MRNS - Marinus: Transforming The Seizure Market With Ganaxolone (Rating Upgrade)

2023-06-22 17:55:52 ET

Summary

• Marinus Pharmaceuticals has pivoted from postpartum depression to focus on seizure disorders, leading to FDA approval for Ztalmy (ganaxolone) for treating Cyclin-dependent Kinase-like 5 Deficiency Disorder (CDD) seizures.
• The company is exploring ganaxolone's potential for treating Tuberous Sclerosis Complex (TSC), a genetic disorder causing benign tumors and epilepsy, with promising early-phase results.
• Despite risks such as dependence on Ztalmy's performance, clinical trial uncertainties, and a competitive landscape, I recommend a 'Buy' for Marinus Pharmaceuticals due to its potential to disrupt the seizure disorder market.

Introduction

Marinus Pharmaceuticals ( MRNS ), a commercial-stage entity, focuses on pioneering therapies for various seizure disorders, including status epilepticus and rare genetic epilepsies. In 2022, it received FDA approval for Ztalmy (ganaxolone), designed for treating seizures linked with Cyclin-dependent Kinase-like 5 Deficiency Disorder (CDD) in patients over two years. Ganaxolone, an allopregnanolone synthetic analog, interacts with GABAA receptors, demonstrating anti-seizure properties. Marinus is further developing ganaxolone to treat other rare genetic epilepsies and exploring different administration methods to broaden its therapeutic scope.

Since my previous analysis of the company in 2019, significant changes have occurred. Back then, Marinus had a primary focus on advancing ganaxolone for postpartum depression, which I referred to as an "elegant placebo" based on the available data. However, Marinus has since made a wise decision to abandon its efforts in advancing ganaxolone for postpartum depression and has redirected all its attention to seizure disorders. Contrary to my "Strong Sell" recommendation, Marinus has proved me wrong by experiencing an impressive increase of 128% in its value, surpassing the S&P's return of 46%.

The following article reevaluates Marinus in light of its developments over the past few years.

Q1 2023 Earnings

Let’s first look at their most recent financial report . Marinus Pharmaceuticals reported $3.3 million in net product revenues and $7.0 million in federal contract revenue from BARDA for Q1 2023. R&D expenses rose to $27.9 million, driven by increased clinical trial activity, and SG&A expenses were $15.2 million, largely due to increased headcount and support for Ztalmy's U.S. launch. The company recorded a net loss of $34.7 million, with cash used in operations increasing to $41.5 million. As of March 2023, it held $199.2 million in cash and short-term investments.

For 2023, it expects Ztalmy revenues of $15-$17 million, BARDA revenues of $8-$11 million, and total operating expenses of $165-$175 million. The current cash balance should fund operations into H2 2024.

MRNS Stock Assessment

Marinus Pharmaceuticals' stock significantly outperformed the S&P 500 in the past year with a rise of 134.63%.

However, high valuation metrics like Price/Book ratio of 6.36 and an EV/Sales ratio of 20.05 suggest a premium market valuation. Marinus is currently unprofitable, evident from a net income margin of -162.35%. It also posted a year-over-year revenue decline of 21.83%, indicating a challenging growth environment. The firm has a market capitalization of $524.18M, $105.54M debt, and $199.2M cash, giving an enterprise value of $434.57M. Despite the strong stock momentum, investors should scrutinize the company's profitability and growth dynamics. Future clinical trial results for ganaxolone could significantly influence these factors.

Note: The above values were derived from Seeking Alpha .

Recent Developments

Marinus Pharmaceuticals reported around 100 active patients for Ztalmy (ganaxolone). Coverage expanded to approximately 225 million lives. The Phase 3 RAISE trial for ganaxolone in refractory status epilepticus continues, with interim analysis and potential topline data expected by end 2023. A new IV formulation is planned for the RAISE trial in Q2 2023. The Phase 3 RAISE II and Phase 2 RESET trials are anticipated to begin in H2 2023 and complete their first cohort by year-end, respectively. In May, the EMA's Committee for Medicinal Products for Human Use (CMPH) opinion on the Marketing Authorization Application for CDKL5 Deficiency Disorder was positive - foreshadowing EU approval. Enrollment continues in the Phase 3 TrustTSC trial with data expected mid-2024.

Ganaxolone (Ztalmy): Effective Seizure Treatment with Promising Market Potential

Ganaxolone, marketed as Ztalmy , is a synthetic neuroactive steroid approved by the FDA for treating seizures in patients aged two and above with CDKL5 deficiency disorder. This approval was backed by a trial involving 100 patients aged 2-21 years, with those receiving ganaxolone showing a higher median reduction in the 28-day frequency of major motor seizures compared to a placebo group. However, there was not a significant difference in the proportion of patients with a 50% reduction in seizure frequency. Common side effects include somnolence, fever, and upper respiratory tract infections. UpToDate recommends ganaxolone for children aged two and above.

In terms of market potential, with an annual cost of $133,000, and assuming 50% of CDKL5 patients aged two and above need Ztalmy, we estimate a sizeable market. If we consider a prevalence rate of ~1 in 50,000 live births , which translates to around 80 CDKL5 cases per year in the US, we can infer there may be between 2,000-4,000 CDKL5 patients over the age of two in the US. With 50% requiring Ztalmy, the annual US market potential ranges from $133 million to $266 million. It's worth noting that this is an estimate and actual market potential may vary due to factors like insurance coverage, accessibility, and competition.

Ganaxolone Shows Promise as Potential Treatment for TSC, Progresses to Phase 3

Marinus Pharmaceuticals is progressing in its efforts to repurpose ganaxolone for the treatment of Tuberous Sclerosis Complex (TSC), a genetic disorder that prompts the growth of benign tumors in various body organs and often results in epilepsy. The condition is relatively rare but notable, affecting ~1 in 6,000 live births and serving as a significant cause of genetic epilepsy. The FDA and EMA recognized the potential of ganaxolone to fill an unmet need in TSC treatment by granting it orphan drug status in 2021.

Findings from the open-label Phase 2 CALM trial demonstrated that ganaxolone, given to 23 patients over 12 weeks, resulted in a median reduction of 16.6% in TSC-related seizure frequency relative to a four-week baseline. Additionally, over 30% of participants exhibited a 50% seizure reduction. The most frequent side effect was drowsiness, with one severe case of increased seizures also noted.

Despite the preliminary nature of these results due to the trial's open-label design and limited sample size, they do show promise. Marinus believes it has secured alignment with both the FDA and EMA on its clinical development plan for ganaxolone in TSC, pointing to potential progression to a Phase 3 trial. This forthcoming trial, known as TrustTSC, is a global, double-blind, placebo-controlled study set to involve approximately 160 TSC patients, with initial data due by early 2024.

Comparatively, the potential market for ganaxolone in TSC is more extensive than that in CDKL5, given the higher prevalence of TSC (one in 6,000 versus one in 50,000 for CDKL5). Consequently, should ganaxolone secure approval for TSC, it would tap into a significantly larger market.

Ganaxolone's mechanism of action might make it a promising candidate for TSC treatment. Ganaxolone is a synthetic neuroactive steroid that mimics the natural neurotransmitter allopregnanolone, enhancing the inhibitory effects of gamma-aminobutyric acid ((GABA)). Because a significant proportion of TSC patients experience seizures - a condition often linked to an imbalance between inhibitory and excitatory signals in the brain - enhancing GABAergic inhibition could theoretically reduce the frequency of these seizures. The preliminary results from the CALM trial support this theory, yet more comprehensive trials are necessary to firmly establish ganaxolone's efficacy in TSC.

My Analysis & Recommendation

In conclusion, Marinus Pharmaceuticals has undergone an exciting transformation since my first analysis in 2019. The company's decision to pivot from postpartum depression to concentrate on seizure disorders, specifically rare genetic epilepsies, has paid off handsomely. The FDA approval and launch of Ztalmy (ganaxolone) for CDD have been pivotal in driving this growth.

While the company's financials do show an entity that is still not profitable, there's more to this story than meets the eye. Increased expenses in R&D and SG&A reflect Marinus' commitment to expanding the reach of Ztalmy and to advancing its promising pipeline. Notably, the company's current cash balance can sustain operations until H2 2024, providing a significant runway to reach major milestones.

Moreover, the company's exploration of ganaxolone's potential for TSC is another significant growth opportunity. Given TSC's higher prevalence compared to CDKL5, approval for this indication could considerably broaden Marinus' market. The encouraging early-phase results for ganaxolone in TSC only strengthen this potential, though further trials are needed for confirmation. Conversely, I don't foresee intravenous ganaxolone, intended for treating status epilepticus, becoming a significant contributor to Marinus' value. This is due to the challenges involved in securing such an indication, the intricacies associated with in-hospital use, and the presence of already established treatments.

Undoubtedly, the journey of drug development comes with risks, and Marinus is not exempt. Clinical trials carry inherent uncertainties, and competition in the therapeutic area is fierce. However, Marinus' progress thus far, coupled with its solid pipeline, position it well to navigate these challenges.

Therefore, despite the risks, I am bullish about Marinus Pharmaceuticals and am willing to take a calculated risk based on its potential. Consequently, my recommendation for Marinus Pharmaceuticals at this stage is 'Buy.' I believe Marinus has the potential to disrupt the seizure disorder market and reward investors handsomely. However, an investment in Marinus remains quite speculative, as the market for CDKL5 is very small. Much of its success, in my view, will boil down to TSC data. Investors are encouraged to stay tuned to the upcoming clinical trial results, the growth trajectory of Ztalmy, and Marinus' financials to fully understand the evolving narrative.

Risks to Thesis

When the facts change, I change my mind.

As I reflect on my 'Buy' recommendation for Marinus Pharmaceuticals, I'm conscious that there are potential risks to this stance. I'll discuss four main ones below:

Dependence on Ztalmy's performance: Marinus' financial success is heavily tied to the commercial performance of Ztalmy. If sales of Ztalmy fail to meet expectations due to challenges such as low market penetration, insurance reimbursement hurdles, or pricing issues, Marinus' financial outlook could deteriorate. Such developments could cause a significant decrease in the company's stock price.

Clinical trial uncertainties: Marinus' future is also tied to the successful clinical development of ganaxolone for various indications. If upcoming trials produce results that are less positive than initial findings, or reveal serious adverse events, this could seriously impact the company's stock price.

Competitive Landscape: The market for therapies for genetic epilepsies is highly competitive. Developments from competitors could threaten the market share and pricing power of Marinus' products, thereby negatively impacting its financial performance.

Financial Health: Despite my 'Buy' recommendation, Marinus is currently unprofitable and burning through cash to fund its operations. If the company doesn't achieve profitability within the expected timeframe or needs to raise additional capital, this could dilute the value for existing shareholders and cause a decrease in the stock price.

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