Introduction

Trevena Inc. (Nasdaq:TRVN) spiked 119% from the $.5 range to $1.19 on January 28th. The catalyst being positive regulatory updates from the FDA Type A meeting minutes.

In a nut-shell the FDA deemed that TRVN’s safety database sufficiently supported a maximum labeling dose of 27 mg. Additionally, no more efficacy studies are required. TRVN can resubmit their New Drug Application (NDA) after completing a study to collect QT-interval data (i.e. how the drugs affect on cardiac rhythm) planned for the first half of 2019.

Two points of significance are: 1) That the QT-interval study will only be 24 hours in duration and 2) It can be conducted on healthy volunteers. The implication is that TRVN could potentially re-submit their NDA this year and get another PDUFA as early as late 2019 or early 2020. The FDA also requested nonclinical data regarding Oliceridine’s 9662 metabolite and product validation reports be submitted with the NDA. The 9662 metabolite data can be generated in a single nonclinical species expediting the process. Pharmacokinetic work is already underway.

Source: StockTwits

The Type A meeting followed a complete response letter (CRL) issued by the FDA in response to a NDA filed for Oliceridine in 2018. Investors were elated by the recent news as it means TRVN can resubmit their NDA much sooner than anticipated. Additionally, investors can find some peace in knowing TRVN forecasts sufficient funding through the second quarter of 2020.

The 52-week price action for TRVN reveals a high of $3.58 and a low of $.38. It appears that many bulls are trapped near the higher end prior to the November 2018 CRL. This was undoubtedly a factor in the stock not retracing as one would expected after a 119% run. On 1/30/19 the company announced a direct offering of 10 million shares in common stock, reducing the risk of such action again this year.

About TRVN

TRVN Revised Investor Presentation

TRVN is a clinical stage biotech company headquartered in Chesterbrook, Pennsylvania. They focus primarily on the discovery and development of G-Protein coupled inhibitors. The companies lead molecule Oliceridine injection is a G-Protein biased mu-opioid receptor being developed for management of moderate to severe pain in controlled settings such as hospitals. If approved, the company has stated they wish for Oliceridine to be a schedule 2 drug. Drugs in this class have a high potential for abuse and potentially lead to severe psychological damage or physical dependence. A regulatory advantage though was achieved in February of 2016 when TRVN received breakthrough designation status (BTD). And the commercial emphasis on its intended use in an in-patient setting mitigates the risk for abuse.

You may recall our previous article on TRVN. In this we argued the company would trend upwards in anticipation of their PDUFA date. Our move was to swing the stock and get out before the decision. Unfortunately, some investors did not take the same approach. In this article we’ll discuss the implications of the Type A meeting for TRVN in 2019, long-term outlook scenarios, and TRVN’s fitness in a competitive landscape.

Near-Term Analysis of TRVN

Subsequent to the Type A FDA meeting insider buying accelerated the share price even further reaching a high of $1.40 on February 5th. The most recent insider purchase was by the president & CEO on 02/01/2019 scooping up 50,000 shares at $1.02. Fellow director Maxine Gowen also bought 50,000 shares at 1.02 while TRVN board chairman Leon Moulder bought 100,000 shares at the same price.

On a technical note investors should pay attention to potentially foretelling indicators such as the RSI currently residing at 74.27. An RSI of 80 or more is generally accepted as overbought territory. Despite this, share-price performance for the remainder of the year should trend upward assuming no more obstacles to approval arise.

TRVN should have a trial design finalized and in the hands of the FDA soon. Once they get the green light they can begin a relatively short study (24 hours) gathering QT-interval data among healthy volunteers. The FDA agreed for data points to be collected every hour. The outcome of this should be positive and without negative clinical deviations compared to the placebo arm. This notion is supported by data from QT-interval data in phase 3 trials as noted during the January 28th conference call. From there TRVN can compile the requested data and information and resubmit their NDA. Given this was all the FDA requested in support of an NDA suggests a high chance of approval for Oliceridine, assuming the QT-interval data is satisfactory.

Investors trapped in their positions prior to the November CRL (supported by light selling volume at current prices) coupled with the speculation on upcoming material events, insider buys, and closing of the recent offering points towards a 2019 bull run. With this in mind it is important for investors to look at companies such as Verastem Inc (VSTMVSTM) which benefited largely from a run up to it’s PDUFA date. After receiving approval for their lead drug Copiktra the stock plummeted even though it was supported by insider buys. On a more salient note TRVN has formidable competition in the treatment of moderate to acute pain market.

Long-Term Outlook

If Oliceridine is approved by 2020 TRVN will need to raise capital somehow for a commercial launch. This is assuming they follow suit with their competitor AcelRx Pharmaceuticals and go at it alone. Funding could come in the form of a public offering, debt financing, issuing of warrants or convertible notes, or a partnership. The latter is certainly a good possibility given the market demand for improved IV opioid options which would peak the interest of big pharma. In addition to Oliceridine, TRVN has some intriguing molecules in the earlier phases of development that also meet under-served pain management needs.

610 million headaches are treated in the U.S every year. In 2014 this figure was comprised of 440 million people with acute episodic migraines and 170 million with chronic migraines. According to TRVN, 20%-30% of these people either did not respond or could not tolerate the industry standard triptan class of pain medication. TRV250 is a small molecule in phase 1 of development as an improved treatment option. It activates delta-receptors which have emerged as effective targets for treating migraines and run a much lower risk of addiction compared to other opioids like oxycodone and morphine. Furthermore, preclinical data suggest the drug may also have utility in treating Parkinson’s disease.

Acute and chronic pain management is longstanding medical need. The dichotomy is that weak analgesics (i.e. pain meds) do not adequately meet patients needs, yet stronger analgesics run higher risks of abuse, dependency, respiratory depression, and have overall unfavorable safety profiles. TRV734 is another phase 1 compound under development as a safer but equally effective alternative to classical opioids. Unlike most opioids, TRV734 targets the μ-opioid receptor with minimal recruitment of β-arrestin proteins associated with respiratory depression, constipation, and analgesic tolerance.

Market Landscape

According to a research report by MarketWatch the pain management therapeutics market is going to reach $84 billion by 2024 with a CAGR over 3.5%. TRVN’s Oliceridine is certainly a contender to capture a portion of this given its high degree of specificity and proven efficacy. BTD for Oliceridine was granted based on preliminary clinical data demonstrating superior clinical improvement in pain management compared to available therapies. However, it would be negligent to ignore other pharma companies pursuing the same indication, as well as the political and social spotlight on the growing opioid epidemic in the United States.

In November of 2018 AcelRx Pharmaceuticals (Nasdaq: ACRX) gained FDA approval for its opioid medication DSUVIA for the treatment of moderate to severe pain. In June of 2018 its counterpart DZUVEO was approved in the European Union. The active ingredient in the medication is a potent opioid called Sufentanil and can be administered intravenously (IV) or orally. A benefit of Sufentanil is there are no active metabolites. So, ACRX is ahead in the commercialization process and lack concerns regarding metabolites like 9662. In the end however the latter may prove insignificant and ultimately the preferred treatment will prevail. 

One-hundred and thirty people die every day from opioid overdoses. A contributor to this statistic is synthetic opioids that become misappropriated. In 2017, 1.7 million people reeled from substance abuse disorders related to prescription opioid medication. A benefit for Oliceridine is it is intended for in-patient use only (diversion is always a risk). The target application is circumstances where IV use is preferred over oral (i.e post surgery or when patients cannot swallow). In this department it seems TRVN has ACRX beat as IV Sufentanil has a relatively short duration of action. Hence the development of orally delivered DSUVIA.

Financial Analysis

As previously discussed, TRVN has expressed a heightened since of confidence when it comes to their financial outlook. Q3 of 2018 provided investors with increased insights to their financial positioning. On arecent conference call, the company was quoted stating; “it expects cash, cash equivalents, and marketable securities as of December 31, 2018 to be approximately $61.5 million” ; Sufficient to fund operations through the second quarter of 2020. It was also stated at this time that the company will update investors on Q4 and full year ended December 31, 2018 numbers sometime in March.

A look back at TRVN’s most recent 10Q reveals a beat by $0.08 bring EPS in at -$0.06 (Revenue of $3m beating estimates by $1m). As seen left, TRVN realized an increase total asset. This was largely due to an increase in Cash and cash equivalents. In addition, TRVN experienced a decrease both current and total liabilities. This was largely driven by the decrease of loans payable. The results of these factors lead to an increase in stockholder’s equity. Moving from the balance sheet, a decrease in loss from operations is observed (-15,413 FY17 and -4,258 FY18). This along with other factors brought net loss attributed to stockholders in at $(4,483), a sizable change from FY17 of $(15,999). Weighted average common shares outstanding, basic and diluted saw an increase from 60,113,327 in year 2017 to 77,445,675 in year 2018. 

TRVN had a handful of bullish remarks reflected in their 10Q, but ultimately this will likely have insignificant impact on share price. The impact on share price will be dictated by the above discussed material events. TRVN’s financials appear to be sound for the time being as an offering appears unlikely having recently done so.Concerns that arise come with the inherent costs of commercialization of Oliceridine. If approved, will TRVN have the financial capacity to properly market and position Oliceridine to be successful with competition at odds for market share? 

Risk Assessment

The most pertinent risk to be cognizant of right now is the outcome of the QT-interval study. If the Oliceridine treatment arm does not demonstrate non-clinically significant differences compared to the placebo arm than TRVN cannot proceed with an NDA filing. An implication of this outcome may be a reassessment of the maximum labeled daily dose. This would likely involve another clinical trial aimed at determining what that dose would be. 9662 metabolite data must also be to the FDA’s satisfaction. If either of these data-sets falter the prospect of a NDA re-submission in 2019 would be bleak. Consequently, the cash reserves would probably not be sufficient to last TRVN until their NDA could be re-submitted. Maybe not even until the second quarter of 2020

Another scenario could be that the data delivered in support of the NDA would still result in a CRL due to unforeseen factors. This would also probably mean more clinical trials and more cash raised to fund operations. 

Conclusion

MS is bullish on the price performance of TRVN in 2019. The initiation and completion of the the QT-interval study should elicit a positive reaction by the market. If this is done in a timely manner and an NDA is re-submitted in the second half of 2019 even more upside could be in store. Under ideal circumstances Oliceridine would be approved for commercialization by early 2020, possibly even late 2019. If these sequence of events unfolded a conservative valuation would be somewhere between $4-$6 per share. However, as we know things do not always go as planned in the healthcare industry and the inherent risks discussed above should be considered.

In the event of approval in the timeline we laid out, expect a sell-off or pullback similar to the markets reaction to ACRX’s approval of DSUVIA. Once the product is approved it must prove itself through sales and recurrent revenue growth. TRVN will also need capital to launch Oliceridine and continue ongoing developmental operations for TRV250 and TRV734. .

Aside from Oliceridine TRV250 and TRV734 have high potentials to penetrate the acute and chronic pain management markets. Based on preliminary clinical data both display favorable pharmacokinetics and safety profiles compared to industry standard treatment options without sacrificing efficacy. Given this, if Oliceridine is approved the prospect of a partnership or buyout is a real possibility. Under current conditions we rate TRVN a speculative buy with a 12-month price target of $5.