fencejake (< 20)

CLDA - BULLS TOAST IF NO TAKEOUT BY TUESDAY

February 20, 2011 – Comments (3) | RELATED TICKERS: CLDA.DL , VNDA , SOMX

CLDA has more than doubled since its antidepressant drug Viibryd was approved last month and is up 15% over the past four trading days entirely due to takeout speculation. The latest round of acquisition hype was triggered by the CEO’s cancellation of a presentation at an investor conference. Typically a cancelled conference presentation would not have such a material effect on stock price, particularly in this case because another one of the company's executives participated in the conference, however, CLDA’s management (including Chairman Randal Kirk) is unusually outspoken about it's desire to sell.  

The hype machine has been in motion over the past four weeks as the company has a very narrow window to sell itself. Time is CLDA’s enemy, as it must raise money in the very near term in order to launch Viibryd on its own if a sale fails to materialize. An offering must happen before the company runs of cash in 2Q11 and in front of the American Psychiatric Association's annual meeting in mid-May.  Bulls predict a deal the week February 22nd – following the long holiday weekend. I predict the beginning of a downward spiral for CLDA as more than a third of the stock's value is attributable to takeout speculation and a sale anywhere near current levels is a pipedream.  A look beyond the retail investor fueled euphoria reveals a drug with extremely dim commercial prospects. History consistently shows that drugs with undifferentiated profiles that compete in generic markets translate to little to no sales. Have a look at recent examples - VNDA, SOMX, and CYPB - all major disappointments. In a best-case scenario Viibryd will generate a tenth of bullish peak sales estimates of $1.0-2.5 billion.  This compares to CLDA’s fully diluted market cap of $1.6 billion - based on a share count of 47 million. It's important to note that the bulls understate share count at 30 million which erroneously excludes in the money converts, options, and warrants. 

CLDA's public relations effort spins Viibryd as a novel drug with a positive sexual side effect profile. Incredibly, this message is in stark contrast to the FDA's stated view of Viibryd. According to FDA's approval letter: "this drug is not the first in its class, and the safety profile is similar to that of other drugs approved for this indication.”  There are other reasons for caution. A review of Viibryd's Phase 3 data reveals an inferior efficacy profile (based on Hamilton Depression Scale scores and a rate of remission that failed to reach statistical significance) and an inferior overall adverse event profile - largely due to gastrointestinal side effects that run as high as 4-5x placebo. Further, early physician feedback on Viibryd is skeptical as evidenced by Viibryd discussions on sermo.com - a physician forum that includes Viibryd-related comments such as "statistically significant if you manipulate the data...a me too drug...a sleazy attempt to clutch at straws...no thanks."  Lastly, investors should be aware of the fact that 2.5 yrs ago Mr. Kirk recommended investing in CLDA because it was an “investment that [his] girlfriend made.” 

As challenging as it will be to get physicians to prescribe Viibryd, the bigger challenge will be to get managed care to pay for it with nearly the entire drug class having gone generic. Big pharma is acutely aware of these challenges, thus the lack of interest in CLDA seen thus far.  In fact, Forest Labs (Ticker: FRX) made comments this week to investors that it is not interested in Viibryd. This should have received more significant attention as Forest represents the most logical potential Viibryd suitor. Forest has cash, an upcoming patent cliff and knows the antidepressant market as well as any other company given its history marketing Celexa and Lexapro.  Quite simply, if Forest isn't interested, then no one is.

Bulls are left with the following choice: 1) continue to hope and pray for a takeout that defies logic or 2) sell before its too late.

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