PLx Pharma (NASDAQ: PLXP) may try to price their IPO this week. At the $18 mid-point of the proposed range the market capitalization would be about $180M. The lead underwriters are Raymond James and Maxim Group with Janney Montgomery on the cover as a co-manager. Feels like a very risky line up in this stock market. There at quite a few extra eggs in this basket too since many of the executives and consultants on the team have pinned their future compensation and contracts to the successful completion of the IPO. If the deal does get done it puts the buyers in a strong position in terms of deciding on the offering price.

As management supposes in their presentation we were indeed “scratching our heads” once we learned that this company is basically going to be offering a new form of good old aspirin. Other surprising things are that the company has already raised $41M from “friends and family” and the has only 6 full-time employees.

The crux of the story is that all the aspirin on the market is now enteric-coated and all the studies that have shown proven benefits from aspirin were done using *uncoated* aspirin. Subsequent studies done with the coated aspirin failed to show the same level and consistency of benefits.  The reason that this coating was added is that aspirin is poorly tolerated in the stomach and tend to cause ulcers.

PL2200 is the lead product on display with a 325mg payload of aspirin in a lipid matrix that controls release. Studies shown in the roadshow illustrate much higher rates of absorption for PL2200 in both the short-term and in longer 10-day long studies. (These two clinical studies, PL-ASA-004 & PL-ASA-006, have not yet been published.)

The proposed benefits are a drug that is faster acting, more predictable, and GI safer for the large established market for aspirin as a therapy for cardiovascular health and pain management.

Bayer dominates the branded aspirin market with private label being the #2. Aspirin sells for between 2 and 9 cents per tablet. Adding up all the market opportunity the company gets to $9.7B and suggests that a 5% penetration is reasonable which would put retail revenues of $500M/year.

PLx has done their homework with physicians – their surveys show strong results in key specialist markets like cardiologists, neurologists and even GPs. Results show that the vast majority would prescribe these tablets for high risk patients.

Planned pricing of 50c/day for the 81mg tablet and 75c/day for the 325mg tablet seems high relative to the existing price model. It’s not that the pricing is unreasonable but the idea that at $20/month for chronic users is cheap or possibly covered by ACA is overly simplistic.  Consumers often chose with their wallets.

PLx plans to rely on doctors who understand the advantages and that they will communicate this to their patients and get them to purchase PL2200 because of the superior mechanism of delivery and high benefits. So PLx will field their own sales force to go after the 12,000 to 15,000 highest value targets with 125-150 sales representatives. The plan is also to call pharmacists regularly to inform, educate and prompt them to recommend PLx formulations to retail customers.

The company still has a lot of work to do – working out manufacturing, building the sales force, getting the 81mg tablet approved, publishing the clinical studies and finding collaborators to help get the product launched by “mid-2017” as the company projects.

The big question is – Why wouldn’t Bayer just buy these guys?

Bayer does over $50B/year in sales and has an enterprise value of over $115B. If they were actually worried about this company it would seem to be easy to acquire the company for a couple hundred million.

Part of the reason is probably that Bayer has invested a ton in doing studies and marketing so that the vast majority of people do not question the effectiveness of coated aspirin tablets. There are some articles but because there is fairly universal agreement that aspirin is definitely helpful the debate around coatings and delivery is limited.

There’s also Plavix which can be prescribed for higher risk patients and/or those for which aspirin is either not effective enough or is too upsetting to the stomach.

Assuming PLx does indeed have a better mousetrap here the challenge is educating and changing a well-established market. In order to do that their ability to sign up collaborators will be critical. Management does have a track record and notes that they did something very similar with Mucinex which was sold for $2.3B in 2007.

The real problem is there is a huge arsenal of alternative delivery methods for aspirin.

Dipping into the research literature is where it all came to light. There have been thousands of studies on aspirin and many on delivery methods – some with lipids, others with nano-materials, ionic delivery, and even some physical (transdermal) methods.

Taking it all in seems to suggest that 1) we’re a long way from having *clarity* about the advantages of different delivery methods and effectiveness and 2) PLx has a solution but it appears to be one of many.

The conclusion is that there is still a lot of risk left in PLx and that’s exacerbated by the liquidity risk that’s part of this market right now. If PLx insist on getting the deal done it may come at a price low enough to make it interesting as a type of long-term call option.

References:

This is a bit dated but this Harvard Health publication about aspirin is well done: https://www.health.harvard.edu/heart-health/aspirin-and-your-heart-many-questions-some-answers

 

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