Metabasis Therapeutics, Inc. (MBRX) is a biopharmaceutical company that engages in the discovery and development of drugs for chronic diseases involving pathways in the liver. In July 2007, the company suffered two major setbacks when its lead drug, CS-917, failed to meet the primary endpoint in a phase IIb trial and Schering-Plough (SGP) terminated its agreement for the development of Pradefovir, based on the drug's toxicology results.

Both products were in mid- to late-stage trials. The shares plummeted 54% in response to the news.

A major concern for the company is its cash position. Metabasis exited the third quarter of 2007 with $51.3 million in cash, cash equivalents and securities available-for-sale. The company had earlier expected net cash usage for 2007 to range between $43 million and $48 million but has now reduced the same to $38 - $40 million.

The company is also working on cutting down costs and intends to focus its resources and efforts on its core metabolic disease programs MB07803 and MB07811. Metabasis is seeking potential partners for almost all its pipeline candidates. However, we do not expect any announcement in this regard prior to the release of clinical data on these candidates.

In the meantime, the company announced that it will be raising $10 million through a venture debt facility. Even if the company is successful in entering into a partnership, we believe that it will need to raise cash sometime in 2008 and potentially, again in 2009.

Additional development setbacks would severely hamper the company's ability to raise cash from the market. Given these setbacks and lack of visibility, we maintain our Hold rating on the stock with a price target of $3. Despite some promising pipeline candidates, Metabasis' pipeline remains in very early-stages of development and we do not see the company achieving profitability any time soon.