Excellent Skin to Excellent Profits: Why Menlo Therapeutics (NASDAQ: MNLO) Should Be On Your Radar

dermatological-therapies-internet-bull-report

Menlo Therapeutics (NASDAQ: $MNLO) is on the verge of being granted FDA approval for its newest drug, FMX103, for the treatment of papulopustular moderate-to-severe rosacea.  

Menlo Therapeutics, a biotechnology company focused on the development and commercialization of novel dermatological therapies, merged with Israel based Foamix Pharmaceuticals on March 9th.

Considering Menlo Therapeutics failed drug trials, Foamix’s pipeline and Menlo Therapeutics’ greater cash position allows the now merged companies to be positioned competitively in the dermatology market. 

As the pipeline gains traction, sales are estimated to be $100M yearly for FMX103 and $200M yearly for Amzeeq which was launched earlier this year.

To add icing to the cake, Foamix Ltd. (now a subsidiary of Menlo Therapeutics) has entered into a lucrative licensing agreement with China based Cutia Therapeutics (HK) Limited. 

These factors point in the direction of considerable growth for Menlo Therapeutics. 

Why is Foamix Ltd. Important?

Foamix’s revolutionary Molecule Stabilizing Technology (MST) provides an alternative topical route of administration (ROA) to traditional orally administered dermatology drugs. 

The technology provides the ability to deliver localized therapeutic agents that were previously not stable in topical formulations by way of a foam product. 

Topical treatments are preferred to orally administered therapies, as a greater dose of medicine is delivered to affected areas and a reduction of systemic side effects are observed.

Patients are growing weary of traditional topical applications i.e. creams and ointments, often resulting in reduction of patient compliance cascading to improper treatment of their skin condition. 

Common complaints of creams and ointments include:
   – application is time consuming,
   – messy and uncomfortable to apply, and
   – an oily residue on the skin. 

Advantages of the company’s new technology includes:
   – hydrophobic foam which allows the medicine to be quickly applied and absorbed,
   – free from primary skin irritants and synergizes with the natural moisturizing oils of
      the human skin to leave minimal residue.  

 

A prominent and enticing feature of the company is its pipeline which incorporates their MST technology.

A noteworthy development is AmzeeqA FDA approved minocycline topical foam for the treatment of moderate to severe acne. 

Compared to traditional minocycline taken by mouth, this new development has been noted to decrease severity of side effects with similar or better therapeutic efficacy. 

The firm’s second minocycline foam product, FMX103 is in its last stage of FDA approval. With pending therapeutic approval for patient groups in most need.

The most promising development of the pipeline is FCD105, a minocycline and adapalene foam product for the treatment of moderate-to-severe acne vulgaris. Which is currently in clinical trials 

Pipeline Overview: 

  • FMX103, NDA submitted August 2019 and PDUFA catalyst set for June 2nd
  • FCD105, Phase 2 clinical trial results expected June 30th
  • Amzeeq sales totaled $1.75M for Q1 2020, a possible cause for the slump in sales may be the fact that dermatology offices within the US have been affected by Coronavirus. More people choose to stay inside and not visit offices in fear of contracting the disease. As the economy reopens and people begin visiting dermatologists again, a positive growth in sales should be observed. Amzeeq has been recently granted covered status from insurers in the US. Furthermore, Menlo Therapeutics is expected to present at the Jefferies Virtual Healthcare conference on June 2nd. Providing an opportunity to broaden their customer base.

 

A Sweet Deal with China?

The company has entered into a licensing agreement with local distributor Cutia Therapeutics (HK) Limited, to bring its Amzeeq product and remaining pipeline, upon FDA approval, into the growing Chinese dermatology market. 

The deal consists of $10M up front and $1M upon receipt of marketing approval for Amzeeq in China and royalties on net sales of its products. 

China consists of a culture that values a clear and pale complexion, often a signal of one’s social prestige. As of 2020, China contains the third largest skincare market with revenue’s topping $14.63B. Due to the polluted environment, skin conditions are common within China and in need of treatment. Western brands are often trusted to domestic brands, as they promise quality and consistency. With greater household wealth being created in China, even outpacing the US, individuals have increased purchasing power and may prefer spending more for a reputable Western product. 

 

Price Moves of the Company’s Stock

With the recent failure of Menlo Therapeutics Serlopitant trials, Menlo Therapeutics had to acquire a firm in order to stay relevant in the dermatology market.

The acquisition of Foamix Limited proved strategic, as it provided Menlo Therapeutics with FDA approved Amzeeq and a promising pipeline.This also proved beneficial for Foamix Ltd., as their headquarters were moved to the US and have access to Menlo Therapeutics significant cash position. 

Following the merger, the combined entity trading under “NASDAQ: MNLO” has undergone corporate restructuring to include Foamix’s board members. 

According to the acting CEO David Domzalski, the combined entity will have a cash runaway sufficient for the first half of 2021 and save an estimated >$50M/year in operating expenses at the start of 2021 by removal of duplicate functions and infrastructure.

The combined entity’s greater cash position provides more freed up cash making the firm more agile. 

 


Menlo-Therapeutics-internet-bull-report


  • As of May 12th, 2020 Menlo Therapeutics’ short volume ratio has been trending downwards suggesting investors have a positive outlook for the company in the near term. This may also be the result of shorts covering their positions driving greater volume, but considering two upcoming catalysts and the price run-up observed in the past five days this seems unlikely.
  • The Nasdaq US Small Cap Pharmaceutical and Biotech Index (INDEXNASDAQ: NQUSS4570) has risen 1.5677% in the past 5 days, the S&P 500 (INDEXSP: .INX) has gained 1.48% in the past 5 days, whereas Menlo Therapeutics shares have appreciated 37.14% in the past 5 days. Considering Menlo Therapeutics has a beta of 1.84, the price increase is likely driven by market sentiments. This may be a reflection of the upcoming PDUFA date for FMX103.
  • A scenario of “buy the hype, sell the news” seems unlikely, as Foamix has established a track record of approved FDA products and FMX103 has passed all three trial phases.
  • Institutional ownership has increased signaling inherent value, but the large volume as a result may be a reflection of recent price hikes. Furthermore, we can attribute the recent performance to the fact that we are in recessionary times where biotechnology, healthcare, utility and gold tend to soar. 

 

Considering the exciting pipeline, combined sales projections of $300M yearly for their Amzeeq and FMX103 product, their entrance into the Chinese dermatology market and investor’s peak interest in the Biotechnology sector.

That makes Menlo Therapeutics an attractive asset with considerable potential for growth in the long term. 

 

Avatar
Harmanveer Randhawa

Equity Research Analyst

Student of Financial Modelling and Applied Mathematics at the University of Western Ontario. Applying analytical skills in search of valuable opportunities. Cool headed, logical, not afraid to capitalize on risk and go against the crowd.

No Comments Yet

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.