Why Jefferies Still Sees Exponential Upside in TherapeuticsMD

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TherapeuticsMD Inc. (NYSEMKT: TXMD) saw its shares drop off earlier this month after the company received a letter from the U.S. Food and Drug Administration (FDA) citing deficiencies in its treatment (TX-004HR) of moderate to severe dysparaeunia due to vulvar vaginal atrophy. Although this letter had a negative impact on the stock, it was not a death sentence, at least according to one analyst.

Jefferies maintained its Buy rating for TherapeuticsMD with an $18 price target, versus a $6.20 closing price. The firm pointed out that the note from the FDA was not a Complete Response Letter (CRL) and that the agency’s concerns may be easily addressed.

The firm believes that this is still an approvable drug, but there are some negatives. Notably, the severity of issues and time to address are unclear until the company speaks with the FDA and it currently appears the May 7, 2017, PDUFA date may not be met.

With the receipt of the letter by the company sometime on April 7, 2017, TherapeuticsMD is working to set up a meeting with FDA to gain clarity. But it is unclear to what extent this week’s religious observations could delay when the company is able to gain insight into the deficiencies, and then update investors.

Jefferies further commented on the situation:

We spoke with a consultant whose background includes two years at FDA and ~two decades consulting on various regulatory matters. He/she noted it is not unusual that FDA did not disclose the deficiencies to TXMD in the 4/7/17 letter. At this late stage in the FDA’s review cycle there appears to be four lead theoretical reasons for the cited deficiencies: 1) FDA inspection of a REJOICE clinical study site(s) revealed documentation error(s), which relates to clinical data quality. 2) Longer-term safety data from REJOICE may have revealed something concerning. 3) Long-term ‘004 shelf-life stability. 4) A CMC issue [possibly related to an FDA inspection of Catalent’s facility, TXMD’s contract manufacturing organization (CMO)]. Manufacturing estradiol is low dosage forms (4, 10, 25µg) requires precision, and manufacturing soft gel capsules can pose challenges. Consultant noted the deficiencies will need to be addressed before FDA can begin label discussions, and then for it to issue its NDA decision.

The consultant also noted that TherapeuticsMD may initially have a telephone call with the FDA project officer assigned to the New Drug Application (NDA) and it is possible the project officer could provide specific details on the deficiencies. After this, TXMD could have a (follow-up) call with the team that cited the deficiencies with the NDA, when specific details are likely to be revealed. At this time it is unclear what the exact process will be.

Shares of TherapeuticsMD were last seen down 1.1% at $6.13 on Tuesday, with a consensus analyst price target of $22.17 and a 52-week trading range of $4.39 to $9.29.