PRVB - Provention Bio: Tzield Finally Approved But Neutral On Its Commercial Launch

Summary

• After the FDA's approval of Tzield and with better-than-expected pricing, we are upgrading to a Buy rating.
• PRVB's pricing and approval bode well for the stock and de-risk owning it; however, we are neutral around the Q1-Q2 sales print due to uncertainty around market access.
• PRVB expects to launch the product in Jan 2023.
• PRVB has a relatively short cash runway until 2023.
• We look forward to seeing sales numbers in Q1-Q2 2023, which we believe will be key to understanding the sales ramp and potential peak sales of Tzield.

Reason for our upgrade: FDA approves Tzield and the pricing looks more attractive than what we initially expected

FDA recently decided to approve Tzield (teplizumab-mzwv) in "delay the onset of type 1 diabetes in the at-risk population," which we believe de-risks the ticker significantly. Furthermore, we like the fact that the company decided to proceed with a list pricing of USD13,850 per vial (which translates to around USD190k per 14-day therapy) which is significantly higher than our previous projection (around USD 100k per 14-day therapy). Interestingly, we highlight that the management noted that Tzield's pricing is based on stage 2 type 1 diabetes and the current pricing does not take into account the label expansion (potential) into newly diagnosed stage 3 type 1 diabetes indication, which is an interesting comment as this may indicate that the company may increase the pricing of the agent. However, it is hard to know if they can actually increase the pricing as it is difficult to have separate pricing for different indications, and drugs are usually priced per vial due to off-label prescribing potential. Furthermore, we believe the approval of Tzield in at-risk patients to de-risk clinical and regulatory path around newly diagnosed T1D patients, where we believe a bigger opportunity resides. We expect topline results of the Phase 3 PROTECT trial by YE 2023, the trial is currently ongoing.

Risks: Near-term launch trajectory remains a key overhang for the stock

One biggest concern we have around commercialization is what would be the payer's response around high pricing and how that would impact the initial uptake. We highlight that besides Medicaid prescription drug rebate program, which is mandatory and rebates around 23%, PRVB management has indicated that they do not expect additional commercial contracting or rebates. The company plans to commercialize the product in Jan 2023, we look forward to monitoring the first sales print as the first few quarters of launch could be important to predict the peak sales and sale ramp trajectory for first-time launchers like PRVB. Furthermore, a strong launch in 2023 can alleviate the overhang around PRVB's limited cash runway (2023).

Short cash runway until 2023

We note that the management reiterated cash runway guidance to 2023. PRVB holds around USD186.5M (Q3 2022) of cash, which includes Sanofi's ( SNY ) USD20M one-time payment that took place last October . Furthermore, we expect Sanofi to purchase USD35M worth of common stock at a 40% premium before mid-February 2023 based on the agreement . Besides this, we highlight that PRVB can draw down an additional USD40M from a term loan facility with Hercules Capital, which can offer an additional cash buffer. However, with the approval, within 90 days of approval (which will likely happen around Q1 2023), PRVB will have to make a USD60M milestone payment to MacroGenics ( MGNX ).

Conclusion

Net net, we believe PRVB is now fairly de-risked in terms of regulatory aspect; however, we remain on the sidelines at the current valuation because of a) limited cash runway until 2023 and b) uncertainty around the initial launch, which we are currently neutral due to high drug price and uncertainty around company's ability to commercialize the product, although we find Sanofi's involvement comforting. We are planning to reconsider entering PRVB after we have visibility around Q1-Q2 2023 sales print.

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