Cautiously optimistic about Procysbi’s benefits, costs, and reimbursement. In patients with nephropathic cystinosis, cystinosin, the lysosomal transporter that carries the amino acid cystine out of cells, is defective, and leads to the intracellular accumulation of cystine. Cystine accumulation ultimately forms minute crystals in organ tissue, causing damage primarily in the kidneys and eyes. Crystal build-up in the kidney can worsen to the point of kidney failure and patient death, and since the disease is often diagnosed in infancy, patients sometimes require kidney transplant by the time they reach adolescence. Cystagon (cysteamine bitartrate) has been used to treat nephrotic cystinosis for years and is an efficacious, albeit burdensome, long-term treatment. Patients take Cystagon orally four times daily, including one dose in the middle of the night, and treatment relies on a heavy pill burden. Patients on Cystagon often require proton pump inhibitors (PPI)as well to mitigate cysteamine-related GI issues, and given that most patients are in their adolescent or teen years, compliance is a clear issue.
In a 43-patient Phase III trial, Procysbi, a long-lasting formulation of cysteamine bitartrate, demonstrated non-inferiority to Cystagon when taken at 12 hour intervals as opposed to Cystagon’s four times daily dosing and required an average of 82% of Cystagon’s solid-state dosage. 40 of the 43 patients in the Phase III trial elected to enroll in a 24-month extension study and demonstrated a reduction in concomitant use of anti-acid medications by nearly half, with only 22% of patients taking PPI’s or histamine 2 blockers during the extension, compared to 42% upon initially entering the study. Thus, the benefits of Procysbi include less frequent dosing, lower pill burden, and improved tolerability; 88% of providers have indicated that they’ll switch patients from Cystagon to Procysbi upon availability.
The question is how much can Raptor charge for these incremental benefits? The company has yet to issue an estimate, but with just 2,000 patients globally (including 500 in the U.S. and 800 in Europe), Procysbi’s price will be highly determinant of value to the company and its shareholders. Analysts have cited orphan drug pricing scenarios in the $200-$300K range, an expense that we believe may be tough for payers to swallow despite Procysbi’s orphan drug status and rare occurrence. With an existing treatment (Cystagon) that’s equally effective, marginally less tolerable, dosed twice as frequently, but available for $10K annually, the orphan drug pricing methodology is less applicable to Procysbi, and an extraordinary price will be met with payer resistance. Raptor COO Julie Ann Smith indicated that payers with whom Raptor have approached plan to handle the treatment the same way they do other ultra orphan drugs: on a case-by-case basis. The company is already making a concerted effort to understand the market in advance of commercialization; mapping Cystagon prescribers, patients and advocacy groups, readying a sales force, and ramping up a patient assistance program.
We see value in Procysbi under a few plausible scenarios, all reliant on widespread reimbursement. Assuming Procysbi actually captures 88% of the estimated 500-patient North American market, 50% of the remaining 1500 patients worldwide, and is priced at $100K annually, Raptor could see global revenues of $119M yearly. If sell-side analysts prove correct, and Procysbi is priced around $200K, our revenue approximation doubles to $238M. Transversely, if Procysbi prices at a more conservative $50K annually (five-fold that of Cystagon), Raptor sees $59.5M. We apply a 4x sales multiple to reach a back-of-the-envelope valuation for RPTP, and in all but the most conservative of our estimates, projections indicate that Raptor’s $250M market capitalization is decidedly low.
For now, we’re focused on the short-term trade and are well-aware of the risks around Procysbi pricing, reimbursement, and commercial viability in nephropathic cystinosis. Raptor’s balance sheet is sound since securing a $50M loan in December. Taking the loan into consideration, existing capital will take RPTP through approval and may even be sufficient for Procysbi’s launch later this year, as the salesforce required to market the orphan drug will be minimal. Tuesday will be a key test of support at $4.76, last Friday’s closing price. RPTP’s 14-day RSI of 17 indicates that the stock is considerably oversold and may be prepared for a bounce, but if this multi-week down-trend continues, we’ll be looking for a reversal at the $4.35 support level. Following confirmation, we anticipate a run into the April 30 FDA decision.
In connection with RPTP, PropThink has taken a long position.