bad news for BIOD and UNIS
Biod has to waste 9 months of overhead because of this delay
BIODEL INC.
GEM Registration Studies Delayed 9+ Months; Maintain BUY; Lower PT to $3.50
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3Q FY results. Biodel reported a 3Q FY15 net loss of $6.5 million, which was wider than the $5.4 million loss we estimated, primarily due to higher than anticipated R&D expenses. Biodel ended June 2015 with $44.4 million in cash, including $32.1 million in net proceeds from a public offering in April. At a burn rate of ~$5 to $7 million per quarter, we believe Biodel has sufficient cash to run into mid-2017.
FDA guidance on Glucagon Emergency Management (GEM) program development is now clear, but the registration studies will be delayed for 9+ months due to delay in delivery of registration batch device. At the end of a Phase 2 meeting with the FDA for the GEM program, Biodel indicated it reached agreement with the Agency on the design of the summative human factors study (HFS), the design and objectives of the pivotal bioequivalence (BE) study and the product stability and analytical similarity plan for the proposed 505(b)2 NDA application for GEM. Although the regulatory pathway is now clearly defined and confirmed by the FDA, Biodel surprisingly updated that registration batch devices for the GEM studies will be received no sooner than 3Q16, versus prior expectation of 4Q15. The registration batch devices are required for the pivotal BE study, the HFS and the stability study. The device is being manufactured by Unilife Corp. (UNIS, $1.40, Buy rated). Biodel did not provide the specific reasons for the delay; however, we think the device design is complete but UNIS has failed to meet its contractual obligation. The registration BE, HFS and stability studies will not start until 3Q16, at the earliest, pushing an NDA filing for GEM to mid-2017 at the earliest. We are surprised by the sudden delay and have adjusted our timeline projection for the potential GEM NDA filing and launch. Accordingly, we lower our price target to $3.50 from $4.00.
Phase 2b study for BIOD-531 is on hold due to the FDA's request for additional testing on the U-400 syringe used to deliver BIOD-531. Biodel also surprisingly indicated the BIOD-531 Phase 2b study currently is not recruiting patients, as FDA required additional testing of the dosing accuracy of the U-400 syringe used to deliver BIOD-531. Meanwhile, 7 patients had already been randomized into the BIOD-531 arm in the study, which are now converted into the active control arm. The U-400 syringe uses new calibrations printed on the syringe body, which has been used in other marketed products. The new calibrations on the syringe enables patients to directly read out the units of insulin injected (the previous syringe only shows injection volume and requires the patient to calculate the conversion from injection volume to insulin units, which is error-prone). Biodel has done accuracy testing spanning a number of dose gradients on the U-400 syringe according to ISO standards. However, Biodel now updated that FDA has requested additional data on the dosing accuracy of the U-400 syringe. Biodel has performed additional accuracy testing spanning more dose gradients on the U-400 syringe and will submit the data to FDA in the next few weeks. The FDA will then have 30 days to review the data and give feedback. We are disappointed by this surprise hold, but do not expect the syringe issue to cause a substantial delay.
We lower our price target to $3.50 from $4.00 due to the surprising GEM program delay and temporary hold of BIOD-531 Phase 2b study.
Risks
The primary risks of an investment in BIOD shares include (but are not limited to): Biodel may not be able to obtain FDA approval for pipeline products and/or approvals may be delayed substantially, both of which would reduce the company’s growth prospects. Biodel’s products may not demonstrate safety and efficacy in clinical trials, which could lead to pipeline projects being terminated. Biodel’s products may not be well received by patients and physicians, which could result in revenues falling below estimates. Biodel’s sales and marketing efforts or its partners’ sales and marketing efforts may not be effective in promoting its products, which could lead to revenues and earnings falling below estimates. Biodel may not be able to obtain favorable reimbursement of new products on formularies administered by managed care organizations, health insurers, and the government. Unfavorable reimbursement status could limit the market acceptance of products and limit Biodel’s revenue potential for those products. Biodel’s products could lose market share to existing branded products on the market and/or new branded products which launch in the future. If generic companies can prove non-infringement or invalidity of any patents protecting Biodel’s products, those products could face generic competition after any Hatch-Waxman exclusivities expire. Generic competition could result in a substantial decline in Biodel’s product sales. Financing transactions may be dilutive to existing shareholders. Manufacturing facilities may not pass preapproval inspections required by the FDA before pipeline products can be approved or may fall out of compliance with current Good Manufacturing Practice (cGMP) regulations, which could lead to supply disruptions and lower revenues to Biodel. Biodel or its contract manufacturers may not be able to produce enough product to meet market demand, leading to a loss of revenues. Biodel’s suppliers may not be able to supply enough active ingredient to meet manufacturing demand. Biodel’s SEC filings disclose additional risk factors.
Matt Kaplan
Managing Director
Biotechnology Equity Research
Ladenburg Thalmann & Co. Inc.
570 Lexington Avenue - 11th Floor
New York, NY 10022
Direct: 1.212.891.5247
mkaplan@ladenburg.com
