Seth Klarman (Trades, Portfolio) has declared 14.5% interest in a Massachusetts-based startup that is working on a new drug to treat cystic fibrosis, which affects more than 70,000 people in the world.
Klarman bought 6.49 million shares of the messenger RNA therapeutics company, Translate Bio Inc. (TBIO, Financial) for an average price of $12.65, according to a June 30 filing.
The investment, valued at approximately $82 million, has posted an estimated gain of 5% since Klarman initiated the stake. Shares sit in 0.79% of the guru’s portfolio of 31 stocks that is valued at $10.2 billion. GuruFocus last updated Klarman’s holdings on July 9.
Tuesday morning, the stock stood at $13.51 a share, up 1.58%, apparently buoyed by an announcement that Translate Bio was receiving an infusion of cash from the world's largest vaccine producer, the Pennsylvania-based Sanofi Pasteur (SNY, Financial), a subsidiary of the giant multinational pharmaceutical company, Sanofi SA ADR.
However, shares dropped 0.75% to $13.20 a share in early afternoon trading. Translate Bio reported a 52-week metric in the range of $11.45 to $13.66 a share. Earnings in the fledgling company stood at -2.23 per share.
Under its agreement with Sanofi, Translate Bio is expected to receive up to $805 million in payments, which include an upfront payment of $45 million. The company is expected to adhere to certain milestones as a result of product development, regulatory and sales efforts. Sanofi Pasteur will pay for all costs during the research term and will receive exclusive worldwide commercialization rights.
Sanofi has a market cap of $106 billion and received a 6 in 10 ranking in financial strength and 7 in 10 profitability and growth from GuruFocus. Sanofi stood at $41.99 a share on Tuesday, up 0.77% in trading. It is trading at 10.94 times earnings and 12.89 times forward price-earnings. Its price-earnings ratio is among the highest in the space of more than 580 companies in the Global Drug Manufacturers Major category. GuruFocus median price-sales chart suggested that it is trading below its historical value. However, the chart is incomplete.
Translate Bio announced the pricing of its Initial Public Offering on Dec. 27.
As part of the IPO, a total of 9.3 million shares were priced of $13 a share on June 28. The offer amount totaled $121.5 million. A total of $4 million in expenses were reported, records showed. The lockup expiration date was Dec. 25. (In its IPO, it reported that it had a total of 61 employees, as of May 31.)
The company says it has been working on drugs to treat diseases caused by insufficient protein production for a decade. It has created a proprietary MRT platform that can be applied across a broad array of diseases, it said on its website.
Three years ago, the Food and Drug Administration granted orphan drug designation to the medicine the company is developing to treat cystic fibrosis.
Drug development
Cystic Fibrosis is caused by genetic mutations that results in dysfunctional or absent cystic fibrosis trans-membrane conductance regulator, or CFTR, protein. Cystic fibrosis results in mucus buildup in the lungs, pancreas and other organs, and mortality is primarily driven by a progressive decline in lung function.
Company literature stated that there was a large unmet need among patients because current available therapies are limited to patients with specific genetic mutations. Patients who are treated with these therapies still suffer from long-term decline in lung function and exacerbations that require hospitalization.
The FDA granted orphan drug designation to its MRT product candidate for the lung, known as MRT5005. On its website, the company said it had initiated a double-blind, placebo-controlled Phase 1/2 clinical trial of the drug in which it plans to enroll at least 32 patients with cystic fibrosis.
Early financial data
GuruFocus ranks the company 7 in 10 in financial strength and 2 in 10 in profitability and growth. Its ratio of enterprise to earnings before interest and taxes, or Ebit, is -6.63.
The company reported a total of $205 million in assets in 2016, which stood at $198 million in 2017. It reported total liabilities of $244 million two years ago compared to $292 million over the same period.
Net income was reported as a loss of $66 million. Operating income was reported as a loss of $79 million.
The company said it was opting out of the designation of “emerging growth company,” which is allowed under the Jumpstart Our Business Startups Act of 2012. The guideline permits those companies extra time to comply with accounting standards applicable to public companies.
Klarman’s portfolio
Klarman is currently the only guru investor in the startup, GuruFocus showed.
Klarman’s portfolio is heavily weighted toward stocks in the energy, healthcare, consumer cyclical and technology sectors. A total of 70% of the portfolio is in energy, healthcare and consumer cyclical stocks, alone.
No positions.
