Biotech Values

[drbio45]

Critical Therapeutics (CRTX) Outperform (1)

CRTX Shares May Move Ahead Of Zileuton CR Review Deadline

Conclusion: Critical Therapeutics' recent co-promotion agreement with Dey Labs improves visibility on the Zileuton CR sales ramp, given the established presence of Dey's 200-rep respiratory specialist sales force. The FDA's 10-month review deadline for Zileuton CR is May 31st: we project an approvable letter followed by final approval and launch later this year. We project Zileuton franchise sales of $125MM in 2011, based on 2-3% share of the U.S. moderate/severe asthma market. Critical Therapeutics also gains co-promotion rights to a Dey COPD product which is currently pending approval. And we believe the HMGB1 antibody program (with MedImmune) has intriguing potential as a broad inflammatory mediator. With approximately $1.20 in net cash per share, we believe CRTX shares are attractively valued.

Zileuton CR Could Hit The Market In H2. Zileuton CR is a twice-daily tablet formulation of zileuton (Zyflo is 4 times daily), and could resolve a key compliance issue with Zyflo. We project an approvable on May 31st, but may have a better idea of the issues following a labeling meeting on May 3rd. There is risk to the approval timing: the single-dose trial did not meet bioequivalence specs, although the mutiple-dose trial is more important.
Dey Co-Promotion Agreement Adds Marketing Muscle. The co-promotion deal signed with Dey Labs on March 14th adds 200 respiratory specialty reps to promote zileuton CR, $12MM of milestone payments in 2007 (assuming zileuton CR approval and launch this year), and a second product to the CRTX reps' bag. We have raised our out-year zileuton franchise sales estimates following the deal. And CRTX retains 65-70% of the zileuton CR sales dollars.
CRTX Shares Still Look Undervalued. Based on our sum-of-the-parts valuation analysis we still view CRTX shares as undervalued. Approval of zileuton CR is the key near-term catalyst.

Ian Sanderson
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Ken Cacciatore
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