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Investment Thesis
PTC Therapeutics (NASDAQ:PTCT) – an unheralded, albeit commercial stage rare disease specialist based in New Jersey – finally put an end to a lengthy bear run on its shares this week as it released top line data from a placebo controlled trial of its Duchenne Muscular Dystrophy drug Translarna.
PTC already has a conditional approval from the European Medicines Agency (“EMA”) to market and sell Translarna – a formulation of the active ingredient Ataluren – in Europe, and also markets the drug in Brazil, but a New Drug Application filed with the FDA in 2017 led to the agency issuing a Complete Response Letter (“CRL”), questioning the conclusiveness of earlier clinical studies, and highlighting issues with the data.
It was the third time that the FDA had rejected the drug, and PTC CEO Stuart Peltz, who co-founded PTC in 1998, was unimpressed, commenting in response to the CRL that:
We are extremely disappointed for the Duchenne community and strongly disagree with the agency’s conclusions. We believe that this decision fails to consider the benefit-risk of Ataluren and the high unmet medical need.
Now PTC is back with more data from its confirmatory trial, STUDY 041, designed to achieve a full approval in Europe. The study failed to meet its primary goal of a statistically-significant benefit according to the six-minute walk test, but secondary endpoints were met, including evidence of the slowing of decline in functional abilities including walking. CEO Peltz said the results would “reinforce our strong value proposition in the EU and international markets,” adding:
We remain fully committed to bringing Translarna to…the United States and we look forward to discussing these results and a potential path forward for approval with the FDA.
PTC stock responded by climbing from a low of $27 – its lowest price since April 2018 – to $39, representing a 44% gain, meaning the stock price has lost only 11% across the past year, although it is up 115% over the past five years.
PTC is a heavily loss making company, making a net loss of $127m in Q122, and losses of $438m and $524m in 2020 and 2021, respectively. The company does have a strong cash position of $588m but the outlook does not look promising when we consider that revenue guidance for FY22 is for $700 – $750m, but GAAP R&D and SG&A expenses are forecast to be $915 – $965m.
Company Overview
PTC is a 1,300-employee company that’s involved in the marketing and selling of five commercialized products. Both Translarna and Emflaza – a formulation of Deflazacort, a glucocorticoid used as an anti-inflammatory and immunomodulatory agent – are approved to treat Duchenne Muscular Dystrophy, described by the Muscular Dystrophy Association as:
a genetic disorder characterized by progressive muscle degeneration and weakness due to the alterations of a protein called dystrophin that helps keep muscle cells intact. DMD symptom onset is in early childhood, usually between ages 2 and 3. The disease primarily affects boys, but in rare cases it can affect girls. In Europe and North America, the prevalence of DMD is approximately six per 100,000 individuals.
Translarna is approved in Europe, Brazil, and Russia, while Emflaza is approved in the US. Translarna generated $79.2m of sales in Q122, while Emflaza generated $48.6m, meaning these 2 drugs account for ~88% of PTC’s Q122 revenues.
The remainder of the company’s earnings came from royalty revenues, paid by Swiss Pharma giant Roche (OTCQX:RHHBY) on sales of Evrysdi – indicated for Spinal Muscular Atrophy (“SMA”), which is approved in Europe and the US in patients over the age of 2.
Finally, PTC holds the rights to market and sell two drugs developed by Ionis Pharmaceuticals (IONS) – Tegsedi and Waylivra, approved for hereditary transthyretin amyloidosis (“hATTR”) and familial chylomicronemia syndrome (“FCS”) in Latin America and the Caribbean. Both have been recently approved in Brazil where PTC is now beginning to make its first sales.
One important thing to note from the company’s most recent 10Q submission is that the marketing authorisation for Translarna in the EU is subject to annual review and expires in August this year.
As such, the study results published this week will be submitted as part of the new authorization application. Despite management’s optimism and the rising share price, the missed primary endpoint could be an issue, and if PTC loses the right to sell Translarna in the EU, it looks set to lose a likely >$300m of revenue per annum.
Looking Ahead – $8bn Commercial Sales By 2030?
PTC may be heavily loss making but management has plans afoot to reach ~700k patients with a diversified portfolio of assets by 2030, and generate ~$8bn in annual revenue, according to a recent corporate presentation. Its ambition is to reach $3bn in annual revenue by 2026, with its pipeline assets by then accounting for 57% of all revenue.
PTC does have five Registration directed trials ongoing – four if you discount STUDY041 – for Emvododostat in COVID-19, Vatiquinone in mitochondrial disease associated seizures (“MDAS”), and Freidreich Ataxia, and PTC-923 in Phenylketonuria.
The Vatiquinone data is expected later this year in MDAS, and in mid-2023 in Freidreich Ataxia (“FA”), with the COVID and PKU data expected this year. Looking at these opportunities it’s difficult to get overly excited about PTC’s share price prospects, as although each of these diseases has a high unmet need, market opportunities – outside of COVID – seem likely to be in the low triple digit millions, and that may be being generous. And my feeling re COVID would be that opportunity may have passed PTC by.
The FA market, for example, is independently estimated to be worth $777m, and that may be on the generous side. All of these rare disease markets are relatively crowded with biotechs, too, so even if PTC is able to secure approval – which is devilishly hard in itself – the company would likely need to drive a >50% market share in order to achieve its goals.
Looking Further Ahead – ALS, Gene Therapy, Oncology
If the near term rare disease opportunities are unlikely to solve the problem of PTC’s mounting financial losses and shrinking funds, then looking at the earlier stage pipeline there are at least some more attractive opportunities in larger markets.
There’s a Phase 2 trial in Amyotrophic Lateral Sclerosis (“ALS”) about to get underway, although it should be noted the biotech Amylyx (my note here) is at the NDA submission stage in ALS, with a shot at an approval in September. Huntington’s Disease is another target, thanks to a splicing technology platform used to develop Evrysdi, which is used to degradation of HTT mRNA in this case, and a two-part early-stage trial is underway.
In oncology, the target is Leiomyosarcoma (“LMS”) – a rare and aggressive cancer with tumors found in smooth muscle – with ~4k patients with the disease per annum in the US. The drug candidate Unesbulin is now in a dose ascending trial, with additional Progression Free Survival (“PFS”) the target.
Finally, there’s a gene therapy platform apparently in its infancy. The first target is AADC deficiency. CEO Peltz discussed progress on the Q122 earnings call as follows:
we now expect a CHMP opinion in May. If approved, PTC-AADC will be the first marketed gene therapy administered directly to the brain. We’re very proud to have gotten to this point in the European regulatory process, and will now focus efforts on submission of the BLA.
Conclusion – Despite A Positive Reaction To A Broadly Positive Data Readout, It’s Hard To Make The Value Proposition
Based on the above, I find it tough to make the bull case for PTC Therapeutics, as much as I hope the company succeeds in all of its rare disease fields.
It’s difficult to find much supporting evidence (in my view) for the revenue target of $8bn by 2030, or indeed the $3bn revenue target by 2026, as I have discussed with a review of the product portfolio and pipeline. In fact, although PTC arguably got the data readout it needed from the Translarna trial, and its entire revenue generation in Europe – more than half of its current revenues – will disappear if the EMA rejects the marketing authorisation application for 2023.
Although it’s impressive to have late-stage opportunities in so many rare diseases, the FDA rejected Translarna three times, so management must improve its track record significantly if it’s to get any of these opportunities over the line. Even if all five approved, that $3bn revenue target is surely an impossibility based on the respective market opportunities.
That leaves us with an early-stage pipeline that does not sound sufficiently differentiated or with enough preclinical data to add much value to the company’s current market cap of $2.85bn, which seems very high for a company that has lost nearly $1bn in its last two full years of operation.
As such, I suspect this week’s share price gains may prove to be chimeric, and since I can’t see the justification for the multi-billion market cap which is nearly 5x forward sales, quite high even if PTC was profitable, which it isn’t and doesn’t look likely to be unless it slashes costs and starts to win approvals not only in rare diseases but in several other markets too.
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