ABBV - Prometheus Biosciences: Profit Taking Lurking Ahead

Summary

• The stock of Prometheus Biosciences has tripled since positive mid-stage trial results for its primary candidate for treating UC and CD came out in early December.
• Since then the company has done a large capital raise and there have been some significant insider sales so far in 2023.
• The stock also seems to have formed a possible triple top.
• Does the rally have more legs or is some profit taking likely ahead? An investment analysis follows in the paragraphs below.

Tradition is not the worship of ashes, but the preservation of fire ."? Gustav Mahler

Today, we take our first look at Prometheus Biosciences ( RXDX ) . The stock of this clinical stage biopharma concern have been ' en fuego ' recently thanks to positive mid-stage trial results. Can the rally continue or is profit taking in this equity's future? An analysis follows below.

Company Overview:

Prometheus Biosciences is a San Diego headquartered, clinical staged biopharmaceutical company. The company is focused on the development and commercialization of novel therapeutics and companion diagnostics products for the treatment of inflammatory bowel diseases or IBD. The stock currently trades just below $120.00 a share and sports an approximate market capitalization of just north of $5.5 billion.

This is how the company describes its developmental approach:

Its Prometheus360 Data Science Platform combines PrometheusIQ, state-of-the-art data analytics that continually identifies new targets and PrometheusID, a diverse collection of IBD biospecimens and detailed metadata-offering the potential to pinpoint the right treatment for the right patient ."

The company has several compounds in its pipeline but we will focus on PRA023 as it is the only compound the company has that isn't in early-stage development. PRA052 in just in Phase 1 trials for UC and IBD.

Currently, the company is developing PRA023 for Ulcerative Colitis (UC), Crohn's Disease ((CD)) and Systemic Sclerosis-Associated Interstitial Lung Disease (SSc-ILD). The company is actively recruiting individuals for late-stage trials for all three of these indications.

PRA023 works by inhibiting TL1A, which has been established as a key immune factor mediating both fibrosis and inflammation throughout the body.

In early December, the company disclosed that PRA023 had positive results within two mid-stage trials, ARTEMIS-UC and APOLLO-CD, in patients with UC and CD. The studies met their primary endpoint as well as all secondary goals as well. This news caused the stock to nearly triple. Two days later, the company took advantage of the huge rally in its equity to raise approximately $500 million in proceeds via a secondary offering.

Analyst Commentary & Balance Sheet:

So far in 2023, a half dozen analyst firms including Jefferies and Credit Suisse have reissued Buy/Outperform ratings on the stock. Price targets proffered range from $111 to $160. On January 4th after Roivant Sciences ( ROIV ) announced results from the induction period of the TUSCANY-2 Phase 2b study of RVT-3101, Piper Sandler reiterated their Overweight rating and $114 price target on RXDX. The analyst there noted ' that the readout further validates the TL1A mechanism in ulcerative colitis, or UC and that her comparative analysis of Prometheus Biosciences' ARTEMIS-UC Phase 2 and APOLLO-CD Phase 2a study results and the TUSCANY induction data lead her to believe Prometheus' PRA023 and Roivant's RVT-3101 have "highly competitive profiles "

After no insider activity since March of 2021, several insiders have sold just north of $10 million worth of shares collectively so far in 2023. Approximately one out of every eight shares outstanding is also currently held short. The company ended the third quarter with just over $255 million in cash and marketable securities on its balance sheet after posting a net loss for the quarter of just over $37 million. The company's capital raise pushed its cash balance north of $700 million. Prometheus has no long-term debt.

Verdict:

I am always hesitant to chase huge rallies in biotech stocks regardless of the extent of good news. Prometheus Biosciences appears to be doing a solid job advancing its pipeline and is aiming at lucrative markets. While there are some unmet medical needs around treating UC and CD, there are approved treatments including the blockbuster Humira and Remicade marketed by drug giants AbbVie Inc. ( ABBV ) and Janssen Biotech, Inc., respectfully.

The company has some potential catalysts on the horizon. This include additional trial data from the ARTEMIS-UC mid-stage study that has already sent the shares soaring as well as the kick-off of registrational studies for PRA023 for UC and CD. This candidate is aiming at huge potential targets as well.

However, with the shares more than tripling off their early December lows, the equity seems vulnerable here to some potential profit taking.

This might be more likely as the stock seems to have formed a triple top, insiders are starting to cash out some chips in 2023 and the stock is above several recent analyst firm price targets. Therefore, we are passing on making any recommendation around purchasing these shares at current trading levels.

Fire tests gold, suffering tests brave men ."? Seneca

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