Progenics Pharmaceuticals (PGNX) issued its Q1 2018 earnings report and hosted a conference call before trading began on the morning of May 9th. The company reported better than expected earnings despite missing slightly on revenue.
Initial market reaction was muted, with shares tracking down in the early hours of trading. But as the broadly good news was digested, the market began to respond more positively. By the close, shares were trading at $7.30, a 5.3% increase from the previous close.
With solid profits from constipation drug Relistor, approval on the horizon for cancer drug Azedra, progress in trials of cancer-imaging agent 1404, and movement further down the pipeline, Progenics has multiple “shots on goal”, and a huge amount of value under the surface that is not yet reflected in its share price.
With the big binary catalyst, a PDUFA decision on Azedra, scheduled for the end of July, this first quarter report represents the final place-setting before a big move. That move ought to be upward, given Azedra’s ultra-orphan drug status and the absence of any other FDA-approved therapy for its indication, the treatment of a pair of lethal adrenal cancers. However, approval is never guaranteed, so the market continues to wait on the news, which makes this report and call represent something of a holding pattern until the real news comes in a couple months.
Let’s look at the Azedra developments as well as the developments in the pipeline and in the marketing and sale of Relistor.
Azedra is Everything (for now)
Progenics’ biggest near-to-mid-term value driver is Azedra, an ultra-orphan radiopharmaceutical drug designed to be the first approved therapy for malignant pheochromocytoma and paraganglioma. The Phase 2 trials were successful, meeting their primary endpoints, and subsequent survival studies and data analyses have served to strengthen the case – despite some efforts by a minority of analysts to cast doubt on the methodology and outcome of the study. Uncertainty has, undoubtedly, played some role in keeping Progenics’ share price down over the past several months. Unease was further exacerbated when, in March, the FDA decided to extend its PDUFA decision deadline by three months – to the current end-date of July 30th.
During the earnings call, CEO Mark Baker helped clarify the current state of the Azedra NDA, expressing the same high level of optimism that has shown since the successful conclusion of the pivotal Phase 2b trial:
As we look ahead to the FDA's action date, we are confident in the high quality of our NDA and believe that we are well-positioned to deliver this important therapy to the pheo and para patients who are in dire need of an effective treatment option.
Our NDA is supported by positive data from the pivotal Phase 2 open-label, multi-center trial conducted under a Special Protocol Assessment or SPA agreement with the FDA. This trial exceeded the primary endpoint and showed favorable results from a key secondary endpoint. Importantly, the data shows that AZEDRA has the potential to address the dual goals of therapy in this disease, to both reduce the cardiovascular symptoms associated with the excess hormone production, and produce favorable tumor responses as measured by Response Evaluation Criteria In Solid Tumors or RECIST…
We have continued to expand the evidence from our pivotal study...The data show a significant correlation between overall tumor biomarker response and the achievement of the primary cardiovascular and secondary RECIST end points in the study. And at the upcoming American Society of Clinical Oncology or ASCO Annual Meeting next month, we will present updated survival and safety data from the pivotal study.
We have received positive feedback from investigators on the totality of the AZEDRA data set, which represents we believe the largest prospective clinical trial in pheo and para to date.
This is all very positive and welcome analysis of the present situation facing Azedra’s approval prospects, though most of it is not new information. That said, it is important to highlight the ongoing analysis and survival studies, which have continued to demonstrate Azedra’s efficacy. Furthermore, the positive feedback from investigators reviewing the full data set gives further credence to the case for approval.
On top of the strong data and material need for a treatment in this unserved patient market, the FDA has tended to look favorably on ultra-orphan drugs since the Trump administration adopted a freer hand toward approvals, and begun to advocate for the “right to try”.
Taking all the internal data factors, patently evident need, and favorable policy environment, the prospects of Azedra facing rejection look extremely small.
Progenics is already gearing up for a commercialization push. Since pheo and para patients are treated by a small number of specialists at a few hospitals and clinics, marketing will not be onerous. But the company is leaving nothing to chance:
In addition, our marketing team has conducted extensive market research on pheo and para with physicians, patients and caregivers, and they have been developing AZEDRA brand positioning and messaging. Furthermore, our market access team has been working to help ensure a pathway to access for patients by conducting payor market research on AZEDRA's value proposition, holding educational meetings with commercial payors, developing the quoting groundwork for government payors, and by developing communications for commercial insurance companies. We're confident that these strategic commercial initiatives will leave us in a strong position to execute a successful launch of AZEDRA on approval.
A marketing plan in place now, backed by validation from the small market of physicians, means the rollout can be swift and smooth, compared to most new drug commercialization pushes anyway.
Azedra On Their Minds
With much riding on the success of Azedra, it is unsurprising that it was the subject of analysts’ questions during the earnings call. One asking for further color on the commercialization plan yielded some interesting information:
We are building out the commercial team, which I think at the end of the day will total maybe about 20 people total. And the first hires, who have been onboard for some time starting with Bryce Tenbarge, our Head of the Commercial team, were focused on the access to the drug, the pricing of the drug, the branding of the drug. And so, that work has been underway for some time…I don't think I can provide too much more insight into the pricing than I talked about in the past. As we come close to the launch date and of course we expect the final price to be announced at the time of launch. Obviously this is an ultra-orphan drug, and so pricing as we have discussed in the past will be in the range for drugs of this type.
While Progenics has not yet offered pricing guidance, it is clear it can command orphan-drug level pricing, i.e. six-figure prices. The exact figure will of course depend on market research that has yet to be disclosed, but even pricing it on the low side of similarly positioned orphan cancer therapies should net peak sales in the hundreds of millions of dollars for the pheo and para indication.
While Azedra has only really been discussed in terms of the pheo and para indication, Progenics is now more actively engaging in talks about how to test the novel radiotherapy for other indications. CEO Baker had this to say on the subject:
We are definitely focused on uses outside of pheo and para as we think about making the drug available to other investigators and we see interest from a variety of mainly neuroendocrine-oriented tumors such as neuroblastoma or carcinoid tumors. I think those are the most likely initial indications for us to go…similarly small in size to pheo and para, but if we were able to add indications in these spaces, we could increase really by multiples the potential for sales of this drug.
The value from the pheo and para indication alone should be enough to double Progenics’ share price based on conservative peak sales projections. The addition of other indications that could actually multiply the total peak sales prospects would mean share price expansion by multiples as well. With approval accomplished and trials commencing in neuroblastoma, carcinoid tumors, and other ultra-rare indications, Progenics should look like a completely different company. Indeed, it already has some data on neuroblastoma patients, so a trial for that indication could commence swiftly.
Despite all the positivity, analysts were of course anxious to hear more about Azedra’s standing with the FDA. CEO Baker obliged with a bit more color on the present situation:
We don't get into the back and forth with the FDA, wanting to respect the regulator, but I think what I can say is that our interactions with the FDA so far have proceeded as I would have expected. So, I am feeling comfortable about where we are sitting with FDA today.
That is hardly a hyper-definitive statement, but no public company executive could give any more than that. Playing armchair psychiatrist is always a fraught endeavor, but from what we can surmise, Progenics is genuinely extremely confident in a positive outcome.
In Other News: Relistor is a Mixed Bag
With all eyes on Azedra, it is easy to become distracted from everything else going on in the pipeline and with approved product Relistor. But there was plenty of news in these areas worth mentioning, even if they will be materially overshadowed until the July decision on Azedra is handed down from on high.
Net sales of Relistor were up considerably year-on-year and continued to show the strengthening market presence first seen during Q4 2017. This demonstrates continued strength of the Relistor marketing by Valeant (VRX) in the US market, though net royalties of $3.1 million were a hair lower than analysts had estimated. Still, that is a considerable jump from royalties obtained in Q1 2017, which amounted to $2.1 million. In other good news, a federal court has delivered a summary judgment protecting Progenics’ patents on Relistor through 2024.
Not all is well in the world of Relistor, however. When asked during the earnings call about progress on ex-US marketing and licensing, CEO Baker was not so enthusiastic:
I think this has been the one area of concern for us. We've been talking to our partner, Valeant, about it. I think their focus has been a U.S. focus and we're certainly pleased with their efforts in the U.S., but we are looking to see more efforts ex-U.S., and so that's a continuing part of our dialog with Valeant.
Valeant has been mired in difficulties stemming from a huge debt load acquired during a multi-year buyout binge. While it has cleaned up much of its mess, legacy issues remain and the continued restructuring efforts have thieved bandwidth from products like Relistor.
However, the pickup in Relistor sales in Q4 2017 and Q1 2018 show that the tide may have turned – where Progenics is concerned, at least. But an ex-US deal is vital, especially considering Relistor is only patent protected for another six years. Failing to exploit the market beyond America’s shores is leaving money on the table. Thus, it is a welcome sign that Progenics is stepping up its efforts to push Valeant to deliver on its promises.
The Pipeline Soldiers On
With lead pipeline candidate Azedra facing the critical decision-point in July, it is perhaps unsurprising that the rest of the pipeline has been largely ignored by the market. Indeed, it seems as if the pipeline is even more obscured from view than the Relistor story.
Despite the lack of constant attention, the pipeline has soldiered on, with several key studies underway – and some nearing critical milestones. In the case of 1404, a PSMA-targeted small molecule SPECT/CT cancer imaging agent, news is coming soon. Enrollment in a Phase 3 imaging study of 450 patients with newly diagnosed or low-grade prostate cancer, was completed in January 2018. Top-line results from this pivotal study will be released in Q3 2018, representing another major catalyst this year.
Peering deeper into the pipeline, we can see progress on a number of other fronts. Q3 2018 will see another catalyst, with enrollment to be completed for a Phase 2/3 trial of another prostate cancer imaging agent, PyL. PyL is PSMA-targeted PET/CT imaging agent, with the trial designed to evaluate diagnostic accuracy in patients with recurrent and/or metastatic prostate cancer.
A pair of Phase 1 trials, one ongoing and another soon to be initiated, round out the pipeline. The ongoing trial of 1095, a PSMA-targeted small molecule radiotherapeutic. The trial is for the metastatic prostate cancer indication. The expected trial of Progenics’ PSMA-Targeted Thorium Conjugate, PSMA-TTC, is set to begin before the end of 2018 and will be conducted in partnership with Bayer. This is quite an exciting development, and is expected to incorporate Progenics’ PyL, as CEO Baker discussed during the conference call Q&A:
We definitely expect them to use PyL and in fact we are working with them right now on how we will integrate PyL into their trial. And so, we continue to see with Bayer and also with others developing in this space a very strong emphasis on imaging.
With so many trials in progress, including one that will be providing pivotal trial data this year and another to be conducted in collaboration with one of the world’s largest pharmaceutical companies, Progenics’ imaging pipeline looks like it could be a future treasure trove all on its own.
Assessing the Value Drivers
With so many value drivers in the works, it would ordinarily be difficult to assess Progenics’ share price movement – or measure its enterprise value – in terms of any single product. However, all eyes are very much on Azedra and its fate will determine the market’s attitude toward Progenics for some time. Approval should mean immediate, significant share price appreciation, while a CRL would likely batter the stock quite badly in the short-run.
All that said, even in the absence of Azedra, Progenics looks almost like a bargain at the current price. If the Phase 3 data from 1404 prove to be positive – and numerous previous studies and analyses suggest they will be – then it might well justify the current share price of about $7.50 without any support from Azedra.
Relistor, too, continues to add value through regular royalty payments, as well as a number of lucrative sales-based milestone payments that will be unlocked over the relative near-term. Adding to that the solid prospects for the rest of the cancer imaging pipeline, as well as the possibility of testing Azedra in other ultra-rare cancer indications, gives us a very positive outlook for Progenics over the long-run.
That view is further bolstered by a solid financial footing. Progenics reported a net loss of $13.4 million in Q1 2018 and a reduction in its cash balance of $7.2 million. The company reported $83.4 million in cash on the books at the end of the quarter. This includes $9.5 million in cash raised during the quarter through tapping an at-the-market facility. Progenics reported further at-the-market sales in April worth a further $7.5 million, bringing the cash balance – excepting losses in April – to $90.9 million.
Assuming a slight uptick in cash burn as various trials ramp up or begin, a conservative estimate would place Progenics’ cash runway at about six quarters. With Azedra approved in July, Progenics will have plenty of time to reach a profit inflection point, which should take only a few quarters, given the size and concentration of the market and the guaranteed premium pricing. A CRL would crumple the share price – at least for a while – and would make the prospects of reaching positive cash flow without a further capital injection rather difficult. However, with the Phase 3 data from the 1404 trial expected in Q3, there is a high probability that the share price will have recovered sufficiently as to make a stock offering less punishingly dilutive than it might otherwise be.
Right now, Azedra’s prospects of approval, and hence Progenics’ prospects of very significant near-term value appreciation, look excellent. There is a clear need, the science is there, and the regulatory environment is highly favorable.
Despite all the positives, many shareholders will no doubt still have restless nights as the clock runs down. But they would be wise to stay the course and embrace the overwhelming preponderance of evidence in favor of approval. The rewards should be rich indeed.
Disclosure: I am/we are long PGNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.