CuraGen Risk/Reward Balanced

The proceeds from the sale of Belinostat, for treating solid tumors and hematologic malignancies, strengthened CuraGen Corporation’s (CRGN) balance sheet, but further weakened its pipeline, especially after the termination of its key clinical program Velafermin for the treatment of severe oral mucositis. We see this deal to be neutral to the company.

The failure of the Velafermin program, due to lack of efficacy, is a big setback for CuraGen. The company has only one candidate in clinical development now, CR-011, for breast cancer in addition to melanoma indication.

The company had $107 million in cash and investment at the end of March. Adding the $39 million upfront from the sale of Belinostat ownership, and the use of $43.2 million for the retirement of 4 percent convertible notes, the company should have about $100 million in cash and investment at the end of June. CuraGen has remaining $19 million 4 percent notes due Feb 2011. With reduced operating expense, we believe current cash may last for two years.

Although the preliminary phase II results of CR011 for melanoma is encouraging, we think the discontinuation of the Velafermin program, which could have been a near-term value driver, increases the risks for investing in CuraGen.

We see a balanced risk/reward profile for CuraGen and no sizable price appreciation in the next 6 to 12 months. Therefore, we maintain our Hold rating for the shares of CuraGen with a price target of $1.2, which corresponds to a market cap of $69.5 million.

Read the full analyst report on CRGN

Read the full analyst report on CRGN