ImmuPharma's Lupuzor offers "blockbuster sales potential", says Merchant Securities

Merchant Securities today initiated coverage of ImmuPharma (LON:IMM) with a ‘buy’ recommendation and 323 pence share price target.

The valuation is based mainly on the potential of the company’s Lupuzor treatment for the auto-immune disease lupus, which has been given the regulatory green light to go into phase III clinical trials.

Analyst Navid Malik, in a 38-page report, points out that ImmuPharma is one of the few biotechnology companies to have control of a late-phase drug candidate, and is unique in having one with such promise.

The company recently clawed back the rights to the fledgling product from Cephalon after its US$6.5 billion takeover by the generic drug maker Teva.

This was followed by a highly encouraging series of updates on Lupuzor’s progress.

The first came from US Food & Drug Administration, which has given the go ahead for phase III with fast-track designation.

The company also revealed it had been given approval to start the next phase of development with a Special Protocol Assessment.

This SPA is an important sign-off on the company’s clinical trial protocols.

The agency is essentially saying that, assuming no unforeseen issues, it will approve the drug if it matches or exceeds certain criteria.

Since this all happens before the data is generated, FDA tends to be conservative when handing out SPAs.

The FDA fast-track follows the submission of phase IIb data collated in 2009.

Meanwhile, the European Medicines Agency has agreed the design for a phase III trial of the drug on this side of the Atlantic.

Earlier this month chief executive Dimitri Dimitriou revealed the group had “rekindled discussions” with big pharmaceuticals interested in teaming up with ImmuPharma to develop Lupuzor.

He said: “A lot of money has been spent on Lupuzor, both on our side and after the deal with Cephalon,” Dimitriou said in a conference call with analysts.

Benlysta, a rival product launched by GlaxoSmithKline and Human Genome Sciences, has underlined the market potential of the treatments in this area of medicine.

Its peak sales are estimated to be US$4 billion, but with 1.5 million sufferers in the G7 alone, there is plenty of room for a rival such as Lupuzor.

Lupuzor, meanwhile, had no shortage of interest at the time of the Cephalon deal, which was worth around US$500 million in milestone payments and royalties.

“We see Lupuzor as offering blockbuster sales potential and more importantly, given the clean safety profile, we also expect it to become standard of care alongside Benlysta (GlaxoSmithKline, Human Genome Sciences),” said Malik.

With an estimated £10.3 million in cash, ImmuPharma has an enterprise value of £65 million, which expects a Lupuzor licensing deal to be agreed in the first half of next year.

The Merchant analyst reckons Lupuzor will be the second or third product for lupus that comes to the market behind Benlysta.

So to be conservative, it has further assumed US market share of 10 per cent with peak sales of US$2.3billion.

“We estimate that the sum of the milestone payments and royalty stream on Lupuzor is worth 323p per share,” Malik adds.

“To be conservative, we have attributed a probability for both the milestone payments and the royalty stream of 50 per cent - which is what we consider to be a typical probability factor for an end of Phase II product that is potentially ready to start a Phase III trial.”