NuPathe And Its Upcoming PDUFA Decision

| About: Teva Pharmaceutical (TEVA)
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NuPathe Inc. (PATH) is a biotechnology company focused on central nervous system disorders, including neurological and psychiatric disorders. With a PDUFA date coming up on January 17, 2013, for its Zecuity migraine patch, many traders and investors are closely watching the stock, as an approval could send shares sharply higher over the short-term.

Migraines affect approximately 30 million adults in the U.S., with crippling pain that all too often goes untreated. Existing medications like oral triptans are ineffective for approximately eight million U.S. adults that experience MRN (nausea) in more than half of their migraines, since the nausea causes them to either avoid or delay taking oral treatments.

NuPathe's Zecuity Offers a Solution

NuPathe's Zecuity (formerly NP101 or Zelrix) would be the first transdermal patch for the treatment of migraines. Since it's not delivered orally, the patch would circumvent nausea and deliver sumatriptan in proper dosages. The uniform delivery of sumatriptan also bypasses the GI tract to provide consistent relief, while minimizing adverse triptan sensations.

The company has used Zecuity on more than 10,000 patients, where the treatment has demonstrated fast onset and sustained relief of debilitating migraine symptoms. Since the treatment simply delivers the most widely prescribed migraine medication (sumatriptan), there's inherently no safety of efficacy concerns apart from the delivery mechanism.

Looking at Past Failures for Clues

NuPathe's Zecuity was formerly known as Zelrix and rejected by the U.S. Food and Drug Administration (FDA) due to concerns about chemistry, manufacturing and safety. Fortunately, the company believes that its supplemental clinical data helps address these questions and may pave the way for final approval after many years of clinical development.

In particular, the company's changes and additions included:

  1. A Phase I study to confirm the performance of a device enhancement that prevents the patch from activating in the event that it is applied incorrectly.
  2. A packaging improvement related to product containment and uniformity of dosage.
  3. A usability study to demonstrate that patients can easily use the patch during a migraine.
  4. Development and validation of a new in vitro testing method.
  5. A Phase I bioequivalence study.
  6. Additional data to support the justification for a waiver of the dermal carcinogenicity study.

Strategies And Potential Impact

NuPathe trades with a market capitalization of around $50 million on the NASDAQ stock exchange, leaving significant room for upside upon approval, particularly with most of the commercialization-related fundraising already out of the way. Moreover, the validation of its platform could pave the way for faster approvals in other future indications.

Sales from Zecuity could be significant, given that Imitrex (the most popular sumatriptan) sales reached some $1.27 billion in 2008 alone, despite the availability of generic sumatriptan on the market. Capturing just a small fraction of this market could result in sales levels exceeding the company's current market capitalization for this indication alone.

Traders and investors looking to capitalize on this potential can do so in a variety of different ways. Purchasing the underlying stock represents the easiest way to capitalize on potential upside, while stock options provide a more leveraged venue. But, traders should note that the company's stock options are thinly traded with relatively high spreads.

Additional Considerations

While not a primary concern for short-term traders betting on an approval, NuPathe may face some risks even if the treatment is approved. These are important considerations for investors that plan to hold the stock through the PDUFA date.

  1. Zecuity will compete against generic sumatriptan and its various dosages, which is available at a very low cost relatively speaking.
  2. Zecuity may also compete against nasal and injectable forms of sumatriptan that offer the same ability to bypass the GI tract (injectable may even be faster acting).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PATH over the next 72 hours. 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.