Somaxon Upside is Tremendous
Somaxon Pharmaceuticals (SOMX) filed the new drug application (NDA) for insomnia drug Silenor in late January 2008. The FDA accepted the application in April 2008. Somaxon is currently in discussion with several interested parties for commercialization of the drug in early 2009. We see a partnership more likely to happen after the approval.
In the meantime, Somaxon is preparing to present additional phase III data on Silenor at upcoming scientific conferences designed to increase the awareness of the product ahead of the launch. At this point, the shares are enormously under-valued with a market capitalization of only $80 million. Management is sitting on $30 million in cash and less than a year away from launching a $500 million potential drug.
The biggest significant risk that remains for Somaxon beside the obvious FDA decision on Silenor is the potential wide-scale use of generic doxepin HCl 10mg as an alternative to 3mg Silenor. This risk seems overaggregated in our view, based on several points.
We believe that the stock is fairly valued at $12. We arrive at this figure by applying a 20x multiple to our 2011 EPS of $1.63 and discounting back to present day at 30%. Our $12 target equates to a market capitalization of $220 million, nearly triple the current value today.
Sell Bellus Health Shares to $1
Bellus Health, Inc. (BLUS) is a biopharmaceutical company focused on the development and commercialization of products for the treatment of neurological disorders. The company currently has two candidates under various stages of clinical development.
However, late-stage pipeline setbacks have sent the companyâ?s shares plunging. In July 2007, the FDA issued a second 'approvable' letter for Kiacta, requesting an additional trial and additional pharmacokinetic data. This was followed by negative results from the North American phase III trial of the companyâ?s biggest potential product, Alzhemed.
The FDA indicated that an additional trial with a p-value of 0.05, along with further pharmacokinetic studies, will be required before the agency approves Kiacta. This was followed by negative results from the Alzhemed trial in August 2007. The share price plummeted over 40% on the news.
To add to Bellusâ? woes, the cash position is a matter of grave concern. With such late-stage pipeline setbacks, the company intends to fund operations for the remainder of 2008 with $43.4 million in cash.
The rest of the pipeline looks lackluster and does not hold much promise. Given the significant lack of positive catalysts, we rate the shares a Sell with a target price of $1.
Limited Upside for Qiagen Shares
Qiagen N.V. (QGEN) produces and distributes biotechnology products and services primarily for separating and purifying nucleic acids (DNA/RNA). The company, through its subsidiaries in Europe, Asia, Australia, Canada and the U.S., operates in the life sciences industry with a portfolio of more than 500 products and automated solutions.
Though the molecular diagnostic and research market offer enormous growth, the company faces stiff competition. We would like to see their research spending stabilize before we recommend the shares.
