ProMetic Life Sciences (PLI - T)
August 18, 2016
Doug Cooper, MBA
(416) 643-3863 dcooper@beaconsecurities.ca
ProMetic recently reported Q2/FY16 results. From a pure financial
perspective, we primarily pay attention to the company’s cash
position and secondarily to product sales and their ability to reduce
the burn rate (note that product sales to 3rd party pharma play
essentially no role in our valuation). From that perspective, period
ended cash was $64 million, the highest in the company’s history,
while product sales were weaker than expected, implying the burn
rate was higher than our forecast at ~$7.5 million/month.
At this level of R&D spend, and with the assumed exercise of $21
million of in-the-money warrants that expire in February 2017,
ProMetic has enough cash to fund itself to mid-2017. We believe
there is a strong possibility that the R&D development, both on its
protein and 4050 segments, could be advanced enough to
conclude favourable partnerships deals with upfront cash to fund
the company in a non-dilutive manner.
In our view, investors should be focused on 2 primary events:
a) Plasminogen (Pg) Potential to be a Blockbuster Drug: PLI
should finish its clinical trial program by the end of October
and file its BLA by year-end, which would set-up
commercialization of the product (for deficiency) by mid-
2017. ProMetic is the only company in the world that can
produce Pg in volume with high yields. Furthermore, ongoing
R&D has uncovered numerous other indications, all having to
do with healing, that could make this a blockbuster (ie. over
US$1 billion in sales) drug. We believe PLI’s commercial focus
will be within hospital settings while indications such as
diabetic wound healing (US$3+ billion opportunity) would be
partnered with companies such as Smith & Nephew (SN-US,
not rated), which has strong distribution networks outside of
hospitals to service patients. Once Pg is approved by the FDA,
we believe 3 things could/will happen: a) PLI will start to
generate meaningful revenue b) doctors can start using it “off
label” opening-up other indications and c) with risk profile
dramatically reduced, probability of near-term partnership for
distribution outside of hospitals is increased dramatically. With
Pg on cusp of commercialization, multiple indications, an
essential monopoly and partnership potential, we believe this
protein alone could be worth multiples of the current stock
price.
b) 4050 Clinical Trial Results: We anticipate Phase 2 results from
PLI’s ongoing Alstrom trial before year-end. Given this is
essentially fibrosis of multiple organs, if the drug shows positive
efficacy (it has already demonstrated multiple times its safety
profile), we believe the market should start to discount some
success of the drug. In our opinion, at current prices, the
market is giving minimal, if any, value to 4050.
While ProMetic has other milestones (ie. ivig trials, AAT and C1 IND
filings, IPF, CKD, MS and diabetes trials), we believe the above two in
particular have the ability to drive significant shareholder returns in
the near-term. Maintain Buy and $10.00 target price.