Back in Business - Aradigm Corporation (OTC:ARDM) Restarts Revenue with Sumavel

Zogenix, Inc. will soon be writing a $4 million check to Aradigm Corporation (OTC:ARDM), which can't come soon enough - Aradigm hasn't seen any revenue at all over the prior two quarters. And, the company hasn't seen a $4 million year since 2006. Investors can rest a little easier now, especially knowing Zogenix will be issuing the occasional royalty check on top of the one-time payment.

What's the scoop? Zogenix has been developing the Sumavel 'DosePro'... a needle-free delivery system of sumatriptan for the treatment of migraines. Sumatriptan has been used to treat migraines for years, and was administered as an injection or a tablet.

ARDM's role in the relationship is simple - DosePro is Aradigm's design, and therefore, Aradigm will collect royalties. There are no specifics on the Zogenix/Aradigm deal.

Anyway, the patented Sumavel device is now an approved device in the United States.

What does this mean for ARDM investors in the long run? There are 30 million people in the US who suffer from migraines, and they spend about $1 billion per year on sumatriptan succinate tablets alone. Annual sales of Imitrex(r) injections (the alternative to the tablet, which may be more effective) are approximately $215 million. The generic market may make that number considerably larger, but.....

All told, we can safely say there's at least a potential billion dollar market out there. If the DosePro 'non-injection' injection works better than the tablet, and there's not the misery of getting an actual shot involved, this could be big for ARDM.

Like we said, the royalty arrangement is an unknown (at least as far as we could find), but in general, these arrangements are pretty lop-sided - odds are that Zogenix is getting too much (say 90%) and Aradigm is getting too little (let's say 10%).

Even so, if DosePro can capture 10% of the market, that's roughly $100 million (at least). If Aradigm only gets 10% of that, it's still $10 million per year. That's not bad for a company that did $251K last year, or for a company that did $4.8 million in revenue in 2006.... and that was considered a very good year.

As another comparison, the current market cap is $28 million, which is much more palatable knowing there's a multi-million dollar opportunity in the works. The DosePro isn't the only thing ARDM has  going for it though; they're also working on their inhaled liposomal ciproflaxicin, currently in Phase I and Phase II (different studies) testing. That's years down the road, but it's a future.

We don't expect anything near these kinds of numbers from DosePro for 2009, but you have the perspective now. And, the company has a target of sorts.

As for ARDM's chart, these bowl-shaped reversals (long term) are the precise shape we like to see for long-term positions. Even in the short run though, today's 27% gain isn't terribly intimidating when you look at the big picture. Clearly the buying interest is there, and there's tons of room for Aradigm shares to recover.

It's not a full-blown buy recommendation yet, but ARDM could make our official buy list soon.

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