We continue to remain positive on TherapeuticsMD Inc. (NYSEMKT: TXMD) shares, a specialty pharmaceuticals company developing advanced-stage pharmaceutical hormone replacement therapy (HRT) products. Shares of TXMD have been on the rise after the House of Representatives passed a compounding safety bill - The Drug Quality and Security Act. While the passage of the bill has surprised many, we had predicted in a previous article that the bill would likely be passed. Although the bill still has to pass through the Senate, its passage in the House is crucial having been seen as a major hurdle. Earlier in the week, the company also announced achievement of significant proof-of-concept in phase 1, first-in-class soft gel vaginal formulation TX12-004HR. In addition, the company also hired a clinical expert. Before discussing what kind of impact these developments could have on TherapeuticsMD, let us just recap what the House bill is in essence about.
Making HRT safer
As we discussed in the previous article, drugs that address a single hormonal issue or monotherapies do not work well in hormone therapy. This is due to the fact that when a drug suppresses one problem hormone, the levels of another problem hormone increase. This issue created a need for developing combination therapies for HRT. Currently, the only drugs for HRT that have been approved by the FDA are monotherapeutic bio-identicals. As a result, doctors have been forced to send women needing HRT to compounding pharmacies that create over-the-counter hormone therapies by compounding non-FDA approved synthetic drugs. These therapies unfortunately have severe side-effects such as cancer.
The risks posed by existing over-the-counter therapies led lawmakers to propose a new bill on HRT drugs safety and efficacy. The bill proposed not allowing manufacturing and limiting distribution of compound products in large quantities unless there is shortage of drugs. Also proposed was for traditional pharmacies to be permitted to compound variations of already approved drugs only if the prescription fulfills patients' requirements. The bill also introduced a Do Not Compound list that prohibits the compounding of certain drugs as well as FDA approved drugs that are not in shortage. This will have a major impact on the scope of compounding pharmacies to provide polytherapies for HRT.
As we had expected, the House of Representatives have passed the bill. Right before the government shutdown, the House passed the compounding legislation. Analysts at Jefferies noted in a recent research report that they expect the bill to be passed by the Senate post-shutdown. The analysts noted that the House conservatives were seen as a major obstacle for the bill, however, surprisingly, the legislation received overwhelming bipartisan support. Even though some of the aspects of the bill have not been passed, the legislation provides FDA with more teeth, according to Jefferies. The legislation still includes provisions such as prohibition of essential copies of approved drugs, certain to make it difficult to make drugs, or to make inaccurate claims.
As discussed in our previous article, the passage of the bill would provide a major boost to TherapeuticsMD.
Impact on TherapeuticsMD
TherapeuticsMD is developing a combination therapy. Unlike, however, the existing over-the-counter hormone therapies that have severe side-effects, the company's product is safe. In addition, it has the efficacy of a polytherapy. The company's product is called TX 12-001HR and has already been cleared by the FDA for Phase III trial stage.
So what does the passage of bill mean for TherapeuticsMD?
Since TherapeuticsMD's product has the efficacy of a polytherapy and the safety of a monotherapy, the company is uniquely positioned to have the first mover advantage in the huge HRT market. If approved by the FDA, the company's product will be the only bioidentical combination therapy in a multi-billion dollar market. According to analysts, the market for unapproved compounded drugs currently stands at $2+ billion.
Certainly, TX 12-001 HR, which is one of the company's four product candidates, has huge potential. The product could exceed expectations, according to Jefferies analysts, if FDA ultimately forces compounded drugs over to Rx.
Earlier this week, the company announced the appointment of Sebastian Mirkin, M.D., who is a prominent women's health product development executive with significant experience, as its Chief Medical Officer. Dr. Mirkin joins the company from pharmaceutical giant Pfizer Inc. (NYSE: PFE). According to analysts at Noble Financial, the appointment of Dr. Mirkin reduces execution risk of Phase III studies. As a result Noble Financial has increased its probability of success from 75% to 80% for TX12-00HR.
There are, of course, some risks involved, including negative clinical results. As things stand now, however, TherapeuticsMD is well-positioned to capitalize on the opportunities in the HRT market. This week, TXMD also announced that its investigational drug, TX12-004HR improved objective measures of VVA in Phase 1 clinical study. Noble Financial analysts believe that the compound could seek peak revenues of $450 million.
TXMD already has a robust cash balance of $34.4 million as of June 30, 2013. This facilitates it in advancing its clinical programs smoothly. More importantly, the passage of the legislation makes TherapeuticsMD an attractive takeover target.
According to analysts, even if lowest doses of TX 12-001HR and TX 12-002HR work in Phase III, both products have higher potential and are likely to see increased partner interest. Analysts further note that positive Phase III results could make TherapeuticsMD a potential takeover target for any pharmaceutical company engaged in women's health. The First Call consensus' 12-month price target is around $6.63. Analysts believe that the company could easily fetch $10 per share if it is acquired. Now that is significant premium, given that the stock is currently trading at around $4.30. Earlier this week, Noble Financial analysts raised their price target on TXMD to $7.25 from $5.50. The price target was raised following the recent positive developments.
As we discussed before, TherapeuticsMD has the potential to generate solid growth in the future. The passage of the compounding legislation in the House makes the bullish case for TherapeuticsMD even stronger.
The company will release results Monday, November 4th and hold a conference call at 4:30PM EST.
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