ANALYSIS - Hybridian (PDF)
Strong momentum can close significant valuation gap
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'We believe that the uncertainty over whether the next source of investment capital comes from capital markets, debt refinancing or business development, has clearly had some impact over driving the valuation to current levels, which we argue is well below the fundamental value created in the assets to date. Prometic is highly focussed on monetising its life changing drug candidates and we believe that the ingredients are in place to generate significant cash from selective partnering deals.
In the most recent investor conference call, newly appointed Business Development Officer Bruce Wendel updated on the partnering strategy. He reported that the anti-fibrotic franchise was experiencing strong partnering momentum and that a competitive process had been opened up. He mentioned that PBI 4050 was unique in that it had not failed in any of its clinical or pre-clinical objectives so far.
Whilst interest had already been growing in IPF, the surprise decision by the FDA to approve an all-comers trial design for the forthcoming Phase 3 pivotal study has accelerated this interest. Other factors to note are the recent publication of the mechanism of action (MoA), and data on Alström which has shown reversal of cardiac and liver fibrosis (liver measured by 5 different methods).
The addressable patient population for Alström is very small. Only c. 1200 affected individuals have been identified worldwide. However, Alström may prove to be of vital strategic importance to Prometic on several levels. As a case study for PBI-4050’s ability to treat fibrosis, we can not imagine a more challenging model with multiple organs being susceptible to the formation of scar tissue. The phase 2 open label trial has already shown some excellent and sustained results, and Prometic is due to meet with the FDA in August in order to delineate a regulatory pathway.
Given the ultra-orphan nature of the condition it is possible that Alström will prove to be an easier first route to market than IPF. We would not expect the pivotal phase 3 trial in IPF to complete before 2021, although it the the six-month interim data is likely to be published earlier. Given the patient population and complete absence of current treatments for Alström, we believe that the time and cost to approve Alström in a clinician’s setting is likely to be considerably less than for IPF, particularly if the FDA grants Fast Track designation.
PBI 4050 and its analogues (e.g. PBI 4547 earmarked for a NASH trial in H2 2018) have the potential to treat numerous fibrotic and metabolic conditions beyond Prometic’s current clinical priorities. An initial authorisation, or simplified path to doing so, will send a very strong message to potential partners, increasing their confidence in the drug’s ability to safely improve patient outcomes, and raising the prospect of a relatively quick and low-cost clinical hurdle route to revenues for certain conditions.
Ryplazim™ remains a potential medium-term source of cash flow, although a resubmission of the BLA is unlikely before 2019. However there remains every chance of the issue of a valuable Priority Review Voucher (PRV) by the end of next year, which could potentially be monetised as shown by the recent sale of a PRV by Spark Therapeutics for $110m.
FibroGen (NASDAQ:FGEN) and Galapagos (EPA:GLPG) are capitalised at $5.27bn and $4.46bn respectively. In IPF where they both have competing programmes with Prometic, we believe that PBI 4050’s efficacy and safety shown so far combined with simple once a day dosing and lack of long term usage concerns compare very favourably. All three companies have relatively deep pipelines, but what Prometic is currently missing is balance sheet strength and an industry partner with deep pockets.
Should the team succeed in addressing this, we would expect to see rapid appreciation in the share price. Prometic’s current backers, we believe, have the resources to further fund the Company, and we do not believe they will allow the prioritised clinical programs to get stuck due to lack of funding. However, in terms of driving market sentiment, we would prefer to see a successful execution of Prometic’s smart partnering strategy to generate meaningful upfront payments for selective indications and territories.
We believe Prometic’s management team has held on to the rump of the potential upside of its lead candidates in the knowledge that clinical activity to date has generated some highly valuable programs. There is no shortage of larger peers who need to replenish their pipelines with late stage assets, and in the case of IPF, where the providers of the existing unsatisfactory standard of care and new entrants are all jostling for position, we would expect interest in PBI 4050 to be generating significant competitive tension.'
Jim |
