CVTX Analysis Part 1

By the numbers

Q2 2008 10-Q

Total liabilities $557,514k, most of which is $346,500k as notes and 159,805k of Deferred long term revenue (possible future revenue). Qtrly CVTX B/S.

Add $70M from Menarini for rights to Ranexa in 68 countries, including 27 in the EU and select countries of Central and South America. extract->

Account for the diminishing cash burn and positive earnings may occur within 2-3 quarters. Q3 earnings will be very informative and are due 3-13 November. Estimates are for a 36cent loss.

Analysts on average see CVTX continuing to loss money in 2009, $-0.48, though the range is wide at 0.47 to -1.27.

Q2 2008 Conference Call

Overall, more than 575,000 Ranexa scripts have been written for more than 125,000 patients since launch, and we continue to get excellent feedback from doctors and patients.

Ranexa revenues and are now on a $100 million per year annual run rate. And, we now have the regulatory approvals that will give us four revenue sources, Ranexa sales in the US, Ranexa revenues from Europe, Lexiscan royalties (50% of royalty revenue from North American) and royalties from another Astellas product. Moreover, we strengthened our balance sheet both through a $185 million non-dilutive financing and the retirement of $53 million in convertible debt.

So now that the debt is paid off when can shareholders expect to see some cash flow and what is CVTX worth?





Valuation

The annual cost to service their debt of $346.5M is $8.7 million, around 2.5%. An excellent rate. They have plenty of cash to see the company through to profitable and may even get the opportunity to repurchase some of their debt at a discount as they did in Q2.  So tick the balance sheet, it contains possible upside and likely future payments of $160M.

• Ranexa sales in US - running at $25M a qtr, label extensions to come. CVTX estimated $500M+ market for Ranexa. A $100M run rate without the primary indication. Come on FDA where are those label extensions.
• Ranexa European revenues - upto $315M is future payments and royalties
• Lexican Royalties - well they sold the other 50% to TPG-Axon for $175M so I’ll use that figure
• Adenoscan - revenues may start in Q3, look for this.

Quick Look CVTX

• Market Cap $489.72M and as debt balance liquid assets the EV is around the same.  So is Ranexa worth $500M(EV)-$175M(Lexican)=$325M. Well with annual sales likely to surpass that figure, I say yes.
• Price/Sales (ttm): 4.39 - that figure drops quickly on a forward basis.
• Short % of Float (as of 10-Sep-08): 19.70% - worryingly high
• CAPS rating Three Stars

Latest news “Menarini will potentially make additional payments and investments totaling up to approximately $315 million for commercial and development milestones and promotional and detailing commitments. The commercial milestones are primarily linked to sales levels and the development milestones are linked to approval of Ranexa in Europe for certain additional indications that are jointly developed. ” I’ll be interested to see if that goes straight on deferred revenue.

Earnings Based

see CVTX spreadsheet

Pros

• YoY earnings have increased for eight straight quarters.
• Revenues have increased for nine straight quarters
• Management have performed well.
• Pro/risk three applications awaiting review at the FDA that could significantly increase Ranexa revenue.

Waiting On Q3 Earnings and FDA approvals

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Brian Lawler at TMF
Brian Lawler CVTX valuation

I am Long CVTX and now considering buying more.