Adamas Pharmaceuticals Reports Another Quarter Of Respectable Growth

Summary

• Adamas Pharmaceuticals recently reported a mixed earnings with a slight miss on EPS and a slight beat on revenue. I take a look at the company's earnings and commercial progress.
• Despite the commercial progress, 2019 was a rough year for the company, and the share price took the brunt of it. I expect 2020 to be a different story.
• I have been holding off on adding to my position, but the stock's strength during the market sell-off has provided me with enough confidence to start adding to my position.

2019 was a mottled year for Adamas Pharmaceuticals (ADMS) and its shareholders. The company's flagship product, GOCOVRI "ADS-5102", continues to reveal encouraging data in Parkinson's disease "PD" and has started to show some commercial traction. Unfortunately, the company left 2019 with a mixed topline result from the company's INROADS Phase III trial for GOCOVRI in multiple sclerosis "MS" patients with walking impairment. Despite the setback, Adamas has implemented a commercial strategy that is starting to show some impressive numbers in a hard-to-treat population. As a result, the company reported a slight beat on revenue and a slight miss on EPS. I am starting to regain a bullish outlook on the ticker and will be looking to add to my position during this sharp sell-off in the overall market.

I intend to review the company's Q4/2019 earnings and discuss the company's commercial success. In addition, I take a look at the Street's expectations for 2020 and how that will determine how I will manage my ADMS position over the course of the year.

Q4/2019 Numbers

Adamas recently reported their Q4 and 2019 earnings that revealed fourth-quarter 2019 product sales came in at $16.3M, which was a 17% increase over Q3 of 2019. For the full-year, GOCOVRI product sales were $54.6M, which was up from $34M in 2018. In terms of expenses, full-year R&D expenses were down to $30M, while full-year SG&A expenses were up to $114.4M. The cash burn for Q4 was stable at approximately $18M. The company finished 2019 with approximately $133M in cash and investments.

Overall, the company was able to record another quarter of revenue growth, while managing their OpEx and preserving their strong cash position.

GOCOVRI's Progress

After falling short of the Street's expectations, Adamas has regained my confidence their growth strategy for GOCOVRI is working and is securing a strong base of prescribers. The company has reported positive physician feedback on the benefits of GOCOVRI, and persistence rates appear to be improving. As a result, 2019 product sales improved over 2018 and set the stage for strong 2020. In fact, Q4 GOCOVRI total paid prescriptions rose to 7,160 scripts, which was a 25% increase over Q4 of 2018. Total paid scripts for 2019 came in at 25,780, signifying a 66% increase over 2018. The company also reported 750 new patient starts in Q4, which increased 6% quarter over quarter. Persistence rates are at 55%-60% at six months and 45%-50% at 12 months.

Perhaps, the most important metric that saw an improvement is conversion rates from the free to paid prescriptions. According to the company's earnings call, the company saw an increase to 50%-55% in the quarter.

In addition, the company has fresh data from the company open-label Phase III EASE LID-2 trial that shows GOCOVRI's ability to long-term reductions in both dyskinesia and OFF time sustained for at least two years. This data will be a great weapon to pull out when visiting prescribers who are not convinced about GOCOVRI's safety or efficacy.

Overall, the company remains committed to its commercial strategy of educating physicians "to increase urgency to treat" and getting patients on the trial program, which will hopefully lead to a long-term GOCOVRI patient.

A Concern

My leading concern is the free trial conversion rate from 50% to 55%, which is under the company's 6-month persistence rate of 55%-60%. One would think the one/two-month persistence rate would be better than the 6-month. Although the conversion rate has improved, I am concerned the company can only get about half of their trial patients to convert to paying scripts. According to the company's earnings call, the company believes this is a matter of processing and filing the paperwork for prior authorization. I don't consider this to be a deal breaker, but it is concerning to see potential long-term GOCOVRI patients dropping due to paperwork and basically falling through the cracks.

Planning Ahead

In my previous ADMS article, I stated that I wasn't looking to make any sizable additions to my position, and I am going to stick to that plan, for the most part. The share price showed some strength during the recent market and was able to hold its support around $4.00 per share (Figure 1). This has injected me with some confidence that most of the selling pressure is gone.

­Figure 1: ADMS Daily (Source: Trendspider)

As a result, I am looking to employ some call options and purchase a small number of common shares in the immediate term. For the long term, I believe the market is going to refocus its attention on GOCOVRI's commercial progress. Therefore, I am going to add the following quarterly earnings (Figure 2).

Figure 2: ADMS Quarterly Revenue Estimates (Source: Seeking Alpha)

If the company is able to hit or exceed the highest estimates, I will look to add on a technical pull-back. Overall, I expect to almost double my position over the course of 2020 in anticipation the company is able to hit its 2020 estimate of $81M (Figure 3).

Figure 3: ADMS Quarterly Revenue Estimates (Source: Seeking Alpha)

I will hold these shares for at least five years in anticipation the market will eventually stop punishing ADMS for its past disappointments and will accept that GOCOVRI is becoming a legitimate PD therapeutic.

2020 Price Target

Using the sectors average price-to-sales of 5x and the Street's revenue estimate of $81.16M, I get a market value of ~$405.8M, or ~$14.50 per share. I know this is a bit rosy compared to its current share price. However, it does show how discounted ADMS is compared to its peers.

Analyst’s Disclosure: I am/we are long ADMS. 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.