4Q and 2013 Guidance Confirm Ofirmev Growth, Potential for CADX

Cadence Pharmaceuticals (CADX) released full year 2013 guidance for Ofirmev sales of between $94M and $100M and increased revenue estimates in 4Q12 to approximately $17M, confirming that Cadence is executing well on its Ofirmev growth strategy. The company anticipates that the number of Ofirmev vials used per patient will double or more in the next few years; the number of physicians prescribing Ofirmev will continue to increase, expanding market penetration; and the price of the drug will rise similarly to other hospital-based products, in the 5-8% range annually. Ofirmev is an IV formulation of acetaminophen for moderate to severe pain and fever. As a non-NSAID, non-opioid, analysts expect the drug to make a strong entrance in the market, with peak revenue estimates of around $400M. Wednesday’s 4Q unaudited expectations represent a 6% increase over previous estimates ($15.9-$16.4M), and Cadence’s FY2013 guidance is in-line with analyst expectations, and could present a beat if sales come in at the high end of that range. But more importantly, Cadence’s fourth quarter estimates represent a 37% increase over third quarter product revenue. Management outlined its Ofirmev growth expectations in detail at Cadence’s Investor day in December 2012 (see prior report), and it appears to be executing well on the strategy.  If Ofirmev continues its solid growth ramp, sales of the drug will support a higher valuation for CADX.

Ofirmev economics are improving, and we continue to see evidence of growth. With its earnings release in November, Cadence revealed that 3Q12 sales of $13.9M climbed 25% from $11.1M in 2Q12, and if Wednesday’s announcement proves correct, sales will have climbed another 37% in 4Q12. In addition, gross margin on Ofirmev sales was 56% in the third quarter, an improvement over the 48% seen in the second quarter of last year.

If FY13 sales hit company guidance of near $100M, Ofirmev sales will have improved by roughly 100% over FY12 (likely $50M). Management expects growth to continue, and has guided for vastly improved market penetration for Ofirmev as doctors begin prescribing Ofirmev in a multi-modal approach to pain management. As of CADX’s investor day, management believed the drug had penetrated just 7% of the market but expected a whopping 56% in the next few years, meaning revenue could increase by eight-fold as well. The customer base for Ofirmev gained by 10% during the third quarter of 2012, with a total of nearly 3,500 unique customer accounts at September 30 and Ofirmev was on formulary at over 2,000 institutions in the U.S. Considering the strong sales growth thus far, Ofirmev should continue to drive value for CADX; peak sales could support a valuation in the billion dollar range. For a more detailed look at Cadence and Ofirmev’s differentiation, see PropThink’s original article from December 6th. Since we noted the stock’s potential, CADX has climbed 23%, 35% before a pull-back in the last week. Cadence will release FY12 details during its normal earnings call.