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Ardea Posts Lower Revs, Wider Loss

BAYRY

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Ardea Biosciences Inc.’s fourth quarter 2011 net loss of $1.15 per share was wider than the year-ago loss of 3 cents per share. The wider loss was attributable to the lower revenues and higher operating costs in the final quarter of 2011. The Zacks Consensus Estimate hinted at a loss of 87 cents per share.

Quarterly Results

Revenue in the reported quarter plummeted 90.4% to $1.7 million. We note that revenues in the year-ago quarter were boosted by the recognition of $15 million as milestone payment from the healthcare unit of Bayer (BAYRY - Analyst Report). Such payments were absent in the reported quarter. We remind investors that Ardea and Bayer inked the deal in 2009 focused on the development of MEK (methyl ethyl ketone) inhibitors for the treatment of cancer. Ardea, which does not have any marketed product, earned its entire revenue from license fees, reimbursable research and development (R&D) costs and sponsored research apart from the milestone payment. License fees in the reported quarter came in flat at $1.1million. The Zacks Consensus Estimate was $2 million.

Operating expenses in the reported quarter climbed 82.5% to $32.5 million. Both research and development (R&D) expenses (up 88.2%) and general and administrative expenses (G&A) expenses (up 58.7%) were on the upswing during the final quarter of 2011. While the massive jump in R&D expenses was attributable to Ardea’s efforts to develop its pipeline candidates especially lesinurad and RDEA3170, the increase inG&A expenses was due to the rise in personnel and other expenditures.

Annual Results

For the full year 2011, Ardea suffered a loss of $3.26 per share which was $1.35 wider than the year-ago loss. The wider loss incurred in 2011 was attributable to lower revenues (down 73.4% to $7.3 million) and higher operating expenses (up 37% to $94 million) as Ardea is focusing on developing its pipeline. The Zacks Consensus Estimate hinted at a loss of $2.96 per share on revenues of $7 million.

Our Take & Recommendation

We are encouraged by the development of Ardea’s lead candidate lesinurad. However, we are concerned about the company’s other  pipeline candidates being in early/mid-stage of development. Furthermore, the competition awaiting Ardea’s products on approval is also a concern. In the absence of any late-stage catalyst we see limited upside potential for the stock from current levels and hence have a Neutral stance.

The stock carries a Zacks #4 Rank (Sell rating) in the short-run.

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