As an investor looking for newsworthy, company-specific developments which provide positive catalysts for stock gains, this time of the year is usually pretty quiet as companies tend to wind down the year with fewer staff in the office and with less significant business developments to spur extraordinary buying interest in a stock.
But diligent investors looking for a strongly telegraphed catalyst likely to yield significant gains by the end of the year need to look no further than Acura Pharmaceuticals (NASDAQ:ACUR).
You got a small glimpse of what December extraordinary buying interest and huge gains looked like when ACUR rose last week by nearly 100% in just two days ($1.42 to $2.60). While the euphoria of pending news was a powerful force to drive the stock higher, the lack of an official company press release announcing the national launch has led the stock to drift back down to $1.42.
That pending news was first telegraphed strongly by Acura President & CEO, Bob Jones, in the November 20th after hours press release announcing a successful study showing that NEXAFED, Acura's next generation pseudoephedrine formulation for nasal decongestion, is bioequivalent to the leading national brands (like Sudafed). In the release, Bob Jones provided guidance that news would be forthcoming by December 31 stating, "We remain on track for a national launch of NEXAFED later this year."
It wasn't until other pharmaceutical industry sources like Monthly Prescribing Reference posted this news to a wider audience on November 28th that ACUR's stock rose on 18X average daily volume to reach a two day swing of +100% (from the November 28 low of $1.30 to the November 29 high of $2.60).
So where does that leave an average investor not familiar or invested yet in the Acura story? Last week's sharp retrace back to where the news flow began at $1.42 puts a diligent investor in a position to buy the stock before the big official news hits the wires.
Therefore, I offer those interested in this investment idea the background on the company and further details on two pending catalysts - one short term (2 weeks) & one medium term (2.5 months).
Acura Pharmaceuticals is a specialty pharmaceutical company engaged in the research, development and commercialization of products intended to address medication abuse and misuse, utilizing its proprietary Aversion and Impede Technologies. These proprietary technologies introduce inactive pharmaceutical ingredients into the most widely used opioid analgesics (oxycodone, hydrocodone) resulting in a final formulation designed to discourage some common methods of tampering associated with abuse and misuse like I.V. injection and nasal snorting.
Catalyst #1: National Launch of NEXAFED
Timeframe: Before December 31
The management of Acura could not be more clear that a national launch of NEXAFED will occur before the end of the year. Any day now when this news is officially released of the drug's commercial availability to pharmacies, Acura will receive visibility and interest which could closely mirror the extraordinary share price rise ($1.42 to $2.60) and volume (1.6 million shares) we saw last week at just the first hint of this major development.
From ACUR's website:
NEXAFED is an immediate release pseudoephedrine HCl ((PSE)) tablet which utilizes Acura's IMPEDE Technology. In addition to being a widely-used nasal decongestant available in many non-prescription and prescription cold, sinus and allergy products, PSE is also the starting material in the illicit manufacture of methamphetamine.
IMPEDE™ Technology utilizes a proprietary mixture of inactive ingredients intended to impede the extraction of PSE from the tablets for producing methamphetamine or disrupting the direct conversion of PSE in tablets into methamphetamine.
Acura is developing NEXAFED® 30mg tablets and has demonstrated that it is bioequivalent to Johnson & Johnson's Sudafed® 30mg Tablets and a 30mg generic store brand.
In 2009, AC Nielsen reported approximately $1.0 billion in sales of non-prescription products containing either PSE or phenylephrine as a nasal decongestant, of which approximately 47% contained PSE.
In Acura's 2012 survey of 215 chain and independent pharmacists, 164 indicated they had influence over the pharmacies' product offerings. Of such pharmacists, 70% indicated they were likely to stock or recommend stocking NEXAFED® in their pharmacies. The 215 surveyed pharmacists also indicated a willingness to recommend NEXAFED® to over 50% of their customers who seek a pharmacist's advice for a single ingredient nasal decongestant. A separate market study conducted on Acura's behalf showed that approximately one-third of consumers seek a pharmacist's recommendation for their nasal decongestant.
For purposes of estimating the annual revenue for NEXAFED in the future, if Acura only gained 1% of this $1 billion market, sales would reach $10 million. And if Acura is able to offer a price similar to branded products, there is no reason to believe that pharmacists would not highly recommend NEXAFED over its competitors due to its unique and safe IMPEDE technology.
The risks are that Acura does not adequately roll out NEXAFED due to their small sales and marketing team currently in place. But with $29 million in cash on their balance sheet and no long term debt, Acura is in a healthy financial position to add to those departments if needed.
Catalyst #2: Pfizer Royalty Payment to Acura for OXECTA sales
Timeframe: February 2013
On June 17, 2011, Acura's lead product, OXECTA, was approved for marketing by the FDA. OXECTA is the first immediate-released oxycodone that is designed to discourage tampering. Using Acura's patented Aversion Technology, OXECTA is formulated to discourage abuse such as intravenous injections and nasal snorting.
Under the terms of the agreement with OXECTA's commercial partner, Pfizer (NYSE:PFE), Acura received a $20 million milestone payment in 2011 upon FDA approval and Acura will receive tiered royalties from Pfizer ranging from 5% to 25% on net sales of OXECTA. To date, Pfizer's partnership with Acura has been very lucrative resulting in direct payments of $78.5 million. These payments will continue in a new and sustainable way when royalty payments for the sale of OXECTA start in February 2013, the anniversary of the first commercial sale of OXECTA.
(In July 2012, Pfizer exercised its right under an agreement with Acura to return the license for three other development stage products back to Acura. Yet, in a sign of the commercial viability and promise of OXECTA, Pfizer decided to retain all rights and its obligations to Acura under the license agreement. My initial article on ACUR did not forecast these products being returned and therefore overestimated the future payments from Pfizer.)
Upon OXECTA approval, Pfizer President and General Manager of Primary Care Olivier Brandicourt said,
OXECTA will further expand Pfizer's presence in pain management and complements our growing, robust portfolio of treatments and medicines in development for pain relief, one of our strategic, high-priority disease areas. We are pleased to bring OXECTA to patients and physicians with our partner Acura.
Pfizer made OXECTA (oxycodone HCI) commercially available in the United States, Canada, and Mexico on January 23, 2012.
Research firm Frost & Sullivan estimated the U.S. opioid pain market management market generated revenues of $11 billion in 2009 and will rise to $15.3 billion by 2016. Based on a conservative view that OXECTA could eventually take a 1% share of the $11 billion opioid market, Pfizer would pay Acura in annual royalty payments of between $5.5 million - $27.5 million (based on royalty payments of 5% - 25% of sales). And when the opioid market rises to $15.3 billion by 2016, based on 1% market share assumption (and 5-25% tiered royalties), Acura would receive between $7.6 million - $38.2 million in annual payments from Pfizer.
According to Acura's last 10K filing, what is likely to draw sales of OXECTA is the concern from physicians over opioid prescription misuse and the increasing costs to health insurers on the treatment of opioid abusers. This sentiment by physicians was confirmed in the December 7, 2012 background report and meeting discussion by the FDA's Anesthetic and Analgesic Drug Products Advisory Committee (AADPAC) in dealing with whether to recommend for approval Zogenix's (NASDAQ:ZGNX) pure hydrocodone opioid drug candidate, Zohydro. By a vote of 11-2, these physicians did not support the approval of Zohydro and strongly recommended to the FDA regulators that further emphasis was needed on measures to deter abuse of opioids.
The risks of OXECTA would be if Pfizer did not make it a priority in their marketing leading to weaker sales. Since the drug is in its first year and commercialization and marketing of OXECTA is not in Acura's control, this provides some lack of visibility.
As a speculative biotech investment idea with visible, positive, near-term catalysts, ACUR is worth considering as your gift for your stocking. But don't wait too long because you may miss the catalyst and have to buy at much higher prices than $1.42.
Based on the share price spike last week on word of NEXAFED's national launch, my short term target price on any official company news release is $2.00 (5 cents above the November 29, 2012, $1.95 close on 1.8 million daily volume). A 41% gain would beat a lump of coal any day.
Disclosure: I am long ACUR. 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.