What makes IPCI most interesting to me is its Hypermatrix technology. This technology incorporates multiple factors into the design of oral drugs that have desirable controlled release properties. Although its not new within the generics space, controlled/extended-release drugs are very popular and its tantamount to must-have technology to compete in certain drug classes.
Right now, Intellipharamaceutics basically has three shots on goal. A generic form of Novartis's (NYSE: NVS) Focalin XR (dexmethylphenidate), used to treat ADHD, has been filed in partnership with Par (NYSE: PRX), but likely won't hit the market until late in 2012. The company has also filed an ANDA for a generic XR version of Pfizer's (NYSE: PFE) Effexor, but Pfizer has filed suit to block this. Last and not least, the company has a generic form of Pfizer/Nycomed's Protonix (for GERD) in development as well.
Beyond this, the company has several other potential generics products, as well as some potential branded/NDA drugs. What is great about generics is that the clinical pathway to approval is quite a bit simpler than with new branded drugs. Of course, there are still prodigious legal expenses involved, so it's not easy money by any means.
What has kept from getting more interested in this name has been the company's balance sheet. With basically no revenue, the company is bleeding money as it develops its pipeline. Unfortunately, the company ended its last quarter with only about $2 million in cash, and has had to rely upon its own co-founder and CEO for some loans. What that means, then, is that the company has little choice but to go to the markets to raise funds and/or try to partner off another one of these filed ANDA candidates.
The idea that a public round of funding was a "when, not if" circumstance is what has kept me away from these shares so far. Why should I buy shares today only to get diluted in a round of funding shortly thereafter? On the other hand, maybe I got too clever for my own good.
IPIC's stock has been strong the last couple of days - jumping about $1.50, or over 50%. Is the company about to announce a licensing deal with Teva (Nasdaq: TEVA), Mylan (NYSE: MYL), or Watson (NYSE: WPI)? Or perhaps a deal for the entire company outright? Let's face it, lots of generic companies could use more extended-release technology, particularly something that genuinely looks like a better mousetrap like Intellipharmaceutics' Hypermatrix.
If this spike in the shares is due to an upcoming buyout bid, I'm pretty much hosed and this will go down as a miss that I regret. If its a licensing/partnership deal, though, I would expect the company to launch a financing round in the wake of it (strike while the iron is hot, you know) and that could be a chance to get into the name. I don't think I'm going to get another shot below $3 unless/until something goes wrong, but that's the price I pay for waiting and being cheap.
In the meantime, I think Intellipharmaceutics is a name that is worth a spot on aggressive investors' watch lists. There is a definite scarcity of credible small-cap generic companies and this company has an attractive late-stage pipeline. I would be a little nervous about buying into this recent strength without a better explanation for why the stock moved, but the stock does not seem expensive provided the company can get the funding it needs.
Aggressive investors could BUY IPCI here. I, however, am going to keep waiting for news...
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