Vernalis reported a modest £0.6m in Tuzistra XR sales over the first four months post-launch due to the mild cough cold season. The US launch of this prescription-only (Rx), extended release (ER) cough cold medicine is the first step in Vernalis’s transition into a commercial-stage speciality pharma company, targeting a $3.5bn market opportunity. The emphasis for year one of Tuzistra XR commercialisation is operational: establishing the platform for future sales growth. However, financial performance, in particular, during its second year on the market, will be an important determinant of whether Vernalis will need to raise new funds near term.
Tuzistra XR’s slow launch into a mild season suggests FY16 consensus forecasts will fall despite a later peak than typical. So far, Vernalis has achieved an average net price per Rx of $70-75 based on a $177 wholesale acquisition cost per average 168ml Rx. Commercial focus is on improving physician awareness of and patient accessibility to Tuzistra XR. Improved reimbursement is vital: Tier 3 status has been achieved at c 55% of plans (vs 75-80% target); CVS Caremark is a major gap.
Ongoing initiatives to improve awareness, stocking and formulary coverage should increase market share longer term. A spring allergy campaign (cough due to allergy) should ensure that Tuzistra XR is prescribed in the off-season. Assuming a solid foundation going into the 2016/17 cough cold season, the second year of Tuzistra XR’s launch should provide better insight into its ultimate sales potential.
Net cash of £54m (end-December 2015) provides sufficient runway to sustainable profitability in FY18 on our current forecasts. With operating costs of c £40m pa (and limited room to make savings), the level of Tuzistra XR sales in FY17 and FY18 and the timing of success-based milestone payments to Tris ($46m in aggregate) will determine whether Vernalis will need to raise funding in FY18.
Our DCF valuation has decreased to £384m from £439m following revisions to our financial forecasts based on new cost guidance, a slower Tuzistra XR ramp-up and updated Tris milestone timings. Our peak sales estimate for the cough cold portfolio is maintained at c $500m, but is now anticipated by 2025.