CohBar Looks Undervalued Ahead Of Upcoming Data Readout
Summary
- CohBar is targeting huge potential markets with its pipeline of proprietary mitochondrial peptide.
- CohBar's lead asset, CB4211, will read out topline data from its Phase 1b trial in 2H 2020.
- My valuation model suggests that CohBar shares are undervalued at these levels.
CohBar (NASDAQ:CWBR) is a company working to combat the diseases of aging that has tremendous upside potential. This is because the markets they are targeting-NASH, obesity, type 2 diabetes, fibrotic diseases, and cancer-are all huge, yet the company's market cap is under $150 million. CohBar is seeking to treat these diseases of aging and generally have an impact of human longevity by utilizing cutting-edge mitochondrial-based medicine. CohBar management has done a good job getting pipeline assets into the clinic without spending huge amounts of cash so far, a great sign for any early stage biopharma. In this article, I cover why I believe CohBar presents a good value for investors for the more speculative, early-stage portion of their biopharma holdings.
CohBar's Strong Leadership Team has Quickly and Efficiently Moved the Company Forward
CohBar was founded by Dr. Pinchas Cohen and Dr. Nir Barzilai, both well-known for their research on longevity and healthy aging and who now serve on the company's Board of Directors. Dr. Cohen runs a gerontology center at the University of Southern California, and as you will see in more detail below, his research on mitochondrial peptides is frequently published in established scientific journals.
Dr. Barzilai is the director of the Institute for Aging Research at the Albert Einstein College of Medicine. Although his research spans a wide breadth of aging-related topics, he is probably best known for his work with metformin. In fact, he has been working in conjunction with the American Federation for Aging Research for a clinical trial called Targeting Aging with Metformin (TAME) that will test the common diabetes drug metformin to hopefully confirm the growing body of evidence that metformin use can prolong so-called healthspan by delaying onset of major diseases.
Dr. David Sinclair is also a scientific advisor to the company. He has gained significant notoriety over the last few months due to his new book Lifespan: Why We Age-and Why We Don't Have To which made The New York Times Best Sellers List. Dr. Sinclair runs a well-respected lab at Harvard and is a vocal proponent of the fact that we are likely on the cusp of a substantial extension of healthspan through technological change such as what CohBar is trying to accomplish.
Turning to the day-to-day management of the company, I'm encouraged by what appears to be signs of good stewardship and fiscal accountability. CohBar already has CB4211 in the clinic for 2 different indications, yet the company has managed to keep costs low-just $12.5 million in 2019 with general and administrative costs of only $6 million. This is incredibly important for research stage biopharma companies because shareholders will be less diluted in cash raises that take place once their pipeline is further along in development because the valuation will be higher and thus less shares will have to be sold to raise whatever cash is needed.
As stated above, CB4211 is now engaged in the clinic with a Phase 1 trial, and CohBar has added 4 additional preclinical programs that each target substantial markets in their own right. CohBar has been busily engaging in activities to grow the value of the company while still keeping the business lean and efficient-all things I like to see from companies I'm considering for an investment.
CohBar's Mitochondrial-Based Peptides Are Cutting-Edge But Already Have Strong Support in the Scientific Literature
CohBar's technology all revolves around a novel group of mitochondrial-derived peptides and their analogs which have demonstrated a range of biological activity and therapeutic potential in research models across multiple diseases including NASH, obesity, cancer, fibrotic diseases, type 2 diabetes, cardiovascular and neurodegenerative diseases. Mitochondria has been a hot topic in the health & wellness and longevity communities over the last few years, and it is now believed that many such chronic and age-related diseases are associated with a decrease in number and function of mitochondria.
Figure 1: Diagram of mitochondrial DNA and CohBar's peptides (source: corporate presentation)
Because of this interest in mitochondria, the development of mitochondrial-based medicines is increasingly becoming a target for researchers. I became aware of it a few years back when my local university and medical center created a mitochondrial medicine foundation, and papers are being published all the time about emerging targets for mitochondrial medicines. Thus, CohBar's research and development activities fit squarely within an emerging trend with growing levels of support. CohBar's mitochondrial-based medicines are peptides derived directly from the mitochondrial DNA itself.
Peptides are short chains of amino acids that are capable of carrying out various biological functions in the body. They function in a somewhat similar way as proteins, and in one sense they could be considered shorter sub-units of proteins. Mitochondrial peptides are peptides that are specifically encoded into mitochondrial DNA, and CohBar has created novel modified analogs of certain of these mitochondrial peptides that show promise in disease indications that have substantial unmet medical needs.
Figure 2: CohBar's Pipeline (source: corporate presentation)
The first of these novel analogs in CohBar's pipeline is CB4211 which is currently targeting NASH and obesity as its initial indications. CB4211 is a novel and improved analog of MOTS-c, a naturally occurring mitochondrial-derived peptide, which has been shown to play a significant role in the regulation of metabolism, and was discovered in 2012 by CohBar founder Dr. Pinchas Cohen and his academic collaborators.
MOTS-c has been shown to promote cellular resistance to metabolic stress, and Dr. Cohen has published research showing that MOTS-c regulates fat metabolism. These findings are the underpinning for both the NASH and obesity indications.
Figure 3: Charts showing weight and fat loss from CB4211 in mice (source: corporate presentation)
Independent researchers have also confirmed this effect including specifically in hepatic (liver) fat metabolism as a benefit of MOTS-c, lending even more support to why CohBar is developing this particular peptide for NASH. Another group found that injecting MOTS-c caused mice to lose weight while genetically reducing its activity increased the risk of type 2 diabetes.
You can never know whether results in mice will successfully translate to humans until the trials are conducted, but this strong support in the scientific literature is certainly a promising sign. Both obesity and NASH are huge markets that will be even bigger by the time CohBar's peptide could garner FDA-approval. I've seen estimates for the NASH market as high as $61.6 billion by 2028 and for obesity as high as $3.44 billion by 2022 while still growing at a 27.5% CAGR.
Topline data from the Phase 1b trial is expected in the second half of 2020, and this could clearly be a significant catalyst for the company. Phase 1 trials are estimated to have a 60% success rate so clearing that hurdle would serve to substantially de-risk the company's investment into CB4211.
CohBar's other potential therapies are all still preclinical. The first of these was just announced in January - MBT5 analogs that act as CXCR4 antagonists to be used in cancer treatment. CXCR4 is a receptor involved in many phases of cancer development such as tumor growth, invasion, angiogenesis, metastasis, and even resistance to existing therapy. CXCR is a promising target for these reasons but also because it is overexpressed in 75% of human tumors. Inhibition of CXCR4 can mobilize immune cells, enhances the effects of chemotherapy and immunotherapy in various cancers, and reduces the development of metastatic tumors by blocking the ability of tumor cells to evade immune surveillance.
While this particular peptide analog is new, CXCR has been an area of research for cancer therapy for a while, validating at least partially the rationale between CohBar's investment in this area. Also validating the investment rationale is the size of the potential market. A couple years back, the 20th drug on the list of best-selling anti-cancer agents still brought in $960 million and the 1st brought in $6.7 billion. That market is already larger now and will be even more so by the time CohBar's therapy might hit the market because the estimated CAGR is around 7.6%. MBT3 is also a set of peptide analogs that CohBar is developing for cancer, but it would seem that its development is somewhat behind that of MBT5 given the relative lack of information on it in the company's last presentation.
MBT2 analogs are peptides for fibrotic diseases, and the company announced in December 2019 that they had demonstrated these effects in preclinical models. The idiopathic pulmonary fibrosis market is already well over $1 billion and stands to be much larger than that by the time MBT2 could make it onto the market given an estimated CAGR of 11.9% currently. Finally, the company is also researching CB5064 for use in type 2 diabetes. CB5064 is an apelin receptor agonist, and apelin for years has been recognized as a target that promoted improved outcomes in diabetes. Type 2 diabetes is also a large and growing market, projected to grow at a 6.5% CAGR and end up around $58.7 billion by 2025.
CohBar has Catalysts Approaching that could Rapidly Change Its Outlook
CohBar's management has also laid out some pretty clear goals for the company in 2020:
Figure 4: CohBar 2020 Goals (source: corporate presentation)
The huge standout here is obviously a positive result from the Phase 1b readout for CB4211 that I discussed some above, but the rest of the goals are interesting. If CohBar is actually able to finish 2020 with a positive Phase 1b result for CB4211, a clear next candidate peptide to enter the clinic, and a longer financial runway, I believe the stock will be trading substantially higher than where it is today.
My Estimated Present Value for CohBar Shows Significant Upside Potential
I attempted to calculate a present value of CohBar's potential future cash flow and then subtracted out estimated R&D for all of CohBar's current pipeline and SG&A expenses. I estimate SG&A expenses as 35% of revenue once the company is actually generating cash flow, and then I scale the numbers up fairly evenly from present values for the years in between. I also adjusted for future cash flow needs, and those are likely to be substantial as the company's cash runway is only estimated to get it to Q1 2021 right now.
For the cancer indications, I modeled CohBar's therapies, if successful, as hitting peak sales equivalent to the number 20 drug on the best sellers list, scaled up proportionally with expected future growth of the cancer market as described above. I did this because using market share didn't seem appropriate when the particular cancers CohBar will be targeting are not fully known at this point. For all other markets, I used a calculation of peak market share based on the overall market for the disease at issue as I more typically do.
I've included most of the relevant inputs and results for each pipeline asset and the company as a whole in Figure 5:
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Figure 5: Present Value Calculations for CohBar (source: data from CohBar's 10-K and corporate presentation and my calculations based on them)
As you can see, although I try to be conservative with my inputs and modeling, the upside if CohBar were to be successful really shone through because the company is targeting such large markets with its current pipeline. My valuation estimate shows a present value roughly 2.5x where CohBar is currently trading. Modeling is inherently tricky so this could certainly be off the mark, but when trying to decide on which speculative positions I want to hold in my portfolio, this model gives me a reasonable degree of confidence that CohBar is a good bet.
Conclusion
CohBar is an interesting biopharma developing novel mitochondrial peptides to treat a variety of large markets in need of breakthrough therapies. While the pipeline is still very early, its potential promise is readily apparent. CohBar's management has seemed to efficiently and cost-effectively get assets into the clinic so far, and its team of scientific advisors is second to none. I only devote 10% of my total portfolio to speculative, early-stage companies like CohBar, but based on my analysis, I have taken a small position in CohBar that I intend to hold long term as I continue to watch the company develop.
This article was written by
Analyst’s Disclosure: I am/we are long CWBR. 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.
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Comments (9)
2. It takes a long time to do trials for obesity and nash ( large number of patients and long time to get results).
3. No human clinical efficacy data.
4. I will pass on this one.
