Small drug company Indevus (NASDAQ:IDEV) had the good fortune of a drug approval this year for Sanctura, which treats overactive bladder, or increased urinary frequency or urges to urinate. The leader in this $1.4 billion market is Pfizer's (NYSE:PFE) Detrol.
Simple intuition may lead investors to believe that a drug launch would be good for a company's share price. Consider that all risks that go with getting the Food and Drug Administration's approval have been removed, and the company can start getting a return on years and years of research and development. It almost seems obvious that a company should be worth more after a drug's approval.
That has not been the case with Indevus. The share price is nearly exactly where it was when Sanctura was approved Aug. 23. Worse, the stock is down more than 30% from its 52-week high. So what the heck is going on?
Part of the problem, as I see it, is that after a drug is approved, all the market cares about is sales and, more importantly, profits. For the quarter ended Sept. 30, Indevus lost $27.9 million. That was not unexpected, given that Sanctura had just launched and there were significant launch expenses.
However, a lingering concern for the short term is that quarterly losses are only going to be cut to the "low to mid teens" in 2005, according to management in today's earnings conference call. Even with a drug that has growing sales on the market, Indevus is going to remain widely unprofitable next year. That is absolutely a weight on the company's stock in the near term, no matter how well Sanctura could perform over the next few years.
I understand, and agree with, management's decision to not provide Sanctura sales guidance. Only bad things can happen from publicly giving sales estimates that have a high probability of being wrong. At the same time, until there is some clarity on how well Sanctura will do in the future and when Indevus will become profitable, I do not expect Indevus' stock to turn the corner.
For additional articles on the biotech industry, see:
- Spin the Medicine Bottle
- Picking Biotech's Winners
- Don't Be Afraid of Biotech
- Finding Biotech's 50-Baggers
- Are Stem Cells a Rule Breaker?
Fool contributor Charly Travers is the biotech analyst for Motley Fool Rule Breakers . He does not own shares of any company mentioned in this article.
