Big Night at CVTX

CVTX just sold half of the rights to their new stress testing drug for a price that shows just how undervalued their stock is.

CV Therapeutics-CVTX- a company I have been very enthusiastic about for a long time- is finally starting to deliver. They have had a single marketed drug for the past two years, Ranexa, a very effective angina drug which has been growing slowly- along with a variety of pipeline drugs and compounds- Adentri which is a phase 3 for CHF which has been out-licensed to Biogen, Tecadenosin- a drug for tachycardia which is in phase 3 but unlikely to go anywhere, and a bunch of drugs in phase I and preclinical work for drug addiction, diabetes, heart failure, and a drug eluting polymer for stents recently licensed to a small startup stent company. 
The company has also been working for many years on a stress testing agent to compete with Adenoscan- a drug which can replace exercise for nuclear stress testing. This compound was developed with the help of Astellas- who actually markets Adenoscan and who will market the new drug- giving CVT 20% royalties. In addition, Astellas agreed to give CVT a low single digit royalty of Adenoscan. ( 4-5% from what I can tell.)   Adenoscan is about a 320 million dollar drug in the US and the home was than the new drug called Lexiscan would take most of the market- i.e. 60 million a year for CVT.   This is not small potatoes for a company with a market cap under $500 million. The compound was approved about a week ago- and the market responded with a collective yawn. The stock was at 8 prior to approval and is now trading at 7.45. Presumably, the drug was felt to be unlikely to be very successful.
This evening, though, CVT sold half of their royalty rights for $175 million with a potential for an additional milestone of $10 million. So what this means, is that lexiscan royalties are now valued at 350-370 million- plus the royalties on adenoscan- which will probably amount to another $10-20 millions and an additional 12 million in a milestone payment the company is about to receive from Astellas.
This means the rest of the company is trading at a valuation of roughly 100 million. ($200 million if the gains from the afterhours hold) This is a ridiculously low valuation. Ranexa is selling almost $100 million per year and many believe that it will sell at least twice that once the FDA changes their label- which should happen in a few months. Drugs are usually valued at 3-5 times sales. In addition, Ranexa is about to be approve in Europe and lexiscan will likely soon be approved there too.
All of this means that this stock is very undervalued. But there are two more kickers. 1. Many have assumed that the company would have to issue more dilutive stock within the next few years. The cash they have just received makes that unnecessary. And 2. There is a very large short position in this stock. A short squeeze seems very likely.

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  • Namwarki

    April 16, 2008

    Excellent analysis. I see this company at $30 in 12-18 months with high potential for a $50 buyout. The excellent science and ability to gain approval and negociate creative partnerships with high quality firms is very impressive. Patience will be rewarded here, in my opinion.

  • pharmaking

    April 18, 2008

    I think Namwarki might be a little overoptimistic.

    Still it is pretty easy to see that the stock remains very undervalued.
    The company currently trades at a market cap of 530 million (after a pretty nice pop yesterday.) Lexiscan and adenoscan royalties in the US are worth arround 400 million- see my analysis above.
    So you can buy the rest of the company for 1 time estimated 2008 Ranexa revenues. And you get thrown in for free the potential revenues from Ranexa and Lexiscan ex-US- and the whole pipeline.

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