Seeking Alpha
Special situations, micro-cap, biotech, healthcare
Profile| Send Message|
( followers)  

After a total nose-dive following the FDA's rejection of the alogliptin and fixed-dose combination therapy alogliptin/pioglitazone NDA that was filed by partner Takeda Pharmaceuticals (OTCPK:TKPHF), Furiex Pharmaceuticals (FURX) has recovered almost all its lost ground.

I last covered Furiex on April 16th, and pointed out the importance of the FDA decision on alogliptin. The rejection came as a surprise to me due to the drugs' success in Japan.

It was probably a shocking event to Takeda and Furiex shareholders too, since the alogliptin products are currently being marketed successfully in Japan under the trade names NESINA and LIOVEL. This rejection came despite a significant amount of data supporting the drug's safety like the recently acquired interim data of a cardiovascular outcomes trial. Still, Furiex and Takeda believe that alogliptin will not have any major problems being brought to the US drug market according to the company's statements.

"While the complete response letter from the FDA regarding alogliptin and the fixed-dose combination alogliptin and pioglitazone was disappointing, the alogliptin program remains on track in the other global markets, and we remain optimistic Takeda will be able to address the agency's requests."

-Fred Eshelman in the company's Q1 2012 press release

It's also worth noting that Mr. Eshelman has been a massive buyer of FURX stock, with over 1/4th of total shares (which are now worth almost $60 million).

Alogliptin is a DPP-4 inhibitor that will be marketed as a type 2 diabetes treatment alongside standard recommendations of improved diet and exercise. Since the prevalence of diabetes in the United States is so extreme (with roughly 25.8 million, or 8.3% of the population according to CDC estimates), it is absolutely essential that Takeda and Furiex market their drug in the United States to realize the full sales potential of alogliptin.

The market realizes this too, which is why price action of FURX has been so focused on recent press releases. Even with the quickly-expanding royalty income that Furiex is receiving from Takeda's marketing in Japan, the company is at an operating loss of roughly $9.5 million per quarter. A continuation of this trend would wipe out the remainder of the company's cash and short-term investments, although the company has recently taken measures to bolster their balance sheet.

A big reason why investors have been able to shake off the alogliptin rejection in April is due to Furiex's newly acquired rights to the premature ejaculation drug Priligy. On May 14th it was announced that Eli Lilly subsidiary Janssen (LLY) as well as Johnson & Johnson's ALZA (JNJ) transferred worldwide commercialization rights to Furiex. In an effort to raise money immediately, Furiex turned around and sold commercialization rights to most lucrative territory outside of the United States for $15 million and $60 million in other potential milestone payments. Although Priligy is the only oral, "on-demand" premature ejaculation drug on the market now, the market seems to think that Furiex made a smart move given the financial stress induced by alogliptin's slow progress with the FDA.

But ultimately, it seems that Takeda will not fail to receive an NDA submission to the FDA (even if it takes multiple tries). This is another reason why investors have been able to shake off the NDA rejection in April. On top of fresh data developments in its clinical studies, Takeda will now be able to point to the acceptance of alogliptin's MAA (marketing authorization application) by the EMA (European Medicines Agency) as well as alogliptin combined with pioglitazone and metformin.

On a side note, the acceptance of alogliptin by the EMA triggered a $10 million milestone payment from Takeda to Furiex, which should provide a larger cushion as Furiex waits for a substantial source of revenue. Unfortunately, all of the easy money was already made following alogliptin's FDA rejection in April, and we need an FDA approval before we can expect real revenue for Furiex (especially since the company sold the rights to a lot of the territory that Priligy could have sold in). Furiex is worth buying on the big dips due to the raw prospects of alogliptin, although it might be a painful wait for actual sales revenue.

Source: Closer Look: Furiex's Big Bounce