Unlocking Value in Respiratory Disease Treatment
A Promising Biopharmaceutical Company
Verona Pharma, a clinical-stage biopharmaceutical company, is dedicated to developing and commercializing therapies for respiratory diseases with unmet medical needs. Their product candidate, ensifentrine, is an inhaled dual inhibitor of the phosphodiesterase (PDE) 3 and PDE4 enzymes, acting as both a bronchodilator and an anti-inflammatory agent in a single compound. This medication is currently in Phase 3 clinical trials for the treatment of chronic obstructive pulmonary disease (COPD), asthma, and cystic fibrosis.
A Game-Changer in COPD Treatment
Ensifentrine, commercially known as Ohtuvayre, has recently been approved by the FDA for the maintenance treatment of COPD. With the commercial launch scheduled for the third quarter of 2024, the stock has seen a significant surge. However, activist investor Caligan Partners believes there is still substantial value to be unlocked. COPD, a humanitarian crisis affecting over 380 million patients globally, presents a massive opportunity for Verona’s innovative therapy.
Filling the Gap in COPD Treatment
The current market gap in COPD treatment is substantial, with over 8.6 million U.S. patients remaining symptomatic despite treatment from existing commercial therapies. Verona’s strong Phase III data, showcasing a significant increase in lung function and a reduction in exacerbations with minimal side effects, suggests the company could achieve a 20% patient share for Ohtuvayre. This could translate into $4.5 billion of revenue for the company.
Potential Indication Expansion
Moreover, Ohtuvayre may have potential indication expansion for non-cystic fibrosis bronchiectasis (NCFB), a progressive inflammatory disease with no current approved therapies. With a patient population of over 1 million, this could be a significant avenue for expansion for Ohtuvayre. Caligan Partners notes that Verona’s competitor, Insmed, saw its valuation skyrocket to over $7 billion after announcing mediocre success in Phase III testing for its NCFB treatment.
Activist Investor Caligan Partners
Caligan Partners, founded by former Carlyle Group managing director David Johnson, is an activist investor focused on unlocking value in small and midcap life sciences companies. The firm takes a concentrated portfolio approach, looking for companies with differentiated intellectual property and durable assets that have underperformed their peers. Caligan Partners is not afraid to take board seats or engage in proxy fights when necessary to drive value creation.
A Compelling Investment Opportunity
With Verona Pharma’s stock trading at $38.58 per share, Caligan Partners believes the company has significant upside potential. If Verona can achieve a 10% patient share for COPD and $4.5 billion of peak revenue, the stock is trading at one half of peak revenue. Mergers and acquisitions for similar companies are typically done at 3-4 times peak revenue, which would give Verona a price of $115 per share. If Ohtuvayre continues to move through trials for NCFB and gains traction with patients, Caligan Partners estimates the company could be worth 7 times its current valuation, or $218 per share.
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