By Jake King
Cadence Pharmaceuticals (CADX) hosted its Investor/Analyst Day on Thursday morning, and gave a compelling presentation as to why Ofirmev, its primary value driver, should continue to grow substantially. Ofirmev is the company's approved IV formulation of acetaminophen for moderate to severe pain (and fever) in the hospital setting. The drug was launched in early 2011, and thus far, the product has already demonstrated exceptional formulary adoption in hospitals, consistent sales growth, and climbing reorder rates; analysts expect sales of $49M in 2012, up from $11.5M in 2011. The company noted at its Investor/Analyst Day that the drug is annualizing sales at about $73M. Analysts expect 2013 sales of the drug to rise 91% over 2012 levels, and the company highlighted the drivers of this strong growth at the Analyst/Investor event. The company expects the number of physicians prescribing the drug to increase (market penetration); the number of vials per patient to also double or more in the next few years; and price of the drug should also rise similarly to other hospital-based products (annual price increases in the range of 5-8%). These elements are key to the company's strategy to grow the product. From the market penetration standpoint, healthcare providers are moving away from opioid analgesic products like morphine and oxycodone due to their side effects and potential to negatively affect treatment outcomes. Doctors presenting at CADX's Investor/Analyst day highlighted Ofirmev's benefits in the postoperative surgical setting, and most importantly, noted that patients recovering from major procedures like heart surgery point to the empty Ofirmev bag and say, "give me more of that stuff" for their pain relief. Nurse practitioners also like the pain relief offered by Ofirmev, which is key to adoption in our view. Clinical data that backed Ofirmev's approval also confirmed that IV acetaminophen truly worked on pain relief alongside or in place of opioid use; we believe the current 7% market penetration is likely to rise. Doctors presenting at the Investor/Analyst Day stated that they are incorporating the therapy in most of their surgical patients' pain regimens, also evidencing that market penetration should continue to increase. Given that the economics to hospitals when using the drug is also favorable (only about $10.80 per dose) and patient outcomes can be improved, sustainable high growth looks plausible. As a result, it comes down to the company continuing to execute on its sales plan to bring value back to shareholders. Adoption of the drug so far and other items presented at the Investor/Analyst Day certainly offer evidence that management can continue to increase Ofirmev's value. Analyst price targets on CADX average ~$5.50 per share, suggesting upside from current levels. Expect positive analyst notes to publish later Thursday and Friday following the Investor/Analyst Day, fueling short-term upside in the stock. See the company's presentation here.
Ofirmev market penetration could increase eightfold over the next few years. Healthcare providers and government regulators have been suggesting that opioids are overused and overprescribed in the U.S., and many physicians are moving to options with fewer adverse effects and less possibility for abuse. Ofirmev, say doctors, presents a compelling non-narcotic option as part of the trend. Doctors are now buying into a multi-modal approach to pain management, using more non-narcotic treatments (acetaminophen and non-steroidal antinfllammatory agents) before adding opioids as patient pain approaches severe levels; non-opioids are expected to become a first-line approach, where opioid products have long been the standard first-line therapy. In fact, 90% of patients currently receive opioid analgesics, and doctors presenting at Cadence's Investor/Analyst Day suggested that Ofirmev could play a key role in moving away from the high use of opioids. As a result, management of CADX is guiding for market penetration to increase from 7% to 56% over the next few years. Considering the product's estimated 2012 revenue of roughly $50M, Ofirmev sales could top $400M based on improving market penetration alone.
Doctors expect to use twice as many Ofirmev vials per patient. The current average use of Ofirmev is 2.7 vials (doses) per patient in the inpatient population, and the company and doctors at the Investor/Analyst Day expect the average to increase to 4.5 vials per patient over the next couple of years, as healthcare providers begin to realize the efficacy benefits of the product, the hospital formulary acceptance of Ofirmev, and of course the advantages of reducing opiod use in post-surgical and other hospitalized patients in pain. Management suggested that peak use could be in the 4-6 vial per patient range in the longer-term. Vial sales, therefore, have the potential to double based on dosing alone, not considering rising market penetration and price increases over time. Assuming Ofirmev sales can peak in the $400 to $500M range, shares of CADX have the potential to significantly surpass the current $355M market capitalization.
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