From positive clinical results to growing takeover potential, PROLOR has appreciated by nearly 50% for the year to date. As the pipeline marches forward, 2012 is gearing up to be an inflection point for the biotech firm. Based on attractive peer comparisons, previous buyouts, and earnings potential, I believe that PROLOR has considerable upside from here.
With a net cash position of $17.6M, the company has solid liquidity to fund operations and offers the certainty that other emerging biotech firms frequently lack. Its lead product, hGH-CTP, has more than proceeded smoothly - it has exceeded both management and analyst expectations. In the post-Phase II clinical trial, hGH-CTP indicated that it could be injected just twice monthly instead of daily like what is currently available. Previously, we were bullish on the product allowing for weekly injections - now, the growth story has become even brighter.
hGH-CTP will be the first long-acting version of human growth hormone that is FDA-approved. It will target a $3B market that is compounding 7% annually. Assuming that it could penetrate 35% of the market through partnerships and receive 20% in royalties, PROLOR's take comes out to more than $200M. At a price-to-sales multiple of 5x, this product is thus worth more than $1B. Eli Lilly (LLY), Pfizer (PFE), and Roche (RHHBY.PK) are all in need of pipeline upgrades and a partnership with PROLOR would be a significant way to catalyze earnings. As a result of strong IP protection and extensive capital requirements, the barriers to entry virtually preclude competition over PROLOR's reign in the human growth hormone market.
As much as hGH-CTP is a value driver, it is just one piece to the puzzle. MOD-6030, a long-acting version of oxyntomodulin, targets the diabetes type II market and is significantly undervalued when one considers past buyouts. When factoring in possible milestone payments, Roche acquired Marcadia for $537M to gain rights to a simple preclinical GLP-1/Glucagon dual receptor agonist. Having already demonstrated superiority in weight loss to oxyntomodulin, MOD-6030 only further enhances PROLOR's takeover potential. Accordingly, the company merits its "strong buy" rating on the Street.
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