Gwengoat
Introduction
In late September, Fennec Prescribed drugs (NASDAQ:FENC) announced it had obtained FDA-approval for Pedmark. This got here after two FDA rejections associated to manufacturing deficiencies. Fennec has spent over a decade getting Pedmark to market, leading to an gathered deficit of nearly $200 million. The corporate now shifts its consideration in direction of Pedmark’s arrival to the market.
Kids present process cisplatin-based chemotherapy, used within the therapy for a lot of pediatric cancers, typically succumb to ototoxicity, or listening to loss. Not solely is that this pricey (e.g. listening to aids, cochlear implants), it’s related to declines in cognition and behavior. In two part 3 research, when Pedmark, or sodium thiosulfate injection, was administered following cisplatin infusion, it decreased prevalence of ototoxicity with out performing as a tumor protectant in localized non-metastatic tumors. The first end result information have been extremely vital (p<0.01) and Pedmark now stands alone within the indication.
Pedmark for high-risk (for listening to loss) pediatric sufferers with localized non-metastatic tumors ought to change into synonymous with cisplatin. It ought to, in a way, market itself, as neglecting its correct use, and subsequent ototoxicity, can be inexcusable for practitioners. Fennec figures to have 7.5 years of U.S. market exclusivity with Pediatric Orphan Drug Designation and goals to have 10 years of E.U. exclusivity if their Pediatric-use Advertising and marketing Authorization (or PUMA) is granted.
At writing, shares of Fennec commerce at $10.35, making its market capitalization ~$270 million. Fennec trades underneath two-times estimated peak annual income (defined intimately under), which is a conservative valuation in gentle of the drug’s prospects. The market seems to be discounting the likelihood that the corporate markets the drug alone. Nevertheless, it’s uncertain Fennec will go it alone for lengthy, as doing so would incur vital prices (e.g. principally associated to growing their very own advertising and marketing group) and gradual the drug’s supply to sufferers (relative to a full-bodied gross sales group of a bigger biotechnology firm). Under, I suggest, for all events (Fennec, sufferers, buyers, and many others.), it’s best for Fennec to be acquired and ruminate on the potential acquisition value.
Funds/Money Runway
| Money & Equivalents | $29.8 million |
| Quarterly Money Burn | ~$8 million |
| Debt | $25 million |
as of September 30, 2022
FDA-approval allowed Fennec to acquire a further $20M non-dilutive loan, having already obtained $5M. This may allow the corporate to, in any case, start the preliminary processes concerned with advertising and marketing and promoting a drug. It’s, nevertheless, unreasonable to consider this will probably be sufficient for Fennec to outlive lengthy. That’s, till Pedmark is a worthwhile asset. If Fennec is to stay its personal entity, it should doubtless must safe extra loans or succumb to dilutive measures, comparable to a inventory providing, to take Pedmark to its fullest potential. The earlier $14.2 million in annual money burn (2021) will certainly balloon if Fennec is to enterprise into the wild by itself. Assuming Fennec markets the drug on their very own, they doubtless have not more than a 12 months of money runway. They’d additionally stay indebted and topic to curiosity, charges, and many others.
Market/Acquisition Estimates
Prospects
Pedmark’s indication (to cut back the danger of listening to loss in pediatric sufferers present process cisplatin-based chemotherapy with localized illness) comes as no shock primarily based off the totality of scientific trial information (which I’ve mentioned extensively in earlier articles). Though, in previous communications, administration was hopeful Pedmark would obtain a broader indication – inclusive of pediatric sufferers with non-localized, metastatic illness, it should accept sufferers with localized, non-metastatic strong tumors. This slender indication stays a worthwhile enterprise pursuit. Medically, Pedmark needs to be anticipated to be welcomed with open arms. A well-liked useful resource for practitioners and prescribers, UpToDate (subscription required), recommends using Pedmark for its given indication. The prices and developmental setbacks related to listening to loss throughout youth and the following lifelong requirement of listening to aids are too burdensome and costly to not make the most of Pedmark when indicated. Pedmark ought to, due to this fact, expertise predictable and speedy industrial use. That’s, with an current advertising and marketing group.
Pricing
In late September, Fennec revealed the pricing of Pedmark, set at $11,417.09 per single-dose vial. The quantity of cycles for chemotherapeutic brokers varies with kind of most cancers. We are going to use hepatoblastoma (a most cancers arising from liver cells) for instance. These sufferers with, sometimes, bear between 4 and 8 cycles (doses, then relaxation) of cisplatin. Assuming 6 cycles at $11,400 per vial, Pedmark ought to web $68,400 per affected person. That is in-line with my pricing estimates made in 2019.
Market
Fennec estimates there are almost 7,500 U.S. and E.U. yearly sufferers with localized, non-metastatic illness. Practically 1/3 of those sufferers can have threat elements that make them high-risk for ototoxicity (e.g. age < 5 years). Assuming Pedmark reaches 90% of this high-risk inhabitants, estimated peak annual gross sales needs to be ~$150 million. I consider this can be a conservative estimate. Given the shortage of part 3 candidates for a similar indication and U.S. exclusivity and pending E.U. PUMA, Pedmark ought to have an honest run available on the market previous to generic competitors.
Acquisition
The acquisition of biotechnology firms could be very sophisticated and includes a number of variables that, for the sake of simplicity and brevity, I cannot define. Biotechnology firms are sometimes acquired for ~3-times peak annual income. For Fennec, this might place an acquisition worth of $450 million or ~$17/share (~26,200,000 excellent shares), or, to be much less particular and extra practical, in a spread between $350 and $550 million. This represents returns in extra of 40% for present Fennec buyers. To keep away from having to acquire extra money by way of dilutive or nondilutive means, Fennec ought to promote inside a 12 months from now.
Potential Acquirers
Though merger & acquisition exercise is expected to remain quiet into the brand new 12 months as potential acquirers are choosing partnerships, as a substitute, given the financial headwinds, Pedmark can be an incredible add-on for a mid-cap biotech. Pedmark, a distinct segment asset (and, due to this fact, simpler to market) is with out competitors and serves an unmet, important want. For a robust, current oncology-focused biotech advertising and marketing group, it figures to be cake to promote.
Jazz Prescribed drugs (JAZZ) is a superb instance of a mid-cap biotech ($9.8 billion market capitalization), with an current portfolio together with oncological, pediatric, and orphan medicine, that might instantly profit from buying Pedmark.
Dangers
In immediately’s setting, 40%+ funding returns inside a 12 months is a superb alternative, however it isn’t with out threat. If, for no matter motive, Fennec just isn’t capable of finding a suitor inside an inexpensive period of time, its inventory will certainly endure. Pedmark just isn’t prone to procure market-pleasing revenues for Fennec.
- If Fennec pursues marketization alone, it should prices tens of hundreds of thousands of gross sales & advertising and marketing {dollars} and by the point Fennec comes face-to-face with rivals (e.g. generics), it might by no means make a revenue.
- Fennec would doubtless must help to dilutive means to fund its efforts. Even elevating as little as $50 million would dilute shares in extra of 15%.
- As talked about earlier, acquisitions within the biotechnology trade are down.
- Relative to being marketed by a bigger biotechnology firm, Pedmark would attain peak annual gross sales at a later date, limiting its worth previous to potential generic entry.
- Different dangers embrace patent litigation (see “Hope Medical Enterprises, Inc.” of their quarterly report), reducing use of cisplatin for pediatric cancers, issues involving the manufacturing of Pedmark, and so forth.
Conclusion
Fennec’s board would not shrink back from displaying their history of merger and acquisition. The corporate scores little profit from going to the market alone. Given the numerous start-up prices related to a small biotechnology firm taking a small drug to market, one might argue Fennec would, really, rating nothing. The market is pricing within the risk Fennec goes it alone, however I consider a sale is the doubtless occasion. If Pedmark is to promote for simply 2.5x my peak annual income estimates, there’s alternative available for its buyers. Fennec could also be value a speculative place (<1%) in your diversified portfolio.
A evaluation of key insights
- Pedmark is a critically-needed drug for a distinct segment market during which no competitors exists.
- Subsequent, and as evidenced by present follow suggestions (e.g. UpToDate), Pedmark ought to see fast and simple uptake, particularly within the fingers of a full-bodied gross sales group.
- Resulting from orphan drug designations, Pedmark is prone to profit from years of exclusivity previous to generic entry.
- Pedmark would make for an excellent, lower-risk acquisition for a mid-sized biotechnology on the lookout for an instantaneous increase in income.
