Global Blood Therapeutics Continues To Be An Attractive Run-Up Play

Summary

• Shares have roughly doubled year to date, but have decreased around 15% since the secondary offering.
• Speculation on a takeover in the near to medium term isn't dead, merely depressed. Expect interest to surge again.
• GBT440 recently received PRIME designation from the EMA.
• Data from IPF later this year is providing a compelling run-up opportunity, as the market potential in the condition is similar to SCD.
• Company has a strong cash position, and key institutional healthcare investors are initiating new positions or adding to them.

Shares of Global Blood Therapeutics (GBT) are looking a bit depressed currently, down 15% from their secondary offering. Even so, the share price has essentially doubled since the beginning of the year.

GBT data by YCharts

When I last brought the company to readers' attention, I mentioned that in the second half of the year we should be seeing data from three separate studies in IPF (oxygen independent patients, ZEPHYR, and phase 1 Basecamp), resulting in a potential run-up in share price. I also pointed out that after its secondary offering, the cash runway was extended into 2019, allowing it plenty of time to progress its promising pipeline. Keep in mind that early data involving asset GBT440 in sickle cell disease resulted in clinically meaningful increases in hemoglobin and durable reductions in hemolysis and peripheral blood sickle cells, along with being reasonably well tolerated. Such a drug could do in excess of $2 billion in sales should it make it across the finish line.

What's New

There's been quite a bit of speculation that Novo Nordisk (NVO) could be looking to make key acquisitions, with Global Blood Therapeutics making its short list of candidates. While unconfirmed, the story was that the larger firm was looking to shore up its blood products division but was unable to agree on a fair valuation with the smaller company.

A much more concrete piece of news was that GBT440 was determined to be eligible for the European Medicines Agency Priority Medicines (PRIME) program, which adds further credibility to the story management has been pushing that the drug could really benefit the SCD community. Accelerated development of the drug candidate was welcome news to investors and patients alike.

For the first quarter of 2017, the company reported a cash balance of $310.3 million, while net loss amounted to $23.3 million.

On June 23rd, the company announced new data supporting the development of the asset from its single-dose adolescent (age 12 to 17) cohort of the HOPE-KIDS 1 Study. The results in these teenagers with sickle cell disease showed that pharmacokinetics of the drug is similar in both adults and adolescents while CEO Ted Love commented that it could prove especially of use in young patients before irreversible damage linked to sickle cell disease is allowed to occur. Due to this data, management chose to expand the trial to study doses of 900mg and 1,500 mg per day, the same that are being utilized in the pivotal HOPE trial. Data obtained will also allow it to make an informed decision on dose selections for a pediatric population of SCD patients aged 6 to 11.

Final Thoughts

I still believe there are multiple ways for investors to win here. With IPF data likely to be reported near the end of the year, shares could still see a significant run-up, as the valuation seems rather light taking into account large potential markets being targeted and the company's strong cash position.

Keep in mind that the market opportunity in IPF is similar in size to SCD (per Roth analysts) and that InterMune was acquired for roughly $8 billion for its IPF asset.

Figure 2: Preclinical data (Source: Corporate presentation)

Takeover in the near to medium term is also a decent possibility, with a share price in excess of $50 likely if compared to premiums of other similarly-sized acquisitions in the previous year.

Food for thought, the company is much further along the development pathway for its SCD asset than bluebird bio (BLUE), yet sports a considerably smaller valuation. While it's true the latter has other promising assets, the large valuation gap leads one to believe there is a certain amount of skepticism surrounding GBT440. Whether that is an opportunity for investors remains to be seen.

Key healthcare institutional players have initiated or added to their positions, including Perceptive Advisors (increased 23%), White Square Capital (new - 1.4M shares), OrbiMed Advisors (new - 1M shares), Redmile Group (195% increase) and Point 72 Asset Management (new - 400k).

Risks to thesis include clinical and regulatory setbacks, disappointing data, and competition.

For readers who have done their due diligence and find this run-up play appealing, establishing a position in the near term is a solid idea. As is a typical practice for us, I recommend a quarter size pilot purchase and taking advantage of any share price volatility in the near term. I would be looking for continued strength in the second half of the year while weakness into data would be a red flag. This name should pop back on Wall Street's radar soon - better to be ahead of the curve.

Author's note: My goal is to bring to readers' attention undervalued stocks with catalysts that could propel shares higher, as well as provide a fresh perspective on due diligence and making trades. If you found value in the above article, consider clicking the orange "follow" button and getting email alerts to receive my latest content. My sincere appreciation for readers who add value and join the discussion in the comments section, as well as those who share my work with others who could benefit from it.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.