NPS Pharmaceuticals (NPSP) has an orphan blockbuster on its hands. The company is giddy with excitement over the successful launch of its recently approved therapy. Priced at $295,000 per year, teduglutide, marketed in the US as Gattex and internationally as Revestive, raised a great deal of skepticism earlier this year. I'm going to take a closer look at the US launch of Gattex and show you why I believe NPS will pass $2 billion in annual teduglutide sales within the next five years.
The costs of short bowel syndrome
Short bowel syndrome is an extremely debilitating condition that prior to the launch of teduglutide was largely untreatable. The condition typically results from the surgical resection of the intestine for any number of reasons including physical trauma, genetic misfortune, and Crohn's vascular disorder.
Often, the length of remaining intestine doesn't provide enough absorption of fluids and nutrients to sustain life. Patients rely on parenteral nutrition (PN), an awful intravenous (IV) infusion of fluids and nutrients. SBS patients typically spend 10-12 hours, 5-7 days a week plugged in. Long term PN isn't just inconvenient, it results in an assortment of life-threatening conditions.
At $295,000 per patient, per year, teduglutide therapy isn't cheap, but it is cost effective. In my first NPS Pharmaceuticals post, I explained that NPS has priced teduglutide to compete with PN infusions. In short, teduglutide therapy improves intestinal absorption of fluids and nutrients, reducing patients dependance on PN. Some patients are able to stop PN altogether. Despite it's seemingly outrageous price, it is cheaper, safer, more effective, and far more convenient than PN alone.
Revised guidance
The FDA approved Gattex (teduglutide) for adults with SBS in December 2012. Although the commercial launch began in Q1 2013, significant revenues weren't recorded until Q2 2013. The results so far have been encouraging enough that the NPS has revised its full year guidance in a good way. I've organized the company's FY 2013 guidance revisions in the table below.
Patients on Gattex/Revestive therapy
NPS management has increased its guidance regarding patients on therapy, but I think the estimate is fairly conservative. Since the launch, Gattex prescriptions have been rolling in at about 50 per month. During the Q2 2013 earnings call, NPS Pharmaceuticals CCO, Eric Pauwels, revealed that the time between prescription and patients actually beginning therapy has averaged between 90 and 120 days. Compliance, a measurement of patients staying on therapy, has come in at an astonishing 95%. At these rates, even the upper end of the revised guidance seems conservative.
A reasonable scenario
The Short Bowel Syndrome Community estimates there are between 10,000 and 15,000 patients in the US that require parenteral nutrition (PN). During the Q2 2013 call, CEO, Francois Nader estimated "that there are between 6,000 and 12,000 short bowel syndrome patients who are Revestive eligible in the 30 ex-US countries we are targeting"
Here's a scenario assuming US prescriptions grow to 5,000 over the next two and a half years, plateau until Gattex loses US exclusivity in 2020, then decline 50% per year. It also assumes that beginning in the second half of 2014, Ex-US sales will begin their climb to 120% of the US market over 6 years, then plateau until Revestive loses exclusivity in the EU in 2022.
Net Income at 30% profit margin
Notice the revenue and subsequent earnings do not take into account the company's current revenue stream from its royalty portfolio, or potential sales from its promising pipeline. The exciting per share earnings numbers are based on teduglutide sales alone and assumes the current number of shares outstanding (94.14 million) remains constant. The 30% profit margin is simply a conservative industry average.
The US Launch of Gattex
On the day of the latest NPS earnings call, August 2, the company had recorded 318 Gattex prescriptions, up from 160 announced during the Q1 2013 call in May. Over the same time frame the number of patients on therapy jumped to 141 from 42. According to Pauwels, about one-third of Gattex patients are coming from the handful of specialty infusion service providers that NPS already has a strong relationship with. The other two-thirds are patients that NPS didn't know existed prior to the launch.
As of August 2, 2013, more than 450 healthcare providers have signed off on the FDA required Risk Evaluation and Mitigation Strategy, and are capable of prescribing Gattex. As is typical of new therapies, most of them are testing Gattex with just one or two of their patients, before prescribing more. For this reason, you can expect prescriptions to pop near the end of 2013.
Company guidance concerning patient compliance, seems overly conservative. Pre-launch, the company issued compliance guidance of between 70% and 80%. At the time of the latest call, compliance was a stunning 95%. The less than 5% that have dropped out cited side effects contained in the label. My explanation for higher than expected compliance is that personal care coordinators are allowed more direct contact with patients than they were during clinical trials.
Whatever the case, patients are staying on therapy and prescriptions are being refilled. Most prescriptions last between six and 12 months. According to CFO, Luke Beshar, as of August 2, 2013, approximately 90 patients had ordered refills.
As I expected, reimbursement rates have been positive, and shouldn't present any roadblocks. According to Pauwels, "All key national and several regional health plans, along with the major pharmacy benefit managers and government plans have approved Gattex prescriptions." Insurers don't need to consult their actuaries to see that Gattex lowers PN treatments. It should also greatly reduce expensive treatment of complications that arise from lifelong PN.
The rates at which patients become independent of, or reduce dependance on PN are not fully understood at this time, but that is about to change. Since this metric will significantly impact reimbursement rates, the company is beginning a voluntary registry. Each Gattex patient meets regularly with a personal care coordinator that monitors their therapy. The coordinators' service to the company will include maintaining that registry. You better believe that I'll be keeping my eyes peeled for results, and sharing my thoughts about them here as soon as they're made available.
Ex-US launch of Revestive
NPS intends to begin its commercial launch of Revestive (teduglutide) in selected European countries during the first half of 2014. Outside of the EU, the company expects to generate named-patient sales in Turkey, Canada and Brazil later this year.
Compared to the US launch, it will take much longer to penetrate the Ex-US countries that NPS has targeted for Revestive sales. The prize however, is well worth the wait. NPS performed an "extensive market assessment" for Revestive. Given the results of the assessment and its experience during the US launch of Gattex, NPS estimates that there are between 6,000 and 12,000 SBS patients eligible for Revestive in the 30 Ex-US countries the company has targeted.
NPS hasn't been forthcoming about its pricing plans in Ex-US countries. The 30 countries selected for the Ex-US commercial strategy were chosen for their overall potential profitability. Pauwels has stated that NPS intends to "maintain an international pricing corridor within a narrow band that includes the US price." Japan in particular represents a fantastic opportunity with pricing premiums to the US, and 10 years of orphan exclusivity.
When pressed by analysts, Beshar confided that if the company encounters challenges obtaining price, NPS will withdraw those countries from its launch strategy.
Conclusion
Unlike most conditions, SBS is easily diagnosed. Patients either have shortened intestines or they don't. Reimbursement has so far been relatively straightforward in the US. The extensive data from the ongoing voluntary registry in the US should effectively prove to insurers and government payers that Revestive is cost effective.
Ex-US pricing and reimbursement issues will certainly vary from country to country. NPS only needs to reach half of the estimated patients in the targeted countries for the above projection to play out as expected.
In the table presented above, projections over the next couple years are a bit hard to swallow. Peak sales of 3.25 billion in 2020 also seem too good to be true. However, I am confident that combined annual Gattex and Revestive sales will pass the $2 billion mark within five years.
Unlike many authors, I greatly appreciate opposing viewpoints. If you feel the teduglutide projections I've made are flawed, incomplete, please explain via comments or private message.
Disclosure: I am long NPSP. 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. (More...)
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