Market Overview

Acura Pharmaceuticals Soars for a Second Day; A Comprehensive Look at the Stock

Acura Pharmaceuticals Soars for a Second Day; A Comprehensive Look at the Stock

Shares of small-cap biotech company Acura Pharmaceuticals (NASDAQ: ACUR) soared once again on Tuesday after a massive rally in the name during Monday's trading session. The stock surged 42 percent and closed the day at $3.49. Acura opened the session at $2.49 and traded all the way up to $4.50 at one point in the morning.

The stock has now gained an incredible 140 percent during the first two days of the trading week. The move coincided with massive volume as over 10 million shares traded on Tuesday compared to a 3-month daily average of roughly 133,000 shares.

The catalyst for the huge surge in the stock was a press release from Monday morning announcing the company's launch of a new cold medicine called Nexafed which is an abuse-resistant form of Sudafed. The over-the-counter medication is a decongestant containing pseudoephedrine and is designed to make it more difficult to use in the manufacture of the illegal street drug crystal methamphetamine.

According to the company, Nexafed contains ingredients that turn it into a thick gel when drug manufacturers attempt to extract the pseudoephedrine from it. Acura claims that the medication delivers the same cold and congestion relief as similar versions of pseudoephedrine.

Crystal methamphetamine abuse has reached near epidemic proportions in some parts of the country and the drug has garnered intense scrutiny from the media and law enforcement over the last decade. Crystal meth, which has hit rural areas especially hard, is often cooked in homemade laboratories. The process is particularly dangerous due to the volatile ingredients that are required for its manufacture.

The problem has become so bad that legislation has been passed to track the sale of over-the-counter cold medications that contain pseudoephedrine. Limits on the number of boxes of Sudafed and other similar products that an individual customer can purchase have also been enacted. Acura claims that Nexafed will have the same efficacy as other versions of cold medicines that contain pseudoephedrine and will cost a similar amount.

The development of this product has certainly caught the attention of investors and could be a breakthrough in the methamphetamine epidemic. Of course, however, the catch is that people who are purchasing cold medication in order to manufacture crystal meth will obviously simply avoid the product.

Nevertheless, Nexafed would appear to be an attractive alternative for retailers who are located in areas that have been hit hard by methamphetamine. "The launch of Nexafed® is a significant milestone for Acura and in the continued fight against meth in the U.S.," said Robert B. Jones, president and chief executive officer of Acura Pharmaceuticals.

"Acura is highly committed to addressing the needs of local communities by investing in the development of abuse-deterrent technologies and medicines. It's not about innovating once, but continuing to improve on the technology without compromising efficacy," Jones added.

The technology behind Nexafed is known as Impede and is a unique polymer matrix that disrupts the extraction and conversion of pseudoephedrine into methamphetamine. The company said that the product is now available to national and regional drug wholesalers and will be available in pharmacies soon.

Tests conducted by an independent research organization on behalf of Acura showed that in the two methods of methamphetamine production that require pseudoehepdrine extraction prior to conversion, the pseudoephedrine could not be extracted from Nexafed at all. Using the so-called "one pot" technique which does not rely on direct conversion and is most frequently used in home labs, tests showed that the yield of meth from the pseudoephedrine contained in Nexafed was roughly half of Sudafed.

The company's press release cited market research that it had conducted which showed that 70 percent of pharmacists surveyed said that they were likely to stock or recommend stocking Nexafed in their pharmacies. The market survey also showed that the pharmacists polled indicated that they would be willing to recommend the product to more than 50 percent of their customers who asked for advice about a single ingredient decongestant like Nexafed.

At current levels, Acura remains firmly entrenched in the small-cap space with a market cap of $160 million. The massive move in the stock this week, however, certainly suggests that investors are interpreting the launch of Nexafed as a game changer for the company.

Prior to Monday, shares had been in a downtrend for much of the year with steep declines accelerating over the Summer. The two-day rally in the stock, however, has sent Acura back to levels last seen near the beginning of 2012. In fact, the intra-day high on Tuesday of $4.50 represented a new 52-week high in the name before the stock fell $1.01 from that level and closed at $3.49.

Going forward, it is likely that Acura will remain volatile throughout the week. Currently, the technical picture for ACUR has changed 180 degrees. The stock has sliced through all of its near-term resistance levels including downward trend-lines and moving averages.

Acura is now trading more than 130 percent above its 20-day moving average, 125 percent above its 50-day moving average and 39 percent above its 200-day moving average. The relative strength index (RSI) reading for Acura has also soared to 81.65.

Given the magnitude of the move in the name, the stock may be vulnerable to a large sell-off in the near-term. The volatility of the stock right now makes it extremely risky, but it also signals potential opportunity on both the long and short side.

Tuesday's intra-day range between $2.49 and $4.50 underscores just how much activity is taking place in Acura in the wake of Nexafed's launch. A logical potential entry point for investors who are interested in playing Acura from the long side could develop if the stock pulls back to its 200-day moving average.

A look at the long-term chart of the company reveals that Acura used to be a significantly more valuable biotech firm. Between the late 1980s and mid-1990s shares rarely traded below $20.00 and spent a considerable time above $60.00. In 1993, ACUR briefly traded above $100.00.

While the company's history has essentially no bearing on its future outlook, like many biotechs, ACUR certainly has had its fair share of enormous rallies and steep sell-offs. The last big spike in the share price occurred in 2007 when ACUR went from around $8.00 to just under $25.00 in the course of a month.

Although the two-day price movement in the stock this week may appear extreme, these types of rallies are actually quite common in the small-cap biotech space. Frequently, stocks will go to levels that may have seemed unthinkable, before crashing back to Earth. In any event, it will be interesting to see how Acura's most recent moment in the spotlight will play out.

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