Inside Wall Street: This New Antidepressant Maker Has Lots of Folks Excited

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Gene Marcial's Inside Wall StreetFighting depression, a highly prevalent and serious mood disorder that affects about 18.1 million adults in the U.S. is one of the largest markets in the pharmaceutical industry -- and it's still growing. More than 212 million antidepressant prescriptions were written last year, with 2009 antidepressant therapy sales totaling about $12 billion.

The major players in this market are the larger drugmakers, including Pfizer (PFE, through its recent purchase of Wyeth), Eli Lilly (LLY), Forest Laboratories (FRX), GlaxoSmithKline (GSK) and Merck (MRK, through its acquisition of Schering-Plough).

To this impressive list of Big Pharma companies, add the name of a tiny and little-known biotech, Clinical Data (CLDA). Why? The young company has developed a potential blockbuster antidepressant called Vilazodone, which analysts expect will be approved by the Food and Drug Administration for marketing early next year.

Because of Vilazodone, the buzz is Clinical Data has become an attractive takeover target for any one of the major players in the field. Vilazodone, if approved by the FDA, will be the first new entry into the antidepressant market in more than 15 years. Its importance is enhanced by the fact that several of the existing therapies are due to lose their patent protection before long. The three drugmakers likely to be interested -- and said to have had some talks with several Clinical Data executives -- are Eli Lily, Forest Labs and Pfizer.

No Impact on Sexual Function

What's so special about Vilazodone when compared with the rest of the crowd? One major difference: Unlike its rivals, Vilazodone doesn't suppress or affect a patient's sexual function. That is a very important difference, indeed, according to industry analysts.

"Patients with depression usually experience difficulties with sexual functioning, which tends to be worsened by antidepressant treatments," notes Chrystyna Bedrij, biotech analyst at Griffin Securities. Vilazodone, she says, is "neutral" on that particular issue, because it doesn't harm a patient's sexual ability. It neither enhances nor suppresses sexual functions, she explains.

Dr. Carol Reed, chief medical officer of Clinical Data, confirms that Vilazodone has a dual mechanism of action, which combines "selective serotonin reuptake inhibition" and "partial 5-HT receptor agonist" to reduce the impact on sexual function as measured by validated scales. Study findings corroborate, she says, that "there was no impairment of sexual function."

The serotonin inhibitors, which enhance the availability of synaptic serotonin -- a key brain chemical -- are approved as safe and effective treatment for depression, says Reed. And the 5-HT receptor agonists have also been shown to be effective for treating mood disorders, including depression and anxiety, she adds.

Significantly Upbeat Results

Given the potential worth of Vilazodone's lack of effect on sexual functioning, "it is positively differentiated from other antidepressants in the market," says Griffin's Bedrij. So, she rates Clinical Data's stock a buy based alone on the appeal and potential value of Viladozone. She puts the intrinsic worth of Clinical Data, currently trading at $18 a share, at $33 a share.

Although no one can predict what the FDA will do, the betting is that Vilazodone, in all likelihood, will win approval because it has completed all the required clinical trials with significantly upbeat results on efficacy and safety, argues Bedrij. And Clinical Data's new-drug application for Viladozone is supported by data from nearly 3,000 patients who "received the drug safely with a low occurrence of side effects," notes the analyst.

All the other seven Wall Street analysts who track Clinical Data also rate the stock a buy, including those from Piper Jaffray, Roth Capital Partners and BMO capital Markets.

Well-Connected in Biotech and Big Pharma

The founder and chairman of clinical Data, R.J. Kirk, is one of the most active players and dealmakers in the biotech world. In 1993, he founded painkiller maker King Pharmaceuticals (KG), which Pfizer recently acquired. In 1996, Kirk founded New River Pharmaceuticals, which was eventually acquired by Shire in 2007. Kirk also serves on the board of a number of companies, including the biotech Scios -- until it was purchased by Johnson & Johnson (JNJ) in 2002.

Clearly, Kirk is well-connected in the both the biotech and Big Pharma circles, which analysts say makes it conceivable that he would agree to selling Clinical Data at this point. Kirk is also in the process of forming a new company called Intrexon, which aims to develop a revolutionary engineering platform for reducing the cost and length of time in producing a drug.

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Shares of Clinical Data have been on the move, rising from a low of $12 in July to $18.80 as of Oct. 22's close. Some large institutional investors have already caught on to the stock's bright prospects. Fidelity Management has accumulated a stake of more than 14%. Also big holders are Times Square Capital Management, which owns 3.35%; Vanguard Group, with 2.31%; and BlackRock, whose various funds own a total of 2%. Kirk is the largest shareholder with about 40% of the company. Which means he would be the largest beneficiary if he agrees to sell the Clinical Datat.

The possible buyers, however, face a conundrum: If they want to buy Clinical Data close to its current price, they'll have to act fast -- before the FDA's decision. But if they do that, they face the risk of the FDA not quickly favoring Vilazodone. On the other hand, if potential suitors tarry and wait until the FDA approves the antidepressant, they'll likely have to pay a steeper price.

Both for investors not yet in the stock and for the potential buyers of the company, the opportunity is the same: Act soonest.

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