NuPathe faced some setbacks in the recent development of Zecuity, which has pressured shares since late last year, but management believes they have successfully addressed all issues and are confident in the product’s approval. In August of 2011, the FDA responded to NuPathe’s initial New Drug Application with a number of manufacturing and safety questions in a Complete Response Letter (CRL). After additional studies and changes to the product’s design, the FDA accepted the resubmitted NDA in July of this year. Importantly, the FDA’s CRL noted that NuPathe had successfully established the efficacy of the migraine patch, despite the aforementioned issues. If approved, Zecuity will be entering a U.S. market for anti-migraine products anticipated to reach $3.2B by 2015. Should Zecuity acquire even a conservative 10% of the domestic market, the device stands to generate revenue of more than $300M. Considering the stock’s current $45.4M market capitalization, PATH has considerable potential if Zecuity receives FDA approval, and the stock is supported by roughly $1.75 in cash per share, limiting downside from current prices.
Following approval, however, PATH shares face a number of challenges before the company brings Zecuity to market, if the treatment is approved. In the long-term, warrants from its latest financing and the conversion of Preferred shares may dilute the stock, and management has guided for another cash infusion ahead of launching the product in late 2013, ideally as part of a partnership agreement. Nevertheless, PATH offers short-term gains leading up to the FDA’s decision as traders rally in anticipation; investors can choose to play the potential run-up into the decision, and avoid the binary risk of approval.