Insmed Has $700M Opportunity With Lung Disease Treatment, Says Morgan Stanley

Insmed Incorporated INSM, an orphan disease company developing treatment for nontuberculous mycobacterial lung disease, is likely to see upside from maintenance therapy and its sales opportunity in Japan, according to Morgan Stanley. 

The Analyst

Analyst Matthew Harrison initiated coverage of Insmed with an Overweight rating and $39 price target, suggesting roughly 60-percent upside from current levels.

The Thesis

Insmed has longer-term optionality through frontline treatment, while clarity on label expansion should drive upside in the near-term, Harrison said in a Wednesday note.

The "novel" technology the company uses to deliver antibiotics to treat disease — antibiotics that are otherwise too toxic to systematically administer — can drive a pipeline of treatments for a variety of lung diseases, the analyst said. The vast majority of value in the near-to-medium-term is likely to generated in NTM, Harrison said. 

Morgan Stanley estimates there are 30,000 patients in the U.S. and Japan who are refractory to current treatments, equating to an initial global market of $700 million. 

Clean top-line data released in September is strong enough to generate $400 million to $500 million of peak U.S. sales, the analyst said. Insmed's valuation reflects only the U.S. refractory opportunity, Harrison said. 

"We believe the key upside drivers for INSM are expansion into maintenance therapy, geographic expansion to Japan and potentially even frontline treatment." 

The firm estimates Japan to be a $200 million to $300 million market, with a high number of identified patients.

Another study is needed to access frontline patients, Harrison said. 

The pressure on Insmed stock is due to higher-than-expected spending and the consensus view for a modest launch but the consensus is missing a peak sales opportunity that could be illuminated by an advisory committee and longer-term follow-up data, according to Morgan Stanley. 

The Price Action

Insmed shares are up about 50 percent over the past year.

The stock was up 4.14 percent after the open Wednesday.

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