Endo International plc (NASDAQ:ENDP) just announced that the FDA would not meet its planned PDUFA for one of the company’s lead development candidates, Opana ER, initially scheduled for July 2016. According to the company, the delay derives from the last minute scheduling of an independent advisory meeting – set to take place come fall this year. Given the situation across the last six months, specifically Endo’s year to date share price performance, a PDUFA delay is the last thing the company (and its shareholders) needed. It’s happened, however, and perhaps unsurprisingly, the company is down a few percentage points as a result. With Endo currently trading for a 72% discount on its 2016 open, the company is long overdue a boost. The July PDUFA looked set to potentially offer this boost, but it now looks as though the company is set for a pretty flat third quarter. With this said, is there an opportunity to get in ahead of the review panel this fall? Let’s take a look at the drug in question to see what’s on the cards.

So, the drug is, as mentioned, Opana ER. It’s already approved in a pain management indication, specifically in patients where alternative pain management treatments (opioid based) are not effective. It’s an opioid treatment itself, designed as an extender release (the ER in the name) option. The problem with extended release opioids is they are very easy to overdose on. Why? Because patients can take them, not experience the pain relief they expect (as the ER element means the drug can take a while to reach maximum efficacy) and take more as a result. The drug targets severe, round the clock managed pain, so this sort of overdose risk is very real.

It’s also open to abuse. Opioid abuse is at epidemic levels in the US, and costs the government billions of dollars each year in healthcare costs. A number of companies are working to bring abuse deterrent opioids to market in an attempt to take advantage of this epidemic (in the sense that they are trying to offset some of the government’s costs and – in doing so – direct some of the opioid revenue towards their own balance sheet).

This is where the Opana ER application comes in to play. It’s an sNDA on the current approval. For those not familiar with this term, the S in this abbreviation stands for supplemental, and it is essentially an application for an extension on the current approved indication or labelling.  In this instance, Endo is targeting an abuse deterrent labeling by altering its Opana ER offering to include a technology called INTAC. INTAC was designed and developed by Grunenthal, a family owned German pharma company, and it essentially makes drugs harder to crush by providing a hard outer coating.

So, what’s the upside if we get a decent outcome from the review panel? Well, if the panel gives the Opana sNDA a thumbs up, it would bode well for a revised agency review, which will likely come towards the end of the year. Abuse deterrent opioids are big business, and in a chronic administration indication (as is targeted with the sNDA), could easily be a billion-dollar market for Endo. There’s also the potential for extended application beyond the Opana sNDA. Opana is just one of a number of pain management approved therapies offered by Endo, and if the company can demonstrate to the FDA that the tech fits with its portfolio, we could see further applications across the next 24 months.

With this in mind, there’s plenty of potential upside on a decent outcome – upside that could offer up some reprieve on the above mentioned losses. 10-15% upside if the panel gives the drug the nod, and up to 20% on an FDA green light, is far from unrealistic.

The risks here are primarily rooted in the company’s generic portfolio. Endo generates a large portion of its revenues (just shy of $600 million during the first quarter of 2016) in the US from its generic offerings. As the negative sentiment surrounding Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is illustrative of right now, the generic US market is extremely tight at the moment, and margins are thinning out further as time passes. As such Endo needs approvals like this one to boost its branded operations and reduce its reliance on the tightening generic space. If it doesn’t get a green light, markets will likely sell off on the hit. A slow burner with the latest delay, and a heavily sold off on stock, but one to watch as the year matures as a potential rebound allocation.