Rodman report on ventrus


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Rodman Report on Ventrus BioSciences

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Rodman report on ventrus

  1. 1. Ventrus Biosciences Inc (VTUS) ® EARNINGS UPDATE Michael G. King, Jr. 212-430-1794 LIFE SCIENCESNovember 14, 2011 Market Outperform / Aggressive Risk VTUS 3Q11: Modest Push-Out For VEN 309 Top-Line Data, Compelling VEN 309 Market Assessment ResultsMARKET DATA Intraday - 11/14/2011 This morning, Ventrus Biosciences (VTUS, Market Outperform)Price $8.20 reported its 3Q11 earnings. VTUS reported an EPS of ($0.50), aboveExchange NASDAQ our estimate of ($0.61), on $0mm in revenue. Total operating expensesTarget Price $25.00 of $5.6mm were lower than our estimate of $7.5mm. Specifically, R&D52 Wk Hi - Low $21.00 - $5.75 expenses of $3.7mm were below our estimate of $5.5mm and SG&AMarket Cap(MM) $101.7 expenses of $1.9mm were in-line with our $2.0mm estimate. VTUSEV(MM) $91.2 completed 3Q11 with $53.3mm in cash and cash equivalents with noShares Out (MM) 12.4 debt. The company stated it believes this will be sufficient to fundAvg. Daily Vol 33,529 operating expenses and capital expenditures into 2014.Short Interest 52,389BALANCE SHEET METRICS Modest push-out in top-line milestone for VEN 309, VEN 307 stillCash (MM) $14.6 tracking. VTUS provided an update for the timing of top-line results forLTD (MM) $0.0 its pivotal Phase III trials of iferanserin (VEN 309) for hemorrhoids, asTotal Debt/Capital NA well as diltiazem (VEN 307) for anal fissures. VTUS extended the timingCash/Share $2.16 to report the top-line results for VEN 309 by approximately three monthsBook Value(MM) NABook Value/Share $4.21 (to June 2012), while the top-line results for VEN 307 are still expected around May 2012. According to the company, the projected NDA filingsEARNINGS DATA ($) for both products remain on track (please see Table 1 on page 2) andFY - Dec 2010A 2011E 2012E the new completion timelines for VEN 309 should have no effect on theQ1 (Mar) -- (0.38) -- balance sheet. Further, our expectations for regulatory filing and marketQ2 (Jun) -- (0.97) -- launch remain unchanged. On the call, the company stated that it wouldQ3 (Sep) -- (0.50) -- make the market assessment data available in abstract form at the 2012Q4 (Dec) -- (0.60) -- Digestive Disease Week (DDW) conference.Full Year EPS (2.13) (1.69) (1.88)Revenue (MM) 0.0 0.0 0.0 Data from a 10,000 consumer survey are compelling and validates large market potential for VEN 309. Also on the call, VTUS releasedVALUATION METRICS initial findings from a landmark omnibus survey of consumers andPrice/Earnings NM NM NM patients performed by Princeton Brand Econometrics (Private). InitialEV/Revenue results showed that the hemorrhoid market is large, patients are seekingY/Y EPS Growth 108.8% NM 11.2% treatment options and the response to the VEN 309 product concept was very favorable. We refer our readers to the section on page 2 of thisINDICES report for more detailed findings of the survey and how they support theDJIA 12,106.6 value proposition of VEN 309.SP-500 1,253.7NASDAQ 2,343.6NBI 981.0 VTUS expects to close the acquisition of the global rights and title 1 Year Price History for VEN 309 today. VTUS expects to acquire VEN 309’s global rights and title from the licensor, Sam Amer and Company (Private), today as 25 20 the major conditions (not disclosed) required for the close have been 15 10 met. Given what has been learned about the commercial potential of 5 0 VEN 309, the solid progress of the Phase III program, the straightforward Q3 2011 Q1 Q2 Q3 2012 regulatory pathway, the potential market and data exclusivity, we believe this transaction will considerably enhance the value of this asset to 0.8 0.6 0.4 0.2 VTUS. 0 Created by BlueMatrix We reiterate our Market Outperform rating and $25 Price Target on VTUS shares. We reach our price target via a discounted EPS model that includes 2017 royalty revenues of $90 million to yield a diluted EPS forecast of $4.27. We apply a 35% discount rate in reflection of the current risk profile and a 35x multiplier as a conservative rate to account for the growth during that period to reach our $25.00 price target. For definitions and the distribution of analyst ratings, and other disclosures, please refer to pages 5 - 6 of this report.
  2. 2. Ventrus Biosciences Inc November 14, 2011 VEN 309 market research results are compelling and enhance the value proposition of VEN 309. Survey data collected from 10,202 adult consumers and patients revealed that 1,125 patients reported having hemorrhoids within the last two years. This represents approximately 11% of the US adult population (18+ years), which translates into 25.8 million potential VEN 309 candidates from the pool of 234 million adults in the US (2010 population estimate). In addition to the 11% two year prevalence, 9%, 6% and 3% of survey respondents reported having hemorrhoids within the past one year (21.7 million people), one month (14 million people) and on the day of survey (6.7 million people) respectively. In our view, these numbers validate the significant market potential for VEN 309. Of the entire group of hemorrhoid patients surveyed, 85% reported having received treatment and, from those seeking treatment, 86% of respondent reported using an over-the-counter (OTC) product such as Preparation H while 14% reported using prescription products as their last treatment. Of all hemorrhoid patients surveyed, 10% reported having an invasive procedure at some point, of which 61% had surgery; 75% of patients who had had an invasive procedure reported a recurrence. When presented with the product concept of VEN 309, 75% of the 1,125 hemorrhoid patients surveyed stated they would request a VEN 309 prescription at their next physician visit. Of note, the PBE factored modeling calculates that 25% of this large population would actually request the prescription based on industry standard promotional levels. For those patients surveyed who were experiencing hemorrhoids on the day of the survey, an impressive 88% stated they would request a prescription. The PBE factoring model calculates that 80% would actually make the request for a VEN 309 prescription. Importantly, the survey also showed that 66% of patients receiving a prescription for VEN 309 would fill that prescription assuming it carried a $35 out-of-pocket patient co-pay. In addition, 78% of patients with a household income above $50,000 per year (the median US household income) would fill the prescription at a $35 co-pay. Taken together, we believe the results of this robust survey are impressive and highlight the substantial market opportunity for VEN 309, the first potential prescription product for the treatment of hemorrhoids. On  this  morning’s  call,  VTUS  noted  there  are  additional  data  to  be  analyzed and disclosed at a later date. We believe these data will further illustrate the market potential for VEN 309 and provide additional evidence for its value proposition. Table 1: Key Upcoming Milestones Key Event Timing Additional results from VEN 309 market research 4Q11 Publication of German VEN 309 Phase III study 4Q11/1Q12 Progress update on VEN 307 extended release formulation 4Q11 Completion of Phase III trial enrollment for VEN 309 and VEN 307 1Q12 VEN 309 recurrence data read-outs from first Phase III pivotal trial 2Q12 Launch of second VEN 309 pivotal and recurrence trial 2Q12 Launch of second VEN 307 pivotal trial 2Q12 VEN 309 Phase III top-line results June, 2012 VEN 307 Phase III top-line results May, 2012 VEN 307 NDA submission 2013 VEN 307 approval 2014 VEN 309 NDA submission 4Q14 VEN 309 approval 2015RODMAN & RENSHAW EQUITY RESEARCH 2
  3. 3. Ventrus Biosciences Inc November 14, 2011 Figure 1: VTUS 3Q11 Estimates Versus Reported Numbers US$000s 3Q11 R&R Estimate 3Q11 Actual 3Q11 Consensus Total Revenues 0 0 0 Operating Expenses Research and development 5,500 3,700 5,800 General and administrative 2,000 1,900 2,200 Operating Income (loss) (7,500) (5,600) (8,000) Other Income (Expense) Interest income 0 0 0 Interest expense 0 0 0 Net Income (loss) (7,500) (5,800) (6,000) EPS (0.61) (0.50) (0.47)RODMAN & RENSHAW EQUITY RESEARCH 3
  4. 4. Ventrus Biosciences Inc November 14, 2011 Ventrus Biosciences, Inc. Michael G. King, Jr. Income Statement ($M) Managing Director Senior Biotechnology Analyst 212-430-1794, Actual Estimated Fiscal Period: 2010 Q111 Q211 Q311 Q411 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenues $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $61.4 $189.9 $397.9 $639.9 $729.3 Operating expenses: Research and development $1.9 $1.0 $3.1 $3.7 $6.3 $14.0 $15.0 $18.0 $18.0 $7.5 $3.0 $1.0 $1.0 $1.0 General and administrative $2.9 $1.7 $3.8 $1.9 $2.0 $9.4 $14.1 $16.2 $18.6 $21.4 $24.6 $28.3 $32.5 $37.4 Loss from operations ($4.8) ($2.7) ($6.9) ($5.5) ($8.3) ($23.4) ($29.1) ($34.2) ($36.6) ($15.1) $15.1 $60.2 $110.4 $125.7 Interest income $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Interest expense ($10.5) ($0.1) ($0.0) $0.0 $0.0 ($0.1) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Taxes $33.7 $44.0 Net loss ($15.3) ($2.7) ($6.9) ($5.5) ($8.3) ($23.5) ($29.1) ($34.2) ($36.6) ($15.1) $15.1 $60.2 $76.8 $81.7 EPS, basic ($2.13) ($0.38) ($0.97) ($0.45) ($0.67) ($2.41) ($2.03) ($2.27) ($2.14) ($0.84) $0.80 $3.04 $3.69 $3.74 EPS, diluted ($1.65) ($0.29) ($0.75) ($0.38) ($0.57) ($1.98) ($1.77) ($1.99) ($1.90) ($0.75) $0.72 $2.75 $3.35 $3.41 Shares outstanding, basic 7.187 7.148 7.176 12.361 12.371 9.764 14.323 15.039 17.124 17.980 18.879 19.823 20.815 21.855 Shares outstanding, diluted 9.287 9.248 9.276 14.461 14.471 11.864 16.423 17.139 19.224 20.080 20.979 21.923 22.915 23.955 Source: Ventrus Biosciences and Rodman & Renshaw estimatesRODMAN & RENSHAW EQUITY RESEARCH 4
  5. 5. Ventrus Biosciences Inc November 14, 2011 RODMAN & RENSHAW RATING SYSTEM: Rodman & Renshaw employs a three tier rating system for evaluating both the potential return and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on a RELATIVE basis of other companies in the same sector, as defined by First Call. The price objective is calculated to estimate the potential movement in price a given equity could achieve given certain targets are met over a defined time horizon. Price objectives are subject to exogenous factors including industry events and market volatility. The risk assessment evaluates the company specific risk and accounts for the following factors, maturity of market, maturity of technology, maturity of firm, cash utilization, and valuation considerations. Potential factors contributing to risk: relatively undefined market, new technologies, immature firm, high cash burn rates, intrinsic value weighted toward future earnings or events. RETURN ASSESSMENT ● Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. ● Market Perform (Hold): The common stock of the company is expected to mimic the performance of a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. ● Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all the common stock of companies within the same sector, as defined by First Call. RISK ASSESSMENT ● Speculative - The common stock risk level is significantly greater than market risk. The stock price of these equities is exceptionally volatile. ● Aggressive - The common stock risk level is materially higher than market level risk. The stock price is typically more volatile than the general market. ● Moderate - The common stock is moderately risky, or equivalent to stock market risk. The stock price volatility is typically in-line with movements in the general market. Rating and Price Target History for: Ventrus Biosciences Inc (VTUS) as of 11-11-2011 02/02/11 05/03/11 I:MO:$12 MO:$25 25 20 15 10 5 0 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 2009 2010 2011 2012 Created by BlueMatrix RATING SUMMARY Distribution of Ratings Table IB Serv./Past 12 Mos Rating Count Percent Count Percent Market Outperform(MO) 116 65.90% 29 25.00% Market Perform(MP) 37 21.00% 5 13.51% Market Underperform(MU) 4 2.30% 0 0.00% Under Review(UR) 19 10.80% 3 15.79% Total 176 100% 37 100%RODMAN & RENSHAW EQUITY RESEARCH 5
  6. 6. Ventrus Biosciences Inc November 14, 2011 Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its affiliates or subsidiaries within the past 12 months. ADDITIONAL DISCLOSURES Rodman & Renshaw, LLC. (the "Firm") is a member of FINRA and SIPC and a registered U.S. Broker-Dealer. ANALYST CERTIFICATION I, Michael G. King, Jr., hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. None of the research analysts or the research analysts household has a financial interest in the securities of Ventrus Biosciences Inc (including, without limitation, any option, right, warrant, future, long or short position). As of Oct 31 2011 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Ventrus Biosciences Inc. Neither the research analyst nor the Firm has any material conflict of interest with Ventrus Biosciences Inc, of which the research analyst knows or has reason to know at the time of publication of this research report. The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services. The Firm or its affiliates did not receive compensation from Ventrus Biosciences Inc for any investment banking services within twelve months before, but intends to seek compensation from the companies mentioned in this report for investment banking services within three months, following publication of the research report. Neither the research analyst nor any member of the research analysts household nor the Firm serves as an officer, director or advisory board member of Ventrus Biosciences Inc. The Firm does make a market in Ventrus Biosciences Inc securities as of the date of this research report. Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice. Reproduction without written permission is prohibited. The intraday prices of securities mentioned in this report are as of Nov 14 2011. Additional information is available to clients upon written request. For complete research report on Ventrus Biosciences Inc, please call (212) 356-0500. Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is no guarantee of future results.RODMAN & RENSHAW EQUITY RESEARCH 6