Cadence: Why FDA Approval Is Imminent

| About: Mallinckrodt PLC (MNK)

CADENCE PHARMACEUTICALS (CADX): The FDA decision to deny approval of Cadence’s drug Ofirmev™ (IV acetaminophen) was positive rather than negative news. The contents of the FDA Complete Response letter insinuate that the product has passed the tests of safety and efficacy and the only problem are deficiencies the FDA observed in the manufacturing facility.

The manufacturing deficiency will be taken care of by Cadence manufacturers and Cadence will request a meeting with the FDA to ensure that the deficiencies have been adequately addressed.

Expectations: We believe that Ofirmev™ will soon be approved, in a few months. Many reasons have made us believe that the approval is imminent and the drug will be a best seller. These include:

- The drug is already marketed by Bristol-Myers Squibb (NYSE:BMY) as Perfalganâ in Europe and other countries around the world. Around 90 million vials of IV acetaminophen were sold in Europe in 2008, representing an increase of approximately 13 percent over 2007.

- IV Acetaminophen was approved and marketed in approximately 80 countries, where it has become the market leader among all injectable painkillers.

- Ofirmev’s™ NDA comprises data from two pivotal clinical trials for the treatment of acute pain in patients following orthopedic surgery, abdominal laparoscopic surgery and fever. It is further supported by data from a total of nine placebo-controlled clinical trials, four active-controlled clinical trials, and seven other safety or pharmacokinetic clinical trials.

- Safety data exist for 1,375 patients who received IV acetaminophen in clinical trials, including 355 pediatric patients (premature and neonates) and adolescents. They also exist in around 53 million patient who have taken IV acetaminophen in countries outside the United States.

Additional projections: In addition to our projection that the drug will most likely be approved, we believe that the market will be large in the U.S. and Canada for the following reasons:

- Physicians and patients will definitely prefer IV acetaminophen as a painkiller to narcotic analgesics.

- IV acetaminophen has less drug interactions than the competing non-narcotic injectable ibuprofen, which was recently approved.

How far do we think the stock can move upward in case of approval?

Considering that the current market cap is around 470 million, and supposing that the sales would be equal to those in Europe, we believe that the news about approval when it comes, plus the drug’s marketing and penetration, would at least double the firm’s market cap, hence doubling the stock price which is currently trading at $9.28.

Disclosure: No Positions