Wider Loss at Cypress Bio - Analyst Blog

Cypress Bioscience, Inc. (CYPB) reported a net loss of 94 cents per share in the third quarter, significantly higher than the Zacks Consensus Estimate of a loss of 33 cents and the year ago loss of 12 cents. Despite an increase in revenues, higher operating expenses led to the wider loss in the reported quarter.

Quarter in Detail

Third-quarter revenues came in at $8 million, well above the Zacks Consensus Estimate of $5 million and 45.3% above the year-ago revenues of $5.5 million. Third quarter revenues consisted of $7.2 million in commercial revenues and $0.8 million in revenues under collaborative agreements.

Commercial revenues of $7.2 million included royalty revenues of $3.2 million and $3.6 million in co-promotion reimbursement in connection with Savella. The co-promotion amount includes a one-time fee of $2 million received by Cypress Bioscience from partner Forest Labs (FRX).

Earlier this year, Cypress Bioscience had announced that it will no longer be co-promoting Savella with partner Forest Labs. However, we note that although the company will no longer be co-promoting Savella, it will continue receiving royalty on Savella sales. Cypress Bioscience receives a 15% royalty on net sales of Savella.

Savella received US Food and Drug Administration (FDA) approval in January 2009 for fibromyalgia, a chronic and debilitating condition characterized by widespread pain and stiffness throughout the body, accompanied by severe fatigue, insomnia and mood symptoms.

Fibromyalgia syndrome (FMS) is estimated to affect about 6 million people in the US. We believe Savella may have multi-hundred million dollar potential.

Total third quarter operating expenses increased from $10.5 million to $44.5 million. The huge increase was mainly due to one-time upfront payments made by the company in connection with in-licensing deals and agreements.

Cypress Bioscience entered into two agreements in Aug 2010. The first agreement was signed with Alexza Pharmaceuticals, Inc. (ALXA) whereby, Cypress Bioscience acquired an exclusive worldwide license to Alexza's Staccato nicotine technology, which is designed to help people quit smoking.

The second agreement is an asset purchase deal with Marina Biotech, Inc. (MRNA), under which Cypress Bioscience acquired Marina's patent rights and technology for autism candidate, carbetocin.

Research and development expenses were $37.4 million in the reported quarter, up from $1.1 million reported in the year ago quarter, due to the up-front payments. R&D spend should continue increasing as the company moves its pipeline candidates into advanced stages of development in 2011.

The company's lead central nervous system (CNS) disorder candidate, CYP-1020, is slated to move into a phase IIb study in 2011 (top-line data in late 2012). CYP-1020 is a novel antipsychotic being developed for the treatment of schizophrenia. Meanwhile, a phase I study with Stacatto nicotine is expected to commence in 2011.

Selling, general and administrative expenses, however, declined 24.8% to $7.1 million mainly due to the discontinuation of the promotion of Savella and workforce reduction.  With Cypress Bioscience surrendering its co-promotion rights for Savella and cutting down its headcount by 86%, we expect selling, general and administrative expenses to decline further.

Neutral on Cypress Bio

We currently have a Neutral recommendation on Cypress Bioscience. While Cypress Bioscience has been working on strengthening its pipeline, we remain concerned that the in-licensed/acquired products/technology are still in early stages of development and several years away from commercialization.

 
CYPRESS BIOSCI (CYPB): Free Stock Analysis Report
 
FOREST LABS A (FRX): Free Stock Analysis Report
 
Zacks Investment Research