ADLR
Stock undervalued for Entereg in OBD, POI
We are upgrading Adolor to BUY with a $18 price objective. Using our probability
adjusted NPV and scenario analyses, we estimate the stock is trading at about a
35% discount to the fair value for, Entereg, in chronic opioids related bowel
dysfunction (OBD) and post operative ileus (POI). The trial design for competitor
Progenics’ trial in POI suggests a higher probability of approval for Entereg in that
indication, reduces the risk around the upcoming event of the Nov 9th PDUFA date
& raises our probability of approval for Entereg across all other indications.
Undervalued primarily for OBD, Combo pill potential
Following the mixed results from the OBD trials in Sept we lowered our probability
of OBD & the Entereg/Vicodin combo pill approval & delayed launch by one year
for each. Because of the higher probability of POI approval now, we increased our
probability of approval for OBD to 70% from 65% and the combo pill rises to 35%
from 30%. We remain conservative with our peak projections, but estimate OBD
and combo indications are worth ~$13.50 & other indications are worth $4.50.
Higher probability of POI approval based on MNTX design
We believe there is a high probability of approval for Entereg in POI based on the
trial design for competitor Progenics’ methylnaltrexone (MNTX). We estimate a
significantly lower probability (15% vs prior 40%) of non-approval or additional
studies, which reduces the downside. Also, Adolor met the primary endpoint being
used in the MNTX trial with a p-value of <0.001 in its recent Study 314.
Fair value of $18 based on probability adjusted analysis
We estimate fair value for Adolor is $18, based on our probability adjusted NPV
and scenario analyses. There may be a multi-billion dollar market potential for
new drugs to treat OBD. We take a conservative approach to our peak sales
estimates due to competition, reimbursement and compliance concerns. Despite
our conservative approach, we still believe Adolor is trading below fair value. |
