BST Trade Alert: December 19, 2013
December 19, 2013
Recommendation:
Buy Conatus Pharmaceuticals (NASDAQ: CNAT) up to $7.00 per share.
About the Company:
Conatus is an innovative biotech focusing on the development of novel medicines to treat liver disease. The company was founded in 2005, but it just completed its initial public offering in July 2013.
In other words, Conatus is not only a speculative, development stage biotech, it also carries risk associated with being a new issue.
Nevertheless, we’re optimistic about the future of Conatus’ leading drug candidate for liver disease. And we’re excited about the company’s big, potential upside catalyst happening in the first half of 2014.
What’s more, we feel very comfortable with Conatus’ stellar financial condition.
Thanks to the recent IPO, the company’s sitting on a cash hoard of nearly $60 million. Liquidity is no problem as current assets are 60 times greater than current liabilities. And the company has no long-term debt.
Conatus clearly has sufficient cash to fund its clinical program and cover operational expenses during the expected timeframe for this trade.
Let’s now take a closer look at the company’s leading drug candidate.
About the Drug:
Conatus is developing emricasan for the treatment of chronic liver disease and acute exacerbations of chronic liver disease. The drug is a caspase protease inhibitor designed to reduce the activity of enzymes that mediate inflammation and cell death (apoptosis).
Emricasan is not a new drug.
Conatus acquired it from Pfizer in 2010 through the purchase of Pfizer subsidiary, Idun Pharmaceuticals, for approximately $298 million. Prior to the purchase, emricasan had been studied in ten clinical trials involving over 500 patients.
And the drug showed a lot of promise…
In a phase 2b study of patients with liver disease, the drug demonstrated a statistically significant reduction in elevated levels of two key biomarkers of inflammation and apoptosis. Both of these biomarkers have been implicated in the severity and progression of liver disease.
Conatus believes that by reducing the activity of these enzymes, emricasan has the potential to interrupt the progression of liver disease regardless of the original cause.
The company’s plan is to first target indications with high unmet needs in small patient populations. These include acute-on-chronic liver failure (ACLF), chronic liver failure (CLF), and liver fibrosis in post-orthotopic liver transplant due to Hepatitis C virus infection (HCV-POLT).
Patients with these conditions have rapidly progressing fibrosis. If emricasan can arrest disease progression in these patient groups, it would suggest the drug has potential to treat other indications in liver disease with much larger patient populations.
So, what’s happening with emricasan right now?
The drug is currently being evaluated in a phase 2b trial in ACLF patients. The purpose of the trial is to determine an appropriate dose of emricasan to use in a planned phase 3 trial in ACLF. The study will also evaluate the drug’s safety, key biomarkers, and clinical outcomes.
Results from this trial are expected during the first half of 2014.
About the Market for This Drug:
The National Institute of Health estimates that 5.5 million Americans have chronic liver disease or cirrhosis.
Due to its widespread nature and severity, liver disease is now the 12th leading cause of death in the US. The disease is also responsible for over 5,500 liver transplants performed annually. And there are approximately 17,000 patients waiting for a transplant.
Liver disease is also prominent in Europe.
According to the European Association for the Study of Liver (EASL), 29 million Europeans have chronic liver disease or cirrhosis. EASL further reports that liver disease accounts for 2% of all deaths in Europe annually.
No question about it, there is a pressing need for safe and effective treatments for all kinds of liver disease.
What’s more, the drug market for liver disease is large and growing rapidly. Transparency Market Research issued a report earlier this year projecting the global market to grow from $6.5 billion in 2011 to nearly $11 billion in 2018.
While Conatus is initially targeting small patient populations with specific kinds of liver disease, emricasan has much larger market potential. As I mentioned earlier, if the drug is successful in treating ACLF, CLF, and HCV-POLT, it will have shown great potential to treat other kinds liver disease that have much larger patient populations.
About the Potential Catalyst:
Results from the phase 2b trial of emricasan in ACLF are expected during the first half of 2014.
About the Shares:
CNAT’s IPO got off to a great start. The stock surged to a high of $11.24 on its very first day of trading.
However, the stock has declined significantly since then.
At the moment, CNAT is trading for around $6.33 per share. That’s a 44% discount to the high set just a few months ago.
We believe the current weakness is a golden opportunity to pick up shares on the cheap.
The stock should rise going into the highly anticipated trial results expected in the first six months of 2014. And if it does, we’ll have an opportunity to capture solid short-term gains on this trade.
Key Facts:
| Company: | Conatus Pharmaceuticals |
| Ticker: | CNAT |
| Recent Price: | $6.33 |
| Market Cap: | $97 million |
| Avg. Daily Volume: | 66,689 shares |
Chart:
Category: BST Trade Alert
