Dermira Inc (DERM): Hit Me Baby One More Time

Shares of Dermira Inc (NASDAQ:DERM) plunged hard Monday, after the drug maker announced negative Phase 3 data for its acne drug, DRM01, thus leading to a round of downgrades and/or price-target cuts.

Cantor’s healthcare analyst Louise Chen slashed his price target on DERM from $45 to $20, while reiterating an Overweight rating on the stock.

Chen opined, “Although the data was disappointing, we think there is not enough value being attributed to DERM’s two remaining assets, DRM04 for hyperhidrosis (excessive sweating) and Lebrikizumab for atopic dermatitis. We think concerns that DERM has lost its largest drug (DRM01) are overdone. DRM04 and Lebrikizumab are more differentiated opportunities than DRM01, in our view.”

“We are expecting an approval for DRM04 on its PDUFA date of 6/30/18. We have increased our SG&A expenses this year to incorporate: 1) A higher headcount for the full year of 2018 versus 2017 (started 2017 with 100 employees, ended the year with 170); 2) A partial year of spend for a DRM04 salesforce this year (we assume 125 reps at a cost of $275K fully loaded); And, 3) Ad spend for the hyperhidrosis awareness campaign. DTC ads will start in 2019, if DRM04 is approved in mid-2018,” the analyst added.

Mizuho analyst Irina Rivkind Koffler was more harsh in tone, downgrading DERM from Buy to Neutral, while also cutting the price target to $9.00 (from $39.00).

Koffler wrote, “We have taken acne estimates out of our model. We estimate a gradual ramp to the hyperhidrosis program beginning in 2018, but don’t expect revenue to be sufficient to offset the expense of the lebrikizumab atopic dermatitis program, and we don’t think this biologic will enter the market until 2023. Mgmt. has not yet provided 2018 OpEx guidance, but we believe spending needs to remain high to support the hyperhidrosis launch and the atopic dermatitis research (but we lowered overall SG&A spend expectations). We conclude that Dermira will need to raise money to fund both projects, in spite of its large cash position ($551M as of 4Q:17). Based on mgmt. comments on the call, it doesn’t appear Dermira will pursue additional assets in the near term. We just don’t expect the stock to work in 2018.”


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