target .27, page-18

Stuart Roberts’ report on POH with Buy recommendation is certainly welcome but also puzzling.

It is apparent from several oddities in the report that Roberts has written this relatively hastily and hasn’t had recent discussions with the company. The success of the recent oxymorphone trial is scarcely mentioned, yet alone the significantly high therapeutic levels of opioid successfully delivered by patch during those trials. Roberts mentions both systemic and topical delivery capability of the opioid patches, but than fails to mention the significance of the difference. He also fails to mention that it is the oxymorphone patch which is targeted for transdermal delivery while the oxycodone patch will target topical delivery. He further fails to explain that the oxymorphone patch is for chronic pain, such as lower back pain, while the oxycodone patch will be indicated for neuropathic/peripheral pain market.

For some reason Roberts assumes that the oxycodone patch will be licensed and launched before oxymorphone, but that the oxymorphone patch will command a higher licensing fee. It is much more likely that it will be the other way around. Oxymorphone patch development should be relatively straightforward whereas the topical oxycodone patch for peripheral pain is not only more complex, it also involves two Phase 2 trials for two separate indications. However, although one could therefore reasonably expect the oxymorphone patch to be commercialized first, it is also possible that if the topical patch trials are successful, the oxycodone patch will be worth even more than the oxymorphone patch. The final oddity in Roberts' analysis of the opioid pipeline is his assumption of an oxymorphone patch launch in 2019-2020. This perplexingly long timeline is certainly his, and not the company’s assumption.

Then there is the fact that Roberts chooses to place no value on either topical tretinoin for acne or TPM diclofenac gel. In comment on this I would only observe that some biotechs have a total development portfolio consisting of less. As for animal health, not only does Roberts place no value on it, it is simply mentioned in passing and then isn’t referred to again. I believe Roberts might be in for a surprise from this division.

Finally, there’s that base target price of 27c.

Here I have to say I agree with the views expressed in an online article, titled From Implausible Analysis to Impossible Guesswork and subtitled A modest proposal: Let’s stop using price targets in biotechnology stock research. The author is a Life Sciences Fund Manager and Adjunct Professor at Columbia University and the title pretty well sums up both his and my view. I know it’s not Roberts’ fault that a price target is expected as an outcome of his analysis, but it really is a futile exercise in my opinion. Instead, I think it’s fair to say that if nothing progresses and trials fail over the next 12 months, the current price of 12c will have been decimated. On the other hand, if acne, oxymorphone and oxycodone Phase 2 trials all go well, if improved cosmetic sales and animal health provide growing income streams and if a substantial licensing deal with Big Pharma is announced on the back of successful pain patch trials, 27 cents will have been consigned to history.

http://whartonmagazine.com/blogs/from-implausible-analysis-to-impossible-guesswork/