CAPScall of the Week: Acura Pharmaceuticals


For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why I've made it a weekly tradition to examine one seldom-followed company within the Motley Fool CAPS database, and make a CAPScall of outperform or underperform on that company.

For this week's round of "Better Know a Stock," I'm going to take a closer look at Acura Pharmaceuticals .

What Acura Pharmaceuticals does
Acura Pharmaceuticals is a pharmaceutical company that specializes in developing abuse-resistant medications. It has two drugs currently on the market: its moderate-to-severe painkiller Oxecta, which was approved by the FDA in June 2011 and licensed out to Pfizer , and Nexafed, a bioequivalent that's a newer version of the decongestant pseudoephedrine.

With a Nexafed launch announced in December, it shouldn't be surprising that Acura's revenue is quite minimal. In fact, following a $20 million milestone payment from Pfizer in 2011, Acura hasn't reported a penny of revenue through the first nine months of fiscal 2012. Operating loss in its most recent quarter equaled $2.2 million, but it did end the period with $29.3 million in cash and no long-term debt.

Whom it competes against
As you might imagine, abuse-resistant medication companies face two primary hurdles: a very unforgiving Food and Drug Administration, and each other.

The FDA and its panel have been known to strike down hard on biotechnology companies because of the potential addictiveness of a drug. Zogenix , for instance, went before the FDA panel with Zohydro ER in December, its moderate-to-severe pain medication. The panel overwhelmingly voted against recommending Zohydro ER by a vote of 11-2, with one abstention, due to the potential for patient addiction. Zohydro ER's PDUFA date is set for this Friday, and I find it very unlikely that it'll gain approval from the FDA.

In addition, Acura is facing competition from its own Oxecta licensing partner, Pfizer, which has partnered up with Pain Therapeutics to develop Remoxy -- an abuse-resistant, extended-release oxycodone capsule. Remoxy incorporates abuse-resistant technology from DURECT as well, known as Oradur. DURECT is also the commercial developer of the product dating back to an agreement with Pain Therapeutics in 2002. The drug has been designed to taste badly and is resistant to being ground down, injected, or snorted; all novel ideas on paper, but that didn't stop the FDA from issuing a complete response letter to the companies in 2011 for a second time! Always remember rule No. 1 -- the FDA is very unforgiving!

The call
After carefully reviewing the prospects of Acura Pharmaceuticals, I've decided to place a CAPScall of outperform on the company.

Despite making a call to action for readers to get Acura on their watchlist just two weeks ago, I felt an even deeper dive into the company was due - and I haven't been disappointed.

Oxecta has been a good, but not great, drug for Acura. It provided ample working capital via milestone payments, but users can still abuse the drug orally, which defeats the purpose and limits its sales potential. This means that the majority of competition from Remoxy, should the drug ever reach market (they do say third time's the charm!), won't matter too much to Acura's bottom line.

The big moneymaker here could be its newly announced bioequivalent drug, Nexafed. Modeled after the nasal decongestant Sudafed, Nexafed disallows abusers to turn the active ingredient pseudoephedrine into methamphetamine. Unlike Oxecta, Acura owns all of the rights to Nexafed, which will allow it, almost immediately, to reap rewards. Given its minimal research and development costs, I suspect sales of Nexafed will make Acura profitable perhaps as early as one or two quarters from now.

Another factor that makes Acura intriguing is its healthy cash position and unique technologies. Having no debt and $29.3 million in cash while boasting two marketable drugs with proven abuse-resistant technologies is enough to make any pharmaceutical company looking for growth think long and hard about possibly purchasing Acura. With a market value currently under $100 million, that's quite doable for any mid-to-major pharmaceutical company.

While you can certainly make huge gains in biotechs like Acura, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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