RCPI Maxim Group Equity Research, Jason Kolbert, Jason McCarthy, Ph.D.
Article:
Rock Creek Pharmaceuticals Buy
3Q Results and Clinical Study Update
Summary
• Rock Creek reported 3Q with a net loss of approximately $2.8M or ($0.26) per
share. The monthly burn rate was about $1M. We recently launched coverage
on the company with a Buy Rating, a $4 price target, and the theme "taking a
successful nutraceutical to the clinic."
• The company completed its ex-U.S., three-part Phase I study (an oral
formulation of anatabine citrate) for the treatment of mild to moderate
psoriasis. The trial was conducted with healthy volunteers and demonstrated
both tolerance and a strong safety profile (with no adverse events reported).
• The company is conducting the final analysis on the Phase I clinical data
(expected by year end), with a follow-up Phase 1b proof-of-concept trial in
1H16. Recall that Rock Creek's regulatory strategy is to complete a single-site
Phase Ib/IIa trial in EU and prepare data for a multi-site Phase IIb trial including
in the U.S. The FDA's approval for the Phase IIb trial is expected in 2016.
• Bottom line: Large amounts of established user data (reports from
the Anatabloc users) support the compound's effectiveness as an antiinflammatory
and mitigates much of the risk associated with the product. We
see psoriasis (an inflammatory disease manifesting in the skin) as the first of
multiple possible indications — the "low-hanging fruit" opportunity.
Details
• Anatabine citrate, Rock Creek's lead product candidate is a synthetic derivative
of the anti-inflammatory compound anatabine (from the tobacco plant), and it is
in clinical development for the treatment of psoriasis. Anatabine was a successful
nutraceutical ("Anatabloc") used by more than 500,000 people, primarily to
alleviate inflammation conditions such as osteoarthritis. Anecdotal evidence has
also supported anatabine citrate being used in psoriasis.
• Anatabine citrate targets two key inflammatory pathways. It is a small
molecule with anti-inflammatory properties that binds to cholinergic receptors
on the surface of immune cells and shuts down the signaling pathways
responsible for driving inflammation. Anatabine citrate's binding and suppression
of inflammation is unique in that it effectively suppresses two key mediators
of inflammation, the transcription factors NF-kB and STAT3, while many other
drugs only suppress one or the other. NF-kB and STAT3 drive the expression
of damaging inflammatory cytokines like TNF-alpha, which is the target of
blockbuster drugs like Humira, Remicade, and Enbrel. We see psoriasis as an
ideal initial indication for anatabine citrate. We believe that anatabine citrate
efficacy should be relatively easy to observe through changes in skin lesions as
measured by the PASI (Psoriasis Area Severity Index) scoring system.
• Conclusion. Our current assumption is that anatabine citrate is approved and
launched by 2020. We believe the success of the prior nutraceutical form of
anatabine as an anti-inflammatory in more than 500K users partially mitigates risk.
Nevertheless, we apply a discount rate of 30% to our free-cash-flow, discountedEPS,
and sum-of-the-parts models, which are equally weighted to derive a $4
price target.
SEE PAGES 3 - 4 FOR IMPORTANT DISCLOSURE
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