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Here's Why Ocera Therapeutics Inc (NASDAQ:OCRX) Just Ran Up

Here's Why Ocera Therapeutics Inc (NASDAQ:OCRX) Just Ran Up
Written by
Chris Sandburg
Published on
March 10, 2017
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Ocera Therapeutics Inc (NASDAQ:OCRX) is up more than 200% this week, and currently trades for just shy of $2 a share. Those familiar with this one will know that the company basically collapsed back at the end of January, when it put out data pertaining to its lead development asset – a drug called OCR-002. The drug was under investigation as part of a phase IIb study designed to establish efficacy in a target indication of Hepatic Encephalopathy (HE). When the data hit press, however, markets learned that the drug had failed to hit its primary endpoint, and Ocera lost 70% of its market capitalization in a day or two.So what's happened now?Well, the company has just put out an update concerning its 002 program, and things might not be as bad as markets initially thought. We'll get to why shortly, but a bit of background is necessary to set the stage for the reasoning.HE is a debilitating and progressive complication of liver cirrhosis or liver failure, and is generally characterized by increasing ammonia levels, mental changes including confusion, impaired motor skills, disorientation, that sort of thing, and in its more severe form, stupor, coma and even death. There's no really effective treatment on the market right now, and analysts put the total dollar burden associated with HE related hospitalization at more than $7 billion in the US alone. It's a big opportunity for a company that can bring a drug to market that reduces this burden, and many believed Ocera was this company.When the recent data hit press, there were three things that were of importance. The first, a primary endpoint of time to improvement in HE symptoms. The second, median time to complete response in HE symptoms. The third, an exploratory endpoint, time to achieve normal plasma ammonia levels (remember that this condition causes increased ammonia levels, and that these ammonia levels are the root cause of many of the problems associated with the condition).So, the data showed that the drug demonstrated a 17-hour reduction over placebo in the primary endpoint, and a 15-hour reduction over placebo in the secondary endpoint. Neither of the declines came is as stat sig, however, so the endpoints were classed as missed. The exploratory endpoint did record a stat sig benefit.And that brings us to the latest update, which is that the company thinks it has a pathway forward for a drug that markets had previously written off. Specifically, that there might be a way to run with the ammonia reduction endpoint data, and use this to underpin an application to the FDA for approval for the drug in its target indication of HE.The important element of the data is that – as confirmed by an additional analysis – the reduction of ammonia correlates with clinical improvement, and that this correlation has a p-value of 0.0006. A p-value that low basically blows any suggestion of clinical insignificance out of the water, and so if the company's analysis stands up to FDA scrutiny, and it seems as though it will, then there doesn’t look to be any reason why the agency would turn a registration submission down.So what's next?The company is going to meet with the FDA during the third quarter of this year to discuss the forward path. We're not sure why it's waiting until third quarter (we're guessing that it's just not been able to secure a meeting earlier) but it's not that important – that there is a potential path forward for a previously discarded asset is what matters here. As such, we expect the company to hold pretty steady as it moves towards the FDA meeting, and once we’ve got some clarity, for things to start moving again.There's a chance that the FDA may request a confirmatory study, and if it does, Ocera is going to need to raise capital to fund said study. There's a bit of a dilution risk, therefore. It's not prohibitive to an exposure, and we’ve seen how this can run on good news, but it's worth keeping in mind.We will be updating our subscribers as soon as we know more. For the latest updates on OCRX, sign up below!Disclosure: We have no position in OCRX and have not been compensated for this article.

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