Is ObsEva Stock a Buy?

Is ObsEva Stock a Buy? Founded in November 2012, ObsEva SA [NASDAQ: OBSV] is a clinical-stage biopharmaceutical company.

It focuses on the development and commercialization of novel therapeutics to improve reproductive health of women between the ages of 15 and 49 who suffer from reproductive health conditions that affect their ability to conceive or that complicate pregnancy and the health of newborns.

ObsEva has established a late-stage clinical pipeline with development programs focused on treating endometriosis, uterine fibroids, preterm labor, and improving clinical pregnancy and live birth rates in women undergoing invitro fertilization (IVF). The company is headquartered in Plan-les-Ouates, Switzerland.

Is ObsEva Stock A Buy?

One stock that should be an exciting choice for investors right now is the late clinical-stage biopharmaceutical company ObsEva [NASDAQ: OBSV].

Experts attribute this to the Medical – Biomedical and Genetics space the company belongs to, which is recently seeing solid earnings estimate revision activity.

It is said that a rising tide lifts all boats and this trend is arguably taking place in the Medical-Biomedical and Genetics sector, which augurs really well for ObsEva.

Apart from the industry in which it operates, ObsEva is doing pretty well on its own too. The firm continues to remain optimistic on the earning front which is amply reflected in the bright sentiments of analysts who remain bullish about the company’s prospects in both, the short and long-term.

ObsEva’s stock was trading at $2.57 on March 11th, 2020 when Coronavirus was declared a pandemic by the World Health Organization. Since then, shares have climbed over 13% and are expected to go even higher.

The company is betting heavily on Linzagolix, a novel, once daily, oral gonadotropin-releasing hormone receptor antagonist for the treatment of pain associated with endometriosis and heavy menstrual bleeding (HMB) due to uterine fibroids. Linzagolix is currently in late-stage clinical development.

“We strongly believe that our strategy to develop both, a low dose of Linzagolix without hormonal add-back therapy and a high dose with hormonal add-back therapy, is the optimal way to treat more women suffering from heavy menstrual bleeding due to uterine fibroids”, said Ernest Loumaye, MD, PhD, OB/GYN, CEO and Co-Founder of ObsEva.

The company is presently engaged in active discussions with several parties for a commercial partnership to maximize the best-in-class potential of the drug. ObsEva licensed Linzagolix from Kissei in late 2015 and retains worldwide commercial rights, excluding Asia, for the product.

The other promising drug in the company’s pipeline includes Nolasiban, an oral oxytocin receptor antagonist designed to improve pregnancy and live birth in women undergoing embryo transfer (ET) following invitro fertilization (IVF), and OBE022, an oral and selective prostaglandin to delay the early onset of labor.

Are The Risks Worth The Rewards For ObsEva?

As the biotech industry remains at the forefront of rolling out life-saving drugs, investors continue to shower them with all the money they need to develop breakthrough drugs.

The global biotech market is currently estimated to be worth over $500 billion and growing rapidly. Rising incidence of persistent conditions such as diabetes and cancer along with the outbreak of new pandemics is expected to increase the need for biotechnology products, with the industry predicted to register a CAGR of over 7%.

However, the risks associated with biotech companies such as ObsEva are grave and considerable.

First and foremost, a firm has to invest huge amounts of money and time in developing a novel drug, hoping that all the efforts and money that has gone into R&D turns out to be worthwhile. The expenses to develop a successful drug could run into hundreds of millions of dollars.

Moreover, any new drug can only be made commercially available to the masses if it is approved by the FDA which, in itself, is an arduous and lengthy process.

Then there is a whole series of trials along with human testing. The entire process could take as long as a decade during which the company does not earn a single penny. Additionally, there’s no guarantee of success as the end product may fail to live up to expectations.

This fact is amply highlighted by a report on biotechnology industry by Ernst & Young which shows that around 36% of drugs fail to make it past the preliminary stage of drug development, another 70% don’t advance past the intermediate stage, while 40% are terminated in the last stage.

Clinical Trials Pose a Serious Risk

ObsEva does not seem to be an exception here as the company recently revealed that phase 3 clinical trial results from its European confirmatory study of Nolasiban in women undergoing embryo transfer (ET), following invitro fertilization (IVF),did not meet “the primary end point of an increase in ongoing pregnancy rate at 10 weeks”.

Based on these results, we have decided to discontinue the current Nolasiban IVF program and will explore potential repositioning of the product candidate”, said Ernest Loumaye, MD, PhD, OB/GYN, CEO and Co-Founder of ObsEva”.

Over the last year, ObsEva shares tanked over 70% despite promising drugs in the pipeline and bullish analysts’ sentiments. Shares of the company have slid over 35% per year over the last three years, and the steeper downfall in recent years is indicative of a few simmering issues which the company has so far failed to successfully resolve.

With dwindling cash reserves and no new drugs in the launching phase, ObsEva needs fresh capital injection and, given the present state of affairs, venture capitalists are unlikely to provide funds on attractive terms. The only other option available with the company is to issue more shares to raise money to continue pursuing its business plan.

Investors must understand that buying ObsEva is risky. It’s small with a small market capitalization. Recently, ObsEva had cash and cash equivalents of $45.0 million compared with $69.4 million as of December 31, 2019.

The possibility of regulatory approval hiccups could delay future revenue. The company is already running under loss. For the second quarter ending June 30, the net loss was $18.2 million or $0.38 per share, compared with a net loss of $34.8 million or $0.80 per share. ObsEva also had to cut down on its research and development expenses.

The net loss for the quarter included non-cash expenses of $1.4 million for stock-based compensation, compared with $3.1 million just a year ago. 

ObsEva Competition Is Stiff

Should you be buying OBSV stock or that of its competitors? Companies in the biopharmaceutical industry, including Motif Bio, Durect, Cirassia, Geron, Viking Therapeutics and Ocular Therapeutix among others, could be considered alternatives and competitors to ObsEva.

ObsEva failed to fully disclose the results of the second pivotal uterine fibroid study in its press release, prolonging investors’ wait and compelling them to await a conference call for the all-important disclosure. Critics of such tactics had the last laugh: Linzagolix’s profile versus the competition now looks even more questionable than before.

The bone density loss in case of Linzagolix was greater than in trials of Elagolix and Relugolix, two competing drugs of Linzagolix. Experts have tried to allay concerns about the drug, arguing that the level of bone loss suffered in case of Linzagolix is not particularly concerning.

It may be true but it provides ObsEva’s competitors a stick with which to beat Linzagolix when it comes to convincing physicians as well as the investors as to which drug and whose stocks they should pick. And, worse still, this could force the hands of regulatory agencies which are known to show zero leniency in these settings.

On the positive side, Linzagolix was investigated as a low-dose option, 100mg, with no hormone add-back, making it an attractive alternative for women not keen on taking hormones.

But for this to succeed, Linzagolix must first gain approval, which currently looks to be a tall order, given the disappointing test data.

There’s a lot at stake and, in reality, ObsEva is simply not big enough to compete with its better placed rivals on its own.

Efforts, though, are being made to rope in larger players with deep pockets who can turn around the fortune of the company by helping Linzagolix cross the regulatory finish line.

Is ObsEva Stock A Buy: The bottom line

The small Swiss biotech company focused on women’s reproductive health has quite a few promising drugs in the pipeline that could propel the stocks higher. Additionally, ObsEva CEO Ernest Loumaye boasts of a highly impressive track record.

He founded PregLem in Geneva in 2006, another drug company for women with $75 million in venture-capital money. It was bought in 2010 by Hungarian multinational drug maker Gedeon Ritcher for around $500 million.

There is a clear longstanding need for a long-term maintenance therapy aimed at unmet needs in uterine fibroids, endometriosis and preterm labor. Lead candidate Linzagolix has demonstrated positive efficacy and safety and possesses tremendous commercial application. It is delivered via a single daily dose, offers no adverse reaction with food or other pharmaceuticals, and doesn’t require patients to take hormone therapy.

Having said that, it is important to note that there is a high level of uncertainty surrounding any biopharmaceutical company, which means there is a lot of fluctuation involved in the stock’s price. The stock’s price could vary widely, depending upon the potential market size of the drug and its ability to capture a significant portion of it along with how quickly the product will come to market and how it will be priced.

Analysts’ 1-year forecasts for ObsEva SA range from a low of 3.00 to a high of 36.00, with a median estimate of 8.00.

All in all, if you are looking for a decent pick in a strong industry, ObsEva should definitely be on your radar. If the data from the trials proves to be positive, the stock could hit a new altitude, resulting in a windfall for investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.