IntelliPharmaCeutics' (IPCI) shares were weak (-5%) on the heels of disappointing data from Acura Pharmaceuticals (ACUR) [which was down -20% on the news] for a product ostensibly similar to its Rexista technology. The stock could potentially decline some more as investors digest the news over the next few days, which I believe could be a compelling buying opportunity. The stock has been thinly covered on this Board, and the latest action may prompt some to revisit the story.
First, Some Brief Background
IntelliPharmaCeutics International Inc. (IPCI) is a pharmaceutical company specializing in the research, development and manufacture of generic controlled-release and targeted-release oral solid dosage drugs. Its patented Hypermatrix technologies are a multidimensional controlled-release drug delivery platform that can be applied to the efficient development of a range of existing and new pharmaceuticals. Based on its technologies, IntelliPharmaCeutics has a pipeline of product candidates in various stages of development, including eight abbreviated new drug applications (ANDAs) filed with the Food and Drug Administration FDA in therapeutic areas that include neurology, cardiovascular, gastrointestinal tract, diabetes and pain.
Acura Disappointing Results
On August 27th, Acura announced disappointing Phase II data from its Study 301, in which it did not find statistical significance in the 40 person study among recreational drug users in assessing the abuse liability of snorting a crushed hydrocodone bitartrate with acetaminophen tablet formulated with Acura's abuse deterrent AVERSION technology. Shares declined by 20% reflecting this news, i.e. that AVERSION H&A had slightly lower numeric mean maximum drug liking (Emax: 72.1) compared to an equivalent dose of a generic hydrocodone/acetaminophen tablet (Generic H&A: Emax: 75.6) currently on the market, but that it wasn't statistically significant.
Rexista's Profile: Differentiated
As a refresher, Rexista is a novel abuse resistant drug delivery platform which is in clinical development. It is a unique dosage form for Oxycontin (which had $2.4b in US sales), and protects against intentional or unintentional dose dumping (if tablet crushed or taken with alcohol).
While the company has not disclosed the specifics behind the Rexista technology other than to say that its patent information is not similar to Acura's, there are some interesting tidbits that give comfort that the company would avoid a disappointing trial result. In its July 15th press release, IPCI disclosed that it ended the Phase I study showing Rexista has bio-equivalence to Purdue's Oxycontin, and that it has done anti-tampering studies across a wide range of applications, not only with crushing, but also with variety of alcohol combinations, microwaving, freebasing, and snorting (specifically that it can't be snorted as in contact with an aqueous media, it turns gelatinous). Said another way, results suggest that the formulation promotes the stability of Rexista oxycodone without interfering with oxycodone bioavailability. The alcohol challenge studies, beverage extraction studies, vaporization studies, and pulverization studies show that release of oxycodone will be inefficient/slow/difficult/otherwise not ideal.
This range of tests demonstrate that the company has sought to examine a variety of potential avenues for abuse, and potentially, will show a greater range of efficacy than its competitors. After Acura's results, All eyes remain on Pfizer's (PFE) Ramoxy in the near term, as it will go before the FDA for a 3rd time and could lead the class forward in this respect. Pfizer, although it has had 2 disappointments with the FDA thus far, has previously said they could get 20% of the market from Purdue.
I have seen that the FDA has published guidelines for what will qualify as an abuse-proof form of an opioid formulation. The guidelines review various levels of abuse deterrents. Labeling claims will fall into one (or more) of four tiers, specifying physiochemical barriers, reduction of effects upon abuse, meaningful reduction in abuse, and reduced abuse in community to inform healthcare providers of products predicted or actual abuse potential. These claims will generally require data to support their use.
IPCI will be seeking a special protocol assessment (SPA) for its Ph-III trial (will begin in 1H/14) ahead of the NDA 505b2- which will be a double blind randomized evaluating the analgesic efficacy of Rexista in comparison to a placebo over a 12-week treatment period in patients having pain intensity scores corresponding to moderate-to-severe pain, and will test 2x dosing similar to OxyContin.
The Bigger Picture: Focalin and other ANDAs
Rexista is the most 'sizzling' part of the story (in my view), however, IPCI does have 8 ANDAs for generics filed for FDA, which represent some $4.6b of sales: Focalin, Effexor, Protonix, Glucophage, Seroquel, Lamictal, Keppra, Pristiq. The lead product is the generic Focalin, which generated US sales of $615mm TTM, and is partnered with Par on a 10-year profit sharing arrangement. The company has laid out a series of scenarios as to the bottom line impact of the launches for each of these drugs, based on the dosages they have received first to file (in this case, vs. TEVA for Focalin), as well as the overall MAC discounts (50-70%) and then market penetration (10-20%) and gross profit arrangement (20-50%) assumptions, as well as the overall % of generics in the market & timeline (in this case, 90% within 6 months). In the case of Focalin XR, the company expects between $20-65mm for itself from the partnership. The good news for Focalin XR, and for that matter, any XR product, is that there is a better moat for barrier to entry vs. the Chinese/Indian generics players, with better pricing as a result.
Financial Profile/ Risk-Reward
With the stock at $2 (down 7% as of this writing) the market cap is $43mm, and liquidity is 300k shares traded daily, or $600k notional, which is illiquid, but not terribly so. The company's current cash position is $1.6m, but after their $3.1m financing, they will have a net cash position of $2.5m and has a debt balance of $2.1m as of last filing. Company burn rate is ~$500k a month. About 100k shares are short. The company is covered by 3 banks - Roth Capital, Brean, and Maxim, all of which were involved in the equity raise/underwriting.
Insiders own 35% of the float (21mm shares outstanding overall)… with 28% shares owned by Founders, and some large institutions soaking up much of the float (Broadfin 9%, Ab 9%, H&Q 8%), and others… meaning that the actual true float is likely something like 50% of the share base.
In looking at the consensus estimates, it appears there is a wide range on the top and bottom line. For 2014, the revenue range is from $6m to $44m (wow), and by 2016, the top line range is from $28-58mm… on the bottom line, expected EPS ranges are from $0.13-$1.17 in 2014, and from $0.57-$1.01 in 2016. So clearly not a lot of 'consensus' in these estimates themselves.
At current levels, the risk/reward profile is intriguing: with Focalin approval plus a normalized sales capture from the ANDA pipeline, it is conceivable to have a steady state run rate of ~25mm top line in '14 (notwithstanding the wide range on the Sell Side), which, applying a normalized top line multiple, would put the market cap around $75-100m, or roughly ~2-2.5x upside from current levels. Since the ANDA process has been delayed so long, further delays are already 'in the stock' and the downside is likely 25-30% lower from here, reflecting the push out of the lead product.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IPCI 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. (More...)
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