The event is still unclear but I think it is clinical results from drug NRP409 for hypothyroidism.
This is not the event.
The BETM event IS how the DEA is going to schedule NRPH's lead drug candidate NRP104. A schedule I or II would be a disaster, but a schedule III or IV would be a block buster.
Here is scoop from thestreet.com thestreet.com
Waiting for New River Stock to Recede
By Marc Lichtenfeld
Senior Columnist
8/2/2006 11:35 AM EDT
Click here for more stories by Marc Lichtenfeld
New River Pharmaceuticals (NRPH - news - Cramer's Take) has a lot going for it, but with a ruling by the Drug Enforcement Agency pending on its lead product candidate, its stock price isn't one of them.
The Radford, Va., company is attempting to tackle a serious problem: the abuse of prescription drugs, an issue that's especially acute among teenagers. According to the National Institute on Drug Abuse, prescription painkillers are a popular choice. Roughly 9.5% of high school seniors it surveyed say they've used Vicodin for nonmedical purposes. Another 5.5% illicitly took Oxycontin.
However, drugs for attention deficit hyperactivity disorder are also a target for misuse, because they contain amphetamine. Nearly 9% of 12th graders reported abusing amphetamines, and 4.4% had taken Ritalin, an ADHD drug, recreationally.
New River believes it has the answer to the problem. The company's experimental and most promising drug, NRP104, contains a key ingredient in Adderall, an approved ADHD therapy made by Shire (SHPGY - news - Cramer's Take), with an amino acid attached to it that lessens the chance for abuse.
New River CEO R.J. Kirk says 200 teenagers commit suicide every year by using ADHD medicines. But with NRP104, even by administering extreme levels of the drug to rats, the company was unable to achieve a dosage capable of killing half the tested population. Kirk says his data reveal that the preferred method of administration for abusers of amphetamines is snorting. But with NRP104, there is "little or no activity when absorbed intranasally," he says.
Schedule Setback?
A recent study of amphetamine abusers showed that the "likability" of NRP104 at normal doses was less than that of other stimulants. Rajiv Kaul, portfolio manager of the Fidelity Select Bitoechnology fund, said NRP104 "would have a lower street value than other drugs," something that should sit well with the DEA. Fidelity Select Biotechnology owns more than half a million shares of New River.
Here's where the matter starts to get tricky.
Schedule III and IV drugs can have their prescriptions refilled for up to six months. Those classes include drugs such as Tylenol with codeine and Ambien. Should NRP104 obtain Schedule III or IV status, it has the potential to be a blockbuster.
Morningstar estimates that NRP104 could be a $1 billion drug by 2010. Some on Wall Street have even higher estimates, but valuing a biotech company is no easy task, especially one like New River, which has no products on the market.
You can discount forward cash flows and estimate values of pipelines all you want, but to a large degree, biotech stocks trade on news and emotion. One sell-side analyst recently wrote in a research report that New River shares are currently priced for Schedule II status. I couldn't disagree more.
If NRP104 gets Schedule III or IV, it could be a big winner. If not, it's just another player in the marketplace. It will still be profitable, but it won't transform the space. If the drug is labeled Schedule II, I believe you'll see New River's stock price crater.
Dr. Russell Scheffer, director of child and adolescent psychiatry at Children's Hospital of Wisconsin, says that if NRP104 gets the desired status, it "probably will become the No. 1 ADHD drug on the planet." However, he speculates that a Schedule II ruling would mean the drug would be just a moderate success, as doctors would likely only prescribe it to patients who appear to be at risk of abuse.
Furthermore, he is "slightly skeptical" that the drug will be placed on Schedule III or IV. Other companies, such as Novartis (NVS - news - Cramer's Take) with Focalin, have made similar attempts at using existing medications and altering them to curb abuse. Despite the safer aspect of Focalin, the DEA still classified it as Schedule II.
Morningstar analyst Brian Laegeler is also concerned about the DEA's decision. He points to the studies that showed abusers preferred large doses of NRP104 to normal doses of other stimulants.
New River's Kirk says "that's not an apples-to-apples comparison," and that is true. Still, Laegeler says, "it doesn't have to be [an apples-to-apples comparison] . If an addict prefers three NRP104 pills to one Adderall, it's still abusable." He added, "If the DEA is concerned with the broader question -- is NRP104 likable enough to be abused at any reasonable dose? -- some evidence could lead to an unfavorable scheduling status."
Kirk responds that many Schedule IV drugs "can be abused if a sufficient number of doses are consumed."
New River made a wise move in partnering with Shire, which will license and commercialize NRP104. Under the terms of their agreement, New River is eligible for up to $400 million in milestone payments, 25% of the profits on NRP104 in the U.S. for the first two years and 50% of the profits thereafter.
New River will receive a low-double-digit royalty on net sales in the rest of the world. Fidelity's Kaul believes New River, which will have its own sales team, will also be able to successfully leverage Shire's sales force.
"Shire owns this space," he says. "It has incentive to make it work."
New River has some novel products that could completely change the categories in which they operate, and a dynamic CEO whose interests are aligned with those of shareholders (he owns 56% of the shares). However, I'd wait for the stock to come in a bit in order to offset the risk of a Schedule II ruling.
Morningstar's Laegeler says fair value for the stock is $21. That's a level that makes sense to me if you want to get involved. If the stock never gets there and ends up spiking on a positive DEA ruling later in the year, I believe that would be a good harbinger for things to come. At that point, you can even pay up for the stock, because some of the risk will have been mitigated.
The company has an exciting pipeline including NRP290, a similar methodology for a nonabusable painkiller that has the potential to be even bigger than NRP104. NRP290 likely goes into phase III trials later this year.
For the foreseeable future, this story is all about NRP104 and the DEA's designation, which could come as soon as early October but likely will happen in November or December.
|
