Re: Partnership(s) OR cash deprivation, dilution....& poor reputation on the street. Interesting thesis presented in article from Seeking Alpha contributor on PLI (link below). Also, a helpful comparative to two other biotechs at same stage. All said and done author likes what he sees. Article worth reading.... https://seekingalpha.com/article/4099862-prometic-life-sciences-true-underdog Prometic Life Sciences: A True Underdog Aug. 17, 2017 3:01 PM ET About: ProMetic Life Sciences Inc. (PFSCF), Includes: FGEN, GLPGF C. C. Abbott Summary Prometic is a Canadian biotech that is arguably very undervalued, and has potentially a great return for investors. When compared to its peers, Prometic has an impressive and competitive pipeline. The lack of partnership, a critical weakness in the past, now takes on a new light as Prometic's first product is set to reach the market in the near term. Prometic is a Canadian biotech company that is not having an easy time. A SA article last year was so critical of the credibility of the company management as to describe the company as a graveyard of broken promises! Whether its short thesis on Prometic is sound or not, the article casts persistent doubts in the minds of US investors about the prospects of this Canadian company. This article focuses in on the clinical development of Prometic, as well as its finances; and compares it to two other comparable pre-revenue biotech companies, FibroGen and Galapagos. Science All three companies (FibroGen, Galapagos and Prometic) have very impressive drug pipelines. Figure 1: FibroGen's Pipeline (source: corporate website) Figure 2: Galapagos' Pipeline (source: corporate website) Click to enlarge Figure 3: Prometic's Pipeline (source: corporate website) There are two Important things to note from these graphs: firstly, none of these companies have any product yet on the market; and secondly, all the respective drug candidates are to date reporting positive, promising results in various trials, with all three companies moving forwards on the regulatory path. However, it is a given in biotech investment that there is always risk of a future trial failing to replicate the earlier positives results. In addition, the regulatory risk (i.e. a FDA rejection) is the same for all these companies. First to reach the finish line Prometic has developed a proprietary separation technique to separate various high-value proteins from whole plasma, that enables a higher yield than other techniques. These naturally occurring plasma proteins each have markets as therapies to treat various diseases, once approval is obtained for each indication, both in the US and globally. Prometics lead product, Ryplazym (plasminogen IV), is a plasma protein that plays a key role in wound healing, cell migration, tissue remodeling etc. In its pivotal 48-week phase 2/3 trial for Ryplazym in 10 patients with congenital plasminogen deficiency, the study met all primary and secondary endpoints with 100% response rate (healing and no recurrence of lesions, with no safety or tolerability issues observed related to this long-term dosing). Since the results of this trial, the company has added to its BLA (Biologics License Application) a pediatric designation, an un-met medical need, as there are more pediatric patients affected, and the disease is more life-threatening in pediatric patients. The company expects to hear from the FDA about the pediatric designation in September 2017, and on the approval for the BLA at the same time, or in early 2018. In addition, there are other indications for acute plasminogen deficiency, such as in cases of severe burns, and acute lung injury, that Prometic is pursuing concurrently. Prometic also has several other therapeutically-significant, high-value proteins (e.g. IVIG, AAT, C1-INH, Fibrinogen) in the pipeline, coming from the same proprietary purification technique. Right on the heels of Ryplazym, IVIG is also advancing towards the final stage of clinical development, with the completion of enrollment in its pivotal, phase 3 trial, for the indication of primary immune deficiency disease (PIDD). Besides plasma proteins, Prometic also has a pipeline of small molecule drugs, with PBI-4050 being the lead drug candidate. All the various indications for PBI-4050 relate to its pronounced anti-fibrotic activity. In one of my previous SA articles, I have already commented on PBI-4050s IPF phase 2 trial, which showed very promising results. The company is currently initiating its pivotal phase 2/3 trial in H2 2017 for IPF, as well as pursuing other indications for PBI-4050 (Alstrm Syndrome, a rare, genetic disease involving fibrosis in multiple organs; Chronic kidney disease/Diabetic Kidney Diseases; Metabolic Syndrome and associated type 2 Diabetes). I think that it is a fair assessment that Prometics pipeline is just as promising and significant as any pre-revenue, R&D company, such as FibroGen or Galapagos, in that multiple candidates are advancing towards the end of the regulatory process. In fact, Prometic has the most advanced clinical development among the three companies, with its lead product, Ryplazym (plasminogen IV) having already completing its pivotal phase 3 trial that met all its primary and secondary end points, and now expecting FDA approval in the very near term (Q4 2017, or Q1 2018). Two other candidates are entering pivotal phase 3 trials in Q4, 2017 (IVIG has completed the enrollment; PBI-4050 for IPF). Cash Position Prometic is often remarked on by analysts for its very high cash burn rate (due to R&D). A persisting short thesis is that the management has somehow been inept in controlling the costs, which has led to increased financial risks for investors. Since I am using the pipelines of FibroGen and Galapagos to compare and show that Prometic has a very competitive pipeline, I will also use them to present a different perspective on the potential financial risks and rewards of Prometic for investors, especially new ones. It is very important to remember that none of these three companies has a product yet on the market; and each of them is currently running several clinical trials for their various drug candidates at full steam. As a result, the majority of their net loss can be attributed to the very high R&D costs. For the H1, 2017, FibroGen reported a net loss of $66.3M (US); Galapagos of 32.9M and Prometic of $60.6M CAD. From these figures, one can reasonably argue that the Prometic management, instead of being inept at controlling the burn rate, remains very competitive in terms of running very cost-effective clinical trials for the purpose of advancing their pipelines along the clinical and regulatory path. Prometics pipeline is competitive, and the lead product is expected to be the first among the three companies to be approved and go to market. The R&D costs are comparable to the other two companies. Why then is there a huge discrepancy in the companys valuation? On August 16, 2017, FibroGen stock closed at $40.75 (US), a market cap of $2.9B (US); GLPG at $87.60 (US), a market cap of $4.4B (US); while Prometic stock at a mere $1.25 CAD, with a market cap of $882.3M CAD. Why does the market (or the investors) think so little of Prometic? Surely not because of the pipeline as discussed above; nor for high R&D costs, as also shown above, that are not greater than its comparable peers, a reality no doubt understood by any investor in the biotech sector. What then is the real reason for the miniscule valuation? Lets have a closer look. While all are pre-revenue biotech companies, these companies have a day and night cash situation. For H1, 2017, FibroGen reported a cash position of $407.5M (US), and Galapagos a 1263M. Prometic on the other hand has a pro forma cash position of $96M CAD. For Galapagos investors, it is very clear that there is absolutely no fear of a dilution in the near future. FibroGen, on the other hand demonstrated how very costly it is to run multiple clinical trials: having reported a healthy $407.5M (US) cash position at the end of June, FibroGen then announced a public offering to raise an additional $300M (US) (8M shares at $40.75 per share), presumably taking advantage of the higher stock price after the recent announcement of positive IPF phase 2 trial results. Prometic shareholders are all too familiar with dilution, with the most recent public offering concluded in July 2017 to raise $50M CAD at $1.70 CAD per share. It is perfectly understandable that fear, or adverse feelings towards possible future dilution, continue to plague Prometic and turn away many would-be investors. At this point, I would like to introduce another way of looking at the finances (cash position), and argue that this actually presents a tremendous opportunity for any investors, especially new ones. There is a simple reason why pre-revenue companies like Galapagos and FibroGen are in so much better cash positions than Prometic - partnerships. For most of their pipeline, Galapagos have established significant partnerships with major pharmas, each with big upfront financing. Click to enlarge Figure 4: Galapagos' Partners (source: corporate website) Similarly, FibroGen has Astella and AstraZeneca as partners for their lead product Roxadustat for anemia indications. The existence, or the lack of, these partnerships explain why these pre-revenue companies which all run very high R&D costs can have such different cash positions. Partnership provides much-needed financial support for the very lengthy, costly, clinical development required before any product can successfully obtain regulatory approval, and enter the market. However, it is important to bear in mind that while partnership is a vindication of sorts, there is no such thing as a completely risk-free drug development. In other words, for every drug candidate which succeeds, there are many others that do not. While partnership may minimize the financial risks, its no guarantee that a drug candidate will succeed. For whatever reason, unlike FibroGen and Galapagos, Prometic does not seem to have been able to form such an alliance with significant upfront money for their pipelines. Some small overseas deals here and there but nothing significant for the large US market. While the market punishes Prometic for its low cash position due to the lack of partnership over the years, it does not seem to consider the other side of the partnership equation: namely the sharing of the eventual revenue if and when a drug candidate eventually reaches the market. While financing through equity has caused so much pain and suffering, especially for small investors, Prometic nevertheless has made it this far on its own, keeping 100% ownership of its entire pipeline for the large US market and a majority part of the global market! The same thing cannot be said about FibroGen and Galapagos. Ryplazym (plasminogen IV), Prometics first product, will quite possibly reach the market as early as Q1 2018, shortly after Prometic receives its expected BLA approval for use in plasminogen congenital deficiency. According to Prometic, the plasminogen congenital deficiency sales would amount to an annual revenue of $150 to $200M at peak sales, with another $100M for each additional indication, of which there are several. Indications whose approval will be right on the heels of the first indication. And this is just for Ryplazym. As mentioned earlier, Prometic has several other therapeutic, high-value plasma proteins in the pipeline, with the second one, IVIG, already in its pivotal phase 3 trial. As I have commented in one of my other articles, PBI-4050 has already shown very positive results for IPF in its phase 2 trial; and has the pivotal phase 2/3 trial set to start in H2, 2017. If the early efficacy can be repeated and confirmed in this pivotal trial, PBI-4050 will be very competitive in the IPF market, and quite possibly the first of the next generation IPF treatments (such as FibroGens Pamrevlumab, and Galapagos GLPG1690) to reach the market. It should be noted that for IPF, all three companies have no partner for their drug candidates. IPF Market (source: Galapagos corporate presentation) Final thoughts Because of the lack of partnership, which translates to a low cash position, Prometic stock has been deeply discounted by the market. The price is now so low, it bears no meaningful relation to the companys competitive pipeline, or to the very near-term commercialization of its wholly owned lead product, to say nothing of all the other indications or drug candidates right on the heels of the first product. At the current valuation ($705M (US) - using an exchange rate of $1 (US)=$1.25CAD), Prometic is valued at only 24% of FibroGen ($2.9B) and 16% of Galapagos ($4.4B), while the potential (soon-to-be-realized) revenue from its pipeline is probably equal to or greater than that of either FibroGen or Galapagos, once profit sharing with their partners is considered. The very low valuation and higher potential revenue, will in fact make a lot of room for Prometic stock to appreciate. Thus, there exists a tremendous upside, while the downside (the risks) remains similar for each of these three companies as mentioned earlier (i.e. clinical and regulatory). As a child, I was commanded by my parents to always eat the food I disliked first. As a mother, I insist that my children finish their meals, but leave it up to them how they finish it. It turns out that my kids choose the same way, namely to eat the food they like the least first, then to enjoy the rest of the meal with more pleasure. It would seem that for Prometic, the most difficult, unpleasant part (getting through the clinical development of their lead product and developing their drug pipeline practically on their own) is almost over and very soon will come the pleasant, rewarding part. In the movie 'Field of Dreams', farmer Ray Kinsella (played by Kevin Costner) kept hearing a voice whispering to him, 'If you build it, they will come'. If we translate this vision to our context, it would be like 'If you (Prometic) build it (a competitive, valuable pipeline), they (the investors) will come.' Finally, in a movie depicting the story of Secretariat, considered by many to be the greatest race horse to have ever lived, the owner, Penny Chenery, turned down an offer of $8M by Ogden Phipps, said to the richest man in the US at the time, when she was in dire financial straights because of a $6M estate tax bill. Amazed by her refusal, Ogden Phipps reminded her that though named the horse of the year for his outstanding two-year-old performance, Secretariat remained untested in longer distance races, such as all the triple crown races. Untested means risk. Ogden Phipps asked 'Are you that stubborn?' and to which Penny Chenery replied 'I am that right!' I think that such an extraordinary conviction of an owner believing in what is in her possession: a champion, a winner, also exists in the heart of Mr. Pierre Laurin (the founder and CEO of Prometic) and many steadfast, long-suffering early investors, big and small. Whether by design or by misfortune or the mixture of both, Prometic has somehow managed to do the nearly impossible: to develop a full line of very competitive and valuable drug candidates from the start to a near finish all by themselves, a pipeline that will in time generate revenue equal to or greater than that of much better-funded biotech companies. In conclusion: Any investor who has ever thought of 'value' as being important owes themselves the diligence of checking out this incredible opportunity: a truly Canadian underdog of a biotech company - Prometic Life Sciences Inc. Disclosure: I am/we are long PFSCF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. 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