Global Blood Therapeutics: Hitting A Growth Inflection

Summary

  • Global Blood Therapeutics is enjoying strong fundamental improvement amid the biotech bear market.
  • Sales of lead drug Oxbryta are ramping up aggressively.
  • With the recent FDA approval to expand Oxbryta's label for children, you can expect more rapid sales growth this year.
  • I do much more than just articles at Integrated BioSci Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Sickle Cell Anemia 3D Illustration

EzumeImages/iStock via Getty Images

GBT Logo

GBT

Does the company have a short-range or long-range outlook in regard to profits? - Phillip Fisher

In biotech investing, it is important that you focus on a stock's growth cycle. That is to say, a biotech company commences its therapeutic innovation with either in-house development or the in-licensing of a new drug. The medicine typically goes through preclinical and then advances from Phase 1 to 3 clinical investigations. If all goes well, the drug would gain marketing authorization to enter the commercialization phase.

Interestingly, you tend to get the most money by investing in a company before it gains an approved medicine. In the ensuing months after approval, the stock usually gets a haircut. Now, if the medicine can gain market traction, the shares would then embark on a vigorous rally to surpass their former high.

That being said, a stock illustrating the aforesaid phenomenon is Global Blood Therapeutics, Inc. (NASDAQ:GBT). Subsequent to Oxbryta (voxelotor) approval, GBT shares tumbled substantially. However, the stock is rebounding in the past six months as Oxbryta sales are gaining traction. Meanwhile, GBT is brewing a series of catalysts that can galvanize the stock to a new high. In this article, I'll feature a fundamental analysis of GBT and share with you my expectation of this grower.

GBT Chart

StockCharts

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Headquartered in San Francisco, California, GBT is focused on the development and commercialization of novel medicines to serve the unmet needs in the debilitating blood disorder coined sickle cell disease ("SCD").

As depicted in the pipeline below, GBT already has launched Oxbryta in the U.S. for adults suffering from SCD. Interestingly, the company gained an expanded Oxbryta label to treat pediatric patients (i.e., kids ages 4-11 years old). In February 2022, GBT also received Oxbryta's marketing authorization in the European Union (the "EU").

GBT Pipeline

GBT

Sickle Cell Disease Opportunity

As a devastating condition that shortened the patient's life by nearly three decades, SCD is a major health concern, imposing a significant economic burden. Afflicting millions of people worldwide, SCD usually hits African and Hispanic descendants. In an oxygen-deprivation state (such as being sick), SCD causes a deformation of the oxygen-carrying protein in the blood coined hemoglobin (i.e., Hb). As the deformation builds up, it causes the red blood cells ("RBC") to clump up, which lead to a blockage of blood vessels and consequently a painful vaso-occlusive crisis ("VOC").

Viewing the figure below, you can see that the upstream treatment is to change the disease course through disease-modifying therapies (i.e., hydroxyurea or Oxbryta). Specifically, Oxbryta increases the Hb level and reduces the sickling/breaking down of RBCs (i.e., the underlying culprit of VOCs and other long-term SCD complications). That aside, you have drugs to prevent VOCs from occurring. Thus far, there isn't much innovation in this space, which heightened the demand for novel treatments like Oxbryta and others of GBT's medicines (i.e., inclacumab, GBT601, etc.).

SCD treatment modalities

GBT

Oxbryta Commercialization Progress

As you can see, launch progress is an extremely important measure of your investment success. After all, it determines whether your stock would continue to appreciate in the long term. That being said, you should check up on Oxbryta's commercialization status.

As you may know, Oxbryta has been FDA-approved since November 2019. In the past two-plus years, sales have steadily increased. In 4Q2022, Oxbryta procured $56.1M in sales and thereby represents a 36% year-over-year (YOY) increase. On a sequential basis, sales growth logged in at 8% due to high patient demand. Now Fiscal 2021 generated $194.7M in sales, which is a 57% YOY improvement.

Since its launch to date (LTD), Oxbryta has garnered roughly $320M while reaching 1.9K unique prescribers. Amid the pandemic, the drug still enjoyed 8.4K new prescription growth this quarter. As you can imagine, sales could be picking up robustly in the next few quarters as COVID is abating.

Oxbryta commercialization progress

GBT

Asides from COVID, there are other crucial catalysts powering further growth. As you know, the first is the recent U.S. FDA approval of Oxbryta for kids. Second is the Oxbryta approval in the EU for patients 12 years and older. You can also expect good results from the marketing review in the UK. Beyond that, launch activities in the Middle East and Latin America are brewing. Taken all together, you can anticipate stronger sales growth going forward.

Near term catalysts

GBT

Pediatric Approval Galvanize Sales Growth

Shifting gears, let us take a closer look at the pertinent growth catalysts to get a clearer picture of where Oxbryta sales are heading. Of the various factors mentioned, you can project that the U.S. pediatric approval will deliver the most bang for the bucks later this year and beyond.

That is to say, this label expansion would enable Oxbryta to reach an additional 100K pediatric patients in the U.S. suffering from SCD. With higher compliance in kids, I believe that Oxbryta sales should be more than double that of the adult population.

Oxbryta labels

GBT

Like an army poised for conquest, GBT already set up the sales/marketing infrastructure to power its aggressive expansion to serve kids. The company leverages traditional sales/marketing along with the digital revolution. As to market potential, you're looking at 17 key states having 85% of all adults and kids (4 years or older) with SCD. It's likely that those states have the highest population of Blacks and Hispanics. Now that figure is interesting, because GBT already has a sales/marketing presence in those 17 areas. With approval, the company only has to expand its footprint into the pediatric population.

Leaning on 10 medical science liaisons ("MSLs") and 55 sickle cell drug specialists, GBT focuses its marketing efforts on 4.7K docs. While that is a significant number of reps and sales specialists, I believe that GBT needs to boost its sales professionals. The more reps the company has, the more aggressive the launch. Nevertheless, the existing statistics are encouraging.

States with SCD

GBT

Upcoming Launch In the European Market

In February, Oxbryta gained marketing authorization in the EU as the first sickle hemoglobin polymerization inhibitor here. The company also received a positive opinion from Great Britain that foretells upcoming approvals. If you are unaware, Britain is not a member of the EU post-BREXIT. Of note, you should not expect any significant revenues in that market this year. After all, GBT has only set up initial launch initiatives.

EU approval

GBT

Long-Term Growth Strategy

In the long view, GBT is building its pipeline and expanding its innovation infrastructure to power growth. Looking at the figure below, you can see that the company is unlocking value in the next generation of drugs such as GBT601 and other novel SCD treatments like inclacumab.

With more success from SCD, the firm is poised to expand into other orphan disease markets. As you can imagine, orphan disease represents a profitable investment segment. Despite the small number of cases, orphan diseases warrant a premium reimbursement to ensure that innovation efforts are rewarded.

Long term growth strategy

GBT

Competitor Landscape

Regarding competition, Oxbryta faces traditional medicines such as hydroxyureas (i.e., Droxia, Hydrea, Siklos) and supportive care. Though effective, hydroxyurea increases the patient's risk of infection. The FDA also recently approved L-glutamine oral powder (Endari) which reduces the number of VOCs. There is also crizanlizumab (Adakveo) to lower complications. That aside, there are novel treatment modalities like gene therapies in development. Despite the competition, Oxbryta is a novel and highly efficacious drug. As such, it should trump competition to take the most dominant shares over time.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check up on the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 4Q2021 earnings report for the period that concluded on December 31.

As follows, GBT procured $56.0M in revenues compared to $41.0M for the same period a year prior. The 36.5% increase is quite significant. On an annual basis, the company enjoyed the $194.7M in revenue which entail a 57% increase from $123.8M. Both the quarterly and annual numbers suggest a healthy business that is growing aggressively.

That aside, the research and development (R&D) for the respective quarters registered at $58.8M and $41.0M. The additional investment goes into funding GBT601, inclacumab, and other developments. I view the 43.4% R&D increase positively because the money invested today can turn into blockbuster profits tomorrow. After all, you have to plant a tree to enjoy its fruits.

Additionally, there was an $87.5M ($1.36 per share) net loss compared to a $61.8M ($1.00 per share) net decline for the same period. On a per-share basis, the bottom line depreciated by 36%. Don't be alarmed by this, because GBT is simply putting more money earned into developing additional medicines. While the company takes a hit right now, that should pay off in the long haul.

Financials

GBT

On the balance sheet, there were $734.8M in cash, equivalents, and investments. Against the $139.0M quarterly OpEx, there should be adequate capital to fund operations into 1Q2023. Simply put, the cash position is robust yet the burn rate is a bit high.

While on the balance sheet, you should check to see if GBT is a "serial diluter." After all, a company that is serially diluted eventually will render your investment essentially worthless. Given that the shares outstanding increased from 61.8M to 64.4M, my math reveals a 4.2% annual dilution. At this rate, GBT easily cleared my 30% cut-off for a profitable investment.

Valuation Analysis

It's important that you appraise Guardant to determine how much your shares are truly worth. Before running our figure, I liked to share with you the following:

Wall Street analysts typically employ a valuation method coined Discount Cash Flows (i.e., DCF). This valuation model follows a simple plug-and-chug approach. That aside, there are other valuation techniques such as price/sales and price/earnings. Now, there is no such thing as a right or wrong approach. The most important thing is to make sure you use the right technique for the appropriate type of stocks.

Given that developmental-stage biotech has yet to generate any revenues, I steer away from using DCF because it is most applicable for blue-chip equities. For developmental biotech, I leverage a combination of both qualitative and quantitative variables. That is to say, I take into account the quality of the drug, comparative market analysis, chances of clinical trial success, and potential market penetration. Qualitatively, I rely heavily on my intuition and forecasting experience over the years.

Molecules and franchises

Market potential and penetration

Net earnings based on a 25% margin

PT based on 64.4M shares outstanding and 10 P/E

"PT of the part" after appropriate discount

Oxbryta for SCD

$1.5B (estimated based on the $5.5B SCD market, growing at a 14.3% CAGR)

$375M $58.22 $52.39 (only 10% discount because it's gaining strong sales traction)
GBT601 for SCD $1B (estimated based on the $5.5B SCD market, growing at 14.3% CAGR) $250M $38.81 $19.40 (50% discount because it's still in early stage).

Inclacumab for SCD

$1B (estimated based on the $5.5B SCD market, growing at 14.3% CAGR) $250M $38.81 $19.40 (50% discount because it's still in early stage).
Younger pipeline assets Will appraise with more development in the future NA NA NA

The Sum of The Parts

$91.19

Valuation analysis (Source: Dr. Tran BioSci)

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the main concern for GBT is whether the company can continue to ramp up Oxbryta revenues.

Though Oxbryta is showing highly promising sales results, it's still difficult for a small company going at it alone in commercialization to unlock full value. Moreover, there are risks that other pipeline molecules (like inclacumab and GBT601) won't generate positive clinical outcomes. Furthermore, GBT might grow too aggressively and thereby run into a potential cash flow constraint.

Conclusion

In all, I maintain my buy recommendation on Global Blood Therapeutics with the 4.8 out of 5 stars rating. Global Blood Therapeutics is showing signs of a successful transition from a developmental to commercialized stage biotech. Subsequent to Oxbryta approval, sales ramp-up has been steady. Nevertheless, the latest quarterly results indicate that the company is hitting an "inflection point in its growth." Epitomizing an aggressive growth phase, this growth inflection is powered by strategy, sales/marketing efforts to capture the traditional approach as well as digital innovation. More importantly, the recent pediatric and European approvals would boost sales even more robustly.

In the longer view, you have next-generation Oxbryta (i.e., GBT601), inclacumab as well as other SCD drugs. That aside, the company is poised to expand into the lucrative land of orphan disease to serve the unmet needs of patients and to reward shareholders.

As usual, I'd like to remind investors that the choice to buy, sell, or hold is always yours to make. In my view, you should either hold GBT or accumulate more shares on any pullback.

Thanks for reading! To read the full article, CLICK HERE. To get the latest articles, please hit the orange “Follow” button on top.

Be sure to check out our private investment research community, Integrated BioSci Investing.

Dr. Tran's analyses are the best in the biotech sphere, well worth the price of subscription.

Very professional, extremely knowledgeable and very honest … I would highly recommend this service and his stock picks have been very profitable.

Simply put, this is worth every penny. Just earlier today, one of the companies recommended by Dr. Tran got acquired for a nice 50% premium.

Click here for a FREE TRIAL.

This article was written by

BioSci Capital Partners profile picture
15.03K Followers
Become an Expert Bio-Investor with the Columbia Doc/Scientist/Market Whiz

Founded by Dr. Harvey Tran MD, MS, CNPR, (in collaboration with other PhDs), Integrated BioSci Investing LLC (“IBI) is a growing community of experts and everyday investors who help one another to invest better.

We bring to you a NEW investment philosophy called “Integrated BioSci Investing.” It's a distillation of value/growth investing wisdom from gurus such as Warren Buffett, Buffet's mentors (Ben Graham and Phil Fischer), and Sir John Templeton that are adapted specifically for biotech stocks.

IBI's analytical research is powered by the integration of (medical, scientific, and market) expertise to deliver unprecedented accuracy in clinical trial forecasting that, in and of itself, is one of the requisites to finding alpha bioscience investment.

Ultimately, our tireless due diligence and the wisdom of IBI members translate into strong returns for you. To name a couple of winners, Crispr Therapeutics (CRSP), CryoPort (CYRX), and Guardant Health (GH), correspondingly delivered 679.1%, 778.3%, and +435.9% for our subscribers."

As an IBI member, you’ll enjoy the following EXCLUSIVE benefits: daily real-time research articles that are comprehensive and more in-depth than free research articles; access to the chat room with many experts and everyday investors for you to ask your questions live about your favorite stocks (you’re expected to get an answer no later than 24 hours); ability to view our high performing portfolios and their pertinent updates; consulting on strategies to help you set up your own portfolios; Our best ideas and their updates via a research article or chat; potential to have research featured on your favorite companies; ability to reach Dr. Tran via phone call or Skype as you wish.

CLICK the orange FOLLOW button to receive the FREE real-time alerts on our articles and blogs.

CONNECT with Dr. Tran through his LinkedTree https://linktr.ee/DrHarveyTran

READ more on www.drtranbiosci.com (and make sure to register for our mailing list).

LEARN about Dr. Tran’s background in an in-depth article by following this link. http://www.drtranbiosci.com/p/dr-tran.html

"Stellar therapeutics for patients. Differentiated intelligence for investors. Premium valuations for firms."

Follow

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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.

Additional disclosure: As a medical doctor/market expert, I'm not a registered investment advisor. Despite that I strive to provide the most accurate information, I neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. I reserve the right to make any investment decision for myself and my affiliates pertaining to any security without notification except where it is required by law. I'm also NOT responsible for the action of my affiliates. The thesis that I presented may change anytime due to the changing nature of information itself. Investing in stocks and options can result in a loss of capital. The information presented should NOT be construed as recommendations to buy or sell any form of security. My articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your own due diligence and take responsibility for your action. You should also consult with your own financial advisor for specific guidance, as financial circumstances are individualized. That aside, I'm not giving you professional medical advice. Before embarking on any health-changing behavior, make sure you consult with your own doctor.

Recommended For You

Comments (8)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.