Brean Murray, Carret & Co. analyst Brian Skorney initiated coverage of Gentium S.p.A. (NASDAQ: GENT) with a "Buy" rating and $16 price target, based on the value of defibrotide for hepatic veno-occlusive disease, a frequently fatal side effect of stem cell transplantation.
Highlighting the severity of the disease, Gentium is already profitable from defibrotide sales even though the drug is not approved anywhere in the world. Skorney believes the current valuation is justified by the current sales trajectory, with significant upside potential (100%-plus) upon approval in the E.U., which he expects to occur this year.
Gentium's key asset, defibroide, is already the standard of care for the highly fatal veno-occlusive disease (VOD), even though it is not commercially approved anywhere in the world.
The analyst believes that the current sales trajectory ($22 million and growing) substantiates the company's current valuation (about 5 times forward sales), even if global regulatory agencies never approve defibrotide.
However, the robust sales of defibrotide, despite the heavy restrictions, in Skorney's view, highlight the dire need of such an indication – a factor he does not believe regulatory entities take lightly and favor eventual approvals.
The analyst believes the data submitted to the EMA consisting of evidence that defibrotide can effectively prevent, as well as treat, hepatic VOD will lead to a broad label.
Skorney thinks such a label would provide Gentium with the flexibility to substantially expand defibrotide sales by targeting earlier treatment of VOD as well as greater penetration into high-risk transplant patients.
The analyst also believes approval would justify at least a 30% increase in price on a per-vial basis. He estimates peak E.U. sales of about $140 million in 2024, assuming approval versus about $35 million without an approval.
Gentium pulled the NDA in the U.S. last summer following correspondence from the FDA indicating numerous issues in the submitted package relating to incomplete data sets. Skorney believes FDA approval is unlikely in any near-term time frame, given what he believes will be a great deal of regulatory skepticism around the use of an historical control arm as a basis for comparison.
However, the analyst believes that Gentium can continue to run the U.S. operation at breakeven, for the foreseeable future and beyond, through the cost recovery program. However, he thinks approval represents about 50% upside from current levels.
Skorney said fair value of $16 per share is based on risk-adjusted cash flow projections. This valuation assumes a 20% probability of successful U.S. approval and 65% probability of successful E.U. approval.
The analyst believes the stock could be worth as much as $22 in the event that both regions were approved. Although there is certainly downside potential from any negative regulatory action, he believes the fundamentals support the current share price in the event that regulatory approvals never materialize.
The biopharmaceutical company is trading up 2.58% at $9.16 on Wednesday.