Transition Therapeutics Inc.

TTH : TSX : C$5.86
TTHI : NASDAQ
SPECULATIVE BUY
Target: C$9.80

COMPANY DESCRIPTION:
Transition Therapeutics is a clinical-stage biotechnology
company developing novel therapeutics for the treatment
of Alzheimer’s disease and diabetes. The company’s lead
drug, ELND-005, is partnered with Elan Corporation and
is in Phase II clinical testing as a potential therapy in both
bipolar disorder and neuropsychiatric symptoms
associated with Alzheimer’s disease. Transition has
partnered development of diabetes drug TT-401 with Eli Lily.

Life Sciences — Biotechnology
A CLOSER LOOK AT D-5
Investment recommendation
We have taken a closer look at ELND-005 (D-5) after attending CtaD and
recently having the opportunity to speak with several key opinion
leaders (KOLs). We believe that D-5 presents many characteristics of a
potential treatment for neuropsychiatric symptoms (NPS) in AD, and
despite some challenges and a minor shift in focus, we continue to
believe that this drug has multi-billion dollar sales potential. With
important clinical data expected within the next nine months, we believe
that this is an appropriate time to position ahead of this anticipated
catalyst. We are therefore raising our rating to SPECULATIVE BUY from
Hold.
Investment highlights
Even after its acquisition by Perrigo, partner Elan continues to
dedicate substantial capital and resources to the development of D-
5. We believe that data from the previous Phase II study provides
strong evidence of D-5’s potential to treat NPS in AD.
D-5 has received Fast Track designation from the FDA, and could
also receive Priority Review if clinical trials are successful.
TTH does have several drugs beyond D-5 and TT-401 in its pipeline,
but these remain early stage and we do not expect to include them
in our valuation until evidence of clinical efficacy is observed.
Valuation
We value TTH using both a probability weighted and explicit NPV model
for lead drug D-5 in bipolar disorder and AD, and for TT-401 in
diabetes. We have taken a closer look at the opportunity for D-5 in AD;
based on our updated analysis, we are increasing our target to C$9.80
(from C$4.75), implying a 67.2% annualized return with a key catalyst
expected in the second half of 2014

Life Sciences — Biotechnology
A CLOSER LOOK AT D-5
Investment recommendation
We have taken a closer look at ELND-005 (D-5) after attending CtaD and
recently having the opportunity to speak with several key opinion
leaders (KOLs). We believe that D-5 presents many characteristics of a
potential treatment for neuropsychiatric symptoms (NPS) in AD, and
despite some challenges and a minor shift in focus, we continue to
believe that this drug has multi-billion dollar sales potential. With
important clinical data expected within the next nine months, we believe
that this is an appropriate time to position ahead of this anticipated
catalyst. We are therefore raising our rating to SPECULATIVE BUY from
Hold.
Investment highlights
Even after its acquisition by Perrigo, partner Elan continues to
dedicate substantial capital and resources to the development of D-
5. We believe that data from the previous Phase II study provides
strong evidence of D-5’s potential to treat NPS in AD.
D-5 has received Fast Track designation from the FDA, and could
also receive Priority Review if clinical trials are successful.
TTH does have several drugs beyond D-5 and TT-401 in its pipeline,
but these remain early stage and we do not expect to include them
in our valuation until evidence of clinical efficacy is observed.
Valuation
We value TTH using both a probability weighted and explicit NPV model
for lead drug D-5 in bipolar disorder and AD, and for TT-401 in
diabetes. We have taken a closer look at the opportunity for D-5 in AD;
based on our updated analysis, we are increasing our target to C$9.80
(from C$4.75), implying a 67.2% annualized return with a key catalyst
expected in the second half of 2014

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