Still Neutral on Ardea Biosciences

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We are maintaining our Neutral recommendation on Ardea Biosciences Inc. (:RDEA) with a target price of $23.00.

Ardea Biosciences, headquartered in San Diego, California, focuses on the discovery and development of small-molecule therapeutics for the treatment of gout and cancer.

Last month, Ardea reported fourth quarter and full year 2011 results. Ardea’s fourth quarter net loss of $1.15 per share exceeded the year-ago loss of 3 cents and the Zacks Consensus loss Estimate of 87 cents. The wider loss was attributable to lower revenues and higher operating costs recorded in the quarter.

(Read our full coverage on this earnings report: Ardea Posts Lower Revs, Wider Loss).

We are pleased with Ardea’s efforts to develop its lead candidate lesinurad for the treatment of hyperuricemia (elevated uric acid levels) and gout. The incidence and severity of gout is increasing in the US.

Lesinurad will target a market with a huge unmet need on approval. This should boost the company’s top line significantly. Furthermore, the lucrative agreement with Bayer (BAYRY), signed in 2009, focusing on the development of MEK (methyl ethyl ketone) inhibitors for the treatment of cancer is another positive for Ardea.

However, we remain concerned about the early stage development status of the pipeline apart from lesinurad. Moreover, the competition awaiting Ardea’s candidates on approval is another concern. For example, lesinurad on approval will face significant competition in the gout market, which currently has players such as Takeda’s Uloric and Savient Pharmaceuticals’ (SVNT) Krystexxa. Moreover, companies such as Regeneron Pharmaceuticals (REGN) are developing therapies for gout. This could make it challenging for lesinurad to gain share once launched.

We see limited upside from current levels and maintain our long-term Neutral stance on the stock.

Read the Full Research Report on RDEA

Read the Full Research Report on BAYRY

Read the Full Research Report on REGN

Read the Full Research Report on SVNT

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