AcelRx Partners Zalviso in Europe

AcelRx Pharmaceuticals (ACRX) announced on Monday a partnership with Grunenthal GmbH for the commercialization of Zalviso, the company’s patient-controlled analgesia product, in Europe and Australia. AcelRx will receive $30 million up front; is eligible for $220 million in regulatory and sales milestones (1/3 to 2/3 split); and will receive royalties in the mid-teens to mid 20% on net sales of Zalviso in the Grunenthal territories. Grunenthal will prosecute and maintain the market application for the drug product part of Zalviso, while AcelRx will prosecute and maintain the CE mark for the device component of Zalviso in Europe. AcelRx will manufacture and supply both the drug and device elements of Zalviso. AcelRX expects to submit for approval in Europe around the third quarter of 2014, and may receive a CE Mark for the device in the first half of next year. The U.S. Zalviso approval decision date is set for July 27, 2014.

ACRX traded up to $9.50 on the news. We suggested that PropThink Premium go long the stock on November 1 and again on November 19th, at $6.75 and $7.75, respectively. ACRX remains a PropThink top pick for 2014, and we believe the stock should return to its previous highs before the July PDUFA date. For the full story, read our previous coverage, here.

The upfront payment brings AcelRx’s cash balance to $106 million. We expect the company to end the year with $98 million. The company still hopes to partner Zalviso in the Asian markets, which could bring in more non-dilutive cash before the 2014 U.S. approval decision. The biggest takeaway for investors is that AcelRx believes its cash position should be sufficient for commercial launch in the U.S., assuming approval, and noted on today’s conference call that this may allow the company to reach break-even. Although we take this with a grain of salt, it sounds like ACRX won’t be returning to the markets for capital.

AcelRx has, to date, not discussed exact pricing plans for Zalviso in the U.S. On today’s conference call, however, the company noted that $125-130 per two-day treatment is a likely range in Europe. When asked about the market opportunity, the company replied:

And I would say in Northern Europe, the potential is going to look very similar to what it would like in the U.S., probably with a price point which is about three quarters of the price point that’s attainable in the U.S. marketplace – that’s the way we think about it. In Southern Europe, again, I am not going to nail down the populations. There’s a lower utilization of penetration of IV PCA [morphine], which probably reduces the overall potential for Zalviso in the first instance. So I think over time that could be overcome through successful commercialization and probably there’s more sensitivity to price still in Southern Europe than there is in the Northern European environment. So, long story short, it’s a robust opportunity, but I probably would be remiss to put an absolute dollar number. The number range that you gave, Mario, $100 million to $500 million, is probably the right order of range of magnitude, but I wouldn’t necessarily want to pin down where in there the potential would lie.

AcelRx suggested that Zalviso might feasibly launch in Europe in the second half of 2015.

Note that the CE Mark creates a new catalyst in 1H14, along with further information on the development plan for ARX-04, the company’s sufentanil NanoTab for the treatment of moderate-to-severe acute pain, likely next quarter following an end-of-phase 2 meeting with the FDA.

In connection with ACRX, PropThink has taken a long position.