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Trevena, Inc. - Initiation Note

Trevena, Inc.

BUY (TRVN, $4.05)

1Q17 Brings Phase 3 Results for Oliceridine – Novel, Potent & Safe in Post-Operative Pain: Initiating BUY/$13 TP

November 9, 2016

Jonathan Aschoff, Ph.D.

212.417.8277

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  • We are initiating coverage of Trevena, Inc. with a Buy rating and a 12-month target price of $13. Oliceridine is Trevena’s leading drug, in development for post-operative pain, and we believe it has the potential to deliver at least as much pain control as an opioid but with less severe adverse effects. Oliceridine can provide more pain relief than a standard 4mg dose of morphine, as well as have a faster onset of action, as shown in Phase 2 bunionectomy and abdominoplasty trials, yet have a superior safety profile. In 1Q16, Trevena received Breakthrough Therapy designation for oliceridine, the only such designation granted to a pain drug, most likely predominantly due to its differentiated safety profile.
  • The key near term investment catalyst for Trevena is release of Phase 3 results in 1Q17, and we expect no risk to this timeline given the robust enrollment. We project oliceridine to launch in 2018 in the US and 2019 in the EU and to generate almost $500 million in global sales at peak. Trevena ended 3Q16 with cash of $120 million, which should support operations into 2018, comfortably beyond our projected 1Q17 Phase 3 value creation event. With so many drugs and drug cocktails used for post-operative pain, comparative data is crucial for a drug's differentiation, and in our view Trevena should be able to show enough differentiation versus morphine to convince the FDA to allow such data to be in the drug’s label.
  • The market for post-operative pain is large. In 2015, there were about 32 million inpatient treatment days in the US using intravenous opioids, according to the IMS Charge Detail Master Database, and US sales of injectable post-operative pain drugs reached $1 billion in 2015. Even with our conservative modeling of a low single digit penetration rate, we are able to support a far higher valuation than the current. Our valuation only takes into consideration oliceridine; thus the oral drugs TRV734 and TRV250 would represent upside to our revenue forecast.
  • Trevena’s pain and migraine drugs (oliceridine, TRV250, and TRV734) have novel mechanisms of action that dissociate opioid analgesia from a substantial amount of its adverse effects. Many companies are attempting to discover, repurpose or reformulate non-opioid drugs to meet medical needs where opioids are frequently used, but where opioid adverse effects are limiting. While it is difficult to argue against the efficacy of opioids, their adverse effects leave much to be desired. With this squarely in mind, Trevena has discovered different drug candidates that are selectively agonistic to the μ and δ opioid receptors. Trevena’s three opioid compounds are able to activate the pathway mediated by G protein coupling, but not the pathway mediated by β-arrestin. Other opioid drugs non-selectively activate both pathways, inextricably linking their potent efficacy with highly undesirable adverse effects such as respiratory depression, constipation, nausea, and vomiting. By avoiding activation of the pathway mediated by β-arrestin, we believe Trevena’s pain and migraine drugs should be able to substantially reduce adverse effects, while providing more than adequate analgesia.

TRVN


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