December 02, 2019 - 10:34am EST by
2019 2020
Price: 2.15 EPS 0 0
Shares Out. (in M): 50 P/E 0 0
Market Cap (in $M): 108 P/FCF 0 0
Net Debt (in $M): 30 EBIT 0 0
TEV (in $M): 138 TEV/EBIT 0 0

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We believe Correvio Pharma (Ticker: CORV) has a high probability (90%) of a 2X return this month (December 2019) with up to 3X return by mid-2020. We see a very small chance (10%) of the stock experiencing material downside.
This opportunity is easy to dismiss as it carries FDA related binary risk. We, like many investors, are almost never willing to “invest” (speculate) around these types of risks. However, we see the CORV situation as a presenting a unique set of facts/risks that normal investors can assess. The risk/reward and attending Expected Value are skewed highly to the upside. The unlikely downside scenario should be managed through position sizing.
For investors to get comfortable with this situation they have to answer a single question: What is the likelihood that in December 2019 the FDA approves Correvio’s drug Brinavass (after a controversial non-approval 12 years ago)? We note that:
  • Over the past decade Brinavass has been approved and used extensively in many countries around the world (EU, Canada, others)
  • The drug has a large post-EU approval study (Spectrum) and many other studies which clearly demonstrate safety and efficacy (worldwide data post 2007 FDA non-approval is robust and highly compelling)
  • Brinavess demonstrates clinical superiority in a large and critical cardiac indication (Atrial Fibrillation 8th most common reason for admission to ER)
  • The FDA granted the resubmission of the Brinavess New Drug Application indicating that the body of evidence has evolved sufficiently to allow for a new review

Below we further explore a fact base that points to a very high likelihood of approval. If our assessment is correct then CORV stock is a highly compelling with material near term upside. We will try to keep things as simple as possible but are glad to engage in more detailed conversations. In addition, we are very eager to hear from investors who think we are incorrect in our assessment of the approval probability.

Summary Brinavess Overview
Brinavess (vernakalant hydrochloride) is used to restore the heart to normal sinus rhythm during Atrial Fibrillation (AF)
  • AF is a common ailment characterized by irregular palpitations, chest pain, and shortness of breath. It is very uncomfortable for patients.
  • In the United States alone over 7MM patients present with AF annually and over 500K require treatment of some sort (the others self-resolve after a period of waiting)
  • There are a number of control strategies:
    • Electrical Cardioversion: Electric current is used to reset the heart to its regular pattern. There are a whole range of risks and benefits that make electrical cardioversion appropriate for certain patients/situations and not so for others.
    • Pharmacological Cardioversion: The use of medications to restore sinus rhythm. Often pharmacological cardioversion is a first step in treating AF.
  • There are approved drugs in the United States for cardioversion. Different drugs are used in different settings and the decision on what medication to use is based in part on the degree (if any) of structural heart disease.
  • Brinavess is administered intravenously in acute settings with patients that have minimal or no heart disease. The primary benefit of Brinavess compared to other drugs (like amiodarone, ibutilide) is a meaningfully shorter time to conversion and/or a higher success rate of conversion. A lot more can be learned in this paper.
  • Brinavess is approved in Europe, Canada, and a number of other countries. In addition to the United States, Correvio will pursue approval in China in 2020.
Brinavess FDA Regulatory History
Before we discuss the history of Brinavess in the United States we should provide a very brief primer on the FDA drug approval process. After clinical work has been completed (Phases I-III), and multiple submissions to and discussions with the FDA, there are critical final steps in getting a drug approved:
  1. FDA Advisory Committee: In many but not all cases the FDA holds an Advisory Committee meeting (“Adcom”) to contribute to its review of the drug in question. This meeting includes participants from the relevant FDA committee in this case the Cardiovascular and Renal Drugs Advisory Committee. The members of this committee are not FDA employees but rather are medical professionals (mostly MDs) or other professionals with relevant experience. In this case there will be cardiologists, biostatisticians, among others. In addition, the meeting is attended by Company representatives, members of the public, representatives from relevant medical societies and patient advocacy groups, etc. The Adcom meeting is an exchange of analyses, ideas, and opinions related to the utility, safety, and medical need of the drug in question. The output of this meeting is a non-binding vote and recommendation of the Committee members which the FDA will incorporate into its final decision making process.
  2. PDUFA Date: The PDUFA date is essentially the date on which the FDA will decide on the approval of a drug. The FDA’s decision incorporates a number of factors and the aforementioned Adcom is a critical piece of their decision making analysis.

Brinavess nearly got approved in 2007 in the United States. In fact, the FDA Adcom voted 6-2 in favor of approval. Depending on analysis  for new drugs the FDA typically follows the recommendation of the Advisory Committee about 85% of the time.

Despite the positive Adcom in 2007 the FDA did not recommend Brinavess for approval. It was their concern (and the concern of the two dissenting Committee members) that the safety profile of Brinavess was not yet fully understood given the available data.

One contributing factor was the death of a South American patient who received Brinavess as part of a clinical trial. This Serious Adverse Event (SAE) created concern. There has been much debate about this patient and whether he even met the criteria for the study and what he actually died of but, either way this single event was a contributor in the non-approval of Brinavess.

Where is Brinavess Today?
The drug has been administered almost 60K times without any deaths. The safety profile is well understood given the large, post-EU approval Spectrum Trial and 34 other Investigator and Post-Approval Studies. There is a ton of data to dig into but the short of it is:
  • Through much faster cardioversion Brinavess demonstrates clinical superiority to other Pharmacological Cardioversion drugs
    • The drug shows 70% efficacy with a 12-minute medium time to conversion
    • A variety of studies provide evidence of a well understood, safe, and effective drug
  • No deaths have been reported*
*Note: “No deaths” means no deaths related to Brinavess as determined by the medical professionals involved. A patient could be experiencing Atrial Fibrillation coincident with something like a Dissecting Aneurysm (longitudinal rip in artery wall). Brinavess could be administered to return the heart to normal sinus rhythm and yet the patient later dies due to the aneurysm. What matters is what the medical professionals involved determine to be the reason for death.
Concerns from 12 years ago related to the safety profile have been more than cured. We believe it is for this reason that the FDA agreed to accept the resubmitted New Drug Application.
We note that today’s FDA Cardiovascular and Renal Drugs Advisory Committee is a completely different group of people than those who served twelve years ago. Our review of the Committee Members papers and writings did not produce evidence of predisposition either for or against Brinavess. Both of the 2007 Adcom dissenters (Hiatt and Harrington) had concerns generally at the time about the use of drugs for symptomatic relief of AF.
Where is Brinavess in the Approval Process?
The Brinavess Adcom is scheduled this month on December 10th and the PDUFA date is on December 24th. It’s possible the PDUFA date slips given the timing near Christmas. 
In just a few weeks investors will have the Adcom which we expect to be positive. Why are we confident in a positive Adcom?
  • Even with far less information/data, the origional Adcom was positive (6-2). And, subsequent robust safety and efficacy data since then is excellent. For this reason we believe this Committee will be highly in favor of recommending Brinavess.
  • In terms of “counting the votes” we don’t see any obvious dissenters on the Committee. Our baseline belief is that all members will vote for approval.

When it comes to the PDUFA date and to the final decision we think the FDA will be asking themselves one question. Is the drug safe? They knew it worked in 2007 and subsequent data is confirmatory efficacy is not the question. Safety is what will govern their decision. Now that they have a large study (Spectrum) and lots of other studies to rely on the FDA should be comfortable in answering the safety question.

With the safety covered (and two positive Adcoms 2007 and presumably 2019) we are highly confident Brinavess gets approved (90%+).
If Approved, What is CORV Worth?
We think the stock will double on a positive Adcom and subsequent approval to between $4 and $5 per
share. Then we believe the company will sell itself in the first half of 2020 for between $6 and $8 per
share. This is based on:
  • The drug should have 10+ years of protection (we assume the USPTO will give a 5-year patent extension which is pretty common and the fact base supports such an extension)
  • Peak sales should be $500MM with cumulative 10-year sales in the $3.5BN range at 90% gross margins
    • This is a mid-case estimate based on taking 20%-25% share from Amiodarone over time
    • Amiodarone has a slow onset of action and often requires the patient to be admitted to the hospital
  • We’ve had a lot of discussions as to what the present value of this stream of gross profits is worth. Note that a strategic buyer would put Brinavess into the bags of an existing cardiology or anticoagulant sales force - meaning a buyer would take on very little additional cost to sell Brinavess
  • Based on the sales forecast and margin profile - feedback from a range of parties suggests that a buyer will pay between $300MM and $500MM today (roughly $6 to $10 per share)
  • Note that the company has existing products with annual sales of roughly $30MM. These sales are probably worth 2X to 3X to a different buyer. The company also has $30MM in net debt. For simplicity we assume the value of the existing products is sufficient to cover the net debt and cash burn between now and selling the company
  • For what it’s worth Analyst price targets range from $4.50 to $7.00

Why do we believe CORV will ultimately sell? Mostly because commentary from management does not indicate building a sales force and taking Brinavess to market alon...or suggest running Correvio as a long term, independent public company. (listen to management calls and conference presentations). 

What if Brinavess is Not Approved?
Obviously we view this as the low likelihood scenario (10%). But, we acknowledge that with the FDA and drugs strange things can happen:
  • For instance, imagine if in the coming weeks a few patients who are administered Brinavess in other countries were to die (even if it was not Brinavess related). Could this give the FDA pause?
  • Maybe, despite our research, we missed some vocal member of the Advisory Committee who will come out in strong objection to Brinavess. We don’t think so…but, one can never be 100% sure
  • Similarly, at the FDA for the PDUFA there could still remain a strong-opinioned, old-school FDA employee who believes that Electro Cardioversion should be the only standard of care
The unknowables are…well…unknowable and such long-tail risks are best dealt with in position sizing. If Brinavess fails, we think the company slashes costs, sells the existing products, pays down debt, and returns excess capital. In this scenario the stock is probably worth $0.50
In Conclusion
We see a 90% chance of Brinavess being approved and resulting in a $6-$8 stock. And, we see just a small 10% chance of a negative outcome and a $0.50 stock. Given this math the Expected Value is pretty obvious and compelling.
Investors will not need to wait very long for the thesis to play out. With both the Adcom and the PDUFA scheduled for December the catalysts and return potential are very near term.
We also think the subsequent sale of the company will be quick as Correvio has likely already had conversations with the relevant strategic buyers.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


 - Adcom


 - Sale of the company

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