Earlier this week, Noven Pharmaceuticals (Nasdaq: NOVN ) announced that the FDA had issued a tentative approval for one of its drugs. Yet its shares are actually trading lower since the news. Have pharmaceutical investors gone mad? What gives?
Noven is best known for its attention-deficit hyperactivity patch, Daytrana, which is marketed by Shire (Nasdaq: SHPGY ) . The drug tentatively approved on Wednesday is a treatment for bipolar disorder and seizures, as well as a preventative therapy for migraines. With so many potential blockbuster indications for the drug, named Stavzor, you'd think investors would be a little more excited about its potential.
Alas, as the term "tentative approval" implies, the Stavzor approval will be completed only once the patent protection on Abbott Laboratories' (NYSE: ABT ) Depakote, which has the same active ingredient as Stavzor, runs out next year.
Stavzor is not a new molecular entity and was approved through the 505(b)2 regulatory pathway. This is a very similar pathway to the abbreviated New Drug Applications through which generic drugs are approved.
Because Stavzor is not a new molecular entity, Noven will face a much harder time trying to differentiate it from the hordes of generic drugs that will be competing against Depakote in the next few years. To be clear, Stavzor is not a generic version of Depakote because it is a slightly different oral form of the drug, though it will probably have very similar efficacy and safety effects to Depakote.
Noven expects FDA final approval to launch Stavzor into the market by the end of July, after Abbott's patents on Depakote run out. The good news for Noven is that sales of Depakote were $1.2 billion in the U.S. last year, and capturing even a fraction of the Depakote market would be a boon.
The bad news for Noven is that sales of Abbott's Depakote won't be anything close to $1.2 billion by the time Stavzor hits the market, because of the aforementioned generic competition. Equally important, Noven is going to have a hard time persuading payers and patients to shell out anything more for Stavzor than what the generic Depakote drugs are selling for. We've seen other drugs that are functionally similar to generic versions failing to gain market acceptance. It's happened to drugmakers including Depomed (Nasdaq: DEPO ) and SkyePharma.
Noven acquired Stavzor in a $125 million cash acquisition of JDS Pharmaceuticals earlier this year. The acquisition has turned out to be a mixed bag for Noven, considering that a once-daily lithium phase 3 drug candidate has already failed in a late-stage trial.
However, neither the pending Stavzor approval nor the lithium compound phase 3 failure will be the deciding factors in determining whether Noven overpaid for JDS. The most valuable prize of the JDS acquisition, a treatment for hot flashes, isn't expected to launch until 2011.
When it made the JDS acquisition earlier in the year, Noven gave what I saw as extremely optimistic guidance of at least $500 million in sales in 2012 from the JDS drugs, with $400 million of these sales expected to come from the hot-flash treatment.
Other drugmakers, such as BioSante Pharmaceuticals (Nasdaq: BPAX ) , haven't exactly experienced stellar launches of their hot-flash treatments lately. Noven has yet to prove that there will be a market for its treatment, and until it does, its adventures with the other JDS drugs, like Stavzor, will be merely sideshows to this main event.