By Cynthia Tran and Andrew McDonald, Ph.D.
The orphan drug sector presents attractive investment opportunities due to benefits from the Orphan Drug Act (ODA) in the U.S. and similar regulation in Europe. These benefits include reduced statistical burden for clinical data, fast-track approval, and marketing exclusivity up to seven years of in the U.S. and ten years in Europe. This article focuses on the orphan drug developers Raptor Pharmaceuticals (NASDAQ:RPTP), Hyperion (NASDAQ:HPTX), Aegerion (NASDAQ:AEGR), and BioMarin (NASDAQ:BMRN), each of which expecting regulatory action in early 2013.
1) Raptor Pharmaceutical Corp
Raptor's main product is RP103 or Procysbi, an oral and extended-release form of cysteamine that can be used for treatment of nephropathic cystinosis, a rare genetic condition characterized by the abnormal accumulation of the amino acid cystine. The current standard of care, Orphan Europe's Cystagon, requires 6-hour dosing schedule (which leads to compliance problems) and involves a number of side effects, such as nausea, vomiting, and body odor. RP103 allows for a 12-hour dosing schedule and reduces these side effects, while maintaining a comparable effect on cystine level to Cystagon. The company has a PDUFA date of January 30, 2013, and a Marketing Authorization Application (MAA) decision from the European Medicines Agency (EMA) is expected in the first half of 2013.
In July 2011, Raptor announced that RP103 had met its sole primary endpoint of non-inferiority compared to Cystagon in a Phase III clinical trial in nephropathic cystinosis. RP103 treatment resulted in comparable clinical outcomes to Cystagon, as measured by white blood cell (WBC) cystine level (0.62 ± 0.05 nmol of half cystine/mg protein compared with 0.54 ± 0.05 for Cystagon). The mean difference was 0.08 nmol of half cystine/mg protein (p=0.021) and plasma cysteamine levels. The upper end of the confidence interval around the mean difference of WBC cystine levels is 0.16, thus satisfying a prior FDA requirement that the upper end should not exceed an absolute value of 0.30.
In June 2012, the FDA accepted the New Drug Application (NDA) for RP103. In November 2012 Raptor announced positive results from the RP103 extension study, in which 40 patients completing phase III clinical trial elected to continue on RP103 treatment and be monitored for 24 months. All patients maintained WBC cystine under optimal control at <1 nmol/mg protein. With this result, RP103 is the first drug to demonstrate long-term WBC cystine control. In addition, compared with Cystagon, RP103 treatment resulted in a 50% reduction in the number of patients reporting rotten egg smell in breath, and improvement in all quality-of-life parameters measured (emotional functioning, physical functioning, school functioning, and social functioning).
Raptor obtained an exclusive, worldwide license for RP103, RP104 and other forms of cystine from UCSD in December 2007. Future milestones payments of $500,000 and $750,000 will be payable to UCSD if the MAA and NDA for cystinosis are approved, respectively.
At the end of its fiscal year 2012, Raptor's cash and cash equivalents were approximately $39MM. Currently outstanding shares include 51.7MM in common stock and 5.2MM warrants. The market capitalization stands at $300.2 MM, and enterprise value (EV) is $276.7 MM as of December 19, 2012. With 3,000 cystinosis patients in the U.S. alone and RP103 pricing at $300k/patient/year, assuming market share of 70%, trailing P/E of 10, discount rate of 30%, and a profit margin of 50%, we arrive at $630M revenue in 2015 and $1.43B current EV. With its current burn rate of $3.2MM/month, the company expects to have enough cash to operate until the third calendar quarter of 2013. With the likely approval of RP103 in Q1 2013 and product launch in both U.S. and EU in 2Q 2013, the company may not need additional funding. Based on these facts, Raptor's stock price may dramatically increase on and after PDUFA date of January 30, 2013.
Hyperion's lead product is Ravicti (glycerol phenylbutyrate), which is designed to lower ammonia in the blood and can potentially be used for chronic management of urea cycle disorders (UCD) and hepatic encephalopathy (HE) in cirrhosis patients. The PDUFA date for Ravicti's NDA for UCD is January 23, 2013.
Currently, the only FDA-approved therapy for chronic management of the most prevalent UCD is Ucyclyd Pharma's Buphenyl, which has several drawbacks: high pill burden, high frequency of dosing (3-6 times per day), unpleasant taste and smell, and tolerability issues. Ravicti uses the same vehicle for ammonia removal as Buphenyl, but requires a much smaller volume of drug. In addition, Ravicti is nearly tasteless and odorless and does not contain any sodium.
Hyperion completed one pivotal, four-week Phase III trial for Ravicti in adult UCD patients and the FDA accepted its NDA for review in February 2012. In the Phase III trial, Ravicti met its primary endpoint of non-inferiority to Buphenyl. There were no statistically significant differences in ammonia levels (the main efficacy indicator) between Ravicti and Buphenyl: mean (SD) = 34.7 (25.1) versus 38.4 (31.7) umol/L, and maximum concentration = 60.9 (46.2) versus 70.8 (66.7) umol/L, respectively. The 95% confidence intervals' lower and upper limits for the mean difference in ammonia levels were 0.799 and 1.034, respectively. The upper limit was below the predefined non-inferiority margin upper limit of 1.25.
In November 2012, Hyperion announced positive result from a Phase II clinical trial of Ravicti in patients with cirrhosis and HE (HALT-HE study). Patients in the active arms experienced significantly fewer HE events, lower ammonia values and fewer symptomatic days.
The patent for Ractivi is licensed from Brusilow, with expiration date of February 2015. After that, the company expects to obtain a three-year extension and regulatory exclusivity under the Hatch-Watchman Act. Hyperion acquired the worldwide rights to Ravicti from Ucyclyd Pharma, Inc. in March 2012.
At the end of 3Q 2012, Hyperion's cash and cash equivalents are approximately $56.5MM. The company has 16.6MM outstanding shares and market capitalization stands at $176.0 MM as of December 19th, 2012. With 3,000 UCD patients in the U.S. alone and Ravicti pricing at $300k/patient/year, assuming market share of 70%, trailing P/E of 10, discount rate of 30%, and a profit margin of 50%, we arrive at $630M revenue in 2015 and $1.43B EV. In addition, as HE promises a much larger market of 15,000 patients in the U.S. alone and the Phase II HALT-HE study already yielded promising results, there may be additional upside for this indication.
While trading on Hyperion stock has stagnated since its successful IPO in July 2012, we expect that the volume will pick up from January 2013 onwards, due to PDUFA date and other important milestones related to the Phase III trials for HE. While Hyperion expects to have enough funding until the launch of Ravicti for the treatment of UCD (at current burn rate of $2.7MM/month, and if Ravicti is approved in the first half of 2013), it may require additional funding for the Phase III clinical program of Ravicti in HE patients as well as the commercialization of Ravicti.
3) Aegerion Pharmaceuticals
Aegerion's main product is lomitapide, a treatment for elevated cholesterol that can be used for Homozygous Familial Hypercholesterolemia (HoFH), an extremely rare and generally fatal disease. Aegerion received a positive vote from an FDA Advisory Committee panel in October 2012, and has PDUFA date of December 29, 2012. The EMA accepted Aegerion's MAA for review in March 2012, and an approval decision is expected in 2Q 2013.
The Phase III clinical trial for lomitapide in HoFH was completed in June 2011. The study enrolled 29 adult patients with a mean low-density lipoprotein (LDL-C) of 337 mg/dL on a variety of background lipid-lowering therapies. The primary efficacy endpoint was mean percentage change in LDL-C at week 26 compared with baseline. The mean percent changes from baseline in LDL-C during weeks 18, 22 and 26 were -43%, -39% and-40%, respectively (p<0.0001), and the result was persistent through week 78. Mean LDL-C levels decreased as early as week 2 on lomitapide, with a mean percent change from baseline of 8% (p=0.0396).
Aegerion licensed lomitapide from the University of Pennsylvania in 2006 and is required to make milestone payments of up to an aggregate of $150,000 and royalty of less than 10% revenue when a licensed product's indication is limited to HoFH or severe refractory hypercholesterolemia.
At the end of 3Q 2012, Aegerion's cash equivalents are approximately $95.5MM. The company has 25.5MM outstanding shares, market capitalization stands at $619.8 MM, and the EV is $526.8 MM. Using a $300k annual treatment cost per patient, trailing P/E of 10, discount rate of 30%, and a profit margin of 50%, we arrive at EV of $1.43B, which is 3x higher than current EV. In the first nine months of 2012, the company spent $39.0MM on operating expenses. The company expects that expenses will increase in 2013 due to clinical trials in pediatric and adolescent HoFH patients, and we predict its operating expenses will stand at $55.0MM in 2013. Aegerion's cash, cash equivalents, and marketable securities should be sufficient to cover its cash flow requirements through 1Q 2014. With the high likelihood of lomitapide product launch in U.S. in 1Q 2013 and in Europe later in 2013, the company should be able to fund itself afterward.
BioMarin has successfully developed and commercialized four products, and is running clinical trials for five new products. Most notably among these new products are GALNS, which has just finished Phase III clinical trial for the treatment of Morquio A Syndrome, and PEG-PAL for the treatment of phenylketonuria (PKU). While PKU is already targeted by BMRN's existing product Kuvan, PEG-PAL is geared toward patients who do not respond adequately to Kuvan.
Following the successful Phase III clinical trial in Morquio A Syndrome patients, BMRN plans to submit marketing applications for GALNS in 1Q 2013. PEG-PAL demonstrated long-term retention and efficacy in a Phase II clinical trial in September 2012 and is expected to enter a Phase III trial in 2Q 2013.
In November 2012, BioMarin announced that a Phase III clinical trial of GALNS met its primary endpoint of change in six-minute walk distance after 24 weeks. Subjects receiving weekly infusions of GALNS at the dose of 2 mg/kg had a mean increase of 22.5 meters in walk distance compared with those receiving placebo (p=0.0174). Treatment with GALNS also improved both secondary endpoints - improvement in three-minute stair climb performance at week 12 compared to baseline and robust reduction in urinary keratan sulfate levels (p < 0.0001).
BioMarin owns underlying patents for ¾ of its commercialized products and licenses the remaining product, Firdapse, at 8% royalty. The company also owns patents for most of its clinical trial stage products.
At the end of 3Q 2012, BioMarin's total revenue in 2012 is expected to be $492 MM, up 11% from the previous year. Total operating expenses in 2012 are expected to be $576 MM. BioMarin has 123.8 MM outstanding shares; market capitalization and EV stand at $6.0B as of December 19, 2012 - up 30% from October 2012. With 3,000 Morquio A Syndrome patients worldwide, $300k of annual cost per patient, trailing P/E of 10, discount rate of 30%, and a profit margin of 50%, we expect that the launch of GALNS product will add $1.4B value to BMRN. This was already reflected by a 30% jump in BMRN's stock price on November 5th 2012, and we believe the stock is currently fairly valued.
Business disclosure: LifeSci Advisors is a healthcare advisory firm. This article was written by Cynthia Tran, one of our interns. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.