Most investors know that biotech stocks can be volatile, and Encysive
So what does this mean for Encysive? The European Medicines Evaluation Agency (Europe's FDA equivalent) nearly always follows the advice from its advisory body, so we can expect Thelin to be marketed in most of the EU countries within the next year. As I previously wrote, though, sales for Thelin won't start occurring for quite a while.
Another 90 days remain before Thelin is formally approved in Europe. Encysive must then begin reimbursement negotiations with each individual EU country before Thelin can go on sale in those countries, which should eat up another 3-6 months in most cases.
Encysive could start marketing Thelin immediately upon approval, without formal reimbursement, in the U.K. and Germany. But even in those two countries, expect sales to be minimal until reimbursement from the government is settled, since a course of treatment with the drug is expected to cost considerably more than $30,000.
Encysive will also either have to start hiring a sales force in Europe or find a marketing partner shortly. The company has only recently hired someone to head its European operations, including sales and marketing, so it will be months before a sales force can be hired and trained. Fortunately, it will not take a large effort to hit all the European markets.
There are currently no definitive estimates for PAH patients in the EU. The total U.S. and European market for PAH is hazy, but various sources estimate it anywhere between 100,000 and 200,000 patients. This may not sound like a large population, but PAH is not well-known in the medical community. As awareness of PAH grows, I expect the patient population estimates to increase as well.
Estimating European sales for Thelin is difficult, given uncertainty over the EU patient population. However, looking at the sales ramp-up of Actelion's drug for PAH, Tracleer, gives us an idea of Thelin's potential market size.
Sales of Tracleer in 2005 topped $520 million worldwide, growing at an 80% clip compared to 2004 sales. Actelion estimated that Tracleer sales would grow another 35% this year, reaching roughly $800 million by 2009. There's clearly opportunity for growth in this market.
Though Actelion unfortunately doesn't break out sales by region, I expect the prevalence of PAH in the EU to be at least as large as in the U.S. With a superior safety profile and easier dosing regimen, Thelin should have no problem gaining market share against Tracleer in the EU.
Encysive's next critical hurdle lies here in the U.S. In March, the FDA sent the company an approvable letter regarding Thelin, requesting answers to several questions and concerns. Encysive is now waiting to see whether the FDA accepts its response. If so, the agency will issue another decision on Thelin in either 60 days or six months from the time the company sent in its response. Whatever the FDA's decision, expect more volatility in Encysive shares.
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