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Why Pfizer Isn't the Big Winner With a Newly Approved Version of Chantix

By Keith Speights and Brian Orelli, PhD – Oct 30, 2021 at 7:04AM

Key Points

  • The FDA recently approved a version of smoking cessation drug Chantix to treat dry eye disease.
  • Oyster Point Pharma will market the drug in this new indication after licensing it from Pfizer.

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A small biotech, Oyster Point Pharma, will benefit the most from a recent FDA approval.

Pfizer (PFE -1.04%) has made a lot of money through the years with its smoking cessation drug Chantix. However, the U.S. Food and Drug Administration (FDA) recently awarded a new indication for the drug -- but not to Pfizer. In this Motley Fool Live video, recorded on Oct. 20, Motley Fool contributors Keith Speights and Brian Orelli discuss which company is the big winner with this latest FDA approval.

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Keith Speights: Brian, we have maybe one minute left. There was a development last week that I thought was interesting. The FDA approved an inhaled version of Chantix, which is a big-selling smoking cessation drug that's marketed by Pfizer. But this FDA approval was secured by a small biotech, Oyster Point Pharma (OYST). What's the story behind this recent drug approval?

Brian Orelli: This drug treats dry eye disease. Oyster Point is testing a higher dose for another eye disease, neurotrophic keratopathy, which is a corneal degenerative disease. Data from a phase 2 trial is expected in the middle of next year. Oyster Point licensed the drug from Pfizer to sell Chantix for a whopping up-front price of $5 million.

It also owes milestone payment in the low double-digit millions. Let's guess maybe $20 million. Then Pfizer will get tiered royalties until the patents run out on the drug, and according to the FDA's Orange Book, that's  February of 2023. You can go look up the patents. If you do a Google search for Orange Book, the FDA lists all the patents. It went and did that and it looks like it's February of 2023. Pfizer will get a little bit of royalties for a little over a year, but then Oyster Point will be able to sell it on its own without having to pay those royalties.

Speights: I did notice, there was some good news, bad news for Oyster Point here. Obviously, the good news winning FDA approval.

But they had a financing deal with a company that basically the second tranche of that deal required certain data to be included on the label for the FDA approval and it wasn't included. So, as a result, Oyster Point couldn't get that additional money unless it gets a waiver from the financing company. That'll be interesting to see.

That disappointed investors that the company wasn't getting, I think is around $50 million in cash or something, that it wasn't able to get because of that.

Orelli: It's definitely, you need money to be able to launch a drug, so they may have to do a secondary offering or something, which would obviously dilute shareholders.

Speights: Exactly. Now, they are trying to negotiate, I think the company they are working with this OrbiMed or something like that, they are trying to still get that second cash infusion. But if they don't, you're right, they're probably going to have to go the stock offering route and dilute the value of existing shares.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Speights owns shares of Alphabet (A shares) and Pfizer. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

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