Inside Wall Street: Two Good Reasons for Clinical Data Shares to Soar Again

Gene Marcial's Inside Wall Street
Gene Marcial's Inside Wall Street

Sizable and stunning gains from biotech stocks do happen. Even though finding hidden gems in the bewildering sector often bedevils even the most astute investors, a doubling or tripling in price within a relatively short period of time isn't impossible.

One recent example is Clinical Data (CLDA), whose stock quickly doubled in four months from the time I highlighted it in my Oct. 25, 2010 column. I pointed to its potential value with its new antidepressant drug -- and its appeal as a takeover target. Then trading at $18 a share, the stock climbed to a 52-week high of $33.40 a share by Feb. 3, 2011. It has since eased from profit-taking, closing on Feb. 11 at $28.40.

Interestingly, however, some pros believe the stock could again double from where it is today. Of course, still others warn that the stock may have peaked at $33 and could slide down from here.

But one thing to remember is that Clinical Data has wowed investors before, not just by doubling but by tripling in price. In 2007, when the company was in the early stages of developing its chief product, Vilazodone -- an antidepressant that dared to be different from those already in the market -- the stock was trading at just $9. By August 2008, it had raced up to $17.

A Triple-Bagger

The company caught my eye, so I wrote about it on Aug. 4, 2008, in my Inside Wall Street column for the old BusinessWeek magazine, citing the potential worth of Vilazodone and why the stock could continue rising to much higher levels. Indeed, it started ratcheting up, and in just a couple of months had zoomed to $28. That certainly was a triple-bagger.

Thereafter, the stock started to slope downward, hitting $15 as investor impatience mounted toward the drug. To me, that created another opportunity for investors to buy the stock at a big discount. Again, seeing the intrinsic value of Vilazodone and the stock's depressed valuation, I wrote another story, this time in that Oct. 25, 2010 Inside Wall Street column for AOL's DailyFinance (when it was $18 and quickly ran up to its $33 high).

The Food and Drug Administration's approval of Vilazodone on Jan. 21, 2011, was the ultimate catalyst that propelled the stock, by then selling at $26, to the $33 level. Clinical Data changed the drug's name to Viibryd, which the company and analysts believe will be a blockbuster product in a $12 billion market. But that's not the only catalyst for the stock to jump further.

A buyout, which had been rumored for months now, is more possible than ever, and should spice up the stock's appeal.

Big Pharmas Are Circling

Clinical Data Chairman Randal J. Kirk, a billionaire investor who is an old hand in the health care world, is confident that Viibryd will be a big hit. He predicts demand for it would be phenomenal. Analysts already forecast annual sales reaching $1 billion to $2 billion. So the stock could still hit the rafters and double in price again. But before that, a Big Pharma could buy it outright.

Sponsored Links

The buzz continues, which Kirk is very much aware of, that at least three major drugmakers are interested in going after Clinical Data mainly because of Viibryd. Among them: Pfizer (PFE), Eli Lilly (LLY) and GlaxoSmithKline (GSK), which are already big players in the antidepressant market. Other drugmakers that also have antidepressants are Merck (MRK) through its acquisition of Schering-Plough, and Forest Laboratories (FRX).

Kirk publicly admits that he isn't averse to selling Clinical Data -- at the right price. The stock's worth hinges on how important Viibryd would be to the suitors. As the first new entry into the antidepressant market in more than 15 years, the drug is enhanced by the fact that several existing therapies are due to lose their patent protection before long.

An important feature of Viibryd is that it doesn't suppress or affect a patient's sexual function. Patients suffering from depression usually experience difficulties with sexual function, which tends to be worsened by antidepressant treatments, says Chrystyna Bedrij, biotech analyst at Griffin Securities, who rates the stock a buy.

In the Catbird Seat Now

Investment firm Piper Jaffray analyst Edward Tenthoff figures Clinical Data is worth at least $47 -- or as high as $75 in a buyout deal. All of the seven major Wall Street analysts who follow Clinical data recommend the stock as a buy.

Some people had speculated prior to the FDA go-signal that a suitor would emerge. But the risk of the FDA rejecting the drug weighed heavily on the suitors, even though at the time they could have bargained for a lower price with Kirk. Now, he's in the catbird seat and probably will be a tough negotiator.

But Kirk is very much inclined to sell the company, of which he is the majority shareholder, with a nearly 50% stake. Why sell? For one thing, he has a lot of money already at stake in it and already has new projects going. One that he's passionate about is his new, still-privately owned company, Intrexon, which is developing a new medical technology platform that helps expedite development of targeted and less toxic anti-cancer drugs. Kirk has already invested $200 million in Intrexon.

As part of building up the company, Kirk last month invested $20 million for a 5% stake in Ziopharm Oncology (ZIOP), which is developing anti-cancer drugs. Kirk plans to advance the launch of Intrexon's tech platform by applying it to Ziopharm's various oncology drugs. Kirk expects to invest $50 million more in Ziopharm.

A Veteran Dealmaker

"It's a way of further developing Intrexon's technology while, at the same time, getting involved with Ziopharm, which could become Kirk's new biotech project to build up and expand," says Griffin Securities' analyst Bedrij, who also rates Ziopharm a buy, now trading at $5.77 a share. She has 12-month target of $11 for Ziopharm. For sure, Kirk intends to increase his stake in Ziopharm, says Bedrij.

Indeed, biotech maven and dealmaker Kirk, who has formed new companies that he later sold at huge profits, including New River Pharmaceuticals (bought by Shire Pharmaceuticals in 2007) and King Pharmaceuticals (acquired by Pfizer last year), is already busy steering Intrexon. He'll increasingly invest more time and money in his new company, of which he is president and chairman. So, in effect, Clinical Data is already on the auction block.

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Originally published