12/9/2017: On 12/4/2017, Ra Pharmaceuticals (RARX) reported favorable interim results for its ongoing Phase II clinic study of their paroxysmal nocturnal hematuria (PNH) treatment, RA101495. The market quickly rewarded their stock with a 44% decline over 2 days. So what gives? Why would the market punish Ra Pharmaceuticals so severely for what the company considered to be good news, and was the market right to do so?
First some background. PNH is an exceedingly rare condition in which an acquired genetic disorder in blood cell proliferation causes hemolysis and hence anemia. When RBC counts drop low enough, patients require blood transfusions. The name of the disease refers to its hallmark symptom of intermittent hemoglobin presence in the morning urine. Currently, Soliris (Eculizumab) stands alone as treatment for this rare condition. It is often referred to as the most expensive drug in the world with annual treatment costs ranging from $440000 to $650000. Accordingly, Solaris is bringing in around $3 billion in revenue annually for Alexion Pharmaceuticals (ALXN). Obviously grabbing a piece of that pie would mean big things for a corporation like RARX who has a current market cap of $180 million.
Now for the interim results of the Phase II study. The study started with a total of 29 patients classified into 3 groups. Eculizumab naïve (n=10), Eculizumab switch (n=16) and Eculizumab inadequate responders (n=3). The safety results were good for all three groups so the controversy is in the efficacy results. Here is a short summary by group.
Eculizumab naïve: This group was an unqualified success. The patients experienced a sustained improvement in laboratory markers for the disease, significant improvement in Functional Assessment of Chronic Illness Therapy (FACIT) fatigue score, and 50% of patients who were transfusion dependent were transfusion free during the course of the study. This is comparable to Eculizumab efficacy. Study of this cohort was completed while the other 2 cohorts are ongoing.
Eculizumab switch: Patients who were independent of blood transfusion while on Eculizumab remained independent of transfusions on RA101495. This group is representative of 80% of Eculizumab patients today. However, and here is the reason for the big drop in stock price, for 11 patients who had required blood transfusions in addition to Eculizumab treatment (i.e. difficult to treat patients), RA101495 was not adequate and the patients had to return Eculizumab therapy. This indicates that Soliris is a more potent drug and a better choice for the most severe cases of PNH.
Eculizumab inadequate responders: One patient is doing better on RA101495 compared to Soliris. This treatment group is ongoing.
So the bottom line is the Soliris seems to be slightly more potent than RA101495 and individuals with the most severe cases of PNH will not be able to switch therapy. Due to this, the investors became worried that there would not be enough incentive for doctors to switch their patients to RA101495 from Soliris and hence the big sell off. That being said I believe the market is wrong and overreacting. I believe a significant portion of Soliris patients will switch to RA101495 once it is available and here are the reasons why:
1. Soliris (Eculizumab) is very inconvenient to administer. Soliris is infused intravenously, every 2 weeks, in a doctor’s office over a period of at least 35 minutes and up to 2 hours. After the infusion there is a mandated monitoring period of one hour to guard against potentially serious allergic reactions. Before the infusion can begin, the product must be compounded in a sterile compounding room. Your average doctor’s office does not have a sterile compounding environment so we are talking about travel to the local hospital, parking, long hallways and registration procedures. This means the patient is looking at a minimum 3-4 hour commitment every 14 days to receive their medication. This is a major inconvenience for most people.
Contrary to Soliris, RA101495 is a simple subcutaneous injection. That means RA101495 can be picked up at your local retail pharmacy and self-administered, at home, just like an injection of insulin. The market is under estimating how big of an advantage this represents.
2. Institutions will pressure doctors to make the switch. We have a PNH patient at the hospital where I practice. Every 2 weeks the patient comes in for a Soliris infusion and the hospital loses thousands of dollars. Loses thousands you ask?!? Yep, the patient’s tax payer funded health plan reimburses the hospital at a rate significantly lower than our acquisition cost for the drug. You would be surprised how common this is. Of course we continue to provide the service despite the losses because we are a non for profit organization but hospital administration would love if the doctor could hand this patient a prescription and send them off to the local pharmacy. This would save the instituation tens of thousands per year and who knows, maybe our outpatient pharmacy could turn a small profit filling the script for RA101495!
3. Insurance companies will likely require a trail of RA101495 for eligible patients. Due to Soliris being so well established in the market, Ra Pharmaceuticals will likely offer lower pricing and take significant steps to entice insurers push patients into the new product. This alone could make a trial of RA101495 standard practice and according to current data, 80% of PNH patients will do just fine on RA101495 therapy.
So the bottom line is the RA101495, and its subcutaneous delivery route, has a role to play in this market. If you don’t believe me simply look at the market for Humira versus Remicade!
Disclaimer: I have no position in RARX.