This article will discuss the results of the phase 2 clinical trial of ganaxolone in fragile X syndrome (FXS) and explain our bullish thesis on this company. We recently initiated coverage on Marinus Pharmaceuticals (NASDAQ:MRNS) with Buy rating and common share price target of $4.41 (the article can be accessed here). We are reiterating the Buy rating on the stock and increase the long-term stock price target to $6.00.
Marinus announced the results of phase 2 clinical trial of ganaxolone to reduce the behavioral abnormalities seen in FXS on 6/28/2016. (source). The company management held a conference call to discuss the results, which can be accessed here. The study was conducted by Dr. Randi Hagerman, an internationally recognized expert in FXS. The study design is shown in Figure 1.
Figure 1: Study design, phase 2 clinical trial of ganaxolone in fragile X syndrome (source: company conference call).
The primary end-point of the trial was a composite score of various behavioral abnormalities seen in FXS, called Clinical Global Impression of Improvement (CGI-I). The study did not achieve the primary end-point of achieving overall improvement in the composite score.
On taking a closer look at individual components of this composite score like general anxiety, severity of attention, manic-hyperactive behavior and hyperactivity, it is obvious that there was significant improvement in these symptoms which reached statistical significance (figures 2-4).
Figure 2: Mean % improvement in VAS Scale (source: company conference call).
Figure 3: Mean % Improvement in ADAMS Scale (source: company conference call).
Figure 4: Mean % Improvement in ABC Scale (source: company conference call).
These behavioral symptoms like anxiety and hyperactivity are commonly seen in FXS (figure 5). Currently, there is no approved drug to treat these behavioral abnormalities in FXS and various off-label treatments like benzodiapines, antidepressants and stimulants are used to target individual symptoms. By targeting multiple symptoms, ganaxolone has potential to cause significant improvement in lifestyle of patients with FXS. The company management described details of the effects on some study patients who slept better at night, were able to function better in daytime and had improvement in language and speech. In addition, ganaxolone may also be useful in controlling the seizure disorder that is commonly seen in FXS (about 23% patients).
Figure 5: Prevalence of various behavioral and neuropsychiatric abnormalities in fragile X syndrome (source: company conference call).
Ganaxolone was well-tolerated and safe, without serious adverse events in this trial. Most common adverse events seen in the drug arm were fatigue, sleepiness, diarrhea, decreased appetite and rash. These side effects were mild to moderate in severity and resolved. Five patients out of the 39 treated with ganaxolone discontinued the drug due to the adverse events.
Marinus has announced plans to develop ganaxolone further in the treatment of behavioral abnormalities in FXS. The data will be presented at the National Fragile X Conference in late July. The company will discuss further development of the drug with FDA later this year and plans to file for Orphan Drug designation with the FDA.
We maintain bullish view on Marinus Pharmaceuticals in view of these encouraging results. Although some investors have expressed bearish view on the company since the primary end-point was not met, the data discussed above is encouraging. We are optimistic that the drug will advance to phase 3 clinical trials later this year. We increase the probability of ganaxolone reaching commercial stage in treatment of behavioral abnormalities in FXS to 45% (from 30% in our previous report). We forecast annual drug price = $15k in treatment of FXS and maintain peak market penetration forecast of 10% at patent expiry. Using these inputs, we modeled peak risk-adjusted revenue for ganaxolone in FXS= $131M at patent expiry (U.S. and Europe).
The stock still has another near-term catalyst (results of phase 2 clinical trial of ganaxolone in PCDH19 epilepsy, a rare childhood orphan seizure disorder). More details about this disorder can be read in our previous article. Results of this phase 2 trial are expected in mid-2016. We forecast the probability of commercial success in this indication = 30%, annual drug price = $15K and peak market penetration in the U.S. and Europe = 40%.
Our updated enterprise DCF model calculated the fair value of the common stock of Marinus Pharmaceuticals = $6.00 using the inputs mentioned above. The model can be accessed here. Risks in this investment can be read in our previous article.
In conclusion, we reiterate the Buy rating on the stock and increase the long-term stock price target to $6.00. We consider the common stock of Marinus Pharmaceuticals significantly undervalued at its current price. Long-term value investors may allocate about 1% of the capital to this promising, emerging biopharmaceutical company.
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Disclosure: I am/we are long MRNS.
Additional disclosure: This article represents my own opinion and is not a substitute for professional investment advice. It does not represent solicitation to buy or sell any security. Investors should do their own research and consult their financial adviser before making any investment.
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