Javelin Pharmaceuticals: House of pain relief
Javelin Pharmaceuticals (AMEX: JAV) is all about controlling pain. The company now has three products it is planning to introduce in upcoming quarters, and approvals would not only ease patient suffering but give investors relief as well.
Based in Cambridge, Mass., Javelin is an emerging specialty pharmaceutical company that searches out unmet and underserved needs in pain management. Incorporated in 2005, Javelin’s three product candidates are designed to better relieve pain with fewer adverse side effects and faster results than other treatments. The company has successfully retained intellectual property rights on these products, extending the term of commercial exclusivity.
Rylomine, or intranasal morphine, is one product in Javelin’s pipeline. It is in Phase III development in the United States for acute moderate-to-severe pain and in Phase II studies in Europe. Rylomine works faster than oral morphine and does not require professional medical assistance, as injected morphine usually does. A second product is PM-150, or intranasal ketamine. A formulation of ketamine, a non-opiate, the product is in Phase III trials in both the United States and Europe.
It’s the third offering—Dyloject—that’s of the moment. Dyloject is a formula for injectable diclofenac and is in a Phase III trial in the United States and awaiting approval in the U.K. Diclofenac, an NSAID, is widely prescribed for post-operative pain. Dyloject is in development in the United States for post-surgical pain; in the U.K., it additionally targets acute pain.
The wait for regulatory approval of the U.K. plant for Dyloject has put investors on edge. Originally hoped for by the end of summer, it is still expected soon: in late September at the UBS Global Life Sciences Conference, Fred Mermelstein, founder and president, said the company expects approval in the near term and plans for a U.K. commercial launch in the fourth quarter. Javelin has been hiring sales people for the rollout, which is expected to extend into the EU in 2008.
Just this month, Patricia Bank, analyst at Pacific Growth Equities, said in a research note that she fully expects the Dyloject manufacturing plant to be approved. “However, after speaking with industry consultants, we are resigned to the possibility that the agency may request additional minor corrective actions,” she said, adding that this would be routine practice.
Bank kept her “buy” rating on the stock and cited $10 per share as fair valuation. With a closing price Thursday of $5.27, Javelin’s shares have fallen from a March 52-week high of $7.60; the 52-week low of $2.70 was set in October a year ago.
Initial revenues from overseas sales of Dyloject would not be overwhelming, but the approval would be meaningful in terms of the drug’s ability to move forward into other markets. Dyloject could achieve worldwide sales greater than $200 million by 2012, estimated Adam Greene, analyst at JP Morgan Securities, in an early September note.
Greene said he expects positive news to continue into 2008, including the U.K. launch of Dyloject in the fourth quarter. He noted that intranasal ketamine has fast track designation: the U.S. Food and Drug Administration (FDA) in January concluded that Phase III efficacy trials would not be necessary for approval.
“We believe Javelin shares are undervalued,” wrote Greene. “Javelin remains one of our favorite emerging specialty pharma names. Given the three late-stage unpartnered assets, we believe that the current valuation does not reflect the sales potential, thus we reiterate our Overweight.”
Javelin has yet to record product revenue. As an emerging company, it had a loss in the second quarter ended June 30 of $7.2 million, or $0.16 per share. It is burning about $2 million in cash each month, and this is expected to rise as products are approved, and money is spent on clinical programs and commercial launches. Javelin so far has successfully raised cash, and had a cash balance of $52.7 million at the end of the second quarter, up from $20.7 million at the start of the year.
For 2007, analysts expect a loss of $0.82 per share, within a range of $0.79 to $0.85. It’s trickier pinning down 2008: The average estimate from five analysts is for a loss of $0.66, within a range of a loss of $0.99 to earnings of $0.13.
Javelin, with a market cap of about $265 million, is competing with many larger companies, and several technologies are under development to improve the delivery of drugs. Companies that currently sell both generic and proprietary opioid formulations include Abbott Laboratories (NYSE: ABT) and Alza Pharmaceuticals. Development of alternative technologies related to opioids—several of which are in clinical trial or awaiting FDA approval—include Elan Corporations’s (NYSE: ELN) Prialt, Pfizer Inc.’s (NYSE: PFE) Lyrica as well as combination products from Endo Pharmaceuticals (Nasdaq: ENDP), Javelin says in its annual report..
But the market is there. Javelin cites a 2004 industry estimate of $23 billion for the global pharmaceutical pain relief market. And, despite advances in medicine and the development of new drugs, pain relief remains a critical area of unmet need. Increasingly, patients, advocacy groups and the media are highlighting the shortcomings of pain management.
For Javelin, it all begins with Dyloject. “If Dyloject is approved in the U.K. on time, we think it would demonstrate to investors that this management team can execute,” said Gary Nachman of Leerink Swann and Co. in an August note. He kept his valuation of Javelin at $9 to $11 per share. Plus, Nachman said Javelin could be an interesting takeover target for a company looking to expand its presence in acute pain.
Nachman carries an “outperform” rating on Javelin, citing the rapid track of intranasal ketamine, Dyloject’s benefits over existing injectable NSAID formulas, a strong management team and positive feedback on the company’s late-stage product portfolio. “We believe the risk/reward in the stock has become significantly more compelling,” Nachman said.
For investors, Javelin (JAV) at current levels may be just what a stodgy portfolio needs. But beware the anxiety: all must go according to plan for a company with a very short operating history—starting with an announcement soon clearing the way for Dyloject’s U.K. launch.
About the Author
Contributing author Jennifer Allen has two decades of experience as a writer and editor, mainly as a financial wire service correspondent.
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