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Thursday, November 1, 2012

Quick Comments on DURECT

By Jason Napodano, CFA

Durect Corp (NASDAQ:DRRX) got crushed at 10:43AM today thanks to some comments by Pfizer on their third quarter earnings call.

Pfizer's John Young, President & General Manager, Primary Care Business Unit, noted the following, "(Remoxy) has been a challenging asset...the company has been working diligently since the acquisition of King to answer the questions raised in the FDA's second complete response letter...Pfizer has gained insights since that time...results from a modified formulation of the drug will be available early in 2013...Pfizer hopes to meet with the FDA in March 2013 to present and discuss the data from those bioavailability and PK studies...will make a go / no-go decision after that meeting..."

So what's new compared to what Pfizer has been saying all long? Well, it looks like the time frame has slipped a little. In my REPORT I noted that the data from the BE/PK studies would be available before year end. I also was hoping that Pfizer could meet with the FDA this year. Looks like Pfizer is going back to the drawing board on those studies. However, I never assumed an NDA filing before "the first half of 2013" for the purpose of my valuation. If Pfizer can meet with the FDA in March 2013, perhaps the NDA can still be filed over the summer of 2013.

The mention of a "go / no-go" decision may have spooked some people. In the past, Pfizer has always sounded optimistic on their ability to resolve the manufacturing issues with Remoxy that caused the two complete response letters. The fact that Pfizer is now mentioning - or at least throwing out there - the potential for a "no-go" certainly raises the risk profile. Pfizer's tone has certainly changed here.

Pfizer also mentioned having another extended-release oxycodone molecule (dubbed ALO-02) in phase 3 trials. I have not done any work on ALO-02. If anyone has, please post below in the comments.

For the purpose of my valuation, I assume Remoxy launches in January 2014. Is that still realistic? Certainly, if Pfizer can file the NDA in May / June 2013. Prudence says perhaps I should move my launch time frame back six months. I doubt that will change my valuation much though. I will be providing a full update to my report after Durect reports financial results on November 5, 2012 (at 4:30PM ET).

One other thing to consider, for the purpose of my model, I used a 50% risk adjustment on Remoxy, meaning I think the drug has a 50/50 chance at approval. Based on John Young's comments today, I do not honestly see myself changing that factor. I still think Remoxy is a 50/50 toss-up. However, I think at $0.80 Durect is a good speculative investment.

Please take a look at my REPORT, which includes a sum-of-parts analysis of Durect, and includes analysis of Posidur, Eladur, Transdur-Sufentanil, Oradur, Relday, and Alzet and Lactle.

Reference: My Seeking-Alpha article on Durect on September 11, 2012 noting my initiation of coverage at $1.10 per share.

2 comments:

  1. the BE/PK studies we done several months ago (and closed) so investors can only assume that the data did not make Pfizer comfortable. I think its reasonable to assume one last ditch effort by Pfizer here but the fact they called out ALO-02 (originaly formulated by Alpharma) should be seen as a clear warning sign of what may come

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    Replies
    1. Yes, from my report in September:

      The first of these two studies was initiated in March 2012 and completed in June 2012 (Clinialtrials.gov Identifier: NCT01552850). The study designed to estimate the pharmacokinetics and relative bioavailability of oxycodone after administration of 40 mg doses of four Remoxy formulations and oxycodone in solution. The second study was also initiated in March 2012 and completed in August 2012 (Clinialtrials.gov Identifier: NCT01552863). The trial was an open-label, single-dose, 6-dosing period study to characterize the pharmacokinetics of oxycodone (process by which oxycodone is absorbed, distributed, metabolized, and eliminated by the body). Preliminary data from both trials are being analyzed by Pfizer, along with data from experiments to optimize the formulation.

      Looks like, as you said, Pfizer was not happy with the results. They are trying again with the "modified formulation" I noted above. Risk have definitely increased. Perhaps my 50/50 call is too optimistic?

      Jason

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