Repligen has one more chance to prove value

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Disappointing phase II data for bipolar depression treatment RG2417 has brought Repligen back down to earth. After touching an 18-month high of $5.34 in early February on hopes for the pipeline, shares tumbled 28% yesterday to $3.54 after the company announced that the pill failed to improve symptoms when compared to placebo.

For investor excitement to return, the Massachusetts group now needs positive results for its remaining near-term catalyst, a re-analysis of phase III data for its pancreatic imaging agent RG1068. Although the company receives royalties from Orencia and revenue from a bioprocessing business, the remainder of its pharmaceutical pipeline is pre-clinical and a long way from any value-building milestones.

Disappointment

Repligen hoped RG2417 would reduce the symptoms of bipolar depression by changing the energy metabolism in the brain. As a formulation of uridine, it was thought it would play a role in synthesis of mitochondrial proteins, which have been shown to be downregulated in the brains of bipolar patients.

However, in the 175-patient phase IIb trial, the compound failed to prompt significant improvements in depression rating scale scores.

Not surprisingly, in announcing the RG2417 disappointment, Repligen emphasised the coming release of the re-analysis of RG1068’s phase III trial, due by the end of March. The group has already released disappointing results for that product, but it won regulatory permission for a review of the data because of deficiencies in its contract research organisation’s (CRO) original study. The re-read will be done by a different CRO.

Diagnostic alternative

RG1068 is a synthetic version of human secretin, a digestive hormone that signals the release of fluid into the pancreatic ducts. The hope is that the fluid filled ducts will be identifiable in a magnetic resonance imaging scan, aiding radiologists in the detection of structural duct abnormalities for diagnosis of chronic and acute pancreatitis.

It is seen as a less-invasive diagnostic tool than endoscopic procedures, which themselves can carry a risk of acute pancreatitis requiring hospitalisation. The FDA has granted orphan drug and fast-track status for the product, recognising the need for safer diagnostic technologies.

The agent is also being tested to detect tumours and screening of patients with family histories of pancreatic cancer. Success in that setting might represent a leap forward as the failure of early detection is a key reason why survival rates remain so low in pancreatic cancer.

Unknowns

Few analysts cover Repligen, with Rodman & Renshaw the only bank issuing recent reports, and they have not provided any sales estimates nor ascribed value to the company’s pipeline.

In a November 2, 2010 note, Rodman set a price target of $9 a share, effectively valuing the company at $280m, or nearly twice its market capitalisation at Friday’s closing price, before the losses yesterday. That target was based on a five-times multiples of sales of its bioprocessing products, the net present value of Orencia royalties, and a projected cash position of $59m in one year.

According to EvaluatePharma, the NPV of that Orencia royalty stream is just $17m, based on its legal settlement with Bristol-Myers Squibb that guarantees the payments through 2013 (RepliGen's Orencia royalty guidance looks lofty, April 14, 2008). Royalties for the 12 months ending March 31 are expected to reach $14m.

Still, given the share-price drop following the news on RG2417, it is clear that investors were hoping for positive data from the bipolar therapy. In addition to RG1068, the company also emphasised its ongoing revenue stream and cash position, projected at $27m-$28m and $60m respectively for the current year, so the blow is not a fatal one.

A second failure for the imaging agent would probably not be fatal either. However, the company’s remaining pipeline is currently pre-clinical; the most advanced product is RG2833 for Friedrich’s Ataxia, for which the FDA has asked for additional toxicology data before allowing human trials. Thus that product remains some way from reporting data and adding value.

As such, RG1068 remains the company’s main hope for attracting investor interest and confidence. Should the review of its phase III data fail, it would not be surprising to see pressure on company executives to bolster its pipeline by using its cash reserve to license some later-stage products.

RG2417 Trial ID NCT00812058
RG1068 Trial ID NCT00660335

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