Pacira Pharmaceuticals Inc. (PCRX, Financial) caught the attention of investors when H.C. Wainwright raised its price target on the stock. The price target increase, however, fails to account for the tremendous downside risk that lies in wait.
Pacira's claim to fame is Exparel
Exparel is Pacira Pharmaceuticals' only approved drug. The treatment has been approved for post-operative acute pain and is a massive revenue driver. In fact, the company generated more than $290 million in sales of the treatment last year alone. While the company also has the proprietary DepoFoam product, it is largely dependent on Exparel as its delivery system.
Considering the importance of Exparel to Pacira Pharmaceuticals, should anything happen to this treatment, whether it be a manufacturing upset, name-brand competition or generic competition, the action could lead to a drastically negative effect on the value of the stock.
The massive risk to Pacira's value
The risk to Pacira has to do with Heron Therapeutics Inc. (HRTX, Financial) and its clinical candidate, which is known as HTX-011. The candidate has proven to outperform the current standard of care in clinical trials. In fact, the data proved to be so positive that the U.S. Food and Drug Administration granted the drug breakthrough therapy designation.
This is a big problem for Pacira Pharmaceuticals because, if all goes well for Heron, the company will soon recieve FDA approval for HTX-011 for the exact same indication Exparel is approved for. If HTX-011 is approved, it will become a direct, name-brand competitor to Exparel. That's a problem in and of itself.
Many experts argue that HTX-011 is the superior treatment due to strong efficacy and safety data. To make matters worse for Pacira, Heron even put its treatment head to head against Exparel and found that pharmacy directors overwhelmingly chose HTX-011 over the competition.
With a little strategy, investment and a strong commercialization partner, Heron Therapeutics could take the acute pain market by storm should HTX-011 be approved. All the company would really have to do is price the treatment slightly lower, making it a tempting option to consumers, which would not bode well for Pacira.Â
The bottom line
While H.C. Wainwright is a highly respected firm, chances are they got it wrong when it comes to Pacira. With such a near-term risk, the firm's projection that the stock will grow 32% within a year is out of line. In fact, chances are that within a year, Pacira investors will be counting their losses, not their profits.
Nonetheless, only time will tell. What we do know is Heron will soon submit a new drug appication for HTX-011. With breakthrough therapy designation, the Prescription Drug User Fee Act date will likely be at the beginning of next year. Therefore, within a few short months, Pacira could take a hit.Â
Disclosure: The author has no positions in any stocks mentioned.Â
