The race for a new heart treatment has investors thumping their chests over two small biotechs.

Some Wall Streeters believe that Encysive Pharmaceuticals ( ENCY) will secure approval for a new drug by the end of this month. Yet shares in rival Myogen ( MYOG) have left Encysive in the dust.

Both companies have spent years developing treatments for pulmonary arterial hypertension, or PAH, a rare but potentially fatal disorder affecting the heart and lungs. Encysive hopes to win approval of its PAH drug, known as Thelin, in less than two weeks. But Myogen has convinced investors that its competing drug, ambrisentan, can overcome Thelin's head start because of its superior clinical results.

So while Encysive has lost about 20% of its value over the past year, Myogen has rocketed 370%. Encysive CEO Bruce Given said Tuesday that he is surprised by the cold shoulder the market has given his stock. He says company insiders remain "pretty pumped up" during this "very exciting time."

Meanwhile, some outsiders have started to question whether Myogen really deserves the favorable treatment. Encysive's stock fell 11 cents to $8.84 on Tuesday, while Myogen's shares continued their climb, rising 92 cents to $36.66.

"At current valuations, we believe the market is pricing a best-case scenario for Myogen and a worst-case scenario for Encysive," Oppenheimer & Co. analyst Cory Kasimov wrote last week. "While it is still too early to crown ambrisentan the king of PAH, we concur with popular opinion that recent data could position ambrisentan as a best-in-class drug. ... But we stress that even if ambrisentan does indeed become best-in-class, that does not spell the end for Thelin -- which, we believe, will still be a worthwhile competitor in this rapidly growing market."

Matthew Kaplan, an analyst with Punk, Ziegel & Co., has gone a step further by indicating that ambrisentan may not emerge as the clear market winner at all. Notably, he claims that Myogen used less conservative methods for testing the liver toxicity of its PAH treatment than Encysive and another competitor used for their own drugs. Thus, he suggests, ambrisentan may prove to be less safe than it currently seems.

While neither Kasimov nor Kaplan has any formal rating on Myogen's stock, both analysts recommend buying Encysive. Their firms both make a market in Encysive securities.

Playing the Odds

To be fair, Encysive could fail to win regulatory approval for Thelin by the established target date of March 24. If that happens, Encysive's stock chart could look a bit like NPS Pharmaceuticals' ( NPSP) did on Friday -- when the stock plunged 38% after a decision on its osteoporosis drug was delayed.

But Kasimov gives Encysive a 95% chance of securing approval for Thelin on schedule. During clinical trials, he notes, patients on Thelin showed "significant improvement" over patients on a placebo during the crucial six-minute-walk test.

Moreover, he says, they performed at least as well as patients on Tracleer -- an existing PAH treatment sold by Actelion ( ALIOF) -- but with better safety and tolerance results.

During the company's most recent presentation, given at a health care conference over the weekend, Encysive CFO Stephen Mueller seemed optimistic that Thelin would be approved on time. He said Encysive took extra steps in advance -- by actually designing its study with input from regulators -- that should help Thelin win approval as planned.

Kaplan applauds the company's trials. He stresses that Encysive actually compared its own drug to Actelion's Tracleer -- instead of just a placebo -- and should be better positioned than Myogen as a result.

"When ambrisentan comes to market, it will ... be at a disadvantage based on its lack of head-to-head data versus Tracleer or Thelin," Kaplan predicted on Monday. "Comparative head-to-head data is one of the focus metric items in the European market and also for managed care organizations in the U.S. We also believe the clinical and regulatory risks for Thelin are very low versus those for ambrisentan."

Defining Toxicity

Perhaps most noteworthy, however, are Kaplan's recent observations about the liver toxicity of various PAH drugs.

Importantly, Kaplan says, both Encysive and Actelion reported liver toxicity when patients taking their drugs saw their liver enzymes reach three times the upper limit of normal levels on just one reading. In contrast, he says, Myogen reported liver toxicity only when patients taking ambrisentan reached that same threshold on a second reading as well.

"Based on conversations we have had with Actelion, they noted if they utilized the method requiring a confirmatory reading which is being used for ambrisentan, it would likely result in a 50% reduction in the rate of liver toxicity observed with Tracleer," Kaplan says. "Consequently, we believe investors should be cautious when evaluating the ambrisentan liver-toxicity data."

In the meantime, Kaplan notes, Thelin's liver-toxicity rate has come in even lower than that of the placebo during crucial clinical trials.

Given offered similar views on the toxicity studies. He told TheStreet.com on Tuesday that Encysive "absolutely" used different standards for testing the liver toxicity for Thelin than Myogen did for ambrisentan and that, in his opinion, the Street has yet to pick up on that issue.

But Myogen spokesman Derek Cole said that no patients using ambrisentan suffered from liver toxicity in initial tests -- so no second tests were needed -- in the most recent study. Yet those favorable results, which have sent the company's shares higher, contrast with earlier outcomes. They also come after only 12 weeks of testing, as opposed to the longer periods used to evaluate competing drugs.

Looking ahead, Kasimov suspects that ambrisentan -- like the rest -- will display some liver toxicity in the end.

"We would like to see if liver tox emerges with subsequent follow-up beyond 12 weeks, as (enzyme elevation) appears to peak at 14 to 18 weeks," Kasimov wrote last week. "Either way, we do expect ambrisentan's eventual label to contain a warning for liver toxicity, as this issue is a class effect and has appeared in prior ambrisentan clinical trials."

Hitting the Market

But for now, at least, things seem to be going Myogen's way.

Just last week, for example, Myogen announced that the Food and Drug Administration had granted "fast-track" designation to ambrisentan because the drug has been designed to address the unmet medical needs of patients suffering from an incurable, life-threatening disease. Rodman & Renshaw analyst Navdeep Jaikaria quickly portrayed the decision as a victory for Myogen -- and a setback for its competitors -- because it could shorten the time that ambrisentan must wait for approval before hitting the market.

According to information published on the FDA's own Web site, however, fast-track status simply allows companies to better interact with the agency and remains separate from the "priority" reviews that pave the way for accelerated approval.

Myogen's stock, weakened by an unpopular deal with GlaxoSmithKline ( GSK) and other investor concerns, actually fell on the day the company announced fast-track designation for its PAH drug. And Kaplan has since predicted that Myogen's drug will not hit the market until 18 months after Encysive's does.

For its part, Myogen has offered a simple catch-up strategy. Cole said the company "will look to let the clinical data speak for itself" when ambrisentan finally is approved.

In the meantime, the PAH market itself remains somewhat unclear. Pharmaceutical giant Pfizer ( PFE), which markets a special version of Viagra as a treatment for PAH, has estimated that 100,000 patients suffer from the disease. Myogen has -- perhaps somewhat aggressively -- portrayed a market twice that size. For its part, Encysive has simply assumed that the market could lie between those two extremes.

Still, those who do suffer from the deadly disease will no doubt pay high prices in order to treat it. Kasimov has predicted that the new medications will go for at least $30,000 a year. Thus, even based on the more conservative estimates of PAH sufferers, he sees a $3 billion market opportunity for players in the group.

Last fall -- when heralding Thelin as the best-in-class PAH drug before ambrisentan boasted greater results -- WR Hambrecht analyst Patrick Flanigan predicted that Thelin would be raking in annual sales of $298 million by 2009. More recently, even in spite of the favorable ambrisentan data, Kasimov has estimated peak worldwide sales of Thelin at $325 million annually. Specifically, Kasimov believes that Encysive can sell $175 million worth of Thelin in the U.S. -- and another $150 million worth outside it -- on an annual basis down the road.

Unlike Myogen, which recently sold the non-U.S. rights to its own PAH drug, Encysive still plans to handle its European marketing efforts itself. During its presentation over the weekend, the company once again reiterated that strategy by explaining that it has already hired and trained more than 50 veteran salespeople to market Thelin to the select group of physicians who might prescribe it.

Thus, Kasimov believes that Encysive will soon hit the market running. Kaplan tends to agree.

"We continue to believe investors have lost perspective with respect to Encysive as an investment opportunity and need to remember Thelin is in a strong competitive position versus Tracleer and ambrisentan for a number of reasons," Kaplan wrote on Monday. Therefore, "we strongly reiterate our buy recommendation on Encysive with a price target of $21" on the stock.