- Regado's stock suffered a significant recent setback.
- The story is still compelling and the company has many appealing investment attributes.
- The risk/reward profile is now decidedly positive.
Biotech investing is very hot right now, and for good reason. It is a space for which I share the market's affinity for a variety of reasons. First, investments in biotech companies offer the opportunity for explosive returns more quickly than anywhere else. Second, it is easy to identify a catalyst or binary event that will trigger the timing of a significant move in a company's shares. Third, with hard science and definable patents, biotech companies can be extraordinarily profitable and make fantastic long-term, as well as short-term investments. Last, there are some successful management/connections and investors whose involvement in a specific company can provide additional confidence in a successful outcome for a company's technology and pipeline candidates. Despite a recent setback, I believe Regado Biosciences (NASDAQ:RGDO) has enough positive attributes that the risk/reward profile is decidedly positive, and that the company's shares currently merit an investment and a proportionately appropriate allocation in speculative biotech portfolios.
According to Regado's website, the company is "pioneering the discovery and development of two-component drug systems consisting of a therapeutic aptamer and its specific active control agent." The initial result of the company's efforts is the FDA fast-tracked anticoagulant REG1 (renamed Revolixys™ Kit), currently the subject of a halted proposed 13,200-subject Phase 3 trial, otherwise known as the REGULATE-PCI. The Phase 3 trial targets patients undergoing percutaneous coronary intervention (PCI) procedures other than for the treatment of ST elevation myocardial infarctions. The Phase 3 REGULATE-PCI trial is the result of a successful 640-subject Phase 2b trial named RADAR, comparing REG1 to standard of care heparin. According to the company's most recent 10K, in the RADAR trial:
REG1 demonstrated both a rapid and predictable anticoagulant effect and ability to precisely modulate or eliminate that effect in real time. REG1 also demonstrated the following important clinical and pharmacoeconomic benefits:
- an approximate 66.0% reduction in ischemic events;
- a reduction of up to 60.0% in major bleeding events;
- a substantial reduction in time from catheterization to catheter sheath removal from a median of 3.8 hours to a median of one hour;
- a substantial reduction in time of completion of the PCI procedure to catheter sheath removal from a median of three hours to a median of 24 minutes; and
- a substantial reduction in the time patients were required to remain still following catheter sheath removal from a median of 5.7 hours to a median of 2.8 hours.
In basic English, Regado's Revolixys™ Kit uses the aptamer pegnivacogin, a highly potent and selective anticoagulant, to stop clotting during surgery, and anivamersen, its specific active control agent, to return the body to normal clotting function. This is a novel approach that in concept and at least in the Phase 2b RADAR trial, appeared superior to current standard of care treatment options. The results of that Phase 2b RADAR trial were convincing enough to compel the FDA to promote Revolixys™ Kit to fast-track status and Regado to initiate the enrolment of the large 13,200-subject Phase 3 REGULATE-PCI trial. As stated in the company's 10K:
PCI procedures involve significant medical risks. Blood clots may exist at the blockage or may result from arterial damage at the point of catheter insertion or from the presence of the catheter or other foreign materials in the vasculature. If blood clotting is not eliminated or controlled effectively, ischemic events, including death, stroke, MI or the need for revascularization of the artery, may occur. Because of this risk, powerful anticoagulant drugs are administered prior to and throughout the PCI procedure. However, anticoagulants create a significant risk of major bleeding events, including bleeding into the heart, the brain or other organs, massive internal bleeding that requires a significant transfusion of blood and blood products, and uncontrolled bleeding at the access site. These major bleeding events can result in the need for emergency surgery and increase the risk of MI, stroke, other life-threatening complications and death.
The greater control offered by Regado's Revolixys™ Kit appears to significantly improve surgical outcomes and reduce patient risk. Unfortunately, all this progress and promise was at least temporarily arrested on July 2nd, 2104, when Regado announced the voluntary halt of the trial in reaction to the Data Safety Monitoring Board (DSMB) initiation of an unplanned review of data from the REGULATE-PCI trial. Patient enrollment is paused until the DSMB has completed its analysis and communicated its recommendations. This review is anticipated to take eight weeks. From the press release on July 2, 2014; "The DSMB will conduct a full analysis of safety and treatment benefit-risk ratio of all patients enrolled to date (3234) with a focus on serious adverse events related to allergic reactions." The FDA stepped in to solidify the trial halt during the DSMB review on July 10, 2014.
What do Investors Do Now?
First, I want to be completely transparent and disclose that I did not start accumulating a position in Regado until after the crash on July 3rd, 2014. Several factors convinced me that the company's shares were worth an investment, following the crash.
- The results of the Phase 2B trial are still valid and compelling.
- The risks of allergic reaction were acknowledged previously, and this may still have no impact, or only slightly limit the eligible population and not end hopes for this pivotal treatment. This situation reminds me of Halozyme (NASDAQ:HALO), where investors also abandoned ship at the end of July 2012 when the company received a Complete Response Letter from the FDA regarding Baxter's HyQ Biologics License Application. I owned the stock at that time, after writing favorably about Halozyme's prospects on Seeking Alpha on April 12, 2012. At the time, I could not understand how HALO's Hylenex could be approved without adverse effect on its own as an emergency spreading agent, yet somehow be contributing drug halting reactions in Baxter's and Viropharm's trials combining the HALO drug delivery technology. Mitigating concern in HALO's case, there were simply the presence of antigens but no adverse effects. We still need to learn more about the adverse RGDO reactions that are being examined to determine the severity and ultimate impact on the prospects for REG1.
Here is greater detail on allergic reactions observed in the Phase 2B RADAR study:
"Late in the trial, three REG1 subjects experienced severe allergic events. These events occurred 3 to 20 minutes after administration of pegnivacogin and ranged from a subject with a mild skin reaction to one subject who needed extended hemodynamic support. Based on a blinded assessment of bleeding and ischemic events at that time, it was determined that a sufficient number of endpoint events had occurred to meet the objectives of the trial and the trial was deemed complete. Following the occurrence of the allergic events, a detailed analysis of possible causes was performed. We determined that all three subjects were experiencing activation of their immunological system prior to receiving REG1 treatment and had a history of allergic reactions. We also determined that the REG1 used in these patients conformed to our specifications, was not contaminated, mishandled or stored incorrectly and that no changes to the formulation had occurred. Based on non-human primate studies, we concluded that there was no clinical or biomarker evidence of intravascular immune pathway activation. We also re-examined the complete REG1 clinical database and found no evidence of serious allergic reactions within the remainder of the REG1 development program. Following completion of our investigations and submission of a risk minimization action plan, the FDA and the EMEA agreed that we could proceed to a Phase 3 trial and that no additional exclusion criteria, and no special dosing, pre-treatment or pre-screening requirements were necessary. Additionally, in REGULATE-PCI investigators will receive training on the identification and proper treatment of allergic reactions and blood samples from all subjects will be collected and stored for future reference in the event they are needed for analysis."
- This is a big market opportunity for Regado and Revolixys™ Kit. In the 10K the company states: "According to the American Heart Association, or the AHA, approximately 770,000 PCIs were performed in the United States in 2013 Based on information obtained from publicly available PCI procedure registries, we estimate that in 2013 approximately 540,000 PCIs, excluding STEMI patients but including N-STEMI acute coronary syndrome patients and elective PCI for coronary arterial disease were performed in Europe and at least 1.2 million in the rest of the world." 2.5 million procedures globally is a lot of patients that stand to benefit from Revolixys™ Kit. In a financial context, the company estimates that this represents a greater-than-$3.0 billion annual market opportunity for anticoagulants used in PCI procedures.
- There has historically been a lot of insider buying in RGDO, signalling confidence in the technology and the company's potential. A lot of that insider buying was at levels significantly higher than today's level. According to Nasdaq.com, there have been over 38 million shares purchased by insiders over the last 12 months and less than 1.5 million shares sold.
- The company has a pipeline of other interesting applications for its proprietary technology. Regado's ability to turn drug effects on and off with great specificity reminds me of Intrexon's (NYSE:XON) promising Synthetic Biologics Platform, which allows greater control and focus of drug delivery.
Regado's Revolixys™ Kit has demonstrated significant benefit in previous trials. Three allergic reactions were observed in the Phase 2B RADAR study, and in examining those events, the company "determined that all three subjects were experiencing activation of their immunological system prior to receiving REG1 treatment and had a history of allergic reactions."
Moving from 600 subjects to over 3000, it is reasonable and consistent with the expectation of some further "severe allergic reactions". The current REGULATE-PCI study is blinded, so these reactions need to be analyzed for cause. It also appears correct and reasonable to halt the study until the cause of these reactions can be determined. Given the precedent, it also seems reasonable that the current reactions can be similarly attributed to the subject's specific immunological system reaction previous to dosing with REG1. It seems likely to me that even if it is determined that REG1 caused the reaction, given the low rate of occurrence, that it will be attributable to pre-existing conditions that can be eliminated from the patient population in future applications or resumption of trials. In April 2014, the company had enrolled 1000 subjects in the current Phase 3 study. Between now and the halt of the study in July, the company enrolled approximately another 2,200 subjects. The reactions they are studying are likely not very widespread, or they would have been recognized and the trial would have been halted sooner.
With a current market valuation of under $100 million, according to Nasdaq.com, and a market opportunity of over $3 billion, I believe the risk/reward is quite favorable at this point. The company has indicated after raising $80 million in the previous quarter, it has enough cash to make it to Q1 2015. I think we only need to get through the next approximately 6 weeks for the DSMB's findings. Halozyme and Amicus (NASDAQ:FOLD) are just two recent examples of stocks that made significant, if not full, recoveries following stock-destroying announcements from the FDA. With cash on hand and a limited pipeline, downside over the next 6 weeks is likely 50%, while upside is back to pre-announcement levels of $6/share or higher (100% at least). It is my belief the study will resume with, at worst, some restrictions on enrolment. If that is the case, long term, RGDO is a potential multi-bagger from current levels.
Do your own due diligence, as this article is but one man's opinion. Good results to all.
Disclosure: The author is long RGDO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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