Lightlake Therapeutics LLTP may be one of the most compelling investment ideas among small biotech companies, as it has traded completely under-the-radar while (1) inking a validating $55 Million partnership for its flagship intranasal naloxone product-candidate; (2) completing non-dilutive financing rounds at an implied valuation ~3X recent market prices; (3) and progressing its pipeline towards commercialization in numerous unmet multi-billion dollar markets.
Reformulations of existing drugs is an incredibly exciting and important area of drug development. Take for instance Afrezza, MannKind's MNKD rapid-acting inhalable insulin, which offers an alternative to subcutaneous injections. The market for insulin is so vast that investors currently value MannKind at upwards of $2.6B, implying that at least some diabetics will opt for an alternative to the needle.
Impax IPXL gained upwards of $500M in valuation after announcing in January that the FDA approved their ‘Rytary' drug for Parkinson's disease1. Rytary is a longer-acting version of existing drugs commonly used to treat Parkinson's.
Like diabetes and Parkinson's disease, opioid drug overdoses are sharply on the rise (shown below).
Source: Lightlake/CDC
Injection-Naloxone Limited in Effectiveness as a Rescue Therapy
The most effective therapy known to rapidly reverse opioid overdose is naloxone. However, its availability as an injection requires administration by a trained medical professional. Often, by the time medical help arrives at the scene of an opioid overdose, a patient succumbs to death.
Lightlake has developed an oral formulation of naloxone that is delivered through a nasal spray and can presumably be immediately administered by a caretaker or bystander in the event of an opioid overdose. The FDA has taken a stance of fast-tracking approval of bioequivalent drugs for opioid overdose2, notably naloxone. This creates an attractive and relatively quick pathway to commercialization under 505(b)2.
The FDA's approval of Evzio3, an auto-injected naloxone, in April 2014 suggests Lightlake's intranasal naloxone will need to undergo one study (n=~30) that compares the Company's oral version to injected naloxone to receive regulatory approval. Because the therapy is intended for acute opioid overdose, the study would be expected to read-out quickly. The study would need to show that Lightlake's nasal spray has the same effect as [naloxone] administered by syringe.
Kaleo, the maker of Evzio, raising $150M in debt to support marketing of their product validates the opportunity for Lightlake's intranasal naloxone and further suggests the market may be greatly undervaluing [Lightlake's] shares.
Experienced Pharma Execs Agree to Pay $55M + Royalties to Develop and Launch Lightlake's Intranasal Naloxone in the U.S.
On December 16, 2014 Lightlake announced it had out-licensed its intranasal naloxone to Adapt Pharma for $55M and tiered royalties5. While details of the deal are not yet disclosed, we suspect Lightlake will be entitled to a milestone payment upon completion of the pivotal study (expected shortly, see note below) and/or filing of the NDA for intranasal naloxone and upon receipt of FDA approval. For a company with a market cap of ~$6M and a pathway to commercial revenues potentially in 2016, investors have completely discounted a hugely validating partnership and de-risking event for the Company.
Lightlake's licensee, Adapt Pharma, was founded by Seamus Mulligan, David Brabazon and Eunan Maguire, who served as senior executives at Elan (acquired by Perrigo for $8.6B in 2013) and founders and top executives at Azur Pharma (merged with Jazz Pharmaceuticals JAZZ6 in a deal then worth $500M; now worth upwards of $2B). Adapt Pharma raised $95 Million to focus on in-licensing innovative products that it could then commercialize in the U.S., eg. intranasal naloxone
Adapt Pharma Licensing Deal Implies Lightlake Trading at Less Than ¼ Fair Value
The market for opioid overdose is estimated at several billion, as evidenced by Reckitt's $1B+ in suboxone sales for several consecutive years7. Under the assumption that Adapt Pharma could capture $100M in peak sales with Lightlake's intranasal naloxone, the accretion would be no less than $10M to Lightlake's shareholders. Using a conservative 10x multiple, Lightlake would be worth $16+ per share on a fully diluted basis before factoring in cash on the balance sheet and valuing the remaining pipeline. This implies upside of more than 4X current market prices.
Pivotal Study Results Expected Shortly
The results of Lightlake's pivotal intranasal naloxone study, required to support a new drug application (NDA) and FDA approval, are expected shortly. On December 4 2014, Lightlake initiated this pivotal study in collaboration with the National Institute on Drug Abuse at the NIH4. The Company's pilot study in 2013, also in partnership with the NIH, took roughly 9 weeks to complete. If results are in-line with data from the pilot study that demonstrated, "Lightlake's naloxone nasal spray […] delivered into the blood stream at least as quickly as the injection process"8 the Company would be expected to file an NDA in 1H 2015 and potentially receive FDA approval by Q1 2016.
Lightlake is also expected to update investors on the development pathway for naloxone in treating binge eating disorder, bulimia, amphetamin/cocaine addiction. The Company previously reported compelling results in a phase 2 study that showed a statistically significant (p = <0.001) reduction in time spent binge eating, and as a consequence a reduction of the body mass index (BMI) of obese patients in the active arm. Binge eating disorder alone could constitute a multi-billion market opportunity and possibly attract yet another partner to de-risk the development and take it upon themselves to commercialize Lightlake's invention.
Importantly, our estimate of peak sales of intranasal naloxone could prove very conservative because history is littered with examples of drugs that were reformulated into more convenient and accessible forms, from subcutaneous injections to oral tablets, etc., that went on to sell 10 times what the predecessor formulation did. Examples of this include: Imitrex and other oral trepan-class drugs; Androgel, Aqtic, and so on. This means our thesis that Lightlake (LLTP) shares have 400%+ upside from current prices could prove to be conservative itself.
References
3. http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm391465.htm
5. http://www.sec.gov/Archives/edgar/data/1385508/000114420414074133/v396610_ex99-1.htm
7. http://www.rb.com/documentdownload.axd?documentresourceid=66591
About One Equity Research
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Legal Disclaimer: This research note has been prepared by One Equity Research, LLC on behalf of Lightlake Therapeutics Inc, as part of research coverage services. One Equity Research expects to be compensated up to twenty thousand dollars per month and up to fifty thousand restricted shares of the company for ongoing research coverage and advisory services. This research note is not an offer or solicitation to buy or sell the securities of Lightlake Therapeutics. The report is for information purposes only, and is not intended to (and is provided explicitly on the condition that it not) be used as the sole basis to make any investment decision. Investors should make their own determinations whether an investment in any particular security is consistent with their investment objectives, risk tolerance, and financial situation.
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