As a stock market investor and observer, it is always interesting to see the impact that bullish news can have on a stock. If you are invested in a company for a number of years and watch it closely, you can almost see a rhythm or trend to how a stock handles news.
One such company which has seen recent, dramatic spikes on positive news is Acura Pharmaceuticals (NASDAQ:ACUR). Just pull up a 12 month chart and you will see what I'm talking about. For an Acura shareholder like me, it has been a roller coaster ride to say the least. There seems to be a rush to buy Acura when news hits of the developments in Acura's leading commercial drugs - OXECTA and NEXAFED. These spikes have come on volume between 6 - 13 million shares. Pretty amazing for a company that averages 412,000 in daily volume.
But what I found interesting last week was the muted reaction to what I think is the most significant news to hit Acura since NEXAFED became commercially available in December 2012. This article will first look at why I think Acura will react positively when the NEXAFED news is more clearly understood and second look at why the additional, positive OXECTA news is still undiscovered by most Acura watchers and biotech investors.
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 Joseph 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. With two anti-abuse drugs on the market (OXECTA & NEXAFED), Acura is in the sweet spot to profit from the FDA-supported trend toward abuse-deterrent drugs.
NEXAFED [pseudoephedrine hydrochloride (HCl)] is a 30 mg immediate-release abuse-deterrent decongestant. The next generation pseudoephedrine tablet combines effective nasal-congestion relief with Impede™ technology, a unique polymer matrix that disrupts the conversion of pseudoephedrine into the dangerous drug, methamphetamine. Specifically, the Impede™ technology forms a thick gel when the tablets are dissolved in solvents typically used in the pseudoephedrine extraction or methamphetamine production processes, trapping the pseudoephedrine or converted methamphetamine to prevent its isolation or purification. NEXAFED became commercially available in December 2012.
OXECTA is indicated for the management of acute and chronic moderate to severe pain where the use of an opioid analgesic is appropriate. OXECTA is the first immediate-release oxycodone HCl tablet that applies AVERSION technology. The U.S. Food and Drug Administration (FDA) approved OXECTA in June 2011.
Catalyst #1: NEXAFED Sees 85% Increase in Pharmacies Selling Product
Last Thursday (September 18), Acura announced that the number of pharmacies selling NEXAFED has increased to 2,600. This represents an 85% increase in just over a month since the company reported 1,400 pharmacies were selling NEXAFED on their August 2nd conference call.
This is a dramatic increase and due to three major developments:
1. Publix (OTC:PUSH) Pharmacies Add NEXAFED In Five States
Although Acura did not name the "large regional supermarket chain based in Florida," in their recent press release, my research checks point toward the largest regional supermarket chain based in Florida and also one of the top 20 pharmacy chains in America, Publix. This is huge news for Acura and their efforts to ramp NEXAFED sales because Publix has over 900 pharmacies in five states (Tennessee, South Carolina, Georgia, Alabama, and Florida). My research confirms that NEXAFED is stocked and available for purchase today in Publix pharmacies in all five states where they operate.
2. Meijer Pharmacies Add NEXAFED In All Their Pharmacies
This chain of over 200 pharmacies gives Acura's NEXAFED a sales channel in five states where they operate (Michigan, Indiana, Illinois, Ohio, and Kentucky). According to Acura, all of Meijer's pharmacies now carry NEXAFED.
3. Further Distribution Gains at Independent Pharmacies
The increased gains at independent pharmacies are due to the distribution agreements with the top three national drug wholesalers [McKesson (NYSE:MCK), Cardinal Health (NYSE:CAH), and Amerisource Bergen (NYSE:ABC)]. This is extremely significant because these big three represent 85% of all U.S. drug wholesale revenue. These distributors have now given Acura's NEXAFED a national reach that goes well beyond the recently announced direct partnership with drug store chain Kerr Drugs. Additionally, Acura has also partnered with the 4th, 5th, 6th, and 7th largest drug wholesale distributors (Morris & Dickson, H.D. Smith, Smith Drug, and NC Mutual Drug) to sale NEXAFED too. Now, NEXAFED is easily available to nearly every pharmacy in America.
Catalyst #2: Pfizer (NYSE:PFE) Advances Commercialization Plan for OXECTA
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, 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.
For investors who have lost patience in Acura while waiting for OXECTA sales to ramp and for Pfizer to begin aggressively marketing OXECTA should take notice to what happened this summer with Pfizer and what is scheduled to commence next week in Q4 2013. According to Acura CEO Robert Jones,
"We met with Pfizer in late June to discuss their commercialization plans for OXECTA. To date, Pfizer has not undertaken any communications with health care providers regarding OXECTA, as they were awaiting FDA comment on their message.
Pfizer's decision to expand their commercialization plan to health care providers stems from their view of a more favorable environment for abuse-deterrent opioid products based on FDA's comments to their promotional materials, as well as FDA providing improved labeling for Purdue's OxyContin. We expect Pfizer to initiate non-branded communications regarding the problems of opioid abuse to their target audience in this, the third quarter.
Pfizer intends to follow with OXECTA's specific communications in the fourth quarter of this year. Pfizer does not intend to use sales representatives to deliver their messaging, but will use traditional media, such as direct mail and journal advertising, as well as Internet communications. We understand that the communication vehicles being used by Pfizer are uniquely chosen to reach health care providers that write approximately 40% of the immediate-release opioid prescriptions."
This increased focus on OXECTA marketing provides investors with an attractive entry point in Acura before OXECTA sales begin to ramp and before the investment community realizes that Acura is undervalued with it current market cap of only $69 million. If Pfizer is successful in their outreach to opioid prescription writing doctors, the royalty payments to Acura could begin in a sustainable way as early as Q2 2014.
Research firm Frost & Sullivan estimated the U.S. opioid pain market 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.
OXECTA (oxycodone HCI) is commercially available in the United States, Canada, and Mexico.
As of July 30, 2013, Acura had cash on its balance sheet of $18.4 million and no long term debt. Due to the late year (December 2012) commercial launch of NEXAFED and significant OXECTA royalties not due until early 2014, Acura reported a net loss of $3.1 million or $0.07 per diluted share in its most recent Q2 2013.
With a small, historic burn rate of approximately $2 to 3 million a quarter and with NEXAFED and OXECTA revenue ramping soon, Acura has enough cash to fund its operations for the next 12 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. Acura management has made it clear the company is actively seeking expanded partnerships with big pharmaceutical companies.
Based on the recent news of NEXAFED distribution ramping and the initiation of Pfizer's expanded OXECTA commercialization plan to health care providers, investors can seize an opportunity by investing in a small company that is at a major inflection point in its growth. With a current market cap of only $69 million ($1.50/share), Acura has seen significantly higher valuation in month's past on not nearly as significant of news.
Acura's stock has a history over the last year 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).
My guess is that the only reason ACUR did not react significantly to last week's 85% increase in NEXAFED stocked pharmacies was because the company did not list in their press release the name of the "large regional supermarket chain based in Florida." If this chain is Publix (and I am quite sure of this after calls to Publix pharmacies in 5 states confirming NEXAFED in stock), investors are likely to bid ACUR up in a manner seen when the less significant Kerr Drugs Store news took the share price from $2.05 to $3.62 just six months ago. For comparison, Kerr Drugs has just over 75 stores and Publix has over 900 stores.
Additionally, the Pfizer expansion of OXECTA commercialization to commence in Q4 2013 has also been missed by investors. Considering the Pfizer has already invested over $78 million in one of Acura's abuse-deterrent drugs (OXECTA), you can imagine that the push to ramp marketing and sales of OXECTA to gain a return on their investment would be significant. This will benefit Acura in a big way.
At $1.50/share and based upon these two significant catalysts, ACUR is currently one of the best buys in the biotech space. Opportunistic and patient investors have a window of opportunity to start or build an ACUR position in their portfolios before these bullish developments penetrate the consciousness of a larger universe of potential investors.
Disclosure: I am long ACUR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.