I also found this old news but interesting.
ByChris SandburgPosted on March 21, 2017 SHARE TWEET SHARE EMAIL COMMENTS
At the beginning of February, we took a look at development stage biotech company Pulmatrix Inc (NASDAQ:PULM) as part of this piece. At the time, the company had just run up to the tune of 130% on the back of an expedited approval process designation, and subsequently pulled back to trade in and around $3.80 a share as the short term operators took profits off the table. We argued that, even on the back in this run, there was still plenty of upside available for the stock, and that a long-term position could be a rewarding one.
Since then, Pulmatrix has dipped to its current price of around $2.90.
We haven’t really seen any major developments from the company over the last couple of months, with the exception of full year 2016 financials that hit press last week, and as such, our long thesis remains intact. The only difference now, of course, is that an exposure to this longer-term potential is available at a 25% discount to an exposure picked up after the February run/subsequent correction.
So what are we thinking?
Our thesis is simple. The company has a very strong development technology and is currently pushing for approval of said technology in two potentially billion-dollar markets. One of these, chronic obstructive pulmonary disease (COPD), has the potential to be approved on an equivalence study alone, and under an accelerated approval program, could hit shelves as early as next year. We aren’t going to go into too much detail about the mechanism of action of the technology in question, as we did that in previous coverage. However, by way of a brief introduction, it allows for drugs that would normally be delivered systemically to be delivered directly into the lungs (it’s an inhaler type technology). This direct delivery increases the amount of active compound that reaches its target, and in turn, can increase the potency and – by proxy – efficacy of a drug being delivered.
In the case of COPD, the drug is called PUR0200, and it is an inhaler based formulation of the standard of care in the space. Think of it as a type of branded generic, with improved potency.
The key point here is that – if approved – this technology is something that big names simply cannot ignore. If they let Pulmatrix bring the drug to market itself, and enjoy years of exclusivity, they’re going to lose billions of dollars in potential revenues. As such, Pulmatrix is almost certainly going to get bought out by, or license this technology to, a big pharma name.
If the former happens, and somebody puts in a bid for Pulmatrix, there is no way the company will go for less than $500 million. It’s far more likely to go for between $800 million to $1 billion. Even at the low end projection, therefore, and allowing for a small amount of forward dilution, a buyout would likely price the company at a 10 times multiple to its current capitalization and PPS.
The only real question is when a buyout or a licensing deal (which would likely inject triple digit millions of dollars into the company’s balance sheet by way of an upfront payment) will happen. Will the bids hold off until approval, or will we see someone take a gamble on a pre-approval offer?
With what’s at stake here, the latter is a perfectly reasonable assumption.
As we have said, there is not too much room left from a dilution perspective if Pulmatrix is going to command the $20-25 a share that it could do in a buyout. In other words, it’s got to be pretty efficient with its cash on hand, reported at $4.2 million at the end of 2016, and since boosted by a $3.3 million RDO.
That’s the risk.
Even with this risk in place, however, and assuming the drug it’s developing works and picks up approval (and all the available information suggests that it does, and will), this one remains substantially undervalued.
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Disclosure: We have no position in PULM and have not been compensated for this article.
Mark Lintner March 21, 2017 at 12:43 pm
If PULM moves to California Chris, they could get bought out after approval of the re engineered formula, but because they are in a New England state, they cannot be bought out for 3 years after initial business transaction. Anti Takeover laws there prevent it. Folks, you can read all this in their SEC filings. They will get approved in EU first, then U.S. The next “Big” news down the road will be a partner to License the formula to once approved. That news won’t be out for a bit. Whoever that partner is could be a potential suitor after 3 years. Watch for new 13g/d/f filings closely now. There is a limit to how much one filer can own because of the laws in New England states. Odds are you can buy more PULM at $3 flat again. They sold the $11 million worth of Prospectus stock today as well. Expect filings for that by Friday. That’s GOOD NEWS. They now have enough cash to cross into 2018. So, we should be in the clear now and not have to worry about more dilution this year. The range for PULM remains at $2.50 low $7.50 high for the remainder of 2017. Consider this an update from my prior analysis comment of PULM.
