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RBCOctober 21, 2016 Arbutus Biopharma Corp. (PT $12) ALNY derivative could lead to monetization/deals coming...stock trading at $0 EV Our view: We hosted meetings with ABUS and a Hep B expert physician to discuss the landscape and combination regimens in development for 2017–18. ABUS remains a very off-the-radar small cap value stock, yet there are near-term catalysts that we think could move the stock higher. We believe the stock should go up over the next 6–12 months, particularly given essentially no value to the programs, pipeline, or royalties on ALNY Phase III patisiran. Key points: ABUS trades at a $162M market cap yet has $165M in cash as of Q2; therefore we think the stock is quite attractive and there is lots of potential upside vs. downside over the next 1–2 years now that clinical data is starting to read out and it has assets (ALNY royalty that will go up and be valuable if Phase III data positive in H1:17 and LNP patent licensing) that could be monetized and yet have no implied value today in current stock price, so all upside. Fundamentally, the long-term "big upside" thesis hinges on the company's core strategy to develop Hepatitis B drugs that could address a $5–20B market and specifically with a differentiated strategy of using "combination" regimens with multiple mechanisms to address this serious disease. This strategy generally remains intact, and while Hep B is not an easy task, the expectations are very low and the valuation paid is obviously not high. New Hep B data and BD monetization deals could be coming and should be catalysts: (1) Q4:16 – new multiple dose Phase IB data with lead Hep B drug ARB-1467 that should show more doses equate to more Santigen "knockdown", which has already happened at low cohort and should happen again with more cohorts; our opinion is it's always about multiple doses to treat the disease and the lack of dose response on just the single dose cohorts may be due to small no. of pts and perhaps high (over-saturation) of the RISC complex to start; (2) preclinical data at AASLD showing "combination" regimens from its pipeline lead to significant invitro efficacy; (3) IND acceptance for new oral AB-423 by early '17 using key capsid inhibition (ABUS suggests core protein inhibition as well) and moving into Phase I in H1:17 and some HBV data possible by H2:17. As a reminder, ABUS gets a low/mid-single-digit royalty on ALNY's patisiran, which has Phase III data in polyneuropathy in H1:17. We estimate a 65–70% probability of success, and if data is positive, ABUS could monetize (sell) this to investors interested in royalties or sell back to ALNY for upfront cash. We estimate this is worth around $50–100M give or take depending on various assumptions and finite number of buyers. Also, ABUS has key IP in the LNP space that is important to gene editing companies; it is possible that ABUS is able to allow licenses to this IP for cash upfront payments and/or milestones, which is also not well known on the Street and additional upside. |
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Msg # | Subject | Author | Recs | Date Posted |
32847 | Re: RBC | Manny | 2 | 10/23/2016 11:22:45 PM |