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Grant Zeng, CFA
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Grant Zeng has over 10 years of professional experience in equity research and analysis. Grant joined Zacks Investment Research Inc. in March 2006, and currently is a senior equity analyst covering biotech/pharma industry. Before joining Zacks, Grant worked for TheStreet.com as a biotech analyst... More
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  • What Happened To Access Pharma In The Last Two Days? 0 comments
    May 18, 2012 9:22 AM

    MuGard Sales Were In Line

    ACCP filed its 10Q on May 15, 2011 for the first quarter of 2012.

    Product sales of MuGard in the US totaled $572,000 for the first quarter of 2012 as compared with $13,000 for the same period of 2011, an increase of $559,000. First quarter sales were also in line with our estimate of $0.6 million.

    Royalty revenue for MuGard in Europe for first quarter of 2012 was $21,000 as compared to $20,000 for the same period of 2011, an increase of $1,000.

    Licensing revenue for the first quarter of 2012 was $1,262,000 as compared to $87,000 for the same period of 2011, an increase of $1,175,000. In the first quarter of 2012, ACCP finalized the negotiations for the termination of the license from its European partner for MuGard and recognized all of the previously received license fees ($706,000) that were recorded in deferred revenue and a $500,000 termination fee.

    Total research and development spending for the first quarter of 2012 was $974,000, as compared to $1,120,000 for the same period of 2011, a decrease of $146,000.

    Total SGA expenses were $979,000 for the first quarter of 2012, a decrease of $47,000 compared to the same period in 2011 of $1,026,000.

    Total operating expenses for the first quarter of 2012 year were $2,544,000 as compared to total operating expenses of $2,299,000 for the same period of 2011, an increase of $245,000 for the reasons listed above.

    GAAP net loss allocable to common stockholders for the first quarter of 2012 was $5,332,000, or a $0.22 basic and diluted loss per common share, compared with a net loss of $2,337,000, or a $0.12 basic and diluted loss per common share, for the same period in 2011, an increased loss of $2,995,000. 1Q12 GAAP net loss included $4.8 million non-cash expenses related to loss on change in fair value of derivatives and warrants.

    On an adjusted basis, net loss was $2.6 million or $0.11 per share for 1Q12 compared to net loss of $2.7 million or $0.14 per share for 1Q11.

    Market Reaction Unexpected

    MuGard sales were in line with our expectation and within the company's estimate. However, the market reacted to the earnings report negatively. During the past two days, share price of ACCP almost halved from $0.85 before the earnings to $0.45 on May 17.

    Why is this? We don't think the real problem is the earnings numbers. Two possible reasons for the dramatic share price decline:

    First, in the 10Q filing, the Company disclosed that they have terminated the EU partnership agreement with SpePharm by mutual agreement. Per terms of the agreement, MuGard will continue to be commercially available for up to six months in Europe through SpePharm. ACCP is actively seeking a new European commercial partner for MuGard.

    MuGard has been launched in Germany, Italy, the UK, Greece and the Nordic countries by SpePharm. However, sales have been nonmaterial. ACCP has been receiving royalties less than $100,000 a year. The Company did not disclose what led to the termination. Two reasons are possible: either MuGard is not well accepted in the EU, and SpePharm thinks it's not worth further marketing effort to promote MuGard; or ACCP thinks they need a stronger partner for MuGard in EU. We will find out during the planned conference call on May 23.

    Since the EU sales of MuGard are not expected to be material, the strong market reaction to the partnership termination seems to us unreasonable.

    The most likely reason for the strong market reaction after the 10Q filing is the uncertain US partnership for MuGard. Some investors have been waiting for a US partnership to materialize for a while, but a deal has not yet closed so far. During the previous conference call, management indicated that the Company has been actively engaged in partnership talks and that a deal could be reached soon. Investors are anxious to see such a deal, but are disappointed with no update in the 10Q filing. But we will find out what the status is during the May 23 conference call.

    What's Next for MuGard?

    In the EU, the Company indicated that it is actively seeking a new partner. A stronger partner could mean increased sales of MuGard and increased royalty revenue for ACCP. A new partnership may also provide a fresh upfront for the Company.

    In the US, ACCP is continuing the training of third-party MuGard representatives on the product, on the oral mucositis condition and on its sales strategy. MuGard prescriptions are growing quarterly and the Company has placed emphasis on its sampling and marketing efforts to build demand, grow oncologist awareness and increase payer uptake. We will get some updates on MuGard commercialization activities, including partnership status, progress with pharmacy benefit managers, payers and pharmacy formularies, and other new developments within the program on the planned May 23 conference.

    The worst case scenario is without a partner for MuGard in the US. MuGard sales started to be meaningful in 4Q11 with quarterly sales of $0.41 million. In 1Q12, MuGard sales were $0.57 million, a 40% increase quarter over quarter. Our estimate of MuGard sales for 2012 is $5.6 million, which is achievable in our view. ACCP will be profitable in 2014 with EPS of $0.14 on total revenue of $31 million without a US partner for MuGard.

    In China, ACCP's partner Rhei Pharmaceuticals HK Ltd. received regulatory and marketing approval for MuGard from the State Food and Drug Administration to treat oral mucositis in cancer patient in March 2012. Manufacturing will commence shortly in the United States to meet the demand created by Jian An, Rhei's sales and marketing partner in China.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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