Anadys Pharma Timetable Set Back
Anadys Pharmaceuticals Inc. (ANDS) is currently rebuilding its pipeline after discontinuing the development of both its clinical compounds, ANA380 for hepatitis B virus (HBV) infection and ANA975 for both HBV and hepatitis C virus (HCV) infections. The company has undertaken a major restructuring program and will focus on the development of only two compounds, ANA598 for chronic HCV infection and ANA773 for certain cancers and HCV. We see a balanced risk/reward profile for the company and maintain our Hold rating.
Based on encouraging preclinical results for ANA598, the company is focusing its resources on speeding up the clinical program and moving the compound into phase II trials by 2009. The increased focus on ANA598 translates into a longer development time for ANA773 and higher cash burn. We had previously expected a product launch to occur by 2009; now with both ANA975 and ANA380 gone, the latest the company can launch a product will be in the 2011/2012 period. This represents a substantial delay from our earlier forecasts.
With several competitive products either in the market or in clinical development, we remain skeptical about the commercial success of Anadys products. We believe the company will continue to incur losses for the next several years. Current drug development programs indicate that 2008 could be the first year in which ANDS could present phase I data on either of the candidates currently in development. Until then, the company will need to rely on the cash balance to fund its operations till 2009.
We would like to see more visibility on the company's development programs before we recommend the shares. It is currently very difficult to value the stock, given the low revenue stream and the negative EPS in the 2008-11 period. We assign the stock a target price of $3.50 with a market cap of $101 million.
HealthSouth Making Progress
After a turbulent several years marked by significant financial uncertainty, HealthSouth Corp's (HLS) operations appear to be stabilizing. Reinstatement to the NYSE and a resolution of primary claims with the Department of Justice demonstrate, in our opinion, that the company has made significant progress in addressing problems of the recent past.
We regard the recent divestment of the company's surgery, outpatient rehab, and diagnostic divisions, as positive for the strategic re-focusing of management efforts, and the reduction of company's high debt levels. In addition, and despite Medicare issues, we believe pure-play status will boost longer-term earnings prospects given the company's leading market share in inpatient rehabilitation facility.
HLS currently derives approximately 66% of consolidated net operating revenues from Medicare.
