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Can Rock Creek's New Investigational Drug Trigger An Uptrend?

|Includes: Rock Creek Pharmaceuticals, Inc. (RCPI)

Rock Creek Pharmaceutical Inc. (NASDAQ: RCPI) is a Sarasota, Florida based biopharmaceutical company engaged in the research and development of drugs used in therapy for inflammatory conditions, neurological immunology and behavioral health. Through its subsidiary, Rock Creek Pharma Development, it holds licenses for two dietary supplements and a cosmetic facial cream. The company was originally in the business of developing smokeless tobacco products, which it discontinued in December 2012.

The stock price of Rock Creek Pharma has been in a long downtrend due to its 11th successive year of operating losses. In December 2013, the FDA issued a warning letter to the company regarding the presence of anatabine, a food ingredient, in its two flagship dietary supplements; Anatabloc and CigRx. Since anatabine is a food item, it needs to have a premarket notification, which the company has failed to obtain. Therefore, the FDA issued a warning against marketing the products on the company's website until an Investigational new drug (NYSE:IND) license for the same is obtained. This was a serious blow directly affecting the company's ability to sell its drugs. The stock fell about 100 percent from $2 in November 2013 to $1 in late December due to this negative development. On July 11, 2014 the FDA stated that it will provide its comments on the company's IND application, which will initiate the clinical trial stage for its new drugs.

The recent March quarter results (ending December 2014) saw a further halving of revenue to $1.1 million from the previous year, due to the sale restrictions imposed by FDA. Revenue was from licensing and sales of Anatabloc and CigRx. R&D expenses and selling and marketing costs also decreased substantially. The net loss for the quarter was $9.8 million as against $8.2 million last year. The company raised $9.3 million from issue of shares and $5.8 million from a credit facility, taking the available cash balance to $15 million. This cash is considered sufficient to sustain operations and fund FDA clinical trials through 2015.

The outlook for 2014 is bleak with no significant development in stage pipeline other than the IND application that has been filed. With the sale of current drugs looking limited till the FDA curb is lifted and no significant drug in late stage development, further upside in stock price for 2014 looks difficult.

The stock has seen a surge in volume since the news item on July 11, 2014, but the price has only declined to new a low of 56 cents from 59 cents. From a technical point of view, the stock has really bottomed and the stochastics and momentum oscillators are at oversold levels. This could attract cheap buyers taking the price close to the 75 cents level, which it traded in June. Further development on the FDA trials, and the timely resolution of the dispute with the FDA regarding anatabine, will be positive news items to watch out for and can lead to an upside in the stock price.