There are many different situations in my portfolio and they all have one theme in common: potential. I'm here for the potential to change my life.
Pieris Pharmaceuticals (PIRS) is a "clinical-stage biotechnology company that discovers and develops Anticalin-based drugs to target validated disease pathways in unique and transformative ways". Agreements with a number of huge companies give PIRS total potential milestone payments of over 30x the current market cap, plus royalties! Sound interesting?
This post can be summarized with two pictures. First a list of collaborations from their most recent investor presentation:
And a long term chart showing agreements overlayed with the total potential milestone payments and partner investments.
PIRS is a larger company than I usually write about.
- 63.3M shares common
- 14.4k shares preferred convertible into 1000 shares each
- so total diluted share count 77.7M shares
- fully diluted market cap $272M given share price around $3.50
And they have never turned a profit. The company has been selling shares to fund development as they work towards product. Last year PIRS brought in $29M in revenue while spending $47M on R&D. Talk about commitment to the future
I won't pretend to understand what they do beyond try to cure diseases. You can read about it in the 10k. It sounds impressive and makes me believe the sky is the limit.
What I do understand is upside. Look back at that price chart and the collaboration snapshot. One thing I see in that chart is news accelerating. Just in the past few months PIRS signed a deal with Boston Pharmaceuticals, took on investments from both Seagan and AstraZeneca, and signed a deal with Genentech. Those are major names with deep pockets. AstraZeneca has a market cap of $150B. Genentech is huge. It might be a coincidence but there sure is a lot of activity lately and it all seems so positive.
The AstraZeneca investment really interests me because the total potential milestone payments from AstraZeneca jumped from the deal's original $2.1B to $5.4B in May 2021, and it wasn't even disclosed in a filing that I can see, except for the May investor presentation. Even the Apr 2021 investor presentation still shows the $2B number. So AstraZeneca signed on a deal in 2017 and then in Mar 2021 made another milestone payment and invested $10M in PIRS. Then two months later their total potential milestone payments doubled. Sounds to me like things are going well.
And Seagen too. It's been 3 years since that deal was signed and now they are investing $13M into PIRS at $3.51 per share.
When I see this stuff my mind races. What happens if one of those programs hits and the payments start coming in? How about two? On top of the $8.8B in potential milestone payments PIRS is also entitled to royalties on all of those pograms. All that R&D spend must bring a steady stream of potential.
I'm surprised the stock isn't higher. The Genentech news pushed it up to 6 from the mid 2's and it's now fallen back to ~$3.50. The stock is the same as it was a year ago when the total potential milestone payments was $3.8B. Now that total is $8.8B which is 32x the market cap.
The risk here is the treatments don't work. The milestone payments don't come and PIRS has to dilute to keep the lights on. They've been losing money forever and that may continue. Downside is I lose the whole investment. A skeptic could look at my price chart above and ask we haven't made it to the promised land yet.
But what is the ceiling on this stock? It's higher than you can see with the naked eye, right? It's huge and that's why this is my kind of situation. Sure it might get cut in half if results don't come in. But on the other hand I could see this going up 10x, 20x, 30x. Feels like there is just too much going on for this stock to stay at $3.50. If I look out 5 or 10 years I have a hard time imagining the stock doesn't at least see double digits.
You know I like a good stock spike to sell into but PIRS is more than that. We might get spikes as we saw the other day when the Genentech deal was announced, but I'm hoping for business results. If PIRS can perform this is going way up.
Potential with a capital P.
Disclosure: long PIRS
To put this into perspective; This stock is covered by 3 analysts (what I don’t really like) with buy recommendations. Their price target is between 6 – 9 usd, average 7.5 usd (+118%). So yes, this stock might be undervalued. However, I do not know if such analyses have any meaning. (If they have you could e.g. buy TLG Troilus Gold Corp, which trades for 1.21 and has 5 buy ratings and an average price target of 3.7, + 205% - higher than PIRS).ReplyDelete
I don't know how to even value PIRS. It has such a wide range depending on how the agreements play outDelete
thanks. I would call this a growth stock. Price to sales is at 6.8x and price to tangible book at 5.7x according to my data provider.(Usually I like a p/s <1x and p/b < 1x). It is interesting to see how this will work out.Delete
Newbie pharma investor here. But wouldn't price to sale & price to tangible book the wrong metric to use? Since most of their value they derive is from the pipeline of drugs. Taking a more qualitative approach, how likely is the payout going to occur (i.e management fulfilling the targets). I don't have pharma background, so most of the IR presentation was beyond my circle of competence.Delete
Yes, I agree. I think the most important things are intangibles (which probably have not been activated anyway) and the product pipeline. (I would even compare this with junior mining stocks although the business is completely different. But there the Net present value of the projects, financing and the project quality is important).Delete
Thanks for pointing out this new investment. Just curious on your position sizing for this stock. Have you stuck with 2% or gone higher because it isn't illiquid stock?
Anyways, great blog and I was 5 years to late to finding this gem :)
I bought this one up to a 5% position right when the Genentech announcement came out, between $2.20-$2.80Delete
the cheapest Biotech company in U.S. is probably NextCure. It is a busted IPO and trades close to the cash on their balance sheet. The stock trades below book value, which is rare for a biotech company considering that they own intangibles. Unfortunately, I am not at all familiar with biotech and cannot judge their pipeline. The average target price of analysts is about 200% higher than the current price. PIRS has a better story but NXTC looks cheaper. However, both are probably not super attractive because of the big size and high trading volume. What do you know what other investors don't?ReplyDelete
Yes there's not a lot about PIRS hidden from the public. Only thing might be the increase in AstraZeneca potential milestone payments from 2.1 to 5.4B which they only revealed in the collaboration screenshot I posted above from their investor presentation.Delete
I just think the stock has a lot of upside, and less downside.
I see. Thinking about it again I guess that PIRS is still super small for most investors. BTW, in an interview with John Dorfman, the (limited) value of research from analysts was discussed, see here on the first podcast on min. 18: https://dorfmanvalue.com/media/radio-interviews/Delete
For sure PIRS is larger than I usually like. But still I think I can make money on the stockDelete
Do you have any thoughts on Almaden Minerals. It sounds that this stock could go up several 100%. https://seekingalpha.com/article/4436290-almaden-minerals-stock-waiting-for-the-permit-to-soarReplyDelete
don't know that one. I'll check it out. thanksDelete
A motley fool article on PIRS:ReplyDelete
Citadel own 5 %ReplyDelete
Hey Dan, totally unrelated, have you heard of Medexus Pharma? You might like the chart. $MEDXF
Canadian & US specialty pharma company that’s (normally) R&D light. They just got delayed by the FDA on a drug approval and flubbed earnings so the stock dove from $6 to sub $2. $2.36 now for a $47m market cap. Management is guiding $350-400m revenue within 5 years & it was ebitda profitable with $80m revenue last year.
Well I do like that drop. Share count not bad. revenue not bad. sounds interesting. I'll have to check it out furtherDelete
This week the stock sold off and is it $0.82 for a $16m market cap. They’re expecting a $100m+ revenue year that’s ebitda positive.Delete
It makes for an interesting look (even just to witness how the market can react to an fda delay and no change to the underlying business)
A stock that fits your investment strategy might be Scheid Vineyards. However, there are some things that I don't like very much (losses, negative cash flows, high debts).ReplyDelete
I dunno. $16 stock price is pretty high. would have to be really special for me to pay that muchDelete
Thanks-I bought 3,000 shares of PIRS on June 30@ $3.81 after reading your post. Looking good this week. No plans to sell. Your research is helping this public school teacher out.ReplyDelete
:) that's great. I hope it continues to work out wellDelete
Any update on this one?ReplyDelete
not on my end. just waiting and watchingDelete
Are you adding any PIRS at these levels, Dan?ReplyDelete
I should, but no I have not. I have a pretty large position and have not sold anything. more waiting on this one.Delete
I've been pretty slow moving lately. I do have a bit of cash. So many of my stocks have dropped into the trash bin that I want to buy more of and PIRS is one of those. Also BDR, WYY, IVC, DYNT, MINM, SLGD, WYY. I did buy more IVRO in the large recent drop.
Any news at all on $PIRS? This has turned out quite bad over the past few quarters. I guess whenever you have the likes of Zacks pumping it, as it was a few quarters ago, one had to know that such a selling spell is coming.
I am holding, for now. But I must admit my patience is wearing thin and I'm contemplating taking the loss and moving on.
Have you seen any updates -- positive or negative? It is a very opaque company really. Are you still holding on?
yes with the delays the stock has fallen. PRS-060 being the main one that has fallen behind due to covid and the war in Ukraine. The updates are all the conference calls they do. Makes sense in some way but I didn't think it'd fall this far. I have not sold and do not plan to. Been thinking I might buy some more as it seems to have found a base around a dollar and we're right at the end of tax selling timeDelete
Do you think they will need a capital raise, which could dilute existing shareholders? If that is the case, doesn't it make sense to buy after the dilution?Delete