Wednesday, January 6, 2016

Seeking Alpha: Conatus Has A Clearer Path, But It's Long And Uncertain

The past year was a tough one for companies focused on treating liver disease, but Conatus (NASDAQ:CNAT) had an especially bad year. The shares fell almost 60% as investors grew increasingly concerned about the company's drug emricasan, particularly with respect to just how reliable or meaningful the data collected so far are with respect to real-world efficacy.

Emricasan seems to have clinical activity, but it is still very much an open question as to whether it is effective enough to halt the progression of cirrhosis and spare people with this life-threatening condition a liver transplant or worse. Unfortunately, investors are in for a relatively long wait before more clinical clarity is achieved, and in the "time is money" world of biotech, Conatus investors are likely looking at substantially more dilution before a clinical approval is attainable.

If Conatus can demonstrated a place for emricasan in even just a single-digit percentage of cirrhosis patients, it is not hard to arrive at over $2 billion in peak revenue and even a huge amount of anticipated dilution would still support a fair value above $6 today. That said, Intercept (NASDAQ:ICPT) and Genfit (OTCPK:GNFTF) have proved quite a bit more with their drugs and are undervalued in their own right. It is certainly possible that the success of Intercept/Genfit and/or other companies targeting liver disease will shrink the pool of eligible patients for emricasan, but frankly the biggest issue today is establishing whether or not the drug is effective and which patients stand to benefit the most.

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Conatus Has A Clearer Path, But It's Long And Uncertain

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