Is Egalet Corp (NASDAQ:EGLT) A Discount Entry On Its FDA Delay?

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One thing we love to do here at Market Exclusive is to highlight potential discount entries in the biotech space. There is so much market inefficiency based around interpretation and misinterpretation of data releases and news updates, that these discount entries crop up quite regularly, and are there for the taking with the right timing. Of course, they don’t always play out, but when they do, it is often not just the discount served up as a reward, but also any potential upside momentum derived from the catalyst behind the discount gap closing.

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Well, one such opportunity has just popped up, and it is rooted in a development stage biotech company called Egalet Corp (NASDAQ:EGLT), and its lead development asset, ARYM ER.

Returning readers will likely be aware that we covered this company at the turn of October, in anticipation of a PDUFA date slated for October 14, 2016 – today. Well, it is an update on this PDUFA that underlies our discount entry thesis.

For those that missed our initial coverage, here is a quick recap of what’s going on.

The company  submitted a new drug application (NDA) for ARYM ER back in February this year, and the agency set a PDUFA date for the drug as part of an expedited approval process. The drug in question is an opioid targeting chronic pain, and more specifically (and importantly, for the company) an abuse deterrent label. We said it last time, and we will say it again – labeling is everything in this space. There are so many generic opioids available on the market, not to mention the branded options, that bringing in a new one on the back of a very costly development program would be a terrible waste of money. An abuse deterrent label transforms what would be just another generic product into something with a unique exposure to a huge potential market. Opioid abuse is a massive problem in the US, and the government is shoveling money into attempts to curb the issue. A company that comes up with an effective option for physicians and pharmacists to dish out in place of the current alternatives is looking at targeting multi-billion dollars in revenue at the low end.

It’s not that simple, however.

The FDA has been notoriously tough when it comes to approving opioids with an abuse deterrent label. Very few, if any, have picked up the label they went in after, and while many analysts expected the agency to ease up on this a little bit during 2016, it has not.

So, getting to the latest issue, the FDA has delayed Egalet’s PDUFA (we don’t know exactly by how much, but it is generally anywhere in the range of 30 days to 90 days) based on, and here is the kicker, labeling indecision.

In our opinion, this means that those involved in the decision are of opposing opinions concerning the drug and its abuse deterrent properties. Some companies have come up with what are seemingly really elegant solutions to abuse deterrence and failed to pick up the labeling they targeted. Egalet’s solution is not elegant, it has just made its drug very hard, but we think this may be enough to get an abuse deterrent label in at least two or three of the major abuse types.

We think the agency is debating which of the abuse types to serve up on the label, rather than whether the drug is abuse deterrent. There’s a major difference between these two debates, and the former points towards a positive outcome for the company come PDUFA.

Say a drug picks up a label that says it is abuse deterrent for crushing and inhaling – that’s a big win over the current SOCs and we think physicians would flock to it as a result.

Of course, this is speculative stuff, and we don’t really know what the agency is looking at outside of the fact that it is undecided about its labeling policy. However, at a nearly 10% discount to its pre announcement price, we think Egalet is well worth looking at ahead of the delayed decision time.

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