The painful wait is over for Cadence Pharmaceuticals (CADX). The FDA has approved its intravenous acetaminophen formulation Ofirmev for post-surgical patients, allowing the California company to declare it will launch in early 2011.
After three months of steady increases, Cadence shares were down 13% to $7.80 in early trading Wednesday as an approval that was widely expected finally came through (FDA delay leaves Cadence tapping feet once again, February 12, 2010). Investors may be anticipating that adoption of the analgesic will prove challenging and expect another round of fundraising in 2011. As such, it could be a while before the hospital specialty products group realizes the $1bn in value that analysts believe Ofirmev represents.
A familiar face
Marketed in Europe as Perfalgan by Bristol-Myers Squibb (NYSE:BMY), Ofirmev is intended as a pain-relief alternative to opioids and non-steroidal anti-inflammatory drugs (NSAIDs) in treating pain and fever in hospitalized patients. With safety concerns about both classes of competing therapies, Cadence executives hope for widespread adoption in hospital formularies.
In a call with investors, Cadence executives said Ofirmev was approved with no requirements of a risk evaluation and mitigation strategy or a black box safety warning on the product insert, although the label does caution against use in patients with liver disease or impairment. The relatively clean label should give the new pain therapy a key marketing advantage.
The relatively well-understood mode of action and safety profile should also give marketing leverage, as acetaminophen has been prescribed for pain relief for more than 50 years.
In Europe, Bristol-Myers Squibb sold 90 million vials of Perfalgan in 2008, and chief commercial officer Scott Byrd said Cadence believes the US market to be of a similar size. The group plans to sell Ofirmev at $8-$10 a vial, a price that implies sales pushing the blockbuster threshold, although few analysts are this confident just yet - consensus for 2016 sits at $512m, according to EvaluatePharma.
Revenue at this level will come in handy for Cadence. For one, they owe Bristol-Myers Squibb a $15m milestone upon regulatory approval. For another, they plan on a pediatric trial in children younger than 2 to help extend Ofirmev’s patent protection.
A third consideration is the launch curve and the costs of its sales team, which will number 150 to help cover 1,800 of the 5,000 hospitals in the US. At an estimated cost, including sales support, of $300,000 a year per sales representative, the addition of sales staff plus these other expenses will quickly burn through cash reserves, which amounted to $68.5m on June 30.
Given that adoption of Ofirmev will be dependent on approval of hospital formulary committees – a process that can take six to nine months, with larger academic medical centers taking relatively longer and community hospitals taking relatively shorter amounts of time – Ofirmev’s growth curve may not resemble that of a typical pharmaceutical. Persuading the physicians who sit on hospital formulary committees to change post-surgical protocols may be one of the biggest challenges the pain reliever faces.
A fourth consideration is Cadence’s ambition to build a franchise of specialty hospital products. Last June, it looked to expand its portfolio when it signed an option to purchase privately held Incline Therapeutics and participated in Incline’s series A funding round.
Under the agreement Cadence can purchase Incline, which is developing a transdermal system for delivering small doses of the opioid fentanyl to hospitalized patients, for $135m in the first 12 months, with the price rising on successive milestones, to reach $292m on FDA approval.
It will be years before Ofirmev generates enough cash to fund a purchase of this size - Cadence's market cap today was just shy of $400m - but its approval does give the company a strategic rationale to do so; its sales force would have more products to sell. On top of this, in the investor call Cadence chief executive Theodore Schroeder said he is also looking at additional opportunities in hospital-focused product lines.
Concern that they will be asked to fund the sizable Incline acquisition and possibly further empire building probably has a lot to do with investors' flight Wednesday. Fear of the challenges ahead and simply selling on the news no doubt also contributed.
Still, FDA approval is an important milestone for any product. Cadence now has to prove the product's value, an equally challenging journey.