AGRX: Raises $18.3 Million in Public Offering

By David Bautz, PhD

NASDAQ:AGRX

Business Update

NDA for Twirla® Accepted; PDUFA Date is Dec. 26, 2017

On July 27, 2017, Agile (AGRX) announced that the U.S. Food and Drug Administration (FDA) has accepted the New Drug Application (NDA) for its lead product, Twirla® (AG200-15), a once-weekly low–dose combination hormonal contraceptive patch. The FDA set the Prescription Drug User Fee Act (PDUFA) date as Dec. 26, 2017. At this point, there is no indication an Advisory Committee (AdComm) meeting will be conducted. We don’t believe there will be one based on the fact that 1) we are unaware of an AdComm meeting being held previously for the approval of a contraceptive product, and 2) in order for one to take place the meeting would need to be announced in the Federal Register 90 days prior to it occurring, thus it would need to be announced very soon.

Leading up to the PDUFA date, a number of pre-commercialization activities will take place, including a potential pre-approval inspection (PAI) of the manufacturing facility by the FDA for the company’s contract manufacturing organization (CMO) partner Corium. This inspection can take place at any time, however we are confident that there will be no issues as Corium had previously passed the PAI performed following the first submission of the NDA for Twirla®. Additional activities will include production of the three validation batches required before the commercial launch, which the company is planning to coordinate such that those batches can be utilized for sale or sampling following the commercial launch.

The company will also begin conversations with payors later this year that will help to guide the launch price of Twirla®. Of note, the price of branded and generic contraceptives continues to increase. For example, when it was launched Xulane® (the generic version of the birth control patch Ortho-Evra®) cost $95 per month, but has since increased to its current price of $115 per month. We believe Twirla® has superior characteristics to Xulane® and are currently modeling for a launch price of $125 per month.

We initiated coverage of Agile earlier in the year, a summary of which is included in this report. We are enthusiastic about Twirla’s® opportunity in a market that was estimated to be worth $3.7 billion in 2016. We believe that the company has adequately addressed all the concerns raised by the FDA in the complete response letter (CRL) received regarding Twirla’s® initial application, and we anticipate Twirla® being approved on or before the PDUFA date.

Financial Update

On July 28, 2017, Agile announced financial results for the second quarter of 2017. As expected, the company did not report any revenues. Net loss for the quarter was $7.4 million, or $0.26 per share. R&D expenses for the second quarter of 2017 totaled $3.8 million, compared to $5.6 million for the second quarter of 2016. The decrease was due to a decrease in clinical development expenses of $2.9 million partially offset by increases in manufacturing commercialization expenses and regulatory expenses. G&A expenses for the second quarter of 2017 were $3.2 million, compared to $2.3 million for the second quarter of 2016. The increase was due to increased commercial development expenses such as brand building, advocacy, and consulting.

Cash burn for the second quarter of 2017 totaled approximately $6.4 million, and the company exited the second quarter of 2017 with approximately $33.9 million in cash and cash equivalents. On August 3, 2017, Agile announced the pricing of a public offering whereby approximately 5.33 million shares of common stock were sold at $3.75 per share. The company will receive net proceeds of approximately $18.3 million and the underwriters have a 30-day option to purchase up to an additional 800,000 shares of common stock. The additional capital will be utilized to fund third party manufacturing operations and additional activities related to the commercial launch of Twirla®, if approved.

In February 2015, the company entered into a loan and security agreement with Hercules Capital, Inc. for a term loan of up to $25.0 million. A first tranche of $16.5 million was funded upon execution of the loan, and the company recently extended the period during which it may draw an additional tranche of $8.5 million until January 31, 2018. The loan accrues interest at a rate of the greater of 9.0% or 9.0% plus Prime minus 4.25%. Principal is due in 23 consecutive monthly installments beginning on February 1, 2017 and ending on Dec. 1, 2018.

As of July 27, 2017, Agile had approximately 28.8 million shares of common stock outstanding. In addition, the company has approximately 3.8 million stock options, 0.2 million warrants, and 0.3 million unvested restricted stock units for a fully diluted share count of approximately 33.1 million.

Valuation

We value Agile using a probability adjusted discounted cash flow model that takes into account potential future revenues for Twirla® based on a launch in the second quarter of 2018.

Even with a PI that is slightly higher than has previously been seen in other approved hormonal contraceptive products, we do not believe this is a reason for the FDA not to approve Twirla®. The company has done a good job of showing why the PI is higher than previously seen in other hormonal contraceptive trials based on a correlation between BMI and the PI. Trials for previous hormonal contraceptive products typically had an upper limit for BMI to be included in the trial, thus it is not surprising those trials would show a lower PI than the SECURE trial. Once approved, we don’t believe the slightly higher PI will have an adverse impact on peak revenues. We base this on market research presented by the company showing that clinicians do not discuss PI values with their patients and instead focus on the characteristics of each product that may fit best with a particular patients lifestyle while assuming that if approved by the FDA the product is effective at preventing pregnancy. Lastly, we believe the SECURE trial adequately addressed all the concerns the FDA had when the CRL for Twirla® was issued, thus we anticipate the product being approved in late 2017.

According to EvaluatePharma, the U.S. hormonal contraceptive market (including both combination and progestin-only products) totaled $3.7 billion. We forecast for Agile to attain 9% market share 7 years after launch in 2018. This leads to peak revenues of approximately $400 million. After accounting for operating expenses, an estimated 35% tax rate, a 12% discount rate, and an 85% probability of approval we value Twirla® at $301 million. When taking into account estimated capital requirements for the launch of Twirla® of $20 million, and dividing by the fully diluted share count of 38.4 million shares, this leads to a valuation of approximately $7.50 per share.

READ THE FULL RESEARCH REPORT HERE

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