Puretech Health (LSE: PRTC) has made a loss every year since its admission to the main market of the London Stock Exchange in 2015. Now that we have that out of the way, we can look to what the future holds for this diversified biopharmaceutical company.
Expected Losses
Puretech finds potential treatments and provides support for getting them from the lab through clinical trials and ultimately to patients. Funding is initially small, around $300,000 on average, and increases as effectiveness and practicality hurdles are overcome. Each intellectual property is housed in its own business, with its own incentivised management team, and technology is quite different. Puretech keeps its eggs in different baskets.
Investments, therefore, make up 69% of total assets, and a cash pile of $149.2 million stands ready either to support the existing affiliate companies or to found a new one around the next promising treatment. Puretech holds varying equity stakes in the affiliates because they can raise funds independently, often through forming partnerships with other pharmaceutical businesses.
In effect Puretech has a portfolio of shares and its value increases as the company’s potential treatments move along a path from clinical trial success to regulatory approval to sales for patient use. Puretech is also entitled to royalty payments from affiliates and may potentially receive dividends.
Two monoclonal antibodies are being developed internally for treatment of solid tumours, along with an oral drug delivery method that harnesses the lymphatic system and avoids the liver. The later project has attracted collaborations with Roche and Boehringer-Ingelheim, with all in the pre-clinical trial stage at present.
The promise in the pipeline
A little over $4 million in revenue was recorded for the half-year ending on June 2019, against an operating loss of over $70 million, yet in April 2019 Puretech shares started to climb from 163 pence to hit an all-time high of 292 pence four months later. The reason was that Plenity — for which Puretech is entitled to royalties as a percentage of sales — was approved for use for overweight US patients in April 2019, with sales expected next year.
That is one successful investment. Another was the sale of an undesired project to Bose, for a $4 million gain in 2019, and further potential catalysts for share price appreciation are in the pipeline. Akili, an affiliate, has a patented treatment for attention-deficit/hyperactivity disorder in the approval process, with applications for other cognitive and neurological disorders in the later stages of clinical trials. Other affiliates have treatments for Parkinson’s disease, alopecia, psychosis, allergies and cancer all making towards approved status.
I have measured an average decline in revenues of about 50% by the third year after patent expiry. Puretech will enjoy protected affiliate revenues, and therefore royalties for up to 20 years, on any treatments brought to market.
The chairman of the board was recently removed after some improprieties regarding donations to the MIT Media Lab, which he directed. He was not involved in the day-to-day running of the business, and an experienced interim replacement has been found with a former CEO of Sanofi. The share price has recently moved from 272 pence to 286p, as investors shrugged this off, and with the pipeline potential, I think the odds are in their favour.
