PSTX - Poseida Therapeutics: Pioneering Cell And Gene Therapies Spark Excitement And Caution

2023-07-11 15:58:55 ET

Summary

• Poseida Therapeutics has reported Q1 2023 revenues of $10.3 million, a significant increase from $1.4 million in Q1 2022, primarily due to a collaboration with Roche.
• The FDA has cleared Poseida's Investigational New Drug application for P-CD19CD20-ALLO1, a dual CAR-T cell therapy for treating relapsed or refractory B-cell malignancies.
• Poseida Therapeutics showcases promising investment potential given its pioneering work in cell and gene therapies, strategic partnerships, and a diversified pipeline, but is speculative and risky.

Introduction

Poseida Therapeutics ( PSTX ), a clinical-stage biotech firm, leverages its unique platforms including piggyBac DNA Delivery, Cas-CLOVER Gene Editing, and advanced gene delivery technologies for developing pioneering cell and gene therapies. It targets cancer and rare diseases, boasting a diverse product candidate portfolio. The technologies enhance the potential of cell and gene therapeutic methods and aim to overcome the existing therapy limitations.

In my past analysis , I saw Poseida's potential for growth. Despite a Q4 2022 revenue dip, there was overall annual growth due to partnerships with Roche and Takeda. Their $282.5 million cash balance predicts funding till mid-2024. Promising data from their lead product P-MUC1C-ALLO1, the diverse pipeline, and strategic alliances indicate a growth prospect for risk-tolerant investors. However, due to inherent risks in early-stage biotech firms, I noted that investors should allocate only a small portion of their portfolio to Poseida. Since my "Buy" recommendation, Poseida shares are down 29%.

Recent updates from Poseida include its announcement to join the Russell 3000 and small-cap Russell 2000 indexes after the 2023 reconstitution. Furthermore, its shares increased ~12% post FDA's approval of its Investigational New Drug [IND] for P-CD19CD20-ALLO1, a pioneering CAR-T cell therapy for resistant B-cell malignancies, marking it the first IND clearance for a dual-targeting allogeneic CAR-T therapy.

Q1 2023 Earnings

Poseida Therapeutics reported Q1 2023 revenues of $10.3 million, a significant increase from $1.4 million in Q1 2022, primarily from a Roche collaboration. Research and development expenses decreased to $38.1 million from $48.9 million in the same period last year, due to winding down certain clinical programs. General and administrative expenses rose to $11.8 million from $9.5 million, mainly due to stock-based compensation costs. The company posted a net loss of $38.8 million, lower than the previous year's $58.1 million. As of March 2023, Poseida had $247.2 million in cash and expects funding to last until mid-2024.

Poseida has a market capitalization of $169.21 million, carries a total debt of $87.89 million, and holds a cash reserve of $247.20 million. This results in an enterprise value of $9.90 million.

Poseida is categorized as a microcap, which implies inherent high-risk factors and the possibility of substantial dilution. While the company has the potential to secure funds through non-dilutive means like partnerships, it should be noted that even a modest public offering (e.g., $34 million) would lead to significant dilution, amounting to approximately 20% given Poseida's market capitalization of around $170 million.

Poseida Therapeutics' Dual CAR-T Therapy Clearance Marks Regulatory Milestone and Promising Treatment Potential

Poseida Therapeutics announced the FDA's clearance of its IND application for P-CD19CD20-ALLO1 , an allogeneic dual CAR-T cell therapy for treating relapsed or refractory B-cell malignancies. This innovative therapy, developed in collaboration with Roche ( RHHBY ), targets both CD19 and CD20 antigens and aims to address resistance mechanisms prevalent in current treatments. The IND clearance is significant as it's considered the first for an allogeneic dual CAR-T therapy targeting CD19 and CD20.

The news likely boosted Poseida's stock as the clearance signifies a crucial regulatory milestone and the potential for a revolutionary treatment in the market. However, advancing such technologies through clinical trials is a complex, costly, and time-consuming process. It involves multiple phases to assess safety, effectiveness, and potential side effects. The complexity increases with novel technologies like dual CAR-T therapies, as they involve genetic manipulation of T cells and need to prove superiority over existing therapies.

The Phase 1 trial (currently "recruiting" ) will enroll up to 100 patients who will undergo a chemotherapy-based regimen followed by the administration of P-CD19CD20-ALLO1. The product is an off-the-shelf therapy, addressing the limitations of autologous CAR-T therapies associated with significant manufacturing times. This approach enhances the potential success and market impact of the therapy, providing a quicker and more accessible treatment option for patients.

My Analysis & Recommendation

In conclusion, Poseida Therapeutics showcases promising investment potential given its pioneering work in cell and gene therapies, strategic partnerships, and a diversified product pipeline. The recent FDA clearance for its dual CAR-T therapy could mark a new chapter in the treatment of resistant B-cell malignancies and offers a significant growth catalyst. The company's strong cash balance should ensure its operational viability until mid-2024.

Despite a market capitalization of $169.21 million, Poseida's enterprise value of $9.90 million is notably low. This may stem from challenges specific to Poseida such as the inherent risks of developing pioneering cell and gene therapies, regulatory hurdles, and the complexity of advancing these technologies through clinical trials. Market skepticism may also be influenced by the costly and lengthy process of translating promising lab results into commercially successful treatments. Nonetheless, Poseida's strategic collaborations, unique platforms, robust pipeline, and the recent FDA clearance for its innovative dual CAR-T therapy underscore its resilience and growth potential.

However, Poseida's journey is likely to have its fair share of volatility due to the inherent risks associated with early-stage biotech investments. The stock's 29% drop since the initial "Buy" recommendation underscores this. Yet, the company's recent acceptance into the Russell 3000 and small-cap Russell 2000 indexes, and the stock's ~12% rise following FDA's approval of the IND application for P-CD19CD20-ALLO1, suggest a potential upward trajectory.

In line with the preceding analysis, I reaffirm my investment recommendation of a speculative "Buy" with a small allocation for Poseida. Risk-tolerant investors, particularly those with a focus on biotechnology, should be cautiously optimistic about the company's future and consider Poseida as part of a well-diversified portfolio. As always, due diligence and a clear understanding of the risks and opportunities in this microcap are crucial.

Risks to Thesis

When the facts change, I change my mind.

The three main risks to the bullish thesis on Poseida Therapeutics are as follows:

• Regulatory and Clinical Trial Risks: Advancing innovative cell and gene therapies through clinical trials is a complex and time-consuming process. Poseida's dual CAR-T therapy, P-CD19CD20-ALLO1, must undergo multiple phases of clinical trials to demonstrate safety, effectiveness, and superiority over existing treatments. Regulatory hurdles and potential side effects could delay or derail the development of the therapy, impacting the company's growth prospects.

• Inherent Risks of Pioneering Technologies: Developing pioneering cell and gene therapies involves inherent risks and uncertainties. While Poseida leverages unique platforms and advanced gene delivery technologies, the translation of promising lab results into commercially successful treatments is challenging. Market skepticism may persist due to the costly nature of research and development, potential setbacks in clinical trials, and the need to overcome therapy limitations. Investors should consider the inherent risks associated with Poseida's innovative approach.

• Market Volatility and Investor Sentiment: As a clinical-stage biotech firm, Poseida is subject to market volatility and investor sentiment. The stock's 29% drop since the initial "Buy" recommendation highlights the potential for significant fluctuations. While recent positive developments, such as the FDA's IND clearance and inclusion in the Russell indexes, suggest an upward trajectory, investor sentiment can quickly change, impacting the stock's performance. The microcap nature of Poseida may also contribute to increased volatility and risk.

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