Egalet Corp (NASDAQ:EGLT) had a pretty tough first couple of quarters, but the third quarter of 2016 was good to the company as sentiment shifted ahead of a major potential catalyst. The FDA accepted the company’s new drug application (NDA) for its extended release morphine product, Arymo ER, back in February, and set a PDUFA of October 14, 2016. An advisory panel has already voted overwhelmingly in favor of the drug’s approval, and with a large potential market, there’s plenty of upside potential on the stock if the agency gives its drug the nod.

Here’s what’s important ahead of decision day.

As mentioned, the drug is called Arymo ER, and it is designed to target abuse deterrent pain relief in chronic pain patients. Opioid abuse is a massive problem in the US, and a large number of companies (at both ends of the spectrum) are working to try and bring various products to market to fill the unmet need.

Egalet’s approach isn’t particularly elegant, but it’s nice and simple – the company has basically just made the tablets very hard, so they are difficult to crush, and when added to water, they turn into a sort of sticky gel, which is difficult to inject. That’s about the long and short of it. Patients can’t break it down for preparation as part of any of the most common methods (or at least would find it very difficult to) so Egalet believes it deserves abuse deterrent labeling.

One thing’s worth mentioning here.

In the abuse deterrent space, labeling is everything. Most of these drugs will have no problem getting approved – morphine is an established drug, and so long as the company doing the investigating can prove the pharmacokinetic profile, there’s no issue. Morphine is cheap, however, and available generically. There’s no value in a company bringing a new drug to an already flooded market, unless it’s got a USP.

Abuse deterrence is that USP.

In light of this, the fact that the advisory panel voted in favor of approval (18-1, for those interested) is not that much of a surprise, and not really indicative of success come PDUFA (again, success here is defined by labeling approval, not the drug’s approval). There were three other questions on the briefing document offered to the panel. These were:

1. If approved, ARYMO ER should be labeled as an abuse-deterrent product by the oral route of abuse.
2. If approved, ARYMO ER should be labeled as an abuse-deterrent product by the nasal route of abuse.
3. If approved, ARYMO ER should be labeled as an abuse-deterrent product by the intravenous route of abuse.

The panel voted as below (in favor of vs against):

1. 16 to 3
2. 18 to 1
3. 18 to 1

So, the nasal and intravenous route looks strong for an approval on that labeling. The crushing, not so strong. That’s a bit of a downside, because crushing is sort of the holy grail of this space, but it still looks pretty strong.

There is an addendum to the labeling, that will likely translate to a slightly weakened position – the panel has suggested that any approved label should reflect the fact that the drug can reduce the potential for abuse by way of the three above mentioned methods, but not eliminate it.

So that’s what we know – what’s the takeaway on this one?

The drug looks like it is going to get approved, and more importantly, it looks as though the agency is going to validate it with an abuse deterrent label. Beyond that, marketing is going to be key, and this is something the company has fallen bit short on in its other products. Cash is pretty strong, however (a little over $35 million at last count), so dilution risk is low at this stage.