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Jonathan Faison runs the ROTY Biotech Community. Why he’s high on Tarsus Pharmaceuticals and an early-stage pick, his #1 holding, SpringWorks Therapeutics (0:30). Data risk for Ogsiveo and Mirdametinib (5:50). This is an excerpt from a recent episode.
Jonathan’s ROTY Biotech Community
Transcript
Rena Sherbill: Jonathan Faison, welcome to Investing Experts. Welcome to the Podcast. It’s great to have you on the show.
Jonathan Faison: Hey, thanks. Happy to be here, Rena.
RS: You run an investing group on Seeking Alpha called ROTY Biotech Community. Who are the names that you’re looking at right now? Who has you the most excited as you’re looking across the sector?
JF: A recent winner that we still own 8% of the portfolio in, I’ve taken partial profits twice on the way up, but it’s still firing on all cylinders, is Tarsus Pharmaceuticals (NASDAQ:TARS). Tarsus, they have their lead drug, XDEMVY, which is for a very non-sexy indication of Demodex blepharitis, which are basically the mites on your eyelids.
So there are a few off-label treatments there. People thought the XDEMVY would not do well in launch. We got in when the early metrics were positive. So that was a fun run from $15 to say $40, mid-40s currently.
And one would think, oh, all the upside has been had, but it’s actually, let’s see, $1.8 billion market cap. So around $1.5 billion or so enterprise value. And so what’s interesting is that’s still only 1x to 1.5x peak sales. So that’s one of those stories where thesis is firing on all cylinders, all the launch metrics are set to accelerate into 2025. So the remaining position just holding patiently.
As far as one that is maybe more applicable to investors wanting to get in on the early stage, it would be SpringWorks Therapeutics (NASDAQ:SWTX). That’s currently my number one holding around 13% of the portfolio.
And what’s fun there is Ogsiveo is getting launched. It’s about one year into launch for the indication of desmoid tumors, these slow-growing tumors that cause pain, they cause – they impact the range of motion for these patients. There’s been nothing approved.
In the past, it would be doctors in watch and wait mode to see when they had to intervene. There would be chemo, treatment with TKIs, nothing particularly good. And Ogsiveo got approved, the long-term open label data shows patients on drug for up to four years, at least three. So you’ll have that stacking effect over time as it gets launched. The ICD-10 claims codes just came out over 10,000 unique claims in under a year.
As management noted in their Q3 call, the denominator, the addressable market is larger than they had anticipated. Over 90% of doctors are saying, they will use the drug again. 90% say they will use it in frontline. Ogsiveo already has 70% market share of any new prescription for desmoid tumors. They’re only 10% penetrated already at $200 million to $250 million annualized run rate.
And so it’s just a very interesting story still. Let me pull that up on the valuation. But what’s interesting is even though it’s rebounded from the high-20s, it’s still only at $37 a share. I’m trying to remember the cash position on hand, but even if it’s around maybe $2.3 billion or so enterprise value, that’s versus a $1 billion estimated peak sales and that’s conservative for Ogsiveo.
I think personally it’s closer to $1.5 billion and they have Mirdametinib for NF1-PN indication, which should be approved. It has a priority review with a PDUFA date in February of next year.
Next year, the company has three launches planned: European Union launch for Ogsiveo, U.S. launch for Mirdametinib, and the ex-U.S. launch for Mirdametinib in the second half of next year.
Blueprint Medicines (BPMC) was a winner for us earlier this year that has sold. And it was a similar situation where valuation stays low at first because it’s cloudy, you don’t know how the launch metrics are going to look out of the gate. And as they get more clarity, patients stacking, staying on treatment longer, that’s when the market tends to reward these stories. It tends to be skeptical, prove it to me mode.
And so Q3 call for SpringWorks Therapeutics strengthened the thesis for me for the reasons I mentioned before. And so it’s still very early stages for people. I’ve stated before buying it below $40, it’s at 37, if you’re looking at the 2025 to 2026 timeframe.
Those are examples of stories we look for where a thesis is firing on all cylinders. And it’s funny, I keep getting questions from investors like, okay, now that the Q3 call has come out, what’s your updated trade plan? And I’ve stated that my goal is to be boringly predictable, boringly profitable.
Here too, I just hold patiently as long as the valuation is reasonable and the story is going in the right direction. So I’m not trying to reinvent the wheel here.
RS: Would you say the risks there are in the unknown? Like waiting for more data to come out?
JF: For Ogsiveo, I’d say there’s less data risk because we already have open label extension data. For Mirdametinib, it is a PDUFA date in February with priority review, but with the FDA, anything is possible. So even if I put that, let’s say, 80% or 90% chance of being approved, there’s still that 10% chance, there’s something manufacturing-related or what have you. So regulatory uncertainty is always possible.
For Mirdametinib, they’re going up against AstraZeneca (AZN) which is a much larger company as you can imagine, big pharma. AstraZeneca’s drug, Koselugo, is only approved in the pediatric indication for children, which is just one quarter of the NF1-PN market, and they are going to get approved in adult.
But after SpringWorks who has the lead there. SpringWorks, their drug looks to have the edge on efficacy also lower incidence of Grade 3 events. With Koselugo, they’re already losing half of their patients within a year due to tolerability issues among others.
So there’s definitely the opportunity for switch, but you’re definitely right. It’s always whenever a small company is going up against big pharma, that is a cause for concern. That is a risk factor because one has a lot better infrastructure and unlimited resources versus a small company.
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