Can Map Pharma Cure Your Portfolio Headache?

Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Shares of drug maker Map Pharmaceuticals (NASDAQ: MAPP) surged by over 20% during Friday’s abbreviated trading session. The catalyst for the move was the announcement that the U.S. Food & Drug Administration (FDA) had accepted the company’s resubmitted application for its migraine drug, Levadex.

The news was obviously viewed as a significant positive by the market, but the question now becomes what to do with the stock moving forward. While the next critical date in the process is not until April 15, 2013, I believe Map deserves an allocation to the speculative portion of your portfolio.

The Drug

Map’s migraine drug failed to receive approval last March, but the rejection was not driven by specifics of the treatment protocol. Reports from March citied “concerns [that] were related to the chemistry, manufacturing, and control of the treatment, [and] which should be easily remedied.” The company has addressed these issues and expects that the drug will be approved. The FDA expects to render a final decision by April 15, 2013, making this the next critical date for the drug and the company.

Levadex is an orally inhaled migraine treatment, and represents the most advanced drug in Map’s pipeline; if approved it will be the first that the company has brought to the market. Map has entered a collaborative marketing effort with Allergan (NYSE: AGN), which has provided Map $60 million in operating capital to date. An approval for the drug should trigger an additional $77 million in payments to Map from its partner.

Putting these numbers in the proper context, projections place potential sales of Levadex at $350 million by 2016. While this revenue will be shared by the two firms, relative to a total market capitalization for Map of $544 million as of this writing, it is significant. It is the comparative value between the company and the expected sales of the drug that make the stock an interesting speculative play. Additionally, if Levadex is approved, it will take Map from a development-stage drug company to a drug maker; this has the potential to dramatically change the way in which the company is perceived by the market.

A Bifurcated Market

The general makeup of the biotech industry tends to be clearly broken up into two very distinct groups, with a few companies able to operate in the limbo in between. On one end of the spectrum are the mega-players like Amgen (NASDAQ: AMGN). The company carries a $67 billion market cap, a P/E of 15.7 and a dividend yield of 1.6%. Amgen clearly faces different challenges than a small player like Map.

When a company is able to turn the corner by getting approval for a potentially successful drug, it can mean a significant change. For example, Vivus (NASDAQ: VVUS) receiving approval for its obesity drug, Qsymia, has had a major impact on the company; Vivus has now achieved a market cap over $1 billion. As the company navigates the space between micro and mega, every development can be critical. This week, the announcement that Aetna (NYSE: AET) will begin covering the drug has provided another positive boost for the stock; the news drove Vivus higher by more than 20%.

The Trade

While I am generally hesitant to even consider stocks that have experienced a single-day, double-digit move, Map is a stock to watch and begin acquiring. The next critical day is not until next April, but pullbacks should be seen as buying opportunities. The stock is not expected to have any issues gaining approval, at which time, the stock will move higher. You can capitalize on this future success by finding smart entry points between now and tax day.

Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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