Somaxon Pharmaceuticals Inc. (SOMX) soared last week after the FDA approved its Silenor as the only treatment of insomnia treatment that was not accompanied by all of the side-effects for numerous sleep-actions and additive issues seen in other sleep-aid drugs. Before the FDA approval, this was a $4.00 stock. It ran to $10.60 before closing at $8.25 last week as major profit taking came into play.
Last week’s reaction first looked like the chase for ten-baggers where traders seek exponential gains in risky stocks. And currently the stock may be rangebound as traders and investors decide what they should buy and sell after such a move. But this is a definite stock to watch this week and on ahead as the dust settles. The company has a tiny market cap of about $200 million and it does not even have stock options available in the name.
The issue to consider here is that there is a huge opportunity for Somaxon. It is hard to quantify a product before a launch on the market, but there are two huge drugs that are very well known by those with insomnia and other issues which cause restless sleep… Sanofi Aventis (SNY) makes Ambien and the recently acquired Sepracor makes LUNESTA. Drugs.com listed Ambien as the #43 drug of all drugs in 2008 with sales of $865 million, and the site listed Lunesta as the #47 drug with $771 million in sales.
Then there are many other drugs on the market for sleep aid, and some are used for sleep aids tha are off label uses. And most sleep aid drugs have severe side effects for addiction or events that have been reported by those sleep walking, eating or driving in the sleep, and worse.
There has been some insider selling since the FDA nod. That is only to be expected because this one does not have six-figure salaries for executives. In fact, it has a very small number of employees and this makes the company effectively a one-product company. It has licensed the base histimine and it is looking for a U.S. commercial partner and is preparing to launch Silenor in the second half of 2010.
The stock has effectively no analyst following. The upside and downside here could vary greatly depending upon how each investor sees Somaxon. It is hard to quantify if Silenor itself has a blockbuster opportunity with $1 billion in sales. But the sleep aid market itself is a blockbuster business with billions of dollars in sales and it is greatly underserved and many who want to take the prescriptions currently either cannot or will not take the drugs due to addiction and side effect issues specific to the sector.
Don’t be shocked if the company raises capital. It probably needs capital to expand and to negotiate from a position of strength as it seeks a partner. Still, there is a tremendous opportunity here on a risk-reward basis.
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