Interesting article in Seeking Alpha yesterday on TRT and some of the competition out there. APRI is mentioned in the article...
FDA's TRT Censorship Creates Opportunity For Lipocine
Must Read | Jun. 30, 2015 10:29 AM ET | 2 comments | About: Lipocine Inc. (LPCN)by: Kanak Kanti DeSubscribers to SA PRO had an early look at this article. Learn more about PRO »
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Summary- The FDA has initiated a program of evaluating and restricting testosterone replacement products.
- This entry barrier is a hidden opportunity and LPCN is poised to take advantage of it.
- The stock can see 2x upside in near term.
Americans and Europeans have different opinions about the level of testosterone men should safely have in their system; at least, their respective regulatory bodies do. While the CMDh has no problem with aging men piling up on testosterone to boost up their energie der liebe - the CMDh even thinks too little testosterone may actually create CV and stroke risks - the FDA and its Canadian sister concern Health Canada have been sending off advisory letters to industry bodies and label change letters to companies with TRT products for over a year now. Last year they even rejected an oral testosterone product from Claurus Therapeutics after decent phase 3 trials, the reason being perceived cardiovascular and stroke risks for TRT products in general.
This has created a high entry barrier for all TRT products but has also created a high risk/high reward window of opportunity for Lipocine (NASDAQ: LPCN) and its oral TRT candidate LPCN 1021. If things go as planned, the stock could see an upside of 2x from current levels in the next year and a half based on LPCN 1021 alone. If things go south, LPCN has a longer term fallback option in LPCN 1107, its recurrent pre term birth preventive oral hydroxyprogesterone caproate product.
LPCN 1021: where we standThere are three products in Lipocine's pipeline; LPCN 1021, LPCN 1111 and LPCN 1107. Of these, 1021 and 1111 are both oral TRTs, while 1107 is the progesterone product with an ODD. Lead product is LPCN 1021, which has just completed its P3 SOAR trial. Results should be out any day.
LPCN 1021 is an oral TRT, meaning it doesn't have many of the problems with other forms of TRTs like topical gels, patches and invasives. The TRT market is estimated at $2.3 billion in the U.S. alone. Topicals account for 86% of the market even though they carry a black box warning. There is a risk of inadvertent transference with topicals. Another issue with topicals is poor compliance. According to the Journal of Sexual Medicine, 86% discontinue topicals after 12 months.
Invasives also carry a number of risks, including lung impairment and cardiovascular issues.
According to a 2014 survey of 28 leading endocrinologists and urologists conducted by Lipocine, 94% believe that oral testosterone will improve patient compliance.
Importantly, LPCN 1021 also has a good safety profile and is as efficient as existing products. The company's plan is to file an NDA in the second half of this year. Its pre-NDA meeting is already done, and no further clinical studies have been requested. That means if approved, LPCN 1021 could be launched by 2017.
In a recent study comparing testosterone dosage forms, it was observed that invasives had the highest rates of CV events (MI or myocardial infarction, unstable angina, and stroke), hospitalization and death. Patches and gels had similar risk profiles, which were not insignificant. Comparative risk profile for oral testosterone is much better. LPCN 1021 is further differentiated from competition because Native T has shorter half life, and methyl T has liver issues.
In its SOAR trial, LPCN 1021 met both primary endpoints: (Source for both images below: 2015 Presentation)
(click to enlarge) 
Compare that to the other two products that have gone through the FDA:
(click to enlarge) 
Clarus did not receive approval for its only product Rextoro, and the company is in tatters. Repros' product Endroxal is not classified as a TRT; more importantly, it has a large failure rate and narrower target market. There are 4-5 other oral TRT products in various stages of competition, per LPCN's 10-k:
Antares Pharma, Inc. is developing a testosterone enanthate auto-injector administered subcutaneously once each week. The product candidate is currently in a double-blind, multiple-dose, Phase 3 study with a reported estimated completion date of November 2015.
SOV Therapeutics, Inc. is developing a twice-daily oral testosterone undecanoate as a testosterone replacement therapy for the treatment of hypogonadism in men and in the treatment of Constitutional Delay of Growth and Puberty in adolescent boys (14-17 years of age).
Novartis is currently developing BGS649, an aromatase inhibitor, as a testosterone therapy for the treatment of obese, hypogonadotropic hypogonadal men.
TesoRx Pharma LLC is developing a twice-daily oral bio-identical testosterone as a testosterone replacement therapy for the treatment of hypoganadism in men. Phase 2 clinical studies have been completed.
Apricus Biosciences, Inc. is developing Fispemifene, a once-daily orally administered selective estrogen receptor modulator for multiple urological conditions, including secondary hypogonadism. A Phase 2b clinical study is expected to commence in the second half of 2015.
All these products are behind LPCN either because they are in earlier stages, or because they are invasives. A scientific comparison of all of them is beyond my present scope; however, LPCN certainly has many advantages.
One identified risk with LPCN 1021 is patent expiry in 2020 - that means they have at most 4 years of market time. At least, that was the situation until they received 2 new patents which covers LPCN 1021 until 2030. So LPCN is good on the patent front.
LPCN 1021 valuationAs I noted earlier, the oral TRT market is estimated at $2.3 billion in the U.S. alone. But the FDA's warning about TRT products is having a negative impact. According to IMS data, prescriptions for TRT products fell 13% in 2014 and are expected to drop to 6 million in 2015 from 6.5 million.
For valuing LPCN 1021, there are two main assumptions - see my complete valuation here. I am assuming that the size of the market shrinks further in the next two-three years because of the FDA's stance and then remains stable. The second assumption is LPCN 1021's penetration rate. There is no doubt that an oral TRT product will gain significant market share if approved. But there is, as I noted, competition although most products are behind LPCN in terms of development. At peak therefore, I have assumed a 40% market share for LPCN, taking into account that some of the drugs in early stages will reach commercialization. I am assuming a 2017 launch for the product. And the model runs until 2030, after which sales drop significantly due to patent expirations.
Based on these assumptions, LPCN would achieve peak sales of $760 million. Remember that this is only for the U.S. market. There could be a similar opportunity in Europe as well, however, I have not taken this into account in the model. Operating margin is expected to improve steadily over the period from 10% to 25%. The average for biotech industry, according to data from Stern, is around 25%. Based on these assumptions, discount rate of 15%, continued growth rate of 2% and probability of approval of 60%, I get per share value of almost $13 for LPCN 1021. The probability of approval of 60% if based on data from Torreya Partners. In fact, I have been a little conservative here, given the FDA's stance on TRT drugs. The actual probability from the end of Phase III is around 70%, according to Torreya Partners. Based on LPCN's current cash position and the value of LPCN 1021, the fair value of LPCN comes to around $14.50 per share, which is nearly 80% upside from current levels. I must add that the estimates could be conservative as I have assumed a significant drop in the size of the TRT market in the next two-three years and no growth after the market stabilizes. In addition, I am assuming that some of the competition will reach the market. Most importantly, the fair value of $14.50 per share does not assign any value to the company's pipeline.
Backup planConsidering the current FDA paradigm, there's a better chance for LPCN 1021's success in the EU than in the US. One question that was nagging me is why, after Clarus' failure, does LPCN think it can get its drug approved in the US? Well, one of the things is, of course, hindsight of a particular kind. LPCN can certainly strive to avoid the mistakes of Clarus. Consider this: the TRT market is huge and there's a constant demand for the product. Now, oral TRT has demonstrably better safety and compliance than other dosage forms. It is impractical for the FDA to remove the existing products without solid evidence of AEs - which they don't have. It is more practical, from a health perspective, to let a better product into the market. The FDA might give a little grief to oral TRT, but eventually, they will let them in. And LPCN is just poised to be there when that happens - Clarus just happened to be the scapegoat.
LPCN can also avoid Clarus' problems by focusing more on their lack of CV AEs. That will mitigate whatever problem the FDA might have with TRTs in general.
LPCN 1111 is also in the pipeline, an advanced form of oral TRT that has shown very good phase 2a results, exceeding FDA guidelines for safety and efficacy in its only daily dosage form. So, if LPCN 1021 fails, or if it gets in and requires some product differentiation, they have LPCN 1111 to back it up - it never hinders to have redundancy built into a pipeline.
Lastly, their LPCN 1107 hydroxyprogesterone product, which received an ODD and is well on its way to the market, is itself quite a valuable product. According to fellow contributorJason Napodano, that itself is a $250 million opportunity. Although in very early stage, it is a solid fallback option for investors wanting to go into LPCN for LPCN 1021.
Bottom lineLipocine looks like a solid little gem right now, with its solid pipeline, right timing, and the difficult market entry situation. If the company can turn this problem into an opportunity, investors can see quite some upside by early 2017, when the product gets market-ready. If you want bullish numbers, I would even go with a 3x upside in a year and a half, with more to come with its other candidates. LPCN 1107 works as a solid long term backup plan if things were to go south with LPCN 1021 and the FDA. |
