OCR-002: When a drug fails, but actually works
Ocera Therapeutics (OCRX) is a clinical stage biopharmaceutical company, focused primarily on developing OCR-002 (ornithine phenylacetate) for the treatment of hepatic encephalopathy.
Hepatic encephalopathy (HE) is a neuropsychiatric condition resulting from accumulation in the blood of toxic substances, such as ammonia, due to impaired liver function. The dysfunctional liver is unable to convert ammonia into urea, which would then normally be excreted by the kidneys. Elevated ammonia levels can cause impaired neuronal function and swelling of the brain. HE is marked by diminished cognition and motor skills, and decreased levels of consciousness. If left untreated, HE can lead to coma and death due to brain swelling. HE is commonly observed (30–45%) in patients with liver cirrhosis[1], which affects over 600,000 in the US[2]. Patients are currently treated with laxatives that help eliminate ammonia in the gut (lactulose) and antibiotics that target ammonia production (rifaximin).
OCR-002 is an ammonia scavenger that directly lowers circulating blood levels of ammonia through pathways that do not require liver function. The drug is a combination of the amino acid L-ornithine with phenylacetic acid. The L-ornithine component acts as a substrate for the synthesis of glutamine from ammonia and glutamate in skeletal muscle, and the phenylacetate component combines with glutamine to form phenylacetylglutamine, which is then excreted by the kidneys. OCR-002 is in development as both an intravenous formulation targeted for the hospitalized population with acute HE, and as an oral formulation to maintain remission of HE in patients with liver cirrhosis.
Ammonia scavengers have previously demonstrated efficacy in the treatment of HE. Ravicti (phenylbutyrate — a pro-drug of phenylacetate), marketed by Horizon Pharma, is a drug approved for the treatment of urea cycle disorder (UCD), a rare genetic disease. Although Ravicti showed strong signs of clinical efficacy in HE, Horizon halted development of the drug for HE. Ravicti commands a high price tag, at $793,632[3] per patient per year, as it is used to treat an ultra-rare condition. Thus, approval in HE would likely have forced a lower price tag and cannibalized sales of its highly profitable UCD franchise.
We know that the market for ammonia lowering in HE is real. In 2014, Rifaximin recorded over $400M in sales, when it was approved for HE and before it was approved for any other indication. A key distinction is that rifaximin is not approved in the acute setting, but is given to reduce the risk of an overt HE episode. Thus, if OCR-002 can demonstrate the benefit of ammonia lowering in hospitalized, it would provide an attractive market entry point for the drug.
On January 30, 2017, Ocera reported topline results of its phase 2b trial of IV OCR-002 in hospitalized HE patients[4]. 231 patients were randomized 1:1 to receive standard-of-care in conjunction with either OCR-002 or placebo. Patients randomized to OCR-002 were assigned one of three dose levels based on the severity of disease, with more severe cases dosed to lower levels of drug. This dosing scheme is intended to normalize drug exposure, based on evidence that patients with more severe liver disease tend to accumulate disproportionately more phenylacetate. The primary endpoint in the trial was time to meaningful clinical improvement in HE symptoms, based on the hepatic encephalopathy scoring tool (HEST). The data presented on January 30 showed that the median time to meaningful clinical improvement was 47 hours for the OCR-002 arm versus 64 hours for placebo, a difference that failed to reach the threshold for statistical significance (p=0.129). As a result, OCRX stock plunged over 70% in a single day.
Although the study failed to meet its primary endpoint, it validated OCR-002 to be a potent ammonia scavenger, leading to significant reduction in circulating ammonia (p=0.017). In a subsequent, post-hoc analysis of the data, it was observed that the degree of ammonia reduction in patients correlated strongly with clinical improvement. As the response rate also appeared to increase proportionally to dose level, this suggests that some patients may have been under-dosed. This observation is supported by the PK data, which found that some patients administered lower doses did not achieve the target exposure that was expected to confer efficacy. The company can address underdosing by modifying the classification scheme that determines how patients are assigned to dose level, or by providing a loading dose to push patients into the target range more quickly.
Another possible confounding effect of the trial relates to the timing of OCR-002 administration. Although most HE patients eventually respond to standard-of-care, the goal of the study was to determine if OCR-002 could shorten the response time. All patients enrolled in the trial received standard-of-care immediately; however, patients randomized to the drug arm waited >12 hours to receive OCR-002. Earlier administration of OCR-002 would likely have amplified the difference in time-to-improvement versus placebo, an important consideration for future studies.
After presentation of the subsequent analysis at the Cowen & Co Healthcare Conference on March 8, 2017, OCRX recovered 60% of its losses. However, at a total market cap of $24M, the company still trades below cash. Given that OCR-002 appears to be an active drug in an indication of significant unmet need, and that the market continues to overweigh the fact that OCR-002 missed its primary endpoint, I am initiating a position of 10,000 shares.
Future, near-term catalysts for the stock include an end-of-phase 2 meeting with the FDA in Q3 2017, and initiation of a pivotal phase 3 study. Given the high correlation between ammonia reduction and clinical benefit observed in this trial, there is a strong argument for the FDA to accept a primary endpoint that includes ammonia. If the FDA agrees, the drug has a strong chance of demonstrating efficacy in a confirmatory trial.
Even in a worst-case scenario where FDA has an unfavorable view of the phase 2 results, Ocera could run a trial of OCR-002 in the prophylactic setting, where Ravicti (essentially the same active moiety) has already demonstrated efficacy[5]. In such a trial, patients with cirrhosis at risk of HE would be administered the drug with the aim of reducing the occurrence of HE events relative to placebo. Given these contingencies, OCRX has a strong risk-reward profile.
[1] https://www.ncbi.nlm.nih.gov/pubmed/17295846
[2] https://www.ncbi.nlm.nih.gov/pubmed/25291348
[3] https://www.ahip.org/wp-content/uploads/2016/04/HighPriceDrugsReport.pdf
[4] http://files.shareholder.com/downloads/ABEA-5YQ58G/4075023957x0x931914/4AB0E968-A6F7-4459-86F5-1FABAD7B4F5F/Ocera_Therapeutics_Presents_at_Investor_Conference_March_2017.pdf
