In case anyone stumbles upon this company, first, congratulations on discovering perhaps the most undervalued stock that I've ever seen. Now I've been wrong a million times before so this could potentially backfire on me if there's something I am missing, which is partially why I am posting here -- the off chance someone can find the hole in this investment thesis. Because from my vantage point it's a perfect storm that is brewing around Achieve Life Sciences. Here's why:
1. There are an estimated 26 million smokers in the United States and even more in Western Europe, where Achieve holds exclusive rights for its lead drug candidate, Cytisinicline (Cytisine). This is an alkaloid that is found naturally in the Laburnum tree, which is grown in only a handful of regions across the world. Cytisine has been used for decades in Eastern Europe, and was recently approved for use in Canada, due to its strong safety, tolerability and efficacy for smoking cessation.
2. Chantix is no longer available now that Pfizer shelved the drug. There is a generic version that is available and made nearly $300 million revenue without any serious marketing effort. At its peak, Chantix was a billion dollar drug, but it underperformed expectations because of its poor tolerability and safety profile. First, it was believed to contribute to increased likelihood of suicidal thoughts. Recently, it's been shown to potentially contribute to higher odds of developing cancer. So while it may be effective for some, a lot of people didn't stick with the program because Chantix wasn't the right drug for them.
3. Achieve Life Sciences has the exclusive rights from Sopharma, a Bulgarian big pharma with decades of experience manufacturing cytisine. There is currently a five-year stockpile and the trees take approximately 5 years to mature, providing an ample moat.
4. The main weakness is that because cytisine is plant based, there are certain patent protections that aren't available. Achieve has done what it can to make it very difficult and expensive for a competitor, and even if one could source the Laburnum tree and figure out the extraction process, it would still need to run FDA trials with a new dosage because Achieve patented its proprietary dosage amount and schedule.
5. Two Phase 3 trials both showed significantly statistic superior efficacy to the placebo with the trials overseen by Dr. Nancy Rigotti of Harvard Medical School and Mass General Hospital -- a rockstar in her field of research. The data was also published in the esteemed JAMA and Achieve is on the cusp of submitting an NDA to the FDA. The CEO expects this to happen sometime before July 2024.
6. The CEO has stated repeatedly that he always sees this in the hands of a big pharma. He has a goal to partner or sell, and is as transparent as anyone about his exit strategy.
7. The perfect storm. There's a massive need for a safe nicotine-free smoking cessation drug. There are decades of top-notch safety and efficacy data, but the FDA required clean new trials because it couldn't trust old data from 1960s Eastern Europe. These new trials passed with flying colors. Most Americans will not have to pay out of pocket because most insurance plans are mandated to cover smoking cessation, so even if a generic competitor does hit market, it'll be the equivalent of Viagra vs. those sketchy pills they sell on gas station counters. People serious about quitting smoking will get an Rx from their MD, and they won't pay a dime for it. For what it's worth, the CEO expects a three-month treatment to run around $1500, the same as Chantix cost.
The only other lingering concern I can think of is that somehow Sopharma can't get its manufacturing facility up to FDA standards. I do not see this as a major issue, Achieve is running mock trials and Sopharma is a big company in its own right with thousands of employees. It's not a mom-and-pop operation. Now that Cytisine is available in Canada, it makes it more likely the FDA will approve its use in the USA where the CEO said he expects 75% of sales to come from.
Speaking of sales, let's run some numbers:
We know Chantix made $1 billion at its peak. At $1500/Rx, that means 666k prescriptions were filled. Let's assume this is the same for Achieve. Yes, there's now a generic version but it's still the same drug Pfizer discontinued. Most doctors won't prescribe it. Also, Cytisine is more tolerable with fewer side effects, which means fewer people stop using it.
So, $1 billion revenue * 15% estimated profit margin = $150 million net income.
$150 million net income / 30 million shares outstanding (fully diluted) = $5 EPS
$5 EPS * 20x P/E multiple (you can use whatever price-to-earnings multiple you'd like, but 15-20% is around the norm) = $100/share. It's currently trading around $5.50/share.
Oh yeah, management. participated in the most recent offering, as did entities affiliated with the Hunt Family.
This was a $300 stock if you look at pre-split numbers. Past management pretty much ruined it for early investors, but the new CEO seems to be a straight shooter and wants to get this approved and sold ASAP. I wouldn't be surprised to see a sale before cash runs out around mid-2024, although there is a chance for another offering should insiders want more cheap shares. Either way, the risk/reward here is silly whether there are 30 million or 50 million outstanding shares.
Do your research, just my thoughts here, we'll check back to see how this post aged in 12-18 months.
Eat your vegetables. Say no to drugs. Go with God.
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