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Acura Pharmaceuticals (NASDAQ:ACUR) is a specialty pharmaceutical company that engages in the research, development, and manufacture of pharmaceutical product candidates utilizing its proprietary Aversion and Impede technologies. Its current price per share is $3.88, with a market cap of $178.77 million.

What are Acura's technologies? Well, what this company basically engages in is to take certain prescription medications like pain killers, and make them 'over-dose' proof, as well as nearly impossible to abuse. According to the company's website information:

Aversion Technology is a patented composition of commonly used active and inactive pharmaceutical ingredients providing abuse deterrent features and benefits for orally administered pharmaceutical drug products. Aversion Technology opioid analgesic product candidates are intended to provide effective relief from pain while discouraging common methods of pharmaceutical product misuse and abuse.

This technology helps to stop patients from crushing up pills and snorting them, as well as deterring patients from dissolving pills for injection. This is very interesting stuff, but is there a real bona fide market for Acura's products?

Pfizer (NYSE:PFE) seems to think so, as it has paid out to Acura an aggregate of $78.5 million related to the development of these drugs utilizing the Aversion Technology.

FDA Approved Drug, Oxecta

On June 17, 2011, Acura's lead product, Oxecta, was approved for marketing by the FDA. Under the terms of the agreement with Pfizer and in addition to the $20 million milestone payment, Acura will receive tiered royalties ranging from 5% to 25% on net sales of Oxecta.

Patient abuse of pain killers and other prescribed narcotics is well-documented. For instance, Covidien (COV) is the major methadone producer and sells bulk methadone to producers of generic preparations and distributes its own product in the form of tablets, dispersible tablets and oral concentrate under the brand name Methadose in the United States. Covidien could definitely benefit from both of Acura's Aversion technology. Large pharmas are always at risk to face lawsuits and/or criminal charges over misuse and abuse of narcotic-based products.

In May of 2007, three former employees of Purdue Pharma, the company that makes the narcotic painkiller OxyContin, plead guilty in federal court to criminal charges that they misled regulators, doctors, and patients about the drug's risk of addiction and its potential to be abused. Using Acura's Aversion technology should greatly reduce the risks both patients and larger pharmas face.

In July 2009, the FDA assembled 37 experts to recommend ways to reduce deadly overdoses with acetaminophen, which is the leading cause of liver failure in the U.S. and sends 56,000 people to the emergency room annually. The panel recommended reducing the maximum dose of Tylenol and eliminating prescription drugs such as Vicodin, which is made and marketed by Abbott Laboratories (ABT), and Percocet, made and marketed by Endo Pharma (ENDP). Both Abbott and Endo should be very interested in what Acura has to offer, and I see both these companies eventually doing business with Acura.

Acura also has a technology it calls "Impede Technology" which is designed to greatly reduce Methamphetamine abuse. Methamphetamine is a highly addictive illicit drug used non-medically by an estimated 13 million people at some point in their lifetime. Ritalin is one such drug that contains Methamphetamine, which is made and marketed by Novartis (NVS).

Acura's deal with Pfizer alone makes the company stock undervalued at its current price level of near $3.50 dollars a share. I am sure other companies like the ones mentioned in this article may eventually do business with Acura at some point in the future.

*Financial Highlights
Fiscal Year
Fiscal Year Ends:Dec 31
Most Recent Quarter (mrq):Dec 31, 2011
Profitability
Profit Margin (TTM) 50.74%
Operating Margin51.47%
Management Effectiveness
Return on Assets21.01%
Return on Equity34.06%
Income Statement
Revenue20.47M
Revenue Per Share0.43
Qtrly Revenue Growth (yoy)-100.00%
Gross Profit20.47M
EBITDA10.66M
Net Income Avl to Common10.39M
Diluted EPS0.22
Qtrly Earnings Growth (yoy)N/A
Balance Sheet
Total Cash (mrq)35.69M
Total Cash Per Share (mrq)0.78
Total Debt (mrq)0.00
Total Debt/Equity (mrq)N/A
Current Ratio (mrq)68.17
Book Value Per Share (mrq)0.81
Cash Flow Statement
Operating Cash Flow12.31M
Levered Free Cash Flow8.37M

Acura turned a $0.22 last quarter primarily on Pfizer's milestone payments Acura realized. Notice that ROE/ROA is good, no debt, and I could find no warrants outstanding at this time. This company does not dilute/dump on shareholders and appears to be well managed.

*Shares Outstanding45.86M
Float12.69M
% Held by Insiders78.24%
% Held by Institutions5.20%
Shares Short (as of Feb 29, 2012)1.40M
Short Ratio (as of Feb 29, 2012)21.80
Short % of Float (as of Feb 29, 2012)11.50%
Shares Short (prior month)1.40M

With about 46M shares outstanding, the market cap comes in at around $178M. Acura is undervalued based on current fundamentals, and fundamentals moving forward. As I mentioned prior, I only see more larger bio-pharmas partnering with Acura for its Adversion technology, for the reasons I mention earlier in this article.

The float is small, coming in at a little under 13M shares. Insider ownership is very high, coming in a bit over 78%. Institutional ownership is lower as there simply are not a lot of shares floating around for them to grab up. Nonetheless, I feel we will see more institutional ownership as Acura continues to execute on its business model.

*Trading Information
Stock Price History
Beta1.46
52-Week Change15.18%
S&P500 52-Week Change8.15%
52-Week High (Jun 20, 2011)6.80
52-Week Low (Aug 8, 2011)2.28
50-Day Moving Average3.34
200-Day Moving Average3.60

The stock is trading above its 50 day SMA, and above its 200, which are bullish signs. The beta is a bit high which is to be expected with a low floating stock. The stock is trading much closer to its 52 week low than its 52 week high.

Let's take a look at the chart: (Click to enlarge)


Technicals

The stock looks poised for a move upwards over $4.50 in the short-term as a nice wedge has been forming since December 2011. Recently, as of February, the stock is making higher lows and could be setting up a cup and handle with a symmetrical continuation pattern. Since the beginning of March, it appears to me the stock is being quietly accumulated as we see some pennants forming a slow move to the upside. The MACD has been in a flat line with a slight uptrend occurring, in accordance with the slow move with the pennants to the upside. The stock had a nice move up on volume in its last trading session, closing at $3.88. I see a lot more short-term upside coming to, as I state above, about $4.50 a share.

Conclusion: I recommend this stock as a strong short-term play and long-term buy and hold. The company's technology is becoming more in demand, with Pfizer leading the way. As I already mentioned, I expect more larger pharmas to partner with Acura in time.

  • Short term price target: $4.50.
  • Mid term: 5.50.
  • 1 year target: $9.00

My last 2 picks have done very well, and suprisingly, beat my short-term targets. You can find these picks in articles here and here.

*Data sourced from Yahoo Finance

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice. Always do you own complete due diligence before buying and selling any stock.

Source: Large Pharmas Catching On To Acura Pharmaceuticals' Remarkable Potential