Shareholders are waiting for MAP's (MAPP) management updates and are desperate for every piece of information. This is to be expected as investors wonder about the future of their investment after the United States Food and Drug Administration [FDA] issued a Complete Response Letter [CRL] to its New Drug Application [NDA] for LEVADEX® (dihydroergotamine) inhalation aerosol.
When the CRL was first announced, the price dropped 24% to $13.76 when trading resumed, but quickly recovered (at one point even going green for the day). Eventually, the stock closed at $16.44, which was a surprisingly small 4.25% decline. While impossible to know for sure, it appears that one of the main reasons behind the recovery was the hope that the CRL was over minor issues. An "easy" CRL supposedly risks later approval which ultimately meant that the company could quickly gain approval.
Given this perspective, the main question that should drive the PPS is how long it will ultimately take for MAP to answer the FDA's questions. While MAP is not being asked to conduct any more long-term clinical trials to assess safety or effectiveness, the company cannot provide a definitive timeline for resubmission and another FDA decision.
The first step in the process to resubmission was to ask for a meeting with the FDA for further clarification on the CRL. On April 12, 2012 Map provided a press release (MAP Pharmaceuticals Provides Update on LEVADEX® Program) essentially stating that the meeting with the FDA would occur in the second quarter. It is more likely that the meeting will be later in the quarter as an early meeting would likely have been highlighted in the press release to help assuage investor concerns.
To better understand the timeline, we can look at companies with a similar situation. Perhaps the best analogy would be Protalix (PLX), who received an "easy" CRL on February 25th, 2011 (Protalix pharmaceutical receiving a soft CRL). The main questions raised by the FDA regarding the NDA were related to the clinical and CMC sections. In the clinical section of the CRL, the FDA requested additional data from an ongoing switchover trial and its long-term extension, which was similar to in that the FDA did not request for a long term clinical trial.
In the chart below, we can see the price action after the PLX CRL where the price dropped from $9.36 to $6.62 on the opening. Similar to MAP the price recovered to close at $7.63, which could be attributed to shareholder belief that the soft CRL would be quickly addressed. Of course, it is never that similar and on March 17th, 2011 the company announced a secondary offering to raise the cash needed to get the company through the resubmission and this caused a quick decrease in PPS to $5.74.
During the past year, Protalix's shares were under pressure and volatile as the shareholders were waiting for more information regarding the NDA resubmission and issuing new PDUFA date. The price started moving upward while expecting the resubmission. However, the price dropped down soon after the FDA assigned Class II review which means another 6 months of waiting time.
Currently, Protalix is back on track and very close to the new PDUFA date which is on May 1st. The shareholders and analysts have high expectations to gain approval in the second shot.
The question now is whether the PLX experience will be repeated to a certain degree with MAP. After the CRL, the price dropped and then recovered after the promising conference call. During the call, the company tried to cool down the disappointment by claiming that their "goal is to respond to the FDA's complete response letter as aggressively and quickly as we can".
Of course, this respite was short lived as the next day, the shareholders realized that the process to resubmit the NDA might take longer than the company's promise. The price started downtrend, breaking the support of the 50MA & 200MA and closing Friday April 13th at $12.93.
When the company meets with the FDA in the second quarter (likely in June), they will receive certain clarifications regarding the CRL. Once MAP's management gets clarity on the set of issues, it has to be able to properly address all of the requests. Again, it is never an exact science but we can estimate that it will take an additional 3-4 months. This puts us at October - November for resubmission.
After the resubmission the FDA will notify the company within 14 days if they accepted it and assign a Class I or Class II review. If we look at the FDA POLICY AND PROCEDURES, then it appears that there is little chance for MAP to get Class I review and will most likely getting a Class II review. This puts the new PDUFA date in the April-May 2013 time frame.
This timeline is important as MAP only has cash and cash equivalents of $98.8 million as of December 31st, 2011. The cash burn in the most recent quarter was $14.6 million (4th quarter 2011), which implies a yearly burn of $55.7 million. This would leave the company with only about $28 million in cash at the time of the new PDUFA date. The question then is whether that is enough to hire a sales force and file regulatory documents without a going concern clause. The answer to that is no.
Keep in mind that this timeline is not necessarily bearish. What would happen if an unforeseen delay occurs or some other setback? Would the company want to wait for that to raise cash? Of course not, a prudent management team would want to lock in these prices to raise cash and do it sooner rather than later.
Conclusion: MAP's share price will stay under pressure as a continuation of the new downtrend that was established. The breaking of additional support lines will further pressure investors leading to additional sales. Given the need for cash and the likelihood that the price will likely continue its bleed, there is a good chance that the company will raise cash sooner rather than later.
In this article I didn't get into the financials and the market cap of, as it well addressed by David Sobek's article "Map Pharmaceuticals: The Levadex Levitation" posted on Seeking Alpha. This article tried to generate a fair value for Map using a discounted cash flow model of Levadex in the US acute migraine market out to 2020.
Both are must read articles to get the whole picture and try to decide what to do with your position regardless if it is long or short.
Disclosure: I am short MAPP.