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Biohaven's (BHVN) $168 Million Stock Debut Is Only The Beginning

Biohaven Pharmaceutical raised $168 million on its May 4th debut, pricing beyond the expected range of $12-$16 dollars per share. Not bad for a company that has come to market at a time when the appetite for biotech stocks has been relatively fickle. While analysts penned reports expecting BHVN to raise roughly $100 million to fund the company's pending phase III trials, investors familiar with the deal anticipated more, and they were right. Lofty IPO expectations were in order, based not only on the promising science but because of the pipeline depth and strong management team at the company. And, while the $168 million IPO deserves celebration, shares may still be significantly undervalued.

With Biohaven a potential hidden gem to many, others took an early shot at BHVN with an investment into Portage Biotech, a strategy designed to benefit from PTGEF's approximate 28% ownership stake in BHVN. Even though Biohaven has been relatively tight-lipped when it came to publicizing their clinical prowess, PTGEF owners had an early glimpse of the pending IPO, allowing them to position ahead of the deal by either taking an initial position or increasing their stake in PTGEF. As a result, investors saw their PTGEF holdings increase by over 50% as the IPO approached.

I bring PTGEF into the equation for two reasons. First, they are now one of the largest shareholders in BHVN, and second, I like to follow the money. Information released before the IPO indicated that a group of investors, PTGEF insiders included, pledged up to $70 million to support the Biohaven IPO, and this is on top of the $80 million that BHVN raised in November of 2016. Needless to say, that amount of money is not chump change by any stretch of the imagination, and by connecting the dots, many investors speculated that insider interest in the BHVN IPO might be strong because they are impressed with ongoing clinical data. Thus, investors should pay attention.

Biohaven Grows Up... But Shares Are Far From Mature

Investors that followed BHVN toward its IPO have compared the probability of stock price increases to the story at AXON, who has seen its share price rise by over 60% since April. The appreciation at Axovant Sciences came after announcing that a new CEO has taken the helm to advance the company's clinical stage prospects. What makes the story relevant is that the same people that are involved at Axovant Sciences are also congregating at the BHVN water-cooler, and if history does repeat, this group of professionals may once again have the Midas touch in uncovering the value in BHVN.

Although the IPO is recent news, Biohaven has been building its history long before Thursday's financial windfall. The company has not only earned peer respect but has built a formidable chest of promising assets.

Many investors received the first glimpse of BHVN back in October of 2016 when the company announced that it had licensed the rights to develop and commercialize glutamate modulating agents for cancer treatment from Rutgers University. The interest for BHVN is that they believe the research has established a role of glutamate receptor signaling in the growth and spread of multiple tumor types. With a potential signal identified, the first major obstacle in a breakthrough treatment becomes more realistic, and while armchair experts proffer a hundred different opinions on receptor signal matters, those that have come to know the intellectual depth of the Biohaven team know which voice to follow.

Subsequently, in November of 2016, the company raised $80 million in an oversubscribed private financing to advance Phase III clinical trials. At the time, BHVN was a privately-held company that was demonstrating particular expertise in late stage clinical development and held a portfolio of multiple late-stage assets. The $80 million came from private investors as well as from at least two undisclosed blue-chip pharmaceutical companies as part of in-licensing agreements with BHVN. The medical team, led by Vlad Coric, M.D., is a primary reason that investors placed their stamp of approval on the funding. However, the pipeline platform has no shortage of fans either and gets recognized as being a highly investable opportunity, tagging along with BHVN's ambition to develop treatments to combat rare and debilitating diseases such as spinocerebellar ataxia, ALS, migraines, and cancer.

Growth Continues...Phase III Trials And Orphan Drug Designations

Moving forward, Biohaven announced in December of 2016 that the FDA granted Orphan Drug designation for BHV-0223, an orally dissolving tablet developed for the treatment of ALS (Lou Gehrig's Disease). The Orphan Designation became the third such request granted by the FDA and became part of the emerging clinical pipeline at BHVN. Because of the private nature of BHVN at the time, clinical results remained closely guarded, an apparent effort to protect strategic advantage and limit potential pipeline competition.

Now publicly traded, investors have since come to know about the clinical prospects on a more intimate basis. BHV-0223, described as a novel formulation of a glutamate-modulating agent that utilizes the Zydis ODT fast-dissolve technology, was acquired under an exclusive worldwide agreement with Catalent. BHVN believes, based on their clinical studies, that agents which modulate glutamate neurotransmission may have therapeutic potential in treating multiple diseases involving glutamate dysfunction. In doing so, BHVN intends to target diseases like ALS, Alzheimer's, Rett syndrome and dementia. A therapeutic value for BHV-0223 may further emerge in treating tinnitus, anxiety disorders, and major depressive disorders.

BHVN cleared the FDA IND application in 2015 and had completed a pharmacokinetic study in humans, supporting its prospective pivotal bioequivalence study in 2017.

Robust Pipeline Fueled By BHV-4157 Program

The momentum continued in December of 2016, when BHVN announced that it had enrolled its first patient in its potentially pivotal Phase IIb/III clinical trial to assess the efficacy and safety of BHV-4157 in treating patients with Hereditary spinal ataxia (NYSE:SCA), a condition where no approved treatments exist.

Progressing into 2017, BHVN plans to enroll approximately 120 patients in a randomized, double-blind, placebo-controlled trial that will take place at an estimated fifteen trial sites in the United States. Researchers will be evaluating acute symptomatic treatment with BHV-4157 in patients with SCA, measuring primary outcome from a change from baseline in the total score on a Scale for Assessment and Rating of Ataxia. If the treatment proves successful, investors should expect BHVN to submit an NDA application to the FDA to assess BHV-4157's value in treating the disease.

No Pain: Biohaven's CGRP Receptor Platform To Treat Migraines

There is no weak link in the BHVN pipeline, but it's fair to say that investors are fixated on the potential of the CGRP platform. The CGRP program is advancing its small molecule receptor antagonist platform, comprised of two product candidates. First, there is BHV-3000, designated for the treatment of acute migraine episodes. The second therapeutic candidate is BHV-3500 which is intended to provide preventive relief from chronic and episodic migraines. BHVN acquired the worldwide exclusive rights to the program from Bristol-Myers Squibb (NYSE:BMY).

BHV-3000 (Remegipant) is the lead candidate in the CGRP program, which is an orally available small molecule receptor antagonist. Supported by encouraging Phase IIb clinical data, the medical team at Biohaven believes that the drug has the potential to produce best-in-class therapy to treat an acute migraine episode, and may deliver additional value to address multiple unmet medical needs across an array of migraine symptoms. Data from the Phase IIb trial showed that BHV-3000 achieved statistical significance in providing long term pain-free relief, with clinical benefits extending from two-to-forty eight hours of relief.

As of December 31, 2016, BHVN has treated approximately 687 patients, with no severe or unexpected side effects observed. BHVN plans to commence the Phase III trial in the second half of this year with top line results expected in the first part of 2018.

BHV-3500 is the second product candidate in the platform. Also a small molecule CGRP receptor antagonist, BHV-3500 is being developed as a preventive agent against chronic and episodic migraines, clinically defined as fifteen of more migraine episodes per month. Like BHV-3000, the drug has shown no adverse or unexpected events, making it a potential candidate for daily use, serving as a preventative treatment for chronic migraine sufferers. Like BHV-3000, the drug has tremendous potential and is generating pre-clinical data to substantiate its value in treating four key headache categories, with its goal to show substantive improvements in symptoms. BHVN plans to initiate clinical studies in 2017 with hopes of generating results that support the filing of an IND application before year end for the prevention of chronic migraine episodes.

A common theme among both drugs is that they are looking to replace triptans, opioids, NSAID's and combination medications that are currently on the market. Triptans, the most prolific standard of care have produced sub-standard results, with only about 30% of patients reporting pain-free symptoms after a two hour period. Triptans also have been shown to have secondary risk factors and are not recommended for people with cardiovascular conditions or disease. These restrictions eliminate a significant number of patients that need treatment, and although some analysts refer to the current treatment options as competitive barriers to entry for a successful BHVN approved drug, they fail to recognize the limitations of most all currently marketed drugs. They also, in their analysis, fail to point out that BHV-3000 is showing the ability to clear those restrictive hurdles, making the medication a best-in-class option, or an "only option" for patients.

The Future At Biohaven

While there is strength at Axovant Sciences, the truth of the matter is that BHVN may prove to be the superior horse in the race. Biohaven has two Phase III trials pending and has additional pipeline opportunities beyond the two programs mentioned. Now strengthened by a successful IPO, BHVN not only has the clinical potential to bring lucrative indications to market, but they have a well-fortified balance sheet to advance the stages. Therefore, in my opinion the door is open to similar and significant gains, like those seen at AXON.

The $17 per share IPO price may very well become the lows in the stock as the company progresses toward its Phase III trials. Already trading above $18 on its second trading day, the case for Biohaven to trade significantly higher is understandable. The company has motivated insiders, endorsements from top pharmaceutical firms and a tight share float, that may become squeezed even tighter if insiders follow historical ownership patterns. Knowing how institutional bankers work, a quick upgrade in opinion is also likely which can serve as the next catalyst for an upward move.

Hoping to gain investment leverage, many investors are looking to PTGEF to offer derivative exposure to BHVN. At just .35 cents per share, tiny PTGEF owns a 28% stake in BHVN and that ownership position provides book value to the company that exceeds current prices. The pure value play through BHVN, though, fails to factor in the PTGEF portfolio of assets, which include significant value-driving opportunity from their asset interests in EyGen, Portage Pharmaceutical, and Sentien. Each asset can become as equally as impressive as Biohaven, and investors should expect consistent news flow from PTGEF regarding these private holdings shortly.

While I am investing in BHVN through my PTGEF holdings, a straight up investment into BHVN would certainly make sense. Following the money is always a good indicator of strength, and BHVN checks that box. With an oversubscribed offering and perhaps an additional $20 million or more on its way from underwriters options, taking a long-term position in BHVN should not make investors uncomfortable.

Immune from near-term headline risk, shares may be in for a nice move higher as each of the planned phase III trials commence. Just as AXON took a 60% leap on structural change, BHVN can do better, compounding gains from active insiders, a robust pipeline, and a fat wallet. Opening day IPO provides some churning, which is what investors saw last week. Given the three-day rule, I look for BHVN to work higher during this trading week, with investors digesting the robust interest in the IPO along with the promising clinical data.

Story first appeared on CNA Finance

Additional Disclosure: I am long PTGEF and may purchase additional shares within the next 72 hours. I have no position in BHVN and do not intend to purchase shares within the next 72 hours.

Disclosure: I am/we are long PTGEF.