pSivida: The Small Biotech With Big News Coming
- PSDV will be announcing major research updates during November.
- Revenues and licensing partnerships are increasing substantially.
- At less than $47 million in market cap, pSivida is a sleeping giant with market disruptor technology.
pSivida (NASDAQ:PSDV) recently announced the date, November 7, 2017, for its first quarter fiscal year 2018 results, along with a conference call on the same day. Current and future investors should tune in at 8:30 AM ET for the call since pSivida will be covering significant company updates. I expect these updates to show that pSivida is making major progress in three key areas that will create positive stock price appreciation.
Durasert NDA for Posterior Uveitis
Uveitis is the third leading cause of preventable blindness in the developed world. Durasert is pSivida’s proven miniaturized, injectable, sustained-release drug delivery system that can fight posterior uveitis. It is for small molecules, lasts up to three years, and can be implanted in an office setting by a small needle. Instead of a patient needing to possibly come back every month for an injection in the eye, with Durasert they only need to endure one injection up to three years.
The New Drug Application (NDA) filing for Durasert is planned for late December 2017/early January 2018. This is big news since the NDA is what tells the full story of a company’s drug. pSivida will be able to show, in the NDA, that Durasert for posterior uveitis is safe and effective for its intended use in the population studied. This is due to Durasert achieving positive results with two pivotal Phase 3 studies. In those studies, Durasert achieved primary efficacy endpoints of prevention of recurrence of uveitis at six months of follow-up with statistical significance. If the NDA is deemed complete by the FDA, the review team then has 6-10 months to either approve or disapprove the drug. If approved, the labeling work begins that develops and refines the prescribing information. Fortunately, pSivida is experienced with the entire FDA procedure and already has approval for three products utilizing the Durasert technology. Bausch Lomb licensed both the Vitrasert and Retisert products and Alimera (Alimera ) licensed Iluvien.
New Glaucoma Research Partnership
pSivida announced a partnership with Nicox, an international ophthalmology company, to develop sustained release formulations of Glaucoma drugs. Nicox is approximately 7-8 times larger than pSivida financially and well-funded. They are fronting to pSivida $750,000 for initial research along with additional payments of $200,000 for successive development efforts. This is exciting news since the global ophthalmic market is valued at over $18.6 billion and growing approximately 5% a year. pSivida is getting geared up with partnerships that could bring in weighty licensing fees to such a small company. pSivida’s market capitalization of less than $43 million will explode upward when they cross the line into the black. pSivida’s revenue is already showing major growth with $7.5 million in fiscal year 2017 compared to $1.6 million in the previous year. This type of growth and current low market capitalization makes pSivida a very attractive acquisition target. Pfizer (NYSE:PFE) presently owns approximately 4.7% of pSivida’s outstanding shares as of June 30, 2017.
Knee Study Results
The best study report has been saved for last. pSivida and Hospital for Special Surgery (HSS) are releasing results from their 24-week study of a sustained release implant to treat severe osteoarthritis of the knee within the next two months. Nancy Lurker, pSivida CEO, mentioned in the previous conference call,
“However, the last patient reports out in October, right around mid-October. And so we want to give them obviously a little bit of time to clean the data and crunch the data, that’s why we expect that it could be, let’s just say, November – at the latest possibly December before the results are announced.”
HSS is world class and ranked No. 1 in orthopedics by U.S. News and World Report. This alone could put pSivida in positive earnings territory since over 700,000 knee replacement surgeries were performed in the US during the last 12 months. The number is only getting larger since obesity and longer life expectancy numbers are also getting larger. pSivida’s implant could provide long-term pain relief and improved joint function to preoperative patients, postoperative patients, and possibly delay the need for the operation. It is a win for everyone, including the patients, insurers, and medical staff since it helps decrease pain, lower costs, and gives more options, respectively. The sustained release drug, dexamethasone, has also shown promise with postoperative hip arthroplasties by reducing pain scores and opioid consumption. This shows that the knee osteoarthritis study is only the tip of the iceberg, and sustained pain management with pSivida’s technology could be a market disrupter. Robert N. Hotchkiss, MD, Medical Director of Clinical Research, HSS agrees and states,
“This implant, the result of the combined insights HSS and the expertise of pSivida, has the potential to create a paradigm shift in a variety of conditions.”
Sustained release pain management is the future since it solves so many present-day problems, and pSivida has the right technology for the job.
Balance Sheet and Risk Factors
Like all small biotechnology companies, pSivida is not without certain risks. The company’s financial model depends on licensing revenue and the ability to raise funds from time to time through stock sales. pSivida notes in its most recent 10-K that it will have to reduce operations and modify its business strategy if it is unable to obtain sufficient capital. Investment in small biotechs can be very rewarding, but it is also very speculative. Any investor could lose their entire investment in a small biotech such as pSivida.
Nevertheless, the slide below is a summary of pSivida’s cash, debt, and outstanding shares. pSivida management sells shares when needed and is not exposing the company to undue risk with high interest rate loans and massive debt.
Even with any future necessary stock sales, I believe pSivida will still have under 50 million shares outstanding before its licensing model creates enough revenue to sustain the company going forward. Research costs averaged just under $15 million per year for the last two years, and SG A has averaged approximately $10 million per year during the same time period. Revenue has increased but still averaged under $5 million per year for two years. Fortunately, pSivida recently modified its collaboration agreement with Alimera by converting to a sales-based royalty for all Iluvien licensed indications. Management states,
“We expect this conversion to result in increased revenues from Alimera over time, as well as better predictability and consistency of revenues to be recognized from Alimera.”
Expected proceeds from just the existing collaboration agreement, along with its cash and cash equivalents, will enable pSivida to maintain planned operations through Q1 of 2018. Operating results for pSivida have been fluctuating, though, and investors need to realize that quarterly and yearly comparisons may not be meaningful.
pSivida’s stock price is a sleeping giant ready for substantial growth due to the previously mentioned catalysts. It is increasing the number of partnerships with larger pharmaceutical companies, it is increasing revenue streams, and it has the delivery system of the future. pSivida’s products and technology benefit patients, drug manufacturers, insurers, hospitals, and medical professionals to name a few. I believe the day will come when its technology becomes the standard application in sustained release medicine. The short-term catalysts discussed could propel the stock to the $2-5 range within the next six months. On a longer term basis, 3-5 years, I believe that pSivida’s licensing model can generate revenues of $1 per share. Using similar PE ratios from other small biotechnology companies of 20-40, this would create a stock value of at least $20 per share and possibly much higher.
Disclosure: I am/we are long PSDV.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.