AcelRx Pharmaceuticals (ACRX) is a specialty pharmaceutical company focused on the development and commercialization of innovative therapies for the treatment of acute and breakthrough pain. Its lead product, ARX-01, is designed to address intravenous (IV) PCA problems which can cause harm following surgery. This includes side effects of the invasive IV route for morphine delivery and inherent potential programming and delivery errors associated with the complexity of infusion pumps. ARX-01 uses the generic pain medication sufentanil, which is a common anesthetic agent. The difference is in the method of delivery through AcelRx's patented NanoTab technology. Patients receive their dosage of sufentanil sublingually (under the tongue) through this system, instead of the traditional IV drip. AcelRx emphasizes that sublingual delivery of sufentanil through its Nanotab system allows for more prolonged plasma levels relative to IV, a lower maximum concentration, as well as a more consistent concentration during dosing.
The post-operative pain market in the United States, Europe and Japan has been growing steadily over the last few years and is expected to reach $6.5 billion by 2018. Acelrx's Nanotab tech could potentially grab a significant piece of this market, which makes its current market cap of $104.62M very low when we factor in that the company already has two positive Phase III data releases along with ARX-01's main data release due in the upcoming second quarter of 2013.
Yet despite its multi-billion dollar size, the post-operative pain market remains underserved. Annually, approximately 16 million procedures requiring post-operative pain control using intravenous patient-controlled analgesia (IV PCA) are conducted in the United States and five main European countries (UK, France, Germany, Spain and Italy), typically utilizing morphine or hydromorphone.
Studies report that up to 75% of patients experience inadequate pain relief after surgery. Inadequate pain relief can lead to decreased mobility, which increases the risks of other medical complications.
The many deficiencies associated with the current use of IV PCA that ARX-01 addresses are:
- Side effects associated with the most commonly used opioid, morphine, and its active metabolites
- Infection risk, analgesic gaps and decreased mobility associated with the invasive nature of IV delivery, and
- Medication errors, which in some instances may be fatal, due to the complexity of IV PCA pumps. Many IV PCA medication errors are the result of human factors such as programming errors.
The estimated annual error rates are 407 errors per 10,000 people treated with IV PCA in the United States. The most common and serious types of errors involve human factors, such as mis-programming the PCA pump or administering the wrong dose. In 2002 and 2003, approximately 5% of operator errors reported to the FDA resulted in patient deaths. Approximately 56,000 adverse events were reported to the FDA between 2005 and 2009, prompting 70 Class II infusion pump recalls of devices that could cause temporary or reversible adverse effects and 14 class I infusion pump recalls of devices that could cause serious injury or death. These issues with infusion pumps have resulted in the issuance of new draft guidance by the FDA, significantly increasing the data required to be submitted by manufacturers to address safety problems.
As mentioned, ARX-01 has the potential to address many of the key disadvantages of IV PCA which also include:
- Reducing the incidence of drug-related side effects,
- Eliminating the risk of IV PCA-related infections, reducing analgesic gaps and enhancing mobility, and
- Eliminating the risk of pump programming errors.
According to PropThink's December 2012 article, the post-operative pain market is a multi-billion dollar opportunity;
The NanoTab PCA System is a handheld device designed to allow patients to self-administer "NanoTabs," a dissolvable formulation of the synthetic opioid analgesic sufentanil. Sufentanil NanoTabs are delivered sublingually (under the tongue) and providers can electronically limit dosing. Similarly, traditional IV PCA morphine allows patients to control the administration of analgesics as necessary, but the intravenous administration and side effects of morphine make it an imperfect therapy. The NanoTab system proved non-inferior to standard IV PCA morphine in a Phase III study that reported top-line data in mid-November, and both nurses and patients reported greater satisfaction with AcelRx's system. If the Sufentanil NanoTab PCA System receives approval from the FDA (New Drug Application expected mid-2013), the market for post-operative analgesics is immense and offers significant revenue potential, even if AcelRx achieves only marginal penetration. The post-operative analgesic market topped $5.9 billion in 2010 and is expected to grow at a CAGR of 3% through 2017. Including the rest of the company's pipeline, AcelRx could potentially address a substantial portion of the total pain management market, which is expected to reach $35B by 2017.
On March 4, AcelRx announced top-line data results demonstrating that the second of three Phase III studies and the first of two pivotal placebo-controlled Phase III studies for its Sufentanil NanoTab PCA (patient-controlled analgesia) System met its primary endpoint:
- Patients experienced significantly greater reduction in pain as measured by SPID-48 vs. placebo (p=0.001) -
- Adverse events in sufentanil-treated patients similar to placebo -
The primary endpoint evaluated pain intensity over the 48-hour study period compared to baseline, or Summed Pain Intensity Difference (SPID-48), in patients following major open abdominal surgery. Results demonstrated that patients receiving Sufentanil NanoTabs realized a significantly greater SPID-48 during the study period than placebo-treated patients. Secondary endpoint data also showed that 24 hours and 72 hours after first dose, SPID was significantly greater in the sufentanil-treated patients than in the placebo-treated patients.
The March 4th data followed the first of the three Phase III trials for the NanoTab system, with the first data set released in November of 2012. That trial evaluated NanoTab PCA effectiveness treating acute pain immediately following major abdominal or orthopedic surgery. Data demonstrated that the Sufentanil NanoTab PCA System was non-inferior (p<0.001) to IV PCA morphine for the primary endpoint of PGA over the 48-hour period immediately after surgery as demonstrated by the combined percentage of patients with PGA ratings of "good" or "excellent" (78.5% vs. 66.1% respectively).
The company also collected a large amount of secondary endpoint data in the study. In particular, conclusions from validated ease-of-care questionnaires, configured by both patients and nurses during and at the end of the study, pointed to superiority in favor of the NanoTab System over IV morphine for both satisfaction and ease-of-care for both nurses and patients. Nurses identified the NanoTab System as less bothersome to set up and monitor than IV PCA. In addition, patients reported having high confidence in the NanoTab System, that they could ambulate more easily than when they were tethered to an IV PCA pump, and that they achieved better pain control from the NanoTab System than with IV PCA with morphine. In light of the fact that hospitals are very focused on achieving high patient satisfaction, since Medicaid and Medicare reimbursement and patient throughput are linked to this measure, there is reason to believe that the performance of the NanoTab System in this study supports prospects for commercial adoption once AcelRx has received regulatory approval.
Another area the company is exploring is related to pain associated with knee and hip replacements. AcelRx has an ongoing pivotal Phase III double-blind, placebo-controlled study of the Sufentanil NanoTab PCA System for this indication. The study began in August 2012 and has enrolled approximately 400 patients in a 3:1 randomization following hip or knee replacement surgery at up to 35 sites. The primary endpoint, SPID-48, is identical to the primary endpoint for the abdominal surgery trial. The company expects dosing of the final subject in this trial is around the end of the first quarter of 2013, and top-line data from this trial in the second quarter of 2013. This catalyst is one reason this could make a nice price appreciation trade.
Additionally, an October 3rd, 2012 announcement by the company noted that the three Phase III trials' data would be sufficient to meet EMA requirements for regulatory approval if the data were positive. Marketing approval for the European Free Trade Association countries is very significant, representing a potential market tap from over 500 million people who reside in the area.
With The positive result of the first Phase III study coupled with the positive responses of nurses and patients, a substantial increase in the company's share price occurred, reaching a high of $5.19 in late November. As is often the case with developmental stage pharmaceuticals, the excitement was quickly muted in early December when the company announced a stock offering of 12.5 million shares at a price of $3.31. After netting $44 million from the stock offering, investors became comfortable with Acelrx's cash position, and the stock began a nice climb back up and rallied to an intraday high of $5.97 on February 13.
However, the stock price was derailed on March 12 by an error in a company press release. The sentence of note that caused a sell off can be found near the end of the PR under Financial Outlook:
"AcelRx believes its current cash, cash equivalents and investments are sufficient to fund operations into the third quarter of 2013."
Obviously, biotech investors get spooked pretty quickly at the first sign of dwindling cash flow, and many assumed another stock offering must be in the works as the company gears itself up for a product launch. The CEO dispelled that notion on the conference call transcript, and assured call participants that cash was sufficient to fund operations into the third quarter of 2014, and not 2013 as the PR had erroneously stated.
In my opinion, the PR mistake has led to a significant trading opportunity.
The pain management landscape:
Not surprisingly, several companies are working to take a slice out of pain management's multi-billion dollar pie along with AcelRx. Let's look at some of those companies and how they might compete with the company with current applications or pipeline drugs for the future.
Durect Corporation (DRRX) has a drug named Posidur, a long-acting local anesthetic being developed for the treatment of post-surgical pain. It is administered during surgery to the surgical site, where it continuously releases therapeutic levels of bupivacaine in a controlled fashion, providing up to 72 hours of uninterrupted local analgesia. This drug could definitely have some potential and work in the same arena as AcelRx in the future. One of the very positive benefits associated with Posidur is the reduction in the use of narcotics for post-operative pain, which would certainly be a great stride forward. I will be watching how its NDA turns out that the company intends to submit near the end of this quarter. So, this should happen very quickly with the deadline obviously drawing near.
In August of 2012, Zalicus (ZLCS) announced that the U.S. Food and Drug Administration (FDA) had approved the supplemental new drug application filed by Mallinckrodt, the pharmaceuticals business of Covidien (COV), for its 32 mg tablet of Exalgo. Exalgo is an extended-release tablet for opioid-tolerant patients with moderate-to-severe chronic pain requiring continuous around-the-clock opioid analgesia for an extended period of time. The FDA approved the 8, 12 and 16 mg tablets of Exalgo in March 2010. Zalicus receives tiered royalties on net sales of Exalgo by Mallinckrodt.
Differing from Exalgo, AcelRx has developed novel packaging intended to provide dose-tracking capability to assist in managing patient's opioid use and deterring abuse. The warning on the Exalgo packaging refers to it containing hydromorphone, an opioid agonist and a schedule II controlled substance with an abuse liability similar to other opioid analgesics. So, this may be an advantage that AcelRx over other potential competitors moving forward as the FDA has shown to be favorable to companies demonstrating attention to detail with regards to the topic of abuse.
Pacira Pharmaceuticals (PCRX) is developing Exparel, a long-acting bupivacaine (anesthetic/analgesic) product for post-surgical pain management. Its clinical data demonstrates that Exparel provides analgesia for up to 72 hours post-surgery. The company believes Exparel will address a significant unmet medical need for a long-acting non-opioid postsurgical analgesic, resulting in simplified postsurgical pain management and reduced opioid consumption.
Exparel is currently approved for use in certain post-surgical pain applications including removal of hemorrhoids and bunions. Since the product launch in April 2012, the shares have gone from around $10/share to about $30/share. Considering the types of surgery that Exparel is used after, this doesn't seem like a big competitor for AcelRx. Both of these companies could ultimately become much larger with success in similar areas.
AcelRx CEO Richard King has continuously stated that the company plan is to bring ARX-01 to market in the U.S by themselves, and to seek out a potential partner for the rest of the global market. Unlike many developmental stage biotechs, AcelRX seems poised to take that route if necessary. In this 8k released on Jan 25th, the company announced a material definitive agreement for the manufacturing of Sufentanil NanoTabs for use with the company's Sufentanil NanoTab PCA System, or ARX-01. Additionally, King discussed his rollout plan, scalability, and projected sales force numbers on the conference call. Rumors of potential suitors are linked to nearly every biotech that nears FDA approval, and AcelRx is no exception. Big Pharma will almost certainly come calling soon, and King has done an admirable job positioning the company for any partnership or buyout talks. With a healthy cash position, a realistic rollout plan, a marketable story of patients and nurses preferring ARX-01, and a manufacturing agreement already in place, King will be negotiating from a position of strength.
Regardless of any partnership or buyout thoughts, AcelRx is a company I am comfortable with for at least a short term trade and potentially long term because of its upcoming catalysts and position in a huge market. In addition, they just did a cash raise which gives them approximately $60 million to work with.
Considering the company's solid cash position, positive late stage data, along with the substantially large market potential of its pipeline and a market cap of around $100M, Acelrx is both a strong long based trade and speculative long term investment.
My shorter term catalyst trade target opinion is 6.25, with a one year price target of $12.
Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky -- always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.