Elle Investments Research Report: OBSV

 

Company: ObsEva SA

Symbol: OBSV

Analysis Date: 5/5/20

Analysis Price: $2.98

Price Target (PT): $13.39

Upside: 349%

Dividend: NA

Recommendation: Buy

 

OBSV: 5-Year Chart

Source: Seeking Alpha

INVESTMENT THESIS:

Lead candidate linzagolix is in phase 3 trials for both uterine fibroids and endometriosis. It will be third to market behind MYOV’s Relumina (relugolix) and ABBV’s Orilissa (elgagolix), but even very conservative market share estimates show how mispriced this stock is. The drift down from $18.00/share in September 2018 has been severe, and even assuming additional dilutive financing, this has been overly punished. We think OBSV is a Buy.

 

LIQUIDITY POSITION: Poor

As of March 31, 2020, cash and cash equivalents totaled $62M. During 1Q20, they used about $15M in net cash from operating activities. We also assume that the PRIMROSE 1 trial will be successful and that they can draw an additional $25M tranche from Oxford on August 1. This puts total potential liquidity at $87M, and management expects this to last into 1Q21.

Nolasiban R&D expenses have already declined from $17M to about $2M per year (this is reflected in 1Q20 cash burn), and we also assume that linzagolix R&D expenses of $12M per quarter will go away by 2Q21. This should bring the cash burn down to under $5M by mid-2021.

Assuming no future partnerships, we estimate they will need about $191M to pay all development and regulatory milestones owed to Kissei Pharma ($63M), build the sales force for the US and EU ($78M), and fund operations for a few more quarters until linzagolix hits the market ($50M). This is a large amount of needed financing and a likely contributor to why the share price has declined so much. But even given this additional financing need, we still feel that the stock has been over-punished. Management continues to say that securing a commercial partnership for linzagolix is a priority for 2020, in which case the upfront payment and the royalty agreement would eliminate the need for so much new financing.

COMMERCIAL PROSPECTS: Good

OBSV’s three pipeline candidates are: linzagolix, OBE022, and nolasiban.

Linzagolix (OBE2109)

 

Linzagolix is an oral GnRH receptor antagonist, and is in the same class of drug as MYOV’s Relumina and ABBV’s Orilissa. It is being tested for uterine fibroids and endometriosis, and could also possibly be of use in a new indication (adenomyosis). Phase 3 results thus far for uterine fibroids show that linzagolix is potentially best-in-class. On the safety front, linzagolix has been shown to cause slightly higher bone mineral density (BMD) loss in the spine compared with the other two, but the declines have been under 3%, so still low. We see peak net sales of about $350M across all indications and territories for linzagolix.

OBE022

 

OBE022 is an oral PGF2α receptor antagonist that is being tested for preventing spontaneous preterm labor. Initial safety results were satisfactory enough to proceed to part B of the trial, but we feel that it’s too early to assign a meaningful probability of development, regulatory, and commercial success. Phase 2 data is expected 2H20, but for the time being, we offer no estimates for OBE022.

Nolasiban

 

Nolasiban is an oral oxytocin receptor antagonist being developed to increase the chances of a successful pregnancy for women undergoing IVF treatment. Thus far, phase 3 results have been mixed, with the IMPLANT 2 trial showing positive results but the more recent IMPLANT 4 trial failing to show a benefit. Management has decided to terminate development so that resources could be focused elsewhere. Since this decision, however, a licensing agreement with a Chinese biotech company has been announced, which will resume development of nolasiban in China at no cost to OBSV. This could lead to future sales from the Chinese territory, but at this time we offer not sales estimates for nolasiban.

CONCLUSION:

OBSV has drifted down from $18.00/share to under $3.00/share on basically no material news. It’s true that their current cash balance is not sufficient to bring linzagolix to market, so if a partnership agreement is not announced, then more financing will be required. But even assuming additional financing, we think the high probability of commercial success for linzagolix makes this mispriced. We think OBSV is a Buy.

Note: Additional commentary from Elle Investments can be found at http://elle-investments.com. We welcome your feedback. Additionally, we are thinking of launching a subscription service that would offer early access to our research, along with some other features that investors might find useful (i.e. general portfolio management strategies, live blog updates highlighting our reaction to breaking news, etc.). If you would be interested in subscribing to such a service, please let us know.

 

Published By: Elle Investments Research Team

Phone: (914) 715-8066

Email: info@elle-investments.com

Disclaimer: The Elle Investments portfolio is managed utilizing a “quantamental” approach where each position, while based on Fundamental Analysis, is sized as part of a larger quantitative portfolio. The commentary presented here is for research purposes only and is not to be taken as investment advice. Readers are expected to perform their own due diligence and/or hire an investment professional prior to entering/exiting positions. Published research ideas are related to the specific market price and publicly available information at the time of research submission/publication. Elle Investments will enter/exit positions without notice.