Initiating Coverage

We are initiating coverage of Transdel Pharmaceuticals (TDLP) with an Outperform rating and price target of $2.50 per share. We believe that TDLP-110, currently known as Ketotransdel, has the potential to be a meaning share gainer in the treatment of acute soft tissue pain.

Ketotransdel (10% w/w ketoprofen transdermal cream) has significant advantages in the treatment of sight-specific pain over traditional oral medications such as Cox-2 inhibitors (Celebrex), oral NSAIDs (ibuprofen, naproxen) and acetaminophen due to the lack of systemic exposure. As such, risks to the heart, the gastrointestinal track, the liver and the kidneys are substantially reduced.

Additionally, the company’s proprietary transdermal delivery system (TDS), Transdel, offers improved safety and tolerability over currently approved NSAID patches and creams. In our view, Ketotransdel is at least a $200 million product in the U.S., with upside to $300 million or beyond depending upon marketing, distribution and potential label expansion into osteoarthritis (OA) and musculoskeletal pain.

Transdel has completed one phase III clinical program with Ketotransdel for the treatment of acute soft tissue pain. The trial completed enrollment at 364 patients in July 2009, and offered top-line data in October 2009. The data demonstrated statistical significance (pStock Undervalued

We value Transdel at approximately $2.50 per share. We arrive at this target by conducting a discounted (risk-adjusted) valuation analysis on Ketotransdel to a potential licensing partner. We have used five previous deals for transdermal pain medications (Astellas and NeurogesX with Qutenza, Covidien and Nuvo Research for Pennsaid, Endo and Novartis for Voltaren Gel, Alpharma and IBSA for Flector Patch, and Alpharma and IDEA AG for Diractin) as a roadmap for what a potential deal for Ketotransdel may look like. We conclude that management should be able to secure an upfront payment on Ketotransdel in the area of $15 million, with potential backend milestone payments totaling $50 million or more.

We see peak sales in the U.S. for soft tissue pain at $200 million. Off-label use, and the potential that a partner eventually conducts a clinical program in OA to attempt to gain an OA-associated pain approval, can bring the peak sales on Ketotransdel to $300 million or above. NPV of Ketotransdel at this time equates to a stock price of roughly $2.50 per share. This value does not ascribe any value for the cosmeceutical business, including the deal with JH Direct, which we view as upside to the story.
Read the full analyst report on “TDLP”
Zacks Investment Research