The Biggest Loser: A Compelling Short Opportunity In Vivus

Short Recommendation for Vivus (VVUS)

Current Price: $10.12

Target Price: $6

Horizon: 3-12 Months

Situation Analysis:

Sell side analysts have a mean price target of $13 on Vivus. This price target is based on a discounted cash flow, with projected sales of Vivus's lead drug Qsymia in the hundreds of millions by FY 2014. I differ and believe the ramp up will be slower than expected and am projecting lower revenue than the sell side, which will drive down the stock price. I also believe competition in the weight loss drug market will erode peak sales of Qsymia. The weak sales from the launch of Qsymia is also likely to mitigate the chance of a major pharmaceutical partner emerging or at least substantially delay it. I also see opportunity for Belviq to outpace Qsymia TRx (Revenue) which it has recently. I am interested in this company, because this company is trying to build a new market and because of that there is a lot of uncertainty around their prospects and therefore inefficiency

Potential Catalysts(How We Get Paid)

*Safety issues and negative side effect profile

*Inability or substantial delay in Vivus finding major pharmaceutical partner

*Intense completion from new drugs and existing competitor Arena Pharmaceuticals (ARNA)

*Weak sales of Qsymia

*Dilution from recent and future financings

*Insider Sales

*Lack of reimbursement improvements

Company Background:

VIVUS is a biopharmaceutical company dedicated to commercializing and developing innovative therapies to address unmet needs in obesity, sleep apnea, diabetes and sexual health. Their drug, Qsymia (phentermine and topiramate extended-release) (formerly known as Qnexa®)was approved by the FDA for the treatment of obesity as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in adult patients with an initial body mass index, or BMI, of 30 or greater (obese), or 27 or greater (overweight) in the presence of at least one weight-related comorbidity, such as hypertension, type 2 diabetes mellitus or high cholesterol (dyslipidemia). Qsymia incorporates low doses of active ingredients from two previously approved drugs, phentermine and topiramate. Although the exact mechanism of action is not known, Qsymia is believed to target appetite and satiety, or the feeling of being full, the two main mechanisms that impact eating behavior. Company announced the U.S. market availability of Qsymia for obesity in September 2012. On February 21, 2013, the CHMP confirmed its October 18, 2012 decision to deny the MAA for Qsiva™ (phentermine/topiramate ER) for the treatment of obesity in the European Union, or EU. Company has completed Phase 2 clinical studies for Qsymia for the treatment of sleep apnea and Qsymia for the treatment of type 2 diabetes.

VIVUS's drug, STENDRA, or avanafil, was approved by the FDA for the treatment of erectile dysfunction, or ED, in the U.S. VIVUS, through collaboration arrangements with third parties, intend to market and sell STENDRA in the U.S. and, if approved, under the trade name

SPEDRA™ in the EU and other territories outside the U.S.

Weight Loss Market Analysis:

According to data from the World Health Organization globally there are roughly 1.4 billion people classified as overweight. "By 2030, 50-60% of the populations in many countries are on target to be classified as obese," from a recent report from Bank of America. Further, the obesity drug market in U.S. France, Germany, Italy, Spain, the United Kingdom and Japan is projected to increase to $2.6 billion by 2020. There is no doubt there is a market for weight loss drugs, the question however is Qsymia the drug that will be able to take sufficient market share to justify its current $1 billion capitalization? I question the amount of market share Vivus can obtain and feel there will be a delay in how long it takes to achieve peak penetration. Sell side analysts are projecting that Qsymia can achieve around $1.2 billion in revenue by 2020, this is 46% of projected market. I am forecasting $800 million by 2020, much lower peak market share

Current FDA Approved Competition:

-ALLI (orlistat): Works by preventing digestion of 25% of fat consume. A starter pack of Alli - which includes a month's supply of pills, a dietary guidelines guide, a calorie and fat counter, and a food journal - costs about $54. In the US first quarter 2013 sales of Alli grew 7%, due in part to its restocking

-BELVIQ (Locraserin HCI): BELVIQ is the first FDA-approved weight-loss medicine that works by targeting a hunger receptor in the brain and is believed to help you control portions. The precise way BELVIQ produces feelings of satisfaction is not fully understood, but it is believed to help you lose weight by making you feel satisfied when eating less. BELVIQ is marketed by Arena Pharmaceuticals

Competitors in Pipeline (Currently Conducting Trials):

-Empatic and Contrave from Orexigen. Lead combination product candidates target obesity. Products are Contrave®, which has completed Phase III clinical trials for which a New Drug Application, or NDA, has been submitted and reviewed by the U.S. Food and Drug Administration, or FDA, and Empatic™, which has completed Phase II clinical trials.

-Zafgen: Pipeline is shown below

Source: Zafgen Investor Website

Is Qsymia a drug that will take $1.2 billion dollars in market share by 2020?

For further insight, look at Vivus's 10-Q risk factors:

Qsymia is a combination of two active ingredient drug products approved individually by the FDA that are commercially available and marketed by other companies, although the specific dose strengths and formulation (extended-release vs. immediate-release) would differ. As a result, Qsymia may be subject to substitution by prescribing physicians with individual drugs contained in the Qsymia formulation, which would adversely affect our business.

In the third quarter of 2013, Supernus Pharmaceuticals, Inc. announced its plan to launch Trokendi XR, an extended-release pediatric formulation of the generic drug topiramate that is indicated for pediatric epilepsy. Topiramate is not approved forobesity treatment, and phentermine is only approved for short-term treatment of obesity. However, because the price of Qsymia is significantly higher than the prices of the individual components as marketed by other companies, physicians may have a greater incentive to write prescriptions for the individual components outside of their approved indication, instead of for their combination drug, and this may limit how Vivus prices or market Qsymia.

Patent Protection is Key to maintaining market share for a biotechnology company and Vivus's protection appears to be weak given it is based on two already FDA approved drugs

How is the commercial launch proceeding for Qsymia?

VVUS reported 81,000 TRx for the 2nd quarter. This was very slow growth from the end of the first quarter with 23,000 TRx. The retail launch does not appear to be moving as quickly as the market anticipated

CFO Selling is A Red Flag:

Seth Fischer, the company's CFO, recently sold his shares near time all time company low. The CFO of a biotechnology company is usually the one most attune to the market prices and when might be an opportune to sell. The sale price per the form 4, ranged from $11.90 to $11.95 per share. I see this as a major lack of confidence in the company, and I know he still holds stock in the name, but to sell at a time the stock is burning is not a great sign of confidence from those who know company best

Decision Tree:

Downside (30%): Short Squeeze occurs goes up to $14 per share and shorts should cover

Base Case (35%): $9 price

Upside Case (35%): $6 price target

How Shorts Get Burned:

- Major big pharma marketing partnership announced(unlikely given weak prescription adoption as of now)

- Stronger TRx numbers

- Sale of company(unlikely for same reason above)

- Erectile dysfunction drug becomes meaningful revenue for company

Discounted Cash Flow Analysis:

From my discounted cash flow analysis with a 10% discount rate and no terminal value, I arrive at a $6 price target driven primarily by lower revenue projections than the street.

Street Versus Hunter

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in VVUS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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IntelliPharmaCeutics Sell Off On Acura Data Overdone... Compelling Entry Point

IntelliPharmaCeutics' (IPCI) shares were weak (-5%) on the heels of disappointing data from Acura Pharmaceuticals (ACUR) [which was down -20% on the news] for a product ostensibly similar to its Rexista technology. The stock could potentially decline some more as investors digest the news over the next few days, which I believe could be a compelling buying opportunity. The stock has been thinly covered on this Board, and the latest action may prompt some to revisit the story.

First, Some Brief Background

IntelliPharmaCeutics International Inc. (IPCI) is a pharmaceutical company specializing in the research, development and manufacture of generic controlled-release and targeted-release oral solid dosage drugs. Its patented Hypermatrix technologies are a multidimensional controlled-release drug delivery platform that can be applied to the efficient development of a range of existing and new pharmaceuticals. Based on its technologies, IntelliPharmaCeutics has a pipeline of product candidates in various stages of development, including eight abbreviated new drug applications (ANDAs) filed with the Food and Drug Administration FDA in therapeutic areas that include neurology, cardiovascular, gastrointestinal tract, diabetes and pain.

Acura Disappointing Results

On August 27th, Acura announced disappointing Phase II data from its Study 301, in which it did not find statistical significance in the 40 person study among recreational drug users in assessing the abuse liability of snorting a crushed hydrocodone bitartrate with acetaminophen tablet formulated with Acura's abuse deterrent AVERSION technology. Shares declined by 20% reflecting this news, i.e. that AVERSION H&A had slightly lower numeric mean maximum drug liking (Emax: 72.1) compared to an equivalent dose of a generic hydrocodone/acetaminophen tablet (Generic H&A: Emax: 75.6) currently on the market, but that it wasn't statistically significant.

Rexista's Profile: Differentiated

As a refresher, Rexista is a novel abuse resistant drug delivery platform which is in clinical development. It is a unique dosage form for Oxycontin (which had $2.4b in US sales), and protects against intentional or unintentional dose dumping (if tablet crushed or taken with alcohol).

While the company has not disclosed the specifics behind the Rexista technology other than to say that its patent information is not similar to Acura's, there are some interesting tidbits that give comfort that the company would avoid a disappointing trial result. In its July 15th press release, IPCI disclosed that it ended the Phase I study showing Rexista has bio-equivalence to Purdue's Oxycontin, and that it has done anti-tampering studies across a wide range of applications, not only with crushing, but also with variety of alcohol combinations, microwaving, freebasing, and snorting (specifically that it can't be snorted as in contact with an aqueous media, it turns gelatinous). Said another way, results suggest that the formulation promotes the stability of Rexista oxycodone without interfering with oxycodone bioavailability. The alcohol challenge studies, beverage extraction studies, vaporization studies, and pulverization studies show that release of oxycodone will be inefficient/slow/difficult/otherwise not ideal.

This range of tests demonstrate that the company has sought to examine a variety of potential avenues for abuse, and potentially, will show a greater range of efficacy than its competitors. After Acura's results, All eyes remain on Pfizer's (PFE) Ramoxy in the near term, as it will go before the FDA for a 3rd time and could lead the class forward in this respect. Pfizer, although it has had 2 disappointments with the FDA thus far, has previously said they could get 20% of the market from Purdue.

I have seen that the FDA has published guidelines for what will qualify as an abuse-proof form of an opioid formulation. The guidelines review various levels of abuse deterrents. Labeling claims will fall into one (or more) of four tiers, specifying physiochemical barriers, reduction of effects upon abuse, meaningful reduction in abuse, and reduced abuse in community to inform healthcare providers of products predicted or actual abuse potential. These claims will generally require data to support their use.

IPCI will be seeking a special protocol assessment (SPA) for its Ph-III trial (will begin in 1H/14) ahead of the NDA 505b2- which will be a double blind randomized evaluating the analgesic efficacy of Rexista in comparison to a placebo over a 12-week treatment period in patients having pain intensity scores corresponding to moderate-to-severe pain, and will test 2x dosing similar to OxyContin.

The Bigger Picture: Focalin and other ANDAs

Rexista is the most 'sizzling' part of the story (in my view), however, IPCI does have 8 ANDAs for generics filed for FDA, which represent some $4.6b of sales: Focalin, Effexor, Protonix, Glucophage, Seroquel, Lamictal, Keppra, Pristiq. The lead product is the generic Focalin, which generated US sales of $615mm TTM, and is partnered with Par on a 10-year profit sharing arrangement. The company has laid out a series of scenarios as to the bottom line impact of the launches for each of these drugs, based on the dosages they have received first to file (in this case, vs. TEVA for Focalin), as well as the overall MAC discounts (50-70%) and then market penetration (10-20%) and gross profit arrangement (20-50%) assumptions, as well as the overall % of generics in the market & timeline (in this case, 90% within 6 months). In the case of Focalin XR, the company expects between $20-65mm for itself from the partnership. The good news for Focalin XR, and for that matter, any XR product, is that there is a better moat for barrier to entry vs. the Chinese/Indian generics players, with better pricing as a result.

Financial Profile/ Risk-Reward

With the stock at $2 (down 7% as of this writing) the market cap is $43mm, and liquidity is 300k shares traded daily, or $600k notional, which is illiquid, but not terribly so. The company's current cash position is $1.6m, but after their $3.1m financing, they will have a net cash position of $2.5m and has a debt balance of $2.1m as of last filing. Company burn rate is ~$500k a month. About 100k shares are short. The company is covered by 3 banks - Roth Capital, Brean, and Maxim, all of which were involved in the equity raise/underwriting.

Insiders own 35% of the float (21mm shares outstanding overall)… with 28% shares owned by Founders, and some large institutions soaking up much of the float (Broadfin 9%, Ab 9%, H&Q 8%), and others… meaning that the actual true float is likely something like 50% of the share base.

In looking at the consensus estimates, it appears there is a wide range on the top and bottom line. For 2014, the revenue range is from $6m to $44m (wow), and by 2016, the top line range is from $28-58mm… on the bottom line, expected EPS ranges are from $0.13-$1.17 in 2014, and from $0.57-$1.01 in 2016. So clearly not a lot of 'consensus' in these estimates themselves.

At current levels, the risk/reward profile is intriguing: with Focalin approval plus a normalized sales capture from the ANDA pipeline, it is conceivable to have a steady state run rate of ~25mm top line in '14 (notwithstanding the wide range on the Sell Side), which, applying a normalized top line multiple, would put the market cap around $75-100m, or roughly ~2-2.5x upside from current levels. Since the ANDA process has been delayed so long, further delays are already 'in the stock' and the downside is likely 25-30% lower from here, reflecting the push out of the lead product.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IPCI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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4 Months Post-IPO, Enanta Pharmaceuticals Carries Compelling Valuation Next To Hepatitis Peers

By Ivan Deryugin

Since making its market debut in March, shares of Enanta Pharmaceuticals (ENTA) have remained virtually flat, excluding a post-IPO pop (shares closed at $17.18 on March 21, its first day of trading, and at $17.20 on July 23). We don't believe this will be the case for long. Backed by a strong balance sheet, a compelling valuation next to its industry peers, and a solid pipeline, Enanta is well positioned to offer investors meaningful returns.

A Backdoor HCV Play

Enanta, for those unfamiliar with the company, is developing a slate of HCV compounds via two collaboration agreements with AbbVie (ABBV) and Novartis (NVS), the most advanced of which is currently in Phase III trials. The compelling proposition Enanta offers can be highlighted in large part by simply examining its valuation. With 17,818,796 outstanding shares, Enanta carries a market capitalization of just over $300 million. The smallest of the mid- to late-stage HCV developers, Achillion Pharmaceuticals (ACHN), carries a market capitalization of nearly $600 million, and we believe that, despite our being bullish on ACHN, Enanta should rival Achillion in size.

Some investors and industry observers believe that Gilead Sciences (GILD) is the only viable HCV play due to the clinical profile of sofosbuvir, as well as the fact that the drug is already under FDA review. While we freely admit that Gilead is almost certain to capture a majority of the global HCV market [its future prospects in HCV are part of the reason that Gilead has captured the title of "world's largest biotechnology company by market cap" from Amgen (AMGN)], the global HCV market is large enough to accommodate multiple players. And with a valuation of just over $300 million, less than $200M on an EV basis, it doesn't take much to meaningfully move the needle at Enanta.

Enanta and its partners are currently developing three HCV treatments, the most advanced of which is ABT-450, a protease inhibitor now in Phase III trials (more on the economics of this collaboration later) in genotype 1 patients, with a primary completion date of September 2013. We note that in May, Enanta and AbbVie secured Breakthrough Therapy Designation for ABT-450, potentially allowing ABT-450 to reach the market alongside or just behind Gilead's sofosbuvir (Enanta and AbbVie intend to file an NDA for ABT-450 by mid-2014). ABT-450 is currently being tested in 4 separate clinical programs in several "HCV cocktails." The 4 programs include:

ABT-450 with ABT-267 and ABT-333 (2 proprietary HCV treatments in development by AbbVie; ABT-267 is an NS5A, and ABT-333 is a non-nucleotide), as well as ribavirinABT-450 with ABT-267 and ABT-333ABT-450, ABT-267, and ribavirinABT-450, ABT-333, and ribavirin

Given that patients taking these drugs will need to take at least three medicines, it's easy to see that convenience is not ABT-450's selling point. But existing clinical data suggests compelling efficacy and safety. In May, Enanta and AbbVie released new Phase IIb data from AbbVie's Aviator trial. The results showed that ABT-450, when combined with AbbVie's two proprietary direct-acting antivirals, resulted in minimum SVR's (sustained viral response) of 83%, with the highest SVR's coming in at 99% after 12 weeks of treatment. Phase IIb efficacy data is summarized below (ribavirin will be referred to as RBV.

Phase IIb ABT-450 Regimen Efficacy

ABT-450/r

ABT-267

ABT-333

RBV

ABT-450/r

ABT-267

ABT-333

RBV

ABT-450/r

ABT-267

ABT-333

RBV

ABT-450/r

ABT-267

ABT-333

RBV

ABT-450/r

ABT-267

ABT-333

RBV

ABT-450 was most effective when combined with ABT-267, ABT-333, and ribavirin in treatment-naïve patients, with SVR12 of 99%, and SVR24 of 96%. Compelling efficacy was also seen in null responders, with SVR24 rates as high as 95% in the 450/267/333/RBV arm of the trial. We note that in its Phase III NEUTRINO trial, Gilead's sofosbuvir showed an SVR12 of 90% in genotype 1-treatment naïve patients, lower than the 99% seen in the four-pill regimen tested here, and equal to the 450/267/333 regimen. ABT-450 also showed acceptable safety; just 4 of the 247 patients enrolled in this Phase IIb trial discontinued treatment due to adverse events. Enanta and AbbVie recorded serious events in four patients, although only one (an incident of arthralgia) was believed to be drug-related. Common side effects included headache, fatigue, insomnia, diarrhea, and nausea. One incident of elevated ALT levels and six incidents of abnormal bilirubin were reported as well, but Enanta notes that all seven cases were resolved within the trial, with no dosing interruption. Investors should note that the safety profile of Enanta and AbbVie's regiment is comparable to that of Gilead's sofosbuvir; in its own Phase III trials, sofosbuvir also saw less than 2% patient discontinuation, as well as fatigue, nausea, and headaches.

As data from the Phase IIb trial of ABT-450 show, Enanta and AbbVie's HCV candidate offers acceptable efficacy and safety, both on a standalone basis and in comparison with Gilead's sofosbuvir. And ABT-450 is not the only HCV compound Enanta and AbbVie are developing. The two companies are also developing ABT-493, a protease inhibitor designed to serve as a successor to ABT-450. ABT-493 is in Phase I trials, and the two companies are specifically targeting it to have higher barriers to resistance than ABT-450 or other treatment regimens. Co-dosing of ABT-450 and ABT-493 will occur in Q3 2013, with Phase II trials set to begin in mid-2014. Enanta's third HCV asset is EDP-239, developed in collaboration with Novartis. EDP-239 is now in Phase I trials, with a primary completion date of June 2013. The trial will test EDP-239 in several doses versus placebo, with changes in HCV viral loads serving as the primary endpoint, and with safety, changes in HCV RNA log, and EDP-239 plasma concentrations serving as secondary endpoints. Early data for EDP-239 has suggested the compound warrants further development; Enanta notes that EDP-239 has shown solid ability to overcome resistance in vitro, and has been shown to be synergistic and additive to interferon and direct acting antivirals (also known as DAAs). In addition, EDP-230 has not show cytochrome P450 interactions, and Enanta has determined that the drug is "amenable" to fixed-dose combination regimens. We expect further updates on EDP-239, as well as ABT-450 and ABT-493 when Enanta reports Q3 2013 results in August (the company's fiscal year ends in September).

Partnerships And Financials: The True Upside

Although the clinical data for ABT-450, and early data for both ABT-493 and EDP-239, have been acceptable, the true upside lies in Enanta's collaboration agreements with both AbbVie and Novartis. As we have noted in our previous coverage, Achillion is one of a few development-stage biotechnology companies that has been able to maintain full global rights to its entire pipeline, meaning that the full upside potential of sovaprevir and its other HCV programs belong to Achillion. That makes the company's $600 million market capitalization quite palatable. Enanta, however, has traded away most of the upside potential of its HCV pipeline. But it has done so on highly favorable terms, and when those terms are combined with a market capitalization of just over $300 million, they become highly compelling.

Enanta inked its collaboration agreement with AbbVie (then Abbot Laboratories) in November 2006 in exchange for a $57.2 million upfront payment (inclusive of the purchase of Enanta preferred stock). Since then, Enanta has received an additional $55 million in milestone payments and is entitled to a additional $275M in potential milestone payments ($195 million in development and regulatory milestones, $80 million tied to the development of follow-on products). Enanta will be entitled to tiered royalties on global sales of ABT-450 (ranging from low double digits to twenty percent; Enanta states that the blended royalty rate is in the high teens).

With peak sales of ABT-450 forecast to reach $2 billion, this equates to royalties of $300 million assuming a 15% royalty rate (which in fact may be conservative). However, perhaps the most compelling provision of the AbbVie agreement is the fact that under the terms of the agreement, AbbVie is responsible for all global development, manufacturing, and commercialization costs for ABT-450. Enanta can simply collect potential royalties without contributing a dime to ABT-450's development. Furthermore, Enanta holds an option to co-develop and co-promote ABT-493. Should it exercise the option, Enanta will be required to fund 40% of domestic development and commercialization costs in exchange for 40% of domestic profits. The option may only be exercised after the completion of Phase IIa trials within a pre-determined (but undisclosed) time frame.

Enanta's agreement with Novartis, struck in February 2012, was also done on highly favorable terms. Under the terms of the Novartis agreement (covering EDP-239), Enanta received $34.4 million upfront and $11 million in January 2013 when Novartis initiated Phase I trials of EDP-239. Enanta is entitled to $395 million in potential milestones (the breakdown has not been disclosed), as well as double-digit royalties on sales of EDP-239, ranging from low double digits to high teens. As with ABT-450, Enanta need not contribute a dime to developing EDP-239; all development, manufacturing, and commercialization costs are to be paid by Novartis.

Investors may be curious to note that Enanta still spends millions on research & development (nearly $4 million in Q2 2013). If Enanta's partners are funding all of the costs of its HCV assets, then where is this spending going? R&D spending is tied to Enanta's third collaboration agreement and proprietary programs. In addition to its HCV collaborations with AbbVie and Novartis, Enanta has an agreement in place with the National Institute for Allergies and Infectious Diseases (also known as NIAID). Under the terms of the agreement, struck in November 2011, NIAID will fund pre-clinical and early-stage costs for developing EDP-788, a bicyclolide antibiotic being developed to treat MRSA. Biocyclolides are a new class of macrolide antibiotics developed by Enanta that have been designed to overcome resistance more effectively than existing macrolide products such as Biaxin or Zithromax. IND-enabling studies are now in progress, and Enanta expects to initiate Phase I trials in the first half of 2014. The NIAID contract expired in March 2014, and NIAID has the right to extend it six times through September 2016. Enanta received $14.3 million when the contract was first signed, and is entitled to up to $42.7 million in payments should NIAID exercise all six options. Enanta's remaining R&D expenses are tied to two pre-clinical programs: one for a cyclophilin inhibitor, and another for a nucleotide polymerase inhibitor. Candidate selection for both is expected to occur by the end of the year.

Enanta's recent IPO, as well as milestone payments from its collaboration agreements, have fortified its balance sheet. Enanta ended its most recent quarter with nearly $122 million in cash and investments, and only $1.8 million in debt (tied to a warrant liability related to Enanta's preferred stock). Based on currently outstanding shares, Enanta holds $6.73 in net cash and investment per share. Notably, Enanta's IPO was the company's first equity raise since 2006, and management has stated that the company's present balance of cash and investments will be enough to fund operations for at least 2 years. Enanta's historical financials (those filed in its S-1) offer some insight into its historical burn rate. Enanta generated positive operating cash flow in both 2011 and 2012 due to the receipt of milestone payments. Enanta's maximum operating expenses in fiscal 2010-2012 were $25.299 million, and even if the company's expense run rate were to double, the company would have well over 2 years of capital on its balance sheet. In our view, Enanta may be conservative in its capital and liquidity forecasts, especially in light of the fact that consensus forecasts call for the company to post a profit of 64 cents/share in fiscal 2014 (the year ending September 30, 2014).

Conclusions

The upside potential embedded in Enanta Pharmaceuticals can be simplified into several key financial figures. Enanta, with a market capitalization of less than $307 million (as of the close of trading on July 23) is entitled to up to $670 million in further milestone payments from its agreements with AbbVie and Novartis, and peak ABT-450 royalties of $300 million annually (assuming a 15% royalty rate). That's without ascribing any value to EDP-239, ABT-493, or any of Enanta's earlier stage pipeline assets. Enanta has a solid balance sheet, a set of compelling collaboration agreements, as well as several early stage pipeline assets, assets that have likely been ignored by the market to date. In our view, this sets the stage for meaningful upside heading into Phase III ABT-450 data. Enanta is a compelling long-term holding.

Disclosure: I am long ENTA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)

Additional disclosure: PropThink is a team of editors, analysts, and writers. This article was written by Ivan Deryugin. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article. Use of PropThink’s research is at your own risk. You should do your own research and due diligence before making any investment decision with respect to securities covered herein. You should assume that as of the publication date of any report or letter, PropThink, LLC and persons or entities with whom it has relationships (collectively referred to as "PropThink") has a position in all stocks (and/or options of the stock) covered herein that is consistent with the position set forth in our research report. Following publication of any report or letter, PropThink intends to continue transacting in the securities covered herein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. To the best of our knowledge and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and not from company insiders or persons who have a relationship with company insiders. Our full disclaimer is available at www.propthink.com/disclaimer.

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