Will Acura Pharmaceuticals Bring Relief to Investors?

Acura Pharmaceuticals ACUR is a small pharmaceutical company that develops pain relief drugs. Its flagship medication is OXECTA, a pain relief drug developed in collaboration with Pfizer. As a result of the agreement, Acura is entitled to receive royalties of 5-25% on OXECTA sales. While the company has yet to begin receiving these payments, it plans on generating revenue sometime in 2012, as they commence on the first anniversary of the first commercial sale. The drug also utilizes technology that helps to deter addicts from using it for non-medical purposes. One of these technologies is called AVERSION, which utilizes polymers that gel the drug when it's dissolved in water. The other technology is called IMPEDE which uses compounds that irritate the nose when the drug is sniffed. "We are excited that Pfizer is advancing the commercialization of OXECTA, a product using Acura's AVERSION technology," said Bob Jones, CEO of Acura. "We are committed to maximizing our AVERSION and IMPEDE technology platforms to develop effective medications that address physician and public safety concerns about potential misuse." The company was also able to obtain a patent for the AVERSION system, which describes the technology as "methods and compositions for deterring abuse of drugs susceptible to abuse and dosage forms thereof". "This patent broadens Acura's already strong intellectual property estate," added Jones. "Our deterrent products have the potential to mitigate abuse risk and provide another tool to combat serious health issues associated with the abuse and misuse of oxycodone and other drugs." The company is also developing a new formulation based on the IMPEDE technology called Nexafed. The nasal congestion medication utilizes IMPEDE to prevent the drug from being transformed into methamphetamine. Nexafed testing showed that IMPEDE helped to block any attempted extraction of pseudoephedrine. "Nexafed has the potential to help address the widespread problem of illicit methamphetamine and abuse," said Albert Brzeczko, Acura's VP of technical affairs. OXECTA had previously faced several hurdles in the approval process. Acura received a CRL for the drug in July 2009, as the agency forecasted issues with its abuse deterrent properties. A 2010 FDA committee voted against OXECTA's approval, as it had concerns over the inclusion if niacin as an abuse deterrent. Acura proceeded to resubmit the NDA in early 2011 without the niacin component, instead relying on the AVERSION and IMPEDE technologies. Acura Pharmaceuticals share price has stabilized in the $3 range since receiving FDA approval. Given that the company has yet to receive royalty payments from Pfizer, the company could see significant revenue growth once it does. ACTION ITEMS:

Bullish:
If you believe that OXECTA sales will generate substantial revenue for Acura, you should consider the following trades:

• Purchase shares of Acura. While shares have settled in the $3 price, it has traded up to nearly $7 at one point in the past year, suggesting there is some upside if the company captures significant royalties from Pfizer.

• Purchase call options in Acura. Options are available for July 2012 and Acura could begin to receive its initial royalty payments before then.

Bearish:
If you think OXECTA will not succeed, you should consider these positions:

• Sell short shares of Acura. The company does not have any drugs in late stage development and could see downside if OXECTA does not sell well.

• Consider put options. If Acura has not received royalty payments by the summer of 2012, it could be a signal that Pfizer is not devoting many resources to OXECTA's marketing campaign and sales of the drug could suffer.

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