Why Raptor Is Down, Despite Possibility of New Drug Approval

NEW YORK (TheStreet) -- There is only one FDA-approved drug for Huntington's disease (HD), and currently there is only one candidate pending approval with positive top line phase 3 data -- Raptor Pharmaceutical's  (RPTP) cysteamine bitartrate.

An estimated 30,000 people in the United States have Huntington's disease, a dominant genetic neural disorder that cripples both mentally and physically, generally by middle age. Its genetic dominance means that if even one parent has it, the chances of passing it down are 50%. Xenazine, the only approved HD medication, mildly alleviates some specific symptoms temporarily but does not stop the disease.

Xenazine sales came in at $255 million last year, but Raptor may displace Xenazine. To paraphrase and honor the late Robin Williams, "Ladies and gentlemen, it's time for the Raptor wrap!"

Raptor completed a phase 3 study for its investigational new drug RP103 (cysteamine bitartrate for the Huntington's indication) back in February. There are two key factors that make RP103 very interesting. First, the active ingredient is already approved under the label Procysbi for cystinosis, a rare childhood kidney disease. Second, its phase 3 results only achieved statistical significance within the subset of patients specifically not taking Xenazine. 

Is RP103 better than Xenazine, and is it likely to be approved? Xenazine was approved in 2008 after data from a study of 84 Huntington's patients, with the primary endpoint being total chorea score, which is a way to measure the amount of involuntary movement, one of the major symptoms of Huntington's. The Xenazine arm achieved a reduction of 5 units in the chorea score, enough for approval. For cysteamine, the primary endpoint was a reduction in overall Huntington's disease rating, which compiles scores for all symptoms, including chorea. The overall reduction on the 66 patients not taking Xenazine at the time between the placebo and cysteamine arms was 4 points for all symptoms.

Despite the positive results reported on Feb. 20, Raptor is down a sharp 38% since the news. How could this be? I believe there are two reasons. First, investors have erroneously focused on the lack of statistical significance between the Xenazine and cysteamine plus Xenazine arms in the trial, thinking perhaps the Food and Drug Administration will deny approval based on that portion of the trial. Second, there has been no word on the next steps toward approval, other than chief operating officer Julie Smith's statement: "We plan to meet with regulators soon for the purpose of defining the next step toward the potential approval of RP103 for Huntington's disease in the U.S. and Europe."

That doesn't say much. It seems Raptor has a bit of an investor-relations problem in that it has not quelled worries regarding the next move with the FDA. It also seems the biotech investment community just isn't paying too much attention to the stock. There are very few focus pieces on any of the major financial news sites about Raptor or its cysteamine's sales potential under a Huntington's label.

Here are some numbers.

Procysbi costs $250,000 a year as a treatment for cystinosis. Since RP103 for Huntington's is the same molecule, it would likely cost the same or at least be in the same range. There are only 2,000 known cases of cystinosis in the world, but an estimated 30,000 in the U.S. alone have Huntington's. Roughly speaking, an FDA approval for cysteamine in the Huntington's indication would therefore increase Raptor's potential market by a factor of 15 just in the U.S. Right now, Raptor's only source of income is Procysbi. Approval in Europe would increase income even more.

Speaking of Europe, cysteamine for Huntington's received orphan status from European regulators last week.

The bottom line: Cysteamine has already been approved once, the patient size and scores for the phase 3 on which it was approved are similar to the approval for Xenazine, Europe seems favorable, and the number of medications currently available for Huntington's is precisely one. An approval will expand the addressable market Raptor has by at least 15x and likely more, but Raptor's share price is still depressed because people are fretting about the lack of (public) communication with the FDA since top line phase 3 results were published in February.

The fact that the company lost 6 cents a share less than analysts estimated rocketed the stock up 36% in two days. Imagine what would happen if the FDA gives Raptor the go-ahead to treat Huntington's disease.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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