New River Pharma
Strong risk/reward into upcoming PDUFA
We believe NRPH provides investors with a strong risk/reward going into the FDA
decision for the approval and scheduling decision for NRP104. We estimate $10 -
$15 or more of upside and $5 – $10 of downside on the approval decision. Based
on the current price and expected values in positive and negative scenarios, we
believe the market is pricing a higher probability of a negative event, whereas we
believe there is a ~70-75% probability of a positive outcome on PDUFA.
FDA approvable/approval by Oct 6th, followed by scheduling
We expect FDA to issue an approvable letter (most likely) or full approval (less
likely) by the October 6th PDUFA date. We do not expect FDA to require
significant new studies in an approvable letter. Final approval may be contingent
on scheduling, which may be proposed by DEA ~2 weeks after the FDA decision.
Best case, $35 on approvable, $45 – $50 with Sched 3 or 4
The best case would be if FDA gives NRP104 an approvable letter requiring no
new studies or full approval. In this case, we expect the stock to step to $35.
Later, if DEA recommends Schedule 3 or 4, the stock could rise to $45 - $50.
Street/stock expecting Schedule 2 - $35 - $39 value
We believe the Street is expecting approvable with a Schedule 2. However, the
primary bear thesis is non-approval or a long-delay, so approvable with a
Schedule 2 would eliminate the key bear thesis. We would conservatively assume
a 70-80% conversion rate in this scenario, suggesting value of $35 - $39.
Worst case is approvable with new studies, $15 - $20 value
If FDA requires new long-term safety studies for NRP104, which we think is
unlikely, we still believe there is a high probability that the drug will reach the
market well before generic Adderall XR. Using a lower probability of launch and
higher discount rate, we estimate fair value for NRP104 would be $15 – $20. |
