The Allergan Option Effect on Trevena

I am long TRVN

While TRV130, now known as Oliceridine, thrust Trevena into the spotlight of the investment community, TRV027 could cement the company’s G-Protein Coupled Receptor Technology as one that is both highly productive in turning out viable late-stage candidates and capable of drawing outside investment interest.  Now the focal point of the Phase 2b BLAST-AHF trial, TRV027 is set to readout prior to Saturday, May 21st.  Whether or not the composite endpoint proves to be clinically significant or not is anyone’s guess.  TRV027 demonstrated in preclinical studies the ability to do what other angiotensin type II receptor molecules could do without decreasing cardiac contractility.  In fact, TRV027 increased the strength of blood flow to and from the heart.  This latter feature is what drove Allergan PLC (AGN), then Forest Labs, to take a flier on TRV027 in 2013 by way of a partnership option with a $30M stake in the company.  It should also be noted that while Trevena has shouldered the cost of the Phase-2b endeavor, Allergan recently chose to pay Trevena $10M to increase the size of the 5 mg trial cohort that was deemed to be the best performing of the three doses on offer.  I viewed this material interest as compelling.

I’ve recently done some research on Trevena’s partnership option with Allergan by digging through some archived SEC forms.  What we all know now is fairly straightforward.  Should this trial succeed, an unlikely proposition in a therapeutic space littered with failure, Trevena will receive a $65m upfront payment; $365m in regulatory and sales milestones; and 10 – 20% of sales royalties – the higher of those 2 percentages coming from within the United States.  Now some things you may not know.

Allergan must negotiate with Trevena in good faith to market TRV027 themselves in the United States.  And this is important because Trevena is now establishing itself as an emergent care therapy enterprise.  Oliceridine would likely be sold to the same emergent care therapy providers as TRV027 when and if it should become commercially available.

Allergan has 2-weeks following a press release by Trevena on the BLAST-AHF trial results to exercise its option.  This time frame was an unknown up until recently when it was addressed in a question and answer session that followed a corporate presentation.  I believe that notice will accompany the press release if the data is good and possibly be delayed if it is less than stellar.  I predicted recently that results would be posted on Friday, May 20th and a conference call and webcast be made available on Monday, May 23rd.  We’ll see if I’m proven correct.

Allergan is wobbling badly since the failed inversion acquisition of Pfizer (PFE).  Allergan is now under the same rigorous scrutiny as other growth oriented pharma companies such as Valeant Pharmaceuticals (VRX).  It has been reported that the sale of its generic division to TEVA (TEVA) is now in jeopardy.  I’m less inclined to believe that rumor but, suffice it to say, Allergan is in the midst of a sector-wide public relations nightmare.  Bloggers are questioning the value of Allergan’s Research and Development pipeline even though the following slide from a recent corporate presentation highlights 70 mid-to-late stage assets.  You’ll note TRV027 in the bottom right-hand corner of the picture.  All red lines and circles are mine.  A quote from CEO Brent Saunders follows.

TRV027 and CNS Portfolio Highlighted in Red
TRV027 and CNS Portfolio Highlighted in Red

“It’s important to look back at what we presented last November that I know many of our investors were impressed by.  We have a very strong pipeline and, I would argue, best in class.  And strength is divided over all our therapeutic areas.  And we are confident that this pipeline – that we will continue to add to through future science acquisitions, will deliver our long-term growth profile.”

Allergan CEO Brent Saunders – Allergan Business Update – April 6, 2016

The pressure on Allergan to persuade the public that asset development is central to its growth aspirations could ensure an early exercise of the TRV027 option.  Trial results will have to be compelling, but Allergan will be incentivized to add TRV027 to its late-stage asset portfolio if only to reinforce its own arguments.  This despite the fact that there are currently 2 Acute Heart Failure compounds in Phase-3 development – Novartis’ (NVS) Serelaxin and privately held CardioRentis’ Ularitide.  Conversely, if the TEVA deal falls through, Allergan might not be in a position to take TRV027 through to commercialization even if BLAST-AHF results are outstanding.  And if they did so, there’s no guarantee that this is the best path forward for Trevena’s acute heart failure therapeutic given Allergan’s tenuous state of affairs.

Trevena could easily be acquired by Allergan instead.  I’ve highlighted the 9 late-stage assets in Allergan’s CNS segment for a reason.  Trevena’s wholly owned CNS portfolio which includes a potential blockbuster in Oliceridine would boost that number to 10 and provide yet another 2 early-stage assets.  And in a recent article quoting Michael Higgins of Roth Capital Partners LLC, the idea of a cash rich Allergan, assuming that the TEVA deal is consummated, purchasing Synergy Pharmaceuticals (SGYP) or, alternatively, Trevena was discussed.  The amounts of $1bn referenced for both companies were woefully low by my estimates – especially where Trevena is concerned on a value basis, and where Synergy is concerned given its bloated financial structure.  My fair value consideration for both companies starts at $1.8bn each.

The After-Effects of BLAST-AHF success are many.  We all recognize what an exercise of the Allergan option will mean to Trevena which will then have 2 GPCR platform candidates in Phase-3 development and an embarrassment of riches on hand to drive future expansion.  Additionally, all forward looking clinical costs of TRV027 will be shifted to Allergan.  What investors fail to realize is the ripple-effect that such events will likely stimulate.  TRV027, like Oliceridine, could be granted Breakthrough Therapy status by the FDA as Novartis’ seralaxin was in 2013.  A partnership of Trevena’s side-effect diminished, moderate-to-severe pain oral therapeutic – TRV734 with terms similar to the Allergan arrangement could be struck.  And any announcement of new compounds entering the clinic would be met with a heretofore unexperienced enthusiasm.

What to do in the event of mixed or failed marks in the BLAST-AHF study?  Obviously, Trevena’s technology platform would take its first public relations hit in that eventuality.  Allergan would likely walk away.  And CEO Maxine Gowen would be placed in the unenviable position of defining a path forward for TRV027 through self-stewardship; the seeking of another partner; or by shelving the compound in perpetuity.  How all of that is handled will be key to how quickly the stock price recovers.  That said, Oliceridine will advance through Phase-3 clinical trials with a haste unknown to other treatment spaces with data expected in 2017.  That should be the only elixir wounded equity holders will need to recover a positive temperament and interim losses.

Always be well…

Additional disclosure: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute any suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing information, the accuracy of which is as good as the public sources it was derived from. Do not act on anything I have written. Rather, do your own due diligence and consult an investment professional before making any investment decision. Acting on what any one writer, including me has imparted to you is foolish at best. I have no better access to resources or gift of opinion formulation than you do. I sometimes make mistakes. There are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion upwards or downwards. These events can be of a wide variety not limited to news-related occurrences, managerial decisions, trial failures, stock manipulations and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence, invest at your own considerable risk attaining the just reward your efforts have wrought.

Web Exclusive! Trevena’s Can’t Miss BLAST-AHF Catalyst

We are long, Trevena (TRVN).

1-yr Chart

I’ll admit it.  I love a biotechnology company whose scientific cofounder also happens to be head of Investor Relations – Jonathan Violin, Ph.D.  It doesn’t get any better than that!

Now, the last time I pounded the table on behalf of Trevena it was a quarter-billion dollar market-cap that has since more than doubled at the completion of the TRV130 Phase-2 abdominoplasty trial.  Many would-be investors view an exponential rise in value as a one-time phenomenon subsequently exiting their positions with a hefty profit.  And, there’s nothing wrong with that!  Additionally, there’s been a recent slump in the stock price that I’ll try to lend some context to at the end of this article.  But TRV130, now commercially named Oliceridine, isn’t the only blockbuster compound in Trevena’s stable of assets undergoing a catalytic Phase-2 study.

TRV027, prior to the hoopla surrounding Oliceridine, was Trevena’s lead therapeutic candidate in that it was partnered with Allergan who still holds an option to move the drug through to commercialization.  Though the company’s fortunes have turned remarkably for the better, the original terms of that option – $65M upfront, $365M in backend milestones and 10-20% sales royalties still seem generous enough.  Trevena, however, is positioning itself to happily keep the compound given the company’s focus on becoming an emergent-care, drug-distributing powerhouse.  Regardless, if for any reason Allergan were to pass on its option to partner TRV027, Trevena’s stock would suffer a perception setback until such time as the company meaningfully clarified the situation.  Of note, a pass on Allergan’s option would likely come days, or even weeks, after topline data was released thereby negating any negative impact from a trader’s perspective.  The important thing for you to keep in mind is that, like Oliceridine’s Phase 2 abdominoplasty trial, the BLAST-AHF topline readout will be impactful.

BLAST-AHF is Designed to Succeed

When I look to trade a stock, I carefully examine how a trial is constructed.  By doing so, I can then determine how likely it will be to readout successfully.  This is important because the headline furnished by the company conducting the trial has to be positive in order for the stock to appreciate, at least temporarily, in value.  A good example of this was Cara Therapeutics (CARA) recent Phase-2a trial of CR845 in chronic pain patients suffering from osteoarthritis.  It’s not hard to publish a glowing press release when your trial is examining 4 dose regimens without a control arm.  The stock, however, popped as I predicted it would but not nearly as much as investors had hoped for – something I also predicted.  You see, the larger investment community is wise to trial constructs and their implications.

The BLAST-AHF trial, on the other hand, has more to offer catalyst driven investors than any other Phase-2 trial currently in existence.  I realize that’s a bold statement.  But it isn’t predicated upon Trevena’s penchant for designing Phase-2 endeavors that pit their compounds against active control agents, or even upon the aforementioned reward tied to Allergan exercising its option.  Rather, it’s based upon these three truths.

  • The BLAST-AHF Phase-2 trial has already received positive, compound affirming, news.
  • Trevena’s G-Protein Biased Ligand technology undergirding TRV027 has already received affirmation through Oliceridine’s success in a similar Phase-2 format.
  • The numerous endpoints of this trial are not only immanently achievable but, even if only a few are met, the press release to convey topline results will likely be positive.

Consequently, what you’re about to read could put in you the driver’s seat of equity enrichment.  I thought of submitting this article to Seeking Alpha for Pro publication but already know that the editors there won’t see the value intrinsic to this opportunity, or appreciate the keen insight driving my ideation, because it doesn’t fit their preconceived notion of what a Pro article consists of.  Consequently, I’m publishing it here for free.  Since my only goal is to enable retail investors to become successful, I no longer wish to place myself in situations where the frustration of educating those with fixed ideas subtracts from my enjoyment of doing so.  It is my hope that eventually the editorial staff at Seeking Alpha will tire of depriving their Pro audience of truly actionable information if only because that information resides outside the walls of their captive thinking.

If there’s nothing else that I could communicate to you today, please take away this idea for your consideration: BLAST-AHF is constructed for success.  You see, acute heart failure is a therapeutic landscape that hasn’t been properly surveyed.  And because of this, it hasn’t been the subject of clinical trials with historically defined endpoints that can serve as comparators.  Therefore, BLAST-AHF is, more or less, a grand experiment.  In fact, any one of the following four composite study endpoints could be used as the primary endpoint in a pivotal study.

Dyspnea – difficulty in breathing characterized by shortness of breath and an overwhelming feeling of drowning.

Worsening Heart Failure While Hospitalized – a clinically assessed set of parameters.

Length of Hospital Stay – how many days until released both from intensive care and from the hospital itself.

30-Day Readmission and Mortality Rates – self explanatory.

Yes, BLAST-AHF is well constructed in that it’s double blinded, placebo controlled and very large – 620 patients.  More importantly, though, it contains this multitude of actionable targets any one of which could be declarative of trial success.  Additionally, it’s somewhat de-risked in two important ways.

  1. The G-Protein Biased Ligand Technology behind it has already been validated by Oliceridine’s notable success in Phase-2.  It’s highly likely that Oliceridine in Phase-3 will continue to demonstrate the clinical benefits of being more powerful, safer and with fewer tolerability issues than standard of care morphine.  This will enable wide-spread commercial adoption of Oliceridine in acute pain settings.
  2. The pre-specified interim analysis of TRV027 in the BLAST-AHF study not only identified the most promising dose – 5 mg, but also opened enrollment to more compromised patients.  This wouldn’t have been done had there not been some tangible therapeutic benefit observed.

From the March 9th press release covering the results of the interim analysis, we have the following insights.

The purpose of the planned interim analysis was to qualitatively and quantitatively evaluate safety and efficacy data to determine how best to allocate future patients in the study to generate the most robust data. Upon reviewing the data, the data safety monitoring board (DSMB) and the BLAST-AHF Steering Committee recommended that future enrollment be weighted to the most promising dose of 5 mg/hr. Remaining enrollment will be weighted 2:1:2:1 for placebo, 1 mg/hr, 5 mg/hr, and 25 mg/hr, respectively. In addition, the DSMB and Steering Committee determined that patients with lower baseline systolic blood pressure could safely enroll in the study; inclusion criteria have been modified accordingly. As a result of the increased target enrollment, Trevena now expects to release top-line data in the first half of 2016.

Casual observers of this increase in patient participants probably came to the erroneous conclusion that the study wasn’t achieving statistical significance when, in fact, that likely had nothing to do with it.  It was Allergan that chose to pay Trevena an additional $10M to not only allow patients with lower baseline systolic blood pressure to come on board, but to scrap the original plan to select and study only the most promising dose which turned out to be 5 mg in favor of continuing with the other dosing regimens.

What’s Up With The Insider Sale And Filing Of An S-3?

Well, I can’t be certain of that.  And I’m not about to contact investor relations inquiring into the private business of any insider at Trevena in regard to selling their shares.  That said, Chief Medical Officer David Soergel’s sale of 94% of his Trevana stock for a profit in excess of $287K wasn’t a promising sign.  To jump to the conclusion, however, that it was a bad omen is equally erroneous.

The company curiously continues to carry a small amount of debt when it doesn’t have to which is confounding to me.  And on December 14th filed an S-3 registering mixed shares of common and preferred stock, debt securities and warrants totaling some $250M.  They also bolstered their stock purchase and sales agreement with Cowen and Company to the tune of $75M.  I never like these latter arrangements which are almost always depressive to share price appreciation and, therefore, deleterious to retail shareholders.

The motivation to register these shares is somewhat, but not entirely, clear to me.  They needed to replace the available shares for public offerings which were utilized in the aftermath of the Phase-2 Oliceridine trial success.  And, if BLAST-AHF reads out well, something I’ve predicted, they will no doubt conduct yet another public offering to buffer themselves from an Allergan rejection.  Doing so will allow Trevena to bring TRV027 to Phase-3 themselves or allow the company to negotiate a partnership with another interested party from a position of strength.

Additionally, these shares may be used to entice a partner for TRV734, Trevena’s chronic pain compound, by offering an ownership interest in the company.  Though this is a long-shot, it isn’t entirely out of the realm of possibility as Trevena has stated a desire to enter into a developmental agreement.  Trevena may also elect to use them in the furtherance of an ex-U.S. commercial partnership with respect to Oliceridine with options on further commercialized product candidates from their growing asset portfolio.

Always be well…

Additional disclosure: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute any suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing information, the accuracy of which is as good as the public sources it was derived from. Do not act on anything I have written. Rather, do your own due diligence and consult an investment professional before making any investment decision. Acting on what any one writer, including me has imparted to you is foolish at best. I have no better access to resources or gift of opinion formulation than you do. I sometimes make mistakes. There are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion upwards or downwards. These events can be of a wide variety not limited to news-related occurrences, managerial decisions, trial failures, stock manipulations and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence, invest at your own considerable risk attaining the just reward your efforts have wrought.