Expert Financial Analysis and Reporting

Investment Opinion

The launch of Intermezzo has been disappointing to investors thus far. Now, Transcept's (TSPT) marketing partner, Purdue Pharmaceuticals, is beginning a new phase of the launch with a direct to consumer advertising campaign and is employing for the first time its 500+ pain specialist sales force, the crown jewel of the company. The next few months are "make or break" time for Intermezzo as these are Purdue's two big marketing guns.

This new heightened marketing initiative is taking place at the same time as new FDA guidelines released on January 10, 2013 warn about next day impairment following bedtime use of older insomnia products such as Ambien CR. Ambien, Edular and Zolpimist. These call for lowering the dose by half for bedtime use but offer no guidelines on middle of the night awakening because these drugs are not approved for that indication. With these new guidelines, there must be heightened concern among physicians and managed care formularies about the risk of recommending older insomnia drugs for middle of the night awakening from both a clinical and a legal standpoint. This can only be a positive for Intermezzo and it might be a major positive.

The question is when will we see evidence of success of the new marketing strategy and what will constitute success? This is a huge category in which there are roughly 7 million prescriptions per month. Intermezzo has only a tiny fraction of the market with about 1500 to 1600 prescriptions per month. If it begins to catch traction, there is a lot of upside. I think that success for the heightened marketing campaign and benefits from the new FDA guidelines might be seen as a strong linear uptrend in prescriptions leading to about 4000 or more per month in April, 2013. If this doesn't happen, I may have to pull my Buy recommendation. This is a tense time for Intermezzo (and me), but I continue to believe that Intermezzo is a very much needed and effective product and I think that the new campaign will be successful and result in a commercial as well as clinical success.

Thoughts About the Intermezzo Launch

During a recent meeting in San Francisco with Transcept's management, they offered some observations on why the launch which began on April 4, 2012 has been disappointing so far. Management feels that patients do not recognize middle of the night awakening as a disease, but rather just a complication of life advancing. This is similar to the situation with erectile dysfunction drugs like Viagra when they were first introduced. Patients had to be educated that this was a disease for which there was a treatment. This message was successfully driven home through direct to consumer advertising. The DTC campaign for Intermezzo has the same educational objective.

The second necessary step is to make physicians aware of Intermezzo and MOTN. Like consumers, they are also influenced by television advertising. In addition, the Purdue sales force will also detail physicians to look for MOTN in their patients who usually come to them for some other disease and mention MOTN in passing. The Purdue reps have a much stronger relationship with physicians than the contract sales force that was initially used to promote Intermezzo and should have more ability to get this message across.

Somewhat surprising to me, management rates formulary access problems as less of an issue than physician and patient awareness.

New FDA Guidelines on Insomnia Drug Prescribing

On January 10, 2013, the FDA issued new prescribing guidelines on zolpidem, which is the active pharmaceutical of Intermezzo and a number of older products: Ambien CR. Ambien, Edular and Zolpimist. It recommended that the bedtime dose be lowered for Ambien CR. Ambien, Edular and Zolpimist because new data show that blood levels in some patients may be high enough the morning after use to impair activities that require alertness, including driving. The risk for next-morning impairment is highest for patients taking the extended-release forms of these drugs (Ambien CR). Women appear to be more susceptible to this risk because they eliminate zolpidem from their bodies more slowly than men.

Because use of lower doses of zolpidem will result in lower blood levels in the morning, FDA is requiring manufacturers of zolpidem containing products to lower the recommended bedtime dose in their package inserts. The recommended dose of zolpidem for women should be lowered from 10 mg to 5 mg for immediate-release products such as Ambien, Edular, and Zolpimist and from 12.5 mg to 6.25 mg for the extended-release product, Ambien CR. For men, the labeling should recommend 5 mg for immediate-release products and 6.25 mg for extended-release products. Intermezzo was designed for use in middle of the night awakening and uses lower doses for women than for men and is not dosed at bedtime. There is no change recommended in its dosage.

The FDA is highlighting the risk of next impairment when drugs other than Intermezzo are taken at bedtime. Obviously, the risk is much greater when zolpidem is taken in the middle of the night, but there is no recommendation on the dose for middle of the night awakening for the extended and immediate release versions of zolpidem because these products have not been tested for this disease state.

Some physicians have been prescribing half doses of zolpidem containing products (other than Intermezzo) for middle of the night awakening. In the case of Ambien CR this was 6.25 mg for men and 5.0 mg for women. Now the FDA is warning them that this is the appropriate dose for the drug being taken at bedtime. What dose adjustment should they make for MOTN? Should they prescribe the product at 3.125 mg for men and 2.5 mg for women? The FDA offers no guidance because these drugs have not been approved for use in this indication.

Physicians and managed care formularies who choose to prescribe Ambien, Ambien CR, Edular, and Zolpimist off label for MOTN can only justify this on the basis that they are cheaper. Now that the new FDA guidelines have highlighted the problem of next day impairment the physician has no clear guidance to split Ambien CR to 3.125 mg for men and 2.5 mg for women other than that this intuitively would seem to be the thing to do. But what happens if the patient forgets to split the pills, not a casual exercise, takes the new recommended or even the older, higher dose and while impaired the next morning has a driving or some other type of accident. The physician and managed care provider encouraging this prescribing could be at considerable legal risk. With these new guidelines, there must be heightened concern about the risk of prescribing older insomnia drugs in the middle of the night awakening from both a clinical and a legal standpoint. This can only be a positive for Intermezzo and it might be a major positive.