Bullish outlook on CLDA as an M&A target Print E-mail
By Patrick Crutcher   
Friday, 10 December 2010 03:09

icon_watchlistThere is increasing chatter about Clinical Data, Inc.(NASDAQ: CLDA) as a near-term acquisition target. With that said, we want to highlight why we believe CLDA will likely be acquired. They have a PDUFA date January 22, 2011(Saturday) for FDA approval of vilazodone for the treatment of major depressive disorder (MDD). This will be a major inflection point for investors and the company. In our opinion, vilazodone has multi-billion dollar sales potential due to it's advantages over existing treatments. Several major pharmaceutical companies seem poised to acquire CLDA.

With the potential revenue that CLDA could deliver with FDA approval of vilazodone for the treatment of depression, it’s no surprise that they would be seen as an attractive addition at any of the big pharmaceutical complexes. Given all of these potential suitors for CLDA, ironically enough they obtained the exclusive worldwide rights to vilazodone from Merck. CLDA even  raised $30 million recently after having to pay a $12.5 million dollar milestone to Merck for the acceptance of the NDA.

Why does CLDA have so many potential suitors? Vilazodone, if approved, would represent a first-in-class drug for the treatment of depression. It utilizes a novel dual mechanism of action as both a potent and selective serotonin reuptake inhibitor (SSRI) and a partial agonist of the 5-hydroxytryptamine 1a (5-HT1A) receptor. Vilazodone combines the first-line therapy for MDD with a 5-HT1A partial agonism, an accepted adjunctive treatment for MDD and a first-line therapy for anxiety disorders.

In terms of making a strong case for approval, the data supporting CLDA’s NDA are very positive. They have 2 large(400+ pts each) Phase 3 studies that both demonstrated statistically significant results in both the primary and secondary endpoints. They saw dramatic reductions in the symptoms of depression(vs placebo) using the Montgomery-Åsberg Depression Rating Scale (MADRS) total score after up to 8 weeks of treatment (p=0.007, ITT/LOCF) and a significant reduction in depression symptoms(vs. placebo),  as measured by mean change from baseline on the Hamilton Depression Rating Scale (HAMD17, p=0.021). ( Both rating scales are the most common psychometric measures of response to antidepressants used in clinical trials.) There was also a statistically significant improvement in symptoms of anxiety associated with depression, as measured by the Hamilton Anxiety Rating Scale (HAMA, p=0.038). It had a very favorable safety profile and was generally well-tolerated; dropout rate was 4.3% vs 1.7% on placebo. As Dr. Carol R. Reed, Executive VP and Chief Medical Officer of CLDA said, "Changes in vital signs, weight, laboratory values, and electrocardiograms were not of clinical concern(comparable to placebo)." Clinical Data also ran a long-term safety study as a part of the clinical development of vilazodone, something we view favorably as added insurance to the safety of long-term use.

The major reason this drug has blockbuster potential and big pharma interested in vilazodone: the effects of vilazodone on sexual function were comparable to placebo. SSRI’s(common class of antidepressants) have a notorious history of impairing normal sexual function, which for obvious reasons would be an unwanted side effect. We could see this being a major selling point for vilazodone and believe it could establish marketshare fairly rapidly, given CLDA's sales and marketing plans. Likewise, a large pharma could use their established network of sales and marketing representatives.

Clinical Data hopes to eventually have follow-on indications including generalized anxiety disorder and other related mood disorders. In the US alone, MDD and anxiety/mood disorders have patient populations of roughly 18 million and 40 million respectively. Antidepressants are some of the most widely prescribed class of drugs out there and they certainly can provide substantial revenue. How could big pharma turn down a first-in-class drug that has a patient populations in the tens of millions(most of which are looking for better treatment options)? The current US market for antidepressants is greater than $11 billion dollars and growing.

Notable finance columnist, Gene Marcial, not only does he thinks it is a potential takeover target before 2011, but he also thinks they will get FDA approval BEFORE the PDUFA date. Talk about making a bold claim on both fronts. It would seem logical to acquire Clinical Data before approval of vilazodone, since approval would make acquiring them vastly more expensive and likely lead to a bidding war for them. All analysts covering CLDA have them rated as a ‘BUY’ with price targets from $28 to $37. These even seems somewhat conservative given their potential just based on vilazodone. This isn’t even really taking into account their other Phase 3 candidate, Stedivaze, which is a coronary vasodilator in development for myocardial perfusion imaging (MPI) in patients known or suspected to have coronary artery disease and unable to undergo exercise stress testing.

There is certainly enough going on at CLDA to get people speculating on a potential buyout offer from suitors like Pfizer, Forest Laboratories of Lilly. Why these companies? Pfizer’s patents on Zoloft ran out in 2008, Forest Labs patent on Lexapro and Eli Lilly’s patent estate on Cymbalta run out in 2012. These large companies are continually looking to restock their pipeline to protect against future patents cliffs and help increase revenue. Clinical Data looks set to deliver a home-run in 2011 with vilazodone and one very lucky big pharma.

Disclosure: Long CLDA

"Takeover Alert: A takeover bid for Clinical Data(CLDA)?” - http://www.cpreports.com/?p=694

CLDA’s Pipeline - http://www.pgxhealth.com/development/pipeline.cfm

Vilazodone NDA acceptance - http://bit.ly/fFotRG

Vilazodone 2nd Phase 3 results - http://bit.ly/fnGcSt

National Institute of Mental Health numbers - http://bit.ly/4o0a0M

October 2010 Investor presentation - http://bit.ly/hUfcf4

Publications Highlight Vilazodone as Strong Potential Treatment for Depression - http://bit.ly/2mylba




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