The San Diego based drug company, Adamas Pharmaceuticals, popped last week after Kerrisdale Capital Management announced they were long. I spent some time digging around to see if the claims Kerrisdale made were realistic and actually give ADMS a value of $100/share.
Gocovri for Dyskinesia in Parkinson Disease
Parkinson Disease (PD) affects about 7-10 million people worldwide. Among these patients, ~80% of them suffer from dyskinesia associated with L-Dopa treatment (the gold-standard for PD). Gocovri was recently approved is a treatment for dyskinesia associated with L-dopa in PD patients. Adamas has exclusivity to sell this medicine in the USA to the 150,000-200,000 patients that suffer from L-Dopa-related dyskinesia.
Gocovri is an extended-release formulation of amantadine, which previously showed mixed results in helping with L-dopa-related dyskinesia. The formulation of Gocovri seems to outperform immediate-release (IR) amantadine, and shows a significant effect in PD patients (Fig. 1. Pahwa, R. et al. 2017). They also showed a reduction in OFF-time (L-dopa wearing off symptoms), an indication many companies are developing drugs for (Acorda, Kyowa Kirin). This combo makes it an attractive drug for PD patients on L-Dopa.
Figure 1. ADS-5102 significantly reduces UDyRS total score at 12 and 24 weeks of treatment in PD patients.
The USA PD market in the area of $3 billion (Huynh, T. 2011) and Gocovri is being priced at $28,500/year. If ADMS is only able to reach 25% of PD patients with L-Dopa-induced dyskinesia, Gocovri will generate ~$1 billion. The company suggests that 54% of this market is attainable (Adamas Investor Presentation, Sept 28, 2017). Currently, a lot of patients seem to think that dyskinesia from L-Dopa is actually related to progression of PD so ADMS will need to push patient education. Also, doctors currently manage dyskinesia by adding other drugs that allow a lower dose of L-Dopa to be used, hence less L-Dopa-induced dyskinesia. ADMS will need to convince doctors that Gocovri is a better option, which it may be for many patients, despite its high cost. To alleviate this cost burden for patients, getting Gocovri covered by private and public health insurance plans will be essential. We will learn more about this as we get through 2018, and it will determine how much market penetration Gocovri will get.
The model Kerrisdale has put together here is reasonable and if ADMS is able to get insurers on board, they should be able to make Gocovri a blockbuster drug by the end of its patent protection.
Gocovri for walking in MS
ADMS is also studying Gocovri for its ability to improve walking in MS patients. The current top drug on the market for this is Ampyra (by Acorda), which has generated ~$500 million in 2016. Acorda is losing patent protection for Ampyra in 2018, so many generics will be available soon. ADMS is now at Phase III for this Gocovri indication, since they saw a 16% improvement compared to placebo in their Phase II trial.
Ampyra improves walking speed in MS by 25% in so-called ‘responders’ with 2/3 patients having minimal response to treatment. Overall, all Ampyra subjects show more improvement than placebo, with the responders having a substantial improvement.
Kerrisdale argues that Gocovri will surpass $500 million in sales by 2023 if approved by the FDA. It took Acorda ~7 years to reach this revenue with their drug (and only 12% market share), so it’s possible. I would argue that most patients will stick to an Ampyra generic unless they are in that non-responder pool. This leaves about 8% market share for Adamas, which I estimate to be around $300 million (in a ~$4 billion US market for MS) if all goes well.
Overall, I agree with Kerrisdale that ADMS has a lot of upside potential but $100/share is ambitious. Gocovri will make this company a lot of money with its indication for L-Dopa-induced dyskinesia. There is more uncertainty related to its indication for MS, and I don’t see as much potential in that market as Kerrisdale. The market may be underpricing ADMS, but I think that’s largely due to the skepticism of their go-to market strategy. They will absolutely need to get some insurers to cover it, and if not, they will not get the market penetration Kerrisdale is hoping for. Gocovri works, but given that IR-amantadine is a generic, patients will be hard-pressed to switch, unless they see substantial results. Within a year or so, we will see how their sales strategy is working, and given that, I’ve opened a long position, because I do see a lot of upside.
Huynh, T. The Parkinson’s disease market. Nature Reviews. Drug Discovery. 2011
Hunter, SF, Cohen, JA, Gudesblatt, M, Thrower, BW, Brown TR, Souza-Prien, C, Chernoff, D, Patni, R. ADS-5102 (amantadine) Extended Release Capsules in Multiple Sclerosis Patients with Walking Impairment: A Phase 2 Proof of Concept Study. Annual Meeting of the Consortium of MS Centers. 2017
Blight, AR. Treatment of walking impairment in multiple sclerosis with dalfampridine. Ther Adv Neurol Disord. 2011
Pahwa, R, Tanner, CM, Hauser, RA, Isaacson, SH, Nausieda, PA, Truong, DD, Agarwal, P, Hull, KL, Lyons, KE, Johnson, R, Stempien, MJ. ADS-5102 (Amantadine) Extended-Release Capsules for Levodopa-Induced Dyskinesia in Parkinson Disease (EASE LID Study): A Randomized Clinical Trial. JAMA Neurol. 2017