Acorda Therapeutics: Sell or Short?

| About: Acorda Therapeutics, (ACOR)

Acorda Therapeutics {ACOR) (18.49) is, in my opinion, a two trick pony masquerading as a biotech company. As I define biotech, it involves working with such things as: recombinant DNA, RNA, cloning, monoclonal antibodies, genomicstransgenics, tissue cultures, etc. Acorda is not involved in any these activities. Accordingly, Acorda is really a two-product pharmaceutical company with a market cap well in excess of $500 MM.

Sales for the June quarter {most recent reported} were $10.5 MM, up from $ 7.9 in the like 2006 period. Those were gross sales with allowances and discounts, that falls to $9.5 MM. Last year their sales were $ 7.9 MM plus $1.5 mm credit for net sales of $ 9.4 MM. Last year's quarter included an "adjustment" of the company's return allowance. So on an apples-to-apples comparison, sales were up from $ 7.6 MM to $ 9.5 MM. Now a 25% increase in sales certainly looks very respectable, but I'm not impressed. R & D expenses which should be the lifeblood of a nascent pharmaceutical company amounted to a meager $ 4.0 mm. The company lost over $ 8.0 MM over three times as much as the June 06 quarter.

Those sales reflect their only approved product "Zanaflex" {tizanidine HCL}. In November 2005 ACOR signed Cardinal Health to obtain the distribution talents of the latter's 160 contract sales reps to supplement Acorda's in-house sales staff of 12. In early Jan. 2007 ACOR announced its own sales force had reached 65 up from 32. While taking this into consideration, even allowing for the new recruits on a learning curve, a 25% increase in sales looks downright disappointing. In the recent quarter sales included $9.4 MM in the newer capsule form and $1.1 MM in tablets. A year earlier, tablets were $ 4.0 MM and capsules $3.9 MM. Even less impressive is that the gain in net sales was only 14% above the $ 8.3 MM of Q1.

When you are basically a one-product company it's difficult to sleep soundly. Recently, Canada's Apotex {privately owned} has submitted an ANDA for three different dosages of generic Tiznidine HCL {Zanaflex}. Apotex is no lightweight; it has over 180 products in its catalogue and is Canada's largest generic company with sales of nearly at half a billion dollars. Acorda will mount an intensive battle to "protect its intellectual property". The question is how far behind are the major US generic producers? Zanaflex is used to treat spasms associated with spinal cord injury, brain trauma, and multiple sclerosis. Zanaflex was not developed internally, but purchased from Elan who apparently did not envision much potential for the drug.

Nearly a year ago, ACOR sold a portion of its Zanflex revenues to the Paul Royalty Fund for only $10 MM, half of which was payable if Zanaflex sales reached $ 25 MM in 2006, which of course did not happen.

For more than two years, Acorda has been conducting a Phase 3 trial for its second product Fampridine { valrocemide} Sustained Release. This product was developed in Israel by Yissum R & D. As part of the license, ACOR had to allow Teva (NASDAQ:TEVA), the Israeli generic giant, the right to co-develop it. Late stage trials demonstrated that 80% of the patients were helped by Fampridine as a treatment for multiple sclerosis. However, one in five people developed seizures, causing the FDA to ask for larger trials. It appears the FDA is more concerned with its safety profile than the therapeutic benefit. The results of these treatments are probably a year away. Then ACOR will have to show that its product is better than Bayer 's {Schering AG,} Betaseron and Ribif by the Serono divison of German Merck (NYSE:MRK). Based upon my personal experience, my guess is ACOR will get an approval letter, but will need to provide even more additional safety data.

Looking ahead to September quarter, ACOR better report a much better sales gain than they did in Q2. I expect R & D costs to rise significantly as the Phase 3 accruals increase. The loss for Q3 may increase from the $ 8 MM of the recent quarter.

Acorda has positioned itself as a specialist in central nervous system drugs. I assume they are working on obtaining additional drug licenses. ACOR has raised a total of $112.3 MM from four different private placements. In addition they have sold a little more than 10 million shares to the public. As of June 30, 2007 the cash was down to less than $ 105 MM, while shareholder equity was $ 70.7 MM. ACOR's IPO came at $ 6.00 February 10th, 2006. On June 8th of this year the company completed its second offering at $ 18.50. The shares made a new peak of $ 25.88 on February 20th and then hit $ 26.58 on May 3rd. Currently 91% of the shares are already owned by instutional investors. Insiders have been selling in recent months including the CEO. Hedge Fund Bucaneer, Daniel Loeb filed ownership of 2.290 MM shares in February. He urged the company to find a buyer for itself. They didn't and Loeb has now sold at least 1.290 MM of these shares. Chief Operating Officer, Mary Fisher resigned in July 20th, "effective immediately". She was a seven year veteran of Acorda.

We have not spoken with the company, read anyone else's reports and the conclusions are our own.

Bottom line, we have sold these shares short during the past month and believe the stock is substantially over-priced.

Disclosure: Author has a short position in ACOR