PhaseBio IPO: Data To Be Released In 2018 And 2020

|
About: PhaseBio Pharmaceuticals (PHAS)
by: Wilsonville Capital

Summary

PhaseBio is a clinical-stage biopharmaceutical company developing treatments for orphan diseases. With a specialization on the cardiopulmonary space, the company has two product candidates, PB2452 and PB1046.

PhaseBio is selling 5 million shares at $12.00-$14.00 per share of common stock.

The large amount of institutional investors, which acquired shares of PHAS, is very beneficial. The market should appreciate this fact.

The company expects to use the proceeds from the IPO to finance the development of its two drug candidates and to develop its ELP technology. The prospectus reads that PHAS should have sufficient cash to finance its activities until Q3 2020.

At $13 per share, the market capitalization will equal $254 million. It is interesting to note that cash will be 34% of the market capitalization.

With agreements signed with AstraZeneca (NYSE:AZN) and Duke University, PhaseBio Pharmaceuticals (PHAS) seems an interesting company. The market capitalization is expected to be equal to $254 million, which seems a bit low. There are other peers with market capitalization that exceeds $500 million. If the results to be delivered by the end of 2018 and in 2020 are beneficial, the company’s market capitalization should increase.

Source: Prospectus

The underwriters helping the company raise capital are large investment banks. It seems like a beneficial feature.

Source: Prospectus

Business

Founded in 2002, PhaseBio is a clinical-stage biopharmaceutical company developing treatments for orphan diseases. With a specialization on the cardiopulmonary space, the company has two product candidates, PB2452 and PB1046.

PB2452, at Phase 1 of development, is an agent for antiplatelet drug ticagrelor intended for patients of ticagrelor suffering from major bleeding and those who may require surgery. The company expects to report final data from the Phase 1 clinical trial by the end of 2018. In addition, PhaseBio expects to hold discussions with the FDA and intends to commence a multi-center Phase 2 clinical trial in the second half of 2019.

PB1046, at Phase 2b of development, is intended to treat pulmonary arterial hypertension. The company commenced a Phase 2b clinical trial with 60 patients with the intention of assessing the safety, tolerability, and efficacy of PB1046. The results are expected in the first half of 2020.

Taking into account that a lot of relevant data will be delivered in 2020 or thereafter, stock returns should be expected in about one year. With this in mind, investing right now in PHAS may not be ideal. Keep in mind that the share price should decline as the company consumes resources provided by investors. Does investing when stock catalysts are more likely to appear not look like a more suitable investment strategy, that is in 2020?

With that said, for the investors who appreciate engaging in long-term investments, PHAS could be an interesting candidate. Keep in mind that large pharmaceutical players like AstraZeneca or Johnson & Johnson (JNJ) are also long-term investors of PHAS. The market should appreciate this feature. Take a look at the image below:

Source: Investors - Company’s Website

PB2452: Antiplatelet Therapy Reversal Agent For Ticagrelor

Currently at an early stage of research, at Phase 1 of development, the company is conducting a trial to assess the dosing regime of PB2452, determine proof of concept and evaluate the safety and tolerability.

The company licensed PB2452 from a subsidiary of AstraZeneca. Its mechanism of action is provided in the image below. As can be seen, PB2452 consists of a human Fab fragment with the ability of binding to ticagrelor with high affinity and specificity to reverse ticagrelor’s antiplatelet activity.

Source: Prospectus

The preclinical results seem promising. The drug candidate was able to reduce bleeding that resulted from the presence of ticagrelor. The prospectus reads that PB2452 was able to reduce the amount of ticagrelor and bleeding time to a point that it was not significantly different to the untreated control group. The image below provides further details on this matter:

Source: Prospectus

In the Phase 1 clinical trial, PHAS treated 72 subjects with different intravenous infusion rate and different dose levels of PB2452. The results are expected by the end of 2018. Investors should remember this date. If the results are beneficial, the stock price could increase. It is a Phase 1 clinical trial, thus large stock returns may not be delivered.

What’s the market opportunity? The market size does not seem that significant. The sales from ticagrelor, which is sold by AstraZeneca plc, were worth $1 billion in 2016. With that, it seems to be growing at a high pace as they were equal to $609 million in the first half of 2018.

PB1046 For The Treatment Of Pulmonary Arterial Hypertension

PB1046 is a subcutaneously-injected VIP analogue, a recombinant fusion protein made of VIP and the company’s proprietary ELP half-life extension technology. PHAS’s trials indicate that the fusion of VIP to ELP facilitates vasodilation. In addition, PB1046 could be useful in reducing adverse remodeling of blood vessels and increasing cardiac contractility.

In a Phase 1 clinical trial with 30 patients suffering from hypertension, the company showed that half-life of PB1046 was around 60 hours, and serum levels of PB1046 were present for about at least seven days. With this in mind, the company determined that weekly subcutaneous dosing of PB1046 seems appropriate. The image below provides further details on this clinical trial:

Source: Prospectus

Another Phase 1/2 clinical trial with 60 patients suffering from cardiac disease has already commenced. The company expects to report results from this clinical trial in the first half of 2020.

The image below provides further details on the company’s pipeline. Please note that the market will be very interested in the results of the PB1046 Phase 2b clinical trial. If the results are beneficial, the share price should increase. Data from the PB2452 Phase 1 clinical trial will also be studied, but the market reaction should not be that significant. Source: Prospectus

The global pulmonary arterial hypertension was valued at $5 billion in 2015 by Million Insights and it could reach $8.7 billion by 2025. With this, the market opportunity for PB1046 seems large. The company did not provide information on the target market size, which is not ideal.

Good Financial Shape, Conversion Of Convertible Securities, But Fast Cash Burn Rate

With an asset/liability ratio of 3.2x as of June 30, 2018, the financial shape seems beneficial. In addition, the amount of cash is very significant. The cash in hand equals $28.446 million, which comprises of 96% of the total amount of assets. The assets are shown in the image below:

Source: Prospectus

The balance sheet as of June 30, 2018 also shows that PHAS is reducing its liabilities by converting the convertible promissory notes valued at $14.14 million. As a result, the amount of total liabilities go from $28.58 million to $9.24 million. New investors should appreciate this transaction as the stock dilution risk will not harm their interests. The image below shows the list of liabilities:

Source: Prospectus

On the income statement front, the company shows the P&L of other biopharmaceutical companies. Without revenues, the company is losing cash at a fast pace. The net losses in 2017 and 2016 were equal to -$10.24 million and -$9.22 million respectively. In 2017, the net loss per common share was equal to -$0.76. With this in mind, investors should expect to lose about -$0.76 per share every year before the FDA approves any of the product candidates.

The research and development expenses were equal to $7.37 million in 2016 and $6.21 million in 2017. The general and administrative expenses are not small as compared to the R&D expenses. They were equal to $2.12 million and $2.32 million in 2016 and 2017 respectively.

Source: Prospectus

Use Of Proceeds

The company expects to use the proceeds from the IPO to finance the development of its two drug candidates and to develop its ELP technology. The prospectus reads that PHAS should have sufficient cash to finance its activities until Q3 2020. This means that the company may need more capital to finance the Phase 3 clinical trials of PB1046. Investors should expect further sale of equity around 2020, which may push the share price down. The lines below provide further details on this matter:

Source: Prospectus

Valuation And Competitors

The image below provides the expected capitalization after the IPO. The cash in hand should be equal to $86.35 million, with long-term debt of $7.49 million, and no convertible debt. The company expects to have 19.588 million shares outstanding after the IPO. At $13 per share, the market capitalization will equal $254 million. It is interesting to note that cash will be 34% of the market capitalization. The expected capitalization is shown below:

Source: Prospectus

The prospectus mentions the following competitors:

  • Arena Pharmaceuticals (ARNA)

  • United Therapeutics (UTHR)

  • Reata Pharmaceuticals (RETA)

  • Liquidia Technologies (LQDA)

  • Camurus (OTC:CAMRF)

  • MannKind Corporation (MNKD)

  • Lung Biotechnology PBC

  • Acceleron (XLRN)

  • Insmed Incorporated (INSM)

  • Bellerophon Therapeutics (BLPH)

Among them, RETA, BLPH and Liquidia seem to be companies of similar size. Reata Pharmaceuticals has a market capitalization of $1.8 billion and an enterprise value of $855 million. Reata’s pipeline is not very different from that of PHAS. RETA does report revenues, but they are not that high. They are equal to $62 million per year. With these numbers in mind, PHAS seems a bit undervalued as compared to RETA. PHAS’s market capitalization is only $254 million with cash of $86.35 million. The image below shows the pipeline of RETA:

Source: Reatapharma

Liquidia seems also overvalued as compared to PHAS. The company’s pipeline is not that different from that of PHAS. With 15.114 million shares outstanding at $34.01, its market capitalization equals $514 million, which is also lower than that of PHAS. The image below provides the pipeline of Liquidia:

Source: Liquidia

Finally, there is Bellerophon, which has three product candidates at Phase 2 of development. With a market capitalization of $63.58 million, an enterprise value of $112 million and $26 million in cash, PHAS seems overvalued as compared to Bellerophon.

Source: Bellerophon

Licenses With AstraZeneca, Duke University

The company signed agreements with a subsidiary of AstraZeneca, under which PHAS will need to pay certain fees if the FDA approves the PB1046 product candidate. The fees to be paid don’t seem very large. The lines below provide further details:

Source: Prospectus

Additionally, Duke University signed an agreement with PHAS related to the development of the company’s ELP technology. The lines below provide further details about the potential payments:

Source: Prospectus

Shareholders: Large Amount Of Institutional Investors

As stated above, the large amount of institutional investors, which acquired shares of PHAS, is very beneficial. The market should appreciate this fact. Take a look at it:

Source: Prospectus

Conclusion

With an expected market capitalization of $254 million, the market capitalization of PHAS could be larger. Keep in mind that other peers conducting similar activities have market capitalization that exceeds $500 million. With that, PHAS’s market capitalization could be also lower. Bellerophon’s market capitalization is below $100 million.

With that, the shareholders of PHAS and the agreements with Duke University and AstraZeneca tell a lot about the company. Taking into account this information, it seems likely that the market capitalization of PHAS increases.

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.