Encysive Sinks Again

Another day, another setback for the drug company.
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Encysive

(ENCY)

looks like it needs a miracle cure.

With its key drug still lacking approval from the Food and Drug Administration, Encysive is bleeding more than ever and -- even worse -- now warns that it will need to raise more cash in order to last through the year. Outside auditors have raised questions about the company's ability to survive as a result.

Encysive's stock plummeted 12% to a new 52-week low of $2.96 a share on the news. The same stock fetched nearly $10 a year ago, before the company ran into a series of roadblocks when seeking FDA approval for its hypertension drug Thelin.

The drug has since been cleared for use in Europe and, more recently, Australia. But it seems poised to follow a competing drug by

Gilead

(GILD) - Get Report

onto the U.S. market -- if it ever wins FDA approval at all -- and lose an important competitive advantage that many people had once taken for granted.

Encysive continues to suffer dearly in the meantime.

During the latest quarter, Encysive posted revenue of just $5.4 million -- far less than analysts had expected -- and saw its losses widen dramatically from a year ago. The company reported a fourth-quarter loss of $25.8 million, or 44 cents a share. Wall Street, while braced for bad news, had hoped for a slightly smaller loss of 42 cents a share.

UBS analyst Maged Shenouda was steering investors away from Encysive even before the company's dismal update. Earlier this week -- when others celebrated Thelin's regulatory approval in Australia -- Shenouda chose to reiterate his reduce rating and $2 price target on Encysive's stock, citing ongoing risks.

His firm has investment banking ties to the company.

In contrast, Punk Ziegel analyst Matthew Kaplan has remained optimistic about Encysive throughout the company's challenges. Quite simply, Kaplan feels that Encysive looks undervalued whether the company's key drug wins FDA approval or not.

"We continue to strongly believe the market potential for Thelin in Europe is not reflected in the company's current market cap," Kaplan explained last month, when the company's stock was still hovering around $3.75 a share. "We estimate, if a company were to purchase this franchise from ENCY, the European market potential

represents $6.10 to $11.45 per share of present value" for the company.

Kaplan personally has a higher price target on the stock, valuing it at a full $12 a share instead. He still believes that Encysive can win FDA approval of Thelin.

"The market is currently awarding no value at all to Thelin in the U.S.," he stressed. "Based on the strength of the product's therapeutic profile, we believe this is a mistake."

Kaplan's firm seeks to do business with the companies it covers.

Meanwhile, regardless of what happens down the road, Encysive clearly needs some help right now. The company has less than $72 million left in the bank -- even after raising some fresh capital late last year -- and continues to blow through money on a U.S. sales force that still has no major drug to sell.

Now Encysive foresees a painful 2007 even under the best of scenarios.

"If we receive approval by the FDA to market Thelin in the United States -- and if we are successful in obtaining additional funding -- we (still) believe that our operating expenses will exceed those incurred in 2006," Encysive warned on Friday. "If we do not receive approval by the FDA, we expect to take actions to significantly reduce our operating expenses.

"In any event," the company concluded, "we anticipate that we will continue to incur operating losses throughout 2007."