Catalyst Bioscience Inc. A buy or a bad gamble?

by pashtun92

I would like to ask this community on how to properly analyse the following stock: CBIO. According to this article, the analyst claims the stock will have a gain of 303% within 12 months and reach a price of almost $20/share. If this text is too long for, go ahead and just read the conclusion + question.

Catalyst Bioscience Inc. is pharmaceutical company that as of date has no profit. They have however, a few ‘promising products’. Some basic background information first:

  1. Hemophilia is a blood disorder. It is characterised by a deficiiency of factor VIII (type A) or factor IX (type B). These factors play an important role in the coagulation cascade. In simpeler words, if patiënts are born with this deficiëncy, they will have problem with forming clot and therefore a higher chance of bleeding episodes, for example bleeding in muscles, joint, nosebleeds etc. The patiënts with a severe form of this disease, have to go to the hospital every week and get an intravenous injection of these factors. This is called profylactic treatment. Intravenous injection is expensive, invasive and inconvienient. They also have to go to the hospital if they have a severe bleeding episode, to stop the bleeding they also receive these factors, called on demand treatment of bleeding episodes.
  2. It is possible to divide the immunesystem in two type: the adaptive immune system and the innate immune system. There are certain proteines, called complement, which play an important role in both systems. They make sure that certain cells, such as T-cels, migrate to the correct location, for example a site of infection. They also make it possible for macrophages to recognices bacteria and viruses, so that phagocytosis can take place (killing of bactera/virus). One example of such a complement is called C3 (this one plays a pivitol role). There are several diseases in which the complement is overactive and causes problems for the patients. By inhibiting this C3 complement, you could treat those diseases. Examples are: dry AMD (macular degeneration), aHUS, PNH, complement-3 glomerulopathy, neurologic diseases such as myasthenia graves, but really any auto-immuun disease could be affectd through this inhibition.

This company has developed four main products:

  1. MarzAA, which is factor VIIa, injected subcutaneously (under the skin) instead of intraveneous (directly in the veins). It has entered a phase 3 clinical trial in late 2020. It compares MarzAA with 60 patients with hemophilia A or B with bleeding episodes with standard patiënt care. If this trial is succesful, it will most likely result in the approval of the FDA of this product, generating revenu in the short term. There are also phase 1/2 trials for factor VII deficiency, glanzmann thrombasthenia and patients with hemophilia A with inhibitors treated with helimbra for treatment of bleeding episodes starting in the late 2020. In others words, in the future, it will probably be used for more than just bleeding episodes of hemophilia A/B.
  2. Dalca, which is factor IX. A phase 2 trial has been completed for prophylactic treatment of hemophilia B. A phase 3 trial is underway in late 2020. So they will soon also produce revenu on the basis of this product. But soon could also mean a couple of years.
  3. An anti-complement factor 3. On oktober the 14th they announced that they have a patent for this product which will last untill 2038. They are currently busy with pre-clinical trials on mouse, to see if it has an effect on dry AMD. The stock price went up from $4.80 to $6.40 on the day of announcement.
  4. Fix-gene therapie of factor IX. There are trials on mice; seems in-vitro to be 3-4x better than the Padua variant (Pfizer/Stark).

Everything seems nice and well for this company, however there are a few problems, mainly competition. According to their 10k-report:

  1. MarzAA’s competitive advatange is the subcutaneous (SQ) injection. Novo nordisk and Pfizer are developing their own SQ variants of tissue pathway inhibitors. They are currently also conducting phase 3 clinical trials! Expected to finish in 2023. There is also another trial by Genenzyme, phase 3 clinical trial, for RNA-interference therapeutic targeting of antitrombin therapie. OPKO Health factor VIIA SQ has entered phase-1 trial. Novo Nordisk FVIII SQ entered phase 2 study. If you ask me their competitive advantage may very well be nullified as soon as their product is approved or very shortly afterward.
  2. There are already four product on the market which compete with DALCA -> BeneFix by Pfizer, Factor IX-Fc by Sanofi Aventis and Idelvian by CSL Behring, Rebinyn by Novo Nordisk.
  3. There are already three product competing with the factor IX gene therapie: Spark has phase 3 trial with fidanacogene expected to complete in 2021, uniQure expects to complete in 2023 and freeline a phase 2/3 trial in 2024.
  4. There are no approved treatments for dry AMD, however Appelis has entered a phase 3 trial with a product scheduled to complete in 2021.

But the most important competition, which they do not mention in their own 10k-report, is in my opinion genetic therapy of factor VIII and/or factor IX for patient with hemophilia A/B. It is possible to inject the gene responsible for factor VIII and factor IX through a virus (a vector). After delivery of the virus, the patient will start producing their own factor VIII or factor IX. There are currently several phase 1/2 trials for both of these diseases. If genetic therapy is approved, their product MarzAA will become useless in my opinion for hemophilia…their second product DALCA will also become useless. The reason it will become useless, is because those vectors will have to be administrated only once, according to some data even after 52 weeks patients still have relatively high levels of factor VIII/IX. In other words, this might be a ‘cure’. Their third product and fourth product are in pre-clinical phase. From pre-clinical phase to approval by FDA on average it takes 10 years. Good look waiting on these to generate revenu.

Conclusion

The current competition is already fierce. I expect their competitive advantage to be nullified in the short term. In the longer term, say 5-10 years, their main products MarzAA and DALCA will become useless. However, MarzAA may be used for more than just hemophilia. But wether they will be succesful in this remains the question, since the trials for the other indications are only phase 1/2. Their anti-C3-complement and gene therapie for factor IX are in pre-clinical phase, therefore I expect them to generate revenu after 8-10 years at the earliest.

Question

However, the three analyst project that the share price will rise to $20 in 12 months. Based on what? For me it is unclear. How do they come across to this conclusion? How do they calculate the value of $20? Is there something else I have missed in my analysis, please share with me your thoughts. To me it seems extremely risky to buy a start-up company like this which generates no income and enters a market which is so fierce in competition.

 

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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