Kicking The Tires On Protagonist Therapeutics – Seeking Alpha

A bureaucrat who said no to everything rarely got in trouble." - Tom Clancy, Executive Orders

Today, we take a look at a small 'Tier 4' biotech concern that saw several insiders buy shares in December. The insider purchases immediately follow trial results that triggered a decent sell-off in the stock. The company has an early stage but a diverse and intriguing pipeline. A full investment analysis is presented in the paragraphs below.

Protagonist Therapeutics (PTGX) is a Newark, California based clinical-stage biopharmaceutical company that IPO'd in 2016. The company's product candidates derive from their proprietary peptide technology platform. The pipeline is segregated into two categories: blood disorders and IBD. Overall, the pipeline is quite young with the two most advanced candidates being PTG-300 and PTG-200. The youngest asset, currently in clinical development, is PN-943, which is an a4b7 integrin antagonist in development for ulcerative colitis. Protagonist Therapeutics, currently, has a market capitalization of roughly $190 million and trades for around $7.00 a share.

Insider Buying:

There was an uptick of insider buying in the stock last month. On December 3rd, Bryan Giraudo, Director, bought 8,000 shares at an average price of $5.70 a share; Suneel Gupta, EVP Clinical Operations, bought 30,000 shares at an average price of $5.13 a share; Dinesh Patel, President and Chief Executive Officer, bought 30,000 shares at an average price of $5.62 a share; and, finally, Donald Kalkofen, Chief Financial Officer, bought 1,175 shares at an average price of $5.10 a share. It should be noted that this is the first insider buying in this name since May of 2017.

Pipeline:

Source: Company Presentation

PTG-300:

PTG-300 is an injectable hepcidin mimetic peptide in development to treat iron overload anemia and related rare blood diseases: -Thalassemia, polycythemia vera, hereditary hemochromatosis, and myelodysplastic syndrome. Hepcidin is a key hormone regulating iron homeostasis. The FDA and EU authorities have granted the drug Orphan Drug and Rare Disease status, and the FDA has also granted Fast Track designation for the treatment of patients with Thalassemia. Earlier this week, the company initiated a Phase 2 clinical trial evaluating hepcidin mimetic PTG-300 in patients with hemochromatosis.

Source: Company Presentation

The most advanced indication is -Thalassemia. -Thalassemia is a rare genetic blood disorder that causes impaired red blood cell production that leads to potentially fatal chronic anemia. -Thalassemia is caused by mutations in the HBB gene. The gene possesses instructions for making beta-globin, a key part of hemoglobin. -Thalassemia is classified into two subtypes: transfusion-dependent thalassemia and non-transfusion dependent thalassemia. The disorder is most common in people that hail from the Mediterranean, the Arabian Peninsula, Southeast Asia, and southern China. Approximately 300,000 people are affected worldwide. In 2018, Decision Resource Group reported that the prevalence in the US is extremely low with an estimated 3,000 people and approximately 300 patients are born each year with the disease.

Source: Company Presentation

The big opportunity is for a more effective treatment for chronic anemia to decrease the frequency of blood transfusions. Regular and lifelong blood transfusions commonly lead to iron overload in target organs such as the heart and liver. Decreased number of transfusions also means easier disease management and potential cost savings.

Source: Company Presentation

On December 3rd, the company announced preliminary data from their Phase 2 clinical trial, TRANSCEND, evaluating PTG-300 in patients with transfusion-dependent beta-thalassemia. The trial is a global single-arm, open-label, multiple-ascending dose design that will evaluate safety and efficacy. The data showed dose-related drug exposure and reductions in serum iron and transferrin saturation levels from baseline for the 40 mg and 80 mg weekly doses. However, the results are too preliminary to get excited. The steep decline in shares post announcement is being blamed on the expectation that the company would be announcing definitive results and not preliminary data. Additional data, such as longer follow-up periods and additional dosing regimens is expected in 2020. The company is planning on launching a Phase 2 trial in patients with hereditary hemochromatosis and an investigator-sponsored study of PTG-300 in patients with myelodysplastic syndromes by early 2020.

PTG-200:

PTG-200 is an oral Interleukin-23 receptor antagonist being developed initially for moderate-to-severely active Crohn's disease. The drug has completed a Phase 1 trial thus far. In 2017, Protagonist Therapeutics entered into a collaboration agreement with Janssen for a worldwide license to co-develop and commercialize PTG-200 for all indications including inflammatory bowel disease. In 2016, GlobalData estimated that Crohn's disease market reached approximately $9.6 billion across seven major markets: United States, France, Germany, Italy, Spain, United Kingdom, and Japan. Furthermore, the market is expected to grow approximately 3.7% per year to $13.84 billion by 2026.

Source: Company Presentation

The current tumor necrosis factor-alpha antibody drugs that dominate the market for moderate-to-severe IBD are Humira and Remicade, which are both injectable. Roughly, one-third of IBD patients do not respond to TNF- antibody drugs and roughly 30% to 40% become refractory within the first year of treatment. Furthermore, TNF- antibody drugs may predispose patients to an increased risk of serious infection and the development of anti-drug antibodies, which over time can weaken the drug response. Oral GI-restricted peptide drugs like PTG-200 can improve convenience, safety, tolerability, and compliance.

The first patient has been dosed in the Phase 2 study of PTG-200 in patients with moderate to severe Crohn's disease. Results from the trial are expected to be released in 2021.

Source: Company Presentation

Analyst Commentary and Balance Sheet

As of September 30, 2019, the company had cash, cash equivalents, and marketable securities of roughly $140 million. Research and development expenses for the third quarter were $17.2 million, compared to $12.1 million in Q3 of 2018. General and administrative expenses for the quarter were $4 million compared to $3.3 million in Q3 of the prior year. Licensing and collaboration revenue came in at $4.1 million for the quarter, which is down roughly 30% year-over-year. Overall, the company had a net loss of $16.4 million in the quarter compared to a net loss of $8.7 million in the same period of last year. Back in October, the company filed a preliminary prospectus for a $250 million mixed shelf offering. Then, on November 27th, the company filed to offer $75 million worth of common stock. The company also picked up a $5 million milestone payout from Janssen earlier this week.

The company is sparsely covered on the Street with only three analyst firms covering it that I can find. On December 7th, the analyst at Nomura said he's an aggressive buyer of shares following the steep selloff. He stated that the data are misunderstood and that, "the Transcend Phase 2 open-label study suggests that PTG-300 is effective at reducing serum iron levels even in patients with significantly elevated iron levels at baseline". Nomura's buy rating and $29 price target stands. On August 13th, SVB Leerink reiterated their outperform rating. On August 2nd, H.C. Wainwright placed a buy rating on the stock and set a price target of $23 a share.

There is a lot to like about this small developmental company. It has multiple 'shots on goal', is aiming at some lucrative parts of the disease market, and has its first insider buying in some time. However, Protagonist still has an early-stage pipeline. The most likely time frame for any Phase 3 development to commence is probably in 2021.

No options are available right now against the equity, so a buy-write option strategy to establish an initial position is not available. I have picked up a few hundred shares in PTGX as it would seem worthy of a very small 'watch item' holding for the time being. The shares have seen support just under current trading levels so far in its history as a public company as well.

I also want to keep an eye on PTGX to watch how its pipeline develops. I offer up this analysis for others who might want to do the same.

The most natural action of a senior official is to breed junior officials." - Jason Jennings

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum

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Disclosure: I am/we are long PTGX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have a small watch item position in PTGX at this time

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Kicking The Tires On Protagonist Therapeutics - Seeking Alpha