Protagonist Therapeutics, Inc.

Moat: 1/5

Understandability: 3/5

Balance Sheet Health: 3/5

Protagonist Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing novel peptide therapeutics to address unmet medical needs in immunology and hematology.

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

Protagonist Therapeutics, Inc. (PTGX) is a clinical-stage biopharmaceutical company, meaning it is currently in the process of developing drugs and is not yet commercially selling any. Their main focus is on developing novel peptide therapeutics to address unmet medical needs, including inflammatory and hematological conditions. As a clinical-stage biotech company, they operate in a field with high uncertainty, facing risks such as clinical trial failure, regulatory hurdles, and competition. They’re working to bring novel medicines to patients, targeting specific diseases and pathways. They’re using its proprietary peptide technology platform. Their pipeline includes products targeting inflammatory and hematological conditions, among others.

Revenue Distribution

  • Being a pre-revenue clinical stage company, PTGX does not currently have revenue. All revenue streams at present are generated from partnership agreements.

Industry Trends

  • The biopharmaceutical industry is characterized by high research and development costs, lengthy regulatory approval processes, and a high degree of competition. It’s also subject to shifts in regulatory policies, advancements in medical technology, and market dynamics.
  • There is increasing focus on developing targeted and personalized medicines that address the specific underlying causes of diseases.
  • The emergence of new technologies has created opportunities for more effective drug discovery and development.
  • The market for both immunology and hematology drugs is growing. There has been a shift towards biologics and small molecule therapeutics for autoimmune and hematological conditions.

Competitive Landscape

  • The biotech industry, particularly in areas of immunology and hematology, is crowded with competitors ranging from established pharmaceutical companies to smaller biotechs, all seeking to address the same needs.
  • Many companies compete for talent and capital. They also face challenges of clinical trial development, obtaining regulatory approvals, launching new products, commercializing drugs, as well as defending their intellectual property.

What Makes Protagonist Unique

  • They have a proprietary peptide technology platform that allows them to develop and engineer novel peptide drugs. Peptides are short chains of amino acids that have the potential to interact with biological systems in many different ways. They offer a number of advantages to antibody-based biologics, such as being cheaper to produce, have lower immunogenicity, and the capacity for precise drug action.
  • Their focus on addressing unmet needs in immunology and hematology. Their pipeline includes innovative products addressing conditions, such as ulcerative colitis, polycythemia vera, and other blood diseases, for which few treatment options are available.
  • They also aim to have broad therapeutic applicability. They’re moving into new areas such as fibrosis and other related indications.
  • Their strategic approach includes partnering with other companies, like Janssen, to advance development and commercialization efforts.

Financial Analysis

  • Pre-revenue Stage: Being a clinical-stage company, PTGX is not currently generating product revenue. They’re funded primarily through collaborations and upfront and milestone payments.
  • Operating Expenses: The company has large R&D and general and administrative expenses. These expenses are highly variable and dependent on the progress of their clinical trials and development activities.
  • Cash Flow: Given the pre-revenue nature of the business, their free cash flow is currently negative. They require continued external funding for their operations. Their 2022 annual report showed a net loss of $171 million.
  • Stock Based Compensation: Given that many biotech companies use stock options to compensate employees, stock-based compensation is a major factor affecting net losses, this is visible in the company’s financials.
  • Recent Share Offerings: They continue to issue shares for cash, which further dilutes shareholder equity.
  • Liquidity: They appear to have access to enough capital for the next few years.

Recent Concerns and Controversies

  • Their major focus is on their rusfertide program. They will report data from a phase 3 study in the first half of 2025, so that data is what is critical to their future value.
  • They recently changed their chief scientific officer and they have only announced a limited set of details about the transition. This also could cause uncertainty amongst investors.
  • Their ongoing collaboration with Janssen on their other program is facing some delays.

Moat Assessment

Moat Rating: 1/5

Protagonist Therapeutics has a very narrow moat at best, primarily due to their peptide technology platform. The potential for their technology to become a unique approach is there, but it’s too early to establish the robustness of its moat as they still need to pass regulatory reviews, clinical trials, and commercialization. Given how crowded and competitive the market is, it may not be that hard for a competitor to replicate it. Furthermore, they also don’t have much revenue or a proven business model yet that establishes any brand power or pricing power. It is more likely that in order to grow, the company may seek other competitors and might find it more beneficial to collaborate with them.

Sources of Moat (Limited):

  • Proprietary Peptide Technology: While their proprietary peptide platform is a unique technology, it is subject to imitation, particularly as these platforms are continuously developed.
  • Collaboration Agreements: Strategic agreements with larger companies like Janssen provide them with non-dilutive funding and resources for development and commercialization, but they don’t translate into a sustained advantage that ensures better outcomes than others.

Risk Factors & Resilience

  • Clinical Trial Risk: A core risk is failure in clinical trials, which would destroy a drug’s prospects and therefore most of the valuation. A failure can arise due to many reasons, including lack of efficacy, negative side-effects, poor trial design, or a failed comparison to existing treatments. The company does conduct a range of small trials, but success in small trials doesn’t always translate to larger trials.
  • Regulatory Approvals: The pharmaceutical industry relies on the FDA for approvals, and failing to meet the regulatory criteria can result in major delays, cost overruns, and a delay in revenue.
  • Competition: The pharmaceutical industry has some major players, meaning if a competitor produces a similar drug, or improves an existing drug to work more effectively, PTGX would lose its market share.
  • Financial Risks: The company has significant research and development costs that drain its cash flow. As an early-stage company, any drop in funding, investor confidence, or change in the market can hurt their viability as an enterprise.
  • Management Risk: The recent change in their chief scientific officer makes the company risky, and if further executive turnover, as this can greatly influence outcomes and the quality of the product.
  • Patent Risk: Patent laws are notoriously complex, and any challenge to its patents could prove devastating.

Resilience

Their main resilience lies in their focus on the most difficult indications, creating novel drugs in areas with little options for patients. This may make them a potential target for large acquisitions and give them access to non-dilutive financing in case of downturns in investor confidence. Their drug candidates also have the potential to address serious and unmet needs which make it more likely that their products can have significant pricing power if they become viable.

Understandability Rating: 3/5

PTGX’s business is moderately complex to understand. The basic concept of developing peptide therapeutics for medical conditions is easy to grasp, but the intricacies of the underlying technology are more difficult to understand for an average investor. Furthermore, understanding the drug development process and the clinical trial process requires a lot of medical expertise. The financial complexities from accounting for drug development also make analysis more difficult.

Balance Sheet Health Rating: 3/5

While PTGX appears to have sufficient capital for the near future, it may not be enough if trials fail or they face greater than anticipated expenditure. In addition, continued financing through stock offerings can lead to the dilution of shareholder value. This puts them in an okay spot at the moment, as they are still not a high risk of bankruptcy but their financial position could be improved.

  • Their cash position is good right now, with $532.7 million in cash and cash equivalents.
  • However, the company is not profitable. Net loss attributable to common shareholders was $171 million in 2022, $105 million in 2021, and $104 million in 2020.
  • They have a sizable amount of intangible assets ($165 million in goodwill and acquired intangibles), and this can make their balance sheet look more complex.
  • They have continued to finance the business using equity, which dilutes share value, but does provide flexibility in the near term.