This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Cadence: When A Drug Approval Sinks Stock

SAN DIEGO ( TheStreet) -- U.S. regulators approved an intravenous pain drug from Cadence Pharmaceuticals (CADX) Tuesday and investors reacted immediately by selling the stock.

Cadence shares fell 9% to $8.20 in early Wednesday trading despite what looks like good news -- The U.S. Food and Drug Administration approved Ofirmev, an intravenous formulation of the pain reliever acetaminophen that Cadence plans to sell to U.S. hospitals. The stock traded as low as $7.51 earlier in the day.

When is a drug approval reason to sell a stock? Answer: When the drug's approval was widely expected and when the company planning to market the approved drug faces significant challenges convincing doctors or hospitals to buy it.

Cadence and Ofirmev fit both scenarios, hence the stock's significant weakness. Cadence is being penalized further because the company needs money to fund the Ofirmev commercial launch.

"For now, the stock faces investor skepticism about the launch – most recent drug launches have been disappointing – and a financing overhang. These issues may mute the usual post-approval stock rise and provide an inexpensive entry point, in our view," said Canaccord Genuity analyst Adam Cutler.

Cadence closed the second quarter with $68 million in cash but now needs to pay $15 million to Bristol-Myers Squibb (BMY) as part of the licensing deal for Ofirmev. Bristol sells Ofirmev under a different brand name in Europe.

Cadence also needs to hire a sales force to sell Ofirmev, which will likely cost around $45 million.

Bristol's version of Ofirmev brings in about $250 million in European sales annually, which proves a market for the drug does exist. Ofirmev pricing in the U.S. is expected to be higher than it is in Europe and the drug faces less competition from other non-opioid, injectable pain relievers. Canaccord's Cutler estimates Ofirmev can generate U.S. peak sales of $500 million.

The challenge for Cadence is cracking U.S. hospital formularies, which can be a slow process. Many investors anticipate Cadence having similar difficulties as Cumberland Pharmaceuticals (CPIX) has had gaining hospital acceptance for its intravenous NSAID pain reliever Caldolor.

For these reasons, investors are in wait-and-see mode until Cadence raises money and starts making progress on Ofirmev's launch.

--Written by Adam Feuerstein in Boston.



>To contact the writer of this article, click here: Adam Feuerstein.

>To follow the writer on Twitter, go to http://twitter.com/adamfeuerstein.

>To submit a news tip, send an email to: tips@thestreet.com.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs