4D Pharma (LSE:DDDD)
4D Pharma (LSE:DDDD) shares have surged from an all-time low of 23.5p in March to hit as high as 122p in recent days. That’s a share price not seen since May 2019. So, could the firm soar back to the 1,000p price it held four years ago?
The live biotherapeutics firm looked to be in a long and slow decline towards zero pence, dogged by hefty levels of cash burn since its 2014 AIM debut with zero revenue or profit to speak of.
The bounce back really began in mid-April 2020, when the company won approval from the UK medicines regulator, the MHRA, to start a phase II study of its MRx-4DP0004 drug for Covid-19 patients. This orally-administered drug was originally produced to treat patients with severe and uncontrolled asthma.
However, this is not the full story. The real opportunity is on a whole different scale.
Trust your gut
4D Pharma’s pioneering innovation is to harness bacteria to create a revolutionary new class of medicine.
This invention — called ‘live biotherapeutics’ or LBPs — takes gut cultures from the gastrointestinal tract and uses them to produce treatments and drugs that can aid recovery in other parts of the body.
The interplay between the gut and the brain plays an important role in treating and understanding health and disease. This is a part of human pathophysiology which is only now starting to be better understood.
Clearly, as 4D’s scientists are working to break ground in a new avenue in the science of human anatomy — with few competitors worldwide — there exists the potential for a fierce and defensible economic moat.
The question that investors need to ask is really whether 4D can produce defendable intellectual property from its scientific investigations before it runs out of operational cash.
MicroRx is 4D Pharma’s proprietary platform that can select gut bacteria with potential therapeutic effects to treat diseases.
Its pipeline includes 15 specific candidates across cancer (oncology), IBS and Crohn’s Disease, gastrointestinal, autism, rheumatoid arthritis, asthma and Covid-19.
The first of these areas produced a partnership with Tier-1 pharma giant Merck to run a clinical trial for its candidate MRx0518 to be paired with Merck’s Keytruda to treat solid tumours.
Then, in October 2019, Merck signed a deal with 4D for three specific indications of its LBPs.
Merck, incidentally, remains one of 4D Pharma’s largest institutional shareholders with 5.8% of the issued share capital, alongside Hargreaves Lansdown, Barclays, Halifax and South Ocean Capital Partners.
Could a Merck buyout be on the cards? It’s certainly something to watch out for.
The NASDAQ listing
The game changing piece of news in 4D’s favour is that it has accepted a merger with US Special Purpose Acquisition company (SPAC) Longevity in exchange for $14.6 million in cash. 4D shareholders automatically own 86% of the shares in the new vehicle, and the merger was done at a price of 110p per share, an 18% premium to the previous day’s closing price.
The addition of nearly $15 million in cash will help support 4D’s pipeline of treatments, while the merger will get 4D Pharma listed on NASDAQ much more quickly than it could do otherwise.
SPACs are a relatively new kind of investment vehicle in the US which mirror the ‘reverse takeover’ route which has become quite popular here in the UK.
The SPAC is normally a cash shell with no operations of its own. Because it’s a straightforward merger the US market regulator, the SEC, rarely delays an American market debut for the new company, and it comes at much lower risk and cost than for a standard IPO.
One hundred and seventy SPAC offerings have raised more than $62 billion this year alone, with an average IPO size of $362 million. Compare that to 4D Pharma’s current market cap of £153 million and the numbers start to look very juicy indeed.
The benefit to 4D Pharma of a NASDAQ listing is, of course, access to a much larger pool of capital.
NASDAQ boasts vastly improved liquidity compared to AIM, 4D’s current stock market listing.
And US investors are, in the main, much more sophisticated than those in the UK. Don’t take it as an insult, it’s just a fact of life. What this means in reality is there are far more investors willing to buy smaller pharma companies across the Atlantic than there are here in Blighty. Especially those that are pre-profit or pre-revenue.
At 92p 4D Pharma could have much further to rise.
In August, Seres Therapeutics – a company pioneering the same biotech science as 4D in the USA released very encouraging results from its clinical trials. Its market cap went on to increase from $400 million to $3 billion on that news alone.
4D Pharma shares have given up a lot of value over the years, but the Merck partnership, the proof of concept by Seres Therapeutics, and the recent NASDAQ listing news makes a re-rate much more likely. It could even mark out the company as a takeover target.
4D is certainly one to watch at these levels.
