Raptor Pharmaceutical Corp. Is An Investment With Significant Upside IN 2015

| About: Raptor Pharmaceutical (RPTP)
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Summary

Analysts underestimate Procysbi (RP103) sales for nephropathic cystinosis.

A likely approval for Huntington’s disease will make RP103 a blockbuster.

RP103 in pediatric nonalcoholic fatty liver disease is a third indication with an upcoming clinical trial catalyst.

Raptor is financially set until 2016.

Raptor Pharmaceutical Corp. (NASDAQ:RPTP) is a biopharmaceutical company focused on rare diseases such as nonalcoholic steatohepatitis (or NASH) and degenerative brain disorders including Parkinson's disease and Rett syndrome. The U.S. Food and Drug Administration (FDA) on April 30, 2013 approved Procysbi (cysteamine bitartrate or RP103) as the only long-acting formulation taken every 12 hours for nephropathic cystinosis, a rare genetic condition in children and adults. Five months later, the European Commission made Procysbi valid throughout the European Union (or EU). Procysbi also has orphan product designation for Huntington's disease (or HD) in the U.S. and EU, and Raptor has requested the FDA for orphan designation for Leigh syndrome (a mitochondrial disease).

Nephropathic cystinosis is a birth defect in the CTNS gene causing a deficiency of a cellular transporter called cystinosin, which traps the amino acid (protein building block) cystine within cells. Excess cystine buildup starting in infancy can lead to complete kidney failure by about the age of 10. Procysbi works by lowering cystine levels. The FDA estimates that cystinosis affects around 500 U.S. patients and 3,000 worldwide. Procysbi was launched in the U.S. in June 2013 followed by launches in Germany (in April), Australia and Switzerland so far this year; sales guidance for 2014 is $65-$70 million. In the first quarter, Procysbi patients numbered 199 in the U.S. (or 40% of the market), which grew to 270 worldwide by the third quarter (still above 40% share since there are more than 100 potential German patients). Raptor had identified 500 of a total 800 European patients that were concentrated in a few markets. Adding the selected Europeans to the American market, bringing up the penetration to a mere 50% in that sector by next year points to around $125 million in sales, which is 20% more than consensus and greater than the highest estimate of $119.9 million. This is easily doable since Procysbi is at least as effective as the old standard, the rotten-egg-tasting Cystagon made by Mylan (NASDAQ:MYL), needs less frequent administration (Cystagon has to be taken every six hours around the clock, even late at night or during school) and reduces side effects such as bad breath and body odor, all of which increase compliance as well as the quality of life of cystinosis patients. Indeed, the compliance improvement is significant: refill rates show 80% compliance to Procysbi compared to 23% for Cystagon in literature. Furthermore, because Cystagon is not a big moneymaker, Mylan could always choose to discontinue it as patient demand falls, which may force governments into, say, forgoing health technology assessments that are delaying the entry of Procysbi into some European countries. Also not baked into the share price is the potential of an expanded cystinosis market coming via a genetic screening project in partnership with DaVita (NYSE:DVA). Today at the Piper Jaffray Healthcare Conference, Raptor provided an update that they were halfway through the patient biorepository and had found 10 patients with homozygous CTNS mutations consistent with cystinosis, 18 patients with the heterozygous gene, and 300 possible carriers. If these patients are confirmed to have pathogenic disease, it may enlarge the market "anywhere from 25% to 5 times" the current estimates, according to Julie Anne Smith, Raptor's Chief Executive Officer-Designate.

What can make RP103 a blockbuster would be approval in Huntington's disease, a heritable progressive brain disorder caused by mutations in the HTT gene which directs cells to make a protein called huntingtin. The defect involves an excessive repetition of the DNA building blocks cytosine, adenine, and guanine in sequence. People with at least 42 CAG repeats almost always develop HD; the abnormally longer huntingtin damages nerve cells, causing uncontrolled movements, behavioral problems, and loss of cognition. HD affects an estimated 4 to 7 per 100,000 people in Europe and North America, with about 30,000 in the U.S. alone, but prevalence in Asia is much lower (less than 1 per 100,000).

RP103 works differently in HD. Researchers discovered earlier this year that HD patients lose the ability to make cysteine, another amino acid, and that diseased mice progressed on a cysteine-rich diet. RP103 increases cysteine, which helps HD patients in several ways, and is being tested in a randomized, placebo-controlled Phase 2/3 trial sponsored by the Centre Hospitalier Universitaire in Angers, France. Because HD diagnosis is based on motor impairments, endpoints for clinical trials focus mainly on motor signs. The primary efficacy endpoint of the study was the change from baseline in the Total Motor Score (or TMS) sub-scale of the Unified Huntington's Disease Rating Scale (UHDRS) at 18 months.

Based on the primary endpoint, patients treated with RP103 demonstrated a positive, but not statistically significant, trend: a 2.17-point slower disease progression versus placebo (see Table 1). Each item on the TMS is scored a 5-point scale (in general, 0 = normal, 4 = severely impaired). According to Raptor, a 1-point progression in TMS equals a 10% loss of function. Patients were allowed to continue their baseline medications, including Xenazine and antidepressants. In its own pivotal trial, Xenazine caused sedation and somnolence (in 31% of patients), which impairs the ability to perform complex motor and mental tasks such as those evaluated using the TMS. The subset of 66 patients (34 on RP103 and 32 on placebo) not receiving tetrabenazine, RP103 treatment did significantly slow progression by 3.94 points (p=0.03). This more pronounced result is also evidence that the benefits (or lack thereof) did not just come from Xenazine.

Table 1. Primary Endpoint Results

Total Motor Score Disease Progression

n =

Placebo

RP103

Difference

Improvement

p Value

All Patients

96

6.68

4.51

-2.17

32%

0.19

Patients not on Xenazine

66

6.78

2.84

-3.94

58%

0.03

This begs a $250M question (Xenazine grossed $257 million for Lundbeck in the U.S. in 2013): should patients discontinue Xenazine and just take RP103? Xenazine is only FDA-approved for HD chorea (involuntary movement) on the basis of a randomized, double-blind, placebo-controlled multi-center trial primarily measuring the total chorea score (or TCS), which sums the maximal chorea scores from each body region and comprises 7 of the 31 TMS items. The TCS in the Xenazine group declined by 5.0 units (average of Week 9 and Week 12 scores versus baseline), compared to 1.5 units in the placebo group (p < 0.0001). The answer would be 'yes' if RP103 by itself can approach Xenazine's treatment effect of 3.5 units in the TCS, depending on the data the French investigators presented last month at the Huntington Study Group (HSG) meeting in Minneapolis, which portrayed improvements in all measures on the TMS. If the TCS improvement is not large enough, the physician would still have to balance the totality of benefits of RP103 versus that of Xenazine which just alleviates chorea but carries disadvantages of sedation and somnolence as well as black box warnings for increased risk of depression and suicidality. Now, $250 million represents the total potential loss in revenue for Lundbeck, not RP103 peak sales for HD. If approved, only 4,000 patients (around 14% penetration) taking RP103 for a full year are needed to gross $1 billion.

As of the end of September, 47 patients had completed the 36 month protocol, all of whom elected to enroll in the extension study, as RP103 was well tolerated (see Table 2). The remaining patients are expected to complete the 36th-month visit by June 2015, although the next catalyst in this indication will be sooner, when the French investigators publish their detailed findings from HSG 2014. Xenazine is no cure, yet was approved in 2008 from an 84-person trial lasting 12 weeks; can the same be expected for RP103 which missed its primary endpoint? While it is common to have statistical significance but not clinical significance, this is a rare example of the reverse case. RP103's treatment effect in the intent-to-treat population was to reduce the rate of progression 2.17 points in 18 months or 1.45 points per year. In other words, to worsen by an entire level of severity (31 points in the TMS) will take patients on RP103 6.9 years instead of 4.6 years for placebo patients, or about 2 years and 3 months gained in better health. Note that HD patients usually die within 10-15 years after diagnosis (or sooner from accidents or suicides), so this difference is a real clinically significant advantage in a disease with no other options. Overall, investors should be optimistic the FDA will act favorably when considering all these factors.

Table 2. Safety and Tolerance Profile at 18 Months

Incidence of Adverse Events (or AEs), Dropouts

RP103 (n = 52)

Placebo (n = 44)

Reported at least one AE

48

92.3%

38

86.4%

Reported at least one gastrointestinal AE

32

61.5%

20

45.5%

Reported at least one serious AE

5

9.6%

4

9.1%

Discontinued treatment

6

11.5%

1

2.3%

Discontinued due to SAEs

3

5.8%

1

2.3%

RP103 is also in an advanced testing stage with CyNCh, a randomized, placebo-controlled trial in Phase 2b of children with nonalcoholic fatty liver disease (NAFLD) sponsored by the National Institute of Diabetes and Digestive and Kidney Diseases. The primary objective is to evaluate whether 52 weeks of treatment with RP103 will result in improvement in liver disease severity, where improvement is defined as a decrease in NAFLD Activity Score of 2 or more and no worsening of fibrosis as determined through the liver biopsy. Secondary endpoints include reduction in elevated liver enzymes, where RP103 treatment had previously shown long-term sustained decrease in transaminase serum levels. As of last month, 100 of the 169 enrolled patients had completed the week 52 visit with a greater than 90% retention rate. The treatment phase is scheduled to have its last patient out by January 2015, with the release of results acting as another catalyst in the first half of 2015.

Financially, Raptor had $114.7 million as of September 30, 2014 and according to their third quarter operating expense forecast, this cash position is sufficient to last through the first half of 2016. The forecast did not include expenses related to cost of goods sold or non-cash related stock option expenses. On Monday, Raptor announced that under its Incentive Plan to induce new employees, the board of directors approved equity grants which consist of stock options for six new employees to purchase a total of 217,288 shares of common stock and an option to purchase 165,000 shares at an exercise price of $9.92 per share to the new Chief Commercial Officer. Somehow, trading closed at $8.72 (-9.36%). Any more instances of share weakness like this should be considered an opportunity to buy in for a year-long investment.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.