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FOMX UPDATE 7 FEB 2020

Shareholders recently approved the merger of FOMX and MNLO. One uncertainty off the table. The parties expect to complete the merger in early March 2020. That's sooner than I thought. Phase 3 data for Menlo will determine the terms of the ownership %.

Foamix released excellent new Phase 3 data on for FMX103. Both studies demonstrated high statistically significant superiority of FMX103 compared with vehicle in both primary endpoints...

I don't mind following Stevie Cohen's path - he's probably THE hottest hedge fund manager in history of investing - he took a significant position on MNLO -- which is an endorsement of FOMX as well. He chose MNLO probably because he's sure about the data (and he hardly goes wrong) (I'm not sure about the data but as stated before think they have a very good chance of two sets of good data that's due out soon).

So assuming his sources tell him MNLO has a very good chance of good data, he chose the more aggressive option (MNLO) vs. the most conservative option (FOMX) which is also a play on MNLO.

Aside from macro risks and bad trial data (I expect good trial data), the only potential thing that stands on the way of FOMX is weak sales figures. Since I don't have access to weekly numbers (Simon, Bob, you're both pros. Can you get Symphony/IMS data on Amzeeq please?) I have to go by what I know:

- Similar launches were successful

- I trust the CEO

- They're doing what past successful launches I knew did (though I was not always invested in them) - e.g. speaker series.

- But this is a risk. Dr. Joe compared recently dermatologists vs. obesity docs, and concluded he views a bad launch as low probability.


FOMX UPDATE 28 JAN 2020

  • Management attended JPMorgan Healthcare conference and had full days of one-on-ones with institutional investors. Demand for meeting Foamix management was high and they had a very busy schedule.
  • Lifesci doesn't have access to prescription data and thinks it's too early for any meaningful numbers. 
  • Good new article: An Update on the Use of Minocycline for the Treatment of Acne -- by Dr. Joshua Zeichner, MD, Director of Cosmetic & Clinical Research and an assistant professor of Dermatology at the Mount Sinai Hospital in New York City
  • On 27 Jan when the markets had a meltdown due to Coronavirus, FOMX stayed strong.  The stock seems to have a strong support level at 4.10, and is consolidating for a bounce back to 4.70 area, in my humble opinion. Right now I smell a bunch of weak, momo player shorts on top of the stock. The same gang who rude it up to 4.70.  But with continued progress, as risks of merger are reduced, good new clinical data and good prescription numbers, I anticipate FOMX will get close to analyst average target of $13.60.

FOMX UPDATE 27 JAN 2020

  • Amzeeq is launched.
  • Management is absolutely doing the right thing to organize speaker series to promote Amzeeq to doctors. Companies that have done this have gotten good results.
  • Menlo (MNLO) is expected to realse Phase 2 data any day (due end of Jan 2020).
  • Stevie Cohen, the legendary hedge fund manager bought a big chunck of MNLO for his family portfolio. He does his research. I view this as a very positive endorsement of not just MNLO but also FOMX.

FOMX UPDATE 22 DEC 2019- FOAMIX RALLY / NEW FILINGS

FOMX has rallied 18% in the last 5 trading days. I believe there are several reasons for this rally:

FOMX UPDATE 22 DEC 2019- FOAMIX RALLY / NEW FILINGS

FOMX has rallied 18% in the last 5 trading days. I believe there are several reasons for this rally:

1) It was simply oversold. Some investors on my mailing list say they were looking for it to bottom, and they bought.

2) Company has issued new updates, which is exactly what I suggested to them: To help investors understand better what happens to their shares upon the merger. I had also suggested to shorted the timeline since months of uncertainty is not good for the stock. Their latest filing states an assumed closing date of 9 March 2019. That's in less than 2.5 months. 

3) We have reports that in the last few days, large blocks were moved from Margin (Type2) to Cash (Type1) account, and this can pressure shorts to have to return borrowed shares, which means being forced to cover or locate it elsewhere to borrow.

4) Company announce a shareholder meeting to vote on the merger, on 6 Feb 2020. If any of you are going please let me know (send me a message via the contact page.

5) MNLO has also been rallying. It's up around 16% in the last 5 trading days.

PREDICTIONS

I expect MNLO phase 2 data at end of January will be positive; FOMX launch will be positive; Good prescription data given the huge, ready, underserved market; MNLO phase 3 at end of March will be positive; FOMX will get another FDA approval in June.

I expect FOMX stock to be over $10 in 2Q2020 which is still below average analyst target.

ARTICLE: 12 DEC 2019

Evaluation Of Foamix Pharmaceuticals & Menlo Therapeutics' Merger

Summary

The merger of Menlo Therapeutics and Foamix Pharmaceuticals is an excellent deal for both companies.

On 11 November 2019 Foamix Pharmaceuticals (FOMX) and Menlo Therapeutics (MNLO) announced a proposed merger. Both companies' stock have suffered since then, which gives the cursory impression that the merger was a bad deal. But in reality it is an excellent deal for both companies, as outlined below. 

Background

As a brief background, Foamix has one approved product, Amzeeq, for treatment of moderate to severe acne. Their other pipeline assets include an outstanding NDA with PDUFA date of 2 June 2020 for rosacea.

Menlo's pipeline includes Serlopitant with stellar Phase 2 data, with two Phase 3 datasets due for readout in March/April 2020 for Prurigo Nodularis (PN), a skin disease for which there is existing no approved medication. PN occurs along with chronic pruritus and presents with symmetrically distributed intensively itchy papules, nodules and/or plaques.

Together, the two companies have six (6) pipeline assets with tremendous revenue potential. 

Low Regulatory Risk

Foamix is getting ready to launch Amzeeq in January 2020. Amzeeq is targeting a ready market with a good track record of accepting innovation. Foamix's regulatory risk is low. Amzeeq's approval indicates Foamix's topical minocycline will likely be approved for rosacea, for which there is no other approved medication. 

Menlo obtained Breakthrough Designation from FDA which is very significant and means

  • FDA considers PN to be a serious disease. 
  • Menlo has access to senior FDA officials, and gets to have more frequent meetings with FDA (since FDA is eager to approved a Breakthrough drug on fast-track). One meeting has already been held with FDA's Dermatology Division Chief. This meeting allowed Menlo to fine-tune their design NDA. 
  • FDA has granted Priority Review.
  • FDA likes the Phase 2 data and thinks the efficacy is strong enough for approval.
  • Clearly an advance over existing therapies.  

Therefore, I believe the regulatory risk for Menlo is low. 

Synergies

The joined company will have a combined cash position of $169 million ($76 million Foamix, $93 million Menlo) on their balance sheet, which is expected to be sufficient to carry the company through H1 2021. 

Cost synergies will allow the company to save $50 million in 2021 onwards. This has been communicated to the public multiple times by management of both companies. Details have not yet been provided. We will probably get more details in the upcoming S-4 filing (expected this month).

All we know on this topic currently is the formal statement:

Combined company savings projected to be >$50 million a year beginning 2021 through elimination of duplicate functions & infrastructure.

Menlo's CEO recently stated:

The synergy savings here is better than $50 million a year. Rather than building duplicate commercial organization, duplicate infrastructure, duplicate public company G&As, put the companies together and by saving $50 million plus in operating costs, at the time the company gets to profitability that all drops straight to bottom line! 

Foamix is building a commercial infrastructure with 51 sales reps currently in training. The same infrastructure can be used for launching Menlo's products in the same physician target base. This is a huge benefit, as setting up a sales organization is very costly. Foamix's management have a lot of experience in getting drugs approved and launched. Their expertise will be applied to Menlo's products as well. 

Governance

The new combined company will be Delaware based, with headquarters in  New Jersey. Menlo's staff will be mostly laid-off. The board will consist of seven (7) members, five (5) from Foamix, and two (2) from Menlo, including the CEOs of both companies. Foamix's CEO and management will run the new company.

The combined management team are the best of dermatology management as they have been involved in numerous top name dermatology launches. The new combined company will be a world-class company, large enough to enjoy economies of scale (e.g. in access to capital markets), with a thriving pipeline of lucrative products. 

Financial Deal

The deal is essentially a stock-for-stock transaction. 

Each holder of Foamix shares will receive Menlo shares based on the results of the two Phase 3 trials of Serlopitant in PN. 0.5924 Menlo shares per Foamix share if both trials are successful (59% ownership)

In the event of partial success or failure, the transaction structure will be amended to reflect different ownership levels (depending on timing of results and closing, the adjustment will either be at closing or in the future through a contingent value right). In the following scenarios, each holder of Foamix shares will receive 1.2739 Menlo shares per Foamix share if one trial fails to meet its primary endpoint (76% ownership), or 1.8006 Menlo shares per Foamix share if both trials fail to meet their primary endpoints (82% ownership).

Shareholder Sentiments

The deal will be set forth for shareholder vote in the near future, after it receives SEC blessing. The transaction is expected to close in Q1/ early Q2 2020. Conversations with the companies indicates several large shareholders of both companies have already given their consent to the deal (I assume with a customary CDA with a lock-up provision), which makes sense given this is a good deal for both companies' shareholders. 

IR indicates that they've had several calls from investors who seek clarity on the deal. Listening to the conference call, one could tell that all analysts were very positive on the deal. However, a lack of understanding and clarity of the complexities of the deal has probably kept some investors on the sidelines. 

SEC Form S-4 is expected to be released in the next couple of weeks. This form should serve in spelling out all the details investors are anticipating.

Valuation

Analysts have a mean price target of $15 on FOMX, and that includes updates in valuations done by some analysts. So at $3.15, FOMX has a lot of potential for share-price growth.  

Different analysts use different valuation methods. One I looked at arrives at a $16 target using a DCF valuation model through 2029 assuming a WACC of 12% and a terminal growth rate of 1%, and FMX101 entering the US acne market in 2020, with 2027 sales of ~$310 million. A 60% probability of success for FMX103 in rosacea is assumed, with a 2027 projected sales of ~$100M.

Both company CEOs have indicated the current stock prices are very undervalued. Analysts tend to agree (based on the price targets). In a recent conference, Menlo's CEO, attributed both stocks' drop after the merger announcement to investor confusion about the deal and time it takes to digest the details of the deal (and see that it is indeed a very good deal).

What many investors are neglecting is that MNLO is currently trading at around cash value, and the new combined company will NOT be valued based on MNLO's value alone although it looks that way on the surface since MNLO shares will survive.

Some investors are using the 59.24% number stated above to get FOMX share price from MNLO. But that is too simplistic and therefore inaccurate because that's the "lowest case" in terms of ownership percentage for FOMX holders and assumes the MNLO trials will succeed. However, given the conservative way Phase 3 trials were designed, and the strength of Phase 2 data, I am confident about strong Phase 3 data readouts, which should boost MNLO's share price toward the analyst target of $17.83.  We also have to consider the "highest case" of 82% as well which is $3.57 right now. So FOMX is trading below the case where it gets all MNLOs cash and MNLO trials fail, and if you take the "lowest% case" then you have to think of what MNLO price will be when its trials succeed and not today's price.

Another twist to this complex and interesting case is that FOMX's value is not static. If Amzeeq is successfully launched and we start seeing good prescription numbers that can significantly boost FOMX value, which will in turn affect MNLO. So it seems the valuations of the companies will be more and more fused as we get closer to the merger completion.

I predict once investors find more clarity, share prices will adjust to fair value which should be a lot higher for both companies. Both are trading in $3-4 range and both have 12 month price target average from a good size group of analysts in $15-18 range.

Summary

For the reasons stated above, I believe this is an excellent deal for both companies. The current stock prices do not at all reflect the promises and opportunities that this deal provides. Both companies' CEOs have indicated their stock is undervalued. I believe FOMX will be much higher by the time it launches Amzeeq, and every sign indicates that prescription numbers will be healthy. Menlo will not be $3.90 when it releases positive data from several of its ongoing trials as early as January 2020 (Phase 2 data), and March/April 2020 (Phase 3 data).

So I view both FOMX and MNLO as attractive buys currently. Buying FOMX is less risky than buying MNLO given it is the stronger of the two companies, and it has approved products. However, MNLO is trading at book value, and provides a sexy risk/reward picture given the strength of the Phase 2 data* and the Breakthrough Designation.

The synergies shorten both companies' path to profitability and fair valuation, which analysts think should be several multiples of the current stock price of each company. 

 The above article is not an investment advice. Do your own research.

ALSO SEE: Great video and don't forget to subscribe.

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UPDATE 23-Nov-2019 (Scroll down for main article)

Notes on FOMX and my talk with the MNLO's CFO. Feel free to share it and subscribe: https://youtu.be/3l0ZnPRWwSQ

UPDATE 14-Nov-2019 (Scroll down for main article)

FOMX is showing good technical resilience and strength. Lot of catalysts on the horizon. I'm bullish on the share price. Their new half, Menlo has phase 2 data, and phase 3 data due first half of next year, and Foamix itself expects another approval in same time frame. Launch is expected January 2020. 

Menlo's latest corporate presentation is here: http://ir.menlotherapeutics.com/static-files/ca8e4b6f-2bb3-420d-929a-24274af2dd8f

Recent investor day (October 29, 2019):

I prefer to buy FOMX shares than MNLO since FOMX is the stronger of the two, but the idea is, their synergies should make the combined company stronger than the sum of parts. If this is proven to be the case, my payback could be handsome. If not (e.g. if MNLO doesn't get approval), downside risk is limited since Foamix shareholders will own 80% of the combined company. I like the risk/reward profile for my portfolio.

UPDATE 11-Nov-2019 (Scroll down for main article)

- Big news out  that Foamix is merging with  Menlo Therapeutics (Nasdaq:MNLO). All analysts were positive about the deal on the conference call. Some analysts congratulated them multiple times.  One also said: "Very thoughtful transaction, I'm very happy for all  of you". Another analyst  had to go to another meeting but he still jumped on the call just to congratulate the company.

There are many synergies to the deal, e.g., sales force, launch infrastructure, etc.  Foamix's CEO whom I very much like will run the new company. I think overall this is a positive move.

- Quick recap of MNLO:

  • 1 year target $17.83
  • Strong institutional support (over 76%)
  • Stong cash position ($93 million)
  • Phase 2 data is strong (achieved both primary (p=0.001) and multiple secondary (p=0.05) endpoints); and favorable safety profile.
  • My highly respected expert friend "Dr. Joe" says the data is pretty good. CEO says they got interested in this deal because of the strength of the data. 

- The combined cash from the companies provides runway through H1 2021.

- Cowen updated their price target on FOMX to $15, and stated they view the deal as positive. That's over 4 times current price. 

- Launch update FOMX:

  • Sales-reps hired
  • Sales kickoff in early January as planned
  • 90% of sales infrastructure in place
  • Last week training of sales-force started
  • Pricing will be announced this month
  • Discussion with payers ongoing
  • CEO is a total relationship guy (great). He's taking a partnership approach with payers.

OVERALL VERDICT: A positive deal, good for both companies' investors. I expect a number of analysts will issue updated research reports, and the institutional demand for FOMX to continue to grow as the stock reaches fair value ($15).

Ref: Menlo Investor Day webcast

UPDATE 28-Oct-2019 (Scroll down for main article)

- A number of analysts cover FOMX. 4 have recently restated their position. Looking at these estimates, esp. given they include research not connected to doing business with the company, and based on my experience, I expect these price  targets will become a reality. This reminds me of past situations where an ultra low price stock (like FOMX) was bought out at above the average analyst estimate which at the time seemed extremely higher than the current price. So I have a hunch, for the  reasons stated in the notes below, that with some patience, FOMX will pay off handsomely for me. You do your own research.

UPDATE 23-Oct-2019 (Scroll down for main article)

- A new survey of Swiss dermatologists indicates a strong inclination to prescribe Amzeeq when it becomes available. Doctors interviewed indicated they would welcome topical minocycline which has a cleaner side-effect profile than the oral. Swissmedic is expected to approve Amzeeq as smoothly as FDA did, given the strong data package.

- It's wonderful that Foamix owns the worldwide rights to Amzeeq. The field is wide open for inking partnerships in rest of the world (ROW), or launching it directly in Europe. I anticipate we will see a series of partnerships announced in various Ex-US regions.

- While the company is focusing on kicking off Amzeeq's launch in the USA, I wouldn't be surprised to hear about regulatory filings with European Medicines Agency (EMA), and Swissmedic fairly soon.

- The stock's drop post-approval is not a cause for concern for me. If anything, it's creating a buying opportunity while I believe certain entities are trying to take out stop-loss orders, and weak hands. I have faith in the management's ability to execute successfully in:

  1. a) A successful launch (which this management team has an excellent track record in)
  2. b) Moving the pipeline forward
  3. c) Inking strategic partnerships ( or negotiating and all out buyout of the company at an attractive premium)
  4. d) Conducting very active relationship management with investor community, by ideally hiring a full-time, dedicated, internal IR champion. I like LifeSci but they're spread way too thin for what Foamix needs at this stage. Experience shows companies with a strong internal IR champion, do better, in marketing themselves as an investment product, and thus, boosting the demand channel which naturally makes the share price go up. This is particularly for companies whose stock is being hurt by abusive short selling (artificial supply).
  5. e) Managing to positively surprise the market. Shorts hate surprises and have shown to be willing to pay a high price for "channel checks" and info that would mitigate surprises. Make the suckers run for cover. Then, artificial supply shrinks and real demand increases (a double-whammy that helps the stock go up).

- News just out: Amzeeq will be manufactured in Switzerland "Swiss quality" by contract manufacturer, ASM. And Foamix is eligible to tap into a $20,000,000 line of credit for commercial launch.

- Amzeeq's new website is up: https://www.amzeeq.com

UPDATE 20-Oct-2019 (Scroll down for main article)

- FOMX got approval on its AMZEEQ (FMX101) (topical minocycline) which should be a lucrative money-maker for the company given what we know about the market size, state, success of similar launches, etc.

. FDA accepted FOMX's application for FMX103 with a June 2020 PDUFA date. I think chances of that approval are very good given it's the same vehicle and medicine as FMX101 but different dosage.

. 50+ sales reps will get job offers shortly. Company launching itself directly to 6000 dermatologists who write the bulk of scrips. Kickoff in January, with Rx numbers rolling in shortly afterwards.

. What all this means to the stock is unknown. I've been buying since I believe it's very undervalued. Average analyst estimate is $15.

. Most physicians would not prescribe an oral medication (with severe side effects) to treat a severe skin condition when that same medication can be applied topically and has equal or better efficacy and far lower side-effects.

. Foamix is a ripe takeover target of a skincare pharma like Nestle/Galderma for example since AMZEEQ is posed to be a money maker. Foamix' proprietary tech could be used for other medicines too.

. What's a fair buyout price? $750m seems fair right now ($12.50/share) with much higher valuation with strong Rx numbers.

. FOMX is a good buy for me after approval since the science is derisked, and for a number of reasons I believe the price is still very favorable to buy post approval (I view anything under $5/share as a very good entry price -- some institutions got in around 6 a while back).

Foamix (NASDAQ: FOMX) Improving patient lives by offering groundbreaking innovations in dermatology

The following is not an investment advice. Do your own research. I'm just sharing my research.

My interest in Foamix Pharmaceuticals (Nasdaq: FOMX) was triggered by a tip from a PhD friend who's a senior principle pharmaceutical consultant. Two PDUFA dates are on the horizon, and the stock seems undervalued in relations to a number of analyst estimates. Here's a summary of my due diligence on FOMX.

It seems most of the hard times is behind for Foamix – years of research and intense capital need has flourished in solid sets of efficacy and safety data, two filed NDAs, and a launch plan that’s destined for success in capturing a ripe, ready market.

Keep in mind Foamix’s solution addresses a need which so far no other company has been able to address: An effective topical minocycline. Why topical? Because oral minocycline has severe dirty systemic side effect profile.

Acne is the most common skin condition in the world.

“The effect that Acne has on quality of life is equal of the effect of asthma on quality of life of an adolescent”. Dr. Christina Kim, Dermotologist, UCLA.

There are many stories about the well-known, nasty side effects of oral minocycline. One instance is documented in this video titled “Minocycline almost killed me”.

Novel Delivery Platform

The company’s Novel Molecule Stabilizing Technology (MST) Delivery foam has several key competitive advantages:

  • Stabilizes hydrophobic molecules
  • Surfactant & irritant free formulation maintains barrier function, improves tolerability and compliance
  • Natural moisturizing formulation
  • Low mechanical sheer enhances spreadability
  • Oil-based excipients instigates sebum dissolution
  • Targets delivery of minocycline directly into the pilosebaceous unit
  • Favorable resistance profile.

The first PDUFA date, scheduled for 20 October 2019, is for FMX101: 4% minocycline foam for treatment of moderate-severe acne.

The second PDUFA is expected in 2020Q2, for FMX103: 1.5% minocycline foam for treatment of moderate-severe rosacea.

The safety and efficacy of both products have been well established via multiple trials. Foamix is going into FDA approval with a solid set of data. I expect both products to be approved hands down by the FDA. I expect international regulatory filings to follow FDA approval and for these products to become the standard of care for mild-severe acne and rosacea.

Commercial Opportunity for FMX101

The commercial opportunity for these products is enormous. Skeptics could argue that generic minocycline is cheap. That’s true. However, Foamix enjoys a number of market differentiating factors, i.e.

  • Vehicle technology (see above list of competitive advantages)
  • Minocycline potency
  • Resistance profile
  • Systemic absorption

The size of the branded acne medication market in 2018 was 5.2 million TRx, $3.4 billion. 

Acne Market Size (according to Symphony Health)

$3.4 billion was spent when a cheaper generic alternative was available, but the branded alternatives are inferior to FMX101’s unique advantages. Therefore, Foamix has a very good chance of capturing a big chunk of that annual $3.4 billion (and growing) market.

Similar launches in the acne market over time have yielded positive first year uptake, averaging ~295k prescriptions. Year three average was ~564k. Again, if the past is any indication of the future, Foamix could fill around 300,000 prescriptions for FMX101 in 2020.

Launch of FMX101 is scheduled for January 2020, upon FDA approval on or before 20 October 2019. The company wants to launch the product itself, which makes sense, given the dermatology market is not a complicated one and reaching key prescribers is streamlined. Foamix has assembled a sizable salesforce (with offers going out right after approval is granted).

Recent acne launch highlights demand for new products. Sarecycline was launched in January 2019, and has had durable growth over time, which signals market need and acceptance of novel antibiotic agents. Its TRx grew from 1193 in Jan 2019 to 26049 in July 2019. This bodes well for Foamix.

The company has not yet announced pricing. It will probably be in the $200-$400 range.

Insurance Coverage

In terms of insurance coverage, since it will take some months to secure coverage, the company may provide synthetic coverage to help patients have minimum out of pocket, in the first months of the launch. However, payers have shown a favorable reaction to the target product profile (TPP) for FMX101. FMX101 is viewed as a novel route of administration and not merely a simple reformulation.

Payers like the lower risk of systemic side effects given the topical formulation and less exposure due to lower dose. Payers have also indicated FMX101 is clearly differentiated from other products that are hard to differentiate and which have price in excess of perceived value.

At the <$400 net price range, FMX101 would have access without highly restrictive PAs or step edits.

Commercial Opportunity for FMX103

The size of the branded rosacea medication market in 2018 was 1.3 million TRx, $759 million. Launches in the rosacea market over time have yielded and average of ~192k prescriptions in the first year. Year three ~312k. More than half of Acne targets will also be Rosacea targets.

Rosacea Market Size (source: Symphony Health Solutions)

The launch of FMX103 will leverage much of the infrastructure used to launch FMX101, reducing the need for additional investments.

Foamix is not just about FMX101 and FMX103. The company is moving forward an interesting pipeline (see details on www.foamix.com)

Analyst Opinion, Valuation

After the recent offering and milestone-based financing that's in place, Foamix is financially strong to take both FMX101 and FMX103 to market. Several analysts covering the stock have price targets averaging $15. Currently the stock is trading at around $3. In August 2019, Bank of America reiterated a price target of $11.

Recently I spoke with an analysts who covers the stock and has a $16 price target. I asked him about his opinion of Perceptive Advisors' engagement with Foamix.  Some investors were wondering if Perceptive would cash the shares they received in low 2's now that the stock is higher, or will they go for the big prize. The analyst said that Perceptive has a very good reputation for long term achievements and is not the kind of company, in his opinion, that would go for a 50% gain. They've been long-term investors in Foamix and I don't see that changing. The analyst added that he's looking forward to the FDA decision, and that:

There's nothing more validating than good benchmarked data on approved drugs...

... which we have in the case of Foamix, as demonstrated above. 

Most valuation models used by various analysts supports the average $15 share price.

H.C. Wainwright's Dr. Selvaraju has called FOMX

Substantially undervalued

Earlier this month, Cantor Fitzgerald issued an investor update in which they reiterated their Overweight rating and $15 price target. Louise Chen (Harvard MBA) wrote that a 25 physician survey supports her positive view on the market opportunity for Foamix's FMX101, and that if approved, FMX101 has the potential to address a significant unmet need in the treatment of moderate-to-severe acne, which remains a difficult condition. Cantor believes Wall Street is underestimating the uptake of the acne drug.

Today, 16 October 2019, Barclays issued a note to its investors reiterating a $10 price target, and an Overweight rating. Barclays  predicts a 90% chance of approval with a price target raised to $12 upon approval. 

Leadership Matters

I also asked the analyst about the CEO, David Domzalski, whom I've developed a lot of respect for. The analyst said he's met him and thinks very highly of him, and that he's very experienced in launching drugs in the past, which is very important.

I believe having a CEO with solid prior launch experience is an important factor. There are examples of poor launches where the CEO of the development company did not have prior launch experience and was overwhelmed by the dynamics. One example is Arena Pharmaceuticals (Nasdaq: ARNA)'s ex-CEO and founder, Jack Lief who did a very poor job of managing the launch of Lorcaserin post FDA approval with partner Eisai. Jack Lief should have given the helms to a seasoned CEO who had executed successful launches before, but given he  was the founder of the company, he viewed the company as his baby and this attachment (known in academia as Founder's Syndrome) deprived the company from having the kind of leadership it deserves: someone like David Domzalski. Jack Lief was later ousted by Arena's Board.

It takes a special calibre CEO to make a launch successful, and Mr. Domzalski seems to have what it takes -- he's been there and done that before.  

Takeover Opportunity?

The company has stated it is in partnership talks for Ex-US territories. It makes sense that it covers the US market itself. However, I would not rule out the potential for a buyout as the company’s MST technology can be used for delivery of a variety of drugs, and, the current targeted medical conditions are lucrative enough that an acquirer Big Pharma could easily recover the cost of an acquisition with a year or two of sales.

I will not be surprised to hear buyout news right after approval, in 2019 Q4. What would be a fair buyout price? I think the analyst average price is a good indication: $15/share (5-bagger from here).

Risks

No FDA approval is risk-free. Investors should consider this risk. However, for my own investment decision regarding FOMX, I consider both assets to be de-risked, due to very strong safety and efficacy data, and therefore anticipate both to be approved in October 2019, and around May 2020. Launching a new medicine also carries risks. But given the management profiles of Foamix, and state of the target market, I am confident about a successful launch. Macro risks are always there but my personal motto is, never bet against the US economy, since it's the hub of innovation and the economic engine of the world which has proven itself over the years to be very robust and resilient.  

Reference

Company’s latest presentation is very informative: http://www.foamix.com/events-and-presentations/presentations

#FOMX #biotech #investing #acne #rosacea #mnlo #amzeeq

 

 

 



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