I wanted to share with you an detailed article that was published on SA on a public company: ProMetic Life Sciences
Unfortunately, the story presented some factual errors. I wanted to publish the story that would include both the writer and my responses about his comments. When people publish a story about a biotech company, it is useful to explain investors the science and the potential benefits and risks. Here it is. The story published on Seeking Alpha (dec 16, 2016) was published by BlackMamba, an unknown individual stating a number of accusations to short a stock of a public company. My nickname at Seeking Alpha is KinCobras I have been working for >30 years in the biotech industry for a number of small and big pharma companies. The document published here is basically the author document and my comments for each point. Hope you find it useful
KingCobras-This ~6,000 words dissertation has certainly missed the mark when it comes to facts. If you were using this dissertation as your thesis for a Master in biotechnology, you would have failed and let me tell you why. Having been a shareholder for many years and worked in the industry for >30 years, I have a different perspective and I have taken to the liberty to reproduce your text and my comments/ response, so it would be easier for readers to follow.
Black Mamba- ProMetic (PFSCF, the "Company", "PLI") is a graveyard of broken promises and failed pipeline products. Management and the Board have a long track record of failure and stock promotion.
KingCobras- Not unlike many other companies in the field, PLI had to navigate through adversities…but guess what, none of these set backs were because of ProMetic’s technologies. I will cover this later and throughout this report.
Black Mamba- The stock is up over 1,000% in the last four years, largely due to excitement around ProMetic's plasma protein business, which is nearing commercialization. The Company claims it has developed a way to filter proteins more efficiently than industry titans.
KingCobras- Industry Titans are doing very well with an established process optimized and designed to recover albumin. Albumin is a $2 billion product sold globally, based on precipitation in ethanol (Cohn process) but it’s the least valuable protein/per gram ($3/g). ProMetic’s process is not designed to compete against well-established plasma fractionators. – They have stated their corporate positioning time and time again and they focus on niche high value proteins
Black Mamba- We believe the evidence suggests otherwise and that there is nothing proprietary about its process. KingCobras Completely wrong here: ProMetic’s process is proprietary. They combine layers of patents (beads, ligands, process) with know-how and trade secrets. They also explain how they protect formulation and method of use for their orphan proteins. And they enjoy orphan Drug designation in Europe and in the USA.
Black Mamba- We believe investors have been materially misled about the market opportunity for ProMetic's plasma protein program, especially its lead candidate, Plasminogen.
Black Mamba- A careful analysis of dated partnership agreements shows that the Company has given away a large fraction of the economics of its plasma protein business for de-minimis consideration .
KingCobras- Now how off the mark can you be. ProMetic has entered into partnership agreements for territories that is has no ability to market itself, and for considerations measured in hundreds of millions of dollars as such considerations include the construction and operation of large scale facilities designed around their PPPS™ platform. Such partnership agreements with CNBG (China National Biotech Group and one of China’s largest biopharmaceutical company), Masterplasma in Russia and Hematech of Taiwan, are all agreements requiring of the licensees significant investment north of ~$150 M for the construction of a PPPS facility for their respective market. Such licensee would then have to buy ProMetic’s affinity resins and pay mid-single digit royalty on sales of plasma-derived biopharmaceutical products in these territories, namely China and Russia / CIS. As for Hematech, the purpose of the plant would be more to supply back ProMetic as a CMO supplier under license. So your “de-minimis consideration” is incorrect.
Black Mamba- ProMetic Life Sciences (OTCQX:PFSCF) is a Canadian listed "biotech" (listed as PLI.TO on the Toronto Stock Exchange) trading at a US ~$1bn valuation because investors have falsely been led to believe that the Company is in possession of a way to purify proteins out of plasma more efficiently and with a higher value per liter than multi-national competitors such as Grifols, CSL, and Baxalta even though the core technology associated with ProMetic's process was originally acquired for less than $5mm.
KingCobras Where did you get this information !!!!!! This is ridiculous. ProMetic’s process was NEVER acquired from a third party !!!! The core technology of ProMetic was developed over 25 years at a cost of over $500 million of investment by ProMetic, not including investments made by the American Red Cross and other licensees.
Black Mamba- ProMetic makes unsubstantiated claims that it will be able to successfully market its first commercial protein to ~6,000 Plasminogen deficient patients worldwide and has the ability generate $300mm in revenue by 2019 (or greater than $500 per liter) from a protein that competitors have passed over and pharmaceutical companies routinely extract as an impurity.
KingCobras ProMetic never suggested sales of $300 million of revenue from plasminogen in 2019 ! In 2019, they report that they would have sales of plasminogen and IVIG. Analysts consensus on plasminogen sales in 2019 is below $100 million. There has been historically many stories of proteins dismissed by plasma fractionators and it is understandable. They have a formidable machine design to process tons of plasma per day, and they are rightly focused on coagulation factors, IgGs and albumin. Smaller product opportunities would be a distraction for them until such small nich product start moving some serious $$$. Take C1-INH (C1 esterase inhibitor or Cinryze®) for instance: originally developed by LEV PHARMA in 2005, acquired by VIROPHARMA for $615 M before FDA approval. Viropharma commercialized the protein and Shire acquired Viropharma for US$4.2 billion in 2013. C1-INH is mainly used to treat a rare disorders called heridetary Angioedema affecting few thousands of patients. Why weren’t the big TITANS on it ? why is it Shire that acquired Viropharma ? It may have to do with the fact that chasing niche orphan drugs is not a business model that fits every companies. TITANS as you call them have formidable resources and for them to focus on a nich product with no market yet established is like asking Ford to make 4800 cars with 6 wheels & 5 doors… misfit
Black Mamba- Similarly, we believe many investors do not realize that ProMetic gave away half of the economics of its entire Plasminogen program years ago to a company called Hematech for a paltry sum.
KingCobras Wrong again here: The agreement signed with Hematech is a share of plasminogen congenital deficiency only – not the entire program. Read the corporate disclosure. The company entered into this agreement in May 2012 when it had an insolvent balance sheet !!!. A great deal there and then. The consideration however, was not only $10 M in cash (upfront and milestone payments) but a commitment to build and operate a GMP PPPS plant, an investment of over US$150 million. ProMetic was near insolvent and did not have cGMP capacity. ProMetic has since built North American based cGMP capacity and has the ability to sell plasma-derived biopharmaceuticals without Hematech contribution. At the analyst day ProMetic disclosed several indications it will pursue, and none of which have economics tied up. All these other indications are 100% owned by ProMetic or involve a 5% royalty to Omnio for sales related to wounds like diabetic foot ulcer.
Black Mamba- Finally, the Company claims to be in possession of a highly valuable small molecule compound, PBI-4050, despite having nothing to validate the drug's efficacy other than small, un-blinded clinical trials.
KingCobras ProMetic clearly stated that their initial trials were designed to confirm translation of activity in humans. These pilot trials were very successful achieving statistical and clinical significance. They have initiated placebo controlled trials designed with the information gathered with their initial phase 2 open label studies. As an investor, I rather find this approach rather smart. It help de-risk the next and more expensive steps and enable the company to adjust their trial design, adjust for inclusion criteria, taking into account their analysis on biomarkers, etc.
Black Mamba- We believe PBI-4050 will fail, much like the 15 other small molecule compounds ProMetic has touted over the last 18 years, all of which the Company no longer mentions publicly.
KingCobras ProMetic has developed only one other drug candidate to the clinical phase. It has been only 8 years that PBI-4050 is under development not 18 years…PBI-4050’s efficacy has been demonstrated in the hands of reputable scientists in reputable institutions.
Black Mamba- Investors have been hoodwinked by a promotional management team with a track record of prior failures, a complicit sellside, and paid stock promoters hired by the Company to tell their tale. Our view is that ProMetic has made inaccurate and exaggerated claims to investors and the sellside, possesses little unique/valuable technology, and is nothing more than a promotional scheme well designed to raise capital from unsuspecting investors to line management's pockets. We don't blame current investors given management's excellent history of bamboozling past investors, but we think the time is up for this biotech fairytale. The only meaningful revenue generating product the Company has developed in its 18-year public history is a ~$20mm per year no-growth resins business.
KingCobras There are many ways to evaluate the performance of companies. Revenue is one of them: and ProMetic’s forthcoming revenue stream has nothing to compare with its current small resin revenue, which relies on the performance of their licensees / pharma clients. Their joint ventures with the American Red Cross which was interrupted by the aftermath of the hurricane Katrina. The company carried the flag on its own and finally changed its business plan to leverage its platform to develop and commercialize biopharmaceutical products for itself. These guys have continued and persevered when most would have given up. What has been built today is a very impressive company capable of developing and manufacturing several biopharmaceutical products.
Black Mamba- As of last filing, ProMetic had book value of only C$0.25 per share. We do not think the fundamental value of the business is significantly higher than this given only ~$20mm in resins sales per year, a very high probability of failure for PBI-4050, and peak revenues from the plasma proteins business which we believe will be far below management's (and sell-side's) expectations for reasons we will describe below. Layering all this in, we struggle to envision a likely scenario in which future revenues will cover operating expenses after accounting for the substantial portion of the revenue that will go to royalty payments and profit sharing agreements with partners.
KingCobras Book value is totally irrelevant for biotech companies. I disagree completely and will to address your misunderstandings and misleading conclusions below.
Black Mamba- Management's only real accomplishment since ProMetic's inception has been its uncanny ability to convince investors to continue to finance the Company's pipe dream: PLI has raised hundreds of millions of dollars through additional equity offerings, impressively growing shares outstanding from 25m at IPO to just over 604m shares today (19% annualized). We believe ProMetic's shares have 90%+ downside. A Graveyard of Failed Pipeline Products and Broken Promises
Black Mamba- In ProMetic's 18-year history as a public company, it has only successfully commercialized one product line: a no-growth $20mm/year resins business. Over this time period, the Company has touted a variety of products that were in clinical development, all of which have gone nowhere.
KingCobras Ah wrong again here. Only one product was advanced to the clinical program in 2007: PBI-1402 came out with good phase 2 results in chemotherapy induced anemia. Unfortunately, the FDA and EMA put a stop to the use of drugs to treat anemia in cancer patients. If you had done your homework correctly, you would know that as a result of this, PBI-4050 and the fibrosis program was born in 2009/2010.
Black Mamba- In fact, we count 18 development programs that have been mentioned over the Company's history, 15 of which are no longer discussed. Not a single one of these products has ever gotten beyond Phase 2 trials, let alone commercialized:
KingCobras None of what is shown here should come as a surprise. It is called R&D and companies have hundreds of such product in PRECLINICAL that may never get the chance to reach clinical trial stage. At the analyst day ProMetic presented phase 2 data on PBI-4050 and explained they were scaling up PBI-4547 and PBI-4425 for their respective clinical program.
Black Mamba- Likewise, the Company has consistently over-promised and under-delivered on its projections for the business. We could go on for pages detailing each one, but here are a few of the highlights: 1): In the 2005 annual report, ProMetic described its creation of a new division: "ProMetic Animal Care." In an attempt to capitalize on a hot topic within the media, ProMetic created this "division" with the objective of establishing the "first ante-mortem test for mad cow disease." Management was quick to highlight what it believed to be a massive market opportunity for the product: "The potential revenue stream is considerable, given that the beef industry in North America and Europe alone processes approximately 100 million cattle every year. Initial clients for the diagnostic would include stock breeders, food chain operators and government regulators. Assuming a $20 cost per test, the potential market amounts to $2 billion annually." 11 years later, ProMetic has developed this technology into a test that only generates a fraction of the Company's current ~$20mm annual revenue stream (or less than 1% of its "TAM").
KingCobras False. No surprise that ProMetic was not able to overturn the massive beef lobbying industry and this spin off did not work. Yet, prion removal has earned the company over $50 M in revenue during this period, and the ability to bind prions
Plasma Protein Technology
Black Mamba- The sellside's valuation of ProMetic assigns a majority of the Company's value to its plasma fractionation business, also called "PPPS". PPPS stands for "Plasma Protein Purification System" and is essentially a method to filter proteins out of human blood plasma for therapeutic use. Plasma fractionation is more akin to a high fixed cost manufacturing business than a traditional biotech business. As a result, the industry is largely dominated by three large companies (CSL, Grifols, and Baxalta) that compete based on their large scale advantages relative to smaller peers. Despite having manufacturing facilities that are ~1/25th the size of their large scale peers, ProMetic claims to have a competitive advantage for the following reasons
KingCobras I stop you right there. You keep forgetting the positioning of ProMetic which is a niche player and has stated numerous time it had no intention to compete against the large plasma fractionators. There is simply no point arguing on this and all the time you spend trying to explain this is a waste of time. Having said that, ProMetic yield is better than Cohn for most proteins except albumin. In ProMetic’s hands that platform is used to enable the commercialization of therapeutic proteins that others are not making. That same platform in the hands of the like of CNBG in China for example will be for a yield advantage for commodity proteins. So all this “Mamba-jumbo” rhetoric about ProMetic not being able to compete against CSL Grifols and Baxalta on the basis of its yield is misleading your readers.
Black Mamba- Yield: PLI claims that its process allows it to extract on average 70% more protein per liter of plasma for the proteins it is targeting than competitor processes. Ability to Process Rare Proteins: PLI claims that its system can purify certain rare proteins, like Plasminogen, at commercial quantities while its peers cannot ("Plasminogen … is not commercially available today… It's either very difficult or impossible to extract with current manufacturing process" - Q4'12 call). ProMetic's supposed yield advantage has not been independently verified or substantiated to our knowledge.
KingCobras And you seem to have a very limited knowledge of ProMetic’s technology indeed. There are companies that have validated ProMetic’s yield advantage and have entered into agreement with ProMetic.
Black Mamba- Given how often management has changed its claimed yield advantage in public documents, it is unclear if it even has scientifically verified its claims internally. This is interesting that you can lift slides like this which when used - Black Mamba- Even if ProMetic does have some sort of yield advantage (which we are highly skeptical of), we believe it is likely that the major source of this claimed yield advantage comes from processing "recovered" plasma rather than "source" plasma. While management denied this when we asked it directly (when was that? you called who ? who are you?), we believe the evidence suggests otherwise. And how so may I ask?
KingCobras Please please, I cannot take this anymore. ProMetic owns a source plasma collection centre it purchased in Winnipeg. ProMetic explained it purchases sourced plasma from independent plasma collection companies in the USA. Your whole section about recovered plasma to explain the difference in yield is again a waste of time. Everybody prefers using sourced plasma, but can also work with recovered plasma. Now, ProMetic uses sourced plasma, end of story. The COO spent time during numerous webcast explaining how they planned to clone their Winnipeg plasma collection center which is FDA, EMA and Health Canada licensed by the way.
Black Mamba- For background, recovered plasma comes straight from blood, as it is taken from whole blood donations. Source plasma is taken from plasma donation centers where donors can come much more frequently and contribute just their plasma (red blood cells are pumped back into the body). Source plasma on average has higher concentrations of proteins. Most industry players largely utilize recovered plasma for fractionation. Peculiarly in its 2002 annual report PLI details the precise method in which plasma is recovered straight from blood and makes no mention of "source plasma": Funny, in 2015 the company bought Winnipeg source plasma collection centre!
KingCobras What is so funny about that Watson? Are you suggesting they would have used recovered plasma dated 2002 from the American Red Cross to generate cGMP yields in their plants in 2015 or 2016? now that would be funny…. . Black Mamba- "Blood is collected by blood agencies such as the American Red Cross, Canadian Blood Services and Hma-Qubec. These institutions screen, test, filter, and otherwise process each unit of blood individually to prepare one unit of red blood cell concentrate and one unit of platelets. The white cells are discarded. The remaining liquid is the protein-rich plasma." Based on the Company's disclosure, we believe ProMetic is mainly relying on recovered plasma and that the vast majority of its claimed yield advantage is due to the fact that it is comparing itself to competitors that utilize source plasma. The large plasma fractionators could also use recovered plasma in their processes if they wanted to (but likely don't due to declining supply of recovered plasma). We believe that this is likely just a misleading "apples to oranges" comparison rather than any true advantage in ProMetic's process. Investors should demand that the Company provide further disclosure and independent verification of its claimed yield advantage. ProMetic claims its yield advantage comes from the Company's use of a technology called affinity chromatography compared to peers which it says are stuck using a legacy technology called Cohn Fractionation: "ProMetic's Plasma Protein Purification System ("PPPS™") is a multi-step process that employs powerful affinity separation materials to extract and purify proteins from plasma at high yields. The PPPS™ platform replaces the decades-old Cohn system which uses precipitation to produce fractions enriched in certain proteins" - 2009 Annual Report We do not believe that there is anything unique or proprietary about PLI's PPPS technique. Chromatography is a well understood technology that is widely used by industry peers.
KingCobras Absolutely true…at last something true! Plasma fractionators use chromatography, but what is their starting material? Can you answer this given you have not mentioned anywhere in your report. They apply their chromatography steps to recover proteins from various streams of the Cohn process. So for example, Baxalta ship stream 4 or paste 4 from the Cohn process to Kamada and Kamada uses chromatography to extract as much as the can of Alpha1 antitprysin (AAT). But they do not have as much AAT in the paste 4 than in plasma. Kamada has to start applying their chromatography step with a starting material containing approximately 0,4 gram of AAT compared to 1,2 gram in plasma. ProMetic applies affinity chromatography to plasma and can therefore capture more from 1,2 gram available. Why didn’t you publish this slides used in numerous webcast and presentations. On this slide, ProMetic illustrates what plasma fractionators can work with from various Cohn fractions. Given Cohn has been optimized for albumin, over the years plasma fractionators had to find ways to recover proteins from other fractions. AAT is extracted from fraction IV. You have 0,4 g of AAT compared to 1,2 g of AAT in plasma. You have about 5 g of IgG in paste II + III compared to 7 to 7.5 g in the sourced plasma. For fibrinogen, something else goes on in large scale plants. They cryoprecipitate plasma to get rid of lipids. In so doing they also lose some coagulation factors and some fibrinogen…oh just about 50% of the factor VIII and about 30% of fibrinogen. ProMetic does not cryoprecipitate plasma – its platform has been scaled up and validated to process what you call cryo-rich plasma or sourced plasma that has not been cryoprecipitated. So more proteins available for extraction. There is no voodoo magic here why ProMetic has better yield. It applies a robust proprietary sequence of affinity ligands to capture several proteins directly from plasma without losing some to a cryoprecipitation step nor in alcohol.
Black Mamba- For example: 1) A decade ago, CSL's 2006 Annual Report described its use of chromatography to increase yields: "The chromatographic fractionation processes developed by CSL Bioplasma's scientists and engineers extract high purity plasma-derived therapeutics including intravenous immunoglobulin and Factor VIII - von Willebrand factor concentrate. We use innovative processes to recover the highest yields from each donation." 2) Likewise CSL has mentioned that it employs a "high-yielding chromatographic separation process" to manufacture their Privigen product. CSL manufactures Privigen using immunoaffinity chromatography, which is a type of affinity chromatography - the specific flavor of chromatography that ProMetic touts as its differentiating factor. CSL 2016 Investor R&D Briefing 3) Grifols has similarly described its use of affinity chromatography: "Grifols uses ligands with high affinity for specific clotting factors … this process is used in the production of our coagulation products Alphanate and AlphaNine." 4) To produce Hemofil M, Baxalta uses an affinity chromatography step. Baxalta uses anion exchange chromatography in the manufacture of Immunate: While the Company has told us that its system is still unique given its use of affinity chromatography from start to finish (where most other fractionators begin with a Cohn fractionation step), we'd point to the fact that competitors have evaluated single step chromatography and have determined that it is not economic, see section "7. Conclusion" here.
KingCobras Single step chromatography !. Are you serious…. How about multi steps chromatography. Do you simply understand what this PPPS process is all about? I retrieved from the company’s presentation made to the plasma industry conference in 2015 the following slides:
KingCobras Noticed, multiple capture steps….not a single step! Then each protein once captured undergoes further purification steps called downstream processing.
Black Mamba- Further, ProMetic suffers from a few large scale disadvantages over the legacy plasma fractionators that we believe would wipe out any potential yield advantage that its process has.
KingCobras On this one, I couldn’t agree more….That is at least 2 things we agree so far. But this is if ProMetic was going after the albumin and IVIG and coagulation factors market. And it is not the case. ProMetic is focused on niche markets, on proteins that are not being mass-produced by plasma-fractionators. As it produced some nice products, it can still recover and process efficiently some other proteins like IVIG. The IVIG revenues would totally cover the manufacturing costs, therefore revenues from the other proteins would be pure profit. And it can sell IVIG and efficiently compete against the mid-tier plasma fractionators that serve the ~20-25% of the market. ProMetic always stated that the would manufacture what would amount to 1.5% market share, not exactly what I would call competition for the Baxalta, CSL and Grifols.
Black Mamba- The profitability of a plasma fractionator is proportional to the number of commercial products they can sell with each liter of plasma purchased. A liter of plasma contains hundreds of plasma proteins. A company like Grifols will buy a liter of plasma for $120-140, process out each protein it is approved to sell, and then dispose of the remaining by-product. Since Grifols has FDA approval to sell seven different plasma proteins with various indications for each, it can generate revenue from the sale of up to 18 different products for each liter of plasma it processes. A company like ProMetic, which will only be approved to sell one protein (Plasminogen) for one indication initially will be at a huge disadvantage because while its cost to acquire a liter of plasma will be the same as Grifols, it will be able to sell far fewer products from that liter.
KingCobras ProMetic will likely have 3 – 4 products approved by 2019-2020. Plasminogen will likely sell at a high price per liter. With the high yield of IVIG, ProMetic can derive an interesting contribution per liter, close to $400/liter. ProMetic foot print, is much smaller because it does not have to deal with large tonnage of ethanol required to process millions of liter of plasma, al optimize for albumin which yield $75 / liter. If large plasma fractionators could start from scratch today, wouldn’t it make sense to start with the more valuable proteins as opposed to the least valuable protein / gram. That is what the American Red Cross and ProMetic did: they focused on creating an optimal yield for the most valuable proteins and of interest as known today, not what was known in 1945. Back then albumin is all that mattered.
Black Mamba- Additionally, plasma fractionation offers large economies of scale to manufacturers that operate large facilities. Regardless of the batch size a manufacturer uses, there are a fixed number of samples that need to be removed from each batch for quality assurance and regulatory reasons ("QC Samples", "Samples Library", "Samples US/EU Release" below): Grifols 2012 Investor Presentation Pg. 23
Black Mamba- As a result the "net yield" (yield of saleable finished goods) is a lot higher for a manufacturer that is operating at a large batch size than it is for one operating at a small batch size. The picture above illustrates that increasing the batch size by 3x results in a ~5% increase in yield for a comparable process. Given that the average ProMetic fractionation facility is 1/25th the size of the state of the art facilities that Grifols and others are using, we believe PLI will need to manufacture using much smaller batch sizes and therefore will have much lower yields. Given the large difference in facility size, the magnitude of the disadvantage is likely a lot larger than that depicted in the image above.
KingCobras Making such comparison between different processes on the basis of scale is misleading. The starting material for Grifols and other Cohn fractionators is a “waste stream” of the albumin process. For ProMetic , it is plasma. ProMetic’s process enables the recovery of more IgG because there is no losses compared to starting from a waste stream of the Cohn process. See slides I copied above.
Black Mamba- Further we believe ProMetic's claim that the Company can uniquely separate out rare proteins like Plasminogen which other fractionators cannot is false. We believe other fractionators are fully capable of extracting these proteins - they just choose not to - likely due to a belief that the demand for the product is not large enough. For example:
KingCobras Wow….a junior scientist could isolate plasminogen in a lab. It is an entirely different matter to isolate and purify plasminogen as a stable drug in a vial, at scale, with the adequate pharmaco-dymanic properties that makes it a viable therapeutic approach….and all the while, extracting 12 other valuable proteins…. None of the patents below enable this.
Black Mamba- To produce Evicel, Ethicon (subsidiary of Johnson & Johnson (NYSE:JNJ)) states: "An affinity chromatography step is then used to remove Plasminogen from the product, after which it is concentrated."
KingCobras Plasminogen in this patent is treated as an impurity and removed, destroyed. Not recovered preciously to become a therapeutic
Black Mamba- Baxalta (previously Baxter) originally filed a patent in 1992, long before ProMetic even began work on its plasma purification system that claims the removal of Plasminogen via affinity chromatography as a step to making a fibrin sealant product. "Treating the supernatant obtained from the suspension ... by affinity-chromatography to allow plasminogen to adsorb thereon; collecting the fraction essentially free of plasminogen."
KingCobras Again plasminogen in this patent treated as an impurity and removed, destroyed. Not recovered preciously to become a therapeutic.
Black Mamba- Grifols has a patent on the "composition and method for preparing Plasminogen."
KingCobras Wrong – the patent is for plasmin for the treatment of thrombosis
Black Mamba- Kedrion, a large plasma fractionator based in Italy, was previously awarded orphan drug designation for the use of Plasminogen to treat Ligneous Conjunctivitis in the U.S. and EU. Kedrion concluded the first part of its clinical trials in 2015, but it is unclear whether Kedrion will continue to pursue this indication. GE Life Sciences (NYSE:GE) and Pall Corp (NYSE:PLL) sell affinity resins that enable the purification of Plasminogen.
KingCobras Of course non- proprietary resins that have not been developed nor optimized to enable the capture of plasminogen in such a way that it is an active and efficient therapeutic, and allow the recovery of several other therapeutics in subsequent steps….that is PPPS.
Overstated Plasminogen Market
Black Mamba- We believe that ProMetic has meaningfully overstated the addressable market for Plasminogen. The company has recently stated that there are 3,000-4,000 Americans afflicted with congenital Plasminogen deficiency in the US and has implied a ~$300mm revenue opportunity for the product based on their existing capacity. This is misleading because the company is targeting other indications in addition to congenital deficiency. The company offered some examples of medical conditions where whole plasma is used to treat patients, conditions such as severe burns (Body surface greater than 25%) which affects 20,000 patients each year in the USA). So we're looking at -- assuming that not all patients have ligneous conjunctivitis at the same time in the quarter and some actually have lesions elsewhere, you're looking at roughly a 3,000 to 4,000 patient base there in the U.S." - ProMetic Investor Day 11/21/2016 As noted above, the Company now suggests that the type 1 deficiency Plasminogen program is capable of producing ~$300mm of peak revenue based on the Company's existing capacity (Pg = Plasminogen):
KingCobras This is not what the company said. It said it had the current manufacturing capacity to product as much as $300 million worth of plasminogen for all indications. The title of the slide speaks of an existing capacity optimized to favor plasminogen output. 2016 Investor Day
Black Mamba- We find it strange that management's market sizing estimates have increased so much over the last few years despite limited market awareness and a lack of newly published prevalence studies. The Company originally estimated the drug to have a market potential of only CAD40m to CAD50m in 2013, had estimates ranging from $150mm to $200mm in 2015, and now touts a potential $300mm revenue opportunity by 2019
KingCobras The company never stated this. Do not mix capacity enabling revenue and revenue forecast. As the company uncovers indications it could address, the next question becomes: what is your capacity. I find it quite responsible that the company stay clear of making any forecast but does provide evidence of its ability to address a market opportunity that is larger than just the congenital deficiency. During the analyst day, the CEO admitted that the company realized the market opportunities to be much larger than originally anticipated – with an increasing number of indications it intends to pursue. Secondly, he mentioned that the data generated in the clinical trials strongly suggest a much higher selling price than originally expected, given the health economics advantage of a vial versus multiple recurring surgeries. These two points alone would justify an ever increasing optimism as to the size of the market opportunity.
Black Mamba- 1) Analyst Question: "Can you give us a guesstimate as to what the Plasminogen product might do in revenues once it's going?" Bruce Pritchard: "It will depend on market penetration in Europe as well as the US. But you're looking at a product that could achieve, say, CAD40 million, CAD50 million, if sold at reasonable pricing." - Q1'13 call 2) Pierre Laurin: "Right now, we've provided guidance with the analyst that they'd use in their model of a conservative reimbursement price per year per patient in the tune of about $40,000, $45,000 per patient. So I mean, the value of the congenital deficiency therefore could be as high as $150 million, $200 million" - Q4'15 call Scientific studies suggest that the addressable market is much smaller than what is currently claimed by the Company. . ProMetic's first indication for Plasminogen is Type-1 deficiency, which is considered a quantitative deficiency, meaning those who have the deficiency are screened for protein level and do not necessarily exhibit symptoms. Existing literature suggests the overall prevalence of type-1 deficiency to be "in the range" of 1.6 per million:
KingCobras These are not scientific studies. They are epidemiological assessments projected from a small sample size. You are referring to type -1 plasminogen deficiency. Yet the data shown by ProMetic at the analyst day suggest several of their patients had plasminogen deficiency but not necessarily type-1. You seem to be mixing concepts here and the company seems to rely on actual market data, not estimates by an epidemiologist.
Black Mamba- "The prevalence of (heterozygous) type I plasminogen deficiency has been recently calculated as 0.26% (25 of 9,611 subjects) in a large epidemiological study in the United Kingdom. The theoretically predicted prevalence of homozygotes/compound-heterozygotes would therefore be in the range of 1.6 per 1,000,000 people." Using the theoretical 1 in 1.6 million people prevalence implies ~500 potential patients in the U.S, ~86% lower than the 3,000-4,000 U.S. patient addressable market claimed by ProMetic. Interestingly, the Company used to agree with our market sizing estimate before it massively increased its estimates. In the Company's 2014 Annual Report, it states the prevalence to be 1.6 per million: "The incidence of Type-1 plasminogen deficiency is approximately 1.6 / 1,000,000 people." However, we believe this ~500 patient opportunity in the U.S. needs to be further reduced significantly because most patients that have the disease are not symptomatic: "An evaluation of more than 9,000 blood donors in Scotland revealed a prevalence of 2.9 per 1,000 heterozygous quantitative plasminogen-deficient subjects (type I deficiency), none of whom were reportedly symptomatic." To further support this conclusion, we note that Ligneous Conjunctivitis is the most common symptom of type 1 Plasminogen deficiency: "The most common clinical manifestation was ligneous conjunctivitis (40 [80%] of 50 patients)." According to a scientific paper, only 119 cases of Ligneous Conjunctivitis have occurred over the last 50 years: "In 2001, Lecame et al estimated a total of 119 cases of ligneous conjunctivitis in the last 50 years." [Schuster V, Seregard S. Ligneous conjunctivitis. Surv Ophthalmol. 2003;48: 369-388]. We believe a good analog to the commercial potential of Plasminogen is the uptake of another plasma protein called Alpha-1 Antitrypsin ("Alpha-1"). Alpha-1 is an inherited genetic disorder that has been shown to cause 1-2% of all COPD cases. Similar to Plasminogen deficiency, most patients who are afflicted with Alpha-1 deficiency are undiagnosed. With an incidence rate of 1 per 2,500 people, only 5% of patients have been diagnosed so far, and of those patients, only 65% are currently receiving treatment. Grifols 2015 Investor Day Presentation
Black Mamba- This is despite the fact that Grifols launched a dedicated salesforce to promote diagnosis and treatment of the condition seven years ago. Applying the same level of awareness and usage in the Plasminogen deficient population would imply a patient penetration of only 16 patients in the U.S. (or about $1.3mm in potential revenue)
KingCobras 16 ! Interesting, this is less than the number of patients enrolled or treated in their modest clinical trial….
Black Mamba- Management has pointed to the existence of the Plasminogen Deficiency and Ligneous Conjunctivitis Support Group on Facebook with "660 members" as partial evidence of a larger patient population than previously expected: David Martin: "Pierre, you mentioned there's a Facebook site that has 660 members for the congenital plasminogen deficiency. How many of those are patients? And I know Dr. Shapiro has been undergoing some efforts to identify patients in the U.S., what is she finding as far as numbers?" Pierre Laurin: "I don't know specifically the percentage. I mean, you most likely can be as right saying 1/3 or 1/5 -- 50% of those would be family members, not just patient and so on." Pierre's projection of the amount of afflicted patients in the Facebook group appears to be way off. According to a member of the group, only five of the then 860 members were patients
KingCobras Is it 860 or 660?: It is very unfortunate you take Mr Laurin’s comment about Facebook out of context. At the analyst day, Mr. Laurin explained that there were no patients association in place for this condition unlike the Alstrom syndrome which has very well patient organization for few thousand patients worldwide. He was referring to the Facebook site a sign of patients trying to regroup and help each other to find access to treatment. The company seem to have acquired data and is building a patients registry in the USA Europe and Turkey. I am sure we hear more about this.
Black Mamba- Ignored Profit Sharing Agreements Over the past few years, ProMetic has quietly partnered away a large portion of the economics of its key plasma protein product lines for de-minimis compensation. We believe these profit-sharing arrangements are largely unknown and ignored by analysts when valuing PLI's plasma protein programs and speak to management's true beliefs regarding the value of the technology.
KingCobras ProMetic has entered into partnership agreements for territories that is has no ability to market itself, and for considerations measured in hundreds of millions of dollars as such considerations include the construction and operation of large scale facilities designed around their PPPS™ platform. Such partnership agreements with CNBG (China National Biotech Group and one of China’s largest biopharmaceutical company), Masterplasma in Russia and Hematech of Taiwan, are all agreements requiring of the licensees significant investment north of ~$150 M for the construction of a PPPS facility for their respective market. Such licensee would then have to buy ProMetic’s affinity resins and pay mid-single digit royalty on sales of plasma-derived biopharmaceutical products in these territories, namely China and Russia / CIS. As for Hematech, the purpose of the plant would be more to supply back ProMetic as a CMO supplier under license. So your “de-minimis consideration” is incorrect.
Black Mamba- Hematech (Plasminogen) In 2012, PLI signed an agreement with Hematech. According to the terms of the agreement, ProMetic agreed to sell Hematech a 50% share of all profits from all of ProMetic's Plasminogen programs for $10mm.
KingCobras No and again misleading. The only indication for which profits are shared is congenital deficiency. If I follow your logic above, the deal ProMetic signed is an amazing deal, $10 M of cash and a $150 M investment for a PPPS plant for 50% of the profit generated with from only 16 patients ! The CEO is a genius! Make up your mind. Is it that this is a bad deal because $10 M deal dating back in 2012 is paid way too little money because Plasminogen congenital deficiency is a huge market opportunity? Or all of a sudden, it could be a bigger opportunity and the deal is bad. In any case, the only indication at stake here is congenital deficiency for which you do not believe there is more than a handful.
Black Mamba- The terms of this profit-sharing agreement is not discussed anywhere in the 2015 Annual Report or Annual Information Form. Based on our review of the sell-side literature, we believe the majority of sell-side analysts that cover PLI do not seem to explicitly account for the Hematech profit-sharing agreement in its valuation of the Plasminogen program. For example, note the approach taken by Canaccord Genuity which does not seem to adjust its Plasminogen estimates to account for Hematech's pro rata share: Canaccord Genuity 11/11/15: NantPro (IVIG) - In 2012, ProMetic created a JV with NantPharma, called NantPro, to commercialize IVIG in the U.S. While ProMetic has increased its stake in the JV since 2012, its current ownership interest is 73%. ProMetic acquired an additional 40.8% of the JV in 2014 for ~$6.6mm, which would only imply a $16.2mm valuation for 100% of the NantPro IVIG JV. For its initial 33.3% stake in NantPro, NantPharma paid ProMetic $2.5mm (NantPharma's ownership interest precipitously increased as it made certain capital investments). This $14.9mm implied valuation for the NantPro JV contrasts with ProMetic's claims of a ~$200mm revenue opportunity for IVIG (Q3'16 Company Presentation). ProMetic originally entered into an alliance with the American Red cross in 2003 to co-develop the PPPS tech. However, in 2006, ProMetic acquired the exclusive license from the American Red Cross to access and use the PPPS IP for a paltry $1mm sum plus $30k per year and an additional 1.5% royalty on end-products sold. While the royalty rate itself is not that meaningful of a needle mover in terms of valuation, we believe the purchase price speaks to the limited value of the PPPS technology.
KingCobras This is an amazing evidence of your lack of knowledge and poor research done on the fundamentals on this company – PPPS technology refers to the use of affinity ligands that already belonged to ProMetic !!!!, and PPPS is merely the name given to putting several of ProMetic affinity steps in a preferred sequence… Your math is wrong there and for having been close to the company when this happened, we know that the American Red Cross could not continue the program due to a reorganization following the disaster in New Orleans. This $1 M payment has nothing to do with buying the ligand technology they already owned . ProMetic walked away with the entire group of the American Red Cross scientists which have become the subsidiary based in Rockville. ProMetic probably inherited tens of millions of $ invested by the American Red Cross over the years and now owns it all. ProMetic as you pointed out raised an impressive sum of money over the year and coupled with non-equity investments made by the American Red Cross and other large pharmaceutical partners over the years, I am puzzled as to how you don’t get the magnitude of the two therapeutic platforms built over the years. Other Royalties
Black Mamba- In addition to the deals mentioned above, we have found a few other profit-sharing agreements that are widely undiscussed. ProMetic is due to pay a 5% royalty on the net sales of Plasminogen in most other indications that it is pursuing besides type 1 congenital (wound healing, tympanic membrane) to a Swedish company named Omnio for the use of Omnio's Plasminogen IP.
KingCobras Wrong again. First, now you admit that ProMetic has not given away half of the economics for all of its plasminogen program [This is what you wrongly stated above]. Now, ProMetic pays a royalty of 5% to Omnio on sales of plasminogen for wound healing. It seems that all intravenous uses of plasminogen other than congenital deficiency as shown during the analyst day do not involve a royalty payment to anyone. ProMetic will also split some of the manufacturing margin on its plasma products given that PLI only owns an 87% interest in ProMetic BioProduction - the subsidiary in charge of producing the plasma proteins. The initial 10% stake that ProMetic's partners purchased was acquired from the Company for only $1.5mm (then called "NewCo"). Finally, CEO Pierre Laurin is entitled to royalties on the sales of PBI-4050 with compound rights reverted to him personally if ProMetic were to choose to cease its development: "Mr. Laurin, via Innovon, is entitled to receive royalties based on the sales of PBI-1402, PBI-1101 as well as any analogs thereof (e.g. PBI-4050). These royalties consist of 0.5% of net sales from direct or indirect sales by the Corporation or its affiliates or 3% of revenues received by PBI from third parties for such products." Self-Serving Selective Disclosure Overstates PBI-4050's Potential The Small Molecule Division (PBI) has researched many variations of compounds but has never been successful. To our knowledge, the Company has yet to share the origin of many of the compounds under research
Black Mamba- and has not described the exact mechanism of action of PBI-4050 (the company made mention of non-descript "receptors" in its investor day, but did not state any specific receptor). We view this as a significant problem for any potential investor as there is no assurance in any actual scientific backing of the compounds.
KingCobras This is very being very short cited. The company explained why it has chosen to patent rather than publish, and that it will soon publish having finished with its patent strategy. Looking at the quality of the researchers / scientists involved, one has to conclude on the contrary that this program is very promising. Dr Harris for example is the president of the American Society of Nephrology and chief of Nephrology at the University of Vanderbilt. Many scientific presentations on PBI-4050 stems from work done in his labs. Dr Dupuis, prominent cardiologist and expert of pulmonary hypertension at the Montreal Heart Institute presented at the analyst day impressive data, and explained how no other drug has ever been reported to achieve such results in this animal model. For each and program, ProMetic has managed to attract amongst the best scientists in their respective field of expertise.
Black Mamba- Management has told investors that it will be disclosing the mechanism of action in peer reviewed journals at some point in the future. We are wary given it has been such a long time since the original study of PBI-4050 to date (without explicit receptor disclosure). We believe management's promotion of PBI-4050 is littered with post-hoc data analysis and other chicanery. An example of this fabrication is from data published last month for PBI-4050's Metabolic Syndrome and Type 2 Diabetes Phase 2 trial. In a press release, the Company touted a successful trial that seems to have been based on extraneous endpoints that were not originally in the study design. Clinicaltrials.gov lists the pre-specified secondary endpoints for the Phase 2 Metabolic Syndrome and Type 2 Diabetes trial. Only two of the seven pre-specified secondary endpoints were discussed in the press release while various other endpoints were discussed that were not included in the pre-specified endpoints according to clinicaltrials.gov:
KingCobras This is amazing. The Company has an open label study to enable it to see early results so it can make informed decision before running more studies, placebo controlled multi center studies. Their drug is not targeting reduction of lipids, cholesterol, etc. the trial was meant to see if the drug reduced glycemic and fibrotic biomarkers like it did in diabetic animal models. The Company reported exactly what it needed to report and what is relevant to the next steps. They report the drug is safe, and that it moves the needle on HbA1c, inflammatory and fibrotic biomarkers as evidence of translation of activity from animal models to humans. Further, when ProMetic was presenting data from this trial at a recent investor day, the Company displayed a graphic of the trial results that appear to show meaningful improvement in HbA1C values:
Black Mamba- Not only was this not a pre-specified endpoint according to clinicaltrials.gov, the graphic above only presented the results of 17 patients despite the trial being completed with 24 participants: "In this open label Phase 2 clinical trial, PBI-4050 (800 mg) was administered once daily to 24 patients for a period of 12 weeks." Interestingly, the inclusion criteria for the trial required patients to have a baseline HbA1c level of at least 7%. We find this odd given management's selective disclosure in the chart above of patients with an HbA1c baseline of 7.5% and above. When questioned on this subject, management has stated that it wanted to show data from a higher baseline to better compare to other drug trials, but most other type 2 diabetes studies we have seen actually list >= 7% as an inclusion criteria (See Trial 1, Trial 2, Trial 3). Given management's selective presentation of the results of only 17 out of the 24 patients, the promotion of endpoints that were not pre-specified, and the lack of disclosure of multiple pre-specified endpoints, we seriously question the integrity of the PBI-4050 data being presented.
KingCobras This disclosure was in the context of comparing apple to apple. The company explained and disclosed the reduction of HbA1c for all patients, and highlighted the fact that it had enrolled patients with a baseline level of HbA1c much lower than the usual clinical trials to assess the risk of inducing hypoglycemia. This was a success in that very few cases of asymptomatic cases were observed. When comparing whether the reduction of HbA1c is clinically relevant, one has to look at data with patients enrolled with similar baseline. Most studies enroll patients with a baseline of >7.5%, even > 8%. In this context, the reduction of HbA1c compares favourably with commercially available agents. The company gave scientific references where it was shown that the % decrease will vary with the baseline level.
Black Mamba- In another example, ProMetic showed investors a series of slides at its investor day overlaying a 30 patient single-arm PBI-4050 phase 2 study to a dual-arm 555 patient phase 3 study. We believe this to be an extremely misleading comparison given the discrepancy in trial size, setup of trial (placebo-controlled vs. open label), and lack of complete data (12 week vs. 52 week). Management may argue that it explained at the investor day this comparison was made simply to serve as a benchmark of results for PBI-4050. We find issues with this argument given 1) Any "benchmark" comparison to other compounds made post-study is concerning, especially so if done using such a large subject size and trial duration imbalance and 2) the overlay of the two separate trials without further context is misleading in that investors may interpret the data as being all a part of the same study.
KingCobras This is again wrong. The Company explain in their press releases and in their verbal presentation that this was not a direct comparison, but was done to help their shareholders to appreciate the meaning of the preliminary results. Again, an open label with 40 patients done to understand what the drug does on its own relative to combination with other commercially available drugs nintedanib and pirfenidone. Very smart approach. They found that one combination works better than the other. This finding alone just saved Shareholders money and time as it avoids unnecessary enrolment of patients to test something they already know is not optimal. With these preliminary results in humans, they feel more comfortable than just relying on data in mice. Your comments on this matter is simply a farse….As a shareholder, I actually find ProMetic’s approach has been systematic and prudent given so many drugs failed to show any benefit in this indication. Management likes to highlight the "multiple shots on goal" opportunity of PBI-4050. PLI even put a slide in one of its recent decks with a slot machine to highlight how it has numerous combinations to test in the clinic and that it only needs one of them to succeed for the product to be a success. Pierre Laurin: "I summarize on slide 19, my usual slot machine that basically - I remind everyone, we just need a green light to light up to turn this product into a commercial reality for shareholders." - Alstrom Update Call 10/12/16
Black Mamba- We believe the misleading representation of small open-label trials, management's scattered focus across a slew of indications, and the lack of disclosure of the precise mechanism of action are evidence that ProMetic is not in possession of a truly efficacious compound.
KingCobras Here, you are demonstrating your lack of understanding of many aspects of drug development and especially of fibrosis. Fibrosis affects virtually all tissues and organs in our body. The image you copied is not a “slew of indications” as you point it, but rather a fact that multiple organs are affected in a single patient and that there are different ways to prove an antifibrotic drug works. By monitoring several factors / biomarkers for all organs typical affected in a patient, one can better refine a clinical regulatory pathway. The following slide shown at the analyst day illustrate all great drugs with precise mechanism of action that failed miserably in the clinical trial for IPF. A smart – precise single pathway approaches does not seem to be the way for fibrosis.
Black Mamba- We believe that management is running the PBI-4050 program to generate hype and facilitate further dilutive equity raises, with little hope of producing a commercially viable product. We think chances are high that PBI-4050 fails and quietly slips into the background, much like its 15 predecessor compounds.
KingCobras First of all, there is actually not been a failure to date in ProMetic clinical programs and there’s been only 2 compounds: PBI-1402 with a successful phase -2 outcome leading to a focus on fibrosis and its follow on analogue PBI-4050. I would contend that PBI-4050 has better chances than many other compounds to make it big because of its diversity approach in the fibrotic pathway. The same slide but superimposed with PBI-4050 proven effects in animals and humans was also provided during the analyst day.
KingCobras ProMetic’s scientists and collaborators seem to have characterized a significant number of pathways effected by the drug PBI-4050, and may provide early evidence as to why the preliminary results in patients look so promising. I actually praise the company poise despite having such spectacular results so soon in the program. The CEO and CMO are quick to point to the need to generate data in placebo controlled studies, 2 of which are underway, and 2 more about to launch.
Conclusion
Black Mamba- Looking at the facts objectively [there is nothing objective in your analysis] reveals little value in ProMetic's marquee drug Plasminogen, a graveyard of broken promises and failed products, deceiving PBI-4050 data, and a promotional management team. Management has destroyed most of the value it claims exists through highly dilutive partnership agreements that brought the Company small amounts of cash and imply a valuation of the assets far below current market prices.
KingCobras You have destroyed more value with this report and pile of lies and misleading statements and conclusions. Throughout the report you have demonstrated a lack of understanding of ProMetic’s plasma platform and of ProMetic’s positioning, a lack of understanding of the contractual agreements the Company has concluded.
You have systematically painted a negative view of all facts and purposely misquoted management and inadequately represented. To remind you of a few:
· ProMetic does not use recovered plasma. It uses Sourced plasma.
· ProMetic is not going after the TITANS as you propose but has always positioned itself to target unmet medical need / niche orphan indications.
· ProMetic has not given up 50% of the economics for all of its entire plasminogen program, only the congenital plasminogen deficiency which is a small % of the market opportunity for this therapeutic.
· You portray the deals entered into by ProMetic as de-minimis but then you don’t report the fact these deals are for foreign markets and involve hundreds of millions of $ of investment in capex to build plants as part of the deal.
· You stated ProMetic acquired its plasma technology for $5 M…which is totally off the mark by 2 log….ProMetic invested over the years $500 M in the platform.
· You confuse the use of chromatography by other plasma fractionators as proof that ProMetic has no proprietary process. Yet you could not even explain how PPPS is different to Cohn, what are the advantages and disadvantages…that would have been an objective analysis.
· You dismiss the loss of proteins in the cryoprecipitation steps and in the Cohn process…instead you provide a slide that shows that if you increase the batch size, you save a bit of money….Gah.
· You question ProMetic’s claims on yield as not scientifically validated as if Grifols and Others’ claim have been scientifically validated.
By the way they should be certified by an accounting firm more than a scientific paper because the only way to validate yield is with output on batch records….do you have Grifols manufacturing batch records?
· In any case, you miss the point entirely in the rhetoric of improved yield for ProMetic as a simple mean to be able to sell small quantities of commodity proteins as “companion products” to the plasminogen and other orphan drugs such that each liter processed generate higher return.
· You candidly dismiss the fact that ProMetic presents data actually generated by world experts, in these world expert labs.
· You candidly dismiss the fact that for all projects, ProMetic has attracted the world leading authorities…this must be because the drug’s performance has impressed them
· You candidly dismiss the fact that plasminogen has met its primary and secondary endpoints. I could go on and on.
You have managed to seed doubts in the readers mind by bringing them to the same level of your own confusion; by making gross conclusions: like I see in an annual report a picture of how plasma is recovered from a unit of blood….therefore ProMetic must use recovered plasma which would then explain why they have a better yield….
Can you even explain which proteins you would expect to see an improvement in concentration and which proteins you would expect to see a reduced concentration?
Black Mamba- Amidst continued deceit by management, ProMetic has risen over 1,000% on the back of sell-side and retail investors buying into the Company's egregiously misleading and promotional statements.
KingCobras Clearly your report is grossly misleading and does not objectively presents the facts. It is written with a clear intent to discredit and by doing so you insult any intelligent readers who you know does not have time to infirm or confirm your statements.
Grade for this thesis: F