Protagonist Therapeutics Inc. (NASDAQ: PTGX) saw its shares move up so much on May 30 that some investors probably just assumed this was a takeover or that the company had major news shaking the biotech industry. The real driver here was that Protagonist announced a key worldwide licensing and collaboration agreement with Janssen Biotech, a subsidiary of Johnson & Johnson (NYSE: JNJ). The agreement built upon a prior J&J venture funding from 2013.
When investors see a stock move 50%, they often wonder if the move might be too much or if this represents a real gain of fortune for the company in the years ahead. If the analysts tracking Protagonist Therapeutics are right on current and recent analyst calls, this small company’s investors might even see far higher upside ahead.
24/7 Wall St. has already covered the details of the pact, noting that Protagonist will receive an upfront payment of $50 million from Janssen and that it is eligible to receive up to $940 million more in development, regulatory and sales milestones. Investors will want to consider that Protagonist had a market cap of only about $140 million prior to this big move.
Shares of Protagonist Therapeutics closed at $8.22 on Friday, but they were up a sharp 45% at $11.88 in late-day trading on Tuesday. The stock hit a high of $14.85 shortly after the opening bell, and the 2.75 million shares that traded by 2:45 p.m. on Tuesday was already about 100-times normal daily trading volume. Its market cap was still right at $200 million at that time.
Protagonist Therapeutics has a 52-week range of $8.00 to $26.36. This company raised close to $90 million in an IPO from August of 2016 after selling 7.5 million shares at $12.00 per share.
Three different analyst calls have been highlighted below. They are outside views and investors should only use analyst research reports in speculative biotech and speculative pharmaceutical stocks for information rather than blindly following a report’s advice just because they have “outperform” ratings and are calling for upside of 100% or more.
Investors should also consider that analysts often change their ratings or change their price targets after big news. Whether that will be the case here remains to be seen.
One last consideration here is that there was a fairly active short interest when compared on two of three metrics used by short sellers. The mid-May short interest might have been only 237,623 shares, but that represented more than 22 days to cover at the time. That was also the third highest short interest reading since its August 2016 initial public offering.
Leerink has an Outperform rating and a $29 price target, and a flash note after the big news from Leerink’s Joseph Schwartz and Dae Gon Ha was still quite positive. Their 12-month price target of $29 is based on a discounted cash flow analysis that assumes a 13% discount rate and 2% terminal growth rate. They have a 35% probability of PTG-100 launch in 2021 with peak revenue of $480 million and about $185 million for the rest of its preclinical assets.
Leerink’s flash report said:
Commercial terms of the agreement mean $50 million upfront payment for Protagonist with up to an additional $940 million tied to development, regulatory, and sales milestones. Much of the development milestones will be recognized upon completion of each component of the Ph.2a/2b clinical trial in Crohn’s disease (if Janssen/JNJ elects to retain licensing at that time). Since Janssen/JNJ will receive exclusive, WW rights to develop and commercialize PTG-200, however, Protagonist will receive double-digit tiered royalties on net product sales. For a nascent company, leveraging Janssen/JNJ’s sizable salesforce could facilitate rapid commercialization upon regulatory approval.
One issue to consider in Leerink’s valuations is that it was in September of 2016 that it initiated coverage with a $17 target. Then after Protagonist’s shares rose to about $25 (November of 2016) they raised their target to $29 and that target has remained since.
BMO Capital Markets has not yet updated its targets and numbers, but on May 10, 2017, the firm’s M. Ian Somaiya reiterated an Outperform rating with a $34 target price. The strong target was based on PTG-100 being de-risked given the clinical and commercial success of its biological target (shared by Takeda’s Entyvio) and that it could achieve blockbuster sales of $2.3 billion in ulcerative colitis alone.
At that time, BMO’s report said:
We recommend investors take advantage of recent weakness in Protagonist Therapeutics shares as we expect interim analysis of the Phase 2b trial (2H17) of PTG-100 and advancement of pipeline drugs PTG-200 (2H17) and PTG-300 (2Q17) into the clinic to enable shares to start to reflect value for what we consider to be a de-risked pipeline. The company’s strategy of going after clinically validated targets with oral peptides and focus on IBD, which has a concentrated prescriber base, should translate to attractive licensing deals ex-U.S. and independent selling efforts in the U.S.
Barclays had reiterated an Outperform rating and $30 price target on Protagonist Therapeutics, but that has not yet been updated since being shown in March of 2017. Its report at that time noted that PTG-100 is the company’s alpha 4 beta 7 antagonist being investigated in ulcerative colitis. At that time the Barclays report called for peak revenues over $1.1 billion for the asset with an opportunity to expand into Crohn’s disease and into pediatric IBD indications. The firm modeled $660 million in revenues for PTG-200 in Crohn’s disease, with upside coming from approvals in other IBD indications.
Protagonist Therapeutics lists its product pipeline as three candidates, and it announced earlier in May that up to $1.34 million over two years to support research aimed at developing biomarkers that define IL-23 receptor target engagement by oral peptide antagonists and the effects of that engagement on downstream signaling. The company’s three candidates were shown as follows, directly from their website:
- PTG-100 — An oral GI-restricted α4β7 integrin-specific antagonist for the treatment of moderate-to-severe UC (currently in global Phase IIb).
- PTG-200 — A first-in-class oral GI-restricted IL-23R antagonist for the treatment of moderate-to-severe Crohn’s disease.
- PTG-300 — An injectable hepcidin mimetic for potential treatment of iron overload related rare diseases (pre-clinical).