Global Blood Therapeutics: Can The Rally Continue?

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About: Global Blood Therapeutics (GBT)
by: Bret Jensen
Summary

Today, we revisit Global Blood Therapeutics. Like most small biotech stocks, the shares have had a roller-coaster ride lately.

However, the company recently posted encouraging trial results and is picking up considerable and positive analyst support.

We circle back and provide an update on Global Blood Therapeutics in the paragraphs below.

"In chaos, there is fertility." - Anais Nin

Today, we revisit Global Blood Therapeutics (GBT). This stock has had an up and down year as can be seen from the chart below.

The shares have recently been on an upswing despite the current horrid sentiment in the market. The company just posted encouraging late-stage trial results, has potential catalysts on the horizon, and is seeing a big uptick in positive analyst commentary. We revisit this promising small-cap concern in the paragraphs below.

Company Overview

Global Blood Therapeutics is a San Francisco-based "Tier 4" biotech concern that is focused on developing treatments for underserved patient communities. The company came public late in 2015 and currently sports a market capitalization of approximately $2.4 billion.

Recent Results & Pipeline

The company basically has just one significant asset in its pipeline at this time. That is the compound voxelotor. This candidate was previously known as GBT440. Voxelotor is an oral, once-daily therapy for patients with sickle cell disease (SCD). Voxelotor has been designed to work by helping hemoglobin hold onto more oxygen as the red blood cells travel through the body. This should keep red blood cells in their normal shape and help stop sickling.

Image result for sickle cell anemia

On Dec. 3, the company announced very encouraging results from a critical Phase 3 trial named HOPE at the huge ASH conference in San Diego. This caused the shares to rocket up almost 50% on the day. This study is ongoing and scheduled to conclude in June of next year. If data continues to be positive, the company should file a NDA in mid-year 2019.

As importantly, the company also disclosed this data had landed it accelerated approval from the FDA for voxelotor. This means the firm will not need to conduct a clinical trial that proves voxelotor reduces strokes until after the drug is approved.

This could be a major drug if approved, as between 70,000 and 100,000 people in the U.S. have sickle cell disease. Another 60,000 suffered from the affliction. One recent study estimated that in the United States, the average annual cost for the care of an adult patient with the most common genotype of SCD exceeds $200,000.

Analyst Commentary & Balance Sheet

Since these results were disclosed, five analyst firms have reiterated Buy ratings, most with raised price targets. Two analyst firms have assigned new Buy ratings. Price targets proffered range from $73 a share all the way up to $150 a share.

Here is the commentary from Oppenheimer which reiterated its Outperform rating this week and $82 price target:

"Monday, Global Blood announced that it has reached an agreement with the FDA regarding a proposed accelerated approval pathway for voxelotor. Following extensive discussions, the Agency has agreed to consider accelerated approval based on hemoglobin response, the primary endpoint of the company's ongoing Phase 3 HOPE trial. We believe the agreement puts GBT on track to file accelerated approval in mid-2019. The FDA agreed that transcranial Doppler (TCD) flow velocity, a validated indicator of stroke risk, could be an acceptable primary endpoint in a post- approval confirmatory trial. We view this news positively, as it dispels much of the remaining uncertainty surrounding voxelotor's development timeline, and we expect GBT shares to trade sharply higher today. We reiterate our Outperform rating and $82 PT."

The company ended Q3 with approximately $195 million of cash on its balance sheet after posting a loss of $43 million for the quarter. The company announced that it had priced a $150 million capital raise which will address its near- and medium-term funding needs.

Verdict

Global Blood Therapeutics is not a "core" position in my portfolio simply because it lacks the "shots on goal" I generally like to see before establishing a significant position in any developmental concern. That said, I do hold a smaller position as voxelotor has great promise and the risk/reward profile looks attractive on a longer term basis. A view that is currently echoed by analysts.

Option Strategy

Image result for Stock Purchase

One way to add exposure to this name after today's dip due to its secondary offering is via a Buy-Write option strategy. Using the June $45 call strikes, fashion a Buy-Write order with a net debit in the $35.50 to $35.80 range (net stock price - option premium). This mitigates some downside risk and sets up a more than solid potential return for its approximate seven-and-a-half-month hold period. Option liquidity is decent in this strike price.

"Invention, it must be humbly admitted, does not consist in creating out of void but out of chaos." - Mary Shelly

Bret Jensen is the Founder and author of articles on The Biotech Forum, The Busted IPO Forum, and The Insiders Forum.

Disclosure: I am/we are long GBT.

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.