Expert Financial Analysis and Reporting

Summary

I think that it is a question of when and not if Levadex is approved. The complete response letter or CRL issued for Levadex appears to be resolvable fairly quickly and could result in approval in July to October of 2012 in my best case scenario. In the worst case, I estimate that approval could be delayed until mid-2013.The company is in a strong cash position and I estimate that in the worst case scenario in which Levadex is approved in mid-2013, that the company could end 2012 with $75 million of cash and 2013 with $130 to $160 million of cash. There should be no need to raise capital.

The next really meaningful catalyst could be the new PDUFA date, which could be anywhere from mid-2012 to mid-2013. In the latter case, it is possible that the stock could be lackluster for the balance of 2012. In either the positive or negative case, I continue to project Levadex peak sales of $500 to $750 million in the US in the 2016 to 2019 time frame and believe that this could support a market capitalization of $2.0 billion to $3.5 billion or $50 to $88 per share.

Overview

MAP Pharmaceuticals announced that the FDA issued a complete response letter or CRL for the Levadex NDA. The issues raised by the FDA relate to the chemistry, manufacturing and controls or CMC section of the NDA. MAPP said that these resulted from a facility inspection of a third party manufacturer. In addition, the FDA said that it had not completed the review of information related to inhaler usability that it had requested late in its review cycle. Importantly, the FDA did not bring up any safety of efficacy issues and did not request additional studies. The company said that it was pleased with the product label approved by the FDA, but didn't offer any specifics.

This is all consistent with my last report in which I stated that I thought that Levadex was very likely to be approved. I went on to say that if a CRL were to be issued it would probably relate to the CMC section and it is almost impossible for an outsider to predict this. When the FDA cannot complete its review by the PDUFA date, it sometimes uses the CRL to give it more time to complete the review and citing CMC issues is an easy way to do this.

During the conference call to discuss the CRL, MAPP commented on these issues and gave an insight into the scope of the FDA questions. In regard to CMC issues, the FDA visited a facility of a third party manufacturer and issued a number of observations on the manufacturing process and its ability to make the product in accordance with good manufacturing processes; these are called 483s. The company believes that the third party manufacturer has already responded to these 483s in a way that will satisfy the FDA.

The FDA also raised issues in regard to the filling of the canisters with the Levadex dose to be inhaled. The third party manufacturer is filling in accordance with standard manufacturing practices that have been used to fill literally hundreds of millions of canisters used in inhalation therapy. Again, the company doesn't believe there is anything that would cause more than a short term delay from this issue.

The third issue raised by the FDA was in regard to usability of the inhaler. The FDA is probably looking at the potential to use the inhaler incorrectly or to overdose. In the NDA, MAPP submitted data involving 10,000 headaches in 1000 patients that it believes addresses the usability issue. Management believes that this information is already contained in the NDA.

The message being offered by the company suggests that the CMC and usability issues are straightforward and probably resolvable based on data that is already in the NDA or has been submitted in response to the 483s. The issue seems to be how long it will take to resolve the issue.

Let me try to put forward a reasonable worst case. The company is sending a response to the FDA today seeking a meeting to further understand the issues raised by the FDA. The FDA has 14 days to respond and by statute must schedule a meeting in 60 to 75 days. In this worst case, the meeting could occur in 74 to 89 days or the late June, early July period. The time that MAPP would then need to respond to the FDA is uncertain since the exact issues aren't yet known. Looking at situations like this with other companies, it might take MAPP as long as six months to respond to the issues and re-submit the NDA. This could take the resubmission to yearend 2012. The FDA could then classify the NDA resubmission as a class II response in which the FDA can take six months to review the NDA. This would result in a PDUFA date and approval in mid-2013 in the worst case.

In a more likely case, the situation can be resolved much quicker. MAPP has already begun to respond to the FDA and can make sure that FDA has most or all of the information it may need to resolve its concerns even before a meeting is scheduled. The FDA could schedule a meeting quickly (perhaps in a month), confirm the issues that MAPP needs to address and in the best case agree that it has all the information it needs. This might be done quickly allowing MAPP to refile in three to six months. The FDA could then classify the NDA resubmission as a class I response that results in a two month review. This would put the PDUFA and approval date in the July to October 2012 time frame.

MAPP is fortunate to have a strong cash position so that there are no financial issues and no need to raise capital. In my worst case scenario, I estimate that the company ended 2011 with about $100 million of cash. The company has not issued guidance for 2012, but I am guessing that it could be $25 million if there is no product launch. In this case, the company could end 2012 with $75 million of cash.

MAPP will be co-marketing Levadex with Allergan in the US and Canada in the pain specialist and neurologist market segments. It plans to partner Levadex in the US for other market segments and to partner Levadex outside of the US and Canada. I had thought that these deals would be consummated in 2012, but the CRL issuance could delay them until 2013. I estimate that they could bring in $30 to $60 million of upfront fees. In addition, MAPP will receive another $50 million milestone payment from Allergan upon first commercial sale and possibly $25 million more dependent on whether milestones related to labeling are achieved. I had previously estimated a $50 million burn for 2012 due to launching Levadex in mid-2012 and I would shift this to 2013. If all of these worst case assumptions come to pass, MAPP would end 2012 with $75 million of cash and 2013 with $130 million to $160 million of cash.

Disclosure: The author of this article owned shares of Map Pharmaceuticals at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in MAP Pharmaceuticals carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in MAP Pharmaceuticals.