Somaxon Drug Awaits Approval
Somaxon Pharmaceuticals, Inc. (SOMX) filed the new drug application (NDA) for insomnia drug Silenor in late January 2008. The Food & Drug Administration (FDA) accepted the application in April 2008. The Prescription Drug User Fee Act (PDUFA) is now set for December 1.
Somaxon is currently in discussion with several interested parties for commercialization of the drug in early 2009. The management is looking for a co-promotion agreement in the U.S. However, we do not believe a deal will be reached until after the FDA's decision. In the meantime, all investors can do is wait. We are keeping our rating at Hold, and maintaining our $6 price target.
Despite the enormous size of the insomnia market, prescription growth has slowed to an anemic 2-4% year-over-year. The intent-to-use patent for chronic insomnia expires in 2013. Although Somaxon has also secured a patent in transient insomnia that does not expire until 2020, we expect low-dose generic doxepin HCl to be used for general insomnia claims starting in 2014.
However, Silenor's total sleep time (TST) data is among the best we have seen in the category. The drug also looks to have the cleanest safety and tolerability profile (at 3mg) among the prescription products. No Drug Enforcement Administration scheduling and a competitive price could vault Silenor to the No. 1 branded product on the market.
Somaxon needs a big ship to power through and drive home the differentiating and superior characteristics of the drug. Although Silenor could be a more than $750 million drug for insomnia, but it will take significant promotion and effort to get there. In our view, only a large-cap pharmaceutical company with a significant primary-care sales force of >500 reps and a $200+ million marketing budget can get there.
Red Robin Flies, But Not Too High
Red Robin Gourmet Burgers Inc.'s
(RRGB) distinct family-friendly atmosphere, and strong value proposition have created a loyal customer base, which supported high-teens unit expansion, healthy same-store sales, and robust EPS growth for several years until its entry into new markets in 2006 dampened traffic.
The management dramatically scaled back unit expansion while it has improved returns on its new-market restaurants through a national advertising campaign and lower construction costs among other efforts and re-accelerated unit growth in 2008. Initial results have been positive and traffic has improved.
However, we think the current valuation assumes that the company will sustain traffic improvements while reaccelerating growth, without incorporating the risk of flawed execution, heightened in the current environment.
Red Robin has a strong value proposition with a lower average check and a distinct concept that appeals to higher-income families. A high proportion of higher income customers should lessen the negative effects of higher gas prices.
