Biotechnology Trevena, Inc November 9, 2016 BUY (TRVN, $4.05) Jonathan Aschoff, Ph.D. 212.417.8277 1Q17 Brings Phase 3 Results for Oliceridine – Novel, Potent & [email protected] Safe in Post-Operative Pain: Initiating BUY/$13 TP We are initiating coverage of Trevena, Inc. with a Buy rating and a 12-month target price of $13. Oliceridine is Trevena’s leading drug, in development for post-operative pain, and we believe it has the potential to deliver at least as much pain control as an opioid but with less severe adverse effects. Oliceridine can provide more pain relief than a standard 4mg dose of morphine, as well as have a faster onset of action, as shown in Phase 2 bunionectomy and abdominoplasty trials, yet have a superior safety profile. In 1Q16, Trevena received Breakthrough Therapy designation for oliceridine, the only such designation granted to a pain drug, most likely predominantly due to its differentiated safety profile. The key near term investment catalyst for Trevena is release of Phase 3 results in 1Q17, and we expect no risk to this timeline given the robust enrollment. We project oliceridine to launch in 2018 in the US and 2019 in the EU and to generate almost $500 million in global sales at peak. Trevena ended 3Q16 with cash of $120 million, which should support operations into 2018, comfortably beyond our projected 1Q17 Phase 3 value creation event. With so many drugs and drug cocktails used for post-operative pain, comparative data is crucial for a drug's differentiation, and in our view Trevena should be able to show enough differentiation versus morphine to convince the FDA to allow such data to be in the drug’s label. The market for post-operative pain is large. In 2015, there were about 32 million inpatient treatment days in the US using intravenous opioids, according to the IMS Charge Detail Master Database, and US sales of injectable post-operative pain drugs reached $1 billion in 2015. Even with our conservative modeling of a low single digit penetration rate, we are able to support a far higher valuation than the current. Our valuation only takes into consideration oliceridine; thus the oral drugs Capital Markets TRV734 and TRV250 would represent upside to our revenue forecast. Trevena’s pain and migraine drugs (oliceridine, TRV250, and TRV734) have novel mechanisms of action that dissociate opioid analgesia from a substantial amount of its adverse effects. Many companies are attempting to discover, repurpose or reformulate non-opioid drugs to meet medical needs where opioids are frequently used, but where opioid adverse effects are limiting. While it is difficult to argue against the efficacy of opioids, their adverse effects leave much to be desired. With this squarely in mind, Trevena has discovered different drug candidates that are selectively agonistic to the µ and δ opioid receptors. Trevena’s three opioid compounds are able to activate the pathway mediated by G protein coupling, but not the pathway mediated by β-arrestin. Other opioid drugs non-selectively activate both pathways, inextricably linking their potent efficacy with highly undesirable adverse effects such as respiratory depression, constipation, nausea, and vomiting. By avoiding activation of the pathway mediated by β-arrestin, we believe Trevena’s pain and migraine drugs should be able to substantially reduce adverse effects, while providing more than adequate analgesia. Rev ($M) 2015A 2016E 2017E Ticker TRVN 1Q $0.6 $1.9 - Last Price $4.05 2Q $1.9 $1.9 - National Mkt Cap ($M) $211 3Q $1.9 $0.0 - Fiscal YE 31-Dec 4Q $1.9 $0.0 - 50d ADV (000) 275 Annual $6.3 $3.8 $0.0 Short int (M) 1.7 S/O (M) 52 EPS 2015A 2016E 2017E Annual Hi $13.02 1Q -0.33A -0.35A - Annual Lo $3.76 2Q -0.28A -0.37A - Cash ($M) $120 3Q -0.24A -0.57A - 4Q -0.3A -0.59E - Opus Source: Big Charts Annual -1.15A -1.87E -1.74E Please see pages 12-15 for Important Disclosures 1 Opus National Capital Markets Biotechnology Exhibit 1: Product pipeline Source: Company documents Valuation We derive our target price through a DCF analysis, assuming a 10% discount rate that is applied to all cash flows and the terminal value, which is based on a 4 multiple of our projected 2022 EBITDA of $250 million. We base our valuation for Trevena on revenue from oliceridine (previously known as TRV130) for moderate to severe pain. We believe that Trevena intends to market oliceridine on its own upon potential FDA approval. Outside the US, we believe that Trevena plans to seek one or more partners for the development and commercialization of oliceridine. Our valuation assumes US approval and launch of oliceridine for moderate to severe pain in 2018, and we conservatively (low single digit market penetration at peak) project an initial US price of $200 per course, based on the average WAC price for the current standard of care. Potential approvals for drug candidates beyond oliceridine, such as TRV734 and TRV250, would provide upside to our valuation. Oliceridine for acute moderate to severe pain Oliceridine background Severe nausea, vomiting, constipation and potentially life-threatening respiratory depression has always been associated with effective opioid therapy and, in our view, Trevena is on its way toward dissociating opioid analgesia from a substantial amount of its adverse effects by developing selective μ-opioid receptor ligands. Key to achieving this is the observation that mice with defective or silenced β- arrestin genes that were given morphine displayed analgesia, but without as much respiratory depression or gastrointestinal dysfunction as wild-type mice. Trevena is developing its internally discovered oliceridine to determine whether differential activation of μ-opioid pathways can elicit the G protein-coupling efficacy of morphine, while significantly decreasing the μ-opioid receptor phosphorylation, engagement of β-arrestin, and internalization that accounts for much of the observed adverse events. Furthermore, β-arrestin binding to the μ-opioid receptor has been shown to hinder G protein coupling, which reduces opioid efficacy, and thus oliceridine should be able to offer increased efficacy as well as decreased adverse effects. In February 2016, Trevena received Breakthrough Therapy designation from the FDA for intravenous oliceridine, which was the first and only Breakthrough Therapy designation granted to a pain management program, most likely predominantly due to its differentiated safety profile. November 9, 2016 2 Opus National Capital Markets Biotechnology Exhibit 2: Oliceridine mechanism Source: Company documents Market opportunity for oliceridine The market for post-operative pain relief is large. In 2015, there were about 32 million inpatient treatment days in the US using intravenous opioids, according to the IMS Charge Detail Master Hospital Cost Database (16 million inpatient stays at an average duration of 2 days). US sales of injectable post-operative pain drugs reached about $1 billion in 2014, which seems low, but the overwhelming number of doses administered in this market are low cost generics. In 2015, approximately 51 million US hospital reimbursement claims for injectable opioids were submitted, which includes about 35 million hospital outpatient stays and about 16 million inpatient stays. Despite the extensive use of numerous currently approved drugs for post-operative pain, there is a significant unmet need for safe and effective treatments, as over 70% of in-hospital patients claim post-operative pain, and 50% of them experience severe or extreme pain before they are discharged (Apfelbaum et al, 2003). Even 11 years later, a publication (Gan TJ et al. Curr Med Res Opin. 2014;30(1):149- 60) demonstrated that this problem persists, as evaluation of 300 surgical patients showed that 75% had moderate/extreme pain immediately after surgery, 80% had AEs and 39% had moderate/severe pain after the first post-operative analgesic dose, and 74% had high levels of pain after discharge. Additionally, the study showed that post-surgical pain was the dominant pre-surgical patient concern. The most effective analgesics for acute postoperative pain are μ-opioid agonists such as morphine and fentanyl. However, opioids have a number of side effects, including respiratory depression and the development of analgesic tolerance. Alternatives such as NSAIDs have the adverse effects of lowered gastrointestinal (GI) cytoprotection, platelet function, and renal function. Some products have been removed from the market due to an increased risk of heart attack and stroke. In fact, the post-operative patient receiving opioid therapy receives far more medicine to mitigate opioid side effects than to directly treat pain. It is also very difficult to predict which patients will have fatal opioid consequences or near misses, outside of the general alignment of complications increasing proportionally with age and weight, thereby presenting a clear opportunity for potent but safer alternatives. We believe oliceridine has the potential to be superior to standard of care opioids based on its strong efficacy, rapid onset of action, and fewer, less severe, and more predictable adverse effects. Clinical trials with oliceridine Oliceridine Phase 1b proof-of-concept trial Oliceridine at 1.5mg, 3mg, and 4.5mg doses was evaluated in a 30-patient proof-of-concept Phase 1b trial and responses in a cold pain test model of pain were compared to placebo and 10mg morphine. The trial was a randomized, double-blind, single-site, 5 period crossover trial in healthy male volunteers. The 3mg and 4.5mg oliceridine doses had higher peak analgesia than morphine, faster onset, and a similar duration, as more subjects doubled baseline cold pain test latency and achieved the cold pain test cutoff time of 180 seconds with 3mg and 4.5mg oliceridine than with 10mg morphine. If anything, the trial would have underestimated the increased efficacy of oliceridine over morphine due to the testing convention having a 3 minute cutoff.