Flamel Plays Close to the Vest

Earlier in the week, drug developer Flamel Technologies (Nasdaq: FLML  ) announced its third-quarter financial results. While we now know what it brought in last quarter, it's not clear where it's going from here.

Flamel's only sustainable source of revenue is the royalties and manufacturing revenue it gets from GlaxoSmithKline (NYSE: GSK  ) for heart-disease treatment Coreg CR. In the third quarter Coreg brought in around $7 million to Flamel's top line after GSK reported $62 million in sales of the drug for the quarter. Despite the increase in Coreg revenues, Flamel burned through $6.2 million in the quarter, bringing the cash on its balance sheet down to less than $41 million.

Wisely, Flamel is trying to cut back on this cash burn to avoid diluted finances in future, but that cutback is not as visible as it could be. The declining dollar bumped up dollar reported expenses 8% last quarter, and it could have a similar effect in the fourth quarter, with the dollar shrinking lower versus the euro.

Flamel is developing six compounds for partners like Wyeth (NYSE: WYE  ) with its Medusa platform technology. Having little idea what the compounds are, it's not possible to put a value on their worth. Until more details on the progress of these compounds are known, it's probably best to value them the same as a drug that's in preclinical stage development -- that is, zero or minimal value.

Even without details on these partnered drugs, investors can look forward to Flamel releasing data from what it says was a successful phase 1 study of its hepatitis C interferon product. If the data does show Flamel's interferon-XL to be comparable or superior to existing interferons, such as Schering-Plough's (NYSE: SGP  ) PEGINTRON, then Flamel will have no trouble finding a development partner in Johnson & Johnson (NYSE: JNJ  ) , Abbott Labs (NYSE: ABT  ) , or another lab working in the hepatitis C space to pick the drug up.

Except for the failure of the Coreg CR compliance study, which Flamel had no control over, the past few months have been a mixed bag for Flamel. Coreg CR royalties have continued to be far below previous expectations, but now interferon-XL looks like a viable compound again.

At a market cap barely above $210 million, shares of Flamel aren't trading as if there's confidence in its future. The sooner Flamel can announce the partnered drugs it is working on or the hard data for interferon-XL, the easier it will be to know whether Flamel's pipeline is holding aces or three-seven off suit.

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