By Ivan Deryugin
Ahead of key Phase II data for Ampyra, we believe that shares of Acorda Therapeutics (ACOR) are worth a look. The company will release Phase II data for Ampyra in cerebral palsy in mid-2013, and we suspect that the release will occur sometime this month. 2013 has been a year of transition for the drug developer after losing one of its key growth-drivers to generic competition last year, but there's evidence that the company will be making significant progress over the next two years in growth of its core franchise. Combined with a strong balance sheet, a profitable commercial business, as well as a diversified pipeline, Acorda should be on investors' radar at these levels.
Q1 Review: Putting Zanaflex to Rest
Like ViroPharma (VPHM), a company we have long been bullish on, growth in Acorda's main business is being stymied, at least for the time being, by the presence of generic competition elsewhere. Acorda has several approved products on the market, including Ampyra (dalfampridine), designed to improve walking in patients with MS; Zanaflex (tizanidine hydrochloride), designed to treat spasticity; and the recently acquired Qutenza (for postherpetic neuralgia; more on this later). Acorda also receives royalties from Biogen Idec (BIIB) on sales of Ampyra outside the United States, where the drug is marketed as Fampyra.
In the first quarter of 2013, Acorda posted total revenue of $71.865 million, a decrease of 0.87% on a year-over-year basis. Although royalty revenues rose by over 66% to $5.516 million, core product revenue decreased by 2.48%, driven by declines in Zanaflex sales. Zanaflex was exposed to generic competition in 2012, and although Acorda has an agreement in place to sell authorized versions with Actavis (ACT), the deal is not enough to stem the weakness in this franchise. Zanaflex sales fell from $7.2 million in Q1 2012 to just $1.3 million in Q1 2013, undercutting the 9% growth in Ampyra sales ($62.3 million from $57.4 million) over the same time. That, combined with increased R&D and SG&A expenses related to pre-commercialization investments in Diazepam nasal spray for the treatment of epileptic seizures (NDA is slated to be filed by the end of 2013), pushed pro forma EPS down to $0.09 in 1Q 2013, a steep drop from the $0.36 in EPS Acorda posted in Q1 2012.
We note that several patents protect Ampyra here in the United States. Patent No. 8,007,826 covers claims tied to methods to improve walking in MS patients via the administration of 10 mg doses of Ampyra and is valid through 2027. Patent No. 5,540,938 covers claims related to treating "a neurological disease," as well as the use of Ampyra for improving the walking ability of MS patients. This patent, which Acorda licenses exclusively from Alkermes (ALKS), will expire in 2018. The third domestic patent for Ampyra is Patent No. 8,354,437, issued only in January 2013, and covers claims tied to methods designed to improve walking speed in MS patients via the administration of Ampyra. In Europe, the EPO granted the European equivalent of this third patent in 2011, but the patent was challenged in March 2012 by Synthon and Arzeneimittel, however there have been no subsequent developments since then.
Q1 2013 is not representative of Acorda's long-term potential. The company is moving on multiple fronts to grow both sales and EPS, and we believe that the company's strategy will ultimately pay off.
It should be noted that Ampyra sales were exposed to seasonality in Q1 2013, a trend that has largely held since the drug was approved in January 2010. Although Q1 2013 saw a 16.69% sequential decline in Ampyra sales, as opposed to a slight increase in Q1 2012 (0.35% sequential growth), there were several factors at play that served to influence these seasonal trends. Acorda instituted a price increase for Ampyra in early January, and that may have led to stronger-than-usual Q4 sales, which resulted in inventory de-stocking during the first quarter. When these inventory issues are combined with changes in patient insurance plans, as well as the Medicare doughnut hole, it is logical that Ampyra's seasonal trends were amplified this quarter.
However, Acorda reiterated its full-year Ampyra revenue guidance of $285-$315 million, which would represent full-year growth of 12.74% on a year-over-year basis at the midpoint of guidance (consensus estimates call for consolidated revenue is to grow by 8.5% in 2013, due to continued pressure on sales of Zanaflex). Although EPS is set to fall sharply in 2013 (down to a projected $0.24 in 2013 from $1.25 in 2012), this is a year of meaningful investment for Acorda. EPS is set to begin rebounding in 2014 and should, in our view, reach record levels in 2015.
Pipeline Progress: Expanding the Potential of Ampyra
Acorda's R&D strategy consists of a dual-track approach: expanding the use of Ampyra to new indications and investing in new product candidates. Acorda's pipeline consists of 10 different programs, of which a total of eight are either in clinical trials of nearing FDA review.
On July 9, Acorda announced that it has completed a transaction that will add several assets to its commercial franchises and pipeline via the takeover of certain assets from NeurogesX (OTCPK:NGSX), which has been under immense financial pressure, as evidenced by the terms of the deal. Acorda paid nearly $8 million to acquire domestic rights to Qutenza (international rights are held by Astellas), as well as NP-1998, currently in Phase III trials for the treatment of neuropathic pain in conditions such as diabetic neuropathy (Acorda will make up to $5 million in additional milestone payments tied to NP-1998).
Highlighting NeurogesX's distress is the fact that of the nearly $8 million payment made by Acorda, $900,000 consists of accounts payable that the company assumed from NeurogesX. The clear motivator for this deal was NP-1998. Qutenza generated $2.6 million in sales in 2011, and NeurogesX stopped promotion of the drug in March 2012. Although Acorda's management team made clear that it will integrate the promotion of Qutenza into its existing sales force activities, its primary desire was to gain control of NP-1998, which is essentially a new version of Qutenza (both drugs have capsaicin as their active ingredient), but with a much wider pool of potential indications.
Acorda's primary pipeline asset is in fact Ampyra itself, which is being developed for several indications, including additional MS indications, post-stroke deficits, and cerebral palsy. As noted above, Acorda will release Phase II data for Ampyra in cerebral palsy (CP) in mid-2013. Previous trials of Ampyra in CP were primarily focused on safety. In April, Acorda released proof-of-concept data regarding Ampyra in CP, which showed that Ampyra's safety profile in CP was consistent with that of Ampyra in MS. The most common adverse events were headache, fatigue, nausea, insomnia, and diarrhea. Acorda did note that efficacy data suggests that CP patients in the trial (n=24) saw improvements in both walking ability and hand strength, but that the company needs more time to fully analyze the data.
Alongside proof-of-concept data for Ampyra in CP, Acorda released Phase II data regarding Ampyra in post-stroke deficits (covering a wide range of neurological complications, including impaired walking ability, as well as impaired motor and sensory functions). The post-stroke deficit trial enrolled a total of 83 patients (all of whom suffered an ischemic stroke at least six months prior to the start of the trial). The trial was designed as a crossover trial; patients received both Ampyra and placebo for two weeks (dosed twice daily), with a wash-out period for receiving placebo. The primary endpoint of the trial was safety and tolerability, with multiple efficacy measures as well. However, Acorda CEO Ron Cohen was careful to state on the Acorda's Q1 earnings call that there were no official primary or secondary endpoints related to efficacy. Safety data from this post-stroke trial was consistent with the safety profile of Ampyra in MS. The most common adverse events were dizziness, nausea, fatigue, insomnia, and arthralgia.
Notably, three patients experienced seizures during the course of the trial, but only one requires further scrutiny in later-stage trials. One of the seizures occurred in a patient that was taking placebo, who had not yet been exposed to Ampyra. Another seizure occurred due to what was deemed a suicide attempt by a patient who had intentionally overdosed on Ampyra, and the third seizure occurred while a patient was taking Ampyra. Acorda notes that all three patients saw full recoveries. We expect new trials of Ampyra in post-stroke deficits will put more scrutiny on seizure monitoring and treatment. Although safety and tolerability were the main goals of this trial, Acorda did note that patients saw statistically significant (p<0.05) improvements in their walking ability as measured by the Timed 25-Foot Walk. Acorda has said that it is in the process of analyzing these trial results and plans on presenting a completed analysis to the FDA in order to determine the design of new trials for Ampyra in post-stroke deficits.
Acorda has several other programs in its pipeline, including GGF2 (glial growth factor 2). GGF2 is being developed for the treatment of heart failure and has been granted Fast Track status by the FDA. In March, Acorda released Phase I data for GGF2 at the annual meeting of the American College of Cardiology. The Phase I trial enrolled 40 patients in a double-blind setting; patients were randomized into several trial arms, including both placebo and various doses of GGF2 (the highest tolerated dose was deemed to be 0.75 mg/kg). The efficacy of GGF2 was measured by left ventricle ejection fraction (55% or higher is a normalized level; all patients in this trial had levels below 40%). Across all GGF2 dosing arms, the mean ejection fraction at screening was 27%, vs. 29% for the placebo Arm. However, at the 0.75 mg/kg dosing arm, the mean ejection fraction rose to 40%, suggesting that the efficacy of GGF2 is dose-dependent.
The safety profile of GGF2 was generally acceptable. However, as with Ampyra's post-stroke deficit trial, there are nuances that need to be addressed. There was one case of hepatotoxicity in the 0.75 mg/kg-dose arm, and the patient in question presented with elevated levels of AST, ALT, and bilirubin. All three measures returned to normalized levels two weeks after dosing. In addition, there was one case of uroepithelial carcinoma, diagnosed three months after dosing (in the 0.75 mg/kg arm), which prompted further investigation. Acorda noted that a baseline urinalysis showed red blood cells, which suggests that tumor formation occurred prior to the start of dosing. The company has presented these findings to the FDA, which has cleared the company to commence with new trials of GGF2, which Acorda plans to initiate by the end of 2013.
Alongside GGF2, Acorda is developing AC105 for the treatment of spinal cord injury, and notes that other indications may be targeted as well, such as traumatic brain injury. AC105 was licensed from Medtronic (MDT) in June 2011. Under the terms of the agreement, Acorda acquired global rights to the development and commercialization of AC105 in exchange for an upfront payment of $3 million, future milestone payments of $32 million, as well as single-digit royalties on any commercial sales of AC105. Acorda plans on initiating Phase II trials of AC105 by the end of 2013.
The company's final pipeline asset is perhaps it's most interesting. Acorda is developing rHIgM22 (remyelinating antibodies) for the direct treatment of MS, as opposed to treating complications associated with MS. The rHIgM22 program is in the early stages of development, with enrollment in Phase I trials (60 patients) commencing only in April 2013. However, rHIgM22 presents a differentiated approach to treating MS. In preclinical studies, rHIgM22 was shown to stimulate remyelimination and accelerate the repair of demyelination. Acorda notes that rHIgM22 differs from anti-LINGO, which is Biogen Idec's monoclonal antibody now in Phase II trials for MS.
Anti-LINGO is designed to be a negative regulator of myelination within a patient's central nervous system, and in preclinical studies, it was determined that a relationship exists between the blocking of LINGO-1 and myelin repair. However, anti-LINGO, as Acorda CEO Ron Cohen notes, takes an indirect effect; rHIgM22 directly targets oligodendrocytes (demyelinating cells), targeting their receptors and creating an intra-nuclear signal designed to regulate multiple factors affecting growth and proliferation. Cohen also stated that there could be room to explore potential synergies between anti-LINGO and rHIgM22, a possibility made more feasible by the existing collaboration between Acorda and Biogen Idec.
Financials and Forecasts
Acorda ended Q1 2013 with over $318 million in net cash and investments (inclusive of less than $6.4 million in debt). Based on its 40,566,088 outstanding shares, Acorda holds $7.85 of net cash and investments per share, equivalent to nearly 22% of its current market capitalization. Furthermore, the company reiterated its forecasts for positive operating cash flow in 2013 (operating cash burn of $7.665 million in Q1 2013 was due primarily to the inventory de-stocking discussed above), giving Acorda further scope to invest in its business.
Comments made by CEO Ron Cohen on the company's Q1 earnings call indicate that the company will continue to look for business development opportunities such as the NeurogesX deal, opportunities that play to the company's strength in neurology. Consensus earnings forecasts for Acorda, assuming that they hold, imply that the company's shares are nowhere near being overvalued. Forecasts are based on aggregated estimates from First Call and Nasdaq, and P/E multiples are based on Acorda's closing price of $35.98 on July 9, 2013.
Acorda Therapeutics Historical EPS and Consensus Forecasts
|Year||Revenue||Year-Over-Year Change||EPS||Year-Over-Year Change||P/E Multiple||P/E Multiple ex-Cash|
Acorda, like ViroPharma, is going through the loss of a franchise, which combined with continued investments in its business, is causing EPS to come under pressure. However, Acorda is set to maintain revenue growth in 2013 and 2014, even with the loss of Zanaflex, and EPS is posed to rebound in the years to come, eclipsing its record 2012 performance. Investors should not view generic competition as a source of long-term concern so long as the company in question has a clear strategy to mitigate the changing sales. In the case of Acorda, the company is executing on multiple fronts to mitigate the loss of Zanaflex; we believe that it will be able to overcome this loss.
Acorda Therapeutics combines a strong, cash-rich balance sheet and a diverse pipeline, and we believe that while 2013 is a transition year for Acorda, the next few years should be a meaningful growth period for the small-cap company. Most telling, EPS should reach new records in 2015 as Acorda puts Zanaflex to rest and expands its slate of commercial franchises.
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