Crossject — Update 13 June 2016

Crossject is a needle-free drug delivery company that was founded in Dijon, France, in 2001 as a spinout from Fournier Laboratories (which has since been acquired by Abbott) and went public on the Paris exchange in 2014 in a €17m offering. It is a low overhead company with 23 employees.

Crossject has seven programmes in development, all using its proprietary needle-free injection system, ZENEO. Its lead programme is ZENEO Methotrexate for rheumatoid arthritis (RA), which is expected to be commercialised in Europe in H217 and in China sometime in 2017. It already has regional partnerships in France, India and China and will likely sign additional agreements to commercialise the product in other regions (as it likely will with all of its products). The next product to reach the market will likely be ZENEO Sumatriptan for the acute treatment of migraine, which is expected to be commercialised in H118. Crossject is also developing a product dubbed ZENEO L15, which is an undisclosed emergency product for a relatively niche market, and is expected to launch in H118. Crossject will be targeting the billion-dollar epinephrine market with ZENEO Adrenaline, with a commercial launch targeted for H218. ZENEO Midazolam for the acute treatment of epileptic seizures is expected to also hit the market in the second half of 2018. Finally, the company is developing ZENEO Naloxone for drug overdose and ZENEO Apomorphine for temporary paralysis associated with Parkinson’s disease (PD), with commercial launches targeted for 2019.

Using a risk-adjusted NPV model, we value the company at €81.1m or €11.96 per basic share. We currently assign no value to the L15 programme, as we don’t have knowledge of what the product is or what indication it is for; once this information is available, we will likely include it in our valuation. Also, we are not including the naloxone and apomorphine products as there is significantly less visibility. Also, much of our valuation is dependent upon successful launches in the US as pricing in Europe, according to company comments, will likely be a fraction of that in the US and in the rest of the world. Potential catalysts will likely include the announcement of additional partnerships for Crossject’s various products as well as product approvals, which should start in earnest in H217.

As of year-end 2015, Crossject had €5.2m in cash and cash equivalents on hand. The company expects to receive an additional €3.1m in grants in 2016 and recently announced an equity line, which could provide ~€10m. Between now and projected profitability in 2018, we predict a total capital need of €15m for Crossject. This requirement would be mitigated somewhat by additional upfront payments from partners as well as milestone payments upon product approvals.

As Crossject is focusing on well characterised and approved generic drugs, there should be very little clinical risk, with only positive bioequivalence and device usability studies likely needed in healthy volunteers. The main risk will come on the commercialisation front, as Crossject is completely dependent upon partners to market the products. Also, Crossject is generally focused on areas that are heavily genericised with multiple dosage forms available. In the case of sumatriptan, there are oral, injectable (both with a needle and needle-free) and intranasal forms available. Making headway may be extremely difficult and will likely depend heavily on physician and patient preference. However, Crossject diversifies the commercialisation risks and its dependence on any single product by having a deep product pipeline, with the total cost of developing each product estimated to be in the €4-6m range per compound.

Crossject’s proprietary needle-free injection platform, ZENEO, can be used for up to 200 drugs (both small molecule and biologic) that the company identified, although currently the company is focusing mainly on acute treatments (except for its methotrexate product for rheumatoid arthritis) where the speed of treatment is an important factor for patients.

Broadly, ZENEO offers a number of advantages over conventional syringes:

The device itself is disposable, pre-filled and single-use. It generally works in a similar fashion to other needle-free devices as it involves an energy source (gas), a volume of drug and a nozzle. However, unlike other systems, the gas to power the drug through the skin is generated at the time of injection through a controlled chemical process. This avoids the need for special storage and transportation of a pressurized system. Also, unlike certain other needle-free technologies, such as powder-based injection systems, no reformulation of the reference product is needed, making both clinical development and commercial manufacturing cheaper and easier. It is also adaptable to various product viscosities and can be discharged subcutaneously, intramuscularly or intradermally. The mechanism was adapted from air bag systems technology and can be manufactured in a mass and low-cost fashion. It is covered by 403 patents, with patent protection running into 2035.

RA is an auto-immune inflammatory arthritis that affects 1.3 million4 adults in the United States. Internationally, the prevalence rate is between 0.4-1.3% according to the CDC. Methotrexate is generally recommended as the first-line therapy for these patients and comes in both oral and injectable forms. Although the vast majority of patients (~80%5) in the United States take the oral version, the injectable version has shown to have greater bioavailability and dose response than the oral version (oral methotrexate exposure plateaus at doses of 15mg and above) due to absorption issues that the injectable version bypasses.6

One of the problems with the traditional injectable version is the multistep process that had to happen before the patient could dose themselves. Patients had to gather multiple supplies (eg syringe, vial, alcohol swab for vial top cleaning, sharps container and potentially a bandage as well), prepare both the syringe and vial, draw the methotrexate, expel air from the syringe and only then inject themselves.

In order to help make injections more convenient and also less painful, two pre-filled disposable autoinjector versions were launched in 2014, Otrexup from Antares Pharma and Rasuvo from Medac Pharma. Antares reported 2015 US sales of $13.2m for Otrexup, while Medac, a private company, does not report sales but likely had ~$10m in sales in 2015 based on prescription data.

Sales for Otrexup and Rasuvo have been modest (though currently approaching a combined $50m annualised rate) for three major reasons:

Crossject will likely have to face similar hurdles as Antares and Medac, but would have one key marketing advantage of being needle free. We currently assume approval in the US in 2019 and in the EU in H217 (the company has already been able to demonstrate bioequivalence of its product to the injectable version) for the product with pricing of €100 (which is approximately in line with Otrexup pricing) and €20 per dose respectively. Peak sales are estimated at €82.2m in the US (2% peak penetration of the methotrexate market) and €17.8m in the EU (6% peak penetration of the methotrexate market). We assume greater penetration in the EU market as injectable methotrexate in general has garnered greater acceptance in that market, while in the US injectable methotrexate is only ~20% of the market. We are not currently modelling product sales outside the US and EU as there is little visibility in those markets, especially since patients typically will not be reimbursed for the use of ZENEO Methotrexate.

Unlike with Antares and Medac, we do not expect Crossject to market ZENEO Methotrexate by itself and the company has already signed local partnership deals with Biodim for France, with Sayre for India and with Xi’an Xintong for China. Crossject will receive €1m per pre-commercialisation milestone from Biodim and €3m for Chinese approval from Xi’an Xintong. Sayre milestones for India are unknown. For the United States, we expect a partner to pay a total of €2m upfront/approval and an additional €10m in commercial based milestones. For both the US and EU markets we have assumed a 20% royalty.

Migraines are a very common and debilitating ailment often lasting between four and 72 hours, with prevalence of around 13% in the US8 and around 15%9 in the EU, totalling over 100 million sufferers across the two regions. Sumatriptan was the first drug within the triptan class available for the treatment of migraines and has been the standard of care since. There are a number of different dosage forms available, including traditional injectable, needle-free, nasal, patch, oral tablet and oral melt (see Exhibit 5). The oral forms together dominate the market, accounting for over 95% of all doses according to Symphony Health. Injectable forms (both traditional and needle-free) are less than 3% of the market (around four million doses per year according to Symphony Health data) despite having a much faster onset of action, with migraine relief coming in a matter of minutes instead of a matter of hours.

The needle-free version of sumatriptan currently on the market, Sumavel DosePro, was originally developed by Zogenix and has been approved since 2009. It was launched in January 2010 by both Zogenix and Astellas as part of a co-promotion agreement. Astellas terminated the agreement in 2012, but then Mallinckrodt took up the product with a similar arrangement, which ended in early 2014. Eventually, Endo purchased the programme outright for $85m in April 2014. As Endo does not break out Sumavel DosePro sales, the last firm data point we have is the $31.7m in sales that Zogenix reported for 2013. The product had been doing well while Astellas was promoting the drug, but then flattened out after changing hands to Mallinckrodt and is falling now that it is with Endo.

From the point of view of providing fast relief for migraines, injectable forms are superior to the other various forms. And based on the initial launch trajectory of Sumavel DosePro, there is a market for needle-free injection products, though their success will likely depend on a quality partner. We currently assume approval in the US and EU in 2018 for Crossject’s ZENEO Sumatriptan with pricing of €100 (which is approximately in line with Sumavel DosePro pricing) and €25 per dose, respectively. Peak sales are estimated at €73.0m in the US (8% peak penetration of the injectable triptan market) and €8.8m in the EU (12% peak penetration of the injectable triptan market). Our estimates for injectable market penetration are conservative due to its competitive nature and the fact that there is already a needle-free option. We assume greater penetration in the EU due to the fact that Crossject is a European company. For both the US and EU we expect regional partnerships to help sell the products. For the US, we assume a €2m upfront/approval milestone and an additional €4m in commercial milestones with a 20% royalty. For the EU, we assume a €2m upfront/approval milestone with a 20% royalty. As a reference, Astellas paid $2m upfront and another $18m in milestones in exchange for a service fee of 45-55% of net sales of Sumavel DosePro to physicians who were in the Astellas target market (primary care physicians, OB/GYNs, emergency physicians and urologists).

Crossject’s next product, which is currently expected to be launched commercially in H118, is known as L15. It is an acute/emergency treatment product for a niche indication with 600,000 patients in both the US and EU. The company is guiding pricing of $100 in the US and €60 in Europe. Assuming an even split in the population between the US and EU, this is a potential ~$500m addressable market. We are currently not including L15 in our valuation given the lack of visibility, but will do so once Crossject defines the market and discloses the molecule that is included in the ZENEO device.

An estimated 1.6%10 of the US population has had an episode of anaphylactic shock (which could potentially be fatal), with allergic reactions to medication, food and insect stings being the most common reasons. This might be an underestimate as data suggests that just food allergy prevalence is 6% in children and 4% in adults.11 Mylan currently dominates this market with its EpiPen product, which accounts for ~93% of prescriptions and had over $1.1bn in 2015 US sales.

A major issue with the EpiPen is that only a minority of patients and physicians know how to use it correctly. According to one study, just 18% of participants were able to perform all steps correctly (one of the major weaknesses being not keeping the EpiPen in place for the full 10 seconds recommended).12 In another study, 32% of participants were able to, but only 18% of paediatricians were able to correctly demonstrate use of the device.13

In order to combat this, Sanofi launched Auvi-Q, an autoinjector that is voice-guided to help with compliance, in 2013. There was a manufacturing related recall in October 2015, but prior to this, it had achieved €113m in sales through the first nine months of 2015, up 52.4% on a constant currency basis over the prior year. This level of sales indicates that there is room in the market for a compliance and user friendly product, such as ZENEO Adrenaline, which is very easy to use and does not need to be held in place for 10 seconds as the product is injected in ~1/10th of a second.

Crossject currently has a worldwide commercial agreement with an undisclosed partner for this product. The partner will be responsible for all R&D expenses related to the product and will pay double-digit royalties and up to approximately $470m in milestones. Crossject received €1m upfront and will receive an additional €8m upon EMA and FDA approvals.

We currently assume approval in the US and EU in H218 for the product, with pricing of €100 (which is approximately half of EpiPen pricing) and €33 per dose, respectively. Peak sales are estimated at €127.3m in the US (8% peak penetration) and €5.8m in the EU (6% peak penetration). Our estimates are conservative due to the strength of the EpiPen brand, which has been able to withstand previous competitors. In terms of milestones, we model €8m upon EMA and FDA approvals (€3m and €5m respectively) and a further €10m in commercial milestones. We estimate royalties of 25% in the US and 20% in the EU, where the product will be less profitable to the partner.

According to the Centers for Disease Control (CDC), 2.9 million people have active epilepsy in the United States. The prevalence of epilepsy in Europe is 3.4 million with 20-30% having more than one seizure per month.14 The average seizure lasts less than two minutes15 but the longer a seizure does last the harder it is to stop with treatment and the greater the likelihood of complications. For seizures lasting 10-29 minutes, only 43% cease without treatment and once they reach 30 minutes in length (officially known as status epilepticus), only 7% cease without treatment, with 19% of effected patients dying.16

Optimally, the patient would be treated at home as the trip to the hospital can waste very valuable time. However, only one at-home treatment is approved in the US, a rectal gel version of diazepam, which is part of the benzodiazepine class along with midazolam.

While rectal diazepam does work quickly (see Exhibit 7), it is not patient friendly as it involves injecting a liquid inside the rectum of a patient while they are having a seizure, which may be convulsive. Nevertheless, rectal diazepam achieved over $100m in sales before going generic in 2010.

In Europe, a buccal form of midazolam, known as Buccolam, is marketed by Shire. It is a liquid that needs to be inserted slowly into the space between the gum and cheek, again possibly not the most convenient way to administer a drug to someone with a convulsive seizure. According to EvaluatePharma, sales in 2015 were $18m, though Shire does not disclose sales specifically for that product, given its small size.

Crossject’s ZENEO Midazolam should have a similar profile to intramuscular and buccal midazolam, with a 5-10 minute onset but short duration of action, ideal for home use. Given the quick and easy administration of midazolam via the ZENEO device, Crossject should have an advantage over the competition.

We currently assume approval in the US and EU in late 2018 for the product, with pricing of €100 and €25 per dose, respectively (approximately the average price of Buccolam in Europe). Peak sales are estimated at €50.8m in the US (8% peak penetration) and €6.8m in the EU (12% peak penetration). Our penetration estimates are conservative due to the competitive and genericised nature of the market. We believe Crossject will require a marketing partner in the different regions. In terms of milestones, we model €2m upfront/approval milestones for EMA and FDA approval and a further €4m in commercial milestones. We estimate royalties of 20% for both the US and EU.

Crossject is also working on a needle-free naloxone, which is intended for the acute treatment of opioid overdose, and needle-free apomorphine, which reverses hypomobility (“off episodes”) associated with Parkinson’s disease (PD).

Naloxone is an opioid antagonist that is able to reduce the respiratory and mental depression due to opioids and hence can be very useful in saving lives when available. The need is clear; according to the Drug Abuse Warning Network, in 2011 there were 258,482 emergency room visits in the United States due to heroine and another 488,004 due to nonmedical use of prescription opioids.

Due to these numbers, naloxone kits are now available without prescription in 14 states (naloxone has no side effects in people without opioids in their system) and can usually be obtained for $20-40 per kit, which includes two doses. They are available in traditional intramuscular, intramuscular/subcutaneous auto-injector and intranasal forms, all of which work within 6-8 minutes of administration.

Apomorphine is a dopamine agonist and is used to treat/manage sudden and unexpected bouts of hypomobility associated with PD. According to the Parkinson’s Disease Foundation the prevalence of Parkinson’s is one million people in the United States, with 7-10 million people worldwide suffering from the disease. Once patients are on standard PD drug treatments for four to five years, they experience bouts of hypomobility, including the inability to rise from a chair, to speak or walk. Often these can be treated by changing their treatment regimen. However, according to BlueShield of Northeastern New York, approximately 12,000 patients have severe hypomobility that requires apomorphine, which reverses symptoms in 7-14 minutes. As a month’s supply is typically ~$2,000/month, the addressable market approaches $300m per year in the United States alone.

As previously mentioned, we are not including ZENEO Naloxone or ZENEO Apomorphine in our valuation as they are currently not expected to reach the market until 2019 and there is little visibility as to their status. We will include these programmes in our valuation model once their advancement is announced by the company.

As Crossject is focusing on well-characterised and approved generic drugs, there should be very little clinical risk for any one of its programmes. All that will likely be needed will be bioequivalence and device usability studies. The main risk will come on the commercialisation front as Crossject, at least at this point, is completely dependent upon partners to market the products and will need partners for each product in each region. Also, Crossject is generally focused on areas that are heavily genericised, with lots of different dosage forms for the product it is putting onto the ZENEO platform. In the case of sumatriptan, there are oral, injectable (both with a needle and needle-free) and intranasal forms available. Making headway may be extremely difficult and will likely depend heavily on simply physician and patient preference. Pricing/reimbursement will be another issue, as pricing outside the United States is likely to be challenging, leading to minimal market opportunity for its products. In the United States on the reimbursement front, Crossject products will likely be placed in “Tier 3” with higher co-pays and need for prior authorisation. This would limit the opportunity for its products. However, Crossject does not depend on any one of its products to be extremely successful in order for it to be successful as a company, due to its deep pipeline, with the total cost of developing each product estimated to be in the range of €4-6m per compound.

Using a risk-adjusted NPV approach, we value the company at €81.1m or €11.96 per basic share (€82.8m or €11.18 per diluted share). We currently assign zero value to the L15 programme, as we have no knowledge of what the product is or what indication it is for. Also, we are not including the naloxone and apomorphine products as they are further out and visibility on them is limited. In addition, much of our valuation is dependent upon successful launches in the US as pricing is often a fraction of the US value in Europe and in the rest of the world. We assume 60% probabilities of success. Clinical risk is low as Crossject is simply taking a well-characterised generic molecule that is already given intramuscularly or subcutaneously and using propulsion instead of a physical needle to get beneath the skin. However, commercial risk is greater due to the need for the right partner, who would need to have a large enough salesforce focused on the indication that Crossject is targeting (~100-200 salespeople in the US for a speciality indication and ~1,000 for a more generalised indication). Potential catalysts will likely include the announcement of additional partnerships for the various products as well as product approvals, which should start in earnest within the developed countries in H217.

As of year-end 2015, Crossject had €5.2m in cash and cash equivalents on hand. The company expects to receive an additional €3.1m in grants in 2016 and recently announced an equity line from Kepler Cheuvreux, which could provide ~€10m. The terms are that Kepler Cheuvreux has committed to subscribe over the next 24 months to a maximum of 1.2m shares at a 7% discount. Between now and expected profitability in 2018, we project a total funding need of €15m for Crossject and have modelled this via an illustrative long-term debt. This need would be mitigated somewhat by additional upfront payments from partners as well as milestone payments upon product approvals. We expect €9m total in R&D expenses in 2016 and 2017 and an additional €9m in SG&A.