Last week, Bellus (BLUSF) rallied from $1.50 range to over $2.00, touching a high of $2.31. This all happened on heavy volume. Remember, we first introduced Bellus at $0.50 last August (read thesis here). To summarize, we liked Bellus’ potential to show that their P2X3 candidate would be superior to a similar candidate Merck acquired for up to $1.25B.
What exactly caused Bellus’ rally last week? Merck (MRK) highlighted their P2X3 molecule gefapixant during their Investor Day Call on June 20th. Merck acquired gefapixant from Afferent for $500M upfront and up to an additional $750M in milestone payments. Merck is now laying out the blueprint to their $1.25B bet.
Merck: Gefapixant Has Potential to Become Pipeline Product
During Merck’s investor day call, Chief Medical Officer Roy Baynes and Executive VP Michael Nally discussed gefapixant’s potential to expand into other indications outside of chronic cough (read transcript here).
The P2X3 receptor has been shown to be a regulator of a pathway that is thought to be important in a number of sensory, neurological abnormalities. Merck believes that the science supports gefapixant’s potential in other sensory disorder indications (see image below).
In addition to their Phase 3 chronic cough trials, Merck is expanding gefapixant into endometriosis related pain and sleep apnea. Although early in the development journey, endometriosis is in Phase 2 and sleep apnea still in planning phases, gefapixant has shown broad applications to be a multi-billion pipeline for Merck.
What Does This Mean For Bellus?
Bellus’ BLU-5937 is a selective P2X3 candidate that works in a similar manner to gefapixant. Therefore, Merck’s broad pipeline blueprint for gefapixant validates the same potential for BLU-5937. This also gives Bellus the ability to imitate Merck’s expansion blueprint.
At $2/share, Bellus trades at a market cap of ~$320M. Merck acquired Afferent for $500M upfront and up to $750M in milestone payments. At the time of the acquisition, Afferent had reported Phase 2 crossover data and was running larger Phase 2b trials in chronic cough. It’s almost a certainty that Afferent acquisition has now earned part of the $750M milestone payments, bringing its value higher than upfront $500M.
Bellus is expected to report Phase 2 crossover data by mid-2020. Bellus’ candidate has best in class potential as they can show similar cough reduction to Merck, but also less taste interference. If Bellus reports superior data by this time next year, the company will easily warrant a valuation higher than $500M.
PropThink contributors are LONG BLUSF
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