March 15, 2012

Let's Make A Dermatology Deal

A blog reader inquired about why I did not talk about dermatology as a value driver (as I did about PV-10's clinical and business value propositions). The reader asked if I was feeling less optimistic about a deal that could give the share price a much needed boost. A much needed boost? Ain't that the truth!

While I focused on PV-10 and oncology in exploring and crafting the various value propositions, PH-10 and dermatology represent a potentially very valuable asset, the sale of which could serve as a catalyst for a meaningful and sustained increase in the share price and, ultimately, the acquisition of the whole company.

PH-10 and dermatology share common clinical and business value propositions with PV-10 and oncology: efficacy, safety, administration, treatment pricing, cost of manufacturing, cost of scaling manufacturing, IP protection, etc.

The current expectation is a headline deal size of $500 million for dermatology (to include all indications, clinically, pre-clinically or bench tested, such as atopic dermatitis, psoriasis, acne, etc.). The structure of the deal likely would be very traditional:

  • An upfront payment,
  • One or more clinical milestone payments (e.g., completed pivotal phase 3 trials),
  • One or more regulatory milestone payments (e.g., FDA approval for indications), and
  • Royalty payments (e.g., a percentage of sales).
$500 million represents a present value assessment of the deal itself, including upfront payments and future milestone and royalty payments, and is based on several assumptions that of course could change and raise or lower this headline expectation:
  • An upfront payment, however structured (e.g., cash and/or stock), might range from $10-$50 million. The range is influenced by direct and indirect factors. A higher upfront payment might accrue because of the increasing value of and potential in PH-10 and/or management's desire to take more money upfront rather than in contingent payments. I do not know management's expectations in this regard, but I would hazard a guess that above a certain cash level, like $10-20 million, they would rather get more cash in the future because of their belief in the efficacy and safety of PH-10 (i.e., more royalties from more sales);
  • Clinical and regulatory milestone payments measured in tens of millions of dollars. I cannot really hazard a guess as to a range here, but these payments likely would not be insignificant; and,
  • A mid- to high-single digit royalty percent over a 10- to 15-year term. This is facet of the deal is where the clinical and business value proposition of PH-10 is put to the test with the hope of the product earning initial market share and then grabbing more -- much more -- based on robust efficacy, dramatic safety and flexible (and perhaps) predatory [to competitors] pricing. Depending on how high interest is, royalty payments might be low double digits and the term might extend out to 20 years.
But, in order to begin to sniff such aspirations, we need to see and understand the psoriasis Phase 2c results (and as they compliment and further validate the AD and psoriasis Phase 2 trials).

The AD Phase 2 Trial

The AD Phase 2 trial showed improvement in all efficacy metrics. There was consistent improvement in all study metrics during 4 weeks of treatment. Such improvements persisted after cessation of treatment.

There was improvement in pruritus (itching). Pruritus (itching) was a leading indicator with dramatic improvement evident from outset.

Subjects achieved “Clear” or ”Almost Clear.” There was a consistent increase in subjects achieving “Clear”/“Almost Clear” over the study interval. There was a comparable reduction in the number of subjects with “Severe” or “Very Severe” disease.

There was a 50 or 75% improvement in the EASI score. There was an increase in subjects achieving 50% and 75% improvement in EASI scores over the study interval. EASI performance corresponded to an improvement in Global Assessment scores.

The Psoriasis Phase 2 Trial

The trial used 0.001% RB for 28 days observed over 8 weeks.. There were substantial improvement in PSI and Pruritus during 4 weeks of treatment.

There was an improvement in PSI Component Scores. The improvement in mean scores corresponded to the subjects achieving “slight” or “none” in PSI components. 

Trends in individual PSI scores corresponded to overall improvement in subjects.

Most subjects reported no or only mild pruritus by Week 4.

For a plaque response assessment, most subjects were graded as clinically improved by Week 4.

The Psoriasis Phase 2c Trial...

The trial used a vehicle and 0.002%, 0.005% and 0.01% RB for 28 days observed over 8 weeks. What will be the PSI, Plaque Response Assessment and Pruritus Self Assessment values of the vehicle and the different RB concentrations, and how will they compare to the Phase 2 trial?

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