ANALYST NET Company Report
MEDRx Co., Ltd. (4586 TSE Mothers) Issue Date: Nov. 7th, 2017
1/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
Big Gap Between Market Cap and Product Pipeline Has its own technology
The company is in the business of developing transdermal absorption formulations based
on the active ingredients of existing oral and IV drugs. Its business model is based on the
collection of licensing payments and milestone payments from pharmaceutical companies
to whom it has licensed out products and, after the drugs go to market, the income from
royalties. Unlike most other companies developing new drugs, MEDRx uses the active
ingredients of existing drugs, thus ensuring a higher probability of success in the market.
Since this is a niche business there are relatively few competitors and the company’s ILTS®
technology gives it a distinctive edge.
Three main pipeline drugs
The company has three significant products in its development pipeline. One of these is
the tizanidine tape formulation. In the Spring of 2017, the company concluded a
development and sales agreement with Cipla USA. The company’s pipeline also includes
an oxycodone tape formulation, the company’s most valuable product which it announced
on October 16 would begin Phase 1 clinical trials in the US. And the third important
product in the company’s pipeline is a lidocaine tape formulation, development of which is
ongoing.
Value of main product pipeline estimated at JPY30 billion
MEDRx’s market capitalization had been trending around JPY6 billion. Our analysis
suggests that the company’s three main pipeline drugs could have a present value
somewhere in the region of JPY35 billion. We surmise the reasons for the restrained
market valuation includes the termination of further development of ETOREAT.
ETOREAT was a non-steroidal drug for external application, for which it is difficult to
demonstrate a statistically significant difference versus placebo. On the other hand, it
could be easier to demonstrate the effectiveness of ILTS® technology in the case of
formulations affecting the central nervous system (such as oxycodone and tizanidine)
Looking ahead, we believe MEDRx’s valuation could change significantly as progress is
made in the development of tizanidine tape and oxycodone tape formulation.
Basic Report
Fair Research Inc.
Tsuyoshi Suzuki
Company Information
Location Kagawa
prefecture
President Yonehiro
Matsumura
Foundation Date Jan.2002
Capital 5,101 MM JPY
Listed Date Feb. 2013
URL www.medrx.co.jp
Industry Pharmaceutical
No.of Employee 23
Key Indicators
As of 201710/13
Share Price 670
Yearly High 1255
Yearly Low 453
Shares Outstanding 8,514,700
Unit of Trading 100
Market Cap 5,704 MM JPY
Dividend(est) 0
EPS(est) -141.7 JPY
PER(est) na
BPS(act) 285.5 JPY
PBR(act) 2.35x
The original report (Japanese version) issued on 16th Oct.
Results Trend Revenue JPY MM
YOY %
OP Income JP MM
YOY %
RP Income JPY MM
YOY %
Net Income JPY MM
YOY%
EPS JPY
Share Price
High Low
Dec-14 Actual 26 -61.7 -1,003 na -1,012 na -1,016 na -152.0 2,518 785
Dec-15 Actual 37 43.1 -999 na -990 na -878 na -131.2 1,446 500
Dec-16 Actual 22 -40.6 -1,342 na -1,301 na -1,259 na -155.5 1,455 241
Dec-17 1H Actual 18 79.9 -514 na -519 na -477 na -56.1 1,255 453
2H company est 168 1300.0 -747 na -725 na -729 na -85.6
Dec-17 company est. 186 736.8 -1,261 na -1,244 na -1,206 na -141.7
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
2/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
Business Model
The company has its own in-
house developed technology,
giving its products a higher
probability of success that other
new drug businesses
The company has its own in-
house developed technology,
giving its products a higher
probability of success than
other new drug businesses
In broad terms the company’s business model is based on developing transdermal
absorption formulations based on the active ingredients of existing oral and IV drugs.
It then transfers the technology to pharmaceutical companies from whom it collects
milestone payments and, after commercialization, royalty payments.
Transdermal absorption formulations constitute a growing medium to long-
pharmaceutical segment. Among their attributes are maximization of
pharmaceutical effect, reduced side effects and enhanced quality of life for the
patient. These attributes are achieved by the following:
① Providing a consistent and sustained release of active ingredients to maintain a
constant level of the drug in the bloodstream.
② Little or no fast-pass effect: while the efficacy of oral drugs can be reduced to
10-20% of as they pass through the liver, this is not an issue with transdermal
absorption formulations.
③ Better medication compliance: suitable for patients who find it difficult to take
oral drugs due to a problem in swallowing, and also reduces the problem of
forgetting to medicate.
④ Unlike drug delivery by injection transdermal delivery is painless.
⑤ Transdermal delivery lends itself to a wider range of conditions
The MEDRx business model also has the following two distinguishing factors:
(a) Low risk (i.e. high probability of success) because it does not involve the
discovery or development of new active ingredients.
(b) The company has its own transdermal absorption technology using ionic
liquids (ILTS®: Ionic Liquid Transdermal System), which distinguishes
it from other companies.
Note: Ionic liquids are salts in liquid form at room temperature composed of ions which are
resistant to crystalization. They are non-volatile, non-flammable and electric conductive.
In recent years these properties have led to applications in lithium battery electrolysis and
elsewhere. With ILTS®, MEDRx was the first to develop the technology for the transdermal
absorption of ionic liquids, thus facilitating the administration of drugs which are normally
difficult to administer through the skin. With existing technology, transdermal absorption
was difficult in the case of nucleic acid or macromolecular formulations, but ILTS® has
made it much easier.
Business Model
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
3/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
The company is targeting the
high potential US market
Source: Analyst meeting materials produced by MEDRx
Another interesting feature of MEDRx is that it has built high barriers to entry. It
has a library of several hundred ionic liquids formed from combinations of compounds
with a track record of use on human subjects as pharmaceuticals and additives. It
also has extensive know-how on selecting optimum ionic liquids for particular drug
properties, and formulation expertise on maintaining and improving ionic liquids.
In addition, and looking slightly further ahead to full-scale development, the
company is unique in developing transdermal absorption formulations using
nanocolloids, and microneedle arrays.
The company’s primary target is the US market for transdermal absorption
formulations. This strategy is mainly based on the potential size of the US market
for tape-type formulations.
By basing its activities in the US on existing formulations, the clinical trials required
to acquire FDA approval are simpler than for new drugs (although not true in all
cases, after Phase 1 Phase 2 can be skipped and the process moves straight to Phase
3). Also, worth bearing in mind is the fact that patch-type drugs tend to command
higher prices in the US than in Japan.
ILTS® Breakthrough
The use of ionic liquid facilitates transdermal absorption of drugs previously
unsuited to this type of delivery, such as macromolecules like nucleic acid and
peptides
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
4/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
The company had been making
losses since being listed and
had terminated develoment of
ts most promisisng drug,
ETORIAT. But in April 2017 it
successfully out-licensed its
tizanine tape formulation and
thereby secured development
funds sufficient for about the
next two years
Past corporate results and product development trend
<Availability of funds for development>
Between listing on the Mothers market in February 2013 and September 2017 the
company failed to bring any product through development to the market, and due to
upfront development costs has consistently posted net losses. Of particular note in
this regard was ETOREAT, regarded as one of the company’s most promising major
products. Full-scale development began in 2014, subsequent to which R&D costs
ballooned and losses expanded, leading to the termination of development in 2016.
However, in 2017 the company entered a development and marketing tie-up covering
tizanidine tape with Cipla USA. This is expected to bring in one-off revenues of
JPY160 million, bringing the company’s sales to above JPY100 million for the first
time in six periods. The company is making steady progress in raising funds to
develop products beyond the proof-of-concept stage (at which point effectiveness and
safety are confirmed) to the commercialization stage. As of the end of June 2017 the
company had cash reserves of JPY2,179 million, giving it the wherewithal to finance
development for approximately the next two years
MEDRx Income Staement
Unit: JPY mil.
2010/12 2011/12 2012/12 2013/12 2014/12 2015/12 2016/12 2017/12 2017/6
Company est. 2Q
Revenues 291 741 87 68 26 37 22 186 18
Product sales 84 94 71 33 26 37 22 26 18
R&D revenue 206 646 16 36 0 0 0 160 0
CoGS 58 34 33 8 9 12 8 4 4
SG&A expenses 857 1,141 621 664 1,020 1,025 1,357 1,443 528
R&D expenses 695 939 415 397 718 716 1,074 1,165 381
Misc. expenses 162 202 206 267 302 309 283 278 147
Operating profit -623 -434 -567 -604 -1,003 -999 -1,342 -1,261 -514
Recurring profit -616 -479 -578 -616 -1,012 -990 -1,301 -1,244 -519
Net profit -536 -433 -571 -621 -1,016 -878 -1,259 -1,206 -477
Source: Fair Research Inc. using company data
MEDRx Balance Sheet
Unit: JPY mil.
2010/12 2011/12 2012/12 2013/12 2014/12 2015/12 2016/12 2017/6
IPO CB issue
Current assets 730 649 507 4,008 2,857 2,204 2,736 2,260
Cash etc. 691 614 465 3,937 2,780 2,063 2,640 2,179
Other 39 35 42 71 77 141 96 81
Fixed assets 335 304 280 722 831 774 342 316
Tangibles 265 240 215 256 346 278 264 239
Intangibles 0 0 0 1 3 2 1 1
Investments & others 89 64 65 465 483 494 77 76
Total assets 1,085 952 787 4,730 3,685 2,978 3,079 2,577
Liabilities 80 106 511 227 171 205 573 540
Current liabilities 64 79 450 158 79 110 103 70
Fixed liabilities 16 27 61 69 92 96 469 470
Net assets 1,005 847 275 4,503 3,514 2,772 2,507 2,037
Source: Fair Research Inc, using company data
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
5/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
We believe the decision to
terminate the development of
ETREAT does not necessarily
negate the effectiveness of this,
the company’s own technology
Implications of ETOREAT termination
ETOREAT (an anti-inflammatory analgesic patch) was the company’s most
promising large-scale formulation until, unfortunately, it was decided to terminate
development at the Phase 3 stage in November 2016. This product was directed at a
market estimated at around USD2-3 billion. Its effectiveness had been confirmed in
Phase 2/3 trials covering shoulder pain as early as November 2012, and from 2013
the plan was for another Phase 3 clinical trial to be conducted and then an application
for approval submitted. However, in the 2013-2014 trials, while PP analysis (per
protocol, including only those who completed the treatment) confirmed statistical
significance, ITT (intention to treat) analysis (which includes all patients, including
those who did not complete the treatment) did not so confirm. Agreement was reached
with the FDA for further trials to be conducted. These were trials for delayed onset
muscle symptoms in which healthy individuals were subjected to simulated muscle
pain. However, no statistically significant difference from those subjects receiving a
placebo was demonstrated.
The termination of ETOREAT’s development gave rise to a degree of uncertainty
about the efficacy of ILTS®, the company’s core technology. In their analysis of the
problem the company found no shortcomings in the ILTS® technology itself (elevated
concentration of the core drug in the blood), but since the main component of
ETOREAT, etodolac, is effective in the treatment of muscle inflammation it was
difficult to anticipate the Phase 3 results from the Phase 1 results (drug
concentration in the bloodstream). In addition, since it is a subjective condition, pain,
which is being tested, scores tend to be more affected by the placebo effect and by
“noise” (that is, it is difficult to judge whether pain has decreased not, a difficulty
generally experienced in the case of non-steroidal external medications).
The company believes that the effectiveness of drugs acting on the central nervous
system (oxycodone or tizanidine) rather than on the affected location can be more
easily measured from drug concentration in the bloodstream, thus allowing Phase 3
results to be inferred from Phase 1 results and facilitating the verification of ILTS®
effectiveness.
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
6/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
The company’s current pipeline
consists of three main products
Given the level of competition
in the lidocaine tape area the
company plans to license out
after FDA approval
Evaluation of the company’s existing pipeline
MEDRx’s three primary products are oxycodone tape (MRX-10XT), lidocaine tape
(MRX-5LBT), and tizanidine tape (MRZ-4TZT). Another product, MRX-5DML, for
the treatment of Alzheimer’s, is still being prepared for non-clinical trials.
(1) Lidocaine tape – MRX-5LBT
This tape formulation using lidocaine, a local anesthetic, is currently under
development as a treatment for nerve pain associated with shingles. Phase 1 was
completed in May 2016. It was demonstrated that the transdermal absorption
rate of lidocaine is quicker for this tape than for Lidoderm®, and also that the
area of application is half that of Lidoderm® but the volume of lidocaine which
permeates the subcutaneous tissue is around 2.6 times that of Lidoderm®.
However, a number of Lidoderm® generics have been commercialized and these
have reduced prices by about one-third in what was a roughly USD 1.2 billion
market. Prices have since flatlined. In addition, in August 2017, the American
company, Scilex Pharmaceuticals, sought new product approval for a formulation
which has the same biological characteristics as Lidoderm®. MEDRx is now
pursuing development with a view to making an early application for new drug
approval. Given this level of competition Fair Research is making a conservative
estimate of peak-level sales at several billion yen. Unlike tizanidine and
oxycodone, mentioned later, it is difficult to license out before Phase 1, so the
company is planning on finding a partner after approval.
Major Pipelines
Product name &
development codeNon-Clinical Phase 1 Phase 2 Phase 3
Application
Filed
MRX-4TZT
Tizanidine patch
for spatic paralysis
(Transdermal)
MRX-5LBT
Lidocaine patch
for treating nerve pain
(Topical)
MRX-1OXT
Oxycodone patch
for central nervous
system pain
(Transdermal)
In April 2017, concluded a development and sales licensing agreement with Cipla USA covering world except East Asia
Results pf Ph1 clinical trilas made known in May 2016. Aiming for early NDA approval
Entered Phase 1 clinical trials in 2017 Oct
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
7/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
(2) Tizanidine tape MRX-4TZT
Tizanidine tape formulation uses the centrally acting muscle relaxant tizanidine
and, for transdermality, ILTS®. It is used to alleviate a number of conditions,
including neck pain. It acts on the brain/ central nervous system, unlike lidocaine
and ETOREAT, which act locally (peripheral nerves or muscle tissue). This
enhances the effective blood concentration level. The results of a Phase 1(a)
(investigation stage) clinical trial in the US in February 2017 confirmed that the
tape formulation maintained the same level of concentration in the blood as the
oral alternative, but with reduced side effects, such as drowsiness.
Source: MEDRx analyst meeting materials
The chart demonstrates that transdermal delivery provides a more stable and
sustained effective concentration than oral delivery and with fewer side-effects.
Tizanidine is currently only available in oral formulation and there are therefore
no rivals for the company’s tape formulation. The size of the US market was
Lid
oca
ine
con
cen
tratio
n
in h
um
an
blo
od
Hours
Fig. A Lidocaine concentration in human blood
for MRX-5LBT and Lidoderm®
Fig. B Vol. of lidocaine which permeates
subcutaneous tissue per unit area for MRX-
5LBT and Lidoderm® (inferred from Fig.A
data)
Lidocaine absorption rate
(cumulative) over 24 hours
Source: MEDRx analyst meeting materials
No rivals to the company’s
tape and patch formulations
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
8/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
estimated at USD800 million in 2016, and the company thinks that about one-
third of this can be replaced with the tape formulation. In April 2017 the
company signed a worldwide (excluding East Asia) development and sales license
agreement with Cipla USA, the wholly owned US subsidiary of the major Indian
pharmaceuticals company, Cipla Inc. Under this agreement MEDRx will this
term receive a one-time contract payment of JPY160 million, and subsequently
will receive milestone payments to a maximum of USD30 million based on
progress with development and sales. The agreement also posits stepped
royalties based on sales after going to market. The company announced the
commencement of further Phase 1 testing on September 1, following which it
plans to shift to Phase 3.
In passing, according to its 2016 annual report Cipla has worldwide sales of
USD2.2 billion and a workforce of 23,000. In terms of domestic sales it is India’s
third largest. In generics in the US it ranks ninth in terms of prescriptions, and
while it intends to further build up its US generics business it does not intend to
be a generics-only pharmaceuticals company. Rather, it has a separate R&D
focus on innovative products and drug delivery systems to underpin sustainable
growth. It is worth noting that Cipla has recorded average annual sales growth
over the last five years of 15.3%. That MEDRx could sign a development and
sales agreement with a company like this is perhaps an indication of how highly
MEDRx’s technology is rated.
(3)Oxycodone Tape MRX-10XT
At the present this is the most promising drug in MEDRx’s product pipeline. The
North American market for opioids targeted at alleviating severe pain is
estimated by Grand View Research, Inc at USD 8.3 billion, or JPY913 billion
(2015 figures) and growing at an annualized rate of 5.4%. This product uses
ILTS® technology to provide a transdermal formulation of oxycodone, the opioid
which accounts for the largest share of the market. Like tizanidine it acts on the
Licensing out to Cipla
USA, the US subsidiary of
the major Indian drugs
firm, Cipla Inc. (April 2017)
The high regard in which
MEDRx’s technology is held
can be surmised
Source: Cipla Inc. Annual Report 2016
Has the biggest
potential in MEDRX’s
pipeline
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
9/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
brain/central nervous system, supporting pharmaceutically effective
concentration in the blood. Oxycodone tape formulation is expected not only to
encroach on the USD2.3 billion oxycodone market but could also replace some
other opioid formulations. Fair Research estimates there is the potential for peak
sales of around JPY 200-300 billion.
Note: opioid denotes a class of drugs with opium-like substances (but not
opium) containing morphine or other narcotic properties. They are widely
used in the treatment of medium to severe pain and also for anesthesia and
cough suppression.
In the United States the abuse and misuse of pharmaceuticals containing opioid
analgesics has become a social problem. It is now not difficult to acquire opioids
for the treatment of chronic pain on a doctor’s prescription, such that in 2014 two
million Americans abused or became dependent on such drugs. There were also
frequent cases of misuse. The FDA has therefore taken a cautious approach to
approving new drug applications for opioid formulations which are susceptible
to abuse. MEDRx has developed its own new formulation technology for
inhibiting and preventing abuse and misuse. Called the AMRTS® (Abuse and
Misuse Resist Transdermal System) it should give the company an advantage in
the market place. The System is now patent pending.
The company commenced non-clinical tests in November 2015 and consigned
production of the investigational drug to the US firm, Tapemark, in December.
The commencement of Phase 1 trials in the US was announced on October 16th
2017. In the case of the oxycodone tape formulation, the ailment indication is
chronic pain. At Phase 3 the number of cases and the cost per subject could rise
significantly (total development costs estimated at around JPY5-10 billion). As
was the case with tizanidine the company thinks that licensing out may be
possible at Phase 1, and apparently several approaches have already been made.
Given the size of the target market, milestone payments are likely to be
significantly bigger than was the case with tizanidine (totaling several tens of
billions of yen).
Acts on the brain/central
nervous system
Peak sales of JPY200
billion .possible
Company has its own
formulation technology to
prevent abuse and misuse –
provides a competitive
advantage
Commencement of Phase 1
announced on October 16.
Approaches already made on
licensing out
Development costs and
milestone income to be bigger
than for other pipeline drugs
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
10/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
Pipeline Present Value
On the basis of the foregoing we have used a discounted cash flow methodology to
calculate the present value of the different drugs in the company’s product pipeline
(Note: The output values are the result of fairly ambitious multiple inputs and are
intended only as a yardstick)
(Assumptions used in the simulation)
It takes around 4-5 years from the product going to market for peak sales to be
achieved, following which sales fall at an annualized 5%. From 2035, however, given
the introduction of generics and other factors, sales are assumed to fall at a final-
stage annualized rate of 10%. The assumed discount rate is 12%. This may be on the
high side in light of the stock market’s required ROE of 8%, and the fact that the
company is regarded as a bio-venture which continues to chalk up losses and which
has not had a major commercial success to date. We are assuming royalty income will
be 12% of sales. In terms of the probability of success for each product in the
company’s pipeline we posit 30% for post-Phase 1 lidocaine, which acts on the
peripheral nerves, and 50% for tizanidine, which acts on the central nervous system.
Oxycodone is pre-Phase 1 so we posit its probability of success at 40%.
(Results of DCF Calculations)
Pipeline present value
(Unit: 100 mil.JPY)
Present value Excl final stage
Lidocaine tape 11.58 9.34
Incl. success probability 3.47 2.80
Tizanidine 139.36 129.16
Incl. success probability 69.68 64.58
Oxycodone 681.85 587.73
Incl. success probability 272.74 235.09
3 drug total 832.78 726.24
Incl. success probability 345.89 302.48
Source: Calculated by Fair Research Inc.
Pipeline present value using
DCF methodology
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
11/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
① After factoring in its 30% probability of success we posit a present
value of around JPY 300 million for lidocaine tape, and given the level
of competition in this area it may only just recover its development
costs.
② For tizanidine tape formulation, after factoring in a 50% probability of
success in the market and including its final stage value we posit a
present value of JPY7 billion; and without this final stage around
JPY6.5 billion. This is roughly the same as, or slightly higher than,
MEDRx’s current market value.
③ Oxycodone tape’s value, given peak sales of JPY200 billion and a 50%
probability of success, we posit at JPY23.5-27.3 billion, making it the
most valuable product in the company’s pipeline (and assuming peak
sales for this product of JPY120 billion rather than JPY200 billion and
given the same 50% probability of success the pipeline present value
comes to JPY17.2-19.5 billion. While recognizing the failure of
ETOREAT and bearing in mind the difficulty of discounting in the
stock price the value of pre-Phase 1 oxycodone tape, we still believe it
is possible for the company’s evaluation to improve in line with its
product pipeline.
The market currently values MEDRx at around JPY6 billion, suggesting that a
reasonable degree of success from the tizanidine tape tie-up with Cipla has been
discounted. However, it seems that the value of the oxycodone tape formulation,
deemed the company’s most promising product, has not been similarly
discounted. We posit a total present value of close to JPY35 billion for the
company’s three main products, but believe the market could change its
valuation of MEDRx significantly if there is an improvement in the success
probability of tizanidine tape and progress in the development of the oxycodone
tape formulation.
(Note)
The original report (Japanese version) was issued on 16th October 2017.
Fair Research Inc.
AI Building, Kayabacho 5F, 1-6-12 Shinkawa
Chuo-ku, Tokyo 104-0033 JAPAN
Email: [email protected]
The company will be
fortunate to recover lidocaine
tape’s development costs
Tizanidine tape’s present
value given a 50%
probability of success in the
market we posit value at
around the same level as
MEDRx’s current market
cap
Assuming a success
probability of 40% our
calculation posits present
value for oxycodone tape in
the area of JPY20 billion
Market valuation of MEDRx
underpinned by value of
tizanidine tape which is
licensed out to Cipla.
Oxycodone could be next to
see its value discounted
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
12/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
(reference)
45
86
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DR
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are
Price
670
Sh
are
s8,5
14,0
00
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et ca
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04,3
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JP
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20
16
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
Ph
1-sta
rtP
h1
Ph
2P
h3
Ph
3F
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Appro
val
MR
X-1
OX
TR
&D
costs
-3-3
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0
(O
xyco
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Mile
sto
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51
03
03
05
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s0
02
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08
00
1,2
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2,0
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1,9
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1,8
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1,7
15
1,6
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1,5
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1,4
70
1,3
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27
Ro
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12
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0.0
0.0
24
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96
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44
.02
40
.02
28
.02
16
.62
05
.81
95
.51
85
.71
76
.41
67
.61
59
.2
Net R
eve
nu
e-3
-30
00
30
.05
0.0
74
.04
8.0
96
.01
44
.02
40
.02
28
.02
16
.62
05
.81
95
.51
85
.71
76
.41
67
.61
59
.2
Ph
1b
Ph
3F
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ppro
val
MR
X-4
TZ
TR
&D
costs
-3-3
0
(T
izan
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e)
Mile
sto
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1.6
51
01
5
pro
b.5
0%
Sale
s5
07
51
20
20
02
40
24
02
28
21
72
06
19
51
86
17
61
68
15
91
51
14
4
Ro
yalty
12
%R
oyalty
6.0
9.0
14
.42
4.0
28
.82
8.8
27
.42
6.0
24
.72
3.5
22
.32
1.2
20
.11
9.1
18
.21
7.2
Net R
eve
nu
e-3
-1.4
51
02
19
.01
4.4
24
.02
8.8
28
.82
7.4
26
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4.7
23
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2.3
21
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8.2
17
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Ph
ase
1 re
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FD
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bP
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Appro
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MR
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LB
TR
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costs
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(L
idoca
ine)
Mile
sto
ne
23
pro
b.3
0%
Sale
s1
02
04
05
05
04
7.5
45
43
41
39
37
35
33
32
Ro
yalty
12
%R
oyalty
1.2
2.4
4.8
6.0
6.0
5.7
5.4
5.1
4.9
4.6
4.4
4.2
4.0
3.8
Net R
eve
nu
e-3
-3-3
-3-5
2.0
4.2
2.4
4.8
6.0
6.0
5.7
5.4
5.1
4.9
4.6
4.4
4.2
4.0
3.8
Oth
ers
Gross R
eve
nu
e0
.26
0.2
60
.26
0.2
60
.26
0.2
60
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0.2
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0.2
60
.26
0.2
60
.26
0.2
60
.26
0.2
60
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0.2
60
.26
R&
D c
osts
-2-2
-2-2
-2-2
-2-2
-2-2
-2-2
-2-2
-2-2
-2-2
-2
To
tal G
ross R
ev
en
ue
1.8
61
0.2
62
0.2
65
1.2
64
1.2
66
8.8
61
00
.66
81
.86
13
1.0
61
77
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27
1.9
52
58
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24
5.4
62
33
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22
1.5
52
10
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19
9.9
81
89
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18
0.5
1
To
tal R
&D
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-10
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-2-2
-2-2
-2-2
-2-2
-2-2
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To
tal O
the
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st
-3-3
-4-4
-4-5
-5-5
-5-6
-6-6
-6-6
-6-6
-6-6
-6
OP
-12
.14
-2.7
41
.26
10
.26
5.2
66
1.8
69
3.6
67
4.8
61
24
.06
16
9.6
22
63
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25
0.3
72
37
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22
5.2
02
13
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20
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91
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1.9
91
72
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Fin
al s
tag
e re
ve
nu
e a
tten
uatio
n ra
te1
0%
Dis
co
un
t Facto
r1
2%
Pre
se
nt V
alu
eU
nit: J
PY
100 m
il.
Incl. fin
al sta
ge
Excl. fin
al sta
ge
MR
X-1
OX
T6
81
.85
58
7.7
3
Incl. s
ucce
ss p
ro
ba
b.
27
2.7
42
35
.09
MR
X-4
TZ
T1
39
.36
12
9.1
6
Incl. s
ucce
ss p
ro
ba
b.
69
.68
64
.58
MR
X-5
LB
T1
1.5
89
.34
Incl. s
ucce
ss p
ro
ba
b.
3.4
72
.80
3 d
rug
tota
l8
32
.78
72
6.2
4
Incl. s
ucce
ss p
ro
ba
b.
34
5.8
93
02
.48
Sou
rce: C
alcu
late
d b
y F
air R
ese
arch
Inc.
MEDRx Co., Ltd. (4586 Mothers) Issue Date: Nov. 7th 2017
13/13
This report is prepared by Fair Research Inc. (Fair Research) for the purpose of providing information to investors, and not for solicitation of securities trading. Although this is based
on the information and materials that Fair Research judged reliable, there is no guarantee of accuracy, credibility, completeness, suitability and timeliness. Fair Research shall not take any responsibility
whatsoever for any results including direct or indirect damage arising from the use of, or reliance to, this report. Investors should take their own responsibility for securities and other transactions. The
intellectual property right of this report belongs to Fair Research, and any copy, transmission or quote of any contents without permission is legally prohibited.
Disclaimer
□This report is prepared by Fair Research Inc. ("Fair Research") for the purpose of providing information to investors for fees
under a contract with a covered company, and not for solicitation of securities trading.
□Although, in preparing the report, Fair Research has obtained information through interviews with the covered company,
assumptions and views set forth in the report are not of the said company but are in principle based on analysis and evaluation by
Fair Research
□Although the report is written based on the information and materials that Fair Research judged reliable, there is no guarantee
of accuracy, credibility, completeness, suitability and timeliness. Also, views and forecasts set forth in the report represent
judgment by Fair Research at the time of issue of the report, and may be changed without notice.
□ Fair Research shall not take any responsibility whatsoever for any results including direct or indirect damage arising from the
use of, or reliance to, this report. Investors should take full responsibility for securities and other transactions.
□ The intellectual property rights of this report belong to Fair Research, and any copy, transmission or quotation of any contents
without permission is legally prohibited
Disclaimer