Australia | Sep 15 2010
By Chris Shaw
Opioid analgesics are pain management drugs derived from opium, the drugs attractive because they are effective at relieving moderate to significant levels of pain but with side effects such as addiction and respiratory depression.
The opioid analgesics market is currently valued at around US$11 billion globally, with growth of around 8% annually thanks to both demographic reasons and a lack of equally effective non-opioid analgesics.
Current estimates imply around 15-20% of adults are living with chronic pain, while the incidence of chronic pain suffering appears to rise with age. An increase in the number of cancer patients has also added to the increase in those suffering from chronic pain, so the potential market for an improved drug to deal with this issue appears large.
QRxPharma ((QRX)) is attempting to crack this market with its MoxDuo 'dual opioid' drug technology that involves combinations of morphine and oxycodene. Both of these drugs are opioid analgesics.
According to Southern Cross Equities, what MoxDuo offers is an advance in the opioid analgesics market as it is able to deliver effective pain relief with a lower dosage of drug required. This is due to synergies between the two drugs being combined and means lower levels of side effects for those using such a drug.
Lower side effects mean lower health care costs overall, something Southern Cross sees as increasing the attractiveness of the MoxDuo product.
The MoxDuo product comes in both immediate and controlled or sustained release forms, available either orally or via injection. MoxDuo IR, an immediate release version, is currently completing its final Phase III trial and should see QRxPharma file for FDA approval in the first quarter of 2011.
MoxDuo IV, the intravenous product, is currently involved in Phase II trials that began in November of last year, while MoxDuo CR, the controlled release version, started Phase I trials in March of this year.
Southern Cross expects QRxPharma will receive FDA approval for MoxDuo IR by early in 2012, which means commercial sales should follow soon after. Both MoxDuo IV and MoxDuo CR should be on the market by 2015 in the broker's view.
On Southern Cross's numbers, MoxDuo could be a company maker for QRxPharma as the company is likely to sell the drug directly in the US market, while licensing out the drug in both the European and Asian markets. Funding of this shouldn't be an issue as Southern Cross estimates QRxPharma has enough capital to complete its Phase III trial of MoxDuo IR.
Using fairly conservative assumptions of MoxDuo peaking at less than 10% of the current US market for opioid analgesics and a product life out to the late 2020s, Southern Cross generates a base case valuation for QRxPharma of $2.06, with a more optimistic set of assumptions generating a valuation of $2.76 per share.
To reflect this Southern Cross has initiated coverage on QRxPharma with a Speculative Buy rating and a price target of $2.10, which implies significant share price upside from current levels of less than $1.00.
Likely catalysts for the share price in the view of Southern Cross include the completion of the current pivotal trial for MoxDuo IR, the completion of a Phase II trial for MoxDuo IV, the receiving of FDA approval for MoxDuo IR and the announcement of any strategic partnerships in Europe and Asia.
Aside from MoxDuo, QRxPharma is working to develop products in other areas including the Torsin project related to Parkinson's disease. Another project is Venomics, where the company is exploring the potential of blood coagulation products developed from snake venom.
Southern Cross estimates the former is a US$1 billion market, while the Venomics project appears further away from market, but it has attracted some interest from Chinese investors in particular.
Based on Southern Cross's estimates for MoxDuo the company should generate positive earnings from 2013, the broker forecasting EPS in that year of 6.5c against a forecast of minus 27.8c this year and minus 32.2c in 2012. This underpins Southern Cross's $2.10 price target.
Despite a current market capitalisation of a little less than $100 million, QrxPharma receives solid coverage in the market, The FNArena database showing three Buy ratings. Of those Citi is the most aggressive with a price target of $1.95, while RBS Australia has the lowest target of $1.45. The average price target according to the database is $1.70.
Shares in QRxPharma today are unchanged at $0.93, which compares to a range over the past year of $0.725 to $1.315. This implies upside of around 83% to the average price target in the FNArena database, while Southern Cross's target implies more than 100% upside.