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Home » Long Term Weight Loss » Short-Term Catalyst And Long-Term M&A Potential Make Agile Therapeutics An Attractive Potential Takeover Target – Seeking Alpha

Agile Therapeutics is a US biotech company based in Princeton, New Jersey. It currently has one leading candidate, Twirla, which is a weekly, lower dose estrogen contraception patch for women to avoid unwanted pregnancies. Currently it is waiting for FDAs final decision with a PDUFA date of Feb.16th, 2020.

Twirla has experienced an unusually rough path for the past 8 years (Fig. 1). Its original NDA submission can be dated back to 2012. Since then it has received FDAs complete response letter ("CRL") twice, indicating a difficult and unpleasant journey. We would assume readers are familiar with its history so we are not going to introduce the details. However, We are going to state several reasons why we think Twirla will very likely get final approval this time.

Figure 1. Agile patchs regulatory history. (Source: Internet)

Reason I: Efficacy

The biggest criticism of Twirlas efficacy comes from the fact that in its large-scale trial called Study 23, the overall Pearl Index, which is the pregnancy count per 100 women in one year of exposure, stayed around 5.8. This is well above the pearl indexes derived from previous contraception combined hormonal contraception ("CHC") trials (Fig. 2).

Figure 2. European and US Pearl Indices in Contraceptive Clinical Trials. (Source: Internet)

In fact, in Agiles Adcom briefing materials, this was explained in-depth. Historically, contraceptive clinical trials enrolled highly selective populations, like women with lower BMIs who responded to CHCs much better than women with obesity. Further, the current percentage of women population with obesity is much higher than that twenty years ago. In addition, those trials did not exclude individuals with inactive sexual activities. As a result, the exceptionally low Pearl Index did not transfer to real world efficacy, as the pregnancy rates post-marketing were many times higher than those observed in the clinical trials (Fig. 3).

Figure 3. The changing Pearl Index of approved combined hormonal contraception (NYSE:CHC) over time. (Source: Internet)

FDA was fully aware of this wide gap between clinical trials and real world efficacy. Multiple changes had been made in the regulatory guidance. In 2007, it removes the hard requirement on Pearl Index 95%CI upper bound and further adjust its guidance including:

1, Modifying trial designs to provide results that reflect effectiveness in the real world;

2, Changing entry criteria to reflect real-world prescribing; and

3, Ensuring that all relevant information be provided to the prescriber, including data on subgroups.

As a result, the Pearl Indices derived from contraception trials in the past two decades kept rising steadily, and it is of no surprise that Study 23 resulted in a larger overall Pearl Index of 5.83. The question is, how large is too large?

Lets first take a look at the sub-group of BMI < 30 (Fig. 4). The Pearl Index is 4.34 with a 95%CI upper bound of 5.82. A sample study estimate that at least 14% of adult women abstain from intercourse for the past 6 month. For simplicity, we will just use this 14% as the percentage of total cycles that no sexual activity occurs. If we add this number back to the denominator, we get an adjusted Pearl Index of 3.7 and a 95%CI upper bound of 5. We think these are very reasonable numbers, in-line with recent Pearl Index from commercialized oral CHC products (Fig. 3).

Figure 4. Pearl Index of Twirla patch by BMI category. (Source: Internet)

For women with obesity (BMI>30), the efficacy is suboptimal. But it is a well-known phenomenon. Larger body weight may contribute to lower estrogen serum concentration. Subcutaneous fat may also lead to poor skin absorption. keep in mind that even the existing patch Xulane has a label stating Xulane may not be as effective in women weighing more than 198 lbs. (90 kg). So it will not be surprised that Twirla may have a similar label.

In previous communication with FDA, Agile did get a note that FDA had never approved a CHC with upper 95%CI passing 5. However, during Oct. 2019s Adcom meeting, the committee suggested that, a slight increase in Pearl Index is expected under new trial designs. Further, comparing to 85% pregnancy rate without contraception methods, Twirla is well within the range of effectiveness. These comments from field experts conclude that Twirla is an effective contraception patch.

Lastly, inside FDAs 2017 CRL, the regulator raised questions about Twirlas adhesion property. In response to FDAs questions, Agile conducted Study 25, a comparative wear study comparing the adhesion of Twirla to Xulane. The result is crystal clear: the Agile Patch has directly demonstrated non-inferiority to Xulane (Fig. 5).

Figure 5. Primary adhesion endpoint of Study 25. (Source: Internet)

From all above evidence, we think there is little reason that FDA would raise more questions on Twirlas efficacy.

Reason II: Safety

The safety profiles for Twirlas two APIs, ethinyl estradiol and levonorgestrel were well studied. In the pooled analysis, Twirla showed a better safety profile over other CHC oral therapies, in respect to hormone-related AEs (Fig. 6). The possible reason could be that Twirla does deliver a much lower dose of estrogen, as the company stated. For non-hormone related AEs, the most common ones are application site disorders (5.7%) including irritation, pruritus and rash.

Figure 6. The hormone related AEs in pooled data. (Source: Internet)

For SAEs, because CHCs were known to increase the risk of thromboembolic event by approximately 2 to 4 fold, special attention was given to patients who experienced deep vein thrombosis (DVT) and pulmonary embolism ("PE"). It was noted that both DVT and PE had an occurrence rate of around 0.1% among Twirla users, and women with higher BMIs are more prone to have thromboembolic events. These results are all inline with approved CHCs products.

The discontinuation rate for Study 23 is slightly higher than other CHCs (Fig. 7). However, a close examination revealed that a 26.6% people who discontinued the trial were due to either loss of follow up or subject decision. And the discontinuation rate due to AEs are around 10%, also inline with other CHCs.

Figure 7. Comparison of study discontinuation rate with other approved CHCs. (Source: Internet)

In conclusion, Twirlas overall safety profile is acceptable and consistent with approved low-dose CHCs. The most common AEs and SAEs were expected, occurring at low rates, and led to discontinuation at rates similar to approved products. There were no further risk-related concerns specified by FDA. We dont expect FDA would reject Agiles NDA due to safety reasons.

Reason III: Market demand on more contraception options

One of the biggest values Twirla brings to the market is the additional option that women can choose when considering different contraception methods. One need to choose the right option based on invasiveness, routines and efficacies. Assume readers are familiar with pros and cons of different contraceptive methods, we are not going to compare them here. However, one could argue that, Twirla does not provide enough differentiation towards Xulane, since both of them are patches delivering similar types of hormones and Twirla has yet to prove that its lower dose estrogen (Fig. 8) could actually lead to statistically significant safety profile. Although this is a fair argument, we dont think it will happen this time: FDA could simply bring this issue up back in 2017 but it didn't.

Figure 8. Mean serum concentration-time profile of ethinyl estradiol across various contraceptive methods. (Source: Internet)

Further, Agile proposed to conduct post-marketing studies to show the clinical benefit and risk profile. If the reduced thromboembolic risk could be verified, it could potentially be a great market driver, as history has demonstrated womens strong preference to conveniently used, weekly, non-invasive contraceptive patches. Ortho Evra patch once reached a stunning 10% of the entire contraceptive market, with close to 1M annual prescribers. Now, because of its risks in thromboembolic events ("TE"), its generic version, Xulane only has about 100K prescribers. If, lets say if Twirla gets very lucky and could show its preferred safety on TE in post-marketing studies, it could regain the market share that Ortho Evra patch lost in the past.

Reason IV: Trial design up-to-updated standard and a comprehensive NDA package

Lastly, considering Agiles entire NDA package, we think it is comprehensive, already addressing all FDAs concerns (Fig. 9). Further, comparing to previous contraceptive trials, we think Twirla trials design reflect the up-to-date, real world scenario about potential users demographics and associated risks.

Figure 9. Checklist for issues raised by FDA. Note the last two items have been checked as well. (Source: Internet)

Given all above evidence, we think Twirla has a 95% chance of approval. The market however, thinks the chance is around 70%. This 70% number can be derived from the option market, where a 250% implied volatility over 5 days indicated an average move to be around 35.4% (calculated by 250% * sqrt(5/250)). If we assume a zero stock value for no approval, we get the market implied probability of approval to be 1/1.354 = 73.8%.

Valuation

Agiles stock has almost doubled since Oct.2017 Adcom meeting and resulted in a current market cap of $220M. We think the valuation is very rich now. If Twirlas price is set at $50 per patch, resulting a $1800 annual subscription price, we think the maximum possible peak revenue it can generate is $200M, assuming it completely occupied Xulanes current market share. More realistically, we think it probably will grab about 50%~60% of the Xulanes current market share, giving the fact that Xulane costs about $38 per patch, slightly cheaper than Twirla. This implies Twirlas peak sale of $120M, resulting a roughly $300M valuation using discount cashflow method. This indicates a 40% upside to the current stock price, if getting approved. In addition, given the fact that Agile only has about $10M cash in hand and currently burns $5M plus per quarter, it definitely needs to raise additional capital, likely around $45M. The combined effective upside potential is merely 25%. The call options associated with the stock currently trade at 280% IV, we think this volatility over-estimate the upside moves.

Management

When we examine the qualification of Agiles executive team, we are actually impressed by their M&A capabilities.

Agiles current CEO, Alfred Altomari, was once the CEO of Barrier Therapeutics. In 2008, in his role as CEO and as a member of Barrier's board of directors, Mr. Altomari completed the successful sale of Barrier to Stiefel Laboratories, which was subsequently acquired by GlaxoSmithKline plc.

The newly joined CFO, Dennis P. Reilly (joined in Aug, 2019) has proven to be an even better M&A expert. Dennis and Alfred were colleagues in Barrier Therapeutics back from 2005 to 2008, where Dennis served as the CFO and carried forward the Barriers acquisition. From 2009 to 2017, he served as CFO of NeoStrata Company, Inc., a privately held global leader in dermocosmetics, which was sold to Johnson & Johnson. In 2017, he served as CFO and COO of Invisible Sentinel, Inc a private company, which BioMerieux acquired in February 2019. Time and time again Dennis has demonstrate to the public how capable he is to successfully sell his companies and maximizing shareholders return.

These are very strong indicators pointing to the fact that the executive team of Agile may consider selling out the company in the near future. For the past years, we knew Mylan Pharmaceutics successfully defended its Xulanes market share and won the competition over Agile. However, if we put grudge aside, Mylan is actually a perfect buyer for the company. Mylan is currently the only contraceptive patch player in the market which means it does not need to hire additional sales force. They have enough resource to do a post-marketing trials to demonstrate Twirlas safety advantage over Xulane. If they can demonstrate that Twirlas safety is inline with other low-dose oral CHCs, they may be able to greatly expand contraceptive patchs market share by several folds, reaching over $2B in peak sale. Other companies, such Johnson and Johnson, could also be potential buyers as well. In conclusion, Agiles executive team leaves investors with imaginations of a potential sale in the near future.

We are currently invested in the stock, and we plan to exit the position right after FDAs decision. We are most confident about Twirlas FDA approval decision and we do not want to gain exposure to future uncertainties.

Author: Weiwei Wang

Disclosure: I am/we are long AGRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any information mentioned in this article was not verified, and should not be relied on as a formal investment justification. All recommendations and other statements, unless specified, are based on the author's personal understanding/judgement and may subject to future changes.

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Short-Term Catalyst And Long-Term M&A Potential Make Agile Therapeutics An Attractive Potential Takeover Target - Seeking Alpha

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Home » Long Term Weight Loss » Short-Term Catalyst And Long-Term M&A Potential Make Agile Therapeutics An Attractive Potential Takeover Target – Seeking Alpha