Finding a profitable pharmaceutical company with a $500 million market cap is incredibly rare. But that's what NovenPharmaceuticals (NASDAQ:NOVN) has been for nearly eight years as it quietly develops improved transdermal patches -- a more convenient form of drug delivery for a range of indications.
Shares of Noven, which reported third-quarter results this week, have been up about 50% this year on the hopes of a patch it developed for treating attention deficit hyperactivity disorder, or ADHD. The patch, named Daytrana, was approved in April and is being marketed by ADHD powerhouse Shire (NASDAQ:SHPGY). Prescriptions for Daytrana have been growing briskly since its launch in June. For the most recent month for which data is available, prescriptions grew 17% month over month in September, a very rapid pace for a new product.
Based on this pickup in Daytrana prescriptions, from which Noven receives manufacturing and license revenues, revenues climbed 28% this quarter to nearly $16 million, but gross margins were a paltry 30%. Earnings came in at $5 million for the quarter, or $0.20 a share, bringing net margins up 9 percentage points to 20% for the year thus far.
There are a couple of catalysts for Noven in the fourth quarter. Because Shire reported $10 million in third-quarter Daytrana sales, the first of three $25 million milestone payments that it receives from Shire when Daytrana sales hit $25 million, $50 million, and $75 million should be triggered by the end of the quarter. Also, Noven should begin clinical trials for another patch to treat ADHD by the end of the year.
Noven doesn't have much of a drug pipeline to speak of. All of its drug/patch candidates are in early stages of development or are being developed by other companies, and the timelines on them are unknown. Regardless, what makes Noven a compelling investment are the potential revenues from Daytrana and the potential milestone payments for next year, which could amount to nearly 15% of its market cap. Investors in Noven shares might as well pay most of their attention to Shire, because as long as Daytrana does well, so too will Noven.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .
