If Arikace doesn't show superiority, but shows that it's slightly inferior to TOBI (but within the non-inferiority margin), I'd estimate at least $100M in sales for this indication. The reason why it'll still have sales is because TOBI has been losing efficacy over-time, and patients move into competitor products. In other words, there's always a market for approved devices for this indication. Further, Arikace's efficacy, whatever it may be, should prove more durable than TOBI.
If it shows slight superiority, I think at least $200M in sales is a conservative estimate.
If it shows significant superiority, say, greater than 20%, then we can expect not only larger market share, but premium pricing... I expect at least $400M in sales.
As for the NTM indication, if Arikace P2 trial succeeds, we can expect at least $400M in sales. Since this is an orphan category, the chances that it succeeds in P2 but not P3 is very unlikely.
With those sales figures in mind, what are the odds it makes it to-market?
If upcoming P3 results show at least some superiority, the odds are greater than 70%. If the upcoming P2 results for NTM succeeds, the odds are greater than 70%. Until then, I price the odds for NTM indication at 30%. These percentages do take into account that perhaps INSM receives a CRL for non-clinically related issues, in other words, the odds are if it EVER makes it to market, not the odds the first PDUFA succeeds. Keep that in mind.
With those odds and sales figures in mind, what are the scenarios for fair value?
Non-inferiority P3 results + Before NTM P2 results announced: $15 before NTM P2 results are announced.
Significant superiority P3 results + Before NTM P2 results announced: $30 before NTM P2 results are announced.
The reason why non-superiority P3 results won't hurt the stock is the fact that the NTM indication is worth over 70% of the current market valuation for the company. Much of the recent run-up is attributable to the NTM indication awareness r
Unless the Phase III results are released shortly, the vast majority of the investors who will need to sell millions of shares to the agents for the tracker funds over the next two weeks or so will, imo, want to have as clear an idea as possible of what their shares are likely to be worth in July.
The best guess we can make from the available information is that the Phase III results will probably evidence a level of efficacy which is noticeable to the patient.
Cystic Fibrosis is a terrible, crippling disease. The 70,000 out there with CF currently have access to no antibiotic capable of delivering a noticeable improvement in their breathing. The best guess we can make is that Arikace will deliver that.
Current sales of Tobi have little more relevance to future sales of Arikace than have sales of light bulbs in Outer Mongolia. If Arikace can do what the Phase II results predict it will do, Insmed's ability to market the drug will be irrelevant. 70,000 CF patients and their physicians will demand the drug.
I expect a manager of a multi-million dollar fund to be far more intelligent and perceptive than I am. I don't imagine he would have risen to those heights in the first place without being extremely adept at determining the value of million-dollar assets. Before selling his shares to the agents of the tracker funds I expect him to have at least as clear an idea as I have of the likely demand for Arikace should the Phase III results equal or better the Phase II results.
I expect him to value his shares on that basis - and then decide how much of that value he is prepared to sacrifice in order to cash in this month just in case something unexpected happens.
I don't expect him to accept a price for his shares which is so low that he sees no alternative investment likely to deliver a better return on his capital than he would expect by leaving it in INSM.
And I'm not expecting many retail shareholders to be interested in selling so close to the big pay-day.
Perhaps it is the case that the current market for CF drugs isn't a good gauge to project market sales for Arikace, but it's a start. I will emphasize that if Arikace does in fact show the sort of superiority over TOBI that has been shown in the placebo trials, then my estimates are all useless, of course. I'm just laying the groundwork for traders. I think the most important part of what I had to say was how good Arikace looks so far in the P2 with respect to TOBI's P3 placebo results. If we get confirmation results in P3 that shows that same level of superiority, $400M would indeed be left in the dust. But I'm going to keep my sales projections risk-adjusted until I see it.
Per my prior post:
"Phase III studies provide the facts about an investigational drug through extensive testing of
the safety, efficacy, and proper dosage levels in a large group of patients with a specific illness
or disease. In a Phase III study the investigational drug may be tested on several thousand
subjects over a two to five year span. In Phase III, the goal is to have practicing physicians
evaluate the investigational drug and its positive and negative effects. Often times the Phase III
research includes evaluating the safety and effectiveness of treatment on various subsets of
patients such as men versus women, African American versus Caucasian, elderly versus
young, etc. Treatments that have reached Phase III have already passed toxicity testing and have
proved to be at least somewhat effective. About 80% of drugs that enter Phase III will
successfully complete it."
Gilead's data from the Cayston study, where Tobi was the comparator therapy, evidenced a maximum improvement in FEV-1 for the patients on Tobi of just 2%.
That improvement occurred after two weeks of the first four-week therapy phase. By the end of that first four weeks FEV-1 for the patients on Tobi was almost back to where it was before the study started - and it was never any better than that during the remaining twenty weeks of the study.
By contrast - during the fifth phase of therapy of the Arikace extension study the patients evidenced an increase in FEV-1 in a range from 12% to 19%.
Even if the results due mid-year show that Arikace hasn't improved on those figures with breaks between therapy of only four weeks rather than eight, my personal expectation would be intense interest from the CF patient population for a once-daily therapy which delivers a noticeable improvement in their breathing.
Novartis reported sales of Tobi of over $300 million for 2012. Tobi is generating that revenue despite the fact that the patients have to take the therapy twice a day, and cannot be noticing any improvement in their breathing.
"If it shows slight superiority, I think at least $200M in sales is a conservative estimate.
If it shows significant superiority, say, greater than 20%, then we can expect not only larger market share, but premium pricing... I expect at least $400M in sales."
- implies that even with significant improvement over Tobi, little over 10,000 of the 70,000 CF patient population will use Arikace.
Would you mind sharing your reasoning with us?
I want to further add that the open label results and the P2 results are not entirely consistent, with the open label showing noticeably worse results (although it gets progressively better). Yes, one was 56 days off, the other was just 28, but that confoundation is why the market could be hesitant.
With this company, given that there is competition in the indication, I use competitor revenues as the metric for estimating. Considering TOBI/Cayston are marketed by big pharma, assuming standard 30%, or more, market capture @ $40k is assuming a lot about INSM's marketing capabilities. My analysis is "at least" $400M. I know full well what it COULD be, but I'm trying to make a trade here, I'm not in for the long haul. I think traders will use the $400M figure in their trade plan if significant superiority is shown. Is this a billions dollar treatment as you hope? We'll see.
In my defense, the sort of performance from the Arikace trials that show 50%, even 100%, superiority over TOBI would command far more than $400M in revenue, probably closer to $1B, but relying on different placebo studies to compare treatments is not fool-proof. If there is improvement less than 30%, or to simply meeting non-inferiority standards, the marketing capabilities of a small company become relevant and Wall Street will project revenue along the $100M- $400M spectrum. Why? Well, why would Arikace be priced at a premium to the competition if it's not better, nor why would it capture more of the CF population? This is why I use competitor revenues. If Arikace shows that it's more than 30% better, all bets are off, because premium pricing and widespread adoption would be a reality.
But for the sake of conservative trading: $400M sales for this indication @ 90% to-market odds, and another $400M for NTM @ 30% to-market odds, has fair value over $26, even $30. That's 150% upside.
I will not be surprised, in the least, if market expects billions in sales for the CF indication if we see 50%, even 100%, higher +FEV1% compared to TOBI. In that case, we will see far more than 200% returns in the short-term. Arikace would be confirmed as a billion dollar platform, and the NTM and non-CF indication revenue estimates would also multiply.
Why do I expect significant superiority? Because, evidenced from TOBI's briefing docs, TOBI's +FEV1% is about 12.5% after 28 days, but loses more than 40% during subsequent 28 days off the treatment. Beyond that it's not statistically significant so that's as far as we can go in our analysis of TOBI.
On the other hand, Arikace 580 showed sustained benefit after 28 off-days.
So, the question is, will Arikace's +FEV1% continue to last longer than TOBI's? I think from the P2 Arikace, and P3 TOBI data that we have so far, both placebo controlled, we may see a dramatic divergence in +FEV1% performance after 6x28 days.