Seeking Alpha
Profile| Send Message| ()  

The long-talked about catalyst for Impax Laboratories (IPXL) finally arrived on Martin Luther King Day when the company announced that the FDA issued a complete response letter regarding the New Drug Application (NDA) for Rytary (IPX066), a potential treatment for the symptomatic treatment of Parkinson's disease.

The company went on to say that the complete response letter indicates that the FDA requires a satisfactory re-inspection of the company's Hayward facility as a result of the warning letter issued in May 2011 before the company's NDA may be approved due to the facility's involvement in the development of Rytary, and supportive manufacturing and distribution activities. During the assessment of the NDA, the company withdrew the Hayward site as an alternative site of commercial production at launch.

In response to the news, the stock dropped 7% even though the FDA did not ask for any additional trails or asked any questions about Rytary itself suggesting that the FDA will approve Rytary once the manufacturing issues are resolved. Typically, the fear with complete response letters is that the FDA will ask for the company to run additional trials on the drug candidate itself because there is not enough evidence that the therapy is effective or safe enough. Hence, the story is derisked now with only time, not the FDA's judgment of Rytary, the only variable now for Impax to finally receive approval for Rytary. An estimate on the time line was provided by Leerink Swann analyst Jason Gerberry who estimated that it will take up to 6 months for Impax to satisfy the FDA on the Hayward plant.

The story on Rytary is that it will likely be used most among patients for whom the standard medicines, levodopa and carbidopa, have stopped working as reliably, said David Amsellem, an analyst with Piper Jaffray. Rytary could generate peak sales of $200 million to $300 million, Amsellem said. Notably, IPXL's market cap currently is about $1.3 billion and annual revenues run in the $600 million range so this is expected to be a significant addition to the company's earnings and profitability.

The drop in the stock price, in my opinion, creates a buying opportunity in the stock. The estimated 6 month delay in the approval of Rytary is notable, but the most significant obstacle was overcome as the FDA backed the therapy itself. Canaccord Genuity's Randall Stanicky shared a similar opinion on IPXL and came out advising clients to buy the weakness in shares of Impax. Stanicky said that he believes Impax will soon directly address the FDA's concerns, potentially pushing shares closer to $25, which is upside of about 30% from today's prices.

Impax is also attractive because of its generic drug franchise which provides a steady stream of cash flow and revenues for the company to continue funding new drug development. This removes the funding and dilution risk that is such a big part of any investment equation for development-stage biotechs. Specifically, Impax reported revenues of $513 million in 2011, which are expected to rise to $569 million in 2012 followed by $590 million in 2013. Impax also is expected to be profitable in all 3 of those years.

In addition to Impax, the FDA's response for Rytary has other implications in the marketplace. A positive decision on the therapy itself suggests that the FDA is open to finding new cures for the debilitating disease and that it will be more open toward new Parkinson's therapies companies are developing. This in turn should have a positive effect on the valuations of other companies developing drugs for Parkinson's because the risk reward balance just shifted due to a change of sentiment from the FDA. One additional point, the FDA has a tendency of approving drugs for a specific indication in batches as just recently seen with weight loss drugs where both Vivus (VVUS) and Arena Pharmaceuticals (ARNA) both received approvals for their weight-loss drugs while Orexigen Therapeutics' (OREX) application is still pending. Here are two companies with significant exposure to developing Parkinson's therapies that investors may view in a more favorable light following the news in the complete response letter:

Amarantus BioScience (OTC:AMBS) has recently announced new developments for its product candidate for Parkinson's recently. Two weeks ago, the company presented positive preclinical efficacy data for MANF in a neurorestoration 6-hydroxydopamine (6-OHDA) rat model of Parkinson's disease. The data demonstrate that unlike Glial cell-Derived Neurotrophic Factor (GDNF), MANF significantly reduces behavioral deficits, increases dopaminergic (DA) nerve terminal reinnervation of the striatum, and increases dopamine concentrations in the striatum when MANF is administered directly to the substantia nigra. Notably, at one point in time, GDNF was a very promising Parkinson's treatment being developed by Amgen (AMGN) before Amgen halted the GDNF trials.

"We are excited about our results with MANF as we have demonstrated superiority to GDNF in a number of key areas related to recovery of function in Parkinson's disease," added Dr. Joseph Rubinfeld, Amarantus advisor and Amgen Co-Founder. "We intend to continue to move our Parkinson's program forward, while also evaluating other disease indications for MANF with potentially accelerated regulatory pathways, including certain orphan diseases. This strategy may significantly reduce MANF's overall time to market versus a Parkinson's-only strategy."

Acadia Pharmaceuticals (ACAD) is a biopharmaceutical company focused on innovative treatments that address unmet medical needs in neurological and related central nervous system disorders. Acadia has a pipeline of product candidates led by pimavanserin, which is in Phase III development as a potential first-in-class treatment for Parkinson's disease psychosis. Acadia also has clinical-stage programs for chronic pain and glaucoma in collaboration with Allergan (AGN) and two advanced preclinical programs directed at Parkinson's disease and other neurological disorders.

The company in November announced successful top-line results from its pivotal Phase III trial evaluating the efficacy, tolerability and safety of pimavanserin in patients with Parkinson's disease psychosis ((PDP)). Pimavanserin met the primary endpoint in the Phase III trial by demonstrating highly significant antipsychotic efficacy as measured using the 9-item SAPS-PD scale (p=0.001). Pimavanserin also met the key secondary endpoint for motoric tolerability as measured using Parts II and III of the Unified Parkinson's Disease Rating Scale, or UPDRS. These results were further supported by a highly significant improvement in the secondary efficacy measure, the Clinical Global Impression Improvement, or CGI-I, scale (p=0.001). In addition, clinical benefits were observed in all exploratory efficacy measures with significant improvements in nighttime sleep, daytime wakefulness and caregiver burden. Consistent with previous studies, pimavanserin was safe and well tolerated in this Phase III trial.

Analysts are standing behind ACAD with a price target of $8.40 a share, which would be a return of over 40% for investors. Also, it has been noted that pimavanserin's peak sales could be $400 million and should trade at no less than 1.5x peak sales which would leave it with a valuation of $600 million versus a current valuation of $330 million, which would be a return of 80% for shareholders.

Source: Impax: FDA's Complete Response Letter For Rytary Presents Multiple Buying Opportunities