Ardea Biosciences Inc.’s (RDEA) first quarter 2011 net loss of $0.59 per share exceeded the year-ago loss by $0.05 and the Zacks Consensus loss Estimate by $0.09 per share. The wider loss was attributable to lower revenues and higher operating costs recorded in the quarter.
Quarterly Results
Revenue in the reported quarter plummeted 64.3% to $1.8 million. The decline was attributable to an extension of the amortization period of the upfront license fee received under the licensing agreement with Bayer (BAYRY). The extension was due to an expected delay in the completion of Ardea’s obligations under the deal.
Ardea, which does not have any marketed product, earned its entire revenue from license fees, reimbursable research and development (R&D) costs apart from sponsored research. License fees in the reported quarter declined 54% to $1.1million. The Zacks Consensus Estimate was $4 million.
Both R&D expenses (up 24% to $12.8 million) and general and administrative expenses (G&A) (up 45.2% to $4.2 million) were on the upswing during the first quarter of 2011. The rise in R&D expenses was primarily attributable to Ardea’s efforts to develop its pipeline especially its gout candidate lesinurad. The rise in G&A expenses was attributable to the increase in non-cash stock-based expenses apart from rise in other related expenditures.
Our Take & Recommendation
We are encouraged by the development of Ardea’s lead candidate lesinurad. In January 2011, the company reported encouraging results from a mid-stage study of the candidate. If lesinurad is successfully developed and subsequently commercialized then it would target a highly lucrative gout market which has a huge unmet need.
However, the company’s early-stage pipeline status concerns us. Furthermore, the competition awaiting Ardea’s products is also a concern. We are also not comfortable with the company’s policy of raising funds through dilutive issuances.
We prefer to remain on the sidelines in the long-run till more visibility is obtained on the pipeline development at Ardea and maintain our Neutral view on the stock. The company carries a Zacks #3 Rank (Hold rating) in the short run.
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