Highlights of today's upgrade and $13 price target....
Bottom Line: We are initiating coverage of Insmed Inc. (INSM) at Outperform. We believe INSM shares are poised to appreciate as the company develops and subsequently commercializes its sole product Arikace (inhaled liposomal amikacin) in two attractive orphan disease markets: cystic fibrosis (CF) and nontuberculous mycobacteria (NTM). We believe that Arikace presents an attractive clinical profile and is differentiated by its unique biochemical capacity to target evasive respiratory infections. We value INSM shares at $13 on a DCF basis.
• We believe that the current valuation does not account for Arikace’s impressive Phase II efficacy data in CF, which de-risks the Phase III program, and the potential for Arikace to be the first inhaled antibiotic with once-a-day dosing and absolute pulmonary function improvements in CF patients. Furthermore, we find significant value in INSM's NTM program, which though still early in development, holds a high degree of upside if Arikace is approved for use in this indication.
As we await Phase II results, we attribute $4/share of value to INSM's burgeoning program for NTM, and believe that Arikace holds the potential to leverage an accelerated regulatory pathway to become the first-ever approved treatment for this underserved orphan disease. We expect top-line data for Arikace in the potentially pivotal Phase II NTM TARGET study by YE13. If Arikace proves safe and efficacious, INSM will decide whether to pursue accelerated approval or initiate a Phase III study to augment its NDA submission.
• Combined, the CF and NTM markets easily exceed $1B, and INSM will target both indications with the same therapeutic. Tobi's efficacy data in fighting Pseudomonal infections in CF has been mixed, and requires two 20-minute treatment periods each day, compared to just 12 minutes once for Arikace. We also believe that NTM presents an attractive opportunity for INSM, as it currently lacks an optimal therapeutic regimen for the clearan