Editor’s note: An earlier version of this article indicated that Indevus sold Nebido in Europe, which is not the case. The Fool regrets this error.
You'd think that a drug's prior approval in Europe would help its case for approval with the FDA. You'd think. But Indevus Pharmaceuticals
The drug developer announced yesterday that the FDA will likely make it run a safety study. This will push back any approval of Nebido for sale in the U.S. by about two years. Apparently, this came about because of reports in Europe that some patients had adverse reactions to the drug, sold by Bayer Schering. A short-term coughing episode occurs when a small amount of the oily solution containing the drug enters the bloodstream immediately after injection. There was only one occurrence of the side effect in an earlier U.S. clinical trial, and that person has since received additional shots without complication, so it's certainly not a common issue.
Like Indevus, I'm a little surprised by the FDA's move. The agency could have just as easily approved the drug with a warning label, as is the case with the European version of the drug.
Indevus' stock was walloped yesterday -- down 70% -- and the company now has a market cap of a bit more than $100 million. That seems rather low for a drug developer with five drugs on the market, even if those drugs are only expected to bring in revenue in the mid-$60 million range this fiscal year.
Investors are most likely worried about how Indevus will make it for those two more years before Nebido is on the market. The company only had about $60 million on its balance sheet at the end of the quarter, but it's gained another $7 million up front for licensing the European rights to its prostate cancer treatment, Vantas, to Orion, with up to $14 million more coming. With a burn rate previously projected in the high tens of millions of dollars per quarter, Idevus will now need to cut costs and raise cash pretty soon.
With the stock trading so low right now, dilutive financing through a secondary stock offering isn't really a good option. The best choice for getting more cash might be to sell off the royalty stream it gets from Allergan
More Foolish coverage of drug developers: