Novadel has a market cap of about $75 million, about $22 million in cash ($14 million was recently received through a private equity offering) and about 250K in debt.
In November of 2006, Novadel announced that they had received marketing approval from the FDA for Nitromist. Nitromist is an oral spray that is used to treat attacks of angina pectoris due to coronary artery disease. This was Novadel’s first product approval utilizing the company’s proprietary oral spray technology.
Novadel gained approval for Nitromist using the 505(b)(2) regulatory pathway. The 505(b)(2) route allows companies to obtain FDA approval for new drug applications by relying, in part, on the FDA’s findings for previously approved drugs. This is significant because this approval has paved the way for Novadel to gain accelerated approval under 505(b)(2) for the five other drugs in their pipeline. All of these drugs also use Novadel’s oral spray technology to increase the speed of absorption by allowing the drug quicker access to the bloodstream. Since all of the Novadel pipeline drugs are reformulated versions of approved drugs, they should all qualify for the 505(b)(2) approval pathway. Novadel could be considered a generics company, but through the use of their oral spay technology, they are trying to create value added advantages which will help separate Novadel from most other generic drug companies.
Zensana is Novadel’s formulation of ondansetron, the most widely prescribed anti-emetic (anti-nausea) compound used following chemotherapy. Novadel hopes that Zensana will be a faster acting and more convenient alternative to the tablet, intravenous, and suppository forms of the drug Zofran. After chemotherapy many patients have difficulty swallowing which could make Zensana’s oral spray delivery a welcome alternative for many cancer patients.
Novadel partnered with Hana Biosciences for the Zensana clinical trials. Under the terms of the agreement, Hana has the exclusive rights to market, sell, and distribute Zensana in the US and Canada. Novadel will receive a milestone payment from Hana upon approval of Zensana and royalty payments on sales of Zensana.
If approved, and doctors and patients perceive a benefit to using Zensana instead of Zofran (the advantage seems large when comparing Zensana to a suppository), the market for Zensana could be large considering that Zofran had sales of about $1.5 billion in 2005. Hana Biosciences and Novadel submitted a new drug application (NDA) to the FDA in August of 2006. The response from the FDA is expected by April 30th of 2007.
Although Hana may stand to profit more than Novadel on Zensana sales, Novadel will receive a relatively high royalty rate from Hana. Novadel will receive royalties on a sliding scale that starts at 25%, declines to 15%, then returns to 25% with an annual reset. Additionally, the approval of Zensana would further validate Novadel’s oral spray technology and increase the approval chances for the rest of the Novadel pipeline.
The Novadel pipeline includes Zolpidem, an oral spray version of Ambien, and Sumatriptan, an oral spray version of Imutrex. These drugs both had positive data from pilot pharmacokinetic studies in 2006. Zolpidem and Sumatriptan should both enter pivotal trials in 2007. Zolpidem will compete with Ambien in the sleep aid market and Sumatriptan will compete with Imutrex as a treatment for migraine headaches. Both Ambien and Imutrex had sales of over $1 billion in 2006.
Only two analysts currently follow Novadel and they are both from small research firms, but they both have buy ratings and price targets between $4 to $5 for Novadel. One of these analysts is estimating that Novadel will earn $.05 a share on revenue of $7.8 for the quarter ending in April of 2007. This analyst also expects revenue to jump to $40.83 million for fiscal year 2008.
Although the promising pipeline, the Nitromist approval, the recent NDA of Zensana, and the expected jump in revenues all make Novadel a promising investment, the recent insider buying is what really makes Wall Street Mayhem excited about Novadel’s prospects. This insider buying has been substantial and consistent over the last two years. Insiders and 10% owners have made net purchases of $2.78 million in Novadel stock in the last year. Although insider buying does not always indicate a future rise in the value of a stock, it at least shows that management has confidence if the future prospects of the company. Additionally, substantial insider buying is relatively rare for small developmental stage biotech companies.
On February 13th at 10:30 A.M. ET, Dr. Jan Egberts, the CEO of Novadel, is scheduled to provide a corporate update the Bio CEO & Investor Conference in New York City. Considering the potential of the Novadel pipeline, the relatively small market cap, and the recent approval of Nitromist, Novadel could receive increased investor interest due to this presentation.
Novadel is a high risk investment, but from a risk/reward perspective, Novadel looks like a good trade at this point in time. Due to the FDA approval of Nitromist, Novadel is less risky than most small biotechs because they already have an approved drug and the oral spray technology that is the basis for the rest of their pipeline has been proven to be effective in at least one application. Although Novadel may be more risky than our biotech pick Anika Therapeutics because Novadel in not yet profitable, Novadel already has an approved product and a clear path to profitability. In our opinion this makes Novadel much less risky than most small biotech companies.
We expect Novadel to start receiving investor interest in the next few months as Nitromist sales start to ramp up and the FDA decision on Zensana gets closer. Although Zensana is less risky than most NDA’s due to the primary endpoints of bioequivalency and safety instead of the efficacy endpoints required for non 505(b)(2) drugs, we still plan on exiting this trade before the April 30th FDA decision deadline for Zensana.
* BUY NVD near $1.70
* SELL NVD at $3 or in early April, set stop loss at $1.40
Disclosure: Author is long NVD