piper: CVTX :3Q CVTX Update Creates Buying Opportunity
2005-10-26 03:25 (New York)
(CVTX - $25.90)
Outperform Volatility: Medium
KEY POINTS:
* CVTX Announces Four Major Updates. On its 3Q call, CVTX provided multiple
new updates on its pipeline: (1) the European regulatory authorities (EMEA)
have requested additional pharmacokinetic studies to be run prior to
approval of Ranexa, the company's lead anti-anginal; (2) data from a second
Phase III study of regadenoson will be delayed from year-end 2005 to mid-
2006; (3) the enrollment of the MERLIN study, an outcomes study for Ranexa,
will be expanded from 5,500 to 6,500 patients due to a lower-than-expected
mortality rate to date; and (4) the CVTX sales force has been expanded from
200 to 250 reps in preparation for the Ranexa launch. We outline our
thoughts on the EMEA delay below and review the last three factors in
detail on page 2 of our note. We believe that the 10%+ sell-off in after-
market trading was an overreaction and would be buyers of the stock today.
* EMEA Delay Has No Material Financial Impact And Likely No Impact On FDA
Review. Overall, we believe that investors had largely ignored the Ranexa
EU commercial opportunity, and thus, it generally remains upside. We had
included modest royalties (but no additional partnership revenue) starting
in mid-2007, a time line that still may be achievable. To be conservative,
we are shifting out our time line by an additional six months, but this has
a negligible impact on our valuation. We were encouraged by management
commentary around the nature of the PK studies to be run (exploration of
higher doses of Ranexa, similar to a study that the FDA has requested for
eventual front-line approval), the small size of the studies, and the
confirmation that this PK issue has not been raised by the FDA in recent
discussions. We view the special protocol assessment signed last year as an
explicit agreement on the studies the FDA deemed necessary for initial
approval, and we would find it surprising if the FDA delayed the regulatory
process to ask for a similar PK study. We continue to believe that Ranexa
is on track for FDA approval in 1Q06.
* Changes To Estimates And Price Target. We have lowered our outer year
royalty estimates to account for a more conservative stance on EMEA
approval of Ranexa and a shift in the time line for regadenoson. This
lowers our price target from $34 to $33 (methodology unchanged at 40x 2009
EPS, discounted at 30%). We would be buyers on weakness today, given our
positive stance on the commercial prospects for Ranexa in the U.S., which
we continue to believe is the primary driver for share performance over the
next 12 months.
Price: $25.90
52 Week High: $29.79
Rating -- Outperform
52 Week Low: $12.20
Price Target: $33.00
Shares Out (mil): 44.4
Market Cap. (mil): $1,150.0
Avg Daily Vol (000): 613
Book Value/Share: $2.88
Cash Per Share: $11.76
Debt to Total Capital: 1%
Div (ann): $0.00
Est LT EPS Growth: NM
P/E to LT EPS Growth (FY06): NA
Est Next Rep Date: 02/01/2006
Fiscal Year End: Dec
C/S, B/S and Shares reflect recent financing.
INVESTMENT RECOMMENDATION:
We would buyers of CVTX on weakness today based on the commercial prospects
for Ranexa in the U.S.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Risks include but are not limited to: 1) failure to achieve Ranexa sales
estimates, 2) inability to expand Aceon managed care coverage, and 3)
clinical risk in label expansion for Ranexa.
COMPANY DESCRIPTION:
CV Therapeutics, Inc. is a leading cardiology company.
Additional Details
Regadenoson Delay Has Modest Financial Impact, But Remains A Peripheral Part
Of Our Overall Investment Thesis. CVTX management also announced that data
from the second Phase III trial of regadenoson, a pharmacologic stress agent
for cardiac imaging studies, will be delayed from year-end 2005 to mid-2006
to accommodate undisclosed changes in the trial design that the company and
partner Astellas believe will enhance the profile of regadenoson. We do not
believe that there is any specific problem with the data, given the robust
results on primary and major secondary endpoints in the first Phase III trial
for regadenason, data for which were presented in early October at a medical
meeting. Rather, the company intimated that the decision to revise the
protocol may provide it with an increased competitive edge once approved. We
are shifting our filing time line from 1H06 to year-end 2006 and our approval
assumption from 1H07 to year-end 2007. While we have shifted our sales by
approximately 6-9 months, we have not altered our basic trajectory for
regadenoson uptake, given Astellas' market leading position with Adenoscan
and our belief that they will rapidly and successfully convert their existing
customers to regadenoson upon launch.
Net Positive MERLIN Update " Expansion Of Trial Represents No Material
Concern Or Delay. CVTX provided a detailed update of its progress with
MERLIN, a large outcomes study with Ranexa. Specifically, 3,400 of the
projected 6,500 patients have been enrolled, with enrollment on target for
completion in 2Q06. The trial has been expanded modestly from 5,500 to 6,500,
based on a determination that the overall cardiovascular mortality rate has
been less than expected. Interestingly, the overall event rate (as defined by
the primary endpoint as a composite of cardiovascular mortality, myocardial
infarction or recurrent ischemia) has not fallen short of the original
statistical assumptions, so the overall increase in the trial size will
actually improve the statistical power on the primary endpoint. Because the
rate of enrollment has accelerated to 500-600 patients per month, this
expansion does not materially affect the time line for data. An event-driven
interim analysis of MERLIN is on track for 2Q06 (stopping criteria for
efficacy are based on a highly robust cardiovascular mortality benefit that
the company believes is unlikely to be met) and final data would likely
mature by late 2006-early 2007. Of note, the company disclosed that there has
been at least one check of the safety data by the independent Data Safety
Monitoring Board and the study has been allowed to be continued, a positive
signal that there have been no major imbalances in key adverse events to
date. We continue to believe that MERLIN is a high-risk, high-reward study
and positive outcomes data would represent substantial upside to our
estimates. We maintain that the most important data from MERLIN could be the
diabetic subgroup analysis to explore the potential anti-glycemic efficacy of
Ranexa and its potential as an oral anti-diabetic agent.
Sales Force Expansion From 200 To 250. SG&A was higher than expected during
3Q, and we learned that CVTX has expanded its planned sales force from 200 to
250 in preparation for Ranexa approval in the U.S. The company is confident
that this will provide sufficient support for the launch, and we will be
monitoring trends in the sales force size closely, as any further major
increases in sales force size may represent potential downside to our peak
profitability assumptions.
ERICA Abstract For AHA meeting In Line With Prior Data Disclosure. Abstracts
for the upcoming American Heart Association (AHA) meeting in mid-November are
now available. Detailed data from the ERICA study for Ranexa will be
presented for the first time on November 16 at 3:45 pm. The ERICA data
detailed in the abstract are in line with the top-line data that CVT
announced earlier this year. Of note, the baseline characteristics of the
patient population in the trial indicate the study enrolled a relatively sick
patient population (80% with prior heart attack; 51% Class I-III congestive
heart failure; 89% history of hypertension; 19% diabetes, 23% current
smokers), giving us additional comfort that the benefit seen on angina
frequency in this refractory angina setting is clinically meaningful.
Important Research Disclosures
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Analyst Certification - Thomas Wei, |
