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Somaxon Pharmaceuticals, Inc. (SOMX) filed the new drug application (NDA) for insomnia drug Silenor in late January 2008. The FDA accepted the application in April 2008, but recently extended the PDUFA action date until February 28, 2009 (it was December 1, 2008).
Although our expectations for approval have not changed, the delay of a decision by the FDA puts Somaxon in a tough situation. Somaxon is currently in discussion with several interested parties for commercialization of the drug. Management is looking for a co-promotion agreement in the U.S. However, we do not believe a deal will be reached until after the FDA's decision. And, now with another three months to wait, cash burn is becoming a concern.
Unfortunately, the stock is probably heading below $1, and selling will beget more selling once that happens. We had previously recommended investors hold the shares going into the decision because expectations were low. Now we think it is best to exit the name completely and wait until Somaxon has the approval letter (~50% chance) in hand.
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