- 2021 is set to be a pivotal year for BridgeBio Pharma with several catalysts across a growing pipeline of candidate genetic medicines.
- The company's unique R&D strategy based on partnerships with academic institutions supports the ability to regularly identify new disease targets.
- We are bullish on the stock as the recent pullback in shares offers an attractive long-term buying opportunity.
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BridgeBio Pharma, Inc. (NASDAQ:BBIO) focuses on the development of medicines to treat genetic diseases and genetically defined cancers. New techniques in the field are allowing researchers to discover associations between specific gene variations and diseases at an accelerating rate. The company's drug pipeline has quickly reached over 30 programs including 9 in a clinical trial along with the company's first FDA-approved medicine this year. The current operational momentum is supporting a positive long term-outlook with the potential that blockbuster medicines reach the market in the coming years.
We are bullish on BBIO as 2021 is set to represent a turning point for the company with several catalysts that can send shares higher. While there are unique risks inherent with all clinical-stage biotech companies, BridgeBio has 4 drugs expected to have clinical trial data released still this year and also set to begin generating material levels of sales. The entire pipeline portfolio represents over $1 billion in annual addressable market opportunity highlighting the visibility for BridgeBio to emerge as a major player in the biotech industry.
(source: company IR)
What Does BridgeBio Pharma Do?
BridgeBio believes that science is still in the early stages of exploring genetic medicines to treat diseases caused by abnormalities in DNA. Specifically, the company is focused on Mendelian diseases, that arise from defects in a single gene, and cancers due to genetic drivers. A development in the biotech industry over the past decade has been more cost-efficient genome and exome sequencing techniques that facilitate the ability to draw data and study the linkages between genes to diseases.
BridgeBio, with its team of experts on cancers and rare diseases, is pursuing a strategy by focusing on leading computational genomics while partnering with top academic institutions to identify viable disease targets through statistical disease mapping. The innovation here is that BridgeBio directly pursues formal collaboration agreements with academic research groups which effectively become a funnel for new drug candidates.
The company notes that over 27 million Americans live with genetic diseases including 9 million with cancer based on a genetic driver. The opportunity here is that only 5% of these diseases have an approved therapy representing a long runway of discovery and market potential.
(source: company IR)
The company intends to pursue optimal therapies with different modalities across gene therapy, medicinal chemistry, therapeutic protein replacement, and antisense oligonucleotides depending on the disease. For context, out of 8,000 identified monogenic diseases, only around 50 have approved medicines. BridgeBio's current top 8 pipeline programs represent a market opportunity of over $1 billion. Importantly, the company believes its medicines are safe and will offer real clinical benefits to patients backed by early studies data.
(source: company IR)
In February, the company officially announced its Nulibry drug received FDA approval as the first and only therapy to reduce the risk of mortality in patients with "MoCD type a", an extremely rare metabolic disorder typically seen in newborns that causes seizures and brain injury. This was clearly a milestone for the company as its first program to effectively cross the finish line.
That said, with only an estimated 100 MoCD type A patients seen in the U.S., the drug is not expected to materially move the needle for the company in terms of earnings. Still, the success serves as a proverbial proof of concept for BridgeBio's R&D strategy adding some confidence that it can move forward with the rest of its portfolio. Notably, the infrastructure necessary to get Nulibry on the market will be leveraged with future drugs that are expected to be commercially bigger. There is also a consideration that the company received a priority review voucher from the FDA, which gives the company some flexibility to push forward the approval process for a future drug candidate or can be transferred with a sale to a different company.
As mentioned, BridgeBio currently has over 30 drug programs in its pipeline at various stages of development and trial. Next up is Infigratinib for the Treatment of Cholangiocarcinoma which was granted an FDA priority review in December and now pending approval. The company has 19 ongoing trials across 450 sites in 26 countries which is facilitated by its decentralized operating model with teams on the ground led by researchers funneling data to the corporate level.
(source: company IR)
In January, BridgeBio completed the acquisition of Eidos Therapeutics (EIDX), which it was previously a shareholder. The deal is intended to build out the company's clinical and distribution infrastructure ahead of a potential approval for the Acoramidis drug currently in phase 3 trial for the treatment of Transthyretin Amyloid Cardiomyopathy "ATTR-CM", a potentially fatal heart defect categorized by protein deposits. BridgeBio sees blockbuster potential for Acoramidis as a best-in-class treatment for a condition with a prevalence of over 400,000 people between the U.S. and European Union. Phase 3 data for ATTR-CM is due in the second half of this year while the company is targeting a new drug application by 2022.
Overall, the year ahead is expected to feature several milestones for the company that can represent momentum to its corporate strategy. Positive clinical and proof-of-concept data is set to mark a transition for the company into a commercial-stage biopharma leader.
BBIO Financials Recap
In terms of financials, there's not much to say considering the company has spent most of its time since the June 2019 IPO in the research and development phase with no product sales. The company last reported its fiscal 2020 results back in February features revenues for the year at $8 million related to an upfront payment for a licensing agreement. Operating expenses reached $482 million contributing to a net loss of $449 million or $3.80 per share.
Indeed, until a commercially significant drug reaches the market, BridgeBio will continue to operate with negative cash flows. On the balance sheet, the company ended the year with $607 million in cash while it subsequently raised an additional $750 million from a convertible note offering in February. In total, the company now has approximately $1.3 billion in debt but ample liquidity for the year ahead.
Is BridgeBio Overvalued?
With a current market cap of $8.5 billion or nearly $10 billion in terms of enterprise value, it's clear the share price for BridgeBio is pricing in a future where BridgeBio becomes a major industry player. The key here is that investors need to have a long-term time horizon with an understanding that it will take several years for the business to scale and generate the types of revenue and earnings to justify the current valuation.
According to consensus estimates, BridgeBio is expected to reach $86 million in revenue this year based on the early rollout of Nulibry and potentially Infigratinib by year-end. From there, the game-changer would be the Acoramidis drug out towards 2022 and 2023 where revenues are forecast to climb towards $340 million. There is visibility for BridgeBio to be generating $1.4 billion in annual revenues within 5 years which is consistent with management's "2025 vision" to have several market-leading drugs on the market by that year. Notably, the market estimate is for BBIO to reach profitability by 2025 with an EPS of $0.90.
To answer the question on whether BridgeBio is over or under-valued, a lot of it is going to depend on the confidence placed in these estimates. The bullish case is that beyond these figures, the company will ultimately both exceed expectations while announcing discoveries and drug candidates over the coming years to further strengthen the long-term outlook and earnings potential.
Our take is that if we look out just towards the 2023 forecast for revenue at $340 million, a case can be made that the 3-year forward price to sales ratio of 23.8x is reasonable, in the context of cutting edge biotech that is on track to more than generate a compound annual growth rate of over 100% per year in sales through 2025 compared to 2020.
Among several other development-stage biotech companies like CRISPR Therapeutics AG (CRSP), Fate Therapeutics Inc (FATE), Intellia Therapeutics Inc (NTLA) which all have a market cap between $5 billion and $10 billion, BridgeBio trading at a 1-year forward P/S is the least expensive according to this metric. To be clear, while each of these companies are not directly comparable and focus on different therapeutic segments, our point is simply to say that BridgeBio's valuation and growth premium has some precedence in the industry and also room to climb higher.
BBIO Stock Price
Shares of BBIO have been a big winner up about 70% over the past year and currently trading around nearly 200% higher from its 2019 $19 IPO price. Progress in moving forward its drug candidate pipeline and the recent positive clinical data was instrumental in supporting momentum. Still, we note that shares are down around 25% from their recent high in February which coincides with the broader market volatility in high-growth segments.
The broader biotech industry benchmarked by the SPDR S&P Biotech ETF (XBI) is similarly down around 22% over the same period. In this regard, BBIO has slightly underperformed but some of the share weakness is related to broader market trends. Tactically, we view this recent pullback as an attractive entry point to pick up an exciting emerging market leader that we believe can outperform the industry going forward. From the stock price chart, the level between $50 and $55 per share appears to represent some technical support going back to December of 2019.
Is BBIO Stock a Buy or Sell
Overall, we rate shares of BBIO as a buy with a price target for the year ahead at $80 which would reclaim the recent high and represent a market cap of approximately $12 billion and 45% upside. This valuation level implies a 100x price to sales multiple on its 2022 consensus sales can be supported by the upcoming catalysts including the progress in advancing the drug pipeline. We believe BBIO is executing a transformative strategy with the potential for significant long-term growth.
The attraction here is the company's leadership on computational genomics leveraged with a research model that sources disease targets from an extensive group of academic research space. We expect the drug pipeline to continue growth in what remains an early stage of genetic medicine. In many ways, this segment of biotech represents large whitespace that offers rooms for various companies to succeed allowing BridgeBio to capture a larger size of an expanding market.
In terms of risks, biotech and particularly biotech stocks at the phase of development as BBIO are particularly risky given several unknown variables. The possibility that a drug fails to move forward in the approval process or does not effectively meet a clinical demand would likely force a reassessment of the company's outlook and earnings potential. There are also questions regarding the timetable for commercialization which adds to risks related to cash flow requirements and balance sheet liquidity. Weaker than expected sales trends for the company's upcoming drugs could likely also pressure the stock.
For interested investors, we recommend only a small position that can work within the context of a broader more diversified portfolio. Given the risks, ongoing volatility is expected and it's important to take a long-term view. Monitoring points in the upcoming quarter include new partnerships with academic institutions to further strengthen the research capabilities along with the expected trial data.
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This article was written by
Dan Victor, CFA is a market professional with more than 15 years of investment management experience across major financial institutions in research, strategy, and trading roles.
Dan leads the investing group Conviction Dossier, where his focus is on helping investors stay ahead of market trends and inflection points. Dan’s investing vehicles of choice are growth stocks, tactical exchange-traded funds, and option spreads. He shares model portfolios and research to help investors make better decisions, via his Investing Group’s active chat room.
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BBIO over 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.
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