(MENAFN - Gulf Times) Navroze Alphonse bet on Botox before the wrinkle treatment became a blockbuster drug for Allergan. Now, the hedge-fund manager is bullish on a potential competitor.
The wager is on Daewoong Pharmaceutical Co entering the lucrative US market, for which the company and a partner filed an application in May after completing clinical trials.
Daewoong's Botox rival, Nabota, was first sold at home in South Korea in 2014 and is now available in about 60 countries. Daewoong expects it will take at least a year to win US approval and a symbolic step came last month, when Nabota was assigned a formal name in the US.
It's 'the only product we have seen come out of development globally, including any US-based companies, that we believe can compete with Allergan and Botox, said Alphonse, the chief investment officer at Crossover Capital Partners in Boston. Nabota is a purer form of the active ingredient botulinum toxin type A than other Botox alternatives, he said, making it more comparable to Allergan's drug.
Crossover started buying Daewoong stock in March and now owns about 2% as part of its $250mn in assets, Alphonse said. There are signs other investors share Crossover's optimism. The drugmaker's shares have doubled this year, climbing 68% since March 1, and are trading near a record, giving it a market value of about 1.6tn won ($1.5bn). The stock climbed 1.5% on Friday, closing at 138,000 won.
Nevertheless, Daewoong faces a formidable challenge. Botox brought in $2.8bn for Allergan last year, almost three times as much as Daewoong's annual revenue, with sales for cosmetic use representing about two-fifths of the total.
The likes of Johnson & Johnson haven't been able to develop a rival for Botox, which is also used to treat migraines and overactive bladders.
In the US, Allergan controls more than 90% of the medical-use market for so-called neurotoxins. The clinical profile and market leadership for its drug, first introduced in 1989, are 'well established, Allergan spokesman Mark Marmur said. The company continues to develop Botox for other uses.
Alphonse sees Nabota not just competing with Botox but also helping to expand the market with a cheaper offering for aesthetic use. Daewoong and its partner are seeking US approval to treat frown lines between eyebrows.
'Nabota is only going for the cosmetics side of the market and that size is growing very quickly, Alphonse said. 'The market is moving and we now see women in their 40s, 30s and even late 20s seeking Botox injections.
Crossover projects Nabota sales can reach $2bn in 10 years and, along with a bone-grafting device, help expand Daewoong's margins by a factor of 10. Alphonse and Crossover chief Faraz Naqvi, a doctor-turned-investor who co-founded the firm in 2016, bet on Allergan almost 15 years ago, when the pair worked at the now defunct Pequot Capital Management Pequot was able to double its investment in two years as Botox won formal approval for cosmetic use in 2002, Alphonse said.
Daewoong declined to comment on Nabota's sales potential. The company, which got its start as a vitamin maker in 1945, has an agreement with Evolus Inc under which the US firm is in charge of clinical trials, regulatory approval and sales. Santa Barbara, California-based Evolus declined to comment.
Some investors are discouraged by the competition in the neurotoxin market. At home, Daewoong is already locking horns with Medy-Tox, which has a licensing agreement with Allergan, and Bain Capital-backed Hugel, said Jung Sang-Jin, a fund manager at Korea Investment Management.
Daewoong's main risks include a legal dispute, said Korea Investment & Securities analyst Kevin Jin. Medy-Tox, whose Botox rival hit Korean shelves in 2006 but isn't available in the US, alleges Nabota was developed with stolen technology, a claim Daewoong denies.
The odds of Medy-Tox prevailing in courts is low, Jin said.
The other issue, he said, is an ongoing US Food and Drug Administration review of a Nabota factory in Korea that's already been approved by local authorities. Nabota's entry in to the US could be delayed if the FDA finds the plant doesn't meet its manufacturing standards. Daewoong expects a decision in a year.
Crossover isn't concerned, acquiring shares as recently as last week.
'We will continue to be buyers, Alphonse said, adding Crossover's price target on Daewoong is 850,000 won, or about six-fold more than Friday's close. 'We believe that is conservative.

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