Sometimes it takes a big partnership deal for investors to get excited over a pharmaceutical company. A deal signed yesterday by drug developer Durect
The deal Durect inked yesterday with European pharma Nycomed involves its Posidur local anesthesia injection. The drug is in multiple phase 2 trials as a treatment for post-operative pain and is slated to enter phase 3 trials in 2007. If it can achieve regulatory approval, Posidur's biggest potential benefit over other local anesthetics already on the market is its longer-lasting effect.
This deal with Nycomed provides for up to $188 million in payments to Durect if Posidur can hit certain development, regulatory, and sales milestones. Durect will also receive $14 million up front, which should equate to about another half-year's worth of cash (at its current burn rate) to supplement the $74 million already sitting on its balance sheet.
By keeping the upfront payment low and back-loading most of the cash payments, Nycomed hedges its losses in case Posidur doesn't pan out. Regardless, Durect will receive quite a high royalty rate, in the 15%-40% range, depending on the sales level Posidur achieves. Also, Durect gets to keep U.S. and Asian marketing rights for the drug.
The potential for Durect's science and technology has been validated before, when King Pharmaceuticals
With no possible additional drug candidate approvals and subsequent royalties or revenues anywhere close to occurring, farming out Posidur makes great business sense for Durect and will limit any share dilution from financings that may need to be done in the future. It's trading at a market capitalization of more than $330 million as of this writing, though, meaning that shares are a little richly valued for my blood, considering the length of time it will take for meaningful royalties and subsequent earnings to start coming to Durect.
Think Durect is trading too high? Or do you see it rising still more? Let more than 14,000 fellow investors know how you feel by joining our new stock-ratings database, Motley Fool CAPS. It's free, and there's a Fool cap for every player.
More from The Motley Fool
Here's Why DURECT Corporation Is Tanking Today
News that the FDA has rejected its partner's NDA submission has investors heading for the exits.
This Week in Biotech: Three Strikes and You're Out!
The FDA and its advisory panel give a thumbs down to three experimental drugs, while buyout mania strikes the biotech sector.
Why DURECT Corporation Shares Were Walloped
DURECT shares dropped significantly after it's told "Do not pass go" by the FDA for its surgical painkiller, posidur.