BST Trade Alert: June 6, 2013
June 6, 2013
Recommendation:
Buy Rockwell Medical (NASDAQ: RMTI) up to $4.40 per share.
About the Company:
Before we tell you all about today’s biotech pick, we’d like to briefly explain our strategy for this trade. You see, we’re taking a different approach than we normally do with our biotech recommendations.
As you probably know, most of our picks have a time horizon of several months. But that’s not the case here. Today’s recommendation offers an exciting opportunity for huge gains in a matter of weeks.
Here’s why…
The stock has dropped significantly since January due to a couple of recent stock offerings. As a result, we have an opportunity to pick up shares at a significant discount.
What’s more, this biotech has a key near-term catalyst. Top-line results from a late-stage clinical trial of an exciting new drug are due in July.
Now that the fundraising it out of the way, we think this biotech will make a major move higher leading up to the release of the late-stage trial data.
Our strategy therefore is to take advantage of the recent weakness to pick up shares at a very attractive price. Then, we’ll ride the stock as it trends higher going into the important trial results.
So, without further ado, allow me to introduce Rockwell Medical (NASDAQ: RMTI)…
Rockwell is a fully-integrated biotech based in Michigan. It has been targeting end-stage renal disease, chronic kidney disease (CKD), iron deficiency, secondary hypothyroidism, and hemodialysis (HD) since 1996.
The company currently provides hemodialysis concentrates to dialysis providers in the US and internationally. These products and services are used to cleanse patients’ blood and replace nutrients lost during the kidney dialysis process.
Of course, we’re more interested in their leading drug candidate. Let’s take a look at it now…
About the Drug:
Rockwell’s most advanced drug candidate is Soluble Ferric Phosphate (SFP) for iron therapy treatment in CKD-HD patients. SFP delivers iron to the bone marrow in a non-invasive, physiologic manner to hemodialysis patients via dialysate during their regular dialysis treatment.
The majority of end-stage renal disease patients receive iron on a routine basis.
The company intends to complete clinical trials in the US and seek FDA market approval for SFP. Rockwell also plans on seeking foreign market approval for this product.
Why do CKD-HD patients receive iron therapy in the first place?
These patients tend to lose about 5 to 7 mg of iron during dialysis treatment. This can cause big problems. Iron’s needed to produce red blood cells which carry oxygen throughout the body to nourish tissues and sustain life.
To address iron deficiency, CKD-HD patients currently receive iron and erythropoietin (also known as erythropoiesis stimulating agent or ESA) intravenously. ESA is an artificial hormone that acts in the bone marrow, together with iron, to increase the production of red blood cells.
But the current therapy has a major drawback…
IV iron compounds are encased in a carbohydrate shell to prevent free-iron from circulating in the bloodstream. Because of the carbohydrate shell, IV iron is deposited primarily in the liver rather than directly into blood plasma where it is to be carried to the bone marrow.
What’s more…
An increase in inflammation during dosing causes a peptide called hepcidin to mobilize and block IV iron from leaving the liver. This unfortunate process can reduce the effectiveness of ESA treatments and lead to anaphylactic reactions.
Here’s the key…
Rockwell believes SFP will substantially improve iron therapy for dialysis patients.
SFP is distinctly different from IV iron compounds as it is an iron salt and contains no carbohydrate. As such, SFP enters the bloodstream through dialysate and immediately binds to apo-transferrin (the body’s natural binding site for iron). Then, SFP is carried directly to the bone marrow for the formation of new red blood cells.
In this way, SFP completely mimics the way a healthy human body processes iron when received through food.
Clinical data has shown that this more direct method of iron delivery is effective at maintaining a steady state of iron balance. As such, SFP achieves a superior therapeutic response from ESA treatments and lowers the need for ESA.
Another important benefit of SFP is that it has an excellent safety profile. Not one patient taking SFP has had an anaphylactic episode in clinical testing.
What’s the next step?
The drug is now being studied in two phase 3 clinical trials, CRUISE-1 and CRUISE-2. If those studies are successful, Rockwell will apply for FDA approval to market SFP in the US.
About the Market for This Drug:
According to US Renal Data Systems (USRDS), there are approximately 400,000 dialysis patients in the US. This patient population has grown steadily over the past several decades. And it’s expected to increase by 4% to 6% annually over the next several years.
The primary dialysis treatment modality in the US, with over 90% of all dialysis patients, is hemodialysis.
The great majority of HD patients receive dialysis treatment three times per week or 156 times per year. HD treatments are typically performed in independent clinics or hospitals.
Based on data compiled by USRDS, there are approximately 5,800 Medicare-certified treatment clinics in the US. And the two largest for-profit dialysis chains service about 65% of the domestic HD market.
Rockwell estimates the US market for IV iron therapy is currently $600 million per year. And the global market is estimated by industry experts to stand at a whopping $1 billion annually.
No question about it, SFP represents a significant market opportunity for Rockwell.
About the Potential Catalyst:
Top-line results from the CRUISE-1 and CRUISE-2 phase 3 trials are expected in July and October 2013 respectively.
About the Shares:
As we mentioned earlier, RMTI has declined significantly in value over the past several months. The ugly truth is that the stock is down over 50% since the beginning of the year.
However, we don’t think this biotech will stay down for long.
Remember, most of these losses are due to two separate public stock offerings. Now that those deals have been completed, the path is clear for the stock to move higher into the release of the SFP trial results.
More importantly…
Given the drug’s past success in the clinic and its blockbuster market potential, we think investors will likely drive RMTI higher ahead of the results. And with a market cap of just over $100 million, this stock could easily double in value before the trial data is released.
Grab your shares of RMTI now before the herd rushes in.
Key Facts:
| Company: | Rockwell Medical |
| Ticker: | RMTI |
| Recent Price: | $3.97 |
| Market Cap: | $102 million |
| Avg. Daily Volume: | 658,653 shares |
Chart:
Category: BST Trade Alert
