(By Rich Bieglmeier) In a week from Thursday, Cornerstone Therapeutics Inc.
) will sit down with the Cardiovascular and Renal Drugs Advisory Committee (CRDAC) of the U.S. Food and Drug Administration (FDA) to review Cornerstone's New Drug Application (NDA) for lixivaptan (CRTX 080).
Lixivaptan is for the treatment of symptomatic hypervolemic and euvolemic hyponatremia associated with heart failure and syndrome of inappropriate antidiuretic hormone (SIADH), respectively.
Hyponatremia is a metabolic condition that occurs when there is not enough sodium (salt) in the blood. It is the most common electrolyte disorder among hospitalized patients affecting up to six million people in the U.S. and is often diagnosed in patients with heart failure. The direct medical costs associated with hyponatremia are estimated to range between $1.6 and $3.6 billion annually
In the U.S. alone, there are five million heart failure patients, and each year one-fourth of them develop hyponatremia.
On September 13, 2012, the CRDAC will make a recommendation on regulatory action for Lixivaptan to the FDA, which is not required to adhere to the committee's advice. If all goes according to plan without any hiccups, word of approval or not should come from the FDA around October 29, 2012.
The share price has come unglued since mid-August, dropping 21%, from $ 7.37 to today's price since mid-August. According to the tape, investors are showing some doubt. Options players are a bit bearish on the CRTX September chances too, as open interest in put options outnumbers call options open interest 3,128 to 2,513.
Either way, Cornerstone has the potential to move dramatically on the agency's recommendation. There are 26.2 million shares outstanding with a float of only 8.45 million. iStock likes that management's fortunes are tied to the stock price as 67.42% is held by insiders, and just a shade under 14% for institutions. Great news on the lucky 13th and there are plenty of potential bidders to drive the share price higher. On the flip side, insiders are likely to hang on, and institutions tend not to cannibalize themselves by rushing for the doors if the CRDAC decision goes the wrong way.
Additionally, the smallcap biotech has a few drugs on the market that are growing handsomely; although, they don't seem to have the same potential, "blockbuster" appeal as Lixivaptan. Undoubtedly, a negative outcome next Thursday will hit the stock, but we don't think by much.
The stock trades for a little more than twice the company's sales and 3% higher than book value, both of which are considerably lower than most smallcap, big drug in the pipeline peers.
Investors willing to take risk might consider buying the November 7.50 call options. The last trade on Wednesday was 60 cents. If Cornerstone Therapeutics Inc. (NASDAQ: CRTX) get the thumbs up from (CRDAC), then we wouldn't be surprised to see the stock challenge its 52-week high of $7.99. On the other hand, a swing and a miss the stock is likely to fall more than the November 7.50 call ask price of 90 cents.
Should the company follow up with a FDA OK on October 29th, investors could profit handsomely while minimizing your risk to the dollar amount put into options.