Rockwell Medical is a
small-cap drug producer that has seen its stock rise almost 200% in value this
year as investors speculate on future FDA approval of two drugs for the renal
industry: Triferic and Calcitriol.
The amazing growth in the
company recently hit a huge bump in the road with several analysts taking
opposite sides of the clinical trial results.
It’s important to get a
strong grasp on the potential that each drug offers as well as the potential
risks associated with investing in this company at this stage of the game.
TRIFERIC
Iron usually needs to be
delivered to dialysis patients intravenously. Triferic replaces that need. The
drug not only improves effectiveness of the delivery of iron to dialysis
patients, but also prevents iron induced liver damage which is especially
dangerous for patients with liver disease. Triferic is able to solubilize and
travel directly to the blood stream, similar to the physiologic iron uptake
from the ingestion of food.
The latest clinical study
completed this year demonstrated a 35% ESA reduction; that is significant!
Regular administration of Triferic via dialysate over a 9-month period
significantly reduced the amount of ESAs necessary for patients on hemodialysis
compared to placebo. Triferic has the potential to generate annual sales of
$300 million which could make it a blockbuster drug for investors. A Phase III
crossover safety study of Triferic in dialysate is currently in progress with
expected completion early this year.
Analyst Controversy
Brean Capital analyst,
Jonathan Aschoff, took the position that the FDA would not approve the use of
Triferic as he raised doubts of its effectiveness because of the designs of the
clinical studies of the drug. Summer Street Research Partner, Carol Werther,
however, completely disagrees. Werther points to outstanding phase 3 results
for Triferic. This analyst disagreement helped to cause the share price selloff
which is why investors must use their discretion in deciding whether to take a
position.
In one camp, Mr. Aschoff
questions the accuracy of the clinical studies; and another camp, Miss Werther
says the dosage worked, and patients were safe. This debate stemmed from an
accusation by a former employee (vice president) of drug development. Medical
affairs warned Rockwell that its Phase 2b trial did not adequately show
efficacy or dose-ranging information necessary to proceed directly to Phase 3.
Even with this controversy,
analysts believe that Rockwell medical will see sales rise by 45% in 2014 and
double by 2015. Analysts have maintained this position in light of the share
price dropping by 33% as a result of the split analyst opinion.
Incidentally, Summer Street
Research Partners have a price target for the stock at $25 while Brean Capital
gives it a price target of $4.
Even in the midst of the
controversy as well as the drop in price, Chardan Capital Markets took
advantage of the devaluation and opened an initial “buy” position on the stock
on December 19, 2013 — two days after Brean Capital gave their dismal outlook.
CALCITRIOL
The company has already
submitted data to the FDA for approval to manufacture Calcitriol, the company’s
injectable active vitamin D drug. Calcitriol is expected to generate
significant revenue when marketed commercially.
Calcitriol is also used in
dialysis with the lowest cost option around. This is an attractive $350 million
market that Rockwell is looking forward to opening up. There is no controversy
here, so this drug should work well for the company in the near future.
The opportunity in the
hemodialysis market for dynamic sales growth is there and waiting for Rockwell
Medical. Both Calcitriol and Triferic together have a potential market size of
more than $500 million.
A growth investor should
approach the stock cautiously. Is the recent drop in price a buying opportunity
for continued growth? Because these type of investments could bring significant
growth or significant loss, investors should gather more information from the
three investment firms mentioned in this article:
• Summer Street Research
Partners
• Brean Capital
• Chardan Capital Markets
Look over their reports and
then make an informed decision as to whether or not the recent drop in value of
the stock offers a good investment point.
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