CVTX :Ranexa Approved with Favorable Label; Reiterate Buy Ratin
2006-01-30 07:57 (New York)
Caroline Stewart
212-218-3853
cstewart@morganjoseph.com
Rating: Buy
Key Metrics $35 P-T
CVTX - NASDAQ $26.08
Pricing Date 01/27/2006
Price Target $35.00
52-Week Range $29.79 - $19.15
Shares Outstanding 44.7 (mm)
Market Capitalization $1,165.8
3-Mo Average Daily 616,466
Debt/Total Capital 311.0%
Book Value/Share $2.89
Price/Book 9.0x
* CV Therapeutics announced on
Friday, after the market
closed, that the FDA granted
approval of its drug Ranexa
(ranolazine) for treatment of
chronic angina in patients not
adequately responding to other
antianginal medications.
Company management stated that
Ranexa will become available in
pharmacies toward the end of
1Q06. As the 250-person salesforce will have been
deployed for two quarters
(marketing Aceon), we believe
that Ranexa should experience a
robust launch.
* Importantly, we view the lack
of a black box warning to be
very positive for the drug's
commercial prospects. The label
contains language in the
warnings and contraindications
sections that were, as we
expected, namely related to QT
prolongation. To our knowledge,
there has not been a single
case of torsades (ventricular
tachycardia that can be fatal)
associated with Ranexa therapy.
Furthermore, there is some
evidence that Ranexa may
potentially reduce atrial
fibrillation, which may become
more apparent in the ongoing
MERLIN study.
* In our opinion, the market
opportunity for Ranexa as a
second-line therapy is in the
multi-hundred million dollar
range in the US alone. We
estimate that approximately 25%
of chronic angina sufferers
have congestive heart failure
(CHF) and are not ideal
candidates for therapy with
high-dose beta blockers or
calcium channel blockers.
Additionally, we believe that
roughly a quarter of angina
patients are diabetic and
another 15%-20% have chronic
obstructive pulmonary disease.
Both of these populations
cannot take beta blockers.
* In our model, we estimate sales
of $36mm this year, increasing
to $380mm in 2009. These sales
reflect a single-digit
penetration rate of restricted
population for which Ranexa is
indicated, with a starting
price of therapy of $3 per day
(assuming the 1,000 mg dose).
Based on data from the MARISA
study where the 1,000 mg dose
was demonstrated to be more
effective than the 500 mg dose,
we believe that a substantial
proportion of these difficult-
to-treat patients will use the
higher dose. However, we await
pricing information before
adjusting our model.
* We are reiterating our Buy
rating and price target of $35.
Our price target is derived by
applying a P/E multiple of 40x
to our 2009 EPS estimate of
$1.91 and using a discount rate
of 30%.
Price Target
Our price target is $35.
Valuation Methodology
We derive our 12-month price target of $35 by applying a P/E multiple of 40x
to our 2009 EPS estimate of $1.91 and using a discount rate of 30%. In our
view, the 40x multiple is warranted, given the much larger potential market
size for CV Therapeutics' drugs, in particular Ranexa, than we have
projected in our model. Also, we believe a discount rate of 30% to be
appropriate for what we view as the relative risk of the product portfolio.
Risk Factors
Sales of Ranexa may disappoint. We note that sales of a similar drug,
trimetazedine, marketed in Europe by the private French company Servier,
have been very modest. CV Therapeutics has no prior experience marketing a
drug; and given the plethora of generic alternative therapies available for
chronic angina, uptake of Ranexa may be slow.
Potential for disappointing sales of Aceon. The salesforce that CV
Therapeutics has built will focus on cardiologists, whereas ACE inhibitors,
such as Aceon, are frequently prescribed by general practitioners. However,
we point out that roughly 90% of scripts are written by physicians in the
top decile. Management of CV Therapeutics has stated its intention to focus
on the top prescribing 4-5 deciles of physicians.
Possible negative outcome for the second Phase III study of regadenoson.
Despite the positive data from the first Phase III study, there has been
limited data publicly available for regadenoson. However, data that has been
released to date has shown that the drug has fewer side effects and is more
convenient to use than other standard agents. We expect the results of the
second Phase III study to become available in 4Q.
I, Caroline Stewart, the author of this research report, certify that the
views expressed in this report accurately reflect ... |
