One of the strongest performing biopharmaceutical stocks this year is Evolus (EOLS). When the FDA on February 1 approved the company’s lead product Jeuveau, a potential Botox competitor, the stock shot up to about $25 per share. Since then its shares have held stable, even touching $30 per share.
SanaCurrents, which tracks market-moving catalysts of biopharmaceutical and medical technology stocks, began following Evolus last year, and eventually released its sentiment report in January 2019 when the company was trading at around $15.50, prior to the anticipated FDA Approval For DWP-450, branded Jeuveau.
Evolus originally had a Jeuveau PDUFA date in May 2018 and established a manufacturing facility in 2017 to produce the drug in Korea.
Though approval appeared likely last year, the company cautioned in January 2018 it had received 10 critical observations from FDA inspectors on the Korea facility. The caution proved on point as the FDA issued a complete response letter (“CRL”) on May 15, 2018, largely related to the manufacturing of Jeuveau.
Evolus shares fell 27% on the news but the company proved adept at managing the anticipated setback by bringing in David Moatazedi as CEO just before the CRL. The new CEO appointment sent Evolus shares 18% higher on May 10, mitigating the effect of the CRL. Investors viewed Moatazedi, a former SVP of US Medical Aesthetics at Allergan (AGN), as the perfect industry executive to market Jeuveau once approval was obtained, which Evolus accomplished when the FDA signed off last month.
This illustrates an approach that SanaCurrents takes when it comes to finding opportunity where others may not be looking. It’s not uncommon for the FDA to delay swift, favorable decisions. When the administration issues comments and letters, the market can overreact. At that point, it is imperative to examine the likelihood of quick or eventual resolution of the issues defined. It requires experience, combined with proprietary analytics, to quickly identify past patterns that lead to positive outcomes in the face of adversity.
It’s also a good idea to closely read how management teams cope with and explain to the public how they intend to rectify FDA concerns and action items. What are their track records? Do they have the experience commensurate with the ability to follow through with the company’s needs and goals?
In the case of EOLS, investors obviously thought this to be the case, as evidenced by the stock’s reaction over the mid to long term. SanaCurrents’ sentiment mirrored this, and was in large part of the reason why it published its report.
Because of Moatazedi’s appointment, Evolus’ shares have continued to rise based on the expectation the company, and Moatazedi’s team, will capture a portion of Allergan’s massive Botox franchise by competing on price.
In contrast to Jeuveau’s position as a respectable market competitor to Botox, Urovant Sciences (UROV) last week reported results of its phase III trial of Vibegron in adults with symptoms of overactive bladder. Urovant declared Vibegron met both co-primary endpoints, demonstrating a highly significant reduction in daily urge urinary incontinence episodes, and the drug also met all key secondary endpoints.
Such news on a catalyst typically drives a stock like Urovant much higher, like the Evolus jump in February. Yet Urovant shares plunged by 21% at the close of trading on March 19. Why the opposite reaction? Evolus strengthened its product via a longer, more thorough path.
Assembling Broad Portfolios
Urovant is one of a family of companies within Roivant Sciences, with nearly all the companies ending in “vant,’ such as Axovant, Dermavant and Metavant. Roivant boasts its diverse portfolio includes more than 35 investigational drugs in 14 therapeutic areas. For example, Metavant focuses on diabetes drugs (a metabolic disease) while Urovant targets urologic conditions, such as overactive bladder.
In assembling the broad portfolio of “vants,” Roivant founder Vivek Ramaswamy sought to advance drugs that largely had been abandoned or put on the back burner by Big Pharma companies. Urovant’s Vibegron was purchased for $25 million from Merck & Co. (MRK). Like Evolus’ Jeuveau, Urovant aims to position Vibegron, a once-daily, oral beta-three adrenergic agonist, against a blockbuster treatment for overactive bladder, Astellas’ (ALPMY) Myrbetiq (mirabegeron). Myrbetiq, with more than $1 billion in sales, also is beta-three adrenergic agonist.
Yet despite the impressive headline results for Vibegron in its phase III trial, investors reacted negatively because the prospects appear slim that Vibegron will have a short path to approval. Many also doubt Urovant can bring the drug to the market.
Primarily, investors expressed skepticism regarding how well Vibegron stacked up against Tolterodine, a generic drug that was used in a comparator arm. Vibegron appeared to have a slight edge in efficacy compared to Tolterodine but not necessarily enough to convince payers to support an expensive alternative. Nor was the efficacy that competitive with Myrbetiq.
Even if Urovant can establish a distinct clinical edge in future trials, it will face the challenge of going head to head against Myrbetiq, an unenviable prospect, given Urovant, nor the broad Roivant portfolio, is built for a commercial rollout. Or Urovant will need to find a big partner willing to take on a blockbuster. The headline results for Vibegron in phase III indicate both tasks will be difficult.
A Long Road to a Verified Target
Evolus likewise is part of a group of companies, as it was created within the Strathspey Crown private equity portfolio. Strathspey Crown claims to own a group of transformational businesses within the complex sectors of healthcare, energy and business. Concierge Key Health, for example, provides custom health care services to patients, not biopharmaceuticals.
Strathspey Crown CEO Robert Grant, however, worked at several aesthetics medical companies prior to starting the private equity firm, including Allergan. At Allergan, Grant directed the Botox Cosmetic, Juvederm and Natrelle breast implants brands. Evolus, an early company of Strathspey Crown, was a natural extension of Grant’s career.
Accordingly, Evolus and Strathspey Crown worked to obtain the patents, run the clinical trials, and develop a viable compound the FDA would accept. Evolus went public in February 2018, just as it was ready to submit Jeuveau to the FDA, thereby absorbing the development costs internally and using public capital for the commercial launch.
Significantly, Grant plotted the course for a new drug that could capture a percentage of the market where the patients pay, not the insurers. Evolus and Jeuveau endured trial setbacks, the manufacturing problems in Korea, and other regulatory hurdles but the foundation to launch Jeuveau always was in place: The demand for a US competitor to Botox, which owns 70% of the global market for aesthetic neurotoxins, was long overdue.
The two most prominent competitors to Botox in global sales – Galderma/Ipsen’s Dysport and Merz’s Xeomin – own 10% market share each, primarily in Europe. Jeuveau, which was approved only for the aesthetics market, could be introduced at a 20-25% discount to Botox in the US. Moreover, in contrast to the phase III results of Urovant’s Vibegron, Jeuveau demonstrated an 87.2% response rate improvement in patients compared to only an 82.8% response rate by Botox.
Botox will not see its demand hindered because of the slight edge in performance by Jeuveau, but Jeuveau will appeal to plastic surgeons more interested in cost savings and volume. Jeuveau also will attract patients because of its lower cost.
Such factors explain the stability of Evolus shares over the past two months. We believe Evolus will be valued in the future on sales growth of Jeuveau as the management team tries to capture a percentage of the $1.2 billion US market. In that effort, Evolus will have more ability to promote its product directly to consumers because Jeuveau will not be prescribed as a therapeutic.
- See SanaCurrents’ January 2019 sentiment report discussing the likelihood that EOLS’ lead candidate DWP-450 would receive FDA approval to treat glabellar lines in adult patients under 65 years of age
In contrast, Urovant’s drug is completely dependent on the therapeutic market and must demonstrate its value to key research scientists, practitioners and payers, as well as convincing investors. With reimbursement dollars steadily shrinking in the therapeutic market, impressive phase III results alone may not be enough to move a drug and a stock forward.
SanaCurrents was founded to identify, for investment, the most vital medical treatments in development. The company applies proprietary analytics to evaluate the catalysts of those treatments within biopharmaceutical and medical technology stocks. Sana means, “to heal or cure now” in Latin.
SanaCurrents’ sentiment reports are based on:
- Identifying the binary catalysts that will make or break a stock
- Finding the management that is committed to advancing a drug to approval – which usually leads to a significant increase in stock value – instead of management that has been capitalized to fund exploratory research
- Determining the support of key opinion leaders for a specific drug or device
- Integrating prior FDA decisions regarding the company and previous treatments