New River Pharmaceuticals
have taken a big step closer to getting U.S. approval for a new treatment for attention-deficit hyperactivity disorder.
On Friday night, the companies said the Food and Drug Administration granted conditional approval for NRP-104, a drug that they claim will be less subject to abuse than traditional ADHD drugs. The drug would be prescribed for children ages 6 to 12.
Following the FDA decision, New River's stock soared $16.11, or 61.5%, to $42.32, and Shire rose $7.76, or 15.7%, to $57.16, both in extremely heavy trading. The closing prices set a 52-week high for each company.
Most ADHD medications are stimulants, including the market leader Adderall XR from Shire. Even though NRP-104 is an amphetamine-based compound, New River, the drug's developer, says it has been engineered to reduce the risk of addiction or abuse. Shire will market the drug.
Conditions cited by the FDA, the companies say, include final wording on the label and a ruling from Drug Enforcement Administration on NRP-104's potential for abuse. Like other ADHD drugs, NRP-104 is a controlled substance. The DEA ranks such drugs on a scale of abuse potential, with Schedule I being the greatest and Schedule V being the least.
Stimulant-type ADHD drugs that contain compounds such as amphetamine or methylphenidate carry Schedule II warnings, and the FDA has recommended the same rating for NRP-104.
If the drug receives a more favorable rating, its sales prospects could be enhanced. New River will get an extra $300 million in milestone payments from Shire if the drug gets a less restrictive DEA rating.
The DEA will probably act in three to six months. Shire and New River said the FDA didn't ask for additional studies on the drug, and they hope to begin marketing the ADHD treatment in the second quarter of 2007.
However, the DEA "may agree on further studies that are required for a better schedule to be granted post-launch," Martin Weiss of UBS wrote in a research report.
Weiss, who has a buy rating on Shire and doesn't cover New River, says he doubts Shire could charge a lot more for NRP-104 over Adderall XR if both drugs have the same DEA rating. He doesn't own shares, but his firm has had an investment banking relationship with Shire.
Regardless of the rating, NRP-104 will be an important addition to Shire as it continues its efforts to be the biggest name in ADHD treatments and at the same time guard against attacks by generic-drug companies. Adderall XR produced $426.8 million in sales for the first half of 2006, or half of corporate revenue. Shire's strategy is to encourage patients to eventually change to NRP-104.
"Shire will still be able to differentiate the product and switch a majority of its Adderall XR franchise ahead of generic entry in April 2009," says Ken Cacciatore of S.G. Cowen. "NRP-104 should protect the ADHD franchise." He has an outperform rating on Shire. He doesn't own shares, but his firm does, or seeks to do business, with companies mentioned in research reports.
Although Shire says two Adderall XR patents are in force until 2018, five generic-drug companies have filed applications with the FDA for a copycat treatment. Shire has sued three of them for patent infringement,
The settlement with Barr allows that company to sell generic Adderall XR in April 2009. The settlement with Impax permits generic marketing in 2010. A lawsuit against
Teva Pharmaceutical Industries
continues in a federal district court in Pennsylvania.
NRP-104 and Adderall XR aren't the only ADHD medications that Shire is selling or developing. The company offers Daytrana, an ADHD drug delivered through a skin patch that was developed by
also has asked the FDA to approve Connexyn, an extended-release version of a blood-pressure drug, for ADHD, and it's working an a longer-acting version of Adderall XR.
Shire's ADHD franchise would be bolstered if the company decides to buy New River, says Cacciatore.
"Given the structure of the NRP-104 agreement, it is a distinct possibility that Shire eventually will seek to acquire New River," he says. "In fact, from the Shire perspective, the payments of 50% of the profits after
year two almost demands that it occur."