Does Furiex Pharmaceuticals Inc Still Have Upside Potential?

Little known Furiex Pharmaceuticals (NASDAQ: FURX  ) caught investors napping last week after reporting strong top-line results from two late-stage studies for its experimental irritable bowel syndrome with diarrhea, or IBS-d, drug eluxadoline. Specifically, Furiex shares rose 165% last Tuesday following the data release, and finished the week up 136% overall.

Now that the company has grabbed investors' attention, it's important to consider how Furiex will fare post-data readout. So, with that in mind, here's a Fool's look at Furiex's prospects going forward.

Digging into the data
Eluxadoline was evaluated in two late-stage trials that enrolled a total of 2,428 patients. According to the company's press release, the two studies easily met the FDA and EMA's pre-defined primary endpoints of simultaneous improvement in stool consistency and abdominal pain. However, some pain endpoints were not met in individual trials. A more detailed sub-population analysis should be forthcoming to shed light on this issue.

Turning to safety, eluxadoline exhibited a favorable safety profile in the trials. The most common side effects were constipation and nausea, with neither being considered serious. That said, five patients did exhibit mild pancreatitis, three of whom were self-identifying alcoholics.

Moreover, earlier stage studies showed that individuals with impaired liver function have difficulty clearing eluxadoline from their system. So, the label, if the drug is approved, would probably restrict use in individuals who are heavy drinkers or have impaired liver function.

What is eluxadoline's market opportunity?
Experts believe that around 15 million people in the U.S. suffer from IBS-d, and to date, there has only been a single drug approved to treat this condition. Specifically, the FDA approved GlaxoSmithKline's (NYSE: GSK  ) Lotronex in 2000 as a treatment for IBS-d in women; clinical testing showed that the drug was ineffective in men.

Even so, Lotronex was taken off the market only nine months after its approval because numerous patients started reporting severe gastrointestinal side effects, including a handful of deaths.

Due to the dearth of available treatments, however, the IBS-d community lobbied for the drug's marketing reauthorization. In 2002, they got their wish, with the drug coming back on the market with a much stricter label. In fact, patients now have to read a FDA-approved Patient Medication Guide prior to taking Lotronex.

Seeing the difficulties of marketing Lotronex under this new label, GlaxoSmithKline decided to sell it to Prometheus Laboratories in 2007. And it was wise to do so. The last reported sales for Lotronex were a meager $30.4 million per year. Peak sales for the drug topped out around $50 million soon after its launch, falling well below expectations.

Put simply, Lotronex's problematic side effects, combined with the fact that it's only effective in women, make it a poor model for eluxadoline's commercial prospects.

Instead, I think it's better to look at Ironwood Pharmaceuticals' (NASDAQ: IRWD  ) drug for irritable bowel syndrome with constipation, or IBS-c, called linzess. There are some intriguing similarities between the two drugs. First off, they are both likely to be approved in the U.S. and EU, they are both indicated for forms of IBS with limited treatment options, and finally, the market size is comparable between IBS-c and IBS-d. In sum, linzess should give Furiex investors a feel for what's on the horizon.

Ironwood licensed linzess to Forest Laboratories (NYSE: FRX  ) in the U.S. after its approval in 2012, and to AstraZeneca in ex-U.S. markets. Prior to approval, experts were predicting similar types of market performance for linzess compared to what we are hearing today for eluxadoline -- namely $700 million to $1 billion in peak sales.

So, how is linzess performing thus far?

According to Forest Laboratories fourth-quarter earnings, linzess is on track to earn about $200 million in the U.S. in 2014. Once the drug begins its full marketing campaign in the EU and Asia, there is a good chance linzess will break into the mid to high $200 million range. In short, the launch has been strong so far and is meeting expectations. As such, eluxadoline should see a similar trajectory if Furiex can attract a large partner to aid in the marketing efforts.

Foolish outlook
Like Ironwood and linzess, Furiex plans on partnering for eluxadoline. The nice part is that a partnership should entitle Furiex to some hefty milestone payments. On the flip side, Furiex will probably end up giving away the bulk of eluxadoline's future revenue in the process, which is exactly what Ironwood has done with linzess in order to continue the development of its other clinical candidates. If this parallel continues to hold, I would expect Furiex to head higher into a licensing deal. After that, the stock may stagnate due to a lack of significant revenue, and potential expenses arising from shared marketing costs. 

Furiex has more than doubled recently, but this stock could do even better.
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