AcelRx (ACRX) continues to be an abysmal investment as the company's flagship product DSUVIA has struggled to gain traction in the middle of COVID-19 headwinds. Admittedly, I didn’t really see DSUVIA to be a product that could completely change the entire treatment paradigm for acute pain. However, I was convinced that the company was going to find segments where DSUVIA’s unique profile may offer better clinical and economic benefits over the current standard of care. In addition, the company’s deal with the U.S. Department of Defense ("DoD") was supposed to provide immediate-term sales to help offset the cash burn until the company is able to make some inroads into supervised care. Sadly, the DoD deal has not provided the company with significant revenue and the pandemic has suppressed the demand for acute pain management products. In addition, P&T committees have been delayed, which has hindered DSUVIA's adoption in hospitals and surgical centers. The setbacks and reduced demand have shown in the company’s quarterly earnings and AcelRx continues to fall short of the Street's expectations. Consequently, the share price has been crushed and the company's market cap is roughly $75M. Despite the company's lackluster performance, I have been slowly accumulating ACRX with the belief the market has taken the selling too far and has discounted the company’s upside prospects from their recent dealings. I intend to review the company's Q3 earnings and go over the details of the recent Lowell Therapeutics acquisition. In addition, I will attempt to find a discounted valuation to be used as my buy target or threshold. Finally, I discuss my plans for my ACRX position in 2022.
Q3 Performance
The company’s Q3 net revenues were $1.9M; however, $1.7M of the Q3 revenue came from a $2.9M upfront payment from Aguettant. This was not able to offset the $10.1M in R&D and SG&A expenses, which led to a net loss of $8.4M. At end of Q3, the company had $48.7M in cash, cash equivalents, and short-term investments. At the end of October, AcelRx had 646 formulary approvals, which surpasses their year-end guidance of 615 approvals (Figure 1).
Figure 1: Formulary Progress (Source: ACRX Presentation)
AcelRx expects DSUVIA's sales growth to come from 3 primary areas:
- Department of Defense
- Medically Supervised Settings
- Partnering Outside the U.S.
Unfortunately, the Department of Defense area has been disappointing as the company is still waiting for these purchases to commence. The initial stocking orders are to be around $30M over 3 years, so it is not a negligible amount of pending revenue. Luckily, the company publicized the initial stocking purchases have resumed and should continue.
DSUVIA's sales in medically supervised settings, which made up all the product sales in the quarter. The company reported a 20% increase in commercial sales over Q2, which was primarily driven by plastic surgeries. As a result, AcelRx has shifted their commercial efforts to center on “single decision-maker customers” like plastic surgeons, ENTs, and dentists to sustain this growth.
Figure 2: DSUVIA Sales Distribution (Source: ACRX Presentation)
During the quarter, the company was able to record several milestones including entering into agreements with Laboratoire Aguettant to commercialize DSUVIA “DZUVEO” in Europe, which could provide up to roughly $55M in upfront and milestone payments. In addition, AcelRx in-licensed two pre-filled syringe product candidates from Aguettant, which have a $100M+ market opportunity for these two candidates. AcelRx expects to file an NDA for both candidates at some point in 2022.
In August, Dr. Azza Halim, MD, and Dr. Hisham Seify, MD, Ph.D., FACS presented data on the effects of sufentanil sublingual tablet 30 mcg (DSUVIA) on decreasing post-operative recovery time and opioid use in "awake" procedures being performed in an outpatient plastic surgery setting. The data showed that a single sublingual tablet of 30 mcg of sufentanil with a local anesthetic prevented the need for additional analgesic administration during the operation and in recovery, which allowed patients to be discharged almost immediately. The company's efforts to collect supporting data for DSUVIA should improve their case for its adoption into a broader array of uses.
Lowell Therapeutics Acquisition Details
AcelRx recently publicized an agreement to acquire privately-held Lowell Therapeutics, which is developing Niyad, a “regional anticoagulant for the dialysis circuit during continuous renal replacement therapy for acute kidney injury patients in the hospital.” Niyad is a lyophilized formulation of nafamostat, a serine protease inhibitor with anticoagulant, anti-inflammatory, and possible anti-viral properties. Niyad is expected to extend the filter lifespan, decrease blood loss, reduce the need for platelet transfusions, reduce the number of bleeding events, and improve downtime. In addition, Niyad could be used as an anticoagulant for dialysis patients undertaking intermittent hemodialysis. If approved, Niyad would be the first and only FDA-approved regional anticoagulant, as a result, Niyad has received the FDA’s Breakthrough Device Designation. The company expects to submit a PMA to the FDA in roughly 30 months following closing and is expected to cost approximately $12M to get the asset across the finish line. The market opportunity for their first two target indications is projected to provide over $200M+ annually of peak sales.
It appears that this acquisition will cost AcelRx $6.5M worth of its common stock along with net cash acquired. Furthermore, each Lowell Therapeutics stockholder will receive CVRs valued up to $26M, depending on several regulatory and sales-based milestones through 2030.
Bearish Take
Looking at the company's third-quarter performance, one can see that the company needs to improve DSUVIA’s commercial footprint to help reverse the bearish sentiment around ACRX. Unfortunately, two out of three sources of revenue are not filing firing on all cylinders and it is reflected in the share price. Clearly, the lack of DoD revenue is a concern and the meager supervised care sales are going to cast doubt on the product's commercial prospects. The company cannot survive in the near term on partnership and licensing deals, so it is imperative that they convert formulary wins into sales in 2022. Otherwise, investors need to accept the possibility the company will continue to tap the market with additional offerings in order to keep the lights on and get their new assets through the FDA.
Bullish Take
Personally, I take a look at the number of upcoming catalysts and I get the feeling that the company deserves a new interpretation following their recent deals with Lowell Therapeutics and Aguettant. In addition, the company has several upcoming catalysts including DSUVIA study readouts, potential FDA approval of the two PFS products, the launch of Zovio in Europe, and commencement of Niyad’s registration study.
Figure 3: ACRX Pipeline (Source: ACRX Presentation)
DSUVIA might be struggling to gain traction, but the company as a whole could go through a huge transformation over the next couple of years as their new pipeline assets move closer to approval. Yes, these new candidates will require some cash to get them approved and on the market; however, some of these programs are in the late stages of their regulatory path and could be on the market in a couple of years, so the company is not going to have to spend an enormous amount of cash to unlock their upside potential.
Finding a Buy Target
Determining a buy target or threshold can be a complex process using various fundamental valuations, ratios, and data points. Typically, determining a buy target on well-established mega-cap companies is straightforward and fairly reliable. On the other hand, trying to determine a buy target for a speculative biotech that is years away from being profitable is much more complex and is inconsistent. For me, I try to keep it simple by using a combination of revenue estimates, cash value, time discount, and discount for error.
Figure 4: AcelRx Revenue Estimates (Source: Seeking Alpha)
Using these data points and the industry’s average 5x price-to-sales, I get a buy target of roughly $1.64 per share. Considering the stock is trading around $0.56 per share, we can say that ACRX is undervalued for its potential growth. Admittedly, the company is probably going to have to run at least one offering before the company is able to become profitable, which should dilute that target over time. However, even if the company was to double their outstanding shares, ACRX would still be discounted for its potential upside. Therefore, I consider ACRX to be discounted at these prices and is worthy of speculative investment.
My Plan
I have to admit, I have been extremely disappointed with my ACRX position and was pretty close to just writing off my losses, but a revisit to the name has provided me with a new perspective on the company and how to move forward with my speculative position. Using my buy target price of $1.64 as a threshold, I am going to look for a reversal set-up in the near term and will look to add following a break in the long-term downtrend lines on the Daily chart (Figure 5).
Figure 5: ACRX Daily (Source: TrendSpider)
I plan on making numerous buy transactions as long the stock is trading under that $1.64 per share threshold. Admittedly, I am going to keep my share sizing incredibly minuscule throughout 2022, or until we have some clarity on some of the downside risks. However, I am still confident the market will ultimately price the ticker appropriately and I will be able to bank some profit.
Long-term, I believe the recent acquisition and licensing deals move my time horizon for ACRX back at least 5 years in anticipation the company can get these newly acquired assets onto the market and DSUVIA hits its peak sales.
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Biologics
Biologics is a full-time healthcare investor who developed a passion for biotech and life saving therapies after working in the medical field for years. His trade focus is around innovative companies developing breakthrough therapies and/or pharmaceuticals with catalysts for potential acquisitions.
He is the leader of the investing group Compounding Healthcare. Features of the group include: Several model healthcare portfolios, a weekly newsletter, a daily watchlist, and chat for dialogue and questions. Learn more.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of ACRX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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