Cerecor, Inc. (CERC) is a fully integrated pharmaceutical company with a diversified offering of commercial products and a development product portfolio. The commercial portfolio consists of products intended to treat pediatric-focused conditions and includes the prescribed dietary supplements Poly-Vi-Flor® (a multivitamin and fluoride chewable tablet) and Tri-Vi-Flor® (a multivitamin and fluoride suspension) along with the prescribed medications Millipred®, Veripred®, Ulesfia®, Karbinal™ ER, AcipHex® Sprinkle™, and Cefaclor. The company’s goal is to use cash flow from commercial operations to fund the development of the clinical product candidates.
Purchases Ichorion Therapeutics, Inc.
On September 25, 2018, Cerecor announced the acquisition of privately-held Ichorion Therapeutics, Inc., a biotechnology company focused on ultra-rare orphan diseases caused by inborn errors of metabolism (IEM). In addition, Ichorion has a platform to target IEMs that are not amenable to substrate replacement therapy. Ichorion was acquired in exchange for 5.8 million shares of common stock and includes up to $15 million in development milestones that can be paid in either Cerecor stock or cash.
The lead development products acquired from Ichorion are CERC-801 and CERC-802. The company has not disclosed the exact indications for these products, but each of them will be developed along the 505(b)(2) new drug application (NDA) regulatory pathway. That pathway allows an applicant to use some information, including safety and efficacy information, from studies performed by others, thus potentially decreasing the time to market. The following slide gives an overview of CERC-801 and CERC-802.
Given that the number of patients for each of those products is in the hundreds, the most important aspect for CERC-801 and CERC-802 is likely the fact that they are eligible for a priority review voucher (PRV) upon approval. A PRV allows the holder of the voucher to receive an expedited six-month review from the FDA for an NDA or biologics license application (BLA) instead of the usual ten-month review. The Food and Drug Administration Safety and Innovation Act (FDASIA) created the rare pediatric voucher in 2012 to specifically target the need for additional therapies for rare pediatric subsets of diseases (affect fewer than 200,000 individuals in the U.S.). Priority review vouchers are also awarded for the development of treatments for certain tropical diseases and medical countermeasures.
Priority review vouchers are fully transferrable, and a number of companies that have been issued the vouchers in the past have sold them, including one that was sold to AbbVie (ABBV) in Aug. 2015 for $350 million. The four most recent purchases are by an undisclosed buyer for $125 million in Nov. 2017, Novartis (NVS) for $130 million in Dec. 2017, Jazz Pharmaceuticals for $125 million in Apr. 2017, and an undisclosed buyer for $80.6 million in Aug. 2018. While prices for PRVs have come down since AbbVie purchased one for $350 million in 2015, the price for them has appeared to settle in the $100 million range. The following table shows how many priority review vouchers have been issued along with the current status of the voucher, if known.
In addition to the substrate replacement therapy products acquired, Cerecor also received a platform technology for targeting diseases for which substrate replacement therapy is not feasible. The lead development candidate based on that technology is CERC-913. It is a molecule based on Ichorion’s ProTide Nucleotide technology and is being developed to treat a mitochondrial disorder. The technology is based on the ability to get a phosphorylated substrate into the cell where it is needed. Typically, phosphorylated substrates will not passively diffuse through the cell membrane, thus a disease characterized by the lack of a phosphorylated substrate inside the cell is not able to be treated through substrate replacement therapy. The ProTide Nucleotide technology allows a phosphorylated substrate to diffuse into the cell, at which time it is activated such that the substrate can be used for phenotypic rescue. This is shown in the following slide.
CERC-913 has not been granted rare pediatric disease designation, however Cerecor will be applying for that status and is confident that it will be granted.
Conclusion and Valuation
Cerecor continues to execute on its business transformation strategy and the acquisition of Ichorion appears to fit well with the company’s stated pediatric and rare disease focus. Based on the acquisition, we have updated our model to include the lead development candidates acquired from Ichorion. Instead of valuing them through their potential peak sales, and since we are unsure of the exact indication and market size, we believe it is more prudent to value them based on the value of the PRV issued upon approval. We model for three PRVs to be issued in 2020, 2021, and 2022 and currently use a 50% probability of approval. We also model for each PRV to be sold a year after being issued. Based on the average selling price for the previous four PRVs sold, we model for them to be sold for $100 million each. This leads to an NPV for the PRVs of approximately $1.50 per share, increasing our valuation for Cerecor to $7.50 per share.
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