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Protara Therapeutics: biotech net-net with low failure risk
Ticker: TARA (Nasdaq). Date research and write-up: 2023-02-12
Price around 2023-02-12: 3.3 USD. Current price: about 3.3 USD.
Estimated multiple Liquidation Value/Market cap: 1.3
This is a US-based biotech company. The company was formerly known as Artara Therapeutics. On 9 January 2020 Artara Therapeutics merged with another biotech company. I do not understand why the company changed its name on 11 May 2020. Anyway, the company became listed through a reverse merger (red flag).
At the moment it seems most research is going into one candidate drug: TARA-002. The company is doing a phase 1a study for use of TARA-002 against non-muscle invasive bladder cancer (NMIBC). Furthermore it is working on the protocol for a phase 2 study evaluating TARA-002 in Lymphatic Malformations (LMs). That study is expected to start “in 2023”. The company also investigates “IV Choline Chloride in Intestinal Failure Associated Liver Disease (IFALD)”. This drug has got orphan status in the US and is “phase 3 ready”.
SEC filings here.
Annual report over 2022: here.
See also the annual report over 2021 here.
Furthermore see the last circular/proxy for the annual meeting.
According to the company presentation from January 2023 TARA-002 is based on “OK-432, which is approved in multiple oncology indications and LMs in Japan”. In the presentation the company claims to have worldwide rights ex-Japan and Taiwan for TARA-002 and OK-432. This could be a valuable asset.
However on page 6 of the annual report over 2021 the company writes this license expires after 17 June 2030. But if the FDA approves TARA-002 it will very likely get additional protection from “12 years of biologic exclusivity” (page 20 of the annual report). Also on page 20: “if approved, IV Choline Chloride will be protected by Orphan Drug Designation exclusivity for seven years.”
See page F-21 of the annual report over 2021. For TARA-002 the company may have to make certain milestone payments, if approved. According to page 15 of the annual report such a payment would be “in the low, single digit millions”. Furthermore the company may have to make royalty payments of up to 2.5% of future TARA-002 revenue. The company may also have to make royalty payments of up to 7.5% of future IV choline chloride revenue. Milestone payments for IV choline chloride are up to 1.1 million USD in total for approval. The patent protection for IV choline chloride expires in the US in 2035 (page 19 annual report).
Share count: there are 11.3 million shares, 2.6 million 5-10 year options with exercise prices of 15-21 USD and at least 300k newer options at much lower exercise prices. There are also about 8000 non-voting preferred shares that can be converted into about 8 million shares. Therefore the market cap is much larger than the 37.2 million displayed at most financial websites. I estimate the market cap at about 64.7 million USD.
I estimate the company to burn about 30-35 million USD of cash per year. Liquidation value of total assets is about 85 million USD, also taking about 8 million USD of losses from the current quarter into account. Therefore my estimate for Liquidation Value/Market cap = 85/64.7 = 1.3.
Substantial shareholders: Opaleye, L.P. about 23%, OrbiMed Capital 6.0%, the CEO Jesse Stefferman about 7%, Randall Marshall about 5%. The percentages are just based on voting interest because they are based on the number of shares without taking the convertible prefs into account. Percentages based on economic interest would be much lower. I could not find who owns the prefs.
Related party transactions: the company leases a building or part of a building from a (former) shareholder.
As usually with American companies executive compensation is excessive, in particular variable pay. In 2020 the CEO earned 7.8 million USD (mostly in options and shares) including 507k USD of base salary. In 2021 he earned 4.1 million USD including a salary of 570k USD. Also the CFO and the Chief Scientific Operations Officer have great packages. Also compensation for the 8 non-executive directors is excessive: between 121k and 419k USD although mostly in stock options.
My take: Most clinical research is still in an early stage. But its candidate drug TARA-002 seems to be low risk. It seems to be an improvement of a drug that are already used in Japan. Furthermore, a positive impulse for the stock could come if the company decides to go forward with a phase 3 study for IV choline chloride.
Summarizing, there are 2 big pluses for this stock. First, research and development success seems likely, more likely than for other biotech net-nets. Second, the company has more cash to fund research than most other biotech net-nets.
Postscript (2023-03-09): The stock reacted negatively on the recent earnings announcement. This might be the result of a broad market reaction on the failure of the Silicon Valley Bank. But it seems depositors are going to be bailed out. Moreover Protara is not materially affected by the problems at SVB anyway, according to this filing.
The discount to NCAV narrowed but is still OK. Dates related to some trials might have rolled forward. However, I do not think this changes the picture much, fundamentally.
Long Protara Therapeutics.
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