Ardea Biosciences, Inc. (RDEA)

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Ardea Biosciences Still Developing
Monday August 18, 9:56 am ET
By Grant Zeng, CFA

Ardea Biosciences, Inc.'s (NasdaqGM: RDEA - News) lead drug candidate is RDEA806 which is under phase II studies for HIV and phase I for gout. Another candidate is RDEA119 under phase I studies for cancer indications. We are concerned about the weak pipeline and early stage of development. Competition in the HIV and cancer markets, combined with the cash burn concern make us believe Ardea's risk/reward is balanced. We maintain a Hold rating on the stock.

Ardea is still a development stage company. The company has been incurring operational losses since its inception. There is no product revenue currently, and the company depends on equity and debt financing to fund its drug research and development activities. We expect Ardea to continue to incur operating losses and not to receive any product revenue in the foreseeable future, other than milestone payments from Valeant research projects currently underway.

The management anticipates 2008 net cash usage to be between $45 million and $50 million. Therefore, we estimate the company needs to tap capital market sometime in late 2008 or early 2009. Any equity offering will further dilute shareholder base. At our price target of $16 per share, the market cap for Ardea is $162 million. We think this is fare to Ardea based on the fundamentals of the company.