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Egalet: FDA Approval Boost On The Way?
Oct. 7, 2016 12:13 PM ET|
About: Egalet Ltd. (EGLT)
Bret Jensen
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Summary

Next week ARYMO ER, an abuse deterrent pain management compound from Egalet hopes to get the green light from the FDA for approval.

Based on an overwhelming vote to recommend it for approval by its Ad Comm Panel in early August, chances are excellent that the compound will be approved.

We take a look at what this could mean for both the company and for its stock below.

"There is no security on this earth; there is only opportunity." Douglas MacArthur

Image result for douglas macarthur

Note: The Biotech Forum is having a Columbus Day Weekend promotion and is enabling free two week trials into the #2 most subscribed service of the 70 on the Marketplace until midnight EST on Monday.

It is nice to see the sun again down here in Miami as we luckily avoided the brunt of Hurricane Matthew. Our thoughts are with our fellow Floridians up north who unfortunately were not as lucky.

As we head into the weekend, I would like to offer up an idea on a small biopharma stock that has an important date with the FDA a week from today. Investors looking for an investable idea in this space should consider the following thesis which recently was published as exclusive content for Biotech Forum subscribers.

Company Overview:

Egalet Corporation (NASDAQ:EGLT) is a pharmaceutical company specializing in pain treatments that deter physical abuse and chemical manipulation. The company was founded in 2010 and came public early in 2014. The stock currently has a market capitalization of approximately $175 million and is currently selling at just under $7 a share currently.

Egalet is taking advantage of an intriguing opportunity to enter existing markets by providing abuse-deterrent formulations of a couple of the most effective pain relief medications on the market today (MS Contin and IR Morphine). By addressing a 2011 call to action from the FDA, the company is also tapping into a significant need for treatment options that help deter potential abuse, while also satisfying existing market demands for effective pain relievers. Opioid addiction and deaths from over doses have exploded in recent years and have even become a campaign issue in many states.

Pipeline:

On August 4, 2016, an FDA advisory panel gave ARYMO ER impressive support to be labeled as an abuse deterrent product. ARYMO ER was developed using Egalet's proprietary Guardian™ Technology for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate

To be more specific the Ad Comm panel recommended ARYMO ER for approval by a 18 to 1 vote. The panel also voted that the drug be recommended with the important "abuse deterrent" in a 16 to 3 vote for oral ingestion. The panel did same for the nasal & IV paths by a 18 to 1 vote. With this positive sign still fresh in the rear view mirror and with a PDUFA date for ARYMO ER coming up on October 14, 2016, Egalet is ripe for a closer look.

Pipeline:

Egalet has two pain products on the market today which are bringing in increasing amounts of revenue. SPRIX Nasal Spray is a non-steroidal anti-inflammatory drug for adults with short term pain. OXAYDO (launched in September 2015) is an immediate-release oxycodone product designed to discourage abuse via snorting for patients that require daily or extended use for chronic moderate to chronic severe pain.

Additionally, Egalet has two late stage candidates which leverage a proprietary technology, Guardian™ , to prevent abuse of its products. Abusers swallow, snort, smoke, or dissolve medications in liquid in order to inject it for a more immediate effect. Tablets produced using Egalet's Guardian Technology have physical and chemical properties that are intended to minimize the potential for these forms of abuse. ARYMO ER is an abuse deterrent formulation of morphine, and Egalet-002, which is currently in Phase III trials, is an abuse deterrent formulation of oxycodone.

Late Stage Therapies

ARYMO ER

What it Does: ARYMO ER is an abuse deterrent morphine sulfate compound for the management of pain severe enough to require daily long term treatment.

Key Differentiator(s):

· A convenient extended-release oral formulation

· A safer, abuse resistant improvement over existing products

· Able to reuse existing sales force which is already actively promoting other current products to 11,500 physicians

Phase / Status / Expected Launch: PDUFA date is October 14, 2016, if approved, the company plans to begin actively promoting ARYMO in early Q1 of next year.

Expected Market: In 2013, 259 million Opioid analgesics prescriptions were written and more specifically, in 2015, 6.4 million extended-release morphine prescriptions were written.

Other Considerations:

· The August 4 FDA advisory panel approval to be labeled as an abuse deterrent product is based on trial results where Egalet compared ARYMO ER with market leaders MS Contin and IR Morphine and showed that in comparison, ARYMO ER was more tamper proof, had lower likeability (a key indicator of the potential for abuse), and had lower pharmacokinetic evaluation scores (longer lasting drug effects with lower potential for abuse).

· Approval increases the likelihood of the potential for a possible buyout, specifically by the existing drug companies that would be threatened by this new product.

· A competitor REMOXY is seeking approval on September 25th, but some flaws in the design of this candidate's trial has been mentioned in recent coverage.

EGALET 002

What it Does: Like ARYMO, it is an abuse-deterrent, extended-release, oral formulation of an existing pain therapy (oxycodone).

Key Differentiator(s): It is a safer, abuse resistant improvement over existing products.

Phase / Status / Expected Launch: In Phase III trials, with the potential to file an NDA late in 2016 or early 2017.

Expected Market: Since its introduction in 1996, Purdue has earned more than $31 billion from OxyContin (its version of Oxycodone)

Early Stage Therapies

Egalet's future growth plans are focused on developing different classes of pharmaceutical products on the Guardian™ Technology abuse deterrent platform. These include Egalet-004, an abuse deterrent version of hydrocodone, and Egalet-003, an abuse deterrent stimulant.

Balance Sheet:

As of June 30, 2016 the company had cash and marketable securities totaling $103.7 million. Egalet burned through some $24 million in the quarter as it ramped up its sales force and R&D expenses rose to support two late stage drug candidates. The company has enough cash on hand to continue to fund its pipeline into the commercialization stage of ARYMO ER. It also has a loan agreement/facility with Hercules in place.

Outlook:

One investment analyst recently expressed support for the stock indicating, "Now that we know ARYMO ER is almost assuredly going to be approved by the FDA, I believe Egalet Corporation's current market valuation of $200 million is very undervalued."

Cantor Fitzgerald analyst reiterated a Buy rating on Egalet on August 4th and again on September 8th with a price target of $21. "We believe that Arymo is a superior product to Pfizer's Embeda, which does some 9,000 scripts per month."

Beyond its existing product sales and collaboration/expansion plans with Acura Pharmaceuticals, Inc. to commercialize OXAYDO tablets internationally, Egalet's future is focused on desired products in already strong markets. All the signs are so far positive that their upcoming PDUFA date will result in approval. Should the product be approved, the company may be well positioned to sell Doctors (through existing relationships) on the merits of prescribing the abuse deterrent version of Morphine. FDA approval of this product will therefore should either result in significant sales revenue, or a possible takeover by existing product owners who will see these developments as a threat, and either way it is likely going to be good for investors in Eaglet.

Before the bear market hit the biotech and biotech sectors last summer, the shares of Egalet sold for north of $15.00 a share. If sentiment continues to improve on the sector, ARYMO ER is approved by the FDA as expected and commercialization efforts go smooth I believe the stock can claw its way back up to those levels over the next 12-24 months, a more than solid return scenario.

hank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum

Disclosure: I am/we are long EGLT.

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.