Conatus (CNAT) Q1 Loss Narrows Y/Y, Revenues Beat Estimates

Conatus Pharmaceuticals Inc. (NASDAQ:CNAT) reported first-quarter 2017 loss of 14 cents per share, in line with the Zacks Consensus Estimate but narrower than the year-ago figure of 35 cents.

Conatus’ shares have outperformed the Zacks classified Medical Products industry so far this year. Shares of the company gained 46.5% while the industry registered an increase of 14.4%.

Conatus has no approved product in its portfolio at the moment. However, the company recognized $7.0 million as collaboration revenues for the first quarter of 2017. It also beat the Zacks Consensus Estimate of $5.88 million. The collaboration revenues were related to an agreement with Novartis AG (NYSE:NVS) , which was inked in Dec 2016, for the worldwide development and commercialization of Conatus’ lead candidate, emricasan, as a single agent treatment for NASH (Nonalcoholic steatohepatitis) cirrhosis in both compensated and decompensated patients. As a part of the deal, Novartis will share 50% cost of four ongoing phase IIb clinical trials on emricasan.

In the first quarter, research and development expenses were $7.9 million, up 68% from the year-ago quarter. This was mainly due to cost related to the ongoing Encore study. General and administrative expenses were $2.8 million, up 7.7% from the year-ago quarter. This was primarily due to an increase in personnel costs partially offset by lower consulting fees.

The company has raised $15 million from Novartis by issuing a convertible promissory note.It anticipates another $7 million as Novartis exercises its option to an exclusive license for the global development and commercialization of emricasan in May 2017.

Emricasan in Focus

Emricasan is being developed for the treatment of patients with chronic liver disease.

With the initiation of the ENCORE-LF clinical trial in May 2017, there are four ongoing emricasan Phase IIb clinical trials. The ENCORE-LF (Liver Function) is a placebo-controlled phase IIb study evaluating twice-daily treatment with emricasan for preventing or delaying the clinical outcomes associated with the progression of advanced liver disease in 210 patients with decompensated NASH cirrhosis. Data from this 48-week study are expected in 2019.

In Nov 2016, Conatus initiated a placebo-controlled, phase IIb study, evaluating the effect of emricasan for the reduction of hepatic venous pressure gradient (HVPG) in patients with compensated or early decompensated liver cirrhosis caused by NASH, and severe portal hypertension confirmed by HVPG of ≥12 mmHg at baseline. Data after 24 weeks of twice-daily treatment with emricasan or placebo are anticipated in 2018.

The company is conducting two additional phase IIb studies on emricasan. These include the POLT-HCV-SVR study evaluating potential improvements in Ishak fibrosis score in post-orthotropic liver transplant (POLT) recipients with liver fibrosis or cirrhosis post-transplant caused by recurrent hepatitis C virus (HCV) infection in those who have successfully achieved a sustained viral response (SVR) following HCV antiviral therapy. Data are expected in the first half of 2018.

ENCORE-NF is the other study evaluating potential improvements in fibrosis and steatohepatitis in patients with fibrosis caused by NASH. Results are expected in 2018.

The company also plans to initiate a new study - ENCORE-XT - on emricasan under the ENCORE program.

We expect investor focus to remain on updates pertaining to the candidate’s development.

Guidance

Cash, cash equivalents and marketable securities are expected between $45 million and $55 million by year-end 2017.

Conatus expects its current financial resources, together with the anticipated license option exercise milestone payment and expense reimbursements related to the Novartis agreement, to be sufficient for continuing operations through the end of 2019.

Zacks Rank & Key Picks

Conatus currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the health care sector include Addus HomeCare Corporation (NASDAQ:ADUS) and Progenics Pharmaceuticals Inc. (NASDAQ:PGNX) . Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Addus HomeCare’s earnings per share estimates increased from $1.38 to $1.41 for 2017 over the last 60 days. The company posted positive earnings surprises in two of the four trailing quarters, with an average beat of 10.14%. The company’s share price has increased 96.7% in the past one year.

Progenics’ loss estimates narrowed from 66 cents to 62 cents for 2017 over the past 60 days. Also, it recorded a positive earnings surprise in three of the last four quarters, with the average being 8.45%. Its share price has increased 35% in the past one year.

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