Clinical Data: Highly Anticipated FDA Decision Could Revive Interest

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 |  Includes: CLDA, FRX, GSK, LLY, MRK, PFE
by: TheMarketFinancial

Something special is taking place in the next few weeks; a little known global biotechnology company, Clinical Data (NASDAQ:CLDA), is attempting to bring forth the first compound to treat Major Depressive Disorder (MDD) in more than 10 years, all the while achieving something its peers haven’t, the ability to not supress or affect sexual function. In a little more than a month’s time, their product Vilazodone will be up for marketing approval by the FDA, and many are betting that the highly positive clinical phase III trials will see them through with a positive vote. Beneath the spotlight, Wall Street analysts have been quick to notice the potential and upgrade the stock recently with numerous ‘buy’ ratings as high as $37, or more than double from its current state. Despite all of this, very few mainstream media sources have covered the opportunities currently residing in this company and the biotech industry, especially given that this sector is primarily driven by science, and not economic cycles, presenting a safe haven or hedge from the current volatility in the markets.

For all these reasons, and more, there is no better time to discover this company that is on the verge of revolutionizing the annual $12 billion dollar antidepressant therapy market. With more than 212 million subscriptions in 2009, and a highly prevalent and serious mood disorder that affects roughly 18.1 million, it is clear that the next player to dominate this market will reap tremendous profits.

The MDD market is currently dominated by such prominent major players as Pfizer (NYSE:PFE) (through its recent purchase of Wyeth), Eli Lilly (NYSE:LLY) (Prozac), GlaxoSmithKline (NYSE:GSK), and Merck (NYSE:MRK) (through acquisition of Schering-Plough), yet all of them lack the ability to distinguish themselves from one another, generally offering very similar benefit-to-risk profiles on each drug. This then becomes one of the championing reasons that leaves the company highly susceptible to a buyout or takeover, according to a well known Wall Street analyst, Gene Marcial, who stated, “The three drugmakers [are] likely to be interested — and said to have had some talks with several Clinical Data executives — are Eli Lily, Forest Labs (NYSE:FRX) and Pfizer.”

The Flagship Product

Clinical Data’s flagship product, Vilazodone, a dual acting serotonin reuptake inhibitor and a 5-HT1A receptor partial agonist, has a set PDUFA action goal date for January, 22, 2010, and is sure to make waves amongst biotech enthusiasts as the deadline inches closer. The drug’s NDA is being supported by 2 Phase III clinical trials in which Vilazodone achieved statistical significant superiority to placebo on the primary efficacy endpoint and on the secondary endpoints related to symptoms of MDD and to global improvement. The drug is also supported by a long term safety study. You may find more information by viewing the media information file here (pdf).

According to company filings, “Vilazodone was generally well-tolerated with no single adverse event leading to discontinuation in greater than 1% of subjects. The most common adverse events considered to be related to Vilazodone treatment were diarrhea, nausea and insomnia. In addition, Vilazodone’s impact on sexual function was similar to placebo when measured by quantitative, validated scales. Vilazodone was generally well-tolerated with no single adverse event leading to discontinuation in greater than 1% of subjects. The most common adverse events considered to be related to Vilazodone treatment were diarrhea, nausea and insomnia. In addition, Vilazodone’s impact on sexual function was similar to placebo when measured by quantitative, validated scales.” This should bode well for their meeting with the FDA, seeing as how there is an unmet need for new alternative antidepressants that offer reliability and efficacy with an improved tolerability profile.

Well-Connected Management

The founder and chairman of Clinical Data, R.J. Kirk, is one of the most active players and dealmakers in the biotech world. In 1993, he founded painkiller maker King Pharmaceuticals (NYSE:KG), which Pfizer recently acquired. In 1996, Kirk founded New River Pharmaceuticals, which was eventually acquired by Shire in 2007. Kirk also serves on the board of a number of companies, including the biotech Scios — until it was purchased by Johnson & Johnson (NYSE:JNJ) in 2002.

Clearly, Kirk is well-connected in the both the biotech and Big Pharma circles, which analysts say makes it conceivable that he would agree to selling Clinical Data at this point.

Institutional Ownership

Some large institutional investors have already caught on to the stock’s bright prospects, as seen by the fact that the institutional ownership has gone up in each of the last 5 quarters. Fidelity Management has accumulated a stake of more than 14%. Also big holders are Times Square Capital Management, which owns 3.35%; Vanguard Group, with 2.31%; and BlackRock, whose various funds own a total of 2%. By far the best show of confidence by any current and potential shareholders is the fact that Mr. Kirk is the largest shareholder with about 40% of the company. This means he would be the largest beneficiary if he agrees to sell Clinical Data, thus the incentives are certainly present for such an action to take place.

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Recent Analyst Upgrades

  • 11/30 – Roth Capital maintains buy, price target unchanged at $28.00
  • 11/30 – Piper Jaffray maintains overweight, price target unchanged at $23.00
  • 11/30 – BMO Capital Markets maintains outperform, price target unchanged at $29.00
  • 11/30 – McNicoll Lewis & Vlak maintains buy, price target unchanged at $37.00

“Patients suffering from depression usually experience difficulties with sexual functioning, which tends to be worsened by antidepressant treatments”, says Chrystyna Bedrij, biotech analyst at Griffin Securities, who rates the stock a ‘buy’. “Vilazodone is ‘neutral’ on the issue of sexual function”, she says, “as it doesn’t harm a patient’s sexual ability.”

Bedrij puts the intrinsic worth of Clinical Data, currently trading at $17 a share, at $33, Optimism about the fate of Vilazodone is mainly based on the fact that the antidepressant already has completed all the required clinical trials with significantly positive results on efficiency and safety. Clinical Data’s application for Vilazodone as a new drug is supported by data from nearly 3,000 patients who have taken the drug safely with a low occurrence of negative side effects, according to the analyst.

Disclosure: I am long CLDA.