Acacia Pharma — BARHEMSYS and BYFAVO launched in the US

During the last eight months, Acacia Pharma has successfully launched BARHEMSYS, its first internally developed asset to reach the market, and in-licensed BYFAVO in the key US market (Exhibit 1 and 2). The rationale for in-licensing BYFAVO was to enable operational leverage and accompanying sales and marketing synergies as Acacia builds and expands its US commercial operations. Ahead of potential approvals, Acacia’s core US commercial infrastructure was established with c 30 personnel focusing on six regions (medical science liaisons, national account directors and regional business directors) and the back-office support staff in the US. In October Acacia added an additional 30 sales representatives (five in each of the six regions).

Our sales forecasts are unchanged. We forecast peak BARHEMSYS sales of $405.3m and peak BYFAVO sales of $125.6m. To successfully commercialise BARHEMSYS and BYFAVO, Acacia must ensure the products are accepted on each hospital’s formulary (a list of drugs that healthcare providers in the hospital can prescribe). This often requires the hospital’s pharmacy and therapeutics (P&T) committee to be convinced of the clinical and economic benefits of the drug before approving it, which takes nine to 12 months on average. Once the drug is on a hospital formulary, treatment by both assets would be provided under diagnosis-related group codes where the treatment costs would be included in the total cost of surgery. Although inclusion takes time, it leads to a steady annuity-like revenue stream driven by procedure volumes and automated use rather than relying on individual prescriber decisions. Acacia has hired a highly experienced commercial team with direct experience in successfully launching other products such as OFIRMEV (acetaminophen injection) into the same customer base.

The US label of BARHEMSYS for PONV (approved 26 February 2020) is broad. It is indicated for treatment of patients with PONV to include ‘rescue treatment’ (patients who are uncontrolled following prophylactic treatment with standard-of-care antiemetics) and prophylaxis of PONV as monotherapy and in combination with standard-of-care antiemetics, including a 5-HT3 antagonist (such as ondansetron). Initial detailing will focus on rescue treatment (BARHEMSYS is the only antiemetic with this indication). Acacia estimates the total addressable US population to be c 34 million patients, a sizable opportunity. It also estimates the annual PONV ‘rescue’ market to be $2.7bn. In October 2020, Acacia’s highly experienced commercial team started driving formulary adoption by initially targeting ~900 hospitals. BARHEMSYS has now been added to formulary at 120 hospitals, representing a P&T committee review success rate of 85%.

In addition to BARHEMSYS, Acacia is developing APD403 (repurposed amisulpride, the active ingredient in BARHEMSYS, in both an intravenous form for use alongside chemotherapy and an oral version for use at home in the subsequent days) for managing chemotherapy-induced nausea and vomiting (CINV) as a follow-on indication. Management has indicated that a single Phase III clinical trial would be required for submission for CINV and we expect the company to initiate this trial in 2022, once BARHEMSYS and BYFAVO launches are well underway and there is further visibility on cash runway. In 2017, the global CINV market was valued at $1.7bn (source: MarketInsights reports) and the rising prevalence of cancer has led to increased rates of chemotherapy use. We maintain our forecast peak sales potential of $107.9m in 2031 for CINV.

Acacia’s product portfolio offering was expanded by the BYFAVO in-licence deal with Cosmo Pharmaceuticals (January 2020), done to enable significant leverage of its US commercial infrastructure. Furthermore, under the deal terms, Acacia has access to the short-term funding required to expand its US footprint. BYFAVO (remimazolam) is an ultra-short-acting and reversible intravenous benzodiazepine sedative/anaesthetic approved (July 2020) for use during procedural sedation. BYFAVO has been designated a Schedule IV (low potential for abuse and low risk of dependence) medicine by the US Drug Enforcement Agency; importantly, this is in line with its benzodiazepine peers. Initial discussions with hospital P&T committees are underway and have netted seven accounts on formulary within eight weeks of launch. Acacia believes BYFAVO’s inclusion on formulary has been more rapid than that of BARHEMSYS as the company is able to leverage its existing relationships established through BARHEMSYS inclusions. Acacia is targeting the 40m annual short-duration surgical procedures a year, this includes 25m gastrointestinal endoscopic procedures, but additional opportunities exist for ophthalmology procedures, plastic surgery and in interventional radiology.

Acacia reported maiden revenues of $0.2m in FY20, related to initial sales of BARHEMSYS. During the year Acacia continued to build on its US commercial operations in preparation for the launch of BARHEMSYS and BYFAVO. As a result, net loss rose in FY20 to $33.5m (vs FY19: $22.8m). SG&A expenses increased in FY20 to $31.0m versus $18.5m in FY19, reflecting the increased activity leading up to the product launches and the amortisation of intangibles (which represent the amounts paid to Cosmo for the BYFAVO licence) that is included in this figure. R&D expenses declined to $0.1m (vs FY19: $3.9m) reflecting completion of BARHEMSYS clinical programme and a credit of $1.4m related to reversal of inventory provisions on the drugs approval.

We forecast revenues in FY21 of $8.0m, growing to $39.7m in FY22. In the short term, revenues remain dependent on the successful sales execution of BARHEMSYS in PONV and BYFAVO in procedural sedation. Future BARHEMSYS sales could derive from the CINV indication and further product in-licensing. We forecast a net loss of $47.3m in FY21 and $41.4m in FY22 and that Acacia will reach break-even in 2023. We anticipate that SG&A costs will increase to $50.6m in FY21, growing to $68.9m in FY22 – this investment is necessary to support product commercialisation.

In June 2018, Acacia drew down $10m from the loan facility with Hercules Technology Growth Capital. The deal with Cosmo provides an additional €25m loan facility, interest-rate only until January 2023 and repayable over the following 24 months. Until the Hercules debt is fully repaid, the Cosmo loan interest is 11%, after which it decreases to 9%. Acacia reported cash and cash equivalents of $46.7m at 31 December 2020 (vs $17.0m in 2019). In August 2020, Acacia raised €25m gross through the placing of 12.5m shares. Thus, including Cosmo’s equity investments (€20m), Acacia gained access to €70m additional capital in the form of debt and equity in FY20. Post period, Acacia raised €27m gross through a 10m share placing (11.1% of prior share capital). To fund further expansions in US operations, we forecast that an additional c $35m will need to be raised in 2022. We note that, for simplicity, in our model we illustrate this as long-term debt funding. A US listing could make sense in the future depending on market conditions and, importantly, Acacia’s status quo post launch of BARHEMSYS and BYFAVO in terms of sales.

Our revised valuation is €1,278m or €12.8/share versus €1,170m or €13.4/share previously. Our sales forecasts are unchanged, we roll our model forward, update FX and reflect a net cash position of $10.0m at 31 December 2020.