One challenge is ObsEva’s European location, which some investors find unattractive. The region’s slow growth and banking worries have led some to dismiss all stocks there, even those seemingly unaffected by the issues. “This is a great, exciting, dynamic, global company sitting in the wrong ZIP Code,” says Adam Johnson, founder of the Bullseye Brief newsletter. But he suggests that ObsEva’s appeal extends much further: “The fact that the company sits in Geneva has no impact on its ability to help women across the globe.”
Founded in 2012, ObsEva specializes in drug therapies for reproductive problems. These include Linzagolix, a medicine to treat both uterine fibroids (or cysts) and endometriosis (which often produces painful uterine bleeding). Plus, there is Nolasiban, designed to improve the success of in vitro fertilization, and OBE022, a therapy to help prevent the early onset of labor.
Currently, the drugs are in various stages of clinical approval in the U.S. and Europe, with the results expected relatively soon. Data on U.S. Food and Drug Administration and European Union Phase 2 and 3 trials for Linzagolix will be released by the end of 2018, and late 2019, respectively. By year-end, investors can expect Phase 3 trial results for Nolasiban and Phase 2 data on OBE022. If a medication is successful in Phase 3 trials, that’s usually the final stage before its wide distribution.
“These are important catalysts related to significant data on Linzagolix and Nolasiban,” a company spokesman says, referring to likely forthcoming results. “In principle, it is further validation of the previous clinical data and patient benefits.” Already, ObsEva’s products have shown effectiveness in the clinic. “[Linzagolix] proved three times more effective at reducing bleeding in patients suffering from uterine fibroids compared to the placebo,” claims a recent Bullseye Brief.
Such data help build investor confidence.
“We believe that at current levels, the stock does not fully reflect the commercial potential of its lead product, Linzagolix,” says a recent report from Leerink Partners, a Boston-based investment bank specializing in health-care companies. It sees the possibility of more than $1 billion in peak annual sales for that drug and as much as $165 million annually for Nolasiban. Trial data for the latter show significant improvement in pregnancy rates “and may even be sufficient for approval in [the European Union],” says Leerink, which values the stock at $25.
ObsEva CEO Ernest Loumaye has a solid track record. He founded PregLem, another drug company dedicated to products for women and based in Geneva, in 2006 with $75 million in venture-capital money. In 2010, Hungarian multinational drugmaker Gedeon Ritcher acquired PregLem for some $500 million.
“We have never talked so much about women’s rights, and yet most of the pharma industry has left women’s health to focus on other things,” Loumaye tells Barron’s. Nolasiban and OBE022 were each developed by other firms, which then shelved further work on them, he says. Both have no pending competition, he contends. Linzagolix is delivered via a single daily dose, doesn’t react with food or other pharmaceuticals, and doesn’t require patients to take hormone therapy.
Investors must understand that buying ObsEva is risky. It’s tiny, with a market capitalization around $675 million. In addition, losses hit $1.03 a share in the six months through June, and investors expect them to total $2.03 for 2019. The potential for regulatory approval hiccups could delay future revenue.
Given the uncertainty, estimates of its stock’s true value vary widely, from $24 to $44, according to Yahoo! Finance. Many assumptions are required to generate a valuation, including potential market size and how much of it a drug will penetrate, how quickly the product will come to market, and how it will be priced. Small differences in any assumption would mean huge valuation changes.
However, there’s a back-of-the envelope calculation that Bullseye Brief’s Johnson uses to estimate the shares’ potential. If the data from the trials prove to be positive, the stock could jump by as much as 50%, and if a major pharmaceutical company purchases ObsEva, expect another 50% premium, he says. That would mean $30 a share, double its current level.
Simon Constable is the author of the WSJ Guide to the 50 Economic Indicators That Really Matter.
Source : https://www.barrons.com/articles/obseva-a-small-biotech-with-a-promising-pipeline-1536938170787