Encysive Evasive About Thelin

It's the question on many Encysive (Nasdaq: ENCY) investors' minds: What's the deal with Thelin? The pharmaceutical firm and Motley Fool Rule Breakers pick has a lot riding on its new drug for pulmonary arterial hypertension (PAH), but the FDA's taking a cautious approach to its approval. On March 24, the agency sent Encysive a letter indicating that it might approve Thelin -- but only if the company can assuage any questions or concerns raised by the drug's New Drug Application.

While investors hold their breath, they've got a few other good tidings to lift their spirits, courtesy of the first-quarter earnings Encysive released May 10. According to the report, Argatroban royalties increased 38% year over year, to $3.2 million.

In the conference call yesterday, the company provided a terse update on its latest negotiations with the FDA. CEO Dr. Bruce Given said they the company was engaged in an "iterative (negotiation) process with the FDA," and that they were assembling the information needed by the agency. If the FDA finds the company's response to the approvable letter sufficient, there will either be a 60-day or six-month review period before the FDA approves or rejects Thelin.

So why was the letter issued? One theory speculates that the FDA had concerns about Thelin's interaction with Warfarin, another common treatment for PAH. Alternately, the letter could be related to the reduction in sperm count that might occur with Thelin and other drugs in its class, such as Myogen's (Nasdaq: MYOG) Ambrisentan or Actelion's (OTC: ALIOF.PK) Tracleer. However, these are just guesses, and it's nearly impossible to determine when Thelin might ultimately be approved. Analysts tried to pry an estimate from management during the conference call, but executives kept quiet, citing "competitive reasons."

Luckily for Encysive shareholders, the European Medicines Evaluation Agency (Europe's FDA equivalent) will give an opinion on Thelin sometime in June or July. Since the EMEA is autonomous from the FDA, there is a possibility that it may approve Thelin despite the FDA's hesitance, as it's done with other drugs.

Even if Thelin gets EMEA approval, investors should keep an eye on Encysive's cash-burn rate in the coming months. The company used up $27 million in the latest quarter, and at the end of March, it only had about $100 million left. Even with a positive EMEA opinion in June or July, there will still be another 60-90 days before final approval is granted in Europe. To that, add several more months before Encysive finishes reimbursement negotiations with the individual European countries (except Germany and the U.K.), and it's easy to see that the company will need at least one more round of financing before Thelin sales start to pick up in Europe.

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Fool contributor Brian Lawler owns shares of Encysive. He welcomes your feedback at blawler@utk.edu. The Fool has a disclosure policy.