Opiant Pharmaceuticals Inc (OTCMKTS:OPNT) has been a big winner for us over the last few weeks. The company was trading for a little over $14 a share back on July 27, when we first highlighted it as being one to watch. By the session close on August 9, this had risen to just short of $24 a share – a more than 71% appreciation across the period.
For us, however, this is just the start of a longer-term revaluation for Opiant.
Here is why.
The company is a pharmaceutical company that is working to develop and commercialize various treatments to deal with – primarily – overdosing. Its lead product right now is called Narcan, which is a medication used to block the effects of opioids, especially in overdose. The way it works is by acting on opioid receptors in the brain to, essentially, reverse the effect that opioids have in these regions. Put simply, it knocks the opioids out of the opioid receptors and in doing so is able to bring somebody back from an opioid overdose very quickly.
It is a well-established treatment and generates substantial revenues for a number of entities in the US as things stand. From Opiant’s perspective, the revenues derive from one royalty and licensing agreement between itself and a company called Adapt Pharma Limited and another with a company called SWK. This latter agreement saw Opiant pickup $3.75 million this week, with an announcement made today detailing the transaction. To summarize, the two entities signed an agreement back in 2016 that could be worth up to $17.5 million for Opiant, based on sales royalties from Narcan in SWK’s efforts to commercialize the drug. The latest $3.75 million is based on the achievement of at least $25 million of cumulative net sales of Narcan during two consecutive quarters in the first half of 2017.
It’s on this arrangement (and the drug’s potential as inferred by the sales targets having been met this year to date) that we are basing a large portion of our forward bull thesis. According to the terms of the royalty monetization agreement, after SWK has received an aggregate of $26.25 million in royalties and milestones, Opiant will receive at least 90% of future NARCAN royalties and milestone payments.
This is important not just from a Narcan perspective, however, it also allows the company to fund its research and development efforts without having to dilute shareholders to any considerable degree, as is the case all too often at this end of the biotechnology space.
There is a so-called ‘heroin vaccine’ in developing right now, which we looked at in a bit of detail last time, and another couple of overdose-combating applications rooted in the technology that underpins Narcan (a nasal spray) that could start to bring with them key revaluation catalysts throughout late 2017 and beyond.
The key thing to recognize here is that, at its current price, Opiant’s valuation fails to reflect the company’s potential to generate revenues based on sales royalties from its Narcan collaboration efforts. Add to this the potential for a funded development program (at least, that is, funded to a degree) to bring with it both catalysts near to medium term and revenues longer-term, and it’s tough to see how this stock can remain at its current levels, even subsequent to the recent appreciation.
Cash on hand at last count, end of April this year, came in at a little over $9 million. Adding the just received $3.75 million to this number and accounting for a quarterly burn in around $3 million, there is a runway in place that carries the company through to at least mid-2018.
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Image courtesy of Karen Neoh via Flickr
Disclosure: We have no position in OPNT and have not been compensated for this article.