Pulmatrix Inc (NASDAQ:PULM) Is Once Again Dramatically Undervalued

On January 26, 2017, we published this piece on Pulmatrix Inc (NASDAQ:PULM). Our thesis was simple: that at its then-current price, the company was dramatically undervalued. Subsequent to our coverage, Pulmatrix ran up to more than $5.10 a share, from a price at coverage of $2.22. The company quickly validated our undervaluation suggestion, but since reaching the above-mentionedThe company quickly validated our undervaluation suggestion, but since reaching the above-mentioned highs, has gradually declined to current levels in and around $2.46. There have been a number of key operational developments since our first coverage, and from a development perspective, Pulmatrix has advanced towards revenue generation on its lead asset quite considerably. As such, and given that current price is not too different from the price at which we first highlighted this one, we are going to reiterate our initial statement: Pulmatrix is dramatically undervalued at $2.46 a share.For those new to the company, Pulmatrix has developed a technology that allows for the encapsulation of an active compound and the delivery of this encapsulated active compound through an inhaler. The technology is called iSperse, and it is designed to overcome some of the drawbacks associated with inhaled active compounds in standard of care treatments. Specifically, and primarily, these drawbacks are rooted in the active compound clumping up at the back of the throat post-inhalation and causing two distinct problems: one, not enough active drug reaching the lungs (and in turn, a lack of efficacy) and two, toxicity-associated side effects caused by the collection of the active compound at the back of the throat.The iSperse technology, for want of a better phrase, lubricates the active compound so it won't stick together and doesn't clump, and by proxy, doesn't get caught in the throat. This allows for a more compact dose in various indications, as less of the active compound needs to be inhaled to have the same amount of it (when compared to standard of care) reaching the lungs. The primary application of this technology right now is in COPD. The company is currently in mid to late stage development in an attempt to prove that the iSperse version of the currrent SOC is bioequivalent to the latter from an efficacy standpoint. If it can prove this, the Pulmatrix asset (it's called PUR0200) should gain a large portion of the market very quickly because while it might have a similar efficacy profile, it's far easier to use (once daily, smaller inhaler) and it should have a cleaner safety profile (by way of the mechanisms described above).But that's not all.As per a just announced licensing arrangement, Pulmatrix has been able to add two fresh assets to its pipeline – one called PUR1800 and one called PUR5700. These weren’t detailed too acutely in the press release announcing the license, but there's a fact sheet here that's well worth a read for some added detail.The two assets are what are called kinase inhibitors, which are chemical entities that block kinase enzymes. Kinaze enzymes play a key role in inflammation and cancer and a number of promising treatments based on their MOA are at various stages of development and commercialization across the pharma space. The idea behind the licensing deal is that Pulmatrix is going to take these kinase inhibitors and combine them with its iSperse technology. The resulting, inhalable, drug should then serve as a superior alternative to current indications in which these kinase inhibitors are SOC – notably the above-discussed COPD, as well as asthma and pulmonary fibrosis.So what does all this mean?Well, management wouldn't be branching out into other indications, with varying mechanisms of action, but all using the same underlying technology, if it didn't feel that the technology in question worked. The latest licensing agreement, therefore, suggests that the company believes in its application of iSperse to COPD in PUR0200, which for us, is a strong value indicator.There's also the potential for this one to be bought out near term (we're talking before the end of the year). It's a prime candidate for acquisition across pretty much the entire range of big pharma and – while the carrying of its lead assetIt's a prime candidate for acquisition across pretty much the entire range of big pharma and – while the carrying of its lead asset through to commercialization would likely generate higher longer term returns, it would also be costly, and we're willing to bet a portion of shareholders would be happier taking a premium on their holding right now, and leaving further gains on the table, if it meant they could avoid any potential dilution going forward.We recommend you get the full picture by checking out our previous coverage of PULM here.We will be updating our subscribers as soon as we know more. For the latest updates on PULM, sign up below!Disclosure: We have no position in PULM and have not been compensated for this article.