticipated demands, with personnel stretched to the limit, that has made some mistakes.
In any case, indications are that Prometic can make it to end-of-year with no draws -- or a very small draw -- on its line of credit with Thomvest. Meanwhile discussions with potential partners for PBI-4050 continue. The number of suitors has increased. PBI-4050's safety and efficacy have been evaluated for up to 52 weeks in a Phase 2 Alström syndrome trial. Results are outstanding, and verifiable, in a condition called "the acid test" for fibrosis. It was difficult, but now Prometic has brought PBI-4050 to the point where potential partners are fully informed about the potential.
Prometic has discussed the difficulties of evaluating PBI-4050 and analogues for partnering. It's extremely complex.
Once the details are covered, it becomes a question of how much up front, and how much on the back end. Roughly, $100 million up front will get Prometic to the year 2000. $200 million will get to year 2000 and beyond, allowing resumption of trials delayed by the current cash shortage. $300 million would take Prometic past year 2100. How each number would affect back-end revenues is impossible to say at present. But because of PBI-4050's wonderful Alström results and the huge market potential I think $300 million is achievable.
Now, the question for investors is whether to buy, or stand aside and wait.
Jim |
