Here's Where Markets Just Messed Up With Pulmatrix Inc (NASDAQ:PULM)

Pulmatrix Inc (NASDAQ:PULM) just announced that it has struck a licensing deal with London based healthcare company Vectura rooted in one of its development assets – a chronic obstructive pulmonary disease (COPD) drug called PUR0200. This is a company that we have repeatedly put forward to our readers as being undervalued, with our most recent coverage of the stock (available here) coming in mid-August when Pulmatrix was trading in around $1.60 a share.On September 5, 2017, this had risen to $2.47 – a 54% run from our highlight price.On the news of the latest licensing deal, Pulmatrix took a close to 15% hit. At first glance, this seems counterintuitive and – on deeper inspection – it very much is. We think that the response is just market makers pushing down the stock in an attempt to pick up cheap shares ahead of this company pushing forward into its development pipeline and revaluing as appropriate along the way.Before we get to why, let's look at the latest deal.It's pretty simple. Vectura is going to pay all costs associated with the future development of the above-mentioned PUR0200 and will pay Pulmatrix a high teen percentage points royalty on sales as and when the asset is approved. Pulmatrix also picks up a one million-dollar technology access fee on successful achievement of pre-agreed pharmaceutical development criteria. PULM Daily ChartRight of the bat, we can see why some might be disappointed with this deal. Vectura is essentially getting the technology for free and even if Pulmatrix picks up the $1 million technology access fee, the capital isn't going to make too much of a difference to the company's balance sheet.We've got look past this, however.The real implications of this deal rooted in the validation it provides of the company's iSPERSE technology, which is the technology that PUR0200 and the vast majority of Pulmatrix's deeper pipeline is rooted in.Pulmatrix didn't have enough cash on hand to get this COPD to market on its own. By handing it over to Vectura it all but ensures a successful development run (at least, that is, gives it the best possible chance it can have) and Pulmatrix will pick up its future revenue royalties as and when it hits markets.The $1 million capital injection can be added to cash on hand and used to fund development of the deeper pipeline assets (the two leads of which are PUR1900 and PUR1800), as can the PUR0200 royalties as and when they come in.And that isn't all.What this collaboration/licensing agreement has done is put forward what could potentially be a brand-new model for Pulmatrix. Specifically, use the proprietary technology t pump out assets based on reformulated (improved) versions of currently available standard of care (SOC) treatments, prove the concept with early stage (and, importantly, low cost) trials and then offload the asset to a deeper pocketed entity in return for future royalties. It's a sort of recurring income model and it could work extremely well for a company like Pulmatrix. We have seen many companies in this space leverage the same model with their own proprietary technology and there looks to be no reason why Pulmatrix can't do the same with iSPERSE.Especially given that the latest licensing deal serves as a strong proof of concept for not only the technology but also for the model we are suggesting.There is, of course, always the risk that the asset doesn't pick up approval and this is something that anybody considering picking up and exposure to this one has to keep in mind. With that said, however, we don't think a company like Vectura would waste its time and money on a weak asset and we think this tips the scales in favor of the reward side of the equation.Read our previous coverage of this one here. We will be updating our subscribers as soon as we know more. For the latest updates on PULM, sign up below!Image courtesy of NIAID via FlickrDisclosure: We have no position in PULM and have not been compensated for this article.