Raptor Hits New Highs on Orphan Status, Valuation Less Attractive Print E-mail
By Brian Wilson-Lead Contributor   
Wednesday, 26 June 2013 21:25
Raptor Pharmaceuticals (NADSAQ: RPTP) hit a new multi-year high after news that the FDA had granted orphan drug status to the company’s flagship product Procysbi (cysteamine bitartrate). This was unexpected due to the orphan drug status that is already held by another salt formulation of cysteamine bitartrate (marketed as “Cystagon”) that was approved by the FDA in 1994. Since orphan drug status significantly extends the length of Procysbi’s patent approval after its FDA approval on April 30th of this year, the market found enough fundamental incentive to push RPTP up 26.61% after the news was announced.

Procysbi is a drug that will only target a small patient population, although it’s worth noting that Raptor’s heightened market capitalization of $567 M isn’t too expensive if one considers the valuation of other pharmaceutical companies that have FDA approved drugs. Raptor also set the price of the therapy at $250,000 per patient per year, which makes it comparable to companies like Aegerion (NASDAQ: AEGR) which are capable of deriving huge revenues from tiny patient populations.

Cystinosis is a metabolic disease induced by excessive accumulation of the amino acid cystine in the organs and tissues of a patient. Since it is not very soluble, patients accumulate cystine crystals that can disrupt the normal function of organs and tissues.

Nephropathic (infantile) cystinosis, the most common form of cystinosis, occurs in children prior to adolescence and affects 1 out of every 100,000 to 200,000. Incidence has been found to be much higher in certain parts of the world, but we will use the 1/100,000 figure to estimate that there are roughly 400-500 patients that have the disease in the United States and perhaps 700 in the EU. While cystinosis has been linked to mutations of one particular gene, there are varying degrees to which mutations can affect patients’ physiological function. Generally, patients who have more serious mutations (in which very large pieces of genetic information are missing) will have nephropathic cystinosis and may see destruction of their kidneys before early adolescence.

But while the disease is serious, there is major concern that Raptor will not be able to justify reimbursement for Procysbi prescriptions due to the comparatively low cost of Cystagon – at ~$8,000 per patient. Cystagon has a 4x daily dosing regimen (once per 6 hours) and has more pronounced gastrointestinal side effects and odor. Procysbi is able to mitigate these side effects while reducing the frequency of dosing with an extended release formulation, although it does not offer a best-in-class medication from an efficacy standpoint.

Aegerion’s Juxtapid (lomitapide) is similarly priced at $295,000 per patient and targets a similarly sized patient population with a rare genetic disease (HoFH), although it is a novel compound rather than a reformulated version of an FDA-approved product. Its only competitor, other than the LDL Apheresis procedure, is the drug Kynamro (mipomersen) which has a different mechanism of action and showed inferior efficacy in late-stage clinical trials.

Assuming that Procysbi can target an optimistic figure of 1,000 patients worldwide(in countries that have solid reimbursement policies for expensive orphan drugs) we can estimate that Raptor would have absolute peak revenues of roughly $250 M/year. Analysts assume that roughly half of this revenue should be realized by 2016, which makes Raptor’s current $567 M valuation more than fair after factoring in reimbursement risk and a moderate 10% discount rate.

Due to this, upside in Raptor stock after the Procysbi launch may be quite limited after a positive CHMP decision (expected) and subsequent European approval.

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