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Two pharma majors and a small-sized pharma company are awaiting FDA approvals for important drugs in their pipeline. Raptor Pharmaceuticals (RPTP) is waiting for its first FDA drug approval for Procysbi, which can be used for nephropathic cystinosis. Next in line is GlaxoSmithKline (GSK), which is waiting for the approval of dabrafenib for metastatic melanoma, followed by Merck (MRK), which seeks approval for Suvorexant, a drug for insomnia.

Raptor's Procysbi

Market information

Raptor is involved in the development of drugs for treating genetic and metabolic disorders as well as fatal diseases such as cancer. Nephropathic cystinosis is a rare genetic disease that affects approximately 2,000 patients worldwide, of which about 500 are in the U.S. This disorder is usually diagnosed in the first year of life and requires lifelong treatment. If not treated, this disease proves to be fatal by the patient's first decade of life.

The current standard of care includes using a drug called cysteamine and kidney replacement therapy with transplantation. The drug cysteamine bitartrate (Cystagon) was approved by the FDA in 1994 and CVS Procare is the only distributor of this drug in the U.S. Cystagon needs to be administered to the patient every 6 hours for his/her entire life. Often patients do not adhere to this frequent dosing requirement. Additionally, the drug also has certain side effects. Due to these inconveniences, patients discontinue drug usage.

About the drug

Raptor's drug, RP103 or Procysbi, is an improvement compared to Cystagon because it needs to be taken twice in a day and is about as effective as per clinical trials. However, there is some concern with gastrointestinal side effects, which may affect future success of the product in the market, but is not likely to have a significant negative impact on the product's approval. Procysbi, if approved, will have the advantage of not having much competition to face in the market.

Financials

The company's management stated in its 4Q 2012 results that the company's cash of about $41 million will be enough to meet its operating needs up to the third quarter of FY 2013. The company's net loss for FY 2012 was about $38.6 million versus $37.2 million in FY 2011. R&D expenses increased by about $6.6 million due to increase in drug manufacturing expenses to help prepare for the potential launch of Procysbi and for supply in future clinical trials. The stock has been on an upward trend this year with several investors betting in favor of this drug, but let's see what April 30th has in store for them.

GSK' Dabrafenib

Market information

Melanoma is responsible for about 75% of all skin cancer deaths, and looks like GSK has a drug strong enough to put up a valiant fight. Its closest competitor drug would be vemurafenib, by Hoffmann-La Roche (traded on OTC markets), which has already been approved in the U.S. The number of advanced melanoma cases in the U.S. and Europe are about 12,000, which is a relatively small population, but it's in dire need of effective treatment.

About the drug

Dabrafenib has shown its efficacy against mutated metastatic melanoma. In this type of melanoma a certain gene called B-Raf contains a mutation which results in the production of a oncogenic (cancerous) protein. Patients have shown good tolerance to the drug in clinical trials. Additionally, the response rate has also been impressive. GSK's drug if approved will have the advantage of not having much competition in the market. Given the clinical trial results, it seems that the drug has a good chance of approval.

GSK has had a lucky start this year with its lung drugs having received approval earlier in April. The approval of dabrafenib will give it the chance to capture a significant level of market share in quite a large and growing market.

Financials

GSK's share has been on the uptrend this year, and probably will continue to do so if more of its products receive approval this year. For the past few days, the stock has been performing about 1.5% higher relative to the S&P 500. Patent expirations impacted revenues negatively last year. Revenues for 2012 were $2.6 billion compared to $2.7 billion in 2011. With the approval of new drugs this year, revenues should be positively impacted in 2013.

Merck's Suvorexant

Market information

Merck's new drug for insomnia, Suvorexant, not only helps people fall asleep faster, but also stay asleep longer. The insomnia market is currently worth about $2 billion and is expected to exceed $5.6 billion in 2013. The aging population is a contributing factor to the growth of this market because sleeplessness is more common among the elderly. Suvorexant is an important drug for Merck, and if approved, it is likely to compete with the other major drugs from Sepracor (SEPR), Pfizer and Sanofi-Aventis (SNY).

About the drug

Suvorexant is part of a class of drugs which block orexins. The levels of this compound affect a person's sleep - higher levels keep a person awake. Since this compound originates in a particular part of the hypothalamus, targeting it may not affect other brain functions significantly. A recent study done on animals (rats and monkeys) also suggests that the drug may help with sleep without the side-effects of memory loss and attention deficiency which is noted in other drugs such as Ambien and Lunesta. The common side effects reported from Suvorexant thus far have been headache and sleepiness, but no serious side-effects.

Financials

Merck pays a hefty dividend of about 4% and has a few promising drugs in its pipeline, but time will tell whether Merck can sustain its growth in the face of patent expirations. Last year Merck achieved worldwide sales of $47.3 billion. In the fourth quarter of FY 2012 its revenues were $11,738 million compared to $12294 million for the same period last year.

Conclusion

All three companies have important drug approval results coming out soon. Of the three drugs discussed, Raptor is the only one which might face some trouble given the gastrointestinal side effects associated with it, especially because it does not demonstrate superior drug efficacy. GSK and Merck have other drugs and strong finances to keep them going, but for Raptor, their first drug approval means a lot. The safest investment of these three options I think would be GSK at this point, given the recent lung drug approvals, the size of the melanoma market and the relatively strong clinical trial data.

Source: 3 Pharmaceutical Companies Awaiting FDA Approval, Part II