Waking Up to The Opportunity in Sleep Medicine

Overview:

• Our key opinion leaders (KOLs) believe the sleep disorder space remains vastly underserved despite the availability of sodium oxybate, used to treat narcolepsy, and daytime wakefulness agents.
• Orexin 2 receptor (OX2R) agonists could transform the treatment of sleep disorders given their wakefulness potential.
• We estimate the total market opportunity for the OX2R agonist class could reach more than US$3.5 billion to US$5 billion in narcolepsy alone.
• The first OX2R agonists could hit the market by 2027, and we expect launches to expand the overall branded sleep disorder space.

The TD Cowen Insight

The narcolepsy and idiopathic hypersomnia markets already support more than US$2 billion in annual branded drug revenues. We expect the strong efficacy data provided by the orexin 2 receptor agonist class combined with increased diagnosis rates could expand this to over US$6 billion if approved given our physician feedback.

Meeting Sleep Market Needs to Drive Billion Dollar Growth

We believe the sleep disorder landscape is set for a renaissance catalyzed by

• strong initial data from the orexin 2 receptor agonist class of therapies in narcolepsy and idiopathic hypersomnia (IH),
• the continued diagnosis and identification of IH patients, and
• the expansion of wake promoting agents into adjacent indications.

Currently, narcolepsy and IH patients are treated either through sleep consolidation at bedtime or through promoting wakefulness during the day. While these therapies have garnered interest and represent approximately US$2 billion in annual branded revenues in narcolepsy alone, our physicians highlight that there remains room for improvement in both efficacy and safety.

Various companies have generated encouraging datasets across populations including narcolepsy type I and II patients (NT1/NT2) and IH with their OX2R agonist candidates, which have set a new standard for efficacy on the mean wakefulness test. If successfully developed, our KOLs expect there will be high interest in the agents (e.g., up to 80% of NT1 patients would be considered and 50% to 60% of NT2/IH patients would be considered). Given the size of the narcolepsy market, our consultant commentary suggests the peak orexin opportunity could represent US$5 billion in narcolepsy alone, while our survey data suggests an additional US$2.5 billion opportunity in IH.

While eventual tolerability, dosing frequency, dosing flexibility and final efficacy will determine the relative profiles and paint a clearer picture of each program's opportunity, we see all leading players in the orexin field as attractive. While the orexin class can be disruptive, our surveyed physicians and consultant conversations highlight that there will remain a place for oxybate products as much of the narcolepsy/IH population remains open space for new therapeutics.

The subsequent frontier that could drive even greater value creation will be the next wave of indications where wake promoting agents may show benefit. The orexin players are also looking to expand into new indications, and our physician consultants are supportive. Thus overall, the sleep disorder landscape will be one to watch, and the launch of the orexins combined with further identification of patient populations in need could create meaningful value for well-positioned shareholders.

What Is Proprietary?

We provide an in-depth look at the commercial outlook for currently approved and developmental stage assets across narcolepsy and idiopathic hypersomnia. The report dives into the clinical pipeline and scientific rationale for targets under investigation in addition to upcoming key catalysts to watch across the sleep disorder landscape. Our findings are supported by thorough KOL diligence, including discussions with several sleep specialists and a survey of 25 physician experts. Analyses of clinical pipelines, literature reviews and prior datasets support the report.

Financial and Industry Model Implications

Based on our analysis, the branded narcolepsy/IH market represented over US$2 billion in sales last year. While this is already meaningful, as highlighted above, many patients have poor response to current standard of care agents and the overall diagnosis rate of narcolepsy and IH has room to grow. As a result, the market appears primed for new, efficacious market entrants, and investor attention is beginning to turn to the orexin class of compounds given the early clinical efficacy seen to date.

We expect that the OX2R agonist class could represent a meaningful expansion in the current branded narcolepsy market. A weighted average response from our polled physicians in our sleep disorder specialist survey indicated that, on average, roughly 50% of their narcolepsy type 1 patients and 40% of their narcolepsy type 2 patients would be candidates for an OX2R agonist therapy if approved. Even more supportive, several of our narcolepsy KOLs have indicated to us that closer to 80% of patients would be candidates for the class along with 50% of narcolepsy type 2 patients. For an assumed diagnosed and treated U.S. narcolepsy patient population of approximately 60 thousand and an assumed OX2R agonist net price of around $140,000 per year, this level of uptake for the OX2R agonist class would reflect a total market opportunity of over US$3.5 billion to US$5 billion in NT1/NT2 patients alone. We note this number could prove conservative should diagnosis and patient identification efforts continue to increase with the approval of this new class of therapies or should companies in the space price these therapies above our projections (given the substantial benefit that these agents provide over current standard of care for narcolepsy patients).

While IH represents a slightly less de-risked indication for the OX2R agonist class overall, we note that these agents could also have a substantially underappreciated market opportunity in this space should they succeed in Phase 2 (Ph. II) and Phase 3 (Ph. III) studies. In our survey, our physician respondents indicated that roughly 43% of their IH patients would be candidates for an OX2R agonist agent. Even assuming a conservative estimate for the number of IH patients diagnosed and treated of approximately 40 thousand in the U.S. as well as a similar net price to that noted above, this group of patients would represent an over US$2.5 billion opportunity for the class in IH alone. While already impressive, our surveyed physicians indicate that the number of diagnosed and treated IH patients could approach 50 thousand or even higher, thus the total commercial opportunity for OX2R agonists in IH could also prove conservative should these prevalence estimates materialize.

We project sales for the three lead OX2R candidates to exceed US$5 billion in 2034 across indications. Several companies in the wake-promoting space are generating data in adjacent indications, and our surveyed physicians also indicate several additional disorders in which this class of therapies could show benefit (e.g., attention deficit hyperactivity disorder (ADHD), shift work disorder (SWD), major depressive disorder (MDD) with insomnia, obstructive sleep apnea (OSA), multiple sclerosis, Parkinson's disease). While a detailed analysis of these indications is outside the scope of this report, each could represent substantial commercial opportunities, which we expect very few investors (if any) have incorporated into their models. We expect the opportunity of wake-promoting agents in adjacent sleep and Central Nervous System (CNS) indications will be further explored and clarified in the coming years.