Last week, Encysive Pharmaceuticals (Nasdaq: ENCY ) announced what looks like far too optimistic 2008 revenue guidance for its lead drug, Thelin. The oral treatment for mid-stage pulmonary arterial hypertension (PAH), a rare form of hypertension, was approved for marketing in the European Union in 2006. But the FDA -- likely after it spied some issues with clinical trial site record-keeping -- decided not to approve the drug in the U.S. until Encysive completes another phase 3 study (which it plans to do).
The guidance Encysive gave last week is for 2008 worldwide Thelin sales to be $40 million to $50 million, all of which it would get to keep because Encysive markets the drug itself.
While this sales forecast sounds nice, it's important to remember that Encysive's leaders haven't been the most conservative types when they've given guidance in the past (to put things nicely). For example, fourth-quarter operating expenses are expected to be 33% more than what Encysive forecast four months ago.
Looking at Thelin sales in 2007 shows that even with its expanded rollout to more of the large-market European Union countries like France and Spain, sales have been anemic and might even be stagnant, based on fourth-quarter estimates.
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Thelin sales worldwide*
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Q4 07 estimate
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$3.7 to $4.7
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Q3 07
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$3.6
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Q2 07
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$2.3
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Q1 07
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$0.9
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*In millions.
Total sales of Thelin are expected in the $10.5 million to $11.5 million range this year. In order to reach the bottom of its 2008 sales guidance, Encysive would need to average at least $10 million in sales each quarter next year. Absent an expensive expanded marketing push, the addition of a co-marketing partner, or zombies making it impossible for Gilead Sciences' (Nasdaq: GILD ) partner to launch rival drug Letairis in Europe next year, this sounds like a difficult target for Encysive to meet.
To get to the midpoint of its sales guidance would require an average 38% quarter-over-quarter sales growth rate for Thelin in each quarter of 2008 (if Thelin hits the top $4.7 million range of Encysive's fourth-quarter sales estimates). Considering that even the top end of the fourth-quarter sales guidance represents only 31% growth over the third quarter, it doesn't look like Encysive will be reaching its 2008 sales numbers.
There's definitely still value in Encysive shares, considering that it has full worldwide marketing rights to an approved compound. With its cost structure out of whack and positive cash flow not likely until the middle of 2009 at the earliest, this value likely won't get realized unless Encysive gets acquired by a PAH competitor like Pfizer (NYSE: PFE ) or United Therapeutics (Nasdaq: UTHR ) , or even a dark-horse candidate like BioMarin (Nasdaq: BMRN ) . Invest accordingly.
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