By revenue, Pfizer (PFE -0.12%) is far and away the world's largest pharmaceutical company. Even if you ignore record-breaking sales of its COVID-19 vaccine, Pfizer is a pharma giant that can easily overshadow a pre-commercial biotechnology company like Prometheus Biosciences (RXDX).
Undaunted by a potential battle with a goliath like Pfizer, Prometheus is developing PRA023, an experimental treatment for inflammatory bowel disease. Prometheus' candidate could eventually generate billions in annual revenue, but it will have to overcome PF-06480605, a similar candidate from Pfizer.
Can Prometheus take on Pfizer in the lucrative space for inflammatory bowel disease treatments? Here's what you should know about the road ahead of this risky biotech stock.
A better mousetrap?
Treatments for inflammatory diseases aren't necessarily the most expensive drugs out there. The chronic nature of the diseases they treat, though, can lead to enormous sales over time.
Prometheus doesn't have any approved drugs to sell right now, but PRA023 could eventually generate more than $2 billion annually as a treatment for ulcerative colitis if it can outperform Pfizer's candidate.
PRA023 and Pfizer's candidate both belong to a new class of treatment candidates made of antibodies that inhibit TL1A. This is a protein that regulates mucosal inflammation associated with inflammatory bowel disease.
Inflammatory diseases are generally treated by inhibiting different components of people's complicated immune systems. Unfortunately, this can cause more problems than it solves. TL1A looks like an attractive target because inhibiting it appears to reduce responses associated with bowel inflammation without reducing baseline immunity.
Incoming catalysts
Prometheus and Pfizer are both testing their anti-TL1A drugs in placebo-controlled phase 2 trials expected to produce data in October. Neither company has stated exactly when it would present said data, though.
Industry experts expect Pfizer to reveal results from its study with PF-06480605 and ulcerative colitis patients at a scientific conference in October. Prometheus expects to announce results from its study before the end of the year and it could outperform for a couple of reasons.
Image source: Getty Images.
An improvement?
Prometheus' lead candidate could have a big advantage over existing anti-inflammatory drugs for the treatment of ulcerative colitis and Crohn's disease. Instead of simply reducing inflammation, PRA023 also appeared to reduce scarring of intestinal tissue in pre-clinical studies.
PRA023 attaches itself to a different part of TL1A than PF-06480605 does. This could be the reason it appears to address fibrosis as well as inflammation. At the very least, this fundamental difference gives a reason to expect a clear winner between Pfizer's and Prometheus' candidates.
Another key advantage for PRA023 could be Prometheus' inclusion of a companion diagnostic in its phase 2 study with ulcerative colitis patients. Unlike Pfizer's study, Prometheus' study includes groups of ulcerative colitis patients who had abnormally high levels of circulating TL1A at the time of enrollment.
Know the risks
Shares of Prometheus could quickly skyrocket on the back of great data for PRA023 in October or later this year. The important thing for investors to remember is that there is still a lot that can go wrong. That's a problem because, from an investor's point of view, this clinical-stage biotech doesn't have any room for error. The company finished June with just $212 million in cash and short-term investments after burning through $66 million in the first half of 2022.
At recent prices, Prometheus boasts a big $2.3 billion market cap. To maintain this high valuation, Prometheus needs to do more than just prove that its candidate works. The biotech needs to show the world that its candidate is superior to Pfizer's or the stock will fall hard.
Prometheus doesn't expect to begin clinical trials with its second new drug candidate until the fourth quarter of 2022. This means heaps of success for PRA023 is already baked into the price. With much of its potential upside already priced in, buying this stock for your own portfolio probably isn't worth the risk right now.
