ADLS gets vote of confidence
In spite of having no products and no revenue, Woodridge-based drug development company Advanced Life Sciences Inc. attracted a fourth analyst this week who initiated coverage with a "buy" rating.
Connecticut-based CRT Capital Group LLC predicted that U.S. Food and Drug Administration requirements wouldn't pose a barrier to ADLS's prospective application for approval of its drug cethromycin in the second half of 2008.
On Wednesday CRT said ADLS would gain approval and quickly team up with a commercial partner and launch cethromycin in mid- to late 2009.
"We believe that ADLS' $35 million equity market capitalization falls far short of the company's prospects," CRT Senior Vice President Leah A. Hartman wrote.
Based on future royalties, she predicted ADLS shares would warrant a market value of $3.75 by the end of 2008. That figure is below the stock's 52-week high of $3.97 but far above its current price -- 89 cents in mid-day trading today.
"The stock behavior is representative of the whole small-cap biotech sector in general," ADLS President John Flavin said. "In addition, we expect that regulatory clarity around antibiotic drug development will be forthcoming in early April so it is possible that investors are waiting for this near-term clarity before becoming more aggressive."
Cethromycin is a treatment for community-acquired pneumonia, or CAP, which is the sixth leading cause of death in the U.S., according to the Centers for Disease Control. Last year an estimated $2 billion was spent on CAP antibiotics domestically, according to CRT.
Unlike a common experience with other antibiotics, people don't develop resistance to cethromycin after several uses. The market for such drugs is growing as antibiotic-resistant illnesses spread.
Cethromycin is in its last stage of research, and the FDA recently signaled it might change the requirements under which drugs of its class are tested.
In mid-January, ADLS shares fell sharply to their current 52-week low of 67 cents after analyst Matthew S. Osborne of New York-based Lazard Capital Markets Ltd. downgraded the stock from "buy to "hold" and said he thought the FDA would make changes that would slow approval of cethromycin.
Any change would set back ADLS's target date for turning in a new drug application for cethromycin; meanwhile, the company is running out of funds. In December ADLS raised a net $17.9 million by issuing 10.1 million shares and warrants to purchase 5.1 million shares of its common stock at $1.96 per share. At Dec. 31, the company had cash reserves of $18.3 million.
"That should, in our view, provide sufficient funding up to the point of filing the (new drug application)," analyst Hartman wrote.
In her assessment of ADLS, she predicted the FDA wouldn't alter the testing rules. Cethromycin will be approved by mid-2009 and commercially launched by the second half of the same year, she predicted.
"The company is comfortable with the report and its assumptions regarding the investment opportunity," Flavin said.
The two other analysts who cover ADLS, Angela Larson of Susquehanna Financial Group and Elemer Piros of Roman and Renshaw Inc. rate the company "positive" and "market outperform," respectively. Susquehanna owns 1 percent of ADLS.
In the quarter ended Dec. 31, ADLS reported a net loss of $5.6 million, or 18 cents per diluted share, 5 percent narrower than its loss of $5.9 million, or 21 cents per diluted share, in the year-earlier period. The company received no revenue in the quarter, compared with $4,661 in grants obtained in the fourth quarter of 2006. At the end of the fourth quarter ADLS had an accumulated deficit of $99.6 million.