Recro Pharma (REPH) is setting it's aim on taking over one of the most profitable, yet destructive medical markets. Formerly known as the prescription pain drug market.
The Pipeline:
| Product | Indication | Stage | Commercial Rights* |
| Dexmedetomidine | Worldwide, except Turkey and CIS | ||
| Dex-IN (intranasal) | Post-operative Pain | Phase IIb | |
| Cancer breakthrough pain | Phase II | ||
| Dex-SL (sublingual) | Chronic pain | Phase II | |
| Fadolmidine | Worldwide, except Europe, Turkey and CIS | ||
| Intrathecal | Post-operative pain | Phase IIb | |
| Topical | Neuropathic pain | Phase I |
The lead product candidate is Dex-IN, an intranasal formulation of Dex. Multiple formulations of Dex are being evaluated to target a range of pain indications, including breakthrough cancer pain in addition to post-operative pain. In addition to Dex, a second alpha-2 agonist candidate is under development- Fadolmidine, or Fado, which is believed to show heavy promise in neuropathic pain.
Dex-IN (intranasal) Indication:
- Post Operative Pain- Phase IIb
- Cancer Breakthrough Pain- Phase II
Dex-SL (sublingual) Indication:
- Chronic Pain- Phase II
Dex-TD (transdermal) Indication:
- Severe-Intractable Pain- Phase I
Fado (topical) Indication:
- Neuropathic Pain- Phase I
Fado (intrathecal) Indication:
- Post-Operative Pain- Phase IIb
A substantial number of drug candidates within reach of their respective top competitor, mean that this is a no brainer to me. This company has the potential to get every physician in America to prescribe non-opioid (non-addictive) pain relief medication. The market for Dex-IN is enormous in itself, but maybe we can call it some cushion, the fact that there appear to be four other stellar drugs moving through the pipeline. Oh yeah! Management believes that Medicare and Medicaid will have substantial interest. Although I am no fan of Obama Care that sounds like good news for Recro Pharma.
Dex Overview:
- Developed in the 1990s by Abbott Laboratories (ABT) as a sedative for use in the intensive care unit setting
- 99' - Abbott received FDA approval to market Precedex in the U.S. for ICU sedation
- According to the Evaluate, Ltd., worldwide sales were upwards of $160 million in 2010
Worldwide Sales 2010/11 |
|
Evaluate Ltd. Market Intelligence |
In addition to its initial indication as a short term sedative in the ICU, Hospira (HSP) has received U.S. approval for Dex as a procedural sedative and has received approval in select regions outside the United States for longer term use of Dex. More recently, Orion received European approval to market Dex as an ICU sedative in the European Union, trademarked as Dexdor.
Clearly, there is a massive market for this drug, and I think it is getting bigger.
Competition? Think Again:
Recro Pharma's drug candidate, Dex-IN, is very similar, almost the same as Precedex and Dexdor. However, the major difference and highly substantiated reason that this product may be better, is that Dex-IN is not showing the side effects that resonate with other two. For that matter, Dex-IN is the only Alpha-2 Agonist that does not cause hypotension, or Bradycardia.
Terms to know:
- Analgesic- any member of the group of drugs used to achieve analgesia (relief from pain)
- Hypotension- the medical name for low blood pressure
- Anxiolytic- a medication or other intervention that inhibits anxiety
Dex is a selective alpha-2 adrenergic agonist that has demonstrated sedative, analgesic, and anxiolytic properties. Alpha-2 agonist have been in clinical use since the mid-1960s when Clonidine was introduced as an anti-hypertensive drug. While Clonidine has demonstrated analgesic effects, it has not been widely used as an analgesic due to its hypotensive side effects. The Dex effect on alpha-2 sub receptors differs from Clonodine, resulting in much lower propensity to lower blood pressure.
"In our clinical trials completed to-date, we have observed some hypotensive activity but have not seen a clinically meaningful impact on hypotension."
Recro Pharma Trial Updates
Fado Overview:
Unlike Dex, Fado does not cross the blood brain barrier and this accounts for the targeting of Fado use for either IT administration for pain or anesthesia, or potentially for topical use to treat pain associated with regional nerve pain from underlying nerve damage, also called "neuropathies". Various preclinical models of pain have been employed and have demonstrated Fado's potential as an analgesic, including its potential for use in neuropathies and post-operative pain.
Pain is a tremendous burden on society. Although unrelieved pain can result in increased outpatient visits, longer hospital stays, increased rates of re-hospitalization, and decreased ability to function, leading to lost income and insurance coverage, 42% of patients with chronic pain felt that prescription drug regimens they were on did not effectively relieve their pain, according to a survey conducted by Peter D. Hart Research Associates in 2003. It has been reported by the American Pain Association that health care expenses, lost work time, and reduced productivity due to pain costs around $100 Billion annually. Chronic pain has a negative impact on quality of life.
Recro Pharma- pain market overview
Opioid Overview:
- An opioid is any psychoactive chemical that resembles morphine or other opiates in its pharmacological effects.
While opioids are generally considered the most effective treatment for post-op pain, they raise extreme concerns due to addiction, illicit use, respiratory depression, and other side effects, including constipation, nausea, vomiting, and intolerance. Due to their very addictive potential, opioids are regulated as controlled substances. Additionally, they are Schedule II and III as listed by the Drug Enforcement Agency (DEA).
Due to the systematically persistent nature of the side effects, pain sufferers tend to limit their use of Opioids, resulting in an unacceptable 40% of post-operative patients reporting inadequate pain relief. This lowers the quality of life substantially for individuals, especially those more elderly. This causes a significant economic burden, an unequivocally estimated burden that equates to at least $560 billion a year in medical costs and lost productivity.
According to the CDC, overdose deaths from prescription painkillers (defined by the CDC to mean opioid or narcotic pain relievers, including drugs such as Vicodin (hydrocodone), OxyContin (oxycodone), Opana ((oxymorphone), and methadone) has increased significantly over the past 10 years. It notes the following trends:
- Prescription painkiller overdoses killed nearly 15,000 people in the United States in 2008. This is more than 3 times the 4,000 people killed by these drugs in 99'. It is no secret that this addiction has turned into an epidemic.
- In 2010, about 12 million Americans (age 12 or older) reported non-medical use of prescription painkillers in the past year.
- Nearly half a million emergency department visits in 2009 were due to people misusing or abusing prescription painkillers.
- Non-medical use of prescription painkillers costs health insurers up to $72.5 billion annually in direct health care costs.
That's where Recro Pharma comes in,
"We believe that Dex offers an attractive alternative for pain relief without many of the risks associated with opioids. Accordingly, we believe that physicians and third-party payers, including Medicare and Medicaid, are highly interested in new non-opioid pain therapies that provide effective pain relief without the issues associated with opioids."
According to a national survey by ABC News, USA Today, and the Stanford University Medical Center, 60% of all patients experiencing pain and 80% of those with chronic pain use prescription drugs.
This translates to:
- 58 Million people with chronic pain on prescription drugs
- 68 Million people overall
Why is this not just bad, but really bad?
- 19% of all patients on prescription drugs use them daily
- 44% of those with chronic pain use them daily
Looking at these numbers, it is easy to see why I referred to this as an epidemic. These addictive opioids have been causing addiction, dependency, and ultimately death in many cases. It is also no surprise that the total U.S. outpatient market for prescription pain pills was estimated to be upwards of $13 billion.
A Team Led By Gerri Henwood:
Gerri Henwood, President/CEO/Director - Recro Pharma
Ms. Henwood has been with the company since its inception in 2008. Certainly the most important member of Recro Pharma, Ms. Henwood has dominated the Bio-Pharmaceutical world since she entered, a few years prior to 1985. From 85' to 99', Ms. Henwood was the founder and CEO of IBAH, a contract research organization. IBAH reached a net revenue level of $150 million, as a NASDAQ traded company, operations in 19 countries, and global operating profit of 10.5%, all before being acquired by OmniCare (OCR), now a Fortune 500, in 1998.
Shortly after she left IBAH, Ms. Henwood founded Auxilium Pharmaceuticals (AUXL), where she was the President and CEO. The company raised about $170 million as of the date following their IPO in August of 2004. First product received FDA approval within 21 months of program start. In it's early stages the company had many developmental and pre-clinical drugs. Xiaflex was believed to be one with "first mover" economic potential as shown on her LinkedIn page:
2000 - 2006 (6 years)
-Founded Company in late '99, raised $90 MM equity; took Company public 8/04; raised >$84 MM public equity (NASDAQ).
-Completed full development program for first product and obtained FDA approval within 21 months of program start; Company self-commercialized 'Testim' and consistently gained market share/grew sales; Company guidance for '07 sales: >$88 MM.
-Two products in PH III development; one Phase II; one Phase I. Multiple pre-clinical candidates; one of the Phase III products believed to have significant "first mover" economic potential (Xiaflex®).
Well.. She just happened to be spot on.
The drug was recently FDA approved, this set shares of soaring from around $17 to where it is now trading in the $30-$32 range.
As seen above, Ms. Henwood, who of course was very pertinent to the implementation of this drug, had incredible confidence in Xiaflex. Apparently, she had incredible foresight as well. Perhaps her intuitiveness will carry over to Dex-IN and others? My bet is 100% yes, which is why I am long, but only the year ahead will tell.
Prior to founding Recro Pharma, Ms. Henwood left Auxilium and joined MCG, The Malvern Consulting Group, where she served as the President from 2006-2013. Ms. Henwood continues to serve a small portion of her time engaged in the provision of services for MCG to other companies, including companies that are engaged in the development and commercialization of other pharmaceutical products.
"Ms. Henwood serves on the board of directors of Alkermes plc, a global biopharmaceutical company, and two private companies. Ms. Henwood's extensive knowledge of our business and history, experience as a board member of multiple publicly-traded and privately-held companies, and expertise in developing, financing and providing strong executive leadership to numerous biopharmaceutical companies, as well as Ms. Henwood's strong background in clinical and product development and substantial knowledge of the pharmaceutical industry, contributed to our board of directors' conclusion that she would serve as a director of our company."
Recro Pharma Board
Charles Garner, CFO/CBO - Recro Pharma
Charles Garner was appointed as Chief Financial Officer, Chief Business Officer, and Treasurer in October 2013.
- Worked 9 years in the Healthcare Investment Banking Group of Deutsche Bank Securities. While with Deutsche Bank (DB), Mr. Garner focused on assisting life sciences companies with financing and advisory transactions.
Randy Mack, Senior Vice President, Development - Recro Pharma
Randall Mack has served as Senior VP, Development and Secretary since 2008.
Mr. Mack is number two of the dream team. Why you may ask?
- From 2008 to 2013, Mr. Mack served as Executive VP, Development for MCG
- Similarly to Ms. Henwood, Mack continues to spend a small portion of his time engaged in the provision of services for MCG to other companies, including companies that are engaged in the development and commercialization of other pharmaceutical products
- For more than 15 years, Mack held positions of increasing responsibilities at Auxilium , Abbott Laboratories and Harris Laboratories
In these positions he was responsible for the conduct of over 400 clinical trials, the filing of 20 INDs and 4 NDAs.
The IPO:
Recro Pharma's Initial Public Offering was last friday, March 7th. The initial price range was set between $10-$12, however, the IPO was finally set at $8. Public trading opened and share price quickly paced upwards and hit an intra-day high at $8.93. After trading in the high $8 range it fell to $8.25. It remained volatile throughout the day shooting up to 8.60 periodically as bigger buys came in. Shares closed at $8.30.
This volatility is very normal on an IPO day. I would have liked to see it hold it's upward move, nonetheless a bad day on Wall Street didn't help.
Market Cap Comparison To "Competitors":
This is what Recro Pharma had to say about the potential competition:
'We believe Dex will be prescribed for moderate to severe pain, competing mostly with opioids such as morphine, oxycodone and hydrocodone. There are a number of pharmaceutical companies that currently market therapeutics in the pain relief area, including Johson & Johson (JNJ), Purdue Pharma, L.P., Endo Pharmaceuticals, Inc., Cadence Pharmaceuticals, Inc. and Pacira Pharmaceuticals, Inc.
Purdue Pharma, L.P. and Endo Pharmaceuticals, Inc. (ENDP) are the primary competitors in the manufacture, marketing and commercialization of opioid therapeutics. Cadence commercializes an injectable formulation of acetaminophen. Pacira (PCRX) commercializes an intraoperative formulation of bupivacaine, a sodium channel blocker. As far as potential competitors in development, we are not aware of any other alpha-2 agonists compounds in development for post-operative pain relief. However, companies such as Adynxx, Inc., AcelRx Pharmaceuticals, Inc. (ACRX) and Cara Therapeutics, Inc. (CARA) are currently developing post-operative pain therapeutics that could compete with us in the future.
Dex For Moderate to Severe Pain:
- Endo Pharma manufactures, markets, and commercializes opioid therapeutics. They can be very addictive and dangerous. Who cares...right?
- Pacira commercializes an intraoperative formulation of bupivacaine, which often causes hypotensive adverse side-effects and occasionally overdose. Hmm...
- Cara Therapeutics and AcelRx Pharma are two companies who are currently developing post-op pain therapeutics that could compete. Cara Therapeutics takes a neurological approach, which differs greatly from the approach maintained by Recro Pharma. AcelRx Pharmaceuticals on the other hand, implements opioid treatment, which can be addictive and dangerous. Cara Therapeutics has a cannabanoid play that runs along the lines of addiction and dependency.
In cancer breakthrough pain relief, we expect to compete against established companies including Teva Pharmaceuticals Industries, Ltd. (TEVA) and Insys Therapeutics, Inc. (INSY). All of these potential competitors have various formulations of fentanyl, a fast-acting opioid. We are not aware of any non-fentanyl related therapeutics in development for the treatment of cancer breakthrough pain.'
Recro Pharma vs. Cancer Treatment Breakthrough Pain:
- Teva Pharmaceuticals uses a formulation of fentanyl, a fast-acting opioid, which is highly addictive and dangerous.
- Insys Therapeitucs also uses a formulation of fentanyl, a fast-acting opioid, which is highly addictive and dangerous.
A Truly Fair Comparison:
As shown, REPH's Dex-IN will compete with CARA, ACRX and PCRX in the post-operative pain relief setting.
CARA Market Cap: $436 million
ACRX Market Cap: $513 million
PCRX Market Cap: $2.48 billion
Dex-IN will compete with INSY in the cancer breakthrough pain relief setting.
INSY Market Cap: $1.7 billion
REPH has only been publicly traded for one day. It closed the trading day with a market capitalization of $44 million.
Ok, so here's the deal. Recro Pharma is just getting started. They have a very good chance to steal major market share from each of these companies above, somewhat excluding Cara Therapeutics. Insys Therapeutics had a market cap of around $500 million before approval of its drug. This shows that this market has "double bagger" potential. This is due to the sexiness of the sector. Pain relief is huge and whoever captures the rank of the premiere pain relief drug, is assured to have extreme revenue growth, which often reflects on the chart in a upward trend.
Upcoming Catalysts:
- Four Stage II updates
- Two Stage I updates
- Potential Advancements in trial stage
- FDA Approval Looming?
This Is Key:
Ms. Henwood's Success:
IBAH- acquired by Omnicare
Auxilium- IPO @ $7.50, Shares Offered: 5.5 million. Now Trades @ $30
Recro Pharma- IPO @ $8.00, Shares Offered 4.75 million.
Deja-Vu? Nope, just a growth set-up.
Recro Pharma, led by Ms. Henwood, has the answer to all of the dangerous and harmful risks associated with the companies mentioned above. While it is unfair to say the company is worth $500 million now, it very well soon could be pending further advancements with trials. Physicians around the United States will be very interested in this drug line, as it will give them the option to offer a drug that can adequately relieve pain, while causing no such addictions associated with commonly used opioids.
I believe it is safe to say that, because of the unprecedented management team, Dex-IN will move forward in its trials.
With that in mind, my near term target is $12, which was the high on the initial IPO price range. That gives 50% upside to the stock in the very near term. I do not consider this banter, but a testimony to the potential that is going head to head with the opioid-based prescription pain pill industry. This move would put the stock's market cap at a measly $60 million. As the company progresses through its trials, the value of the company should rise closer to the $500 million mark.
Risks:
Plausible deniability. Like all clinical stage bio-pharma companies, they all have a chance to fail. There are many factors that go into whether or not a company succeeds in its venture. The positive expression in this article is a reflection of my utmost confidence in the management team's virtually flawless record and the significant 'game changer' potential that it has within the pain-relief industry.
www.nasdaq.com/markets/ipos/company/recr...
Disclosure: I am long REPH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.