Tuesday, November 18, 2014

NeuroDerm: The Bull Case IPO

Two trading days past its IPO, NeuroDerm has an open field to an NDA.

There is no effective competition to NeuroDerm's proposed technology.

 Oral medication alternatives will not impinge NeuroDerm's target market.

On Friday, November 14, 2014, NeuroDerm (NASDAQ:NDRM) launched its initial public offering (IPO) in the early morning. Originally intending to price the offering in the $13.00 to $16.00 range, the company, for whatever reason, reduced the number to $10.00. It finally opened at around 10:50 at $9.45. In the next 8 minutes, the stock dropped to $7.91. Afterward, the stock moved back up and stayed in a range above $8.20 for a couple of hours, then dropped to its lowest point of $7.77 at around 2:20 in the afternoon. Ten minutes later, it started a climb that did not end until the after hours market closed at 8:00 in the evening at a price of $9.39.

I had published  an article on NeuroDerm October 7 and an update on November 4 on the SeekingAlpha.com website. The articles were generally positive reviews of the prospects for the company's pipeline. A couple of days before the IPO, I saw another article on Seeking Alpha "The Beauty of NeuroDerm's IPO Might Be Only Skin Deep." I was surprised by the title and tone of the article. But most surprising was the fact that the author characterized as "strong competition" several companies mentioned in the article. Most of the substance in the article came from the F-1 Registration Statement which includes the required list of risk factors. The competitors identified are part of this statement.

The selection of what information to include or not include, what information to emphasize or downplay can have a persuasive and potentially distorting effect. This is not to imply, in any way, a nefarious motive. Writing a piece requires a number of judgment calls and the investor is wise to consider multiple sources. In this connection, I would like to add my two cents and my sense of context to the author's concern about "strong competition."

I am going to limit the discussion to that competition that is relevant to the Parkinson's market since this is NeuroDerm's primary target, though NeuroDerm technology may eventually have application for other indications. The author states: "Several (companies) are currently working on orally administered drugs including XenoPort (NASDAQ:XNPT), Impax Laboratories (NASDAQ:IPXL), DepoMed (NASDAQ:DEPO) and Intec Pharma. In addition, Synagile is working on a formulation of levodopa to be administered subcutaneously on a continuing basis."

I researched Synagile first since it appeared to be working on a therapy that sounded similar to that being tested by NeuroDerm. I could not find anything on the Synagile website showing a status for this initiative which was kicked off in 2011 with funding from the Michael J Fox Foundation. Nor could I locate any clinical trials when I did a search on clinicaltrials.gov. So I went to the Michael J Fox Foundation website and found the following notes: "Based on data from pre-clinical models, the route of administration and formulation have been modified to enable better tolerability. The originally planned clinical trial has been redesigned." And then, "This subcutaneous infusion pump program has been discontinued due to an obsolete design." With no additional updates of relevant activity, it appeared that the effort has been abandoned.

The other companies' approach is through the digestive track. Use of this route for carbidopa/levodopa (L-Dopa)can be problematic. For example, The University of Maryland Medical Center website states the following:

"Stomach and intestinal side effects are common even with carbidopa. Taking the drug with food can alleviate the nausea. However, proteins interfere with intestinal absorption of levodopa, and some doctors recommend not eating any protein until nighttime in order to avoid this interference. The drug can also cause gastrointestinal bleeding."

NeuroDerm explains why it is progressing the non-oral, non-digestive track, subcutaneous approach as follows:

"…despite its widespread acceptance, oral LD/CD has significant limitations, primarily a short duration in the blood, or short half-life, as well as low absorption and availability in the body. As a result, plasma levodopa concentrations fluctuate sharply, contributing to patients' motor complications which include erratic "off" and "on" periods as well as to the narrowing of the therapeutic window over time, i.e. higher doses are required to turn a patient "on" but this may also result in dyskinesia. In the advanced stages of the disease, patients do not respond to oral administration of LD/CD, motor complications are exacerbated, and patients are left with limited treatment options that are highly invasive and/or burdensome."

There is currently a control release L-Dopa tablet available which delivers its medication in the intestine over time. Unfortunately, because of the uncertainty as to when doses are released, coordinating that release with one's eating schedule to avoid protein/L-Dopa contention can become even more of a problem.

With the foregoing background in mind, let us review the balance of the list of potential competitors.

Xenoport - This company completed a phase II trial on its XP21279 pill. It found that "the improvement with XP21279/carbidopa dosed three times per day was not statistically better than the improvement seen with optimized Sinemet (L-Dopa) dosed four or five times per day during the double-blind phase of the trial." Thus, since adjusting the doses is routine, the XP21279 improvement was not statistically better than the current standard of care. The company's summary concludes that "we plan to continue development of XP21279 to the extent our resources permit or enter into a collaboration with a third party." This trial was completed in 2011.

Impax Laboratories - Impax completed their phase III for their Parkinson's extended release capsule Rytary with positive results in that "off" times were significantly reduced and corresponding "on" times increased without troubling dyskinesia versus the currently available extended release pill. As information, dyskinesia causes involuntary movement due to overshooting the medication with spikes of L-Dopa. However, the (FDA) in early 2013 inspected the company's Hayward, CA plant and found a large number of flaws in procedures and records. As a result, it did not approve the company's New Drug Application (NDA). January 9, 2015 is a very significant day for the company as the FDA will again be reviewing the Hayward facility to see if expensive improvements made by Impax have met the FDA concerns and will allow the FDA to lift current restrictions. Those restrictions are holding up consideration of the NDA on Rytary and several other applications. Currently, the Impax agenda at the FDA is behind a logjam.

DepoMed's approach is a pill within a pill. It is an immediate release pill wrapped around an extended release pill (IR/ER). While results were found in Phase II to be "significant," the comparison in the trial was not with the currently available extended release pill, but with the immediate release pill. Thus, the finding that the reduction in "off" time was significant would likely be expected just as it would be expected if the currently available extended release pill was being compared to the immediate release pill. In any case, the November 7, 2012 press release announcing the results concluded, "We will continue to evaluate these data, as we consider partnering opportunities for DM-1992 and monitor competitive developments." This statement is very close to that concluding the Xenoport pill study and, in my opinion, doesn't indicated a great deal of aggressive enthusiasm for either.

Intec is a company based in Israel and traded on the Tel-Aviv Stock Exchange. It is currently working on what it describes as an "Accordion Pill." As you guessed, it looks similar to an accordion. It is composed of both immediate release and control release formulations. Intec has completed a successful phase II trial and has received permission per their October 28, 2014 press release from the FDA to go forward with a phase III. Intec is currently designing that trial and expects to launch during the second half of 2015. In phase II, the Accordion Pill was being compared to "the patient's current conventional treatment." This efforts looks promising and may be an improved therapy for a segment of the Parkinson's patient population.

In any case, taken together, these 5 firms were the ones cited in the article as "strong competition." The devil, as usual, is in the details. So I hope these details I have described above will help you to evaluate the "competition." The only edge that this competition has over the NeuroDerm approach, assuming any get approved by the FDA, is that most patients would rather take a pill or capsule than have a subcutaneous dose of liquid L-Dopa delivered through a patch attached to a small pump. That is, assuming the disease, which is progressive, has not yet pushed the patient to the point that the oral medication is not sufficient. But then, there is the rub.

Patients suffering moderate to severe Parkinson's disease will experience longer "off" times during which their symptoms return and, upon taking their higher dose L-Dopa, will experience the effects of dyskinesia as well. Here, the treatment alternatives are more draconian. They require surgery. One is the use of (DBS) deep brain stimulation, a procedure that involves the inserting of electrodes into the brain, the other (LCIG) levodopa/carbidopa intestinal gel, involves surgical access to the upper part of the small intestine for the insertion of a tube for delivering the gel. It is in this part of the market that the NeuroDerm product will have a clear advantage over existing therapies. There is no competition now or in trials that appears to match NeuroDerm's therapy. NeuroDerm estimates 700,000 patients suffering from severe Parkinson's disease globally are in need of this kind of treatment. Regarding DBS, the company states in its F-1 registration statement:

"While studies have shown that DBS is effective in treating many problems associated with Parkinson's disease, it involves extreme risks, including coma, seizures, speech loss, cognitive deficits, infection and bleeding in the brain. The complexity and related risks of this invasive procedure preclude physicians from referring older patients, and nearly 52% of Parkinson's disease patients who receive referrals to undergo this procedure are turned down."

Likewise, the company cautions the use of LCIG or Duodopa as follows:

"Patients receiving this form of treatment face potential complications, such as connector leakage, dislocation or movement of the intestinal tube, wound infection or peritonitis. In addition, patients must continuously carry a large, bulky shoulder-worn pump attached to their duodenum during the day and usually remove the pump at night, which affects quality of sleep and results in morning akinesia."

The NeuroDerm alternative, again described in NeuroDerms own words from their F-1 statement:

"The CRONO ND belt pump is the medical device currently used to administer ND0612L, ND0680 and ND0701. It is a simple-to-operate, fixed-dose belt pump that operates 24 hours a day and can be preprogrammed to the desired delivery profile of LD/CD. ND0612H is administered subcutaneously via the CRONO Twin ND, a similarly simple-to-operate, adjustable belt pump that delivers ND0612H's higher dose of LD/CD through two insertion points."

You can review additional information on NeuroDerm and these pipeline initiatives through my October 7, 2014 article, "NeuroDerm's Proposed IPO Represents A New Parkinson's Plan" and November 4, 2014 "Update: NeuroDerm IPO And Clinical Trial Results” on SeekingAlpha.com.


What does all of this mean?

First, it means that there is a clearly defined target market globally (700,000 patients) that cannot be touched by the other listed therapies in the industries' pipeline. Secondly, NeuroDerm's non-invasive, non-surgical approach is a striking departure and improvement from the two current surgical methods of treating moderate and severe Parkinson's disease, deep brain stimulation and levodopa/carbidopa intestinal gel. Thirdly, NeuroDerm has a defined timeline that has it advancing its trial for the most severe Parkinson's patients through phase III, NDA approval and marketing in Europe and the United States by the end of 2018, funded completely from its IPO. From other IPO funds, it expects to partially finance (applying an estimated $20 million) to two phase III trials supporting therapies for patients with moderate Parkinson's.(See NeuroDerm Preliminary Prospectus, Page 50). Finally, because the drug is a reformulation (a company strength) of an existing, thoroughly tested drug, L-Dopa, regulatory risks and delays are minimized.

Disclosure: I am  long NDRM, NeuroDerm and IPXL, Impax Laboratories

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