What PTC Therapeutics' CFO Is Saying About Translarna's Conditional Approval

By Markets Fool.com

News that a European committee was recommending renewal of the company's Duchenne muscular dystrophy drug, Translarna, sent PTC Therapeutics (NASDAQ: PTCT) shares soaring Friday.

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Translarna is the company's only commercial-stage drug, and its sales have been growing quickly, so I reached out to PTC Therapeutics' CFO Shane Kovacs to learn more about what this news may mean to the company and its investors.

Following are questions I posed to Kovacs and his word-for-word replies. I've also included my own "between-the-lines" opinions after each reply.

Image source: Getty Images.

1. Does this news change the need for annual renewal every year?

By definition, the EMA regulation[s] regarding conditional marketing authorizations require an annual renewal. However, medicines approved under the conditional approval mechanism are subject to specific post-authorisation obligations. In the case of our annual renewal recommended today, the CHMP has requested that PTC conduct a new 18-month randomised, placebo-controlled study followed by an 18-month open label extension. Therefore, PTC expects to proceed through the annual renewal process while we conduct the requested 3-year study.

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Kovacs is quick to remind investors that conditional approval is indeed conditional. EU regulators will need to weigh in on the drug annually, so a Translarna renewal this year doesn't guarantee renewal in future years. However, it seems to me that if the EU mandates a follow-up study, then the odds favor Translarna remaining available in Europe until the release of those study results.

2. What's the timeline for the long-term study (start to stop)?

PTC has committed to conduct a new 18-month randomized, placebo-controlled study in patients with Duchenne muscular dystrophy, followed by an 18-month period where all patients will be switched to Translarna. Details of the study protocol are expected to be finalized in future interactions with the EMA.

Ostensibly, PTC Therapeutics will begin recruiting patients for its trial after the official EU decision is rendered. Kovacs suggests that meetings are on deck with EU regulators regarding the specific design of the trial, and while he didn't indicate when this trial could begin, I imagine its negative impact on research and development spending will begin to be felt next year.

3. What can investors expect this trial will cost?

As the trial details are still being finalized, it is premature to comment on how much we expect this trial to cost.

Can't blame a guy for trying: I gave it a shot, but Kovacs didn't bite. We don't know how many DMD patients will be enrolled in this upcoming trial, but the company's press release indicated that it has pitched a trial enrolling a number of patients similar to the number participating in its prior 228-patient ACT DMD study.

A big study like this won't be cheap, and the costs of running this trial will create additional profit headwinds. That's not good news since PTC Therapeutics is already losing money, but given that this study means Translarna can stay on the market, the news is still a net win for investors.

PTCT Research and Development Expense (TTM) data by YCharts.

4. How many people in the EU are currently receiving therapy?

Earlier this year, PTC began providing overall revenue guidance for the year and does no longer provide individual patient numbers. Last week we reported our 9-month ending Sept. 30, 2016 financial results where we announced $22M in Translarna net sales for the quarter (a 125% increase of the same quarter last year) with $56M in net sales YTD.

No surprises here: Kovacs didn't bite on this question, either. The patient population that's addressed by Translarna is tiny, but Translarna is a high-priced medicine, so every new patient is meaningful to the top and bottom line. Previously, PTC Therapeutics estimated that about 13% of DMD patients have nonsense mutations that can be treated by Translarna, and that works out to about 2,000 patients in the United States and 5,000 patients internationally, including Europe.

5. What is the trend in new patient starts?

Commercial access to Translarna continues to expand. A significant number of new patient starts in the third quarter of 2016 came from England after recently receiving funding from NHS England. Overall, PTC is pleased with the commercial launch of Translarna ex-US.

England is notoriously tough on pricing, so I'd have loved to be a fly on the wall during negotiations. Regardless, getting Translarna on the market in England is boosting its sales, and additional wins in markets such as Italy could offer additional tailwinds to patient starts next year.

6. What, if any, impact could this decision have on discussions with the FDA?

We do not speak for regulators, however, our previous experience has been that the two agencies operate independently.

The big win for PTC Therapeutics would be approval in the United States. Earlier this year, competitor Sarepta Therapeutics won an accelerated approval from the U.S. Food and Drug Administration for its DMD drug, and while that approval was contentious, it suggests regulators are somewhat willing to push the envelope in order to get drugs on the market for important indications like DMD. That being said, the FDA has (so far) refused to consider PTC Therapeutics' Translarna application, and that's prompted management to file appeals in hope of getting the agency to reconsider.

Because the FDA works independently, the EU decision doesn't officially factor into PTC Therapeutics' chances. But in my view, it can't hurt.

Tying it together

PTC Therapeutics' Translarna is on pace to become a nine-figure drug in 2017, and a study in nonsense-mutation cystic fibrosis patients should produce results early next year that could significantly increase Translarna's peak sales potential. PTC Therapeutics estimates that between 3,700 and 4,200 cystic fibrosis patients in the EU could benefit from Translarna.

The company is also working with drug giant Roche Holding on therapies for another rare disease: spinal muscular atrophy, or SMA. Roche announced earlier this year that it's initiating mid-stage studies of RG7916 in SMA, and while results from trials aren't expected soon, an eventual success could help diversify PTC Therapeutics' revenue.

Overall, an official EU renewal decision on Translarna should happen in the next 3 months. Assuming it's a go, it will remove a big overhang, and potentially, it will provide investors a bit more peace of mind. However, until this company can offer up insight into a timeline for profitability, its shares are probably best left to aggressive investors.

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Todd Campbellhas no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter, where he goes by the handle@ebcapital,to see more articles like this.

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