Flamel Gets Upbeat News About Coreg

When a drugmaker's future is so dependent on one compound, its shares are bound to be volatile whenever news about that drug comes out. Yesterday, shares of Flamel Technologies (Nasdaq: FLML) jumped more than 13% after partner GlaxoSmithKline (NYSE: GSK) announced sales numbers for Coreg CR (controlled release).

Flamel gets royalties from sales of heart-disease drug Coreg CR, which it helped develop. Flamel shares had slumped this year over concerns about the sales growth of the drug, which Glaxo had hoped would capture a good portion of the lost sales when Coreg CR's immediate release (IR) brother started facing generic competition in September.

Following a slower launch than expected this year, Glaxo yesterday announced that sales of Coreg CR were $62 million in the third quarter compared with the $20 million the drug brought in during the second quarter.

When I last wrote about Flamel, my forecast, based on historical comparisons, was that the drugmaker was likely bringing in 3% of all sales of Coreg CR as royalty revenue. Last quarter, Flamel recorded $800,000 of "other revenue." My assumption is that $200,000 of this "other revenue" is from sources outside of Coreg CR because Flamel was recording "other revenue" in the $200,000 range for part of 2006.

If you subtract $200,000 from Flamel's first-quarter "other revenue" of $1.1 million and $200,000 from its second-quarter "other revenue" of $800,000, it brings Flamel's Coreg CR royalty revenue to $900,000 and $600,000 for the first and second quarters, respectively.

Glaxo took in $27 million in sales from Coreg CR in the first quarter and the $20 million in the second quarter. Using these two sales figures as the denominator means that Flamel took in exactly 3% in royalties in each of the first two quarters (depending on rounding and any possible lag between sales and the recording of royalties).

If you choose to ascribe all of the "other revenue" to Coreg CR royalties rather than subtracting $200,000, that puts Flamel's royalty figure at about 4% through the first two quarters. While the difference in dollars doesn't matter at this point, the royalty percentage would matter significantly to Flamel's valuation if Coreg CR sales become more substantial.

If the 3% royalty holds up, that means Flamel would bring in about $1.9 million at most in royalty revenue in the third quarter, considering the $62 million Glaxo posted in Coreg CR sales for the quarter. That's much better than last quarter's royalty revenue figure, but a far cry from profitability, considering the $23 million loss that Flamel experienced in just the first half of the year.  

On its conference call, Glaxo ratcheted down expectations for Coreg CR and said that its sales uptake would be slower than that of other controlled-release drugs like it and partner Biovail's (NYSE: BVF) Wellbutrin XR.

Nothing that came out of the Glaxo earnings release from yesterday really changes the Coreg CR and Flamel stories. Barring strong results from a hypertension study, it looks like Coreg CR will be a shell of the $1.4 billion that Coreg IR brought in last year, and Flamel's royalty revenue will be much less than previous expectations.