Investors Seeing Huge Potential In RNA Drug Developers

by: Bio Insights

RNA Companies Are Having a Good Year

This year we've been seeing increased interest in RNA based therapeutics from biotech investors. It seems that the market is beginning to pay attention to the strong clinical trial data that some of these RNA drugs have delivered thus far, and see the potential for this sector to revolutionize the treatment of various diseases.

One of the most prominent examples of this increased interest is the recent performance of Sarepta Therapeutics (SRPT), which has moved about 16% higher since the start of the year. In recent history, Sarepta is most famous for the enormous rise in the share price in October, 2012, after the release of Phase IIb data for its flagship drug, eteplirsen (AVI-4658), in the treatment of Duchenne Muscular Dystrophy. Investors seem not only excited by the possibility of an effective treatment for muscular dystrophy, but for the potential of Sarepta's RNA-based therapeutics to make huge progress in other indications as well.

Looking at Sarepta's pipeline, you can see three other compounds that are targeting indications in the ebola, marbug, and influenza viruses as well as additional RNA-based muscular dystrophy drugs that may provide even better clinical results than eteplirsen in due time.

Making big headlines yesterday was RXi Pharmaceuticals (NASDAQ:RXII), which announced a deal made with OPKO Health (OPK) which gives RXi intellectual property rights to OPKO's iRNA portfolio in exchange for $50 million worth of milestone payments, royalty payments, and 50 million shares of RXi common stock. This significantly expands the size and scope of RXi's RNA program, which is currently led by RXI-109.RXI-109 is an iRNA compound that inhibits the CTGF (Connective Tissue Growth Factor) protein, which plays a key role in the formation of scar tissue.

It's also worth noting that RXi also bolstered its cash position with the sale of $16.4 million worth of common stock to private investors.

As a response to these recent developments, RXII jumped over 34% in a single trading session. This brings 2013 total gains in RXII to 160%.

Another aspect of the RXII deal which has enticed many investors is the involvement of Dr. Philip Frost - a famous investor who has a very impressive track record for wealth creation in the biotech sector, going all the way back to his acquisition of Key Pharmaceuticals back in the 1970's. His first big deal resulted in a $600 million buyout by Schering-Plough in the 80's. Dr. Frost is now the CEO of OPKO Health, and should draw much more market attention to RXi following the announcement of this deal.

Another play in the RNA sector with strong performance since the start of the year is Alnylam Pharmaceuticals (ALNY), has reached a market cap of $1.6 billion following a 38% rally since the start of the year.

Alnylam has four drugs in clinical development (two of which are partnered). One of these is ALN-TTR02, which can be considered their flagship product.

ALN-TTR02, like RXI-109, works through RNA interference (iRNA), and is a Phase II treatment for TTR-mediated amyloidosis. Amyloidosis is a complicated disease that causes a buildup of insoluble proteins that can cause giant growths in certain organs or tissues that can become extremely dangerous over time due to their ability to inhibit normal physiological function. Amyloidosis has been a difficult disease to treat, which makes it a perfect indication for iRNA based therapies.

Catalysts provide more upside potential in 2013

In terms of catalysts, we see from its Q4 2012 earnings that Sarepta is waiting to discuss the quickest path to FDA approval for eteplirsen. Being an avid watcher of the company, I believe that buyout speculation may be driving the giant buy orders and jumps in call options premiums that I see quite often in SRPT. While many believe that the drug's "breakthrough" status will lead to an approval of the drug as early as this year, the uncertainty over this seems to be inducing volatility.

RXII is expected to release Phase I data for its flagship compound RXI-109 within the next three months. While I would like to see Phase II data before making any assumptions about the drug's efficacy, it's encouraging to see that Dr. Frost (a dermatologist) deemed the drug worthy of investment in its current state.

Alnylam also has catalysts coming this year as well, as described in a company press release from January 6th that provides an overview of the company's expectations in 2013-2014. The most prominent catalyst should be the full results of ALN-TTR02's Phase II trial for amyloidosis, which are expected in mid-2013. This should allow the drug to progress to Phase III trials before the end of this year.

The RNA outlook remains positive

Going forward, I think the RNA companies still have plenty of room to run. Not just a little, but a lot if clinical trials go well. This is especially true for RXII due to its current valuation of $31 million, which might lead to a full acquisition by OPKO in the future.

While RNA interference has its limits, it's a very powerful way to attack diseases. There are plenty of indications (many of which are orphan) that can still be targeted through RNA. I also believe that RNA interference is one of the sectors that will be attracting major acquisition or partnership interest from big pharma in the next coming year, which is generally very good for both shareholders and developmental-stage companies.

Disclosure: I am long SRPT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.