FDA acceptance of the CCP-08 NDA (setting a 4 August 2017 PDUFA date) advances Vernalis towards its goal of building a speciality US franchise of extended release (ER) prescription-only (Rx) cough cold products. Potential 2017 approval of CCP-08 and CCP-07 (PDUFA date 20 April 2017) would enable launch into the 2017/18 cough cold season. Last reported cash of £78.6m (unaudited at end October) supports ongoing investment in operational initiatives to enhance Tuzistra XR sales growth this season and beyond. Successful execution will lay important foundations for the launches of CCP-07 and CCP-08.
CCP-08 is the third of Vernalis’s cough cold products to be accepted for NDA review; this triggers a milestone payment from Vernalis to partner Tris (we assume $3m). Potential CCP-07 and CCP-08 launches into the 2017/18 cough cold season will leverage the existing Tuzistra XR salesforce and coupled to higher revenue will drive Vernalis to profitability in FY19 on our forecasts. Two other pipeline assets (CCP-05 and CCP-06) are on track for achieving proof of concept in FY17.
Over Q416 Vernalis made progress with all operational priorities including improving: (1) patient access (unrestricted insurance coverage of Tuzistra XR is now c 75% of US commercial lives up from c 60%); (2) physician/brand awareness (samples shipped from October); (3) pharmacy stocking (ongoing discussions with numerous national and regional chains); and (4) territory alignment (following the 25% salesforce expansion). These activities have accelerated Tuzistra XR Rx growth, particularly over December, into a cough cold season that, like 2015/16, has started mildly (according to CDC surveillance data). Ongoing investment will underpin future sales growth, but decrease Tuzistra Rx’s net price ($/Rx) for FY17.
CCP-08 NDA acceptance prompts us to raise its probability of success to 90% from 75%, increasing the rNPV of CCP-08 by £11.8m (13.4p/share) to £70.7m. However, this uplift is largely offset by a lower last reported cash position (£78.6m [unaudited] at end-October vs £84m at end-June reflecting cash burn) resulting in a modestly higher company valuation of £377m or 72p/share (previously £371m or 71p/share). Our valuation consists of US cough cold and NCE pipeline rNPV, explicit cost modelling and inclusion of cash; we assume zero NPV for the research business. Upside would come from portfolio progress, launches and sales upgrades.