Increasing clinical traction in HAE sets the stage to improving manufacturing; two additional sites are planned. We think that the revenue growth and increasing demand for Ruconest speaks to the clinical credibility of this drug. This is key to boost Ruconest's market share in HAE considering its late entrance to the market. In light of the intense competition, we believe that Ruconest's increasing adoption is meaningful, and the company is investing in increased manufacturing capacity with the opening of two new facilities in the near future. The first site is to be approved by the end of 1Q20 and should be enough to satisfy Ruconest's manufacturing demands in HAE. The second site is going to be built in 2020. Overall, this may bring the manufacturing sites to four. Furthermore, in the long-term when thinking at the new indications (beyond HAE), a cattle platform is being reinstalled, supplementing rabbit capacity with signficant increases in volume expected.
Ruconest is set to expand to treat pre-clampsia and acute kidney injury. We think that entering new clinical markets is key for increasing Pharming’s Ruconest commercial opportunity beyond HAE. The company is focusing on other diseases caused by a dysfunction in the complement system, such as acute kidney injury and pre-clampsia for which, currently, there are no approved therapies. In June 2019, the company announced the anticipated beginning of its clinical study investigating the use of Ruconest, in patients with pre-eclampsia (Pre-eclampsia). The company is now preparing to commence a clinical trial testing the potential of Ruconest to reduce or prevent acute kidney injury in patients undergoing percutaneous coronary interventions. This trial is set to begin in 4Q19.
Leniolisib is poised to build upon Ruconest success. Another important update of 3Q19, is Pharming’s announced acquisition of a global license agreement from Novartis (NVS; not rated) for leniolisib (CDZ173), a small molecule phosphoinositide 3-kinase delta (PI3Kd) inhibitor for the treatment of patients with Activated Phosphoinositide 3-kinase Delta Syndrome (APDS). A detailed review of the program is provided in our prior note: Expanding Portfolio Opportunity Beyond Ruconest; Nice Potential Valuation Add in Back Pocket; Reiterate Buy. We note that, this collaborative agreement allows Pharming to build upon Ruconest’s success and to expand the company’s portfolio beyond HAE. Accordingly, this collaboration is in line with Pharming's planned pipeline expansion with additional assets, through strategic business development activities. Note that, as for HAE, APDS is commonly treated by immunologists with whom Pharming has been working extensively over the past years and has built a valuable network. If approved, the drug is expected to reach the market in by 2H21 or 1H22. Novartis is currently running a registration-enabling trial and an open label extension study testing CDZ173 in patients with APDS. As per the agreement, Novartis is responsible for continuing to run the ongoing trials. Upon approval and commercialization, Novartis is eligible to receive regulatory and commercial milestones and should earn tiered, double digit royalties on net sales from. As mentioned above, Pharming has paid $20 million (€17.9) upfront and it is expected to collaborate on completing the enrollment of the ongoing trials. Upon approval, Pharming is responsible for CDZ173 commercialization in both the U.S. and E.U., using its current commercial capabilities, and should work towards the expansion into other geographies.
Upcoming catalysts:
• 4Q19: Initiate Phase 2 study in acute kidney injury study with contrast-induced exams
• Continued focus on Ruconest traction for revenue growth in U.S. and E.U.
• Continuation of production expansion
• Formulation work for Ruconest administration
• 2020: Initiate Phase 2/3 in Pompe
• Potential pipeline expansion with additional asset(s) through business development
• Continued tweaking of marketing strategy based on competitive landscape and territorial factors
Valuation and potential impediments to achieving it. We reiterate our Buy rating and are increasing our price target to €3.10 from €2.50. The primary factors driving our valuation change include: (1) adjustment to base year; and (2) adjustment to fully diluted share count. Our valuation is driven primarily by Ruconest for the treatment of HAE (77.7% contribution), with current modest contributions from the pre-eclampsia and acute kidney injury indications. We note that the new CDZ173 opportunity is exciting to us, and believe the asset represents important valuation upside potential; we are currently not including this new late stage asset in our valuation to show an added layer of conservatism and our view that Pharming remains undervalued solely on the Ruconest opportunity. Our valuation is based on our clinical net present value (NPV) model, which allows us to flex multiple assumptions affecting a drug's potential commercial profile. Factors which could impede reaching our price target include, lack of meaningful market penetration, failed or inconclusive clinical trials or inability of the company to secure adequate funding to progress its drugs through the development pathway.
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