Potential Aussie Competition?
Investors should take into account competition from other companies pursuing treatment options for FSGS, namely
ASX-listed Dimerix Limited. The company is investigating its lead compound DMX-200, a combination of existing drugs irbesartan and propagermanium, in chronic kidney patients. Interim trial data should be made public in the third quarter of 2016 and results could have a marked impact on Retrophin's share price.
Dimerix is targeting FSGS to expedite the drug's approval in a strategy similar to its American competition, having secured orphan designation from the FDA in December 2015. Dimerix sped DMX-200 into development after its preclinical animal program showed improvements in proteinuria reduction compared to current marketed treatments such as angiotensin receptor blockers.
Conclusion
Since my first write-up, Retrophin shares are up around 30%, but I believe the best could be yet to come for the company. Shares are showing strong relative strength, on Friday closing relatively flat on a day when the S&P and Nasdaq indices dropped almost 2.5%. BMO has raised their price target for Retrophin shares to $40, indicating over 87% upside. I suspect institutional investors are accumulating- at the current market cap of around $800 million, investors are receiving a company with:
- A reported $315 million cash position.
- The approved drug business on track to achieve $130 million to $140 million in annual sales with substantial upside in years to come.
- A substantially de-risked asset, Sparsentan, that could achieve up to $1 billion in sales and could potentially receive accelerated approval in an orphan condition where there is no FDA approved standard of care.
- A pipeline of promising treatments for ultra rare conditions, including RE-024 in PKAN ($200 million to $300 million opportunity which exhibited promising results when tested in two patients previously) and Chenodal in CTX patients (ongoing 25-site study with potential market of $100 million to $250 million)
Risks to My Thesis
There are several risks, including the possibility of Dimerix's DMX-200 demonstrating favorable interim data in Q3 2016, thus indicating its potential to compete with Sparsentan in FSGS. Also, there are no guarantees that Retrophin's ongoing efforts to beef up sparsentan's patent protection will be successful.
Additionally, the ongoing political rhetoric from presidential candidate Hillary Clinton, not to mention the witch hunt being conducted by Congress to look for scapegoats from the pharmaceutical industry, is currently threatening innovation in the healthcare industry and causing an overhang for biotech stocks. Lastly, as individual trial arms were underpowered, it's possible that the FDA denies the company's accelerate approval request and pushes for a well-designed Phase 3 trial to be run.
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