Expert Financial Analysis and Reporting

Introduction

Aimmune is the first company for some time on which I have picked up coverage. My screening criteria is not rigid, but I generally look for a company with a unique late stage product that has great commercial potential and has a solid financial (cash) position. Aimmune Therapeutics with Palforzia for desensitization of patients allergic to peanuts has met these and other criteria. I think that Palforzia is one of the most interesting pre-commercial products in the biopharma universe.

I am also taking a new approach to writing company reports. In the past, I have put together lengthy complex reports about companies when picking up coverage. Subscribers have told me that there is often just too much information to absorb at a single reading. Because of this, my new approach is to publish a series of more easily readable reports on significant issues. This first note on Aimmune delves into peanut allergy, its incidence and the key participants in the market-children, parents, allergists and managed care. I am saving my investment opinion for the last report.

Key Points:

• There is no approved treatment for peanut allergy. The current standard of care is peanut avoidance and carrying an EpiPen in the event that a patient is accidentally exposed. There is a huge unmet medical need for a product like Palforzia that can desensitize patients to peanut proteins.
• Peanut allergy affects 1.60 million children in the 4 to 17 age group and 1.25 million are diagnosed and trying to avoid peanuts. It is estimated that 400,000 patients are treated each year in the emergency room for this allergy.
• Parents are the care givers and are highly motivated to find a treatment for their child. If you are a parent, you understand. Upon approval, there will be tremendous pressure from parents to get their child on Palforzia.
• Management has not given guidance on pricing, but their general comments lead me to estimate it will be $5,000+ per year. Looked at in several ways, I estimate that the addressable market in the US is in excess of $2 billion. European potential is about the same.
• US approval is expected in January 2020 and European approval in 2H, 2020. The initial indication will be for children 4 to 17 years of age.
• About 1,300 allergists are currently treating about 70% of diagnosed peanut allergy sufferers in the US. Aimmune should be able to conduct an effective focused launch with a small sales force of about 80 reps
• Managed care can be expected to put up hurdles to reimbursement until they can negotiate rebates from Aimmune and can budget its annual expense in their premiums. This is likely to cause a slow ramp in sales in 2020, assuming a January approval, and it is probable that it could be sometime in 2021 before we see a meaningful upward sales inflection.
• The prescribing of Palforzia requires multiple administrations over time and upward titration of the dose in the initial treatment phase. As the peanut allergic patient is given increasing amounts of peanut proteins, they must be observed in case serious side effects occur. Treatment requires meaningful office space and several office staff members to take care of logistics. It could take time for some allergists to organize this.
• Management has said that they are expecting a slow and steady launch curve without defining this. I am only guessing, but it may take until 2021 or 2022 to confidently determine the success of the launch.
• I think that Palforzia over time will achieve sales of over $1 billion in both the US and Europe.

About Food Allergies

Aimmune’s technology platform and the resultant product candidates it is developing are based on the use of immunotherapies to desensitize patients to food allergies. A food allergy results from a malfunctioning of the immune system in which proteins in foods are perceived to be foreign causing an immune response in which healthy cells and tissues are targeted by IgE antibodies. It is estimated that food allergies affect 4% to 8% of children in the US and 1% to 2% of adults. They occur more often in young children and in individuals with a personal or family history of other atopic diseases, (a form of allergy in which a hypersensitivity reaction such as dermatitis or asthma may occur in a part of the body not in contact with the allergen). A significant number of children outgrow their allergies, and the allergy causing foods can be reintroduced when they are older.

There are a number of foods that induce allergic reactions. Over 90% result from ingesting cow's milk, eggs, soy, wheat, peanuts, tree nuts (walnuts, hazelnuts, almonds, cashews, pecans and pistachios), fish and shellfish. Most are mild and while uncomfortable, are not dangerous. However, a small percentage are severe and have the potential to induce anaphylaxis, an allergic reaction that affects the entire body. This usually involves swelling in the throat around the eyes and other areas; hives; and lowered blood pressure. Anaphylaxis can sometimes lead to anaphylactic shock in which blood pressure drops so low that bodily organs do not get enough oxygen and cease to function properly; this can be life threatening. Anaphylaxis and anaphylactic shock are often used interchangeably and incorrectly by the lay public. Most allergic reactions do not lead to anaphylaxis and anaphylactic shock leading to death is very rare. Severe allergic reactions of anaphylaxis are characterized by:

• wheezing,
• cyanosis (bluish discoloration principally in the hands and feet caused by reduced oxygen levels in the blood), and
• circulatory collapse (abnormally low blood pressure that affects the functioning of bodily organ systems).

Peanut Allergies

Peanut allergy is considered the most common and serious food allergy in children in the US. Allergic responses to peanuts are unpredictable and may be triggered by exposure to less than 50 mg of peanut proteins. To put this in perspective, one peanut kernel contains approximately 250 to 300 mg of peanut proteins.

AIMT’s first product is Palforzia for peanut allergies. Given over a period of time, it desensitizes (reduces the allergic response) to peanuts. A recent FDA AdCom meeting resulted in a 7 to 2 vote in favor of approving Palforzia for children 4 to 17 years of age. The Company and most investors are expecting approval at the PDUFA date in January of 2020 with a US launch in 1H, 2020. European approval could come in 2H, 2020.

There is currently no treatment approved for desensitizing patients to peanut allergens. The standard of care is strict peanut avoidance. In the case of accidental exposure, management of milder symptoms can be done with antihistamines while more severe reactions require epinephrine (EpiPen). Many patients constantly carry an EpiPen injector. Even with strict diligence, avoidance is difficult and many children with peanut allergy and their parents live in a state of constant anxiety. Accidental exposures to peanuts resulting in allergic reactions are common due to the presence of peanut protein in many foods leading to numerous possibilities for contamination.

Peanut allergy reactions are the most common cause of severe and potentially life-threatening allergic reactions and fatal anaphylaxis from food products. I want to re-emphasize that these are rare.

Incidence of Peanut Allergy

In the United States, it is estimated that 1.60 million children between the ages of 4 and 17 are affected by peanut allergy. Of these 1.60 million, Aimmune estimates that 1.25 million are diagnosed and see a physician on average of five times per year for their peanut allergy and/or comorbid allergies such as asthma and atopic dermatitis. Illustrating the severity of this condition, one recent study estimated that around a quarter of these 1.60 million children (400,000) are admitted to the emergency room each year due to their peanut allergy.

The unmet need in the US is great and this is also the case in Europe. It is estimated that roughly the same number of children are affected by peanut allergy in Europe as in the US. For perhaps 80% of children, peanut allergy develops into a lifelong condition.

In its briefing document to the FDA, Aimmune cited studies which illustrate the number and severity of allergic reactions to peanuts:

• A study conducted over a 6-year period, found that in that period approximately 56% of patients experienced at least 1 severe allergic reaction (anaphylaxis or worse) and approximately 32% experienced at least 2 severe allergic reactions.
• A large Canadian study in children with peanut allergy found that the annual incidence rate of severe side effects (anaphylaxis) to peanuts was 12.4% and in turn that 1.4% resulted in anaphylactic shock.

The Role of Parents

Parents are, of course, the primary care givers for children and (no surprise) are highly motivated to find a treatment that will help their allergic children.  They live in constant fear that accidental exposure to peanuts could cause a severe allergic reaction. Simple activities like going to school, playdates, shopping, eating out, etc. require complex logistical planning or just outright avoidance. Peanut allergy of one child in a family can significantly affect quality of life for all family members. Based on my research. I think that while peanut allergies are certainly an issue for concern, in the US this has approached something close to a hysterical reaction by over-reacting parents.

Allergists

Almost all peanut allergy sufferers who seek treatment will be referred to an allergist; this is not a condition that general practitioners or internists want to deal with. There are approximately 5,000 board certified allergists in the U.S. and Aimmune’s market research indicates that about 1,300 of these practices already extensively practice immunotherapy, i.e. subcutaneous allergy shots intended to desensitize patients to air borne allergens like ragweed or oak pollen. They have the office space, staffing and logistical expertise required to administer Palforzia. Approximately 70% of all patients ages 4 to 17, with a confirmed diagnosis of peanut allergy, are seen by one of these 1,300 allergists. Therefore, a large percentage of diagnosed patients are seen by relatively concentrated number of allergists.

It seems reasonable to assume that these 1,300 allergists would see a treatment for peanut allergy as a natural extension of their practice and should be highly receptive to trying Palforzia. Over time, all 5,000 allergists across the US will be addressed, but the initial marketing target will be these 1,300, allowing for a focused launch. It is further estimated by Aimmune that 300 or so allergists have tried on their own to treat peanut allergy using unapproved, home brew treatments that expose patients to peanut food products. For reasons I will discuss in a later report, I think these allergists would readily adapt Palforzia.

Palforzia is not just a pill that the patient is given and takes on their own. It has the potential to cause severe allergic reactions, especially in the early stages of treatment as the patient is given larger and larger doses. Because of this, Palforzia early on must be given by a healthcare professional and the patient must be kept in an observation room for a period after the drug is administered to watch for side effects. There are also complex logistics involved in setting up frequent patient visits. For a practice to incorporate Palforzia, there needs to be a frame work involving staffing, scheduling and office space.

Payors

Aimmune has already had in-depth meetings multiple player’s payors who in the aggregate cover 61% of peanut allergy commercial lives in the U.S. The goal is to have had preliminary price discussions with payors responsible for 80% of covered lives by launch. Payors will be considering a situation in which the standard of care, peanut avoidance, costs nothing, while Palforzia will cost several thousand dollars. It must weigh this against the costs that are incurred from treating the side effects of peanut allergies. About 25% of patients annually will wind up in an emergency room and this is quite expensive. Many peanut allergy sufferers are prescribed EpiPen which they carry around in the event of accidental exposure. This is likely to also be the case with Palforzia so this cost will remain unchanged.

Managed care will set up high hurdles for reimbursement initially as the cost of Palforzia is not initially factored into budgets. Managed care will also have to negotiate rebates. This process takes a year or two to complete. Because of the precedent that subcutaneous allergy shots now are routinely reimbursed, I think that reimbursement issues will be settled in 2021 or so and won’t be an issue going forward.

Pricing of Palforzia

The initiation of Palforzia therapy starts with very small doses in which exposure is just a few milligrams of peanut proteins. The dose is then built gradually to 300 mg daily over a period of seven to nine months and is then maintained at this level. Most drugs are priced on the basis of mg of consumption, but Aimmune indicates that it will probably charge the same flat price per month, regardless of dosage.

Aimmune has done a lot of research to predict how payors will respond to pricing. This is a complex discussion because avoidance of peanuts in many cases has no cost. However, the estimated 25% of patients with peanut allergies who visit emergency rooms each year do have a high cost.

When asked, Aimmune says that it will announce pricing at the time of launch. However, it does offer some guidance on how to think about this. Subcutaneous immunotherapy has proven effective in allergies such as ragweed and oak pollen; these shots are given at a clinician's office at regular intervals over a period of three to five years. A more recent alternative has been introduced in which allergens are administered either as a dissolvable tablet or as an aqueous liquid extract. This has become an accepted alternative to subcutaneous injections. These can be self-administered by patients or caregivers.

Sublingual and liquid extract desensitization products are priced at about $3,000 to $5,000 per year. Aimmune says that it will price Palforzia at a premium to these products so this establishes a floor for what they are thinking about price. At the other extreme, biologics for other immune mediated diseases such as rheumatoid arthritis are priced at roughly $20,000 per year. Aimmune says that this is far in excess of what it is thinking about charging. I am going to use a price estimate of $5,000 in this and future reports.

Addressable Market Is Large

Estimating the addressable US market can be done in several ways. We can start by looking at the prevalence of peanut allergy which for 4 to 17 year olds is 1.6 million. If we multiply this by the $5,000 estimated cost of annual treatment, we come up with an $8 billion figure. There are problems with this thought process because a meaningful number of these patients are not under active treatment or may not want to go through the rigors of desensitization. Also, some of these patients might start and then drop out of treatment. There is also the uncertainty as to duration of treatment. Will it be a few months, a few years of a lifetime? Based on the experience with allergy shots for ragweed and other air borne allergens, it could well be for three or more years.

A better number to look at may be the 1.25 million patients who are diagnosed and under the care of an allergist, this would result in an addressable market estimate of $6 billion. Perhaps the best estimate for the readily addressable market is the 400,000 patients who go to the emergency room each year. They would likely be the most motivated. This results in an estimate of $2 billion. With these latter two estimates, we also don’t have an insight into duration of treatment and it is always a guess as to how much of the addressable market can be penetrated.

Sales Launch Curve

Assuming approval in January 2020, Aimmune says that it anticipates a slow and steady launch curve in 2020 and probably 2021. It has given no guidance on the level of sales that might be reached in these early years. I am reluctant to even guess. My experience has been that each new product launch has been slower than the last. As always there will be major managed care hurdles to overcome in the first two years or so to gain reimbursement. Also, the staffing, office space and logistics issues that some allergists wanting to prescribe Palforzia will face, point to a slow takeoff in sales in 2020 and 2021 in the US. Commercialization challenges in Europe are even more formidable and usually the sales curve in Europe is two years or so behind the US, suggesting we won’t see meaningful sales until 2022 or 2023.

I do think that in the years beyond 2021, this product will develop into a major commercial success in the US as this is a huge addressable market. Over time, I see Palforzia becoming a $1 billion plus product in the US.

 

 

 

 

 

 

 

Tagged as Addressable market for Palforzia, Aimmune Therapeutics, Palforzia for desensitization of peanut allergy + Categorized as Company Reports, LinkedIn