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FDA Upgrades Acura Pharmaceuticals to a Public Health Priority

A shot heard around the opioid analgesics pharmaceutical sector was issued Tuesday in a landmark FDA decision and statement by Douglas Throckmorton, the deputy director for regulatory programs in the FDA's Center for Drug Evaluation and Research,

"The development of abuse-deterrent opioid analgesics is a public health priority for the FDA."

The FDA illustrated this new priority by their ruling on Purdue Pharma's new formulation of the widely used opioid analgesic, OxyContin, and how it would handle pending new, generic drug applications which reference the original, easily abused OxyContin.

In Tuesday's FDA press release they wrote,

The U.S. Food and Drug Administration today approved updated labeling for Purdue Pharma L.P.'s reformulated OxyContin (oxycodone hydrochloride controlled-release) tablets. The new labeling indicates that the product has physical and chemical properties that are expected to make abuse via injection difficult and to reduce abuse via the intranasal route (snorting).

Additionally, because original OxyContin provides the same therapeutic benefits as reformulated OxyContin, but poses an increased potential for certain types of abuse, the FDA has determined that the benefits of original OxyContin no longer outweigh its risks and that original OxyContin was withdrawn from sale for reasons of safety or effectiveness. Accordingly, the agency will not accept or approve any abbreviated new drug applications (generics) that rely upon the approval of original OxyContin.

This decision by the FDA to move toward abuse-deterrent products has major ramifications to companies who are trying to get marketing approval for drugs in this opioid space. According to RBC Capital Markets analyst Shibani Malhotra, "Every single company executive that we've spoken to believes that the market is going to have to move to tamper resistant products."

So if this is the new FDA regulatory landscape by which companies have to navigate for drug approvals, what company is uniquely positioned to benefit from Tuesday's developments?

Acura: Pure Play in Abuse Deterrent Technology

I would propose that Acura Pharmaceuticals (NASDAQ:ACUR) is the only pure play in the sweet spot of this new direction of the FDA toward approving only abuse-deterrent formulations of opioid analgesics.

Acura is a specialty pharmaceutical company engaged in the research, development and commercialization of products intended to address medication abuse and misuse, utilizing its proprietary Aversion and Impede Technologies. These proprietary technologies introduce inactive pharmaceutical ingredients into the most widely used opioid analgesics (oxycodone, hydrocodone) resulting in a final formulation designed to discourage some common methods of tampering associated with abuse and misuse like I.V. injection and nasal snorting.

In a world where abuse and misuse of opioid analgesics is described as an "epidemic" by Josepeh A. Califano Jr. (Chairman and President of the National Center for Addiction and Substance Abuse at Columbia University), Acura's patented technology provides a solution that our society at large has been craving for a while and now the FDA is focused on supporting.

You have to give Acura's management credit for forecasting the future in how they have designed and developed their company. Knowing that the Center for Disease Control (NASDAQ:CDC) report published in November 2011 stated that overdoses and non-medical use of prescription painkillers have "skyrocketed" in the past decade resulting in nearly half a million emergency department visits in 2009 due to misuse and abuse, and nonmedical use of prescription painkillers costs health insurers up to $72.5 billion annually in direct health care costs, Acura's business plan is to create solutions to treat patients in need of pain management, but to do it in a way that prevents tampering.

Acura's executives knew that a solution to this epidemic can mean big business for the pharmaceutical company that can provide a viable pain treatment alternative to reverse this disturbing trend.

And just two weeks ago on April 4th, Acura announced the news of a new patent they received from the United States Patent and Trademark Office to extend their tamper resistant technology, AVERSION, franchise.

According to Acura's press release announcing this development, "claims in the patent cover, among other inventions, Acura's AVERSION polymer matrix technology when utilized with any water soluble drug of abuse. The opioid products being developed by Acura are covered by this patent. Also, certain claims in this patent are licensed to Pfizer Inc. (NYSE: PFE) which utilizes the AVERSION technology in its Oxecta® (oxycodone HCl) tablets CII."

In addition to this new patent, Acura already has two approved drugs on the market, OXECTA & NEXAFED.

OXECTA (in partnership with Pfizer)

On June 17, 2011, Acura's lead product, OXECTA, was approved for marketing by the FDA. OXECTA is the first immediate-released oxycodone that is designed to discourage tampering. Using Acura's patented Aversion Technology, OXECTA is formulated to discourage abuse such as intravenous injections and nasal snorting.

Under the terms of the agreement with OXECTA's commercial partner, Pfizer (NYSE:PFE), Acura received a $20 million milestone payment in 2011 upon FDA approval and Acura will receive tiered royalties from Pfizer ranging from 5% to 25% on net sales of OXECTA. To date, Pfizer's partnership with Acura has been very lucrative resulting in direct payments of $78.5 million. These payments will continue in a new and sustainable way when royalty payments for the sale of OXECTA start in February 2013, the anniversary of the first commercial sale of OXECTA.

Research firm Frost & Sullivan estimated the U.S. opioid pain management market generated revenues of $11 billion in 2009 and will rise to $15.3 billion by 2016. Based on a conservative view that OXECTA could eventually take a 1% share of the $11 billion opioid market, Pfizer would pay Acura in annual royalty payments of between $5.5 million - $27.5 million (based on royalty payments of 5% - 25% of sales). And when the opioid market rises to $15.3 billion by 2016, based on 1% market share assumption (and 5-25% tiered royalties), Acura would receive between $7.6 million - $38.2 million in annual payments from Pfizer.

Pfizer made OXECTA (oxycodone HCI) commercially available in the United States, Canada, and Mexico on January 23, 2012.

NEXAFED

Acura's other approved commercial drug is NEXAFED, which commercially launched on December 10, 2012.

From ACUR's website:

NEXAFED is an immediate release pseudoephedrine HCl ((PSE)) tablet which utilizes Acura's IMPEDE Technology. In addition to being a widely-used nasal decongestant available in many non-prescription and prescription cold, sinus and allergy products, PSE is also the starting material in the illicit manufacture of methamphetamine.

IMPEDE™ Technology utilizes a proprietary mixture of inactive ingredients intended to impede the extraction of PSE from the tablets for producing methamphetamine or disrupting the direct conversion of PSE in tablets into methamphetamine

Just last month, Acura scored their first major win by signing up regional drug store chain, Kerr Drugs, to carry NEXAFED. As Acura continues selling to national and regional drug wholesalers, we should begin to see NEXAFED revenue in Acura's first quarter 2013 report.

Acura Patents & Pipeline

In addition to these two commercially approved drugs, Acura has been issued four additional patents for products developed with the AVERSION technology. And Acura is developing seven other products that utilize AVERSION Technology to deter abuse and misuse, including possible commercial partners. Those products include (taken from Acura website):

(click to enlarge)

Pipeline Drug #1: Hydrocodone bitartrate/acetaminophen Tablets

Hydrocodone bitartrate/acetaminophen tablets are immediate release opioid analgesic tablets with a proposed indication for relief of moderate-to-severe pain and are designed to introduce limits and impediments to potential abuse via nasal snorting of crushed tablets and intravenous injection of dissolved tablets. The tablet contains two active analgesics: the opioid hydrocodone bitartrate and acetaminophen.

Pipeline Drug #2: Oxycodone HCl/acetaminophen Tablets

Oxycodone HCl/acetaminophen tablets are immediate release opioid analgesic tablets with a proposed indication for relief of moderate-to-severe pain and are designed to introduce limits and impediments to potential abuse via nasal snorting of crushed tablets and intravenous injection of dissolved tablets. The tablet contains two active analgesics: the opioid oxycodone HCl and acetaminophen.

Pipeline Drug #3: Hydromorphone Tablets

Hydromorphone tablets are immediate release opioid analgesic tablets with a proposed indication for relief of moderate-to-severe pain and are designed to introduce limits and impediments to potential abuse via nasal snorting of crushed tablets and intravenous injection of dissolved tablets.

Pipeline Drug #4: Morphine Tablets

Morphine tablets are immediate release opioid analgesic tablets with a proposed indication for relief of moderate-to-severe pain and are designed to introduce limits and impediments to potential abuse via nasal snorting of crushed tablets and intravenous injection of dissolved tablets.

Pipeline Drug #5: Oxymorphone Tablets

Oxymorphone tablets are immediate release opioid analgesic tablets with a proposed indication for relief of moderate-to-severe pain and are designed to introduce limits and impediments to potential abuse via nasal snorting of crushed tablets and intravenous injection of dissolved tablets.

Pipeline Drug #6: Tramadol Tablets

Tramadol tablets are immediate release opioid analgesic tablets with a proposed indication for relief of moderate-to-severe pain and are designed to introduce limits and impediments to potential abuse via nasal snorting of crushed tablets and intravenous injection of dissolved tablets.

Pipeline Drug #7: Methadone Tablets

Methadone tablets are immediate release tablets with proposed indications for relief of moderate-to-severe pain not responsive to non-narcotic analgesics, for detoxification treatment of opioid addiction (heroin or other morphine-like drugs), and for the maintenance treatment of opioid addiction (heroin or other morphine-like drugs), in conjunction and are designed to introduce limits and impediments to potential abuse via nasal snorting of crushed tablets and intravenous injection of dissolved tablets.

Fundamentals

As of December 31, 2012, Acura had cash on its balance sheet of $27.4 million and no long-term debt. Due to the late year (2012) commercial launch of NEXAFED and the OXECTA royalties not due until after February 2013, Acura reported a net loss of $9.7 million or $0.20 per diluted share in 2012, compared to a net income of $10.4 million or $0.22 per diluted share for 2011 due to a $20 million milestone payment from Pfizer.

With a small, historic burn rate of approximately $2.4 million a quarter and with NEXAFED and OXECTA revenue beginning in 2013, Acura has enough cash to fund its operations for the next 12-24 months. This does not include revenue in the form of up-front payments if Acura decides to license its technology out to bigger pharmaceutical partners like it did with Pfizer.

Conclusion

Based on Tuesday's landmark decision by the FDA to make abuse-deterrent opioids a priority, investors can seize an opportunity by investing in a company that is a pure play on tamper resistant drugs based on its proprietary AVERSION & IMPEDE technologies. With a current market cap of only $99 million ($2.15/share), Acura is very undervalued considering the new regulatory environment which increases the value of Acura's abuse deterrent technology, commercial drugs, and attractiveness to potential big pharmaceutical partners.

And for traders, keep in mind that Acura's stock has a history over the last four months of attracting major volume (buyers) and spiking after positive news or product launches as illustrated by the December 10, 2012, NEXAFED launch and 300% spike to $4.50 (from $1.42) and the March 5, 2013, Kerr Drugs Store Chain NEXAFED news and 77% spike to $3.62 (from $2.05).

One could argue that Tuesday's FDA news is even more bullish for Acura's long-term prospect than either of those recent share price moving events. That is because the FDA just validated Acura's business model and this will lead to much more investor interest in the long-term prospects for Acura. Pfizer has already invested over $78 million in one of Acura's abuse-deterrent drugs (OXECTA). And I would expect many more pharmaceutical companies to come knocking on Acura's door for possible partnerships to use their effective technology in the days ahead.

If Acura gets a customary spike on this new, bullish development, I would not be surprised if this time it held over $3.00 to give the company a $150+ million market cap which it rightly deserves. Instead of Acura's recent history as a volatile trading stock, the FDA's decision may have just upgraded Acura to a long-term hold for many biotech portfolios.

Source: FDA Upgrades Acura Pharmaceuticals To A Public Health Priority