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Friday European Union (“EU”) regulators began an investigation of Esmya (ulipristal acetate) which is used to treat symptons of uterine fibroid:

European Union (EU) regulators have started to investigate whether a drug that treats uterine fibroid symptoms called ulipristal acetate (Esmya, Gedeon Richter) may injure the liver.

Sparking the investigation were four reports of serious liver damage in patients treated with ulipristal acetate, three of whom required liver transplants, according to a news release issued today by the European Medicines Agency (EMA).

Initial assessments from regulators suggest that Esmya could be the cause of liver damage in certain patients. They will determine potential implications for the use of Esmya after evaluating additional data. The initial investigation and potential outcome could impact Allergan (AGN). The company has a new drug application (“NDA”) for ulipristal acetate that was accepted by the FDA in October 2017. The EU investigation could potentially stymie that NDA.

The Situation

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Ulipristal acetate is used to treat uterine fibroids (non-cancerous tumours of the womb). According to the Agency for Healthcare Research and Quality (“AHRQ”) 26 million women in the U.S. between the ages of 15 and 50 years old have uterine fibroids. Common symptoms are heavy menstrual bleeding and irregular menstrual cycles, among others. The ailment is estimated to account for about one-third of hysterectomies that occur in the U.S. If Esmya was approved then Allergan could have the country’s first oral treatment for uterine fibroids. The drug is currently being marketed in Europe by Gedeon Richter; Allergan is marketing ulipristal acetate in Canada as Fibristal.

Initial signs suggested Esmya could be Allergan’s next blockbuster. The company planned on making a major investment in the drug. It was expected to build a women’s health field force of 300 to call on 20,000 OB-GYNs nationwide. The company’s women’s health unit was sponsoring the White Dress Project, an organization design to bring research and awareness to uterine fibroids. The project was expected to expand nationwide beyond its current footprint in New York, Florida and Georgia.

That said, the potential revenue from Esmya could be in question. Seeking Alpha author EP Advantage previously divulged the drug had a forecast of over $500 million in annual revenue. Though uterine fibroids affect 26 million women in the U.S., there is a school of thought that the patient population could be limited to women needing fibroid surgery. Secondly, some analysts estimate elagolix – a phase three challenger from AbbVie (ABBV) and Neurocrine Biosciences (NBIX) – could peak at $286 million in sales.

Esmya Could Be Another Hit To Allergan’s Pipeline

Allergan has dominated the financial news cycle since September when it sold patents for its blockbuster dry eye drug to the St. Regis Mohawk Tribe. AGN is off over 25% since, and the company appears to be in search of new narratives to support the stock. Management announced a $2 billion share repurchase plan in late September, yet the stock continued to fall.  Last month Evercore’s Umer Raffat suggested (1) AGN was effectively trading at zero pipeline valuation and (2) it was about to enter a heavy phase of pipeline read outs starting in 2018.

According to Bloomberg Allergan has taken a few hits to its pipeline this year:

Allergan PLC announced mixed results Friday from a mid-stage test of cenicriviroc — a drug for the liver disease NASH — but it still plans to continue a larger final-stage test. While the company excels at a lot of things — including inventive but morally dubious patent maneuvering, selling Botox, and timing the top of the generic drug market  — its R&D decision-making has been more questionable …

This is just one part of Allergan’s broad pipeline, and the company’s overall strategy of investing more heavily in new drugs is smart as it tries to diversify its growth. But this is the second time this year it has decided to continue final-stage trials after dubious Phase 2 data. And several of its other R&D-focused acquisitions are on the risky side.

I deduce from the Bloomberg article the company’s near term pipeline might not be as strong as analysts suggest. The cloud over Esmya could add to Allergan’s woes. I deduce from its attempt to rent the Mohawks’ sovereign immunity that Allergan could be desperate. Restasis represents 9% of total revenue and about 12% of the company’s income. Generic competition for Restasis or a dearth of new products could cause investors to conclude the company’s organic growth is dead and its 10.3x EBITDA multiple untenable.

Conclusion

Allergan is embroiled in a patent battle for its second-largest drug while its organic revenue growth appears stagnant. Another cloud over its drug pipeline might make it difficult for management to convince it is still a growth company. AGN remains a sell.

Trump And The Global Economy

The second installment of Trump And The Global Economy Town Hall took place October 24th in Fort Greene. It Featured Professor Lance Brofman, Coconut Rob (Coconut Rob Smoothies), Wuyi Jacobs (AfroBeats Radio) and Ralph Baker, author of Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead.

The event was well-received by the community. We parsed through President Trump’s proposed tax plan and [i] how it was pure economic folly and [ii] high net worth individuals could potentially game the system by shifting income around. Apparently, Kansas Coach Bill Self did this when the state of Kansas cut taxes in the past. We discussed the pros and cons of technology on workers and the economy. How will the economy and country prosper under Trump’s leadership vis-a-vis Obama? What’s behind the verbal sparring with black athletes, ESPN’s Jemele Hill and North Korea’s Kim Jong Un?

 

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