Takeover Rumours Swirling Ahead of Highly Anticipated FDA Meeting for Clinical Data
Michael Vlaicu
December 16, 2010
Something special is taking place in the next few weeks, a little known global biotechnology company in 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, especially given the fact that its been more than 15 years since such a drug has been approved.
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, 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 and Pfizer."
Below is a segment on CNBC which featured Peter Navarro of the University of California who discussed the prospects of owning Clinical Data.
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.
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 to 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 the Clinical Data, thus the incentives are certainly present for such an action to take place.
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 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.
Technical Analysis
Short term chart
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Currently the stock is involved in a bull flag formation which is similar to that seen in early July to end of September, which saw share price increase from $13 to a high of $21. A slow rising uptrend with minor consolidation periods is healthy, given the fact that such heavy mutual fund accumulation has been experienced recently.
The Relative Strength Index (RSI) shows that buyers are stepping in to purchase this highly oversold stock which has reached extremes near the 30 mark. The 50-day moving average also crossed the 200-day moving average, forming the infamous Golden Cross scenario.
Buy volume has been on the rise lately, and is being confirmed by such metrics as the MACD which is diverging upwards and into a bullish cross, as well as the slow stochastics that are beginning to bounce from the oversold territory.
Long term chart
click to enlarge
From a monthly chart we notice that a Cup and Handle pattern has taken place, and we are in the midst of forming the handle. Relative Strength Index (RSI) is on the cusp of breaking the downtrend, which could result in similar behaviour that was seen back in July and August, where the stock price darted up from $11 to nearly $16.
Volume has been on the rise, which confirms the formation of the pattern, and paves the way for other metrics such as the slow stochastics and MACD to bounce from their highly oversold conditions.
Conclusion
With only ten drugs currently on the market for treating Major Depressive Disorder (MDD), the potential for a new player such as Vilazodone to step in and take a chunk out of the $12 billion dollar market represents an opportunity which does not present itself all too often. Highly positive clinical trials, well inter-connected and experienced management team and a product that´s sure to captivate the investment community, CLDA may soon find itself at a new 52-week high rather quickly from here on out.
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