Encysive's European Vacation

Shares rise 2% on a much-awaited approval.
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can sell its new drug overseas.

The Houston-based biotech company, slammed by repeated rejections at home, learned on Thursday that European regulators have approved Thelin for the treatment of pulmonary arterial hypertension. Europe represents an important market for the company, since many patients who suffer from the disease live there.

Encysive's stock rose 1.9% to $4.22 on the news.

Punk Ziegel analyst Matthew Kaplan has repeatedly highlighted the European opportunity while still holding out hope for regulatory approval of Thelin in the U.S. Notably, Kaplan estimates that some 40% of sales for a competing PAH drug comes from the European market.

Kaplan reiterated his buy rating on Encysive earlier this week, following a second-quarter update that left him feeling optimistic about Thelin's chances going forward. He was actually looking for European approval to come a few weeks later than it did. Meanwhile, he expressed confidence that the drug will eventually win over the Food and Drug Administration as well.

"We continue to believe the answer to the fundamental question, 'Can Thelin achieve FDA approval?' is yes," Kaplan wrote on Tuesday.

So far, the FDA has simply deemed the drug "approvable" -- and suggested the possibility of further clinical trials -- on two separate occasions instead. As a result, Encysive has lost some crucial time in its race against competitors like



that are developing PAH drugs of their own.

Based on an optimistic timeline, Kaplan still believes that Thelin could win FDA approval by the end of this year. At the same time, however, he recognizes that the process could take much longer than that.

"It is important to remember there is a high level of uncertainty associated with the regulatory timeline for Thelin," wrote Kaplan, whose firm seeks to do business with the companies it covers. "For example -- although we believe it is unlikely -- it is entirely possible, following its meeting with the FDA, Encysive could determine additional clinical work is necessary to address the agency's concerns. ...

That could easily extend the regulatory timeframe to 2H 2007."

UBS analyst Maged Shenouda foresees even more waiting ahead. Following Encysive's second-quarter update, Shenouda predicted that Thelin's U.S. launch would be delayed until the second quarter of 2008 -- and that the company would need some serious cash in the meantime.

Shenouda notes Encysive has $75 million in cash but is on track to burn through $100 million this year.

"We continue to believe significant financing risk exists," Shenouda wrote on Monday. "We calculate a 12-month price target of $2.50" for the stock in the meantime.

UBS has provided investment banking services to Encysive in the past and continues to make a market in the company's securities.