TherapeuticsMD (TXMD) has been sparsely covered on this board, with the latest article 2 months ago, but the stock has been up 60% since that last publication and as such bears examination. In particular, TXMD started going in September, after a string of announcements which I will detail that present a very rosy future. The company already boasts a fairly robust Institutional Investor base (Wellington, Fidelity, Franklin Templeton, RA Capital, UBS O'Connor, and Broadfin among largest shareholders) and I believe despite the run up, there is still an attractive risk/reward at current levels and that the company has several promising catalysts upcoming which should drive further out-performance.
First, a rundown of the catalysts to date (from $2 to $4):
The House Bill
The background here is that due to outbreaks of contaminated drugs arising from compounding pharmacies, the inability to track compounding pharmacies, distribution, manufacturing, and quality control of prescription drug products, the government is attempting to ensure consumer safety and implement new rules over the nation's 22k compounding pharmacies (allowing the FDA direct oversight). On October 3rd, the House passed compounding legislation which should be taken up by the Senate when the session resumes. Under Section 503A of the new legislation, in order to assess drugs for the "Do Not Compound List", drugs that meet certain criteria will be considered for the exclusive list. For TXMD, the key components including the prohibition of essential copies of approved drugs, hard to make drugs, and inaccurate claims, serve to protect its key oral estrogen/progesterone Phase III asset that will be launching in 2016. (If approved, it will be the only FDA approved bio-identical hormone-replacement therapy (HRT) combination drug, targeting a $2b compounding drug market (of unapproved ones only, the branded ones are at $4b market size).
Also in early October, data was published in the Journal of American Medicine (JAMA) that showed Prempro , or conjugated equine estrogen, has a 2x higher risk of blood clots and 1x higher risk of myocardial infarctions than estradiol (bio-identical estrogen). Notably, this strengthens TXMD's claims that its products have a safety advantage over the already approved products and demonstrates that the bio-identical progesterone combination should be perceived favorably upon launch.
Now, an overview of the background of the company, and the set up from here:
TherapeuticsMD was founded in May '08, and while it was originally a prenatal vitamin company, is now a specialty pharmaceutical company that focuses on the development and commercialization of women's hormone replacement products that are formulated to reduce the symptoms and health risks caused by menopause. Symptoms of menopause include changes in a women's period, hot flashes, night sweats, vaginal dryness, and thinning of a woman's bones. In addition to the clinical trials for hormone therapy; they also manufacture and distribute branded and generic prescription prenatal vitamins, iron supplements, and stretch mark reduction creams.
TXMD's lead program is TX 12-001 HR, a single pill combining bio-identical estradiol and progesterone, which could offer safer & more effective & convenient dosing. If under the "do not compound list" , and could target a U.S. market of $2b (an FDA approved component which is $500m, and then a compounding market which is worth about $1.5b).
It's the first and only bio-identical combo drug that will replace the exact 17 beta-estradiol and progesterone endogenous circulating hormones to treat the symptoms of menopause. Importantly, for 505(b)2 approval TX 12-001HR a combined Progesterone and Estradiol formulation mean plasma concentration met bioequivalence, compared to the already approved single separate dose formulations of Prometrium, approved by the FDA 1975 and marketed by Abbott (ABT), and Bristol Myers' (BMY) Estrace.
Behind this, it has a first-in-class soft gel vaginal formulation, TX12-004HR, containing solubilized estradiol for the treatment of vaginal atrophy in post hysterectomy women (targeting $900m in sales in '12).
Expect pivotal data for '12004HR by year end in 2013, and then in 2014, should get Phase III data from '12002 and '12001 mid-year. Beyond that, looking for the final Phase III data for '04 and '02 in mid '15 for approval in '16 on both programs.
Financial Position and Risk/Reward
TXMD stock currently trades at $3.90, implying a market cap of $550mm, with liquidity of 425k shares traded daily, or ~$2mm notional. The company has $34m in cash and no debt (which should be enough of a cash runway through 2015), and 145mm shares outstanding (i.e. $0.25/share in cash); the float is 87mm shares ($0.40/share in cash).
Consensus estimates for sales (pre-uptick) are about $20m in '15, and $30m in '15, with EPS de minimums or negative until launch (I peg in '17). As such, the best way to value the company in my view is through a DCF adjusting peak year sales and scenarios. With the compounding legislation now well on track, pending the Senate approval, and encouraging data that should place TXMD into a favorable position in its $2b addressable market, certainly sentiment has shifted towards the positive side.
The bull case from here is that their HRT launches in 2016 with lead product garnering $500m peak sales and follow-ons at $500mm in peak for an overall peak of $1b. Applying a 25% DCF back yields a price of $9. Bear case is that the lead products do not get approved, and/or get approved but uptake is more limited here. Under this scenario, stock probably trades down to $2 which reflects some pipeline value and salvage value but material downside (with little cash cushion). So upside downside of $9/2, but I personally think skews higher.