Flamel Technologies (FLML) has had a string of rather good news. It recently received FDA approval for its drug Bloxiverz. What is even better is the fact that Flamel already has a rather substantial amount of income coming in for a small-cap stock. With all of this good news, there is still a large amount of upside potential left for this stock. The one main problem with Flamel Technologies is in the fact that it is hesitant to report key information about its drugs in development. This makes planning for the long term to be much more of a guessing game than usual (which is already a huge guessing game). However, this represents interesting catalysts depending on the market that is targeted by the respective drug.
Bloxiverz
Bloxiverz is a drug that is used to reverse the effects of the paralyzing drugs used during surgery. This drug is the first FDA approved version of neostigmine. This drug represents significant medium term upside potential for the stock as Flamel begins to add revenue, which should help share price. The product should be on the market very quickly, as a matter of fact according to recent press releases, Flamel is predicting a July launch of the drug.
This drug has the potential to make a rather quick impact on the financial situation at Flamel. According to the most recent conference call, the CEO had this to say about Bloxiverz:
"we expect the product to generate meaningful sales in 2013, and to have a positive impact on our financial results by the end of the year. The product is targeted for the hospital setting, and it could contribute from $25 million to $35 million in peak annual revenues for Flamel."
The drug does not have that large of a market potential. However, given the infrastructure in place it should not cost a whole lot in terms of a sales force in order to sell the drug and achieve peak sales. With this in mind it seems as though the drug should be profitable for Flamel rather quickly. Therefore, it should help to ! increase end of the year earnings, which going along with other binary events should help to substantially increase Flamel's stock price.
This drug will be important for the medium-term potential of Flamel as investors will be focused on the execution of the company's sales targets. This drug will be a large test for Flamel to see how effectively the company can construct a sales force and to see whether or not the company will end up living up to its sales expectations. However, with the focus on the long term the drug will provide some revenues; but other drugs in the pipeline have the potential to provide a much more substantial chunk of Flamel's overall revenue projections than Bloxiverz.
Mystery Product
According to the recent conference call there was another product for which an NDA was submitted in the first quarter. Flamel later received a refuse to file notice, and learned that it was going to have to change the way in which some of its databases were compiled. Flamel has represented the change as a rather quick change, and if it truly is a quick change, than investors could be set up for some very important short to mid term catalysts.
As investors get closer to the PDUFA date for this undisclosed product, investors should get a much better idea of what the product is as well as the market potential for the product. It is very annoying for investors to not know the product because Flamel thinks it should hold back that information for 'competitive reasons.' Investing in a mystery drug like this is definitely not for a risk adverse investor and instead an investor should have extreme caution and conduct their own due diligence before investing in any such drug.
With that being said, the drug has the potential to help drive long-term shareholder growth. Considering the fact that the market does not yet know what the drug is, they have not adequately compensated for it in terms of Flamel's market cap. As more clarity comes as to what the drug is and the market poten! tial for ! the drug, the market cap should similarly move up. The catalysts for this drug would be the timely filing of the NDA which occurred on July 1st, the PDUFA date and if it is approved, the commercial milestones. Keep in mind, however, that since it is an eclat product (Flamel acquired Eclat in 2012), that Flamel will have to pay 20% of the gross profit on the drug to former Eclat shareholders. Flamel also mentions that it has another Eclat product that is approaching the timeline for filing an NDA in late 2013 or early 2014. Both of these mystery products have the potential to provide significant revenue for shareholders and to provide long-term growth opportunities.
Even more mystery products down the road
Unfortunately, the company has not shared a large amount of information regarding its pharmaceutical products with investors. However, a recent comment from the conference call would suggest that there are even more NDA filings to come in late 2013 or early 2014.
"Moreover, we anticipate the potential filing of additional NDAs from the Éclat pipeline in 2013 or very early 2014.
With regards to our specific market strategy and therapeutic focus of these products, we will not discuss specifics at this point for the previously mentioned competitive reasons. However, as we received product approvals or product acceptances from the FDA, we'll communicate more specifics proactively with investors.
For now, I am comfortable telling you that we have more than a dozen molecules on our near-term and mid-term pipelines in various stages of R&D completion and development, including several approaching the clinic. Those products cover a gamut of therapeutic categories, including CNS, Hepatitis C, heart disease, pain management and others."
The market opportunities in the markets mentioned are obviously very large. The problem is that Flamel would be competing with some of the largest pharmaceutical companies in the world. As these products get approved, I wou! ld look f! or Flamel to sign on pharmaceutical partners who will help to successfully market the drugs. Flamel already has some partnerships for its product pipeline, but once again investors are not sure which products are partnered, nor are investors remotely sure about the market potential of the partnered products. Flamel does seem to have a rather large pipeline available to investors and it could represent a significantly undervalued asset. The non-disclosure of elements of its pipeline could represent significant upside for investors once these products are ultimately approved. As mentioned in the conference call, the company will disclose information as it is appropriate to do so after FDA approval. This means that a lot of the value of the pipeline has not currently been taken into account at Flamel, and could help any long-term oriented investor to see significant gains over the next few years.
Financial Position
Flamel is a company that is already generating rather substantial revenue. Primarily, their revenue is from a licensing deal with GlaxoSmithKline (GSK) in which Flamel provides Glaxo with a product called Coreg CR and also receives a royalty on Glaxo's sales of Coreg CR. According to their most recent quarterly filing, Flamel received $2.1 million in product sales to Glaxo and another $1.8 million in royalty income from Glaxo.
Another source of revenue for the company is currently the myriad of licensing deals that Flamel has with various partners. For the most recent quarter, Flamel received $1.3 million in licensing revenue. This revenue is also rather large in helping to offset Flamel's net loss due to the fact that the licensing revenue comes at little to no cost to Flamel.
Flamel's net loss for the quarter was impacted by a $2 million NDA fee, in accordance with its NDA filing. As mentioned above, Flamel received a refuse to file notice where the FDA asked for the company to reformat some data.
From the press release announcing the quarterly results we can gain! some ins! ight as to how Flamel is doing financially:
"Net loss and loss per share (basic and diluted) for the first quarter of 2013, excluding the impact of the re-measurement of the fair value of acquisition liabilities, was $5.9 million and $0.23"
Flamel ended the quarter with $15.4 million in cash and cash equivalents. It appears as though the cash should roughly be enough to at least last into 2014. By that time, investors will have a better idea of the potential product pipeline and it appears as though Flamel may file some more NDAs with the FDA by that point in time. For long term oriented investors, the risk of dilution still exists, however, the pipeline and the recent drug approval should help to start providing a share price cushion which will limit possible downside in the stock.
Conclusion
While Flamel is playing many of its cards close to the vest in regards to what the drug treats, and in regards to the market potential of some of its approved drugs; there is the potential for significant upside in Flamel stock. Flamel has created a situation where the general market is not aware of the value of Flamel's pipeline and as such investors could benefit as more details are released regarding Flamel's partnered and non-partnered products. With the resubmission of the second NDA which occurred in early July, Flamel has created a series of significant binary events which could play out well for long-term investors. With even more NDA filings possible later on in the year, this stock is very interesting for long-term investors and has the potential to provide asymmetrical upside.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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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