Vernalis is preparing for commercial launch of Tuzistra XR, its extended-release, codeine-based cough cold treatment following FDA approval in April. The product has greater commercial potential than previously anticipated with an addressable market of up to £1.8bn and is the only approved codeine-based, long-release liquid treatment. We forecast maiden cough cold sales in FY16 leading to profitability in FY18. We increase our valuation from £323m to £406m.
Tuzistra XR, a 12-hourly dosed or extended-release (ER) liquid narcotic cough cold treatment was FDA approved on 30 April. Tuzistra XR is indicated for the relief of cough and symptoms associated with respiratory tract allergies and common cold. Its active ingredients, disclosed at the time of the FDA approval, are codeine, a cough suppressant and chlorpheniramine, an antihistamine. Its primary market, the codeine plus antihistamines segment, has an estimated value of £510m at current net brand pricing, although Tuzistra XR has potential in other market segments.
Tuzistra XR has additional potential among all codeine cough cold prescribers, a c $1.2bn market, including codeine plus expectorant products. Furthermore, DEA reclassification in 2014 of hydrocodone-based cough cold products from Schedule III into the more restrictive Schedule II could drive Tuzistra XR sales into the $550m hydrocodone segment. Vernalis has a pipeline of four ER products, providing further commercial potential in the c $3.3bn prescription cough cold market.
We have increased our FY15 sales estimate from £18.4m to £18.9m, adding in a £0.5m research milestone payment. We have lowered our FY16 sales estimate from £18.3 to £17.7m, with greater caution on cough cold sales in launch year, but we increase our peak sales estimate for Tuzistra XR to $240m from $120m, c 13% of the addressable cough cold market. Our end-2015 net cash estimate is £54.6m, which we forecast is sufficient to fund Vernalis through to profitability in 2018.
We have increased our DCF valuation of Vernalis from £323m to £406m, or 92p per share, compared to the £310m current market capitalisation. The increase is based on our higher peak sales estimate and a reduction of the WACC of Tuzistra XR from 12.5% to 10% as it moves from the development to the commercial stage.