Portage Biotech Inc (OTC:PTGEF)
When I first introduced Portage Biotech back in September of 2016, PTGEF was trading at just over twelve cents a share, at which time I made clear my feelings that the stock was grossly undervalued using almost any metric of measurement. At the time, management provided a compelling and informative interview and laid the framework for what lay ahead for this emerging company. Despite the under-the-radar position of the stock, quite a few investors did jump on board the PTGEF train, following the lead of an enormously successful and experienced management team that already owned roughly 50% of the outstanding shares.
It’s never a bad idea to follow the insiders, and for those that respected the credibility of the company’s leadership team, investors were treated to shares priced at roughly 50% less than where the stock trades today. The good news is that for those that missed the recent increase in PTGEF value, the stock remains mostly misunderstood and still significantly undervalued. Thus, an opportunity still knocks.
What’s So Fast Moving?
Let’s cut to the chase. For those that missed the buying opportunity at twelve cents a share, an opportunity exists to reconsider that decision and to purchase shares of PTGEF at levels which still don’t efficiently price the value inherent to the company. Despite the fact that shares now trade approximately 80% higher from where they were in September, an opportunity is rearing its beautiful head once again, providing a clear basis in value that the market is unwittingly able to ignore. PTGEF has done its part, providing the investment clues and building an asset base that has grown significantly over the past two years. The problem is is that the market still appears to have selective reasoning capability, as well as the capacity to ignore reality. Well, not everyone in the market is ignoring the reality at the company. While it may be the case that retail investors have been slow to buy into the PTGEF story, there has been well over a hundred million dollars raised by the PTGEF management team to advance its company strategy. And, these financing’s were on terms as good as or at least equal to some of the most respected biotech companies in the market, which says quite a lot about the credibility of this micro-cap company.
Companies at a valuation similar to PTGEF are often plagued by cram down, “buy at the market” finance deals, which get funded by a bunch of wolves dressed as virgin sheep. Not the case for PTGEF and from the terms I have read, most investors are giving praise, not pity on the accomplishments at the company. For that reason, PTGEF has attracted investors, those willing to embrace and encourage the vision of the enterprise, leading to substantial investments without the usual perks provided by desperate companies. The PTGEF agreements are mostly free from excessive dilution and warrant overhang, and insiders regularly contribute to the placements. Over time, PTGEF has become a well-funded company, flush with an exceptional management team, and a vision that is delivering upon a multifaceted strategy that is on track to deliver meaningful shareholder value in the next 6-24 months.
I’ve Liked PTGEF For A Long Time!
Hey, I’m long the stock, and I made that known many months ago. In fact, while some questioned my credibility in investing in such a low-priced company, I merely pointed to the facts. And while I didn’t pound the table and make adamant pleas for investors to take a stake in PTGEF, I did at least lead them to the water. And, as the company has shown, I was not offering the proverbial kool-aid. So, am I happy that some missed the first ride, perhaps keeping prices low for now? Nope. In fact, just the opposite, because based on what’s to come, I expect that investors may finally get the message that PTGEF is the real deal, even at a share price 80% higher from where the company traded less than six months ago. But, even while accounting for the recent accomplishments at PTGEF, the investment thesis is just now starting to unfold, and I believe that the current momentum will carry forward the deal-making prowess of the company.
Portage Biotech Is A Whole Lot Of Good
To keep this article under 10,000 words, only a brief introduction to the entire Portage Biotech can be obliged. However, please refer to my original interview with company management for an in-depth presentation.
Portage Biotech is engaged in the discovery and development of pharmaceutical and biotech products through clinical proof-of-concept with a focus on areas of unmet clinical need. Because of the private nature of its investments, PTGEF has kept many trial details close to the vest; however, it’s not hard to comprehend that management has been in full court press in their effort to increase shareholder value. Keep in mind that management owns roughly 130 million shares of the company, so a win for retail is a win for them.
As PTGEF tells it, once they find a proof-of-concept product, they do their best to get control and then seek to sell or license these products to large pharmaceutical or biotechnology companies for further development and commercialization. Taking advantage of opportunities that others may have discarded, PTGEF, with its diversified medical team, can evaluate potential opportunities in a given compound. Then, they weave in and use their expertise to reposition a drug to treat novel targeted therapies, utilizing stem cell therapies, and new indications for older marketed products that have unique and patentable characteristics with the ability to bring therapeutic value to patients.
It’s the sum of the parts that make PTGEF valuable. And each of the parts is doing very, very well. It was rumored that President Trump once tweeted, “Frankly, PTGEF is doing a magnificently great thing, believe me, they are.” I’m still searching for the cached tweet, but I do share in the enthusiasm.
OK, Tell Me The PTGEF Story!
I am flat out serious when I say that there is not a weak link at PTGEF. The company has ownership in three companies, all of which are privately held. But, not for long, so don’t change the channel just yet. (Spoiler Alert: One of them is going public)
PTGEF’s three portfolio companies, Biohaven, Sentien, and Portage Pharmaceuticals, Ltd. (PPL) are each independent entities with separate management teams that contribute to the overall valuation of PTGEF. The good news for interested newbies is that little value from these assets has trickled down to the share price, which offers a substantial opportunity to investors. Further, each of the three companies is beginning to hit its stride, successfully developing their compounds through both pre-clinical and clinical trials. As these trials progress, assuming the data is promising, so should the value in PTGEF. Management has never shied away from the mission to increase shareholder value, and while the share price in PTGEF has grown substantially from 2016 levels, the most recent announcements by the company should continue to generate significant future value once the market begins to understand the real value within its previously guarded, private assets.
The strategy by PTGEF management is straight forward. Their investment in Biohaven, for instance, exemplifies the approach quite well. Approximately two years ago, the company provided critical early funding to Biohaven and helped assemble a highly experienced drug development team that previously worked at Pfizer (NYSE:PFE), Bristol-Myers Squibb Company (NYSE:BMY), and Alexion Pharmaceuticals Inc (NASDAQ:ALXN). After assembling the management team, Biohaven then efficiently advanced its lead drug candidate, BHV-0223, its Orphan Drug to treat ALS, acquired additional assets and was granted two other Orphan Drug designations, positioning the company to have multiple drug candidates entering pivotal Phase 3 trials this year.
When PTGEF first invested in Biohaven, the initial valuation of the company was $7M, and Biohaven’s last round of funding was at a $133M valuation. With success in its upcoming pivotal clinical trials, the expectation is that Biohaven’s value may continue to rise and earn a level of return that investors should find attractive. The strategy used to develop Biohaven remains consistent throughout the PTGEF portfolio, finding and developing an opportunity that can maximize shareholder value.
Not only has the model shown that it can provide opportunity, but management has demonstrated their ability to build a small company into one that can potentially become a prominent story in the public markets. And, therein lay the Biohaven opportunity, whom just announced their IPO plans, and may lead to a financial windfall for PTGEF, who controls a 28.3% interest in the company.
The consummated Biohaven IPO will ultimately place a tangible dollar value on the interest owned, but, that book value is only a starting point, as any investor that discounts the ownership in both Sentien and PPL is likely on hallucinogenics.
Biohaven (BHVN) Is Coming Out
With the asset value at PTGEF being relatively unknown due to the private nature of the company structure, assigning a practical value to each asset has been difficult. Finally, the Biohaven IPO may begin to shred doubt as to how PTGEF should be valued.
Biohaven started to grab footing back in March of 2017 when they raised $80 million in a funding round that featured Osage University Partners and Connecticut Innovations. At that time, total funding into the company reached the $100 million mark, not small time by any means. Part of that $100 million came from insiders at PTGEF, with both John Childs and Dr. Greg Bailey contributing as angel investors. The announced financing followed the November spin-out of Biohaven, who had already concluded a previous deal to raise an initial $40 million in funding.
Fast forward… Biohaven (BHVN, the expected trading symbol) has plans to go public with expectations to trade on the NYSE. And what may prove to be a substantial benefit to PTGEF shareholders, is that the company owns 28.3% of that deal. The IPO is expected to generate upwards of $100 million and will occur once the regulatory compliance sessions are over. Factoring in regulatory questions, responses, roadshows, etc., a closing in late 2017 is very likely, and despite shaky market sentiment on a macro basis, the appetite for this deal may remain voracious regardless of market opinion. Included in the table of investors are two undisclosed blue-chip pharmaceutical companies that took a stake in Biohaven in 2016.
The IPO is being underwritten by a respectable list of deal makers, led by Morgan Stanley, Piper Jaffrey, Barclays Capital and others. In February 2017, BHVN obtained third-party valuations, performed on a retrospective basis, of its common shares as of August 17, 2015, the date the company first issued common shares and common share warrants in connection with their license agreement with ALS Biopharma. BHVN received updated valuations as of October 31, 2016, the date of the first closing of its Series A preferred share financing. In addition to those two initial assessments, BHVN obtained third-party valuations of its common shares as of various dates between December 31, 2016, and March 31, 2017.
The independent, third-party assessments resulted in appreciating valuations of BHVN common shares of $5.23 per share as of August 17, 2015, $6.73 per share as of October 31, 2016, $7.45 per share as of December 31, 2016, $8.68 per share as of January 31, 2017, $9.85 per share as of February 28, 2017 and $10.82 per share as of March 31, 2017. These third-party valuations were conducted by the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
To cipher it down into the potential value reflected back to PTGEF, investors can estimate value based on a fully diluted offering expected to bring the outstanding share count at BHVN to approximately 30 million shares. Assuming that BHVN did not appreciate a single penny since November of 2016, which is ridiculously unlikely, then PTGEF should be recognized at having slightly under .29 cents in share value based on that ownership stake alone. Going further, assuming that the mid range of valuation is given to BHVN once the IPO terms get settled, PTGEF’s stake should afford them at least .38 cents in ownership book value. And in a best case, an oversubscribed IPO can bring more than .45 cents in book value to PTGEF. These prognostications are plain vanilla, black and white estimates for BHVN only, by the way. Actual BHVN value may likely include blue sky multiples. Additionally, those estimates include absolutely no value in the Sentien and PPL ownership, which are proving to have significant value and a growing asset base.
To substantiate these opinions, there is some history to the value in BHVN already. In January 2014, the company sold and issued 5,752,000 common shares to PTGEF at a purchase price of $0.61 per share for gross proceeds of $3.5 million, resulting in PTGEF becoming a beneficial owner of more than 5% of BHVN’s outstanding shares. In July 2015, BHVN sold and issued 446,500 additional common shares to Portage at a purchase price of $5.60 per share for gross proceeds of $2.5 million. In February 2016, BHVN sold and issued 143,000 common shares to Portage at a purchase price of $7.00 per share for gross proceeds of $1.0 million. It’s important to note that Dr. Declan Doogan, the chairman of BHVN’s board of directors, is the chief executive officer of PTGEF.
The BHVN Affect
Here’s the bottom line on BHVN. There has been an extraordinary amount of interest in the company for quite a while. And, while this article could yield thousands of words to discuss each and every promising asset that BHVN is capable of addressing in the near term, my purpose is to merely point out the value that is going to be directly beneficial to PTGEF from an ownership standpoint. Even with 260 million shares O/S, the reflective value to PTGEF after the IPO should generate an additional 40% to its current share price, and if an investor should assume that the value of BHVN will increase over timer, then so shall the value in PTGEF. It’s going to be quite a ride to follow, and with the two companies connected at the hip, investors will have quick insight as to when PTGEF shares are not being afforded fair value, offering an additional buying opportunity for potentially mispriced shares.
Sentien And Portage Pharmaceutical Ltd. Are Also Substantial Assets
Investors should be rightly excited about the BHVN deal, but there is substantially more intrinsic asset value that should not be neglected, and PTGEF is again a clear beneficiary.
Sentien Biotechnologies Inc. is an additional asset in the PTGEF portfolio and is generating impressive clinical data. As recent as April 7, 2017, Sentien CEO Brian Miller announced that the company’s IND application for its lead compound, SBI-101, has received clearance to proceed from the FDA. The combination therapy of SBI-101 combines mesenchymal stromol cells within an approved blood-filtration device, which allows for a controlled and sustainable delivery of MSC-secreted factors. The IND approval allows Sentien to initiate on its prospective multi-center trial to evaluate the safety and therapeutic effect of SBI-101.
The randomized trial will be a controlled, multi-dose phase I/II study in patients with acute kidney injury, with endpoints measuring safety and efficacy of the treatment. Enrollment is pending and expected to begin in the second quarter of 2017, designed to enroll 24 patients with top line data scheduled for release in 2018. Sentien is well funded, having closed a $12 million Series A investment round announced on April 4th.
The next value magnet is PTGEF’s ownership of Portage Pharmaceuticals Ltd. (PPL) and EyGen Limited. PPL is currently negotiating a funding arrangement and appears to be in the final processes of bringing $1 million in convertible note financing for PPL. Good news for those that shriek at the term “convertible notes,” insiders are participating in the deal, which demonstrates a vested interest in the quality and structure of the deal. PPL is continuing to develop new candidates using its Cellporter technology for cancer and other indications. The company is seeking additional collaborations that can make use of the Cellporter technology, an additional value enhancer for both PPL and PTGEF.
As for EyGen, the same PPL investor group has agreed to fund $1.5 million with a warrant for EyGen shares. Once again, PTGEF insiders will participate in the deal. EyGen is developing a topical ophthalmic formulation of PPL-003 for Dry Eye Disease and other inflammatory eye diseases.
Trial and study results are expected to be released intermittently as determined prudent by management, protecting proprietary data from potential competitors and taking advantages of its current position as a private company, which protects certain disclosure obligations.
PTGEF Still An Undervalued Gem
PTGEF at twelve cents was a gift. And, at twenty-two cents, it still is. PTGEF is on the verge of recording a significant milestone from the BHVN IPO, whereby an intrinsic valuation can be appropriately prescribed. But, owning a 28.3% stake in BHVN is only a small part of the story. While the share price may have the ability to trend significantly higher once the deal closes, there is still considerable value to be created through Sentien and EyGen. Following the same methodology, investors may very well be on the right course to expect that additional value creation deals will be made with these two assets as well.
The management team at PTGEF is both strategic and exceptionally smart. As principal financiers in each of the company holdings, betting against these insiders may prove to be a foolish endeavor. PTGEF may very well be one of the best emerging micro-cap stocks in the market. While I hold conviction in other small-cap investments, few hold the promise that PTGEF does, who holds multiple opportunities for blockbuster treatments.
Undoubtedly, with shares trading at less than a quarter a share, many investors quickly turn a blind eye, believing that the price of a stock is at that level for a reason. But, with only a $55 million valuation, PTGEF may prove to be underpriced by as much as 50%. Even if the company elects to sell some of their BHVN holdings to perpetuate additional Sentien and PPL trials, investors should have confidence that the money will be well spent, and if history repeats itself, will most likely lead to even larger gains.
To sum it up… I’ve owned PTGEF for well over one year, and while the stock has only recently gained traction to the upside, the stock has all of the elements necessary to continue to build a robust and sustainable brand. They have management, science, cash, and diversity. For investors looking for a true ground floor opportunity, look no further. PTGEF may soon be moving substantially higher, don’t miss the ride.
Disclosure: This article was written by Kenny Soulstring, and it reflects my own opinions and unique articulation. This article is not intended to offer investing advice, guarantee 100% accurate predictions or to be interpreted as providing a personal recommendation. What I can guarantee, though, is accurate research, thoughtful analysis and an enthusiasm about any stock that I cover.
While I seek to uncover emerging companies that I feel have true value and potential, it’s important that investors assign an appropriate time horizon to each of their investments, understanding that emerging companies need time to mature.
I wrote this article myself and it includes my own research and expresses my own opinions. I am not receiving compensation for it (other than from CNA Finance). I have no business relationship with any company whose stock is mentioned in this article.