Avenue Therapeutics, Inc. - National...Aug 15, 2017 · We are initiating coverage of Avenue Therapeutics, Inc. with a Buy rating and 12 month target price of $15. Avenue’s lead

Please see pages 10-13 for Important Disclosures 1

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We are initiating coverage of Avenue Therapeutics, Inc. with a Buy rating and 12 month target price of $15.

Avenue’s lead candidate, intravenous (IV) tramadol for post-operative pain, has already proven itself as effective for

pain as an oral drug in the US and as an oral and IV ex-US. Avenue will begin its Phase 3 program for IV tramadol in

3Q17 and in light of the drug’s history, we view the remaining clinical development as being at the low end of risk

spectrum.

We believe that late stage clinical development of IV tramadol is well timed given the current opioid epidemic in

the US. While tramadol is an opioid, it is a weak opioid and as such it has a low enough abuse potential to be a DEA

Schedule 4 drug, by contrast to Schedule 2 pain drugs such as morphine, hydromorphone, oxycodone, fentanyl.

Tramadol alleviates pain through multiple means including weak mu-opioid receptor agonism, serotonin reuptake

inhibition, and noradrenalin reuptake inhibition. This combination of effects should confer a commercial advantage

to tramadol over more addictive, traditional opioids.

In the US, pain management related only to surgery represents a large market in excess of $1B. In 2015, there were

about 32 million inpatient treatment days in the US when only considering IV opioids. In the same year,

approximately 51 million US hospital reimbursement claims for injectable opioids were submitted, which included 16

million hospital inpatient stays and 35 million outpatient visits. To be conservative, despite the drug’s differentiated

profile, we have only projected a 5% peak market penetration, and yet are still able to make a compelling investment

rationale with only a $10 projected cost per dose.

When a patient is initially responding well to a given drug in a hospital setting, it is generally good practice to send

them home with that same drug, a possibility in the US should IV tramadol receive FDA approval. Currently,

tramadol is only approved in the US as an oral, but with an effective IV formulation, hospitals would have the ability

to discharge a post-operative patient with pain medication they already know works for that patient, an arguably

better approach than switching them to an entirely different drug with which the patient has no experience.

Avenue had about $34.7M in cash at the end of 2Q17, after a $38M initial public offering in 2Q17 that was almost

entirely funded by National Securities Corp., sufficient to support its activities through at least 2018, by our

projections.

Avenue Therapeutics, Inc. August 15, 2017

Jonathan Aschoff, Ph.D. 212.417.8277

[email protected] Caroline Zhang

212.417.8041 [email protected]

BUY (ATXI, $6.77)

IV Tramadol for Post-Operative Pain – Derisked Late Stage

Development Combined with Low Abuse Potential, a Strong

Positive Given the Current Opioid Epidemic: Initiating BUY/$15 TP

mailto:[email protected]

Opus National Capital Markets Biotechnology

August 15, 2017 2

Valuation

We derive our 1-year target price of $15 for Avenue via a DCF analysis, assuming a 15% discount rate that is applied to all cash flows and

the terminal value, which is based on a 4 multiple of our projected 2023 EBITDA of about $113 million. Avenue focuses on the

development and commercialization of a Phase 3, intravenous (IV) formulation of tramadol for the treatment of moderate to moderately

severe postoperative pain. We base our valuation for Avenue solely on our forecasted revenue from IV tramadol in the US, where the

company intends to independently pursue approval and commercialization of the drug. Positive topline data from the Phase 3

bunionectomy trial is expected in 2Q18, which, if affirmed by the Phase 3 abdominoplasty and safety trial results in 2Q19, would support

a New Drug Application (NDA) filing for IV tramadol by YE19, and subsequent drug launch in late 2020. Upon regulatory approval in the

US, we forecast IV tramadol to achieve a mid-single-digit market penetration, which we view to be conservative given its differentiating

qualities. With approximately 300 million injectable analgesic units prescribed in the US each year, and a projected conservative $10

treatment cost per dose for IV tramadol, we forecast the drug to attain peak US sales of about $217 million in 2023.

Avenue business overview

As a subsidiary company of Fortress Biotech, Inc., (NASDAQ: FBIO-NR-$3.93), Avenue is a New York-based, specialty pharmaceutical

company that was incorporated in 2015. The company focuses on the development and commercialization of an IV formulation of

tramadol for the treatment of moderate to moderately severe postoperative pain. Avenue expects to commence its Phase 3 trials with IV

tramadol for bunionectomy in 3Q17 and abdominoplasty in 3Q18, and anticipates reporting topline data for these two pivotal trials in

2Q18 and 2Q19, respectively. Meanwhile, the company also plans to initiate an open-label safety trial in 4Q17 and complete it in 2Q19. If

results are positive, Avenue plans to submit its NDA for IV tramadol by YE19 and commercialize the drug in 2020, if approved. Avenue

also plans to develop additional products in the acute and intensive care hospital space.

Postoperative pain market opportunity for IV tramadol

As an indispensable component of a functioning healthcare system, surgical care plays a crucial role in managing diverse health

conditions, including injuries, obstructed labor, tumor resections, infectious and cardiovascular diseases. According to the most recent

data collected by the National Center for Health Statistics, approximately 48 million surgical procedures were performed in the US in

2010 (Ambulatory Surgery Data From Hospitals and Ambulatory Surgery Centers: United States, 2010). For the in-patient setting, over 70%

of patients who underwent surgical procedures experienced acute postoperative pain, and less than half of them reported adequate

postoperative pain relief before they were discharged (Apfelbaum et al, 2003). Results from recently published literature that surveyed

300 surgical patients demonstrated that over 75% of patients experienced moderate to extreme pain immediately after surgery, 80% had

adverse events, and 39% had moderate to severe pain after the first postoperative analgesic dose with 74% experiencing high levels of

pain after being discharged (Gan TJ et al. Curr Med Res Opin. 2014; 30(1):149-60). Additionally, the study showed that postsurgical pain

remains as the dominant pre-surgical patient concern. In addition to being inhumane, inadequate pain control may result in increased

morbidity or mortality. Surgical operations have been shown to induce a variety of immunological disturbances in humans both in vivo

and in vitro, and the patients typically experience a generalized state of immune-depression during the postoperative period. Research

has demonstrated that surgical procedures may weaken host defenses, and thereby stimulate bacteria invasion and tumor cell metastasis.

On the other hand, research has also suggested that efficacious and safe analgesia may minimize the negative immune system effects

and reduce the adverse event rate, leading to increased patient satisfaction, earlier mobilization, fewer pulmonary and cardiac

complications, reduced risk of deep vein thrombosis, faster recovery with less likelihood of neuropathic pain development, and earlier

patient discharge from the hospital, thereby reducing overall cost of care. As a result, effective postoperative pain management is an

essential component of surgical care.

Pain management represents a large market. According to the IMS Charge Detail Master Database, in 2015, there were about 32 million

inpatient treatment days in the US using IV opioids. In the same year, approximately 51 million US hospital reimbursement claims for

injectable opioids were submitted, which included 16 million hospital inpatient stays and 35 million outpatient visits. Overall US sales of

injectable postoperative pain drugs reached about $1 billion in 2015 with the overwhelming majority of doses administered being low

cost generics, totaling approximately 300 million injectable units sold in 2015.

Current therapeutic modalities mainly consist of systemic opioids, nonsteroidal anti-inflammatory drugs (NSAIDs), acetaminophen, locally

administered drugs, and non-pharmacologic techniques, with opioids being the mainstay of pain therapy (Exhibit 1). The most commonly

used opioids in the postoperative and acute pain settings are morphine, hydromorphone and fentanyl. The widely prescribed IV


August 15, 2017 3

formulations of NSAIDs include diclofenac, ketorolac, and ibuprofen, and their use is associated with increased post-surgery bleeding,

peptic ulcer disease and renal impairment, as well as hepatic side effects. Regarding IV acetaminophen, although the drug appears to

cause fewer adverse events at the recommended dose than other pain drugs, it likely would lead to more severe issues in the case of

overdose, such as severe liver damage. In the US, acetaminophen overdose is not uncommon. On average, acetaminophen overdose

sends as many as 78,000 Americans to the emergency room annually and results in 33,000 hospitalizations per year. Acetaminophen is

also the nation’s leading cause of acute liver failure, according to data from an ongoing study funded by the National Institutes for Health.

Also, non-pharmacological techniques demonstrate inferior efficacy in pain management, compared to other therapies. For years,

although not superior in their entirety, opioids have remained as the most commonly prescribed drugs for acute, chronic and palliative

care globally. Originating from a plant indigenous to the Indochina region called the papaver somniferum, the plant’s sap (opium) is

comprised of approximately 12% morphine, an alkaloid that is a frequently processed chemical used to produce heroin for illegal drug

consumptions, as well as for medical use in certain regions. The goal of postoperative pain management is to relieve pain while keeping

adverse events to a minimum. Although conventional opioids have demonstrated strong efficacy in controlling pain, unfavorable adverse

events, including sedation, nausea and vomiting, respiratory complications, hypotension, constipation, and pruritus, have been observed,

severely limiting patients’ satisfaction with their pain management. In addition, subsequent treatment for undesirable opioid adverse

events, such as nausea and vomiting, may involve the use of antihistamines, which have been linked to the worsening of other

complications, such as sedation and respiratory depression. In particular, respiratory depression poses a major life-threatening risk, and

although the incidence of postoperative opioid-induced respiratory depression has been estimated to be only about 1%, the large

number of patients treated with opioids with is indicative of its severity. Furthermore, the use of conventional opioids have been

associated with drug addiction, since research demonstrates that, on average, 1 out of 15 patients who take opioids for acute pain

becomes a chronic opioid user. As a result, despite of the extensive use of numerous currently approved drugs for postoperative pain,

there remains a significant unmet need for safe and effective treatments. Notably, multimodal treatment for postoperative pain

management is commonplace and on the rise, thereby leading to more drug combinations rather than opioids being increasingly phased

out with each new non-opioid approval. Avenue therefore plans to maximize the therapeutic window and address the large unmet need.

Exhibit 1: List of main competition that IV tramadol may face, if approved

Opioids NSAIDs Other non-opioids Approved Developmental Approved Developmental Approved Developmental

morphine, hydromorphone,

fentanyl

Olinvo (Phase 3), Dsuvia (NDA), Zalviso

(Phase 3)

diclofenac, ibuprofen, ketorolac

IV meloxicam (Phase 3)

acetaminophen, exparel

HTX-011 (Phase 3), Posimir (NDA)

Source: Company documents

IV tramadol – established efficacy and safety with less addiction risk

As previously explained, although conventional opioids provide efficacy in pain management, their safety issues, along with addiction risk,

remain as clinical concerns that may prevent a more complete treatment success. Tramadol is a synthetic dual-acting opioid that exhibits

weak opioid agonist properties. The drug provides a mechanism of action through the inhibition of serotonin and noradrenaline re-

uptake, as well as the blocking of nociceptive impulses at the spinal level. As an approved oral drug, as well as in parenteral formulations

including IV, intramuscular and subcutaneous, tramadol has been globally prescribed for more than three decades. Notably, in the US,

only the oral formulation of tramadol has been approved, with no parenteral formulations available. In particular, oral tramadol was first

launched in the US in 1995 for moderate to severe pain in adults, and has established a favorable efficacy and safety profile. According to

data provided by Symphony Health Solutions, each year there have been over 40 million prescriptions for tramadol and tramadol-

containing drugs in the US since 2012. Real world evidence has shown that, although with limitations and contraindications including

nausea/dizziness, a history of seizures and concomitant use of serotonergic drugs, tramadol use results in fewer adverse events from

respiratory depression, hemodynamic disturbance, and immune dysfunction than with other more conventional opioids. The drug also

causes minimal gastrointestinal side effects, such as constipation, when compared to other opioids. Most importantly, by contrast to

conventional opioids, tramadol is associated with a relatively low risk of addiction and abuse. The US Controlled Substances Act defines

tramadol as a Schedule 4 controlled substance, as compared to the Schedule 2 controlled substance rating for multiple conventional

opioids, including meperidine, morphine, hydromorphone and oxycodone. Notably, Schedule 4 drugs are categorized as such due to their

low potential for abuse; whereas Schedule 2 drugs have a much higher abuse potential.


August 15, 2017 4

Having demonstrated efficacy and safety as an oral formulation in the US, as well as both oral and parenteral formulations in the EU and

other territories, we believe IV tramadol has advantages over other therapies. Tramadol’s long-history should facilitate physician

adoption, as a majority of them are already familiar with the drug. In addition, given the available oral formulation, we believe that

approval of the IV formulation would make oral tramadol a logical step-down therapy, allowing patients to receive IV tramadol while in

the hospital, and if effective and well tolerated, better adhere to the same therapy by taking the oral formulation when discharged,

reducing the potential of not responding well to a different pain drug used at home and therefore possible hospital-readmission.

Importantly, IV tramadol provides a similar pharmacokinetic profile to that of the oral formulation at steady state, ensuring a smooth

transition for patients to receive such step-down therapy. Oral tramadol has also proven its utility in patients who are at high risk of

developing cardiopulmonary dysfunction after surgery of the thorax or upper abdomen, and in instances in which the use of non-opioid

analgesics are contraindicated. Since tramadol has a differentiated safety profile that is associated with fewer adverse events, it could be

a suitable choice for “at-risk” patients with poor cardiopulmonary function, including the elderly, the obese and smokers, and patients

with impaired hepatic or renal function, as well as in patients for whom NSAIDs are not recommended or need to be used with caution

(Exhibit 2). In a recent survey with 30 US anesthesiologists, 77% of participants indicated a favorable initial impression of IV tramadol as a

potential new IV analgesic. Also, results demonstrate that surveyed anesthesiologists perceive a switch rate to IV tramadol as high as 40%

for patients that would otherwise be taking IV morphine, and to add IV tramadol to a multimodal treatment scheme for 41% of their

patients receiving multimodal treatment.

Exhibit 2: IV Tramadol opportunity


Clinical development of IV tramadol

Clinical advancement performed by Revogenex

In 1Q15, Fortress Biotech obtained the worldwide exclusive license to develop IV tramadol from Revogenex (private). Previously,

Revogenex conducted multiple studies with IV tramadol, including nonclinical pharmacokinetic and toxicity studies in dogs, a Phase 1

dose-proportionality trial, evaluating both maximum and cumulative exposure to IV tramadol compared to oral tramadol, as well as a

QT/QTc (TQT) trial, examining whether IV tramadol has any effect on prolonging the QTc interval in healthy volunteers. QTc estimates the

QT interval at a heart rate of 60 bpm, allowing comparison of QT values over time at different heart rates and improves detection of

patients at increased risk of arrhythmia. Results of these preclinical studies and early clinical trials demonstrated that IV tramadol exhibits

a consistent pharmacokinetic, pharmacology and toxicity profile as compared to oral tramadol.


August 15, 2017 5

PK study for IV tramadol

Typically, Phase 2 trials are required to demonstrate proof-of-concept for efficacy of an investigational drug, in order to determine the

optimal dosing regimen, as well as to perform an initial safety assessment in the intent-to-treat patient population. However, since oral

tramadol has been widely used for more than three decades in the US, and IV tramadol has been approved in many countries, Phase 2

trials were not required by the FDA. Instead, pharmacokinetic models and a safety trial were performed to determine the Phase 3 dose

and a dosing regimen that mimics drug exposure with oral tramadol. Specifically, in 2016, Avenue completed a pharmacokinetic trial for

IV tramadol in 18 healthy individuals, in which, a series of patients’ blood measurements, including systemic exposure, maximal and

minimal levels of drug concentration in the blood and their time courses, were performed to evaluate how well the drug was handled by

patients. A three-way crossover design was implemented, where each participant received both IV tramadol at two different doses on a

patient-controlled-analgesia basis and oral tramadol. As a result, IV tramadol 50 mg administered at hours 0, 2, 4, and once every 4 hours

thereafter was determined as the dosing regimen that provides a similar Cmax and AUC to that of 100 mg oral tramadol given every 6

hours at steady state (Exhibit 3).

Exhibit 3: Mean tramadol plasma concentration vs. time curve for IV 50 mg and oral 100 mg


Comparison studies for tramadol

In several comparison trials, parenteral or oral tramadol proved to be an effective and well tolerated analgesic agent in the perioperative

setting. Its overall analgesic efficacy was similar to that of morphine or alfentanil and superior to that of pentazocine. The drug had a

favorable tolerability profile in trials, with the most common adverse events (incidence of 1.6% to 6.1%) being nausea, dizziness,

drowsiness, sweating, vomiting and dry mouth, and it was without clinically relevant effects on respiratory or cardiovascular parameters

at recommended doses in adults or children. Tramadol also has a low potential for addiction (Scott, et al., Drugs. 2000 Jul; 60(1):139-76.)

In particular, a trial assessing respiratory and analgesic effects of meperidine and tramadol was conducted in 48 patients undergoing

orthopedic surgery who were randomized to three groups (n=16 each) to receive a single IV dose of 100 mg meperidine, 100 mg

tramadol, or saline. Thirty minutes after treatment, patients who requested additional analgesia were rescued with 75 mg diclofenac and

morphine as required. Results demonstrated that meperidine and tramadol produced comparable analgesia, with a different time course

profile, but, importantly, although, the incidence of nausea and vomiting was higher with tramadol (p<0.02), meperidine induced

sedation (p<0.05), respiratory depression (tidal volume, p<0.047; respiratory rate, p<0.004; % O2 Sat, p<0.036), and hypercapnia

(p<0.002); whereas tramadol did not induce sedation and respiratory depression.


August 15, 2017 6

In addition, a multicenter trial comparing tramadol and morphine for pain after abdominal surgery was conducted in 70 patients who

received either 100 mg tramadol or 10 mg morphine intramuscularly. Patients were allowed to take up to six doses of tramadol or

morphine during the 24-hour trial, and were only permitted to take diclofenac (75 mg) in the first 4 hours, if requesting supplemental

analgesic. Results demonstrated that pain intensity was reduced by 36.2% in patients taking tramadol, as compared to 51% with

morphine, after the first dose, and pain-free intervals were similar for both drugs. Importantly, tramadol was better tolerated than

morphine, which was associated with one case of mild respiratory depression, demonstrating tramadol’s more favorable safety profile.

A randomized trial designed to compare the efficacy and safety of tramadol and pentazocine in postoperative pain was performed in 50

patients who were undergoing hemorrhoidectomy, traumatological or abdominal surgery. Following a randomization list, each patient

was given 100 mg tramadol or 30 mg pentazocine by intramuscular injection at 8-h intervals for 3 days. Results demonstrated that both

drugs performed well, significantly relieving pain over the 3 days of treatment (p<0.01 from baseline), with the first dose of tramadol

being significantly more effective than pentazocine during the first hour and over the subsequent 5 hours. Regarding safety, no patient

reported any adverse events, and complete data on efficacy and tolerability favored tramadol (p<0.01) over pentazocine, further

confirming tramadol’s favorable safety and tolerability profile.

Planned Phase 3 IV tramadol program

Avenue plans to conduct two Phase 3 trials to assess the safety and efficacy of IV tramadol, along with one additional safety trial, for

analgesia following surgery (Exhibit 4). In particular, in 3Q17, the company expects to initiate the first Phase 3 trial in bunionectomy,

enrolling approximately 405 patients who will be evenly randomized to receive one of two doses of IV tramadol, or placebo, for 48 hours.

The primary endpoint of this trial is the Sum of Pain Intensity Difference over 48 hours (SPID 48), measuring the overall efficacy of

tramadol in reducing pain. We expect Avenue to report topline data for this trial in 2Q18. In addition, upon full completion of the

bunionectomy trial in 3Q18, the company expects to initiate the second Phase 3 trial in abdominoplasty, enrolling about 360 patients

who will be randomized 3:3:2 to receive IV tramadol, placebo, or standard-of-care morphine. The primary endpoint of this trial is SPID 24,

and topline data are expected to be reported as early as 2Q19. An open-label, single-arm, safety trial in approximately 250 patients is

expected to commence in 4Q17, running concurrently with both Phase 3 efficacy trials and to be completed as early as 2Q19. If all data

are positive, Avenue plans to submit an NDA for IV tramadol in late 2019 and, if approved, to commercialize the drug in 2020.

Exhibit 4: Phase 3 trial design



August 15, 2017 7

Licensing deals and intellectual property

In 1Q15, Fortress obtained a worldwide (with the exception of Canada, Central America and South America with respect to 50 mg and

100 mg IV tramadol HCl injections) exclusive license to make, market and sell IV tramadol pursuant to an agreement with Revogenex, a

privately held company in Dublin, Ireland. Fortress paid Revogenex an upfront licensing fee of $2 million and an additional $1 million in

2Q15, and 2 additional milestones totaling $4 million are due upon the completion of certain development goals. Avenue also owes high

single-digit to low double-digit royalty payments on any net sales of licensed products. Royalties will be paid on a product-by-product and

country-by-country basis until the expiration in each country of the valid patent claim. Fortress obtained the exclusive worldwide rights to

US Patent 8,895,622 “Intravenous administration of tramadol” issued on November 25, 2014 (the ‘622 patent), and US Patent 9,561,195

issued on February 7, 2017 (the ‘195 patent), and US Patent 9,566,253 issued on February 14, 2017 (the ‘253 patent). Additionally,

Fortress acquired the rights to an open investigational NDA pertaining to IV tramadol, as well as all supporting documentation and

relevant correspondence with the FDA. Furthermore, Fortress assumed the rights and obligations of Revogenex under its current

manufacturing agreement with Z.F. Polpharma S.A. Fortress transferred all of its tramadol rights and obligations to Avenue in 2Q15.

More specifically regarding patent claims, the ‘622 patent is directed to and claims methods of: treating pain by administering a

therapeutically effective dose of tramadol intravenously over a time period from 10 minutes to about 45 minutes (i.e., the rate of IV

tramadol administration); administration over that time period for treating pain in humans by intravenously administering tramadol in

solution at a range of concentrations; a method for treating acute pain in humans by administering IV tramadol over 10 to 30 minutes; a

method of treating acute postoperative pain by administering tramadol to a human patient intra-operatively at wound closure, or from

first demand of analgesia postoperatively intravenously over a time period from 10 to 30 minutes; administering further doses of IV

tramadol at two to six hour time intervals for at least 48 hours post-surgery and administering an intravenous opioid analgesic which is

not tramadol to the patient to further treat the patient’s pain. Further claims of the ‘622 patent are directed to the 50 mg tramadol dose.

These methods of treatment may provide significant benefits (e.g., reduced side effects) over previously approved methods of

administration of IV tramadol, in which dosing was typically accomplished over a two to three minute period. Additional claims of the

‘622 patent focus on the intravenous administration of tramadol over 15 (±2) minutes, which represents the preferred method of

administration that Avenue will be pursuing in obtaining FDA approval. The ‘622 patent further describes and claims pharmacokinetic

properties of Avenue’s proprietary method of treatment (e.g., Tmax, Cmax and AUC), which are different from the previously achieved

pharmacokinetics with prior IV tramadol formulations, such as Tramal solution for injection (available outside the US). The ‘622 patent is

scheduled to expire on April 12, 2032 (absent possible patent term extensions). The ‘253 patent includes claims directed to a method of

treating moderate to severe acute pain in a human patient by a dose of about 50 mg of IV tramadol over a time period from 10 minutes

to 20 minutes, and administering further doses of tramadol at two to six hour time intervals (each dose being administered intravenously

over the same time period). The ‘195 patent includes claims directed to a method of treating moderate to severe acute pain by

administering to a human patient a dose of about 50 mg of IV tramadol over 10 to 20 minutes, and administering further doses of IV

tramadol at two to six hour time intervals to treat pain in said patient, such that the Cmax does not exceed the Cmax of 100 mg oral

tramadol. The claims of the ‘195 patent therefore further focus on a goal of the technology — that the blood plasma levels of tramadol

resulting from Avenue’s 50 mg intravenous dose would not be significantly greater than the blood plasma levels of tramadol that are

already routinely experienced by patients in the US who are administered an oral dose of 100 mg tramadol. Tramadol hydrochloride is

approved in the US for oral administration in an amount from 50 to 100 mg administered every four to six hours, not to exceed 400

mg/day. In addition, in 3Q17, Avenue obtained US Patent 9,693,949, pertaining to a method of treating pain (e.g., acute postoperative

pain) by administering to human patients a therapeutically effective dose of intravenous tramadol in a dosing regimen which includes

one or more loading doses administered at shortened intervals as compared to dosing at steady-state. In certain embodiments, the dose

of tramadol is from about 45 mg to about 80 mg and the second and (optionally) third doses are intravenously administered at intervals

of from about 2 to about 3 hours, and thereafter the tramadol is intravenously administered at a dosing interval of about 4 to about 6

hours, until the patient no longer requires tramadol.

Financials

Revenue. Our projected revenue for Avenue stems only from IV tramadol sales in the US, and thus revenue from any additional

indications, regions and products would provide upside to our valuation. We conservatively forecast the initial US price for IV tramadol to

be about $10 per unit. Our model assumes that Avenue will self-commercialize the drug in the US to generate our projected 2023 net

revenue of about $217 million to Avenue. We project IV tramadol to be launched in the US in 2020.


August 15, 2017 8

Expense. We model Avenue as being responsible for all R&D expense. With the planned Phase 3 and safety trials, we forecast R&D

expense to increase in 2017 and increase sharply in 2018. We also project initial COGS to be 25% for IV tramadol, if approved.

Bottom Line. We project Avenue to be profitable in 2021, due primarily to IV tramadol sales in the US. As of August 4, 2017, Avenue had

outstanding stock options and contingent consideration liabilities that can be converted into 0.6 million common shares. As of the

completion of its late June 2017 initial public offering, Avenue had almost 10 million shares of common stock outstanding. Finally, we are

not projecting income tax until mid-2022, given the amount of NOLs accumulated.

Balance Sheet. The company’s current cash position of $34.7 million should be sufficient to support its activities at least through 2018.

As early as 2Q18, we project stock price appreciation after our projected positive topline data from the Phase 3 bunionectomy trial.

Risks

• Clinical risk. Avenue’s clinical stage products could fail to deliver statistically significant results in late-stage

clinical trials, substantially reducing the value of Avenue’s product candidates and therefore our target price.

• Regulatory risk. Even if successful in the clinic, Avenue’s products could fail to be approved by domestic

and/or foreign regulatory bodies, which would reduce Avenue’s value and therefore our target price.

• Financing risk. Avenue could require additional capital to fund its operations, should its marketed or soon to

be marketed products fail to deliver the anticipated revenue, and such financing may not occur or it could be

substantially dilutive to existing investors.

• Competitive risk. For any approved Avenue products, they may not be well adopted in a competitive

marketplace, which would adversely affect Avenue’s value and therefore our target price.

• High stock price volatility. This issue is common among small-cap biotechnology companies with relatively low trading volumes.


August 15, 2017 9

AVENUE THERAPEUTICS, INC.Income Statement

Fisca l Year ends December 31

(in '000 except per share i tems)

2016A 1Q17A 2Q17A 3Q17E 4Q17E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Col larborate revenue

IV tramadol 18,233 77,343 143,538 217,461

Total revenue - - - - 18,233 77,343 143,538 217,461

COGS - 4,558 19,336 35,885 54,365

R&D 1,380 133 447 1,118 3,353 5,050 21,669 10,835 5,417 5,471 5,526 5,581

SG&A 997 371 1,297 1,362 1,430 4,460 6,471 12,943 38,828 40,770 42,808 44,949

Total operating expenses 2,377 504 1,744 2,479 4,782 9,510 28,141 23,777 48,804 65,577 84,219 104,895

Operating income (EBIT) (2,377) (504) (1,744) (2,479) (4,782) (9,510) (28,141) (23,777) (30,571) 11,766 59,319 112,565

Total Other Income (800) (157) (662) - - (819)

Net income (loss) before taxes (3,177) (661) (2,406) (2,479) (4,782) (10,329) (28,141) (23,777) (30,571) 11,766 59,319 112,565

Income tax expense (benefi t) - 8,898 39,398

Net income (loss), GAAP (3,177) (661) (2,406) (2,479) (4,782) (10,329) (28,141) (23,777) (30,571) 11,766 50,421 73,167

EPS basic (0.37) (0.07) (0.70) (0.25) (0.48) (1.28) (2.80) (1.46) (1.85) 0.70 2.93 4.16

EPS diluted, GAAP (0.37) (0.07) (0.70) (0.25) (0.48) (1.28) (2.80) (1.41) (1.78) 0.67 2.83 4.02

Bas ic shares outstanding 8,582 9,069 3,460 9,820 9,918 8,066 10,042 16,243 16,568 16,899 17,237 17,582

Di luted shares outstanding 8,582 9,069 3,460 9,820 9,918 8,066 10,042 16,846 17,171 17,502 17,840 18,185

Source: Company reports, Opus National Capital Markets estimates


August 15, 2017 10

IMPORTANT DISCLOSURES: Opus National Capital Markets is a DBA for

National Securities Corporation

200 Vesey Street, 25th Floor New York, NY 10281

REG AC ANALYST CERTIFICATION

The research analysts named on this report, Jonathan Aschoff, Ph.D., and Caroline Zhang, certify the following: (1) that all of the views expressed in this research report accurately

reflect their personal views about any and all of the subject securities or issuers; and (2) that no part of their compensation was, is, or will be directly or indirectly related to the

specific recommendations or views expressed by them in this research report.

IMPORTANT DISCLOSURES

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August 15, 2017 11

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Research Disclosures Legend

Relevant Disclosures: 1, 2, 4, 6, 9, and 10

1 National Securities (NSC) is a market-maker in the securities of the subject company

2 In the past twelve (12) month period, NSC and / or its affiliates have received compensation for

investment banking for services from the subject company

3 In the past twelve (12) month period, NSC and / or its affiliates have received compensation from the

subject company for services other than those related to investment banking

4 In the past twelve (12) month period, NSC was a manager or a co-manager of a public offering of one

or more of the securities of the issuer


August 15, 2017 12

5 In the past twelve (12) month period, NSC was a member of the selling group of a public offering of

the security (ies) of the issuer

6 One or more directors, officers, and / or employees of NSC and / or its affiliated companies is / are a

director (s) of the issuer of the security which is the subject of this report

7 NSC and / or its affiliates expects to receive or intends to seek compensation for investment banking

services from the subject company at some point during the next three (3) months

8 A research analyst or a member of his / her household has a financial interest in the securities of the

subject company as follows: a) long common stock; b) short common stock; c) long calls; d) short calls;

e) long puts; f) short puts; g) long rights; h) short rights; i) long warrants; j) short warrants; k) long

futures; l) short futures; m) long preferred stock; n) short preferred stock

9 As of the end of the month immediately preceding the date of publication of this report or the end of

the prior month if the publication is within ten (10) days following the end of the month, NSC and / or

its affiliates beneficially owned one percent (1%) or more of any class of common equity securities of

the subject company.

10 Please see below for other relevant disclosures

Shares of this security may be sold to residents of all 50 states, Puerto Rico, Guam, the US Virgin Islands and the

District of Columbia.

*Investment banking services provided in the previous 12 months

MEANING OF RATINGS:

BUY: the stock is likely to generate a total return of at least 10% over the next 12 months and should outperform

relative to the industry.

NEUTRAL: the stock is likely to perform in-line with the industry over the next 12 months.

SELL: the stock is likely to underperform (from a total return perspective) relative to the industry over the next

12 months.

NR: Not Rated

SP: Suspended

Investment Banking*

Rating # % # %

BUY 36 62.1% 14 24.1%

NEUTRAL 18 31.0% 2 3.4%

SELL 4 6.9% 2 3.4%

Distribution of Ratings


August 15, 2017 13

Charts – ATXI

Source: Big Charts

ATXI Date Rating Price Target

Initiation August 15, 2017 BUY $15

Documents

Avenue Therapeutics, Inc. - National...Aug 15, 2017 · We are initiating coverage of Avenue Therapeutics, Inc. with a Buy rating and 12 month target price of $15. Avenue’s lead