Last year, the Pentagon led a revolt against the FDA’s delay in approving a freeze-dried plasma product that they thought would be critical to soldiers in combat. The Pentagon passed a bill allowing them to use unapproved products under certain circumstances – or, in other words, to create a parallel FDA within the defense establishment. After months of haggling, the two parties – the Pentagon and the FDA- agreed to a truce which announced “new steps aimed at expediting the approval of medical devices and drugs for use on the battlefield.” One of these steps include that, if the defense secretary asks for it, the FDA “shall take action to expedite the development and review of an applicable application” for relevant medical products.
AcelRX Pharmaceutical’s (ACRX) drug Dsuvia falls smack in the middle of this zone of controversy. Dsuvia is an injectible device pre-filled with the powerful opioid sufentanil, which is a fentanyl derivative 5 to 10 times more potent than the parent drug, and 500 times more potent than morphine. The drug is currently used in an IV form as a short duration but very strong pain relief. The IV form does not lend itself to extensive abuse, but it has limitations – neither a soldier on battlefield nor a patient at home can self-administer it. A pre-filled syringe is the perfect solution- it helps self-administer the drug, and it deters abuse.
While Dsuvia has extensive civil uses – the company pegs the potential at $1.1bn – Dsuvia will also benefit the military by providing emergency pain relief to soldiers in battle. Indeed, the DoD holds the drug important enough that it has paid the company $20mn to assist with the drug’s development. In effect, the DoD is a sponsor of the drug, and as the recent Pentagon-FDA debacle has showed, they can be a very powerful sponsor.
The DoD contract goes as follows, following the 10-K:
“On May 11, 2015, we entered into an award contract (referred to as the DoD Contract) supported by the Clinical and Rehabilitative Medicine Research Program, or CRMRP, of the United States Army Medical Research and Materiel Command, or USAMRMC, within the U.S. Department of Defense, or the DoD, in which the DoD agreed to provide up to $17.0 million to support the development of DSUVIA. Under the terms of the DoD Contract, the DoD reimbursed us for costs incurred for development, manufacturing, regulatory and clinical costs outlined in the DoD Contract, including reimbursement for certain personnel and overhead expenses. The period of performance under the DoD Contract began on May 11, 2015. The DoD Contract gives the DoD the option to extend the term and provide additional funding. On March 2, 2016, the DoD Contract was amended to approve enrollment of additional patients in the SAP302 study, approve the addition of the SAP303 study, and extend the DoD Contract period of performance by four months from November 10, 2016 to March 9, 2017, to accommodate the increased SAP302 patient enrollment and the SAP303 study. The costs for these changes were included within the current DoD Contract value. On March 9, 2017, the DoD Contract was amended to incorporate additional activities including the development and testing of packaging changes; and additional stability testing. The amendment also extended the DoD Contract period of performance by 11 months through February 28, 2018 to accommodate these additional activities. At December 31, 2017, the additional activities as outlined under the DoD Contract through February 28, 2018 were substantially complete. On February 28, 2018, the DoD contract was amended to incorporate additional services in the amount of $0.5 million and to extend the contract period by twelve months through February 28, 2019. If DSUVIA is approved by the FDA, the DoD has the option to purchase 112,000 units of commercial product pursuant to the terms of the DoD Contract.”
The drug is expected to be marketed at $45 per dose and under its contract with DOD, the company is obliged to supply 112,000 units to them. While on the face of it, it seems a good deal worth $4.5 million, but it is likely that the price ACRX gets from DOD is far lower. There are several reasons behind this assumption. On account of being a mass buyer, DoD will likely be a recipient of substantial discounts. Further, DoD has pumped considerable amount of resources for developing the drug, which would be a major factor when the supply price for Dsuvia is negotiated. With ACRX valuing its US market for the drug at $1.1 billion, its DoD contract is not of much monetary significance. However, as said earlier, the connection may just help the company in securing approval for its drug in the US by adding a little more gravitas to its credentials.
While the DoD connection is, in our opinion, a deal-clincher in the current political environment, ACRX has couple other things going for it. One is that Dsuvia got European approval while it was getting rejected in the US; two is that the drug successfully completed the two studies required by the FDA, a human-factor study that looked at how well the drug was administered using the new fold-out instructions, and a new safety study on an additional 50 post-operative patients receiving the clinically relevant maximum daily dose of sufentanil of 12 hits within 24 hours.
The next PDUFA is November 3; an adcom may happen a month earlier. Armed with this new dataset, as well as, one expects, some nudge from the DoD to the FDA, ACRX looks well-set for the PDUFA. And the good news, it has a ready, if small, order from the DoD as soon as it gets approved. The slight depression in stock price following a recent secondary is a perfect opportunity to buy in while the low price lasts.
Disclosure: I am/we are long ACRX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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