Maybe Wall Street only pays attention to drug candidates that have blockbuster potential. Maybe Wall Street isn't crazy about drug candidates that could upend the treatment paradigm and reduce their revenue potential in the process. Or maybe Wall Street is simply wrong about UroGen Pharma (NASDAQ:URGN)

As the name implies, the under-the-radar company is developing treatments in the field of urology. Its lead drug candidate, UGN-101, delivered impressive results in clinical trials for a rare cancer that's difficult to treat with existing therapies. UroGen Pharma expects to file a new drug application (NDA) with the U.S. Food and Drug Administration (FDA) before the end of 2019. If approved, the drug could be launched in the first half of 2020.

Despite that approaching milestone, UroGen Pharma has seen its market valuation fall from $880 million in early January to just $650 million in late July. Mounting disinterest from Wall Street aside, individual investors have reason to believe the best is yet to come for the business. Here's why.

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Image source: Getty Images.

A breakthrough cancer treatment

UroGen Pharma's lead drug candidate takes aim at low-grade upper tract urothelial cancer (LG UTUC), which has few good treatment options today because the urinary tract is difficult to access with or without surgery and difficult to target with drug compounds. That results in costly, recurring treatments and a high likelihood that the cancer will spread. An estimated 78% of patients will have a kidney removed as part of treatment. 

The limitations of current treatments for LG UTUC and other urologic diseases led to the creation of the RTGel technology platform, upon which UGN-101 is based. The approach is simple: UroGen Pharma formulates drug compounds into reverse thermal hydrogels, which are liquid at lower temperatures (such as room temperature) and become more viscous as they interact with warmer environments (such as inside the human body). That allows urologists to insert UGN-101 directly into the urinary tract with a catheter, where the drug compound thickens and remains in place for a certain amount of time. It can be completed as a simple outpatient procedure.

The simple approach has led to some spectacular clinical results. UroGen Pharma reported that 42 of 71 patients treated with the drug candidate in a phase 3 trial achieved a complete response, meaning they had no evidence of disease. Of the 27 patients who had completed a six-month follow-up by this spring, 89% remained disease free. That's a remarkable outcome given the standard of care today.

UroGen Pharma expects full phase 3 data to be available in the second half of 2019. It won't have to wait to file an NDA, however, because UGN-101 has earned breakthrough therapy designation from the FDA. That's allowed the company to conduct a rolling submission of the marketing application to expedite the regulatory decision. The full NDA submission is expected to be wrapped up before the end of 2019, which means the drug candidate could earn marketing approval and become available to patients in early 2020.

If regulators rule in the company's favor, then UGN-101 would become the first drug approved for non-surgical treatment of LG UTUC. What's the market opportunity for the promising treatment? UroGen Pharma estimates there are about 6,000 to 8,000 cases of LG UTUC in the U.S. each year. Based on that, Oppenheimer analyst Leland Gershell estimates the drug could generate peak annual sales of $500 million. Other analysts have soured on the market potential after learning on the first-quarter 2019 earnings conference call that many urologists administer the six recommended doses and then don't see a need for maintenance treatments. 

That's a prime example of Wall Street being Wall Street, but the company is excited about the potential to change the treatment paradigm. And individual investors might be excited that UroGen Pharma isn't likely to be a one-trick pony.

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Image source: Getty Images.

A promising technology platform

UroGen Pharma has high aspirations for its RTGel technology. Management's priority remains getting UGN-101 onto the market and hitting the ground running with an experienced sales force. But there are multiple shots on goal after that.

The business is developing UGN-102 for patients with intermediate-risk low-grade non-muscle invasive bladder cancer (LG NMIBC). The disease, which affects nearly 80,000 individuals in the U.S., is associated with a high risk of recurrence and often requires a lifetime of surgical procedures to keep the cancer in check. The drug candidate uses a similar formulation to UGN-101's, and is currently enrolling patients in a phase 2b study.

The company is also conducting preclinical work for UGN-201, a drug candidate designed to alter the body's immune response to treat high-grade bladder disease. UroGen Pharma has also begun to form partnerships to exploit the potential of the RTGel technology platform. Allergan is exploring BotuGel, a combination of RTGel and Botox, in a phase 2 trial for treating overactive bladder. Meanwhile, Johnson & Johnson subsidiary Janssen is working on a proof-of-concept for a "therapeutic area of mutual interest."

This stock appears undervalued

Investors with a long-term mindset might see that the best is yet to come for UroGen Pharma. The stock recently joined the Russell 3000 index, which should increase its exposure to institutional investors and provide some support for the stock price. (Then again, shares have actually declined 14% since joining the index.)

More importantly, the business exited March with $246 million in cash, which provides ample funding to hit the ground running should UGN-101 earn marketing approval as expected in early 2020. That should also provide plenty of resources to see UGN-102 through its current phase 2 clinical trial and support partnerships looking to take advantage of RTGel. At a market cap of just $650 million, investors might want to take a closer look.