Roughly 90% of drugs in clinical trials never make it to the Food and Drug Administration for review, so it's not surprising that a green light can be a market-moving event, especially when it's granted to drugs targeting billion-dollar blockbuster markets. Although there's no guarantee of approval, investors might want to consider stashing away some shares in Aerie Pharmaceuticals (NASDAQ:AERI), Flexion Therapeutics (NASDAQ:FLXN), and Puma Biotechnology (NYSE:PBYI). In the next 12 months, all three expect FDA decisions on drugs that could be top sellers.
Aerie Pharmaceuticals has reported late-stage, phase 3 trial results on two drugs targeting the $2.5 billion glaumcoma market, and it could have its first glaucoma drug, Rhopressa, on the market next year.
Rhopressa is being positioned for use instead of beta blockers as an adjunct therapy to drugs like latanoprost.
In trials, Rhopressa delivered similar efficacy to Timolol, a common beta blocker, but it did so via a single daily dose rather than two daily doses. Historically, glaucoma patient compliance to multidose daily regimens has been less than perfect and that's got me thinking that Rhopressa could displace the use of beta blockers, which currently account for 14% of glaucoma prescriptions.
The second of Aerie Pharmaceutical's glaucoma drugs is Roclatan, a combination of Rhopressa and latanoprost. In one phase 3 trial, Roclatan outperformed Rhopressa and latanoprost monotherapy, and if a second phase 3 trial pans out similarly, then an FDA filing for approval could occur in the first half of 2017.
A decision from the FDA on Rhopressa should happen in the next 10 months or so, and if the remaining Roclatan trial is positive, then an FDA decision on that drug could happen in 2018. Conceivably, that timeline positions this company to have drugs on the market that could be used in most glaucoma patients. Since this company's market cap is less than $1 billion and peak sales of latanoprost prior to losing patent protection were $1.6 billion, I think this stock could move up meaningfully on approvals.
Conquering osteoarthritis pain
Following word from the FDA that results from one phase 3 trial can support an FDA application for approval of Zilretta, a non-opioid therapy for knee pain in osteoarthritis patients, Flexion Therapeutics shares have jumped more than 80% since the end of March.
The surge in shares stems from the potential market opportunity to reshape how knee pain is treated in osteoarthritis patients. Today, about 5 million patients are treated with corticosteroid shots every quarter. However, corticosteroids benefit often wears off prior to the next quarterly dose and that means patients are eagerly awaiting better alternatives.
In phase 3 trials, Zilretta delivered a median 50% improvement from baseline in knee pain over a three-month period and, importantly, the pain relief persisted throughout the period.
An ability to provide better and more consistent pain relief to millions of patients could be a big needle mover for Flexion Therapeutics. Management hasn't settled on an exact price for Zilretta, but they've said in the past that the market would seem to support a cost of $2,000 per year.
The company plans to commercialize Zilretta on its own, so it's been stockpiling cash. Exiting June, there was $119 million in short-term cash, $44 million in short-term investments, and less than $16 million in debt on the balance sheet. Management believes it's got enough financial firepower to launch Zilretta and get Flexion Therapeutics a few months into 2018, but any delays to Zilretta's timeline could force the company to tap equity investors again.
As it stands, Flexion Therapeutics plans to file for Zilretta's approval before the end of 2016 and depending on when the agency accepts its application, an approval could be on deck before the end of 2017. Since Zilretta's market opportunity could be north of $1 billion and its market cap is less than $500 million, I think the reward is worth the risk of an FDA red light.
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