When I say the word “safe-haven”, what comes to mind? Some of you might recall the good ol’ romance movie based on the popular novel by Nicholas Sparks. Okay, I’ll admit it — that film made me shed a tear or two (or maybe a lot more). However, what I am referring to is the popular expression used to describe investments that are expected to maintain or increase in value in times of economic downturn. To say the least, we are living through difficult times right now; therefore, it is critical to invest in safe-haven stocks because we will sleep better at night knowing that when the market takes a hit, they will not be dragged down with it.
By: Matthew Rojas, Biotech Financial Analyst
What better name for a safe-haven stock than Biohaven? Biohaven is a clinical-stage biopharmaceutical company that has a portfolio of innovative, late-stage product candidates targeting neurological and neuropsychiatric diseases, including rare disorders. When I say that this company has a diverse clinical pipeline, I really mean it; Biohaven has product candidates ranging from small molecules to treat migraine headaches to inhibitors designed to treat amyotrophic lateral sclerosis or ALS. While many companies have struggled over the past few months, Biohaven has seen its stock price (NYSE: BHVN) increase by over 170% since mid-March from around $27.50 to almost $75.00. Let’s investigate this substantial increase and if we can expect even more share price growth in the future.
On February 27, 2020, Biohaven received its first-ever U.S. approval for its small molecule, Nurtec ODT or rimegepant, for the acute treatment of migraine headaches. According to Biohaven, rimegepant “provides fast pain relief, returns patients to normal function within one hour and delivers sustained efficacy that lasts up to 48 hours for many patients”. Rimegepant works by blocking the calcitonin gene-related peptide or CGRP receptor, a principal cause of migraine headaches. Their small molecule is one of the first CGRP receptor antagonists available in oral form; therefore it is easier and more comfortable for patients than traditional injectables. Nearly 40 million people in the United States suffer from migraines, so being a first mover in this space may give Biohaven a competitive advantage and, consequently, access to profits; however, some other companies are trying to infiltrate this market.
Biohaven faces fierce competition from two major players, Allergan and Eli Lilly, that have acute treatments for migraines of their own. Allergan’s Ubrelvy was the first-to-market oral CGRP antagonist to receive FDA approval in December of 2019. Additionally, Eli Lilly received FDA approval for REYVOW in October of 2019, an oral serotonin (5-HT)1F receptor antagonist that treats migraine headaches. Allergan, which merged with Abbvie in May of 2020, has a market cap of over $170 billion, and Eli Lilly has a market cap of over $155 billion. On the other hand, Biohaven is substantially smaller than both of these companies with a market cap of around $4 billion. However, some predict that sales for rimegepant will be $897 million by 2024, versus only $302 million for Ubrelvy and under $500 million for REYVOW in the same time frame. Biohaven CEO Vlad Coric, M.D., stated the company “will strive to outpace [their competitors] with a more efficient and innovative commercial launch, using modern-day strategies”. Although Biohaven may lose some ground to these companies, the total addressable market for migraines in the United States is extremely large, so they should be able to steal some of the market share. Nevertheless, I am skeptical that they will be able to beat out giants like Abbvie and Eli Lilly as some predict. Something that rimegepant does have going for it, however, is that it is currently in the process of a phase three registrational study for preventing, rather than treating, migraines. This additional indication could lead to more profit down the road for the small molecule.
Other Notable Product Candidates:
Beyond rimegepant, another one of Biohaven’s leading product candidates is troriluzole, a prodrug designed to control glutamate, the most abundant neurotransmitter in the human body. The prodrug works by increasing glutamate uptake, which solves the glutamate dysfunction associated with a variety of conditions. In early February of 2020, troriluzole failed in the phase III clinical trial to treat generalized anxiety; nevertheless, the company is currently testing the drug in phase II/III studies for a variety of other indications including Alzheimer’s disease, obsessive-compulsive disorder, and spinocerebellar ataxia. Many are worried that troriluzole will follow suit and fail in treating these other indications as it did in generalized anxiety, but so far, the clinical trials have had positive results.
The last notable product candidate in Biohaven’s clinical pipeline is verdeperstat, a myeloperoxidase enzyme inhibitor (MPO). Verdeperstat is currently in a phase III clinical trial for multiple system atrophy (MSA) and a phase II/III trial will be initiated shortly for amyotrophic lateral sclerosis (ALS). Biohaven has several candidates beyond rimegepant in the late stages of clinical trials, indicating that they are not far off from potential FDA approval and additional profit.
Financial Statements (all numbers in 000s):
Not surprisingly, Biohaven has solid financials that have allowed them to progress regardless of the COVID-19 pandemic. The company ended the fourth quarter of 2019 with $328,281 in current assets and $66,173 in current liabilities, giving them a solid current ratio of 4.69; therefore, the company was in a strong position to pay off its short-term debt obligations. Additionally, the company had $316,727 in cash and cash equivalents, which was a significant amount of liquidity heading into the first quarter of 2020 when the market would crash. For the quarter ended March 31, 2020, Biohaven increased its current assets by nearly 45% to $474,446, and its current liabilities increased by about 85% to $122,098. Not to worry, though, the company still maintained a high current ratio of 3.88. Lastly, Biohaven increased its cash and cash equivalents by 35% to $428,239, so it gained a significant amount of liquidity during the crisis when other companies were struggling to do so.
Taking a look at the income statement, Biohaven earned $0 in revenue for the quarter ended December 31, 2019 because they had no approved product candidates. The company was also operating at a net loss of $149,264. For the first quarter of 2020, Biohaven’s revenue increased marginally to $1,151. Also, the company indicated that it was operating at a loss of $172,937. Biohaven has multiple ongoing clinical trials, so its research and development expenses are extremely high, $66,019 and $56,070 for the fourth quarter of 2019 and the first quarter of 2020, respectively. However, it is slightly concerning that in the previous quarter, they were barely able to generate any revenue.
As stated above, Biohaven’s stock has increased substantially in recent months; however, after analyzing the company’s financial statements, is this increase justified or overly optimistic?. The company is hardly generating any revenue as of the first quarter of 2020 and has consistently been operating at a loss — these are two red flags. They have accumulated around $150 million in debt; however, with the recent approval of rimegepant, I do expect that their revenue increased substantially during the second quarter of 2020. We will just have to wait until the company releases its 10-Q report to confirm this. Additionally, if more of their product candidates pan out in the near future, their revenue may increase even more.
Buy, Sell, or Hold?:
You’re probably noticing a lot of hypotheticals throughout this article because as a new company, yes, Biohaven still has a lot to prove. However, because of the wide range of product candidates in its clinical pipeline, it is a revolutionary biopharmaceutical company. Rimegepant is likely their first success of many, and I do expect that their revenue streams will increase in the second half of 2020. They have a sufficient amount of liquidity to weather another spike of COVID-19 infections and continue to innovate despite the current turmoil. I would recommend investing in Biohaven’s stock because of the recent approval of rimegepant and the fact that they have multiple late-stage product candidates. Overall, Biohaven is a perfect example of a safe-haven stock, so now is the perfect time to invest so that you can have peace of mind knowing that the company is very likely to continue its upward trend despite inevitable market volatility in the coming months.