Here is a post from Reddit board it is long but well written this guy sounds like he knows what is going on.
"I wanted to give an updated POV of what my thesis is for investing in PTI now that dust has settled a bit after the data drop, I've had more time to digest and understand the ph2 data, and re-assess after doing further DD what potential of this stock is.
Disclaimer: I still am extremely bullish on this stock, however I realize many people have been burned and don't want to invest here further. Look at this not as me trying to pump a stock or get people to buy in, I don't really care either way, I just wanted to share my DD and POV and see if others could help answer some of the open questions I have.
Previous writeups I've done: https://www.reddit.com/r/Veritasinvestments/comments/e7if9x/pti_dd_reposting_pti_could_be_a_1020_bagger_in/ (mostly accurate but had some mistakes)https://www.reddit.com/r/Biotechplays/comments/e9k2t6/pti_dd_part_ii_this_thing_can_be_a_50100_bagger/ (corrected mistakes from previous)
This is part 3 of my DD on this stock
I'll cover this in several sections:
What is Cystic Fibrosis, how big is the market
What is the MOA of the treatments, what treatments are on the market currently?
Tear down of the Ph2 results for PTI
Potential hypothesis around the ph2 results/implications
Details around upcoming January organoid research for personalized medicine in CF
Other upcoming catalysts
Market potential for PTI
Potential for a BO
Potential for long run going it solo
My position
Cystic Fibrosis Market Overview
Cystic Fibrosis is a hereditary disease that affects the lungs and digestive system. The body produces thick and sticky mucus that can clog the lungs and obstruct the pancreas. Cystic fibrosis (CF) can be life-threatening, and people with the condition tend to have a shorter-than-normal life span.
This typically results from a mutation in genes that results in your body having one of three issues with regards to a specific protein. The Cystic fibrosis transmembrane conductance regulator (CFTR) is a membrane protein and chloride channel in vertebrates that is encoded by the CFTR gene. The CFTR gene codes for an ABC transporter-class ion channel protein that conducts chloride ions across epithelial cell membranes.https://www.cff.org/Research/Developing-New-Treatments/CFTR-Modulator-Types/
Deficiencies in this gene can take the effect of three possible defects or a combination thereof being expressed by your genes.
You produce less CFTR protein due to a defect in the genetic coding for what protein to build and how much
Your protein has issues correctly folding which ensures the protein is able to actually be used effectively
Your protein is ineffective at actually conducting cloride ions and reducing sweat chloride concentration (a measure of the effectiveness of the protein)
The results of this end up being that sticky mucous that affects your body deteriorating your lungs, causing scarring over time, and lowering quality of life significantly.
https://www.cff.org/What-is-CF/About-Cystic-Fibrosis/
The cystic fibrosis market is estimated to have over 80k patients today. Of that, roughly 30k are in the US, with 40-45k in Europe.
Most people (up to 90%) have a common del 508 mutation (whether heterozygous or homozygous) which primarily affects the protein folding capability, however 10% of people have various rare genotypes that are harder to treat and today don't have a standard of care at all. In some of these cases it may not just be that CFTR protein is produced less, but that a harmful or mutated protein is produced instead.
Cystic Fibrosis Treatments and MOA
https://www.cff.org/Research/Developing-New-Treatments/CFTR-Modulator-Types/
Modulators are compounds that are used to affect the CFTR protein function through three MOA, that will effectively improve CFTR activity with respect to reducing sweat chloride concentration and improve chloride ion transportation.There are three modulators:
A potentiator
This basically acts as a long tunnel type compound intended to forcibly maintain the opening of the chloride channel by keeping the gate open. This allows chloride ions to flow through more easily.
A corrector
This basically acts as a molecule that helps the protein form the correct shape and attach to the cell surface correctly, thereby making the protein more effective at transporting chloride ions through effectively
An amplifier
This basically works to help the cell create more CFTR protein beyond what the cell thinks it normally should (remember it's normal is lower than healthy threshold). In essence, this will act as an RNA blueprint if you will telling the cell what's the correct protein encoding to build and how much
You can see above, that the ideal modulator formulation is a combination of all three. By increasing protein production back to healthy levels, using a corrector to ensure the protein attaches to the cell correctly, and the potentiator to ensure ions pass through the cell membrane, we are maximizing the CFTR activity and reducing sweat chloride concentration.
This will improve respiratory activity for a patient.
Note VRTX's compounds for CF are all mixtures of potentiators and correctors. Trikafta is in fact just a better corrector molecule added to the existing Symdeko formulation of a corrector and potentiator.
PTI has both a potentiator, a corrector, and an amplifier. Nobody to date has a working amplifier (from what I can tell PTI is the only one to have succeeded in this regards to date), open question I have is what makes an amplifier so challenging and why didn't VRTX invest in this more.
Phase 2 PTI Data Teardown
http://ir.proteostasis.com/static-files/4a2550a1-7c01-4277-9d22-e8d6642ed22d is what I will reference throughout, this is the material from their conference call after they released ph2 data
Previous march data can be viewed here as well from their Piper Jaffray presentation http://ir.proteostasis.com/static-files/762d659b-b595-4b32-b58f-5746d4a9f34a
This trial was hyped to be where we would see their doublet shine and possibly see triplet do even better. The things that had people excited was they went with really high doses of the potentiator and the corrector in doublet, and reduced dosage of the amplifier in triplet. The theory was that they hadn't seen a plateau in the 14 day study from back in March for triplet and more time plus the higher dosage could improve their data.
In March they were criticized for a variety of things, one of the biggest being they had to do a sub-group analysis due to having sick patients that skewed results. This sub-group analysis is what they used to claim having 6.6% ppFEV on the doublet and 8% ppFEV on the triplet.
In this December data drop, what we saw was a bit surprising, and honestly a bit puzzling.For one thing, they ended up having four arms rather than three arms of the trials. We had been told to expect triplet being tested on homozygous and heterozygous patients (for the first time het data would be seen) along with doublet on homozygous. They had added a fourth arm for doublet on heterozygous however.
In terms of the data seen there are four salient points made about their molecules, and then two points made about their plans for next steps.
Despite high doses of their potentiator and corrector, they had no safety issues reported, AE seemed inline with placebo
They had statistically significant improvements in ppFEV (respiratory activity) and SCC (sweat chloride concentration).
Their triplet had achieved a 8% average on the entire homozygous population and sub-groups when compared to Trikafta's previously published results showed comparable ppFEV
Note this must be caveated that patient populations are different and sample sizes different as well making direct comparison unreliable
Additionally note, Trikafta's treatment was compared to Symdeko when doing trials for homozygous patients. They cannot market it as such, but you could assume Trikafta's +10% should actually be +13% effective against a triple placebo.
Trikafta's heterozygous was triple placebo however so the 13.6% remains accurate.
Oddly enough, their doublet had achieved much lower ppFEV, a mere 3%, which isn't anything impressive if you compare to other doublets and far from their previous 6.6% touted
The odd thing is they make a clear comparison between the doublet and triplet where only difference is the amplifier, and show how the triplet has a 5-7% absolute difference in ppFEV for their different groups.
They did have a biological reaction for heterozygous patients, with statistically significant SCC changes, however no statistical significance in the changes for ppFEV (although a wide range of ppFEV was seen)
Potential Hypothesis Around Results/Implications
The first point is generally good as it means even with high doses of potentiator and corrector they had been able to achieve no safety risk. This gives them freedom to experiment with various doses more freely since there's no health risk observed.
The second point is positive. We previously had criticism for sub-group analysis triplet 8%, now we see 8% on entire population.
While seeing a +10-13% would've been amazing, the triplet still is providing a better benefit than the doublet and triplet were perceived to provide back in March. We're still net net better off here.
The doublet data is odd. Their in-vitro tests have so far been predictive of clinical results. It seems strange to me that they did the doublet and it was a surprise result for them, vs something they had expected to see.
This brokers the question of why they would potentially do a trial with a doublet that was going to end up being shown as safe but not very effective? Trials are expensive and getting patients in is not easy, only getting more challenging as Trikafta penetrates market more. Their motivation should've been to show the highest efficacy results possible.
I still believe doublet should be more effective than shown here, they need to do more dosing trials to understand what doses are most effective now that they've shown even very high doses are not toxic
The fact they compare the doublet and triplet is interesting. The implication of this is clear and potentially gives us a reason/answer to question above on why they did a weak doublet intentionally?
It clearly is showing that their amplifier is working. Back in March when we were looking at their formulation and seeing doublet at 6.6% while triplet was at 8% it was hard to say especially with sub-group analysis. Here it's clearly easy to see that the amplifier is making a significant difference in the ppFEV and SCC of the two groups, resulting in overall much better health improvement in the patients
Why is this critical? Nobody to date has shown they have a working amplifier nor is anybody testing an amplifier at the moment. An amplifier as mentioned earlier can be crucial for helping patients produce more CFTR protein which will ultimately result in better membrane activity and biological responses. An amplifier could theoretically make somebody achieve similar activity to what a healthy person could do thanks to generating the protein
The amplifier is at lowest dose of 10mg, if they raised dosage to 30mg or 50-100mg then theoretically this can be even more effective (if balancing negative effects of too much protein produced)
The heterozygous data is at first confusing but makes sense. It's their first trial so their goal was likely to just see if it worked or benefitted patients at all.
The SCC concentration being statistically significant is key. Given heterozygous patients in the trial had 26 different variations of genotypes (out of 42 participant het patients) and that many genotypes can actually have mutated protein which is bad for you or can be unhealthy if produced, it is possible that the amplifier messed with the heterozygous patients hurting ppFEV while still impacting SCC.
Additionally, it's likely due to this het patients will need a greater personalized touch with the amplifier in the mix to identify if they should use a triplet or doublet for them.
Overall this is confusing data especially because of the way they word their statement that they saw 3x as many responders on treatment vs placebo (the language implies they only saw a 5% ppFEV vs that being threshold for being considered someone as a responder)
Another nice thing we see is their placebo (though a pooled placebo of homo and hetero patients) sees the placebo baseline at 0, vs negative values before (negative values were odd and indicative that their patients were sicker and hence it may be inflating their treatment metrics by comparison to negative values)
Lastly, 80% of their patients enrolled failed to enroll in other clinical trials by VRTX (ie too sick) and represent sickest portion of population.
This is great because while market will never give them benefit of the doubt for this, from a medicinal POV if they can get such results while being un-optimized from dosing POV and also on the sickest patients, then that bodes well for the when in the market and offering treatment to patients.
Then, the two new data points we had were that:
They will continue to expand the CHOICES trial from 300 patients to 500 patients for the organoid based personal medicine approach and anticipate data readout end of 2020 with trial starting mid-2020. They will invite people to the clinical trial after they confirm they are a responder to their organoid approach
They will add the MORE trial, a trial that will be a ph3 trial pushing their triplet forward for homozygous patients and will pursue EU region for this.
Both of these trials are intended to be in EU and provide them ability to make a MAA that would let them start to sell their drug in EU and other regions.
What is odd is that they did not provide more details on the MORE trial even though by all rights they should be motivated to move to ph3 ASAP to print money by selling their treatment to EU.
Remember, Trikafta is knocking on the doorstep and becoming SOC. They are running out of time, the earlier they get to market without needing to rely on Trikafta as a SOC comparison and the sooner they start making money, the better off they will be. That's partially the reason they pulled the ph2 results ahead imo.
What's additionally odd is that they did not do any insider selling or buying in the period of the last several months, despite the stock price going up to 52 week highs. They also didn't conduct any offerings. Both of these seem very odd for a company that should've anticipated market sell off when they didn't beat VRTX and had confusing data for the other pieces
The only thing that makes sense to me is they intentionally chose to use ph2 to show that their amplifier works, their drug is non-toxic, it has benefits to heterozygous patients and homozygous patients and can be competitive against Trikafta. Heck, someone could just take their amplifier and add it to their own potentiator or corrector, or even Trikafta and beat out VRTX long run. They did this to get a BO is my thought.I can't imagine any other scenario why (though it's also possible they're just incompetent and lucked out on the amplifier and triplet). It's clear they need to do various dosing trials to understand the efficacy curves better and to really tune it to each patient's special requirements. That will be harder for a small company to do vs a BP with resources.
They can still move ahead with just the MORE trial, get approved on triplet reproducing same results, and then go to Europe and make money. This will neither maximize potential of their assets though, nor maximize benefit to CF community.
Upcoming January Organoid Research Data
In January they will share the results of their organoid data which is based off the techniques from this paper published last year. https://www.cell.com/cell-reports/pdf/S2211-1247(19)30097-X.pdf30097-X.pdf)
I'll summarize the paper briefly, then how it relates to the January data and the implications from a market point of view.
Basically they have a biomarker that they are able to measure activity in from rectal organoids (create an organoid using stem cells grown from rectal samples) that they proved in 2019 February could be used as a way to predict clinical effectsof a treatment for ppFEV and SCC on the patient using lab data.
The implication that they can test and iterate on different formulations to try to identify the best solution for a patient before giving it to them, and that this technique may allow you to freely compare treatments is staggering.
The research paper had done a combination of patients with common and uncommon genotypes on a sample size of n=35 and combined in lab data with the patients clinical data after taking VRTX modulators for 8 weeks.
Using the basis of this research, PTI pursued the 10% population who has no treatment today due to inability to determine how the MOA will affect them. In Europe that's 2300 patients, in US around 3k patients.
They took rectal samples from 300 patients and in record time showed back in December that more than 60 of them that were tested so far had showed a response. That's what led to the CF grant they got for CHOICES trial which looks at conducting clinical data and to get approval for them to market their treatment and approach.In January we will see the data up to date regarding this approach, and it can give us an idea of what the potential ceiling could be for a personalized medicine approach.
Why is this so crucial from a market long term narrative POV?
CF as mentioned above can have 3 primary deficiencies relating to protein production, folding, or ion gate activity. It's clear that a one-shoe fits all is insufficient to optimize efficacy for patients.
Using organoids they can identify what is the primary risk or behavior the patient's genotype expresses phenotypically. This doesn't suffer from issues like a patient who already has lung scarring or the false positive biases from epithelial stem cells. This can let them isolate how much corrector vs potentiator vs amplifier to use to treat that patient and squeeze out more % improvement
Additionally, we know from Trikafta's Lancet study that there is a waterfall effect where 1/2 patients see <5% ppFEV and 2/3 patients see less than 10% ppFEV when using Trikafta (also linked in data read out for ph2 december slides)
That already shows an opportunity space for PTI to capture. However the challenge has been how do you identify which patients will benefit less from Trikafta (I'm operating from worst case assumption that Trikafta is available everywhere)
With this organoid technique they could theoretically predict whether a patient will react well or not to Trikafta and then compare to best possible PTI formulation of the triplet or doublet before giving it to them and hence giving patients a better experience and up-front guarantee of improvements. This can also make it easier to steal patients from VRTX away with science based evidence of the likely improvement.
They will have a much bigger sample size of patients from CHOICES to validate organoid data with larger n for clinical predictive capability. I also suspect they will do the same thing when they do the MORE trial to show they can predict it in homozygous even if they don't use the organoid for personalizing the dosing in MORE.
Other upcoming catalysts
Announcement of global enrollment for CHOICES
Announcement of global enrollment for MORE
Likely soon after PR relating to enrollment complete 100% in both trials (CHOICES is obvious because they have no SOC so there's literally no reason not to pursue this, MORE likely quick too because PTI triplet beats efficacy of other treatments available in EU which are 3-4% ppFEV)
Realistically I don't expect the stock price to go up a lot near term off these catalysts as I think market is impatient and won't price PTI appropriately til Ph3 is complete, there is chance of a BO, or they print money. I'm willing to hold long enough til they print money in 2021 to realize the win this stock represents.
Market Opportunity
So the market right now is 80k patients. If you had full market share (note VRTX does not), then that's 8B dollars at 100k/patient (VRTX drugs market for 250-300k a patient annually and only have penetration in US, with some Eu penetration but many patients cannot afford their drugs or its not available)
In 5-10 years this market will continue to grow as new drugs extend lifelines and quality of life. People expect it to be a 12B market in 5-10 years
Modulators are cheap compounds to make AIUI. Additionally patient population is small, <100k world wide with high concentration in US and EU. Just UK alone has 10k patients. The GTM strategy doesn't need a lot of money for marketing etc. It's likely all patients would be aware of their available options and up to date on PTI drug as it is available. Plus only VRTX solutions exist today.
That means very high margins of profit off of this market, even priced radically lower than VRTX.
In a head to head comparison just going off of the 50% of patients <5% ppfev on Trikafta. If in the worst case PTI manages to only capture 50% of the market (40k patients, 1/3 price of VRTX drugs, 4B revenue annually) that's a killing in revenue.
Remember VRTX only earns 3.6B right now and is valued at 55-60B market cap
You can choose as conservative a market slice as you want. Even just capturing the 10% of patients (2.3k EU and 3k US) is worth half a billion dollars and has no competition from VRTX (they anticipate it taking them 10-15 years to treat these patients with gene editing approaches).
BO potential
I have mentioned before I think AbbVie would buy PTI if they had a compelling story and data. I think I've painted the story above and the data is still compelling, more than it was in March.
Even just for amplifier any BP would want PTI as this can help them create a new monopoly beating out VRTX long run. Even VRTX would want to buy them for the amplifier as it poses a threat and can enhance their portfolio and ensure long term CF dynasty reigns.
Add in the fact that they have a personalized medicinal approach that can help them identify patients most likely to benefit and easiest to steal from VRTX, they can optimize efficacy further with more dosing combinations, and that they can capture markets VRTX isn't able to compete in, then you have a great BO opportunity.
Especially since the main thing PTI needs is resources to conduct various trials and speed their pipeline up.
At the same time, if you don't buy them now before they start their Ph3, then you will have less control over how they play their pipeline out, and if you wait til after ph3 you will pay a large premium because they can easily turn down your offer as it's just months before they go to market and print (I fully anticipate given their breakthrough designation and ODD that any approval will come months earlier than predicted once they file with similar data in MORE and CHOICES).
In many ways imo, if PTI does not get BO in the next two to three months, it will not be sold and will end up going it solo. If a BP doesn't want to buy them now, I don't think they will want to buy them when their premium is 3x current price in a year.
Price wise AbbVie has historically paid 3x peak sales for an acquisition. I would give a discount on that since this is a Ph3 asset not yet approved, though if it turns into a bidding war I would not be surprised for everybody to give fair pricing on acquiring PTI.
https://www.wsj.com/articles/bidding-war-yields-rich-price-for-biotech-1425602974
In 2015 they bought a cancer drug expecting a peak sales of 7B for 21B in a fierce bidding war with two other companies. That was with revenue sharing with JNJ on the drug, and today it earns them around 4B annual revenue.
Last year they did the Allergan deal which has stretched their M&A capacity quite a bit I think, however they can likely still afford to do small deals (something under 3B shouldn't be an issue I think, but if a bidding war hikes price to 5B may be more challenging).
I personally think fair value would be around 50$ (2.5B) for PTI today because of how crucial their amplifier can be to any BP who has vested interest in CF and how close they are to getting to market and making revenue in the billions.Add in that there is pending risk of Trikafta becoming SOC causing every new entry whether BP or startup to face heavy uphill road just getting patients for clinical trials (Abbvie has a ph2 trial anticipated to complete in 2021 for example) and it becomes clear if they are serious about the CF space they need to move fast.
If there's a bidding war between VRTX and other BP companies I can see the price going as high as 5B dollars (for VRTX covering their monopoly that's not a bad price especially if it gives them the 10% of the market they can't service and a way to enhance Trikafta efficacy further with amplifier and beat out any new entrants to the space).
Going it solo potential
While BO sounds fun and cool, I don't invest on hopes and dreams related to things like a BO. I invest in PTI because if they can capture even 10% of the European market (ie 4k patients for 400M in annual revenue) then they will be at a market cap of 4-5B dollars if you use VRTX price sales/price earnings as a comparison.Even in absolute worst case, if they just get the 10% of the market that nobody can treat, thats a couple hundred million in revenue. Even if they fail and are stripped for assets and sold, it's worth at least 500MM in absolute worst case (AbbVie bought a failed 3% asset doublet from Galapagos for 245MM last year).
No matter how I view it, this thing is undervalued at 2.30$ with immense upside and I plan to be in with conviction holding through 2021 when this will print money if they go it solo.
I won't mention the long term prices if this actually can capture the market and beat Trikafta, I know folks won't really believe it either way but I'm super bullish.
Caveats for awareness (bearish thesis points)
https://xconomy.com/seattle/2014/09/18/sold-for-parts-accelerator-grad-allozyne-reaches-end-of-the-line/ CEO has had a sketchy past and history
https://www.kerrisdalecap.com/wp-content/uploads/2018/03/Proteostasis-Therapeutics-Inc.-PTI.pdf kerrisdale has lots of issues with PTI historically, surprisingly they've been quiet both in December before and after data
It can be a rocky road for PTI if they go it solo, as VRTX could make EU cave or cave themselves by dropping Trikafta prices. We could see poor results in ph3 as n sample size goes up. We could see a need for more cash after they get through CHOICES or MORE (I expect them to be ok with CHOICES as funded by EU, I could see them raise cash after CHOICES data is out or after MORE data is out before filing).Generally I'm very bullish on them though
Positions
I won't go super deep in my positions, but suffice to say I have 16k shares in 401k, and 4600 shares in brokerage. I anticipate buying more call contracts I will execute as I get more liquidity and hope to accrue up to 75k shares by year end (effectively 40k by February option expiration when puts I sold and calls I bought exercise).
https://imgur.com/a/gCGR5HU
If we see a BO I expect it soon, ie before March ends
Either way I'll hold long and strong and am willing to be completely wrong about every single thing I've mentioned above."
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