Today on SA:
Your Daily Pharma Scoop: Conatus Looks Undervalued...
Summary
Conatus is a promising player in the NASH space, trading at a discount...
"Today we will discuss an article on Conatus Pharmaceuticals (CNAT) by Stephen Ayers, titled, “Conatus: Likely To Dash Ahead Of NASH Data.”
Conatus is a promising player in the increasingly competitive NASH space. The clinical stage company’s lead product candidate is emricasan. Earlier this year, Novartis (NVS) exercised its exclusive option agreement with CNAT for emricasan. Under the terms of the agreement, CNAT has already received $50 million, boosting the company’s cash position. The company is also eligible to receive over $600 million in future milestone payments. In addition, CNAT is also eligible for 20% royalties if emricasan is approved.
While currently there are no approved treatments for NASH, the space has seen significant interest from major biopharma companies. Currently, there at least 4 Phase 3 programs in NASH. In addition to these late stage candidates, there are at least 5 promising Phase 2 candidates, which includes Conatus’ emricasan. Although competition in the NASH space has been heating up, the size of the market is significant. According to Deutsche Bank estimates, the NASH treatment market could peak at around $40 billion. Importantly, the different treatments currently under development target different stages of the disease.
Conatus’ emricasan is an orally active pan-caspase protease inhibitor. Caspases are a family of related enzymes and play a key role in modulating critical cellular functions. The functions include apoptosis and inflammation. Emricasan’s potential has been validated by the fact that Novartis chose to exercise its option earlier this year. If the drug moves to Phase 3, Novartis will bear all development costs. Despite this significant development earlier in the year, Conatus shares are down more than 17% for the year and more than 50% from their 52-week highs. Ayers notes in his article that the market is significantly discounting CNAT, considering the current market cap and emricasan’s potential.
The company also does not have any dilution risk in the near-term. At the end of the third quarter, Conatus had $85.2 million in cash, cash equivalents and marketable securities on its balance sheet. Essentially, the market is pricing emricasan at just $45 million based on current market capitalization. We agree with the author that this represents a significant discount.
The author does note some risks associated with Conatus, the biggest being the fact that it is just relying on emricasan. While this is a major risk, as we noted earlier, the exercise of option by Novartis earlier in the year has validated the drug’s potential.
We believe that the reason why CNAT shares have been subdued is because of lack of catalysts. But that would change in 2018 as the company is expected to report top-line data from the Phase 2b ENCORE-PH, which is one of the four ongoing Phase 2 trials with emricasan. This will be followed by data from ENCORE-NF and ENCORE-LF in 2019. With several catalysts in the next 18 months, we believe this is a good time to look at CNAT, especially given the favorable risk/reward profile..."
Theo 
;-)
