As of intraday Aug. 26, 2013, BioCryst's (BCRX) stock has risen ~3.4x since July 18, 2013. The major driver of the stock increase is positive Phase I clinical data for BCX4161 in healthy subjects reported on July 22, 2013. Shortly after that, the FDA lifted the clinical hold on the drug compound, which allows the company to include U.S. clinical sites in its upcoming Phase IIb trial. BCX4161 is a compound being developed as an oral prophylactic treatment for patients suffering from hereditary angioedema (HAE). BCRX is preparing for a Phase IIa proof-of-concept trial of BCX4161 in HAE patients, which will begin in Q4 2013. I am optimistic on the outlook for the Phase IIa trial and believe that its success could drive the market value of BCRX up to $1 billion (at minimum, 2x-3x of its current value).
HAE is a rare and sometimes fatal autosomal dominant disorder characterized by episodic swelling of the skin, pharynx, larynx, GI tract, genitals, and extremities. It is estimated that there are ~6,000 HAE patients in the U.S. and ~15,000 HAE patients worldwide. Plasma kallikrein is a proven target in the treatment of HAE. Cinryze, a kallikrein inhibitor from ViroPharma (VPHM), is the only approved prophylactic therapy for HAE in both the U.S. and the EU. To prevent HAE attacks, Cinryze is administrated through IVs every three or four days and each administration takes about 10 minutes to complete. Cinryze sales reached $327 million in 2012 and have grown at an average rate of 36% per year since its launch in 2010. The annual cost per patient for Cinryze treatment is estimated to be between $300,000 and $400,000. Thus, $327 million in sales translates to 934 patients being treated by Cinryze. If no new therapy is approved, I expect that Cinryze sales will grow at 20%-30% annually in the foreseeable future.
BCX4161 is a plasma kallikrein inhibitor being developed as a better alternative to Cinryze. One major advantage of BCX4161 over Cinryze is that it is orally administrated. Currently, there is no oral treatment for HAE. BCRX reported positive BCX4161 Phase I clinical trial data on July 22, 2013. The study was conducted in the U.K., and 87 healthy subjects completed the study with median age of 31 years. Thirty subjects received a single dose of BCX4161 from 50 mg up to 1,000 mg, while another 40 subjects received 100 mg, 200 mg, 400 mg, or 800 mg of BCX4161 every eight hours for seven days. The rest of the patients received a placebo. Oral BCX4161 was found to inhibit plasma kallikrein throughout the dosing interval when compared to a placebo with p < 0.0001. The compound was generally safe and there were no severe adverse events observed among the subjects.
The company plans to initiate a randomized, placebo-controlled, two-period crossover Phase IIa trial in Germany in Q4 2013. Approximately 25 high attack rate (at least once per week) HAE patients will be enrolled. The primary endpoint will be attack frequency, and secondary endpoints will include safety and tolerability, attack severity, and quality of life. BCRX is also planning to initiate a Phase IIb trial in the U.S. next year.
One major near-term catalyst for BCRX is the Phase IIa trial data release in the first half of 2014. I am optimistic regarding the trial success for two reasons: One, the science behind kallikrein inhibition to treat HAE is well-validated. Bradykinin is a predominant mediator leading to HAE attacks. The only way to make bradykinin in human plasma is through the kallikrein pathway. Thus, as long as meaningful kallikrein inhibition is achieved, the disease will be alleviated. Two, BCX4161 has demonstrated impressive efficacy data in inhibiting kallikrein and acceptable safety data in the Phase I trial.
The FDA has been flexible in approving organ drugs like BCX4161. Since 2007, there have been more than 90 orphan drugs approved in the U.S., more than 20 of which were approved based on single-arm, small-patient size trials. ViroPharma's Cinryze was approved based on a randomized, placebo-controlled, crossover, routine prophylaxis trial of 22 patients. The primary focus of the trial was frequency and duration of attacks, days of swelling, and severity of attacks. For patients on Cinryze in the trial, the response varied, with four patients experiencing no attacks and two patients experiencing more attacks. The most common side effects included headache, nausea, rash, and vomiting. Overall, I think that BCX4161 will likely be approved by the FDA based on positive Phase II data.
With a recent $20 million public offering, the company now has enough cash to operate going into 2015. With the current schedule, BCX4161 is likely to be approved in 2015 with positive Phase II data. Once approved, I believe that BCR4161 will be dominant over Cinryze in the HAE market because it is orally dosed as opposed to IV administration for Cinryze. Assuming BCX4161 sales of $1 billion by the end of 2017 (~3,000 patients), a terminal EV/revenue ratio of 3, and a discount rate of 30%, BCRX's target market value by year-end will be $1.05 billion. That is ~2.8x higher than its current value of ~$377 million as of intraday Aug. 26, 2013. With a discount rate of 40%, BCRX's target market value by year-end will be $0.78 billion, which is ~2x higher than its current value. Thus, I think that the stock is undervalued and will rise significantly with a positive Phase IIa trial data in the first half of 2014.