Idera Pharmaceuticals: On simmer
With friends like these, Idera Pharmaceuticals (Nasdaq:IDRA) doesn’t need enemies. People say the drug discovery company is interesting, promising, an intriguing trailblazer. But, like last night’s fish dinner, look how they push the plate away. Maybe later.
Just last week, analysts at Canaccord Adams downgraded Idera after it posted a second-quarter profit against projections for a loss. The Cambridge, Mass.-based biotechnology firm specializes in experimental drug therapies for cancer, and for infectious, auto-immune and respiratory diseases. Its focus is to modulate specific toll-like receptors (TLR), which direct immune system responses and recognize certain DNA and RNA patterns.
Here’s Canaccord’s compliment to the chef: “We continue to be impressed with Idera as the leader in the TLR space, which is also validated by three large partnerships (Novartis (NYSE:NVS), Merck (NYSE:MRK), and Merck KGaA) across multiple therapeutic indications,” wrote analyst Joseph Pantginis.
Here’s what was slipped under the table to the family beagle: “We are downgrading from ‘buy’ to ‘hold,’ based both on valuation and near-term headline risk in the stock.”
Picky, picky. After all, Idera has feted shareholders with a five-fold gain in the past two years, closing Wednesday at $14.82 per share from a low of $2.70 in early August 2006; it’s near the top of a 52-week range of $6.35 to $15.60.
The company’s revenues — all of which come from collaborative and license agreements — advanced to $8 million in the year ended December 2007, from $2.5 million in fiscal 2005. Idera, with market capitalization of $320 million, lost $0.62 per share in fiscal 2007, paring a loss of $0.99 in both 2005 and in 2006.
Pantginis said he doesn’t see further upside to shares for the time being because the company lacks catalysts. He noted the recent series of new multi-year highs has come on limited volume, showing a lack of institutional interest.
His headline risk refers to a belief that investors will react negatively to an expected readout of a renal cell carcinoma monotherapy study in the third quarter. Pantiginis believes this will not show response rates that will compare positively to current market drugs Sutenta and Nexavar.
But Pantiginis says this is an older study that is no longer core to Idera’s oncology program now that Merck KGaA has become its global oncology partner. Merck KGaA — the German chemical and pharmaceutical company — partnered with Idera in mid-December, pumping $40 million into the company as an upfront payment. The drug candidate, called IMO-2055, is now in a phase 1b trial in combination with Tarceva and Avastin for the treatment of non-small cell lung cancer.
Idera’s partners are key. Its relationships are in three therapeutic areas: Merck KGaA for cancer, Merck and Co. for vaccines and Novartis for asthma/allergies. In addition to upfront payments, the collaborations could result in additional funds if agreed upon milestones are achieved, and in royalties if commercial products result from the collaborations.
Idera’s cash position benefited heartily from Merck KGaA’s infusion; cash, equivalents and short-term investments rose in the second quarter through June to $59.5 million from $23.7 million at the end of December. Idera, which had an accumulated deficit of $343.6 million on June 30, believes it has enough available cash to fund operations at least through March 2010.
Indeed, Idera’s surprisingly strong results for the second quarter had a lot to do with the agreement monies from Merck KGaA, as well as a milestone payment and reimbursed expenses from Idera’s collaboration deal with Merck and Co. Idera earned $0.05 per share in the second quarter, up from a loss of $0.14 the year earlier. Still, for 2008, analysts expect a loss of $0.08 and for 2009, a loss of $0.31.
So it all boils down to what Idera cooks up in its lab, where there’s nothing hot enough yet to blow the lid off the pot. Things are stirring, though.”We continue to look to 2009 as a potential transformative year, with a stream of data across all programs allowing for better determination of the commercial utility of TLR-based modulation, wrote Derek Jellinek, an analyst at Susquehanna Financial Group, in a note last week after second-quarter results were released.
Jellinek also views Idera as a pioneer in the TLR field, supported by a solid platform, key partnerships and an emerging pipeline. He notes encouraging signs of immunologrical activity associated with TLR modulation across many areas, including infectious, respiratory and autoimmune diseases, as well as oncology.
Oh, but then Jellinek says: “We maintain our ‘negative’ rating.” He views the high development risk associated with a relatively novel therapeutic approach as inadequately reflected in an enterprise value of $280 million. He has an $11 target, a price last seen at the end of March.
Skip the seafood platter. At least for now.
