Sector Watch: Drug delivery stocks
Prescription pill abuse ranks second only to marijuana in the United States as the most prevalent category of drug abuse, according to the Dept. of Health and Human Services.
Two relatively recent entrants into the war on pill-popping are Acura Pharmaceuticals (Nasdaq:ACUR) and Columbia Laboratories (Nasdaq:CBRX), two companies that specialize in abuse deterrent technology for prescription drugs.
Acura Pharmaceuticals develops drug candidates based on its Aversion technology drug delivery platform. Aversion technology is designed to prevent the misuse of commonly prescribed painkillers such as oxycodone, morphine and codeine. In addition to active pain-killing ingredients, Aversion technology-treated drugs contain proprietary active and inactive ingredients that discourage users from intravenous injecting of dissolved tablets, snorting crushed tablets and/or intentionally swallowing excess numbers of tablets. The added ingredients cause the dissolved or crushed tablets to form a viscous gel, trapping the opiate inside and preventing the user from getting high; if the user attempts to ingest an excess quantity of tablets, he or she will experience unpleasant side-effects such as flushing, itching, sweating and/or chills.
The potential market for Aversion technology is enormous. Approximately 235 million opiate prescriptions are dispensed each year in the United States and physicians estimate that nearly one in six prescriptions is abused. Well-known opiate brand names include Percocet, OxyContin, Roxicet, Vicodine and Lortab. There is an urgent need to address the growing problem of prescription drug abuse with new technologies that deter abusers.
Acura’s lead product candidate utilizing Aversion technology is Acurox tablets. This product is currently in Phase III clinical trials. The company anticipates submitting a new drug application for Acurox tablets with the FDA in the second half of 2008. Acura has partnered with King Pharmaceuticals for the development and commercialization of a number of opioid analgesics based on Aversion technology (including Acurox tablets) in the North American market and anticipates forming similar relationships with pharmaceutical industry partners in the European and Asian markets.
In addition to Acura’s steady progress advancing Acurox tablets through clinical trials, the company recently extended its intellectual property portfolio to include 21 new allowable patent claims and began clinical studies of a second undisclosed analgesic based on Aversion therapy. In addition, King Pharmaceuticals paid Acura $3 million in May 2008 for licensing rights to a third opiate pain medicine in pre-clinical development.
Acura began generating revenues from its licensing agreement with King Pharmaceuticals in 2008, posting first quarter revenues of $17.1 million. Program revenues totaled $13.7 million and were derived from a $30 million non-refundable upfront payment made by King in late 2007. First-quarter revenues also included $3.4 million in reimbursed research and development expenses paid by King. Acura’s net income rose to $7.5 million, or $0.15 per share, in the first quarter of 2008 from a net loss of $9.2 million, or $0.26 per share, in the first quarter of 2007. With nearly $30 million in balance sheet cash and equivalents, Acura has sufficient funding to pursue the further development of additional drug candidates based on its Aversion technology delivery platform.
Acura shares began trading on Nasdaq in February 2008; the company has yet to secure analyst coverage. At a 14 times P/E multiple and an $8.50 share price, I think Acura is undervalued. We believe these shares warrant a 20 times P/E multiple and a $12 target price, suggesting a 69% premium over Tuesday's closing price of $7.10.
Columbia Laboratories develops and commercializes women’s health-care and endocrinology products based on a novel bio-adhesive drug delivery technology. This technology utilizes a bio-adhesive polymer to bond to the cells of the body’s mucosal surface and deliver the active drug in a controlled, sustainable release. Columbia markets five products based on bio-adhesive delivery technology, including Crimone and Prochieve progesterone supplements and replacements, Replens and RepHresh vaginal gels, Advantage-S contraceptive gel and Striant gel for the treatment of hypogonadism in men.
In 2008, the company began aggressively promoting Crimone to the $180-million U.S. infertility market. Infertility products generate over 55,000 U.S. prescriptions per year and more than 1.2 million infertility treatments are performed annually. Columbia also has Phase III clinical trials underway evaluating the effectiveness of Prochieve as a therapeutic for preterm birth prevention. The company began recruiting patients for this new Prochieve study in the first quarter of 2008 and anticipates completing clinical trials in 2008 and reporting study results in the first half of 2009. Also in clinical trials is a vaginally administered lidocaine drug candidate for the treatment of dysmenorrheal, a painful condition that affects some 5.6 million U.S. women. The company expects to report results from Phase II clinical trials of the lidocaine drug candidate in the third quarter of 2008.
Columbia’s 35-person direct sales force calls on the physicians that treat over 80% of all infertility patients in the United States. The company markets its products directly to obstetricians, gynecologists and reproductive endocrinologists. Merck holds the foreign rights to Crinone and is currently marketing this product in 56 countries.
Columbia recorded its fifth-consecutive quarter of revenue growth in the first quarter of 2008, with sales up 36% year over year to $9.1 million from $6.7 million. Net revenues from progesterone products rose 25% year over year to $5.9 million from $4.7 million and sales of other products grew 50% year over year to $3.1 million from $2 million. The company’s net loss was higher this year at $4.2 million, or $0.08 per share, in the first quarter of 2008, versus $3.5 million, or $0.07 per share, in the first quarter of 2007, due to increased selling and distribution expenses and higher research and development costs. Analysts think Columbia Laboratories is on track to produce 20% sales growth this year and 30% sales growth next year. My $5 price target for Columbia Laboratories is above Tuesday's closing price of $3.56.
Other companies of potential interest in the drug delivery technology space include Delcath Systems, Inc. (Nasdaq:DCTH), a developer of technologies for treating liver cancer; Quigley Corp. (Nasdaq:QGLY), a developer and marketer of natural health care pharmaceuticals and nutriceuticals; Matrix Initiatives, Inc. (Nasdaq:MTXX), a marketer of over-the-counter healthcare products based on proprietary delivery technologies, and Flamel Technologies SA (Nasdaq:FLML), which owns a polymer-based drug delivery technology with applications in oncology and diabetes.
Two relatively recent entrants into the war on pill-popping are Acura Pharmaceuticals (Nasdaq:ACUR) and Columbia Laboratories (Nasdaq:CBRX), two companies that specialize in abuse deterrent technology for prescription drugs.
Acura Pharmaceuticals develops drug candidates based on its Aversion technology drug delivery platform. Aversion technology is designed to prevent the misuse of commonly prescribed painkillers such as oxycodone, morphine and codeine. In addition to active pain-killing ingredients, Aversion technology-treated drugs contain proprietary active and inactive ingredients that discourage users from intravenous injecting of dissolved tablets, snorting crushed tablets and/or intentionally swallowing excess numbers of tablets. The added ingredients cause the dissolved or crushed tablets to form a viscous gel, trapping the opiate inside and preventing the user from getting high; if the user attempts to ingest an excess quantity of tablets, he or she will experience unpleasant side-effects such as flushing, itching, sweating and/or chills.
The potential market for Aversion technology is enormous. Approximately 235 million opiate prescriptions are dispensed each year in the United States and physicians estimate that nearly one in six prescriptions is abused. Well-known opiate brand names include Percocet, OxyContin, Roxicet, Vicodine and Lortab. There is an urgent need to address the growing problem of prescription drug abuse with new technologies that deter abusers.
Acura’s lead product candidate utilizing Aversion technology is Acurox tablets. This product is currently in Phase III clinical trials. The company anticipates submitting a new drug application for Acurox tablets with the FDA in the second half of 2008. Acura has partnered with King Pharmaceuticals for the development and commercialization of a number of opioid analgesics based on Aversion technology (including Acurox tablets) in the North American market and anticipates forming similar relationships with pharmaceutical industry partners in the European and Asian markets.
In addition to Acura’s steady progress advancing Acurox tablets through clinical trials, the company recently extended its intellectual property portfolio to include 21 new allowable patent claims and began clinical studies of a second undisclosed analgesic based on Aversion therapy. In addition, King Pharmaceuticals paid Acura $3 million in May 2008 for licensing rights to a third opiate pain medicine in pre-clinical development.
Acura began generating revenues from its licensing agreement with King Pharmaceuticals in 2008, posting first quarter revenues of $17.1 million. Program revenues totaled $13.7 million and were derived from a $30 million non-refundable upfront payment made by King in late 2007. First-quarter revenues also included $3.4 million in reimbursed research and development expenses paid by King. Acura’s net income rose to $7.5 million, or $0.15 per share, in the first quarter of 2008 from a net loss of $9.2 million, or $0.26 per share, in the first quarter of 2007. With nearly $30 million in balance sheet cash and equivalents, Acura has sufficient funding to pursue the further development of additional drug candidates based on its Aversion technology delivery platform.
Acura shares began trading on Nasdaq in February 2008; the company has yet to secure analyst coverage. At a 14 times P/E multiple and an $8.50 share price, I think Acura is undervalued. We believe these shares warrant a 20 times P/E multiple and a $12 target price, suggesting a 69% premium over Tuesday's closing price of $7.10.
Columbia Laboratories develops and commercializes women’s health-care and endocrinology products based on a novel bio-adhesive drug delivery technology. This technology utilizes a bio-adhesive polymer to bond to the cells of the body’s mucosal surface and deliver the active drug in a controlled, sustainable release. Columbia markets five products based on bio-adhesive delivery technology, including Crimone and Prochieve progesterone supplements and replacements, Replens and RepHresh vaginal gels, Advantage-S contraceptive gel and Striant gel for the treatment of hypogonadism in men.
In 2008, the company began aggressively promoting Crimone to the $180-million U.S. infertility market. Infertility products generate over 55,000 U.S. prescriptions per year and more than 1.2 million infertility treatments are performed annually. Columbia also has Phase III clinical trials underway evaluating the effectiveness of Prochieve as a therapeutic for preterm birth prevention. The company began recruiting patients for this new Prochieve study in the first quarter of 2008 and anticipates completing clinical trials in 2008 and reporting study results in the first half of 2009. Also in clinical trials is a vaginally administered lidocaine drug candidate for the treatment of dysmenorrheal, a painful condition that affects some 5.6 million U.S. women. The company expects to report results from Phase II clinical trials of the lidocaine drug candidate in the third quarter of 2008.
Columbia’s 35-person direct sales force calls on the physicians that treat over 80% of all infertility patients in the United States. The company markets its products directly to obstetricians, gynecologists and reproductive endocrinologists. Merck holds the foreign rights to Crinone and is currently marketing this product in 56 countries.
Columbia recorded its fifth-consecutive quarter of revenue growth in the first quarter of 2008, with sales up 36% year over year to $9.1 million from $6.7 million. Net revenues from progesterone products rose 25% year over year to $5.9 million from $4.7 million and sales of other products grew 50% year over year to $3.1 million from $2 million. The company’s net loss was higher this year at $4.2 million, or $0.08 per share, in the first quarter of 2008, versus $3.5 million, or $0.07 per share, in the first quarter of 2007, due to increased selling and distribution expenses and higher research and development costs. Analysts think Columbia Laboratories is on track to produce 20% sales growth this year and 30% sales growth next year. My $5 price target for Columbia Laboratories is above Tuesday's closing price of $3.56.
Other companies of potential interest in the drug delivery technology space include Delcath Systems, Inc. (Nasdaq:DCTH), a developer of technologies for treating liver cancer; Quigley Corp. (Nasdaq:QGLY), a developer and marketer of natural health care pharmaceuticals and nutriceuticals; Matrix Initiatives, Inc. (Nasdaq:MTXX), a marketer of over-the-counter healthcare products based on proprietary delivery technologies, and Flamel Technologies SA (Nasdaq:FLML), which owns a polymer-based drug delivery technology with applications in oncology and diabetes.
About the Author
Contributing author Lisa Springer is an equity research analyst with nearly 20 years of investment research experience.