Cypress Bio Banks on Savella

Cypress Bioscience, Inc. (CYPB - Analyst Report) reported financial results for the first quarter 2009 on May 11, 2009. Total revenues for the quarter were $7.9 million, and consisted primarily of collaborative payments from Savella development partner, Forest Laboratories, Inc. (FRX - Analyst Report). This was generally in-line with our $8.2 million forecast.

Net loss for the quarter was $9.2 million -- and significantly greater than our expectations -- due to approximately $5.0 million in R&D expense associated with a $3.0 million milestone payment to a licensor, Pierre Fabre, upon NDA approval of Savella and a $2.0 million payment in connection with an asset purchase transaction for a technology to diagnose and monitor Lupus. Earnings per share (EPS) for the first quarter equated to ($0.24). Cypress Bio exited the first quarter with $160.4 million in cash.

Savella is now commercially available and priced at roughly $1500/year. We see peak sales potential in the U.S. at $800 million. By 2013, we believe that Forest Labs and Cypress Bio can capture at least half of that peak potential. That puts the drug around $400 million in sales in the U.S. in 2013. Outside the U.S., we see another $150 million in sales potential by 2013.

Our financial model assumes over $500 million in worldwide in sales in 2013. Based on our estimated 15% royalty rate paid to Cypress for U.S. sales, some upside from European sales, along with expense reimbursement for co-promotion, total revenues in 2013 for Cypress Bio should approach $100 million.

The approval of Savella (milnacipran) is a transformational event for Cypress. The company will become profitable shortly after the launch of the drug and highly profitable -- with net margins approaching the 40% range by 2013. This clearly makes the company a take-out target by partner Forest Labs once the drug is on the market. Our financial model sees $1.12 in EPS in 2013.  

Our price target is $9, or 20x this 2013 figure discounted back to present day at 20%.