Alcobra: An Interesting Investment Opportunity In The Healthcare Space

| About: Alcobra Ltd. (ADHD)

Alcobra Ltd. (NASDAQ:ADHD) is an emerging pharmaceuticals company focusing on the development of a novel therapeutic agent for attention deficit hyperactivity disorder. The company was founded in February 2008 in Israel and has thus far generated successful proof-of-concept data for its lead drug candidate, MG01CI, in a large Phase 2b trial conducted in adult ADHD patients.

MG01CI is a proprietary controlled-release formulation of metadoxine, an agent that has been utilized in human subjects for the treatment of alcoholism and related liver disorders for over 30 years. Metadoxine's safety profile is extremely benign and various acute and chronic studies have failed to detect any serious adverse events associated with the drug. Alcobra has generated proof-of-concept data from a large Phase 2b trial that showed efficacy of its controlled-release metadoxine formulation in ADHD subjects. In particular, the drug showed significant potency in patients who were purely inattentive and not hyperactive.

Unlike the main categories of drugs currently marketed for the treatment of ADHD, MG01CI appears to have a unique mechanism of action that involves neither psychostimulation nor neurotransmitter reuptake inhibition. The drug appears to interact with a specific serotonergic receptor subtype, thereby modulating the principal pathways in the brain regulating attention, learning and memory. Therefore, MG01CI appears to be particularly effective at treating inattentiveness in the ADHD population and may also have potential for use in other cognitive illnesses. These could include cognitive impairment in schizophrenia (OTC:CIAS), Parkinson's disease and Alzheimer's disease.

That said, since all of the currently-marketed drugs for ADHD have significant side effect issues, with the stimulant agents having a black box warning for cardiac safety and addiction potential and the neurotransmitter release inhibitors being given a black box warning for suicidality, Alcobra may have a potentially best-in-class drug from a safety perspective.

Market Opportunity

Attention Deficit Hyperactivity Disorder is a psychiatric disorder of the neurodevelopmental disorder in which there are significant problems of attention and/or hyperactivity and acting impulsively that are not appropriate for a person's age. These symptoms must begin before seven to twelve years of age and must have been present for more than six months for a diagnosis to be made.

According to data from IMS Health, ADHD medication sales have more than doubled between 2007 and 2012, from $4 billion to $9 billion. ADHD affects 8-10% of school-aged children and about 4-5% of the adult population. The estimated U.S. diagnosis rate is roughly 51% in children and about 31% in adults, and is expected to grow to 60%. In the U.S., roughly 70% of children and 49% of adults who are diagnosed with the disease are typically prescribed pharmacological agents. The European market for ADHD medications is significantly smaller than that of the U.S., with sales of ADHD medications in 2012 amounting to roughly $135 million. Growth is slated to be driven by increased disease recognition and awareness in the U.S. and Europe, primarily in the adult segment. The substantial and increasing pharmacotherapy adoption rate of 70% in children and adolescents in the U.S. also bodes well for a new anti-ADHD drug launch.

The ADHD market is currently being addressed by drugs such as Ritalin®, Adderall®, Vyvanse®, Concerta®, Strattera® and Intuniv®. However, the existing marketed drugs all have significant side effect issues and many do not work in the majority of ADHD patients to whom they are administered. On the other hand, Alcobra has demonstrated intriguing activity of MG01CI in ADD patients and could thus exploit a niche within this patient population subset.

In research issued on July 8, Aegis analysts project peak U.S. sales of $1.1 billion in 2020. It utilizes a relatively low peak market penetration rate of 6%, which may not adequately account for the drug's potential as a best-in-class anti-ADD therapy. In this patient population, the product could achieve 60% market share.

Acquisition Opportunity

There have been several recent merger and acquisition (M&A) transactions in the neuropsychiatry sector that involved companies very similar to Alcobra (single lead drug candidate, benign safety profile and substantial target market). The two transactions with the greatest direct relevance are the acquisition of New River Pharmaceuticals by Shire Pharmaceuticals (NASDAQ:SHPG) in 2006 for $2.6 billion and the acquisition of Clinical Data by Forest Laboratories (NYSE:FRX) in 2011 for $1.2 billion. New River is particularly relevant as the company was developing an anti-ADHD drug and originally had a partnership with its eventual acquirer, Shire. The New River agent was simply a slightly modified version of Adderall (dexamfetamine) that eventually became Vyvanse (lisdexamfetamine), which currently generates roughly $800 million in annual sales. If Alcobra can successfully generate positive pivotal data in the adult ADHD indication, it could potentially become the subject of an acquisition transaction similar in size to the New River and Clinical Data deals.

Near-Term Catalysts:

Alcobra has enrolled its first patient in a placebo-controlled clinical study designed to compare the efficacy of varied dosage levels of MG01CI to treat and improve executive dysfunctions in adult patients with Predominantly Inattentive Attention Deficit Hyperactivity Disorder (PI-ADHD). The clinical study will enroll up to 36 adult PI-ADHD patients and is expected to be completed in the fourth quarter of 2013.

If these data show a clear and statistically significant impact of MG01CI on inattentiveness in ADHD, it could provide Alcobra with a substantial differentiator from a commercial perspective. The most effective currently-marketed drugs for ADHD - the stimulants such as Adderall and Vyvanse - mainly treat hyperactivity components of ADHD and do not address inattentiveness. Potent impact of MG01CI on inattentiveness could make it an ideal combination therapy component in ADHD.

Additionally, Alcobra currently plans to file an Investigational New Drug (IND) application with the agency in the coming months. The IND submission should receive formal sanction from the FDA by the end of 2013 or early in 2014. Once the IND is open, Alcobra is likely to begin enrollment in the first of two planned Phase 3 clinical trials in the U.S. for the use of MG01CI to treat ADHD in adults. The first could report data in summer 2014 and the second could yield data late in 2014. The firm also plans to develop it for children, especially in light of its best-in-class safety profile.

Financial Position

Alcobra closed the second quarter of 2013 with roughly $21 million in cash following the completion of its IPO in May 2013. The management has guided toward the cost of a pivotal development program in ADHD being under $15 million. Therefore, the funds raised in the IPO should be sufficient to cover the cost of the proposed Phase 3 trial program for MG01CI, and thereafter facilitate the filing of a New Drug Application (NDA). However, following the receipt of data from its Phase 3 program, the company may elect to raise additional capital in order to have as many strategic options available as possible, including being able to launch the drug in the U.S. independently.


Drugs in clinical development may not advance due to inadequate safety, efficacy or tolerability. Regulatory agencies may decline to approve regulatory submissions in a timely manner, or may not approve a drug candidate at all. Moreover, the firm may require substantial funding to advance the clinical progress of its candidates, which could be dilutive to current shareholders. Additionally, competition for the company's drug is expected from several public and private companies developing pharmaceuticals.

Final Conclusion

Given the benign safety profile of MG01CI, along with the solid efficacy data generated thus far, and considering the rapidity with which ADHD pivotal trials can be performed, Alcobra is an interesting potential investment opportunity in the healthcare space. Alcobra could have a unique marketing angle for the drug if the proof-of-concept data can be confirmed in the pivotal setting, since the agent could be deployed with both best-in-class safety as well as efficacy in the ADD population and also could be prescribed to ADHD patients with a solid safety profile and efficacy that is at least as high as that of Strattera®, one of the most recently-approved anti-ADHD drugs that is known to have lower efficacy than the stimulant agents but that still generates sales of over $700 million each year.

Alcobra now trades at only $116 million enterprise value. However, the acquisitions of New River Pharmaceuticals by Shire Pharmaceuticals and Clinical Data by Forest Laboratories were done for $2.6bn and $1.2bn, respectively, after these firms had generated positive pivotal clinical results with their lead drug candidates in neuropsychiatric indications. Aegis analysts believe that in 18 months' time, with positive Phase 3 data in hand, the total firm value could be $350 million.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Biomed Group is a group of investment professionals and writers. This article was written by Amit Cohen. This information is not to be construed as an offer to buy or sell any security mentioned on this article.