Initiating with Buy Rating, $43 Target Price
VTS-270 for Ultra-Rare Niemann-Pick Disease
Repositions SCMP for Even More Upside
We are initiating coverage of Sucampo (SCMP) with a Buy rating and a $43
target price. Our analysis suggests SCMP has been fundamentally mismodeled
and misunderstood by the Street with respect to the near-term Phase
3 readout for VTS-270 in Niemann-Pick Disease Type C1 (NPC1). We believe
that SCMP’s current valuation primarily reflects cash flows derived from the
company’s marketed drug, Amitiza, neglecting potentially newer pipeline
orphan and oncology products that could double revenues to $500mn by 2020
and $1bn by 2023 by our estimates. We anticipate re-rating of the stock in the
next 12 months as valuation shifts from an Amitiza DCF focus to multiples on
potential peak sales of VTS-270, an ultra-orphan and high-margin NPC1 drug,
and CPP-1x/Sulindac, a potentially preventative therapy for colorectal cancer.
• VTS-270 Potentially the First Approved Treatment for NPC1 in the
U.S.: Phase 2/3 Data Mid-2018, Approval 2019. We believe that SCMP’s
current valuation fails to ascribe sufficient value to VTS-270 for NPC1,
which we estimate at $29/sh, despite the low clinical, regulatory, and
commercial risks. A similar dynamic of underappreciation was applied to
Spinraza (BIIB) and Exondys-51 (SRPT), two comparable orphan-disease
drugs with difficult-to-interpret data and high unmet need that were
ultimately rapidly approved and launched. We estimate VTS-270 peak sales
at more than $670mn.
• Prior VTS-270 Studies Support Efficacy Across Multiple Endpoints,
Portending Pivotal Trial Success. We believe the debate on VTS-270
fails to account for the drug’s Cmax-driven activity and recently discovered
MOA. Further, the drug could reap benefits from increased regulatory
flexibility should Phase 3 data highlight trends vs. stat sig efficacy.
• CPP-1X/Sulindac Combo for Familial Adenomatous Polyposis (FAP), a
Genetically Driven Disease That Develops into Colon Cancer if
Untreated. SCMP acquired the sole option for an exclusive license to
commercialize CPP-1x/Sulindac in North America, under a 50% net profit
split. We conservatively estimate that FAP represents a $300mn market
opportunity in the U.S. alone.
• Legacy Amitiza Provides Valuation Support. SCMP’s shift to innovation
from Amitiza may not match current shareholders’ appetite for risk/reward
vs. consistent Amitiza revenue streams. However, ex-U.S. growth and label
expansion into the pediatric constipation market may support moderate
single-digit growth of this mature asset despite increasingly competitive
constipation markets. We estimate Amitiza is worth $11/sh.