First Wave BioPharma (NASDAQ: FWBI) reached a milestone that could quickly become a catalyst. And if that's the case, current share prices may present an investment opportunity too good to ignore. Why so bullish? Because FWBI just moved a giant step closer to bringing its reformulated version of adrulipase to market as a treatment for exocrine pancreatic insufficiency (EPI) associated with cystic fibrosis (CF) and chronic pancreatitis (CP).

On Wednesday, FWBI announced submitting an Investigational New Drug (IND) application seeking authorization from the U.S. Food and Drug Administration (FDA) to evaluate an enhanced enteric microgranule delivery formulation of adrulipase. That filing could earn clearance within 30 days. If so, the better news is that First Wave is already positioned to initiate a Phase 2 trial as early as the beginning of next year, with topline clinical results coming as soon as 1H/2023. 

In other words, a near-term catalyst is in play.

Taking Advantage Of Under The Radar Opportunities

And that could bode well for investors, especially at the levels. Remember, Phase 2 companies targeting significant and unmet needs tend to catch valuation premiums compared to those in pre-clinical stages. FWBI checks those boxes. 

In fact, the IND filing is a significant step in enabling the company to prove that its new formulation for adrulipase can meet demand as a best-in-class treatment for patients with certain exocrine pancreatic insufficiency. That's not all. When appraising the FWBI opportunity, consider that the potential near-term clinical milestones wouldn't be stand-alone measures. Instead, they would reinforce previous research, including data presented at AAPS 2022, showing the new adrulipase formulation can better reach targeted areas in the gastrointestinal tract than other treatments to provide the desired therapeutic effect.

Assuming that known data is validated or added to, FWBI's adrulipase could earn front-line positioning as one of the only drugs able to provide meaningful therapeutic relief to patients with EP associated with cystic fibrosis and chronic pancreatitis. Here's the better news; data suggests that's a likely proposition. 

Already, in vitro data suggest the microgranule drug delivery formulation offers improved protection against the acidic pH in the stomach, followed by the rapid release of adrulipase in the small intestine, where the drug is expected to mix with food and deliver its therapeutic benefit. Other benefits are added to the drug's value proposition.

Alleviating A 40 Pill Per Day Burden

A significant one is that supportive in vitro research indicates the enhanced adrulipase formulation could significantly decrease the number of pills a patient would need to take to achieve the desired therapeutic effect. Currently, the pill burden for commercial pancreatic enzyme replacement therapy (PERT) can be as high as 40 capsules per day, creating a substantial challenge for EPI patients.

And even with that daily burden, the more than 30,000 patients in the U.S. with EPI caused by cystic fibrosis and the approximately 90,000 patients in the U.S. with EPI caused by chronic pancreatitis still need better treatment. The sooner, the better, since it would address a debilitating condition characterized by a deficiency of the exocrine pancreatic enzymes, resulting in a patient's inability to digest food properly. But maldigestion is just one concern. The enzyme deficiency can also be responsible for greasy diarrhea, fecal urge, and weight loss, adding to the urgency for a better standard of care.

If FWBI gets its way, adrulipase will fill that spot as a recombinant lipase enzyme orally administered as a non-systemic biologic capsule. Derived from the Yarrowia lipolytica yeast lipase, FWBI's formulation of adrulipase is designed to break up fat molecules in the digestive tract of EPI patients so that they can be absorbed as nutrients. The results of that mechanism of action are intended to lead to better nutrition, reduce or eliminate associated diarrhea and fecal urge, and mitigate weight loss.

By the way, analysts are extremely bullish about the market potential of an approved FWBI version of adrulipase

Analysts Model For Significant Upside

In October, analysts at Roth Capital published an update to its coverage suggesting the potential of FWBI stock to soar by over 3000% from current levels. In its note to investors, Roth modeled a 12-month target price of $25 via a DCF analysis, assuming a 20% discount rate applied to all cash flows and the terminal value, based on a 5x multiple of projected 2030 operating income of about $129 million. That valuation is supported by modeling for projected future U.S. sales from adrulipase for the treatment of EPI due to CF and CP, using an initial annual price of about $18,000, a price they noted is consistent with currently available PERTs. Potential sales of niclosamide targeting three different GI indications is a part of that appraisal. (*Roth Capital Partners company note, October 11, 2022)

Still, adrulipase's potential is the highlight, with Roth analysts modeling for significant share price appreciation based on results from FWBI comparing the optimal adrulipase in vitro administered formulation against eight other adrulipase formulations. Data from those comparisons suggest that reformulated adrulipase may offer the best protection against acidic stomach conditions followed by rapid drug release in the small intestine. That's an important distinction because that's where the drug is expected to mix with food and facilitate the digestion of dietary fat, allowing the patient to absorb those nutrients rather than pass them in the stool.

The bullish expectations of FWBI's reformulated adrulipase are further supported by the candidate having about twice the amount of adrulipase as previous formulations and, importantly, retaining its activity even after 90 minutes under dissolution conditions. Notably, showing its optimism about the near-term potential, FWBI is significantly increasing its manufacturing yield, helping to decrease the drug's cost of manufacture. And keep in mind that with blockbuster potential for an effective drug, partnerships from Big Pharma could also be in play, especially from those wanting a larger presence in the space, including Pfizer (NYSE: PFE), Johnson & Johnson (NYSE: JNJ), and Merck (NYSE: MRK)

Taking Advantage Of A Valuation Disconnect

Thus, the sum of all those parts, intrinsic and inherent, equates to FWBI being better positioned than ever to deliver near-term shareholder value. And as investors recognize that position, under the radar FWBI and its stock could soon be in play, despite a weakening backdrop for smallcap biotech company stocks, which tend to be the first to drop from portfolios as risk-off sentiment permeates. But as is often the case, share prices don't always tell the truth, and in many cases, they can get substantially disconnected from appropriate and deserved valuations. That appears to be the case for FWBI shares.

In other words, while the broader market weakness may be pressuring shares, the fundamentals for FWBI and the promise of its adrulipase candidate remain strong. Remember, too, the company has a significantly improved balance sheet, has made significant strides in its clinical development efforts, and is advancing a potentially best-in-class treatment option for specific EPI indications that bring enormous revenue-generating potential. 

Thus, taking advantage of a valuation disconnect between FWBI's share price and where they are from a clinical trial perspective may be more than a wise and compelling consideration; it's also timely. In fact, with milestones reached, more expected, and catalysts in the crosshairs, it may present one too good to ignore.

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