Raptor Pharmaceuticals: Overlooked And Primed For Rapid Growth

| About: Raptor Pharmaceutical (RPTP)

Some quick facts as to why Raptor Pharmaceuticals (NASDAQ:RPTP) could be on the verge of attracting increased attention from biotech investors given the upcoming catalysts, strong pipeline, cash position and impressive leadership team.

  • Filed NDA for RP103 March 30th 2012 for the treatment of Nephropathic Cystinosis. Filing has also taken place in Europe. Expect FDA decision approximately late September 2012, if the company gets accelerated review.
  • Protocol and end points were agreed in advance with the FDA via the SPA process.
  • RP103 met the primary end point and there were no serious safety concerns.
  • CEO and CSO were co-founders of BioMarin (NASDAQ:BMRN).
  • RP103 is also being developed for Huntington's disease, a genetic neurodegenerative disease with a phase II ongoing.
  • 3 additional compounds also in clinical development.
  • Consistent company strategy targeting devastating rare diseases for which there are no adequate treatments.

The nearest term catalyst is for RP103 a treatment for Nephropathic Cystinosis, which is a very rare genetic disease affecting about 500 people in the U.S. (Check out the company website). The mutation means that patients cannot clear cystine (a type of protein) from their body. The cystine has to go somewhere so it forms crystals and accumulates in the major organs blocking blood vessels. The first organ to fail is the kidney although other major organs will ultimately fail as well.

There is already a treatment on the market called Cystagon from Mylan (NASDAQ:MYL). However, it has to be taken every 6 hours, smells of sulphur (think rotten eggs), tastes bad and causes stomach problems. Now couple this with the fact that most patients are diagnosed within the 1st year of life and you can see the serious limitations. My wife and I have problems trying to get my 2-year-old daughter to eat her vegetables; I can't imagine trying to get her to take this stuff. Not surprisingly, the disease is not controlled effectively by Cystagon in 80% of patients, putting their kidneys and other major organs at risk.

RP103 is a reformulation using microspheres with an enteric coating, so the drug is not absorbed in the stomach. This allows parents to open the capsules for the infant and sprinkle it on baby food (applesauce was used in the extension study and showed bioequivalence with the capsule) or when older it can be simply taken whole. The coating means the drug does not smell or taste bad, it does not cause stomach problems and can be given every 12 hours. This effectively eliminates the current dreaded 1am dose. Importantly 40/41 patients elected to enroll in the extension study following completion of the phase II.

The NDA for RP103 was filed on March 30th 2012, an accelerated review has been requested. The case for this has been made on the basis of the severe limitations of the current therapy coupled with the devastating nature of this rare disease (type 505 (B)(2) application). We will find out by May 15th if the filing has been accepted for an accelerated review.

Assuming approval (which I believe has a very high probability of success given the high efficacy, low toxicity, urgent unmet medical need, SPA) the team required to commercialize RP103 will be small (minimizing overheads). The company is notably already recruiting key positions in MSLs, Medical Affairs and country heads in the EU.

The medical and patient advocacy community is very well networked, with awareness of RP103 already high; I would expect a rapid conversion from Cystagon to RP103. Given the small commercial team needed and a rapid launch uptake, we should also see Raptor become profitable quickly.

The company estimates the current market value of RP103 to be $200M. In long term with patients being compliant and ultimately living longer. I would expect RP103 to significantly grow the market along with dramatically changing patients' lives.

When reviewing a company with an upcoming catalyst, I also look at the pipeline to evaluate if there are any products or other indications that will underpin the stock.

RP103 is also in development for Huntington's disease, where cystine also plays a role. Huntington's is a horrible genetic neurodegenerative disease resulting in death within 15-20 years of symptom onset. There are no therapies available to slow the disease. RP103 is currently in a phase 2/3 trial with completion of enrollment in Q2 2012. Interestingly, the French government is funding the clinical expenses, which certainly helps Raptor's cash flow. The company estimates the market potential for this indication at over $2 billion.

RP104 is in development for non-alcoholic streatohepatitis, a progressive inflammatory liver disease. If left untreated, up to 25% patients progress to cirrhosis and increased risk of liver failure and liver cancer. There is currently no approved treatment and the market is estimated by Raptor to be $2 billion in the U.S. alone. A phase 2b trial is expected to start shortly under an agreement with the NIH, enrolling 160 pediatric patients.

Raptor was recently upgraded from NASDAQ Capital Market to NASDAQ Global market, which has tougher listing requirements. This reflects well on the company and should help it garner further investor interest from hedge funds and money managers. Raptor has $50M in cash, and a projected burn rate of $3M a month (including commercialization costs). Stock is currently trading at around $6, although the mean analyst target price is $11. Of the 8 analysts covering the stock, 6 have it as a strong buy and 2 as a buy.

With the increased interest from big pharma in orphan diseases and the need to enhance pipelines, Raptor might soon become a takeover target. An interesting fact to note is that the Raptor's founders built BioMarin into a $4B company. Raptor's market cap is around $295m. Do not bet against the management team from repeating this feat. Given the recent FDA filing and the very high probability of FDA approval, one can expect a run-up on this overlooked stock.

Disclosure: I am long RPTP.

Additional disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to the investors to make the correct decision after necessary research.

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