Working in the big leagues of the pharma world allows little room for error. Make a misstep and quite a bit of capital can be lost. Get the process right, however, and quite a bit of profit can be made. Starting out as a development stage company, in this regard, is never easy but if that first product can get to market, profit will flow for the investor that sticks with it from the beginning.

Somaxon Pharmaceuticals inc., a development stage biotechnology company, works to develop specialty pharmaceutical products directed at disease and psychological issues. It is, for the most part, an in-licensing company and is currently completing Phase III trials for an insomnia product.

Although the company has completed much of its Phase III testing for Silenor, its insomnia product, the FDA has been asking for additional efficacy information regarding elderly patients. The FDA, however, indicated to the company that it

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On June 4, 2009, Somaxon (SOMX) announced that is has resubmitted the new drug application (NDA) to the U.S. FDA for Silenor (doxepin) for the treatment of insomnia. Despite this good news, we struggle to see how this drug can capture enough of the insomnia market to drive Somaxon to strong profitability.

The insomnia market is dominated by generic molecules, and without an onset claim, Silenor will already lose out on approximately half the market. Plus, Somaxon is running dangerously low on cash. We estimate the current cash balance is only enough to fund operations until July 2009.

Therefore, we expect a highly dilutive (30-40%) capital raise in the next week or two. We have a Sell rating on the shares and a target price of $0.50.Zacks Investment Research

For Immediate Release

Chicago, IL - May 11, 2009 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Lloyds Banking Group plc (LYG), CBS Corporation (CBS), Somaxon Pharmaceuticals (SOMX), Alexza Pharmaceuticals (ALXA) and NeurogesX, Inc. (NGSX).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579.

Here are highlights from Friday's Analyst Blog:

Lloyds Still Expects a Loss

Today in its first quarter trading update, Lloyds Banking Group plc (LYG, or Lloyds) announced that it still expects to post a loss for full-year 2009 (excluding an accounting gain from negative goodwill) on the back of

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Somaxon Pharmaceuticals (SOMX) is running dangerously low on cash. Management exited the second quarter with $4.4 million in cash and restricted cash. Based on our financial model, Somaxon will run out of cash in July 2009. Therefore, the company plans to enter into a financing in May or June 2009.The company noted on its first quarter conference call that this financing will be enough to fund operations through the FDA review of Silenor. Therefore, we believe management will seek to raise roughly $10 million in new capital. Given the current market value of only $9 million, we see the upcoming financing as potentially 100% dilutive.A licensing or signing a commercialization partnership on Silenor with a specialty pharmaceutical company could be a way to raise non-dilutive cash, but at this point we do not suspect that another company will be willing to invest in Silenor ...

Somaxon Pharmaceuticals (SOMX) is a specialty pharmaceutical company focused on the development and in-licensing of product candidates in the fields of psychiatry and neurology. The company is focused on advancing the clinical development of existing product candidates, with a long-term strategy designed to build a portfolio suite by sourcing and in-licensing products where Somaxon believes they can expand upon significant untapped demand.

The company filed the new drug application (NDA) for insomnia drug Silenor in late January 2008. The FDA accepted the application in April 2008. The PDUFA [Prescription Drug User Fee Act] is now set for December 1, 2008. Somaxon is currently in discussion with several interested parties for commercialization of the drug in early 2009. Management is looking for a co-promotion agreement in the U.S. However, we do not believe a deal will be reached until after the FDA's decision.

In the meantime, all investors can do is wait.

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