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August 26, 2010
Share ThisSomaxon Pharmaceuticals Inc. (SOMX) shares received a major boost recently with the company entering into a co-promotional deal with Procter & Gamble (PG) for its insomnia treatment Silenor. Somaxon shares were up 28.8% on the news. Silenor is approved for the treatment for insomnia characterized by difficulty with sleep maintenance.
Deal Terms
Per the terms of the deal, Silenor will be co-promoted in the US by a combined sales force of 215 sales reps. The companies intend to target 35,000 of the highest prescribers of insomnia products and 25,000 pharmacies. Promotion to pharmacies will help increase product awareness.
While P&G’s sales reps will focus on promoting the products to pharmacies and physicians and work on gaining formulary coverage for the product, Somaxon’s sales force will target specialists and high-prescribing physicians. P&G also has the option to enter into discussions with Somaxon regarding the development and commercialization of an over-the-counter (OTC) version of Silenor.
Under the deal, which runs through December 31, 2012, P&G will be entitled to receive a combination of fixed fees and a royalty on US sales that will be recorded by Somaxon. While both parties will be individually responsible for costs associated with the maintenance of their sales forces, Somaxon will bear all other costs associated with the commercialization of Silenor. P&G will be entitled to receive a reduced royalty rate for a year after the agreement expires.
The Insomnia Market
According to IMS Health, the insomnia market accounted for more than $2 billion in sales in 2009. An estimated 70 million American adults are affected by some form of insomnia, with only about 15%–20% receiving prescription pharmaceutical products. Most patients aim to treat their insomnia with a combination of OTC medications used off-label.
Current market-leading products include Sanofi-Aventis’ (SNY) Ambien, Ambien CR, Dainippon Sumitomo’s Lunesta, King Pharmaceutical’s (KG) Sonata, and Takeda’s Rozerem, among others. Generic versions of both Ambien and Sonata are available. Given the tough competition in the market, Somaxon has priced its Silenor at a discount to both Lunesta and Ambien CR.
Our Take
Silenor is scheduled to hit the market in September. We view the company’s deal with P&G as a positive. P&G has a highly experienced sales force which has expertise in promoting prescription products. In addition to providing a strong marketing partner, this deal allows Somaxon to retain a significant share of the economics that Silenor will deliver. Somaxon does not expect to pay more than 15% of US product sales to P&G.
Somaxon maintained its guidance for 2010. The company continues to expect total operating expenses in the range of $28–$32 million in the second half of 2010.
We currently have a Neutral recommendation on Somaxon which is supported by a Zacks #3 Rank (short-term Hold rating). We view the US Food and Drug Administration (FDA) approval of Silenor earlier this year as a major positive for the stock. We are also positive on the company’s co-promotion deal with P&G. However, we remain concerned about the intense competition in the highly crowded and genericized insomnia market.
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