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Provention Bio (PRVB): Assessing Investment Case After Tzield Approval

Top view of hand holding blue ribbon with red blood drop and copy space. World diabetes day concept.

John Kevin/iStock via Getty Images

Investment Thesis

It has been a long time coming, but finally, last week, Provention Bio (NASDAQ:PRVB) secured approval for its lead therapy, teplizumab, as an injection to delay the onset of stage 3 type 1 diabetes in adults and pediatric patients 8 years and older who currently have stage 2 type 1 diabetes.

The drug will be marketed and sold as Tzield and is the first ever drug approved by the FDA to delay the onset of Type 1 diabetes. According to the FDA’s approval statement:

Tzield binds to certain immune system cells and delays progression to stage 3 type 1 diabetes. Tzield may deactivate the immune cells that attack insulin-producing cells, while increasing the proportion of cells that help moderate the immune response.

The approval was based on a study of 76 patients with stage 2 Type 1 diabetes, randomly assigned either placebo or Tzield for intravenous administration once per day for 14 consecutive days. In the Tzield arm, after a follow-up period of 51 months, 45% of 44 patients were later diagnosed with Stage 3 Type 1 Diabetes, compared to 72% of 32 patients who received placebo – a statistically significant result.

The FDA initially declined to approve the drug in July 2021, after identifying deficiencies in Provention’s Biologics License Application (“BLA”), including differences in the pharmacokinetic properties of the drug substance used in the clinical trials and the planned commercial product.

Provention’s share price, which had been riding high, hitting an all-time peak of $18 in December 2020, had fallen to a low of $3.9 by the beginning of 2022. After opting to resubmit its BLA in January, however, the share price began to rise, and despite the FDA delaying its decision on whether to approve Teplizumab second time around by 3 months from August 17th, it has finally given it the thumbs up.

Provention stock now trades at a price of $9.4, and is up 31% over the past 12 months, and up 141% across the past 6 months. The question for shareholders and prospective to answer today is whether the share price can match or even exceed its former high of $20, or whether this may be an optimal time to sell.

Provention now enters uncharted territory as a commercial stage pharma, and much will depend on its ability to execute a successful commercial sales strategy. If, after the initial enthusiasm around the approval, the company struggles to earn the revenues that would support say a $1bn market cap or higher, or fails to make Tzield a profitable product, shareholders may end up wishing they had sold at today’s price.

In this post I’ll try to break down the commercial picture for readers and highlight where the opportunities lie.

Provention does have other clinical candidates, targeting the autoimmune conditions Systemic Lupus Erythematosus (“SLE”), Coxsackievirus (“CVB”) infection, and, in partnership with the Big Pharma concern Amgen (AMGN), Celiac Disease, but it is hard to escape the conclusion that the commercial success or failure of Tzield will dictate the value of the share price over the next 2-3 years.

Peak Sales Estimates and Market Opportunity

Back in 2020, analysts were apparently forecasting for peak sales of Tzield to be anything between ~$630m to >$2bn – even at the lower end of that range, Provention stock looks potentially undervalued, provided the costs of manufacturing and marketing the drug are not prohibitive.

The market opportunity is based on a pool of ~30k eligible patients, and a stated list price of $13.85 per vial of Tzield, or $194k for the recommended 14-day treatment programme. The list price is somewhat higher than many analysts had expected, which Provention CEO Ashleigh Palmer put down to the game changing nature of the drug when discussing the matter on a conference call announcing its approval i.e. there are no other similar therapies and no other ways for patients to prevent onset of Type 1 diabetes (“T1D).

The list price and addressable patient population implies a $6bn market opportunity, although Provention believes this could be expanded to a further 500k patients with Stage 2 diabetes and up to 2.3m patients who may be at risk of T1D globally. These latter figures may be wildly optimistic, since they imply a ~$100 – $500bn market opportunity – although the size and scale of the diabetes market – which grows by ~3% every year – should certainly not be underestimated.

Screening The Key To Success

In order for patients to be prescribed with Tzield they must first be screened for the disease, and although screening is widely available, it is not necessarily employed as often as Provention would like.

People whose relatives have T1D are most likely to be offered screening, although Provention makes the point – in a detailed presentation about its go-to-market strategy which can be found on its website – that 85% of people with T1D do not have a family member with T1D.

Provention argues that T1D fulfils World Health Organisation (“WHO”) criteria for screening and suggests that support for screening is increasing, meaning it will likely become more commonplace over time.


Support for increase screening for T1D – American With Disabilities Act (Provention presentation)

Provention also refers to a study of 30K children screened in Colorado which resulted in 693 children with diabetes associated autobodies identified – 102 with Stage 1, 55 with Stage 2, and 49 with Stage 3.

In summary, screening for diabetes makes a lot of sense given the suffering engendered by the disease on children and adults throughout their lifetime, and the economic burden of treating the disease.

On the other hand, it is not yet practicable to conduct mass screening in every child for diabetes and highly unlikely that such a programme will be introduced in the near term given the implied expenses, even if the benefits potentially outweigh the risks.

That means the onus will fall on Provention to persuade physicians to screen as much as possible, and parents to request screening for their children, which will likely consume a lot of Provention’s marketing budget through educational programmes, advertising etc.

Provention is not cash rich, reporting $187m of cash as of Q322, and a net loss for the 9m to September 30th in 2022 of $80m. The company’s spending will likely increase substantially as it plans to hire ~60 therapeutic specialists, 14 field medical scientists, 4 field reimbursement case managers, and 4 clinical educators, according to plans outlined in its May deep dive presentation.

Sanofi Partnership Another Key To Success

Provention has done well, in my view, to enlist the help of French Pharma giant Sanofi (SNY) with its marketing efforts.

By the terms of its agreement, announced in early October, Sanofi will, according to a press release:

commit commercial resources in the United States, including diabetes field specialists, account directors, field-based reimbursement and medical science liaisons to expand the number of key healthcare professionals reached in the United States. In exchange, Provention will reimburse field force-related expenses that Sanofi will incur in connection with commercializing teplizumab under the agreement.

Sanofi also has the right – in exchange for a $20m upfront payment – to an “exclusive, one-time right of first negotiation (ROFN) to obtain exclusive global rights to commercialize teplizumab for Type 1 diabetes indications in humans”, and has also made a $35m equity investment into Provention.

Given the scale of the task of manufacturing, marketing and selling Tzield, an optimal outcome may be for Sanofi to complete a full buyout of Provention down the line. Tzield has after all shown that it can reduce the risk of patients developing stage 3 T1D by a statistically significant amount, and is therefore a therapy that e.g. almost any parent would want their children to have access to.

With its far greater experience, infrastructure and financial resources, Sanofi would likely have a much better chance of turning Tzield into a standard-of-care style product.

Sanofi may additionally have a vested interest in the diabetes space given the excitement in pharmaceutical circles around rival Pharmas Eli Lilly (LLY) and Novo Nordisk (NOV) products Mounjaro and Ozempic, both pegged by analysts for >$20bn in peak sales. Granted, these drugs may be indicated for Type 2 diabetics, but diabetes is regarded as one of the most important growth markets in healthcare, and Sanofi will be desperate to establish a foothold within it.

Reimbursement and Payer Access

In the meantime, Provention will also need to focus on getting Tzield approved for reimbursement and making sure healthcare payers are including Tzield in their lists of available and reimbursed products.

Management sounded bullish about its prospects for winning over payers in the post-approval conference call, and in the May presentation states that >75 individual payers have been engaged, representing >270m covered lives.

Given the cost burden of treating Stage 3 T1D patients, it certainly seems logical that insurers would be enthusiastic about the product. Market research conducted by Provention suggests that on a scale of 1-5, 5 being the highest, the average perceived clinical value of Teplizumab amongst payers was 4.2 (although only 3.8 amongst prescribers).

It’s clear from the May presentation, earnings call and conference presentations that Provention has done its homework on reimbursement and has mapped out the patient journey on behalf of physicians, payers and key opinion leaders (“KOLs”).

Management has had, after all, nearly 18 more months than initially thought to prepare for a commercial launch of Tzield. The fact that Provention itself needs to be front and centre of the advocacy campaign however will inevitably put a strain on its financial resources.

Conclusion – Can Provention Persuade Patients Physicians & Payers To Turn To Tzield?

Tzield is a unique product that defies comparison with most other marketed drugs I can think of. It has no rival products to compete against, but without patients being screened for diabetes first, it cannot be prescribed effectively.

In effect, that makes marketing and selling the product doubly hard, but I would broadly agree with management’s conclusion that such an essential product will eventually find its market.

The issue is that Provention has limited funding, and although it can always raise more through share issuances or debt covenants, management has not necessarily proved the case that it can turn a profit from Tzield – especially in the near term.

The Nasdaq is littered with commercial stage pharmaceutical companies that are spending >$500m on SG&A to drive commercial revenues of $100m per annum, for example, and these business models are obviously unsustainable.

With that said, very few of these companies address a market as potentially large as preventing the onset of diabetes, and I think Provention has made a smart, if risky move enlisting the help of Sanofi. I am slightly wary of the terms of the deal – could Sanofi obtain the rights to Tzield at a knock down price if the costs of an initial marketing launch weigh too heavy on Provention, without having to buy the company itself?

Ever the optimist, I am holding onto my Provention shares as I believe this product has genuine value and I can envisage patients, payers and physicians all helping to increase the levels of screening across the US initially, and perhaps, in time, internationally also.

I would expect that Provention shares are in danger of falling over the next 12 months, just as they did initially after the approval of Tzield was granted, as many investors doubtless exited their positions, and it is not hard to envisage a scenario where the company lacks the financial firepower to make a success of the drug in a commercial setting.

I intend to hold to see if management’s carefully laid out go-to-market strategy and field research reaps its reward – the next 12 months will be a challenging but intriguing period for the company and its shareholders.

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