How To Trade Durect Heading Into Remoxy Decision Date

| About: Durect Corporation (DRRX)

Summary

Remoxy has received two previous CRLs.

Durect will receive tiered royalties based on sales of Remoxy.

DRRX may be well positioned to obtain approval this time around.

FDA decisions can make or break developmental-stage pharmaceutical companies. With millions of dollars invested in the development of a drug, an FDA decision represents the culmination of years of hard work and millions of dollars in investment. With this in mind, investors are presented with a very interesting upcoming PDUFA decision for Durect Corporation (NASDAQ:DRRX) and Pain Therapeutics (NASDAQ:PTIE), which are seeking approval for their drug Remoxy.

Remoxy

Remoxy is designed to be an abuse deterrent form of the widely prescribed drug Oxycodone. It is a long-acting form of Oxycodone that Durect claims is able to reduce, if not eliminate, abuse via snorting, injecting, smoking, mixing with various drinks and crushing. Pain will be responsible for marketing the drug should it obtain approval, and Durect will be eligible for tiered royalties of six to eleven percent depending on the sales of Remoxy.

Investors should be aware of Remoxy's checkered past. The drug used to be partnered with Pfizer (NYSE:PFE) that later returned the rights to the drug to Pain Therapeutics after internal studies did not leave PFE confident in the chances of approval. For investors who are new to the pharmaceutical arena, it is rare for a company to return the rights to a drug that it has licensed. This essentially indicates that Pfizer did not want to be on the hook for any additional clinical trials because it would seem to suggest that it believes that any subsequent trials will not be worth the cost relative to the potential for approval.

At the time, Pfizer had just finished starting internal studies that were aimed at answering the concerns that the FDA expressed in a 2011 CRL. To be fair, there are other possible explanations for why Pfizer would terminate the deal. At the time, Pfizer was developing its own abuse-deterrent drug candidate, so that may have played a role in the decision to cut ties with Pain and Durect. Remoxy has received multiple CRLs, having received one in 2008 and then the aforementioned one in 2011. Durect is hoping that the third time is the charm for Remoxy.

Why Remoxy May Still Have A Shot

Despite the drug's checkered history, Remoxy may end up obtaining FDA approval. With the huge opioid epidemic, the FDA is under increased pressure to help provide alternatives to combat the epidemic. Remoxy with its abuse deterrent properties may be able to provide doctors with another option to help prevent abuse. It should also be noted that Remoxy is seeking approval for five different dosage strengths, including a 5-mg dose. Why is this important? The FDA has expressed to doctors a desire to be able to start patients out on the lowest dose of Oxycodone possible. A 5-mg dose would be the lowest dose available, and as such, could represent an important option for patients and doctors. With increased pressure coming from the public, and with the potential to help provide a way for doctors to reduce abuse, Remoxy may have a better chance this time.

Has Durect Adequately Addressed the FDA's concerns?

The big question will be whether or not the FDA can be confident this time around in Remoxy. The data that Pfizer turned over to Pain Therapeutics after the termination of the partnership helped to show positive results for the reformulated version of Remoxy. The positive results are important, as they will serve as the basis for the NDA.

Even assuming that the drug does gain approval, however, there is still the question of marketing the drug. Pain and Durect can ill-afford to waste time as competitors in the abuse deterrent space are on their tails. They will likely have to sign yet another partner in order to commercialize the drug. The main problem is that large competitors can easily outspend Pain and Durect in marketing and essentially bury the drug. Pain will be primarily responsible for selling the drug in the United States should the companies not be successful in securing a partner. Durect's main responsibility will be to cash royalty checks. This is where it becomes attractive.

According to Durect, in its most recent conference call, if Remoxy is able to obtain a market penetration of 10-20%, DRRX could be receiving royalties of $16-32 million per year. Considering the long patent life that Remoxy has remaining, this could represent a substantial income stream to shareholders. In the meantime, Durect and Pain shareholders will need to watch for a possible commercial partner. Durect and Pain will have to answer a bunch of questions over the next few months. Hopefully, they will be able to answer these questions with the FDA approval in hand.

Durect is going to need this revenue stream. For the most recent quarter, the company reported a net loss of $9 million. DRRX finished the quarter with $33.9 million in cash and cash equivalents. While this may seem like a large amount of money, it is not. Durect will burn through the money quickly with its continued need to spend on clinical trials. This is understandable for any company like Durect that is trying to bring products to the market. Dilution appears likely if Durect is unable to have a quick stream of revenue from Remoxy.

Conclusion

Given Durect's history of not obtaining FDA approval, it might seem as though approval is unlikely. I would recommend trading this stock hoping for an increase in the share price before the PDUFA date. I would sell before the PDUFA date as I still view this one as uncertain. If I had to bet, I would bet that given the aforementioned trials that the FDA will approve Remoxy. This time, it is even more important to help rebuild investor confidence, especially ahead of Durect having other pipeline candidates coming up in the next few years for FDA approval. DRRX needs to prove that it can get this one right.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.