Recently, Germany’s Bayer (BAYRY) announced that its cancer candidate regorafenib (BAY 73-4506) has been granted orphan drug designation by the US Food and Drug Administration (FDA). The status has been granted to Bayer’s candidate for treating patients suffering from gastrointestinal stromal tumors (GIST), a form of sarcoma involving the gastrointestinal tract.
Regorafenib is currently undergoing late-stage studies for treating patients suffering from metastatic and/or unresectable GIST. The study is being conducted with patients whose disease progressed even after prior therapies such as imatinib and sunitinib.
The randomized, double-blind, placebo-controlled, multi-center study, initiated in January 2011, aims to enroll at least 170 patients. The primary goal of the study is to evaluate whether treatment with regorafenib prolongs survival in patients without the disease worsening. The study has multiple secondary goals including the safety of the candidate.
We note that GIST, which affects 11 to 20 patients per million on an annual basis, can prove to be fatal if it spreads to other parts of the body or if the tumor is uncured. Approximately 4,500 to 6,000 patients are diagnosed with the disease annually in the US. In around 1,500 of them, it is found that GIST has already spread to other body parts by the time it is discovered.
Orphan drug status is granted by the US regulatory agency to drugs developed for treating a rare disease which affects less than 200,000 people in the US. The designation grants seven years of marketing exclusivity in the US to the company developing the drug in addition to tax benefits on its development costs.
Consequently, the orphan drug status granted to regorafenib will aid its development and provide a wider choice to patients suffering from the rare disease on approval.
Our Recommendation
We recently downgraded Bayer to Underperform primarily because of the lack of near-term late-stage catalysts, increasing generic competition and rising development costs. Moreover, any hiccups or delays in the US approval of blood thinner Xarelto, which has been co-developed with Johnson & Johnson (JNJ), will weigh heavily on the stock.
Furthermore, we believe that the FDA approval of Boehringer Ingelheim’s Pradaxa last year will eat into the upside potential for Xarelto. These negative factors cause us to believe that there is little reason for investors to own the stock at current levels.
Our long-term negative sentiment on the stock is supported by the Zacks # 5 Rank (Strong Sell recommendation) carried by Bayer in the short-term.
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