|Wednesday, 08 May 2013 00:33|
Imprimis Pharmaceuticals, Inc. (NASDAQ: IMMY) has seen its stock rise from about $5.25 per share in February at the time of the NASDAQ listing to around $9 per share and is one of the best performing stocks in the biotech industry this year.
Despite this impressive move we believe Imprimis is just getting started and is still undervalued with a market cap of only $80 million. Imprimis’ founders have put the pieces in place for the company to become a large pharmaceutical company in a relatively short period of time. Imprimis currently has catalysts that will add substantial value this year and for many more years to follow.
Imprimis was founded in 2011 when Mark L. Baum, CEO and Co-Founder rescued the predecessor company, Transdel Pharmaceuticals, from Chapter 11 bankruptcy. Within the rescue were two assets, Accudel, a topical drug delivery platform and Impracor, a ketoprofen-based topical drug based on the Accudel delivery technology. From there Mr. Baum and Robert J. Kammer, Chairman of the Board and Co-Founder restructured the company and added strategic relationships, a strong management team and world class medical development and advisory teams that already have proven valuable to the company.Today Imprimis is a unique pharmaceutical company focused on bringing drug candidates to market exclusively through the FDA’s 505(b)(2) pathway. Furthermore, Imprimis has approximately $19 million in cash, based on the closing of its most recent financing, exclusive access to a library of over 10,000 drug formulations, most of which qualify for the 505(b)(2) pathway, and a large market drug entering its Phase III clinical trial. Mr. Baum and his team have positioned Imprimis for near-term and long-term success.
FDA 505(b)(2) PathwayThe 505(b)(2) pathway to FDA drug approval differs greatly from the normally utilized 505(b)(1) approval pathway. The 505(b)(1) pathway, generally used for new chemical entities, generally requires pre-clinical trials, Phase I, Phase II and Phase III clinical trials that are extremely expensive and take many years to complete and carries a high risk of failure. 505(b)(2) is a path to FDA approval for new drug formulations of previously approved products. 505(b)(2) is a New Drug Application (NDA) that contains full safety and efficacy reports from clinical trials, but allows, “at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.” The 505(b)(2) pathway usually requires fewer pre-clinical and clinical trials greatly reducing the time from development to FDA approval and substantially mitigating costs. After approval the may FDA grants the 505(b)(2) product developers product exclusivity for 3 to 7 years.
PCCA Relationship/Drug Discovery Platform
In August of 2012 Imprimis formed an exclusive development alliance with Professional Compounding Centers of America (PCCA). At that time PCCA invested $4 million in Imprimis at $4.80/share and now owns 9.4% of the company. With over 3,900 member pharmacies, PCCA is the largest supplier to the compounding pharmacy industry in North America. PCCA supplies chemicals and other mission critical supplies to compounding pharmacies and has a staff of over 30 pharmacists, chemists and Ph.D.’s who develop drug formulations and teach compounders how to make these formulations. PCCA has compiled a library of more than 10,000 compounded drug formulations. Through their exclusive relationship, Imprimis has right of first refusal on the commercial development of any of the prescription drug product opportunities from PCCA.
In addition to compiling the drug formulation library, PCCA has compiled a database of market needs on their formulations through information gathered by its support center which receives over 100,000 calls a year from PCCA members. Empirical data is collected regarding these formulation efficacy and users of these formulations; this data provides insights regarding the market need for the formulation, as well as patient and prescriber clinical experience with the formulation. This is an important part of the relationship, as Imprimis will have anecdotal information about the formulation’s efficacy, side effects, and the market need for these drugs from a group of people who actually use the product prior to Imprimis making a decision to pursue commercialization of a formulation target.
Imprimis has prepared a protocol to evaluate the drug candidates in PCCA’s library to determine which candidates it should bring to market first. The formulations and data provided by PCCA give Imprimis a unique advantage over traditional pharmaceutical companies and greatly reduces the risk and cost of drug development. Additionally, since the drug targets use previously approved drugs in the formulations, Imprimis utilizes the 505(b)(2) pathway to achieve faster and lower cost FDA approvals. The value of this relationship is nearly priceless when it is understood that the formulation library could yield several large market drugs in the next few years. Imprimis expects to identify the first product development candidates from PCCA’s library in the 3rd quarter of 2013.
Accudel Drug Delivery Platform
Accudel is a cream that carries drugs through the skin allowing the drug to penetrate to the problem site. Accudel can accommodate large and small molecule drugs for topical delivery. The cream quickly absorbs, has a neutral smell and is aesthetically pleasing. Accudel has shown that it delivers a majority of the drug for release within 4 hours in tests using ketoprofen. Accudel is a large part of Imprimis’ business plan as a delivery vehicle for current FDA approved drugs and utilizing the PCCA library.
Imprimis’ lead drug candidate is Impracor. Impracor utilizes the company’s patented Accudel topical cream technology for topical delivery of ketoprofen, a non-steroidal anti-inflammatory drug (NSAID), for sprains strains and joint pain. Imprimis expects to begin enrolling patients in the Phase III trial in the 3rd quarter of 2013. If approved, Impracor would be the first FDA approved topical ketoprofen product and the first topical COX-1 API in the United States. Impracor could realign the NSAID marketplace in the U.S. from an oral dominated market towards a topical delivery market similar to trends in Europe. In Europe most of the topical NSAID market is ketoprofen-based, and ketoprofen is the only topical NSAID authorized for the treatment of acute lower back pain in Europe.
Imprimis’ predecessor company conducted a Phase III trial for Impracor, which failed and ultimately lead to the company’s bankruptcy. Mr. Baum and his team looked closely at the results and determined there were mistakes in the design and management of the trial. One example was that patients in the trial were not screened for recreational drug use, which can interfere with the results of the trial. Out of the 361 trial participants, 30 tested positive for recreational drugs negatively skewing the trial results. In addition there were other protocol violations. According to Mr. Baum, if those who violated the protocol had been excluded, the trial would have achieved statistical significance. The in-depth analysis conducted by the new management gave them confidence they have a strong chance of getting Impracor FDA approved with two stringently controlled Phase III clinical trials.
In 2009 the global NSAID market was over $9 billion according to the Archives of Internal Medicine. More than 60 million people in the U.S., of which 70% are over the age of 65, are regularly taking NDAID’s. The market for topical NSAID’s is growing rapidly with only a handful of products available (Voltaren Gel, Pennsaid, Flector Patch, Solaraze). The FDA approved the first of the topical NSAID products in 2007, so this is a new class of drugs in the U.S. All of the current topical NSAID products are diclofenac based and all have their own issues. Voltaren Gel is the most prescribed product of this group with about 75% of the U.S. topical market. The issue with Voltaren Gel is that it is greasy, has a strong smell and requires the user to apply 4 grams of the Gel to the affected body part 4 times per day. We believe Voltaren does not provide users with a positive experience. Impracor is a cream based product that absorbs nicely into the skin, has a neutral smell and an easier dosage regimen. The article “Topical NSAIDs for Acute Pain in Adults” by Massey, T., Derry, S., Moore, R.A., McQuay, H.J., states; “proportion of participants experiencing successful treatment with topical ketoprofen in seven clinical studies was 73% (251/346, range 57% to 89%), while the proportion of participants experiencing successful treatment with topical diclofenac in three clinical studies was 52% (166/319, range 39% to 92%).” This suggests ketoprofen may have better effectiveness than diclofenac for treating acute pain.
NSAID’s are widely used for their analgesic and anti-inflammatory effects making them a necessary choice for pain management. Oral NSAID’s have well documented adverse effects including liver and kidney injury, as well as, cardiovascular events and potentially severe gastrointestinal problems according to the article “An Evidence-Based Update on Non-steroidal Anti-Inflammatory Drugs” (http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1855338/). According to the American Journal of Medicine oral NSAID’s are responsible for over 100,000 gastrointestinal bleeding hospitalizations and more than 16,000 deaths per year leading to hospitalization costs of $2 billion a year. Topical delivery of NSAID’s address the many health related concerns of orally administered NSAID’s.
There are several risks for investors to be aware of in considering an investment in Imprimis. First, as with all drug development companies, there is inherent risk in drug discovery, the clinical trials and gaining FDA approval. Although Imprimis has mitigated much of this risk through their relationship with PCCA and the experience of its development team, there is always the possibility one of their chosen targets does not receive FDA approval. Another risk that could significantly damage the company is if they lose their partnership with PCCA. We do not foresee this occurring as PCCA has a significant investment and has a strong relationship with Imprimis, including the service of a senior PCCA employee and shareholder on the Imprimis Board of Directors.
Since Imprimis is a relatively new company, we do not think it has been fully valued by the market. When looking at similar companies in Imprimis’ market, Imprimis is not far behind the pace of others. For example, AcelRX Pharmaceuticals, Inc. (NASDAQ: ACRX) is a company that focuses on acute pain therapies, has a product in phase III, one in Phase II and several products behind them, is valued at a market cap of around $216 million with about $60 million in cash. If we back out the cash the value of ACRX is about $156 million. Another company to look at is Pain Therapeutics Inc. (NASDAQ: PTIE) a company that has a lead candidate called REMOXY, which is in Phase III trials. PTIE has a $400 million alliance with Pfizer, Inc. (NYSE: PFE) to develop and commercialize REMOXY and three other abuse-deterrent opioid painkillers. REMOXY is in Phase III and they have two other candidates in Phase I. PTIE has a market cap of nearly $200 million and cash of $54 million according to YAHOO Finance. If we back out the cash the value of PTIE is about $146 million. Imprimis has a market cap of about $79 million as of the market close on May 2, 2013 and about $19 million of cash, so the non-cash value of Imprimis is about $60 million. As Imprimis begins their Phase III clinical trial in the third quarter and identifies their first new drug candidates from the PCCA library, also in the third quarter, Imprimis should see their valuation increase to closer to the comps non-cash values of about $150 million. This would suggest 150% growth in the stock price over the next 12 months is not out of the question for Imprimis.
Imprimis has put in place a strong management team, a Phase III large market drug candidate and a platform with a library of 10,000 drug formulations to quickly and cost effectively bring new drugs to market. Imprimis will not just have 3 or 4 drugs in their pipeline, in a few of years they could have 10 to 15 identified drug candidates. Imprimis could also out-license several of these candidates for development to further utilize the PCCA library, which could bring in significant upfront licensing fees, which in turn, could be used to fund internally developed formulations. Imprimis has been built to achieve success quickly and their valuation does not yet tell the full story of this company. Imprimis has been a big mover this year, but the company is just getting started and there should be plenty of upside for current and new investors.