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Are Markets Missing A Regulus Therapeutics Inc (NASDAQ:RGLS) Opportunity?

Regulus Therapeutics Inc (NASDAQ:RGLS) just announced that the FDA is placing a clinical hold on its lead hepatitis candidate, RG-101, and the company is selling off as a direct result of the announcement. After hours trading saw the company lose nearly 50% on it’s Monday morning open. Given yesterday’s volume, chances are we will see further decline today. Regulus was already down more than 40% on the year before the clinical hold came into force, and the latest development has only served to put more pressure on the company’s market capitalization. Among all the noise, however, there may be an opportunity.

Specifically, the recent decline may be the catalyst behind a discount entry – one based on a disparity between market understanding of the clinical hold process, and the specifics of the clinical hold as it relates to the Regulus trial.

Here’s why.

So, first, a quick look at the drug. It’s called RG-101, as we’ve mentioned, and it’s targeting hepatitis C. It’s what’s called an GalNAc-conjugated anti-miR, with a specific miR target of miR-122. This sounds pretty complicated, but it isn’t. miR here refers to an microRNA molecule that plays apart in gene (and by proxy, viral) replication. miR-122 is one of these types of molecules that is found in the liver (the preferred haunt of the hepatitis C virus) and it plays a key role in HCV virus stability, replication and translation. An anti miR, or in this instance it’s probably a little clearer if we call it an miR antagonist, inhibits the function of miRs and in turn inhibits their impact. RG-101 is an miR-122 antagonist. It’s essentially an effort to stop the HCV virus from replicating by cutting it off at the transcription level.

A phase I has already completed and demonstrated safety in a small population, across multiple dose levels, and a significant reduction in viral load – efficacy, essentially.

There are three key trials ongoing (well, technically two now, given the clinical hold). One phase I and two phase IIs.

The two phase IIs are combination trials, investigating efficacy of RG-101 in combination with various combinations of GlaxoSmithKline plc (ADR) (NYSE:GSK) HPV regimen drugs and Gilead Sciences, Inc. (NASDAQ:GILD)’s Harvoni, among a couple others.

The phase I, and the trial that just picked up a clinical hold, is investigating safety and clinical impact on hepatitis C in patients with severe renal insufficiency or end-stage renal disease – that is, serious kidney failure. This is important. Why? Because the reason that the FDA has placed the hold on the phase I is the recent reporting of a second patient experiencing jaundice – a yellowing of the skin that arises when a chemical called bilirubin builds up to elevated levels. Bilirubin is generally a recessive pigment – it has a range of presence that exists as undetectable (in terms of its impact on the color of human skin) by the naked eye. The majority of bilirubin is extracted through urine/feces. Remember when we said that it was important that the trial is looking at patients with kidney failure? The kidneys are responsible for filtering out the unwanted chemicals before they are removed as urine. For patients with kidneys that don’t work, it makes perfect sense that some of these have elevated bilirubin levels.

Of course, we can’t say this for certain, but it’s more logical that the kidney issues are causing the jaundice than some element of RG-101, especially since it’s not been reported as anything of note in the other trials.

Markets aren’t looking at this, it seems. Instead, they have seen a clinical hold and sold off without doing too much investigation into what’s behind the hold. Even if they have, most don’t seem to have made a link between the elevated bilirubin that comes about as a result of kidney failure, and the fact that this trial involves patients with serious end stage renal disease.

Therein lies the opportunity. Regulus is trading at half its pre hold valuation, and there is every chance that once detailed data hits and the FDA comes to a conclusion on the continuation of the trial, the company will recover a large portion of this very quickly. Further, the hold doesn’t even affect the two phase IIs (at least from a timeline perspective), as dosing has completed in these trials already.

There’s always risk with these sorts of things, purely because we don’t know all the details. From what we do know, however, a logical conclusion leads to a market oversell, and in this oversell, a chance to get in at a discount.

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