Why Ra Pharmaceuticals, Inc. Got Hammered Today

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What happened

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Ra Pharmaceuticals (NASDAQ: RARX) characterized its interim phase 2 data testing RA101495 SC in patients with paroxysmal nocturnal hemoglobinuria (PNH) as "positive," but the market sees it differently with shares of the biotech down 37% at 3:27 p.m. EST Monday.

So what

The ongoing trial enrolled three types of patients: ones who have never been treated, those who were being switched from Alexion Pharmaceuticals' (NASDAQ: ALXN) Soliris but were otherwise fine, and those who weren't being adequately treated by Soliris.

RA101495 SC seems to work fairly well in treatment-naive patients with the level of lactate dehydrogenase (LDH), a marker for PNH, going down rapidly. Half of the patients who were transfusion-dependent before the trial have been transfusion-free since starting RA101495 SC.

The data for patients who switched from Soliris to RA101495 SC weren't nearly as good. Five of the patients were transfusion-independent at the start, and those patients seem to be doing well on the new medication, with stable LDH levels and no episodes of breakthrough hemolysis -- the rupturing of red blood cells that's a characteristic of PNH. But of the 11 patients who were transfusion-dependent at the start of the trial, seven had breakthrough hemolysis and had to be moved back to Soliris.

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Finally, there were three patients in the trial being inadequately treated with Soliris. While the data is still early and patients are still being dosed, RA101495 SC appears to be helping the first patient enrolled who experienced LDH stabilization and relief of side effects associated with Soliris.

Now what

Ra Pharmaceuticals plans to talk to regulators about running a phase 3 program to get RA101495 SC approved. If the phase 3 program only enrolls the easier-to-treat transfusion-independent patients and produces similar data, it seems likely RA101495 SC could get approved.

The bigger question is how much RA101495 SC will be used. Ra Pharmaceuticals estimates that about 80% of patients on long-term Soliris therapy are transfusion-independent, so it's still possible that Ra Pharmaceuticals could take a big chunk of Alexion Pharmaceuticals' Soliris sales, which brought in $756 million in the third quarter although Soliris is approved to treat more than just PNH. But will doctors be interested in switching patients who are doing fine to a drug that clearly isn't as strong?

Ra Pharmaceuticals does have one advantage in delivery of RA101495 SC because the drug can be injected by the patient subcutaneously. Soliris has to be infused at a medical office every two weeks during the maintenance phase, including a one-hour monitoring for allergic reactions after each infusion, making the treatment a substantial time commitment compared to a quick subcutaneous injection at home. If Ra Pharmaceuticals is going to compete, it will likely require driving demand on the patient side because, so far, the data is too weak to drive doctors to encourage patients to switch.

Alexion's investors seem to agree, with shares up 3.4% on the news of its competitor not quite making the grade.

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