PRVB - Provention Bio: More Risk More Dilution Ahead - Downgrading To A Sell Rating

• BLA was delayed again to October/November due to FDA's request around PK data.
• Uncertainty around Teplizumab remains, and we are not a big fan of the FDA's recent request and delay in BLA.
• The company's warrant structure looks messy; PRVB has a long history of punishing investors with stock dilution.
• We downgrade the stock to sell from a hold rating.

BLA delayed again to October/November

The company provided additional color during the 2Q22 earnings call around information requests from the FDA; these are the key takeaways i) FDA information was requested from the FDA regarding incorporating ADA data in PK modeling of dosing regimen, ii) FDA's request resulted in the extended BLA decision date to Nov 17, iii) ADA does not impact the regimen for exposure or output of the model, and iv) there is no additional outstanding request from the agency at the moment.

The rationale for the delay?

FDA's rationale for the request during mid-June was to understand whether ADA levels would influence the recommended dosing adjustments set by the agency. As such, the company re-analyzed the data and found that the proposed dosing regimen remains unchanged by ADA levels and datapoints were consistent with the bioequivalency of legacy and commercial products. However, as the update was considered a major amendment, FDA indicated that they plan to discuss labeling and post-marketing requirements by Oct 17, 2022.

What next?

The key focus at this point is when investors will receive more clarity around the proc; during the Q2 earnings call, the company indicated that they would be able to provide additional regulatory updates during the Q3 earnings call planned around early Nov, based on their historical reporting timeline, as such, with the level of uncertainty, we remain on the sidelines.

Even though there were rumors about label discussion, which indicates a higher likelihood of approval of the agent, during the Q2 earnings call, the company emphasized that the proposed label discussion will only continue if there are no deficiencies identified during the review period (FDA will communicate to the company by Oct 17).

More messy warrants don't look good

...Today announced it has entered into a securities purchase agreement with institutional investors for the private placement of approximately $60 million of shares of its common stock and warrants to acquire 13,318,535 additional shares of its common stock (the "Warrants") (collectively, the "Securities"). The Warrants will be exercisable immediately upon issuance, in whole or in part, at an exercise price of $6.00 per share and will have a five-year term. Source: Provention Bio Announces $60 Million Private Placement

As we flagged in our previous report , the company raised additional capital to finance its operation. We are not a fan of messy warrants as they can dilute the share value.

The company ended the quarter with USD96M after a net USD57.2M fueled from the July USD60M private placement/ warrants ($4.51/share); we believe this provides a runway for approximately 12 months. We view anything under 12 months as a red flag, especially considering the current market condition and difficulty of companies raising capital.

Catalysts

• November 17, 2022: PDUFA date for teplizumab BLA in at-risk Type 1 diabetes
• 2H23: Topline data from Phase 3 PROTECT trial of teplizumab in newly diagnosed Type 1 diabetes
• YE23: Topline data from Phase 2b PROACTIVE trial of ordesekimab (PRV-015) in celiac disease (YE23)
• 1H 24: Topline data from Phase 2a PREVAIL trial of PRV-3279 in systemic lupus

Risks

1. Investors who sell their position may incur tax obligations or miss on the upside.
2. Due to the illiquid nature of small-cap biotech like Provention Bio (PRVB), if investors sell stocks into the market, they may not receive the best price for their shares.

Conclusion

We downgrade PRVB to sell from hold as i) we are not a big fan of continued data requests from the FDA and uncertainty around Teplizumab's approval, and ii) recent capital raise with messy warrant structure can dilute the stock, punishing investors who accumulated their position before the warrants get exercised. Even though Teplizumab is a novel therapy and type 1 diabetes has a high unmet need, we are not convinced that FDA will be lenient in its approval without clarity around PK/PD and CMC uncertainty (which has been plaguing the company during the last 2 years). We remain on the sidelines until the company provides more clarity around the potential outcome for the resubmitted BLA around October/November.

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