WX Capital Position: PASS at current price of ~$10.90
12-month Price Target: $9.70
Analysts Price Target (Median): ~$26 from seven analysts
WX Capital Portfolio Allocation: 0%
WX Capital Anticipated Investment Timeline: Long-term (~12 months)
Qualitative Risk Level: HIGH
Provention Bio (PRVB) is an autoimmune-focused company that seeks to develop drugs that actually treat the cause of the disease, rather than just address symptoms. Their lead asset teplizumab has shown long-term, clinically meaningful efficacy in delaying onset of type 1 diabetes in at-risk patients. Teplizumab is being tested in phase 3 trials in recently diagnosed patients, and has shown convincing preliminary efficacy in phase 2 readouts. Additionally, PRVB has two assets in early trials, one targeting Lupus and the other directed at Celiac disease, that are unlikely to impact valuation near-term.
We believe teplizumab is poised for FDA approval some time in 2021, but ultimately may have limited room to grow given intrinsic difficulties in driving uptake of their drug in the at-risk population, particularly as a small company with no real footprint with physicians or patients in this space. As such, we project a risk-adjusted valuation of $9.7/share, slightly below what PRVB is trading at now (~$10.90/share), and will not be taking a position in this company. However, if it were to drop below $9.7/share, this may be a buying opportunity.
We also want to highlight the major discrepancy between our projections and analyst projections. The current consensus pegs PRVB at $26, three-fold higher than our own estimates. This is indicative of a broader trend in which many analysts do not fully understand the technology, or miss important issues such as a company’s clinical footprint or the challenges of commercializing preventative drugs. That is why we at WX Capital are seeking to provide our subscribers with the nuances that go into biotech investing, so that you can make informed decisions about companies that may ultimately be overvalued by the broader pool of analysts.
Teplizumab has the capability to delay the onset of T1D, which is an autoimmune disorder that is newly diagnosed in >60K individuals in the U.S. each year. PRVB's lead asset is teplizumab (PRV-031), an antibody for Type 1 Diabetes (T1D) that blocks T cells responsible for destroying the insulin-producing beta cells. Recent long-term phase 3 data in patients at-risk for developing T1D shows a delay in onset of three years, which is considered a major success as it gives these patients three more years of insulin independence and is especially advantageous for patients who otherwise would develop the disease during adolescence and need those extra years to prepare to manage the disease.
Teplizumab is very likely to be approved based on the clinical data (PRVB is applying for approval later this year), but given not every at risk-patient will develop T1D. The question here is will patients be willing to get a drug for a disease they do not yet have, as well as will insurance be willing to cover it, and at what price? Three years of not dealing with insulin and other health complications that come with T1D will likely be enough to get the drug covered, and considering the relatively mild side effects and convenient dosing, we anticipate a substantial percent of at-risk patients to be willing to take teplizumab.
PRVB has the key advantage of being the first T1D asset to show convincing efficacy in the at-risk population with limited competition. Furthermore, competition in the T1D prevention space is relatively sparse. There have been attempts to delay onset/progression (e.g., Novo Nordisk's IL-21 antibody), though success has been pretty limited. PRVB should have this space largely to themselves, at least for the time being.
The commercialization efforts will likely take significant investment, as PRVB needs to convince doctors and patients to use this drug even before they actually have the disease. That entails major awareness campaigns to get both of these groups on board, which can get expensive very quickly, especially considering PRVB is a small company with no footprint in this space whatsoever. We would have perhaps expected PRVB to seek out a suitor for acquisition, but given a recent public offering, this likelihood seems to have decreased, at least for now.
Teplizumab is also being studied for recent-onset T1D (i.e., within 6 weeks of T1D diagnosis) in pediatric patients. Because beta cells are already dead in full-blown T1D, teplizumab needs to be given early to have the full effect, so the outcomes may not be as impressive as for at-risk patients, but preliminary phase 2 data has shown convincing efficacy nonetheless. The phase 3 trial is currently delayed due to COVID and PRVB has not announced when it can be continued. This is an interesting approach - if enough adoption occurs in the at-risk patients, it would limit addressable recent-onset patients, as they would have already received the therapy. However, we would expect a much higher uptake rate in this patient population relative to at-risk patients, considering these patients 1) will have already been diagnosed and 2) actually have the disease, which may make them more compelled to receive the therapy. As such, we would expect this to be a sizable contribution to future revenues, on par with sales in the at-risk population despite having a much smaller patient pool.
There are two other relevant assets in the pipeline, albeit still in early development: PRV-3279 for Lupus and PRV-015 for Celiac disease. PRV-3279: There is relatively sparse data for PRV-3279 so far, but PRVB did release results from the Phase 1b study (in healthy volunteers) showing positive pharmacodynamics and produced no serious adverse events. The Phase 2a portion of the study has been greenlighted, but PRVB indicated initiation is not likely to come until 2021. PRV-015: This is an IL-15 monoclonal antibody that seeks to treat Celiac Disease, which is a high-prevalence indication. IL-15 expression is a key hallmark of Celiac Disease, and there has been a lot of hype around this target. While it is an exciting mechanism, PRV-015 still early in development (a Phase 2 has not been initiated), so we aren't projecting this as a contributor to value quite yet.
Regarding PRVB's financial position, there was reason to worry as recently as early June, as their cash runway was only extended for another year, and they faced the challenging commercialization efforts as mentioned above. However, in mid-June they announced their second public offering in a years-span, seeking ~$95 M to extend the runway through 2022 and giving them the foundation necessary to get teplizumab onto the market and begin generating revenue.
PRVB stock has had a roller coaster of a year, tripling in value to $12 after positive data in at-risk patients, then yo-yoing up and down between lows of $6 to highs of $17. This volatility may continue, as some of the ups and downs we witnessed appear to be without any clear drivers, and there aren't any major inflection points coming up soon. With PRVB preparing an application to the FDA for later this year, we might expect a PDUFA date sometime in mid 2021. Given the favorable clinical readouts, we would expect an approval, which could give PRVB some serious long-term potential, but this may require being willing to put up with ups and downs before that time.
Challenging commercialization efforts: As PRVB hopes to capture the at-risk T1D population, this is going to require a massive advertising/awareness campaign to get people to even figure out if they are at risk or not. While those who have family members with T1D may be more prone to do so, there is a large population who needs to be tested to figure out if they are at-risk. Then, PRVB needs to convince them to receive a drug for a disease they do not yet have, and may never get. PRVB also needs to get physicians on board to adopt the drug, and be proactive about prescribing. PRVB is a small company with no established connections with physicians or patients, so this poses a major challenge in driving uptake of PRV-031.
Potential cannibalization in PRV-031-targeted populations: If teplizumab gets approved both for at-risk and recent-onset T1D patients, there is overlap in these populations where greater success in the at-risk pool may translate to lower uptake in the recent-onset pool. While PRVB is likely thinking of reaching the patients that otherwise did not receive the drug before being diagnosed, it will be interesting to see how they navigate this conundrum.
Stock volatility: There have been a lot of swings in stock price over the past year, sometimes with no clear drivers. This may continue until we reach the key inflection point of the PDUFA date for teplizumab, which has not been set, but may be expected sometime in 1H2021.
High likelihood of approval of first-in-class novel agent for T1D prevention: Teplizumab has shown very clear, clinically meaningful efficacy in at-risk patients. This efficacy is long-lasting, even three years after being dosed. The drug has a very convenient dosing schedule (patients don't have to get regular doses), and has a favorable side effect profile. There is a very high chance based on the clinical data that teplizumab will get approved for this population, and we will be looking to the PDUFA date once set as a good opportunity for PRVB's stock to increase significantly if all non-clinical factors are secure.
Large addressable population: PRVB gets first shot at a sizeable population of at-risk patients, an estimated 80 K/year in the U.S. alone. If PRVB can successfully commercialize their drug, this presents a sizeable opportunity. Additionally, there are an estimated ~20 K newly diagnosed pediatric T1D patients each year, which may provide a significant driver of sales if PRV-031 data looks good in this population.
Pipeline agents with potential for major value addition: While the stock valuation projection is essentially entirely based on teplizumab, if PRV-3279 shows positive efficacy in Lupus, this is likely to drive up stock price further given the high unmet need in this disease, and lack of drugs that can actually target the underlying causes rather than just treating symptoms. Since phase 2 won't start until 2021, this is likely a long way off, but even early signs of efficacy could generate additional excitement for PRVB.
We do not own shares of PRVB. This article expresses our own opinions, not Provention’s or any other party’s opinion. We are not receiving compensation for this report. We do not have a business relationship with the company mentioned in this report.