Vericel Analyst Projects Wound Care Product Sales Will Grow Fivefold By 2025

Vericel Corp VCEL 1.52%, a commercial-stage company that specializes in advanced cell therapies for treating patients with knee cartilage defects and severe burn wounds, is investment-worthy, according to H.C. Wainwright.

The Analyst

Analyst Swayampakula Ramakanth initiated coverage of Vericel with a Buy rating and $19 price target.

The Thesis

Vericel is likely to see nearly a fivefold increase in sales from two of its innovative tissue-repairing cell therapies — MACI and Epicel — and NaxoBrid, a partnered product, Ramakanth said in a Wednesday initiation note. (See his track record here.)
The analyst estimates revenues from the three products will grow from $116 million in 2019 to $533 million by 2025.
MACI, a cell therapy approved for treating knee cartilage defects, is a major growth driver for the company, with sales reaching $68 million in 2018 despite an estimated market penetration of merely 3%, Ramakanth said.
MACI has the potential to becomes the standard-of-care in the $5-billion cartilage repair market, he said.
MACI sales could rise from $91 million this year to $471 million in 2025, assuming an expanded commercial focus and expanded sales force, the analyst said.
Vericel’s agreement with Mediwound Ltd MDWD 1.35% to market NaxoBrid in the U.S. could energize the former’s burn franchise sales, Ramakanth said.
The company’s burn care addressable market could increase from Epicel’s current market of 1,500 per year to 5,000 burn patients per year with NaxoBrid, he said.
NaxoBrid is being evaluated in a Phase 3 trial, with a commercial launch likely in the second quarter of 2021, the analyst said.
“We believe NexoBrid could aid in cross-selling Epicel and help the burn franchise’s sales to grow to $62M in 2025 from $25M in 2019.”
https://www.benzinga.com/analyst-ratings/analyst-color/19/10/14568293/vericel-analyst-projects-wound-care-product-sales-will-grow-fivefold-by-2025

J&J $8 billion jury award likely to be slashed

Johnson & Johnson (JNJ.N) shares were off more than 2% on Wednesday, a day after a U.S. jury said it must pay $8 billion in punitive damages to a plaintiff in a case involving its anti-psychotic drug Risperdal, a penalty the company and others are confident will not stand.

The jury in a Philadelphia court awarded the $8 billion to a man who previously won $680,000 over his claims that it failed to warn that young men using Risperdal could grow breasts.
J&J called the sum “grossly disproportionate with the initial compensatory award” and said it was confident it would be overturned.
The company has legal precedent on its side.

A 2003 U.S. Supreme Court decision found that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” By that measure, the punitive damages should be more in the neighborhood of $6 million.
Gary Bradshaw, portfolio manager for the Hodges Blue Chip Equity Income fund, said he expects the total damages that J&J will pay to be “drastically reduced” on appeal.
“There’s certainly a cloud overhanging the stock, but what keeps me owning J&J and not walking away is that they’ve got tremendous earnings power,” Bradshaw said.
Bradshaw, a long-time holder of J&J shares, expects the company to earn up to $10 per share in 2021, giving it a likely share price of $170.

J&J shares were off 2.3% at $128.75 in Wednesday afternoon trading.
Among the clouds hanging over the U.S. healthcare conglomerate are thousands of lawsuits involving Risperdal, baby powder, opioids, medical devices and other products.
“Every pharmaceutical company needs to seriously consider if they want to litigate to verdict in the present environment, but with the settlement demands so incredibly high it’s not always clear what their alternative is,” said Barry Thompson, a partner at Baker McKenzie law firm who was not involved in the case.
J&J did not have an immediate comment on its legal strategy.
According to a recent filing, J&J faces some 13,400 lawsuits tied to Risperdal, which allege the drug caused a condition called gynecomastia in boys, in which breast tissue becomes enlarged.

Johnson & Johnson paid more than $2.2 billion in 2013 to resolve civil and criminal investigations by the U.S. Department of Justice into its marketing of Risperdal and other drugs.
Earlier this month, the company agreed to pay $20.4 million to settle claims by two Ohio counties, avoiding a federal opioid trial.
An Oklahoma judge in August ordered J&J to pay $572.1 million to that state for its part in fueling the opioid crisis by deceptively marketing addictive painkillers, a sum that was substantially less than investors had expected.
https://www.reuters.com/article/us-johnson-johnson-risperdal/jj-shares-fall-but-8-billion-jury-award-likely-to-be-slashed-idUSKBN1WO1MW

Ginkgo Bioworks raises $350 million fund for biotech spinouts

Biotechnology start-up Ginkgo Bioworks said on Wednesday that it had raised a $350 million fund to more easily invest in spinout ventures that use its bio-engineering technology in a variety of industries that are just starting to use cutting edge biology.

Dubbed the Ferment Fund, the investment vehicle will invest in two to three companies a year, Ginkgo Chief Executive Officer Jason Kelly said in an interview. Ginkgo hopes such investments will help increase the use of its technology.
Ginkgo has used this strategy in the past. In 2017, it formed a joint venture with Bayer AG (BAYGn.DE) to develop bacteria that can perform similar functions to fertilizers without the associated pollution. Earlier this year, it launched Motif Foodworks, a company developing animal-free food ingredients, with investment from agricultural merchant Louis Dreyfus Co.
General Atlantic, Viking Global Investors, and Bill Gates’ investment firm Cascade Investment participated in the financing.

Ginkgo is one of the world’s largest privately held biotechnology firms. It works to make biological engineering cheaper and more accessible, particularly in fields where biotechnology is not yet widespread, by serving as a platform that allows customers to bypass the expensive overhead associated with doing their own scientific research.
This includes large corporations working in industries such as agriculture, cosmetics, foods, and textiles, sectors where biotechnology could have useful applications but where its use is in early stages.
“As computers got cheaper, a whole host of applications became accessible. We think the same thing is true for biology” Kelly said. “The big thing we’re tying to accomplish now is build an ecosystem for people to build apps essentially for cells.”
The new fund follows a $290 million funding round the company completed in September, which brought its total financing to $719 million and its valuation to $4 billion.

Despite the large amount of investment for a biotechnology company, Kelly said Ginkgo has no immediate plans to go public and hopes to have several successful spinouts first.
“What we want to be able to tell public investors is that we are the platform to program cells,” he said.
https://www.reuters.com/article/us-ginkgobio-fundraising/ginkgo-bioworks-raises-350-million-fund-for-biotech-spinouts-idUSKBN1WO1U9

Five Prime up on insider buys

Thinly traded micro cap Five Prime Therapeutics (FPRX +13%) is up on average volume in early trade. After the close yesterday, regulatory filings were made showing direct stock purchases by interim CEO and Director William Ringo (34,451 shares) and beneficial owner BVF Partners LP (601,482 shares).

The immuno-oncology therapy developer has been in a long-term downtrend since peaking at $48.87 about two years ago.

On the working capital front, at the end of June it had ~$214M in quick assets while operations consumed ~$56M in H1.

https://seekingalpha.com/news/3504738-five-prime-13-percent-insider-buys

Number of drug ‘super spenders’ rises 63% in 2 years

The number of drug “super spenders” is growing rapidly, a new study from Prime Therapeutics shows.

The pharmacy benefit manager (PBM), which is owned by 14 Blues plans, analyzed data on 17 million members who had at least one month of eligibility for drug benefits in 2016, 2017 and 2018.
In 2016, 2,994 members were categorized as “super spenders,” meaning their pharmacy and medical drug therapy claims totaled $250,000 or more.

By 2018, that number had increased by 63% to 4,869, Prime Therapeutics found. This increase led to an additional $800 million in drug costs, according to the study.
In addition, the number of members whose costs were over $750,000 increased by 38% over that time frame, and the drug costs for those members increased to $417 million by 2018.

“With continued growth in treatments for rare diseases, including one-time treatments that may carry million-dollar price tags, it’s very likely that healthcare cost will become even more skewed, with a smaller and smaller fraction of insured members accounting for a larger and larger portion of the total healthcare cost,” said Jonathan Gavras, M.D., senior vice president and chief medical officer at Prime, in a statement.
“We must work to ensure drug and gene therapies are priced appropriately to the value they provide, obtained and billed via the cost-effective channel with the highest quality patient management, and value-based contracts are in place to recoup costs if the drug or gene therapy does not maintain effectiveness,” Gavras said.
Prime Therapeutics noted in its analysis that the number of specialty drugs has been on the rise quite rapidly over the past few years, and they now make up 50% of total drug spend. Fifty-nine drugs were approved in 2018, and 34 of those were for rare diseases, the PBM said.

Nearly half (48%) of the increase Prime found was attributable to cancer categories including breast, lung, kidney and colorectal cancers, non-Hodgkin lymphoma, melanoma and multiple myeloma. Drugs for those diseases accounted for $378 million of the additional cost.
Inherited, single-gene disorders also accounted for a significant part of the increase: $243 million, or 31%. The largest increases were attributed to hemophilia A and B, cystic fibrosis, spinal muscular atrophy, congenital hypophosphatasia, hereditary angioedema, cystinosis and Duchenne muscular dystrophy.
Based on the findings, the researchers estimate that these members will account for $4 billion in drug costs over the next five years.
https://www.fiercehealthcare.com/payer/prime-therapeutics-number-drug-super-spenders-rises-63-two-years

Primary care company One Medical has hired banks ahead of an IPO

Primary care organization One Medical has hired banks including JPMorgan and Morgan Stanley in preparation for an initial public offering, CNBC reports.

The company, which was valued at about $1.5 billion in a financing round last year, is expected to file its prospectus by the first quarter of 2020 and possibly sooner, CNBC reported, citing people familiar with the matter who asked not to be named because the plans are confidential.
A spokeswoman for One Medical declined to comment.

Backed by Google parent company Alphabet, San Francisco-based One Medical operates 72 primary care practices in nine major U.S. cities. The company aims to provide a more modern healthcare experience by offering 24/7 virtual care, same-day appointments, a mobile app for online appointment scheduling, access to digital healthcare records and digital health reminders.

The company was founded in 2007 by physician Tom Lee, who led the company until 2017 when Amir Dan Rubin, a former UnitedHealth group executive, took the reins as president and CEO. Rubin recently told CNBC that the company has seen “tremendous growth” in other areas of its business, including partnerships with self-insured employers for on-site and nearby health clinics.

IPO recaps

One Medical joins a growing list of healthcare technology companies to go public this year or with plans to go public soon including Livongo, Health Catalyst, Change Healthcare and Phreesia.
Chronic disease management company Livongo Health and data and analytics company Health Catalyst both had strong public debuts in July. Phreesia, which developed a patient intake management platform, closed its first day of trading as a public company July 19 about 40% above its set price.
But investors remain skeptical about recent IPOs. Phreesia opened up on the New York Stock Exchange at $26.75 after being originally priced at $18 per share. The stock climbed as much as 53% above its offering price. It’s now slightly down at $25.48. Livongo has dropped 32% since trading in July, and Health Catalyst is up about 4% from its initial price.

Progyny, a company that manages fertility benefits for employees at large firms, filed its preliminary prospectus with the Securities and Exchange Commission Sept. 27 for its IPO.
The company will trade under the symbol “PGNY” on the Nasdaq.
Progyny launched its fertility benefits solution in 2016 with its first five employer clients and has grown its client base to over 80. The company currently provides coverage to 1.4 million employees, the company said in its S-1 filing.
The company has raised nearly $100 million in venture capital with investors including Kleiner Perkins and M Ventures, Merck’s corporate venture arm, according to Crunchbase.
Progyny counts Google and Microsoft among its largest clients; in the first half of 2019, Google accounted for 17% of Progyny’s total revenue and Microsoft accounted for 11%. Facebook also is a large client, according to CNBC.
Progyny generated $103.4 million in revenue in the first half of 2019 and net income of $4.04 million. That compares to $48.4 million in revenue in the first six months of 2018 and a net loss of $2.4 million, the company said. Full-year 2017 revenue was $48.6 million, and that grew to $105.4 million in 2018, representing year-over-year growth of 117%.

The company said in its S-1 filing that its unique approach and range of benefits results in above-average fertility outcomes for its members, with in-network IVF pregnancy rates of 60.7% compared to 52.5% across all IVF fertility clinics.
The market for fertility treatments in the U.S. was approximately $6.7 billion in 2017, Progyny said in its S-1 filing. As only 50% of individuals suffering from infertility seek treatment, the company estimates the potential size of the U.S. fertility market to be at least twice as large.
“We believe we are well-positioned for growth as our current base of 1.4 million members represents only 2% of what we believe to be our total addressable market. In addition, we believe we can continue to increase our business with our existing clients as they expand their employee bases and adopt more of our services over time,” the company said.
https://www.fiercehealthcare.com/tech/primary-care-company-one-medical-has-hired-banks-ahead-ipo-cnbc-reports

Fitbit rises as it shifts production outside of China

Fitbit (NYSE:FIT) jumps 3.5% in premarket trading as it shifts manufacturing operations away from China for effectively all of its trackers and smartwatches.

Expects that its products will no longer be subject to Section 301 tariffs starting in January 2020.

“In 2018, in response to the ongoing threat of tariffs, we began exploring potential alternatives to China, said Fitbit CFO Ron Kisling. “As a result of these explorations, we have made changes to our supply chain and manufacturing operations and have additional changes underway.”

https://seekingalpha.com/news/3504713-fitbit-rises-3_5-percent-shifts-production-outside-china