BioCryst: The Next Orphan Drug $1B+ Company

By Andrew McDonald, Ph.D.

Back in September of 2012, we predicted that shares of Questcor (QCOR) would reach $80 -- the article can be found here. Since that time, we did a number of physician surveys to debunk the short thesis and point out that Acthar sales were growing. While shares have not yet hit $80, we think the rally since the bear raid and subsequent record sales growth supports our overall thesis. Soon after recommending QCOR, we published our note recommending shares of Aegerion (AEGR) in October 2012, saying that we expected the launch to be successful and that shares would be 4-5x higher -- the article can be found here. That has, in fact been the case, and we think shares will double from here and reach $200 given the company's launch trajectory, guidance, and the realization that this will be a $1B+ product.

Now we are recommending shares of another orphan disease company, BioCryst (NASDAQ:BCRX). This one is different, in that it is an early-stage company, with BCX4161 about to enter a critical 28-day Phase II study by year-end. We expect that the result from this study in HAE patients in 1H13 will be transformative. We think the positive results will propel this company's valuation from the ~$200MM market cap range to the $1B market cap range, or ~5x higher than today. Given the risk/reward, we strongly encourage investors to buy shares.

Investors need to pay attention to BCX4161. BCX4161 is a small molecule targeting plasma kallikrein for the prophylaxis of hereditary angioedema (HAE). The target, plasma kallikrein, is a validated target (see Kalbitor) whose inhibition leads to a decrease in debilitating and potentially fatal HAE attacks. We have written extensively on HAE and know the space well -- see article here.

The current HAE market is approximately at $650 million and growing at 15-20% a year. The current market opportunity is significant and growing. The market leader is Cinryze from ViroPharma (VPHM), which is a twice-weekly infusion costing $350k/patient/year. ViroPharma reported 1Q13 of $97MM, so we estimate that approximately 900 patients in the US are on this therapy. It is the only prophyactic treatment approved. Given that it is a cumbersome 2x week infusion, we project that an oral prophylactic therapy, like BCX4161, will capture the majority of the existing Cinryze market and meaningfully expand to patients who are not currently on Cinryze. We estimate, for example that ~650 patients in the US are being treated with Kalbitor, based on 1Q13 revenue of ~$9MM and a cost of $7k per attack. In total, we think there are already around 3,000 identified and treated HAE patients in the US (Cinryze, Kalbitor, Firazyr, Berinert) and probably around 6000 total. At an average cost of a prophylactic therapy of $350,000 per year, the US market opportunity is currently ~$1.1B for a prophylactic therapy like BCX4161 in the identified population, and around twice that if you assume the full patient population. Worldwide, there are closer to 15,000 HAE patients.

Hence, we think that an oral prophylactic therapy like BCX4161 could be a $1B+ product. The results of the Phase II study in 1H14 will tell us definitively. BCX4161 met the objectives of a randomized, placebo-controlled, phase I clinical trial designed to assess its safety, pharmacokinetics and phamacodynamics in healthy volunteers -- the results can be found here and showed significant kallikrein inhibition. A planned Phase II study with a placebo-controlled and double-blind crossover design will enroll ~25 patients with frequent attacks (~1/ week) and will start in 4Q13. Primary endpoints of the study will include attack frequency with safety and tolerability, attack severity, and quality of life will be secondary endpoints.

We strongly recommend purchasing shares ahead of the Phase II results. We note that Cinryze was approved based on the results of a similar 24 patient study -- see the prescribing information found here. Hence, the BCX4161 results should give us definitive proof of the approvability and commercial potential of this drug. This data release would be a transformative event for the company and if positive, investors will give the company a high probability of success in bringing BC4161 to market.

Disclosure: I am long AEGR, QCOR, BCRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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