This is going to be an interesting couple of days for the sector. This is either the pullback to consolidate before another leg higher or the end of the dead cat bounce. Sentiment in the sector is awful. Sell side notes are talking about conversations with money managers with most simply seeing the sector as uninvestable at this point.; ISI was noting that 140 biotechs could go bankrupt by 2021. While the sector is not at the best position in terms of fundamentals, there is not going to be any drug price reform in the near term so the good
quarter we saw previously should continue. I get the political noise with the election but drug pricing reform has been an imminent concern for 4 straight years with nothing happening. In any case, I tend to like it when everyone so hates the sector as sentiment extremes are times to buy but that being said I am still not convinced we have hit the bottom.
Periods when the sector sentiment is awful is a great time to search for bargains. The best bargains are those that sold off on
good data or news. I think PIRS might be that company. They presented data on their inhaled IL-4Ra antagonist in mild asthmatics. The goal was to see a greater than high teens reduction in FeNO as compared to placebo. They were getting 30%+ reductions at the high doses (and even the low doses saw 24% reductions). As a result of that data the stock went from $6 to under $3. Why?
Part of the issue was a misunderstanding of asthma drug development. So a critique was that this was in mild patients and so you could not see any improvement in lung function. The fact is that the well-worn path of asthma drug development is to first dose in mild patients even if you are going to get first approval is severe patients. There might have been some other confusions but the key is that this is a program partnered with AZN and AZN is making this a priority early development program. In their last earnings call, it
was highlighted as a key either stage asset. After the data, there was no change in AZN view of the program so those who know the data the best are just as committed to the program.
You might think that partnership might make the value to PIRS less but they retain the option to opt into a US co-promote and co-development. So they can get a lot of the economics from this program. In addition, this is just part of the partnership with AZN as 4 other pre-clinical programs. Outside of AZN they have two other major
partnerships with Servier and SGEN. Clearly this is a platform technology that many find interesting and is getting clinical support with its lead asset. All of this for a market cap of $140M with around $100M in cash and they seem to be burning around $10M or so a quarter (but that is obviously variable so it might be higher in coming quarters). So $40M for good data and 12 partnered drugs is not bad.
All of that would be interesting but the real kicker is PRS-343. This is a 4-1BB/HER2 bispecific for HER2-positive solid tumors and is wholly owned. No one seems to be ascribing any value to their IO pipeline (a lot of it is partnered with Servier) but PRS-343 got a late breaker acceptable for SITC (will be an early November presentation). What happens to the stock if they get monotherapy responses with PRS-343? Development timelines are much faster in oncology their respiratory and this is a wholly owned drug. Would this company still be worth $40M EV? I suspect you would get a significant revaluation of the company.
So what are the odds that they present data with objective responses at SITC? I think odds are more likely than not. Now it is not exactly guaranteed as they have only committee to biomarker data and there is a combination trial with atezolizumab ongoing as well but we know they are presenting at SITC and this is a completely under the radar asset for PIRS.
As such I like PIRS for two reasons. Longer term the pipeline is robust the asthma asset is misunderstood and is worth more than is being valued. This will take more time to revalue but it is clearly undervalued. PRS-343 provides the chance of a more immediate revaluation based off of SITC data. It is the higher risk portion of the story given that we have not seen any data and do not know what they are going to present (late breaker abstracts will be released November 1st) but it offer more immediate potential
to change the story on PIRS. Long story short, this is worth looking into and I will be looking to start a position soon and definitely before the late breaker abstracts are released.
I will end it here and hope everyone is having a good start to the week.
Disclosure: No position in stocks mentioned but looking to buy PIRS.
