Seeking Alpha
Special situations, healthcare, patents/litigation, event-driven
Profile| Send Message|
( followers)  

Earlier today, Rockwell Medical (NASDAQ:RMTI) presented very positive top-line results from one of its two identical phase 3 trials of Soluble Ferric Pyrophosphate (SFP) for hemodialysis CKD patients, deemed CRUISE-1 (8-K). Even though the study met both primary and secondary endpoints, the stock price trended downward throughout the day, only increasing approximately 16% despite releasing Phase III data. In this article, I will summarize the results and represent why there is an undervalued investment opportunity in Rockwell Medical.

Brief Synopsis of CKD

Chronic kidney disease (CKD) is the 8th leading cause of death in the U.S., with more than 20 million adults infected. It is more common for overweight people, as diabetes (type 2) and blood pressure issues are the two biggest underlying causes of CKD. Among other things, CKD reduces the ability of the kidneys to produce erythropoietin, or EPO. EPO facilitates the amount of red blood cells that bone marrow produces. Stages of CKD are rated in order of severity from 1-5, with Stage 5 being characterized End Stage Renal Disease (ESRD). This irreversible damage to the kidney can only be remedied by a kidney transplant, or dialysis. There are two kinds of dialysis: peritoneal, where dialysate is placed within the abdomen and does not require a specialized dialysis machine (and often is used at home versus at a dialysis center), and hemodialysis, by far the more popular treatment, where a patient's blood is filtered through a dialyzer at least 3 times a week (typical amount). The more overweight a person is, the more dialysis treatments they will need.

Source: Brown University

Now, refer back up to EPO in the paragraph above. Because the body produces less RBC's, the amount of hemoglobin (hgb) decreases. Hgb facilitates iron transfer within the body, and combined with hemodialysis patients losing 5-7 mg of iron during each treatment, is vital for patients with ESRD. Erythropoiesis-stimulating agents (ESAs) coupled with intravenous (IV) iron supplements to increase efficacy, are the most common method used to combat hemodialysis patients with anemia. Rockwell Medical is conducting studies to show that SFP is more effective, using less ESAs, than the traditional ESA/IV iron treatment in CKD patients using hemodialysis.

CRUISE-1 (Primary Endpoint)

CRUISE-1 was a randomized, placebo-controlled study in which the primary endpoint of SFP was to show a .5 g/L mean change in hemoglobin relative to traditional dialysate. While PRIME (Phase II) results, released in February, extrapolated into a 1-1.5 g/L baseline change, the actual reported change was a statistically significant 3.6 g/L, with a .6 g/L positive baseline change in the SFP arm compared to a 3 g/L negative baseline change with placebo. However, keep in mind that ESAs were not allowed to be titrated (adjusted) throughout the trial period, in addition to IV iron and oral iron (not as popular as IV due to sensitivity) being prohibited. According to management, this was done in order to show that SFP consistently delivers iron and maintain healthy hgb levels, even though Rockwell discloses on their website that ESAs have to be combined with some form of iron at the same time to be effective in anemia treatment. Although I think that this part of the study should have been designed differently to show a true difference versus IV iron in particular, that should not take significance away from the strength of SFP relative to expectations.

CRUISE-1 (Secondary Endpoints)

SFP also met multiple significant secondary endpoints in the CRUISE-1 trial. The results indicated that reticulocyte hemoglobin (Ret-He or CHr; indicator of iron deficiency development) decreased by a statistically significant 2.1% from baseline in the placebo arm, while remaining near baseline in the SFP arm. This basically says that SFP is taken up by the bone marrow in a quick way to stimulate EPO production. This leads to a quicker prognosis of iron deficiency anemia.

A very key secondary endpoint, especially relative to IV iron, is the ferritin levels (leftover iron reserves). The SFP arm had a stat sig decrease by 14.7% from baseline relative to a 28.2% decline from placebo. This indicates that the SFP-iron is actually being used for EPO production in the bone marrow instead of just storage in the reticuloendothelial (RE) system, also called the mononuclear phagocyte system. IV iron must go to the RE system before being used for EPO production, which represents an advantage in speed over IV iron.

Safety Profile & CRUISE "Drop-Outs"

Out of all of the CRUISE-1 data, what was arguably most impressive was the safety profile, a key worry for many companies dealing in the CKD anemia space after Affymax's (OTCPK:AFFY) OMONTYS adverse reactions, specifically anaphylaxis. Speaking of anaphylaxis and/or hypersensitivity reactions, none have been reported in the 10,000 SFP deliveries in the CRUISE-1 study, and approximate 60,000 SFP deliveries aggregately. Overall, there were 8 deaths in the trial (5 SFP, 3 placebo), but none were directly attributable to SFP. The mild adverse reactions were similar, or less, than the placebo arm:


(Click to enlarge)

Most of the analyst questions on the RMTI conference call today centered around patient "drop-outs." The "drop-out" rate in the SFP arm was 45%, versus 53%-54% for the placebo arm. If Rockwell was attempting to manipulate the data, the numbers would most likely be flip-flopped (i.e., more SFP "drop-outs" than placebo). The reason why "drop-outs" were high is because of very strict hgb guidelines, having to stay between 9-12g/L. Keep in mind, anemic ESRD patients with ESRD are very sick, and strict regulations have to be met. Because of this, it could be construed that the difference between placebo and SFP could be greater/less than 3.6g/L. Some more "drop-out" criteria included: low hgb ( <90g/L), high hgb ( >120g/L), fast rising hgb of >115g/L pursuant to an increase of 10 g/L over 4 weeks, and/or a ferritin level <100mcg/L. Management indicated more information should be available about the total trial at ASN in early November.

In addition, patients who "dropped out" of the study were enrolled into an open-label study in which IV iron and ESA can be adjusted at will (different than CRUISE study). Approximately 206 patients are enrolled and 84 patients from the CRUISE-1 study have completed 72 weeks of therapy in this study. According to management, more information from this open-label study will be available after the two CRUISE studies have been analyzed. I think instead of saying these patients "dropped out," they "rolled over."

Summary

Because CRUISE-2 is the exact same as CRUISE-1, I am expecting the same approximate results. While some people said that CRUISE-1 is not representative of real life, both the Phase II (PRIME) study and the open-label study of CRUISE are/will be indicative. Following the succession of CRUSE-2, Rockwell will be well on their way to filing a New Drug Application for SFP with the FDA around 4Q2013. Overall, SFP is an innovative new drug in the growing CKD field. Many Americans are overweight, and Type 2 Diabetes and bad blood pressure will unfortunately make CKD more popular (estimated at a 4%-6% growth rate annually.) As CKD grows, so will hemodialysis patients. Keep in mind that ESAs cost dialysis centers a good deal in addition to syringes and related equipment to inject IV iron. SFP will undoubtedly decrease costs and will make more economic sense for hospitals, a key focus after Obamacare implementation. Approximately $600MM is spent on IV iron for ESRD patients, which represents a good incentive for doctors to use the product. In addition, $2 billion was spent on EPO usage in 2012. The 35% reduction in ESA usage that the PRIME study showed equals $700MM in savings. SFP makes sense given the state that healthcare economics is in today, patient safety, and advantages over intravenous iron. I believe that this is a value play that is underappreciated after the positive CRUISE results.

Source: Rockwell Medical: Undervalued After CRUISE-1 Results