HCW starts Gemphire at buy

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H.C. Wainwright launched coverage of Gemphire Therapeutics (NASDAQ:GEMP) with a “buy” rating and a price target of $21, saying it views the sell off in the shares following results of the ROYAL-1 clinical trial as overdone. The stock closed at $9.17 on August 30.

Since its IPO about a year ago, Gemphire has readout top-line data from two of its three Phase 2b studies in dyslipidemia, writes analyst Ed Arce.

The stock gained 72% to a peak of $21.07 after the company reported in late June that in the COBALT-1 study, gemcabene achieved an LDL-C reduction of 30%. Mr. Arce said the magnitude of effect is very similar to the 25% to 30% LDL-C reduction seen in two prior eight-week Phase 2 studies of gemcabene 300mg to 900mg, either on top of statins or as monotherapy.

On August 7, the company announced that gemcabene 600 mg met the primary endpoint in the ROYAL-1 study with an LDL-C reduction over 12 weeks of 17.2% versus 5.5% for placebo.

“This degree of efficacy is meaningfully below the previously consistent 25% to 30% range for the drug, which we believe caused the shares to drop 58.7% to recent levels,” he said.

Mr. Arce offered several overlooked points to help reconcile the difference. “Overall, we believe current Street valuation models on GEMP are almost entirely dependent on the inadequate responder/atherosclerotic cardiovascular disease (ASCVD) patient population in ROYAL-1, which contributed to outsized share price drop,” he added.

“Our take is that such a myopic view ignores not only the impact of the drug's competitive overall profile in the ASCVD opportunity (clean safety and tolerability in combination with statins, convenience of a once daily oral pill, and low cost/pricing flexibility of a conventional small molecule), but also meaningful additional potential revenue streams from mixed dyslipidemia, severe hypertriglyceridemia and homozygous familial hypercholesterolemia, to say nothing of the substantial prospect in NASH,” Mr. Arce said.