Avenue Therapeutics Submits Its NDA; Shares Still Cheap

Dec. 17, 2019 1:08 PM ETAvenue Therapeutics, Inc. (ATXI)4 Comments
Detroit Bear profile picture
Detroit Bear


  • Avenue Therapeutics is one of the best biotech opportunities I have seen with regards to risk/reward.
  • The company submitted the NDA for its drug candidate, positioning it to meet acquisition requirements.
  • Shares offer ~85% upside with a close date likely in less than 15 months.

Shares of Avenue Therapeutics (NASDAQ:ATXI) rallied over 15% last week after the company announced that it submitted its New Drug Application (“NDA”) to the FDA this week, putting the company on track to hit the approval milestone ahead of the required deadline from acquirer, Cipla. With a buyout price of $13.92 per share, Avenue continues to provide an incredible opportunity to generate alpha in 2020, with a possible return of roughly 85% in less than a year, without accounting for possible upside from contingent value rights (“CVRs”). Let’s review the situation and why the recent news bodes well for Avenue.

Background Refresher on Avenue and IV tramadol

I previously deeply analyzed Avenue’s prospects, but for those who want the cliff notes, here is a run down on Avenue and its drug candidate, IV tramadol.

  • Avenue Therapeutics is a tiny, one product company with IV tramadol as its drug candidate.
  • Tramadol is a “weak” opioid, receiving a Schedule IV classification from the US Drug Enforcement Agency (“DEA”) due to a lower risk of abuse than morphine and other opioids.
  • Tramadol has been approved as an oral pain management therapy in the US since 1995 and in Germany since 1977.
  • Tramadol is approved as an injectable therapy outside of the US, but not in the US. The drug’s safety and efficacy is well established in literature and practice.
  • Avenue is submitting an application to become the first IV formulation of tramadol on the market, which is why the company has no sales even though the therapy has been approved for nearly 25 years in an oral formulation.
  • A Phase 3 bunionectomy study was completed in 2018 with positive results.
  • Indian generic pharmaceutical manufacturer Cipla agreed to provide Avenue with $35 million worth of equity at $6 per share, equating to a 33.3% stake.
  • Cipla will acquire the remainder of company for ~$13.92 per share if IV tramadol is approved and the following conditions are met:
    • Approval on or before December 1, 2020 with an extension to April 30, 2021 if the FDA returns with questions.
    • Broad label claim to treat moderate to moderately severe post-operative pain.
    • Schedule 4 classification.
    • No Risk and Mitigation Strategy (“REMS”) program mandate from the FDA.

Since my initial overview in January, the company also completed a Phase 3 abdominoplasty study that helped confirm that IV tramadol works and puts the company in a great position to receive a broad label claim for the product. An abdominoplasty is one of the most important studies for receiving an indication for soft tissue surgery pain management, and Avenue previously completed a Phase 3 bunionectomy, which is the gold standard procedure to gain an indication for hard tissue surgery pain management. With both gold standard Phase 3s completed demonstrating strong safety and efficacy, Avenue is in a great position to receive a broad label claim for IV tramadol.

Submission Sufficient for the Required Timeline

It may surprise some how much Avenue’s share price moved on the news of submitting its NDA. However, the approval timeline is critical to meet the current acquisition conditions. As noted, the drug needs to be approved prior to December 1, 2020 with an extension to April 30, 2021 if the FDA has any inquiries or questions.

Source: FDA

As you can see in the above chart, the FDA is required to review NDAs and take action within 10 months, so avenue can expect a target action date sometime prior to November 2020, putting the company in a wonderful position to hit the December 1st deadline.

Going forward, I believe Avenue has mostly mitigated the most important risks with regards to generating sufficient clinical evidence to receive a broad label claim combined with a submission completed early enough to give the company sufficient time to hit the required approval deadline.

That said, the company still risks a reclassification from the DEA as well as receiving a risk evaluation and mitigation strategy (“REMS”) mandate from the FDA. As I have noted before, I think rescheduling is unlikely, particularly given the desire to move peri-operative patients to a lower risk analgesic like tramadol and the IV nature of the product makes it less prone to abuse and theft.

Why is the discount so large?

The primary reason why I think the discount remains so large is that tramadol is an opioid, and investors are simply not going to take the time to understand how IV tramadol differs from other drugs in the same area. Additionally, Avenue is a ~$125 million company with somewhat limited liquidity, so I would not consider it fertile hunting ground for most institutional money.

At current prices, I would not hesitate to add to my position, less the fact that I have already accumulated a relatively large position for a pre-revenue company with a somewhat binary outcome. I expect the drug to meet approval conditions, and for the acquisition to occur sometime in Q4’20 or Q1’21.

This article was written by

Detroit Bear profile picture
A bear out in the woods.

Disclosure: I am/we are long ATXI. 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.

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