Citi: CV Therapeutics Inc (CVTX)
Where Is the Demand from the New Label- Ranexa Weak in Q4
12/3/08
* Conclusion(s) - Ranexa IMS monthly scrips and sales are
closely correlated with company reported U.S. revenues. Our IMS
tracking suggests Q4:08 U.S. sales of $31M vs. CIR estimates
$34M vs. consensus $33M for Ranexa.
* IMS Weekly Scrips - IMS weekly scrips for Ranexa are well
correlated with actual reported U.S. sales (adj. R2 = 0.98). In
Q4, IMS data suggests that Ranexa sales are tracking at $31M,
excluding any future wholesale stocking.
* Wholesale Stocking - We estimated wholesale stocking of $2.8M
and $1.6M in Q3 and Q2:08. Our analysis of historical IMS Scrips
tracking adjusts for wholesale stocking.
* Price Increases - CV Therapeutics recently increased Ranexa
prices for the 1000 mg tab (~10% scrips) by 3% in Oct 08. The
500 mg tab (~90% scrips) prices were increased 5% in early 2008.
We do not expect a significant effect of the recent 1000mg tab
price increase on Q4 sales (+0.3%).
Sell/Speculative 3S
Price (03 Dec 08)
US$8.93
Target price US$9.00
Expected share price return
0.8%
Expected dividend yield
0.0%
Expected total return
0.8%
Market Cap US$548M
CV Therapeutics is focused on developing small-molecule drugs for
cardiovascular diseases with unmet medical needs. CV Therapeutics has
received approval of Ranexa for refractory chronic stable angina in
January 2006 and 1st line angina in November 2008 but the prominent
warnings about modest elevations in QTc remain. Ranexa's label now
includes a small impact on A1c in diabetes but the drug is not indicated
for diabetes. The modest reduction in arrhythmias did not correlate with
any outcomes benefits. Lexiscan, partnered with Astellas, is a selective
A2A-adenosine receptor agonist intended for use as a cardiac
stimulating agent in myocardial perfusion imaging studies. Lexiscan was
approved in 2008.
I n v e s t m e n t s t r a t e g y
We rate the shares of CVTX Sell/Speculative (3S). Our $9 target price
reflects: 1) acceleration of sales of Ranexa due to the new label but
these are offset by higher expenses; 2) significant balance sheet issues
with ongoing cash burn, need to pay back convertible debt and raise
equity at unattractive terms; 3) royalties on sales of Lexiscan (CVTX will
receive ~20% royalty rate from Astellas) and on sales of Ranexa (ex-
U.S). In our view, despite Ranexa's new 1st line angina label, sales will
not be enough to drive meaningful profitability given high operating
expenses and weak balance sheet. More so, Ranexa is very expensive
and offers incremental efficacy. Older generic drugs are well-entrenched
in this market and Ranexa is facing an uphill battle.
V a l u a t i o n
Our $9 target price is based on a 20x multiple of our fully taxed 2012
fully taxed GAAP EPS estimate of $0.63.
We then discount this multiple by two years to reflect our forward PE
multiple based on our 12-month target price. We use a 15% discount
rate.
A 20x P/E multiple is a discount to the historical low/mid 40x's multiple
for promising new drug launches during their 2nd year of profitability.
This discount is justified since Ranexa is not as promising and given
recent multiple contraction in the group relative to historical valuations.
R i s k s
We rate the shares Speculative risk since the company's future growth
prospects are mainly dependent upon the successful development and
commercialization of Ranexa in angina. Thus far, Ranexa has
disappointed. Failure to capture significant market share based on the
new label could prevent the company from reaching profitability.
Several risks could drive the stock to materially outperform our target
price. As a case in point, if positive safety data from MERLIN drives
increased market penetration in 1st-line chronic angina, Ranexa sales
might be higher than we predict. In addition, if Lexiscan exceeds our
estimates, there could be an upside to the stock.
Appendix A-1
Analyst Certification
Each research analyst(s) principally responsible for the preparation and
content of all or any identified portion of this research report hereby
certifies that, with respect to each issuer or security .. |
