In our first article about ContraVir Pharmaceuticals, Inc. (NASDAQ:CTRV), we pointed out that the company's drugs TXL™, Valnivudine, and CRV431 were close to Phase 3 and the company had attracted the attention of some big institutions. Today, we are here with another update. Right after we published our last report, the company released more news. It had commenced developing a second-generation formulation of TXL™, which could substantially reduce the amount of the dose necessary for the treatment of hepatitis B. The news was largely discussed in the Yahoo Finance Forum, thus we decided that a new update was necessary on this name. The price action suggests that we are in a accumulation phase. Have a look:SourceSecond-generation formulation of TXLWhat does the "second-generation formulation mean "? The company received the DSMB’s clearance in December 2016 for a dose above 100 mg, which is large amount of drug. The company needs to reduce the dose used, thus it is looking for a more optimal chemical formulation. The idea is to increase the amount of TXL™ that is delivered to the liver, which is where the treatment targets hepatitis B. John Sullivan-Bolyai MD, Chief Medical Officer of ContraVir, summed things well:
“By providing enhanced drug delivery at a lower dose, the second-generation formulation offers the potential for once daily low dosing, thereby reducing the treatment burden for hepatitis B patients. The overriding goal for the new formulation is to facilitate combination therapy; an approach that we believe represents the future of anti-HBV therapy.” Source
Why is it so important to reduce the dose? In general, finding new formulation for reducing the amount of antiviral drugs needed for the treatment of viruses is not uncommon in the biopharmaceutical industry. But, more specifically, the company expects the treatment of HBV to be a combination of drugs, thus reducing the overall drug burden in patients is very important in this case.Assessment of the share price post capital increaseThere is something relevant to point out about CTRV as of May 22, 2017. We said the following about the price action at the time the last public offering of securities was made:
"In addition, the share price did not fall, while the book-runner was working on the sale. Thus, investors seem to like the stock and believe on the commercialization of its candidates." Source
In our opinion, the fact that the price is at almost the same level before the capital increase is quite relevant. We have seen this type of situation on many occasions. Companies offer shares, shareholders become angry due to the dilution created, and they sell shares. As a consequence, the share price decreases showing a downward trend that may last about one or two months. The fact that the share price is not showing this pattern is quite relevant. Hence, our initial thesis in the first article is still valid. The market appreciates the drugs and still believes that the FDA approval is possible as capital increases are not followed by large sale of stakes. Finally, for those shareholders worried about the dilution risk, if the company can commercialize its pipeline, dilution becomes a non-issue.Balance Sheet - Non-operating liabilitiesIn our last article, we did not have time to have a look at the balance sheet, and most importantly, the cash on hand. The amount of financial resources will determine whether the company will be able to continue its research. Hence, we need to look for cash and liquid assets in the company's accounts. According to the last audited report, the company had, as of June 30, 2016, approximately $7.4 million in cash and cash equivalents. Also, the total amount of current assets was approximately $7.8 million. Conversely, the amount of current liabilities was small as compared to those figures. The accounts payables was approximately $5 million. Additionally, the company showed very little long term debt; approximately $2.1 million. Thus, the company seems to have an acceptable amount of liquidity to face the next fiscal year.Like many other pharmaceutical companies still in a research phase, CTRV owns tax deductible non-operating liabilities hidden in the balance sheet. However, in this case, its amount is quite large; approximately $44 million. Why is this interesting? If a pharmaceutical company with positive income buys CTRV, the amount of taxes that it would have to pay would be drastically reduced. It is a great incentive added to the potential of the drugs under development.Finance ForumsWe normally check the Yahoo Finance Forum looking for the special interests of traders. We were glad to see that our article had been mentioned in the forum. Additionally, we saw that traders looked for the competitors of the firm and could not find them in our previous piece. As usual, market participants want to know who are the other players researching in the same area. We found out in this document that the following companies are also investigating. Some of them are much larger than CTRV:
- Epiphany Biosciences, Inc.
- Astellas Pharma US, Inc.
- GlaxoSmithKline plc (market cap. of $104 billion)
- Janus Pharmaceuticals, Inc.
ConclusionCTRV keeps sending good messages to the market. This time, the company announced that it was developing a new formulation for TXL™ drug that will make the drug more efficient by reducing the dose necessary for the hepatitis B treatment. Additionally, we assessed the recent price action and saw a consolidation phase. Furthermore, we found that the amount of liquid assets was substantial and the company has tax deductible non-operating assets. Finally, we found out that the company is competing with much larger pharmaceutical companies. This could make CTRV a takeover candidate as it's on the radar screen of its larger competitors. To sum up, we still see that the recent developments of the company warrant a revaluation of the company's share price in the near future, thus we believe that traders should stay alert. We will be updating our subscribers as soon as we know more. For the latest updates on CTRV, sign up below!Disclosure: We have no position in any of the securities mentioned and have not been compensated for this article.
Discover Hidden Gems
Don't miss the next big opportunity. Subscribe for timely alerts on potential market movers.
