PTC Therapeutics (NASDAQ:PTCT) is a pharma company with an interesting portfolio and pipeline of drugs. It has an interesting DMD treatment that should be able to branch in the wider DMD market, and could tackle multiple parallel therapies in the market at once. They have not fully expanded all their products geographically yet, and are in the process of making the necessary submissions for their revenue generating portfolio. The details on the pipeline are hazy, but offer more TAM for them to hopefully one day obtain in the future. There is substantial outstanding dilution from stock compensation plans that could come into effect after some more price performance, but reflexivity risks, although present, are somewhat diminished by the fact that it generates some revenues already. The market cap to TAM gap suggests that the company could be interesting, although that mode of valuation needs to be taken with a grain of salt, and we think that for the intrepid biopharma investor, there may be something here. But to us, it’s still too risky, with nothing extraordinary standing out based on our conversations with people in the field that might have given it an edge.
Products and innovation
PTC Therapeutics is a biopharmaceutical company, mainly focused on developing treatments for various genetic disorders. This company’s been in the business for over 20 years and has a broad pipeline of therapeutic products. Their lead product is EEA-approved (soon to be US-approved) Translarna (ataluren), a product for the treatment of Duchenne muscular dystrophy (DMD), specifically the type of the disease caused by nonsense mutation in the dystrophin gene (which codes dystrophin protein). Nonsense mutation is a type of point mutation, which are characterized by changing single nucleotide base inside of the coding sequence of the gene (often changing it with the stop codon – a sequence which carries the message of termination in translation process), leading into early determination of protein synthesis producing nonfunctional protein. The company’s product, Translarna, basically induces operating RNA molecules and helps ribosomes in the translation process to recognize and continue the translation process over the stop codon sequence, resulting in producing an adequate protein which is functional.
In one of our previous articles, we discussed another company which also develops treatment options for DMD. Although we cannot compare products of these company’s directly, because of their different mechanisms of action and targets, we can broadly discuss their approaches to the problem. PepGen’s (PEPG) PGN-EDO51 is an exon skipping product, which targets specifically the mutated exon 51 inside of the dystrophin gene, therefore restoring the reading frame of the gene and securing functional protein production. In comparing with Translarna, we notice the difference in spectrum of the DMD patients that can be treated with this therapeutical option, compared to Translarna, since PGN-EDO51 is suitable only for DMD patients which have a mutation on exon 51. On the other hand, Translarna is acceptable for wider range of patients, because it is not region specific (can be used in different nonsense mutation cases, no matter the region of the gene which is affected). Also, due to a simpler mechanism of action, Translarna could have a response advantage.
Another drug from the company’s pipeline is Emflaza (deflazacort) which is the US-approved DMD product, a corticosteroid drug which is mostly used in DMD patients as adjuvant symptomatical therapy. In the PepGen article we also discussed corticosteroid therapeutical options, and here we have a similar story. Emflaza, as a corticosteroid drug, has anti-inflammatory and immunosuppressive effects which are significant for a patient who’s suffering from neuromuscular diseases such as DMD. The story is always the same for corticosteroid drugs, which is concerns about side effects and the need for attention in dosing.
Neurotransmitters such as dopamine and serotonin are one of the main neurotransmitters in our brain, essential for its proper functioning. One of the rare central nervous system metabolic disorders – Aromatic L-Amino Decarboxylase deficiency (AADC), characterized by a DDC gene mutation, affects exactly those mentioned neurotransmitters in terms of the disturbance of their metabolism (clinically these neurotransmitters are deficient), which results in impaired development of the brain. PTC therapeutics made a drug called Upstaza (eladocagene exuparvovec), a gene therapy product, which tends to substitute the defective gene allowing for the proper amount of supstrat L-Amino Decarboxylase in neurotransmitter synthesis. This process is possible because of gene recombination technology, the most famous form of gene therapy, where viral vectors are used in order to deliver healthy genes into the brain cells. In 2022, Upstaza became the first disease-modifying therapy approved in the European Union and U.K., since all other therapies until that moment were symptomatic in nature (not targeting the core problem). They are going to submit the application for the US as well.
Spinal muscular atrophy (SMA) is a neuromuscular disorder where a gene called survival motor neuron 1 (SMN1) is mutated and the respective SMN protein is deficient (resulting in overall motor impairment). SMN protein has a crucial role in functioning of motor neurons, which are further important for proper muscle functioning. Before making US-approved Evrysdi (risdiplam) which treats the disease, therapeutical options were mainly oriented around supportive care such as physical therapy and symptomatic treatment. Our DNA consists of coding sequences called exons, which are connected with introns (sequences which do not carry genetically important information). Through the transcription process, from DNA we get firstly premature RNA (pmRNA) which consists of exons as well as introns in its structure. In order to become mature, pmRNA needs to undergo a process called splicing. Splicing is a wellknown mechanism, genetically speaking. The aim of this process is to cut off introns which are positioned in-between the exons (which need to be translated into the protein) and merge them, therefore receiving mature RNA (MRNA).
Survival motor neuron 2 (SMN2) acts as a target gene for company’s product due to its ability to produce some amount of SMN protein as well. Evrysdi works as a modifier of the splicing process of SMN2 pmRNA, therefore getting more protein production out of it than normal to compensate for production deficiencies elsewhere. In this way, Evrysdi plays a crucial role in treating this disease. We can say that Evrysdi represents a big step forward when it comes to treatment of SMA.
They also have some commercial agreements in place for some drugs with another drug company, and we are not sure the terms of the agreement and haven’t seen a demonstration of sales of these drugs on major markets yet.
Furthermore, they also have a diversified development pipeline, including a drug for Huntington’s Disease (HD) in Phase 2, as well as using some of the platforms they used for other drugs for gene therapy treatments and others for mitochondrial diseases, and for Friedreich’s Ataxia (FA). Also, they have something in the works for phenylketonuria (PKU) and leiomyosarcoma.
They are not a pre-revenue company, after all. They have plenty of drugs that are already being commercialised. Many still have scope for much larger markets. Using our rule of thumb, for the drugs still in development, there is around a $4 billion or so outstanding development burden based on the progress of trials.
So for market sizing, we are looking at DMD global, for all sorts of different mutations, AADC, SMA, FA, HD, PKU and leiomyosarcoma. Their DMD drugs in major markets aren’t stuck to certain exons, so $1.8 billion is the broad TAM from our PEPG article based on existing treatments. AADC could be around $1.4 billion assuming EEA and US, assuming full value capture of the burden, which we’ll do for all the rest as well. SMA could be around $6 billion. HD could be around $6 billion based on absenteeism. FA could be around $642 million. PKU around $1.3 billion. $17 billion is the total TAM. That’s a bit of a reach, since the company already generates income, and the market price for these drugs are rarely at full value capture. Also, there is around 17% dilution outstanding just from stock compensation plans. Also, they are burning cash. Currently, at a $140 million or so rate per year. They have enough cash for around 2 more years. It’s not bad, since they already have some established products that are planned to be branched out into new major markets, like Translarna. Dilution risk on that account is probably relatively limited, given the horizons and position. At a current effective $2 billion market capitalisation for PTCT, which effective including dilution would be around $2.3-2.4 billion, the gap to TAM looks pretty decent, even accounting for the likelihood that the TAM won’t entirely be captured. With revenue generation underway to finance partially the pretty big pipeline, it’s not that unattractive. It has more tools than an entirely reflexive company in the current funding environment. But it’s still a little too ambitious for our conservative preferences.
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