NewAmsterdam Pharma Company N.V.

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 4/5

NewAmsterdam Pharma N.V. is a clinical-stage biopharmaceutical company focused on developing oral, once-daily, small molecule therapies for cardiometabolic diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: NAMS is a clinical-stage biopharmaceutical company focused on developing and commercializing transformative therapies for cardio-metabolic diseases. Their lead product candidate, obicetrapib, is being investigated for the treatment of lipid disorders, specifically high levels of LDL-C, the “bad” cholesterol. The company was formed by a merger with Frazier Life Sciences Acquisition Corporation (FLAC). Their business model hinges on clinical development, regulatory approval, and subsequent commercialization of their drug candidates.

Revenue Distribution: As a clinical-stage company, NAMS currently generates no revenue from product sales. The company’s valuation depends entirely on their ability to progress their drug candidates through clinical trials and ultimately receive regulatory approval. The company does have some revenue from the monetization of its licenses to third parties which has not proven to be significant. Revenue is expected only after the Company’s drug receives approval.

Industry Trends: The pharmaceutical industry, particularly within the cardiometabolic space, is characterized by intense competition, high regulatory scrutiny, and the need for significant R&D investments. There is a continued emphasis on finding new therapies to address unmet medical needs, particularly in diseases like atherosclerotic cardiovascular disease (ASCVD). The high risk/high reward profile of pharmaceutical development means that firms can face highly variable returns based on clinical results, regulatory hurdles, and competitive dynamics. Emerging markets provide both opportunities and challenges, as regulatory pathways are uncertain and the level of market penetration is lower than developed markets.

Margins: NAMS does not currently have a positive operating margin as it is pre revenue company and it is still in the development phases of its drugs. Therefore, margins of 0% are quite normal for a company at this stage.

Competitive Landscape: NAMS operates in a highly competitive space with numerous pharmaceutical and biotechnology companies developing therapies for cardio-metabolic diseases. Key competitors include established players like Novartis (which now has a Phase 3 program for their own cholesterol treatment, Pelacarsen) and new entrants like privately held biotech companies. Additionally, companies developing therapies that include other mechanisms of action can also be viewed as competitors.

What Makes NAMS Different: NAMS’s main differentiator is their focus on obicetrapib, an oral, once-daily, small molecule therapy. Most cholesterol-lowering drugs are either injectables or antibodies with long infusion times. The marketability and convenience advantages of this may create a competitive advantage compared to current standards. Additionally, NAMS is attempting to prove the benefits of CETP inhibition, which has historically failed clinical trials. If successful, this novel drug could lead to greater treatment options.

Recent Concerns/Controversies:

  • Clinical Trial Success: A primary concern for NAMS is the potential for failure of its clinical trials. Positive topline data from the Phase 3 program are extremely important to maintain the company’s market value and to secure future financing. Recent publications by a competitor indicate that some concerns related to the mechanisms of CETP inhibition are real, thus casting some doubt on the obicetrapib drug and creating a lot more risk. A phase 3 failure would be devastating for the company.
  • Funding: While the company currently has a runway through 2025, any clinical trial delays or unfavorable results could lead to the need for more funding, which could come with significant dilution to existing shareholders.
  • Regulatory Approval: Even with positive clinical trials, there is always the risk that the FDA may not approve the drug. Regulatory setbacks have a devastating effect on most pharmaceutical companies.
  • Reliance on one Drug Candidate: While NAMS has other drugs, they have not been actively pursued in the recent past. So the long term growth and survivability of NAMS rests entirely on the obicetrapib drug, putting them in a weak position against unexpected circumstances.

Financials In-Depth:

  • Liquidity: The company holds a good amount of cash and is expecting to generate some revenue from the recent FDA approval and commercialization. That said, the cash runway currently exists into 2025 and more liquidity may be needed. At the end of September 2023, NAMS had cash and cash equivalents worth $295.5 million. The company also had long-term debt of $83.4 million.
  • Profitability: Since the company is pre-revenue, there is not much to analyze here. But it has had negative Net Income in the past. The R&D expense is very high for the company, mainly for Phase 3 trials on the drug. NAMS also needs to put in significant capital into sales, manufacturing, and supply chain which could further erode its financials.
  • Equity: As of December 2022, NAMS had a total shareholder deficit of approximately $181 million, but this has increased to a positive equity balance of around $180 million through the 9 months of 2023. This implies the company has a positive equity balance, as well as sufficient cash, to be able to survive to 2025. This suggests a healthy balance sheet.
  • Debt: As of September 2023, long-term debt stands at $83.4 million. This low amount of debt suggests management has a conservative approach to financial management, which is highly needed in a pre-revenue stage company.

Understandability: 2/5 The core concept of NAMS’s business, developing a new pharmaceutical drug, is relatively easy to grasp. However, the specific mechanisms of their drug candidate (CETP inhibition), the complex financial data related to R&D expenses, and the regulatory pathways involved make it fairly challenging for a retail investor to fully understand. A strong understanding of biology and the drug development industry is required to do a full analysis of this company.

Balance Sheet Health: 4/5 While NAMS is not yet a profitable company, its cash position is relatively solid, and debt level is low. Additionally, the company has managed to get a positive shareholders equity despite its pre revenue operations which are typically losses. This provides sufficient funding to keep the company afloat through most of its trial stages. The key risk remains if additional capital is needed given the extremely high R&D costs that are needed for further clinical development of its lead candidate. A clinical failure would have an outsized negative impact, so this risk cannot be completely ignored.

Moat Rating 2/5: NAMS has a narrow moat which stems primarily from its intellectual property protection, specifically through patents. However, such patents have limited durations (typically 20 years), after which the company has to compete with generic or other manufacturers. It has also created a certain brand loyalty in the cholesterol reduction drug market. However, given the company is still in the clinical stage, the moat is relatively weak.

  • Intangible Assets: The company’s key moat component arises from its intellectual property tied to its patents for Obicetrapib. It has received approval for its product in certain geographies, and further patent filings are being pursued, providing a form of defensibility. This is a good starting point for building a moat. However, given how frequently large pharmaceutical companies challenge these filings, it is not a very strong moat. In addition, there is no strong guarantee that the patents will be extended, and that competition will not arise after patent expiry.

  • Switching Costs: The other component of moat creation is through high switching costs. However, because many companies also provide drugs that provide cholesterol lowering benefits, the switching costs are fairly limited.

  • Threats to Moat: Any competitor that also produces a CETP inhibitor drug which works effectively and has similar benefits to NAMS’s drug would be able to threaten its moat. Additionally, the patent protection that is currently in place may erode as there may be future disputes over them. In addition, an increase in other drug development programs to compete with NAMS’s may create issues as well.
  • Business Resilience: The company’s long term viability is highly dependent on the success of its clinical programs. While the company has a decent runway through 2025, the large cash outlays needed to perform clinical trials creates uncertainty as the company might have to raise capital with diluted share prices if it fails to meet expectations. Even with positive clinical data, there is no guarantee the company will be able to get FDA approval as well. The company’s resilience at this stage is therefore very low.

Conclusion: NAMS is a high-risk, high-reward opportunity. The company has promising drug candidates and the potential to be a disrupter in the cholesterol lowering industry. However, the pre-revenue and pre-approval status of the company means its valuations are driven primarily by news and sentiment and not from any positive financial performance or economic moat. For now, the company has a relatively narrow moat with a lot of legitimate risks that need to be considered.