The two critical elements to watch in the pharmaceutical industry are product development and FDA approvals. If a company’s product development pipeline starts to get a bit thin, it will eventually lose revenue generating capacity as patents expire and competition moves in. If FDA approval isn’t obtained, the company is simply sunk in the US for that product.
As an investor, watching the product pipeline is the key. This is important not only for the company’s current and future profitability, but because other companies, which may not have the same product development strength, may become interested in acquiring it. In today’s pharmaceutical marketplace, this point is even more relevant as several larger pharmaceutical companies have exceedingly large pools of cash and pipeline/patent issues.
Avanir Pharmaceuticals Inc., a pharmaceutical development company, works to develop pharmaceutical products directed at chronic disease and neuropathic diabetic pain. The company is best known for its Abreva product, now marketed by Glaxo Smith-Kline in North America.
Pipeline products for the company are in later stage clinical trials. Its Zenvia product is in the later stages of Phase III clinical trials for pseudobulbar affect. The first top line data should be available in the third quarter of 2009. This pseudobulbar affect, also referred to as involuntary emotional expression, product has also completed Phase III clinical trials for diabetic pain and received European patent extension into 2025.
With its products in mid-stage development, one might think that the company is having issues with cash burn. It indicates that it is not (reducing cash burn significantly in 2008) and should have few issues, assuming FDA approvals, moving toward the marketing of its pipeline. Early debt repayment and a late 2007 realignment have placed the company on solid financial footing for product trials through 2010.
In many respects, it does appear that Avanir is positioned a little too well for its own good. Although pure speculation at this point, as Avanir starts to move a bit closer to product introduction, other marketing oriented pharmaceutical companies, with hoards of available cash and thin product pipelines, may become interested in the company. Avanir Pharmaceuticals is attractive at this point and one to watch.
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