The FDA approval announced today morning of Pacira Pharmaceuticals’ (PCRX) EXPAREL™ for post-surgical pain management was widely anticipated as it combines an FDA approved drug and an FDA approved drug delivery technology. The bupivacaine in EXPAREL™ is a local anesthetic drug that has a long and established safety profile, and is commonly injected to surgical wound sites to reduce pain after surgery. It is marketed in the U.S. by British drug developer AstraZeneca Plc (AZN) under various trade names, including Marcaine, Sensorcaine and Vivacaine. The DepoFoam® in which bupivacaine is encapsulated for delivery to the surgical site is also a proven and FDA approved drug delivery technology, used by PCRX in the delivery of two of its other approved products, DepoCyt(e)® for Lymphomatous Meningitis and DepoDur® for post-surgical pain.
As such, the FDA approval of EXPAREL™ was widely expected, maybe even at a 70%-80% probability by the Street, and hence the lukewarm reaction to the approval news as the stock is up only 19c as of this writing from its close last week. The game may now have shifted to a wait-and-see mode until results come out from the first few full quarters of sales of EXPAREL™ next year. For long-term investors, then, it is important to analyze potential sales of EXPAREL™ going forward, and its impact on PCRX cash flow and stock price going forward.
EXPAREL™ is PCRX’s lead product, combining a FDA-approved drug with a FDA-approved (for other indications) drug delivery technology. While bupivacaine injected into the surgical wound provides pain relief for up to seven hours following surgery, EXPAREL™ by encapsulating bupivacaine with DepoFoam® delivers bupivacaine for an extended period of time, providing pain relief with a reduced opioid requirement for up to 72 hours. Besides long lasting pain relief, EXPAREL™ also has attendant benefits of increased patient comfort and outcomes, minimization of breakthrough episodes of pain and thereby reduced need for supplemental opioid medications (and its related complications with respect to addiction and constipation), and the resulting improvement in hospital economics.
Pacira believes that EXPAREL™ will address a significant unmet medical need for a long-acting non-opioid postsurgical analgesic. Based on an estimated 45 million annual surgeries in the U.S., PCRX has estimated that there are 39 million opportunities annually in the U.S. for EXPAREL™ use. Earlier in March this year, Wedbush estimated that EXPAREL™ will experience gross peak sales of $362 million in the U.S., and $576 million globally. While PCRX has not yet announced a pricing strategy for EXPAREL™, we arrive at similar numbers based on assuming say a 15%-20% penetration of the market, since there are many other competing products, and pricing in the $30-$60 range. For the year 2012, current analyst estimates seem to factor in about $30 million from EXPAREL™ sales (and an additional $15 million from its current commercial products).
Assuming that these numbers go up somewhat based on today’s announcement, the market is currently valuing PCRX at 3-4 times sales, which is on the low side as many biotech and drug delivery companies trade at over ten times sales. Furthermore, based on peak sales, most biotech companies are valued at least at three times peak sales. It would appear that PCRX is trading at a fraction of that potential valuation, based on current market-cap of $180 million and potential peak sales from EXPAREL™ alone at $362 million just in the U.S. It appears then that as postulated before, the market is taking a wait-and-see approach, and further appreciation above say above the $12-$15 range will happen only after it is clear how the commercialization effort is ongoing, and preliminary numbers are available from the first few two-three full quarters of sales that then allow for analysts to project a sales trend going forward. This makes some sense as EXPAREL™ has many competitors in the marketplace, including bupivacaine marketed by AZN and competitors, as well as from opioid analgesics such as morphine.
U.S. manufacturers of opioid-based painkillers that would also be potential competition for EXPAREL™ include the fentanyl transdermal delivery system by Johnson & Johnson (JNJ) subsidiary Ortho McNeil Janssen, and now also sold by Sandoz, a subsidiary of Swiss drug giant Novartis (NVS), Israeli drug manufacturer Teva Pharmaceutical (TEVA), and generics drug manufacturer Mylan Inc. (MYL). Also, EXPAREL™ will compete with other manufacturers of opioid-based painkillers such as Avinza morphine extended-release capsules by King Pharmaceuticals that is now a part of drug giant Pfizer Inc. (PFE), and Opana ER extended-release tablets by Endo Pharmaceuticals Holdings (ENDP).
Furthermore, Durect Corporation (DRRX) is developing an extended release bupivacaine product that has been licensed to Hospira (HOS) in North America (Posidur) and to Nycomed for Europe (Optesia). Furthermore, the company has stated that they anticipate EXPAREL™ will compete with elastomeric bag/catheter devices intended to provide bupivacaine over several days, including those made by I-FLOW Corporation that is now a part of Kimberly-Clark Corporation (KMB).
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