Respect is tendered with pleasure only where it is not exacted.” - Anne Robert Jacques Turgot
Today, we take a look at a concern that is transforming itself with a new direction and CEO. The stock is well off its highs of last summer and seeing a large amount of recent insider buying.
The Medicines Company (MDCO) is a Parsippany, New Jersey-based biopharmaceutical company focused on the treatment of atherosclerotic cardiovascular disease (ASCVD), the number one cause of death in the U.S. and worldwide. The company divested itself of all its infectious disease assets in 2018 to solely focus on its cholesterol lowering candidate, inclisiran. The Medicines Company (TMC) went public in 2000 at $16 per share. It currently employs ~62 and commands a market cap of ~$1.8 billion.
Inclisiran is a small interfering RNA (siRNA) that inhibits the production of proprotein convertase subtilisin/kexin type 9 (PCSK9). PCSK9 controls LDL-cholesterol (LDL-C) levels. Inclisiran is administered by injection twice annually and is currently being evaluated in three pivotal Phase 3 trials, all with the ORION nomenclature.
In a 501-patient Phase 2 study (ORION-1) assessing inclisiran in the treatment of ASCVD or ASCVD-risk equivalents and elevated LDL-C despite maximally tolerated LDL-C lowering therapies, inclisiran demonstrated significant promise. In the cohort with 300mg administration on Day 1 and Day 90, mean LDL-C was lowered by 52.6% at Day 180. In the six-month period following Day 90, the time-averaged LDL-C reduction was 51%. No material safety issues were observed. This data suggested a once-every-six-months administration, which is being studied in the Phase 3 trials.
Three of these Phase 3 trials (ORION-9; ORION-10; and ORION-11) commenced in November 2017 with patients being studied for 18 months after receiving inclisiran 284 mg (inclisiran sodium 300 mg) subcutaneously on Day 1, Day 90, and every six months, thereafter, for a total of four doses during the 18-month study period. Each trial is placebo-controlled, double‑blind, and randomized versus placebo (1:1) with LDL-C reduction from baseline at Day 510 the primary endpoint.
The ORION-9 trial is evaluating inclisiran in 482 patients with heterozygous familial hypercholesterolemia (HeFH). ORION-10 is studying inclisiran in 1,561 patients with ASCVD and LDL-C levels above 70 mg/dL despite maximum tolerated doses of LDL-C lowering therapies, including statins. ORION-11 is assessing inclisiran in 1,617 patients with ASCVD or ASCVD-risk equivalents (e.g. diabetes) and elevated LDL-C levels above 70 mg/dL or 100 mg/dL, respectively, despite maximum tolerated doses of LDL-C lowering therapies, including statins. Results from these trials are expected in 3Q19 with an NDA submission expected in 4Q19 and an MAA submission anticipated in 1Q20. Management has indicated that emerging data from these trials to date are at least as favorable as ORION-1. Additionally, in early January, the Independent Data Monitoring Committee reviewed un-blinded safety data and efficacy from these Phase III trials for the fifth time and recommended continuation of the trials without modification.
TMC also has inclisiran enrolled in two other trials, ORION-5 and ORION-4. ORION-5 is a two-part (double-blind, placebo-controlled/open label) 45-patient study evaluating inclisiran in the treatment of homozygous familial hypercholesterolemia (HoFH). Enrollment initiated in February 2019. Inclisiran has received Orphan Drug designation from the FDA in the treatment of HoFH. ORION-4 is a trial examining ~15,000 patients with ASCVD on a background of standard-of-care lipid-lowering therapy to determine the effects of inclisiran on cardiovascular outcomes. Patients will receive either inclisiran or placebo at Day 1, Day 90, and every six months thereafter with the primary efficacy endpoint a composite of coronary heart disease death, non-fatal myocardial infarction, fatal or non-fatal ischemic stroke and urgent coronary revascularization over a four to five year period. Enrollment commenced in October 2018 and is anticipated to take one to two years.
In anticipation of inclisiran’s approval, Mark Timney was onboarded as the new CEO in December 2018, replacing Dr. Clive Meanwell, who is now serving as the company’s Chief Innovation Officer. Timney has significant experience with cardiovascular product launches from his time at Merck (MRK).
The ASCVD Market:
Approval will have a significant economic impact on TMC as cardiovascular disease is the leading cause of death worldwide, responsible for ~17 million premature fatalities annually, ~6.3 million under the age of 70. It is estimated that ~50% of these deaths could be prevented through better LDL-C management. In fact, clinical risk is linearly-proportional to absolute LDL-C reduction, with each 39mg/dL reduction in LDL-C yielding a 22% reduction in major coronary events after 12 months of continuous treatment. As a result, cholesterol-lowering therapies are a ~$20 billion global business.
Statins are the standard-of-care, and thanks to the entry of generics, their annual cost has been reduced to ~$300 per year and, in some instances, under $100 annually. However, 43% to 67% of patients fail to adhere to treatment regimens after one year. Only 5% maintain adherence after 5 years, yet non-adherence results in a 4 times greater risk of cardiac events and 2 times greater risk of cardiac death. As a result, with over 57 million people diagnosed with FH or ASCVD in the U.S., EU5, and Japan, ~24.7 million have not achieved their LDL-C goal of <70mg/dL.
This compliance problem should not be an issue with inclisiran, which is administered by a healthcare practitioner once every six months – matching up with a biannual visit to the doctor. And, with its long and durable efficacy – if ORION-1 results are replicated – the potential for better CV outcomes is significant.
If approved, inclisiran will not only be in competition with statins, but also two approved twice-monthly subcutaneously administered anti-PCSK9 antibodies: Amgen’s (AMGN) Repatha and Sanofi’s (SNY) Praluent. Additionally, Esperion Therapeutics’ (ESPR) bempedoic acid (ETC-1002) – NDA filing in 1Q19 – is an oral LDL-C lowering compound that will likely enter the market by 2020. It should be noted that inclisiran prevents PCSK9 production, not clean it up like the Amgen’s and Sanofi’s antibodies.
Owing to their efficacy and safety, anti-PCSK9 therapies have the potential to alter the cholesterol lowering landscape, but their cost relative to statins has stunted sales. 2017 global sales of Repatha ($319 million) and Praluent ($195 million) were disappointing to analysts who had forecasted blockbuster status out of these novel therapies. Medicare recipients were leaving filled prescriptions of Repatha behind 70% of the time – versus 20% for commercial plans – because of its significant patient cost. Bowing to market forces, Amgen recently cut the list price of Repatha by 60% to $5,850 in a move to make the drug available to senior citizens. This price cut will have to generate two and half times more prescriptions to maintain current Repatha sales. It is into this downward pricing environment that inclisiran will be launched in under two years, if approved.
Although TMC owns the worldwide commercial rights to inclisiran with patent protection extending to 2034, it is on the hook to Alnylam Pharmaceuticals (ALNY) for milestone payments and royalties. As part of the collaboration agreement signed in 2013, TMC paid Alnylam $25 million upfront for the rights to develop and commercialize inclisiran. Additionally, TMC has agreed to pay up to $180 million in regulatory and commercial milestones, of which $30 million has been disbursed to date. Alnylam will also be eligible to receive scaled-double digit royalties based on annual worldwide net sales.
Balance Sheet & Analyst Commentary:
To get inclisiran to the finish line, TMC executed its third convertible security offering in December 2018, raising net proceeds of $166.8 million. Owing largely to this transaction and the divestiture of its infectious disease assets to Melinta (MLNT) that raised $166.4 million in January 2018, the company held $238.3 million in cash at December 31, 2018. It is also owed an additional $50 million from Melinta as well as royalties on the sale of those infectious disease assets. Management believes it has a cash runway into 2020; through the NDA and MAA filings. The company does have aggregate convertible debt face value of ~$950 million with maturities from 2022 to 2024.
TMC has a strong and mostly upbeat analyst following. Nine Buy or Outperform ratings in the last six months, with Goldman Sachs the only hold rating. Their median twelve-month price target is north of $60 per share, representing more than a double from current prices.
Chairman Alexander Denner, representing the financial interests of Sarissa Capital Management, is a strong proponent of TMC based on his recent ~$15.5 million investment in shares of MDCO since the beginning of March. Additionally, he purchased ~$20 million of convertible securities on the December 2018 offering.
Excepting a large surprise, it would appear likely that TMC’s bi-annual therapy will receive approval sometime in 2020. The question becomes: how big is the opportunity for its novel treatment? Owing to their improved safety and efficacy profiles, PCSK9 inhibitors have the opportunity to revolutionize CV care with cholesterol lowering therapies projected to generate revenue of $22.6 billion by 2022. TMC management appears aware of the patient affordability issue and will likely ‘right price’ inclisiran at launch. Three percent penetration of the 12.7 million potentially eligible American consumers with a $2,600 price tag translates to blockbuster status. In the meantime, overseas commercial collaborations and a buyout are possibilities for this one-drug concern, if approved.
I am on the fence on this name for inclusion into the model portfolio. The positives for MDCO are outlined above. The company unfortunately does not have the 'shots on goal' I like to have in these sorts of investments. Inclisiran also won't launch until late 2020 or early 2021. Pricing concerns are killing the other anti-PCSK9 therapies. The company also has $900 million of convertible debt coming due 2022-2024.
Therefore, while I do think MDCO should be at least a watch item stock at the moment worthy of a small investment within a well-diversified portfolio, I can't recommend for a major stake in one's portfolio at the present time.
This is the kind of name I love to play via Buy-Write option strategies. Premiums are solid, and liquidity is good in this name. You can fashion a buy-write using the July $30 call strike for a net debit (Stock price - option premium) of $25.70 to $25.80 a share currently. The option will most like expire before important Phase 3 data is out. If the stock is not called from you prior to July, and the stock still trades in the mid-$20s, you can then 'roll' the options into January 2020 strikes. You take a lot of potential risk off the table that way and collect a nice income stream as well. I offer up that strategy for those comfortable with basic options. Accumulating a few shares outright also seems to have a favorable risk/reward profile.
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Disclosure: I am/we are long MDCO. 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.