Abuse Resistant Oxycontin (Remoxy)

NEW YORK (CNNMoney.com) -- Durect is developing an abuse-resistant form of the addictive painkiller OxyContin that has a good shot at being a blockbuster, but it faces a minefield of potential patent battles.

While other companies are striving to fill their pipelines with new drugs, Durect Corp. is developing new ways to ingest old drugs like OxyContin. Durect (up $0.04 to $4.49, Charts), a relatively small pharma pioneer with a market capitalization of about $400 million, is tweaking methods of drug delivery.

Purdue Pharmaceuticals' painkiller OxyContin is a pill that can be crushed into powder and snorted, a favorite form of delivery for addicts seeking to abuse the drug. (A Google search on the words "oxycontin" and "[censored]" came up with 508,000 hits, as opposed to 373,000 hits for "oxycontin" alone.)

To try and reduce abuse of the painkiller, Durect is developing Remoxy, a gel cap form of OxyContin, with its partner King Pharmaceuticals (down $0.01 to $17.50, Charts). Remoxy is swallowed like the standard pill, but addicts would no longer have the option of putting it up their noses.

"[Remoxy] can't be crushed up and snorted because it's a gel cap," said Durect Chief Executive James Brown. The CEO also said that the Remoxy loses potency when combined with alcohol, unlike other painkillers, which gain potency when added to alcohol, with dangerous and sometimes fatal results.

Analysts expect Durect, based in Cupertino, Calif, to announce results of late-stage tests for Remoxy in mid-2007. The company could bring the product to market next year.

"I think the FDA will act on [Remoxy] rather quickly because OxyContin is kind of a mess for [the agency]," said Jon Hickman, analyst for MDB Capital Group.

Hickman said that Remoxy could take half of OxyContin's annual sales, because the gel cap painkiller would be favored by doctors who "had the opportunity to prescribe the same medication but with less potential to make it to the party scene." (Purdue spokesman Tim Bannon said that annual OxyContin sales used to total $1.5 billion, but have dropped "substantially" since drugmakers infringed the patent, slipping below $1 billion in 2005.)

Privately-held drugmaker Purdue holds patents on OxyContin. This drug has been the subject of patent battles with Teva Pharmaceuticals (up $0.24 to $34.17, Charts), the biggest generic drugmaker in the world, as well as Endo Pharmaceuticals - one of Durect's partners. Durect CEO Brown said these patent battles are related to generics and have nothing to do with his drug Remoxy.

In 2006, Purdue settled with Endo and Teva, which had been producing generic versions of oxycodone, the active ingredient in OxyContin. Teva and Endo agreed not to produce generics in exchange for Purdue's agreement not to pursue them for damages related to their production of generic OxyContin.

Purdue intends to keep defending its patent going forward.

"We have several valuable and valid patents with respect to OxyContin and we will enforce them," said Timothy Bannon, spokesman for Purdue.

Will this spell trouble for Durect?

Russell McAllister, analyst for Merriman Curhan Ford, doesn't think so. In a note published in September, he said the settlements "remove a significant overhang" from Durect, prompting the analyst in September to upgrade the company to a "buy" from "neutral." Also, McAllister and other analysts believe that Durect and its partners will be able to go forward producing Remoxy, despite Purdue's OxyContin patent.

"But to put it bluntly, Purdue's patents are not robust," said McAllister to CNNMoney.com.

Brown, the CEO of Durect, said Remoxy is legally protected and he isn't worried about legal threats to his product. "Our partners are moving forward and we feel comfortable with where we are," said Brown.

McAllister said Remoxy has billion-dollar blockbuster potential, though sales would be divided among the partners. Even still, the analyst expects Durect to garner $120 million in royalties in 2009, which is nearly five times the company's estimated revenue for 2006.

Angela Larson, analyst for Susquehanna Financial Group, believes Durect a risky investment because the patent fight may not be over, though she gives the company a "positive" rating.

"The active ingredient for Remoxy may face patent infringement hurdles by Purdue, which has patents on the active ingredient in a different formulation," wrote Larson, in a published note from September, 2006.