First Wave BioPharma (NASDAQ: FWBI, $FWBI), a clinical-stage biopharmaceutical company specializing in developing targeted, non-systemic therapies for gastrointestinal (GI) diseases, earned a PT of $16 from Goldman Small Cap Research. The report evaluated FWBI advancing a therapeutic development pipeline with multiple clinical-stage programs and indications built around its two proprietary technologies – niclosamide, an oral small molecule with anti-viral and anti-inflammatory properties, and the biologic adrulipase, a recombinant lipase enzyme designed to enable the digestion of fats and other nutrients. Indeed, his forecast is bullish. And with programs accelerating through Phase 2 clinical trials, including for COVID-19 gastrointestinal infections, rightfully so.
Milestone-driven, Goldman expects FWBI is exceptionally well-positioned to justify a significant move higher in its share price. Leading that move could come through top-line clinical results for its Phase 2 COVID-19 GI trial, expected to post before the end of Q2. Interim updates could come sooner. Goldman's perspective highlights that favorable results will be enough to attract a licensing partner in the form of Big Pharma, leading to potential first royalties later this year. Value drivers are indeed in place.
FWBI boasts 2 key assets, 6 indications, 4 Phase 2 clinical programs, and a novel, proprietary micronized formulation. Those assets create a scenario where multiple shots on revenue-generating and/or licensing goals could appreciably increase share prices, and history supports that proposition. Management's strategy is consistent with acquiring assets for development and then out-licensing successful candidates, getting attention from larger companies wanting a promising drug candidate targeting multi-billion-dollar indications and unmet needs. A core tenet is improving outcomes and quality of life, such as producing oral formulations versus other, painfully administered drugs.
FWBI has a series of trials slated to commence or be prepared for top-line results in 2H22 and through 2023. These include multi-billion-dollar IBD-related trials and other GI indications. Based on market size and revenue potential, Goldman suggests that FWBI could generate more than $1M in royalties in 2022 and $50M in 2023. That projection supports his $16 price target and is modeled on the Net Present Value of a multiple on FWBI's future operating income, discounted back by 15% per annum. This target, by the way, is a modest premium to its 52-week high. So, while the jump would provide a more than 1690% increase from current levels, it's not a share price neighborhood that FWBI hasn't resided.
Supporting The Bullish Thesis
Plenty of firepowers supports the bullish thesis, especially with FWBI's intent to emerge as a leader in treating chronic, debilitating gastrointestinal diseases affecting millions of Americans. $FWBI seeks to improve outcomes and quality of life by developing critical assets representing six indications, including four Phase 2 clinical programs that benefit from five awarded patents with six pending. One of the patents covers a novel, proprietary micronized formulation of one of its assets that have been around since 1982 and carry a historical, favorable safety profile.
As noted, management's approach is to acquire assets that can be developed through mid-stage clinical trials for the indication(s) representing an unmet need with billions in market opportunity. Upon achieving positive top-line results for a specific indication, FWBI seeks to attract a partner to out-license the asset for a condition that represents billions in market opportunity.
It's a model for success. Moreover, the FWBI leadership team has a history of exits and successful product development, paving the way to execute similar deals for its current program candidates. Notably, the stock has suffered in recent months from a downturn in biotechs and the Street's misunderstanding of its late 2021, key M&A event. However, FWBI is slated to release top-line results of a Phase 2 clinical trial that should serve as the first catalyst to drive the stock back towards its 52-week high of $13.90 and break past resistance to meet the $16 price target over the next 12 months.
Help could come through potential deals with major COVID-19 players as a partner, like Pfizer (NYSE: PFE) or Merck (NYSE: MRK), both potentially looking to enhance their respective COVID franchises.
Bulls Taking The Reins
Whatever the near-term case, FWBI is in the right markets with the right assets at the right time. Not only that, with expected revenues of $1.1 million in royalty revenue attributed to FW-COV, FWBI stock could get the spark it needs to ignite a rally.
Better still, if the projected $50 million in royalties for 2023 turn into actual, that rally could go from impressive to monumental. Keep in mind, the surge in valuation would be supported by tangibles, with Goldman projecting a 22% operating margin and $0.40 in EPS using an estimated weighted shares outstanding figure. That forecast, he says, may prove conservative.
And it very well may be the case. The Goldman price target is based on the Net Present Value of a 5x operating income multiple achieved in ten years (2031) and discounted back at 15%. Thus, modeling operating income of revenue of $228 million, he arrived at a present value of $568 million. Using the fully diluted 35.7 million shares outstanding figure, its NPV, or price target of $16, is the result.
Thus, despite FWBI shares being misunderstood at its current valuation, it does expose an investment opportunity that looks too good to ignore. In fact, with Phase 2 topline results imminent and the potential for 1690% gains in the crosshairs, FWBI deserves more than attention; it's worthy of immediate investment consideration.
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