Fennec Prescription drugs: Ruminating The Prospects And Necessity Of A Sale (NASDAQ:FENC)

Introduction

​In late September, Fennec Prescription 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 accrued deficit of nearly $200 million. The corporate now shifts its consideration in the 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 lowered incidence of ototoxicity with out appearing as a tumor protectant in localized non-metastatic tumors. The first final result information had been extremely important (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 develop 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 beneath 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 important prices (e.g. principally associated to creating their very own advertising crew) and sluggish the drug’s supply to sufferers (relative to a full-bodied gross sales crew of a bigger biotechnology firm). Beneath, I suggest, for all events (Fennec, sufferers, traders, and so forth.), it’s best for Fennec to be acquired and ruminate on the potential acquisition value.

Funds/Money Runway

Click on to enlarge

as of September 30, 2022

FDA-approval allowed Fennec to acquire a further $20M non-dilutive loan, having already obtained $5M. This can allow the corporate to, as a minimum, start the preliminary processes concerned with advertising and promoting a drug. It’s, nonetheless, unreasonable to imagine this might be sufficient for Fennec to outlive lengthy. That’s, till Pedmark is a worthwhile asset. If Fennec is to stay its personal entity, it’s going to probably need to safe extra loans or succumb to dilutive measures, equivalent 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 probably have not more than a yr of money runway. They’d additionally stay indebted and topic to curiosity, charges, and so forth.

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 based mostly off the totality of medical trial information (which I’ve mentioned extensively in previous articles). Though, in previous communications, administration was hopeful Pedmark would obtain a broader indication – inclusive of pediatric sufferers with non-localized, metastatic illness, it must accept sufferers with localized, non-metastatic strong tumors. This slim indication stays a worthwhile enterprise pursuit. Medically, Pedmark ought 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 next lifelong requirement of listening to aids are too burdensome and costly to not make the most of Pedmark when indicated. Pedmark ought to, subsequently, expertise predictable and speedy industrial use. That’s, with an current advertising crew.

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, endure 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. Almost 1/3 of those sufferers can have danger 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 ought to be ~$150 million. I imagine this can be a conservative estimate. Given the dearth of part 3 candidates for a similar indication and U.S. exclusivity and pending E.U. PUMA, Pedmark ought to have an honest run in the marketplace previous to generic competitors.

Acquisition

The acquisition of biotechnology firms could be very sophisticated and entails a number of variables that, for the sake of simplicity and brevity, I can’t 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 reasonable, in a spread between $350 and $550 million. This represents returns in extra of 40% for present Fennec traders. To keep away from having to acquire more money through dilutive or nondilutive means, Fennec ought to promote inside a yr from now.

Potential Acquirers

Though merger & acquisition exercise is expected to remain quiet into the brand new yr as potential acquirers are choosing partnerships, as an alternative, given the financial headwinds, Pedmark can be an awesome add-on for a mid-cap biotech. Pedmark, a distinct segment asset (and, subsequently, simpler to market) is with out competitors and serves an unmet, essential want. For a powerful, current oncology-focused biotech advertising crew, it figures to be cake to promote.

Jazz Prescription drugs (JAZZ) is a good instance of a mid-cap biotech ($9.8 billion market capitalization), with an current portfolio together with oncological, pediatric, and orphan medication, that might instantly profit from buying Pedmark.

Dangers

In in the present day’s setting, 40%+ funding returns inside a yr is a good alternative, however it’s not with out danger. If, for no matter motive, Fennec shouldn’t be capable of finding a suitor inside an inexpensive period of time, its inventory will certainly undergo. Pedmark shouldn’t be more likely to procure market-pleasing revenues for Fennec.

• If Fennec pursues marketization alone, it’s going to prices tens of hundreds of thousands of gross sales & advertising {dollars} and by the point Fennec comes face-to-face with rivals (e.g. generics), it could by no means make a revenue.
• Fennec would probably need to assist 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 does 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 may argue Fennec would, truly, rating nothing. The market is pricing within the chance Fennec goes it alone, however I imagine a sale is the probably occasion. If Pedmark is to promote for simply 2.5x my peak annual income estimates, there’s alternative available for its traders. Fennec could also be value a speculative place (<1%) in your diversified portfolio.

A overview of key insights

• Pedmark is a critically-needed drug for a distinct segment market wherein no competitors exists.
• Subsequent, and as evidenced by present observe suggestions (e.g. UpToDate), Pedmark ought to see fast and straightforward uptake, particularly within the palms of a full-bodied gross sales crew.
• Resulting from orphan drug designations, Pedmark is more likely to profit from years of exclusivity previous to generic entry.
• Pedmark would make for , lower-risk acquisition for a mid-sized biotechnology on the lookout for a direct increase in income.