AndrewGreenBull's Blog : DARA—Time to Harvest

When I was at the first sight of DARA, My intuition told me that this would be another LGND in the future. I know so many people were impressed by LGND when it paid out $2.5/share after it sold 4 of its drug candidates in 2007. DARA is just like LGND at the early stage which has many catalysts in the near term and long term potential.

Let’s take a quick look of DARA’s pipeline:

DARA is a biopharmaceutical company which dedicates to small molecule drug development. It has two leading candidates: KRN5500 for neuropathic pain and DB959 for type 2 diabetes. DARA also has 3 other candidates: DB160 and DB900 for diabetes and DB200 for psoriasis.

KRN5500 is currently at phase 2 clinical trial. It will be the first drug for chemotherapy-induced neuropathic pain if succeed, and the market potential for chemotherapy-induced neuropathy will be about $1.6 billion in 2014 according to professional estimation.

FDA approved DARA’s Investigational New Drug Application (INDA) of DB959 this March. The company believes that DB959 will be a potential leading successor to Avandia® and Actos® based on recent preclinical data: it increases good HDL cholesterol and lowers triglycerides better than Avandia® with greater cardiac safety and less weight gain. The potential market for type 2 diabetes next year will be about 54 billion dollars according to professional estimation.

DARA attracts me not only because of the huge potential market, but also the stable status quote:

DARA has no listing problem in the near term. It has received notification from NASDAQ which said that the Company had demonstrated compliance with the $2.5 million stockholders' equity requirement set forth in NASDAQ Listing Rule 5550(b). As a result, the Company's securities will continue to trade on The NASDAQ Capital Market through March 15, 2010, and DARA maybe eligible for an additional 180-day grace period if it meets the initial listing standards, but the bid price still below $1.

DARA’s financial is currently sound. As we see in second quarter report, the company believed that currently available cash and cash equivalents and marketable securities together with existing financing agreements would provide sufficient funds to enable the Company to meet its obligations into the second quarter of 2010(10Q P21). For cash reserving purpose, the Company has started a plan to raise working capital and reduce expenses. DARA has reduced staff by 60% and burn rate by approximately 70% to date. In addition, the Company is now focusing on the two lead drug candidates and has suspended work on three.

So why did DARA drop so hard from 2008’s high $6 to now $0.39? Most of the small cap company hit by financial crisis these two years, so did DARA. And DARA had to raise about 5 million dollars from 3 times total 10 million shares stock offering which gave its stock price another strike.

But counting that on, $0.39 per share can’t truly reflect DARA’s real value. What DARA is suffering is what most of the other companies are experiencing. I strong believe that DARA will recover and the stock price will at least go back to 2008 level when it goes through the tough time. This confidence built on my understanding of the drugs potential and the management of DARA.

Unlike most of the Wall Street bankers, the management of DARA looks like less greedy and more willing to push forward side by side with investors but not grasp sky-high salary and bonus: Besides implementing a plan to raise working capital and reduce expenses, the Chief Executive Officer will be paid $1.00 per year and all salary increases and 401k contributions have been suspended.

There are only 33 million shares of DARA’s common stock. Even count the recent direct offering on, the total is only 43 million shares. Once the leading drug candidate’s clinical data is release, it is not hard for DARA to go back to previous high. Compared to other small cap companies like CTIC and GNBT which badly diluted common stock by selling hundreds of million shares to institutional investors, I would like to say DARA’s management is more concerning on small investor’s value.

Early this month, DARA presented preclinical type 2 diabetes study results at the Cambridge Health-tech Institute's Conference, and the data is promising and satisfied. I believe that this will build a solid foundation for DARA’s future collaboration. As we see from LGND and OPXA’s experience, every collaboration means million dollars down payment and milestone payment.

On 11/19, DARA will attend 12th International Conference on the Mechanisms and Treatment of Neuropathic Pain, and the Phase 2 Study Results of its leading drug candidate KRN5500 will be presented at the meeting. This will be a momentum for DARA.

When good news keeps coming out and catalysts in the near term, DARA’s current stock price is still below 50 day average and 200 day average, it is obvious that DARA is under value.

References:

10Q: http://phx.corporate-ir.net/phoenix.zhtml?c=219408&p=irol-sec&secCat01.1_rs=11&secCat01.1_rc=10　

DARA Pipeline: http://www.darabiosciences.com/pipeline.htm
DARA to Attend 12th International Conference:
http://www.marketwatch.com/story/dara-biosciences-will-present-phase-2a-study-results-for-krn5500-at-the-12th-international-conference-on-the-mechanisms-and-treatment-of-neuropathic-pain-meeting-2009-09-15

*Disclaimer: The author of this article is not a licensed analyst and the purpose of this article is for information sharing and discussion only, not recommendation for any stock buying and selling activities. Please do your own research before making any trading decision.