Fibrogen makes a strong case as an acquisition target after latest lung fibrosis data – fibrogen (nasdaq fgen) seeking alpha tropico 5 power plant

Recently, Fibrogen ( FGEN) announced updated results from its phase 2b study treating patients with idiopathic pulmonary fibrosis (IPF). It used its drug known as pamrevlumab, which is a monoclonal antibody, to treat these patients. I believe that these results reinforce the company’s drug in this indication, and should be valued higher than it currently is. For these reasons, I believe that Fibrogen is a strong buy. Phase 2b Data

The phase 2b study known as PRAISE used pamrevlumab to treat patients with idiopathic pulmonary fibrosis. This phase 2b IPF study tested efficacy between pamrevlumab and a placebo. One thing to note is that pulmonary fibrosis is a disease characterized as scarring of the lungs. The "idiopathic" word in front means that the cause of the scarring of the lungs is not known. In other words, it is something that occurs without a particular cause. Typically Doctors can sometimes identify a cause for lung fibrosis, but when they can’t it is said to be idiopathic. It was shown that pamrevlumab was able to improve the measurement of Quantitative lung fibrosis (QLF) and FVC. In terms of QLF (lung fibrosis measurement), pamrevlumab was able to have a smaller change in QLF volume compared to placebo over a 48 week period. This was measured through the use of a non-invasive tool known as high-resolution computed tomography (HRCT). The QLF volume that was obtained with pamrevlumab was 24.8 ml versus 86.4 ml for placebo at week 24. That gives a p-value of p = 0.0090. The primary endpoint of the study was a change from baseline of Forced Vital Capacity (percent of predicted value at week 48) which was shown to be statistically significant with a p-value of p = 0.0001. FVC% is a measure of air a person is able to forcefully and quickly exhale after taking a deep breath. A Doctor can tell how well a lung works by comparing the FVC measurement taken with the predicted FVC value based on age, height, and weight. These were important findings from the study. Why is that? That’s because there was a correlation that was observed between these two endpoints of the study. It was shown that a reduction of lung fibrosis was correlated with a change in FVC.

The market opportunity for idiopathic pulmonary fibrosis is massive. The global IPF market is expected to reach $4.6 billion by 2023. IPF is estimated to affect between 70,000 to 200,000 patients in the United States. As scarring of the lungs occurs, people eventually lose the capacity to be able to breathe. It is believed that death can occur at least two to five years after diagnosis. One current competitor is Roche ( OTCQX:RHHBY) with its drug Esbriet. Roche wanted to get its hand on an IPF drug so bad, it bought Intermune back in 2014 for approximately $8.3 billion. Esbriet sales back in 2014 started at $48 million, and then brought in nearly $856 million in 2017. Eventually, it could reach sales in the billions. It now can be argued that Roche may have overpaid for this acquisition, but this brings me to a very important point. That point is the updated positive results obtained for Fibrogen in IPF, means that it now has a better probability of being acquired. Big pharma is on the hunt for big markets. The first market that big pharma is probably on the hunt for is NASH fibrosis acquisition as has been observed the last few years. I think that IPF offers an attractive investment opportunity. Which now brings out the next point, which is that pamrevlumab has an incredible mechanism of action profile. It is a monoclonal antibody that target connective tissue growth factor (CTGF). With that in mind, Fibrogen is using pamrevlumab to also go after other important indications. Pamrevlumab is also being explored for duchenne muscular dystrophy (DMD) and pancreatic cancer. Another strong clinical candidate in the pipeline is Roxadustat for anemia in chronic kidney disease (CKD) and in myelodysplastic syndrome (MDS). Both of these indications of Roxadustat have been partnered out. I think that all these indications, along with the highly positive IPF data makes Fibrogen a strong acquisition target. Conclusion

The newly updated results from the phase 2b PRAISE study will allow Fibrogen to push forward with its clinical candidate pamrevlumab. After observing how much a big pharma is willing to pay for a single IPF product, it allows me to believe that a big premium could be obtained for Fibrogen. The reason why I feel this way is because when Roche acquired Intermune, it only did so because of Esbriet. However, Fibrogen has host of clinical products in the pipeline that could yield billions in market potential. Pamrevlumab by itself in IPF could eventually yield up to $4 billion in sales. That doesn’t include the duchenne muscular dystrophy or pancreatic cancer indications. The cash position is strong for Fibrogen, because it has $730.4 million in cash as of March 31, 2018. In addition, the Roxadustat clinical candidate has already been partnered with AstraZeneca ( AZN) for both indications. For all these reasons, I believe that Fibrogen is a strong buy.