Friday, October 24, 2014

Options and Analyst Estimates Paint a Rosy Future for Clinical Data (CLDA, PFE, LLY, FRX, GSK, MRK)

This once small and unnoticed biotechnology company has now turned into the talk of the town, having everyone awaiting anxiously for its blockbuster drug, Vilazodone, to receive word from the FDA on approval during the set January, 22, 2011 action date. With game-changing potential to completely revolutionize the annual $12 billion dollar antidepressant market, it seems investors are finally starting to take notice of Clinical Data (NASDAQ:CLDA).  In preparation for their marketing approval, the company went ahead and sold a pharmacogenomics biomarker development business for $15.4 million on November, 20, 2010, thus allowing for a healthy balance sheet and negating any fears of potential dilution prior to approval.

Well known Wall Street columnist, Gene Marical, recently shed light on the chatter going around, stating, “some analysts say Vilazodone has made Clinical Data an attractive takeover target for any of the major players in the field, including Pfizer, (NYSE:PFE), Eli Lilly (NYSE:LLY), Forest Labs (NYSE:FRX), GlaxoSmithKline (NYSE:GSK), and Merck (NYSE:MRK). Some investors are betting that Vilazodone will receive the FDA’s blessing, and if it does, it will be the first new entry into the antidepressant market in more than 15 years.”

Clinical Data has also taken an important step in protecting its product through the issuance of a new U.S. patent for Vilazodone. “This patent is an important addition to our intellectual property estate forVilazodone, providing even greater protection for the product as we continue to advance our preparations for a commercial launch, upon approval, next year,” said Drew Fromkin, President and CEO of Clinical Data. “Adding three additional years of exclusivity for the key polymorphic form of a drug that has blockbuster potential and for which the Company holds exclusive worldwide rights should have a very positive impact on the value of Clinical Data going forward. Our strategies for securing further market exclusivity for Vilazodone are also progressing, and we anticipate that related, additional claims are likely to be issued in the future.”

Chrystyna Bedrij, analyst at Griffin Securities puts the intrinsic worth of Clinical Data, currently trading at $17 a share, at $33. She notes, “optimism about the fate of Vilazodone is mainly based on the fact that the antidepressant already has completed all the required clinical trials with significantly positive results on efficiency and safety. Clinical Data’s application for Vilazodone as new drug is supported by data from nearly 3,000 patients who have taken the drug safely with a low occurrence of negative side effects.”

Other Notable Analyst Upgrades

  • 11/30 – Roth Capital maintains buy, price target unchanged at $28.00
  • 11/30 – Piper Jaffray maintains overweight, price target unchanged at $23.00
  • 11/30 – BMO Capital Markets maintains outperform, price target unchanged at $29.00
  • 11/30 – McNicoll Lewis & Vlak maintains buy, price target unchanged at $37.00
  • 2/8 – McNicoll Lewis & Vlak maintains buy, price target unchanged at $37.00

As seen from the image below, Nasdaq.com gave the company its highest ‘strong buy’ rating of 5.

With the availability of only 26.5 million shares outstanding, it is comforting to take note that nearly half, or 9.97 million of those are held by institutional shareholders, at a value of $172 million dollars. Furthermore,  nothing boasts confidence from the management of a company than leaders who are willing invest in their own product. In the last three months, we have seen three insider buys to only one sell, and of these holdings, a total of 2.5 million belong to Chairman, Randal J. Kirk.

Interestingly enough, despite the good news surrounding the company, there have been a few sources that are playing the contrarian role. There are over 2.5 million shares short, according to data from shortsqueeze.com, making this a prime candidate for a powerful short covering rally should any positive catalysts arise in the near future. If you subtract the total shares outstanding, with the number of institutional and insider holdings, and factor in the amount of shares short, you are left with a very low float available to potential new investors of around 10 million.

Call Options

For the January, 21, 2010 expiry, call options with a $20 strike saw the most action with an open interest of 632, and volume of 50, with the $17.50 strike a close second on 260 open interest and 134 volume. the March, 18, 2011 expiry options paint a much rosier picture. The $20, $22.50, and $25 strike call options all received the most open interest and volume of the bunch, far outweighing the $15 and $10 puts by nearly four times as much open interest.

Technical Analysis

Short term chart

*click to enlarge

Currently the stock is involved in a bull flag formation which is similar to that seen in early July to end of September, which saw share price increase from $13 to a high of $21. A slow rising uptrend with minor consolidation periods is healthy, given the fact that such heavy mutual fund accumulation has been experienced recently.

The Relative Strength Index (RSI) shows that buyers are stepping in to purchase this highly oversold stock which has reached extremes near the 30 mark. The 50-day moving average also crossed the 200-day moving average, forming the infamous Golden Cross scenario.

Buy volume has been on the rise lately, and is being confirmed by such metrics as the MACD which is diverging upwards and into a bullish cross, as well as the slow stochastics that are beginning to bounce from the oversold territory.

Long term chart

*click to enlarge

From a monthly chart we notice that a Cup and Handle pattern has taken place, and we are in the midst of forming the handle. Relative Strength Index (RSI) is on the cusp of breaking the downtrend, which could result in similar behaviour that was seen back in July and August, where the stock price darted up from $11 to nearly $16.

Volume has been on the rise, which confirms the formation of the pattern, and paves the way for other metrics such as the slow stochastics and MACD to bounce from their highly oversold conditions.

Conclusion

With only ten drugs currently on the market for treating Major Depressive Disorder (MDD), the potential for a new player such as Vilazodone to step in and take a chunk out of the $12 billion dollar market represents an opportunity which does not present itself all too often. Highly positive clinical trials, well inter-connected and experienced management team and a product that’s sure to captivate the investment community, CLDA may soon find itself at a new 52-week high rather quickly from here on out.

Disclosure: Long CLDA

The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related stocks are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward.

TheMarketFinancial is not paid, compensated or in any way incentivized to report news and developments about publicly traded companies, unless otherwise stated.



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