Yesterday, Raptor Pharmaceuticals Corp. (NASDAQ:RPTP) announced it would be advancing its lead development candidate, RP103, into a pivotal trial designed to test the drug’s safety and efficacy in a Huntington’s disease indication. The company has already had some bad luck with the drug in another indication earlier this year, and in its earlier phase Huntington’s trial, RP103 missed its primary endpoint of statistical significance. Under normal circumstances, the failing of a primary in a phase II would put a stop to its development. In this instance, however, the company is forging ahead with the goal of the pivotal trial forming the basis of an NDA on completion. It is a risky strategy – pivotal trials can be expensive – but a look at the data supporting the move suggests there may be a high enough potential for reward to warrant the risk. Further, a look at the company’s current market capitalization suggests wider markets disagree with this thesis, and as such, there may be an opportunity for a contrarian entry in support of the company’s expectations. Here’s why.

First, let’s take a quick look at the drug and its target indication. Huntington’s is a genetic disorder that affects certain parts of a patient’s brain. We don’t really understand the exact mechanisms through which it inhibits brain function, but we know that what’s called an autosomal dominant (just means the first allele, non sex-related chromosome) mutation causes the hungtingtin (yes, this is spelled right) gene to create a faulty version of the huntingtin protein, which over time damages brain cells. This damage leads to initial loss or impairment of motor functions, and eventually, degradation of mental capacity and dementia. RP103 helps (theoretically) in a few primary ways. First, it inhibits pretoein aggregation, which should serve to reduce the pace of degradation. Second, it improves the level of transcription of heat shock proteins, which are the proteins responsible for the “clearing out” of unwanted proteins – in this instance the faulty huntingtin proteins. Finally, based on preclinical trials, the drug increases the production of what’s called brain derived neutrophic factor, or BDNF. BDNF supports growth and functionality of healthy brain cells.

So, what happened in the trials, and where does the doubt lie? Well, the initial trial ran for 18 months, with a primary endpoint of change from the baseline of the Total Motor Score, or TMS. At 18 months, RP103 treated patients showed a change from base of 4.51, while placebo showed 6.68. This is clinically relevant, but not statistically significant, and so the trial missed its endpoint. Fast forward 18 months, and the company reported the 36-month data. At this point, all trial participants were in the RP103 arm, with placebo patients converted to RP103 treatment at the 18-month mark. This is where things get interesting. At 36 months, data shows that patients treated for the full 36 months showed a 25% slower disease progression than those with the delayed start. In a completers analysis, the data was even better, showing a 35% slower rate of decline as measured by TMS.

What’s the point here? Well, it demonstrates that long term, RP103 is effective in slowing the rate of decline. It may not have been stat-sig at 18 months, but maintaining therapy improves the numbers, and the 36-month data supports this hypothesis. In an indication where very little treatment options exist, this is exactly the type of data the FDA looks for when considering approval. One thing to note is that, at 18 months, there had been a few adverse events, including a suicide. At 36 months, there have been 3 suicides. This, however, is nothing to be alarmed about. 25% of Huntington’s sufferers attempt suicide at least once, and the condition accounts for up to 7% of all suicides in the US. In other words, the suicide AEs fall in line with the wider population rate. Additionally, in a number of other RP103 trials (in other indications) there have been no suicides.

So there we go. We’ve got a company with a lead candidate that missed an endpoint, but has demonstrated clinical relevance in a severe and debilitating condition. Further, we know that over time, efficacy improves, and that the drug is (when taken in context) safe. Raptor is down more than 65% on 2015 highs, and is a company well worth a risk tolerant investor’s consideration as a potential small scale allocation.