Wednesday September 9, 8:02 am Eastern Time
Company Press Release
SOURCE: Donner Corp. International
Donner Corp. International Issues a
Buy Recommendation for Cypros Pharmaceutical
IRVINE, Calif., Sept. 9 /PRNewswire/ -- Donner Corp. International, NASD CRD# 37702, an
Investment Banking firm headquartered in Irvine, CA, today issued the following Buy
Recommendation for Cypros Pharmaceutical Corporation (Amex: CYP - news). The complete
report follows:
Recent Price $ 2 1/2
52 Week Range $ 6 1/8 -2 1/4
Average Daily Volume 20,000
Fiscal Year July
Revenue Year Qrtr EPS
1997 Q1 (0.14)
Q2 (0.19)
Q3 (0.12)
Q4 (0.11) 1998 Q1 (0.10)
Q2 (0.08)
Q3 (0.09)
Capitalization
Shares Outstanding 15.7 (MM)
Market Capital 39.9 (MM)
Long-Term Debt $0.2
Equity $20.9
Debt/ Capital 0.7%
Working Capital 14.4 (MM)
(@ 4/30/98)
Net Sales
1996 1,275,000
1997 2,428,000
1998 (est.) 3,400,000
INVESTMENT THESIS:
Proven strategy of product acquisitions to build revenue streams. The profits from acquired
products are utilized to support the research and development of future products; therefore,
Cypros Pharmaceutical Corporation has a constant internal source of financing
Late-stage clinical development candidates to treat ischemia. At this time, there is no treatment
for this major medical problem which causes heart attacks, strokes and a variety of other
disorders. The potential market for such drugs is large.
Proprietary topical drug delivery technology ready for product launch. The potential for the
development of multiple products, based on the incorporation of drugs into this system, is
extensive. Two drugs are already approved.
Diversified, pragmatic business plan offering multiple opportunities to generate near and
long-term revenue.
Highly undervalued. We believe Cypros stock is undervalued considering the products that are
on the market and those that are in development. In addition, this stock is trading at its
historical low.
We initiate coverage on Cypros Pharmaceutical Corporation (Symbol: CYP on The American Stock
Exchange) as a speculative investment in the pharmaceutical industry, drug development category.
Cypros Pharmaceutical Corporation currently maintains 5 approved products, three of which are
already on the market. The sales of the company's marketed products continue to increase.
Furthermore, marketing strategies are being put in place to launch the other two products. There is
additional potential for significant appreciation due to recent advances in the company's development
stage drugs, one of which has entered phase III clinical trials. These drugs address the problem of
ischemia, the number one cause of death in developed countries. In addition, Cypros has developed
several promising new drug candidates in the preclinical phase, which will complement the ischemic
drugs in clinical trials through mechanisms of action that aid in the maintenance of ischemic tissue. The
revenue from the marketed products provides a continuous source of financing which helps offset the
cost for the products which are currently under development. For these reasons and the historic low
trading price of the stock, we believe the stock is significantly undervalued.
CORPORATE STRATEGY
Like any small pharmaceutical company, Cypros Pharmaceutical Corporation was faced with the
necessity of creating continuous financing for the research and development of cutting-edge
pharmaceuticals. The company approached this problem from a unique perspective. Instead of
relying on traditional methods of financing, Cypros chose to acquire products that were either already
on the market or in the late phases of development so that by marketing these products themselves,
Cypros would create a constant cash flow to offset the cost of research and development of their
drugs which protect cells from ischemic damage. In addition to providing funding for these projects,
this allows the company to create a solid marketing presence within the hospital market before the
ischemic products are ready for marketing. This strategy is, in our view, very rational and may
represent a new model in emerging pharmaceutical companies which can provide both near-term
upside through acquired product sales and long-term value from the development stage products.
MARKETED AND APPROVED PRODUCTS
KIDNEY FUNCTION EVALUATION: GLOFIL & INULIN
Cypros Pharmaceutical Corporation acquired Inulin and Glofil in 1995.
These two products allow the direct measurement of glomerular filtration rate
(GFR), a diagnostic parameter of kidney function that can be utilized to
diagnose disorders such as lupus erythematosus, renal failure, diabetes and
cancer. The current tests to determine GFR, such as serum creatinine levels
and creatinine clearance tests, are indirect measures of this parameter. In
addition, these tests have been shown to be inaccurate. They are also
inconvenient for the patient, in that creatinine clearance requires urine
sampling for a 24-hour period. Over 2 million creatinine tests are done per
year. A small penetration into this market would multiply the sales of the
company's products. Cypros has undertaken a marketing program in which
physicians are educated concerning the advantages of the direct GFR testing
utilizing Glofil and Inulin. These advantages include increased accuracy as
well as the fact that this procedure may be performed in only 3 hours. In
addition, Cypros has recently announced that it is funding a clinical trial
concerning the utilization of Glofil in a GFR test that could be performed in
only 45 minutes. This time reduction would provide even further convenience
for both patients and physicians. Since Cypros controls this new technology,
it is in a powerful position in the market of kidney function testing. Kidney
disease costs the U.S. economy over 12 billion dollars per year.
SCLEROSING AGENT FOR ADVANCED LIVER DISEASE: ETHAMOLIN (R)
Ethamolin, the third product that Cypros has acquired, addresses the problem of bleeding esophageal
varices. This condition occurs in cases of advanced liver disease in which hepatic veins become
distended, swollen due to internal pressure, and may burst. Since internal bleeding such as this may
be life threatening, Ethamolin is a potentially life-saving drug. This drug is injected directly into the
distended hepatic veins and terminates the internal bleeding. Ethamolin is the only product on the
market approved and utilized for this purpose.
TOPICAL DRUG DELIVERY SYSTEM: THE DIMAC PRODUCT LINE
Another acquisition of Cypros Pharmaceutical Corporation is the Dimac system. This patented solid
phase system allows the continuous topical release of a drug. From this technology Cypros has
developed two initial products: Sildimac and Medimac. Sildimac utilizes the Dimac system to deliver
silver sulfadiazine . The product is capable of delivering this antibacterial drug used for burn wounds
for up to four days. This sustained application of the drug reduces the number of bandage changes
that burn victims have to endure during the healing process. Therefore, not only will the pain be
reduced, but the cost to the patient will also be decreased. Medimac incorporates the drug
Neosporin(R) into the Dimac system. This topical triple antibiotic can be released for up to two days
and will be primarily utilized for general wound care. Both of these products have received approval
for the indicated uses, and will be manufactured and marketed in 1998 and 1999. It is important to
stress that multiple new products can be developed by incorporating other drugs into the Dimac
delivery system. We therefore expect the company to develop a growing line of new products to
serve the rapidly growing wound-care market.
SALES PERFORMANCE
The company's sales have increased substantially for the past 3 years. The upcoming launch of the
wound care products coupled with sales growth in existing products and new product acquisitions
should continue to drive strong sales growth in the future. The sales component of Cypros although
currently small (an estimated 3.5 million dollars per year) has the potential to grow. The company
therefore could be viewed as a Jones Pharma or Dura Pharmaceutical in progress with the added
feature of several developmental stage ischemia drugs.
Neosporin(R) is a registered trademark of GLAXO WELLCOME
CLINICAL STAGE DRUGS
ISCHEMIA TREATMENTS
Ischemia is a condition characterized by a lack of glucose and oxygen
usually resulting from a decrease in blood flow. This condition precipitates
the number one and number three causes of death in the United States: heart
attack and stroke. Combining these two categories illustrates that ischemia
is clearly the number one cause of death in the United States. Lack of oxygen
and glucose leads to eventual cell death in the ischemic tissue through a
variety of mechanisms. However, the basis for all of these pathways is the
depletion of adenosine triphosphate (ATP) which for all living things is
analogous to the gasoline in a car. ATP is the fuel that your body uses to
perform any activity whether simple or complicated. When a heart attack or
stroke occurs, normal blood flow is prevented, typically by blockage of an
artery. The lack of blood flow creates a deficit of glucose and oxygen which
are necessary components in the production of ATP. Additionally, lactic acid
production is increased during an ischemic episode. Lactic acid attenuates
production of ATP by inhibiting a metabolic pathway known as glycolysis.
Under ischemic conditions, cells die due to the lack of ATP. Cypros
Pharmaceutical Corporation has developed two products which address both the
reduction of ATP and the increase in lactic acid which inhibits ATP
production. These products are referred to as cytoprotectants because they
prevent the cell from experiencing injury or death during ischemic conditions.
Cypros is developing Cordox (R) (formerly CPC-111) and Ceresine (R) (formerly
CPC-211) to combat the problem of ischemia. Ceresine acts to produce ATP by
stimulating an enzyme that reduces lactic acid build-up during ischemia.
Cordox is a natural substance which effectively increases the levels of ATP in
an ischemic event by actually circumventing the lactic acid inhibition.
Cypros is the only company we are aware of that is pursuing this natural
metabolic approach to treating ischemic disorders.
CERESINE
Ceresine is a compound that can cross the blood-brain barrier, a selective protection system that
protects the brain. Several other companies that have attempted to develop cytoprotective drugs
have failed. These companies attempted to address a specific element in the ischemic cascade;
however, Cypros targets the actual basis of the problem through the direct elevation of ATP levels by
reducing lactic acid which at high levels inhibits ATP production.
This drug is therefore a good candidate to treat ischemia caused by stroke and head trauma. Cypros
is planning additional clinical trials with Ceresine in acute closed head trauma cases and has already
shown that Ceresine reduces brain lactate levels in these patients. A product such as this could be
important to neurologists, because although they have drugs to remove blockages in arteries which
cause strokes, no other product exists which provides a cytoprotective effect directly to the injured
brain tissue during an ischemic incident. A drug such as Ceresine has a strong potential to decrease
the brain damage caused by stroke and acute head trauma. In addition to an application for strokes
and head trauma, Ceresine has been used to treat the children's syndrome of congenital lactic
acidosis. This disease results in severe cognitive deficits and massive organ failure. Since Ceresine
acts to reduce the lactic acid build-up, application of the drug in this case reduces the symptoms
caused by this disease. Ceresine has recently received priority review status from the regulatory
authorities which should speed its development.
CORDOX
Cordox, the second ischemic cytoprotectant developed by Cypros has been exploited for its
inotropic qualities in various cardiovascular disorders, including heart failure and heart surgery. An
inotrope is a drug which increases a person's blood flow by causing a stronger contraction of the
heart muscle. Most inotropes however can cause damage to cardiac cells as they act to increase the
contraction strength by stimulating the heart, actually causing ischemia. Cordox has the further benefit
of being cardioprotective , providing energy to the heart, resulting in a positive inotropic effect in
heart failure patients. This drug may represent a new class of inotropic agent. Due to these
properties, Cordox has also been utilized in coronary artery bypass grafting surgery (CABG)
patients. During this type of surgery, the heart is exposed to extreme ischemic conditions. Phase II
clinical trials with patients undergoing CABG have shown that Cordox increased heart function and
decreased heart damage. Also the patients receiving this drug required less post-operative care than
the placebo-treated patients. The company is planning further studies in this area.
Cordox has been shown to be effective in yet another disease. Vaso-occlusive event (VOE) pain of
sickle cell disease has been shown to be reduced in patients receiving Cordox. Sickle cell disease
represents a case of complete body ischemia in that the red blood cells, which normally carry
oxygen, aggregate and clog blood vessels.. Since the oxygen that these cells normally carry is absent,
the entire body is in an ischemic condition. Cordox acts to initiate ATP production and has been
shown to prevent and reverse the sickling process. Although the mechanism for this action is not
known, it has been observed that Cordox shifts the sickling process to lower oxygen concentration,
thereby effectively reducing the sickling process. Cordox is entering Phase III clinical trials for the
treatment of this disease. Since the current treatment for this disease consists of analgesic or pain
relievers, Cordox may represent a vast improvement in treating the cause of
the VOE in sickle cell disease, and may also prove to reduce the chronic
tissue damage associated with successive VOE.
PRECLINICAL STAGE DRUGS
CYTOPROTECTIVE AGENTS
Cypros Pharmaceutical Corporation is also developing several new products
in the laboratory. These products are still in the preclinical stage and
require more research and development. Although these products are not as
thoroughly investigated as the previously discussed drugs and drug delivery
systems, three of these preclinical products appear to be potentially
significant. In continuation of the ischemic studies, Cypros is developing
adenosine metabolism inhibitors. If adenosine is increased in ischemic
tissue, the effect is cytoprotective. Other companies have attempted to
produce a compound which would act to stimulate adenosine receptors by
investigating adenosine agonists. Increasing adenosine in normal tissue
however, produced undesirable effects and the companies abandoned their
research. The method of increasing adenosine levels employed by Cypros is
potentially superior to the agonist method. Cypros utilizes a product which
increases adenosine only where it is generated, that is in ischemic or
diseased tissue. Their product inhibits a key enzyme responsible for
degradation of adenosine. Since adenosine is only generated in ischemic
tissue, the molecules are not metabolized and remain in the vicinity of this
tissue. In this way, Cypros has resolved the issue of targeting increased
adenosine levels to ischemic tissue.
Additionally, Cypros Pharmaceutical Corporation is investigating presynaptic calcium channel
blockers to reduce excitatory amino acid toxicity in neurons during ischemia in the brain. During an
ischemic episode, an increased level of calcium enters the neuron through the voltage gated calcium
channels. An increase in internal calcium levels causes the release of normal levels of excitatory amino
acids which act as neurotransmitters in the brain. If the internal calcium levels are elevated to
abnormal levels, high levels of excitatory amino acids are released into the synaptic cleft. These
usually high levels of excitatory amino acids are toxic to neurons. By blocking the calcium channels
with novel drugs developed at Cypros, the excess release of these neurotransmitters is avoided.
Cypros is also currently investigating compounds that block chloride channels on glial cells, the other
major cell type in the brain, as they are also capable of releasing excitatory amino acids at toxic levels
when their internal chloride levels are elevated excessively. These compounds have been shown to
reduce brain damage in pre-clinical stroke models.
Cypros has received over 1 million dollars in grant support from the National Institutes of Health to
fund these projects. The company intends to seek a corporate partner to help fund the further
development of these potential new drugs.
KNOWLEDGE MAY YIELD RICHES
In review, Cypros Pharmaceutical Corporation has five approved products, three which are currently
marketed and two in which marketing is being initiated. The company is structured so that the profits
from these products help support further research and development. The company's acquisition
strategy to build sales in the near-term is somewhat novel when viewed in combination with its new
drug development programs. Many companies have been successful with the acquisitions approach
(Dura Pharm., Jones Pharma., Forrest Labs, Elan, etc.) and we feel it insures the success of Cypros
even if setbacks are encountered with its development programs. The cytoprotective ischemia drugs,
Ceresine and Cordox, are currently in late-stage clinical development for several ischemic disorders.
A large market exists for these two drugs due to the fact that ischemia is the number one cause of
death in developed countries. Considering the business strategy developed by Cypros, the
company's initial success, its strong cash position and growing sales, we feel that there is superior
potential for appreciation of this stock.
Indication Annual Incidence
HEART SURGERY/BYPASS 900,000
ISCHEMIC HEART DISEASE 500,000
STROKE 500,000
HEAD INJURY 500,000
SICKLE CELL CRISIS 150,000
ORGAN TRANSPLANT 50,000
The target markets for the company's
internally developed drugs.
In conclusion, as the quote from Proverbs states, ''And by knowledge shall the chambers be filled
with all precious and pleasant riches.'', we believe that Cypros possesses the knowledge both
scientifically and strategically and strongly recommend this company as a speculative buy for the
prudent investor.
Cypros can be contacted for an investor package or more information at:
Cypros Pharmaceutical Corporation
2714 Loker Avenue West
Carlsbad, California 92008
Telephone: (760) 929-9500
Web site at cypros.com
Donner Corp. International Analyst Report by:
Libby L. Weber, Analyst-Biotechnology/Pharmaceutical Industries
(800) 324-6050
Donner Corp. International Research
Robert L. Oak Senior Biotechnology/ Pharmaceutical Industries Analyst
Anthony J. Rhee Biotechnology/Pharmaceutical Industries Analyst
Ken Koo, PhD Genetics
Grant Dawson, MD
The information contained herein is based on sources believed to be reliable but is not guaranteed by
the company and is not comprehensive. It is not to be construed as an offer or the solicitation of an
offer to sell or buy the securities mentioned herein. The company, its members, affiliates, employees,
related accounts may have long or short positions, which could be substantial, in securities discussed
or recommended and may purchase, sell or trade these securities from time to time in the open
market or otherwise. In addition, the company may from time to time perform investment banking,
corporate finance, provide services for, and solicit investment banking, corporate finance or other
business from the issuers of such securities.
SOURCE: Donner Corp. International
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