PTGX - Protagonist Therapeutics: Evaluating Rusfertide's Potential For PV

2023-09-04 02:56:19 ET

Summary

• Protagonist Therapeutics focuses on peptide-based drugs, primarily rusfertide, which is undergoing a Phase 3 trial for polycythemia vera.
• Financially, PTGX is robust with $313.4M in assets and a cash runway of ~31 months; rusfertide shows significant promise with positive REVIVE study results.
• Given PTGX's financial health and rusfertide's potential, I recommend a "Buy" but advise investor vigilance regarding future developments.

Introduction

Protagonist Therapeutics ( PTGX ) develops peptide-based drugs, notably rusfertide and JNJ-2113. While they initiated early studies on JNJ-2113 with Janssen, rusfertide, mimicking the hormone hepcidin, is their primary focus, now in a global Phase 3 trial for polycythemia vera. Protagonist holds all global rights to rusfertide.

The following article discusses Protagonist's financial health, the potential of its drug rusfertide for treating polycythemia vera, and investment considerations.

Q2 Earnings Report

Looking at Protagonist's most recent earnings report , as of June 30, 2023, they held $313.4M in cash, cash equivalents, and marketable securities. There was no license and collaboration revenue for the first half of 2023, contrasting with $26.6M during the same period in 2022. R&D expenses dropped to $60.6M for the first half of 2023 from $70.9M in 2022, primarily due to reductions in PN-943 expenses. G&A expenses slightly increased for the quarter but decreased overall for the six-month period due to one-time 2022 costs. The company reported a net loss of $72.2M for the first half of 2023.

Cash Runway & Liquidity

Turning to Protagonist's balance sheet , the combined assets from various categories amount to $313.4M ($235.4M in cash and cash equivalents, and $78.0M in marketable securities). Within the past six months, the company has seen a net cash outflow from operating activities of $60.6M, translating to a monthly cash burn of approximately $10.1M. Given this rate of monthly expenditure, Protagonist has a cash runway of roughly 31 months. However, it's essential to approach these figures with caution as they are predicated on past data, and future performance may vary.

In terms of liquidity, the company is in a favorable position with significant current assets. The absence of any noticeable debt in the provided statements further enhances its financial robustness. Given its positive liquidity status and minimal liabilities, securing additional financing, if required, seems feasible for Protagonist, whether it's through equity or debt instruments. These are my personal observations, and other analysts might interpret the data differently.

Valuation, Growth, & Momentum

According to Seeking Alpha data, Protagonist showcases a capital structure with minimal debt relative to its market capitalization, resulting in an enterprise value of $813.19M. Despite the current negative earnings and valuation grade of B-, it's evident that the company is in a developmental, pre-revenue phase given the contrast between zero license and collaboration revenue in 1H 2023 compared to the same period in 2022. This aligns with substantial projected sales growth, culminating in a potential 507.46% YoY increase by 2025. The stock exhibits strong momentum, outperforming the SP500 across various timelines, with a notable 1-year growth of +112.85%.

REVIVE Study Reveals Rusfertide's Potential in PV Management

Polycythemia vera (PV) is a rare blood disorder leading to uncontrolled red blood cell production and related systemic issues, including increased risk of thromboembolic [TE] and cardiovascular [CV] complications. The standard treatment approach involves therapeutic phlebotomy [TP], or bloodletting, to control hematocrit [HCT] levels, sometimes coupled with cytoreductive agents ((CYTO)) like hydroxyurea.

Rusfertide has emerged as a promising candidate to address PV symptoms. This was evident from the REVIVE study that aimed to gauge rusfertide's impact on erythrocytosis in PV patients. The study was structured into three stages. The primary goal, as revealed from the results unblinded in March 2023, was to monitor the effects of rusfertide in comparison to a placebo during the randomized withdrawal phase.

The study findings were promising:

• 69.2% of the rusfertide group responded positively compared to only 18.5% in the placebo group.

• This superior efficacy of rusfertide was consistent across patients whether they were on TP alone or TP coupled with CYTO.

• Rusfertide significantly enhanced the maintenance of response, reduced the need for TP, and ensured a consistent control of HCT.

• Most patients tolerated rusfertide well. The majority of adverse events were mild, primarily localized injection site reactions that lessened over time. Only two such events resulted in treatment cessation.

Market Analysis for PV and Revenue Estimation for Rusfertide:

PV is a niche medical condition, but given its systemic complications, there's a critical need for effective therapies. Rusfertide, with its apparent effectiveness and unique position as a first-in-class treatment, stands to gain a substantial portion of the market. Incyte ( INCY ) estimates that PV affects roughly 100,000 individuals in the US. Should rusfertide secure just 10% of this audience, with an assumed treatment cost of $50,000 annually, the potential revenue reaches a noteworthy $500 million. However, this is a very rough estimate, and actual numbers might differ.

My Analysis & Recommendation

As Protagonist Therapeutics forges ahead into the later stages of clinical trials for rusfertide, the investor community remains highly anticipative. The evident promise shown in the REVIVE study, with 69.2% of rusfertide's cohort showing a positive response compared to the placebo group, indicates a high potential of rusfertide becoming a standard of care for many PV patients.

For investors, the upcoming weeks and months will be pivotal in observing any updates regarding the Phase 3 VERIFY clinical trial. Key points of attention should include:

• Patient Enrollment Progress: As the company expects to conclude enrollment by Q1 2024, any acceleration or delays in this timeline can be telling. Delays might indicate challenges, while quicker enrollment might suggest strong interest and optimism in the medical community.

• Interim Results and Safety Data: Should the company release any interim results or insights, these will be crucial in gauging rusfertide's consistent efficacy and safety profile. Any negative or unanticipated adverse events could dampen investor sentiment.

• Regulatory Interactions: Interaction with regulatory agencies, be it the FDA or its international counterparts, will provide a lens into the drug's potential path to approval. Positive regulatory feedback can significantly boost investor confidence.

• Financial Health: With a cash runway of approximately 31 months, the company seems financially well-equipped. Yet, the outcome of the VERIFY clinical trial could impact future financing decisions. Investors should stay attuned to any moves by Protagonist to raise capital, which could dilute shares.

• Market Dynamics: While rusfertide's efficacy and potential >$500 million revenue from the PV niche looks promising, investors should be wary of potential competitors and any shifts in the therapeutic landscape for PV.

From an investment perspective, considering Protagonist's robust financial health, rusfertide's promising results, and the potential market size for PV treatments, I am inclined to provide a "Buy" recommendation. However, as always, investors are advised to balance this optimism with vigilance, tracking the VERIFY trial's developments and any market or financial shifts that could impact Protagonist's trajectory.

Risks to Thesis

Several risks could contradict my final investment recommendation:

• Overestimation of Market: My estimation of the potential market size for PV treatments and rusfertide's share might be too optimistic. Actual PV patient counts and adoption rates could differ.

• Clinical Trial Results: The promising results of the REVIVE study don't guarantee similar outcomes in future trials, like the VERIFY trial. Clinical trial failures are prevalent in biotech.

• JNJ-2113 Clinical Setbacks: While I haven't delved into JNJ-2113's prospects, any setbacks in its Phase 3 study for psoriasis or Phase 2b study for ulcerative colitis can negatively impact the stock.

• Regulatory Hurdles: Achieving regulatory approval is complex. Unexpected barriers could delay or prevent rusfertide's commercialization.

• Competition: I may have underestimated potential competitors or emerging therapies that could outpace rusfertide.

• Bias: The recent positive momentum of Protagonist's stock may introduce bias, affecting objective evaluation.

• Financial Health: Licensing and collaboration revenue varies and is uncertain. Additionally, an increase in the company's cash burn could necessitate capital raises, diluting shareholder value.

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