By Jason Napodano, CFA & John Tucker, PhD
Last week, Swiss-based Addex Therapeutics (ADXN.sw) (ADDXF.pk) announced a dramatic restructuring that included the departure of CEO, Bharatt Chowira, and the termination of 17 of the company’s 19 employees. The announcement of this dramatic restructuring and cost-cutting comes less than four months after the company announced its initial restructuring back in February 2013 to refocus on the company on the clinical pipeline. Addex started the year with 55 employees and a stock price of $9.59 per share. Today, the stock is $3.70 per share, a decline of 61% YTD.
Now there are only 2 full-time employees, and co-founder and former CFO, Tim Dyer, let go in February 2013, was asked back by the board of directors to lead a focused effort to further reduce operating costs and seek investments, grants, and partnerships to advance the company’s pipeline and technology platform assets. The market capitalization of just $33 million seems shockingly low for a company with two novel phase 2 CNS assets, one for Parkinson’s disease and other movement disorders and another for schizophrenia and depression with anxiety.
We estimate Addex will exit the June 30, 2013 quarter with around $8 million in cash on the books. This places the market value of Addex’s potential revenue streams from the two phase 2 assets, dipraglurant and ADX71149, and a soon-to-enter phase 1 asset, ADX71441, at only $25M. In this article we provide an overview of dipraglurant, ADX71149, and ADX71441, and assess whether the recent share price drop represents an interesting buying opportunity for investors.
ADX-71149
ADX71149 is an mGluR2 positive allosteric modulator (PAM), currently in phase 2 clinical development for the treatment of schizophrenia and major depression with anxiety. This program is partnered with Janssen, a division of Johnson & Johnson (JNJ), and J&J bears all development-related costs for ADX71149 (designated JNJ40411813 at Janssen).
The idea behind ADX71149 is simple. In normal neurotransmission, there is a balance of glutamate at the dopaminergic terminal. Glutamate is a powerful transmitter in the brain and integral to the normal functioning of memory, learning and perception. Too much glutamate can lead to seizures and the death of brain cells. In the schizophrenia disease state, the dopaminergic terminal may be flooded with excess glutamate, causes both positive and negative symptoms of the disease. ADX71149 is designed to bring the balance back to a more normalized state.
Discovered as a part of Addex’ worldwide research collaboration and license agreement with J&J to discover, develop, and commercialize novel compounds modulating allosterically G-Protein Coupled Receptors for the treatment of anxiety, depression, schizophrenia, and Alzheimer’s disease, ADX71149 is being examined in a two-part phase 2a clinical trial for the treatment of schizophrenia and a second Phase 2a trial for the treatment of major depressive disorder with anxiety.
...Potential Treatment for Negative Symptoms of Schizophrenia...
Top-line results were reported in November 2012 for the phase 2 trial in schizophrenia. Additional data was reported in poster form at the 2013 Society for Biological Psychiatry (SOBP) meeting and as an abstract at the 2013 American Psychiatric Association (APA) meeting, each of which occurred in San Francisco May 2013.
- Part A of the phase 2a trial in schizophrenia tested the safety and efficacy of ADX71149 monotherapy in 15 patients with sub-acute psychosis and schizophrenia over a 12 week period. Doses for Part A ranged from 50 mg BID to 150 mg BID. Although this trial is listed as “completed” on clinicaltrials.gov, results have not been disclosed by J&J. Monotherapy for schizophrenia is an unlikely indication for ADX71149 in our view.
- Part B tested ADX71149 as an adjunctive therapy to antipsychotic medication. Part B was a randomized, double-blind, placebo-controlled trial designed to evaluate the safety, and efficacy of ADX-71149 as adjunctive therapy in 92 patients on stable doses of antipsychotic medications. The study population comprised 3 groups: patients with residual negative symptoms (n = 47); patients with residual positive symptoms (n = 25); and patients with insufficient response to clozapine treatment (n = 20). For the first 4 weeks of treatment all patients were randomized to receive either ADX71149 50 mg BID, ADX71149 150 mg BID or placebo, taken concomitantly with their currently prescribed antipsychotic medication (randomized 2:2:1).
The primary outcome of the study was safety and tolerability. Secondary outcome measures included an assessment of the Positive and Negative Syndrome Scale (PANSS), Clinical Global Impression of Schizophrenia (CGI-SCH), and Subject Well-being under Neuroleptic scale (SWN).
The data shows that, in the overall population of treated patients with schizophrenia, ADX71149 combined with a standard antipsychotic drug did not show efficacy superior to placebo combined with an antipsychotic. However, a trend towards a separation from placebo was observed with the 50 mg BID dose in patients with residual negative symptoms. It should be noted that this is about as positive an efficacy result as could be expected from a trial of this size (n=98), as it was too small to be expected to show a statistically significant effect.
Greater efficacy was observed at the 50 mg dose compared to the 150 mg dose. Perplexing, but in discussions with CNS drug discovery researchers, this type of U-shaped dose-response curve is often attributed to receptor down-regulation and is not considered unusual.
Adverse events were observed in 52% of patients, including headache, dizziness, vertigo, and nausea. Dizziness-related and gastro-intestinal adverse events occurred with greater frequency at the highest (150 mg) dose. No clinically significant cardiovascular, metabolic or laboratory safety events were noted that were attributed to study drug.
A small phase 1 trial in which healthy volunteers were treated with ketamine (a drug with psychotomimetic effects) followed by placebo or ADX71149 (JNJ40411813) is also described in the SOBP poster. In this study, JNJ40411813 reduced vigilance compared to placebo, which might be interpreted as suggesting that the compound might worsen the cognitive impairment of schizophrenia (CIAS). This, along with the U-shaped dose response, will be two key issues to keep an eye on in future clinical studies.
That said, in the abstract of the APA presentation presented by J&J, the authors conclude, “The efficacy signal seen in the NEG subgroup suggests this population warrants further evaluation in a formal proof-of-concept study” and that the 150 mg dose is associated with reduced tolerability that might be overcome by dose-titration. So despite the mixed results from the phase 2a study, J&J clearly expects to push forward into phase 2b, perhaps during the first half of 2014.
...ADX71149 as a Potential Treatment for Major Depressive Disorder...
JNJ40411813 is also being examined in an ex-US clinical trial (predominantly Eastern Europe) examining its safety and efficacy as an adjunct treatment for patients with major depressive disorder (MDD) with anxiety symptoms. This trial is an 8 week, double blind, randomized trial comparing JNJ40411813 to placebo as adjunctive treatment to the patients existing antidepressant treatment. The primary endpoint of the study is the change from baseline in the Hamilton Anxiety Rating scale (HAM-A6) score.
Top-line results from this trial are expected late 2013 or early 2014. While there is no disclosed clinical data for mGluR PAMs in the treatment of anxiety, the preclinical results are predictive of efficacy. Plus, we note Eli Lilly's (LLY) mixed results with similar glutamatergic-based agonist on mGluR2/3. ADX71149 would represent a new novel mechanism in MDD, an indication where patients remain poorly treated with existing medications.
...ADX-71149 Deal Terms and Valuation...
In January 2005, Addex and J&J announced an exclusive worldwide research collaboration and license agreement to discover, develop and commercialize novel compounds modulating allosterically G-Protein Coupled Receptors for the treatment of anxiety, depression, schizophrenia and Alzheimer's disease. Under the terms of the agreement, J&J paid Addex a €3 million upfront fee and research funding for 2 years. In addition, Addex is eligible for up to a total of €109 ($143) million in milestone payments subject to successful completion of development and regulatory approval. In addition, Addex is eligible for low double-digit royalties on sales of ADX71149, subject to regulatory approval and successful commercial launch.
We view the NPV for ADX71149 at around $25-30 million today. Limited by the early-stage nature of the drug, but supported by the clear commitment from J&J and the potential for up to $143 million in potential milestones and royalties on sales. If successful in clinical development, we believe ADX71149 could be a blockbuster. Between the U.S. and Europe, we estimate there are some 6+ million individuals with schizophrenia, many poorly treated and severely affected by residual negative symptoms. Major depressive disorder with anxiety is another potential large indication, with an estimated 3+ million target patients between the U.S. and Europe.
A new effective treatment option with a novel mechanism could gain sizable market share. With standard antipsychotic pricing, ADX71149 has the potential to deliver peak sales around $2 billion in our view. If we apply a 20% chance of success to the drug, 12.5% royalties to Addex, a 2.5x multiple on these royalties, peak sales in 10 years, and a 15% discount rate, we arrive at an NPV of $28 million.
Dipraglurant
Addex is developing dipraglurant, an oral negative allosteric modulator (NAM) of the metabotropic glutamate receptor 5 (mGluR5), for the treatment of Parkinson's disease levodopa-induced dyskinesia. We discussed dipraglurant in considerable detail in a prior article, and so will mainly just offer a high level recap here.
Dipaglurant is being developed for the treatment of side effects of Levodopa, a drug used in the treatment of Parkinson’s disease (PD). Parkinson’s disease is a neurodegenerative disease caused by the death of dopamine producing neurons in the substantia nigra region of the mid-brain. Patients with Parkinson’s disease experience a range of symptoms including difficulty initiating and controlling movement. The most widely used drug for the treatment of Parkinson’s disease causes a range of side effects, including chorea (abnormal involuntary movement), dystonia (sustained muscle contraction, abnormal posture), and athetosis (involuntary convoluted movements). Collectively these are known as Levodopa-induced dyskinesia (LID).
Dipraglurant was examined in a randomized, double blind, placebo controlled Phase 2a trial in 76 subjects with moderate-to-severe Parkinson’s disease. Results show that dipraglurant was safe and well tolerated with the most important side effects being vertigo, blurred vision, and a drunk feeling but none of these was severe. Results on the modified AIMS scale showed statistically significant improvement on days 1 and 14, with impressive and clinically relevant reductions in the dipraglurant group on all three periods tested (days 1, 14, and 28). Management will have to control the escalating placebo response in the next clinical study, as the Day 28 data just missed statistical significance.
Addex Therapeutics is currently seeking a partner with the expertise and capability to fully exploit dipraglurant's attractive commercial potential. The company is also working on developing an extended release formulation of dipraglurant to treat non-Parkinson’s dystonia and potential orphan indications such as early onset, generalized dystonia (DYT1). We note the new composition of matter patent just received in April 2013. We note the MJFF awarded Addex a $1 million grant in March 2013, the second such award by the foundation to Addex on dipraglurant.
...Dipraglurant Deal Terms and Valuation...
We believe that a deal on dipraglurant could bring in an upfront payment of $25 million – potentially more if it includes future formulations and new indications in dystonia. Based on estimated peak sales of $1.5 billion 2022, a 33% chance of success, 15% royalties to Addex, 2.5x multiple on these royalties, peak sales in 2022, and a discount rate of 15%, we estimate the NPV of dipraglurant at $58 million. This valuation assumes only a 50% likelihood of signing a deal, based in part on the fact that phase 2 data has been available for over a year and the company has yet to finalize things with a partner. Thus, our valuation leaves room for upside (de-risking of the asset) once a deal is signed.
ADX71441
ADX71441 is a potent and selective positive allosteric modulator (PAM) of the gamma-aminobutyric acid (GABA) subtype B receptor (GABAB-R) discovered and developed from the Addex own drug discovery platform. GABA is the main inhibitory neurotransmitter in the adult mammalian brain. GABAB-Rs are involved in the fine-tuning of inhibitory synaptic transmission by mediating slow, prolonged physiological effects of GABA. Hypoactivity of the GABA system is implicated in addiction, anxiety, depression, epilepsy, mood disorders, pain, sleep disorders, spasticity, stress, and urged urinary incontinence. Therefore, Addex believes that GABAB-R PAMs could have a broad therapeutic potential in several disease areas. The drug has demonstrated efficacy in multiple preclinical models, including pain, anxiety, addiction and overactive bladder (OAB), with good tolerability.
Addex has received regulatory approval to initiate a phase 1 study in Europe in Charcot-Marie-Tooth Type 1A disease (CMT1A). CMT1A is a rare type of neuropathy. The company has generated encouraging preclinical data in genetic models of the disease. Addex plans to pursue orphan drug designation for ADX71441 in CMT1A, representing a significant commercial opportunity. Besides CMT1A, ADX71441 has potential in muscle spasticity, pain, and OAB. However, given the early-stage nature of the molecule, we have assigned $0 value in our NPV analysis.
Final Thoughts
Adding the NPV’s for ADX71149 and dipraglurant, we arrive at a value of $86 million. Again, to be conservative, we have applied no value to the phase 1 ready ADX71441 despite what looks like a very unique and interesting candidate. We remind investors that all three molecules where discovered using the company's proprietary discovery platform. A validated and novel discovery platform in CNS could be worth hundreds of millions to a potential acquirer of Addex.
Addex exited 2012 (December 31, 2012) with around $16 million in cash. We forecast cash at June 30, 2013 will be around $8 million, but do expect burn in the second half of the year to be substantially lower than the first six months. Therefore, we believe Addex has enough cash to get into 2014. Former CFO, Tim Dyer, has been charged with reducing operating costs and finding new investments, grants, and partners to advance its pipeline and technology platform assets. This includes pursuing potential upside from its partnership with Janssen on ADX71149 and potentially obtaining funding from the Michael J. Fox Foundation for future work on dipraglurant.
The significant pull-back in the shares over the past few months creates an interesting buying opportunity in our view. The current market value is around $33 million. And although Addex will require cash at some point to fund operations in 2014, assuming they do not strike a deal on dipraglurant before then, this is still far below our risk-adjusted NPV for the company’s two core assets of $86 million. Even if we increase the share count from 9.0 million basic (reported as of February 28, 2013) to 12.0 million by assuming Addex issues 3.0 million shares to raise cash, we still come up with a per share target of $7.16. That's almost a double from today's price.
But we have to wonder whether or not Addex is just a company waiting to be bought. Two phase 2 assets, one already partnered with big pharma powerhouse J&J and another with proof-of-concept in an attractive market opportunity. An acquisition of Addex would also bring an interesting and novel discovery platform centered around allosteric modulators and virtually no overhead costs - note the phase 1 ready ADX71441 in a potential orphan indication, CMT1A.
We think the stock can easily be worth $9 per share again on successful ADX71149 phase 2 data in MDD/anxiety late 2013 and the market’s realization that Addex can capture a good portion of the potential $143 million in future milestones from J&J on this program. Finding a partner for dipraglurant, and the shares could see double digits. Establishing a position at $3.70 seems like a low-risk endeavor, with a holding period of 6 to 8 months hoping either for good data from J&J, a partnership on dipraglurant, or an outright sales of the now extremely lean company.
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