- QRxPharma close to FDA filing for MoxDuo - Approval expected by middle of next year - Southern Cross upgrades QRX to Buy from Spec. Buy

By Chris Shaw

Last September Southern Cross Equities initiated coverage on QrxPharma ((QRX)) with a Buy rating (see: QrxPharma: The Next Australian Growth Stock, FNArena, 15/09/2010) and the broker has reiterated its positive view this week.

The update comes as QrxPharma gets close to filing for US Federal Drug Administration approval for MoxDuo, which is a combination of the analgesics morphine and oxycodone that together offers lower side effects than equianalgesic doses of either drug. Lower side effects is a key attraction of MoxDuo.

Southern Cross expects FDA approval will be forthcoming by the middle of 2012, with commercial sales to follow soon after. With pivotal trials having been completed and favourable data resulting, Southern Cross expects a fairly straightforward path to the market for MoxDuo.

As well, QRxPharma is currently completing a comparative safety study that will allow MoxDuo to be differentiated from other opioids in the market. Southern Cross expects this will enabling QRxPharma to make label claims.

Opioid analgesics are pain management drugs, Southern Cross noting this market is currently worth around US$11 billion and is growing at about 8% annually. For QRxPharma this translates to a billion dollar opportunity on Southern Cross's estimates.

This is because MoxDuo is more than one product, Southern Cross noting work continues on MoxDuo IR, an immediate release product, MoxDuo IV, an intravenous product, and MoxDuo CR, a controlled release product.

Aside from MoxDuo, QRxPharma is also working on products in the venomics field, which involves the development of blood coagulation products from snakes. As well, Southern Cross notes QRxPharma has achieved some early success in developing a compound for treating Parkinson's Disease.

Factoring in peak sales for the three products of US$400 million for MoxDuoIR, US$30 million for MoxDuo IV and US$375 million for MoxDuo CR, which represent less than 10% of the current US market for opioid analgesics and a similar sales profile in Europe, as well as product life out to the late 2020s, Southern Cross has a base case valuation for QRxPharma of $2.75.

Some assumptions have changed since Southern Cross initiated coverage last September. A launch date for MoxDuo is now assumed to be July next year against March previously, and MoxDuo IR sales of US$425 million are now expected by year four, up from US$250 million. More optimistic assumptions than these generate an optimistic valuation for Southern Cross as high as $3.91 per share.

Having revised its model, Southern Cross now rates QRxPharma as a straightforward "Buy", an upgrade from last September's "Speculative Buy" recommendation. Price target has also increased and now sits at $3.30, up from $2.10 previously.

[A Speculative Buy rating implies potential reward but high risk, whereas Buy removes an element of risk from the potential reward.]

The three brokers in the FNArena database covering QrxPharma all rate the company as a Buy, albeit Citi is maintaining a "Speculative Risk" qualification. Consensus price target according to the database is $1.94, which suggests significant upside if Southern Cross's valuation proves to be closer to the mark.

Shares in QRxPharma today are stronger and as at 12.30pm the shares were up 11c at $1.90. Over the past year QRxPharma has traded in a range of $0.845 to $1.905. The current share price implies only 2% upside to the current consensus price target.

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