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Here’s Where We See Value In Egalet Corp (NASDAQ:EGLT)

Egalet Corp (NASDAQ:EGLT) collapsed back in July this year on the news that the company’s lead development asset – a drug called Oxaydo – had picked up a complete response letter (CRL) from the FDA.

This sort of development driven decline is relatively common in the biotechnology sector – a space dominated by binary events – and sometimes the markets oversell on a development and – in turn – serve up an opportunity to pick up some discounted shares.

EGLT Daily Chart

EGLT Daily Chart

As part of our coverage of Egalet subsequent to the news, we put forward an argument that suggested the company was the victim of one such oversell and could be worth watching throughout the latter half of 2017 as a result.

Fast forward to November and the company remains down on its pre-announcement pricing but, at the same time, looks primed for recovery. Egalet had a strong second half of last week, trading from around $0.83 a share to intraday highs on Wednesday at around $1.60 a piece before settling down to close out the week at pretty much bang on a dollar flat.

The run came on the back of some fresh trial data and, alongside the news, we also got word from management as to when we can expect another batch of numbers – all as relates to the same asset, Egalet-002.

The numbers that we just saw, combined with the planned near-term data release that’s slated to hit press before the end of the year, suggest we might finally start to see this company turn around and get moving towards its pre-collapse levels above $2.50 a piece.

That’s an around 150% premium on current pricing.

So what are we looking for specifically?

Well, the numbers that just hit press derived from a phase III safety study that was set up to demonstrate the safety of the above-mentioned Egalet-002. For those not familiar with this asset, the drug is an abuse-deterrent, extended-release oxycodone developed using what’s called the Guardian technology, which is a technology that’s proprietary to Egalet. It basically makes the pill that contains the active compound really tough, meaning it can’t be ground up or broken down in any way. It also results in the drug turning into a viscous type gel when mixed with water, meaning it’s really difficult to inject.

As per the latest data release, Egalet-002 was generally well-tolerated and the incidence of adverse events reported was generally consistent with outcomes expected following treatment with an extended-release oxycodone formulation. These numbers derived from 281 patients at 39 clinical sites in the United States who had a history of moderate-to-severe chronic non-cancer pain for six months or more.

So it’s safe and seems to work, and the company is currently conducting a second phase III, this time in patients with moderate-to-severe chronic pain (so this group could include cancer patients, while the first phase III did not) and it’s this trial that’s set to readout before the end of the year (and, in turn, is a major catalyst for the company near term). If the second phase III reads out as positive, we’re going to see a near-term regulatory submission for the asset in these two target indications and – in turn – we should see a considerable degree of speculative loading push the stock up as traders and investors pick up a position in anticipation of the company being able to get its product on shelves at some point next year.

There’s still risk here – don’t be fooled. A raise earlier this year mitigated some of the dilution potential but has far from negated it entirely. With that said, the mid-year dip seems as though it’s an oversell even against the backdrop of a CRL and, in turn, the upside potential outweighs the risk of another negative development and a company led equity issue.

Check out our previous coverage of this one here.

We will be updating our subscribers as soon as we know more. For the latest updates on EGLT, sign up below!

Image courtesy of Me via Flickr

Disclosure: We have no position in EGLT and have not been compensated for this article.

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Here’s Where We See Value In Egalet Corp (NASDAQ:EGLT)
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