XBI - The Prognosis For Prelude Therapeutics

2023-06-02 17:54:17 ET

Summary

• Today, we take our first look at a small developmental company called Prelude Therapeutics that finds itself deep in Busted IPO Territory.
• The company came public to raise proceeds to focus on develop small molecule therapies for solid tumors, selected myeloid malignancies and cancers of the blood.
• How is the company's pipeline development currently proceeding? An investment analysis follows in the paragraphs below.

… acts of defiance are their own reward .”? Andrew Wheeler

Today, we shine the spotlight on Prelude Therapeutics ( PRLD ) for the first time. Despite some promising early-stage compounds and large amount of net cash on the company's balance sheet, Prelude finds itself deep in Busted IPO territory. Is the sell-off justified? An analysis follows below.

Company Overview

This clinical-stage biopharma company is based just outside of Philadelphia in Wilmington, DE. Prelude Therapeutics is focused on the discovery and development of novel precision cancer medicines to underserved patients. The stock currently trades around six bucks a share and sports an approximate market capitalization of $375 million.

Prelude's developmental approach is described thusly on its website :

Prelude applies its deep expertise in cancer biology and medicinal chemistry to identify targetable intervention points in cancer signaling pathways amenable to investigational small molecule-based therapies. Once an optimal target is identified, Prelude employs its internal discovery engine and extensive understanding of the current oncology treatment landscape to design and synthesize novel inhibitors or degraders with optimized properties. Prelude’s clinical development programs are focused on early proof of concept and efficient regulatory pathways that enable potentially transformative medicines to quickly reach patients with high unmet medical needs. "

As can be seen above the company has an early-stage pipeline with several candidates advancing in Phase I development. A quick rundown of clinical stage compounds in clinical stage development is as follows:

PRT2527:

A potent and highly selective CDK9 inhibitor. PRT2527 is currently being evaluated via a Phase 1 dose escalation study in patients whose cancers are likely to be dependent on CDK9 .

PRT1419

A potent and selective inhibitor of MCL1. Prelude is prioritizing an IV formulation of this compound to differentiate itself from competition and because of pharmacodynamic and safety profile. PRT1419 is in early-stage evaluation to treat hematological malignancies.

CDK4/6:

The company is developing a next generation of CDK4/6 inhibitors which have been proven effective for the treatment of ER+ metastatic breast cancer. Prelude is hoping that its version of this type of inhibitor will have greater tissue penetration as well as tolerability. It has dubbed this ' next generation ' CDK4/6 inhibitor 'PRT3645'.

SMARCA2 :

Finally, the company is developing highly potent and selective SMARCA2 protein degraders. These are designed specifically to inhibit SMARCA4-deficient tumors. This improved SMARCA2 degrader goes by the name PRT3789.

Analyst Commentary & Balance Sheet

Wall Street coverage around Prelude Therapeutics is sparse. In mid-March, H.C. Wainwright reissued its Buy rating on the stock and raised its price target two bucks a share to $17. Morgan Stanley maintained its Hold rating and $10 price target on PRLD in April and Barclays did the same with a $7 price target early in May.

Just over 11% of the outstanding float in these shares is currently held short. Two beneficial owners purchased $10 million of the company's recent secondary offering . Several other insiders including the CEO added just over $110,000 worth of shares collectively last week.

The company ended the first quarter with just over $170 million in cash and marketable securities on its balance sheet. The company then raised approximately $100 million via that secondary offering in mid-May. Prelude had a net loss of $27.7 million for the first quarter.

Verdict

With the recent capital raise, the company is well-funded for the moment. Beneficial owners buying approximately 10% of that secondary offering is somewhat encouraging as well. The company also has multiple ' shots on goal ' within its pipeline.

That said, Prelude Therapeutics is many years away from any potential commercialization. In addition, there is not much in the way of potential milestones or catalysts scheduled for the rest of 2023. Mainly just some early-stage readouts, which don't seem likely to significantly boost the stock.

The overall market environment certainly isn't as conducive for enthusiasm for these types of clinical stage development clinical concerns as it was in 2020 and 2021 when interest rates were at or near zero.

As you can see above, the SPDR® S&P Biotech ETF ( XBI ) consisting of small biotech names shot up post pandemic but has struggled since early 2021 when it became apparent that the Federal Reserve would have to lift rates sharply to combat inflation that turned out to be neither 'temporary' or 'transitionary' in hindsight.

Given the lack of near-term catalysts and headwinds from the current market environment for these types of high risk/high reward small cap names, we are passing on any investment recommendation around Prelude Therapeutics. This is even as the stock trades at approximately $100 million above the net cash on its balance sheet and its early-stage candidates are targeting some large potential markets. This is a company we will circle back on when it moves to mid-stage development, however.

We seldom learn much from someone with whom we agree .”? Mokokoma Mokhonoana

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