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Private Investor with 10 years of biotech trading experience. I use basic disciplined research approach to discover new investment ideas. Biotech sector is full of violent stock moves and trial failures. On one hand it requires traders to be quick on their feet and on the other hand it forces... More
  • A Little Known Biotech With A Big 2012 Event: Introducing Allon Therapeutics

    Allon Therapeutics, a little known company from Vancouver, British Columbia, has a date with its destiny in Q4, 2012.

    Allon is expected to announce the clinical results from a pivotal Phase 2/3 trial for a rare neurodegenerative disease called Progressive Supranuclear Palsy (NYSEARCA:PSP). Their lead drug is a neuroprotective peptide called Davunetide.

    In biotech language, whenever there is an event that can move the stock violently in one direction or the other, it is called a "binary event."

    Depending on the outcome of the trial, the stock will be trading either 10-20 times higher than today's price ($0.25) or down to (cash +IP) value. The reason for that is pretty simple. While Allon's lead drug is well into a trial to treat a rare neurodegenerative disease, PSP, research further suggests that if the drug is successful, its pathology (the accumulation of misfolded tau) could be used for a more well-known disease-ALZHEIMER'S.

    The catalysts for this stock are two fold:

    1. Data release for the Pivotal Phase 2/3 trial for Davunetide in PSP is due in December 2012.
    2. Possible big pharmaceutical partnership with companies who would want to add tau pathology to their arsenal to treat neurodegenerative diseases.

    The independent Data Safety Monitoring Board (DSMB) has met 4 times and recommended that the trial continue to completion, with no more meetings needed. This de-risks any unforeseen early trial halt.

    Dr. Murray Grossman, Professor of Neurology at the University of Pennsylvania and a PSP/FTD expert, was surprised when I informed him that the investing community was not paying attention to Davunetide clinical trials. He said the medical community is very excited about the trials and expressed hope that an approach to treatment for misfolded tau in neurodegenerative disease, such as with Davunetide, might be validated through the results.

    As of today's quote, the stock (NPC:TSE or NPCUF) has yet to price in this upcoming event. Traders should pay close attention.

    Serious investors should also pay attention, as Allon has the 3 elements of a potential Blockbuster Biotech company: Rare Disease, Neurodegenerative Disease, and Novel Technology Platform.

    What's Special about Allon

    As mentioned, the company's lead drug, Davunetide, targets a neurodegenerative disease called Progressive Supranuclear Palsy (PSP). PSP has no known cure and has no FDA approved medication or any marketed products. The clinical trial is a double-blinded, placebo-controlled, multi-center, randomized trial, conducted under FDA guidelines with:

    • Orphan Disease Designation in the US and EU
    • FDA Fast Track status
    • FDA Special Protocol Assessment (NYSE:SPA).

    Why We Need a Treatment for PSP

    It has been an eye-opening experience for me to research this disease. Longitudinal observational data points to a 3-5 year time frame of "diagnosis from PSP to death" for patients. PSP is a devastating illness, and the PSP community is desperate for help. The FDA should be well aware of the dire needs of the PSP patients.

    Below are italicized excerpts from the National Institute of Health website describing PSP.

    What is progressive supranuclear palsy?

    Progressive supranuclear palsy (PSP) is a rare brain disorder that causes serious and progressive problems with control of gait and balance, along with complex eye movement and thinking problems.

    Who gets PSP?

    Approximately 20,000 Americans-or one in every 100,000 people over the age of 60-have PSP, making it much less common than Parkinson's disease, which affects more than 500,000 Americans. Affected individuals are usually middle-aged or elderly, and men are affected more often than women.

    What causes PSP?

    We know that the symptoms of PSP are caused by a gradual deterioration of brain cells in a few specific areas in the brain, mainly in the region called the brainstem. One of these areas, the substantia nigra, is also affected in Parkinson's disease, and damage to this region of the brain accounts in part for the motor symptoms that PSP and Parkinson's have in common.

    Scientists do not fully know what causes these brain cells to degenerate, but it is known that a hallmark of the disease is the accumulation of an abnormal protein called tau.

    Is there any treatment?

    There is currently no effective treatment for PSP, although scientists are searching for better ways to manage the disease. In some individuals the slowness, stiffness, and balance problems of PSP may respond to antiparkinsonian agents such as levodopa, but the effect is usually temporary.

    Patients and families want more than a transient or ineffective treatment!

    Why Allon May Have an Edge in Both PSP and Alzheimer's Disease

    As mentioned earlier, PSP is a tau disease. Allon Therapeutics management has been wise to go after a known pathology and a homogenous patient population for the disease pathology, namely, deposition of the tau protein. The connection between tau and Alzheimer's disease is well known.

    As Dr. Grossman told me in an interview recently, "It's only a matter of time that neurodegenerative disease treatment start including a treatment for misfolded tau along with a treatment for Beta Amyloid, and I believe Big Pharma would consider this as a next step."

    I expect increased attention from Big Pharma companies in coming days and weeks. Simply put, if Davunetide works in PSP, it is very likely to be a suitable candidate in Alzheimer's. Allon Therapeutics just happens to be the most advanced tau Company in the world, backed by 15 patent families, 60 issued patents and over 30 pending applications worldwide. Surely, Big Pharma will want to add tau pathology as well.

    Some Specifics on Allon's Drug: Davunetide

    Activity-Dependent Neuroprotective Protein (ADNP) is essential for brain formation. A lack of ADNP results in tauopathy and neuronal cell death. A peptide fragment from ADNP (NAPVSIPQ), generic name Davunetide, can restore ADNP deficiency per pre-clinical models. Davunetide also protects against tau hyperphosphorylation associated with ADNP deficiency that causes tangles in the brain. It's likely that Davunetide will be the logical choice for all diseases involving tau protein. Some of these diseases include:

    • Pick's disease
    • Corticobasal degeneration (NYSE:CBD)
    • Progressive supranuclear palsy (PSP)
    • Argyrophilic grain disease
    • Frontotemporal dementia (NASDAQ:FTD)

    Other Insights into Allon

    The company's leadership is another key factor to success. I have spent a lot of time grilling Allon's CEO, Gordon C. McCauley. I've traveled to NY and Canada to meet him and have been ultra bearish in questioning him. I was pleasantly surprised with how he handled my objections. His Venture Capitalist background ensures that he is a businessman and not Pollyannaish in his views. No hyperbole from CEO. No hype. That is certainly a rarity in biotech land.

    Plus, McCauley has hired Dr. Michael Gold, M.S., M.D. as Vice President, Clinical Development & Chief Medical Officer. Gold joins Allon from GlaxoSmithKline Inc. (NYSE:GSK) where he served as Vice-President, Neuroscience Medicines. That adds a lot of credence to their overall program.

    Davunetide data results from pre-clinical trials have been consistent with its mode of action, but like any biotech, they have had to learn from early phase 1/2 trials with Davunetide. McCauley candidly shared the mistakes they made with Davunetide development in its explorative Phase 2 trial, (which included coming up with a new composite score for cognition as primary measure as opposed to safety as the primary measure and leave other cognitive measures as stand-alone.) They studied Davunetide in a Phase 2 trial for amnestic Mild Cognitive Impairment (aMCI), the prodromal stage of Alzheimer's Disease dementia. This was a 12-week study primarily designed to assess safety and tolerability. The study used a novel cognitive battery to explore Davunetide's effects but did not detect a statistically significant difference. Key information on the trial is excerpted from Allon's website and italicized below.

    In the trial, patients' cognitive functions were measured by tests that are widely used and validated in evaluating patients with mild cognitive impairment (NYSE:MCI) and AD. Four of the six tests are from the Cambridge Neuropsychological Test Automated Battery (CANTAB), which has been shown in to be a sensitive and reliable tool for the measurement of drug and disease effects on cognition and psychological function. The safety results of this study indicate that Davunetide was generally well tolerated. The rate of adverse events was equally distributed between the placebo and treated groups.

    To Allon's credit, they have modified both patient population and end points for this current pivotal trial. They are focused on a known tauopathy. According to Allon's website, "The primary outcome measures will be the Progressive Supranuclear Palsy Rating Scale (PSPRS) and the Schwab and England Activities of Daily Living (SEADL) scale. Secondary measures will include Clinical Global Impression (NYSE:CGI) and brain imaging by magnetic resonance tomography (MRI). Additional exploratory endpoints include cognitive and executive function as well as cerebrospinal fluid (NASDAQ:CSF) biomarkers." This change should bode well for the PSP patients based on what Allon has already seen in the previous trial. Though single study approval is not guaranteed, the FDA should then grant a single study approval if the data are as robust as Allon anticipates.

    How Can You Profit from This?

    To answer this question, let us better understand some financial facts about the company:

    Total number of shares = 140MM
    No Debt, No Preferred
    Market Cap = ~$35.0MM
    Fully Diluted Shares = 206MM
    Institutional Ownership = 70%
    Patient size = 25,000 US/40,000 EU
    Market Opportunity = $700MM
    Total number of competitive drugs = 0
    Partnership 50:50
    Cash available for clinical development = $19.0MM

    What is Allon's probability of success in the Pivotal Clinical Trial? Let's not kid ourselves; we have already seen major failures of two Beta Amyloid drugs. Failures happen. Alzheimer's and related diseases are tough to treat. The good news for Allon is that they took a smarter path than recent Beta Amyloid failures; they decided to develop Davunetide for PSP as opposed to going for the home run in Alzheimer's for their pivotal trials. This strategy has tipped the odds in Allon's favor.

    Here are 9 reasons to be optimistic:

    1. PSP is a well-documented tau disease.
    2. There is the potential for a single study approval.
    3. Allon has SPA, Fast-Track, and Orphan Designation for Davunetide with PSP.
    4. There are no marketed drugs for patients for PSP.
    5. Tau has now become mainstream with scientific papers validating its role in neurodegenerative diseases and specifically in Alzheimer's.
    6. The FDA is likely to look at clinically meaningful data as a good justification for drug approval to help the PSP patients.
    7. Previous phase 2 data was clinically meaningful for Davunetide. (See slide 9 of corporate presentation from Bloom Burton Conference, in June 2012.)
    8. The current PSP trial is being conducted primarily in US, with 2/3 patients enrolled here. Remaining patients were enrolled in Germany, UK, Canada and Australia. There are a total of 47 sites.
    9. A vocal and desperate PSP community wants answers.

    Probability of Success

    Based on the above-mentioned 9 reasons, I handicap the success probability as follows:
    • 70% chance drug makes it to the market.
    • 30% chance drug fails outright.

    I break the 70% chance as follows:
    • 5% chance for outright success
    • 65% chance for clinically meaningful data.

    I asked analyst Dr. David Sobek to run an NPV analysis. He was blinded to the company name to avoid bias when he ran the numbers.

    NPV (Millions $)
    Peak Pre-Trial (70%) Run-Up Post-Trial
    25% $202 $288
    50% $403 $576
    75% $605 $864
    100% $807 $1,152

    That's $0.98-$3.91 for run-up and $1.39-$5.59 for post trial.

    Current guidance for results is Q4, 2012, based on completion of the trial enrollment, I expect data in December.

    One thing is for sure; on clinically meaningful data, this will be a 10 bagger in 1 day. Downside is cash value + IP value. Big Pharmaceuticals should be very interested in acquiring Intellectual Property for tau for combination with current Beta Amyloid therapy for neurodegenerative disease.

    I will follow up on this article with an interview with Allon CEO, Gordon C. McCauley, soon and share excerpts from my interview with Dr. Grossman.

    Reference Materials

    Disclosure: I am long OTC:NPCUF.

    Additional disclosure: I may add or reduce my position at anytime. I am not a certified financial adviser and you should consult with your personal financial adviser before making any investment decisions. All investments carry risk, including total loss of capital. Trade based on your own risk tolerance.

    Oct 01 7:33 AM | Link | 7 Comments
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