Pieris Pharmaceuticals: Cash-Rich, Key Readout Coming

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About: Pieris Pharmaceuticals, Inc. (PIRS)
by: Jonathan Faison
Summary

Shares have fallen by 30% since my initial and update articles.

I provide a recap of the bullish thesis.

Multiple ascending dose Phase 1 study data for the PRS-060 program will be presented at the upcoming medical meeting (potential inflection point).

As mentioned prior, management has shrewdly negotiated collaborations in which a significant portion of economics is retained by the smaller company.

I suggest initiating a pilot position in the near term and accumulating dips.

Shares of Pieris Pharmaceuticals (PIRS) have fallen by 30% since my initial recommendation from August of 2017, where I highlighted management's partnering prowess as reflected in $4 billion in potential milestone payments the company stood to receive as multiple programs moved forward. The stock is also in the red by the same amount since my September 2018 update piece was published exclusively in ROTY.

ROTY member dsj.2018 brought this one to my attention again, noting that market capitalization of around $160 million with $120 million in cash indicated significant downside protection, while the upcoming data readout has the potential for significant upside potential. Let's take a closer look at how the thesis has changed here.

Chart

Figure 1: PIRS daily advanced chart (Source: Finviz)

Figure 2: PIRS 15-minute chart (Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the first chart (daily advanced), we can see the steep correction in 2H 2019 followed by a more modest bounce from lows. The steady uptrend over the past month (however slight) appears buyable to my eyes. In the second chart (15-minute), we can observe signs of accumulation even as the biotech sector experiences volatility (continued stability and/or strength would be a buy signal).

Overview

Keys to the bullish thesis I last presented included the following:

  • I was originally interested because of the promising Anticalin platform for which management had shrewdly negotiated several deals with larger pharmaceutical firms. Validation came in the form of $120 million in upfront payments since January of 2017 and over $5 billion in potential milestone payments that could be had in the future. The immuno-oncology co-development agreement with Servier involves 5 specific programs including a potential best-in-class PD-1 checkpoint inhibitor (didn´t give up US rights and retained a co-development option for up to 3 addition candidates plus retained full rights to lead IO asset PRS-343). The AstraZeneca (NYSE:AZN) respiratory disease collaboration for preclinical candidate PRS-060 also showcased management's negotiating prowess, having included a co-development and co-commercialization option in the US (and 4 other Anticalins to be advanced into the clinic with Pieris retaining the same option on two of the 4 programs). Lastly, in my recent update piece, I highlighted yet another deal, this time with Seattle Genetics (NASDAQ:SGEN) to develop bispecific immuno-oncology treatments for solid tumors and blood cancers (the larger company has the option to select up to 3 programs for further development while Pieris' management wisely negotiated the right to opt-in into global co-development and US commercialization for a second program with an even split on profits and costs).
  • As for specific programs, I zeroed in on PRS-060 (a localized IL-4Ra antagonist being utilized to address uncontrolled asthma). The target is well-validated, with anti-IL-4Ra mAb dupilumab already having demonstrated impressive activity (an element of derisking) and response rates, which led to it being referred to as best-in-class. As the first inhaled biologic to engage the target, if the asset makes its way through the ever-complicated labyrinth of clinical trials to reach approval, it could be poised to overcome challenges for prior biologic treatments. I also highlighted wholly-owned first-in-class TME-activated costimulatory agonist PRS-343, which has already shown dose-dependent inhibition of tumor growth, dominated by anti-HER2 activity. Administration in preclinical studies lead to strong, dose-dependent lymphocyte infiltration in tumors while monospecific treatments don't possess this activity.
  • Lastly, I also noted significant institutional clustering with OrbiMed Advisors holding a large 7 million share stake. BVF and Tekla Capital Management also held significant positions.

Figure 3: Pipeline (Source: corporate presentation)

Per the company's most recent presentation, for PRS-060 a poster presentation is expected at the American Thoracic Society International Conference (held May 17th through 22nd) for single-ascending dose study. Consider that for the ongoing Phase 1 multi-ascending dose study, the main objective is ascertaining PK/PD with a reliable biomarker to confirm local target engagement and inform on the Phase 2 dosage regimen. Specifically, I remind readers that patients being dosed have mild asthma with elevated FeNO levels (>35 ppb). Prior precedent exists as prior biologics (i.e. dupilumab, tezepelumab with Breakthrough Therapy designation) have shown meaningful reduction and in turn produced clinically significant improvements in lung function and superior exacerbation improvements versus drugs that had no effect on FeNO. Positive FeNO data could be a meaningful inflection point and would support moving the drug into the next phase of development (improving lung function via FEV1 in uncontrolled asthmatic patients).

Recent Events And Other Information

In April's presentation at the HC Wainwright Global Life Sciences Conference, the case for near-term upside was neatly laid out. Management states that the company has been around for 20 years, but 2019 is truly the year we could see what it is capable of delivering. For the Servier partnership, it's noted that PRS-344 (PD-L1 antibody 4-1BB bispecific) should enter the clinic later this year. PRS-343 data (Phase 1 study in HER2+ cancers) set is expected prior to year-end.

For the AstraZeneca deal, keep in mind that there are 5 respiratory programs that are part of the collaboration with 2 of these programs already moving forward (Pieris retains opt-in rights for 3 of 5 programs to co-develop as management wisely held onto a bigger share of economics). For the Servier collaboration, Pieris retained option for US rights for 3 of 5 programs and 50/50 global profit split for the Seattle Genetics deal on 1 of 3 programs. This was pointed out in my prior article, where I noted that Pieris' management team shrewdly held onto a greater share of economics as opposed to many small cap biotechnology concerns which give everything away for a big upfront payment and small potatoes royalties.

Figure 4: Asthma market opportunity (Source: corporate presentation)

Focusing on PRS-060, consider that dupilumab is thought capable of doing $2 billion plus in peak sales and only capturing a small sliver of the moderate-to-severe asthma market. Benefits of an inhaled biologic include no injection needed and a lower systemic side effect plus much lower costs could open up the market significantly. The IL-4 receptor-alpha is an attractive target as existing data for Dupixent is very impressive (67% reduction in exacerbations for moderate-to-severe patients versus 50% reduction for IL-5 drugs).

Figure 5: PRS-060 potency similar to dupilumab (Source: corporate presentation)

In the multi-ascending dose study, they are looking at FeNo (fractional exhaled nitric oxide) reduction versus placebo after 10 days of dosing (data to be presented at the upcoming medical meeting). This biomarker is important because we already know dupilumab clearly has the best potential for lowering FeNO of any drugs we've seen (correlation between FeNo reduction and FEV1 improvement).

Moving on to the Q1 2019 results, the company reported cash and equivalents of $110.8 million as compared to net loss of $10.3 million. Research and development expenses increased to $14.3 million, while G&A rose slightly to $4.9 million.

As for future catalysts of note, detailed data from the Phase 1 single ascending dose study for PRS-060 will be presented at the American Thoracic Society International Conference this month as referenced above. Multiple ascending dose Phase 1 study data will be presented at the upcoming medical meeting (AstraZeneca would sponsor and fund the Phase 2a study after which Pieris could exercise options to co-develop and co-commercialize).

Multiple respiratory programs (two partnered, 2 proprietary continue to advance with others awaiting initiation). Data for PRS-343 in HER2-positive solid tumors will be reported later this year (Phase 1 dose escalation study) as will data from the dose-escalation combination trial (with atezolizumab). IND application for PRS-344 will be filed later this year (partnered with Servier, as mentioned above). Data for PRS-080 in its Phase 2a study will be presented at EHA in June.

As for institutional investors of note, BVF owns a relatively large position. There's been some small insider buys but mainly a significant amount of selling as well.

Final Thoughts

To conclude, Pieris has the potential for a near-term rebound and significant appreciation in the near and medium term as several key assets in the pipeline continue to progress in the clinic. Today we've focused on PRS-060, which has the potential for showing the same efficacy as best-in-class drug dupilumab and proof of concept data is a significant catalyst (not only for the program but also for showcasing inhalable administration potential of Pieris' platform).

For readers who are interested in the story and have done their due diligence, I suggest buying a pilot position in the near term and accumulating dips prior to upcoming data presentation for the Phase 1 multi-ascending dose study for PRS-060.

The stock is attractive across multiple time frames as product candidates from multiple collaborations progress in the clinic (including overlooked immuno-oncology candidates).

Risks include disappointing data, delays or setbacks in the clinic and significant competition for certain indications. Dilution in the near to medium term is not expected given cash balance and current burn rate.

Downside cushion/elements of derisking, the $110 million cash position accounts for over 60% of the current market capitalization and multiple big pharma partnerships also help to spread risk around multiple programs.

For our purposes in ROTY, this is not an area I feel I have as much of an edge in (as opposed to themes like gene therapy, targeted oncology and large orphan markets with no or few approved treatments).

I greatly appreciate you taking the time to read my work. If you found it useful, I hope you'll scroll up and click "Follow" next to my name to receive future write-ups.

Disclosure: I am/we are long PIRS. 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.

Additional disclosure: Disclaimer: Commentary presented is NOT individualized investment advice. Opinions offered here are NOT personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. I reserve the right to make investment decisions on behalf of myself and affiliates regarding any security without notification except where it is required by law. Keep in mind that any opinion or position disclosed on this platform is subject to change at any moment as the thesis evolves. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account.