Ardea Biosciences Inc.’s (RDEA) fourth quarter 2010 net loss of $0.6 million or $0.03 per share was narrower than the year-ago loss of $0.34 per share and the Zacks Consensus Estimate of a loss of $0.56 per share. The narrower loss was attributable to higher revenues in the final quarter of 2010 which more than offset the rise in operating costs.
Quarterly Results
Revenue in the reported quarter jumped 110% to $17.3 million. The huge jump was attributable to the recognition of $15 million as milestone payment from partner Bayer (BAYRY). Ardea, which does not have any marketed product, earned its entire revenue from license fees and reimbursable research and development (R&D) costs, sponsored research apart from the milestone payment. License fees in the reported quarter declined 85% to $1.1million. The Zacks Consensus Estimate was $4 million.
Operating expenses in the reported quarter climbed 24% to $17.8 million. The increase was primarily attributable to higher research and development expenses. Research & development (R&D) expenses jumped approximately 24.5% to $14.3 million as Ardea focuses on developing its pipeline candidates especially its gout candidate lesinurad (formerly RDEA594). General and administrative expenses (G&A) jumped 22.8% to $3.5 million in the quarter.
Annual Results
For full-year 2010, Ardea suffered a loss of $1.91 per share which was $0.21 wider than the year-ago loss. The wider loss was attributable to the higher operating expenses incurred in 2010 (up 30%) as Ardea is focusing on developing its pipeline. The rise in operating costs more than offset the rise in 2010 revenues. The Zacks Consensus Estimate hinted at a loss of $2.48.
Revenues climbed 19.5% in 2010 to $27.4 million, mainly because of the $15 million milestone payment recognized in the final quarter of 2010. Revenues easily surpassed the Zacks Consensus Estimate of $14 million.
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.
Even though, the company carries a Zacks #2 Rank (Buy rating) in the short-run, primarily driven by the narrower loss in the final quarter of 2010, we prefer to remain on the sidelines in the long-run till more visibility is obtained on the pipeline development at Ardea and retain our Neutral view on the stock.
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