Trevena: Taking A Systematic Approach With A Speculative Investment

Summary

• Trevena has been on my watch list for a few years, but my buy conditions were never aligned. Now, I am looking to start a small position in TRVN.
• The company's flagship product, OLINVYK, was launched back in January of this year. I don't expect the company to report impressive numbers considering the pandemic's impact on elective surgeries.
• Trevena has a strong list of upcoming catalysts that should inject some momentum into the ticker until OLINVYK gets some grip in the market.
• I plan on having a systematic approach to accumulating sizeable TRVN position over the remainder of 2021. I discuss my system and plans for TRVN.

Photo by koto_feja/E+ via Getty Images

Trevena, Inc. (NASDAQ:TRVN) has been on my watch list for a couple of years, but the conditions have never fit my liking for me to click the buy button. Now, I am considering starting a speculative investment ahead of some key catalysts and milestones that are scheduled for 2021. In addition, we should soon have some initial commercial numbers from the company’s lead product, OLINVYK. However, I am not willing to accumulate a sizeable TRVN position in a haphazard fashion. I am looking to have a systematic approach to TRVN to ensure I accrue an attractive cost average while limiting my downside risk.

I intend to provide a background on Trevena and will review the company’s potential upcoming milestones. In addition, I will discuss some of my leading downside risks and how I intend to manage my position around those risks. Finally, I will reveal my bull thesis about how I will systematically accumulate a position in TRVN over the course of 2021.

Background on Trevena

Trevena, Inc. (NASDAQ: TRVN) is a biopharmaceutical company dedicated to the development and commercialization of GPCR selective ligands for the treatment of CNS conditions. Trevena has built a novel pipeline of four investigational candidates that are addressing some of the most critical CNS diseases and disorders. Trevena’s TRV027 is taking aim at acute respiratory distress syndrome “ARDS” and abnormal clotting. Trevena also has a delta receptor agonist, TRV250, for the treatment of acute migraines. Trevena has also developed TRV 34 that has a unique mechanism of action against the mu-receptor to help treat opioid use disorder. The company also has TRV 045, a novel S1P receptor modulator for managing chronic pain. The company’s flagship product OLINVYK is the first IV opioid improvement in decades and was recently approved by the FDA.

Figure 1: Trevena Pipeline and Upcoming Catalysts (Source: TRVN)

Upcoming Catalysts and Milestones

Looking at Figure 1, we can see most of the company’s programs are expected to have significant catalysts in the near future. The most important will be the commercial numbers from OLINVYK’s first quarter on the market. Admittedly, this won’t be a full quarter of commercial data, but it should give us some insight into the initial demand for OLINVYK. TRV027 is being studied in COVID-19 patients by the Imperial College, who anticipates finishing their study in the first half of this year and reporting top-line data before long. TRV045 is moving closer to an IND filing for epilepsy and neuropathic chronic pain in the first half of this year. Trevena’s TRV250 is now preparing IND-enabling activities for its new oral form for acute migraine.

These catalysts not only could give us a pulse on the company’s pipeline programs, but they can also inject some momentum into the ticker.

A Bullish Outlook

After a transformative 2020, TRVN’s potential upside easily supports a speculative investment. Obviously, OLINVYK’s FDA approval late last year drastically changed the company’s fundamental outlook and validated the company’s ability to develop their own products. The company has an impressive pipeline that is filled with candidates that have both clinical and commercial upside.

TRV027 is currently being studied in COVID-19 patients by a team at Imperial College London. TRV027 has some prospects to restore lung function, thwarting potential multi-organ damage, and reducing the potential for blood clots. A positive readout from this study could have a drastic change in the share price due to the prospects of a EUA and an uptick in revenue.

The company’s delta receptor agonist, TRV250, is now moving ahead with IND-enabling work for their oral formulation. With an oral formulation along with their original subcutaneous formulation, Trevena could have a one-two combo for migraines if the candidate is able to outperform triptans in the clinic.

TRV045 is the company’s S1P receptor modulator that appears to have the potential to be used in multiple CNS disorders. The company believes that TRV045 has some advantages over other CNS therapeutics because it is explicit to the Type 1 form of the S1P receptor, which is predominant in brain tissue. What is more, TRV045 looks to have zero impact on peripheral lymphocyte trafficking, so it might have reduced side effects compared to contemporary options.

In terms of financials, Trevena has a strong cash position and a small amount of debt. In fact, the company ended 2020 with $109.4M in cash, which Trevena believes will finance the company’s operations through 2022.

Figure 2: Trevena Investment Highlights (Source: TRVN)

Considering the points above, I would commit to saying that TRVN has the right ingredients to forge an enticing bullish thesis for a long-term investment. For me, the company’s pipeline and technology are going to be the main cogwheels for TRVN. The company has already produced a commercial product, so we have to suspect they are capable of getting more products across the finish line. Furthermore, their current pipeline candidates are targeting growing markets and they offer unique characteristics that could allow them to outcompete the current choices. I believe this potential alone justifies a speculative investment. What is more, I believe OLINVYK's future revenues will help fund the company's operations, thus, reducing the need for extensive dilution.

Downside Risks

My biggest downside risk comes from COVID-19 and its impact on elective surgeries, which makes up a large percentage of medical procedures. Indeed, the nation has a shortage of morphine, so there could be some initial demand for OLINVYK. On the other hand, we can’t say the current environment is perfect for launching an IV opioid. As a result, we might see weaker-than-expected initial numbers and the stock gets punished for it. If the pandemic persists we could see that strong cash position evaporate very quickly, as the company continues to fund a commercial launch and late-stage commercial trials.

Consequently, I am going to avoid going "all-in" until we have a vaccine that elicits strong T-cell immunity against COVID-19 and the number of elective surgeries approaches pre-COVID levels.

My Basic System

Over the past few years, I have honed my strategy for accumulating a position in a freshly commercialized biotech/pharma. Typically, the share price is elevated due to the approval and the chance the company was going to be acquired now that they have approval in hand. As time passes, the share price typically fades as the buyout hype fades and the prolonged wait for a commercial launch dries up the momentum. The fade in the share price can become a cliff dive if the company reports weaker than expected earnings during its first year of commercialization. Essentially, the stock can go from trading at a premium, to becoming discounted in a matter of a couple of years.

I start off with a minuscule position in order to have some exposure to the name. However, my subsequent additions will be dependent on fundamental and technical analysis. I like to wait for the stock to be trading around 2x-3x forward price-to-sales in the next few years or 1x forward price-to-sales in the next five years. Once the stock is trading near this valuation, I start analyzing the charts to see if I can find a trend line or some indicator to determine if the share price is looking to reverse course. I attempt to follow this concept until the company starts reporting steady revenue growth and the stock begins to sync up with the company’s fundamental outlook.

Of course, the system is a little more intricate than simple valuations and trend breaks; however, one could follow a similar game plan to help ensure they are not rushing to pay a premium price for a speculative ticker.

My Plan

Using the system I explained above, I am going to wait to start a position in the coming days and then will start using the company forward price-to-sales to determine my next buy. Looking at Figure 3, we can see that TRVN is within my criteria, with 2024’s forward price-to-sales at 2.23. Consequently, I will look for a break in the downtrend before clicking the buy button.

Figure 3: TRVN Revenue Estimates (Source: Seeking Alpha)

Looking at the Daily chart (Figure 4), we can see TRVN is trading in a pennant formation, so I am going to wait for the share price to break the green down trend line before clicking the buy button.

Figure 4: TRVN Daily (Source: Trendspider)

Once I have made that addition, I will return to the valuation step to determine my next buy. This process will repeat until I have gotten my fill.

I expect to accumulate a sizeable position in 2021 through several transactions. I plan on trading about half of my position on spikes in the share price to ensure I am generating a profit and reducing downside risk. Overall, I plan to hold a large percentage of my position for at least five years in anticipation OLINVYK is competitive with morphine and the company is able to get several additional products on the market.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in TRVN 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.

Comments

[greatdayforinvestments]

Nice write-up. As following AcelRx (ACRX), their DSUVIA is sublingual, requires no IVs, no supplies, etc., also following, and ACRX has now 5 Phase 4 studies underway...
"The standard of care for perioperative opioid administration has not been disrupted for over 100 years."
NOTE THE SAFETY PROFILE and EFFICACY of DSUVIA. What is the concern?
- No Cognitive Impairment.
- No Respiratory Depression.
- 1 DSUVIA works on 100 pound patient or 300 pound patient, no dose adjustment.
- DSUVIA reduced time in the PACU.
- DSUVIA significant cost savings in the PACU.
- DSUVIA is Good Opioid Stewardship.
"Reduced Opioid Use and Reduced Time in the Postanesthesia Care Unit Following Preoperative Administration of Sublingual Sufentanil in an Ambulatory Surgery Setting" by Christian Tvetenstrand, MD and Michael Wolff, MD, in the Journal of Clinical Anesthesia and Pain Management.
ir.acelrx.com/...

[Pierre Rossouw]

Great analysis. Could be a great one.
But I like to see some substantial record, steady progress and deliverables in the real world. We will wait & see. Thanks for the history so far.

[dogfriend]

Thanks for your well written article. There is much to like about Tervena.

[Reyan]

Good strategy. You could make a lot of money by shorting it too.

[oblvion]

Trevena should have stuck with the name OLICERIDINE

[Stiva]

Well versed article, holder for over 9 months!!

[Canceltheestablishment]

Nice price for a FDA approved product under its belt. Holder for about 8 months now. Will pay the patient investor well down the road