CVT Continues Its Spending Spree

Yesterday, Rule Breakers pick CV Therapeutics (Nasdaq: CVTX  ) released its financial results, following an eventful first quarter for the drug developer. CVT's only marketed compound is the angina treatment Ranexa. In the first quarter, CVT announced clinical trial results for Ranexa that sent shares plummeting nearly 25% -- even though the study's outcome was not all that bad for CVT.

Ranexa has only been sold commercially since March of last year. Sales of Ranexa for the first quarter were a paltry $12 million, up 33% versus the fourth quarter of 2006. Due mainly to the heavy marketing expenses and development for Ranexa, CVT burned through $70 million and ended the quarter with just less than $260 million in cash and investments.

The problem for CVT is not that Ranexa is a bad drug or that its market opportunity is limited. The issue is that in order for Ranexa to reach its full sales potential, it may take more resources than CVT has available and be prohibitively expensive to shareholders in the form of high-cost share dilution or debt.

The are several reasons for the excessive spending. Ranexa is competing against a host of low-cost generic competitors in the other anti-anginal drugs, which means that it takes a lot of prescriptions and associated marketing costs to reach a meaningful sales level. Combine this with the fact that CVT's sales force only has one drug to detail to doctors (which means each salesperson brings in less revenue), and it all translates into huge SG&A expenditures.

So far, CVT's saga shows why it can often be better for smaller specialty pharma companies to license their compounds to large pharmaceutical marketing partners when those compounds are used to treat a large patient population. That said, Ranexa still has the opportunity to be a viable commercial success and bolster CVT's bottom line with the possible upcoming label expansion as a first-line angina treatment. This could happen as soon as mid- to late 2008 (CVT plans a fall 2007 sNDA), but off-label sales growth with the drug should be ramping up this quarter. We'll get a better idea about the compound's new sales trajectory when CVT announces its second-quarter financial results.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.