MAP's Levadex: Blockbuster Potential With A March 26 PDUFA Date

| About: MAP Pharmaceuticals, (MAPP)

Investment Opinion

MAP Pharmaceuticals (NASDAQ:MAPP) is poised to introduce its first commercial product, Levadex (inhaled dihydroergotamine) that is indicated for treating acute migraine attacks. I consider Levadex to be a very important new drug with blockbuster commercial potential. The PDUFA date is March 26, 2012.

Triptans (Imitrex, Axert, Frova, Maxalt, Relpax, Treximet and Zomig) are the most widely used drugs used to treat acute migraine, and account for around 10 million prescriptions written each year. Each prescription contains about 10 individual treatments for acute migraine attacks, suggesting that there are roughly 100 million doses of triptans sold each year. About 25% of patients do not respond to triptans, and this is the market Levadex will initially address.

Physicians treating migraines generally prescribe a generic version of the original triptan drug Imitrex to each new acute migraine patient, and if this doesn’t work, they will prescribe a second triptan and perhaps a third. The market for Levadex initially will be for patients who fail to respond to two or three triptan drugs. This is about 25% of triptan treated patients and represents an addressable market of roughly 2.5 million prescriptions or 25 million doses per year.

Generic triptans are priced at about $10 per dose, and branded triptans are priced at $25 per dose. I expect Levadex to be priced in line at least in line with the branded triptans, and more likely at a premium, so that its addressable market is roughly $625 million or more (25 million doses multiplied by $25+ per dose).

MAPP announced a partnering deal with Allergan in which both parties will market Levadex to neurologists and pain specialists. The partners will share costs and split profits 50/50 in this market segment. It is estimated that about 20% of annual triptan prescriptions are written by the physicians targeted by this collaboration.

Allergan is already marketing Botox to this group of physicians, and adding Levadex to treat acute attacks would be complementary to Botox. Botox is used to treat chronic migraine patients who suffer 15 or more attacks per year. Even after Botox treatment these patients still suffer around 7 or 8 attacks per year, so Levadex should complement Botox very well.

MAPP has retained all marketing rights to Levadex for physicians (largely GPs) who write the remaining 80% of triptan prescriptions in the US. MAPP exclusively owns all foreign commercial rights with the exception of Canada where Allergan will also co-promote. I expect partnering deals for these two market segments could be consummated in 1H, 2012. I would expect upfront payments of $30 to $60 million and mid-teens royalties from these deals. If Levadex is approved in March 2012, MAPP will receive another $50 million milestone payment from Allergan upon first commercial sale and possibly $25 million more dependent on whether milestones related to labeling are achieved.

The anticipated cash inflow from Allergan and anticipated partnering milestones would bulwark an already strong balance sheet, which had $111 million of cash at the end of Q3 2011. I estimate that the operational burn for Q4 2011 and the four quarters of 2012 will be about $55 million, so MAPP could end 2012 with $150 to $225 million of cash. My sales and earnings model projects a burn rate of about $21 million in 2013 and profitability in 2014. The company has an exceptionally strong financial position.

An already strong patent portfolio was bolstered by a recently issued pharmacokinetic profile patent that promises to provide protection from generics until 2028. Another important barrier to entry for a generic would probably be the difficulty in duplicating the action of the Tempo inhaler. It is likely that any company that wanted to market an inhaled dihydroergotamine inhaler would have to develop their own device and then do their own phase III trial. The resultant product could receive approval, but would not likely be interchangeable with Levadex. I think that Levadex holds the promise of an exceptionally long life cycle.

A summary of my estimates for Levadex sales and royalties and resultant EPS for the 2011 to 2016 period is as follows:

Levadex Worldwide Sales and Royalties (x $1,000)
2012 2013 2014 2015 2016
US Levadex Sales
Allergan Map collaboration 13,000 32,000 60,000 100,000 135,000
Sales not covered by AGN collaboration 5,000 23,000 50,000 100,000 140,000
Sub-total 18,000 55,000 110,000 200,000 275,000
Foreign sales 0 9,750 24,000 45,000 75,000
Total worldwide sales 18,000 64,750 134,000 245,000 350,000
Levadex Royalties ($000)
Royalties on
US sales not covered by collaboration 500 2,760 7,000 16,000 25,200
Foreign sales 0 1,170 3,360 7,200 13,500
Total worldwide royalties 500 3,930 10,360 23,200 38,700
Fully diluted EPS $0.26 $2.67 ($0.63) $0.49 $2.52
Note: 2012 results include milestone payments of $120 million. Without these payment the loss per share would be $1.07
Source: SmithOnStocks
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My 2015 target price for MAPP is based on applying a 20x P/E ratio to 2016 projected EPS. This results in a $50 price target for 2015. I think that the long term prospects for the stock are very appealing, but I am quite concerned about near term sales projections from Wall Street. My 2012 sales estimate for the Allergan-Map collaboration is $13 million. However, two highly respected Wall Street analysts are estimating $85 million and $143 million respectively.

My conservatism is based on the slow uptake that has characterized most biotechnology launches over the last few years. Human Genome Sciences' Benlysta, Cadence’s Ofirmev and Savient’s Krystexxa come to mind. Each of these launches was disappointing relative to Street expectations due to managed care hurdles and cautious physician adoption of new products.

This presents me with a quandary. I have owned the stock for nearly two years, and will continue to do so. However, if my estimates on the Levadex launch are correct, the stock could react negatively in 2012, the first year of the launch, if sales fail to measure up to high expectations.

I don’t quite know what to tell investors. I think that at a price of $13 to $14 per share that the stock is very attractive for the long term, based on my analysis. And yet, the stock could be impacted if the launch of Levadex is in line with my projections and analysts have to bring down near-term sales estimates. One possible approach would be to acquire a position over time, spaced out from pre-approval to the point in time when the launch outcome can be better predicted. This is essentially an "averaging in" strategy.

Company Overview

MAP Pharmaceuticals is a specialty pharmaceutical company developing inhaled medications which can improve the therapeutic profile of both old and new drugs. Its lead product Levadex has been developed for the acute treatment of migraine attacks. It is an inhaled dosage form of dihydroergotamine mesylate (DHE), a generic drug which has been used for over 60 years to treat migraines. Because of poor bioavailability, DHE has primarily been administered with injections and this has limited its use largely to hospital emergency rooms. There is also an intranasal version of DHE called Migranal that has had limited usage due to poor bioavailability, side effect issues and interactions with other drugs.

A Phase III trial of Levadex produced very positive results, so much so that the FDA notified the company that it would not require a second Phase III trial for approval. MAPP also has successfully concluded a number of trials designed to address potential safety concerns. The NDA has been submitted, accepted by the FDA and Levadex has a PDUFA date of March 26, 2012.

MAPP signed a lucrative partnering agreement with Allergan to co-market Levadex to neurologists and pain specialists in the US and Canada; these targeted specialists account for around 20% of the prescriptions written for acute migraine. MAPP intends to build a 50 person specialized sales force to work alongside Allergan and is also evaluating options to commercialize Levadex in physician specialties beyond the Allergan agreement. It is in discussions with other companies to market to primary care and other physicians not included in the Allergan agreement in the United States. The company is also in discussions with potential partners about commercialization opportunities outside the US.

I believe that Levadex is an important new therapeutic option for migraine sufferers, and has blockbuster commercial potential. I have heard key opinion leaders describe it as a therapeutic home run. Phase III trial results were very positive in meeting four primary endpoints required by the FDA, and a number of safety studies have shown Levadex to have a clean side effect profile. This leads me to believe that there is a very high probability for approval on its March 26, 2012 PDUFA date. However, the FDA has become a highly risk adverse and erratic decision-making agency, and I cannot rule out the FDA coming up with some issue that I have not considered that could result in a Complete Response Letter. This is a small, but finite, risk.

The use of an inhaled dose of DHE as is the case with Levadex allows the drug to be employed outside the hospital. Another very important point of Levadex is that it has altered the pharmacokinetic profile of DHE with the result that it has meaningfully improved the side effect profile. By averting the sharp spike in blood levels that occurs with intravenous or injectable formulations, Levadex has reduced the incidence of nausea that plagues these dosage forms of DHE from a 30% level to 2.0%. In fact, in the Phase III clinical trial, the incidence of nausea with Levadex at 2.0% was less than the 4.5% seen with the placebo control.

MAPP’s Technology Platform

MAPP has a versatile and strong technology platform that is based on two key components. The first is the creation of drug particles and formulations that can be applied to small molecules like dihydroergotamine and potentially to peptides and proteins that allows them to be delivered through inhalation. The second is the development, engineering and manufacturing of aerosol delivery devices, such as the Tempo inhaler used with Levadex. Tempo is a proprietary, pressurized metered dose inhaler that dispenses drug automatically when the patient inhales.

In the case of Levadex, MAPP has been able to develop an inhaled dosage form that allows for easy self-administration by the patient, as contrasted with the injectable formulations of DHE that are used in hospitals. It has also been able to improve the pharmacokinetic profile of dihydroergotamine so that it has retained the efficacy of injectable DHE while largely eliminating side effects, most notably nausea. In comparison to the nasally inhaled DHE product Migranal, Levadex’s superior pharmacokinetics has dramatically increased efficacy, significantly reduced side effects and nearly eliminated drug interactions that are a serious issue with Migranal.

This technology platform can be used to develop additional products, which like Levadex can meaningfully improve the delivery, efficacy and safety of older drugs. One of its most important aspects is that it is very hard for generic companies to challenge products developed by MAPP. Generics depend for success on a clear recipe for copying innovative drugs such as a small molecule with a known chemical composition. The technology of MAPP uses a great deal of art that is not readily available and is hard to duplicate. The engineering and art that goes into the inhalation device is similarly difficult to copy.

It is probably the case that companies trying to market an inhaled DHE product will not be able to follow the relatively simple process usually used in introducing generics, which is based largely on showing comparable pharmacokinetics. Based on current state of the art regulatory practices, they may have to do clinical trials to gain approval, and even with success they would not be deemed substitutable for Levadex. The bane of existence for many small, innovative drug companies is short product life cycles due to successful generic challenges. In this regard, MAPP is much more differentiated and more strongly positioned.

Disclosure: I am long MAPP.