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Actionable news in RDUS: RADIUS HEALTH Inc,

Radius Health: M&A Value Stands At $80/Share

Summary

Radius remains a popular name on the rumor mill with initial rumors of a takeout dating back to late 2015. Revived chatter was seen last week amongst British news channels.

Abaloparatide-SC is set for a potential launch in Q2 2017 and remains un-partnered with solid data to back up a significant push in the osteoporosis treatment paradigm.

Assuming a 30% chance of M&A, I arrive at a 12-month target of $62/share, with total rNPV/share at $55/share blended with M&A value of ~$80/share.

Radius Health (NASDAQ:RDUS) was fairly active on the rumor mill this past week with both the Financial Times (and here, subscription required) and Telegraph passing around chatter that the company had drawn interest from the likes of Shire (NASDAQ:SHPG) and potentially Pfizer (NYSE:PFE) and Amgen (NASDAQ:AMGN). Specifically, the Telegraph reported that the company was rumored to have rejected a $70/share bid from Shire recently, which places a price tag of ~$3 billion.

Regardless of whether Radius is taken over or remains independent, the company is set to enter an osteoporosis treatment market that should be kind to the company lead drug Abaloparatide-SC, a parathyroid hormone receptor (PTH1 receptor) that has a PDUFA date of March 30, 2017. Chemically, the buildup of Abaloparatide is ~41% homologous in terms of the proteins that make up Eli Lilly's (NYSE:LLY) Forteo (teriparatide), which did ~$1.35 billion in WW sales in 2015. In terms of other injectable competition, Amgen's (NASDAQ:) Prolia did ~$1.31 billion in WW sales in 2015, up 27% from FY 2014. Amgen also holds the rights to Romosozumab, an investigational compound currently in Phase 3 testing and could potentially be on the market sometime in 2017.

Figure 1: Forteo and Prolia Yearly Sales

(Source: LLY and AMGN company filings)

Radius Should Face Little Resistance With Only Two Major Players in the Osteoporosis Market

The two major players in the market (Lilly and Amgen) both deliver their compounds via subcutaneous injection (NYSE:SC), and the market for oral delivery drugs has actually declined nearly 18% and 9% (OTCPK:CAGR) in the US and ROW (rest of world), respectively (slide 8). For a drug that was approved over ten years ago (approved in 2002), Forteo impressively continues to grow low-mid single digits on a full-year y/y basis. Despite facing competition from generics and drugs of other mechanisms like Prolia, which is an anti-resorptive agent versus Forteo and Abaloparatide which are anabolic agents (stimulation of new bone production), Forteo has managed to grow its footprint on a domestic and international scale. Radius included Forteo as an active comparator in its Phase 3 "Active" trial along with placebo but didn't test the drug head-to-head against Abaloparatide, which isn't necessarily required per FDA guidance but would've been an additional selling point. Regardless, competition in the market simply isn't a factor to worry about especially in one that won't become saturated for a substantial amount of time heading into the future. CEO Robert Ward of Radius has claimed numerous times that the disease is "under-diagnosed and under treated" as the patients come to the realization that they have the disease only after a fracture occurs. According to the NOF and IOF, osteoporosis affects around eight million in the US and around 200 million worldwide (Radius 10-K, page 6). Moreover, the market for treatment was worth around $6.4 billion WW in 2015, indicating that...


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