Ardea Biosciences Inc.’s (RDEA) second-quarter 2010 net loss of $12.8 million, or 57 cents per share was higher than the year-ago loss of $8 million, or 44 cents per share and the Zacks Consensus Estimate of a 46 cent per share loss.
 
The wider loss at Ardea in the reported quarter was attributable to the increased amount spent by the company on developing its pipeline coupled with lower revenues in the quarter.
 
Revenue in the reported quarter slipped 36 % to $3.5 million.  The Zacks Revenue Consensus Estimate was $4 million. Ardea, which does not have a product in the market, gets its entire revenues from license fees and reimbursable research and development (R&D) costs. License fees in the reported quarter declined 52% to $2.4 million.
 
Operating expenses in the reported quarter climbed 22% to $16.2 million. The increase was primarily attributable to the higher amount spent on research and development. Research & development expenses jumped approximately 21% to $12.9 million as Ardea focused on developing its pipeline candidates especially its gout candidate RDEA594. General and administrative expenses (G&A) climbed 32% to $3.3 million in the quarter.
 
RDEA 594 Aims at Lucrative Market
 
The company’s primary candidate is RDEA594. The candidate is being developed for the treatment of hyperuricemia (elevated uric acid levels) and gout. An estimated 3–6 million people in the United States suffer from gout. The incidence and severity of gout is increasing in the United States. There was a 288% increase in gout-related hospitalizations from 1988–2005.
 
The market has a huge unmet need with Uloric (febuxostat) of Takeda, approved in February 2009, being the only new drug to be approved in the United States for the treatment of gout in the last 40 years. We believe RDEA594 can serve the market effectively on approval.
 
Apart from Ardea, companies like Savient Pharmaceuticals Inc. (SVNT), Regeneron Pharmaceuticals Inc. (REGN) and Novartis (NVS) are also developing treatments for gout.
 
Pipeline Update
 
Ardea also presented an update on its pipeline apart from disclosing the financial results for the second quarter of 2010. During the quarter, the company presented results from multiple studies, which indicated that the efficacy of RDEA594 remains undiminished as a monotherapy in patients suffering from mild-to-moderate renal impairment. The company also presented encouraging data from other studies involving the gout candidate.
 
In the second half of 2010, Ardea intends to disclose results from a mid-stage combination study evaluating RDEA594 as an add-on to allopurinol (the current standard of care). Furthermore, Ardea intends to present results from an early stage study evaluating RDEA594 as a combination therapy with febuxostat in gout patients. The company also expects to continue with the development of its other candidate RDEA119 in advanced cancer patients in the second half of the year.
 
Our Take & Recommendation
 
We believe the deal signed with Bayer HealthCare in 2009 for the development of MEK (methyl ethyl ketone) inhibitors for the treatment of cancer is a positive for the company. Furthermore, its primary gout candidate, RDEA594, has the potential to meet the huge unmet need, on approval. However, the company’s early pipeline status concerns us. An Ardea product hitting the market in the immediate future is not foreseen. Furthermore, competition awaiting the Ardea products on approval is also a concern.
 
Consequently, we believe that the risk/reward profile at Ardea is balanced. This forms the basis of our short-term Zacks#3 Rank (‘hold’) and our long-term Neutral stance on the stock. The lack of estimate revision by the analysts following the stock, implying no directional pressure on the stock, also supports our short-term and long-term recommendations on Ardea.
 
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