Friday, July 27, 2007

Blood Pressure Rises for Flamel Tech. Stockholders, Coreg CR 2Q Sales Slow

Shares in Flamel Technologies (FLML-$19.05) slipped 5.1% yesterday, following word that Glaxo (GSK) sold only $20 million in Coreg CR in its second quarter.

In its 2Q earnings conference call, GSK said sales momentum was lost for Coreg CR when its sales forces, which are the same ones that are responsible for detailing the diabetes treatment, Avandia, had their attention turned in June to defending the Avandia franchise, following
worries about alleged increases in the risk of heart attacks.

The Company now has made adjustments in its field force coverage, and has about 2,000 reps with Coreg CR in a first position, which should give it the promotional visibility it will need as Coreg IR moves closer to the anticipated launch of the first generic carvedilol (expected in September – October 2007).

The renewed sales initiative seems to be paying dividends: (i) key commercial insurance plans have now moved Coreg CR into a tier 2 coverage; (ii) based on the most recent retail prescription data, Coreg CR now represents about 21% of new prescriptions for the total Coreg franchise, up from 11.5% for the week-ended June 22, 2007; and GSK market research indicates that more than 90% of cardiologists have prescribed Coreg CR and expect to increase their future use.

The first patent for Coreg currently expires in September 2007. Albeit carvedilol is facing imminent generic intrusion, the 10Q Detective believes the franchise still has room for life-cycle management, such as the dosing convenience of switching Coreg to Coreg CR.

Bears may conclude that the Coreg CR numbers miss suggests a repudiation of the commercial appeal of Flamel’s drug-delivery potential. We beg to differ, for strengthening Rx trends and managed-healthcare wins should set the stage for a stronger third quarter.

In addition,
the long-term buy thesis for Flamel remains intact, including the Company’s visibility as a potential acquisition by big pharma.

The risk to our bullish argument is that the replacement power of Flamel’s pipeline, should Coreg CR come up short, is still several years away from commercial viability.

Editor David J. Phillips holds a long position in Flamel Technologies. The 10Q Detective has a Full Disclosure Policy.

5 comments:

Anonymous said...

Hi David,

I'm in the house of pain with Flml (bought at $27); any new news here? Do you think this could be one of the stocks hedge funds are having to sell to raise liquidity?

With Third Point on board for an additional 2M shares in the low 20s it would seem this sell off is overdone. Since they own over 5% they would have to repory any sales immediately correct via the sec.gov website? Thoughts?

Thanks,
James

David J. Phillips said...

Albeit the selling in Flamel has been overdone, compounded by hedge funds & momentum traders being hit by margin calls, the fundamentals have not changed. That is, in my view, the price erosion speaks loudly to weekly IMS New RX data probably still running well below expectations.

I am long stock at $16 & sitting tight.

Anonymous said...

Dear David,

Dear David,

Thank you for your concise FLML analysis. I, like many other shareholders, am absolutely bewildered by the dramatic price decline in the stock--coupled with no communications from Management.

I feel the company is trading at a ridiculously low market cap when you consider its technologies, license agreements with GSK for Coreg CR, potential new partnerships, and potential takeover candidate by big pharma. However, I am a bit concerned, to say the least, with the following factors.

1. Company has stated in previous SEC filings concerns of dollar devaluation against the Euro. With the recent devaluation of the Dollar, perhaps this is magnifying drop in share price?
2. Managements silence during this rapid loss in shareholder value.
3. Why haven’t any new micropump deals been announced if the technology and benefits are so effective? For example, many antibiotics must be taken multiple times per day. Also, FLML’s trigger lock technology seems like it would be a necessity for heavily abused prescription meds such as Oxy Contin.
4. Management says it has many existing and new MedUsa partnerships, yet they have not disclosed the name of any new partners (to the best of my recollection).
5. FLML management states plant is operating 24/7 and they are adding new lines of production. With GSK Coreg CR sales off to a slow start, where is the inventory going? Is it being purchased by GSK?
6. Increased cash burn because of Coreg Cr slow launch and unfavorable foreign exchange rates. Do you think FLML will have to raise additional funds?

I'm not quite clear on just how FLML is paid by GSK for the manufacture and sale of Coreg CR. I read FLML operates under a cost plus manufacturing agreement with GSK. So is flml paid both for manufacturing the product and a royalty on GSK gross sales of Coreg CR?

I understand that GSK financed the Plant to manufacture Coreg CR particles. Is FLML in any way restricted by agreement with GSK for use of plant to manufacture other compounds for other companies?

Though I am not a beneficial owner, I hold a significant stake in Flamel. David, any thoughts will be greatly appreciated. I plan to contact Flamel Management this week to discuss the aforementioned.

Sincerely,

Derek

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