Lipocine Inc. (LPCN): FDA Panel Gives Thumbs Down to TLANDO, What’s Next?

While Lipocine investors run for the hills following negative advisory committee meeting, Canaccord's Dewey Steadman still sees a light at the end of the tunnel.

Some investors might love biotech stocks for their lottery ticket-like returns when a company strikes medical gold. A lottery ticket, however, costs only a buck or two, while getting a biotech company wrong can hurt a lot more than that. Case in point: Lipocine Inc (NASDAQ:LPCN) lost half of its value on Thursday, after the drug maker failed to convince the FDA’s advisory committee that its phase 3 data testing TLANDO in hypogonadal male patients was safe enough to award the drug an approval.

In reaction, Canaccord analyst Dewey Steadman downgraded the stock from Buy to Hold, while slashing the price target to $2.00 (from $11.00). (To watch Steadman’s track record, click here)

While Lipocine was unable to gain advisory committee support for Tlando, Steadman believes the drug could ultimately be approvable: “Based on our conversations with management, we think Lipocine will likely need to submit a robust blood pressure trial and other data points to support the use of serum tubes for testosterone management. Barring any additional data requests we think Tlando could ultimately be approvable, ultimately propelling LPCN shares upward. However, in early days post advcom, we can’t be certain about the timing and scope of a potential FDA request. As such, we’re moving to the sidelines as we await further clarity.”

“Our discounted cash flow (DCF) analysis leads us to a 12-month valuation of around $2/share for LPCN, assuming a potential approval and launch of LPCN 1021 by 2019 and a LPCN 1021 patent expiry around mid/late 2029. At this point, we assume the company adopts a hybrid go-it-alone strategy with a field force of around 65 representatives promoting into urology and endocrinology practices. Additionally, we project a broader co-promotion agreement into the primary care setting, resulting in a fee of around 20% of all LPCN 1021 sales to cover the co-promotion arrangement. We apply a risk adjustment to LPCN 1021 revenues by assuming a 50% probability of approval and commercialization,” the analyst opined.


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