Monday, July 14, 2014 7:20:39 AM
RB : La Jolla Pharmaceutical Co. (LJPC:OTCBB) is developing a small molecule inhibitor against galectin-3 called GCS-100. Galectins have been implicated in a variety of disease indications, and it appears that overproduction of galectin-3 leads to fibrosis in the kidney and liver. La Jolla is one of several companies addressing indications like chronic kidney disease.
What's interesting about La Jolla is that it has reported randomized control data showing a statistically significant benefit in estimated glomerular filtration rate (eGFR), which is a marker of kidney function. What the company was able to show was that GCS-100—in the lower doses, not the higher doses—seems to impact the eGFR in chronic kidney patients, and may delay the onset of dialysis. La Jolla's study involved more than 100 patients and was randomized and controlled, which should give investors more faith in the data. We're going to see the final data in all the subgroups in mid-November at the American Society of Nephrology meeting in Philadelphia. The data could be a significant driver for shares going forward.
TLSR : La Jolla is a micro cap, and on that basis alone it could give investors a healthy return. You're following another company, Keryx Biopharmaceuticals Inc. (KERX:NASDAQ), which also has a molecule, Zerenex (ferric citrate) for chronic kidney disease, that could launch this year. But the market valuation differential between these two companies is significant, with Keryx at about $1.4B, whereas La Jolla has a market cap of $65M. What justifies the vast differential in valuation between these two companies?
RB : The main difference is that Keryx has completed Phase 3 studies. Its drug is already approved in Japan and is selling as of this year; the company has a Japanese marketing partner. Keryx is currently awaiting regulatory approval in the U.S., and plans to start selling the drug by the end of the year. La Jolla has several years' worth of development left before seeking regulatory approval. The differential in market cap is primarily due to the difference in the development stages of these companies.
TLSR : Could Keryx's valuation portend something for La Jolla's valuation in the future?
RB : For now, at least, there's a better comparable. Galectin Therapeutics Inc. (GALT:NASDAQ), which I do not cover, is a more reasonable comp for La Jolla, in that it is also in Phase 1 with its drug GR-MD-02, for a slightly different indication called nonalcoholic steatohepatitis (NASH; fatty liver disease). Galectin's market cap is around $270M, versus La Jolla's $65M.
Investors need to be aware that last year La Jolla did a significant financing. This is also true for RXi. There are a significant number of convertible shares outstanding on a fully diluted basis, and readers should know that is the case for both La Jolla and RXi. If these convertibles are executed, that would lead to a higher common share count. Our valuations for these two companies take these fully diluted shares into account. While it is true that La Jolla's market cap is currently $65M, investors should realize that biotech-savvy funds hold a significant portion of the equity. If they do, La Jolla's market cap is significantly higher, probably closer to $150 M.
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