ObsEva Has A Promising Candidate For An Unmet Need - Behind The Idea

May 13, 2020 9:00 AM ETObsEva SA (OBSV)9 Comments
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Summary

  • There is a clear unmet need for a long-term maintenance therapy in both uterine fibroids and endometriosis.
  • Lead candidate linzagolix has demonstrated positive efficacy and safety data across multiple Phase 2 and 3 trials thus far.
  • Shares of OBSV have been severely punished, likely due to the dwindling cash balance.
  • Even factoring in the need for new financing at a steep cost, the shares are very undervalued.
  • Although we assign failed IVF candidate nolasiban zero value, there may be some additional optionality value there - adding up to an even greater profit potential.

This article was selected to be shared with PRO subscribers, who also got 7 days' exclusive access to Elle Investments’ original Top Idea on ObsEva (NASDAQ:OBSV). Elle Investments is a small family office that manages its portfolio using a “quantamental” approach. Find out more about PRO here.

Seeking Alpha: Can you briefly summarize your bullish thesis for readers who may not have seen it yet?

Elle Investments: ObsEva is a microcap biotech company focused on the women’s reproductive health market. After hitting $18.00/share in September 2018, it began a slow and gradual decline over the next year or so. This decline was not due to any specific data readouts, so we attribute it to a combination of growing investor concern over the dwindling cash situation as well as steady advancement from competitors. Then, on November 7, 2019, shares saw a sharp 65% drop when a failed nolasiban Phase 3 trial for IVF was announced. Shortly thereafter on December 9, positive linzagolix Phase 3 PRIMROSE 2 results for uterine fibroids (“UF) were announced but the stock did not go up (and still has not).

We think all of these items have contributed to the mispricing. The company has made it a corporate objective to enter into a partnership for linzagolix commercialization, so the lack of funds to launch on their own does not concern us. Also, we assign no value to nolasiban and our valuation is completely supported by linzagolix alone, so the recent 65% drop, in our view, only served to make the shares more attractive. Lastly, we think the PRIMROSE 2 data clearly showed that linzagolix is at least as efficacious (and potentially best-in-class) as AbbVie’s (NYSE:ABBV) Orilissa and Myovant Sciences’ (NYSE:MYOV) relugolix. On top of that, OBSV could differentiate itself with its low dose option for UF that does not require add-back therapy (“ABT”), given the large number of women that prefer to avoid taking hormonal supplements due

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This account publishes the weekly PRO fund manager interview, which is available only to PRO subscribers. These are interviews Seeking Alpha authors and fund managers in the industry about their investing philosophy, recent ideas they have published on Seeking Alpha and elsewhere, and their current favorite ideas. The account will also occasionally repost other interviews we have done with authors or investors.

Disclosure: I am/we are long OBSV. 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: The Elle Investments portfolio is managed utilizing a “quantamental” approach where each position, while based on Fundamental Analysis, is sized as part of a larger quantitative portfolio. The commentary presented here is for research purposes only and is not to be taken as investment advice. Readers are expected to perform their own due diligence and/or hire an investment professional prior to entering/exiting positions. Published research ideas are related to the specific market price and publicly available information at the time of research submission/publication. Elle Investments will enter/exit positions without notice.

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