pSividia hits 2 year high

pSivida Corp. (Nasdaq: PSDV, ASX: PVA) $3.72 has run hard since I went long back in March. Or I should say has continued to run hard, as it’s share price almost doubled in early 2013 prior to my purchase.

Now PSDV has trebled this year, and if the good news continues it could double from here. But it could also halve in price.

That’s a return to risk of 2:1, so if you like those odds read on. If you want better odds, then also keep reading to discover how you may get them.

What sort of name is pSivida?

pSivida develops tiny, sustained-release drug delivery products designed to deliver drugs at a controlled and steady rate for months or years. It has developed 3 of the 4 U.S. and E.U. products approved for sustained release delivery of drug to treat chronic back-of-the-eye diseases utilizing multiple generations of its Durasert technology system.

pSivida’s lead product, ILUVIEN for the treatment of diabetic macular edema (DME) is licensed to Alimera Sciences, Inc. (Nasdaq: ALIM) and utilizes the third generation of the Durasert technology. Sales have started in Germany, and the UK’s NICE recently recommended ILUVIEN be subsidized for some patients with DME. It also has marketing authorization in the Austria, Portugal, France and Spain.

Risk first

Let’s jump straight to the risk before looking at the upside.

pSivida is hoping third time’s the charm. Alimera has submitted  ILUVIEN for FDA approval for a third time. The outcome is expected in October. If rejected, watch out below, pSivida longs will be  crushed. Here’s the crucial point for those looking for better odds. A rejection would make pSivida worthy of attention as it will still have the growing European cash flow, a promising pipeline and the possibility of eventual FDA approval if Alimera coughs up and performs the additional trials the FDA have always wanted. It may also have a share price starting with 1 — ouch!

The prospect of an FDA rejection is why healthcare investors should have pSivida on their radar.

The upside

The upside is large, though probably capped as Bob points out in this article. Capped that is by a juicy takeover by Pfizer (NYSE: PFE) or Bausch & Lomb, respective 10 percent owner and licencee partner on earlier Durasert generations. During analysis, takeovers are a negative for me as they cap the potential upside. So in calculating the upside I’m compelled to leave the possibility of a 10 bagger on the cutting room floor.

If the FDA approves ILUVIEN, pSivida gets a $25 million milestone payment. Not bad for a $86 million market cap company which already has enough cash to see it through most of 2014. But that milestone is just an entree.

The potential sales are large. Although $14 billion in EU sales as suggested in both Bob’s and this article are probably 30 times too high, it is a large market. The current age-related macular degeneration (AMD) market is $3 to $4 billion.

pSivida get 20 percent of profit which they expect to be around 14 percent of sales. Within a couple years the ILUVIEN royalty could match pSivida’s current market cap every year.

There’s more, much more to this story but for now it’s all about FDA approval or not.

The following pipeline from this excellent March presentation is already out of date. With ILUVIEN now marketed, it’s amazing that a pharma company under $100 million has 3 marketed products.

pSivida pipeline

A wee bit more

pSivida has an IND application open for an injectable insert of the same design as ILUVIEN to treat posterior uveitis. According to the CEO the trials will be low cost with a high degree of success. I think his logic is sound. pSivida also has an investigator-sponsored trial ongoing for an injectable bioerodible insert to treat glaucoma and ocular hypertension in collaboration with Pfizer, Inc. 

pSivida’s two FDA-approved products, Retisert and Vitrasert, licensed to Bausch & Lomb, are implants utilizing earlier generations of Durasert technology to treat two other chronic diseases of the retina.

If you want to know more look at this March presentation.

Disclosure: Long PSDV.

This post is for entertainment purposes only and contains no advice.

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9 comments

  • Can you expand on the prediction that this will go to $1 with FDA rejection? That would indicate the Mkt values EU sales potential at $1. Please don’t throw around loose predictions. Last time it dropped to $1 on FDA CRL, it wasn’t approved in EU.

  • Hi Ballu,
    I don’t predict, I estimate a range of expected returns over various time-frames and invest in the opportunities that I’m reasonably certain the market is mispricing.
    To your point, I said “It [PSDV] may also have a share price starting with 1“. $1.99 starts with a 1 🙂 As does $1.85 which is half $3.72 and as I said, is my downside expected value.

    For now, all eyes on German sales as we await the FDA’s decision.

  • That sure is a nice looking chart!
    Any other stocks that look reasonable value at the moment?
    Cheers

  • IMO, just EU sales give it $3.X range base. It went back to $1.X range, after briefly trading around $4 after the EU mkt approval given the tough process of getting reimbursement approved (which is the real apprv in EU). Germany’s IQWiG and UKs NICE are ruthless and the fact Iluvien is past these 2 major hurdles should give it share price that will reflect the confirmed revenue potential. While the sales number that will come out in July is important, its from just 2 months of sales in just one country, lets see. Largely agree with ur article expect for the $1.xx. Even if EU sales potential is just $100 mill anually, thats abt $20 mil of revenues for $PSDV ~ $100 mkt cap ~ $4 in share price.

  • I hope you’re right on the $3.X range Ballu 🙂 If FDA approve we’ll never know either way. That’s the outcome I’d like!

  • NICE’s positive final guidance was fantastic news, but the real cherry on top and what helped PSDV jump 30% today was that the NICE guidance increases the likelihood of positive FDA news later this month.
    While this news hasn’t changed my upside target it has raised the downside, thus improving the risk to reward ratio on PSDV.

    After the FDA decision on ILUVIEN, the pipeline has multiple high probability catalysts.

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