2012-08-10 16:48:37 -

Ventrus Biosciences (NASDAQ:VTUS) released second quarter results last night,
and notably, the company reported that it has $29 million in cash, enough to
fund operations for the next two years according to management. This means that
investors can own the shares at a fraction of what analysts believe the company
is worth, without the risk of a financing before lead asset VEN-307 reaches
potential value-creating milestones. VTUS caught a bad break in late June when
its drug candidate for hemorrhoids failed to meet its primary endpoint in a
Phase III trial. Ventrus immediately discontinued development of the drug and
has since reigned in costs, but shares have not recovered and remain down
roughly 70% since the negative results were announced. However, in May of this
year, VTUS had some very   good news that the stock seems to have forgotten about.

Ventrus' other lead drug candidate, VEN-307, had positive Phase III results for
treating anal fissures. Anal fissures is a very painful condition caused by
tears in the anus, and VEN-307 proved to significantly reduce "pain on
defecation" the primary endpoint in the trial, as well as speed the healing of
the condition, an important secondary endpoint.  Management will meet with the
agency next month to see if this highly successful Phase III trial is enough to
start the regulatory review clock for the drug. If the outcome of that meeting
is positive, VTUS is likely to recover some of its losses from earlier this
year. Odds are that a second Phase III trial will be needed for final approval,
but this is expected by investors, and if VTUS is given the green light to
submit a new drug application (NDA) on the single trial, the company should be
in position to gain approval in the second half of 2013.

The treatment of anal fissures is wide open for an FDA-approved therapy that is
effective and has no major side effects. VEN-307 is intended to be the only FDA-
approved formulation of diltiazem cream, which is the first choice of doctors
that treat anal fissures. Today, however, patients can only get this treatment
at a pharmacy that makes the salve. As a result, the favorable Phase III results
from earlier this year and the ready-made market for such a product improve
chances that VEN-307 will make it to the market and will sell well. Analysts
estimate that the product could have peak sales of $200 million annually, noting
that there are approximately 1.1 million visits to physicians each year in the
U.S. for the condition.

While one analyst downgraded VTUS to neutral after the hemorrhoids drug failed,
other analysts see the stock rising back over $10 a share, implying a market cap
of $150 million or more, which seems easily acheived for a company with a Phase
III asset that has sales potential in range of expectations. With a current
market valuation of just $46 million ($17 million after cash), VTUS looks very
cheap, and opportunistic investors can take advantage of the exodus of
shareholders that were focused only on the hemorrhoids play. With cash in the
bank to reach its goals; a Phase III asset validated by positive trial results;
another candidate in mid-stage development; and other drug companies in the GI
segment, like Salix Pharmaceuticals (NASDAQ:SLXP) and Ironwood Pharmaceuticals
(NASDAQ:IRWD), that could be interested in acquiring the company, VTUS may be
poised to stage a recovery off its "bottom" in the coming weeks.

Click here to read this report at PropThink

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