Value Investing DARE Bioscience (NASDAQ: DARE) Long Equity Pitch (0.83 per share as of 1/6/20)

DARE Bioscience (NASDAQ: DARE) Long Equity Pitch (0.83 per share as of 1/6/20)
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DARE Bioscience (NASDAQ: DARE) Long Equity Pitch (0.83 per share as of 1/6/20)

Posted: 06 Jan 2020 07:30 PM PST

Overview

Dare is a micro-cap with a market cap of only about 14 M, and is thus suitable mainly for retail investors and other small funds – the volume is also around 100-200k shares each day (and thus we believe the equity is currently treated as a penny stock trading sardine). We believe that the common equity has an attractive risk reward, with three promising late stage women's health drugs in their pipeline along with other rights which are too early stage to dive into here. Insiders seem well-aligned to form a partnership with ownership of 14% of the company, and we believe that such a deal in 2020 will be a major catalyst for the shareholders involved. We think that the company makes a great new years resolution position (1-5% position) given a decent probability for far right-tail outcomes - based on our analysis and the 4 analysts setting price targets on average modeling out at least worth $4 a share.

DARE-BV1 (Clindamycin Phosphate 2%) -

This gel targets bacterial vaginosis (BV), a bacterial vaginal infection with about 21M cases reported annually in the US. Common symptoms include discharge that often smells like fish, and can cause serious adverse health issues if left untreated. Currently approved products have significantly lower clinical cure rates (Metrogel, 1.3% 17-37%, Clindesse 30-64%, Solosec 35-68%) compared to DARE-BV1 (88% after single dose in proof of concept study n=30 patients). We have not identified any issues with the proof of concept study endpoints or design. Patents have been granted out to 2028, with more pending into 2035.

Due to the lack of efficient therapies, many patients are simply treated with poor efficacy profile antibiotics or leave the infection to go away on its own. Its worth noting that in May 2018 Lupin (350B market cap Indian Pharmaceutical Company) launched Solosec - an oral pill for BV that only requires a single dose. Lupin estimates peak sales of $100M to $150M over the next 3-4 years, and seems like an achievable / realistic estimate given that the drug is already doing 1,700 prescriptions a week ($200-$300 price range) with a strong growth pattern.

The active ingredient in the gel had been previously approved and so the 505(b)2 regulatory pathway is in use. The drug also has a QIDP Tag. The company estimates development costs to get this product to FDA approval at less than $10M. Due to the high potential efficacy, the company is targeting the drug as first line therapy. Due to the more favorable efficacy profile of DARE-BV1 as a one time use gel, a conservative assumption would be 100 M in peak sales in line with Solosec (although the share of patients receiving treatment should grow as well). Patents covering the licensed technology have terms through 2028 with pending patents expanding this through 2035.

Daré recently got clearance to commence the Phase 3 study of DARE-BV1 in ~220 women in 2020 to support the final submission. Thus, the FDA review should be finalized in 2021 without a CRL. We put the approval odds >80% given the history and well-studied efficacy profile of Clindamycin Phosphate, QIDP designation, lack of safety concerns, and strong efficacy profile with a small number of patients in the proof of concept study.

Thus, if we estimate the valuation solely on DARE-BV1 with some napkin math, and say the drug fetches around 1x sales, this puts the valuation of an approved DARE-BV1 around 100m or so after complete approval.

Thus, even with 100% dilution to get the drug fully approved (though the company has >2.4 m in cash and will likely sign a partnership deal to get cash beforehand) the market is implying a mere 30% approval chance ignoring the company's other drugs ( based on a market cap around 30 M after dilution).

This also means if approved, Dare could be a 3x return just on the basis of DARE-BV1 without dilution, and a 6x return with negligible dilution.

Ovaprene -

Ovaprene is a first-in-category contraceptive. This is a non-hormonal vaginal ring which is inserted by the woman on a monthly basis. The drug meets a few key preferences - Not used during intercourse, Woman controlled – placed by the woman and not by a physician, No fertility issue – immediate return to fertility with removal, and Hormone free.

A pivotal phase 3 should be launched in the second half 2020 with an FDA filing also expected later in 2020 or early 2021. The company recently announced the results of its Postcoital Study of Ovaprene, which were extremely positive. In our view, Ovaprene is fairly likely to be a new category of non-hormone, once a month contraceptive. Nuva Ring (owned by Merck), which is a hormone base ring used in a similar manner has sales of about $902M in 2018. Ovaprene is used very similarly, has no hormones and also seems to have a very strong efficacy profile.

Ovaprene prevented the requisite number of sperm from reaching the cervix across all women and all cycles evaluated. Specifically, in 100% of women and cycles, an average of less than five (< 5) progressively motile sperm (PMS) per high power field (HPF) were present in the midcycle cervical mucus collected two to three hours after intercourse with Ovaprene in place. The study presented strong statistical significance with N=26 women.

The licensing agreement includes up to $14.6M in product development milestone payments, up to additional $20M milestone payments related to commercialization, and 1-10% royalties. Patents covering the licensed technology have been granted with terms through 2028, with an opportunity for patent term extension and potential new patents.

This is where the valuation could get pretty crazy – we won't go through the dilution scenario since a partnership deal is more likely in the cards before approval for 2020.

When the CEO was asked about BD interest regarding the 3 key programs on Nov 14th Q3 Call –

"I can't stress enough, and I'll put in all bolds if I could how incredibly fortunate to see the level of interest that we continue to see across the programs... We're super excited about that level of interest, and we're having that level of interest because we have 3 programs each of which is at an interesting value inflection point. Ovaprene having reported the kind of data we just reported given the field of PCT studies and how robust our PCT study is and how predictive these kinds of studies are of highly effective contraceptive methods. Clearly being the first potential monthly hormone-free contraceptive, lots of interest in Ovaprene obviously."

What would Ovaprene be worth to a potential suitor? Considering the comparable Nuva Ring, with over $900 M in annual sales, and the lack of hormone involvement with Ovaprene, we don't think it would be unachievable for Ovaprene to be worth at least in the ballpark of 150-900 M with just a final phase 3 study in 2H 2020 before the FDA Regulatory Review.

Therefore, if the company were to receive ~$150 M in compensation today for some sort of partnership regarding Ovaprene the stock would very likely be a 10-bagger on this catalyst. The mere market cap of 14 M seems to suggest that either Ovaprene will not be approved, or the company will not be able to sign a partnership deal even if approved.

Sildenafil Cream, 3.6% -

We won't dive too deep into Sildenafil, especially given that the approval timeline is likely post 2023 without any delays in Ovaprene or DARE-BV1. The valuation is already extremely compelling after our research into these two key products.

Sildenafil Cream, 3.6% is a potential candidate for treating Female Sexual Arousal Disorder (FSAD) which is characterized primarily by an inability to attain or maintain sufficient physical sexual arousal. The Cream is the female analog to Viagra, and actually has the same active ingredient. For this reason, the company will seek to leverage the 505(b)(2) regulatory pathway for the product. The phase 2b "At Home Study" is anticipated to initiate soon with topline data in late 2020. We think the approval odds are fairly high given the same active ingredient as Viagra and no currently approved treatment.

Recent studies indicate that 33% of women in the US experience symptoms of low / no sexual arousal, with give or take 16% of this population (~10M women) actively seeking treatment.

FSAD has no approved treatment and it is reasonable to assume 10% of those actively seeking treatment use the product, and we will add some margin of safety / padding for the valuation given that the studies may be off in saying only 2.5M women are seeking treatment. Viagra used to be around ~$60/pill back in 2017, and a conservative annual cost of give or take $400 per patient puts us around 250,000 women with annual sales of $100M. In our view, this seems a little obscene juxtaposed with the market cap of 14 M and negligible debt, especially with the other two opportunities outlined above.

In summary, Dare's goal is to advance these programs until enough value was created to sign a partnership deal. The nano-cap will not take any product to market by itself, as this will force too way too much dilution onto existing shareholders. Since inception no partnership deals were signed since most programs were too early stage and recently acquired by the company. We believe that such a deal will be a major catalyst for the share price, and is likely next year given management's sentiment and the recent news regarding Ovaprene and DARE-BV1. Announcements regarding positive outcomes from studies have surprisingly not moved the company's stock price, but partnerships should force some value realization here.

I do not hold a position with the issuer such as employment, directorship, or consultancy.I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Partnership Deal in 2020/2021Approval/Expressions of Confidence from FDAAcquisition of Company's Pipeline With Many 505(b)(2) / First-In-Category Candidates

Disclaimer

As of the publication of this report, the authors of the report have long positions in equity securities of Dare Bioscience Inc ("Company"). The authors stand to realize gains in the event that the prices of the securities increase. Following publication, the authors may transact in the securities of the Company. All expressions of opinion are subject to change without notice, and the author does not undertake to update this report or any information herein. All content in this report represent the opinions of the author. The authors have obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented "as is," without warranty of any kind – whether express or implied. The authors make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. All expressions of opinion are subject to change without notice, and the authors do not undertake to update or supplement this report or any information contained herein. This report is not a recommendation to purchase the securities of any company, including Dare Bioscence Inc., and is only a discussion not meant to be financial advice. The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. Any or all of the forward-looking assumptions, expectations, projections, intentions or beliefs about future events may turn out to be wrong.

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