At first Aclaris [Nasdaq: ACRS] didn’t catch my eye. The phrase “concentrated hydrogen peroxide” sounded too simple to offer any sustainable competitive advantage.
However a favorable mention from the famous “Dr. KSS” who knows his biotechnology made me take a closer look. What I see is a fairly low-risk to treat a very common skin condition (Seborrheic Keratosis “SK”) and a reasonable chance to expand into common warts and Alopecia Areata.
Their A-101 drug for SK is applied topically which is a major advantage. The Phase 2 results for SK show great effectiveness and create what may be a very low risk Phase 3 trial during 2016 with an NDA filing target of 4Q 2016. That would mean a commercial launch into a fairly large dermatological market in 2017.
SK is very common and there are already 8.3 million procedures per year. Current options are however *not* topical and include cryosurgery, excision, and curettage which are much less friendly. It’s logical to expect that a greater portion of the 18 million visits to a dermatologist for this condition would agree to treatment if the topical option was available. Some portion of the existing treatments would probably flip to the topical option as well.
Putting a figure on market size we’d estimate that half of the 10 million who decide not to seek treatment would opt in and half of the existing treatment market would flip to topical. Using average net revenue of $100/treatment for the “new” patents and $200/treatment for the “flip” patients (because they typically would have more serious conditions) we get to estimated annual market of $1.3B for topical out of what would be a $2B overall market. This would expand by another $100M to $200M upon approval for the treatment of common warts.
Aclaris has in-licensed two compounds (A201 and A301) that appear promising for treating Alopecia Areata but it’s further out – IND planned for 2H2016 with a POC trial in 2017. If one were to factor that in the market opportunity is sizable with an estimated 6.6 million cases in the US and there is no treatment besides off-label use of steroids. If half of the patients diagnosed took treatment and we use a $500 net price we’d get to an additional $1.6B. It’s too early to put a finer point on it but it’s considerable.
The management team is solid and has direct experience in the market and building companies to the point of sale. The go-to-market strategy is sensible and focused. The key market of 5,000 dermatologists is addressable with a direct sales and marketing team and has strong affinity with specialty conferences and trade publications.
In all the excitement of new cancer therapies a company that treats a basic but common skin disease with a simple topical formula might not garner a great deal of attention. Also their IPO team is a mixed bag with Citi and Jefferies leading and William Blair on for additional coverage.
At the $15 mid-point the market capitalization of ACRS would be $300M which compares favorably to the $1.3B near-term market opportunity for A101 and leaves upside for approval for additional indications (warts) and potential success for A201/301. However we’d focus on A101 and the SK market primarily here.
If for any reason this one prices below-the-range it would be very interesting. It’s hard to put a price objective on this because we don’t know final pricing and can’t estimate margins. As a stab I’d say that the shares might properly trade at a value that reflects 1/2 of the near-term market opportunity or about $600-700M or $30-35/share.
You can review the Aclaris IPO Roadshow slides for more information. We will have a transcript done and post it here when complete.
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