Lightlake Therapeutics (OTCQB:LLTP) could be the biggest beneficiary of Shire's (NASDAQ:SHPG) earnings beat on Thursday, as Vyvanse sales grew 19% to $417 Million in Q1 2015, in part on an aggressive launch of the therapy for Binge Eating Disorder ("BED"). Lightlake's nasal naloxone would potentially offer a safer alternative to Vyvanse - an amphetamine compound with notable side-effects - for treating BED.
Shire’s Success in BED Validates Lightlake’s Pipeline Drug-Candidate; Another Reason to Own LLTP
Lightlake is one of the most compelling risk-adjusted names in biotech, in our view, with potential near-term upside of 85%+. The Company has de-risked its lead program in opioid overdose by out-licensing commercial rights to Adapt Pharma in exchange for tiered royalties and $55 Million in milestone payments. Lightlake trades at just a $13M valuation and retains full rights to several late-stage assets, including BED, which we estimate to be a multi-billion dollar unmet need.
Shire's Vyvanse was approved for treating BED on January 30, 2015 and is currently the only FDA-approved product in this indication. We view Vyvanse's early success in BED as validation of the market opportunity and Lightlake's pipeline. Lightlake's nasal naloxone is not addictive (whereas Vyvanse potentially carries this risk) and demonstrated a statistically significant (p<0.001) reduction in time spent binge eating in a Phase II study. We believe initiation of a registration (Phase III) study for treating BED would give risk-tolerant investors a meaningful catalyst to owning shares of Lightlake today.
Investors Completely Overlook Successful Outcome of Lightlake’s Lead-Product Registration Study
Last week, Lightlake reported positive results from their pivotal nasal naloxone study for opioid overdose, but few took notice:
"The pharmacokinetic study compared intranasal naloxone with an injectable formulation of naloxone. The study met its objectives and demonstrated the intranasal formulation of naloxone delivered the targeted naloxone dose as expected".
This data will support a NDA filing with the FDA expected in the next few months. Nasal naloxone will compete with a syringe and an auto-injector that the FDA hailed as 'transformative' last year. Presumably, if approved, nasally-administered naloxone would not only make [naloxone] more accessible but would potentially put it in the hands of laypersons and save lives. Opioid overdose is an epidemic in the United States. And accelerated approval of the naloxone auto-injector, Evzio, creates precedent for a quick response from the FDA on Lightlake's submission.
As a reminder, Lightlake’s commercial partner - Adapt Pharma - raised $95 Million to find, in-license and commercialize promising specialty pharma products. Per Adapt's website, they've focused their resources entirely on Lightlake's nasal naloxone for opioid overdose, which is targeting a $1 Billion+ a year market. More importantly, Evzio's price tag (~ $600 per unit) would give Adapt strong pricing power for nasal naloxone, and could expand the size of the market considerably. Adapt's founders have a proven track-record of value-creation with successes at Elan (acquired by Perrigo for $8.6B in 2013) and Azur Pharma (merged with Jazz Pharmaceuticals (NASDAQ:JAZZ) in a deal then worth $500M; now worth upwards of $2B). Lightlake is then, perhaps, the best (and arguably only) way for investors to capture the upside Adapt Pharma's executives will surely create.
Why We See the Upside of a Biotech with an Attractive Risk-Profile in LLTP
In our initiation report (CLICK HERE TO VIEW), we explain in detail why Lightlake Therapeutics is the most compelling risk-adjusted drug reformulation story of 2015. In this note we’d like to add: if you were to own a company with the upside seen in biotech, without the binary risk, LLTP would be a strong fit. Consider that Opioid Overdose, Binge Eating Disorder and other indications that Lightlake is targeting are large, multi-billion dollar unmet needs. This is the ‘biotech’ aspect of the Company (pipeline shown below).
Lightlake Therapeutics R&D Pipeline
Source: One Equity Research
An experienced commercial partner with a proven track-record of value creation (eg. Adapt) is a de-risking event. Repurposing and reformulation of an existing compound (eg. naloxone) whose mechanism of action (“MOA”) is well understood is a de-risking factor. Naloxone would potentially treat multiple addiction-related disorders with the same MOA. This means that if it works in one indication, there is precedent for naloxone working in other addiction-related indications. Data from Lightlake’s pivotal study of nasal naloxone for opioid overdose clearly demonstrates non-inferiority to injection-form and will support a NDA filing and [potentially] FDA approval. This will transition Lightlake from a pure R&D-stage company to a commercial-stage company with R&D operations. In our view this is what’s made companies like Organovo (NASDAQ:ONVO) - who sells cell-assays for drug development research - popular with investors. In addition to their commercial operations, Organovo retains upside from R&D should the company replicate functioning organs for transplant or help develop a blockbuster drug years down the road. Another example is Genetic Technologies (NASDAQ:GENE), who has funneled revenues generated from out-licensing their IP to develop and position a genetic test for breast cancer.
Conservative Fair Value Estimate of Lightlake Suggests 85%+ In Upside
We reiterate our fair value estimate of Lightlake to be $12-13 per share, which implies upside of 85%+ from recent prices. With execution we believe LLTP could be worth $25+. We use an aggressive discount rate (50% -75%) to arrive at our fair value price range. As we approach inflection points, such as the NDA submission for nasal naloxone for opioid overdose, potential FDA approval, advancement of [other] pipeline candidates into mid and late-stage studies and other de-risking events, our discount rate used in [Lightlake’s] fair value computation will reflect this brisk progress. We continue to see numerous catalysts in 2015 as a strong reason for investors to own Lightlake.
See our FULL INITIATION report on Lightlake Therapeutics.
About One Equity Research
One Equity Research is a leading provider of proprietary and in-depth research crafted by respected financial analysts and domain experts. Our team includes trained finance professionals with diverse backgrounds that include equity research, investment banking, and strategic consulting at preeminent firms. We distribute our research through mainstream media partners and to subscribers of our Intelligence Service. To learn more please visit http://www.oneequityresearch.com/
Legal Disclaimer: This research note has been prepared by One Equity Research, LLC on behalf of Lightlake Therapeutics as part of research coverage services. We have received and continue to expect to receive twenty thousand dollars per month for these services. In addition we have received ten thousand restricted shares of Lightlake Therapeutics and may receive an additional forty thousand restricted shares in the future. This research note is not an offer or solicitation to buy or sell the securities of Integral Technologies. 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.
