Our Tips of the Year for 2024 are already off to a flying start with positive news just before the market closed last Friday for biotech pick Puretech Health (PRTC).

The firm announced that Karuna Therapeutics (KRTX:NASDAQ), one of its ‘Founded Entities’, was being acquired by Bristol Myers Squibb (BMS:NYSE) for a total equity value of $14 billion, sending Puretech shares up 21% to 182.4p.

The stock continued its run this morning with a further gain of 6% to 193.7p, meaning our portfolio is already onto a winner with a healthy profit.

UNIQUE MODEL

Puretech operates a unique hybrid business model, investing its own capital to develop a pipeline of assets as well as running a Founded Entities business for outside investors to provide capital.

By listing these Founded Entities on the Nasdaq exchange, the company is able to fund new projects and return capital to outside shareholders.

These listings have raised $3.8 billion since 2018, of which 96% was funded by third parties.

Shares in Karuna Therapeutics, which went public in June 2019 at a price of $16 per share, were trading at $215 before Friday’s announcement, while Bristol Myers has agreed to pay $330 per share, a premium of more than 50% to the previous close.

POTENTIAL ‘BLOCKBUSTER’

Karuna’s key asset is an oral schizophrenia drug called KarXT, which is expected to receive FDA regulatory approval next year making it the first new schizophrenia treatment to be commercialized in over 50 years.

Analysts at US research firm William Blair estimate KarXT could generate revenue of $2.5 billion per year in the US by 2028, making it a ‘blockbuster’ treatment (a ‘blockbuster’ is any drug with annual sales of more than $1 billion).

Stock pick for 2024: Buy Puretech Health for lower risk access to an exciting drug portfolio

As well as owning a small equity stake in Karuna, Puretech has a royalty agreement which entitles it to up to $400 million in commercial milestone payments and further royalties if annual sales top $2 billion.

In addition to founding Karuna, Puretch co-invented KarXT which if it is approved would be the third therapeutic treatment the firm has taken from inception to FDA approval.

Moreover, analysts at Liberum believe that, as well as KarXT, Karuna has two more clinical-stage treatments which have the potential to be ‘blockbusters’.

 

 

 

 

 

---