Encysive: Stock Beaten Down to a Possible Buy
by Andrew Vaino
Vaino's Biotech Corner
On a few occasions in since last November I wrote how I thought Encysive pharmaceuticals (ENCY) was a good short. Encysive had been having some problems getting their pulmonary arterial hypertension (PAH) treatment Thelin on the market in the US. So far they have only received approvable letters from the FDA. That is, the FDA wanted more data. Encysive's CEO stated that there was one issue the FDA still had a problem with, but wouldn't specify what that issue was. While the CEO stated the issue had been addressed, I was mistrustful of his lack of transparency. The Monday after I suggested shorting the stock (November 6) it was at $5.76. The stock closed today (March 16) at $2.77, a 52% decline (note, in the BC tracking portfolio I covered on December 29 at $4.17, a gain of 27.6%: I guess bulls make money, bears make money, and chemists cover too soon!)
So, while I clearly had no respect for ENCY in the past, I think the stock has been beaten down enough that some money can be made going long. Encysive expects to hear from the FDA on June 15 about their application for Thelin. There is no guarantee it will be approved, and, indeed, I wouldn't even count on it. The drug has, however, been approved in other parts of the world, and has been launched in the UK, Germany, and Australia. So, even without the US market they will be selling to a combined population of over 160 million. To be clear, pricing controls in these countries does diminish the attractiveness of these markets.
Now, a kicker in all this is that Gilead (GILD) expects to hear from the FDA about their PAH drug Ambrisenstan (acquired when they purchased Myogen) on June 18, three days after Encysive should hear about Thelin.
Clinical results for both Thelin (J. Am. Coll. Cardiol, 2006, 47, 2049) and for Ambrisenstan (J. Am. Coll. Cardiol, 2005, 46, 529) have been published. The primary endpoints for these studies was improvement in 6 minute walking distance (6MWD, a benchmark for cardiopulmonary function) after 12 weeks. In the Ambrisenstan case, on average patients displayed an improvement of 40m in the 6MWD test. The Thelin study reported an improvement of 25m. In another publication about Thelin (Journal of Heart and Lung Transplantation, 2007, 26, 63) one third of patients experienced improvements of >15% on the 6MWD. As the baseline value was 325m this represents an improvement of 49m.
While Ambrisenstan does appear to have greater efficacy, differing safety profiles for the two drugs means there is still a place for Thelin. For example, in the clinical trials mentioned above 13 of 64 (20.3%) patients taking Ambrisenstan experiencing clinical worsening, compared with only 4 out of 61 (6.5%) patients taking Thelin.
Encysive also has a phase 2 study underway, on BC3711, to treat resistant hypertension. While good results from this trial might push the stock up a bit, most of Encysive's value is in Thelin.
The other issue facing Encysive is their extended FDA plight has seriously strained their balance sheet. In releasing the 2006 10K they expressed potential difficulties in continuing as a going concern---never a good thing. This also raises the possibility of further dilution.
My take is ENCY has been beaten down to a point were it may be worth a buy. To be clear, this is still highly speculative, and I still wish management were more transparent about Thelin's FDA troubles. The launch of their product in a market of substantial size is encouraging. While Ambrisenstan does appear to offer greater efficacy, differing safety profiles may mean some patients will respond better to Thelin. At a price of under $3, even modest revenue for Thelin will afford a rise in price.
I don't recommend buying ENCY until the VIX decreases a bit and until its technicals start to improve. The stock just broke through support at ~$3.30 and could keep falling. If it hits $2.50 I'd consider buying.
Source: PeterNavarro.com
RELATED READING:
- No Decisive Word on Encysive Pharmaceuticals
- Encysive: Despite TBC3711 Trial Resumption, Thelin is Key Factor
____________________
Vaino's Biotech Corner
On a few occasions in since last November I wrote how I thought Encysive pharmaceuticals (ENCY) was a good short. Encysive had been having some problems getting their pulmonary arterial hypertension (PAH) treatment Thelin on the market in the US. So far they have only received approvable letters from the FDA. That is, the FDA wanted more data. Encysive's CEO stated that there was one issue the FDA still had a problem with, but wouldn't specify what that issue was. While the CEO stated the issue had been addressed, I was mistrustful of his lack of transparency. The Monday after I suggested shorting the stock (November 6) it was at $5.76. The stock closed today (March 16) at $2.77, a 52% decline (note, in the BC tracking portfolio I covered on December 29 at $4.17, a gain of 27.6%: I guess bulls make money, bears make money, and chemists cover too soon!) So, while I clearly had no respect for ENCY in the past, I think the stock has been beaten down enough that some money can be made going long. Encysive expects to hear from the FDA on June 15 about their application for Thelin. There is no guarantee it will be approved, and, indeed, I wouldn't even count on it. The drug has, however, been approved in other parts of the world, and has been launched in the UK, Germany, and Australia. So, even without the US market they will be selling to a combined population of over 160 million. To be clear, pricing controls in these countries does diminish the attractiveness of these markets.
Now, a kicker in all this is that Gilead (GILD) expects to hear from the FDA about their PAH drug Ambrisenstan (acquired when they purchased Myogen) on June 18, three days after Encysive should hear about Thelin.
Clinical results for both Thelin (J. Am. Coll. Cardiol, 2006, 47, 2049) and for Ambrisenstan (J. Am. Coll. Cardiol, 2005, 46, 529) have been published. The primary endpoints for these studies was improvement in 6 minute walking distance (6MWD, a benchmark for cardiopulmonary function) after 12 weeks. In the Ambrisenstan case, on average patients displayed an improvement of 40m in the 6MWD test. The Thelin study reported an improvement of 25m. In another publication about Thelin (Journal of Heart and Lung Transplantation, 2007, 26, 63) one third of patients experienced improvements of >15% on the 6MWD. As the baseline value was 325m this represents an improvement of 49m.
While Ambrisenstan does appear to have greater efficacy, differing safety profiles for the two drugs means there is still a place for Thelin. For example, in the clinical trials mentioned above 13 of 64 (20.3%) patients taking Ambrisenstan experiencing clinical worsening, compared with only 4 out of 61 (6.5%) patients taking Thelin.
Encysive also has a phase 2 study underway, on BC3711, to treat resistant hypertension. While good results from this trial might push the stock up a bit, most of Encysive's value is in Thelin.
The other issue facing Encysive is their extended FDA plight has seriously strained their balance sheet. In releasing the 2006 10K they expressed potential difficulties in continuing as a going concern---never a good thing. This also raises the possibility of further dilution.
My take is ENCY has been beaten down to a point were it may be worth a buy. To be clear, this is still highly speculative, and I still wish management were more transparent about Thelin's FDA troubles. The launch of their product in a market of substantial size is encouraging. While Ambrisenstan does appear to offer greater efficacy, differing safety profiles may mean some patients will respond better to Thelin. At a price of under $3, even modest revenue for Thelin will afford a rise in price. I don't recommend buying ENCY until the VIX decreases a bit and until its technicals start to improve. The stock just broke through support at ~$3.30 and could keep falling. If it hits $2.50 I'd consider buying.
Source: PeterNavarro.com
RELATED READING:
- No Decisive Word on Encysive Pharmaceuticals
- Encysive: Despite TBC3711 Trial Resumption, Thelin is Key Factor
____________________
posted by Nico at
8:07 PM
1 Comments:
Can you comment on why FDA is dragging their feet while Europe and Australia have both approved Thelin? If the drug safety and efficacy are troublesome, wouldn't it fail to get any approval at all?
I think it is possible that ENCY doesn't want to give GILD heads up on what FDA is asking for so the CEO decided not to divulge that information.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home