A Near-Term FDA Catalyst For Cornerstone Therapeutics With Hospital-Focused Strategy

Cornerstone Therapeutics (NASDAQ:CRTX) is a specialty pharmaceutical company focused on hospital products in addition to other generic and specialty niche market opportunities.

The company has a near-term catalyst for Lixivaptan (CRTX 080) -- a selective vasopressin 2 receptor antagonist -- in the form of an FDA advisory panel meeting on Sept. 13, 2012, for a new drug application seeking approval for the treatment of low sodium levels (hyponatremia). The PDUFA decision goal date is Oct. 29, 2012, under a standard 10-month review period and Lixivaptan was acquired as part of the company's acquisition of privately held Cardiokine last December.

In early August, Cornerstone reported Q2 2012 financial results, including the following highlights:

  • As of June 30, 2012, Cornerstone reported $38.6 million in cash and equivalents vs. $74 million at year-end 2011, which primarily reflects cash usage to fund the EKR Therapeutics acquisition in a deal that also included the issuance of long-term debt as outlined below.
  • As of Aug. 2, 2012, Cornerstone reported 26.4 million shares of common stock outstanding and $89.5 million in total (long-term) debt.
  • Cornerstone reported Q2 2012 net revenue of $21.5 million including net sales from CUROSURF and ZYFLO family of products that grew 8% ($9.3 million) and 64% ($10.8 million), respectively compared to the year-ago period.
  • Cornerstone reported a Q2 2012 operating loss of ($5.6 million) and an operating loss of ($8.7 million) during the first half of 2012 along with a Q2 2012 net loss of ($4.4 million).

In July, Cornerstone received FDA approval for generic TUSSIONEX (hydrocodone and chlorpheniramine extended release oral suspension), which is a combination, prescription-only cough and cold medicine that had 2.59 million scripts written in 2011 (representing a slight increase of 2% over 2010 script volume) -- the approval comes at a key time a few months ahead of cough and cold season.

A month earlier, Cornerstone closed on the acquisition of EKR Therapeutics (it expects to complete integration of the company by end of Q3 2012, including the elimination of $18 million in annual expenses related to EKR) for $126.4 million paid upon closing along with a future milestone payment of up to $25 million related to approval and sales of RETAVASE.

The acquisition included hospital-based products CARDENE IV (nicardipine hydrochloride) for the short-term treatment of high blood pressure when oral therapy is not desired or possible along with RETAVASE (Reteplase) for the acute treatment of heart attacks. Cornerstone expects to receive FDA approval of a new active ingredient supplier and relaunch RETAVASE in 2013, and projects annual sales in excess of $50 million for CARDENE IV based on net sales of approximately $26 million during the first half of 2012.

In conjunction with the EKR acquisition, Cornerstone entered into a credit agreement with its largest shareholder, Chiesi Farmaceutici (which now has a 65% ownership stake), for five-year term loans of $60 million (Term Loan A with 7.5% interest rate) and $30 million (Term Loan B with 6.5% interest rate), with Term Loan B convertible into shares of Cornerstone common stock at $7.098 per share at any time over two years from close of credit agreement.

As expected, shares of Cornerstone have experienced increased levels of trading volume and share price volatility with an upside bias since the announcement of a FDA advisory panel meeting in mid-September, which moves the catalyst date up by more than six weeks before the Oct. 29 PDUFA date. This is significant from a run-up trading perspective as the company is now a near-term FDA catalyst trade and relatively low-priced stock trading in a range of mid- to high single digits. The company also has a targeted strategy focused on both hospital-based treatments and select generic products such as TUSSIONEX, which offer the potential for higher margins and have less competition compared to standard generic tablets for diuretics, high blood pressure medications, etc., that may have 10-plus suppliers flooding the market, resulting in very low prices and margins.

I expect shares of Cornerstone to continue making a run back to upper $7 to low $8 range and possibly making a new 52-week stock price high over $8.20 going into the FDA advisory panel meeting. The FDA briefing documents for the panel meeting will be posted two to three business days ahead of the meeting, so traders should be aware of this key event, which often has a negative impact on share price since the purpose of the meetings is to discuss potential concerns or issues associated with experimental drugs under FDA review.

In addition, shares of Cornerstone will be halted on the day of the advisory panel meeting for possibly all day, or at least during the time of the active panel discussion and vote. The main risk factors for Cornerstone will be the upcoming posting of FDA briefing documents ahead of the panel meeting, but on a run-up basis prior to the meeting and briefing documents there is excellent potential for a continued run-up with minimal known risk factors, as there is no urgent need to raise cash as the company is finalizing the EKR acquisition and generates a meaningful amount of sales that greatly reduces the cash burn rate.

Disclosure: I am long CRTX. 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.