Selecta sold off to 52 week lows after the JP Morgan Conference. We believe this was an overreaction by the market on news that did not warrant such a move.
To recap: In November 2017, Selecta announced SEL-212 0.1mg/kg data, which showed that their drug was equally as effective as commercial competitor KRYSTEXXA (read analysis here). SELB price fell over 55%. However, SEL-212 showed a cleaner safety profile and greater convenience (monthly vs biweekly dosing) when compared to KRYSTEXXA. In addition, Selecta is also testing higher doses, which could improve the response rate. Although SEL-212 November data was not in line with what was expected, it created a discrepancy in Selecta’s valuation. We believe this created a buying opportunity.
SEL-212 Higher Cohort Data Pushed From Q1 2018 to First Half April 2018
The initial timeline for data of cohorts receiving 0.125 and 0.15 mg/kg doses of SVP-Rapamycin was expected in Q1 2018. During JP Morgan Conference, this was pushed back slightly to the first half of April 2018. We think there is a good chance that this data will show increased clinical activity and make SEL-212 a superior alternative to KRYSTEXXA once again.
Selecta also announced that its lead gene therapy product candidate, SEL-302, is expected to file IND in 2019. This methylmalonic academia (MMA) candidate was initially expected to be in clinical trials by year end 2018. The delay should be a slight negative, but as a preclinical staged candidate, it should have a small bearing on Selecta’s overall valuation.
Overall, the minor delay in SEL-212 cohort readout and IND delay in SEL-302 were negatives, but not enough to push SELB to 52 week lows.
Market Overlooks Increased KRYSTEXXA Guidance
Horizon (HZNP) upped their guidance for KRYSTEXXA peak sales to more than $750M from a previous estimate of $400M. The company also said that they expect KRYSTEXXA sales to grow 50% YoY in 2018, which should yield about $225M in revenues for the year.
Remember, Horizon acquired KRYSTEXXA for $510M and projected peak sales of more than $250M at the time of acquisition. Assuming a constant 2x peak sales multiple, this new projection would value KRYSTEXXA at $1.5B.
Selecta is sporting a $130M enterprise value (1/10th KRYSTEXXA), even though the company could have a potentially superior drug. We think data in April will bring light to this valuation discrepancy.
- SELB sold off after JP Morgan, but we believe market overreacted to minor and early stage delays
- With data in April, we think Selecta will run into the catalyst. BUY SELB under $10
- If you already hold SELB, remain LONG
One or more of PropThink's contributors are Long SELB
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