Australia | Apr 15 2010
By Chris Shaw
The global market for pain relief is estimated to be worth around US$9 billion annually, with analysts at Citi noting much of the market is comprised of generic drugs where there have been few real innovations over the past 20 years.
One company Citi sees as having the potential to carve out a niche in this market is QRxPharma Limited ((QRX)), which is a specialty player involved in developing new drugs to treat moderate-to-severe pain. The broker sees enough potential to initiate coverage on QRxPharma with a Buy rating.
The standard for pain relief drugs has been the opioids, including morphine, hydromorphine, oxycodone and fentanyl. As the market has seen little in the way of new drugs for many years, this is where QRxPharma's findings create an opening in Citi's view.
QRxPharma has discovered it is possible to combine morphine and oxycodone in certain ratios to deliver a synergistic impact on pain relief, from which it has developed MoxDuo IR for immediate release, MoxDuo CR for controlled release and MoxDuo IV for intravenous use.
So far, QRxPharma has conducted some Phase II and II trials of these products, Citi noting to date the results show MoxDuo IR has significantly less side effects than morphine, oxycodone or the leading IR drug, Percocet.
In Citi's view this is a significant factor, as the usual side effects of opioid drugs such as vomiting, nausea and respiratory depression can be quite debilitating. Given this, any drug that can deliver the same level of pain relief with fewer side effects or greater relief with the same level of side effects would be viewed as a significant advance.
At present Citi notes MoxDuo IR is the most advanced of QRxPharma's products, with two pivotal Phase III trials required for approval. The first Combination Rule study has met its primary end point and the second will involve 140 patients undergoing knee replacement surgery and should be completed by July of this year.
If the latter trial is successful, Citi expects the company should be able to file an application with the Food and Drug Administration in the US in the fourth quarter of 2010, with approval likely within 12 months of any filing.
Citi estimates the drug could generate peak sales of US$100-$200 million annually in the acute pain market, which it estimates is worth around US$1.8 billion annually in the US. MoxDuo CR and MoxDuo IV are at earlier stages of development, Citi estimating the former could potentially generate annual sales of US$200-$300 million in the US market.
In terms of bringing MoxDuo IR to market Citi estimates QRxPharma is likely to need raise a further $125 million in expansion capital, which would fund the establishment of a sales force in the US as well as working capital needs and further clinical trials.
This means it will be some time before QRxPharma is profitable, Citi forecasting earnings per share will be in the order of minus 36.5c this year (in other words: it will be a loss per share), minus 39.5c in 2011 and minus 25.8c in 2012. Based on its estimates of possible annual sales Citi values QRxPharma at $1.95 per share on a risk-weighted basis, while unrisked its valuation is $7.40 per share.
Citi sees the stock as one of the best opportunities in the high-risk end of the Australian healthcare sector. The broker is not the only one to see upside in QRxPharma, as the FNArena database shows both JP Morgan and RBS Australia also cover the stock and both also rate it as a Buy.
For JP Morgan the Phase II trials results out so far are a positive as they continue to support the fact MoxDuo IR has a different side effect profile to competing drugs. This underpins the commercial value of MoxDuo IR to commercial licensing partners.
In JP Morgan's view the trial results should allow QRxPharma to negotiate a licensing deal on attractive terms, especially as the company's bargaining power would be increased if the coming trials are also successful.
Following the latest trial completion, JP Morgan has lifted its price target to $1.56 from $1.47, though this remains well below Citi's $1.95 target. RBS Australia has a target on the stock of $1.55.
Shares in QRxPharma today are stronger and as at 1.50pm the stock was up 7c at $1.04. Over the past year the stock has traded in a range of $0.36 to $1.30 and at current levels it offers better than 60% upside to the average price target in the FNArena database.