Seeking Alpha
Recommended for you:
Long/short equity, deep value, contrarian
Profile| Send Message|
( followers)  

In a stunning an example of “buy the rumor sell the news,” Raptor Pharmaceuticals (NASDAQ:RPTP) recently reported positive top-line data from its Phase 3 study of RP103 (reformulation of cysteamine bitartrate, DR Cysteamine) showing that RP103 met its primary endpoint in the study, non-inferiority compared to Cystagon and investors sold off immediately with the stock dropping from the high 6s to the mid 5s, before closing at 5 even. Furthermore, over the next few days the stock has regained some of its losses, and appears to have stabilized at the mid 5s. While the market was anticipating the positive developments, given the run up to the data release as analysts jumped on board with optimistic price targets, the sell-off was dramatic.

As detailed previously, the study was done with a Special Protocol Assessment (SPA) with the FDA, and as I predicted, the study was a success given the similarities with the previous phase 2 trial data. The data was statistically significant and demonstrated that DR Cysteamine (RP103) was non-inferior and assessed the steady-state white blood cell cystine levels of RP103 compared to Cystagon. From the press release:

“Of 41 patients who completed the Phase 3 protocol, 38 were included in the evaluable data set, 3 not being fully compliant with the protocol. The age range of study participants was 6-26 years, with 87% of patients below 16 years old. On average, the peak WBC cystine level measured in patients treated with Cystagon(R) was 0.54 +/- 0.05 nmol 1/2 cystine/mg protein, compared to an average peak value of 0.62 +/- 0.05 nmol 1/2 cystine/mg protein for patients treated with RP103. The mean difference was 0.08 nmol 1/2 cystine/mg protein, with a 95.8% confidence interval of 0.00-0.16 (one sided p=0.021). As stipulated in the Statistical Analysis Plan, the non-inferiority endpoint of the clinical trial would be achieved when the upper end of the confidence interval around the mean difference of WBC cystine levels did not exceed an absolute value of 0.3. The upper end of the confidence interval in the Phase 3 clinical trial was determined to be 0.16, thus achieving the non-inferiority endpoint.”

Raptor fielded many questions that day and in order to clear up confusion with analysts and investors, hosted a conference call the following day. A couple of interesting facts emerged. The reason for some of the patients not being fully compliant and finishing the protocol was during Cystagon dosing, these patients failed to take Cystagon regularly. Instead, they waited to get back on RP103! The researchers/clinicians were able to detect this due to the elevated WBC cystine levels, which subsequently dropped when placed on RP103. This would have helped RPTP’s results, had they been included. It is important to keep in mind that according to management, they were drawing from the roughly 20% of the cystinosis population that was compliant and whose cystinosis was well controlled. If there are problems even with this population, imagine the compliance issues with the other 80%. A very positive development, not to be overlooked, is the vast majority of patients chose to remain on RP103 and subsequently enrolled in a follow-up study, designed to measure safety for at least 6 months. RPTP expects this to wrap up in the next few months, and to date, 32 of the patients have been enrolled for at least 6 months. Raptor anticipates the filing of an NDA in Q1 2012, and hopes to obtain accelerated approval. However, more details should emerge during their pre-NDA meeting in the fall.

With regards to adverse events in the trial, the press release states:

“In the course of the study, seven serious adverse events ("SAEs") requiring a visit to the emergency room or hospital, were reported for seven individual patients. Of these seven SAEs, six were determined by the Principal Investigator to be unrelated to either RP103 or Cystagon(R). One SAE, gastric intolerance, was graded as "possibly related" to RP103 and was subsequently resolved. Further analyses of non-serious adverse events ("AEs") are underway by the Company's statistical contractor.”

While cystinosis makes it tough to objectively assess adverse events since many of the side effects resolve on their own, the drawbacks of Cystagon are well documented (nausea, vomiting, bad breath, etc.), and thus I do not expect the FDA raising concerns with these points, given that patients seem very receptive to this twice daily formulation.

Conclusion and Future Directions: While the program was delayed somewhat over the past couple months, the company is well on the way to receiving approval for its first drug. With an NDA filing (505b2 application) possibly in 6-9 months, Raptor looks to be potentially generating revenue by the end of 2012. However, one analyst asked about financing plans, and the company was very forthright and disclosed they are planning to raise capital within a few months. Given that this is an ultra orphan indication, Raptor should be able to successfully market the drug on their own, as they have stated they are “on a first name basis” with the cystinosis players in the U.S., while making inroads in Europe. While investors will not know anticipated pricing for a while, Raptor believes the advantages its products convey over the current standard of care, and given the disease is fatal in the teenage years untreated, that they will have significant pricing power. Also, I believe they will be able to attract significant market share (~80% of the 500 patient population in the U.S.) making RP103 a meaningful revenue generator (400 patients multiplied by for example, $70,000/year is $28 MM, most of which will flow to the bottom line) and thus will help pay for the larger, more expensive and risky clinical trials in Raptor’s pipeline.

Source: Raptor Pharmaceuticals Announces Positive Phase 3 Trial Results: Shares Tumble