Can MGI Pharma Overcome Weak Aloxi Sales?

| About: MGI Pharma (MOGN)
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The stock level of MGI Pharma (MOGN), a company that we have followed for a number of years, has been primarily supported by the value of its lead product, Aloxi. Aloxi is indicated for chemo induced nausea and vomiting. However, slowing sales predicted for this product (MOGN refused to provide guidance for 2007 sales of Aloxi medication due to changes in the chemotherapy-induced nausea and vomiting market caused by the introduction of the generic competitors in Q4 2006) and competition for its blood based cancer therapy, Dacogen, has dampened investor interest in MOGN.

As a result of these factors, the stock has been essentially flat for a number of months. The stock plunged after the company failed to meet expectations when it released Q2 earnings in July 2006. The stock has subsequently returned to original levels of approximately $21. We believe that the concern over near-term Aloxi sales is now priced into stock.

FDA submission of Aloxi for post operative nausea and vomiting [PONV] is expected in 2007 after positive results were announced in 2006. Reflecting this new use, additional revenue growth is expected for Aloxi in 2008. In 2004 and 2005 MOGN acquired or licensed a number of products in addition to Dacogen mentioned above. The first commercial shipment of Dacogen was in May 2006, and 2007 could be the first full year of sales for this product, licensed from SuperGen. Saforis, a drug for oral mucositis, a common side effect of chemotherapy and radiation therapy, characterized by painful ulcerations, received an approvable letter in 2006. MOGN is investigating the way forward for this drug as the FDA requested a further Phase III trial.

On, Tuesday March 20, 2007, the Company announced positive results from its Phase III randomized, double-blind, multi-center trial of Aquavan Injection for sedation of patients undergoing bronchoscopy. The trial successfully met its primary endpoint of sedation success as well as all secondary endpoints.

Results of the trial also indicate that the safety profile of Aquavan was similar to the safety profile of the control. MOGN plans to submit the Aquavan NDA to the FDA early in the third quarter of 2007. Assuming approval, which appears likely, the drug could be on the market late 2008 or early 2009.

According to the company there are more than 40 million procedures per year in the U.S. that require moderate sedation, leading us to believe that Aquavan could be a significant source of revenue for MOGN. With the stock having stabilized to current levels after the market’s overly optimistic expectations concerning Aloxi sales, we believe it is now poised for good upward movement in 2007 and 2008 from a base of around $21.

This movement will be based on three major factors: the number of NDA submissions in 2007, expectation of FDA approvals in 2008, and becoming cash flow positive in 2007. MOGN has announced that it expects the following events in 2007: Aloxi PONV supplementary NDA, Aloxi oral capsule supplementary NDA, pivotal phase 3 Dacogen AML program initiation, submission of the supplementary NDA for Dacogen alternative dosing regimen, and submission of the Aquavan NDA.

MOGN 1-yr chart

Disclosure: Author has no position in MOGN.