Repros Therapeutics (NASDAQ:RPRX) is one of those rare companies that have been in 'development' for 24 - going on 25 - years. In their tenure, they've consistently underperformed investor expectations and burned through roughly $200 Million. And while recent trading may appear 'bullish' to the casual observer, the market valuation is counterintuitive and fundamentals suggest it will be short-lived - in line with past performance (see 5-year chart, below).
To the casual observer, Repros is a late-stage biotechnology company developing novel products in treating reproductive disorders. In reality, the company's value is hinged on a weak drug pipeline comprised of a widely-available generic drug and a second drug candidate that has shown extensive toxicity in clinical studies.
Androxal®, the company's lead drug candidate, is being developed for the treatment of secondary hypogonadism, a condition where the body under-produces testosterone. The Mayo Clinic explains:
[Secondary] hypogonadism indicates a problem in the hypothalamus or the pituitary gland - parts of the brain that signal the testicles to produce testosterone. The hypothalamus produces gonadotropin-releasing hormone, which signals the pituitary gland to make follicle-stimulating hormone (FSH) and luteinizing hormone. Luteinizing hormone then signals the testes to produce testosterone.
Novel or nonsense?
Therapies for low testosterone have been around for some time, but Repros's claim is that there is an unmet medical need in treating men with low testosterone who also want to maintain 'reproductive status'. The distinction is that existing therapies show incidence in lowering sperm count, while raising the level of testosterone produced by a patient (the intended mechanism of action). The claim that there exists a large, distinguishable market for this type of product, however, is questionable.
The therapeutic market for hypogonadism is highly competitive, led by Abbott's (NYSE:ABT) AndroGel, and Auxilium's (NASDAQ:AUXL) Testim. More recent entrants include Endo Pharmaceutical's (NASDAQ:ENDP) Fortesta, Eli Lilly's (NYSE:LLY) Axiron, and Teva Pharmaceuticals (NYSE:TEVA) with Bio-T-Gel. In aggregate, sales in this segment have topped $1.6 Billion, according to IMS Health. Interestingly, the bulk of these therapies were licensed or acquired from smaller biopharmaceutical companies. For instance, in 2010, Eli Lilly acquired the rights to 'Axiron' from Acrux (OTCPK:ARUXF), a small Australian company which at the time was valued at roughly $300MM. Similarly, Teva entered into a collaboration with Biosante (BPAX) for 'Bio-T-Gel'.
Lack of interest in Repros' Androxal®, however, is particularly telling of the highly unlikely scenario that this product candidate will be able to differentiate itself in the market, if it reaches the commercial stage. Repros has been claiming for years that they would seek a partner for this product. Yet, despite positive clinical data, no one has expressed an interest in so much as investigating this product. And this brings us to an important point.
It turns out that the active ingredient in Androxal is a selective estrogen receptor modulator called 'Clomifene', which has been widely-available since the 1960's. Today, it's used off-label to treat hypogonadism. It's branded as 'Clomid', a search for which produces a very interesting description. The following is a quote on Clomid's off-label use for treating hypogonadism, or low testosterone levels:
According to Professor Craig Niederberger, because this drug is now generic, no drug company would pursue FDA approval for use in men now because of limited profit incentive, mostly due to the relatively small market potential. However, the single isomer of clomifene "enclomiphene" under the brand name Androxal is currently under phase 2 trials for use in men.
Perplexing…to say the least.
Furthermore, even if one were to relax the assumption that Androxal is essentially available as a generic drug, and serves an unmet medical need, one has to wonder where the company will find the resources and capital necessary to successfully commercialize this product?
'Vasomax' Déjà vu
In the 1990s, biotechnology firm Zonagen was developing a drug to treat erectile dysfunction that would potentially compete with Pfizer's (NYSE:PFE) Viagra. This drug candidate, which Zonagen dubbed 'Vasomax', was actually based on a widely-available generic drug called 'phentolamine'. Eventually, Zonagen's partner, Schering-Plough (SGP), scrapped development of the generic after realizing there wasn't any value to the product candidate. Vasomax was in Phase III clinical trials when the program was cancelled. And only after shares of Zonagen collapsed did investors realize that Zonagen had attempted, at least once before, to brand an old generic compound and develop it in the clinical setting in an indication where it was unlikely to show the intended outcome. Vasomax was their second failed attempt at this model.
About a decade later, Zonagen was renamed 'Repros Therapeutics', and 'refocused' after a daunting decade of shareholder suits alleging fraud, former employees demanding back-pay, and a host of other unpleasant issues. But some things never changed - or rather, some things never change, if we're talking about the present Repros, who is still trying to develop and commercial a generic drug to treat hypogonadism.
Worst of all, Repros still employs the same CEO that helped the company through countless failures with Zonagen, and later Repros (as we'll look at in a moment). This is one of the biggest red flags concerning the company as it shows that the board has failed to exercise its fiduciary duty and act in the best interests of shareholders. For the record, Joseph Podolski has been CEO of Repros since 1992, or 20 years, according to the company. Brian Wallstin delicately outlined Zonagen's start and perhaps the first of a series of unpleasant transactions involving the company and CEO Podolski in 'Biological Disaster'(credit to Ian Bezek for this find). Almost as unusual as a 24-year old start-up is its CEO, whose compensation exceeds $1MM but direct ownership falls below 0.3%, or less than a third of one percent of the company (see compensation disclosure in their annual report). Indeed, Repros insiders have a very small direct interest in the company's shares.
Designed to treat endometriosis, Repros's once-lead drug candidate saw a major setback in 2009 when the company announced that it noticed liver toxicity in patients administered Proellex in their Phase III trial. The FDA halted trials and Repros scampered to analyze what went wrong. Three years later, the company contends that the adverse event(s) were dose-dependent, meaning '[hopefully] only present at the highest dose'. They ran additional studies reaffirming the safety of this drug at significantly lower doses than what was given to patients during their pivotal trial. At the end of May, 2012, Repros put out an unusual press release stating that the FDA expected the company to complete a safety analysis of their data on Proellex before they could proceed with registration studies. The reason this was unusual is that if you had been following developments, it seems fairly straightforward that a safety analysis would be necessary before the FDA approves another study on a drug that has shown significant risk(s) in trials past. But what's important here is that as Repros tests Proellex at a lower dose, what are the chances the drug acts as it did at the higher dose? This should be a material concern for investors who are following the development of this drug.
Proellex is also strikingly similar to 'Asoprisnil' - a compound Schering-Plough (SGP) stopped developing after it caused thickening of the endometrium (see 'risks' disclosure in annual report). Asoprisnil was intended to treat the same condition as Proellex and it would seem counterintuitive to develop a drug that saw safety issues in indication 'A' and still attempt to develop it for indication 'A', though that's the skinny on this drug. But Repros is also looking to supplement the oral version of Proellex with a vaginally-administered version to treat menstrual bleeding associated with uterine fibroids. This, itself, almost appears to be a hedge against a failure in the oral treatment for endometriosis, but that's just one author's opinion. More importantly, both treatments will require tens of millions of dollars to make it through clinical trials. And this is where we see another major hurdle.
As of March 31, 2012, Repros Therapeutics had $11.5MM in working capital (as per their quarterly report), while burn rate over the last twelve months averaged ~$2.5MM per quarter. This suggests that by the end of June, the company will have about $9MM to work with. Further, the company intends to launch 3 Phase III studies by the end of the third quarter. Inevitably, cash burn rate will rise sharply. To compensate, Repros will need to raise at least $30MM - $40MM to complete these trials, not including G&A expenses. As several investors have suggested, companies tend to offer stock when their share price is inflated - much like the 2-year high Repros shares were recently going for.
At some point one might wonder what caused shares of this small company to double late last month. Perhaps it was an unnecessary (intentional?) string of press releases (3 in total) that could be summed up with 'we're still in discussions with the FDA regarding our Androxal trial'? Or perhaps it was simply speculation? Whatever the underlying cause of Repros' irrational price movement may have been, we're confident shares will either collapse under their own weight (as there are no fundamentals to support the move) or an imminent financing will cause a sharp reversal, whichever comes first. As with a block of Swiss cheese, there are a great many fundamental holes in Repros, from a poor, but long-standing management team to a weak product portfolio, and certainly a dubious past.
Disclosure: I am short RPRX.