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I believe a similar opportunity now lies in Cynapsus Therapeutics (OTCQX:CYNAF), a small-cap biotech focused on the development and approval of a therapy designed to better attenuate the debilitating effects of Parkinson's disease. As such, I believe the most probable suitor is Acadia Pharmaceuticals (NASDAQ:ACAD), another company that is widely expected to change the standard of care for Parkinson's Disease Psychosis (PDP). An acquisition of Cynapsus by Acadia would allow the latter to have a dominant foothold established in the sizeable Parkinson's disease market.
Although the fundamentals of Cynapsus have been discussed at length multiple times by fellow contributor Jason Napodano (Please read his articles if you have not had the opportunity to do so yet, they're very well done: #1, #2, #3, #4, #5), the following is my overview of the fundamentals underlying CYNAF.
Cynapsus targets a pressing issue resultant of the current standard of care in the treatment of Parkinson's disease: "off episodes". Although Levodopa and dopamine agonists, are very effective in the management of PD symptoms in early phases of the condition, they unfortunately lead to what are known as "off episodes", where the patient's increasing tolerance to such treatments result in motor fluctuations where symptoms are unmanaged by Levodopa for a certain period of time. These "off" periods tend to get progressively worse, and it is estimated "that 40% of PD patients will experience motor fluctuations within 4-6 years of onset increasing by 10 percent per year after that."
Currently, these "off periods" are treated or minimized by apomorphine treatment. Apomorphine is a dopamine agonist capable of attenuating the symptoms of "off periods". Unfortunately, currently marketed apomorphine is limited to a subcutaneous formulation, which runs counter intuitive to the nature of Parkinson's disease symptoms, rendering it nigh impossible to use effectively without the aid of another person. This is increasingly problematic when one considers the nature of apomorphine, which does not remain stable for over 24 hours in a plastic container, which means syringes must be discarded if not used within that time frame. As pointed out by Jason Napodano in his most recent article, these restrictions on subcutaneous formulations render a highly effective therapy nearly useless for the regular PD patient.
Cynapsus effectively addresses these concerns with a sublingual (think breath mint placed under the tongue) formulation of apomorphine, APL-130277. As you can imagine, this delivery method completely eliminates the issues resultant from a subcutaneous injection system. The story is completely reminiscent of MannKind (NASDAQ:MNKD) and its inhalable formulation of Insulin, Afrezza, which is also expected to change the standard of care for patients suffering from diabetes.
What's The Big Deal About A Different Formulation?
It's a huge deal, that's what. In addition to the reasons stated earlier, there are many additional benefits by approaching the "off period" problem from a different angle. First and most importantly, the US FDA has confirmed that APL-130277 qualifies for the 505(b)2 approval pathway with Apokyn (the subcutaneous formulation of apomorphine) as the Reference Listed Drug (RLD). What does this mean?
An objective overview of the 505(b)2 regulatory pathway is well stated by Camargo, where it falls in between a full NDA (New Drug Application) and an ANDA (Abbreviated New Drug Application). It is well defined, requiring a change or changes to approved drugs under one or more of the following criterion:
• Changes in dosage form, strength, formulation, dosing regimen or route of administration
• A new combination product, including substitution of an active ingredient
• A modified active ingredient (i.e. - salt, chelate, ester, complex, etc.)
• New indications for previously approved drugs
• Over-the-counter switch of an approved prescription drug.
In addition to the above, like an ANDA- the drug must also demonstrate its bioequivalence to the reference-listed drug. The benefits of the pathway are as follows:
- Products approved by the 505(b)2 pathways avoid several preclinical and clinical trials by leveraging data from other studies regarding the same drug.
- The process is extremely streamlined, and applications are usually completed within three to four years of the clinical program.
- It allows the company up to 3-5 years of market exclusivity, as compared to the 180 days given through an ANDA.
As such, the company expects to file an NDA by early 2016 and expects that only $16 million will be needed to complete development using this pathway. I believe it's safe to say that this radically differentiates Cynapsus against the majority of biotech still in the pre-marketing stage.
What Are The Risks Facing Cynapsus?
Like every other early-stage biotech, Cynapsus faces a multitude of risks, fortunately they can be broken down cleanly into the following three concerns:
- Will Cynapsus receive a 505(b)2 regulatory pathway NDA? (Clinical Trial Risk)
- Will they need to raise additional money? (Financing/Dilution Risk)
- Is there liquidity risk?
To all three points, yes. Consider the following.
1) Will Cynapsus receive a 505(b)2 regulatory pathway NDA?
I am confident that they can, and will receive approval through this pathway. Although the current, subcutaneous, delivery mechanism for apomorphine is flawed, the drug has been demonstrated to be quite efficacious in the treatment of "off periods" of PD, more importantly this is well documented in multiple studies. As far as I am aware, Cynapsus' sublingual formulation meets the criterion for the regulatory pathway by utilizing the same active ingredient within Apokyn. Therefore, the question can be modified to ask, can APL-130277 demonstrate bioequivalence in future studies?
This is a relatively straightforward question that can be answered by the company's press release earlier this year on the results of the Human Healthy Crossover Study- CTH-103. Jason Napodano did a phenomenal job in his most recent piece breaking down the data from the CTH-103 study, for the sake of conciseness and simplicity- I have bulleted his salient points.
-The data did not show bioequivalence ranging between 80% and 125% as compared to Apokyn.
- Although these data initially appear negative in the context of a 505(b)2 NDA filing, contextualizing the results with published papers appears to demonstrate that APL-130277 may be more favorable than the subcutaneous formulation.
-This theory is drawn by inserting the minimum efficacious concentration (MEC) and maximum tolerated concentration (MTC) into the data.
-By doing so, the data suggests that the sublingual formulation, may in fact, have a better adverse event profile compared to the injectable version.
-An examination of the PK profile with MTC and MEC lines inserted for context reveals that APL-130277 might limit the incidence of dyskinesia associated with apomorphine treatment.
In summary, APL-130277 appears to demonstrate a much more favorable PK profile as compared to Apokyn. Based on the FDA's Guidance for Industry Bioavailability and Bioequivalence Studies for Orally Administered Drug Products- General Considerations, this should support the drug's chances for FDA approval. More importantly, if this continues to hold in future studies, it will provide pure marketing ammunition if and when APL-130277 reaches the market.
2) Will they need to raise additional money?
Of course, however, this should not cause any alarm. As mentioned earlier, the company only needs roughly $16 million to reach the NDA filing. This can easily be done given the raise the company completed last year. On March 1, 2013, the company sold 13,061,688 units at $0.46/unit for aggregate gross proceeds of $6,008,376.
These units consisted one common share and one share purchase warrant with an exercise price of $0.575/share. These warrants will be cancelled by the company "if they are not exercised within 30 days after prior written notice from the Company that the closing price of its common shares on the principal stock exchange of the company has been $1.38 or greater for 20 consecutive trading days." In other words, if shares continue to perform as they have been doing since 2014 began, the company stands to raise an additional $7.5 million dollars from the exercise of its outstanding warrants. This should allow the company to be funded well into 2015, past critical inflection points, which I will discuss.
3) Is there liquidity risk?
Liquidity risk remains a salient risk, given its small-size and being dual-listed in both Canada and America. Average volume of shares traded daily in the last 3 months range from 180-200k depending on which exchange you are looking at. Cynapsus appears to be addressing this issue, especially given today's press release, where it announced its common shares have received DTC approval, which should further alleviate liquidity risk heading forward.
Here is a list of catalysts I have compiled:
- Cash exercise of warrants potentially yielding $7.5 million.
- FDA guidance on efficacy study design.
- Data from two efficacy studies (CTH-300A and CTH-300B) before end of 2014.
- NASDAQ uplisting (the warrant exercise would qualify them for the NASDAQ CM) providing additional liquidity/visibility.
Why Should or Would Acadia Acquire Cynapsus?
Unfortunately, we do not yet know what causes Parkinson's Disease and it is evident that the patient population is continuing to expand, highlighting an increasing opportunity. APL-130277 represents a huge breakthrough for patients suffering from PD "off periods". Despite the significant constraints on the viability of subcutaneous apomorphine delivery, sales total a meaningful $70 million. A sublingual formulation that addresses the idiosyncrasies of injectable apomorphine should logically allow for the expansion of the market opportunity in the PD "off period" indication.
Acadia currently sports nearly $200 million in cash and short-term investments as of 9/30/2013, far out shadowing Cynapsus' current valuation of $50 million. Moreover, Acadia's guidance appears to work hand in hand with Cynapsus expected NDA timeline. Late last year, Acadia reiterated guidance for submission of a NDA for Pimavanserin by year-end of 2014. For those of you who have not followed the story, Pimavanserin is differentiated by not targeting the dopamine receptors (it targets 5-HT2A). This falls in line in with Cynapsus' product in that it aims to prevent the worsening of Parkinson's symptoms. As such, I believe there are strong synergies between the two companies' products. Moreover, an acquisition by Acadia would better leverage Acadia's sales force in the coming years, by tackling unmet Parkinson's complications with just one sales force. An acquisition ahead of multiple significant milestones for Cynapsus may result in tens of millions of dollars in savings for Acadia.